CHEN HONGQING v. The persons whose names are set out in the second column of the Schedule to the Re-amended Writ of Summons filed on 26 March 2018 AND OTHERS

HCA 2648/2017

[2019] HKCFI 2121

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2648 OF 2017

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D E C I S I O N

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The
“Jurisdiction Decision”

A.   THIS DECISION

1.  This is my Decision on the three matters which I will set out below.  For ease of reference I will call this Decision the “Jurisdiction Decision”.  At the same time when I handed down this Decision, I also handed down two related Decisions (which I called the “Receivership Decision” [1]and “SHD Injunction Decision” [2] ).  These three Decisions are intended to be read together.

B.   THE APPLICATIONS

2.  The fight over the control of China Shanshui Investment Company Limited (“CSI”) (and through it the listed company China Shanshui Cement Group Limited (“CSCG”)) continues. 

3.  During the substantive hearing that took place on 6 – 7 November 2018, three matters were before me:

  (a)    the resumed hearing of the Summons dated 21 March 2018 taken out by the SHDs [3] (the “SHD Jurisdiction Summons”) to set aside the ex parte leave granted on 29 November 2017 by Master Leong (the “Service Out Order”) to the plaintiff (“Chen HQ”) to serve these proceedings out of the jurisdictions;

  (b)    the hearing of the summons dated 26 April 2018 (the “Jinan Group Jurisdiction Summons”) taken out by the 2,266^th defendant (the “Jinan Group”) launching a jurisdiction challenge similar to that made by the SHDs via the SHD Jurisdiction Summons; and

  (c)    the substantive hearing of the application by Summons of 6 September 2018 (the “ASI Discharge Summons”) to discharge the Anti-Suit Injunction granted upon Chen HQ’s application by Deputy Judge Anthony To on 29 May 2018 (the “ASI” and “ASI Decision”).

4.  These matters have a complicated history.  For the facts which led to the issue of the Writ herein and the grant of the ASI, I refer to G Lam J’s judgment in HCA 1661, 1766, 2191/2014 and HCA 623, 939, 1564/2015 (Consolidated) dated 31 January 2018 [4] (the “Trust Actions”, and “G Lam J Trust Actions Judgment”), G Lam J’s Decision in the Trust Actions also dated 31 January 2018 discharging the receivers appointed in those Actions [5](the “EY Receivers”, and “G Lam J Trust Actions Discharge Decision”), my judgment in HCA 2880/2015 dated 3 May 2018 [6], and the Decision of Deputy Judge To herein dated 29 May 2018 granting the ASI [7](ie the “ASI Decision”) [8].  I will not repeat them.  I just highlight and add the follows.

C.  THE AFFIRMATORY EVIDENCE

5.  No less than 56 affirmations have been placed before me.  The core ones are:

  (a)    In respect of the SHD Jurisdiction Summons:

  (i)   Chen HQ’s 1^st affirmation [9] in support of his ex parte application for the Service Out Order (“Chen HQ #1”);

  (ii)   Zhao Hongbo’s 3^rd affirmation in support of the SHD Jurisdiction Summons (“Zhao #3”);

  (iii)   Chen HQ’s 10^th affirmation in response to Zhao #3 (“Chen HQ #10”);

  (iv)   Zhao Hongbo’s 4^th affirmation in response to Chen HQ #10 (“Zhao #4”);

  (v)   Zhao Hongbo’s 5^th affirmation in support of the SHD Jurisdiction Summons (“Zhao #5”);

  (vi)   Chen HQ’s 12^th affirmation [10] (“Chen HQ #12”); and

  (vii)   Zhao Hongbo’s 7^th affirmation in response to Chen HQ #12 (“Zhao #7”).

  (b)    In respect of the Jinan Group Jurisdiction Summons:

  (i)   Hou Jianguo’s 3^rd affirmation in support (“Hou #3”);

  (ii)   Chen HQ’s 11^th affirmation in response and in opposition to Hou #3 (“Chen HQ #11”);

  (iii)   Hou Jianguo’s 4^th affirmation in response to Chen HQ #11 (“Hou #4”); and

  (iv)   Hou Jianguo’s 5^th affirmation in response to Chen HQ #12 (“Hou #5”).

  (c)    In respect of the ASI Discharge Summons:

  (i)   Chen HQ’s 3^rd affirmation in support of his application for the ASI (“Chen HQ #3”);

  (ii)   Chen HQ’s 4^th affirmation in reply (“Chen HQ #4”);

  (iii)   Zhao Hongbo’s 6^th affirmation in support of the ASI Discharge Summons (“Zhao #6”);

  (iv)   Chen HQ #12; and

  (v)   Zhao #7.

6.  Together with some selected exhibits, those affirmations made up 17 hearing bundles.  Submissions made up another 4.  

D.  RELEVANT PROCEDURAL HISTORY

7.  On 10 November 2017, G Lam J refused leave for Chen HQ to be joined as an intervener or additional defendant in the Trust Actions (the “Trust Actions Joinder Application”).

8.  After that refusal, Chen HQ on 17 November 2017 issued the Writ in this action [11].  The action then started was against 2,261 [12] of the 2,630 employee plaintiffs (the “Employee Plaintiffs” or “Employee Shareholders”) in the Trust Actions.  Chen HQ claimed to be the owner of those Employee Plaintiffs’ interests in their CSI shares, so that should those Employee Plaintiffs become successful in the Trust Actions, the related shares,then held by the EY Receivers, should be passed to him but not the successful Employee Plaintiffs.  Specifically, and relevantly, he sought, according to the original Indorsement of Writ:

“ An injunction restraining the Defendants and each of them by themselves, their agents, servants, or otherwise howsoever from (i) transferring, or causing, procuring or agreeing to the transfer of the title, rights or interests in or to the Shares (or any of them) to any other individual or entity other than the Plaintiff or his nominee(s), and/or (ii) encumbrancing, disposing of, or otherwisedealing with the Shares (or any of them), without the prior written consent of the Plaintiff.”

9.  As things turned out, the Employee Plaintiffs were successful in the Trust Actions — see the G Lam J Trust Actions Judgment.

10.  Supported by Chen HQ #1, Chen HQ on 29 November 2017 obtained the Service Out Order.  He was granted leave thereby to, inter alia, issue a concurrent Writ and to serve the same on the defendants out of jurisdiction.  The gateway relied upon by him was Order 11, rule 1(1)(b) [13].

11.  On 20 December 2017, Chen HQ took out a summons for inter alia the ASI.  He sought thereby an injunction until final determination of this action or further order restraining 11 of the defendants herein (the “ASI Defendants”) from continuing the legal proceedings commenced by them as plaintiffs in the Shandong Province Jinan City Central District People’s Court (the “Jinan Proceedings”), and from commencing any proceedings inany courts in the Mainland on the same or similar subject matters.  The ASI Defendants are the 10 original and 1 replacement employee representatives (out of the original 11 (the “11 Representatives”)) who purchased CSI shares (or interest thereof, the “Stake”) from the employees.  The exact nature of those purchases and their relationship with Chen HQ form the crux of these disputes between the parties. 

12.  On 8 February 2018, Chen HQ took out a summons (the “Receivership Summons”) herein for (1) the appointment of interim receivers over 369,002 shares in CSI; and (2) further and/or in the alternative, interlocutory injunctions to restrain 2263 of the defendants from inter aliaselling, transferring, or otherwise dealing with those Shares.  It was supported by Chen HQ’s 5^th affirmation (which was amongst those 56 affirmations mentioned above).  The hearing of that summons took place before me on 30 and 31 May 2018.  However, given the subsequent developments as set out below, the parties have since agreed that I should consider not deliveringmy decision on the Receivership Summons until after I have also heard the SHD Jurisdiction Summons and Jinan Group Jurisdiction Summons.  The reason is that the main issues overlap. 

13.  On 21 March 2018, 1,880 of the 2,265 defendants who were (and still are) represented by Messrs Stephenson Harwood (hence referred to as the SHDs) took out pursuant to Order 12, rules 7 and 8 the SHD Jurisdiction Summons.  All of them are Employee Plaintiffs in the Trust Actions [14].  The SHDs dispute the jurisdiction of the Court in these proceedings, and seek an Order that the Service Out Order, the concurrent Writ issued pursuant thereto and the service outside jurisdiction permitted thereby be set aside.

14.  On 26 April 2018, the Jinan Group took out the Jinan Group Jurisdiction Summons.  Similar to the SHD Jurisdiction Summons, the Jinan Group disputes the jurisdiction of the Court in these proceedings, and seeks effectively the same Order as the SHDs are seeking under their own summons. 

15.  In the meantime, for reasons set out in the ASI Decision, Deputy Judge To on 29 May 2018 granted the ASI.  In doing so, the learned Deputy Judge accepted the submissions made on behalf of Chen HQ that Hong Kong is clearly and distinctly the appropriate forum for the trial of this action [15] (the “To DJ Forum Conveniens Finding”).  The material terms of the ASI are as follows:

“ IT IS ORDERED that:

1. pending the final determination of this action or further order, the [ASI Defendants] whether by themselves or their agent(s) … be restrained from continuing, pursuing or otherwise taking any or any further steps in the [Jinan Proceedings][16]against other 1,028 individuals as defendants therein (who are also part of the Defendants herein)…

2.    pending the final determination of this action or further order, the [ASI Defendants] whether by themselves or their agent(s) … be restrained from commencing any further or other legal proceedings in any Court of the People’s Republic of China for any relief identical or materially similar to those claimed in the Jinan Proceedings against any of the Defendants herein;”

16.  On 12 June 2018, the ASI Defendants took out a summons for leave to appeal against Deputy Judge’s Order granting the ASI (the “Leave to Appeal Summons”).

17.  A few days before 10 July 2018 when the SHD Jurisdiction Summons and the Jinan Group Jurisdiction Summons were due to be heard before me, it came to the attention of Jinan Group that Chen HQ had commenced fresh proceedings in Ruzhou against some of the Employee Shareholders in this action (the “3^rd Ruzhou Proceedings”, details of which see below).  As a result of such latest development, which I was informed of on 10 July 2018, that hearing was adjourned upon parties’ application forChen HQ to adduce evidence on those fresh proceedings.  He subsequently filed Chen HQ #12 for that purpose.

18.  Then, on 6 September 2018, the ASI Defendants took out the ASI Discharge Summons[17] for an Order that the ASI “be set-aside or discharged on the basis of material change of circumstances and/or [Chen HQ’s] failure to comply with its ongoing duty of full and frank disclosure.”(§1).  A further Order was sought that the hearing of the Leave to Appeal Summons be adjourned pending the substantive determination of the ASI Discharge Summons.

19.  Subsequently, the SHD Jurisdiction Summons, the Jinan Group Jurisdiction Summons, and the ASI Discharge Summons were all set down to be heard before me — hence this combined hearing.

E.   CHEN HQ’S CASE AS PRESENTED IN THE EX PARTE APPLICATION 

20.  When seeking ex parte the Service Out Order, Chen HQ stated his case in Chen HQ #1 as follows:

  (a)    He was a businessman and had had investment and management experiences in various types of business (§11);

  (b)    In or about June 2015, he was approached “by the minority shareholders of CSI, including Mr. Zhao Yongkui and Mr. Mi Jingtian, etc. (‘the Minority Shareholders’)”.  He was informed of the Trust Actions and was “asked whether I could provide funds to purchase the Employee Ps’ interests in the CSI Shares as a ‘white knight’ …” (§12);

  (c)    He at that time saw value in the CSI Shares, and that he also wished to assist the Employee Plaintiffs out of sympathy (§13);

  (d)    However, as he did not personally know all of those Employee Plaintiffs, the Minority Shareholders arranged for the 11 Representatives to acquire the shares “as nominees acting for and on my behalf.” (§14);

  (e)    He reached a number of agreements with a number of parties, that (§15):

“ 15. Following the above arrangements, in or around August 2015, the 11 Representatives, the Minority Shareholders, and I reached the following common agreement and understanding (the ‘Share Acquisition and Loan Agreement’, or ‘SALA’):

15.1. The 11 Representatives would acquire the Employees’ Shares as nominees for and on my behalf;

15.2. The 11 Representatives would purchase the Employees’ Shares via sale and purchase agreements entered with the relevant Employee Ps (the ‘SPAs’);

15.3. In the event that the Employee Ps are successful in vindicating their interests in the Trust Action against Mr Zhang, the 11 Representatives would procure the transfer of the Employees’ Shares purchased from the relevant employees to me;

15.4. In order to effect the above, the consideration for the Employees’ Shares (the ‘Share Consideration’) to be acquired by me would be paid as follows:-

(a) I would advance an amount equivalent to 70% of the total consideration for the Employees’ Shares to be purchased via the SPAs (the ‘Loan’), and the said Loan would be recorded in written Loan Agreements between the 11 Representatives and myself; and

(b) the remainder 30% of the consideration for the Employees’ Shares would be paid by me at a later date for completion of the acquisition;

15.5. As security for the Loan, which could be exercisable independent of my acquisition of the Employees’ Shares:-

(a) The 11 Representatives would mortgage, charge, and/or pledge their shares in CSI they held in favour of me, and such security would be recorded in written Share Pledge Agreements; and

(b)   The Minority Shareholders would mortgage, charge, and/or pledge their shares in CSI in favour of me, and such security would be recorded in written Share Pledge and Guarantee Agreements.”  

  (f)    Pursuant to the SALA, he entered into with the 11 Representatives 11 loan agreements (“Loan Agreements”) and share pledge agreements (“Share Pledge Agreements”), and with the Minority Shareholders Share Pledge and Guarantee Agreements (“SPGA”).  The 11 Representatives in turn entered into SPAs with relevant employees to purchase their shares in CSI (ie the Stake) (§16);

  (g)    In respect of payment for the Stake, he stated (at §17) that:

“ 17. By way of performance of the SALA (and the Loan Agreement):-

17.1. I via various agents advanced the Loan in the amount of RMB737,500,000 to the 11 Representatives by or around September 2015. In accordance with the terms of the SALA, the Loan also represented 70% of the Share Consideration for the Employees’ Shares (of a total of 2,091 employees holding 311,704 shares in CSI), for which the 11 Representatives had acquired (or would thereafter acquire) via the SPAs as nominees on my behalf. In fact,I initially advanced via the said agents the total amount of RMB751,500,000 to the 11 Representatives, but taking into account of the purchase price of the Employees’ Shares, the excess of RMB14 million was repaid to me by the 11 Representatives.

17.2.   In or around March 2017, I further made payment of the 30% remaining balance of the Share Consideration, for thepurchase of the Employees’ Shares of all 2,091 employees(totalling 311,704 shares in CSI), who received the balancepayment made either by me directly or via my nominees …”

  (h)    Amongst those employees (some 2,091) who had sold their CSI Shares to the 11 Representatives, Chen HQ said that some 1,014 [18]had signed written Confirmations confirming that “they must use their best endeavours to recover from Mr. Zhang the relevant shares in CSI and must then transfer the shares and the beneficial interest therein to me and execute and/or sign all relevant documents pursuant to my instructions…” (§18);

  (i)    He said that “in or around March 2017, I further entered into agreements with 170 [19] other employees of CSI (or its group), pursuant to which they also agreed to make a transfer of their shares and any interests therein, totalling 56,455 shares in CSI (i.e. 5.65% of the issued shareholding in CSI) to me upon a judgment being pronounced in favour of the [Employee Plaintiffs] in the Trust Actions …” (§19);

  (j)    He understood that all of the above-mentioned employees, totalling some 2,261 (ie 2,091 plus 170) were named as plaintiffs in the Trust Actions (§20);

  (k)    He said that “I have good causes of action against the Defendants and I am entitled to seek the relief(s) set out in the Indorsement of Claim” (§34);

  (l)    He relied on the gateway under Order 11, rule 1(1)(b) (§35);

  (m)    In terms of forum, he averred that (§38):

“ the Hong Kong Court is clearly and distinctly the appropriate forum for this action against the Defendants, in that Hong Kong would be the place that has the most real and substantial connection with the subject matter of this action, and it would enable the issues in this case to be tried most suitably in the interest of the parties and the ends of justice …”

F.   THE SEVERAL WRITTEN AGREEMENTS RELEVANT TO THE STAKE

21.  As summarised above, Chen HQ has mentioned in Chen HQ #1 a number of written agreements which he said were relevant to the Stake.  They were:

  (a)    the Loan Agreements between Chen HQ and the 11 Representatives;

  (b)    the Share Pledge Agreements between again Chen HQ and the 11 Representatives;

  (c)    the SPAs between the 11 Representatives and the Employee Plaintiffs; and

  (d)    the SPGAs between Chen HQ and the Minority Shareholders.

I set out some the terms of those agreements.

22.  In respect of the Loan Agreements [20] :

  (a)    Each bore the title “Loan Agreement”;

  (b)  “… Party A [21] intends to acquire all the rights and interests of [CSI] (hereinafter ‘Transferred Rights and Interests’) from the Related Shareholders [22].” (§1 of the recitals)

  (c)  “Party B [23]agrees to provide the loan to Party A for the payment of the share transfer fund by Party A to the Related Shareholders required for the acquisition of the above Transferred Rights and Interests (hereinafter ‘Shares Transfer Fund’).” (§2 of the recitals)

  (d)    Chen HQ undertook to provide a loan to each of the 11 Representativesup to a designated maximum (Art 1);

  (e)    Each of the 11 Representatives undertook to use the amounts borrowed for payment to the Employee Plaintiffs under the SPAs (Art 2);

  (f)    Art 3 concerned the calculation of interest;

  (g)    Art 4 specified that the term of the loan was 24 months, with rollover permissible;

  (h)    Art 5 required each of the 11 Representatives to sign the Share Pledge Agreement “For the purpose of guaranteeing Party A’sfull repayment of the loans and interest under this agreement”;

  (i)    Art 6 provided for events the occurrence of which would discharge loans:

“ Upon the occurrence of one of the following events, Party A’s obligation to repayment [sic] the loan will be discharged:

(1) Party A fully repaid the loans and interest by cash or other things of with equivalent value upon the written consent of Party B;

(2) If Party A is unable to repay the loan and all interest in cash,Party A shall transfer the transferred rights and interest acquired by him pursuant to the instructions of Party B or Party B’s designated third party to transfer all his rights to be acquired;

(3) Party A and Party B cancel the Share Pledge Agreement at the same time Party A paid Party B the proceeds or other assets equivalent to the value of the said shares or any other sum to be agreed by Party A and Party B.

(4)  During the validity period of the Share Pledge Agreement, Shanshui Investment is wound-up, dissolved or closed down,and Party A repaid all the sums of money derived from the liquidation of Shanshui Investment Share to Party B.”

  (j)    Each of the 11 Representatives promised not to transfer away or otherwise encumbered the CSI shares to be acquired under the SPAs, and should obtain prior consent or confirmation from Chen HQ before voting as shareholders (Art 7);

  (k)  “The execution and explanation of this agreement will be subject to the laws of the People’s Republic of China.” (Art 13)

  (l)    Art 14 was an arbitration clause.

23.  In respect of the Share Pledge Agreements [24] :

  (a)    Each bore the title “Share Pledge Agreement”;

  (b)  “… the Pledgor [25] has agreed to pledge all the shares he held in [CSI]…in favour of the Pledgee [26] for the purpose of guaranteeing the Pledgor’s performance of his obligation under the Loan Agreement” (§2 of the recitals);

  (c)  “The Pledgor agrees to pledge the shares and all rights, interests attached to the Pledge from the effective date in favour of the Pledgee, as guarantee made by the Pledgor to secure the Pledgor’s performance of his obligations under the Loan Agreement.  The Pledge will be valid continuously until the Pledgor’s full performance of his obligations.”(Art 1)

  (d)    Each of the Pledgor represented and guaranteed to Chen HQ that “The Pledgor is the legal owner of the shares/rights” [27] in the pledged shares (Art 2(1));

  (e)    Before full performance of the Loan Agreements, the 11 Representatives should not deal with or transfer the pledged shares, and should not exercise any voting rights attached without Chen HQ’s written consent (Arts 4 and 5);

   (f)    Art 10 concerned Chen HQ’s entitlements in the case of any non-performance by the 11 Representatives under the Loan Agreements, that:

“ At the time for the Pledgor to perform his obligations under the Loan Agreement expires, and the Pledgor cannot perform his obligations thereunder, the Pledgee is entitled to deal with the Pledge according to the law with priority to be compensated from the proceeds:

1. To agree with the Pledgor to transfer/vest the Pledge, after discounting its price, to/in the Pledgee …

2. To sell the Pledge to any third party who is regarded as suitable by the Pledgor …

3.  To sell the Pledge by public auction …”

  (g)  “The Execution, validity, interpretation, enforcement and disputeresolution [sic] this agreement will be subject to the laws of thePeople’s Republic of China.” (Art 16)  

  (h)    Art 17 was an arbitration clause.

24.  In respect of the SPGAs [28]:

  (a)    The recitals set out each of the Minority Shareholders’ shareholding in CSI and referred to the Loan Agreements and Share Pledge Agreements;

  (b)  “The Pledgor [29] agrees to pledge the shares and all rights, interests attached to the Pledge from the effective date in favour of the Pledgee [30], as joint guarantee made by the Pledgor to secure the Borrowers’ [31] performance of his obligations under the Loan Agreement.  The Pledge will be valid continuously until the Pledgor and the Borrowers’ full performance of his obligations.” (Art 1)

  (c)  “The execution, validity, interpretation, enforcement and disputeresolution [of] this agreement will be subject to the laws of the People’s Republic of China.” (Art 16)

  (d)    Art 17 was an arbitration clause.

25.  In respect of the SPAs [32], each of the signing Employee Plaintiffs agreed and confirmed that they sold the CSI shares which they owned (at that time held through Zhang) to the 11 Representatives.  Art 3 therefore similarly provided that “The execution, validity, interpretation, enforcement and dispute resolution [of] this agreement will be subject to the laws of the People’s Republic of China.”

G.  PROCEEDINGS INITIATED IN THE MAINLAND RELEVANT TO THE STAKE

26.  A multitude of court and arbitration proceedings relevant to the Stake have been commenced and pursued in the Mainland.  Proceedings have also been commenced in Hong Kong for relief in aid of some of them.  They may be summarised as follows.   

27.  On 10 February 2017, Chen HQ commenced a CIETAC arbitration proceedings against four of the minority shareholders of CSI for alleged breaches of the SPGAs (the “SPGA Arbitration”).  The tribunal handed down its award on 12 June 2018 (the “SPGA Arbitration Award”). On the tribunal’s analysis of the evidence before it (though the analysis was not binding on any related proceedings on-going), and while not making any ruling on the substantive law, the tribunal did not accept Chen HQ’s case that the Loan Agreements, though loan agreements in name, were in fact some sort of nominee shares acquisition agreement [33].

28.  In April 2017, in aid of the SPGA Arbitration, Chen HQ started HCMP 962/2017 in Hong Kong.  He sought thereby the appointment of receivers of the related shares pending the determination of the SPGA Arbitration.  On 27 June 2017, he obtained from Mimmie Chan J an Order for the appointment of interim receivers.  On 31 May 2018, and upon the application by the defendants therein (the “962 Discharge Application”),the interim receivership was discharged by G Lam J (the “962 Discharge Decision”).  The reasons for the discharge were that, amongst others, Chen HQ had run inconsistent cases and suppressed relevant materials when the application was made before Mimmie Chan J.  I will come back to the 962 Discharge Decision.

29.  In early 2017 [34], Chen HQ commenced proceedings against Liu DQ before the Ruzhou Court (the “1^st Ruzhou Proceedings”). Liu DQ was one of the 11 Representatives.  According to Chen HQ [35], Liu DQ had signed 219 SPAs with the Employee Shareholders, but refused to deliver the signed SPAs to him.  He said therefore he had to sue him, apart from seeking to confirm the principal and agent relationship, but also for a court order for delivery to him of those signed SPAs.  The Ruzhou Court delivered its decision in favour of Chen HQ on 11 September 2017 (“1^st Ruzhou Decision”).

30.  In Chen HQ #12 [36], Chen HQ revealed further that:

“ 38. … base on the judgment against Liu DQ, I had taken out two more legal proceedings in 2016 against Liu DQ together with two of the Employee Shareholders for (i) confirmation that I had acquired their respective CSI shares; and (ii) delivering of the SPAs signed by each of them. The three cases should be regarded as the 1^st Ruzhou Proceedings.

39.   I wished to use these three cases as test cases or sample cases for my claims against the remaining Employee Shareholders who had signed the SPAs with the 11 Nominees.”

31.  I note that the existence of the two additional proceedings as part of the 1^st Ruzhou Proceedings was revealed for the first time only in Chen HQ #12.  I note further that the reference to “2016” is dubious,as the Ruzhou Court did not hand down the 1^st Ruzhou Decision until 11 September 2017.

32.  On 21 September 2017, Chen HQ commenced CIETAC Arbitration against 10 of the 11 Representatives (the “Nominee Arbitrations”).  He, in reliance upon the SALA, sought a declaration that those 10 Representatives purchased the CSI shares from the Employee Shareholders in August as his agents [37].   

33.  Out of the 10 Representatives involved in the Nominee Arbitrations, nine of them (except Liu DQ) commenced counterclaim arbitrations against Chen HQ (the “Counterclaim Arbitrations”).  As summarised by Chen HQ (Chen HQ #12 §47):

“ In gist, I am claiming in the Nominee Arbitrations that the Loan Agreements and the Share Pledge Agreements in fact are the written part of the ‘SALA’. On the other hand, 9 Nominees counterclaimed that the Loan Agreements are purely loan agreements and the so-called ‘loans’ had already been repaid on 16 August 2017.”

34.  In early December 2017, the Jinan Proceedings (the primarysubject matter of the ASI) were commenced.  As described by Deputy Judge To at §23 of the ASI Decision:

“ Then, in early December 2017, shortly after obtaining the order for substituted service, ten of the 11 representatives, excluding Liu, (the ‘10 representatives’) together with Feng, purportedly as Liu’s replacement, commenced action the Jinan Proceedings seeking relief that the Confirmations in respect of the sale and purchase of the employees’ interests in the Trust Shares are or shallbe declared to be invalid or void. The ground of their application is that they were not acting as the Plaintiff’s nominees in the SPAs but were true principal buyers of the Trust Shares from the employees in their own rights. A total of 1,028 employees who are also defendants to the present action were named as defendants to the Jinan Proceedings. On 20 December 2017, the Plaintiff took out the Anti-suit Injunction Application.”

35.  Beginning from 21 May 2018, Chen HQ commenced further proceedings before the Ruzhou Court against some 628 employees (the “2^nd Ruzhou Proceedings”):

  (a)    The disclosure by Chen HQ of the 2^nd Ruzhou Proceedings was effected in stages in the following manner;

  (b)    At §16 of Chen HQ #7 [38] filed herein, Chen HQ said that:

“ … it is relevant to note that of the 36.11% registered shares held by Mr. Zhang, in fact I have acquired around 10.0488% of the beneficial interests relating to such shares from 456 other employees in or from around March 2017, and these employees are not presently parties to this present Action. At that time, in 2017, out of sympathy to the employees (and as I saw value in theshares in CSI), I intended to purchase as much beneficial interests in the shares in CSI as possible in order to help the employees. However, as there were serious obstruction from Zhang and Mi Jingtian and their associates, I ended up purchasing from only 456 employees (in addition to that of the Defendants herein). I intend to join these 456 further employees and/or Mr. Zhang as defendants herein or commence a new action against the 456 further employees and/or Mr. Zhang in due course …”

  (c)    At §22.2 of Chen HQ #8 [39], Chen HQ said that:

“ I refer to paragraphs 16 of [Chen HQ #7] in relation to my acquisition of around 10.0488% of the beneficial interests relatingto such shares from 456 other employees in or from around March 2017. By way of update, on 21 May 2018, I have commenced proceedings in Ruzhou against these 456 employees for, inter alia these 10.0488% beneficial interests. There is now produced and shown to me marked ‘CHQ-74’ 10 samples out of the 456 writs issued against the employees in the PRC …”

  (d)    Then, in Chen HQ #12, Chen HQ disclosed for the first time that the number of defendants in the 2^nd Ruzhou Proceedings was in fact 628, and that 172 of them “are overlapping with this action.”  He said at §§49 – 51 that:

“ 49. In fact, as mentioned above, apart from acquiring CSI shares through the 11 Nominees, I have acquired some shares from the Employee Shareholders directly … I have mentioned these direct transfers in [Chen HQ #7] submitted to the Court in May 2018.

50. Beginning from 21 May 2018, I commenced the 2^ndRuzhou proceedings against those Employees Shareholders who sold their CSI shares to me directly. Out of these 628 Defendants/cases, only 172 Defendants are overlapping with this action.

51.   In have expressly informed the Hong Kong Court about the 2^nd Ruzhou Proceedings in [Chen HQ #8] (see paragraph 22.2 thereof and Exhibit marked CHQ-74).  I have no intention to withhold such information from the Hong Kong Court.  Any allegation that I was deliberately withholding information and/or I failed to make ‘ongoing’ disclosure to the Hong Kong Court is totally misconceived.”

36.  Chen HQ said that he commenced the 2^nd Ruzhou Proceedings on legal advice “in order to preserve the status quo and prevent the situation from worsening” — see Chen HQ #12 §§52 – 54.

37.  According to Zhao Hongbo [40], judgments have been handed down in all the 628 cases in the 2^nd Ruzhou Proceedings.  Even according to exhibit CHQ-87 produced by Chen HQ in Chen HQ #12 which set out a summary of the Ruzhou Proceedings, judgments have been handed down in respect of most of those claims.

38.  In July 2018, Chen HQ commenced the 3^rd Ruzhou Proceedings against 2,089 employees who had signed SPAs with the 11 Representatives. Most, if not all of those 2,089 employees, are defendants in the present action. Chen HQ sought thereby, on the alleged basis that the 11 Representatives acquired the relevant CSI shares from the employees as nominees on his behalf, and hence advancing the same case as in the present action,declarations of his ownership over the Stake [41].

39.  Chen HQ does not dispute the fact that he has commenced the 3^rd Ruzhou Proceedings.  His explanations for doing so are as follows [42]:

“ 55. The ASI was granted on 29 May 2018, but the ASI Defendants did not take steps to comply with the ASI. Instead, they allowed the Jinan Proceedings (which was the subject matter of the ASI) to continue and applied for leave to appeal against the ASI on 12 June 2018 (i.e. the Leave Application).

56. The Leave Application was fixed to be heard on 12 September 2018. I had been advised by my former legal advisors that there was no guarantee that leave would not be given or that the ASI would not be overturned by the Court of Appeal. Meanwhile, the ASI Defendants, in total breach of the ASI, took no steps to withdraw the Jinan proceedings which were subject to the ASI. I was advised by my PRC lawyers that unless the ASI Defendants apply to the relevant court for withdrawal, the relevant proceedings would proceed as required by the relevant PRC laws,i.e. application for withdrawal is the only way to comply with the ASI.

57. Coupled with the SH Defendants’ application on 21 March 2018 and Jinan IDI Group’s application on 26 April 2018, both to challenge the jurisdiction of this Court to hear this matter, I was very worried that if I did not take further steps to protect my interest in the CSI disputes (after all, I have paid over RMB 1.4 billion for this acquisition project), my whole investment could be washed down the drains. Therefore, without meaning to be disrespectful to the Hong Kong Court and without changing my original intention to try all CSI disputes in Hong Kong, I had followed the advice of my PRC Lawyers to commence the 3^rdset of Ruzhou proceedings in July 2018 (‘the 3^rd Ruzhou Proceedings’). There is now produced and shown to me marked ‘CHQ-86’ a copy of the legal opinion issued by my PRC legal team showing the necessity for commencing these proceedings in Ruzhou.

58. The 3^rdRuzhou Proceedings is divided into 2 groups. The 1^st group is ‘確權案’, that is, those Employee Shareholders who had signed (i) SPAs with the 11 Nominees and (ii) Confirmations Letters with me directly (including the Confirmation Letters subsequently signed by Liu DQ and Jin) and the 2^nd group is ‘侵權案’, that is, those Employee Shareholders who had signed the SPAs with the 11 Nominees but did not sign any Confirmation Letters …

59. The Defendants in the 3^rd Ruzhou Proceedings then applied for jurisdictional challenge in Ruzhou Court on the basis that the proper forum is Jinan Court. Such challenge was rejected by the Ruzhou Court. The fact is that they had no intention to abide by the ASI and they were still trying to ‘steal the match’ and dispose of the CSI disputes in their ‘home turf’.

40.  According to Zhao Hongbo[43], judgments have been handed down in more than 900 cases in the 3^rd Ruzhou Proceedings. Even according to exhibit CHQ-87 produced by Chen HQ in Chen HQ #12,judgments have been obtained in respect of some of the claims.  The position is not all together clear, but it appears that those judgments that were known to Zhao were in favour of Chen HQ [44], and that they were being appealed against.

41.  According to Hou #5 [45], the Jinan Group has, in order to best protect its interest, since August 2018 commenced individual proceedings in the Jinan Courts against 1,829 of the 1,838 defendants from whom Jinan Group purchased CSI shares.  As at 18 October 2018, Jinan Group has obtained 588 judgments in its favour.

H.  THE SHDS’ STANCE

42.  Supported by Zhao #3, the SHDs seek an Order that the Service Out Order be set aside.  It is their case that:

  (a)    the relationship between the 11 Representatives and Chen HQ was only ever a lender–borrower one, that the 11 Representatives entered into the SPAs with the Employee Shareholders as purchasers in their own right as principals, and hence the 11 Representatives (but not Chen HQ) would become owners of the CSI shares purchased (§58);

  (b)    at the ex parte stage, Chen HQ failed to explain how he could claim that Hong Kong was the most appropriate forum when he himself had commenced multiple actions in the Mainland Courts or arbitral tribunals on the same matter.  They say further that on a proper analysis of the connecting issues, it is clear that the present action is more aptly tried in the Mainland [46]; and   

  (c)  “[Chen HQ’s] underlying case is devoid of merit.  This is buttressed by material non-disclosure.  [Chen HQ] failed to draw to the ex parte judge’s attention, or to attempt to explain,how he previously ran a directly contradictory case on the same materials.  On proper analysis, [Chen HQ’s] case is simply incredible, self-contradictory and nonsensical, and does not even meet the ‘serious issue to be tried’ threshold.” [47]

43.  In respect of the ASI Discharge Summons, the ASI Defendants seek an order that the ASI be set aside on the basis that there has been a material change of circumstances, in that (1) Chen HQ has since the ASI commenced proceedings in the Mainland to deal with the same issues;and that (2) Chen HQ has since the ASI filed his Statement of Claim herein,which shows that he has been running mutually inconsistent and discrepant cases (§5).

I.    THE STANCE OF THE JINAN GROUP

44.  Supported by Hou #3, the Jinan Group’s stance is that Hong Kong is not the appropriate forum to hear the present disputes, that all the disputes between all the parties should be resolved by the Mainland Courts once and for all, that Hong Kong Court therefore has no jurisdiction on the matter, or should not exercise its discretion on the matter, or should stay the Action in favour of the Mainland Courts on the forum conveniens ground (§§21 – 23).

J.    THE COMMON ISSUES, AND THE CORE DISPUTE

45.  There are two main issues which are common to the disposition of all three Summonses [48] :

  (a)    whether Chen HQ’s case reached and reaches the requisite threshold to justify the grant of the Service Out Order; and

  (b)    whether Hong Kong is the forum conveniens for the present proceedings.

46.  Whilst the identification of the common issues is not in dispute, the characterization of the core dispute that underlines those issues is.  The submissions of Mr Maurellet SC [49] (who together with Mr Alexander Tang and Mr Kevin Lau appeared for the SHDs) in this regard may be summarised as follows: that central to those two common issues is one simple core dispute between the parties, namely what the true relationship between Chen HQ and the 11 Representatives was, that the core dispute, properly characterized, concerns the true contractual relationship between Chen HQ and the 11 Representatives [50], that this Court should guard against Chen HQ’s tendency to mischaracterize the present case as a property/ownership dispute, and that the issue of ownership over the CSI Stake is at most merely consequential upon resolution of the core dispute, which is contractual in nature.  The effects of the submissions of Mr Anson Wong SC (who together with Mr Ross Li and Ms Rosa Lee appeared for the Jinan Group) are similar, that the essence of the dispute in this action simply concerns an agency contract allegedly entered into in the Mainland between Chen HQ and the 11 Representatives [51]. 

47.  The submissions [52] of Mr Bernard Mak (who together with Mr Issac Chan and Mr Ho Lok Hin appeared for Chen HQ) on the other hand may be summarised as follows: “it is a mischaracterisation of [Chen HQ’s] causes of action as a mere contractual claim”, and that Chen HQ “brings the present proceedings to enforce his proprietary right over the SHDs’ shares that he acquired either through SALA with the ASI Defendants, or directly from the some other SHDs.”

48.  The correct characterisation of the issues before this Court is important when it comes to the question of forum conveniens. I will come back to this.

K.  THE SHD JURISDICTION SUMMONS AND THE JINAN GROUP JURISDICTION SUMMONS

49.  I will first deal with these two summonses.

50.  In respect of the SHD Jurisdiction Summons, Mr Maurellet’s contentions may be summarised as follows:

  (a)    Chen HQ has put forward no less than three different inconsistent and contradictory versions of his factual case.  He has no good arguable case on the merits, and is therefore unable to show that his case falls within Order 11, rule 1(1)(b);

  (b)    Chen HQ cannot demonstrate that Hong Kong is clearly the forum conveniens, as the dispute is more appropriately tried in the Mainland.  In fact, multiple proceedings on the same matters have been commenced and pursued in the Mainland, mostly by Chen HQ himself; and

  (c)    In any event, Chen HQ’s ex parte leave to serve out suffered from material non-disclosure.

51.  In respect of the Jinan Group Jurisdiction Summons, Mr Wong’s arguments may be summarised as follows:

  (a)    the ASI Decision (including Deputy Judge To’s findings therein), in so far as they are relevant, is neither binding upon Jinan Group nor determinative of the issues herein.  There have been subsequent developments (in terms primarily of the commencement of by Chen HQ of the 2^nd and 3^rd Ruzhou Proceedings).  The ASI Decision is in any event an interlocutory decision, and that the Jinan Group is not amongst the ASI Defendants;

  (b)    Hong Kong Court is not the appropriate forum;

  (c)    The Shandong High Court is the more appropriate forum;

  (d)    Chen HQ would not be deprived of any personal or juridical advantages if the present dispute is tried in the Shandong High Court; and

  (e)    The balance lies against trial in Hong Kong.

52.  Mr Mak’s stance may be summarised as follows:

  (a)    Both SHDs and the Jinan Group are mounting a collateral attack against the ASI Decision by Deputy Judge To, who found that Hong Kong is clearly and distinctly the appropriate forum of the trial of the Action.  It is a substantive finding with jurisdictional implication as opposed to a mere interlocutory ruling.  The only proper venue to challenge Deputy Judge To’s evaluation of forum conveniens should be the appeal process.  The attack amounts to an abuse of process;

  (b)    Even if the issue of forum conveniens has to be revisited, Hong Kong is clearly and distinctly the appropriate forum for the trial of this Action; and

  (c)    SHD’s attack on the merits of Chen HQ’s case is premised upon a wrong test of “good arguable case”, and is in any event invalid in substance.

K.1.  Legal requirements for leave to serve out

53.  In Seaconsar Ltd v Bank Markazi[1994] 1 AC 438, Lord Goff summarised the requirements for leave to serve out as follows (at pp 456H – 457B):

“ … a judge faced with a question of leave to serve proceedings outof the jurisdiction under Order 11 will in practice have to considerboth (1) whether jurisdiction has been sufficiently established, onthe criterion of the good arguable case laid down in Korner’s case,under one of the paragraphs of rule 1(1), and (2) whether there is a serious issue to be tried, so as to enable him to exercise his discretion to grant leave, before he goes on to consider the exercise of that discretion, with particular reference to the issue of forum conveniens.”

54.  That approach propounded by Lord Goff was applied by the Court of Appeal in Dynasty Line Ltd v Sukamto Sia [2009] 4 HKLRD 454, where Cheung JA observed at §29 that:

“ In order to obtain leave under O.11 r.1, the plaintiff must satisfy the court that:

(a) There is a good arguable case (in the sense that there is a good prospect of success at trial, per Kempster J in Deak v Deak Perera Far East Ltd [1991] 1 HKLR 551) that his case comes within [one of the gateways].

(b) The discretion should be exercised in its favour in that:

(i) There is a serious issue to be tried on the merits of the case;

(ii) Hong Kong is the appropriate forum under the principle governing forum conveniens for the trial of the action.” [53]

55.  Consistent with the above, in one of the Trust Actions, when dealing with an application by Zhang Sr to set aside the service of the writ upon him in the Mainland, G Lam J in his Judgment of 13 May 2015 (the “G Lam J 13 May Decision”) summarised the requirements as follows:

“ 47. In the present context, in order to resist the 1^stdefendant’sapplications and establish that leave was properly given for serviceof the writ on the 1^stdefendant out of the jurisdiction, the plaintiffs have to satisfy three requirements. First, they must show that there is a serious issue to be tried on the merits in the claim against the 1^st defendant. Secondly, the plaintiffs must satisfy the court that there is a good arguable case that their claim against the 1^st defendant falls within one or more of the ‘gateways’ in Order 11 rule 1(1) pursuant to which leave may be given for service out of the jurisdiction. Thirdly, the plaintiffs must satisfy the court that in all the circumstances Hong Kong is clearly or distinctly the appropriate forum for the trial of the dispute, and that in all the circumstances the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction. This reflects the requirement in Order 11 rule 4(2) that it has to be ‘made sufficiently to appear to the Court that the case is a proper one for service out of the jurisdiction under this Order’.”

56.  The onus to establish the above-mentioned elements is on the plaintiff.

57.  Since an application for leave under Order 11, rule 1 is made ex parte, it is incumbent on the plaintiff to comply with the duty to make full and frank disclosure of all materials facts which may have a bearing onthe court’s decision whether to grant leave—see Dong Shing F&T Co Ltd vHanmec Co Ltd[2010] 5 HKLRD 261, per Fok J (as Fok PJ then was) at §27.  

K.2.  Matters that go to jurisdiction

58.  First and foremost, I emphasize that an application for leave to issue a writ for service out of the jurisdiction ought to be made with great care, and be looked at strictly — Kayden Ltd v SFC (2010) 13 HKCFAR 696, per Ribeiro PJ at §35.  In the words of Waller LJ in Canada Trust Co v Stolzenberg (No 2) [1998] 1 WLR 547 at 555, the court should “scrutinise most jealously” any factor which actually provides jurisdiction.  As explained by Ribeiro PJ in Kayden:

“ 36. The need for a strict approach is dictated by at least three related considerations. First, it is grounded on recognition of the need for special care given the extraordinary nature of the long-arm jurisdiction asserted under O.11. As Lord Mustill pointed out, it involves seeking to compel a foreign defendant to submit to adjudication by the court or suffer judgment and execution in default.

37. Secondly, as indicated in the passage from Parker v Schuller cited above, the court acts on the faith of the plaintiff’s representations made to it ex parte when granting leave for service of process abroad. Given the extraordinary nature of the jurisdiction which the court would thereby be asserting, it insists on special care on the plaintiff’s part and full disclosure of the basis upon which that jurisdiction is invoked.

38. Thirdly, as Neill LJ pointed out in Excess Insurance Co Ltd v Astra SA Insurance and Reinsurance Co:

… it is not only the court which must be apprised of the cause of action alleged.  The defendant must know the basis of the claim which he has to meet so that, if so advised, he can challenge the order which asserts the court’s jurisdiction over him.”

59.  Conceptually, it is clear that matters that go to establishment of gateways (and hence jurisdiction) have to be established on the threshold of “good arguable case”, whilst matters that go to merits are only required to be established on the lower threshold of “a serious issue to be tried”.  However, in reality the same matters may go to both.  In those cases, the threshold of “good arguable case” remains applicable to those matters which go to jurisdiction, even though they go also to merits.  As explained by Waller LJ in Canada Trust Co v Stolzenberg at 555 – 556, that:

“ It is I believe important to recognise, as the language of their Lordships in Korner’s case [1951] A.C. 869 demonstrated, that what the court is endeavouring to do is to find a concept not capable of very precise definition which reflects that the plaintiff must properly satisfy the court that it is right for the court to take jurisdiction. That may involve in some cases considering matters which go both to jurisdiction and to the very matter to be argued at the trial, e.g. the existence of a contract, but in other cases a matter which goes purely to jurisdiction, e.g. the domicile of a defendant. …

  The civil standard of proof has itself a flexibility depending on the issue being considered and the concept ‘good arguable case’ has a similar flexibility.  It is natural, for example, in a case concerned with a contract where the jurisdiction depends on whether the breach took place within the jurisdiction, but where the issue to be tried will be whether there was a contract at all,not to wish to give even the appearance of pre-trying the central issue, even though the concept of being satisfied must apply both to the existence of the contract and the place of the breach. It is equally natural for the court in the process of being satisfied to scrutinise most jealously that factor which actually provides jurisdiction.  It is equally natural that where the foundation of jurisdiction is domicile, i.e. an issue that will not arise at the trial,that particular scrutiny of the material available takes place in the context of the limitations applied to an interlocutory process.”

60.  In Seaconsar, Lord Goff explained further at pp 453 – 454 that:

“ For present purposes, it is relevant to consider to which elements in what is now paragraph (e) of Ord. 11, r. 1(1) the House of Lords concluded that the ‘good arguable case’ test should be applied. … It follows that four members of the Appellate Committee must be taken to have decided that, when considering what is now paragraph (e), all three elements of contract, breach and place of breach must be established, to the extent required by rule 4(2), before the plaintiff can successfully invoke the jurisdiction of the court under that paragraph. It also follows that, under that paragraph, no separate issue will arise on the merits of the plaintiff’s claim to which a lower standard of proof might be applied; and for that reason no question arose directly as to the standard of proof applicable to the merits of the plaintiff’s claim in Korner’s case …. I wish to record in parenthesis my suspicion that a failure to appreciate this point has led to a belief that the ‘good arguable case’ test established in Korner’s case is as applicable to the merits of the plaintiff’s case as it is to the question of jurisdiction under Ord. 11, r. 1(1) — as indeed has been stated in successive editions of The Supreme Court Practice: see the 1993 edition, para. 11/1/6, p. 85.”

61.  Deyi Investment Ltd v Macjin Info-Com Tek Ltd HCA 587/2014 (unreported, 9 October 2015) is a local example in which matters which go to jurisdiction overlap with those which go to merits.  There, the plaintiff obtained leave from the Master to serve a writ out of jurisdiction on the 2^nd defendant. The claim was a contractual one.  In seeking leave to serve out, the plaintiff relied on Order 11, rule 1(1)(d)(iii) (that the contract concerned was by its terms, or by implication governed by Hong Kong law) and rule 1(1)(d)(iv) (that the contract concerned contained a term to the effect that the Hong Kong Court of First of Instance should have jurisdiction to hear and determine any action in respect of it).  The 2^nd defendant subsequently applied to have the leave set aside.  It challenged the existence of the contract concerned, on the basis that the 1^st defendant did not have the authority to make the contract on its behalf.  Recorder Lisa Wong SC (as her Ladyship then was), having observed in general that a plaintiff seeking leave to serve out had to show (i) a “good arguable case” that the case falls within one of the gateways, and (ii) a serious issue to be tried, observed at §16 of her Decision that:

“ In the instant case, in view of the nature of the specific Order 11,rule 1(1) gateways prayed in aid by [the plaintiff] and of the challenge thereto mounted by [the 2^nd defendant], these two requirements actually converge into a single burden on [the plaintiff] to show, on the higher ‘good arguable case’ threshold, that [the 1^st defendant] did make the Contract as agent for and on behalf of [the 2^nddefendant], which would be the case only if [the1^stdefendant] did have authority from [the 2^nd defendant] to do so.”

In the end, the Recorder held that the plaintiff did not have a good arguable case for invoking the relevant gateways against the 2^nd defendant.

62.  The Recorder’s decision was upheld on appeal [54].  In rejecting the criticisms against that the learned Recorder had at §16 of her Decision applied the wrong threshold, the Court of Appeal observed that:

“ 6.11 I do not consider the criticism valid. Plainly the Recorder had considered what Lord Goff said earlier at pp.454H – 455A in Seaconsar Ltd on the jurisdictional aspect of the test in relation to contract which, in the first place, has to be sufficiently proved:

… I am of the opinion that what has to be sufficiently shown by the plaintiff for the purpose of establishing jurisdiction is,in the case of, for example, sub-paragraph (i), not merely that, if the contract existed, it was made within the jurisdiction,but that (1) there was a contract, and (2) such contract was made within the jurisdiction. Likewise, under sub-paragraphs (ii), (iii) and (iv), the existence of the relevant contract has to be sufficiently proved. But, once that is done, there arises a separate question as to the merits of the plaintiff’s claim relative to that contract. (Emphasis added.)

6.12 On this jurisdictional aspect, the proper test is good arguable case. In the light of this statement of Lord Goff, the Recorder was concerned with the issue of whether there is sufficient proof of the existence of the contract said to be between the 2^nd defendant and the plaintiff when on the face of it, the contract was only made between the 1^st defendant and the plaintiff. The Recorder’s approach was supported by other first instance decisions ….

6.13 In the same light, the Recorder adopted the same approach when she considered the proposed amendment.

6.14  Even if, for the purpose of argument, the question of agency and the apparent authority of the 1^stdefendant is an aspect of the merits of the plaintiff’s claim and not jurisdiction, I do not regard the Recorder’s approach had in substance gone over and above of what is required under the threshold of serious issue to betried.  Based on the state of the pleadings (including the proposed amendment) and material before her, she came to the view that the plaintiff’s case on agency based on apparent authority cannot have expectation of success in substance and reality.  In other words, there really is no issue to be tried which can be called ‘serious’ if the serious issue to be tried test is to be adopted.”

63.  As to what the threshold of “good arguable case” entails in the context of Order 11, rule 1(1):

  (a)    I agree with and adopt the observations of Waller LJ in Canada Trust Co v Stolzenberg at 555 [55], that:

“ … ‘Good arguable case’ reflects in that context that one side has a much better argument on the material available. It is the concept which the phrase reflects on which it is important to concentrate, i.e. of the court being satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allow the court to take jurisdiction.”

  (b)    In GDH Ltd v Creditor Co Ltd[2008] 5 HKLRD 895, To J observed at §16 that:

“ … Though the court will not require proof to its satisfaction, it will require something better a mere prima facie case. This is a high threshold. The court has no discretion to exercise any jurisdiction if this threshold is not achieved ….”

  (c)    As cited above, the Court of Appeal in Dynasty Line took the test as meaning “that there is a good prospect of success at trial” (§29);

  (d)    Whilst there should be no trial on affirmations, a provisional or tentative conclusion on the evidence has to be reached.  As observed by Deputy Judge McCoy SC in Continental Mark Ltd v Verkehrs-Club der Schweiz [2001] 4 HKC 469 at pp 481 – 482:

“ The question whether or not the case meets the conditions prescribed for service out of the jurisdiction under O 11 r 1 does not involve an exercise of discretion, but a judgment of fact. The court must conclude that the plaintiff has a good arguable case, not just a case that could be argued. It need not be shown that the plaintiff is right beyond all reasonable doubt. The court does not try the case upon the affidavits, but must necessarily reach a provisional or tentative conclusion that the plaintiff is probably right, before allowing service outside the jurisdiction to stand …

A good arguable case is one with a good prospect of success:Deak v Deak Perera Far East Ltd [1991] 1 HKLR 551 (CA);and see per Godfrey J in United Links International Ltd v The Price Co [1994] 2 HKC 617 at 620F. …

  While there cannot be an attempt to try disputes of fact on the affidavits the defendant can show that the evidence of the plaintiff is incomplete or plainly wrong or attendant with some sustained doubt.  In my judgment, this has been successfully achieved here.  Note Chetan v Jhaveri Shailain Hirachand [1990] 2 HKC 170 (CA),where in relation to O 11 r 1 at 173G–H Kempster JA observed that ‘The plaintiff himself has advanced differing versions of the agreement …’.  At 174F Cons VP noted ‘we have the basic inconsistency between the correspondence on the one hand and the claim and deposition on the other … In the face of such a clear and thus unexplained inconsistency, I find myself unable to accept that the plaintiff has shown a good arguable case’.  I do not conclude that the plaintiff has a good arguable case.  Thereare a number of unsettling features (referred to throughout) in and about the evidence that exclude the attainment of that standard. For this reason alone the appeal also succeeds.”

K.3.  Matters which go to discretion

64.  In Seaconsar, Lord Goff at p 452 explained the test of “a serious issue to be tried” as meaning:

“ …if in support of the plaintiff’s ex parte application an affidavit is sworn in proper form deposing to facts which, if proved, provide a sufficient foundation for the alleged cause of action, that should generally be enough for present purposes. This is no doubt what a number of judges have referred to when they have used the expression ‘prima facie case’ in this context. The problem arises from the fact that the court will consider, on an application to set aside leave so given, affidavit evidence on the part of the defendant,and will take such evidence into account when deciding whether or not to exercise its discretion in favour of the plaintiff. But the court cannot resolve disputed questions of fact on affidavit evidence; and it is consistent with the statement of the law by Lord Davey that if, at the end of the day, there remains a substantial question of fact or law or both, arising on the facts disclosed by the affidavits, which the plaintiff bona fide desires to try, the court should, as a rule, allow the service of the writ. If this approach is correct, the standard of proof in respect of the cause of action can broadly be stated to be whether, on the affidavit evidence before the court, there is a serious question to be tried.”

65.  On the issue of forum conveniens, the relevant approach and considerations were set out by Cheung JA in Dynasty Line at §§56 – 59, that:

“ The approach

56. When this topic [of forum conveniens] is considered in thecontext of service out of jurisdiction under O.11, it is important to bear in mind three matters which are distinct from an application to stay Hong Kong proceedings based on forum non conveniens.

(a) The burden in O.11 cases is on the plaintiff, whereas in cases in respect of stay of proceedings the burden is on the defendant.

(b) In O.11 cases the plaintiff is seeking to persuade the court to exercise its discretionary power to permit service on the defendant outside the jurisdiction. Order 11 r.4(2) expressly provides that the Court will only do so if the case is ‘a proper one’ for service outside jurisdiction.

(c) The jurisdiction exercised under O.11 may be ‘exorbitant’ in the sense that the jurisdiction is extraordinary in that under conflict of law rules, a Hong Kong court will not recognize that a similar power is possessed by a foreign court over a Hong Kong litigant in the absence of some treaty providing for such recognition. The effect is not merely that the burden of proof rests on the plaintiff to persuade the court that Hong Kong is the appropriate forum for the trial of the action, but that he has to show that this is clearly so. In other words theburden is the opposite of that applicable where a stay is soughtof proceedings started in Hong Kong as of right, see Spiliada Maritime Corp v Cansulex Ltd at pp.480–481 per Lord Goff.

Real and substantial connection

57. The issue is whether the plaintiff has raised a serious question that Hong Kong is not only the appropriate forum to try the case but that this is clearly so. The burden is on the plaintiff.

58. The ‘appropriate’ or ‘natural’ forum is one ‘with which the action had the most real and substantial connection’. This includes not only factors affecting convenience and expense (such as availability of witness) but also other factors such as the law governing the relevant transaction and the place where the parties respectively reside and carried on business, Spiliada Maritime Corp v Cansulex Ltd at p.478.

59.   In my view, the ‘real and substantial connection’ requirement needs to be emphasised.  Modern commercial transactions usually entail multiple jurisdictional aspects. … Ultimately one has to consider the forum where the action could most suitably be tried for the interests of all the parties and for the ends of justice.  Comments of a similar nature although differently put have been made by the courts in the past: the court is not simply to load up factors which point to any particular jurisdiction but to focus on the appropriateness of a forum from the point of view of the trial of the action, see Rambas Marketing Co LLC v Chow Kam Fai David [2001] 3 HKC 250 per Recorder Ma (now Ma CJHC) at p.255.”

66.  Both when leave is being sought to serve out to start with, and during a subsequent application by the defendant for an order to set aside the same, the onus to establish forum conveniens is on the plaintiff.  This has been made clear by Ma CJHC (as the Chief Justice then was) in Noble Power Investments Ltd v Nissei Stomach Tokyo Co Ltd[2008] 5 HKLRD 631, at §22(2), that:

“ Where, however, a plaintiff institutes proceedings in Hong Kong not as of right (and the present case is one since leave to serve out of the jurisdiction was required), the approach of the court to questions of forum is quite different. Although this point will often only be raised by a defendant who seeks to set aside any order granting leave to serve out, the burden will not be on the defendant to demonstrate that there is an alternative forum which ought to entertain the action. Rather, the legal burden is all along on the plaintiff to show, in seeking to persuade the court to grant an order to serve out, that Hong Kong is clearly the appropriate forum for the trial of the action. As Lord Goff of Chieveley put it in a well-known passage in Spiliada Maritime Corporation v Cansulex Ltd [1987] AC 460 at p.481E:

The effect is, not merely that the burden of proof rests on theplaintiff to persuade the court that England is the appropriate forum for the trial of the action, but that he has to show that this is clearly so.  In other words, the burden is, quite simply,the obverse of that applicable where a stay is sought of proceedings started in this country as of right.”

67.  The relevant factors when considering whether a forum is one with which the action has the most real and substantial connection include (1) the nature of the case and the dispute; (2) the law governing the relevant transaction; (3) in terms of convenience or expense, availability of witnesses; (4) the places where the parties reside or carry on business; and (5) the legal and practical issues involved and such questions as local knowledge — see Hong Kong Civil Procedure 2019, at §11/1/10B where the principles stated by the House of Lords in The Spiliada [1987] AC 460 are summarised; and see also §11/1/12, that “Where there are proceedings taking place abroad relating to the same or similar issues raised in Hong Kong proceedings, that may be a ground on which to stay the Hong Kong proceedings or not grant leave to serve out.”    

68.  I will when considering the SHD Jurisdiction Summons and Jinan Group Jurisdiction Summons apply the legal principles discussed above.

K.4.  Collateral attack and abuse of process?

69.  I shall at this stage deal with one preliminary objection raised by Mr Mak first.  In his written submissions [56], Mr Mak submitted that the present applications by the SHDs and Jinan Group amounted to collateral attack of the To DJ Forum Conveniens Finding, that it was an abuse of process for them to do so, and therefore the SHD Jurisdiction Summons and the Jinan Group Jurisdiction Summons should both be dismissed.

70.  In his written submissions, Mr Mak did not put forward any legal test which he submitted I should apply.  With reference to §23 of the judgment of Kwan J (as her Ladyship then was) in Re Chime Corp Ltd (No 2) [2003] 2 HKLRD 945, Mr Mak submitted that the To DJ Forum Conveniens Finding was a substantive finding with jurisdiction implications as opposed to a mere provisional finding [57].  I do not see how classifying the To DJ Forum Conveniens Finding as such per se assists Mr Mak.  Nor does §23 of Chime.  In that paragraph, Kwan J was simply making the observation, in the context of the doctrine of issue estoppel, that it is not helpful to categorise a determination as interlocutory or procedural, and that whether a determination on an interlocutory application is capable of giving rise to issue estoppel would depend on the nature and substance of the ruling.

71.  At §14 of his written submissions, Mr Mak, with reference to §§54 – 56 of JSC BTA Bank v Ablyazov (No 15) [2017] 1 WLR 603, submitted that even though most of the SHDs and Jinan Group were not parties to the ASI Decision, the principle of abuse of process by way of collateral attack still applies to them.  While that may be so, that does not mean that the present applications indeed constitute any abuse.  In fact, at §56 of his judgment in JSC, Gloster LJ applied the following articulation ofthe collateral attack principles given by Sir Andrew Morritt VC (with whom Potter and Hale LJJ agreed) in Secretary of State for Trade and Industry v Bairstow [2004] Ch 1, which Gloster LJ regarded as binding on him, that:

“ (d) If the parties to the later civil proceedings were not parties to or privies of those who were parties to the earlier proceedings then it will only be an abuse of the process of the court to challenge the factual findings and conclusions of the judge or jury in the earlier action if (i) it would be manifestly unfair to a party to the later proceedings that the same issues should be relitigated or (ii) to permit such relitigation would bring the administration of justice into disrepute.”

72.  In the present case, I do not accept Mr Mak’s submissions that the present applications constitute any collateral attack or abuse. I have considered the following factors which I regard as important:

  (a)    the To DJ Forum Conveniens Finding was made in the course of an interlocutory application.  The ASI itself expressly provides that its effect is “pending the final determination of this action or further order” (emphasis added);

  (b)    As Mr Mak accepted, most of the SHDs and the Jinan Group were not parties to the ASI Decision;

  (c)    The ASI application proceeded on an extremely expedited timetable.  It was first made on 20 December 2017.  The opposing parties only had up to 4 January 2018 to compile and file their evidence in opposition;

  (d)    The expedition of the ASI application, given the nature of the order sought, might have been justified.  But that ought not prejudice the SHDs’ interest in having sufficient time to prepare their application to challenge the Service Out Order. For me to hold that the To DJ Forum Conveniens Finding would bind their hands in the present applications would have that unfair prejudicial effect;

  (e)    Indeed, in Zhao #1 (draft of which first made available on 19 December 2017) prepared in opposition of the ASI Application, it was specifically said that “my opposition of the Anti-Suit Application is made without prejudice to my Set‑Aside Application and/or challenge to the jurisdiction of this Honourable Court” [58];

   (f)    As I have summarised in the earlier parts of this Decision, which I will discuss further below, there have been substantial developments since the hearing for the ASI, not the least being the commencement of the 2^nd and 3^rd Ruzhou Proceedings by Chen HQ — see Chu Hung Ching v Chan Kam Ming [2001] 1 HKC 396, per Mayo VP at 401E – 402E;

  (g)    In the circumstances, I see no basis to say that the SHD Jurisdiction Summons or the Jinan Group Jurisdiction Summons constitutes any collateral attack or abuse of process. I see no basis to suggest that allowing the Summonses to proceed would be manifestly unfair to Chen HQ or would bring the administration of justice into disrepute.

73.  In fact, when making his oral submissions, Mr Mak did not appear to be pushing the point.  He acknowledged that the To DJ Forum Conveniens Finding was made in the course of an interlocutory order which was subject to variation.  Mr Mak further acknowledged that it was a technical argument that he was running, and that at the time when the ASI was argued and made, the Jinan Group was not before the court,and that the matter was only argued on behalf of 11 defendants (ie the ASI Defendants).  He said that he merely “flagged” the point, and urged me to decline any invitation to form any view different from that of Deputy Judge To as the learned Deputy Judge had had the same materials that were before me, and that it would be embarrassing otherwise.

74.  I see no embarrassment involved.  I reject Mr Mak’s submissions that the SHD Jurisdiction Summons and the Jinan Group Jurisdiction Summons constitute any collateral attack or abuse of process.

K.5.  Whether good arguable case on jurisdiction

75.  I now consider whether Chen HQ has established a good arguable case that his case comes within one of the gateways.

    K.5.a.  The threshold to apply

76.  The gateway relied upon by P when seeking the Service Out Order was Order 11, rule 1(1)(b).

77.  Order 11, rule 1(1)(b) is in the following words:

“ … an injunction is sought ordering the defendant to do or refrain from doing anything within the jurisdiction (whether or not damages are also claimed in respect of a failure to do or the doing of that thing)”.

78.  In his written submissions [59], Mr Maurellet, in reliance upon Deyi, submitted that in order for Chen HQ to satisfy the Court that he has a good arguable for the injunction, he must show a good arguable case that he has purchased the CSI shares in question (ie the underlying merits).

79.  In his written submissions [60], Mr Mak submitted that “The SHDs’ attack on the merits of P case is premised upon a wrong legal test and in any event invalid in substance.  SHDs wrongly suggested that for the purpose of O.11 r.1(d), P had to demonstrate a ‘good arguable case’ on the substantive merits.  The authorities cited by SHDs did not support such proposition.  All criticisms against the substantive merits of P’s case was premised upon such wrongful test.”

80.  I do not accept Mr Mak’s submission in this regard.  The gateway under Order 11, rule 1(1)(b) cannot be established by the mere fact that “an injunction is sought”.  Mr Mak accepted that much in the course of the hearing [61].  Indeed, in Watson & Sons v Daily Record (Glasgow) Ltd [1907] 1 KB 853, Cozens-Hardy LJ observed at 858 that:

“ a plaintiff cannot acquire a right to serve a defendant out of the jurisdiction by the mere fact that his writ claims an injunction.”

81.  In my view, to establish the gateway under Order 11, rule 1(1)(b), it is necessary for Chen HQ to demonstrate a good arguable case for the injunction sought.  That goes to the issue of jurisdiction.  Though Seaconsar and Deyi were not concerned with Order 11, rule 1(1)(b), the reasoning in those cases in my view equally applies.  I accept Mr Maurellet’s submissions in this regard.

   K.5.b.   Whether good arguable case — parties’ submissions in summary

82.  Mr Maurellet submitted [62]that Chen HQ had, on the core dispute as to the true relationship between him and the 11 Representatives,run three different and inconsistent cases.  Mr Maurellet highlighted for my attention judicial dicta which expressed disapproval of Chen HQ’s inconsistent cases.  He submitted that Chen HQ was unable to establish a good arguable case for the purposes of establishing jurisdiction.

83.  In making those submissions, Mr Maurellet also repeated and adopted [63]the submissions made on behalf of the SHDs by Mr Westbrook SC in resisting the Receivership Summons, whose submissions I have also considered.

84.  Mr Mak submitted [64]that even if the threshold of good arguable case was to apply, Chen HQ’s case of SALA, if fairly understood and as compared with the SHDs’ case of a loan simpliciter, was clearly a good arguable case.

  K.5.c.  The cases run by Chen HQ in different proceedings

85.  Central to the SHDs’ case in this context was that Chen HQ had run a number of inconsistent cases in respect of his relationship with the 11 Representatives.  I set out the relevant facts as follows.

86.  I have summarised above the several written agreements that were relevant to the Stakes.  On the face of those documents, the transactions were ones of loans from Chen HQ to the 11 Representatives to purchase from the Employee Plaintiffs their CSI shares (ie the Loan Agreements), with securities from both the 11 Representatives (as contained in the Share Pledge Agreements) and the Minority Shareholders (as contained in the SPGAs).  In his submissions, Mr Westbrook called this the “Secured Loan Case”, which term I will adopt for ease of reference (and for ease of reference only).

87.  I have mentioned above that Chen HQ started HCMP 962/2017 against some of the Minority Shareholders and sought the appointment of receivers of the related shares pending the determination of the SPGA Arbitration.  In support of his application, he filed a number of affirmations,which included his first dated 25 April 2017 (“Chen HQ 962/#1” [65]), his second dated 4 May 2017 (“Chen HQ 962/#2” [66]), and his fourth dated 9 June 2017 (“Chen HQ 962/#4” [67]).  The case put forward by Chen HQ in HCMP 962/2017 was one of secured loans by him to the 11 Representatives for them to purchase from the Employee Plaintiffs’ their CSI shares as principals, with promises from the 11 Representatives to transfer the shares so purchased to Chen HQ should the Employee Plaintiffs be successful in the Trust Actions.  Mr Maurellet called this the “Loan/Conditional Purchase Case”, which term I adopt for ease of reference (and for ease of reference only).  The following specific parts of Chen HQ’s evidence are relevant (with emphasis added):

  (a)    §4 of Chen HQ 962/#1, that:

“ My interest in the Shares arises from a [SPGA] executed by the Defendants … in my favour, whereby they pledged the Shares to me as security for loans which I provided to 10 individuals (not being the same persons as the Defendants) … The total amount of the loans is RMB 692,500,000, the loans are due in August to September 2017 this year.”

  (b)    §§10 – 13, 17 and 24 of Chen HQ 962/#2, that:

“ 10. As there were quite a number of Employees, the Defendants and Zhao suggested that 11 individuals among the Employees be appointed to purchase as much of the Receivership Shares from the Employees as principals. I would provide the funding to these 11 employees (’11 Purchasers’) by way of loans …

11. The Defendants and Zhao also suggested that, in the event that the Employees succeeded in the Trust Actions, the 11 Purchasers would transfer the Receivership Shares they wouldpurchase from the Employees to me instead of repaying the Loans. As it is uncertain what the outcome of the Trust Actions would be, the Defendants and Mr. Zhao offered to pledge their shares in CSI … for my protection as security for the Loans, which I could resort to, particularly in view of the fact that the Trusts Action were still ongoing and might turn out to be unsuccessful, such that the 11 Purchasers might have no CSI shares capable of being transferred to me and otherwise failed to make repayment of the Loans. The Loan Agreements and the Share Pledge and Guarantee Agreement were according executed by the 11 Purchasers, the Defendants, Zhao and myself on such basis and understanding.

12. Pursuant to the Loan Agreements, I advanced a total of RMB 692 million to the 11 Purchasers. I understand that they have already used the funds to purchase a substantial number of the Receivership Shares …

13. As the Trust Actions are still on going, the condition for the transfer of the Purchased Shares to me has not yet arisen. Importantly for the present proceedings, I have as a matter of fact advanced to the 11 Purchasers RMB 692 million loan to enable them to purchase such shares, and I would not have been prepared to do so if the Defendants and Mr. Zhao had not offered me the protection in the form of the Share Pledge and Guarantee Agreement.

…

17. As explained in my Stop Notice Affirmation and paragraphs 8 to 13 above, I learnt from Li Lufat, the Defendants and Mr Zhao about the situation with CSCG and CSI. Apart from my wish to help the Employees, I also took the view that it would be commercial viable to invest my money in CSCG, and therefore I decided to make the loans to the 11 Purchasers as stated above. I acted and continue to act independently from Tianrui in the investment.

…

24.    … The 11 Purchasers had promised to transfer such shares to me as aforesaid if the Employees succeeds in the Trust Actions. …”

  (c)    §17 of Chen HQ 962/#3, that:

“ … I can say with confidence that my interest in these shares is the only safe recourse open to me in the event of default on the part of the borrowers and the Defendants themselves and that justice would be wholly undermined in this case if, in the absence of any interim relief, I faced the risk of being stripped of my status as a secured creditor.”

  (d)    §18 of Chen HQ 962/#4, that:

“ … As explained in [Chen HQ 962/#2] and above, the condition for the transfer of the Purchased Shares to me has not yet arisen. In other words, I have not yet acquired the Purchased Shares. I have been advised and verily believe that it has not been necessary for me to make any disclosure of interest filings in the circumstances of this case ….”

88.  I have mentioned above that Chen HQ applied to be joined as an intervener or additional defendant in the Trust Actions (ie the Trust Actions Joinder Application).  That application was supported by his affirmation of 22 September 2017 (“Chen HQ Joinder/#1” [68]). I have also set out above the case presented by Chen HQ in Chen HQ #1 when seeking ex parte the Service Out Order.  His case put forward in the Trust Actions Joinder Application and herein was based on the existence of SALA,which he said was a “common agreement and understanding” between him,the 11 Representatives and the Minority Shareholders.  He stated that the Loan Agreements, the Share Pledge Agreements, the SPAs and the SPGAs were entered into pursuant thereto.  He put forward an agency case, to the effect that the 11 Representatives acquired the CSI shares from the Employee Plaintiffs as his “nominees”.  Mr Maurellet called this the “Purchasing Agent Case”, which term I adopt for ease of reference (and for ease of reference only).  The material parts of his evidence in these regards are as follows (with emphasis added):

  (a)    §§9 – 14 of Chen HQ Joinder/#1, which were of effects similar to §§11 – 20 of Chen HQ #1 (which I have summarised above);

  (b)    §§53.4 and 53.5 of Chen HQ #1, that:

“ 53.4. … Mr Zhang alleged that the Loan Agreements would havebeen discharged by relying on a letter from SH dated 20 September 2017, in which it was asserted that the 11 Representatives had attempted to repay their loans with interest. I have provided answers to this allegation via my solicitors’ letter dated 25 August2017, in which I stated inter alia that (a) the arrangement in relation to my acquisition of the CSI Shares is an agency relationship, rather than a simple loan agreement; (b) the loan repayment is premised upon my prior consent in writing (which has not been given) …

53.5.   … the SALA was partly in writing and partly oral, and those written documents are part and parcel of the SALA, as set out above.”

  (c)    §17 of Chen HQ #4, that:

“ … [the 11 Representatives] were merely nominees of myself but not acting as principals to purchase the shares of CSI from the Employee Ps …”

  (d)    In respect of the payment of the CSI shares, 70% of the consideration was paid with the loans, whereas the balance of the 30% were “made either by me directly or via my nominees” [69];

  (e)    §§6 and 20 of Chen HQ Joinder/#1, that:

“ 6. … I have become the full beneficial owner of the CSI Shares previously held by 2,248 of the relevant employees … from around March 2017 …”

“ 20. As I have explained above, as from or around March 2017, I have acquired the beneficial ownership in the relevant CSI Shares …”

   (f)    Both in Chen HQ Joinder/#1 (at §12.2(f)) and in Chen HQ #1 (§§17.2(f) and 18), Chen HQ referred to and relied on the Confirmations in support of his case based on SALA:

  (i)   He said that there were some 1014 of such Confirmations;

  (ii)   I note that the existence of the Confirmations was in fact first raised by Zhao Liping, who was one of the defendants in HCMP 962/2017. In his 2^nd affirmation of 9 June 2017 therein, he said at §15 [70] that:

“ In my 1^st Affirmation, I had raised the issue concerning the fact that, in March 2017, Tinrui has tried to obtain the Employees’ support by paying them money, and asking them to sign a confirmation letter that purportedly ‘rewrites’ the SPAs signed with the 11 Representatives — it asserts that [Chen HQ] is the truepurchaser of the Employees’ interests, not the 11 Representatives. There is now shown to me marked ‘ZLP-11’ a copy of the Confirmation.”

   (iii)  The contents of the Confirmations were inconsistent with the Loan/Conditional Purchase Case.  Chen HQ was then running it in HCMP 962/2017.  The Confirmations referred to, inter alia, the 11 Representatives as being “Agents of [Chen HQ]” (§I of the Recitals), that “the beneficial interest mentioned in the [SPAs] of the Shares bellowed to [Chen HQ] through the Agents of [Chen HQ]”(§(2)), and “Upon receiving the said 30% of the relevant consideration, the Seller [71]shall irrevocably confirm that all the beneficial interest and/or related interest in the Shares of [CSI] belongs to [Chen HQ], and the Seller would have no entitlement to the said beneficial interest and/or related interest in the shares” (§(3)(ii));  

  (iv)   In response, Chen HQ said in Chen HQ 962/#4 at §12 [72] that:

“ The Defendants alleged that Tianrui asked the Employees to sign a confirmation letter which asserted that I am the true purchaser of the Employee’s interests and not the 11 Purchasers. The copy of the confirmation letter produced by the Defendants is too blurryand cannot show the essential contents and particulars therein with reasonable clarity. It also appears that the confirmation letter is incomplete in that at least the date and one of the signatures of theparties are missing. Therefore, without admitting the authenticity of the confirmation letter, I am not in the position to respond to the confirmation letter in terms of its authenticity and veracity. Even taking the Defendants’ case to its highest, whether the confirmation letter (the admissibility of which is not admitted) will be relevant evidence for the issue of whether the loan agreements are a sham transaction is a matter of PRC law. I will defer to Counsel to make such submissions on this issue as they see fit.”

  (v)   At §31.1 of Chen HQ’s 5^th affirmation filed in opposition of the 962 Discharge Application, Chen HQ similarly sought to explain that:

“ … I recall that when I was shown the said Confirmation exhibited as ‘ZLP-11’ (which was among the voluminous documents upon which I had to review within a very short period of time), I found that it was very blurry and illegible and I could not be sure of the contents therein. At the time, I took the view that it was simply not prudent for me to attempt to respond to such document, and hence I did not commit any response in [Chen HQ 962/#4]” [73];

  (vi)   Those responses of Chen HQ were most surprising, given his subsequent reliance on the Confirmations, and his allegation that there were in fact some 1014 of them.  I find them in fact misleading.  I record that in the course of the hearing of the Receivership Summons, a copy of that very Confirmation exhibited was handed up to me.  I inspected the same.  While not a good copy, it was in my view sufficiently legible for Chen HQ to identify what it was;

  (g)    It should further be noted that despite concerns having been raised as to whether the loans were in fact made with funds belonging to Chen HQ, Chen HQ chose to say at §7 of Chen HQ 962/#4 [74] that:

“ I have already denied in [Chen HQ 962/#2] that I was a nominee of Tianrui, that the transactions were part of a scheme devised by Tianrui, and that my source of funds in respect of the loan arrangement between me and the 11 Purchasers came from Tianrui. I have also explained in [Chen HQ 962/#2] that the funds came from my business profits, and that I do not wish to disclose too much of my personal financial information nor do I have the obligation to do so.”

In Chen HQ #12 at §66 [75], he maintained his refusal to reveal “too much details of his source of funds”. He said that:

“ I have stated that I did not want to reveal too much details of my source of funds. I still do not wish to provide such information. The issues in these proceedings are, inter alia, whether I did purchase those CSI shares through the 11 Nominees. There is no dispute that those Loan Agreements, Share Pledge Agreementsand SPGA were all signed by me and those consideration had been paid to those 2091 Employee Shareholders of CSI.”

89.  I have mentioned above the SPGA Arbitration and the SPGA Arbitration Award handed down by the tribunal on 12 June 2018. On the tribunal’s analysis of the evidence before it (though the analysis was not binding on any related proceedings that were ongoing), and while not making any ruling on the substantive law, the tribunal did not accept Chen HQ’s case that the Loan Agreements, though loan agreements in name, were in fact some sort of nominee shares acquisition agreement.  Mr Maurellet called the case run by Chen HQ before the CIETAC Tribunal during the SPGA Arbitration the “Disguised Agreement Case”, which term I adopt for ease of reference (and for ease of reference only).  The relevant parts of the SPGA Arbitration Award [76]which record Chen HQ’s case run before the tribunal are as follows:

「 (二) 关于本案主法律关系性质的分析与认定

申请人认为，申请人与付元伟等人于2015年8月17日签订的《借款协议》系名为借款合同、实为委托购股的合同。《股权质押担保协议》系申请人和四被申请人为了委托购股能够履行和实现而签订，是付元伟等人向申请人履行委托购股协议义务的担保，而不是借款合同的担保。」[77]

「其三，本案中，从申请人作为证据提交的十份《借款协议》分析，其性质应当属于借款合同。申请人主张该案所涉《借款协议》系名为借款合同、实为委托购股合同，但在本案中未能举出相应证据予以証明，即申请人未能提供充足的证据以使仲裁庭合理相信当事人之间名为借款实为委托购买权的合同。仲裁庭认为，当事人若主张名义上的合同与实际上的合同关系性质不一致，必须提供足以推翻名义合同性质、并証明当事人之间实际权利义务关系性质的证据。」[78]

   K.5.d.  Consideration of the evidence, and discussion

90.  I start off my consideration with the contemporaneous documents.  None of the Loan Agreements, the Share Pledge Agreements,the SPGAs or SPAs recited, referred to or otherwise mentioned any promises by the 11 Representatives to transfer the shares they purchased (or were to purchase) under any SPAs to Chen HQ should the Employee Plaintiffs become successful in the Trust Actions.  Nor did any of them recite, refer to or otherwise mention the SALA.  It is important to note in particular that according to the Loan Agreements, it was only when the 11 Representatives became unable to repay the loans and all interest in full that they “shall transfer the transferred rights and interest acquired by him pursuant to the instructions of Party B or Party B’s designated third party” [79].

91.  I agree with the Mr Westbrook’s submissions [80] that the contemporaneous written agreements were consistent with the Secured Loan Case put forward by the 11 Representatives.

92.  In the face of those agreements, and despite their terms, Chen HQ in HCMP 962/2017 put forward on oath the Loan/Conditional Purchase Case.  He said, importantly, that the 11 Representatives were to “be appointed to purchase as much of the Receivership Shares from the Employees as principals.  I would provide the funding to these 11 employees‌… by way of loans” [81]. He said that those defendants and Zhao also “suggested that, in the event that the Employees succeeded in the Trust Actions, the 11 Purchasers would transfer the Receivership shares they would purchase from the Employees to me instead of repaying the Loans.” [82] Then, despite having used the word “suggested”, Chen HQ at §24 of the same affirmation somehow said that “[t]he 11 Purchasers had promised to transfer such shares to me as aforesaid if the Employees succeeds in the Trust Actions” (emphasis added).

93.  Then, several months later, during the Trust Actions Joinder Application and when seeking ex parte the Service Out Order herein, Chen HQ put forward the Purchasing Agent Case.

94.  The Loan/Conditional Purchase Case was blatantly inconsistent with the Purchasing Agent Case:

  (a)    Chen HQ had said unequivocally on oath when putting forwardthe Loan/Conditional Purchase Case that the 11 Representativeswere to “be appointed to purchase as much of the Receivership Shares from the Employees as principals”;

  (b)    When putting forward the Purchase Agent Case, he said, also on oath, that the 11 Representatives were “merely nominees of myself but not acting as principals to purchase the shares of CSI from the Employee Ps”[83];

  (c)    Whether the 11 Representatives were acting as “principals” or as Chen HQ’s “agents or nominees” was of fundamental importance to Chen HQ’s claims.  The differences were legally clear and distinct.  The intentions between the parties ought also to have been clear.  In my view, there could have been no room for any bona fide mistakes;  

  (d)    Chen HQ had said that until the determination of the Trust Actions, “the condition for the transfer of the Purchased Shares to me has not yet arisen” [84] and that “I have not yet acquired the Purchased Shares” [85] ;

  (e)    But then, when putting forward the Purchasing Agent Case, he said that he had become the full beneficial owner of the CSI Shares from around March 2017 (when Judgments in the Trust Actions were not handed down until January 2018);

   (f)    In these regards, there is also force in the submissions made on behalf of the SHDs [86] that if the 11 Representatives were simply Chen HQ’s nominees and agents, there would have been no reason why:

  (i)   the 11 Representatives would have been willing to shoulder repayment liability of around RMB 700 million odd with interest;

  (ii)   Chen HQ would have accepted the 11 Representatives’ pledges when he himself had all along been the true principal and the full beneficial owner of those shares; and

  (iii)   Chen HQ would have accepted the representations and guarantees of the 11 Representatives that they were the “legal owner” (合法拥有者) of the shares concerned.

95.  I have mentioned above that the interim receivers appointed in HCMP 962/2017 were subsequently discharged by G Lam J.  One reason for that discharge was the differences between the cases that Chen HQ had put forward, which G Lam J at §19 of the 962 Discharge Decision described as “drastic”.  The relevant observations of G Lam J were as follows:

“ 18. After obtaining the order for receivership in these proceedings, in September 2017, Chen HQ made an application to be joined as a party to the Trust Actions. There, in contrast to what he had said before Mimmie Chan J in these proceedings,Chen HQ claimed that pursuant to what he termed the ‘Share Acquisition and Loan Agreement’ (‘SALA’) the 11 ‘representatives’ (no longer labelled ‘borrowers’) acquired the employee-plaintiffs’ interests in the CSI shares ‘as nominees acting for and on [his] behalf’ in August 2015, that he made payment of the remaining 30% of the price in March 2017, and that he had ‘become the full beneficial owner of the CSI Shares previously held by 2,248 of the relevant employees … from around March 2017’.^[87] He exhibited a copy of a Confirmation, which was in materially identical terms to the ‘blurry’ copy exhibited by the defendants in these proceedings in June 2017, and which Chen HQ had clearly had in his possession or power since March 2017. According to Chen HQ, at least 1,014 employees had executed such Confirmation in his favour.

19.   Mr Mok SC, who appeared for Chen HQ, submitted that the defendants’ reliance on the discrepancies between Chen HQ’s different versions was a mere forensic point and that in substance his case had not changed throughout.  With respect, I cannot agree.  These drastic differences were substantively material in at least two respects.  First, if the 11 representatives acted indeed as agents and nominees at the outset through whom Chen HQ agreed to purchase the employee-plaintiffs’ interests in CSI shares in August 2015, it is difficult to see how they could be said to have ever had beneficial receipt of the money in their hands, and how they could be held liable for repayment of any ‘loans’.  In fact, it has been revealed in Chen HQ’s new case that, according to him,he obtained the 11 representatives’ bank cards and online banking devices at the time so that he retained full control of the money.  Further, in light of the Confirmation which stated that Chen HQ ‘irrevocably’ purchased the employee-plaintiffs’ interest in the CSI shares, it is difficult to see how Chen HQ could revert to a claim that the 11 representatives were ‘borrowers’.  The artificiality of the ‘Loan Agreements’ can indeed be seen from Chen HQ’s own 5^th affirmation herein (at §29) where he stated it was in his view ‘beyond belief’ that the 10 Borrowers, who were mere employees of the group, would have the necessary funding to repay him [88].  At the hearing Mr Mok was hard put to offer an explanation how Chen HQ could (to use Mr Westbrook SC’s word) ‘flip-flop’ between electing to have the shares and still trying to recover the ‘loans’.  Of course, if there were no real loans and real borrowers, then the pledges of the defendants’ shares under the SPGAs as security might well be said to be ineffective because, as Mr Mok accepted, the security interest asserted by Chen HQ was for the repayment of the loans.  It is, however, not necessary for present purposes to determine the precise effect of these arrangements, which may anyhow be a matter governed by Mainland law.  It is sufficient to say—which I do—that these are highly material matters which should have been frankly placed before the original judge hearing the receivership application.” 

20.   Secondly, if Chen HQ had indeed acquired the employee- plaintiffs’interests in the CSI shares in question from the outset, there might be requirements under securities regulations such as for disclosure of interest, since CSI held a 25.09% interest in the listed company, China Shanshui Cement Group Ltd. In the receivership application before Mimmie Chan J, when faced with the criticism that he had not made any disclosure of interest filings,Chen HQ categorically said he had ‘not yet acquired the Purchased Shares’,[89]which is to be contrasted with his statement in the joinder application in the Trust Actions that he had ‘become the full beneficial owner of the CSI Shares … from around March 2017’.[90] Moreover, the point had been raised by the defendants before Mimmie Chan J that Chen HQ was a front-man for Tianrui.  If in fact Chen HQ had already purportedly acquired interests in CSI shares, that would bring into sharp focus whether or not the whole transaction was an attempt by Tianrui to circumvent any obligation to make a mandatory general offer under the Takeover Code, which would be relevant to whether the court’s discretion should be exercised to assist Chen HQ by appointing interim receivers.”

96.  I with respect adopt the reasoning and observations expressed by G Lam J in those three paragraphs.

97.  Since the 962 Discharge Decision, it has been discovered that Chen HQ had in fact run during the SPGA Arbitration the Disguised Agreement Case.  I agree with Mr Maurellet that (1) it was inconsistent with the Loan/Conditional Purchase Case, in that its substantive effect was that the 11 Representatives were nominees for Chen HQ, and that (2) it was also different from the Purchasing Agent Case, in that whilst the Purchasing Agent Case relied on the existence of SALA, the Disguised Agreement Case did not.  As observed by the tribunal in the SPGA Arbitration, “申请人主张该案所涉《借款协议》系名为借款合同、实为委托购股合同”.

98.  Contrary submissions have been put forward by Mr Mak on behalf of Chen HQ.  The first point Mr Mak made was that “SHDs’ attack against the merits of P’s case is premised upon a wrongful contention that the threshold for the requisite merits was a ‘good arguable case’.” [91] I have considered and rejected this submission above — see Section K.5.a above, which I will not repeat.

99.  Mr Mak then submitted that it was unfair to rely on the SPGA Arbitration Award as “It was repeatedly emphasized in the said award that the tribunal would not adjudicate upon the nature of the agreement between P and the 11 Representatives.” [92] However, the SPGA Arbitration Award was not referred to for any adjudication made by the Tribunal.  It was referred to rather for the fact that Chen HQ had before the Tribunal run the Disguised Agreement Case, which was inconsistent with both the Loan/Conditional Purchase Case and the Purchasing Agent Case.

100.  Mr Mak then submitted that “[t]he merits of SALA should be assessed together with the SHDs’ case … [that] P (or Tianrui) simply extended a loan to the 11 Representatives” [93], and that “[s]imply restating both sides’ respective cases shows that the balance of probabilities clearly tilts in favour of P’s case of SALA.” [94] Those submissions missed that point that Chen HQ had at one stage run the Loan/Conditional Purchase Case, and the focus of the concern is the inconsistent cases which Chen HQ himself had run.

101.  Then, relying on the part of §19 of the 962 Discharge Decision which I have underlined above, Mr Mak submitted [95] that “In fact,in [the 962 Discharge Decision], having considered evidence pertaining to the arrangement between P and the 11 Representatives, the learned Judge apparently took the view that the funds provided by P was unlikely to be mere loan”.  I do not accept those submissions.  I have reproduced above §19 of the 962 Discharge Decision in full.  The sentences relied upon by Mr Mak were parts of the observations made by the learned Judge in rejecting the submissions made on behalf of Chen HQ that “the defendants’reliance on the discrepancies between Chen HQ’s different versions was a mere forensic point and that in substance his case had not changed throughout”.  The learned Judge was there explaining why in his view the differences were “drastic” and “substantially material”, which observations I respectively agree.  It should further be noted that at the latter part of that same paragraph, G Lam J observed that it was not necessary for him to determine the precise effect of these arrangements, but that it was sufficient to say, which his Lordship did, that those are highly material matters which should have been frankly placed before the original judge hearing the receivership application.

102.  Mr Mak then pointed to what he described as:

“ … the peculiar terms of the Loan Agreement, which is an instrument created to facilitate SALA and serves as an important piece of evidence of the existence of such agreement. The peculiar terms of the Loan Agreement fully reflect parties’intention under SALA that P was intended to (i) become the beneficial owner of the SHDs’ shares when the Trust Actions were to be resolved in the SHDs’ favour, and (ii) be allowed to recover the funds in case the SHDs failed in the Trust Actions” [96].

103.  I have taken those terms into account.  It is one thing for counsel to invite me to infer from those terms what in his submission the intentions of the parties must have been.  It is quite another when Chen HQ’s direct evidence is looked at, as I have done above.  When putting forward his case in HCMP 962/2017, Chen HQ did not mention any SALA. He expressly said that the funds he advanced were loans secured by the securities created by the Share Pledge Agreements and the SPGAs [97].  He further expressly said that the 11 Representatives “be appointed to purchase as much of the Receivership Shares from the Employees as principals” [98]. The change from that Loan/Conditional Purchase Case to the subsequent Purchasing Agent Case is the crux of the concern here.

104.  In the course of his submissions, Mr Mak further highlighted the evidence from Chen HQ [99] to the effect that the funds advanced to the 11 Representatives could only be used to purchase the CSI shares from the Employee Plaintiffs, that all those funds transferred into the 11 Representatives’ bank accounts were “centrally managed by me and my staff”, and that the 11 Representatives “have handed over their relevant bank cards and internet devices to me for my control”.  I am of the view that such evidence is of no value, when Chen HQ has consistently refused to reveal to the Courts details of this source of funds despite concerns having been raised about the same.

105.  In Chen HQ #12 [100], Chen HQ sought to blame his former legal team for the inconsistent cases which he had run.  He said that:

“ 19. At this juncture, I wish to refer to the criticism against my case for being inconsistent. I am advised and verily believe that any attempt to ‘pigeon-hole’ the deal between me, the 7 Management Shareholders and the 11 Nominees into either a pure loan or a simple trust do not do any justice to my case at all. I am also advised and verily believe that a loan and a trust upon the assets acquired by such ‘loan’ are not necessarily mutually exclusive. It would all depend on intention of the parties and the structure of the deal. As I have explained above, whilst I wanted to assist the Employee Shareholders to free themselves from the white terror or Zhang Snr and to make a good investment in CSI at the same time, I needed to put in place sufficient mechanism toprotect my funds. This is particularly so when I was an outsider of CSI. It is therefore indisputable that my true intention was to purchase the CSI shares and the mechanism of a loan with interestwas only a fallback for my protection if the acquisition of the CSI shares from the Employee Shareholders fell through.

20.   I noticed that due to the different nature of the many applications I made in the Hong Kong Court, my former legal teams had focused on different aspects of the SALA arrangement,thus failed to address clearly the over-all, underlying intention of my acquisition plan to the Court.  If, by doing so, I had misled the Hong Kong Court, I hereby apologise to the Court.”

106.  I do not accept those explanations.  The differences between the Loan/Conditional Purchase Case and the Purchasing Agent Case are fundamental and drastic.  I cannot accept, in the absence of any evidence in support from Chen HQ’s former legal teams themselves, that those differences were the result of they having “focused on different aspects of the SALA arrangement.”

107.  I come back here to the manner in which the Confirmations were dealt with by Chen HQ in HCMP 962/2017 after they had been raised by Zhao Liping (which I have set out above).  Again, in the absence of any evidence in support from Chen HQ’s former legal team, I fail to see how Chen HQ and his former legal team could have failed to identify “ZLP‑11”produced by Zhao Liping as being a copy of the Confirmations.  The responses in that regard by Chen HQ were in my view, and I so find, clearly misleading.  Whether he seeks now to apologise to the Hong Kong Courts and whether the Courts accept his apologies are completely off the point.

108.  I have discussed above the applicable legal principles.  The onus is on Chen HQ to establish a case for service out.  An application for leave to serve out ought to be made with great care, and looked at strictly. The court should scrutinise most jealously any factor which provides jurisdiction.  The approach that has to be adopted is a strict one.  I have also ruled that to establish the jurisdiction for leave to serve out under Order 11, rule 1(1)(b), it is necessary for Chen HQ to demonstrate “a good arguable case” for the injunction sought.  It is not established by the mere fact that an injunction is sought.

109.  The threshold of “good arguable case” is a high one.  It means that there is a good prospect of success at trial.  In the words of Waller LJ in Stolzenberg which I repeat that, it is the concept “of the court being satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allow the court to take jurisdiction.”  See also Chetan cited in Continental Mark where the plaintiff has advanced differing versions of his case.

110.  I have detailed above the fundamental and drastic differences between the cases which Chen HQ have run.  I have considered the misleading evidence he has given in relation to the Confirmations.  I have also taken into account his persistent refusal to provide full details about the source of his funds.  Adopting a strict approach, as I am required to do on the authority of Kayden, and having scrutinised the relevant factors most jealously, I reach the conclusion that Chen HQ had and has failed to establish a good arguable case for leave to serve out under Order 11, rule 1(1)(b).  He has failed to discharge his onus to establish any jurisdiction for the Service Out Order.

111.  On this basis alone, the Service Out Order ought to be set aside.

112.  For avoidance of doubt, I have not tried, and have not attempted to try, any issue on affirmations.  To decide on the SHD Jurisdiction Summons and the Jinan Group Jurisdiction Summons, a judgment of fact has to be reached [101].  For that purpose and to that extent only is what I have done.

113.  Having so concluded, and borrowing the words of Lord Goff in Seaconsar, “… no separate issue will arise on the merits of the plaintiff’s claim to which a lower standard of proof might be applied”, and I say no more in that regard in this Decision.  I add that this conclusion of mine is also relevant to the question of material non-disclosure.  I will come back to that later.

K.6.  Forum conveniens

114.  I have reached the conclusion that Chen HQ has failed to establish any jurisdiction for the Service Out Order.  The issue of forum conveniens, which goes only to the exercise of my discretion, is therefore not engaged.  However, for the sake of completeness, I proceed to consider it.

115.  The issue here is whether Chen HQ has raised a serious question that Hong Kong is not only the appropriate forum to try the case but that this is clearly so [102].  Even though this is an application to set aside, the burden remains on Chen HQ to establish that [103].

116.  I proceed to consider the relevant factors in turn.

    K.6.a.  The nature of the case, the dispute, and the issues before the court

117.  The parties differed as to the characterisation of core dispute between them and of the issues before the court for the purpose of considering forum.  Mr Maurellet and Mr Wong submitted that the core dispute should be characterised as one concerning the contractual relationship between Chen HQ and the 11 Representatives.  Mr Mak on the other hand relied heavily on the point that the subject matter of Chen HQ’s claim related to a Hong Kong company [104]. He submitted that Chen HQ “brings the present proceedings to enforce his proprietary right over the SHDs’ shares that he acquired either through SALA with the ASI Defendants or directly from some other SHDs” [105].

118.  In deciding the issue, I start off with Chen HQ #1. At §35 thereof, Chen HQ relied on Order 11, rule 1(1)(b) in seeking leave to serve out.  That was the only gateway which he relied on.  I have mentioned this above.

119.  Mr Wong has directed my attention to Order 11, rule 1(1)(i), which provides a separate gateway for a claim to assert proprietary rights, ie, a claim which:

“ is made for a debt secured on immovable property or is made to assert, declare or determine proprietary or possessory rights, or rights of security, in or over movable property, or to obtain authority to dispose of movable property, situate within the jurisdiction”.

120.  Chen HQ did not avail himself of the gateway under Order 11, rule 1(1)(i). 

121.  Mr Wong next referred me to the Re-amended Indorsement of Claim filed by Chen HQ.  The reliefs sought therein relate to the transfer of the Stakes.  In the prayer, no declaration of proprietary rights or beneficial interests over the Stake has been sought, but merely orders in effect for performance of SALA and the other agreements alleged to have been entered into pursuant thereto.  The reliefs sought are contractual, but not proprietary, in nature.

122.  I have set out above in detail Chen HQ’s case currently run by him.  In so far as the shares purchased by the 11 Representatives are concerned (which account for the bulk of the claim), the main issue is whether they purchased them as Chen HQ’s nominees or agents.  That issue turns on the agreement between Chen HQ on the one hand and the 11 Representatives on the other.  Chen HQ’s current case is based on the existence of SALA between them, whereas the case of the 11 Representatives has been that the relationship between them is just that of lender/borrower.

123.  The fact that the claim relates to shares in a Hong Kong company (ie CSI) does not take Chen HQ’s case far:

  (a)    The starting point is that in the present case, no relief of any proprietary nature has been claimed.  This is to be contrast with the Trust Actions, where a remedy in rem — a declaration of beneficial ownership of the shares concerned was sought[106];

  (b)    But even if any proprietary claim had been made, that still would not have been conclusive of the characterisation of the issues.  As explained by G Lam J in §82 of the G Lam J 13 May 2015 Decision:

“ … the issue applicable to the issue, ie the lex causae, depends on the characterisation of the issue. Constructive and resulting trusts, in this context, are not the bases of claims but the conclusionary responses of the law to the multifarious situations in which they arise. In the commentaries at §§29-077 to 29-079, Dicey, Morris & Collins suggest that the issue can, depending on the particular case, be classified as one of property law, unjust enrichment or contract. Each of these attracts a different choice of law rule. …”

  (c)    At §83 of the G Lam J 13 May 2015 Decision, G Lam J cited the following observations from Millett LJ in Lightning v Lightning Electrical Contractors Ltd (English CA, 23 April 1998), that:

“ If A provides money to B, both being resident in England, to purchase landed property in his own name but for and on A’s behalf,and B does so, the consequences of that transaction are governed by English law. It would be absurd if they were governed by the law of the place where the property in question happened to be located.

Such a rule would lead to bizarre results if, for example, A’s instructions were to buy properties in more than one jurisdiction,for the consequences of the same arrangement might then be different in relation to the different properties acquired. It would also lead to bizarre results if A left it to B’s discretion to choose the property to be acquired, since that would give B the unilateral power to decide on the legal consequences of the transaction which he had entered into with A. …”

Having cited those observations, G Lam J expressed his view as follows (at §84), that:

“ 84. It seems to me that Millett LJ’s statement was concerned with the consequences in terms of personal remedies between the immediate parties to a consensual purchase by way of agency.”

  (d)    In my view, while accepting that the Chen HQ’s case relates to shares in a Hong Kong company, and even if he was bringing “the present proceedings to enforce his proprietary right over the SHDs’ shares”, the characterisation of the issues remains the same.  I borrow the words of G Lam J cited above, that they are “concerned with the consequences in terms of personalremedies between the immediate parties to a consensual purchase by way of agency.”

124.  So viewed, the core issue should be characterised as being one concerning the contractual relationship between Chen HQ and the 11 Representatives.  I agree with Mr Maurellet and Mr Wong in this regard.  I accept further Mr Maurellet’s submission [107] that the issue of ownership over the CSI Stake is merely consequential upon resolution of the contractual relationship between Chen HQ and the 11 Representatives.  The same can also be said about the dispute between Chen HQ and the Employee Plaintiffs from whom he allegedly purchased some shares directly.  They all were, according to Chen HQ, immediate parties to consensual purchases, either by way of agency or directly.

125.  On the basis that shares in a Hong Kong company are involved, Mr Mak also submitted [108] that “even if the aforesaid relief were obtained in the PRC, such Mainland judgment cannot be enforced in Hong Kong.”  He relied on Chan Chow Yuen v Nangyang Commercial Bank Trustee Ltd & Others HCAP 4/2002 (unreported, 7 June 2004).

126.  On the question of enforcement, I have been referred to the legal opinion obtained by Jinan Group [109], which confirmed that the Mainland Courts are empowered to grant and enforce the reliefs in respect of the Stake.  No contrary evidence has been placed before me on behalf of Chen HQ.

127.  In respect of Chan Chow Yuen:

  (a)    Mr Mak submitted [110] that:

“ … A Cheung J (as he then was) pertinently observed that where the case was concerned with shares in a limited company in Hong Kong, the parties would still have to litigate in Hong Kong if the judgment obtained in the PRC is not enforceable locally because ‘a determination that is either made by the local court or is recognised by it would be required in order to have any practical binding effect on the local company itself’: at §14, see also §§7 – 13.”

  (b)    With respect, that part of §14 of the judgement in Chan Chow Yuen was cited by Mr Mak quite out of context.  It was preceded by these words, that “As I say, after all I am concerned with a claim to revoke a Hong Kong grant. Moreover, in order to claim title to the shares,”.  The grant related to an estate which included certain shares in a Hong Kong company, in respect of which a parallel action was pending in the Mainland.  On those facts, it can be appreciatedwhy the company concerned need to be bound.  The facts in the present case are different.  Indeed, as submitted by Mr Wong, Chen HQ has not even sought to include CSI as a defendant in the present case.

    K.6.b.  The applicable law

128.  The applicable approach has been summarised by G Lam J in one of the interlocutory judgments he delivered in the Trust Actions (13 May 2015), that:

“ 78. In ascertaining the governing law in this context, it is necessary to focus on the issue in question. In Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387 at 391, Staughton LJ analysed the applicable approach in three stages as follows:

(1) First, it is necessary to characterise the issue that is before the court.

(2) The second stage is to select the rule of conflict of laws which lays down a connecting factor for the issue in question.

(3) Thirdly, it is necessary to identify the system of law which is tied by the connecting factor found in stage two to the issue characterised in stage one.

This three-stage approach was common ground and adopted by the Court of Appeal in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd [2011] 2 HKLRD 45 (CA) at §49.  I bear in mind that the rules of conflict of laws should be directed at the particular issue of law which is in dispute, rather than the cause of action which is relied upon: MacMillan at399C, 407B and 418A–B.”

129.  I have considered the characterisation of the issues that are before the court.  I repeat and stress the following.  Mr Mak has submitted that Chen HQ “brings the present proceedings to enforce his proprietary right over the SHDs’ shares”.  But as has been reiterated by G Lam J, the rules of conflict of laws should be directed at the issues of law that are in dispute, which in the present case are in my view contractual.

130.  Once it is recognised that the relevant issues before this Court are contractual in nature, and the lis being the existence and terms of SALA allegedly reached in the Mainland amongst Mainland parties, there can be little dispute that the applicable law will be the Mainland law.  The formation of a contract was governed by the law which would have been the governing law had the contract been validly concluded — §32-008 of Dicey, Morris & Collins on the Conflict of Laws (15^th ed), and §5.010 of The Conflict of Laws in Hong Kong (3^rd ed).  At common law, a contract of agency was governed by its proper law, which was, in general, the law of the country where the relationship of principal and agent was created — Dicey, Morris & Collins at §32-008. It should also in this regard be noted specifically that the Loan Agreements, the Share Pledge Agreements,the SPGAs, and the SPAs all contained a choice of law clause providing that their execution, validity, interpretation and enforcement would be subject to Mainland laws.

131.  Mr Mak sought to rely on G Lam J’s ruling in the Trust Actionsthat the Hong Kong law was the applicable law.  The core issue in the Trust Actions was very different.  It was, as summarised by his Lordship at §80 of the G Lam J 13 May 2015 Decision, “… whether, despite Mr Zhang’s attempt to put the shares into an express discretionary trust, overriding equitable interests arose in favour of the plaintiffs as a consequence of the steps taken which form part of the overseas restructuring.”  That was characterised as a proprietary issue.  I agree therefore that Mr Mak’s reliance in this regard on the G Lam J 13 May 2015 Decision was misconceived.

132.  I note further the expert opinion of Mr Charles Qin adduced by the SHDs [111]. Having considered various matters which he had set out in his report, Mr Qin concluded at §43 that:

“ Assuming the Alleged SALA exists, I am of the opinion that, under the PRC laws, the issue between Chen HQ and the 11 Representatives shall be identified or categorized as an agency contract dispute. Applying Article 16 of the Law on the Application of Laws to Foreign-Related Civil Relations; and/or Article 41 of the Law on the Application of Laws to Foreign-Related Civil Relations, I believe that the applicable law to the Alleged SALA should be that of the People’s Republic of China.”

133.  I note that in the 3^rd Ruzhou Proceedings, in which Chen HQ advanced the same case as he sought to in the present action, the Mainland Courts applied Mainland Laws without protests from Chen HQ [112].

134.  I find that the applicable law governing the core issue between the parties is Mainland laws.

135.  I add this.  On the facts of this case, given the otherwise lack ofconnection between the dispute and Hong Kong (other than the involvement of the shares of a Hong Kong company), even if somehow Hong Kong law were applicable, I would have attached little weight to this factor — see the realistic approach adopted by the Privy Council in Nilon Ltd v Royal Westminster Investments SA [2015] BCC 521 (UKPC) at §§66 and 68.

  K.6.c.  Availability of witnesses, and places which parties reside or carry on business

136.  All parties are Mainland citizens.  There is no suggestion that any Hong Kong witness will be involved.  All parties reside and work in the Mainland. 

    K.6.d.  Proceedings initiated in the Mainland relevant to the Stake

137.  I have set out above the various proceedings in the Mainland relevant to the Stake.  Most of them were initiated by Chen HQ himself. Quite some of them covered the very same disputes and issues raised in this action.  I point specifically to the 2^nd and 3^rd Ruzhou Proceedings.

138.  Chen HQ has given some explanations as to why he initiated the 3^rd Ruzhou Proceedings.  I have set them out above.  In respect of those explanations, I am of the view that there are a lot of force in the submissions of Mr Wong [113]that the explanations that those proceedings were necessary to maintain the “status quo” pending the trial of this action in Hong Kong are at odds with Chen HQ’s own conduct of pushing for judgments in those proceedings.  However, no matter what the explanations were for their initiation, relevant proceedings have been and could legally be initiated in the Mainland on the very dispute which this action is concerned with.  This is in my view a very important factor.

  K.6.e.   Juridical disadvantage if the action is to be tried in the Mainland?

139.  The first thing which Mr Mak pointed to was “a real risk that [Chen HQ] would be deprived of a fair trial in respect of proceedings in Jinan, in view of the clear evidence of manipulation by inter alia the Jinan City Government and Mi Jingtian.” [114] He sought to rely on §§61 – 62 of the ASI Decision.

140.  In Gain Park Holdings Ltd & Another v Eversino Investments Ltd & Others HCA 1638/2013 (unreported, 26 November 2014), in the context of considering the question of forum conveniens, and on the issue as to whether the plaintiffs would suffer any juridical disadvantage, Deputy Judge Wilson Chan (as his Lordship then was) observed at §61 that:

“ It is nowadays unlikely that concerns as to the quality of justice to be had in mainland courts per se will persuade the Hong Kong court not to grant a stay in favour of the PRC. It is open to plaintiffs in Hong Kong to make allegations of a denial of justice,but these must be asserted candidly and supported by cogent and positive evidence, which is lacking in the present case. In this regard, it is again emphasised that the 2^nd plaintiff himself has commenced proceedings in the PRC court.”

I agree with those observations.  I also emphasise the same matter which the learned Deputy Judge did, that Chen HQ himself has commenced proceedings in the Mainland.

141.  Both Jinan Group [115]and the SHDs have filed evidence refuting the allegations of coercion.  I note in particular the 5^th affirmation of Li Kwok Ching dated 29 June 2018.  Ms Li was a solicitor with Stephenson Harwood.  Between 12 and 14 June 2018, she visited Weifang Shanshui.  Having been explained by Ms Li about the background, certain employees alleged to have been coerced were asked to sign confirmations as to whether they had been coerced.  By the end of the exercise, Ms Li collected 384 of such confirmations.  All indicated that they had not been coerced.

142.  While important in itself, what I regard as more important than the rebuttal evidence filed are these.  As submitted by Mr Wong [116], and putting Chen HQ’s case in this regard at its highest, the alleged coercion was exerted by the senior management of the Shanshui Group and the Jinan Government.  There is neither allegation nor evidence produced by Chen HQ suggesting that any of the Mainland Courts or their processes were involved in the alleged improprieties, or that the Mainland Courts would be unable to properly deal with the alleged improprieties.  Further,and assuming that there had in fact been such improprieties, the Mainland Courts would in my view be much better equipped (compared with Hong Kong Courts) to deal with them and to safeguard the fairness of any trials there.  Having a trial in Hong Kong and getting witnesses from the Mainland to testify here would not in my view afford any answer.  Those witnesses, if they had been coerced, would remain to be in fear even if they were to testify in Hong Kong (that is if they were allowed to come at all). The suggestion that there had been improprieties in the Mainland is in my view a factor arguably against, rather than supporting, Hong Kong being the forum conveniens.

143.  The next things which Mr Mak pointed to was the alleged incapability on the part of the Jinan Court to grant any relief for the transfer of Hong Kong shares and its enforcement [117].  I have dealt with those submissions above.

  K.6.f.  Overall lack of connection, and conclusion

144.  I have taken an overall examination of the claim and the issues involved.  The only connection which Chen HQ could realistically rely upon is the involvement of a Hong Kong company in the form of CSI. That connection is however, on the facts of this case, neither real nor substantial.  It is in my view in fact tenuous.  All relevant events took place in the Mainland.  The related alleged agreements and understanding (the SALA, the Loan Agreements, the Share Pledge Agreements, the SPGAs and the SPAs) were all according to Chen HQ’s case reached in the Mainland. They all contain a choice of law clause choosing Mainland laws as the governing law.  I have discussed above the issues involved.  They are in my view contractual in nature.  The case raises no issue of Hong Kong company law.  The applicable law is in my view Mainland law.  All the witnesses were Mainland parties and residents.  If there had been any improprieties in the form of coercion as alleged by Chen HQ, they took place in the Mainland which the Hong Kong Courts are ill-equipped to handle. Chen HQ has himself started multiple court and arbitral proceedings in the Mainland on the very same issues.

145.  In all the circumstances, and having considered all the evidence and the law as I have above, I form the view that Chen HQ has failed to show “a serious question that Hong Kong is not only the appropriate forum to try the case but that this is clearly so”.

K.7.  Material non-disclosure

146.  There can be no dispute that a plaintiff seeking ex parte leave to serve out has the duty to make a full and fair disclosure of all the material facts.  In Capetronic Computer Sales Ltd v Viewsonic Corporation [2003] 3 HKLRD 841, Burrell J (as his Lordship then was) applied Brink’s-MAT Ltd v Elcombe [1988] 1 WLR 1350 (per Ralph Gibson LJ at p 1356) and explained as follows (at §8):

“ In considering whether there has been relevant non-disclosure andwhat consequence the court should attach to any failure to comply with the duty to make full and frank disclosure, the principles relevant to the issues in these appeals appear to me to include the following:

(1) The duty of the applicant is to make ‘a full and fair disclosure of all the material facts’ …

(2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers …

(3) The applicant must make proper inquiries before making the application. … The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.

(4) The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including:

(a) the nature of the case which the applicant is making when he makes the application; and

(b) the order for which application is made and the probable effect of the order on the defendant: …

(5) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application.”

147.  Assuming that material non-disclosure has been established, what order should the court make?  And assuming further that the ex parteleave to serve out is to be set aside, should the plaintiff be prevented from ever again pursuing its case outside jurisdiction and deprived of its opportunity to prosecute its case?  The concern was expressed by Rogers VP in Pacific Electric Wire v Texan Management [2007] 4 HKC 372 at §17:

“ To punish a party by preventing it from ever obtaining an order for service outside the jurisdiction on the basis that there has been a non-disclosure of a material fact on the first application for service outside the jurisdiction, would be a punishment and not a matter of protection of the court’s own process. This case might be considered an extreme example of why it would be wrong to adopt such a rule. A litigant might be deprived of the opportunity of recovery in a case where it is said that it has been defrauded of US$450,754,409 and HK$1,801,508,060. On any footing that would be a punishment which even Draco might have considered excessive for a transgression of the requirement to make full disclosure. It is not for the court to deprive parties of their property and meet out such punishments. If the court were to proceed on the footing that it was imposing a punishment,questions would arise as to the scale of punishments and as to who should benefit from them.”

In that same case, having expressed the concern, Rogers VP formulated the approach as follows (at §19):

“ Whilst, therefore, the original orders fall to be set aside and the plaintiff would have to bear the costs of the application to set them aside and all the costs thrown away, the question which the court must consider is whether, on all the facts now known,it is appropriate that the proceedings are served outside the jurisdiction.”

148.  For the reasons set out below, I accept Mr Maurellet’s submissions [118] that there was material non-disclosure when Chen HQ sought the ex parte Service Out Order:

  (a)    In respect of the different cases which Chen HQ has run:

(i)   I have considered above the several cases which Chen HQ has run, which differences I have ruled to be fundamental and drastic;

(ii)   In Chen HQ #1, the only disclosure he made in those regards was made at §53.6 [119], that:

“ The SH Employee Ps alleged that I have been running inconsistent cases in different proceedings. I would again emphasise that the SALA encompasses both the acquisition and loan aspects. Pursuant to the SALA, unless and until the Defendants successfully win in the Trust Action, I would be entitled to rely on the Loan and the security arrangement in support thereof. As such, I verily believe that the positions I have taken in all Court proceedings thus far have been consistent throughout.”

(iii)   The first point to note is that the nature of the inconsistencies was not disclosed at all in that sub‑paragraph, nor specifically the fact that both the Loan/Conditional Purchase Case and Purchasing Agent Case had been run by Chen HQ on oath;

(iv)   In my view, to discharge his duty to make a full and frank disclosure, Chen HQ ought to have at the very least disclosed in Chen HQ #1 the material evidence which he had put forward on oath in HCMP 962/2017, as I have summarised above.  When considering the ex parte application for the Service Out Order, Master Leong was in my view clearly entitled to expect at least such disclosure.  Failure to do so in my view constituted a clear breach;

(v)   Further, rather than making a full and frank disclosure of the nature of his evidence he had put forward in HCMP 962/2017, Chen HQ at Chen HQ #1 §38(c) gave a description of HCMP 962/2017 which can at best be said to be a half-truth, if not actually misleading.  He said therein that:

“ There are currently related actions in Hong Kong (including, most notably, the Trust Actions) involving the same subject-matter, namely the Shares. There are also some other proceedings in Hong Kong related to the bigger picture and the SALA, namely HCMP 962/2017 and HCMP 1958/2017. It is most convenient and appropriate for all related matters to be tried together before the Hong Kong Court.”

I agree in this regard with the submissions of Mr Maurellet [120]that the way Chen HQ described HCMP 962/2017 there was disingenuous.  HCMP 962/2017 was not a substantive matter meant to be tried in Hong Kong, but an application made in aid of the Mainland-based SPGA Arbitration;

(b)    The choice of law clauses:

(i)   I have set out the contents of the various written Agreement relevant to Chen HQ’s claim (the Loan Agreements, the Share Pledge Agreements, the SPGAs and the SPAs).  All of them contain a choice of law clause choosing Mainland laws as the governing law;

(ii)   I agree that the fact that those written agreements contained such choice of law clauses was obviously relevant to application, and ought to have been highlighted for the consideration of Master Leong [121];

(c)    Initiation of proceedings in the Mainland:

(i)  The Nominee Arbitrations were commenced by Chen HQ against 10 of the 11 Representatives on 21 September 2017. He, in reliance upon the SALA, sought a declaration that the said 10 Representatives purchased the CSI shares from the Employee Shareholders in August as his agents;

(ii)   The Nominee Arbitrations covered the same dispute as Chen HQ sought to raise in the present action.  In my view, the fact that he had initiated them in the Mainland ought to have been raised for Master Leong’s consideration. Failure to do so was in my view another serious material non-disclosure [122] ;

(iii)   In respect of the 1^st Ruzhou Proceedings, Chen HQ had failed to reveal, as he only subsequently did at §§38 – 39 of Chen HQ #12, that he had also taken out two more legal proceedings in 2016 against Liu DQ together with two of the Employee Shareholders.

149.  I next consider, as am required by the Court of Appeal in Pacific Electric Wire, “whether, on all the facts now known, it is appropriate that the proceedings are served outside the jurisdiction.”

150.  In this regard, I repeat my discussions above on my views as to the lack of any good arguable case in respect of Chen HQ’s case, and the lack of connection between his claim (and the issues involved) and Hong Kong.  Chen HQ had further since the Service Out Order commenced and pressed ahead with the 2^nd and 3^rd Ruzhou Proceedings.  On those facts, and for those reasons, which I will not repeat, I form the view that it is not appropriate that the proceedings are served outside the jurisdiction.  In the course of his oral submissions, Mr Mak asked rhetorically as to whether the parties should fight these disputes out in the Mainland.  In my view, and for all the reasons I have set out above, my view is in the affirmative.

151.  I deal with one further point here.  I have mentioned Order 11,rule 1(1)(i) above.  In the course of his oral submissions, Mr Mak invited me to, if necessary, regrant leave on that basis of that gateway.  The use of the gateway under Order 11, rule 1(1)(i) would not cure my concerns over merits.  I further note that Mr Mak’s invitation was not accompanied by any amendments to Chen HQ’s pleadings.  Still no declaration of proprietary or beneficial interest is being sought.  On the authorities of Kayden, and applying the strict approach as explained by Ribeiro PJ, I would have declined the invitation in any event.

K.8.  Conclusion on the jurisdictional challenges

152.  For the reasons set out above, I rule in favour of the jurisdictional challenges made on behalf of SHDs and Jinan Group. 

L.   THE ASI DISCHARGE SUMMONS

153.  I have acceded to the jurisdiction challenges made on behalf of SHDs and Jinan Group.  On this basis, the ASI must go.

154.  For the reasons set out below, I would in any event have discharged the ASI.

155.  The ASI is an interlocutory order.  Its effect is expressly “pending the final determination of this action or further order”.  This court has jurisdiction to vary or discharge the same if sufficient grounds are established.  As observed by G Lam J at §52 of his judgement in the Trust Actions discharging the earlier appointment of receivers [123] :

“ Such an interlocutory order does not result in the question being res judicata and immune from review pending the trial, at any rateif there is new evidence that seriously justifies reconsideration of the issue or if there has been a material change of circumstances”.

156.  I agree with Mr Maurellet’s submissions that there have been material changes of circumstances.

157.  As can be seen from the submissions [124] made on behalf of Chen HQ before Deputy Judge To, Chen HQ put forward two important bases or planks in support of his application for the ASI:

  (a)  “[Chen HQ] submits that Hong Kong is clearly and distinctly the appropriate forum for resolving the disputes herein …” [125]; and

  (b)  “Even though it is acknowledged that [Chen HQ] has commenced other CIETAC arbitrations and actions in the PRC Courts, those proceedings clearly involve different parties or not all of the parties in the present Actions, concern much narrower issues.  Importantly, the proceedings there were dictated by the arbitration agreement between the parties.  Such proceedings should therefore not be indications of Hong Kong not being the forum conveniens.” [126]

158.  Since those submissions to Deputy Judge To, and since the ASI made on 29 May 2018, Chen HQ has (or has been discovered to have) commenced other proceedings in the Mainland.  I have dealt with them above.  I have also considered them in deciding that Chen HQ has failed to show “a serious question that Hong Kong is not only the appropriate forum to try the case but that this is clearly so”.

159.  I have considered above the explanations given by Chen HQ as to why he initiated the 3^rd Ruzhou Proceedings.  I repeat my observations above, that there are a lot of force in Mr Wong’s submissions [127] that those explanations are at odds with Chen HQ’s own conduct of pushing for judgments in those proceedings.  But in any event, whilst those submissions may be relevant when considering Mr Maurellet’s submissions that Chen HQ could not blow hot and cold on the question of forum conveniens [128] (which proposition and submission I have not relied on in reaching the conclusions that I have above), the reality remains that relevant proceedings have been and could legally be initiated in the Mainland on the very dispute which this action is concerned with.  As has been submitted by Mr Maurellet [129], which I accept, the 3^rd Ruzhou Proceedings substantially overlap with this action in terms of parties and issues.  This represents a material change from the plank put forward on Chen HQ’s which I have set out above at §157(b).

160.  Given those material changes, and for reasons set out and discussed in respect of the SHD Jurisdiction Summons and Jinan Group Jurisdiction Summons, I would in any event have discharged the ASI. This is with no disrespect to Deputy Judge To.

M.  DISPOSITION

161.  For the reasons set out above:

  (a)    I allow §§1, 2 and 4 of the SHD Jurisdiction Summons;

  (b)    I allow §1 of the Jinan Group Jurisdiction Summons;

  (c)    I allow §1 of the ASI Discharge Summons.

162.  Due to the complicated background of this case, I grant the parties liberty to seek any consequential orders or directions which they may deem appropriate.  If necessary, a hearing date may be sought for that purpose.

163.  On the question of costs, I make a costs order nisi that Chen HQ should bear the costs of the SHD Jurisdiction Summons, the Jinan Group Jurisdiction Summons, and the ASI Discharge Summons, all with certificatefor two counsel.  Any party who seeks any variation or summary assessmentshould lodge their submissions within 14 days from the date hereof, response within 14 days upon receipt, and reply within 7 days thereafter.