INTEX RECREATION LTD v. TONY LIU

HCA 1788/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1788 OF 2013

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DECISION
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Introduction

1.  Tony Liu (“TL”) by his summons (“the Summons”) applies to discharge the order of Master J Wong dated 2 October 2013 whereby the learned master granted Intex Recreation Limited (“IRL-BVI”) on an ex parte basis leave to issue and serve a concurrent writ of summons (“the Order”) on the ground that the claim of IRL-BVI does not fall within the relevant provisions of Order 11, Rules of the High Court (“RHC”), i.e. O11 r 1(1)(d)(iii) and O11 r 1(1)(e) (“the Two Provisions”). As a result of the Order, a concurrent Writ dated 5 November 2013 was served on TL in the United States.

2.  IRL-BVI filed an affirmation of Yen George Ching Chi dated 23 September 2013 (“the ex parte Affirmation”) to support its ex parte application for the Order. There, TL alleges that there were material non-disclosures before the ex-parte master which now justify a discharge of the Order.

3.  Alternatively, TL applies for a stay of this action in favour of the People’s Court of Haicang District of Xiamen, the PRC (“the Xiamen Court”) on the ground of forum non conveniens.

Background

4.  For the purpose of this Decision, a brief summary of the claim of IRL-BVI as pleaded in the Statement of Claim should suffice.

5.  IRL-BVI is a BVI company and is the parent company of a group of companies including Intex (Hong Kong) Limited (“IRL-HK”). IRL-HK was incorporated in Hong Kong and was the ex-employer of TL.  The employment is evidenced by a written employment contract dated 4 April 2002 (“the IRL-HK Employment Contract”). TL is a Taiwanese holding a US passport.

6.  IRL-BVI now sues TL on a loan agreement (“the Loan Agreement”) evidenced by a written Chinese acknowledgement signed by TL dated 27 April 2010 (“the IOU”). The Loan Agreement was pleaded to be an oral one in the Indorsement of Claim and there is no such averment in the Statement of Claim.

7.  There is a convoluted story behind the Loan Agreement. Within the Intex group there was a discretionary retirement bonus scheme (“the Scheme”) whereby employees of the companies with the Intex group to encourage long service. TL was one of those employees entitled to join the Scheme.

8.  In 2007, the Intex Group purchased a number of properties in Xiamen for a few selected employees within the Intex Group when they were working in Xiamen. Such properties were registered under the names of those selected employees and the purchase prices of such properties were to be set off against part of their accumulated bonus under the Scheme upon their retirement. Under these circumstances, TL was assigned one property in Xiamen (“the Property”).

9.  However, by 2010, TL was still unable to accumulate sufficient retirement bonus under the Scheme and hence Intex Group reached the Loan Agreement with TL on or before 27 April 2010. The loan under the Loan Agreement in the sum of RMB$1,403,720 (“the Sum”) was the outstanding purchase price of the Property (I note that there is evidence that the Sum was the actual purchase price). The terms of the Loan Agreement were contained in the IOU. From the IOU, it can be seen that compound interest on the loan is chargeable and TL was required to make monthly repayment in the sum of US$2,500 commencing from April 2010.

10.  The exact mode of repayment is not pleaded. It is pleaded that the first monthly deduction of US$2,500 of TL’s salary was made on 31 May 2010. Since TL left his employment with the Intex Group without notice in November 2012, the last deduction was made on 30 November 2012. Since then TL has made no further repayment by whatsoever means.

11.  It is the pleaded case that IRL-BVI claims against TL the Sum being the principal due and owing to IRL-BVI by TL pursuant to the Loan Agreement plus interest.

12.  One important allegation underpinning the defence is that TL ceased to be an employee of IRL-HK in 2005 and thereafter he joined another company of the Intex Group, i.e. Intex Xiamen in the Mainland pursuant to a written agreement entitled Labour Contract (“勞動合同”) dated 1 September 2005. Ms Lok, appearing for TL, submits that the Labour Contract was governed by the PRC law.

13.  I should add that the position of TL relating to the Loan Agreement is that he signed this document under economic duress and so it should be set aside.

Preliminary matter

14.  Shortly before the hearing, IRL-BVI took out a summons dated 29 October 2014 for adducing a further affirmation. It seeks to exhibit some public documents to make good its allegation that IRL-BVI is indeed the parent company of a group of companies including IRL-HK and to make clear its objection of the authenticity of the Labour Contract.

15.  This affirmation is hopelessly late and Mr Man, for IRL-BVI, does not defend its lateness. Ms Lok confirms that it is now common ground that IRL-BVI is the parent company of IRL-HK. She however argues that the authenticity issue is new and submits that on the evidence filed by IRL-BVI, it is not expressly alleged that the Labour Contract is a forgery. She submits that TL is prejudiced if it is allowed to be made in the eleventh hour.

16.  My view is that it is plain that the evidence of IRL-BVI has sufficiently raised an issue of authenticity in regard to the Labour Contract already. On this occasion, this court cannot possibly resolve this issue on affidavit evidence in any event and the new affirmation effectively adds nothing to the issue and is not really relevant to the present debate.

17.  On that basis, Mr Man does not proceed with the application. I thus dismiss the late summons with costs to TL. On my record, the debate only last for about 15 minutes.

Service Out?

18.  I first consider whether the claim of IRL-BVI falls within the Two Provisions. For easy reference, the relevant parts of them are set out as follows:

“…service of a writ out of jurisdiction is permissible with the leave of the Court if in the action begun by the writ …

(d) the claim is brought to enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract, being (in either case) a contract which –

(iii) is by its terms, or by implication, governed by Hong Kong law …

(e) the claim is brought in respect of a breach committed within the jurisdiction of a contract made within or out of jurisdiction, and irrespective of the fact, if such be the case, that the breach was preceded or accompanied by a breach committed out of the jurisdiction that rendered impossible the permissible the performance of so much of the contract as ought to have been performed within the jurisdiction.”

19.  There is no dispute about the applicable threshold. To invoke the discretion of the court to grant leave under O.11, the plaintiff has first to show a good arguable case that his claim is within the chosen gateway(s) under O.11. Further, the plaintiff has to show a serious question to be tried and that Hong Kong is the forum conveniens for his claim.

20.  Mr Man pertinently refers this court to the following passage relating to the first hurdle in Johnston, The Conflict of Laws in Hong Kong, 2^nd edn 2012 at §3.057:

“ a ‘strong case for argument’ but it is not necessary for the court to be able to reach even a tentative conclusion that the plaintiff is ‘probably right’. The requirement is for the court to be ‘satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exists which allow the court to take jurisdiction’. Another way of putting it is ‘does the plaintiff have a much better argument on the material available?’ Ultimately, it is ‘not capable of very precise definition’, being ‘a judicial animal that is perhaps easier to recognize than to describe’.”

O11 r 1(1)(d)(iii)?

21.  The position of IRL-BVI is that the Loan Agreement was an addition to the IRL-HK Employment Contract, which should be governed by Hong Kong law. Thus by implication the Loan Agreement should likewise be governed by Hong Kong law.

22.  Ms Lok makes an all-out effort to attack the validity of the allegation that at the time of the Loan Agreement, TL was still an employee of IRL-HK under the IRL-HK Employment Contract. She submits that once this court accepts that the relevant employer of TL as at the time of the Loan Agreement was IRL-Xiamen instead, IRL-BVI could not make out a case of jurisdiction as the IRL-Xiamen employment and likewise the Loan Agreement should be governed by PRC law.

23.  Ms Lok relies on the following matters to substantiate her challenge. First the Labour Contract expressly provided that the place of performance was Xiamen and that TL had no other employment relationship with other entities. Though not expressly provided, Ms Lok submits that it was obviously governed by PRC law.

24.  Moreover, there are some documents entitled Individual Income Tax Certificates issued by the tax authority of Xiamen covering the period from 2006 to 2011 showing the income of TL and the tax paid by him with reference to IRL-Xiamen.

25.  Next, TL has produced a few Employee Status Notifications issued by Intrex Industries Ltd with a reference to China from 2008 to 2010. Ms Lok submits that this conclusively shows that the employer of TL at the material time was not IRL-HK.

26.  Ms Lok draws my attention to the assertion of TL in his affirmation that IRL-Xiamen filed tax returns relating to the IRL-Xiamen employment of TL in the Mainland (not supported by documentary evidence) and at the same time the complete lack of tax documents of IRL-HK and MPF documents evidencing the alleged IRL-HK Employment after 2005.

27.  The entry records in the passport of TL show that TL spent less than 3 weeks per year from 2003 to 2012. Ms Lok submits that these records negative the IRL-HK Employment as at the time of the conclusion of the Loan Agreement.

28.  Lastly, this court is aware that contrary to the documentary and affidavit, the pleaded case of IRL-BVI in its Statement of Claim is that TL was first employed by Index Hong Kong in 2002 and had been an employee of Index Group up to 2012.

29.  Despite the cogent submissions of Ms Lok, I accept that IRL-BVI has made out a good arguable case that the Loan Agreement is governed by Hong Kong law on the ground that it was an addition to the IRL-HK Employment Contract for the following reasons.

30.  First, I cannot accept at this stage that the Labour Contract points conclusively to a PRC employment in light of the objection to its authenticity. I should not go into any details and suffice it for me to say that I do not find the challenge to be groundless on the present state of evidence in particular given TL’s own assertion in his first affirmation that the there was no any formal written agreement for the alleged IRL-Xiamen employment. This is so despite his explanation as to why he said so in his subsequent affirmation.  

31.  IRL-BVI has produced a record of the payroll of TL showing his income from 4 August 2002 to 30 November 2012 (“the Payroll”). It can be seen that from 2005 onwards, his income was divided into Hong Kong portion payable in Hong Kong and Xiamen portion payable in the PRC. The former took up the lion share and was paid in Hong Kong dollars or US dollars whilst the latter was paid in RMB. It can also be seen that from 2011 onwards TL received substantially less income in his Hong Kong portion indicative of deductions.

32.  TL did not deal with the contents of the Payroll at all in his reply affirmation. This document lends certain support to the contentions of IRL-BVI in my view.

33.  I accept that the evidence of the IRL-HK Employment at the material time could be more conclusive. However, given the IRL-HK Employment Contract, the lack of cogent evidence of its termination in 2010 and the commencement of other employments of TL, on the affidavit evidence of IRL-BVI, I am prepared to accept that there is good arguable case that at the time of the conclusion of the Loan Agreement, the IRL-HK Employment was still subsisting and it was arguably governed by Hong Kong law. I accept that the Loan Agreement was arguably an addition to the IRL-HK Employment Contract and hence likewise governed by Hong Kong law arguably.

34.  In my judgment, IRL-BVI met the threshold under O.11 r 1(1)(d)(iii) accordingly.

O11 r 1(1)(e)?

35.  IRL-BVI has to show that it has a good arguable case that TL breached the Loan Agreement within the jurisdiction. Its argument is developed in the following manner.

36.  In the ex-parte Affirmation, IRL-BVI alleged that in the Loan Agreement, TL agreed to repay the loan together with interest by monthly deductions from part of his salary paid in Hong Kong by IRL-HK (“the Deduction Term”).

37.  Ms Lok is right in pointing out that the Deduction Term did not feature in the IOU despite the detailed provision as to how TL had to repay by monthly instalments starting from April 2010.

38.  The case of IRL-BVI is that when TL wrongfully terminated the IRL-HK Employment, TL breached the Loan Agreement in that no further repayment could be deductible from his salary. Thus, the breach was committed in Hong Kong.

39.  As explained above, the Payroll seemingly supports the existence of the Deduction Term.

40.  I have difficulties in accepting that TL could only repay the loan under the Loan Agreement in compliance with the Deduction Term. There is no reason why the repayment of the loan had to be made dependent on the employment of TL with IRL-HK, which must be determinable on way or another. IRL-HK could not possibly insist on the continued service of TL until full repayment was paid in accordance with the Deduction Term.

41.  I therefore cannot accept that the mere termination of the IRL-HK Employment constituted a breach of the Loan Agreement. After all, the true complaint of IRL-BVI is about TL’s non-repayment of the loan under the Loan Agreement.

42.  However, having concluded that the Loan Agreement was an addition to a Hong Kong employment contract and in light of the evidence that repayments had all along been made by monthly deductions from TL’s income payable in Hong Kong (altogether 30 instalments made), when TL failed to continue repayment in Hong Kong after he left the employment, arguably his non-repayment and hence breach of the Loan Agreement were committed in Hong Kong.

43.  I should also deal with the interesting argument of Ms Lok about the purported illegality of the Deduction Term. She helpfully refers to this court section 32 of the Employment Ordinance, Cap.57 which provides that an employer cannot make any deductions from the wages of his employee otherwise than in accordance with the Ordinance. Section 63B makes it a criminal offence in the event of a contravention of the said provision punishable by fine and imprisonment.

44.  On this basis, Ms Lok submits that the Loan Agreement was obviously void and unenforceable for illegality if IRL-BVI insists on the existence of the Deduction Term.

45.  I cannot agree with this submission. Even if the Deduction Term is a contravention of the Employment Ordinance, it does not necessarily follow that the entire Loan Agreement is void and unenforceable to the extent that TL can be excused from making any repayment thereunder.   

46.  Further, Mr Man helpfully draws my attention to section 32(2)(f) of the Ordinance which makes such deductions an exemption if they are made with the written consent of an employee for the recovery of any loan made by the employer to the employee.

47.  Mr Man suggests that it is arguable that the IOU amounts to such a written consent under section 32(2)(f). I cannot accept this submission. No agreement of any deduction from his salary payable for the purpose of the Loan Agreement can be discernible in the IOU.

48.  That said, in view of the Loan Agreement and the 30 instalments made without protest, IRL-BVI may pray in aid the said provision if the illegality issue is taken by the defence. Nevertheless, this issue is in my view only of marginal, if any at all, relevance on this occasion.

49.  In these circumstances, I am of the view that IRL-BVI also meet the threshold under O11 r1(1)(e) in that it has shown a good arguable case that the breach of the Loan Agreement was committed in Hong Kong.

Serious issue to be tried on merits

50.  As Ms Lok point out, this court should not make a minute analysis of the merits on paper evidence at the stage. Having said that, Ms Lok went on to attack the claim of IRL-BVI on the evidence on all fronts. Though impressed by her submissions, which I shall not set them out and deal with them here, I cannot conclude that there is no serious question to be tried and that the claim as presently formulated is strike-outable despite the questions the claim inevitably raises. After all, the Loan Agreement is evidenced by the IOU signed by TL. It cannot be possibly concluded that TL must be able to set aside the IOU by his plea of economic duress at this stage.

Forum conveniens

51.  On this subject, the first argument of Mr Man is that TL has no defence at all and so there is no issue to be tried in Hong Kong or elsewhere. Thus for the purpose of Order 11, there is no question of forum conveniens.

52.  Mr Man refers to Bayer Polymers Co Ltd v ICBC Hong Kong [2000] 1 HKC 805 for the proposition that where a defendant has no arguable defence, it would be a strong reason to refuse a stay on the ground of forum non-conveniens. The decision was made in the context of a defendant’s application for a stay of proceedings in Hong Kong. Mr Man submits, by the same token, when the issue of forum conveniens is to be considered under Order 11, the absence of a bona fide defence should be taken into account.  

53.  Ms Lok cannot accept that this is the appropriate approach and she insists that the threshold of “a good arguable case” relates to jurisdiction under O.11 r1 only and the established principles prescribe that factual disputes should bot be tried on affidavit. In this regards, Ms Lok refers this court to the commentary at §11/1/8 of the Hong Kong Civil Procedure Volume 1 2015 p.127.

54.  I think Mr Man’s submission is supported by the following passage in Johnston, The Conflict of Laws in Hong Kong, at §3.060:

“Formally, forum conveniens becomes relevant in the RHC O.11 context by virtue of r.4(2). In substance, the approach to forum conveniens in RHC O.11 cases is the same as to the grant to a stay where the defendant has been served in Hong Kong, save that the burden to establish that the Hong Kong court is the forum conveniens lies on the plaintiff in RHC O.11 cases, whereas in cases where service has been effected in Hong Kong, the burden rests on the defendant to show that the forum conveniens is a foreign court.”

55.  For completeness, O11 r.4(2) provides as follows:

“No such leave (to serve writ out of jurisdiction) shall be granted unless it shall 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 commentary referred to me by Ms Lok actually relates to O.11 r1 and not r4(2). It concerns the strict approach to the gateways under r1 and it is strictly a question of jurisdiction. On the other hand, r 4(2), as explained in the foregoing passage in Johnston, The Conflict of Laws in Hong Kong, allows a detailed examination of merits.      

57.  However, on the evidence available to me, it is far from clear that TL does not have a valid defence to the claim of IRL-BVI. Ms Lok has made certain valid observations about the apparent weakness of the claim in her eloquent submissions. I myself am not, to say the least, free from doubts about certain aspects of it. For example, it cries out an explanation about why IRL-BVI can now claim to recover the entire Sum without any credit being given to the repayments made thus far in accordance with the Deduction Term.

58.  Thus, I am unable to dispose of the question of forum conveniens on merits. For the following reasons, I am satisfied that Hong Kong court is the forum conveniens.

59.  First, given my conclusion that it is arguable that the Loan Agreement was an addition to the IRL-HK Employment Contract, it is arguable that both of them are governed by Hong Kong law. In any event, the defence does not suggest in what way Xiamen law is different in any material respects.

60.  The loan was partially repaid over a long period in Hong Kong. The defence argues against the legality of the Deduction Term. TL further relies on the plea of economic duress to set aside the Loan Agreement. All these matters should best be canvassed in Hong Kong courts.

61.  On the other hand, I am unable to accept the bare assertion that the Xiamen court is obviously the natural forum. It is based on the hotly-contested allegation of a PRC employment evidenced by the Labour Contract and the assertion that TL have investments in the PRC. The latter assertion is made without any particulars. I am unable to accept his evidence on its face value.

62.  All in all, I am not at all satisfied that Hong Kong is not the natural and appropriate forum and instead the Xiamen court is clearly or distinctly more appropriate than Hong Kong. This conclusion also disposes of the application of TL for a stay of proceedings on the ground of forum non-conveniens.

Material non-disclosure

63.  Ms Lok made a number of complaints under this head. Most of them relate to the failure of IRL-BVI to disclose the alleged Xiamen employment of TL and/or evidence suggestive of such an employment (such as the fact that IRL-HK ceased to file tax returns and make MPF contributions for TL after 2005) to the ex-parte master.

64.  I have again scrutinised the evidence before the ex-parte master. It already set out in the affirmation that TL had worked in both Hong Kong and Xiamen and his salary was partially paid in Hong Kong and partially paid in Xiamen from HSBC in Hong Kong. Bearing in mind the position of IRL-BVI relating to the alleged Xiamen employment and the Labour Contract, it cannot be faulted by reason of its non-address/mention of such issues at the ex-parte stage. It could not have been required to make up a defence case on the available evidence and dealt with the same in its ex-parte application.

65.  Ms Lok lastly complains that at least IRL-BVI should alert the ex-parte master to the apparent contravention of the Employment Ordinance by virtue of the Deduction Term. She relies on the dictum of Tang ACJHC (as he then was) in East Asia Satellite Television (Holdings) Ltd v New Cotai LLC [2011] 3 HKLRD 734 (CA) at §§81-82. There, the learned judge accepted Mummery LJ’s observation in Memory Corporation Plc & Anor v Sidhu (No 2) [2000] 1 WLR 1443 at 1460 that the duty to disclose encompassed ‘significant factual, legal and procedure aspect of the case.’ The learned judge added that inadvertent (innocent) non-disclosure may well give rise to the ex-parte order being discharged.

66.  I have deliberated on the validity of this complaint and come to the conclusion that the failure to bring home to the ex-parte master the possibility of a contravention of the Employment Ordinance was not a material non-disclosure even in its wider sense. I am not persuaded on the evidence that the Deduction Term is necessarily illegal, and even if it is, that the Loan Agreement would be set aside as a result. I am not convinced of the materiality of this possibility in the context of an O11 application.

67.  To conclude, I do not agree that any of the alleged non-disclosure was material and should have been disclosed at the ex-parte stage. Accordingly, I refuse the application of TL to set aside leave for service out of jurisdiction on this ground.

Conclusion and Order

68.  For the reasons given above, I do not find any merit in the application of TL. I dismiss the Summons altogether.

69.  There is no reason to depart from the general principles and costs should follow the event. Save those costs relating to the rejected application of IRL-BVI to adduce new evidence as provided above, I make an order nisi that costs of and occasioned by the Summons should be paid by TL to IRL-BVI forthwith, to be taxed if not agreed.

70.  Finally, it remains for me to thank both Ms Lok and Mr Man for their able submissions and helpful assistance.