CHEN LINGXIA v. 中國金谷國際信託有限責任公司 AND OTHERS

HCA 2012/2018

[2021] HKCFI 982

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2012 OF 2018

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DECISION

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The Summonses

1.  There are two Summonses before me:

 (a)  the summons of 12 December 2018 taken out by the 3^rd to 6^th defendants (“D3” or “Guangdong Jinheng”, “D4”, “D5”, “D6”, and “D3‑6’s Summons”); and

 (b)  the summons of 20 December 2018 taken out by the 1^st defendant (“D1” or “Jingu International”, and “D1’s Summons”).

2.  Mr Jonathan Wong with Ms Nicole Li appeared for the plaintiff (“P” or “Chen”), Mr Laurence Li SC[1] leading Ms Esther Mak for D1, and Mr Ambrose Ho SC leading Mr Gary C C Lam for D3 to D6.

3.  In §1 of D1’s Summons, a declaration is sought that in the circumstances of the case the Court has no jurisdiction over D1 in respect of the subject‑matter of P’s claim or the relief sought.  At the commencement of the hearing, Mr Li confirmed that that declaration would no longer be pursued.  Both Summonses hence now raise the same point, namely the present action be stayed on the ground of forum non conveniens in favour of the Xicheng Court in Beijing.

The pleadings and affirmatory evidence

4.  The Writ of Summons was issued on 27 August 2018.  The Statement of Claim (“SOC”) is dated 13 September 2018.

5.  P has filed one affirmation, which is her 4^th one filed on 22 May 2019 (“P/4”). 

6.  On behalf of D1 there are:

 (a)  the affirmation of Ji Yuen filed on 27 December 2018 (“Ji” and “Ji/Aff”);

 (b)  2 affirmations of Luo Jianwen filed on 20 December 2018 and   30 December 2019 (“Luo”, “Luo/Opinion1” and “Luo/Opinion2”), Luo being the Mainland law expert engaged by D1.

7.  On behalf of D3 to D6, there are:

 (a)  the 2^nd affirmation of Zhang Yunfei filed on 12 December 2018 (“Zhang” and “Zhang/2”);

 (b)  the 3^rd affirmation of Lin Rongwei filed on 31 January 2019 (“Lin” and “Lin/3”);

 (c)  the 3^rd affirmation of Zhang filed on 15 October 2019 in reply (“Zhang/3”);

 (d)  the 2^nd affirmation of Lai Richeng filed on 15 October 2019 (“Lai” and “Lai/2”), Lai being one of the directors of the 7^th defendant (“D7” or “South Asia”);

 (e)  the 2^nd affirmation of Lo Hoi Ki Adrian filed on 18 October 2019 in respect of the status of an appeal in the Mainland (“Lo” and “Lo/2”); and

 (f)  the 4^th affirmation of Zhang filed on 28 July 2020 giving an update of the facts (“Zhang/4”).

8.  At different places of the hearing bundles there are altogether 10 legal opinions on Mainland law.  Parties have in the course of the hearing informed me that only the following are relevant:

 (a)  For P, the opinions of Ms Xu Qianzhen (“Xu”) of

 (i)  19 February 2019^[2] (“Xu/Opinion1”) and

 (ii)  25 April 2019^[3] (“Xu/Opinion2”)

 (b)  For D1, Luo/Opinion1 and Luo/Opinion2 mentioned above; and

 (c)  For D3 to D6, the legal opinions of Mr 鄧乃文(“Deng”) of:

 (i)  7 December 2018[4] (“Deng/Opinion1”),

 (ii)  11 October 2019[5] (“Deng/Opinion2”) and

 (iii)  17 July 2020[6] (“Deng/Opinion3”).

9.  Both in his written submissions[7] and in the course of the hearing, Mr Wong suggested that D3 to D6 had withdrawn their reliance upon Deng/Opinion3.  Mr Ho has informed this Court in clear terms that they have not.  I proceed on the basis that they have not been.

The parties

10.  P’s claim concerns 2,550,000 shares in D7 (the “Subject Shares”), being 51% of the shareholding in D7.

11.  P is a businesswoman and resident in Xiamen[8].

12.  D1 is a company incorporated in Xicheng, Beijing.

13.  The 2^nd defendant (“D2” or “Silver Grant”) is a Hong Kong company.  It has been acting as D1’s nominee in respect of the Subject Shares.

14.  D3 is a company incorporated in Guangzhou.  D4 is a Hong Kong company. D5 is a company incorporated in Xiamen.  D6 is a company incorporated in Guangzhou.  D4, D5 and D6 have been acting as D3’s nominees in respect of the Subject Shares.

15.  D7 is a Hong Kong company.  Its key asset is a wholly owned subsidiary set up in the Mainland called香山國際遊艇俱樂部（厦門）有限公司 (“XS International”).  XS International was incorporated in Xiamen on 4 July 2005.  It was set up as a corporate vehicle in the form of a wholly owned foreign enterprise (“WOFE”) for D7’s plan to develop a yacht club in Xiamen under the project of 香山遊艇俱樂部項目 (the “Project”).

16.  In respect of the shareholding in D7:

 (a)  P claims[9] that D7 has issued and allotted 5,000,000 shares of $1.00 each, and that she and her husband, Mr Fang Dongluo (“Fang”) became its only shareholders on around 14 December 2006, each holding at that stage respectively 4,000,000 and 1,000,000 shares;

 (b)  in around early 2009, as a result of certain credit arrangement, P and Fang transferred a total of 2,450,000 shares in D7 to one Wu Jiancheng (“Wu”). Upon the transfer, the shareholding in D7 became:

 (i)  P holding 2,050,000 shares (41%);

 (ii)  Fang holding 500,000 shares (10%); and

 (iii)  Wu holding 2,450,000 shares (49%).

17.  P was at the material time also a director of D7, and a director and the legal representative of XS International.

P’s pleaded case

18.  P’s pleaded claim, as summarized in the SOC[10], goes as follows:

 (a)  on around 31 December 2010, P pledged the Subject Shares to D1, which nominated D2 to hold the same on its behalf (the “Share Pledge Arrangement”);

 (b)  The Share Pledge Arrangement was entered into as part of a series of arrangement (the “Loan Arrangements”) between inter alios D1 and P, whereby D1 undertook to advance loans to XS International to finance the Project (the “Loans”);

 (c)  It was the agreement and understanding between the parties that:

 (i)  The legal title to the Subject Shares was transferred to D2 only as security for XS International’s liability under the Loan Arrangements;

 (ii)  The said legal title to the Subject Shares would be transferred back to P or her nominees upon repayment of the Loans;

 (iii)  In about 2015 or 2016, D1 alleged breach of the Loan Arrangements and unilaterally tried but failed to execute against the security concerned;

 (iv)  In or about late 2017, as it was unable to successfully execute against XS International and related parties, D1 wrongfully and in breach of the Share Pledge Arrangement (or alternatively in breach of the charge/mortgage/trust arrangement in relation to the Subject Shares) purported to auction the Loans on Taobao (the “Taobao Auction”).  D3 bid on and purportedly won the auction;

 (v)  D1 then wrongfully caused D2 to transfer the Subject Shares to D3’s nominees, namely D4 to D6 (the “Purported Transfer”);

 (vi)  The Taobao Auction and the Purported Transfer were carried out without P’s knowledge or consent, were neither legitimate nor bona fide, and were in breach of Mainland law and/or alternatively in breach of the charge/mortgage/trust arrangement in relation to the Subject Shares;

 (vii)  As at the date of the Writ, P is ready, willing and able to settle the Loans, and thus is entitled to redeem the legal title to the Subject Shares.  P thus disputes the relevant Ds’ alleged entitlement to or interest in the Subject Shares and their dealings in the same;

 (viii)  D3 to D6 have procured D7 to call for EGMs to pass resolutions which would cause irreparable damage to P’s interests in the Subject Shares;

 (ix)  P claims declarations that P was and is the beneficial owner of the Subject Shares and that the Purported Transfer was in breach of the Share Pledge Arrangement, or alternatively, in breach of charge/mortgage/trust, and thus is void and of no effect, redemption of the Subject Shares, and rectification of the register of members of D7.

The Agreements between the parties

19.  To understand what the Loan Arrangements and the Share Pledge Arrangement as pleaded by P in the SOC were (or were not), it is important to go to the agreements that the parties have reached.  There are quite some of them.  §11 of Zhang/2 contains a table which usefully sets them out with some brief descriptions of their main effects.  Set out below are the main ones that are material to this hearing.

20.  In early 2010, D7 and XS International required funding for the development of the Project.  A series of agreements were subsequently entered into between variably D1, D7, XS International, P, Fang and Wu.  At its core, it was a financing loan in the sum of RMB 2,300,000,000 from D1 to XS International, with shares in D7 as guarantee.   

21.  The first and main agreement was the “戰略合作協議” dated 15 January 2010 between D1 (as “甲方”), XS International (as “乙方”) and D7 (as “丙方”)[11] (“SCA”).  Under the same:

 (a)  In the preamble, it is stated that agreement was based upon (“依據”) a number of statutes in the Mainland;

 (b)  D1 would in stages and via various means advance the Loans to XS International;

 (c)  XS International agreed to transfer the right to earnings in respect of the yacht piers under the Project to D1;

 (d)  D7 would transfer 51% of its shareholder in XS International to D1 as security (Clause 2.1[12]);

 (e)  Clause 2.3[13] is material.  It stipulates that:

「 乙方未發生遊艇泊位收益權轉讓合同項下的嚴重違約情形時，甲方及其指定的相關方不得處分該等股權，並且在乙方履行完畢遊艇泊位收益權轉讓合同項下的全部債務後，甲方及其指定的相關方應及時將該等股權無償回轉給丙方；乙方發生遊艇泊位收益權轉讓合同項下的違約情形時，甲方及其指定的相關方有權處分該等股權並以公開方式處分該等股權所得款項為限代乙方履行遊-艇泊位收益權轉讓合同項下的債務，剩餘款項歸屬丙方。」

 (f)  Clause 5.1 provides that the governing law shall be Mainland law (the “Choice of Law Clause”), that:

「 本協議的訂立、效力、解釋、履行及爭議的解決均適用中華人民共和國法律。」

 (g)  Clause 5.2 is the jurisdiction clause (the “Jurisdiction Clause”), that:

「 在協議履行期間，凡由本協議引起的或與本協議有關的一切爭議、糾紛，當事人應協商解決。協商不成，任何一方均有權將爭議提交甲方所在地人民法院審理。」

 (h)  As D1 is a company incorporated in Xicheng, Beijing, “甲方所在地人民法院” in effect means the Xiching Court in Beijing.

22.  On 26 May 2010, pursuant to the SCA, D1 and XS International entered into an earning assignment agreement (遊艇泊位收益權轉讓合同)[14] (the “EAA”).  The following clauses are material:

 (a)  the preamble, which records that the parties entered into the EAA based on (“根據”)《中華人民共和國合同法》and other related law, rules and regulation;

 (b)  Clause 8[15], that:

「 8 違約責任

8.1 轉讓方違約

8.1.1 發生以下情況之一的視為轉讓方違約，違約事件發生之日為違約日:

(1) 轉讓方未按時、足額劃轉遊艇泊位收益或者未按時足額支付遊艇泊位收益權回購承諾費、遊艇泊位收益權回購價款的;

…

8.1.3 當轉讓方嚴重違約，或者轉讓方一般違約但未在受讓方要求的期限內採取經受讓方認可的補救措施的，受讓方有權選擇或同時採取以下救濟措施:

(1) 要求轉讓方立即無條件回購遊艇泊位收益權，回購價款＝本合同第2.2條項下受讓方已經支付的遊艇泊位收益權轉讓價款＋本合同第2.2條約定的遊艇泊位收益權轉讓價款x【15】% x受讓方受讓遊艇泊位收益權之日至轉讓方支付完畢回購價款之日的天數/360 - 受讓方已經收到的遊艇泊位收益權回購承諾費及各期遊艇泊位收益之和;

…

(4) 行使擔保權利或者處分轉讓方的股權；」

 (c)  Clauses 13.1 and 13.2, which are the choice of law clause and the jurisdiction clause.  Their terms and effects are materially the same as those in the SCA.

23.  Also on 26 May 2010, Fang executed a保證合同in respect of the indebtedness of XS International[16]. Clauses 11.1 and 11.2 are the Choice of Law Clause and the Jurisdiction Clause.  Their terms and effects are materially the same as those in the SCA.

24.  Under the SCA, as mentioned above, it was contemplated that D7 would transfer 51% of its shareholder in XS International to D1 as security.  As things turned out, and because of XS International’s status as a WOFE, parties encountered difficulties in effecting the transfer as contemplated.  On 24 December 2010, D1, D7, XS International and P entered into an agreement to supplement the SCA — the《〈戰略合作協議〉之補充協議》(the “SCA/S1”)[17]. There is no dispute that the only material change effected thereby was that P was to, in lieu of the transfer by D7 contemplated by the SCA, transfer her 51% shareholding in D7 to D1 as guarantee.  The net effect so achieved would be the same.

25.  The following terms of the SCA/S1 are material (“甲方” being D1, “乙方” being XS International, “丙方” being D7, and “丁方” being P):

 (a)  Clause 2, that:

「 1、 丁方同意在本補充協議生效之日起【30】日內將其所持有的丙方51%的股權轉讓給甲方指定的相關方，有關股權轉讓的具體事宜由相關方另行簽訂相關協議。

2、 甲方和丁方確認，上述51%的股權轉讓僅為擔保乙方履行[EAA]之目的，為此:

(1) 丁方承諾並授權，當乙方發生[EAA]項下的違約情形時，甲方及甲方指定的相關方有權處置上述51%的股權，包括但不限於向第三方轉讓該等股權等並以處分該等股權所得款項為限代乙方履行[EAA]項下的債務，剩餘款項按照比例歸屬丁方，以保證[EAA]項下的債權的實現；

(2) 乙方未發生[EAA]項下的嚴重違約情形時，甲方及其指定的相關方不得處分該等股權，並且在乙方履行完畢[EAA]項下的全部債務後，甲方及其指定的相關方應及時將該等股權無償回轉給丁方。

(3)     各方同意並確認，在本協議生效後的合理期限內簽署完畢上述丁方51%股權轉讓的相關法律文件，以及乙方履行完畢[EAA]項下的全部債務時甲方及其指定的相關方將該等股權無償回轉給丁方的相關法律文件，包括但不限於相關董事會決議、股權轉讓協議等，並將上述法律文件提交【廈門市鷺江公證處】，委托並授權【廈門市鷺江公證處】在滿足相關條件時辦理相關股權轉讓事宜，但當乙方發生[EAA]項下的違約情形時，甲方及其指定的相關方有權直接處分相關股權。」

 (b)  Clause 3.1 (the “SCA/S1 Legal Effect Clause”), that:

「 本補充協議為[SCA]及系列合同的補充協議，與[SCA]及系列合同具有同等法律效力，但[SCA]及系列合同與本補充協議約定不一致的，按照本補充協議的約定執行，本補充協議未約定事項按照[SCA]及系列合同的約定執行。」

26.  According to an Instrument of Transfer dated 31 December 2010[18], P transferred 2,550,000 shares in D7 (ie the Subject Shares) to D2 as nominee for D1.  According to §22 of the SOC, 2,050,000 of those shares came from P, while the balance of 500,000 came from Wu who had transferred the same back to P on 30 December 2010.

27.  On 4 January 2011, the transfer of the Subject Shares to D2 was approved by the board of D7.

28.  On 12 January 2012:

 (a)  D1 and XS International entered into the《〈遊艇泊位收益權轉讓合同〉》之補充協議》^[19] (the “EAA/S1”) and《〈遊艇泊位收益權轉讓合同之補充協議〉之具體補充協議（一）》[20] (the “EAA/S1(1)”).  The repurchase date of the EAA was extended thereby to 31 December 2012, and the repurchase price increased by RMB 150 million;

 (b)  Clause 4 of the EAA/S1 (the “EAA/S1 Legal Effect Clause”) provides that:

「 本補充協議為[EAA]的補充協議，與[EAA]具有同等法律效力，[EAA]的約定適用於本補充協議，但[EAA]與本補充協議約定不一致的，按照本補充協議的約定執行，本補充協議未約定事項按照[EAA]的約定執行。」

 (c)  Clause 5 of the EAA/S1(1) similarly provides that:

「 本補充協議為[EAA/S1]的附件，本補充協議未約定事項按照[EAA/S1]的約定執行。」

29.  In January 2012, D1 (as “甲方”), XS International (as “乙方”), D7 (as “丙方”), Wu (as “丁方”), P and Fang (P and Fang together as “戊方”) entered into a second agreement to supplement the SCA (“SCA/S2”).  It became necessary for Wu to be supplemented a party as he had provided 500,000 of the 2,550,000 Subject Shares.  The following clauses in SCA/S2 are material:

 (a)  Clause 2 thereof, that, inter alia:

「 … 當乙方發生[EAA]、[EAA/S1]或者項下的具體補充協議、債務確認協議項下的違約情形時，甲方及甲方指定的相關方有權以任何方式直接處置上述丙方15%及36%股權，包括但不限於向第三方轉讓該等股權等並以處分該等股權所得款項為限代乙方履行[EAA]、[EAA/S1]或者項下的具體補充協議、債務確認協議項下的債務，剩餘款項按照比例歸屬丁方和戊方，以保證[EAA]、[EAA/S1]或者項下的具體補充協議、債務確認協議項下的債權的實現。」

 (b)  Clause 3.1 thereof, which effects are materially the same as the SCA/S1 Legal Effect Clause.

30.  In addition to the above, various security agreements and confirmation agreements had also been entered into.  These agreements all contain clauses similar to the Choice of Law Clause and the Jurisdiction Clause (§§25 to 28 of Ji/Aff).

Enforcement of the Loans, and the legal proceedings in the Mainland that ensued

31.  On 10 April and 15 May 2015, D1 issued to XS International, D7, P and Fang 2 Debt Repayment Notices. According to the one dated 15 May 2015[21], XS International as at 30 April 2015 owed D1 under the various agreements RMB 1,909,932,541.62. 

32.  On 26 May 2015, and upon D1’s application, the Beijing Notary Public granted in favour of D1 a certificate of enforcement[22](the “Certificate of Enforcement”) against inter alios XS International, P and Fang.

33.  Upon the Certificate of Enforcement, the Higher People’s Court of Fujian Province (the “Fujian Court”) on 5 and 10 June 2015 granted a Notice of Enforcement in favour of D1 as the “申請執行人” and against inter alios XS International, P and Fang as the “被執行人”[23].

34.  On 4 August 2015, P (amongst others) applied to the Fujian Court for non‑execution of the Certificate of Enforcement (the “Non‑Execution Application”)[24].

35.  On 15 December 2015, the Fujian Court handed down its decision[25] refusing the Non‑Execution Application.

36.  P appealed.  On 28 October 2016, the Supreme People’s Court handed down its decision[26] setting aside the Fujian Court’s refusal of the Non‑Execution Application.  The matter was remitted back to the Fujian Court for a re‑determination.

37.  On 7 November 2018, by《執行裁定書》of the Intermediate People’s Court of Xiamen City, Fujian Province, D3 was allowed to substitute D1 as the “申請執行人”[27], which was immediately enforceable.

38.  On 26 December 2018, the Fujian Court upon a re‑determination dismissed the Non‑Execution Application[28].

39.  On 12 January 2019, P applied to the Supreme People’s Court again for a review[29].

40.  By its decision dated 11 November 2019 (the “SPC Decision”), the Supreme People’s Court dismissed P’s application for review[30]. It is material to note that in the decision, D3 was named as the “申請執行人”.

41.  P has exhausted her appeal in relation to the Non-Execution Application.

42.  At §§35 to 39 of the SOC, P, with reference to her Non‑Execution Application, pleads that the matter was pending retrial, that that D1 “was and is not entitled to dispose of or otherwise deal with inter alia the Loans, the underlying security, and by reason thereof, the Subject Shares”.

43.  That plea has been superseded by events, and has been put to rest by the SPC Decision.

The auction of the Subject Shares

44.  In the meantime, between 22 and 23 November 2017, D1 on the Taobao website auctioned off inter alia the debts owed to it by XS International under the EAA (as subsequently supplemented) together with its incidental rights under it, SCA/S1 and SCA/S2.  The successful bidder was D3 at RMB 2,839,910,000.

45.  Subsequently, D1 (together with another entity) by an agreement signed on 29 November 2017[31] (the “Debt Assignment Agreement”) transferred their rights in the Loans to D3.  Pursuant to the same, D2 transferred 850,000 of the Subject Shares to each of D4, D5 and D6 as D3’s nominees.

46.  Clauses 13 and 14 of the Debt Assignment Agreement are the choice of law clause and the jurisdiction clause.  Their terms and effects are materially the same as those in the SCA.

Other relevant legal proceedings in the Mainland  

47.  On 9 July 2018, P filed a《民事起訴狀》in the北京市西城區人民法院 (the “Xicheng Court” and the “Xicheng Proceedings”).

48.  In respect of the Xicheng Proceedings:

 (a)  P was the plaintiff;

 (b)  D1 to D7 of the present proceedings were named the defendants;

 (c)  P based her case on Mainland law[32];

 (d)  P claimed that her transfer of the Subject Shares to D2 as nominee of D1 was only by way of security, but was not a normal or real sale and purchase of shareholding;

 (e)  P sought a declaration that the transfers of the Subject Shares by D1 and D2 to D4 to D6 were invalid.  She relied essentially on the same facts as she is relying on in the present action;

 (f)  The Xicheng Court on 9 July 2018 “立案”;

 (g)  P however subsequently withdrew the case.

49.  P claims in P/4[33] that the Xicheng Proceedings were taken out in urgent circumstances when she was not familiar with Hong Kong law and had not instructed Hong Kong lawyers.  I note that by that stage, P had already undertaken multiple legal steps in respect of the Certificate of Enforcement.  She had had ample time to consider the legal steps she might take.   I accept Mr Ho’s submission that P’s purported explanation in this regard is not credible at all.

50.  Further, according to Zhang/3[34], P commenced another action in June 2019 before廣東省廣州市中級人民法院against, inter alios, D1, D3 and D7 in relation to the transfer of the debt package and alleged tortious action (the “GZ IPC Action”). Zhang described that action as being the same as the present action.

The concept of “alienation guarantee”

51.  The parties have adduced before me expert evidence on various aspects of Mainland law.  One aspect relates to the concept of “alienation guarantee”.

52.  According to the SCA and SCA/S1, the Subject Shares were transferred as security for the Loans.  The general consensus amongst the experts is that the orthodox principles on guarantee under Mainland law do not apply.  Rather, the transfer was in the form of an “alienation guarantee”.

53.  The issue then arises as to, according to the Mainland law governing “alienation guarantee”, what the transferee’s interest was in the Subject Shares.

54.  The issue is not a straightforward one.  To start with, an alienation guarantee is not regulated, created or catered for by any statutory provision , but have been developed as a matter of practice of the Judges in the Mainland[35]. An alienation guarantee is lawful if that is the real intention of the parties[36].

55.  The issue is further complicated by the fact that there have been two transfers in the present case: the transfer by P to D2 as D1’s nominee, and the further transfer via the Taobao Auction by D2 to D4 to D6 as the nominees for D3.  The rights, obligations and interests of D1 and D2 of the one part, and D3 to D6 of the other are different.

56.  The experts’ views on the effects of an “alienation guarantee” and the rights of the assignees thereunder differ:

 (a)  According to Xu[37], D1 only has the right to security, but not ownership;

 (b)  Luo agrees that if D1 or D2 had purported to exercise any ownership rights over the Subject Shares, that would have been a contravention of the Mainland law[38]. He however opines that what they did was not exercise of ownership rights, but was the assignment of D1’s assignable contractual debt and the incidental rights thereto (including its right to the alienation guarantee), which is lawful[39]. As the lawful and rightful assignee of D1, D3 was bound by and could be entitled to the same rights which D1 originally enjoyed[40];

 (c)  Deng goes further, opining that[41] D1 was entitled, without seeking a Mainland court order, to dispose of the Subject Shares upon XS International’s default, that D1 did dispose of the Subject Shares by way of the Taobao Auction, and D3 has become the absolute owner of the Subject Shares.  He does not agree with Luo’s opinion expressed at §36 of Luo/Opinion2.

The intended defence of D1 and D2

57.  As can be gleaned by the expert evidence adduced by D1 and D2, their intended defence is that what they have done was not any exercise of ownership right in the Subject Shares, but was lawful and permissible assignment of the contractual debt and the incidental rights thereto (including its right to the alienation guarantee).

The intended defences of D3 to D6

58.  At §15 of Zhang/2, Zhang outlines the intended defences of D3 to D6, as follows:

 (a)  D1 and D2 were entitled to sell or transfer the Subject Shares to D3 to D6;

 (b)  Further or alternatively, because XS International defaulted in repayment on 26 December 2013, D1 and D2 (and their transferees, namely D4 to D6) were entitled to exercise rights over the Subject Shares;

 (c)  Further or alternatively, in any event D3 to D6 were honest or acted bona fide in acquiring the Subject Shares;

 (d)  D3 successfully obtained on 7 November 2018《執行裁定書》of the Intermediate People’s Court of Xiamen City, Fujian Province allowing D3 to substitute D1 as the “申請執行人”, which was immediately enforceable.

Legal principles relating to forum non conveniens

59.  The applicable legal principles are not in dispute.  I have been cited Spiliada Maritime Corp v Cansulex Ltd[1987] AC 460 at 476-478 per Lord Goff, and the summary at Hong Kong Civil Procedure 2021 Vol 1 §11/1/66.  I shall not repeat them, save that I remind myself that the onus is on the defendant to show not merely that Hong Kong is not the natural or appropriate forum for the trial, but that there is another available forum which is clearly and distinctly more appropriate than the Hong Kong forum.  The standard of proof is one of “good arguable case”: China Reliance Finance Co Ltd v China Three-Gorge Economic Development Corp, Guangdong Corp, unrep, CACV 296/2004, 25 May 2005, §6 per Rogers VP.

Parties’ submissions

60.  Mr Li highlighted the following points in support of D1’s stance, that:

 (a)  P’s case is, and is pleaded to be contractual in nature;

 (b)  The contractual documents between parties all contain either expressly or by implication choice of law clauses and jurisdiction clauses;

 (c)  If exclusive jurisdiction has thereby been conferred upon the Mainland Courts, D1 is entitled to hold P to the contracts;

 (d)  Even just on P’s pleaded case, Mainland law applies, and applying VTB Capital plc v Nutriek International Corporation [2013] 2 AC 337 at §46, that is an important factor in favour of an order that the action be stayed in favour of the Mainland Courts (and in particular the Xicheng Court);

 (e)  The dispute between D1 and P in relation to the Enforcement Notice has been finally decided upon by the Supreme People’s Court;

 (f)  Mr Li refers to a table[42] setting out the various legal actions that P (together with others) has started in the Mainland in relation to the Subject Shares.  He refers in particular to the GZ IPC Action, which is Action 6 on the table.  He submits that P may continue to litigate in the Mainland.

61.  Mr Ho summarized his grounds in support as follows:

 (a)  P has submitted herself to the jurisdiction of Mainland Courts, having pursued her claim all the way to the Supreme People’s Court;

 (b)  By the SPC Decision, the Supreme People’s Court has already decided against P;

 (c)  P and D1 have agreed to an exclusive jurisdiction clause in favour of the Mainland Courts, and D3‑6 have stepped into the shoes of D1;

 (d)  The case concerns the concept of “alienation guarantee”, which is a developing aspect of the Mainland law and practice.  It is inappropriate for the Hong Kong Court to deal with a developing area of the Mainland law and practice.

 (e)  The dispute is closely connected to the Mainland in that the governing law is the Mainland law, the relevant events took place in the Mainland and the relevant witnesses are in the Mainland;

 (f)  Whilst the relief sought herein involves an order to transfer shares in D7, it is not necessary to commence a substantive action against D1‑7 in Hong Kong, because if P were to succeed in her substantive action in the Mainland, she could enforce the judgment in Hong Kong.

62.  Mr Wong’s main submissions may be summarized as follows:

 (a)  the overarching governing law is Hong Kong law, by reason of the fact that property and contractual claims to shares in a company should be determined by the lex situs, and that the Subject Shares have their situs in Hong Kong;

 (b)  P was not a party to the SCA, and was not subject to the contractual bargain of the exclusive jurisdiction clause.  The SCA/S1 does not contain any jurisdiction agreement;

 (c)  As regards the connecting factors, a close examination of the disputed issue reveal that the importance of Hong Kong law far outweighs the significance of Mainland law.

Discussion

63.  I deal first of all with and get out of the way the term “Share Pledge Arrangement” used by P in the SOC:

 (a)  At §§21, 29 and 31 of the SOC, P pleads the term “Share Pledge Arrangement”.  In particular, at §29 of the SOC[43], P avers that the nature of the Share Pledge Arrangement is governed by Hong Kong law, as it is a matter concerning the property in the shares of D7 which is a company incorporated in Hong Kong.

 (b)  Properly understood, the Subject Shares were pledged pursuant to the SCA supplemented by the SCA/S1.  There is no separate Share Pledge Arrangement.

 (c)  In this regard, Mr Wong, in his usual fairness, accepted in the course of the hearing that there is no document which records any separate Share Pledge Arrangement, and there is no evidence of it being the subject matter of any oral agreement different from the SCA/S1.

 (d)  The use of the term “Share Pledge Arrangement” hence adds nothing to the analysis, and cannot assist in advancing P’s case in any way.

64.  Mr Wong’s main submission is that the overarching governing law is Hong Kong law, by reason of the fact that property and contractual claims to shares in a company should be determined by the lex situs.

65.  On 15 February 2019, Mimmie Chan J handed down her Decision[44] allowing P’s application for an injunction relating to the Subject Shares.  At §17 of the Decision, in the course of considering whether there was any serious issue to be tried, Her Ladyship observed that:

“ There are accordingly competing claims to the proprietary rights in the Subject Shares, which are shares in a company incorporated under the laws of Hong Kong. Property and contractual claims to shares in a company should be determined by the lex situs, and shares have their situs in the place of incorporation of the company (Chen Hongqing v Ds, [2018] HKCFI 1170 at paras 33-45, Dicey, Morris & Collins, The Conflict of Laws, 15^th ed, para 22-044).”

66.  Mr Wong relies on those observations.

67.  In context, Mimmie Chan J was there not deciding the governing law. That becomes quite clear when §17 is read together with §§16 and 18 of the Decision, where Her Ladyship recited also the parties’ stances under Mainland law, and what the position would be if Mainland law applied. 

68.  But in any event, the mere fact that there are competing claims to the Subject Shares is not conclusive on the governing law.  It remains relevant to consider the bases of the competing claims.  I accept Mr Ho’s submission[45] that this Court cannot decide the question of ownership in a vacuum.

69.  To determine the applicable law, the courts adopt the three‑stage approach set out in Macmillan Inc v Bishopsgate Investment Trust Plc (No 3) [1996] 1 WLR 387, at 391 per Staughton LJ (as adopted by the Court of Appeal in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd [2011] 2 HKLRD 45 (CA) at §49), that:

“ First, it is necessary to characterise the issue that is before the court. Is it for example about the formal validity of a marriage? Or intestate succession to moveable property? Or interpretation of a contract?

The second stage is to select the rule of conflict of laws which lays down a connecting factor for the issue in question. Thus the formal validity of a marriage is to be determined, for the most part, by the law of the place where it is celebrated; intestate succession to moveables, by the law of the place where the deceased was domiciled when he died; and the interpretation of a contract, by what is described as its proper law.

 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.  Sometimes this will present little difficulty, though I suppose that even a marriage may now be celebrated on an international video link.  The choice of the proper law of a contract, on the other hand, may be controversial.”

70.  I first of all characterize the issues before the court.

71.  Having considered the pleadings and the expert evidence that has been placed before me, I agree with Mr Li[46] that the issues may be framed as follows:

 (a)  Whether D1 was entitled to assign the debt and the alienation guarantee to D3 under the SCA and SCA/S1;

 (b)  Whether P is entitled to redeem the Subject Shares by repaying the Loans to D1;

 (c)  Whether there is any breach of the SCA and SCA/S1 by D1; and

 (d)  Whether the transfer of the Subject Shares from D1 to D3 was valid, and whether they constituted illegitimate means of enforcement and execution.

72.  The consideration and resolution of those issues involve the consideration of the agreements between the parties, and in particular the SCA and SCA/S1.  Those issues are in my view contractual in nature.

73.  I bear in mind also the opinion of Deng, that the intention of the parties as ascertained from the SCA and SCA/S1 is also relevant when it comes to consider the lawfulness of the “alienation guarantee”.

74.  I move to the second and third limbs in Macmillan.

75.  The transfer of the Subject Shares by P to D2 as D1’s nominee was done pursuant to the SCA and SCA/S1.  I have dealt with the term “Share Pledge Arrangement” pleaded in the SOC.  I have stated my view that the use of that term adds nothing to the analysis.

76.  In the SCA, there is both the Choice of Law Clause and the Jurisdiction Clause.

77.  According to the expert evidence before me, under Mainland law, the Jurisdiction Clause is an exclusive jurisdiction clause.

78.  Mr Wong relies on the fact that while the SCA contains the Choice of Law Clause and the Jurisdiction Clause, P is not a party to SCA.  The SCA/S1, of which P is a party, does not contain any such clauses.  He also submits that the change of transferor from D7 to P was an uncontemplated event which should be taken into account.  He submits that the Choice of Law Clause and the Jurisdiction Clause are not binding on P.

79.  I do not accept Mr Wong’s submissions in this regard.  I have set out the SCA/S1 Legal Effect Clause above.  I accept Mr Ho’s submission that the parties must have intended that the same Choice of Law Clause and Jurisdiction Clause were applicable to SCA/S1, as by SCA/S1, the parties merely changed the identity of the transferor due to difficulties which XS International’s WOFE status had given rise to.

80.  As submitted by Mr Li[47], which I accept, and bearing in mind the similarity between the Rome I Regulation and the rules on choice of law developed under common law[48], where a right to be assigned was created by a contract, the mutual obligations of the assignor and assignee are governed by the law which applies to the contract[49].

81.  As I have observed above, any competing claims over the Subject Shares cannot be considered in vacuum.  Any assertion of a proprietary right over the same can only be decided upon with reference to the underlying agreements. 

82.  In my view, there is no merits in Mr Wong’s submission that Hong Kong law is to apply merely because the shares of a Hong Kong company are involved. 

83.  In this regard, I also accept Mr Li’s submissions that even if this Court applies the lex situs of the Subject Shares, Mainland law will still be engaged.  As explained in Briggs, Agreements on Jurisdiction and Choice of Law (2008) at §10.76:

“ If, however, the courts at the situs of the land, or of the place of the chattels at the time of the event which was supposed to affect title to them, would look to the law of the parties’ contract to answer a question (for example) of when property was to pass, or not pass, then the contract will answer the question, and the lex contractus will be applied in order to find it.”

84.  Hence, even if the lex situs of the Subject Shares is technically to be applied, the issues remain engaged as to whether the parties had intended the SCA and SCA/S1 to be an “alienation guarantee”, and if so, its effect under Mainland law.

85.  Related to the concept of “alienation guarantee” are the following matters:

 (a)  It is one area of the law in the Mainland which is still being developed;

 (b)  I note the disagreement between the experts on its scope and effects;

 (c)  I do not see the need at this stage to resolve the differences, as Mr Wong apparently has invited me to note and consider[50];

 (d)  but the above does impact upon Mr Wong’s alternative submissions that even if Mainland law is to apply, Hong Kong Courts will have no difficulty, adopting the approach set out in Shenzhen Development Bank Company Limited and New Century Int’l (Holdings) Limited & Anor, HCA 2976/2001, 31 July 2002 at §§25-27[51], in resolving the differences;

 (e)  I bear in mind the fact that the principles relating to “alienation guarantee” are not regulated, created or catered for by any statutory provision, but have been developed as a matter of practice of the Judges in the Mainland.  In my view, it is not an area which this Court would suitably take it upon itself to rule on.

86.  I also accept Mr Ho’s submission that in so far as the Taobao Auction is concerned, it is indeed P’s own case that Mainland law applies, to the extent that she took the challenge all the way up to the Peoples’ Supreme Court.

87.  In all the circumstances, I am of the view that the governing law of the issues identified above is Mainland law.

88.  P has herself started the Xicheng Proceedings before the Xicheng Court.  Although she has withdrawn the claim, the expert evidence suggests that she is entitled to relaunch it.

89.  Other connecting factors also point to the Xicheng Court being a forum that is clearly and distinctly more appropriate than the Hong Kong forum:

 (a)  P and D1 are domiciled and resident in the Mainland;

 (b)  The underlying agreements and related contracts were executed in the Mainland, written in Chinese, and governed by Mainland law;

 (c)  The agreements were substantively performed in the Mainland;

 (d)  In relation to the enforcement of any judgement that may be obtained in the Mainland, Mainland law provides sufficient constraints to compel Mainland entities such as D3 to comply with a Mainland court order for transferring the Subject Shares back to P, and it matters not that a party must perform acts outside of the Mainland in compliance of a Mainland court order[52]. I accept also Mr Ho’s submission[53] that P would have the option of seeking to enforce any judgment which P might obtain by a common law action.

90.  On the evidence before me, and given in particular the SPC Decision dismissing P’s appeal in relation to the Non‑Execution Application, I accept also Mr Li’s submission[54] that P’s initiation and pursuit of present action is forum shopping.

91.  P has not pointed to any material juridical advantage which she may lose if the claim is stayed.  As Mr Ho and Mr Li have submitted, P has herself commenced multiple actions in the Mainland in relation to the Subject Shares, and she has submitted to the jurisdiction of the Mainland Courts.

92.  In all the circumstances, I conclude that D1, and D3 to D6, have successfully discharged the burden of showing not merely that Hong Kong is not the natural or appropriate forum for the trial, but that the Xicheng Court as a forum which is clearly and distinctly more appropriate than the Hong Kong forum.

Disposition

93.  For reasons set out above, I grant an order:

 (a)  in terms of §1 of D3‑6’s Summons;

 (b)  in terms of §3 of D1’s Summons.

94.  I make a costs order nisi that P shall bear the costs of both Summonses, with certificates for two counsel.