ZHENG ZHENXIN v. CHAN CHUN KEUNG

HCA 1260/2015

[2018] HKCFI 2284

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1260 OF 2015

________________________

_______________________

________________

J U D G M E N T

________________

Introduction

1.  This action essentially concerns a claim by the plaintiff (“P”) against the defendant (“D”) in relation to a purported share transfer agreement dated 4 January 2006 (“Agreement”) pursuant to which it was alleged P agreed to buy and D agreed to sell to P D’s interest in a Mainland company called Longyan Everbest Co Ltd (“Longyan Everbest”).

2.  There are presently two summonses issued by D:

(i) A summons on 28 August 2017 seeking an order that P do give security for costs in the amount of HK$3.5m within 21 days of the order to be made (“Security for Costs Summons”);

(ii) A summons on 7 November 2017 to strike out P’s action on the ground that it is an abuse of the process of the Court and/or that it is frivolous or vexatious (“Striking Out Summons”);

3.  Mr Bernard Man SC and Mr Justin Ho appeared for P in relation to both summonses.  Mr Jason Pow SC and Mr Edward Tang appeared for D in relation to the Striking Out Summons, whereas only Mr Edward Tang appeared for D in relation to the Security for Costs Summons.

4.  I will consider the Striking Out Summons first.

Background

5.  P is and was at all material times a businessman and Mainland citizen, whereas D is and was at all material times a Hong Kong permanent resident carrying on business principally in Hong Kong and the Mainland.

6.  Longyan Everbest is a Mainland company which at all material times was engaged in the generation and sale of electricity in Fujian Province.  From 1993 to about 2009, D was the Chairman of the Board of Directors as well as the authorised legal representative (法人) of Longyan Everbest.

7.  The registered shareholding of Longyan Everbest was at all material times as follows:

(i) 90% thereof held by Everbest Century Limited (“HK Everbest”), a Hong Kong limited company;

(ii) 7% thereof held by Longyan State-owned Assets Investment and Management Co Ltd (“Longyan Investment”), a Mainland state-owned company;

(iii) the remaining 3% thereof held by Longfar Limited (“HK Longfar”), a Hong Kong limited company.

8.  P has attached as “Annex 1” to its amended statement of claim (“ASOC”) a shareholding chart of Longyan Everbest and it is P’s case that at the time of the Agreement, D exercised effective control over 90% of the shares in Longyan Everbest held by HK Everbest (“Shares”) through his shareholdings in a number of BVI companies and a Bermuda company[1]. This is however not admitted by D.

9.  It is P’s case that in around November 2005, D invited P to invest in Longyan Everbest, and in consequence thereof, the parties entered into the Agreement whereby D agreed to transfer the Shares to P at a consideration of RMB 99m.

10.  A copy of the Agreement, which was in Chinese, has not been produced to this Court by either party but in the ASOC, clauses 1-5 of the Agreement have been set out in the ASOC, and there was no dispute to the Chinese contents of those clauses[2].

11.  P’s pleaded case is that, amongst other things, it was an implied term of the Agreement or alternatively it was the true construction of the Agreement that D would procure or cause HK Everbest to transfer the Shares to P at a total consideration of RMB 99m[3].

12.  P has further pleaded that in performance of the Agreement:

(i) By a board resolution passed on 9 January 2006, D caused the Board of Directors of Longyan Everbest to resolve to appoint P as the new general manager of Longyan Everbest, and further by a “letter of entrustment” dated 30 January 2006 issued by Longyan Everbest, P was authorised to deal with the company affairs with full power of attorney from 20 January 2006 to 31 December 2008[4];

(ii) From 6 January 2006 to 28 November 2007, P, at the direction of D, made payments of RMB55.7m in total (by way of 12 instalments) (“12 Payments”) through various corporate entities (“Remitters”) to HK Everbest and other recipients  nominated by D (collectively “Recipients”)[5].

13.  The parties’ relationship appeared to sour in late 2007/early 2008.  On about 20 December 2007, D caused Longyan Everbest to revoke the “letter of entrustment” and the power of attorney given to P and on 1 January 2008, D further caused Longyan Everbest to remove P from his position as general manager of Longyan Everbest[6].

14.  Longyan Everbest commenced an action in 2008 against P in the Higher People’s Court of Fujian Province (“HPC”), namely Civil Case No 10 of 2008 (“2008 Action”) for, amongst other things, conversion of company’s accounting records, business licence and financial shop etc; conversion of company’s vehicles and real property; falsifying documents by wrongful use of company’s chop and unlawful selling the company’s shareholding to another company 福建紫金恆發建材有限公司.  According to D, Longyan Everbest obtained judgment against P for reliefs in respect of the claims.  P appealed to the Supreme Peoples’ Court (“SPC”) under Civil Appeal No 66-1 of 2014, but P’s appeal was dismissed[7].

15.  P also commenced an action in the HPC in September 2011 against HK Everbest as the defendant[8], namely Civil Case No 25 of 2011  (“2011 Action”), and on 21 January 2013, the HPC delivered a judgment in the 2011 Action (“HPC Judgment”), which in effect held that the Agreement was not an effective share transfer agreement and was only a letter of intent.  P appealed against the HPC Judgment, and on 29 November 2013, SPC down a judgment (“SPC Judgment”).  Suffice to say at this stage, the SPC upheld the decision of the HPC that the Agreement was not a formal effective share transfer agreement, but for different reasons.   The findings of the two judgments (“Mainland Judgments”) will be set out later.

16.  P instructed solicitors in Hong Kong to issue a letter to D on or about 23 April 2015 indicating that P remained ready and willing to pay the outstanding balance under the Agreement and sought D’s confirmation as to whether he was ready and willing to procure the transfer of the Shares.  D responded on 28 April 2015 to D, and did not accede to the requests of P indicating that P had not in fact made any partial payments of the consideration and that he no longer regarded himself as bound by the Agreement.

17.  P issued the writ herein on 9 June 2015.  It is P’s case that after he made the 12 Payments, D reneged on his promise to procure or cause HK Everbest to transfer the Shares to P.  P now claims damages on D’s “repudiation/renunciation” of the Agreement or alternatively, P claims for the return of the total sum of RMB 55.7m as money had and received by D.

18.  D’s defence is that the Agreement was not legally binding and was in the nature of a letter of intent[9] and that the Agreement lacked certainty and was unenforceable.  D has further denied that the Agreement constituted an agreement for the sale and purchase of the Shares, and D relies on the Mainland Judgments and pleaded that P is estopped from alleging that he had made the 12 Payments at the direction of D to the Recipients in performance of P’s obligations under the Agreement.  D has further denied that any of the 12 Payments was related to the Agreement[10].

The Mainland Judgments

19.  As said earlier, in the HPC Judgment, the HPC dismissed P’s claim and held that the Agreement was not a formal effective share transfer agreement and that the nature of the Agreement was only a letter of intent for an arrangement for the transfer of the Shares and there were many uncertainties which would affect the parties signing and performing a formal contract[11], namely the HPC held as follows:

“本院认为，本案《股权转让协议》尚属于双方就股权转让达成的意向，双方之间尚未确立股权转让法律关系，即双方的股权转让合同关系尚未正式成立[12]。

……

  综上所述，本案陈进强、郑振欣双方所签订《股权转让协议》在性质上属于股权转让的意向性安排，双方股权转让尚存在许多不确定因素，此将影响双方正式合同的签订及履行。换言之，本案的股权转让合同并未成立，郑振欣诉请被告及第三人办理讼争股权转让所必须的报送外商投资企业审批机关审批的义务以及股权变更登记义务，缺乏事实和法律依据，本院不予支持。基于本案股权转让合同未成立，恒发世纪主张《股权转让协议》无效，朗远公司主张撤销《股权转让协议》前提均不成立，故对恒发世纪、朗远公司的请求，本院不予支持[13]。”

20.  Briefly, the reasons set out by HPC in coming to its view were as follows[14]:

(1) The contents of the Agreement were uncertain;

(2) The Agreement did not comply with the legal format of a share transfer agreement;

(3) There was no approval by the relevant administrative authority nor was it possible to obtain approval for the Agreement, as D was not a direct shareholder of Longyan Everbest;

(4) There was no sufficient evidence that the 12 Payments were payments for the transfer of the Shares.

21.  On appeal by P, SPC then held as follows:

“……

因此，该《股权转让协议》并非自始不能履行的合同。该《股权转让协议》并不违反我国法律、行政法规的规定，应当认定有效。原审法院认定《股权转让协议》并非正式的股权转让合同正确，但其认定该协议系意向书并非合同且不能成立欠妥，应予纠正。

  由于该《股权转让协议》并非正式的转让龙岩恒发公司股权的合同，因此，郑振欣根据《股权转让协议》请求判令香港恒发公司、龙岩恒发公司共同向外商投资企业审批机关办理报批手续、向登记机关办理变更登记手续，没有依据，不能得到人民法院的支持。原审法院没有支持郑振欣让诉讼请求并无不当。然而，《股权转让协议》是一份有效的合同，对双方均具有拘束力，双方当事人均应依约履行各自的合同义务，否则即应当承担相应的违约责任。综观本案，郑振欣与陈进强签订合同后，陈进强通过龙岩恒发公司董事会聘任郑振欣担任龙岩恒发公司的总经理，郑振欣实际对岩恒发公司进行了将近两年的经营管理，龙岩恒发公司的经营状况得到了改善。郑振欣积极履约，陈进强亦应积极推进龙岩恒发公司股权转让事宜。如果陈进强坚持不继续推动将龙岩恒发公司股权转让给郑振欣的进程，且对其不积极作为不承担任何法律责任，则合同对其拘束力无法得到体现。虽然郑振欣关于办理股权转让报批、登记手续的诉讼请求不能得到人民法院的支持，但其通过该请求已经表达了希望陈进强继续履行合同的意愿。如果合同确实无法继续履行，郑振欣可以通过另案起诉，请求解除合同，赔偿损失，从而获得相应的司法救济[15]。”

22.  Thus, SPC held that, amongst other things, the Agreement was not a formal share transfer agreement because D was not an actual shareholder of Longyan Everbest and therefore had “no right” to enter into an agreement with P for the sale of the Shares, accordingly, although the Agreement had all the elements of and constituted an ordinary contract, it did not constitute a formal share transfer agreement for the sale of the Shares.

23.  However, the SPC went on to say that notwithstanding that the Agreement was not a formal share transfer agreement for the sale of the Shares, it nevertheless manifested the true intentions of P and D.  The fact that the regulatory and governmental approvals normally required for a formal share transfer agreement had not been obtained did not affect the validity of the contract since this contract did not cause any change in the shareholding of a “Wholly Owned Foreign Enterprise”.  On this issue, the HPC’s finding was overturned.

24.  The SPC further said that, as a binding contract, the parties to the Agreement were obliged to perform their obligations thereunder or liable for the relevant legal consequences, and in the event that the Agreement could not be performed, P was entitled to “sue in a separate legal proceeding, requesting for termination of the contract and compensation of losses, so as to obtain proper judicial remedies”[16].

25.  In short, although SPC held that the Agreement did not form a formal share transfer agreement under the Mainland law, it nevertheless was a valid ordinary agreement between P and D with contractual obligations.

The Striking Out Summons

26.  D contends that the Mainland Judgments give rise to an “issue estoppel” and P is thus estopped from seeking to re-litigate the same issue of whether he had in fact made the 12 Payments pursuant to the Agreement and in partial performance thereof, and that such an attempt will be an abuse of process[17].

27.  On the other hand, P’s case is that there is no res judicata or no issue estoppelarising from the Mainland Judgments as they are not final and conclusive, relying on the report dated 6 December 2017 from P’s Mainland law expert Professor Fu.

28.  In response thereto, D has also produced a report dated 8 February 2018 from his Mainland law expert Professor Li.

The legal principles

29.  As referred to by Mr Pow and as set out in paragraph 18/19/10 of the Hong Kong Civil Procedure (Hong Kong Whitebook) 2018 as follows:

“where a matter becomes subject of adjudication, the court requires the parties to put forward their whole case and will not (except under special circumstances) permit them later to reopen matters which might have been brought forward as part of already concluded litigation … This applies equally to matters that were resolved or dismissed in oversea proceedings but which the same party attempts to raise afresh in a Hong Kong action.” (emphasis added)

30.  The legal principles on “issue estoppel” have been propounded in DSV Silo-Und Verwaltungs-Gessellschaft MBH v Owners of the Sennar [1985] WLR 490, citing Carl Zeiss Stiftung v Rayner & Keeler Ltd [1967] 1 AC 853, and that in order to create an ‘issue estoppel’, three requirements need to be satisfied[18]:-

(a) Firstly, that the judgment relied on giving rise to the issue estoppel must be (a) of a court of competent jurisdiction, (b) final and conclusive and (c) on the merits (“Competence and Finality Requirement”);

(b) Secondly, that the parties in the earlier judgment are the same as those in the subsequent proceedings (“Same Parties Requirement”); and

(c) Thirdly, that the issue in the subsequent proceedings in which the estoppel is raised as a bar must be the same issue as that decided by the judgment in the earlier action (“Same Issue Requirement”).

31.  In DSV, Lord Diplock has also explained the concept of ‘issue estoppel’ as follows[19]:-

“In English law when a plaintiff, who, basing his claim on a particular set of facts, has already sued the defendant to final judgment in a foreign court of competent jurisdiction and lost, then seeks to enforce a cause of action in an English court against the same defendant based on the same set of facts, the defendant’s remedy against such double jeopardy is provided by the doctrine of issue estoppel …

To make available an issue estoppel to a defendant to an action brought against him in an English court upon a cause of action to which the plaintiff alleges a particular set of facts give rise, the defendant must be able to show: (1) that the same set of facts has previously been relied upon as constituting a cause of action in proceedings brought by that plaintiff against that defendant in a foreign court of competent jurisdiction; and (2) that a final judgment has been given by that foreign court in those proceedings.

  It is often said that the final judgment of a foreign court must be ‘on the merits’.  The moral overtones which this expression tends to conjure up may make it misleading.  What it means in the context of judgments delivered by courts of justice is that the court has held that it has jurisdiction to adjudicate upon an issue raised in the cause of action to which the particular set of facts give rise; and that its judgment on that cause of action is one that cannot be varied, re-opened or set aside by the court that delivered it or any other court of co-ordinate jurisdiction although it may be subject to appeal to a court of higher jurisdiction.”

32.  In respect of the expression ‘on the merits’, Lord Brandon of Oakbrook also commented in DSV as follows[20]:-

“Looking at the matter positively a decision on the merits is a decision which establishes certain facts as proved or not in dispute; states what are the relevant principles of law applicable to such facts; and expresses a conclusion with regard to the effect of applying those principles to the factual situation concerned.”

33.  The principles set out in DSV and Carl Zeiss Stiftung were  endorsed by our Court of Appeal in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd [2011] 2 HKLRD 45[21] and further upheld by the Court of Final Appeal (2012) 15 HKCFAR 569.

34.  There was no real dispute between the parties on the above general legal principles.

Whether “issue estoppel” is a matter of procedural law subject to Hong Kong law or substantial law and thus subject to Mainland law

35.  Mr Pow submitted that ‘issue estoppel’ is a matter of procedural law and is governed by the lex fori. Accordingly, expert opinions on the Mainland law, especially on their concepts of “重複起訴” or “爭點禁反言” are of no relevance / assistance to this application at all.  In particular, Mr Pow relied on paragraph 92 of the Court of Final Appeal’s judgment in First Laser where Lord Collins of Mapesbury, NPJ said: -

“Traditionally, the various types of estoppel have been regarded in domestic law as rules of evidence: Low v Bouverie [1891] 3 Ch 82, 105 (‘estoppel is only a rule of evidence; you cannot found an action upon estoppel. Estoppel is only important as being one step in the progress towards relief on the hypothesis that the defendant is estopped from denying the truth of something which he has said’); London Joint Stock Bank Ltd v Macmillan [1918] AC 777, 818; Evans v Bartlam [1937] AC 473, 484 (‘estoppel is a rule of evidence which prevent the person estopped from denying the existence of a fact’).”

36.  It was Mr Pow’s submission that although Lord Collins proceeded to examine the applicable law for different types of estoppel, it was not suggested that ‘issue estoppel’ falls within matters of substance such as to apply the lex causa and that on the contrary, Lord Collins had at paragraph 97, cited paragraph 2.010 of Johnston : Conflict of Laws in Hong Kong (2005) which stated that “Issue estoppels based on foreign judgments are matters principally for the lex fori…”.

37.  In Part IX of his judgment in First Laser, Lord Collins was considering “estoppel by convention”.  After setting out the authorities and discussions, Lord Collins came to the view in paragraph 105 that, both on principle and on authority, whether an estoppel by convention is available is a question of substance to be determined according to the law of the transaction to which it relates.

38.  However, Lord Collins had also said that, because a rule is classified as a rule of procedure for domestic purpose, it does not mean that it will also be classified as a rule of procedure for the purpose of the conflict of laws[22], and that even in domestic cases it has been increasingly recognised that estoppel may have a substantive effect[23]. These statements were made generally in respect of estoppel and were not confined to estoppel by convention.

39.  Paragaph 2.010 of Johnston cited by Lord Collins is now paragraph 2.022 in the 3^rd Edition of Johnston and the first sentence in paragraph 2.022 of Johnston (3^rd Edition) states:

“Issue estoppels *based on foreign judgments are matters principally for the lex fori discussed in Chapter 9**.”

40.  There are two footnotes, at *, being footnote 39 and at **, being footnote 40. In particular, footnote 40 states that “See, however, Chapter 9 for the interaction of domestic and foreign law issues”.

41.  Chapter 9 of Johnston is in relation to “Recognition and Enforcement of Foreign Judgments”.  As stated by the author, the principles applied by a Hong Kong court as to the enforcement or recognition of a foreign judgment are subject to certain important qualifications, essentially the same as those applied in a case where a prior Hong Kong judgment is alleged to give rise to an issue estoppel or similar[24], and notwithstanding that the basic notions in this area derive from notions of res judicata applicable to purely domestic judgments, certain important qualifications arise from the desire to ensure that certain fundamental notions of justice already wired into the domestic system are respected in cross-border cases[25]. Then 7 essential notion, or 7 principles are set out by the author for discussion in detail[26].

42.  One of the 7 principles is finality, and paragraph 9.081 states as follows[27]:

“The finality or, in the traditional language, ‘final and conclusive’ nature, of a foreign judgment is an essential condition of its recognition or enforcement in Hong Kong both at common law and under the statute. ‘Finality’ is a hybrid question of Hong Kong law and foreign law. This is sometimes misunderstood; failure to appreciate it causes confusion and the potential for practical injustice. The elements of the enquiry are as follows:

(i) It is ultimately for Hong Kong law to define the criteria which a foreign judgment must satisfy in order to be regard as ‘final’.

(ii) The enquiry into whether these criteria are satisfied will typically, however, by its very nature require the Hong Kong court to address questions of foreign law[28].”

43.  Paragraph 9.082 then states:

“Element (ii) highlights an important practical difference between the principle of finality and the other conditions and defences which determine the recognition and enforcement of foreign judgments: unless non-finality is obvious on the face of the judgment, expert evidence as to foreign law is required if a point is to be taken under this principle by the party resisting enforcement or recognition[29].”

44.  Further, paragraph 9.083 sets out the Hong Kong criteria of finality and one of the principles set out thereunder is that, the judgment must have “conclusively, finally and forever established the [matter] of which it is sought to be made conclusive evidence in this country, so as to make it res judicata between the parties” citing Nouvion v Freeman (1880) 15 AC 1.

45.  In Nouvion v Freeman, Lord Herschell (delivering the opinion of the Privy Council) explained the principle as follows (at 9): -

“In order to establish that [a final and conclusive] judgment has been pronounced, it must be shown that in the court by which it was pronounced, it conclusively, finally, and forever established the existence of the debt of which it is sought to be made conclusive evidence in this country, so as to make it res judicata between the parties. If it is not conclusive in the same Court which pronounced it, so that notwithstanding such a judgment the existence of the debt may between the same parties be afterwards contested in that Court, and upon proper proceedings being taken and such contest being adjudicated upon, it may be declared that there existed no obligation to pay the debt at all, then I do not think that a judgment which is of that character can be regarded as finally and conclusively evidencing the debt, and so entitling the person who has obtained the judgment to claim a decree from our Courts for the payment of that debt.” (emphasis supplied)

46.  Thus, to establish finality of a judgment, it must be shown that in the court by which it was pronounced that it conclusively, finally and forever established the disputed matter, so as to make it res judicata between the parties and putting it beyond its power to abrogate or alter its decision[30].

47.  To summarise, it would appear that although issue estoppels based on foreign judgments are matters principally for lex fori, if there is an issue over finality of the foreign judgment, then expert evidence as to foreign law will be required. 

48.  With the above in mind, I now turn to the Striking Out Summons and whether res judicata or issue estoppel arises in the present circumstances.

The Issue

49.  It is D’s case that P’s assertion of having made the 12 Payments in part performance of the Agreement had already been litigated in the 2011 Action and was resolved by HPC which rejected P’s said assertion after examining the evidence and arguments present, and that it was a determination “on merits” and P’s appeal to SPC was dismissed and that was a final appeal, and P is estopped as a matter of law from seeking to re-litigate the same issues.

50.  As pleaded by D, P is estopped from alleging that he had made the 12 Payments at the direction of D to HK Everbest and the Recipients nominated by D in performance of P’s obligations under the Agreement as particularised under paragraph 16 of the ASOC.

Issue Estoppel : 1^st Requirement - Competence and Finality Requirement

Whether the Mainland Judgements are judgments of a court of competent jurisdiction

51.  There was no submission on P’s part that the HPC or the SPC are not courts of competent jurisdiction.  P initiated the Mainland Proceedings before the HPC and sought relief therefrom, and thereafter appealed to the SPC.  I agree with Mr Pow that P had submitted to the jurisdiction of HPC and later SPC, and that in the present case, the Mainland Judgments are judgments of a court of competent jurisdiction.

Whether the Mainland Judgments are final and conclusive

52.  Mr Pow submitted that there was no application for retrial within 6 months of the respective effective dates of the HPC Judgment and the SPC Judgment and no application for retrial would be permitted, and that Mainland Judgments must be “final and conclusive”.

53.  On the other hand, Mr Man submitted that the Mainland Judgments are not “final and conclusive” relying on Professor Fu’s Report.  Professor Fu has stated, among other things, that :

(i) Mainland law recognises the concept of res judicata (既判力) and the need to prevent impermissible re-litigation[31].

(ii) In order to constitute impermissible re-litigation (重複起訴), 3 criteria must be satisfied: (1) the earlier and later litigation must concern the same parties (當事人相同); (2) the earlier and later litigation must concern the same subject matter (訴訟標的相同); and (3) the earlier and later litigation must concern the same or similar relief (訴訟請求相同). However if either one of the above criteria are absent, then no impermissible re-litigation arises[32].

(iii) There is no widely accepted or applied concept of issue estoppel (爭點禁反言) under Mainland law[33].

(iv) Under Mainland law, there is an evidential presumptive effect of Mainland judgments (預決效力), whereby a party to a later Mainland action is not required to adduce evidence of matters which were the subject of factual findings in an earlier Mainland judgment and can instead rely on the evidential presumption in favour of such findings. However, such presumption is rebuttable, and if there is contrary evidence sufficient to overturn the factual findings made in the earlier Mainland judgment, the party must then proceed to discharge his evidential burden of proof in the usual way[34].

54.  Professor Fu is of the view that the 3 criteria for impermissible re-litigation (重複起訴) have not been satisfied in the present case, in that:

(i) The 2011 Action and the present Hong Kong proceedings do not concern the same parties, in that although D is technically a party to both proceedings, his status in the 2 proceedings are in substance distinct: in the Hong Kong proceedings he is named as a proper defendant, whereas in the 2011 Action, he is a “third party” (第三人) and further a “third party without any rights to seek relief (無獨立請求權第三人)”. Hence, D’s rights and obligations vis-à-vis the two proceedings are substantially different[35].

(ii) The 2011 Action and the Hong Kong proceedings do not concern the same subject matter, in that the 2011 Action concerned a claim by P against HK Everbest for continuation of performance of the Agreement (繼續履行請求權), whereas the Hong Kong proceedings concerns a claim by P against D for damages arising out of D’s alleged renunciation/repudiation of the Agreement[36].

(iii) The 2011 Action and the Hong Kong proceedings do not concern the same relief.  The Hong Kong proceedings do not seek to say that the actual result of the 2011 Action was wrong and in fact, the Hong Kong proceedings were very much prompted by the SPC Judgment.  It does not concern the same relief that it failed to obtain in the Mainland Proceedings, but instead pursues a different relief which the SPC Judgment fully endorsed and commended.  As Professor Fu explains[37]:

“終審法院在30 號判決對於《股權轉讓協議》作為 (普通) ‘合同’的有效成立，以及該有效成立的合同對於合同雙方當事人(也就是後訴中的原告與被告) 的法律約束力都給予了明確認定：

“陳進強欲轉讓龍岩恆發公司的股票，鄭振欣欲受讓龍發公司的股權，合同雙方的意思表示真實，因此該股權轉讓協議具備一般合同要素，構成一份合同且已成立……鄭振欣已經表達了希望陳進強繼續履行合同的意願。如果合同確實無法繼續履行，鄭振欣可以通過另案起訴，請求解除合同，賠償損失，從而獲得相應的司法救濟。”

據此，鄭振欣與陳進強之間簽訂的普通合同，雖然作為前訴中 ‘轉股’ 協議繼續履行請求權的先決事項被前訴裁判結論否定了，但是作為後訴中違約損失賠償請求權和解除合同後財產返還請求權的先決事項，卻已獲得前訴裁判結論的確認。 鄭振欣在香港法院提起的後訴，其訴訟請求 (賠償違約損失和合同解除後返還已支付的款項) 不僅沒有推翻前訴裁判結論，相反恰恰，其請求符合大陸法院在前訴中的裁判結論，甚至是以前訴的裁判結論作為後訴的基礎和依據。”

55.  Professor Fu thus pointed out that P cannot be criticised for commencing the present Hong Kong proceedings as suggested by the SPC.

56.  On the other hand, D’s expert, Professor Li, is of the view that the extracted portion of the SPC Judgment above does not form part of the main contents of the judgment, but, rather, the “reasons”, and therefore  this is not a matter to be taken into account in considering whether the SPC Judgment creates a res judicata for present purposes[38].

57.  Further, although there are different schools of thought as to whether the reasoning of Mainland judgments (裁判結論) is binding, Professor Fu is of the view that part of the SPC Judgment dealing with P’s entitlement to pursue alternative relief for damages is plain and should be respected.  As she explains:

“換言之，前訴生效判決已經認定，鄭振欣與陳進強之間簽訂的《股權轉讓合同》作為確定鄭振欣與陳進強之間權利義務的普通合同已經成立和生效，對於雙方均有拘束力；如果該合同不能履行，則可通過解除合同和追究違約方的賠償責任等途徑謀求司法救濟，這一裁判結論在後訴中應當受到充分尊重，即使不被直接排除在爭點之外的話。”

58.  As seen earlier, from the paragraph cited from Nouvien v Freeman, to establish a final and conclusive judgment has been pronounced on a subject matter, it must be shown that it is conclusive in the same Court which pronounced it.  Although Professor Fu did not use the expression “final and conclusive”, her opinion was that there was no res judicata and no impermissible re-litigation arising from the Mainland Judgments was in effect that there was no “finality”.  Thus, the effect of Professor Fu’s opinion is that under Mainland Law, P can commence a fresh action based on D’s repudiation/renunciation the of the Agreement.

59.  Having considered Professor Fu’s report, I am of the view that her opinion on whether there was “finality” of the Mainland Judgments should not be ignored at this stage, and that there is a strong argument that the Mainland Judgments are not final and conclusive.  For this reason, I am of the view that the 1^st Requirement has not been satisfied.

60.  In fact, it appears that D, in averring that the Agreement was a letter of intent is himself also trying to re-open an issue already decided by SPC.

Whether the Mainland Judgments were on the merits

61.  Notwithstanding my above view, I will nevertheless also consider whether the Mainland Judgments were “on the merits”. 

62.  Mr Pow submitted that the HPC Judgment was clearly “on the merits”, in that the HPC was live to the issue concerning the 12 Payments and of P’s case that they were allegedly made as partial consideration pursuant to the Agreement, and that P was given full opportunity and did adduce evidence for court’s consideration and assessment, and further arguments and counter arguments on the weight and reliability of such evidence were canvassed by P, D and all the other parties involved.

63.  First of all, I will set out in a table below of what the HPC found (查明) in relation to the 12 Payments and the purposes of the remittances stated on the relevant payment documents for the 12 Payments/相關付款憑証上的匯款用途一欄[39] to be :

Item No	Date	Remitter	Recipient	Amount (RMB)	Purpose stated for the remittance
1.	06.01.06	Longyan Qifeng Baihuo Limited (麒豐百貨有限公司)	Nanjing Grand Ocean Retail Limited (南京大洋百貨有限公司)	5m	Payment for goods
2.	13.01.06	Longyan Everbest	Shanghai Branch of Grand Ocean Retail Group Limited (大洋百貨集團有限公司上海工作處)	5m	transfers
3.	07.03.06	Longyan Everbest	HK Everbest	12m (HKD 11,576,307.16)	Remittance of dividends
4.	28.09.06	Longyan Everbest	HK Everbest	10m (HKD 9,858,044.16)	Remittance of dividends
5.	02.11.06	Longyan Everbest	HK Everbest	6m (HKD 5,926,511.26)	Remittance of dividends
6.	17.01.07	Wang Shaohung (黃紹洪)	Shenyang Palmy Development Co Ltd (瀋陽中恆置業有限公司)	1.8m	transfer
7.	17.01.07	Wang Shaohung (黃紹洪)	Shenyang Palmy Development Co Ltd (瀋陽中恆置業有限公司)	1.2m	transfer
8.	28.04.07	Shuangkeng Coal Mine Limited of Baisha Town in Xinluo (新羅區白沙鎮雙坑煤礦有限公司)	Wang Shijun (王石筠)	3m	Prepayment for equipment
9.	23.05.07	Wang Shaohung (黃紹洪)	Shenyang Palmy Development Co Ltd (瀋陽中恆置業有限公司)	4m	Not stated
10.	26.06.07	Longyan Everbest	Shenyang Palmy Development Co Ltd (瀋陽中恆置業有限公司)	2m	Payment for goods
11.	10.10.07	Shuangkeng Coal Mine Limited of Baisha Town in Xinluo (新羅區白沙鎮雙坑煤礦有限公司)	Shanghai Grace Vineyard Corporation (上海怡園酒業有限公司)	7.5m	not stated
12.	28.11.07	Longyan Everbest	Lin Jinrong (林景榮)	200,000	not stated

64.  It appears from D’s own evidence that the purposes as found by HPC above were the purposes stated on contemporaneous bank transfer receipts[40].

65.  The HPC further found that :

(i) Re item 1

The Remitter Longyan Qifeng Baihuo Co Ltd’s statement  dated 1 August 2008 stated that the RMB 5m in item 1 was remitted on instructions of P to the Recipient Nanjing Grand Ocean Retail Limited for transfer of shares[41].

(ii) Re Items 6, 7, 9, and 10

The Remitter Wang Shao Hung’s statement dated 1 August 2008 stated that the amounts in items 6, 7 and 9 were remitted on instructions of P for payments of transfers of shareholdings. However, the statement from the Recipient, Shenyang Palmy Development Co Ltd dated 11 March 2008 stated that items 6, 7, 9 and 10 were “normal loans” from Lonyan Everbest[42].

(iii) Re Items 8 and 11

The Remitter Shuangkeng Coal Mine Limited’s statement dated 1 August 2008 and statement dated 10 April 2009  stated that items 8 and 11 remitted respectively to the Recipient Wang Shijun and Shaghai Grace Vineyard Corporation were remitted on instructions of P for transfers of shares[43];

66.  The HPC also found that Longyan commenced an action in 2008 against P and two others to seek compensation for loss suffered by the Longyan, and that the action was on appeal to SPC.  It is not clear whether the HPC was referring to the 2008 Action mentioned earlier or not.

67.  The HPC then held that the then available evidence in relation to the payments was not sufficient to confirm whether they were payments for the share transfer, namely “以涉案款項的支付看，現有證據也不足以認定為股權轉讓款的支付[44]”.

68.  The HPC pointed out the “purpose for remittance” stated on the relevant bank transfer receipts was either “transfer”, or “payment for goods”, or “payment of dividends” and on some there were no purposes stated, and that the stated purposes did not reflect that they were for transfers of shares; and the only other supporting evidence were the handwritten instructions from P in relation to the remittances.  However, although the originals of these handwritten instructions were produced by P, the “accounting records” of Longyan Everbest were subject to a restraining/freezing order due to the other legal action, and those original handwritten instructions produced by P were delay not “accounting records”, and thus such evidence was by comparison weaker.  Further, the statements from some of the Recipients indicated that the purposes for the remittances to them were not consistent with the purposes stated, such as the sums received by the Recipient Shenyang Palmy Development Co Ltd were stated to be “normal loans” from Longyan Everbest.  The HPC also expressed that P should not be using the assets of Longyan Everbest to pay for the transfer of the shares to himself.

69.  To summarise, the HPC found that that there was inconsistency in P’s evidence in relation to the 12 Payments and that P’s then evidence was weak, and the HPC rejected P’s case that the evidence of the 12 Payments would support the existence of a share transfer agreement[45].

70.  Professor Fu’s view is as follows:

(a) If the question of the 12 Payments were found against P in the 2011 Action, then, at most, this would simply mean that P would not be entitled to avail himself of the evidential presumption (免證效力) in favour of such payments and would need to discharge the burden of proof of showing that such payments were made pursuant to the Agreement in the usual way, whether by reference to the evidence of the 12 Payments themselves or by reference to additional evidence[46].

(b) In the present case, although the HPC held that the evidence of P’s partial payments did not actually demonstrate performance of the Agreement, such reasoning was made prior to the SPC’s finding that the Agreement was still valid as an ordinary contract (普通合同), and therefore neither the HPC nor the SPC made any clear determination that the 12 Payments were not valid payments pursuant to an ordinary contract. Accordingly, in the Hong Kong Proceedings, P is not prevented from proving the same[47].

71.  Mr Pow on the other hand submitted that Professor Fu’s view is irrelevant as it is a matter for the lex fori.

72.  There were 14 items of evidence produced by P before the HPC, and in particular, items 4, 5 of the documentary evidence produced by P were in relation to the 12 Payments.  It appears for item 4, that P had provided a table of the 12 Payments, the bank transfer receipts, credit advices and instructions for payments, and for item 5, the short messages/chat records and the statements from the Remitters.

73.  The HPC referred to the bank transfer receipts, P’s handwritten instructions and the statements from Remitters/Recipients.  What is clear is that the HPC only found there was inconsistency as to the purposes stated for the remittances of some of the 12 Payments, and it would appear that the inconsistency was on the face of the documents.  Insofar as I can see, there was no clear positive finding by HPC that (i) the 12 Payments were not made by P or on behalf of P by the Remitters, or (ii) D did not direct or nominate the Recipients to receive the 12 Payments, or (iii) D did not receive or receive the benefit of any of the 12 Payments.  Nor was there any finding on the actual purpose of each of the 12 Payments.  In fact, the HPC had found that there was a statement from Wang Shao Hung for 3 of the 12 Payments, that they were for “股權轉讓款” entrusted to be made by P[48]. Having considered this, it did not appear the issue of whether P had made the 12 Payments “on directions of D to Recipients nominated by D pursuant to the Agreement” was in fact decided or decided on merits.  

74.  In any event, at the present stage, I accept Mr Man’s submission that it is not possible to say that Professor Fu’s opinion should not even be sent to trial[49] or that it should be ignored.

75.  I will go on to consider the other two requirements in the event I am found to be wrong on the 1^st Requirement.

Issue Estoppel : the 2^nd Requirement – The Same Parties Requirement

76.  D was not named as the defendant in the Mainland Proceedings.  He was one of 4 “third parties” (第三人), and according to Professor Fu, D was not a “third party with a right to seek relief”.

77.  The question is whether D is a party (“當事人”) in the Mainland Proceedings.

78.  D’s expert Professor Li is of the view that D was a “當事人”.  It would appear that according to Professor Li, “當事人” is a wide term and would even include a litigation representative under the Mainland Civil Litigation Law[50]. On the other hand, Professor Fu is of the view that although D was technically a “當事人” in the Mainland Proceedings and in the present action, D’s status in the two proceedings are in substance distinct, in that in the Mainland Proceedings, he was a “third party” without any rights to seek relief/“無獨立請求權第三人”, and thus D’s rights and obligations in the two proceedings are substantially different and that he did not have any rights or duties as a main litigating party in the Mainland Proceedings. 

79.  Mr Pow submitted that as explained by Lord Reid in Carl Zeiss Stiftung and endorsed by this Court in Jiangxi Qianxi Cheng Real Estate Co Ltd[51], the essence of the Same Parties Requirement is not that the composition of parties in the former and present litigation must be identical, and that in the present case, both P and D were undisputedly parties in the Mainland Proceedings and are therefore bound by its findings.  It was further Mr Pow’s submission that D actively participated throughout the entire Mainland Proceedings as a “third party” (第三人) and was therefore privy to and equally bound by the factual findings of HPC.

80.  What was held by Lord Reid in Carl Zeiss Ziftung is that the requirement of identity of parties is satisfied if there is privity between a party to the former litigation and a party to the later litigation.  It is not D’s case that there is privity between him and the defendant in the 2011 Action, HK Everbest.  D’s case is only that as 第三人 / “third party”, he was a party “當事人” in the 2011 Action, and he is also a party in the present action.

81.  Under Hong Kong law, a “third party” is normally brought into the proceedings by the defendant or against whom the defendant makes a claim under Order 16 of the Rules of the High Court.  There appears to be no equivalent of a 第三人in Hong Kong as defined under the Mainland law, whether a “third party with an independent right to seek relief” or a “third party without an independent right to seek relief”.   

82.  Professor Fu herself also seemed to accept that D was technically a party and sought only to distinguish D’s status in the 2011 Action as opposed to his status in the present action. 

83.  It is not clear as to how the difference in status would impact on whether a person is a party or not.  As seen in the HPC Judgment, D had a right to appeal against the HPC Judgment even as a “third party without an independent right to seek relief”, and was also generally referred to as  當事人[52].  I have to say, in this respect, I prefer Professor Li’s opinion, and that D appears to be a 當事人 in the 2011 Action, and he is a party in the present proceedings.

Issue estoppel : the 3^rd Requirement - Same Issue Requirement

84.  In the 2011 Action, P was seeking orders against HK Everbest and the 1^st “third party” Longyan Everbest for continuation of performance of the Agreement, ie to seek the necessary approval from the relevant authorities and to effect the transfer of the Shares pursuant to the share transfer terms of the Agreement.  P failed because the Agreement was held to be not a formal share transfer agreement.  However, as expressed by SPC, the Agreement constituted a valid contract with contractual obligations from P and D.  In the present action, P’s claim is essentially over the breach of the contract, in light of D having evinced an intention not to perform his obligations under the Agreement and renunciated the same[53], and P is seeking damages against D arising out of non performance of the Agreement.

85.  As Professor Fu had said, the present action arose out of comments made by the SPC.  Whether such comments were part of the main judgment or the reasons for the judgment, they were still comments made by the SPC reflecting the SPC’s views.

86.  Having considered the claims in the 2011 Action and the present proceedings, I am not satisfied that the subject matter in both proceedings is the same.  I have earlier said it did not appear that the issue of whether P had made the 12 Payments on directions of D to Recipients nominated by D pursuant to the Agreement had been decided, or decided on merits.

87.  As also said earlier, Professor Fu is of the view that if the question of the 12 Payments was found against P in the Mainland Proceedings, then at most, this would simply mean that P would not be entitled to avail himself of the evidential presumption (免証效力) in favour of such payments and would need to discharge the burden of proof of showing that such payments were made pursuant to the Agreement in the usual way , whether by reference to the evidence of the 12 Payments themselves or by reference to additional evidence. 

88.  Having considered the above, I am of the view that the 3^rd Requirement (Same Issue Requirement) has not been met.

My view on the issue estoppel

89.  To summarise, I am not satisfied at this stage that the 3 Requirements for issue estoppel have been met.  Further, even if there is issue estoppel arising out of the 12 Payments, it does not mean that P’s case falls away completely or the entire action should be struck out.

Allegations of fraud

90.  P in its Amended Reply has denied that the findings of the HPC in relation to the 12 Payments were capable of founding any estoppel, and P has further pleaded in the alternative that the findings of the HPC (which were not admitted) were procured by fraud by D, in that he knew that they were not the true and yet nevertheless had invited the HPC to accept them as truth. 

91.  Mr Pow submitted that this is a bare allegation with no particulars.  There was no allegation in the appeal to the SPC that the HPC Judgment was obtained by fraud.

92.  P did not himself file any affirmation to oppose the Striking Out Summons and only relied on Professor Fu’s report.  Mr Man had referred to P’s witness statements contained in the paginated bundles for the Security for Costs Summons in relation to the evidence on the alleged fraud. Although the witness statements have only been included in the paginated bundles for the Security for Costs Summons and not the bundles for the Striking Out Summons, the Striking Out Summons was taken out after the witness statements had been filed and the evidence therein cannot be ignored.

93.  In any event there has been no attempt by D to strike out P’s plea of fraud except by reference to res judicata.

94.  Having considered the evidence, I am not satisfied that P’s case falls away entirely even if D were able to establish that the 12 Payments are the subject of an issue estoppel.

Delay

95.  Mr Man had referred the Court to Poon Lai Bing and Gold Dragon Limited Trading as Club Paris and anor CACV 136/2007, unreported judgment 13 December 2007 where the Court of Appeal had expressed that the plaintiff therein had the amended defence and counterclaim for 10 months and no action was taken on it until the eve of the trial.  The Court of Appeal allowed the appeal and reinstated the paragraphs that had been struck out and held that in the circumstances there should have been no question of a strike out, and most certainly the hopelessly late application so to do on the morning of the first day of the trial ought not to have been entertained[54].

96.  In Tang Wai Cho and Tang Wai Leung [2011] 1 HKLRD 1, the striking out application was lodged on the third day of the trial.  The Court of Appeal held amongst other things that an application for striking out made shortly before or at trial should only be entertained in the clearest of cases, and if grounds for striking-out existed, they should normally be apparent at the close of pleadings, and at the latest after exchange of witness statements, and that there was nothing exceptional about that case to warrant the defendant’s application at such a late stage[55].

97.  In the present case, D has pleaded the effect of the Mainland Judgments and also estoppel as early as December 2015.  Pleadings were closed in February 2016, although thereafter there had been further amendments to pleadings.  Discovery took place in August 2016 and the first round of witness statements were exchanged in December 2016.  In August 2017, D issued the Security for Costs Summons.  3 CMCs had already taken place with a 4^th CMC originally fixed on 28 March 2018 but did not take place due to the Striking Out Summons.  In the Listing Questionnaire dated 1 September 2017 prepared for the 3^rd CMC, D confirmed that he did not intend to take out any other interlocutory applications, as well as any other application (save those that ought to be made to the listing judge or listing master) and further that it was appropriate in all the circumstances to set the case down for trial, attaching a certificate giving time estimates for trial, and sought leave to set down the action for trial.  Since then, P had issued a number of interlocutory applications, obtained leave to file a number of further witness statements including his own supplemental witness statement filed on 23 October 2017.  In his supplemental witness statement P had set out further evidence in relation to the 12 Payments.  The Striking Out Summons was then issued by D in November 2017.

98.  Even though in the present case, the Striking Out Summons was not issued during trial or as late as in the above two Court of Appeal cases, as stated earlier, it is only in plain and obvious cases that the court should exercise its summary powers to strike out an action, and if grounds of striking out existed then they should be apparent, in the normal course of events, at the close of pleadings and at the latest after exchange of witness statements.  Although P’s supplemental witness statement was filed only in October 2017, the issue estoppel was pleaded by D almost two years prior to the issue of the Striking Out Summons.  Having considered this, I am of the view that there has been delay in issuing the Striking Out Summons.

Conclusion

99.  As said, it is only in plain and obvious cases that the court should exercise its summary powers to strike out an entire action.  Having considered the circumstances of this case, I am not satisfied that there has been an abuse of process on the part of P, and/or P’s claim is frivolous or vexatious and that P’s action should be struck out. 

100.  I therefore dismiss the Striking Out Summons.

The Security for Costs Summons

101.  There is no dispute by P as to his liability to give security.  Pursuant to an order dated 23 June 2016, P had previously made a payment of HK$350,000 into Court on 20 July 2016, for D’s costs up to the stage of exchanging of list of documents.  The exchange of list of documents took place on 3 August 2016.  Since then, as mentioned earlier, there was exchange of witness statements and 3 CMCs and further amendments to pleadings. On 9 May 2017, D requested P for further security up to and including trial of HK$2,675,000.  This was rejected by P on the basis that the request was premature and that it was conventional for security for costs to be given in stages, and that the matter had not yet been set down.  P also disputed the quantum as being excessive and unreasonable to cover the period of discovery up to and including trial.

102.  On 22 August 2017, D’s solicitors wrote to P’s solicitors indicating that D was ready for the case to be set down for trial and would inform the court at the CMC on 6 September 2017.  The Security for Costs Summons was later issued on 28 August 2017.  In D’s solicitor’s supporting affirmation, he provided an estimate for costs of HK$3,932,500 including Senior and Junior Counsel Fees for a trial estimated to last over 6 days, and sought security in the sum of HK$3.5m.

103.  P opposes the summons on the grounds that (i) the timing was inappropriate as the proceedings had not yet been set down for trial; and (ii) the quantum claimed was excessive and unreasonable.

104.  By the time of the present hearing, it was 10 months after the summons was first issued.  At the hearing, it appeared that the main dispute was over quantum.  D sought a minimum of HK$2.5m.  P estimated a sum of about HK$1.5m including interlocutory applications and the whole trial would be reasonable, and proposes a fair sum for security of HK$1.2m. 

105.  Mr Man admitted that P had not obtained leave to introduce Professor Fu’s Report, and that in light of the arguments made in the Striking Out Summons, there may need to be further amendments to the pleadings. Thus, there may still be interlocutory applications.  I also note that there are now two more witnesses on P’s side with their statements filed after the issue of the summons, and this may affect the length of trial.

106.  Having considered both Counsel’s submissions, and adopting a broad brush approach, I am of the view that a fair and reasonable sum for security is HK$2m to include costs of and including trial. I will allow P 45 days to pay into court, and all proceedings be stayed, save for any appeals arising out of this judgment, until security be given and in default of P giving the security within the time limited, P’s claim against D herein do stand struck out with costs without further order.

Costs

107.  In relation to the Striking Out Summons, costs should follow the event, and I order D to pay costs of and incidental to the application, to be summarily assessed and paid within 14 days of assessment.  P to submit a statement of costs within 7 days, and D his list of objections within 7 days thereafter. 

108.  As for the Security for Costs Summons, neither has succeeded in achieving his proposed quantum, I think a fair order will be costs in the cause.

109.  Finally, I am grateful to all Counsel for their assistance to the Court.