YIP LAI FONG AND ANOTHER v. SIN TUNG HING AND OTHERS

HCA 1282/2003 and HCA 2256/2006

(Heard Together)

[2026] HKCFI 1570

HCA 1282/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1282 OF 2003

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AND

HCA 2256/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2256 OF 2006

________________

________________

(Heard Together)

_________________

D E C I S I O N

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Introduction

1.  The 13-day trial of HCA 1282/2003 (“the 2003 Action”) and HCA2256/2006 (“the 2006 Action”) (collectively “the HK Actions”) started on 2 March 2026. On the third day of the trial, Ms Yip (“Yip”) and Mr Wu (“Wu”) (collectively “Ps”) took out a summons in each of the HK Actions for their striking out applications on the ground of res judicata, issue estoppel and Henderson and Henderson abuse.

2.  By the summons taken out in the 2003 Action (“the 2003 Summons”), Ps seek to strike out the Amended Defence and the Amended Counterclaim and ask for certain declaratory relief.

3.  By the summons taken out in the 2006 Action (“the 2006 Summons”), Ps apply to strike out the Re-Amended Statement of Claim and the claim against them be dismissed.

4.  For the disposal of these two Summonses, I have heard the submissions of Mr Fong, for Ps and Ms Lin, together with Mr Yu, for Mr Sin (“Sin”) and Mr Yau (“Yau”) (collectively “Ds”) in the 2003 Action and Yau in the 2006 Action. I have also considered the written submissions of Sin, who acts in person as D3 in the 2006 Action.

Factual background  

5.  The key disputes among the parties are about (1) the validity of a Chinese agreement (“the Share Transfer Agreement”) purportedly made between Full Billion Shipping Ltd (“Full Billion”) and Many Profit Investments Limited (“Many Profit”) which is a BVI Company (“the Validity Issue”) and (2) the beneficial ownership of Full Billion (“the BO Issue”).

6.  Sin and Yip are equal shareholders and directors of Full Billion. Sin signed the Share Transfer Agreement purportedly on behalf of Full Billion.

7.  By the Share Transfer Agreement, Full Billion agreed to transfer its 8,000 shares (“the Shares”) in Hung Kong (Fresh Fruit) Trading Limited (“Hung Kong”), the only major asset of Full Billion, to Many Profit at the purchase price of RMB126,400,000 (“the Purchase Price”) to be paid in three instalments.

8.  Hung Kong is a locally incorporated company and it holds 90% shares in Nanhai Lishui Fresh Fruit & Food Wholesale Market Co. Ltd. (“Lishui”) which is a Sino-foreign cooperative joint venture company founded in the Mainland. Lishui is said to be the largest wholesale fresh fruit distributor centre in the Mainland.

9.  On 12 June 2002, shortly after the creation of the Share Transfer Agreement, each of Ds signed a document entitled「融資協議」 (“Loan Agreement”) in Shenzhen by which Ds agreed to lend to Many Profit the Purchase price and the loan was to be secured by the Shares. Many Profit signed the Loan Agreement on 14 June 2002.

10.  Full Billion has never received the Purchase Price.

11.  Yau claims that each of Sin, Wu and him owns one third of the beneficial interest in Full Billion having paid its share capital in equal shares. Yau further claims that all of them were equally involved in the operations of Full Billion and therefore, he is its de facto director.

12.  Ps dispute the validity of the Share Transfer Agreement on the ground that there was no resolution approval for the transfer or authorizing Sin to enter into the Share Transfer Agreement on behalf of Full Billion and hence the Share Transfer Agreement is invalid and of no legal effect.

13.  These disputes gave rise to four sets of legal proceedings, namely, s.168A petition proceedings, the HK Actions and a legal action in the Mainland (“the Mainland Action”).

14.  First, on 19 June 2002, Ps filed a s.168A petition under HCMP 2423/2002 (“the Petition”). This court has been provided little information about the status or outcome of the Petition.

15.  Then, in or about October 2002, Yip commenced the Mainland Action against Sin, Yau and Many Profit in the Higher People’s Court of Guangdong Province (“GPC”). Wu was a third party in the Mainland Action.

16.  In the Mainland Action, Yau raised the BO Issue as part of his defence to justify the validity of the Share Transfer Agreement.

17.  In April 2003, Yip, suing both in her personal capacity and on behalf of Full Billion, and Wu commenced the 2003 Action against Sin, Yau and Many Profit. Full Billion was joined as a nominal defendant. Whilst the main claim is about the Validity Issue, Ps allege that Sin executed the Share Transfer Agreement in breach of fiduciary duties and trust as a director of Full Billion and that Yau, Many Profit and he conspired to cause loss to Full Billion. Ps ask for an award of damages to be made against them (“Damages Claim”).

18.  Yau mounted a counterclaim against Ps (“Yau’sCounterclaim”) in the 2003 Action. By Yau’s Counterclaim, Yau claims to be the beneficial shareholder holding one-third interest in Full Billion and its de facto director.

19.  On 25 July 2006, after the conclusion of the trial of the Mainland Action, GPC delivered a judgment in favour of Yip (“the 1^st Guangdong Judgment”). In the 1^st Guangdong Judgment, GPC accepted that it had jurisdiction to adjudicate the disputes among the parties and found that the Share Transfer Agreement was invalid and that Yau was neither a beneficial owner nor a director of Full Billion on the application of Hong Kong law.

20.  On 28 August 2006, Yau lodged an appeal against the 1^st Guangdong Judgment in the Supreme People’s Court (“SPC”).

21.  In October 2006, Yau commenced the 2006 Action against Yip, Wu, Sin and Full Billion. The relief he prays in the 2006 Action is similar to those in Yau’s Counterclaim.

22.  By summons dated 27 June 2007 in the 2003 Action (“the 1^st Discontinuance Summons”), Yau applied for leave to discontinue Yau’s Counterclaim. In the supporting affidavit dated 2 August 2007, it was explained that there had been very little progress of the 2003 Action since about 2004 and it was doubtful if Ps would proceed with their claims in the 2003 Action for trial.

23.  By an order dated 15 November 2007, Master Lung dismissed the 1^st Discontinuance Summons.

24.  On 7 August 2008, Ps in the 2003 Action took out a summons (“the 2008 Striking-out Summons”) to strike out Yau’s Counterclaim. The ground specified in the 2008 Striking-out Summons is that it is frivolous and vexatious or otherwise an abuse of the court’s process for Yau having agreed to and did participate in having the subject matter of his counterclaim litigated in GPC, to re-litigate the same in these proceedings.”

25.  On 20 October 2008, SPC gave a judgment (“the 1^st Mainland Judgment”) to set aside the 1^st Guangdong Judgment on the ground of the non-joinder of Full Billion and a re-trial was ordered (“the 1^st Re-trial”).    

26.  On 11 November 2008, Master S Kwang (as he then was) heard the 2008 Striking-out Summons and made an order of the even date that upon the undertaking of Yip and Wu given through their counsel not to prosecute their claim in the 2003 Action until the end of the 1^st Re-trial of the Mainland Action pending in GPC, there be a stay of Yau’s Counterclaim (“the 2008 Stay”).

27.  Yau appealed against the order of Master S Kwang. DHCJ Lugar-Mawson heard his appeal and handed down his judgment on 29 April 2009 (“the Stay Judgment”).

28.  In the Stay Judgment, the deputy judge observed that it was an inescapable fact that the parties had chosen to litigate their disputes in the Mainland and since the close of the pleadings in the 2003 Action up to the 1^st Guangdong Judgment in July 2006, over almost three years, the parties were content to let these proceedings lie dormant. The deputy judge opined that the 2008 Stay was correct and neither Ps’ claim nor Yau’s Counterclaim was permanently stayed. After the completion of the re‑trial of the Mainland Action, the parties were at liberty to come back to the court in Hong Kong and continue the 2003 Action if they wished. The deputy judge dismissed Yau’s appeal.

29.  Before the 1^st Re-trial, Full Billion was joined as the 2^nd third party. After trial, GPC gave a judgment dated 27 May 2010 (“the 2^nd Guangdong Judgment”). GPC held that they had jurisdiction over the Mainland Action but Hong Kong court was a more natural and convenient forum. On this basis, the Mainland Action was dismissed.

30.  Yip appealed to SPC against the 2^nd Guangdong Judgment. In the judgment of SPC dated 29 February 2012(“the 2^nd Mainland Judgment”), SPC held that since Yau was a Mainland resident and Lishui was a Mainland entity, the Mainland Action should not be dismissed by reason of forum non conveniens. Thus, SPC allowed her appeal and ordered a re-trial (“the 2^nd Re-trial”).

31.  GPC heard the 2^nd Re-trial and by a judgment dated 29 June 2017 (“the 3^rd Guangdong Judgment”), part of Yip’s claim was allowed. It was held, among other things, that the Share Transfer Agreement was invalid and of no legal effect and that, on the application of Hong Kong law, the allegation that Yau was one of the beneficial owners and de facto director of Full Billion was not borne out despite the additional evidence adduced by Yau. Hence, GPC decided against Ds on both the Validity Issue and the BO Issue.

32.  Sin, Yau and Many Profit appealed against the 3^rd Guangdong Judgment. By a judgement dated 9 July 2019 (“the SPC Judgment”), SPC dismissed their appeal and affirmed the conclusion of GPC on the Validity Issue.

33.  The relevant part of the SPC Judgment is reproduced below:

“本院认为，本案并非富亿公司股东以及董事的资格确认糾纷。单同庆代表富亿公司签約的行为，系行使董事代表权，涉及的是富亿公司章程规定的董事会表决权规則，并不以邱伟平是否为富亿公司的隠名股东作为先决问题。富亿公司章程也没有対事实董事是否享有表决权、事实董事是否应当与登记董事同等计算表决权以及如何形成多数表决权等问题作出规定。前述《备忘录》明确记載因缺乏胡炜升授权需要再行商议股权转让协议，此表明即使邱伟平是富亿公司的事实董事，富亿公司的董事业已対股权转让协议的授权达成一致协议，即富亿公司対外转让股权需要得到胡炜升的书面同意而非事实董事与一名登记董事即形成董事会多数决。本案中，邱伟平亦没有反诉请求确认其为富亿公司的股东或董事。因此，邱伟平是否为富亿公司隐名股东以及事实董事并非本案争点及需要审理的问题。一审判决対于邱伟平是否为富亿公司隐名股东以及事实董事问题进行实体认定是不正确的，本院予以纠正。邱伟平二审为证明其为富亿公司隐名股东以及事实董事提交相关证据并申请证人出庭作证，本院対该部分证据不做评价。邱伟平如认为其为富亿公司隐名股东或事实董事，其应向富亿公司登记地法院香港特別行政区的法院主张权利，本案中不予处理。单同庆、邱伟平、万利公司关于因邱伟平同意而使得案涉股权转让协议符合富亿公司董事会多数决之表決权規定的上诉理由，本院不予釆信。单同庆代表富亿公司向万利公司转让所持有的鸿港公司80％的股权，未經富亿公司章程规定的董事会授权，不符合董事达成的合意，且叶丽芳或胡炜升均拒絶予以追认，故单同庆的行为不能代表富亿公司的真实意思表示，并构成越权代表的濫用董事代表权行为。一审判决认定案涉股权转让协议不是富亿公司的真实意思表示是正确的，本院予以維持。”

34.  Almost a year later, by summons dated 12 June 2020, Yau applied for an order that the 2008 Stay be lifted. By an order dated 7 August 2020 (“the Lift Order”), Master S Kwang granted the application.

35.  By summons dated 25 November 2020 (“the 2^nd Discontinuance Summons”), Yau applied to discontinue Yau’s Counterclaim in the 2003 Action again. Register S Kwang heard the 2^nd Discontinuance Summons and by his order dated 22 January 2021 (“the Discontinuance Order”), Register S Kwang granted Yau leave to discontinue Yau’s Counterclaim and ordered Yau to pay Ps costs of Yau’s Counterclaim.

36.  By an order dated 26 May 2021 made at the first hearing of the case management summons (“the CMS Order”) in the 2003 Action, Registrar S Kwang ordered that Ps do apply to amend the Writ of Summons and the Statement of Claim on both the names of Ps and the effect of the SPC Judgment within 56 days and adjourned the hearing of the case management summons (“CMS”) for both the HK Actions to 13 October 2021.  

37.  By an order dated 23 July 2021 made in the 2006 Action, Master Phoebe Man directed Messrs. Paul W. Tse (“PT”), acting for Yau, to report by letter their potential conflict of interest and proposals to resolve such conflict. In the 2003 Action, PT act for both Yau and Sin whereas in the 2006 Action, PT act for Yau suing, among other persons, Sin. This caused concern to the master apparently.

38.  By their letter dated 19 August 2021, PT indicated to the court that Sin would not contest the claim of Yau in the 2006 Action and both Ds would not contest Ps’ claim in the 2003 Action in light of the SPC Judgment.

39.  By an order dated 3 September 2021, Registrar S Kwong granted the joint application of Ps and Sin, Yau and Many Profit and leave was given to the parties to file their respective amended pleadings.

40.  At the 2^nd CMS hearing on 13 October 2021 before Registrar S Kwang, PT filed a document entitled “D1 and D2’s Notes of Submissions for CMS” on behalf of Ds (“the CMS Note”). In the CMS Note, it was stated that Ds were willing to be bound by the SPC Judgment and had no objections to transfer the Shares back to Full Billion and Yau did not pursue Yau’s Counterclaim any further.

41.  By an order dated 1 November 2022, Master Ho ordered that the 2003 Action be tried with the 2006 Action before the same judge. The learned master further made an unless order relating to Ps’ intended application for expert directions. In the unless order, Master Ho expressly stipulated that the expert issues to be identified must be relevant and necessary to the pleaded case of the parties.

42.  By a consent order dated 6 June 2023 made by Master Matthew Leung in the 2003 Action, Ds were granted leave to amend their Defence and Yau’s Counterclaim (“the 2023 Amendment Order”) and Ps to make consequential amendments to their Reply and Defence to Counterclaim.

43.  By an order dated 27 September 2023 in the 2003 Action (“the Security Order”), a master ordered that Ps do provide security for costs in the amount of HK$6,000,000 to be paid into court failing which their claim would be dismissed.

44.  Ps appealed against the Security Order and their appeal was allowed by DHCJ Yuen by the Decision dated 24 May 2024 (“the Appeal Decision”).

45.  By an order dated 26 January 2026, this court allowed Ps to file and serve the expert report of Dr Lin Feng concerning the finality of the SPC Judgment in PRC law (“the Expert Report”) in the 2003 Action. Ds required the attendance of Dr Lin at trial for their cross‑examination.

46.  Ps were married until their second divorce in 2009. As stated in the SPC Judgment, Wu has been serving his 20-year imprisonment in the Mainland since 2013 and is unable to attend the trial.    

47.  All the foregoing matters are evidenced by contemporaneous documents and can hardly be in dispute. These matters form the factual basis of Ps’ striking out applications.

Applicable legal principles

48.  The relevant legal principles relating to striking out applications, res judicata, issue estoppel and Henderson and Henderson abuse are well-settled and the following summary should be sufficient for present purposes.

49.  It is trite that the applicant bears the burden to show a plain and obvious case in order to obtain a striking out order. Disputed facts were to be taken in favour of the party sought to be struck out and the court should not attempt to resolve difficult points of law. The claim must be obviously unsustainable (see Hong Kong Civil Procedure 2026, Volume 1, §18/19/4 at p.572).

50.  In Total Lubricants Hong Kong Ltd & Ors, v Christophe De la Cropte de Chanterac & Ors. [2013] 2 HKLRD 838, Kwan JA (as she then was) provided a clear explanation for res judicata and issue estoppel. I find the following passages of assistance:

“13. Res judicata is a generic term of which cause of action estoppel and issue estoppel are two species (R (Coke-Wallis) v Institute of Chartered Accountants [2011] 2 AC 146 at para 26). Mr Barlow rested his arguments on cause of action estoppel alone. He also relied on res judicata in the wider sense in Henderson v Henderson (1843) 3 Hare 100 at 114 to 115, which applies to cause of action estoppel (Arnold v National Westminster Bank Plc [1991] 2 AC 93 at 104F to 105D). A bar created by cause of action estoppel is absolute with no exception for special circumstances (Spencer Bower & Handley, Res Judicata, 4^th ed, para 7.04). Where this kind of estoppel applies, its effect is to bar re-litigation of the entire cause of action including reformulation of that cause of action.

14. The term “cause of action estoppel” was coined by Diplock LJ in Thoday v Thoday [1964] P 181. He explained this type of estoppel at 197 to 198:

‘The particular type of estoppel relied upon by the husband is estoppel per rem judicatam. This is a generic term which in modern law includes two species. The first species, which I will call “cause of action estoppel”, is that which prevents a party to an action from asserting or denying, as against the other party, the existence of a particular cause of action, the non‑existence or existence of which has been determined to exist, i.e., judgment was given upon it, it is said to be merged in the judgment, or, for those who prefer Latin, transit in rem judicatam. If it was determined not to exist, the unsuccessful plaintiff can no longer assert that it does; he is estopped per rem judicatam. This is simply an application of the rule of public policy expressed in the Latin maxim “Nemo debet bis vexari pro una et eadem causa”. In this application of the maxim “causa” bears its literal Latin meaning.’

15. There are a number of constituent elements in a case based on cause of action estoppel:

‘(i) the decision, whether domestic or foreign, was judicial in the relevant sense; (ii) it was in fact pronounced; (iii) the tribunal had jurisdiction over the parties and the subject matter; (iv) the decision was – (a) final; (b) on the merits; (v) it determined a question raised in the later litigation; and (vi) the parties are the same or their privies or the earlier decision was in rem.’ (Spencer Bower & Handley, para 1.02)

16…

17. Further explanation on the meaning and effect of cause of action estoppel can be found in these passages in Halsbury’s Laws of England, 5^th ed, vol 12:

‘1174. Meaning of ‘cause of action estoppel’. Where res judicata is pleaded by way of estoppel to an entire cause of action, rather than to a single matter in issue, it amounts to an allegation that the whole legal rights and obligations of the parties are concluded by the earlier judgment, which may have involved the determination of questions of law as well as findings of fact. To decide which questions of law and fact were determined in the earlier judgment the court is entitled to look at the judge’s reasons for his decision and his notes of the evidence, and is not restricted to the record; but as a general rule, the judge’s reasons cannot be looked at for the purpose of excluding from the scope of his formal order any matter which, according to the issues raised on the pleadings and the terms of the order itself, is included in it.

1175. Doctrine applicable wherever same cause of action determined on the merits. In all cases where the cause of action is really the same and has been determined on the merits, and not on some ground (such as the non-expiration of the term of credit) which has ceased to operate when the second action or claim is brought, the plea of res judicata should succeed. The doctrine applies to all matters which existed at the time of the giving of the judgment and which the party had an opportunity of bringing before the court.

1176. Effect of previous judgment. Although it is true that estoppel by record must be reciprocal (that is, both parties must be precluded from re-opening matters determined in a prior case), a judgment in favour of a defendant is not always as decisive in his favour on the points in issue as judgment for a claimant would be, despite the fact that it is equally conclusive of the claim brought. Where a claimant recovers judgment, it almost necessarily follows that all the issues raised by the defendant have been determined in the claimant’s favour; there must at least have been a decision on the merits. A judgment may, however, have been passed in favour of the defendant on dilatory grounds, or on one only of many alternative defences, and circumstances may have arisen entitling the claimant to judgment which were not in existence when the first claim was brought. The burden is on the defendant to show that the judgment relied on was obtained upon grounds or in circumstances which afford him a defence to the subsequent claim’.” (Emphasis supplied)

51.  Ms Lin draws my attention to the observation of Lord Collins of Mapesbury in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569. At §§43-44, Lord Collins said this,

“43. The starting point is clear. Although the Hong Kong SAR and the Mainland PRC are part of one country, for the purposes of the conflict of laws they are separate law districts, and a judgment of the Supreme People’s Court is a foreign judgment, and will be enforced or recognised in Hong Kong only if it fulfils the conditions for enforcement or recognition at common law.

44. At common law a judgment of a foreign court of competent jurisdiction which is final and conclusive and on the merits will be conclusive in Hong Kong proceedings if the parties are the same and the issue is identical: Carl Zeiss Stiftung v Rayner & Keeler Ltd [1967] 1 AC 853. Lord Reid, at 918‑919, said, however, that there were at least three reasons for being cautious in any particular case. First, it might not be easy to be sure that a particular issue has been decided or that its decision was a basis of the foreign judgment and not merely collateral or obiter. Secondly, it might be most unjust to hold that a litigant should be estopped from putting forward his case because it was impracticable for him to do so in an earlier case of a trivial character abroad with the result that the decision in that case went against him. Third, there could be no estoppel of this character unless the foreign judgment was a final judgment was a final judgment on the merits.”

52.  On issue estoppel, DHCJ Gary CC Lam in Yuen Tsz Chun Frank and Anor. v Zhou Ying Investments Group Ltd and Ors. [2025] 5 HKLRD 714 set out the three requisite conditions of this plea at §47:

(1)  The same issue has previously been determined by a judicial decision (whether by Hong Kong Courts or foreign courts);

(2)  The judicial decision is made by a court of competent jurisdiction and is final; and

(3)  The parties to that judicial decision (or their privies) are the same persons as the parties to the subsequent proceedings (or their privies).

53.  As regards the Henderson v Henderson abuse, Sin, acting in person in the 2006 Action, pertinently refers to Ma CJ’s enunciation of the guiding principles in Ko Hon Yue v Chiu Pik Yuk (2012) 15 HKCFAR 72 after confirming that the present state of the law is reflected by the decision of the House of Lords in Johnson v Gore Wood & Co [2002] 1 AC 1 and of the Court of Appeal in Chiang Lily v Secretary for Justice [2009] 6 HKC 234. at §83:

(1)  The starting point is to recognize that the doctrine is founded on an abuse of process. As Lord Wilberforce said in Brisbane City Council v Attorney General for Queensland, “it ought only to be applied when the facts are such as to amount to an abuse: otherwise, there is a danger of a party being shut out from bringing forward a genuine subject of litigation”: at 425.

(2)  This concern (that a party ought not lightly be deprived of the right to have serious matters litigated) was echoed by Lord Millet in Johnson v Gore Wood: at 59D-G.

(3)  It must therefore be essential when striking out a claim on this basis (and thus preventing a litigation of that claim) that an abuse is found to exist in seeking to raise in subsequent proceedings claims or issues which could and should have been raised in earlier proceedings. This abuse will usually take the form of the other party being “vexed” (or in some cases, the terms “oppressed”, “unjustly harassed” or “unjustly hounded” are used) by the subsequent set of proceedings: Johnson v Gore Wood at 31A-B.

(4)  The abuse can also take the form of the administration of justice being brought into disrepute: see Chiang Lily at 256D‑G (para 58) referring to Hunter v Chief Constable of the West Midlands Police [1982] AC 529. With the procedural reforms introduced by the Civil Justice Reform in 2009, the courts in Hong Kong must now, when exercising their procedural powers, increasingly bear in mind not just the parties before them in any particular litigation but also the position of other litigants in the court process. RSC O.1A r.1(f) states as one of the underlying objectives of the court’s procedural powers under the Rules to be “to ensure that the resources of the court are distributed fairly”.

(5)  In examining aspects such as abuse, the court is concerned with balancing interests: not just those of the litigants before it, but also taking into account the other interests involved in the administration of justice. It is important therefore here to emphasize that when the court is dealing with the Henderson v Henderson type of abuse, it is not looking at an absolute bar to litigation such as issue estoppel or cause of action estoppel. On the contrary, in considering this type of abuse, the court is required to assess a number of factors and balance competing interests. See here, Bradford and Bingley Building Society at 1490F-H. It is also worth making the following observations at this juncture: -

(a)  There is conceptually an important distinction between absolute bars such as issue estoppel and the type of abuse with which we are concerned. In the former situation, the party who seeks to re-litigate an issue or cause of action has already had his day in court, whereas in the latter situation, that party has not: cf Johnson v Gore Wood at 59D (“It is one thing to refuse to allow a party to re-litigate a question which already been decided; it is quite another to deny him the opportunity of litigating for the first time a question which is not previously being adjudicated upon” per Lord Millett).

(b)  The assessment of different factors and balancing competing interests can be said to be an exercise of a discretion. A number of decisions of the English Court of Appeal have cast doubt on whether the court does indeed exercise a discretion as such: see Aldi Stores Ltd. v WSP Group Plc. [2008] 1 WLR 748, at 762C-D (para 16) and Stuart v Goldberg Linde (a firm) [2008] 1 WLR 823, at 845E-846C (para 81). It is unnecessary for present purposes to decide whether or not a discretion is actually being exercised. The more important point to bear in mind is that an appellate court is obliged to pay sufficient regard to the decision of the court below and should be reluctant to interfere where the decision is based on the assessment or balancing of a number of factors. Nothing in the two said cases suggests otherwise; in fact, quite the contrary.

54.  Guided by these undisputed principles. I turn to examine the substance in the HK Actions and the Mainland Action.

The HK Actions

55.  In the 2003 Action, the Validity Issue and the BO Issue are raised in the following manner.

56.  Ps contend that there were never proper resolutions passed by Full Billion to approve the transfer of the Shares to Many Profit or authorize Sin to enter into the Share Transfer Agreement as an authorised representative of Full Billion.

57.  Ps allege that after the wrongful entering into the Share Transfer Agreement, Sin prepared or caused to be prepared an undated minutes of a board meeting of Full Billion (“The Undated Minutes”) signed by Sin as chairman. In the Undated Minutes, it was wrongly recorded that notice of the meeting had been given to Yip, both Yip and Sin were present at the meeting and a proper resolution was passed which approved the transfer of the Shares to Many Profit and authorise Sin to sign the Share Transfer Agreement.   

58.  Arising from the unauthorised entry into the Share Transfer Agreement, Ps’ allegations against Sin include breach of fiduciary duty and breach of trust. Ps further allege that Many Profit knew or ought to have known that Sin did not have the necessary authority to enter into the Share Transfer Agreement.

59.  Yau is implicated due to his execution of the Loan Agreement, which purportedly enabled Many Profit to pay the Purchase Price under the Share Transfer Agreement to Full Billion. It turned out that in fact Full Billion received nothing from any of them despite the two receipts signed by Sin and Yau acknowledging that each of them had received one-third of the first two instalments of the Purchase Price. Ps also received a cheque from Many Profit as their shares of the Purchase Price but it was dishonoured.

60.  Ps then allege that Yau and Many Profit dishonestly and knowingly assisted Sin’s breach of fiduciary duties and his breach of trust. They further allege that all of Sin, Yau and Many Profit conspired together to injure Full Billion in that they created the Share Transfer Agreement and the Loan Agreement to cause Full Billion to transfer the Shares without any consideration. Instead, Sin, Yau and Many Profit were enriched.  

61.  Lastly, Ps allege that Sin purportedly on behalf of Full Billion signed a resignation letter to resign from the directorate of Hung Kong as from 18 June 2002 without due authorisation. Ps say that Sin was in breach of his fiduciary duties and breach of trust in doing so.

62.  Ps plead that all of Sin, Yau and Many Profit holds all sums and properties received by them by their wrongful acts as resulting and constructive trustees for Full Billion.

63.  Ps then claim against Sin, Yau and Many Profit for:

(1)  A declaration that Full Billion remains a 80% shareholder of Hung Kong and that the Share Transfer Agreement is invalid and of no legal effect;

(2)  A declaration that the Undated Minutes is invalid and of no legal effect;

(3)  A declaration that Full Billion remains as a director of Hung Kong and that the purported approval of the resignation from the directorate of Hung Kong at the shareholders meeting is invalid and of no legal effect;

(4)  All necessary and proper accounts, inquires, tracing and vesting orders;

(5)  Damages;

(6)  Interest;

(7)  Costs.

64.  On the Validity Issue, the short answer of Ds in their pleaded case is that Wu being a director and/or a beneficial shareholder of Full Billion consented to and approved the sale of the Shares to Many Profit.

65.  Alternatively, the majority of the beneficial shareholders of Full Billion, namely, Ds consented to the sale of the Shares to Many Profit. They rely on the Articles of Association of Full Billion and certain provisions in Table A.

66.  Yau formulates the BO Issue with certain new allegations added to his Defence by way of amendments pursuant to the 2023 Amendment Order. First, he alleges that there was a capital injection agreement (“Capital Injection Agreement”) whereby Wu, Sin and he agreed that each of them should pay around HK$1 million as capital injection. Due to Wu’s alleged inability to pay such an amount, each of Ds agreed to lend Wu HK$500,000 and Wu should repay them by way of deduction of his share of profits. They further agreed that each of them owns 1/3 of the beneficial interest in the business and the profits and liabilities would be shared equally among the trio (“Profits and Liabilities Sharing Agreement”).

67.  Yau further pleads an agreement (“Full Billion Agreement”) which was agreed by Wu, Sin and him. It contained the following terms:

(1)  Yip and Sin should act as the registered shareholders and directors;

(2)  Yip do hold 33.33% share on trust for Wu and the remaining 16.67% share for Yau; Sin do hold 33.33% shares for himself and the remaining 16.77% share on trust for Yau;

(3)  The beneficial owners are Wu, Sin and Yau, each owning 1/3 share and interest (sic);

(4)  The de facto directors are Yau, Sin and Wu though only Sin is the registered director;

(5)  At all material times, Yip’s role was and is the nominee shareholder and director;

(6)  Sin should be the authorised signatory of all bank accounts;

(7)  Sin should be the only authorised person to issue the cheques on behalf of Full Billion;

(8)  Sin should take charge of all financial matters of Full Billion in Hong Kong; and

(9)  Yau should take care of all the administrative and financial matters of Full Billion in the Mainland.     

68.  All of the Capital Injection Agreement, the Profits and Liabilities Sharing Agreement and the Full Billion Agreement (collectively “the BO Agreements”) were orally made in the Mainland.

69.  It should be noted that, prior to the amendments to their pleadings in 2023, Ds had said nothing about the BO Agreements in the HK Actions and the Mainland Action for 20 years since their first lawsuit commenced in 2002.

70.  In Yau’s Counterclaim, Yau repeats his Defence and prays for:

(1)  A declaration that Yau is a beneficial shareholder of one-third of the shares or interest in Full Billion;

(2)  A declaration that Yip holds one-sixth of the shares or interest in the Full Billion on trust for Yau;

(3)  An order directing Yip to transfer to Yau any shares or interest in Full Billion which is/are beneficially owned by Yau;

(4)  Damages and/or equitable compensation;

(5)  Interests;

(6)  Costs;

71.  In Yau’s pleaded case in the 2006 Action, Yau makes similar allegations including the BO Agreements and claims that Wu, Sin and he were the only beneficial shareholders, each owing one‑third of the 10,000 shares in Full Billion.

72.  Yip prays for:

(1)  A declaration that Yip and Sin held the one-third interest, or alternatively such shares as the court determine in the entire shareholding in Full Billion on express trust for him;

(2)  Alternatively, a declaration that Yip and Sin held the one-third interest, or alternatively such shares as the court determine in the entire shareholding in Full Billion on resulting and/or constructive trust for him;

(3)  An order directing Yip, Wu and Sin to re-assign to Yau the said one-third interest in the 10,000 shares in Full Billion.

(4)  Damages to be assessed;

(5)  Interest; and

(6)  Costs.

The Mainland Action

73.  In the SPC Judgment, the court identified three focal issues in the appeal. They were:

(1)  Whether Yip was the proper plaintiff in the proceedings;

(2)  What the lex causae was; and

(3)  Whether the Share Transfer Agreement was valid and whether Many Profit should return the Shares to Full Billion.

74.  In the Appeal Decision, at §§14.3 – 14.4, DHCJ Yuen set out the decisions of SPC on these three issues and summarised the reasons given as follows: 

“14.3. In respect of these issues, the SPC held (among other things) that:

(1) Madam Yip was entitled to commence the proceedings as she was a shareholder of the Company, and such entitlement was not affected by whether she held the shares on trust;

(2) the lex causae was Hong Kong law; and

(3) the Share Transfer Agreement was not valid.

14.4. In arriving at their conclusion on issue (3):

- the SPC noted that all parties agreed that the Companies Ordinance and the Company’s articles of association were binding on the Company and its members, and that a resolution of the board, at a meeting for which the quorum was two directors, was required for the share transfer;

- the SPC held (among other things) that:

(i) Madam Yip and Mr Wu were acting in concert;

(ii) there was no evidence that Madam Yip or Mr Wu had agreed to the share transfer. On 22 May 2002, Mr Wu gave a written authorization to Leung Yip Hong (“Leung”) to attend a meeting on 23 May 2002 to discuss the issue of transfer. A memorandum signed by Mr Leung, Mr Sin and Many Profit on 23 May 2002 recorded that there was preliminary agreement but that as Mr Wu was travelling to the USA for business and Mr Leung had no authority to sign, there would be another meeting after 24 May 2002 at a time to be agreed (“the Memorandum”). Thus, all parties were aware and had agreed that Mr Wu’s express sole agreement was required for the transfer. The Undated Minutes did not bear the signature of Madam Yip or Mr Wu. Mr Sin’s claim of Mr Wu’s oral agreement was not proved. Therefore, Mr Sin’s execution of the Share Transfer Agreement did not comply with the rules governing board resolutions;

(iii) as for Mr Yau’s claim to be a beneficial shareholder and de facto director so as to render Mr Sin’s representation of the Company valid, the SPC held that the case was not a dispute as to whether his (Mr Yau’s) qualification as the Company’s shareholder and director should be confirmed. Mr Sin’s acts as a director involved the Company’s rules regarding voting rights at a board meeting, and it was not a prerequisite question whether Mr Yau was a beneficial shareholder or not. Further, the Company’s articles did not state whether de facto directors had voting rights, or whether their votes should be counted equally to those of registered directors, or how a majority would be formed. The Memorandum showed that even if Mr Yau were a de facto director, Mr Wu’s written consent to the transfer was required for the purpose of the external share transfer. Besides, in the present case, Mr Yau did not counterclaim that he was a shareholder or director of the Company. Accordingly, it was not an issue in the case, and it was not necessary to decide if Mr Yau was a beneficial shareholder or de facto director. If he considered that he was a beneficial shareholder or de facto director of the Company, he should advance it in the Hong Kong court; it would not be dealt with in this case. The ground of appeal of Mr Sin, Mr Yau and Many Profit, that Mr Yau’s consent rendered the Share Transfer Agreement compliant with the rules regarding a board majority vote, was rejected. As Mr Sin’s transfer of the Hung Kong shares to Many Profit was not authorized in accordance with the Company’s articles, did not comply with the intentions of the board, and had not been ratified by Madam Yip or Mr Wu, his acts did not represent the wishes of the Company, and was an abuse of power as its representative;

(iv) the SPC held that Many Profit was not a bona fide third party.”

75.  In assessing the probability of success of Ps’ claims in the 2003 Action, DHCJ Yuen observed that the parties had agreed to submit to the jurisdiction of the PRC courts in the parallel proceedings, which Ds had strenuously defended and appealed to the highest court in land and the SPC Judgment is a comprehensive, reasoned judgment on the merits.

76.  The observation of the deputy judge is both valid and astute.

77.  I now turn to the pleaded case of the parties on res judicata. The parties were specifically directed to amend their respective pleadings to include the effect of the SPC Judgment by the 1^st CMS Order in the 2003 Action.

78.  Ps added the following matters to their pleadings accordingly.

79.  First, the SPC had considered s.23, 28 and 95 of the Companies Ordinance and Article 31(d) of the Articles of Association of Full Billion. It was adjudged by the SPC that Many Profit was not a bona fide transferee of the Shares.

80.  Second, the SPC adjudged against Many Profit on the issue of the Validity Issue as between Many Profit and Full Billion. It was found that Sin’s act could not represent the will of Full Billion and the transfer was ultra vires.

81.  Third, the SPC has conclusively adjudicated upon and determined against the validity of the transfer of the Shares to Many Profit. Many Profit has to return the Shares to Full Billion.

82.  Ps aver that they rely on the doctrine of res judicata and it is an abuse of process for Ds to litigate again on the Validity Issue. Ds are estopped from denying the binding effect of the SPC Judgment on the determination of the Validity Issue.

83.  In their Amended Defence, Ds plead that the three issues that the SPC was asked to resolve were:

(1)  Whether Yau was the shareholder and de facto director of Full Billion (“Issue One”);

(2)  Whether the transfer of the Shares between Full Billion and Many Profit was valid (“Issue Two”); and

(3)  Whether Many Profit validly acquired the Shares from Full Billion in Hung Kong (“Issue Three”).

84.  Ds aver that the SPC held that Issue One should be determined and resolved under Hong Kong law. Without resolving Issue One, which was the fundamental legal and factual basis for the determination of Issue Two and Issue Three, the SPC found in favour of Yip and Wu on the latter two Issues. They then assert that the SPC Judgment is not binding. They aver that there is neither application of the doctrine of res judicata nor an abuse of process.

Discussion

85.  Before assessing the merits of the plea of res judicata and issue estoppel on the Validity Issue, the following developments in the 2003 Action should be worthy of note.

86.  First, by a consent order dated 21 May 2025, Many Profit agreed to transfer the Shares to Full Billion within 21 days from the date of the order.

87.  Second, in his opening submissions, Mr Fong, appearing for Yip and Wu, indicated that Ps would abandon the Damages Claim. The Validity Issue is the sole live issue and they only seek declaratory relief in the 2003 Action.

88.  Third, on the third day of the trial, before Professor Lin testified, Ms Lin confirmed with this court that Ds accept that the SPC Judgment is final and conclusive and they required no cross-examination of Professor Lin.

89.  Alarmingly, after having made detailed oral and written submissions against the relevance of res judicata and issue estoppel to the Validity Issue, Ms Lin indicates to this court that she actually agrees with Sin’s submission that there should be no collateral attack of the SPC Judgment and they accept that the Validity Issue has already been finally and conclusively determined by the SPC in favour of Ps. Ms Lin agrees that Ds are estopped from arguing against the determination of the SPC and they must be bound by the finding of invalidity of the Share Transfer Agreement. Ms Lin submits that the Validity Issue is not a live issue in the 2003 Action.

90.  Ms Lin even submits that it is always the true position of Ds regarding the Validity Issue. This contention is wholly untenable given all her previous written submissions indicative of the contrary. Ms Lin submits that she just did not have the chance to clarify and state the true position of Ds orally any earlier. This submission is utterly unreasonable and unacceptable.

91.  With or without this last-minute indication, it is plain and obvious to me that SPC is undoubtedly a court of competent jurisdiction and the SPC Judgment is final and conclusive in light of the unchallenged expert evidence of Professor Lin. Given the identification of both the Validity Issue and the parties in the Mainland Action and the HK Actions, the SPC’s determination of the Validity Issue must be conclusive in the HK Actions. The plea relating to res judicata in the Amended Defence is thoroughly bad. The Validity Issue should not be relitigated in the HK Actions by reason of res judicata and issue estoppel.

92.  Now I turn to the BO Issue in Yau’s Counterclaim and the 2006 Action. Ps say that the BO Issue is objectionable because of the doctrines of res judicata and Henderson and Henderson.

93.  Quite apart from the doctrines, I find the way Yau has handled Yau’s Counterclaim to be wholly unacceptable.

94.  To begin with, by the Discontinue Order granted on Yau’s second attempt, Yau’s Counterclaim should have been discontinued with immediate effect and ceased to be in existence since 22 January 2021.

95.  It is trite that discontinuance does not debar the plaintiff from commencing a new action for the same cause subsequently and an order for discontinuance made by consent may be set aside by a subsequent order also made by consent: Hong Kong Civil Procedure 2026 Vol.1 §21/5/16.

96.  Here, the Discontinuance Order has never been set aside by any subsequent order. Some eight months after it was made, PT in the CMS Note made an unequivocal statement that, among other things, Yau did not pursue Yau’s Counterclaim any further (“the Statement”). The Discontinuance Order was not mentioned though.

97.  Inexplicably, the 2023 Amendment Order was made by consent notwithstanding the Discontinuance Order and Yau’s position stated in CMS Note. With leave, Ds amended their Defence and Yau’s Counterclaim and raised the allegation of the BO Agreements for the first time after 20 years in the Amended Defence and Amended Counterclaim. Neither Mr Fong nor Ms Lin could explain why the parties apparently ignored the Discontinuance Order when they made the joint application for the 2023 Amendment Order.

98.  In the Appeal Decision, DHCJ Yuen did not say anything about the Discontinuance Order and I do not know whether it was brought to her attention. The deputy judge, however, raised a query about the CMS Note and senior counsel then appearing for Ds accepted that the Statement had not been withdrawn: see §§17.2-17.3 of the Appeal Decision.

99.  Indeed, the Statement has not been withdrawn up till now.

100.  On the other hand, there can be no justification for the duplicity of Yau’s Counterclaim and the 2006 Action. Yau has made two identical claims based on the BO Agreements and asks for similar relief in both Actions. The fact that the HK Actions have been ordered to be tried together does not in any way absolve the duplicity.

101.  On the BO Issues, Mr Fong submits that SPC has already finally and conclusively decided that Yip holds 50% shares in Full Billion on trust for Wu and herself jointly. Yip cannot now reopen this issue by way of Yau’s Counterclaim and the 2006 Action. Yip relies on the ruling of SPC that Ps acted in concert, sharing the same interest in the operation of Full Billion, Hung Kong and Lishui (“the SPC Ruling”).

102.  I cannot accept his submission. The SPC Ruling must be understood in context. It does not really relate to the shareholdings in Full Billion. It only concerns the authority of Wu to act on behalf of Yip as a director of Full Billion.

103.  The SPC Ruling was an affirmation of the finding in the 3^rd Guangdong Judgment. It was made in the course of SPC’s resolution of the Validity Issue. First, SPC stated the case of Sin, Yau and Many Profit on this issue. They argued that Wu had throughout taken an active part in the creation of the Share Transfer Agreement and so Sin signed the Share Transfer Agreement in compliance with the regulations of the board resolutions of Full Billion.

104.  SPC read the companies record of Full Billion and the affirmations made by Yip in the Petition proceedings. Based on such evidence, the SPC Ruling was justified.

105.  Next, SPC considered whether Yip or Wu expressly agreed to the signing of the Share Transfer Agreement on the basis that Wu could properly represent Yip to do so. SPC came to the conclusion that there was no such evidence.

106.  SPC made it clear that it did not determine the BO Issue. If they had already accepted that Ps were the beneficial owners of the 50% shareholdings in Full Billion, SPC would have simply rejected Yau’s claim right away and would not have given an explanation as to why the BO Issue should not be entertained.

107.  I agree with Ms Lin that SPC did not adjudicate the BO Issue.

108.  Mr Fong next submits that Yau could and should have raised the BO Issue in the Mainland Action with all the parties having agreed to stay the HK Actions pending the adjudication of the Mainland Action. The prosecution of the 2006 Action based on the BO Agreements raised after the SPC Judgment is a Henderson and Henderson abuse and should not be allowed.

109.  Little has been said about Yau’s failure to raise the BO Issue based on the BO Agreements in the Mainland Action. Ms Lin submits that the BO Issue involves equity law, of which the Mainland court may not have a good grasp.

110.  This submission has no merit. Even if that is the case, it does not mean that the BO Issue should and/or could not have been raised in the Mainland Action.

111.  In fact, Yau did raise the BO Issue albeit by way of defence only. GPC applied HK law to resolve this issue in favour of Yip twice: see the 1^st and 3^rd Guangdong Judgments. The Mainland courts never refused to resolve the BO Issue on jurisdiction ground and showed no difficulties in their disposal of the same on the application of HK law.

112.  Ms Lin highlights to this court that in the SPC Judgment, SPC said that if Yau contended that he was the equitable owner of Full Billion or its de facto director, he should turn to the court in Hong Kong to claim his rights since Full Billion is a company registered in Hong Kong. Ms Lin submits that SPC declined to adjudicate the BO Issue and so it cannot be an abuse that Yau asks this court to deal with the same now.

113.  I cannot accept her submission. The observation of SPC should be understood in context. SPC did not say that the BO Issue should or could not be resolved by a court in the Mainland. SPC did not say that GPC should not have resolved the BO Issue against Yau twice for want of jurisdiction or on account of forum non conveniens. SPC explained that Sin, Yau and Many Profit could not rely on the alleged beneficial interest of Yau in Full Billion and his alleged status as a de facto director to establish the validity of the Share Transfer Agreement and as a defence to Ps’ claim. SPC concluded that to resolve the Validity Issue, it was unnecessary to determine the BO Issue first. SPC pointed out that the Mainland Action was not about the dispute about the beneficial ownership and the qualification of directors of Full Billion and, importantly, Yau did not make a counterclaim for a confirmation or acknowledgement of his alleged beneficial ownership and status in Full Billion. In the premises, SPC held that whether Yau was an equitable owner and a de facto director of Full Billion was not an issue calling for determination in the Mainland Action. SPC did not say that GPC had made any mistake in its factual finding on the evidence that Yau was neither an equitable owner nor a de facto director of Full Billion.   

114.  This court bears in mind that the starting point is that there is no presumption against the bringing of successive actions; and in every case the burden rests on the defendant to establish that it is an abuse of process for him to be subjected to the second action: Yifung Developments Ltd v Liu Chi Keung Ricky and Ors (unreported, HCA3020/2015, 29.8.2016) per G Lam J (as he then was) at §43.

115.  I am of the view that the BO Issue involving the allegation of the BO Agreement should and could have raised in the Mainland Action. Ps must show that it is an abuse for the BO Issue in Yau’s Counterclaim and the 2006 Action to be re-opened in this trial.

116.  As observed by DHCJ Lugar-Mawson in the Stay Judgment, the parties chose to resolve their disputes including the Validity Issue and the BO Issue in the Mainland Action in one go. In the 2003 Action, after the close of pleadings the action became dormant. The deputy judge rightly noted that Yau rekindled his interest in the 2003 Action probably due to his dissatisfaction with the outcome of the 1^st Guangdong Judgment whereby the BO Issue was ruled against him. On the other hand, Yau commenced the 2006 Action to raise the BO Issue again.

117.  Owing to the 2008 Stay, the 2003 Action could only step out of the pleading stage because of the Lift Order in August 2020.

118.  For the 2006 Action, after the close of pleadings in March 2007, Yau took out a summons dated 13 April 2007 for further and better particulars of the Defence whereas Ps took out a summons dated 26 April 2007 for striking out the Statement of Claim. There was no discernible progress thereafter and there is no information about the results of these two summonses. Though the 2006 Action was not subject to any stay, there was a long period of inaction. Obviously, the parties had waited for the final determination of the Mainland Action. It was only after 14 years that the first case management summons hearing took place on 26 May 2021.

119.  As observed by DHCJ Yuen in the Appeal Decision, the parties agreed to submit to the jurisdiction of the Mainland courts in the parallel proceedings. The Validity Issue and the BO Issue were tried by GPC repeatedly. The parties experienced three trials and three appeals. The Mainland Action was finally concluded after 17 years. All of Ps and Ds were legally represented throughout and fought their cases strenuously. Ps must have spent an enormous amount of time, effort and legal costs on the Mainland Action.

120.  Yau has yet to explain why he did not make a counterclaim in respect of the BO Issue in the Mainland Action in the first place. Yau had just raised the same by way of defence only. Yau did have his day in court and fully argued his case on the BO Issue. He merely failed to take the proper course and so SPC refused to deal with it. Had he made a counterclaim, which he had more than a decade to do so, the BO Issue would have, together with the Validity Issue, been finally and conclusively determined by SPC in 2019.

121.  On the other hand, Yau’s prosecution of his claim for beneficial ownership of Full Billion after two decades when the BO Issue should long have been disposed of in the Mainland is an abuse and it is an unfair use of the resources of the court in Hong Kong as well.

122.  In the circumstances, I opine that Yau should not be allowed a second bite of the cherry and prosecute Yau’s Counterclaim and the 2006 Action now. The abuse is plain to see. Ps should not be vexed and unjustly harassed by the BO Issue again in Hong Kong after all these years and the court resources should be utilized properly.  

123.  I have considered the submission of Ms Lin that in the SPC Judgment, it was pointed out that Yau should turn to the courts in Hong Kong for an adjudication of the BO Issue. Sin highlights this as well.

124.  I do not believe that much weight can be placed on this observation of SPC. It was made only after SPC refused to deal with the BO Issue for want of a counterclaim. SPC did not say that because Full Billion is a Hong Kong company, the Mainland courts should not resolve the dispute about its beneficial ownership and the BO Issue should be best left to the Hong Kong courts.

125.  I should add that there is no evidence that Yau is unable to make a new claim for the BO Issue in the Mainland right after the delivery of the SPC Judgment or even now. The 2^nd Mainland Judgment confirms that the Mainland court should not decline jurisdiction over the disputes of the parties given the residence of Yau and the Mainland status of Lishui.

126.  Ms Lin further argues that the striking out applications should not be granted due to their extreme lateness. It was made only after the testimony of Yip completed on the first two days and the expert evidence was received on the third day. She stresses that Mr Fong indicated that Ps did not intend to make any striking-out application in his opening submission at the outset of the trial.

127.  Ms Lin draws my attention to a few authorities to support her submission that a late application for strike out should only be acceded to in the most exceptional case with a valid explanation for its lateness.

128.  Pertinently she refers to Tang Wai Cho v Tang Wai Leung [2011] 1 HKLRD 1 in which Cheung JA referred to another decision of the Court of Appeal in Poon Lai Bing v Gold Dragon Ltd trading as Club Paris and Ors (unreported, CACV 136/2007, 13.12.2007) and Johnson v Gore Wood & Co..

129.  Cheung JA stated that an application at a late stage should only be entertained in the clearest circumstances and to lodge a striking out application on the third day of a trial is wholly exceptional.

130.  In particular, Ms Lin relies on the Court of Appeal’s decision to order indemnity costs and ask the defendant’s solicitors to show cause given. Ms Lin submits that the two Summonses should be likewise dismissed with indemnity costs with certificate for two counsel and the solicitors for Ps should bear personal costs.

131.  I cannot accept her submission. The costs orders in Tang Wai Cho had little to do with the lateness of the underlying striking out application. The Court of Appeal concluded that the appeal and the striking out application were misconceived and the defendant was ignorant of the two decisions of the Court of Appeal on illegality. This conclusion formed the basis of the costs orders.   

132.  Mr Fong refers to Tang Woung Shiu v Tang Kun Yeung & Anor. [2002] 3 HKLRD 627. There, Recorder Kwok SC struck out the statement of claim of the plaintiff and dismissed his claim after the commencement of the trial.

133.  Ms Lin submits that this court should not follow Tang Woung Shiu, which was distinguished by Ng J in Sunni International Limited (in liquidation) v Kao Wai Ho Francis and Ors[2023] HKCFI 2882. The learned judge pointed out that Tang Woung Shiu was decided before the Civil Justice Reform and it was not binding on him anyway.

134.  O.18 r.19 of the Rules of High Court expressly provides that the court may at any stage of the proceedings either of its own motion or on application strike out any pleading. It must mean that a striking out application can be made and granted even after the commencement of the trial if, and only if, the circumstances are appropriate.

135.  I have no doubt that Ps’ applications made on the third day of the trial should only be entertained in the clearest circumstances and it must be an exceptional case if they are acceded to.

136.  Ps rely on the doctrines of res judicata and issue estoppel in their applications in light of the SPC Judgment. They bear the burden to show that the SPC Judgment is final and conclusive. The pleaded case of Ds in their amended pleadings contains a clear denial of the finality of the SPC Judgment.

137.  Ps sought to discharge this burden by adducing the expert evidence of Professor Lin. Ds required cross-examination of Professor Lin and it was only immediately before Professor Lin testified that they agreed to his evidence and accepted that the SPC Judgment is final and conclusive.

138.  I note that there are conflicting decisions as to whether the finality of a Mainland judgment could be resolved summarily without a trial. A thorough review of such decisions was made by DHCJ Gary CC Lam in Tsoi Chung Tat Prince v Wei Zhongxia[2026] HKCFI 716.

139.  I do not think that it is necessary for me to look into those decisions. Suffice it for me to say that the dispute over the finality of the SPC Judgment was put to rest by the late acceptance of the evidence of Professor Lin in the Expert Report. With such expert evidence, one of the essential elements of the doctrines of res judicata and issue estoppel is proved.

140.  Thus analysed, there is arguably no delay in the application for striking out the defence relating to the Validity Issue in the 2003 Action.

141.  I am, in any event, of the view that it is plain and obvious that it is an abuse to Ps that the Validity Issue and the BO Issue are to be relitigated and/or argued afresh. It is also an abuse from the viewpoint of the administration of justice. Judicial resources would be further wasted if Ds were allowed to open the defence case and call five live witnesses to testify on issues which have been finally and conclusively determined by SPC or that should and could have been properly raised by way of a counterclaim in the Mainland Action.

142.  Ps’ grounds for striking out are not amenable to removal or any kind of remedies and are amply made out on the indisputable evidence. I do not believe that Ds have suffered any significant prejudice caused by the lateness of these applications.

143.  I see no reason why I should allow the trial to be continued when I am positive that the remaining issues in the HK Actions should not be relitigated. It is only sensible to control the damage and minimise the waste of judicial resources by striking out the pleaded case of Ds relating to the two Issues. I am satisfied that the circumstances are one of the clearest here and it is an exceptional case that striking out should be ordered in both Actions.

144.  On the 2003 Summons, when the Damages Claim has been formally abandoned and the Validity Issue has ceased to exist, I am convinced that judgment should be entered against Ds in the 2003 Action.

145.  I order a declaration that Full Billion remains a 80% shareholder of Hung Kong and that the Share Transfer Agreement are invalid and of no legal effect.

146.  For the declaration that the Undated Minutes containing a resolution for the transfer of Shares and the authorisation of Sin to sign all relevant documents in connection therewith are invalid and of no legal effect, I am satisfied that Ps are entitled to such a declaration in light of the overall effect of the SPC Judgment.

147.  Lastly, for the declaration that Full Billion remains as a director of Hung Kong and that the purported resolution passed in the shareholder meeting on 18 June 2002 for the purported approval of the resignation of Full Billion from its directorship in Hung Kong is invalid and of no legal effect, I do have some reservation.

148.  For the former part of the declaration, Hung Kong is not a party to these proceedings and whether it is entitled to act on the resignation purportedly tendered by Full Billion is not an issue here. I do not think such a declaration can be made without hearing Hung Kong. Mr Fong agrees.

149.  For the latter part, the purported resolution was passed on the basis that the Share Transfer Agreement was valid. With the conclusion on the Validity Issue, the purported resolution must be invalid and of no legal effect. I am convinced that Ps are entitled to the declaration to this effect.

150.  On the 2006 Summons, having concluded that Yau is estopped from raising the BO Issue in the 2006 Action on the Henderson and Henderson doctrine, his claim falls to be dismissed. I strike out the Re‑Amended Statement of Claim and dismiss Yau’s claim accordingly.  

Conclusion and orders

151.  These HK Actions have a tortious history. The parties have fought the same legal battle in the Mainland for 17 years. Enough is enough. They should not be allowed to argue their respective cases afresh in Hong Kong after SPC had made the final determination in 2019. It is clearly an abuse that Ds seek to avoid the SPC Judgment and relitigate the matter here. Notwithstanding the lateness of these applications, I have no hesitation in striking out their defence based on the purported validity of the Share Transfer Agreement and Yau’s claims based on his alleged beneficial ownership of Full Billion.

152.  On the issue of costs, Ms Lin submits that this court should take note of the fact that Ps abandoned the Damages Claim only on the first day of the trial when Ds were ready to resist the same. I fail to see how this could assist Ds and make their case any better.

153.  I do not accept that Ds were compelled to defend the validity of the Share Transfer Agreement in the HK Actions due to the Damages Claim. Even if Ds had good defence to Ps’ Damages Claim, they did not have to defend the indefensible. They could and should have conceded on the Validity Issue right after the SPC Judgment was handed down and defended the Damages claim only. They should not have disputed the finality of SPC Judgment and the costs of expert evidence could have been avoided. There are also steps that they could have taken to safeguard their costs position.

154.  I agree with Mr Fong that costs should follow the event. Ps’ costs of and occasioned by the 2003 Summons should be borne by Ds, to be taxed if not agreed. Yau should also pay Ps their costs of and occasioned by the 2006 Summons, to be taxed if not agreed. For Sin’s costs in the 2006 Summons, he was clearly an ally of Yau and I make no order as to costs between Yau and him.

155.  For the costs of the 2006 Action, with the dismissal of Yau’s claim, Yau must pay the costs of Yip and Wu, including all costs reserved, to be taxed if not agreed. As between Yau and Sin, I make no order as to costs.

156.  In regard to costs of the 2003 Action, I accept that the Damages Claim incurred little extra costs for Ds. They basically rely on the purported validity of the Share Transfer Agreement to resist the Damages Claim. To substantiate the quantum of their Damages Claim, Ps merely rely on the net profit of Lishui from 2002 to 2005 recorded in its financial reports to compute their estimate loss. Ds have adduced no contrary evidence at all.

157.  In the circumstances, it would be fair for me to order that Ds do pay Ps 95% of their costs of the 2003 Action, including any costs reserved, to be taxed if not agreed. The 5% disallowed covers Ps’ own costs relating to the Damages Claim.  

158.  Lastly, I shall make a summary assessment of the costs of Ds relating to the two late applications of Ps by the Relief Summons and the Expert Evidence Summons pursuant to my decision handed down on 26 January 2026.

159.  I rejected the grounds of opposition advanced by Ds and I granted the applications of Ps. The expert evidence of Professor Lin is clearly relevant and has turned out to be uncontroversial. I ordered that Ps do pay the costs of Sin and Yau just to mark my disapproval of the lateness of the applications, which caused an adjournment of the pre-trial review hearing. The summary assessment should be made on this basis.  

160.  I have perused the Statement of Costs and the List of Objections. I shall adopt a broadbrush approach. I would only allow HK$30,000 for counsel fee and HK$20,000 for all other professional charges and disbursements. My summary assessment is, therefore, HK$50,000 payable by Ps to Ds.

Mr Enoch Fong, instructed by Messrs So, Lung & Associates, for the 1^st and 2^nd Plaintiffs in HCA 1282/2003 and the 1^st and 2^nd Defendants in HCA 2256/2006

Ms Chantel Lin & Mr Axis Yu, instructed by Messrs Paul W Tse, for the 1^st and 2^nd Defendants in HCA 1282/2003 and the Plaintiff in HCA 2256/2006

The 3^rd Defendant in HCA 1282/2003 did not appear

The 4^th Defendant in HCA 1282/2003 was not represented and did not appear

The 3^rd Defendant in HCA 2256/2006 appeared in person

The 4^th Defendant in HCA 2256/2006 was not represented and did not appear

HCA 1282/2003

[2024] HKCFI 1390

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1282 OF 2003

____________________

____________________

________________________

DECISION

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1.1.  This is an appeal from an order made by Master Thomas Kwong on 27 September 2023 in which it was ordered (among other things) that Yip Lai Fong (“Madam Yip”) and Vincent Wu also known as Wu Wai Sing (“Mr Wu”), the plaintiffs in HCA1282/2003 (“the 2003 Action”), do within one month provide security for costs of HK$6,000,000 to be paid into Court failing which their claim would be dismissed (“the security order”).

1.2.  The security order was made on the application, by a summons filed on 30 May 2023 (“the security summons”), of Sin Tung Hing (“Mr Sin”) and Yau Wai Ping also known as Qiu Wei Ping (“Mr Yau”), who are the 1^st and 2^nd defendants in the 2003 Action. 

1.3.  On 11 October 2023, Madam Yip and Mr Wu filed a Notice of Appeal from the security order applying for (among other things) an order that the above order “be set aside and stayed”. No application was made for a stay pending the hearing of the appeal. 

1.4.  No payment into court has been made.

2.  On 10 January 2024, Mr Sin and Mr Yau issued a summons for an order that Madam Yip and Mr Wu’s claim in the 2003 Action be dismissed for non-compliance with the security order (“the dismissal summons”).

3.  On 9 May 2024, I heard the appeal from the security order and the dismissal summons together.

Background

4.  It is necessary for the understanding of this Decision to briefly summarize some background.

The Company

5.1.  Full Billion Shipping Ltd (“the Company”)¹ is a Hong Kong company which held 80% of the shares of Hung Kong (Fresh Fruit) Trading Ltd (“Hung Kong”) a Hong Kong company which in turn held the majority shares in a PRC company which operated a large wholesale fruit distribution centre in Guangdong Province.

5.2.  According to records in the Companies Registry,

-  Madam Yip and Mr Sin each held 50% of the shares of the Company, and

-  they were the only two directors. 

5.3.  Pausing here,

-  Madam Yip and Mr Wu’s case is that she held the shares on trust for herself as to 40% and for him as to 10%²;

-  Mr Sin and Mr Yau’s case is that the beneficial shareholders were Mr Sin, Mr Yau and Mr Wu, each owning one-third of the shares³.   

The Share Transfer Agreement

6.1.   In 2002, an agreement in Chinese No. NHXG20020501 (“the Share Transfer Agreement”) was purportedly made between the Company and Many Profit Investments Ltd (“Many Profit”), a BVI company⁴. 

6.2.  Under the agreement, the Company agreed to transfer its shares in Hung Kong to Many Profit at the price of RMB126,400,000, to be paid in three  instalments. 

6.3.  The agreement was signed by Mr Sin purportedly on behalf of the Company on 30 May 2002, and by Many Profit on 8 June 2002. 

Validity and authorization disputed

7.  Madam Yip and Mr Wu disputed the validity of the Share Transfer Agreement on the ground that there was no resolution approving the transfer or authorizing Mr Sin to enter into or sign the agreement on behalf of the Company.

The Undated Minutes

8.1.  ; Pausing here, there was an undated document which on its face appears to be minutes of a meeting of the board of the Company held on an unspecified date (“the Undated Minutes”), purportedly recording that:

-  Mr Sin and Madam Yip were present at a meeting for which notice had been given,

-  a quorum was present, and

-  after discussion, it was resolved that the Company do sell its shares in Hung Kong to Many Profit for HK$118,908,748.80, and that Mr Sin be authorised to sign all relevant documents in connection therewith. 

It was signed by Mr Sin only. 

8.2.  Madam Yip and Mr Wu’s case is that she was not given notice of any such meeting and she had not attended any, and that there was no proper resolution approving the share transfer or authorizing Mr Sin to enter into or sign the agreement⁵.

8.3.  Mr Sin and Mr Yau’s case is that:

-  the Undated Minutes “was a draft and was never used or relied upon by” them or the Company⁶;

-  it was “never the practice of [the Company] to prepare resolutions even for decisions involving substantial financial commitments”⁷, and

-  Mr Wu “as a director and/or beneficial shareholder of the [Company] consented to and approved” the share transfer⁸; alternatively that Mr Sin and Mr Yau “the majority of the beneficial shareholders of the [Company]” consented to it⁹. 

The Loan Agreements    

9.1.   Four days after Many Profit signed the Share Transfer Agreement, on 12 June 2002, Mr Sin and Mr Yau each signed a document entitled 融資協議 (“Loan Agreement”) agreeing to lend to Many Profit the purchase price for the share transfer, the loans being secured by the said shares.  The Loan Agreements were signed by Many Profit on 14 June 2002.

9.2.  Madam Yip and Mr Wu allege that the Company has never received the said purchase price.   

Various Proceedings

10.  The above matters gave rise to various proceedings.

(1)  On 19 June 2002, Madam Yip and Mr Wu commenced s.168A proceedings in the Hong Kong court for a buy-out of Mr Sin’s shares in the Company, subsequently including applications for a declaration that the Share Transfer Agreement was invalid¹⁰,

(2)  On 20 October 2002, Madam Yip commenced proceedings in the Guangdong Province Higher People’s Court against Mr Sin, Mr Yau and Many Profit.  Mr Wu and the Company were third parties in the proceedings.

(3)  On 8 April 2003, the present action (the 2003 Action) was commenced by Madam Yip (personally as well as on behalf of the Company) and Mr Wu as plaintiffs, against Mr Sin, Mr Yau, Many Profit and the Company as defendants.  On 10 July 2003, Mr Yau filed a Counterclaim for (among other things) a declaration that he is a beneficial shareholder of one third of the shares in the Company and that Madam Yip holds one-sixth of the shares on trust for him.   

(4)  On 10 October 2006, Mr Yau commenced HCA2256/2006 (“the 2006 Action”) against Madam Yip and Mr Wu as the 1^st and 2^nd defendants, Mr Sin as the 3^rd defendant and the Company as the 4^th defendant, for a declaration that Mr Wu (via Madam Yip) and Mr Sin held one-third interest in the Company on trust for him.

11.  In relation to the PRC proceedings,

-  on 25 July 2006, the Guangdong court held (among other things) that Mr Yau had no interest in the Company;

-  on 18 August 2006, Mr Yau lodged an appeal; and

-  on 20 October 2008, the Supreme People’s Court (“SPC”) allowed the appeal and ordered a re-trial¹¹.

12.1.   This gave rise to an order made in the 2003 Action by Master Simon Kwang on 11 November 2008 that (among other things)

“ against the undertaking given by the Plaintiffs [Madam Yip and Mr Wu] through their Counsel not to prosecute the Plaintiffs’ claim in this action until the end of the re-trial of a similar action pending in the PRC Court, there be a stay of the 2^nd Defendant [Mr Yau’s] Counterclaim in this action”¹².

12.2.  Mr Yau appealed this order.  Deputy High Court Judge Lugar-Mawson dismissed his appeal on 29 April 2009.

13.  At the subsequent re-trial, the Guangdong Court again held in favour of Madam Yip.  This gave rise to another appeal to the SPC, which gave a 47-page Judgment¹³ on 9 July 2019 (“the SPC Judgment”). 

The SPC Judgment

14.1.  The issues and findings in the SPC Judgment relevant to the parties’ arguments before me are as follows.

14.2.  The issues identified by the SPC were¹⁴:

(1)  whether Madam Yip was the appropriate plaintiff in the proceedings;

(2)  what was the lex causae;

(3)  whether the Share Transfer Agreement was valid, and whether Many Profit should return the shares in Hung Kong to the Company.

14.3.  In respect of these issues, the SPC held (among other things) that:

(1)  Madam Yip was entitled to commence the proceedings as she was a shareholder of the Company, and such entitlement was not affected by whether she held the shares on trust¹⁵;

(2)  the lex causae was Hong Kong law¹⁶; and

(3)  the Share Transfer Agreement was not valid.

14.4.  In arriving at their conclusion on issue (3):

-  the SPC noted that all parties agreed that the Companies Ordinance and the Company’s articles of association were binding on the Company and its members, and that a resolution of the board, at a meeting for which the quorum was two directors, was required for the share transfer¹⁷;

-  the SPC held (among other things) that:

(i)    Madam Yip and Mr Wu were acting in concert¹⁸;

(ii)   there was no evidence that Madam Yip or Mr Wu had agreed to the share transfer.  On 22 May 2002, Mr Wu gave a written authorization to Leung Yip Hong (“Leung”) to attend a meeting on 23 May 2002 to discuss the issue of transfer.  A memorandum signed by Mr Leung, Mr Sin and Many Profit on 23 May 2002 recorded that there was preliminary agreement but that as Mr Wu was travelling to the USA for business and Mr Leung had no authority to sign, there would be another meeting after 24 May 2002 at a time to be agreed (“the Memorandum”). Thus, all parties were aware and had agreed that Mr Wu’s express sole agreement was required for the transfer.  The Undated Minutes did not bear the signature of Madam Yip or Mr Wu.  Mr Sin’s claim of Mr Wu’s oral agreement was not proved.  Therefore, Mr Sin’s execution of the Share Transfer Agreement did not comply with the rules governing board resolutions¹⁹;

(iii)  as for Mr Yau’s claim to be a beneficial shareholder²⁰ and de facto director so as to render Mr Sin’s representation of the Company valid, the SPC held that the case was not a dispute as to whether his (Mr Yau’s) qualification as the Company’s shareholder and director should be confirmed.  Mr Sin’s acts as a director involved the Company’s rules regarding voting rights at a board meeting, and it was not a prerequisite question whether Mr Yau was a beneficial shareholder or not.  Further, the Company’s articles did not state whether de facto directors had voting rights, or whether their votes should be counted equally to those of registered directors, or how a majority would be formed. The Memorandum showed that even if Mr Yau were a de facto director, Mr Wu’s written consent to the transfer was required for the purpose of the external share transfer.  Besides, in the present case, Mr Yau did not counterclaim that he was a shareholder or director of the Company.  Accordingly, it was not an issue in the case, and it was not necessary to decide if Mr Yau was a beneficial shareholder or de facto director.  If he considered that he was a beneficial shareholder or de facto director of the Company, he should advance it in the Hong Kong court; it would not be dealt with in this case.  The ground of appeal of Mr Sin, Mr Yau and Many Profit, that Mr Yau’s consent rendered the Share Transfer Agreement compliant with the rules regarding a board majority vote, was rejected.  As Mr Sin’s transfer of the Hung Kong shares to Many Profit was not authorized in accordance with the Company’s articles, did not comply with the intentions of the board, and had not been ratified by Madam Yip or Mr Wu, his acts did not represent the wishes of the Company, and was an abuse of power as its representative;

(iv)  the SPC held that Many Profit was not a bona fide third party²¹.

15.  As mentioned earlier, Master Kwang had made an order (upheld by DHCJ Lugar-Mawson) that the 2003 Action be stayed.  After the SPC Judgment, the 2003 Action was revived by Master Kwang ordering on 7 August 2020 that the stay be lifted.  The master also gave directions to the parties to prepare for the trial of this action together with the 2006 Action.

ASOC

16.  On 7 September 2021, Madam Yip and Mr Wu’s statement of claim in the 2003 Action was amended to include references to the SPC Judgment, res judicata, abuse of process and estoppel.

The CMS Notes of Submissions

17.1.  On 13 October 2021, a Case Management Summons (“CMS”) hearing was fixed before Master Kwang.

17.2.  The day before the CMS, on 12 October 2021, the solicitors for Mr Sin and Mr Yau filed a document entitled “D1 and D2's Notes of Submissions for CMS”.  The following statements under “(A) Enforcement of PRC Judgment” are significant:

“ 2. D1 [Mr Sin] and D2 [Mr Yau] have expressed that they are willing to be bound by the PRC Judgment, have no objections to transfer the shares back to D4 [the Company] and D2 does not pursue their counterclaim any further. It is also their understanding that D3 [Many Profit] does not object o the decision by the PRC Courts. Therefore, there is no reason P1 [Madam Yip] and P2 [Mr Wu] need to bring costly enforcement proceedings in Hong Kong (if any). It is up for P1 and P2 to satisfy this Honourable Court that enforcement proceedings in Hong Kong is necessary.

3. The only difficulty at present in terms of enforcement is that D4 is incapacitated as a Company as P1 and D2 are directors and shareholders each having a 50-50 stake and are at loggerheads with one another. While even if D3 consent to the return of 80% shares to D4, D4 is still inoperative”. (Emphasis added).

17.3.  When questioned about the position stated in this document, Mr Nip SC leading counsel²² for Mr Sin and Mr Yau only said that he had not advised on it.  He informed the Court that the above statements have not been withdrawn.

18.  It was against the above background that on 30 May 2023, Mr Sin and Mr Yau issued the summons for security for costs. 

AD&ACC

19.  Contrary to the statements in the CMS Notes made more than 1 ½ years ago, on 6 June 2023, the Defence and Counterclaim was amended to plead that the issue whether Mr Yau was a shareholder and de facto director of the Company (called “Issue One” in the amended pleading) was “the fundamental legal and factual basis for the determination” of whether the share transfer was valid (called “Issue Two”), and whether Many Profit validly acquired the shares from the Company (called “Issue Three”)²³, and as the SPC did not adjudicate on “Issue One”, the SPC Judgment “is not binding to [sic] these proceedings”²⁴.        

Discussion

20.  The above matters are relevant to the exercise of the court’s discretion whether to order security for costs, but I shall first consider the point that although Madam Yip and Mr Wu applied for a stay of the security order in the notice of appeal, they did not apply for a stay pending appeal.  Mr Nip argued that without a stay pending appeal, the failure to provide security justifies an order for the dismissal of the 2003 Action.  

21.1.  Mr Enoch Fong, counsel for Madam Yip and Mr Wu, accepted that it would have been appropriate to apply separately for a stay pending appeal when it became apparent that the appeal would not be heard before the expiry of the period for providing security.  However, he submitted that as they had applied for a stay in the notice of appeal, that notice could be treated an application to vary the security order. 

21.2.  Mr Fong sought to rely on Lam Fei Hong v Wong Kam Fong & Ors²⁵ in which a question of the master’s jurisdiction to extend time (after security orders were made) arose from the wording of the orders, which seemed to suggest that the stay was effective immediately, even before the expiry of the time for providing security. 

21.3.  Keith J (as he then was) got around the question of jurisdiction by “treating the notices of appeal as if they were ... summonses to vary Master Kwan’s orders pursuant to the liberty to apply contained in her orders ...” and not as appeals, as the question there was not whether security orders should have been made at all, but rather the effect of the orders as worded on the court’s jurisdiction to extend time²⁶.

21.4.  With respect to Mr Fong, I do not see how that case assists him.  Keith J based his holding on the express “liberty to apply” in the security orders, and explicitly said he did not treat the notices of appeal as appeals at all.  In our case, there was no express liberty to apply, and there is no doubt that this is an appeal from the security order.

22.  However, it is common ground that the court’s power to dismiss a claim based on default of payment of security is derived from its inherent jurisdiction.  In my view, in the circumstances of this case, where the plaintiffs had explicitly stated in the notice of appeal (which was filed in time and before the expiry of the period for paying security) that they were applying for a stay of the security order, it would not be just to dismiss the claim when that application for stay had not been heard.  Had the application for stay been picked up by the court when fixing dates for the hearing of the appeal, an early day may well have been given, if only to hear the application for stay.

23.  I shall now come to the substantive arguments.  It has been necessary to set out the background facts as they impact upon the exercise of the court’s discretion whether to order security for costs.

24.1.  Whilst I accept that Madam Yip and Mr Wu are resident outside the jurisdiction, and I am prepared to assume that they have no assets within Hong Kong²⁷, and have failed to pay costs orders in another action²⁸, in my view it is clear that it would be unjust to order security in the circumstances of this case, mainly due to the egregious delay for which no reason has been proffered.

24.2.  First, no application for security was made in the lengthy period of 6 years between April 2003 (when the Action was commenced) and April 2009²⁹ (when it was stayed).  No reason was given for this delay. 

24.3.  Added to this was the additional delay of another lengthy period of 2 years and 9 months between August 2020 (when Master Kwang gave directions for trial) and May 2023 (when the summons for security was taken out).  No reason was given for this delay either.

24.4.  These substantial periods of delay were not explained at all, whether in the affidavit in support of the application, or in the affidavit in reply, despite the express reference to the delay in the affidavit in opposition to the summons³⁰.  

25.1.  Mr Nip submitted first, that an application for security for costs may be made at any time, and secondly, that there was no evidence of any prejudice to the plaintiffs. 

25.2.  As to the first submission, it is correct that an application for security for costs may be made at any time, but that does not excuse egregious, unexplained delay.  Even before the Civil Justice Reform, it was held by the Court of Appeal³¹ that although the rules do not stipulate a time to apply for security for costs, the proper test of lateness is whether the defendants were dilatory after they obtained information of the matter which enabled them to apply for security. 

25.3.  In the present case, as disclosed in the affidavit of the solicitor for Mr Sin and Mr Yau, documents filed in court as long ago as 2002 and 2003 showed that Madam Yip and Mr Wu³² were resident in the United States³³.

25.4.  As to the second submission, it was held in the same Court of Appeal judgment that it was not necessary to adduce actual evidence that delay had resulted in prejudice.  Litigants are entitled to know at an early stage of the proceedings whether they would have to give security for the other side’s costs.  A requirement late in the proceedings to source additional funds for security for the other side’s costs must be real prejudice. 

26.  Of course, delay is one factor to be weighed in the balance when a court exercises its discretion whether to order security for costs, but in my view, the egregious, unexplained delay in the present case weighs so heavily that even without more, the application should be refused. 

27.  In addition to that, however, is the impact on the 2003 Action of (a) the SPC Judgment in the parallel proceedings and (b) the CMS Notes referring thereto.

28.1.  In respect of the SPC Judgment, Mr Fong submitted that Anthony Chan J’s judgment in Desarrollo Inmobiliario Y Negocios Industriales De Alta Technologia De Hermosillo SA De CV v Kader Holdings Co Ltd³⁴ is authority for the proposition that as the plaintiffs’ claim has been established in the PRC, the scales of justice should be tilted against the grant of security for costs.

28.2.  In that case, (a) the plaintiff relied on obiter dicta in an English Court of Appeal judgment³⁵ to the effect that a foreign judgment creditor would normally not be ordered to give security for costs; whereas (b) the defendant relied on the majority in another English Court of Appeal judgment³⁶ the other way. 

28.3.  In Desarrollo, the learned judge did not find either judgment helpful³⁷, and took a more nuanced approach in the exercise of the court’s discretion. 

-  First, he held that there is a material difference between a foreign plaintiff suing upon a local judgment and one who sues upon a foreign judgment, in that a foreign judgment will only have the same effect as a local judgment if the foreign court is recognised as competent by the Hong Kong court (§44).

-  Secondly, he considered the issue whether the foreign judgment could be said to establish a strong prima facie case, after examining matters such as the stage of the foreign proceedings, and any arguments on the foreign court’s jurisdiction.  

28.4.  I do not think the judge laid down any hard and fast rules one way or the other. He emphasized that the discretion is a general one, which he exercised in that case in the following terms:

“ I cannot accept that when it is asked to exercise a general discretion to answer the requirement of justice this Court should ignore the fact that Desarrollo has, on any view, a claim which has been established after vigorous contests in a well-recognised court of law”³⁸.

28.5.  In the present case, suffice it to say that the following are weighty factors in assessing the probability of success of the plaintiffs’ claim:

-  the parties had agreed to submit to the jurisdiction of the PRC courts in the parallel proceedings;

-  the PRC proceedings had been strenuously defended and appealed by Mr Sin and Mr Yau to the highest court in the land;

-  the SPC Judgment is a comprehensive, reasoned judgment on the merits.

29.1.  Adding to the injustice if Madam Yip and Mr Wu were required to give security for costs now is the CMS Notes referring to the SPC Judgment.  There, Mr Sin and Mr Yau had explicitly accepted the binding effect of the SPC Judgment, as they “expressed that they are willing to be bound by the PRC Judgment, have no objections to transfer the shares back to D4 [the Company] and D2 does not pursue their counterclaim any further” (emphasis added). 

29.2.  These statements confining the dispute (if any) to enforcement, not liability, were made:

-  more than 2 years after the SPC Judgment was given, and

-  1½ years before the application for security for costs.  

29.3.  Whilst it is correct that the AD&ACC was filed afterwards, the statements in the CMS Notes were not withdrawn either.  An objective plaintiff would be entitled to take the view that the defendants had decided not to expend large sums of money on costs to defend the proceedings.  In my view, it would be unjust to order security for costs under these circumstances.

Quantum

30.  In case this matter goes further, I should also set out my views on the quantum of security sought. 

31.1.  First, I accept Mr Fong’s submission that although this action (the 2003 Action) has been ordered to be heard at the same time as the 2006 Action in which Mr Yau is the plaintiff (for which security for costs is not sought), no attempt has been made to allocate the costs between these two actions. 

31.2.  Although Mr Nip invited the court to undertake such an allocation, it is clear that it is the duty of an applicant for security for costs to provide the court with a properly itemised skeleton bill of costs, and it is unsatisfactory for an applicant to proffer an exaggerated bill so that the judge hearing the security application has to undertake taxation of the bill (Hong Kong Civil Procedure 2024 Vol 1, §23/3/33). 

32.1.  It seems to me that clearly reductions should be made following Mr Fong’s criticisms in his skeleton of the extravagant claim for drafting and settling witness statements, the duplication of costs for the security application, the overestimation of trial dates, and the lack of breakdown between brief and refreshers especially in light of the fact that the 2006 Action would be heard at the same time (which criticisms were not answered in Mr Nip’s skeleton).

32.2.  Doing the best I can, in case this matter goes further, I would quantify the security for costs for the 2003 Action at $2.8 million. 

Order

33.1.  For the reasons set out above, I would allow the appeal, set aside Master Kwong’s order and dismiss the security summons.  It follows that the dismissal summons should also be dismissed. 

33.2.  The parties agreed that costs should follow the event.  Having considered the statements of costs, I would summarily assess the 1^st and 2^nd plaintiffs’ costs before the master and for this hearing at $140,000 and $233,000 respectively.

HCA1282/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1282 OF 2003

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J U D G M E N T

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The application

1.  The 2^nd defendant appeals under O.58 r.1 of the Rules of the High Court against a Master’s Order ordering a stay of his counterclaim in this action upon the plaintiffs undertaking not to prosecute their claim until after the retrial of a parallel PRC action.

Background

2.  Full Billion Shipping Limited, the 4^th defendant, (“the Company”) is a Hong Kong registered company.  Its shareholding is the subject matter of the counterclaim.  The Company is a substantial shareholder (80%) of another Hong Kong registered company, Hung Kong, which in turn owns 90% of a PRC joint venture company.  This company runs a fruit distribution business in Lishui in the Mainland.

3.  In May or June 2002, under a share transfer agreement (“the Agreement”), the Company sold its 80% shareholding in Hung Kong to the 3^rd defendant.  The plaintiffs, who claim to be the registered and beneficial shareholders of 50% of the shares of the Company, challenge the validity of this agreement.  They allege that it was entered into as the result of a conspiracy between the 1^st defendant (the registered shareholder of the other 50% of the shares of the Company); the 2^nd defendant and the 3^rd defendant.  The plaintiffs also alleged that 1^st defendant executed the Agreement in breach of his fiduciary duties as a director of the Company.

4.  The defence case is that the Company properly approved the Agreement.  Although there were only two registered shareholders (the 1^st plaintiff and the 1^st defendant) the 2^nd plaintiff, the 1^st defendant and the 2^nd defendant held the beneficial shareholding in equal one-third parts and each had provided the Company’s share capital in equal amounts.  All three of them were equally involved in the Company’s de facto decision-making and all three of them approved the Agreement.  In the alternative, they say that at the shareholders’ level, the majority of the beneficial shareholders approved the Agreement and at the board level, that it was approved by the 1^st defendant who had the casting vote as board chairman.

5.  In his counterclaim, the 2^nd defendant seeks, among other things, a declaration of his beneficial interest in one-third of the Company’s shares.  He says that there is an express oral trust under which the 1^st plaintiff and 1^st defendant each agreed to hold an equal one-sixth of the Company’s issued shares on trust for him as well as a resulting trust arising from his provision of one-third of the share capital.

Chronology

6.  This action’s procedural background is complicated, the chronology is as follows:

7.  On 19 June 2002 the plaintiffs filed a petition under s.168A of the Companies Ordinance (HCMP2423/2002).  Originally, the petition did not include the 2^nd defendant as one of the respondents.  He was added on 12 March 2003 as the 6^th respondent by reason of his claim of beneficial interest in the Company’s shareholding.  The hearing of the Petition was originally scheduled for May 2003.

8.  On 20 October 2002 the 1^st plaintiff instigated an action in the Peoples’ High Court of Guangdong Province (the PRC Action).

9.  On 8 April 2003 the plaintiffs issued the writ in this action – HCA1282/2003.

10.  The pleadings in this action closed in October 2003.  By that time the 2^nd defendant had raised the issue of his beneficial interest in one-third of the Company’s shareholding by way of the counterclaim.

11.  After October 2003, the plaintiffs appear to have taken no further action in HCMP2423/2002 and this action, preferring to rely on the PRC Action.

12.  The 2^nd defendant raised the issue of his beneficial entitlement to one-third of the shareholding as part of his defence to the PRC Action.  He also argued that the dispute should be resolved under Hong Kong law.

13.  On 25 July 2006, judgment was given in the PRC Action.  The Guangdong Court ruled that it would apply Hong Kong company law in resolving the question of the 2^nd defendant’s interest and status in the Company.  It decided that as the 2^nd defendant was not a shareholder of the Company, he had no interest or status in it.

14.  On 28 August 2006, the 2^nd defendant lodged an appeal against the judgment in the PRC Action in the Supreme Peoples’ Court in Beijing.

15.  On 20 October 2008, the Supreme Peoples’ Court allowed the appeal and remitted the PRC Action back to the Guangdong Court for rehearing.

16.  The Guangdong Court still has to commence the rehearing of the PRC Action.  The indications are that this will take place in May or June of this year.

17.  On 10 October 2006, the 2^nd defendant issued a writ against the plaintiffs, seeking, among other things, a declaration of his beneficial interest in one-third of Company’s shareholding.  This action is HCA2256/2006

18.  The pleadings in HCA2256/2006 closed on 2 March 2007.  The plaintiffs, as defendants in that action, brought their defence without prejudice to their intention to apply for the striking out of the writ on the basis that the issue of the 2^nd defendant’s beneficial interest in one-third of the Company’s shareholding was the subject matter of the counterclaim in this action.

19.  On 26 April 2007 they issued a summons to strike out the writ in HCA2256/2006 on that ground.  At a call-over it was agreed that the Master could deal with the summons by way of a paper hearing.

20.  In the 2^nd defendant’s written submissions for that paper hearing it was said that, without prejudice to his rights in the application, he had recently applied for leave to discontinue his counterclaim in this action.  I am told that this passage reflected advice from his then solicitors that he should discontinue his counterclaim in this action in order to preserve his right to pursue the issue in HCA2256/2006.

21.  The Master dealing with the paper application was concerned if granting leave for discontinuance of the counterclaim in this action would impact upon the striking out application.  She refused to deal with the striking out application on paper and directed that an inter partes hearing be fixed.

22.  No steps were taken to list the inter partes hearing.  However, the hearing of the application for leave to discontinue the counterclaim in this action was heard on 15 November 2007 before another Master.  At the hearing, the plaintiffs opposed the application and the Master refused to grant the application.

23.  On 5 August 2008 the plaintiffs brought the present summons to strike out the counterclaim on the ground that “… it is frivolous and vexatious or otherwise an abuse of process for the 2^nd defendant, who having agreed to and did participate in having the subject matter of his counterclaim litigated in Guangdong Province Higher Peoples’ Court, to re-litigate the same in these proceedings”.

24.  On 11 November 2008, yet another Master heard this summons, upon the plaintiffs undertaking not to prosecute their claim in this action until after the retrial of the PRC action, she ordered a stay of the counterclaim.  That Order is the subject matter of this appeal.

Arguments

25.  Mr Jason Pow SC, for the 2^nd defendant, argues that the stay should be lifted to allow the counterclaim to be tried here.  He says that the matter should be dealt with by applying the forum non conveniens principles set out by the House of Lords in Spiliada Maritime Corporation v. Cansulex Ltd [1986] 3 WLR 972 HL, in the speech of Lord Goff.  These principles were adopted in Hong Kong in The Adhiguna Meranti [1987] HKLR 904 CA.

26.  His argument is that Hong Kong, not the PRC, is both the natural and appropriate forum for the trial of the counterclaim and that trial here will not deprive the plaintiffs of any legitimate personal or juridical advantages that they may have in having the counterclaim tried in the PRC.

27.  Mr Benjamin Chain, for the plaintiffs counters by saying this is not a case of forum non conveniens, rather it is forum shopping at the choice of the 2^nd defendant.  He has lost the PRC action once and he fears loosing it again, that is why he wants to be able to pursue the counterclaim in Hong Kong.

28.  Mr Chain makes the valid point that the cases the 2^nd defendant relies on, including Spiliada and The Adhiguna Meranti, are all cases where the foreign proceedings had either not been commenced, or were in their very early stages.  That is not the case here, both these proceedings and the PRC action started in mid 2002, nearly 7 years ago.  The PRC action has gone to trial, the judgment overturned on appeal and awaits retrial.

Decision and reasons

29.  I accept that there are arguments supporting Mr Pow’s claim that that this Court is the natural and appropriate forum for resolving the counterclaim.  The 4^th defendant is incorporated in Hong Kong.  It owns property in Hong Kong.  It has a Hong Kong business address.  It owns shares in another Hong Kong company.  The resolution of the counterclaim will involve the application of Hong Kong company law as well as common law concepts, in particular, the concepts of oral and resulting trusts.  I am told that the documents involved are predominantly, if not all, available in Hong Kong.  I am also told that he factual matrix relates to discussions and understanding between the parties conducted and arrived at in Hong Kong and that the witnesses involved are mainly Hong Kong residents, or have a close connection with Hong Kong.  The 2^nd defendant is himself a PRC resident, but I am told that he has no difficulty in attending trial in Hong Kong.

30.  But, set against that, there are arguments for saying that the courts of the PRC are the natural and appropriate forum.  The 4^th defendant is ultimately the major shareholder in a PRC registered joint venture and the business of that joint venture is wholly carried out in the PRC.  The 2^nd defendant is a PRC national and resident.  There is also the inescapable fact that the parties chose to litigate this matter in the PRC.  Since the close of the pleadings in this action in October 2003 up to the Guangdong Court’s judgment in July 2006, a period of nearly 3 years, the parties were content to let these proceedings lie dormant.  And, with respect, the only thing that appears to have stirred them from their sleep is the 2^nd defendant’s dissatisfaction with the outcome of the PRC Action.

31.  Hirst J in the English case of Meadows Indemnity Co. Ltd v. The Insurance Corporation of Ireland & Anor [1989] 1 Lloyd’s LR 181, said this about the effect of the state to which the foreign proceedings have advanced in the application of the Spiliada principles:

“… I am quite satisfied that the existence of foreign proceedings is a relevant factor in the equation when the Court has to consider whether the foreign forum is clearly more appropriate under The Spiliada test, particularly in view of the inherent undesirability of two concurrent sets of proceedings; its weight will depend on all the circumstances, including the state of advance of the foreign action.” [Emphasis supplied]

32.  I accept that Hirst J went on to say that the existence of the foreign proceedings was not the decisive factor in establishing the foreign jurisdiction as the more appropriate forum.  Nevertheless, it must be the case that if the parties have litigated in an other jurisdiction, to the extent of taking their dispute to trial, receiving judgment and the unsuccessful party successfully appealing it, that is a very strong indication that they have chosen that jurisdiction as the one they want to resolve their dispute.  As Mr Chain said in the course of argument, it was the 2^nd defendant who appealed the Guangdong Court’s decision, it therefore lies ill in his mouth to say that he does not want the retrial, or that he was forced into participating in that action reluctantly.

33.  Mr Pow counters that by saying his then solicitors failed to advise the 2^nd defendant that he could apply to this Court for an order restraining the 1^st plaintiff from proceeding with the PRC Action, on the ground that Hong Kong is the proper forum and that the plaintiff had already invoked this Court’s jurisdiction on the same issues.  That may be so, but it begs the question: why did he not ask them if it was possible to restrain the 1^st plaintiff from proceeding with the PRC Action?  One does not have to be lawyer to ask such an obvious common-sense question.  There is no affidavit from the 2^nd defendant before me indicating that he asked that question.  And if it is the case that he was badly advised, why should that be a factor to his advantage and the plaintiffs’ disadvantage?  His redress for bad legal advice should be a negligence action against his former solicitors, not the overturning of the Master’s Order in this action.

34.  In his argument Mr Pow made many trenchant criticisms of the Guangdong Court’s approach to the action.  He says that it experienced demonstrable difficulties in interpreting and applying Hong Kong company law.  And that the Court appeared to be unaware of the concepts of express oral trusts, resulting trusts; and beneficial shareholdings in a company, all of which are common concepts under Hong Kong law.  That may be so, but the authorities are clear; judicial chauvinism plays no part in applications such as this.  In Spiliada Lord Goff (at pages 482B to 483C) said arguments that the damages in the foreign jurisdiction will be lower, or the civil procedures less favourable, are generally inadmissible.  Lord Brandon in The Abidin Daver [1984] AC 398 HL (at pages 424F to 425C) said that is inappropriate for the English courts to pass judgment on the perceived weaknesses of other jurisdictions.  The English Court of Appeal took a similar view in Herceg Novni v. Ming Galaxy [1998] 4 All ER 238, where Sir Christopher Staughton said (at page 247a):

“Our task is not to decide whether our law is better than the law of Singapore.  It is to decide whether substantial justice will be done in Singapore.”

35.  In the circumstances of this case, I believe that the Master made the correct Order and it is the one I now make.  Neither the plaintiff’s action nor the 2^nd defendant’s counterclaim is permanently stayed.  After the completion of the retrial of the PRC action they are at liberty to come back to this Court and continue the proceedings if they wish.  I note that similar interim stay orders were made in roughly similar circumstances in Chiyu Banking Corporation v. Chan Tin Kwun [1996] 2 HKLR 395 and Dunavant Asia Ltd v. Cotton & Jute Corporation of the 7^th Division of the Production & Construction Corps of Xinjiang China HCCL47/2004 (unreported).  These decisions are, of course, not binding on me and I make it clear that my decision is made in the exercise of the discretion given to me in these matters. 

Costs

36.  Costs follow the event, I make an order nisi that the 2^nd defendant pay the plaintiffs’ costs of this application, such costs to be taxed if not agreed.