Introduction

In the recent case of Chan Pui Sze and Mak Hau Yin (the Joint and Several Trustees of the Property of the Bankrupt) v Wang Jue [2019] HKCFI 2515, the Court of First Instance considered whether the Hong Kong Court has jurisdiction over claims/reliefs/remedies sought in avoidance proceedings where the subject matter of the proceedings are real properties situated overseas.

Background

A bankruptcy petition was presented against Qin Jun (“Qin”) and a bankruptcy order was granted against Qin. Chan Pui Sze (“Chan”) and Mak Hau Yin were appointed the joint and several trustees (“Ps”) of the property of Qin pursuant to a resolution passed at the general meeting of creditors. Wang Jue (“D”) was/is Qin’s wife.

Ps applied under section 49 of the Bankruptcy Ordinance (Cap. 6) (“BO”) (“S49 Proceedings”) to set aside 2 transfers (collectively “Transfers”) of Qin’s interest in two properties in the United States (“US Properties”).

On the other hand, D filed a summons for a declaration that the High Court of Hong Kong (“HK Court”) had no jurisdiction over the subject matter of or relief/remedy sought in the S49 Proceedings and/or a stay of the S49 Proceedings, and a declaration that even if the HK Court had jurisdiction, it should not exercise jurisdiction and/or should stay the S49 Proceedings as it would be in the best interest/convenience of the parties/witnesses to have the matter conducted in the United States Bankruptcy Court (“US Court”).

First Issue: Subject-Matter Jurisdiction

On the facts, there was no dispute that D did submit to the jurisdiction of the HK Court. However, the issue of subject-matter jurisdiction arose because the subject matter of the claim, being the US Properties, was foreign real property located in the United States. The burden was on D to satisfy the HK Court that it did not have jurisdiction over the subject matter of Ps’ claim or the relief/remedy sought in the S49 Proceedings.

The definition of “property” in section 2 of the BO included land and every description of property whether situate in Hong Kong or elsewhere. As such, the Court held that the property over which the HK Court had jurisdiction under the BO had no territorial limit and included the US Properties.

Further, the Court took the view that the question of title to the US Properties arose only incidentally and was merely a subsidiary point within the proceedings. The main issue in the S49 Proceedings was whether the Transfers constituted transactions at an undervalue under section 49 of the BO. It was irrelevant that Ps’ ultimate purpose was to obtain an immovable property given the nature/context of the S49 Proceedings was to assert rights against D.

Second Issue: Forum Non Conveniens

Holding that the HK Court did have subject-matter jurisdiction, the next issue was whether the HK Court should exercise jurisdiction in this case. The relevant legal principles of stay of proceedings by reason of forum non conveniens are as follows:

1.        The single question is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action i.e. in which the action may be tried more suitably for the interests of all parties and the ends of justice.

2.        The applicant has to establish that first, Hong Kong is not the natural or appropriate forum and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong (“Stage 1 Test”).

3.        The plaintiff in the Hong Kong proceedings then has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong (“Stage 2 Test”).

4.        The Court will then have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer. Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the Court’s satisfaction that substantial justice will be done in the available appropriate forum (“Stage 3 Test”).

5.        Finally, the Court has to be satisfied that in the overall circumstances and justice of the case it would be right to stay the action.

Stage 1 Test

D’s residence

On the facts, the Court found that D has submitted to the jurisdiction of the HK Court and D admitted that she would visit and stay in Hong Kong for about a month in any given year. Thus, there would be no difficulty for her to attend trial, adduce her own affirmations and instruct local lawyers to present her defence.

Location of US Properties

Whilst there would be no absolute certainty until a foreign court actually decides whether to recognise a Hong Kong court order, for the S49 Proceedings there was credible argument on the facts that it would be recognised by the US Court under the umbrella of the bankruptcy proceedings against Qin which had already been recognised. Notwithstanding that it remained an open question whether or not any order made by the HK Court in the S49 Proceedings would be recognised by the US Court, it would not necessarily point to the US Court as a clearly and/or distinctly more appropriate jurisdiction.

Purchase price for the US Properties

The fact that the relevant purchase prices were paid to estate agents in the US and dealt with by US companies would not be significant as the mechanics by agents/recipients in relation to the payment of the purchase price would not shed light on the disputed issues. Rather, the source of funds for the purchase price would be a more pertinent consideration. On the facts, the funds came from D’s father who resided in Mainland China, and from his account with HSBC Private Bank having address / place of business in Hong Kong.

Location of witnesses/documents

As to witnesses, emphasis should be placed on those witnesses who were likely to give disputed evidence rather than those whose testimony were unlikely to cause controversy. On the issue of source of funds and beneficial ownership of the US Properties, the crucial witnesses other than D would be Qin and D’s father, and neither of them was in the United States. Further, as the essence of the S49 Proceedings concerned avoidance of transactions that arose out of Qin’s bankruptcy, Qin clearly would be a relevant witness as to his solvency or otherwise at the relevant time. For those witnesses whose testimony were unlikely to cause controversy, for example estate agents in the United States, modern technology and communication could facilitate gathering of their evidence and giving evidence at trial.

As for documents, in this modern age of technology by email, fax and courier, speedy transport of documents should not pose too much logistical difficulty. More importantly, the relevant bank records including instructions, vouchers and remittance forms were sited in Hong Kong. It would however add to cost/inconvenience if the US Court were asked to apply Hong Kong law and review evidence pertaining to the bankruptcy of Qin that had been placed before and canvassed by the HK Court.

Governing law

Even though United States law was the governing law of, among others, the deeds of transfer, the HK Court was not unfamiliar with applying foreign law if necessary. In fact, neither Ps nor D contended the common law principles applied in Hong Kong in this regard were different from those applied in the United States. Further, the beneficial ownership upon acquisition of the US Properties was not the sole issue in dispute in the S49 Proceedings, but only a point raised in defence. Ps’ case concerned avoidance of transactions that arose out of Qin’s bankruptcy, so if it were found that Qin had interests in the US Properties, the Court had to go on to decide whether the Transfers were transactions at an undervalue at the relevant time that satisfied the requirements of section 49 of the BO. These matters would be governed by Hong Kong law.

In light of the above, the Court held that D failed to discharge her burden to show the US Court was the natural and more appropriate forum.

Stage 2 Test

Proof of insolvency

Ps as trustees would not have personal knowledge of the acquisition and Transfers of the US Properties and they did not yet have Qin’s full cooperation on disclosure, so they would rely on the juridical advantage of not having to prove his insolvency at the time of the Transfers by relying on the presumption of insolvency in section 51B(2) of the BO if the S49 Proceedings were to proceed to trial in the HK Court.

Limitation issue

On the facts, Ps potentially would have to face a limitation argument if the avoidance actions were brought in the US Court, but the S49 Proceedings were well within the 5-year time limit under section 51(1)(a) of the BO. This plainly would be a juridical disadvantage for Ps.

Multiplicity of proceedings

The S49 Proceedings arose out of Qin’s bankruptcy over which the HK Court had jurisdiction as recognised by the US Court, and the BO conferred jurisdiction on the HK Court to deal with proceedings to set aside undervalue transactions, which matters were governed by Hong Kong law. If the US Court were asked to deal with the limited issue of ownership of the US Properties at the time of acquisition only, it would give rise to multiplicity of proceedings. There was little reason why the HK Court could not determine the sub-issue of ownership of the US Properties. The US Court would have little advantage over the HK Court to hear/determine the claims in the S49 Proceedings as there was scant affidavit evidence let alone expert evidence on US law as to the jurisdiction of the US Court to seize and adjudicate avoidance actions of undervalue transactions under the BO (in contra-distinction to recognition of an order made by the HK Court in S49 Proceedings). As such, Ps would suffer juridical disadvantage if the S49 Proceedings were stayed in favour of the US Court.

Stage 3 Test

The Court disagreed, in view of the aforementioned analyses, that substantial justice would best be achieved by having the S49 Proceedings tried in the United States. Rather, the natural and most appropriate forum would be the HK Court.

As a result, it was ordered that D’s summons be dismissed and the S49 Proceedings shall continue as if the cause or matter had been begun by writ.

Conclusion

This decision is important as it is not uncommon for individuals to own assets outside Hong Kong nowadays. It highlighted the extraterritorial jurisdiction of the HK Court over a bankrupt’s assets under the BO. This is so even if the beneficial ownership of the asset is disputed. Any such dispute is only likely to be treated as a subsidiary issue within the avoidance proceedings.