Tianxiong v Harvest Plus Ventures Ltd [2019] WSCA 4 (15 April 2019)

IN THE COURT OF APPEAL OF SAMOA
Tianxiong v Harvest Plus Ventures Ltd & Anor [2019] WSCA 4

Case name:	Tianxiong v Harvest Plus Ventures Ltd & Anor
Citation:	[2019] WSCA 4
Decision date:	15 April 2019
Parties:	SHU TIANXIONG (Appellant) vs HARVEST PLUS VENTURES LTD (First Respondent) and LAN HONGJIAN (Second Respondent)
Hearing date(s):	10 April 2019
File number(s):	CA11/19
Jurisdiction:	CIVIL
Place of delivery:	Court of Appeal of Samoa, Mulinuu
Judge(s):	Honourable Justice Fisher Honourable Justice Panckhurst Honourable Justice Harrison
On appeal from:	Supreme Court of Samoa, Mulinuu
Order:	The appeal is dismissed. Mr. Shu is ordered to pay costs in this Court in the sum of $5,000.
Representation:	Shane Wulf for the Appellant Semi Leung-Wai for the First and Second Respondents
Catchwords:	cooperation agreement – international companies – loan agreement – restraining orders – interim injunction – stay of proceedings – Chinese law – Chinese Court – appeal dismissed – international companies
Words and phrases:
Legislation cited:	International Companies Act 1987;
Cases cited:	The Eleftheria [1970] P. 94 at 110.
Summary of decision:

CA11/19

IN THE COURT OF APPEAL OF SAMOA
HELD AT MULINUU

BETWEEN:

SHU TIANXIONG
Appellant

A N D:

HARVEST PLUS VENTURES LTD
First Respondent

A N D:

LAN HONGJIAN
Second Respondent

Coram: Honourable Justice Fisher
Honourable Justice Panckhurst
Honourable Justice Harrison

Hearing: 10 April 2019

Counsel: Shane Wulf for the Appellant
Semi Leung-Wai for the First and Second Respondents

Judgment: 15 April 2019

JUDGMENT OF THE COURT

Introduction

1. The appellant Shu Tianxiong (Mr. Shu) seeks to revive an injunction granted ex-parte in the Supreme Court, but subsequently discharged on the grounds that the proceeding should not have been commenced in Samoa in the first place. Tuala-Warren J held that a choice of jurisdiction clause in the relevant contractual documents should prevail, and that the case should be heard in China. This determination, the judge concluded, rendered the injunction void. An order that the Samoan proceeding be stayed was also made.
2. The proceeding was commenced in Samoa on the basis that the First Respondent, Harvest Plus Limited (Harvest Plus), was incorporated in Samoa under the International Companies Act 1987. Otherwise the parties and the businesses that are the subject matter of the underlying dispute are domiciled in China. Mr. Shu and the Second Respondent, Lan Hongjian (Mr. Lan), entered into a business relationship but have now fallen out.

Some Background

3. The factual circumstances as initially revealed were as follows:
   • 18 June 2013 – Harvest Plus was registered in Apia as the intended vehicle for the acquisition of a company incorporated in the British Virgin Islands.
   • 13 August 2013 – Messrs. Shu and Lan entered into a Cooperation Agreement whereby the US$15 million shares in Harvest Plus were allotted 7,350,000 to Mr. Shu (51%) and 7,650,000 to Mr. Lan (49%). Mr. Shu became the sole director of the company.
   • 10 December 2013 – as contemplated in the Cooperation Agreement, Harvest Plus acquired the entire shareholding in a Virgin Islands company and Mr. Shu become its director and legal representative. Thereby, the parties realized their real objective, the acquisition of a large Chinese company, Dongguan Jinjinbi Electronics Co. Ltd (Jinjinbi), the shareholding in which was held by the Virgin Islands company.
   • 27 October 2014 – A Loan Agreement was concluded to secure an interest free advance to Mr. Shu from Mr. Lan of RMB6,320,000.00, repayable over two years by monthly instalments. The agreement contained a disputes clause that stipulated that the People’s Republic of China laws applied and any litigation would be heard in the Baoan District where Mr. Lan resided.
   • 27 October 2014 – A supplementary Loan Agreement signed at the same time recorded that Mr. Shu would provide security for the loan by signing a share transfer over his 7,650,000 shares in Harvest Plus, which Mr. Lan would hold but only use in the event of a default and then only for the “same amount” as any failure to repay.
   • 08 March 2016 – The share transfer was actioned in relation to Mr. Shu’s total shareholding and Mr. Lan assumed a 100 percent interest in Harvest Plus.
   • 18 March – A letter of resignation as the director of Harvest Plus, purported to be signed by Mr. Shu, was registered and Mr. Lan became the sole director of the company.
4. In June 2018 Mr. Shu filed a proceeding in the Supreme Court of Samoa, including an ex-parte application for an interim injunction restraining Harvest Plus and Mr. Lan from altering the company’s structure, including by passing resolutions or transferring shares; and also restraining any dealing with the company assets.
5. This application was supported by a statement of claim that outlined the events set out above and an affidavit from Mr. Shu. He asserted that the loan had been repaid in full and annexed a schedule of payments that recorded monthly amounts of RMB263,333.00 paid over the two year loan period. The affidavit did not refer to the dispute clause in the Loan Agreement, but the agreement was an exhibit with the clause appearing on the seventh page. The authenticity of the letter of resignation as director of Harvest Plus was doubted and Mr. Shu expressed the strong belief that “someone (had) forged his signature.”
6. On 12 June 2018 Chief Justice Sapolu made restraining orders as sought in the application. He did so on the papers. Reasons were not given, as is often the case in relation to ex-parte applications of this nature. It is unclear whether he noticed the jurisdiction clause given it was not referred to in the papers other than towards the end of the Loan Agreement exhibited to Mr. Shu’s affidavit.

Further Background.

7. On 10 August 2018 Harvest Plus and Mr. Lan applied to discharge the interim injunction and also sought an order to stay the Samoan proceeding. Two affidavits in support were filed. These were from Mr. Lan and his attorney at law. Mr. Lan explained that he and Mr. Shu were of similar age, 55 years, and that they attended the same school and were school mates. Mr. Shu approached him, indicated his interest in acquiring the Chinese company, Jinjinbi, and a joint venture relationship resulted. RMB 90 million was required for the acquisition and he, Mr. Lan, agreed to provide a greater share of the money, namely RMB 53 million. This sequence of events gave rise to the Cooperation Agreement, the Loan Agreement and the Supplementary Agreement. The jurisdiction clause was clause 12 of the Loan Agreement:

Article 12 Disputes, “This contract is concluded in accordance with the laws of the People’s Republic of China and is governed by laws of the People’s Republic of China. In case of any disputes arising from the performance of the contract, both parties shall negotiate or mediate first. If negotiation or mediation fails, the dispute shall be settled by filing a lawsuit with the People’s Court of Baoan District, where party A is located.”

Mr. Shu in his affidavit in response did not refute this outline of the relationship.

8. Mr. Lan then detailed some further related joint dealings and the extent of the litigation pending in China arising from the breakdown in the joint venture relationship. His attorney at law confirmed this account by exhibiting translations of statements of claim filed in China. There is a rental dispute concerning a 66,000 square meter workshop seemingly leased for the use of Jinjinbi, a proceeding arising from another loan advanced by Mr. Lan to Mr. Shu to secure the release of assets of Jinjinbi “seized and frozen” at the suit of some other company, and a claim arising from a bank loan of RMB 29 million raised by Mr. Shu in the name of Jinjinbi that Mr. Lan asserts was secured by fraudulent means to the detriment of his interest in Jinjinbi.
9. Attention was also drawn to a Chinese proceeding issued by Mr. Shu in April 2018 against Mr. Lan seeking to reverse the transfer of the 7,650,000 shares in Harvest Plus and to recover RMB 266,660, alleged to be an over-payment of the 2014 interest free loan. This proceeding was not disclosed when the interim injunction application was initiated. Mr. Shu claimed that the Chinese proceeding was “completely different” from the Samoan one. He further deposed, however, that he would discontinue in China if the “Supreme Court of Samoa decided to hear (his) case.” Mr. Shu’s response affidavit also stated that the loan repayment was in part achieved “by setting off” – a comment seemingly at odds with the schedule to his first affidavit.
10. These various proceedings in China are mentioned for two reasons. First, the Chief Justice was not alerted to the true extent of the dispute between Mr. Shu and Mr. Lan. This was significant because it could well have influenced his decision. When a business relationship has broken down and spawned a complex litigation situation a legitimate judicial concern will be to ensure that the proceedings are dealt with as efficiently as possible. Linked proceedings, split between two jurisdictions is obviously highly undesirable.
11. Second, it is a settled principle that a party seeking ex-parte relief is duty bound to make a full and fair disclosure of all material facts. As Mr. Leung-Wai submitted in the Supreme Court, there were grounds for concern that this had not occurred in this case. We do not suggest that Mr. Wulf was at fault. It seems more likely that he was denied information concerning matters that had occurred elsewhere. But we stress this aspect because complete candour is a principle of high importance and an important aspect of the duty owed by counsel to the Court.

The Supreme Court Decision.

12. At the outset Tuala-Warren J recognized that the issue was “essentially one of jurisdiction.” She recorded the disputes clause in the Loan Agreement, characterized it as including a choice of jurisdiction clause and discussed the required approach to its application. In her analysis the judge cited the words of Brandon J in The Eleftheria,^[1] which have been adopted and approved in this country, and other jurisdictions:
    • “The principles established by the authorities can, I think, be summarised as follows: (1) Where plaintiffs sue in England in breach of an agreement to refer disputes to a foreign Court, and the defendants apply for a stay, the English Court, assuming the claim to be otherwise within its jurisdiction, is not bound to grant a stay but has a discretion whether to do so or not. (2) The discretion should be exercised by granting a stay unless strong cause for not doing so is shown. (3) The burden of proving such strong cause is on the plaintiffs. (4) In exercising its discretion the Court should take into account all the circumstances of the particular case. (5) In particular, but without prejudice to (4), the following matters where they arise, may properly be regarded: (a) in what country the evidence on the issues of facts is situation, or more readily available, and the effect of that on the relative convenience and expense of the trial as between the English and foreign Courts. (b) Whether the law of the foreign Court applies and, if so, whether it differs from English law in any material respects. (c) With what country either party is connected, and how closely. (d) Whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages. (e) Whether the plaintiffs would be prejudiced by having to sue in the foreign Court because they would: (i) be deprived of security for their claim; (ii) be unable to enforce any judgment obtained; (iii) be faced with a time bar not applicable in England; or (iv) for political, racial, religious or other reasons be unlikely to get a fair trial.”

Then followed reference to a raft of factors peculiar to this case. The judge concluded that her discretion to uphold the jurisdiction clause, and enter a stay of proceedings, was clearly the appropriate cause.

13. With regard to the interim injunction itself the judge simply said that it “becomes void by virtue of this decision in any event because it is not the jurisdiction within which the parties agreed for their disputes to be heard.” She added Mr. Shu’s unilateral decision to dishonour the jurisdiction agreement was not a reason to maintain the interim injunction, particularly one granted ex-parte.

The Appeal Grounds.

14. Commendably, Mr. Wulf accepted that the decision to uphold the choice of jurisdiction clause was not susceptible to challenge. Instead, counsel focused on maintaining the interim injunction, noting that the existence of orders to ensure that Mr. Lan could not dispose of the shares and assets of Harvest Plus remained of the utmost importance, regardless of whether the case was heard in China or Samoa. This is no doubt true, but the significant value of orders to a litigant does not of itself justify their preservation. There must be a principled basis for their retention. Counsel accepted as much.
15. Mr. Wulf submitted that the judge erred in proceeding on the basis that the jurisdiction decision necessarily rendered the interim injunction void, in that she failed to consider:
    • (a) whether alternative causes of action based on fraud and deceit (as opposed to contract) were unaffected by the jurisdiction clause in the Loan Agreement; and
    • (b) whether, applying the conventional test for the grant of an injunction, the overall justice of the case lay in favour of retention of the interim injunction.

With reference to the second ground Mr. Wulf continued that only by confronting the usual broad issues, were there serious questions to be tried and where did the balance of convenience lie, would a principled exercise of the discretion to retain or discharge the injunction be achieved.

Evaluation.

16. Dealing first with the question of jurisdiction, we fully agree with the conclusion reached by the trial judge and her reasoning, as did Mr. Wulf in this Court. As the judge noted the jurisdiction clause and the requirement to apply Chinese law, the domicile of the parties, the fact that the relevant business activity occurred in China, the language used in documents, the circumstance that witnesses were Chinese residents, and the obvious convenience of a trial based in China indicated that it was the appropriate venue. We would add but one further factor, namely the fact that other related proceedings were pending in that jurisdiction militated strongly in favour of a Chinese Court as well. This is particular so given Mr. Shu seemingly relied on set-offs arising from related Jinjinbi proceedings pending in China to establish repayment of his 2014 loan from Mr. Lan. Our only quibble is that we do not understand Mr. Wulf to have ever contended that his client’s decision to ignore the jurisdiction clause somehow lent weight to the contention that the interim injunction should not be discharged.
17. The statement of claim filed in the Supreme Court alleged that Mr. Lan in removing Mr. Shu’s shareholding and directorship in Harvest Plus was not only in breach of contract, but also that he acted fraudulently and with deceit. This, it was submitted, introduced concurrent causes of action in tort that were not afflicted by the jurisdiction clause. As we understood it the argument was these claims were not directly based on the Loan Agreement, so the jurisdiction clause had no application
18. This contention cannot be sustained. In actioning the share transfer he held as security for the loan and then removed Mr. Shu as the director of Harvest Plus, Mr. Lan was responding to a failure to meet the repayment terms of the Loan Agreement. Whether he was legally entitled to do so remains to be seen. But, by advancing non-contractual causes of action the jurisdiction clause cannot be rendered nugatory. The jurisdiction clause covers “disputes” arising from the loan arrangements. It cannot be circumvented by virtue of the causes of action pleaded, provided the link back to the loan remains. Here the link is clear. The Loan Agreement contained the choice of jurisdiction clause and the Supplementary Agreement provided security for the advance.
19. Did the judge err in stating that because the proceeding should never have been filed in Samoa the interim injunction was also discharged? And, was she obliged to first consider whether the overall justice of the case required that the interim injunction remain in place? It is axiomatic that an order made without jurisdiction is null and void. Here the interim injunction was granted to prevent governance actions being taken and to preserve the assets of Harvest Plus, until such time as a proceeding pending in Samoa had been determined. Once Tuala-Warren J decided that the proceeding should never have been filed in Samoa and ordered a stay of proceedings, the interim order was spent. The very basis for its existence had gone. It follows that steps to evaluate whether there was justification for retaining the order were not required either.

Conclusion.

20. The appeal is dismissed. Mr. Shu is ordered to pay costs in this Court in the sum of $5,000.
    

HONOURABLE JUSTICE FISHER
HONOURABLE JUSTICE PANCKHURST
HONOURABLE JUSTICE HARRISON

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^[1] The Eleftheria [1970] P. 94 at 110.