Shanghai Turbo Enterprises Ltd v Liu Ming

• Judge: Judith Prakash JA
• Judgment Date: 13 February 2019
• Neutral Citation: [2019] SGCA 11
• Citation: [2019] SGCA 11
• Defendant Counsel: Toh Kian Sing SC, Kok Chee Yeong Jared, Chen Zhida and Wu Junneng (Rajah & Tann Singapore LLP)
• Published date: 26 February 2019
• Hearing Date: 27 September 2018
• Plaintiff Counsel: Yeo Khirn Hai Alvin SC, Aw Wen Ni, Tan Kia Hua and Lee Yu Lun Darrell (WongPartnership LLP)
• Date: 13 February 2019
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 87 of 2018
• Subject Matter: Choice of jurisdiction,Jurisdiction,Civil Procedure,Conflict of Laws,Submission,Natural forum,Non-exclusive

Judith Prakash JA (delivering the grounds of decision of the court): Introduction

The dispute leading to this litigation was between a company listed on the Stock Exchange of Singapore, albeit incorporated elsewhere, and its former chief executive officer, a Chinese national. The dispute centres around the alleged breach of the service contract between the company and its former employee, but the issues that this court had to deal with concerned preliminary procedural matters relating to the validity of the order granting leave to serve the proceedings out of jurisdiction on the employee and the effect of a non-exclusive jurisdiction clause favouring Singapore on the strength of the case that the employee had to mount in order to displace the Singapore court’s jurisdiction.

The appeal was brought by Shanghai Turbo Enterprises Ltd (“Shanghai Turbo”) against the decision of the High Court to set aside an order granting Shanghai Turbo leave to serve the writ out of jurisdiction on the respondent, Mr Liu Ming. The judge below (“the Judge”) set aside the order on two bases: first, Singapore was not the forum conveniens for trial of the suit; second, Shanghai Turbo had not made full and frank disclosure of the material facts in its ex parte application for leave to serve out of jurisdiction.

In addition to the matters which were canvassed before the Judge, we had to consider two arguments which were made for the first time on appeal. The first was that Mr Liu had by his conduct submitted to jurisdiction. The second was that the contract between the parties contained a non-exclusive jurisdiction clause which had the effect of requiring Mr Liu to show strong cause why the suit should not be tried in this jurisdiction, and strong cause had not been shown.

After hearing the parties’ arguments, we allowed the appeal and restored the order granting leave to serve out of jurisdiction. We now give the reasons for our decision.

Background facts

Shanghai Turbo is a company incorporated in the Cayman Islands and listed on the Singapore Stock Exchange (“the SGX”). It wholly owns a Hong Kong-incorporated entity, Best Success (Hong Kong) Ltd (“Best Success”). Best Success wholly owns Changzhou 3D Technological Complete Set Equipment Ltd (“CZ3D”), a company incorporated in China. The three companies together form a group (“the Group”), which is in the business of precision engineering. CZ3D is the only income-generating entity of the Group and has a factory in Changzhou, Jiangsu, China.

Mr Liu is a Chinese citizen who resides in Changzhou. He owns 29.9998% of the shares in Shanghai Turbo. Another 39.19% of the shares is owned by a group comprising various Japanese companies. Mr Liu was the Executive Director of Shanghai Turbo from November 2005 to 15 April 2017, and its Chief Executive Officer from January 2010 to 15 April 2017. He was also a director of the three companies in the Group until 15 April 2017, when he was removed from office in all three companies, as well as other management positions in Best Success and CZ3D, allegedly because of the declining levels of profit under his management from 2014 to 2017. New boards of directors (and new management teams) then replaced the old boards (and old management teams) led by Mr Liu.

On 27 June 2017, Shanghai Turbo commenced Suit No 571 of 2017 (“the Suit”) in Singapore against Mr Liu for breaching an agreement entered into between them on 1 May 2016 in relation to Mr Liu’s appointment as Executive Director (“the Service Agreement”). The Service Agreement imposed certain obligations on Mr Liu in the event of termination, which he is alleged to have breached. The four alleged breaches are as follows. Clause 9(d)(ii) of the Service Agreement required Mr Liu, upon termination of his appointment, to deliver up to the board all documents, papers and property belonging to the Group which were in his possession or under his control. After 15 April 2017, however, Mr Liu refused and/or failed to deliver up the CZ3D factory to the new management. This state of affairs persisted until 20 September 2017. Clause 10(a)(i) of the Service Agreement required Mr Liu, for a period of 12 months from the termination of his appointment, not to solicit, interfere with or endeavour to entice away from the Group any person who to his knowledge was ever a client, customer or employee of, or in the habit of dealing with, the Group, save with Shanghai Turbo’s prior written consent. Mr Liu (in conspiracy with another person) allegedly diverted CZ3D’s business, an important client, and its employees to Changzhou Hengmiao Precise Machinery Limited (“Changzhou Hengmiao”). Clause 10(b) of the Service Agreement required Mr Liu, upon termination of his appointment, not to disclose to any person, or himself use for any purpose, and to use his best endeavours to prevent the publication or disclosure of, information concerning the Group’s business, accounts or finances or any of its clients’ or customers’ transactions or affairs, save with Shanghai Turbo’s prior written consent. Mr Liu is alleged to have divulged confidential information concerning CZ3D’s business and its client’s affairs to other persons, and further instigated the latter to misuse the names of the Labour Union and CZ3D’s employees to send a letter defamatory of the new management to the SGX. Clause 7(a) of the Service Agreement prohibited Mr Liu from revealing any of the trade secrets, secret confidential operations, processes, dealings or confidential information of the Group, or any information concerning the Group’s organisation, business, finances, transactions or affairs, and from using any such information in any manner which might injure or cause loss to the Group. Mr Liu is alleged to have breached this clause by committing the acts described in the preceding sub-para, as well as by giving CZ3D’s employees incomplete, inaccurate and/or false information about the new management, instigating them to go on strike and to resist the new management’s attempts to take possession of the factory.

Shanghai Turbo sought, as relief for these breaches, (a) an order for Mr Liu to deliver up all documents, papers and property belonging to the Group; (b) an account of all profits made by Mr Liu; and (c) damages, interest and costs.

As Mr Liu resides in China, Shanghai Turbo applied ex parte for leave to serve the writ of summons, the statement of claim and the service order itself out of jurisdiction on Mr Liu, citing O 11 rr 1(d)(iii), 1(d)(iv) and 1(r) of the Rules of Court (Cap 322, R 5, 2014 Rev Ed) (“the ROC”). In support of its application, Shanghai Turbo relied on cl 17 of the Service Agreement, which states:

Governing law

This Agreement shall be governed by the laws of Singapore/or People’s Republic of China and each of the parties hereto submits to the non-exclusive jurisdiction of the Courts of Singapore/or People’s Republic of China.

The assistant registrar granted the application on 5 July 2017 and made an order in terms (“the Service Order”). On 13 March 2018, at which time service had not been effected pursuant to the Service Order despite being attempted, Mr Liu’s solicitors informed Shanghai Turbo’s solicitors that they had instructions to accept service on Mr Liu’s behalf. On 14 March 2018, Mr Liu entered an appearance in the Suit.

On 20 March 2018, Mr Liu applied by way of Summons No 1345 of 2018 (“SUM 1345”) to set aside the Service Order. He also prayed that, consequentially, the following injunctions be set aside: a Mareva injunction obtained by Shanghai Turbo ex parte on 15 September 2017, which restrained Mr Liu from dealing with his assets in Singapore, including his stake in Shanghai Turbo, up to the aggregate value of $30m (“the Mareva Injunction”); and an injunction obtained by Shanghai Turbo ex parte on 18 January 2018, restraining Mr Liu from exercising the voting and other rights attached to his shares in Shanghai Turbo, so as to stop him from replacing the new board and discontinuing and/or delaying the proceedings (“the Voting Injunction”).

When SUM 1345 was heard before the Judge, Shanghai Turbo conceded that cl 17 of the Service Agreement disclosed no valid express choice of law. It nevertheless maintained that service out of jurisdiction was permissible on the following grounds: Notwithstanding that cl 17 did not constitute a valid choice of law, objectively, Singapore law governed the Service Agreement. The claim was therefore brought in respect of a breach of a contract which “is by its terms, or by implication, governed by the law of Singapore” (O 11 r 1(d)(iii) of the ROC). Clause 17 constituted a submission to the jurisdiction of the Singapore courts. The claim was therefore brought in respect of a breach of a contract which “contains a term to the effect that that Court shall have jurisdiction to hear and determine any action in respect of the contract” (O 11 r 1(d)(iv)). Clause 17 also meant that the claim was brought “in respect of matters in which the defendant has submitted or agreed to submit to the jurisdiction of the Court” (O 11 r 1(r)).

Mr Liu, on the other hand, contended that cl 17 was invalid and unenforceable in its entirety, and that Chinese law governed the Service Agreement. He also submitted that China, rather than Singapore, was a more appropriate venue for trial of the Suit, and that Singapore was therefore forum non conveniens.

The decision below

The Judge set aside the Service Order, the Mareva Injunction and the Voting Injunction on 14 May 2018. Her reasons are stated in Shanghai Turbo Enterprises Ltd v Liu Ming [2018] SGHC 172 (“the GD”). She applied the three requirements for valid service out of jurisdiction as set out in Zoom Communications Ltd v Broadcast Solutions Pte Ltd [2014] 4 SLR 500 at [26] (“Zoom Communications”), namely: the plaintiff’s claim must come within one of the heads of claim in O 11 r...