Shanghai Turbo Enterprises Ltd v Liu Ming

• Jurisdiction: Singapore
• Judge: Hoo Sheau Peng J
• Judgment Date: 30 July 2018
• Neutral Citation: [2018] SGHC 172
• Court: High Court (Singapore)
• Hearing Date: 14 May 2018,18 June 2018,30 April 2018
• Docket Number: Suit No 571 of 2017 (Summons No 1345 of 2018)
• Plaintiff Counsel: Molly Lim SC (Wong Tan & Molly Lim) (instructed), Foo Soon Yien and Thaddeus Oh (BR Law Corporation)
• Defendant Counsel: Toh Kian Sing SC, Jared Kok and Chen Zhida (Rajah & Tann Singapore LLP),P E Ashokan, Geraldine Soon and Christina Liew (Withers KhattarWong)
• Subject Matter: Civil Procedure,Jurisdiction,Conflict of laws,Natural forum
• Published date: 19 February 2019

Hoo Sheau Peng J: Introduction

This is an application by the defendant, Liu Ming (“Mr Liu”), to set aside an ex parte order of court obtained by the plaintiff, Shanghai Turbo Enterprises Ltd (“Shanghai Turbo”), for leave to serve the writ of summons, statement of claim and the ex parte order of court out of jurisdiction on Mr Liu in the People’s Republic of China (“China”). I shall refer to the application as “the setting aside application”, and the ex parte order of court as “the service order”. Having heard the parties, I allowed the setting aside application and, accordingly, set aside the service order. In addition, I also set aside certain other interim injunction orders made in these proceedings. Shanghai Turbo has appealed against the decision. I now furnish my reasons.

Background

Shanghai Turbo is a company incorporated in the Cayman Islands and listed on the Singapore Stock Exchange (“SGX”). It wholly owns a Hong Kong incorporated entity, Best Success (Hong Kong) Ltd (“Best Success”). In turn, Best Success wholly owns Changzhou 3D Technological Complete Set Equipment Ltd (“CZ3D”), a company incorporated in China.

The group of three companies (“Group”) is in the business of precision engineering. CZ3D is the only income generating entity, with a factory at 9 Yinghua Road, Zhonglou Economic Development Zone, Changzhou City, Jiangsu Province in China (“CZ3D factory”).

Mr Liu is a Chinese citizen resident in Changzhou, Jiangsu Province, China. Mr Liu owns almost 30% of the shares in Shanghai Turbo. Another group of major shareholders, comprising various Japanese companies, owns 39.19% of Shanghai Turbo.

Sometime in 1997, Mr Liu’s late father acquired CZ3D, and proceeded to expand the company. In 2005, Shanghai Turbo was formed to be the ultimate parent company of CZ3D and to achieve the listing on the SGX. Around then, Mr Liu took over the reins of the business from his late father.

From November 2005 to 15 April 2017, Mr Liu was the Executive Director of Shanghai Turbo. Also, he was its Chief Executive Officer from January 2010 to 15 April 2017. Until 15 April 2017, Mr Liu was a director of the three companies.

On 15 April 2017, at an annual general meeting of Shanghai Turbo, Mr Liu was removed as its Executive Director and Chief Executive Officer. On the same day, board meetings were held by Best Success and CZ3D to remove Mr Liu as a director of the companies, and from his other management positions. New boards of directors (and new management teams) replaced the old boards of directors (and old management teams) led by Mr Liu. According to Shanghai Turbo, the removal of Mr Liu was because of the declining levels of profits under his management from 2014 to 2017.

The proceedings

Shortly after, on 27 June 2017, Shanghai Turbo brought these proceedings against Mr Liu for alleged breaches of certain post-termination obligations contained in an agreement entered into between the parties on 1 May 2016 in relation to Mr Liu’s appointment as its Executive Director (“the Service Agreement”).

The claim

In para 5 of the statement of claim, Shanghai Turbo pleaded the following material terms of the Service Agreement: By clause 2, Shanghai Turbo appointed Mr Liu as its Executive Director; Clause 3 provided for Mr Liu’s duties as Executive Director, which included, inter alia, that he was to use “all proper means in his power to advise, promote, improve, develop, extend and maintain the Group’s business …”; By clause 9(a)(i), the Service Agreement shall “automatically terminate without any notice or payment in lieu of notice if … [Mr Liu] … ceases to be a director of [Shanghai Turbo] …”; Upon termination of his appointment as Executive Director, Mr Liu shall have these obligations, namely: Deliver up to the board “all … documents and other papers and all other property belonging to [the Group] which may be in [his] possession or under his control”: see clause 9(d)(ii) (“the delivery up obligation”); Not “solicit, interfere with or endeavour to entice away from [the Group] any person who to his knowledge is now or has been a client, customer or employee of, or in the habit of dealing with, [the Group]” within a period of 12 months, save with Shanghai Turbo’s prior written consent: see clause 10(a)(i) (“the non-competition clause”); and Not “disclose to any person, or himself use for any purpose … information concerning the business, accounts or finances of … [the Group] or any of its clients’ or customers’ transactions or affairs”, save with Shanghai Turbo’s prior written consent: see clause 10(b) (“the confidentiality clause”).

In paras 7 to 34, Shanghai Turbo recounted, in considerable detail, the events after Mr Liu’s removal on 15 April 2017 under the following sub-headings: “The Hostage Incident” – where Mr Liu and the old management of CZ3D purportedly confined seven individuals representing the new management in the CZ3D factory; “The Old Management’s Continued Unlawful Resistance” –where Mr Liu and the old management of CZ3D purportedly prevented the new management from taking control of the CZ3D factory up till the time of the commencement of the proceedings; and “Yin Baoneng” – where Yin Baoneng who was part of the old management was said to have instigated the employees of CZ3D to continue to resist the new management, and wrote a letter defaming the new management to SGX.

In paras 35 to 39, Shanghai Turbo alleged that Mr Liu failed to comply with the post-termination obligations: In breach of the delivery up obligation, after 15 April 2017, Mr Liu refused and/or failed to deliver up the CZ3D factory to the new management represented by Zhang Rong and Dai Xiaolong. His accomplices were Jiang Ronglin, Huang Xia, Pan Haiya, Liu Ning, Shen Liangda and Yin Baoneng; In breach of the non-competition obligation, Mr Liu diverted CZ3D’s business, its client, Bejing Full Dimension Power Tech Co Ltd (“Beijing Full Dimension Power”), and employees to Changzhou Hengmiao Precise Machinery Limited (“Changzhou Hengmiao”). In doing so, he conspired with Chen Jianbo; and In breach of the confidentiality obligation, Mr Liu divulged confidential information concerning the business of CZ3D and the affairs of its client, Beijing Full Dimension Power, to Chen Jianbo and Yin Baoneng, and further instigated the latter to misuse the names of the Labour Union and the employees of CZ3D to send a letter defamatory of the new management to the SGX.

As a result of these alleged breaches of the Service Agreement, Shanghai Turbo claimed to have suffered loss and damage, and sought, inter alia: (a) an order for Mr Liu to deliver up all documents, papers and all property belonging to the Group; (b) an account of all profits made by Mr Liu; (c) damages, interests and costs.

The application for service out of jurisdiction

As Mr Liu was in China, Shanghai Turbo applied for leave pursuant to O 11 r 1(d)(iii), (iv) or (r) of the of the Rules of Court (Cap 322, R5, 2014 Rev Ed) (“ROC”) to serve the writ of summons, the statement of claim and the service order out of jurisdiction on Mr Liu. This application was filed on 4 July 2017 in Summons No 3029 of 2017. The supporting affidavit dated 4 July 2017 was filed by Chia Seng Hee (“Mr Chia”), an independent director and the non-executive chairman of Shanghai Turbo (“Chia’s 1st affidavit”).

At the ex parte stage, Shanghai Turbo relied on clause 17 of the Service Agreement and contended that by the provision: (a) the Service Agreement is governed by Singapore law (see O 11 r 1(d)(iii)); (b) the dispute relates to a contract with a term conferring jurisdiction on the Singapore courts (see O 11 r 1(d) (iv)); and/or (c) Mr Liu, had by an agreement, submitted to the jurisdiction of the Singapore courts (see O 11 r 1(r)).

Clause 17 of the Service Agreement 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.

[Emphasis added in italics, underline and bold]

Clause 17 may be analysed as two sub-clauses. The first sub-clause (shown in italics) appears to deal with the proper law of the Service Agreement, while the second sub-clause (shown in bold) appears concerned with the choice of forum.

Departing from its position at the ex parte stage, Shanghai Turbo conceded before me that the first sub-clause disclosed no valid express choice of the parties as to the proper law of the contract, as it purported to provide for a “floating proper law”. Nonetheless, Shanghai Turbo contended that the objective proper law is Singapore law, and maintained that the second sub-clause is valid. Mr Liu disputed the validity of the entirety of clause 17, and submitted that Chinese law is the proper law. I shall return to these arguments in due course. In any case, on 5 July 2017, the court granted the service order.

The other interim injunction orders

On 15 September 2017, in Summons No 4210 of 2017, Shanghai Turbo obtained an ex parte mareva injunction to restrain Mr Liu from dealing with his assets in Singapore up to the aggregate value of S$30 million. Specifically, the mareva injunction included Mr Liu’s 30% shares in Shanghai Turbo (“the mareva injunction”).

Thereafter, on 18 January 2018, in Summons No 155 of 2018, Shanghai Turbo obtained an ex parte order restraining Mr Liu from exercising the voting and other rights attached to the shares in Shanghai Turbo (“the voting rights injunction”), inter alia, so as to stop Mr Liu from replacing the new board, and discontinuing and/or delaying these proceedings.

At the same time, Shanghai Turbo also sought to add two other shareholders to these proceedings (“the non-parties”), namely Lin Chuanjun (“Mr Lin”) (who acquired 5.87% of the shares in October and November 2017)...