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China Medical Technologies Inc (In Liquidation) v Paul, Weiss, Rifkind, Wharton & Garrison Llp (A Firm) And Another

Judgment Cited authorities 70 Cited in Precedent Map Related
Vincent
Judgment Date25 October 2019
Neutral Citation[2019] HKCFI 2631
Year2019
Judgement NumberHCA577/2015
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA577/2015 CHINA MEDICAL TECHNOLOGIES INC (In Liquidation) v. PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP (a firm) AND ANOTHER

HCA 577/2015

[2019] HKCFI 2631

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 577 OF 2015

________________________

BETWEEN
CHINA MEDICAL TECHNOLOGIES INC Plaintiff
(In Liquidation)

and
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP (a firm) 1st Defendant
PAUL, WEISS, RIFKIND, WHARTON & GARRISON (a firm) 2nd Defendant

________________________

HCA 3272/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3272 OF 2016

________________________

BETWEEN
CMED TECHNOLOGIES LTD Plaintiff

and
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP (a firm) 1st Defendant
PAUL, WEISS, RIFKIND, WHARTON & GARRISON (a firm) 2nd Defendant

________________________

(Heard together)

Before: Hon G Lam J in Chambers
Dates of Hearing: 4‑7 March 2019
Date of Decision: 25 October 2019

________________________

D E C I S I O N

________________________

Table of contents Paragraph
A. Introduction 1
B. Background 3
B1. The China Medical Technologies group 4
B2. The FISH and SPR Transactions 13
B3. The Anonymous Letter and the engagement of PW LLP 15
B4. The Investigation and report of findings 19
B5. The liquidation of CMT 24
B6. CMT’s liquidation in Hong Kong 26
B7. The US bankruptcy proceedings and discovery contest
28
B8. The actions in Hong Kong and their procedural history 30
C. The applications and the main issues raised 41
D. The carrying on business issue 44
D1. The question and the burden 44
D2. The concept of carrying on business 53
D3. The evidence 61
(a) The partnerships 61
(b) The Engagement Letter and public documents 65
(c) Actual work done 70
(d) Relationship with the Beijing and Tokyo offices 85
(e) PW LLP’s integration with and control over PW HK. 87
(f) Profit‑sharing 91
D4. The Legal Practitioners Ordinance
93
D5. Conclusion 103
E. The cause of action relied upon by the plaintiffs 107
F. The law applicable to the tort 126
F1. The proper approach 126
F2. Relationship with governing law of the contract 129
F3. Place of tort for negligent misstatements or advice 134
F4. Factual matters as regards the place of the tort and their significance 143
(a) Events leading to the engagement of PW LLP 143
(b) Conduct of the Investigation 150
(c) The plaintiffs’ principal complaints 153
(d) The reporting phase 155
(e) Reliance alleged 162
(f) Damage alleged 164
F5. Conclusions on place and governing law of the tort 172
G. The defendants’ application for stay 177
G1. The principles 177
G2. The law applicable to the tort claims 181
G3. The place of the tort 182
G4. The issues in the case 184
G5. The parties’ location and connection 198
G6. The location of likely witnesses 202
G7. The action against PW HK. 205
G8. Related proceedings 206
G9. Juridical advantages
 208
G10. Conclusion 215
H. Leave to serve out 216
H1. The requirements 216
H2. Serious issue to be tried 218
H3. Order 11 gateway — rule 1(1)(f) 223
H4. Order 11 gateway — rule 1(1)(c) 229
H5. Appropriate forum.
232
H6. Conclusion 233
I. Curative orders 234
I1. Scope of the orders sought 234
I2. Retrospective leave to serve out 236
I3. Extension of validity of the Writ 239
I4. How should PW LLP or their partners be named and served 241
(a) The proper approach 241
(b) The attributes of a New York LLP 247
(c) How may PW LLP be sued and named in Hong Kong 259
I5. Service 261
I6. Discussion of the plaintiffs’ applications 263
I7. Conclusion on the plaintiffs’ applications 273
J. Defendants’ application to set aside order of 17 March 2016
275
K. Conclusions and Disposition 278

A. Introduction

1. China Medical Technologies, Inc (“CMT”), now in liquidation, and its subsidiary, CMED Technologies Ltd (“CMED Tech”), have each brought an action in Hong Kong making a claim in tort against the New York‑registered firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP (“PW LLP”) and its associated Hong Kong firm of Paul, Weiss, Rifkind, Wharton & Garrison (“PW HK”) for allegedly negligent advice or misstatements given or made to CMT’s Audit Committee in July 2009. There are a number of applications made by the plaintiffs and defendants respectively in these two actions, relating to the question of service and forum. The principal outcome at stake is whether PW LLP or its partners as such and PW HK may be sued in Hong Kong for these claims.

2. The issues raised broadly include: (1) whether PW LLP was[1] carrying on business in Hong Kong so that it could be sued and served as a firm in Hong Kong; (2) whether the plaintiffs are entitled to sue the defendants in tort only; (3) what the applicable law to the tort is; (4) whether Hong Kong or New York is the more appropriate forum for the actions; (5) whether curative orders, if necessary, in the form of leave to serve out of the jurisdiction and extension of the writs’ validity, should be granted to the plaintiffs.

B. Background

3. This section outlines the facts that form the backdrop to the actions and the present applications. Specific facts will be set out in greater detail in the subsequent relevant parts.

B1. The China Medical Technologies group

4. CMT is a company incorporated in the Cayman Islands in July 2004. In August 2005 it became listed on NASDAQ and its shares were traded there through American Depositary Shares (“ADS”) until trading was suspended in February 2012 and it was delisted in March 2012.

5. At all material times prior to its winding up in July 2012, CMT held itself out as having a principal business of developing, manufacturing and marketing advanced medical equipment in Mainland China. Its business was conducted through operating subsidiaries in the Mainland.

6. CMT’s main operating bank account was held at Bank of China (Hong Kong) Ltd (“BOCHK”) at the King’s Road branch in North Point, Hong Kong. It was the account into which all capital and debt raised by CMT was paid.

7. CMT operated out of premises located in (a) Beijing, with manufacturing and research and development facilities located in the Beijing Economic‑Technological Development Area and the Fengtai District; and (b) Hong Kong, at an office in Wan Chai that dealt with administrative services, finance, accounting and investors relations.

8. By the initial public offering of ADS in August 2005 and a secondary offering in March 2006, CMT had raised about US$101m. In November 2006, by an issue of US$150m convertible senior subordinated notes, CMT raised net proceeds of about US$144.7m. In August 2008, by an offering of US$276m convertible senior notes, CMT raised net proceeds of approximately US$267.7m. In December 2010, CMT issued US$150m convertible senior notes, raising approximately US$146.9m in net proceeds.

9. Between 2009 and 2011, CMT’s directors were:

(1) Mr Xiaodong Wu (“Mr Wu”), who was also its founder, Chairman, CEO and largest individual shareholder;

(2) Mr Tsang Tak Yung Samson (“Mr Tsang”), who was also its CFO;

(3) Mr Iain Ferguson Bruce (“Mr Bruce”), who was a chartered accountant and former senior partner of KPMG in Hong Kong (“KPMG HK”);

(4) Dr Lawrence Arthur Crum (“Dr Crum”), a scientist resident in Seattle, Washington, United States;

(5) Dr Yuedong Li (“Dr Li”), a medical doctor resident in Mainland China; and

(6) Dr Guoming Qi, a medical doctor.

10. At the material times Mr Bruce, Dr Crum, Dr Li and Dr Guoming Qi were the independent non‑executive directors. One of the Board of Directors’ sub‑committees was the Audit Committee (“Audit Committee”). By its charter, the Audit Committee must consist of at least three members of the Board of Directors, at least one of whom should have experience in finance or accounting. At all material times since 2007, the three members were Mr Bruce, Dr Crum and Dr Li, with Mr Bruce being the chairman from the outset and the member with the requisite finance or accounting experience.

11. CMED Tech, a company incorporated in the British Virgin Islands (“BVI”) in January 2006, was at all material times a wholly‑owned subsidiary of CMT. Its directors were Mr Wu and Mr Tsang.

12. As explained below, CMT is the sole plaintiff in HCA 577/2015 and CMED Tech is the sole plaintiff in HCA 3272/2016. I shall refer to them collectively as the plaintiffs.

B2. The FISH and SPR Transactions

13. On 6 February 2007, the plaintiffs entered into an agreement with a BVI company called Supreme Well Investments Ltd (“Supreme Well”) and its BVI subsidiary called Molecular Diagnostics Technologies Ltd (“Molecular”), to purchase and acquire from them a fluorescent in situ hybridisation (“FISH”) technology for a consideration of US$176.8m. I shall refer to this as the “FISH Transaction”.

14. On 5 October 2008, the plaintiffs entered into a further agreement with Supreme Well and Molecular to purchase and acquire from them a surface plasmon resonance (“SPR”) technology for US$345m. I shall...

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