Zhi Charles v. Lim Hosok and Others
Read the full judgment text of HCA 584/2016 on BabelCite. This Court of First Instance judgment was delivered on 26 January 2017 before Hon Chung J.
Civil procedure – striking out – Securities and Futures Ordinance (Cap 571) s 22 – immunity of recognized exchange company from civil liability for acts done in good faith – constitutional challenge under Article 35 of the Basic Law – whether substantive immunity engages procedural right of access to court – proportionality – whether plaintiff has an arguable case of bad faith to displace immunity – repeated and abusive litigation by shareholder against listed company – Stock Exchange of Hong Kong – SMG shares resumed trading subject to conditions including coal mine investigation – shareholder alleging misleading announcement and inadequate investor protection – Civil Justice Reform – Basic Law Article 35 – s 28, Cap 571 regulatory recourse – RHC Ord 18 r 12(1)(b) – RHC Ord 42 r 5B(6) costs order nisi and summary assessment – Siberian Mining Group Co Ltd v Zhi, Charles [2016] 4 HKLRD 88 – Matthews v Ministry of Defence [2003] 1 AC 1163 – Roche v United Kingdom (2006) 42 EHRR 30 – Ng Yat Chi v Max Share Ltd & Another (2005) 8 HKCFAR 1 – Held: s 22, Cap 571 is constitutional; it is a substantive limitation on civil liability, not a procedural bar, and serves the legitimate aim of enabling SEHK to perform its regulatory functions without fear of liability, with recourse remaining via the Securities and Futures Commission under s 28; plaintiff failed to plead or evidence an arguable case of bad faith, and the claim against SEHK and Ms Chan was struck out and dismissed; plaintiff's interlocutory injunction, summary judgment, 2016 Technical Report production and constitutional challenge applications were all dismissed; costs order nisi against the plaintiff with liberty to lodge statement of costs for summary assessment.
Legal issues: Constitutionality of s 22, Securities and Futures Ordinance (Cap 571) · Whether Mr Zhi has an arguable case of bad faith to defeat s 22 immunity · Striking out the claim against SEHK and Ms Chan · Mr Zhi's other interlocutory applications
Outcome: SEHK's and Ms Chan's striking-out applications allowed; claims against SEHK and Ms Chan struck out and dismissed. Mr Zhi's interlocutory injunction application, summary judgment application, 2016 Technical Report application, and constitutional challenge to s 22, Cap 571 all dismissed.
Cited by 3 cases · Cites 2 cases
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HCA 584/2016 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE HIGH COURT ACTION NO 584 OF 2016 ____________
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______________ D E C I S I O N ______________ Introduction 1.This decision aims at dealing with the following 6 applications (4 were taken out by the plaintiff (“Mr Zhi”), one by the 17th defendant (“SEHK”) and one by the 19th defendant (“Ms Chan”)):
Background 2.Mr Zhi is a well known user of the courts. As has been pointed out by the court in Siberian Mining Group Co Ltd v Zhi, Charles [2016] 4 HKLRD 88, from April 2013 onwards Mr Zhi has instituted a number of legal actions (against a publicly listed company known as SMG) (para 5 thereof). The court also observed:
It was also mentioned that, by September 2015, there were 15 such actions, none of which has succeeded, or were discontinued, stayed or struck out. Another 8 legal actions were started between September 2015 and June 2016. (The Siberian Mining Group decision, para 7, 8 and 13) 3.The outcome of the Siberian Mining Group decision was that (among other things) an order was made prohibiting Mr Zhi from commencing fresh claims or issuing proceedings against SMG without leave. 4.Against that backdrop, the facts relevant to the present applications can be summarized as follows. 5.Mr Zhi is a shareholder of SMG. Stock trading of SMG shares was suspended in April 2013. In July 2014, SEHK permitted stock trading to be resumed upon conditions. One of the conditions was that SMG must conduct an investigation into one of its coal mines in order to ascertain the validity of the issuance of certain financial instruments (“3rd Convertible Note”). This would require an assessment of the quantity of coal reserves of that coal mine. 6.According to an SMG announcement (22 April 2015), an investigation has been carried out about the coal reserve. Mr Zhi is dissatisfied with the said announcement, and alleges that SMG used misleading technical terms to confuse the public. Hence, he opines that SMG did not fulfill the said condition. He also complains that SEHK knew about this and yet permitted trading to be resumed. He says SEHK has not adequately protected the interests of the investing public. 7.Essentially a similar criticism has been levied by Mr Zhi against Ms Chan. He also complains in gist that both she and SEHK have not acted (or have failed to act) in good faith. Striking out applications 8.SEHK and Ms Chan rely on s 22, Cap 571:
9.Mr Zhi contends firstly that s 22, Cap 571 is unconstitutional. In his affirmation he said (insofar as is legally relevant):
10.For the reasons below, I agree that:
11.In relation to para 9(1) above, s 22, Cap 571 does not limit or exclude Mr Zhi’s procedural right of access to court, but is a limitation of civil liabilities on the part of SEHK and Ms Chan. This concerns substantive law. 12.Further to para 11 above, the role of SEHK in the stock market is mainly regulatory in nature. Conferring certain degree of immunity from legal suit serves a legitimate aim. There is at least potentially a tension between the interests of those seeking listing (so as to attract public funding) and those of the investors. SEHK should be able to act firmly and without fear of liabilities. To remove that immunity would bring about hesitations in decision making or even non-action, and uncertainty. Recourse is still available to the public because the Securities and Futures Commission may still impose sanctions against SEHK (s 28, Cap 571). The immunity conferred is not absolute; acts done in bad faith will still attract civil liabilities. 13.Civil liabilities other than for bad faith (such as one grounded on common causes of action like tort and contract) fall within s 22, Cap 571. The factors which favour the restrictions against such liabilities are the fact that SEHK (and its personnel) has to regularly tackle potentially complicated investment instruments and corporate matters, make decision relying on information provided by third parties such as corporate directors or officers and professional advisers, and often may have to do so within relatively short time frames. 14.In relation to para 9(2) above, differences in resources (be it because of funding or other reasons) is a fact of life to be reckoned with. However, there is no evidence to show that the efficacy of our legal system has noticeably suffered as a result (for example, it is not uncommon for litigants acting in person to conduct their case successfully). Moreover, legal aid and other forms of free or subsidized legal assistance are available to help litigants with limited financial resources. Finally, a relative more proactive approach adopted by the courts since the Civil Justice Reform also has the effect of redressing any such imbalance. 15.For the above reasons, I agree that s 22, Cap 571 is not unconstitutional. 16.Secondly, in his affirmation, Mr Zhi also alleges that SEHK and Ms Chan have acted in bad faith. However, apart from such an allegation, and setting out therein matters which Mr Zhi considers to be unsatisfactory, he has not adduced evidence which provides at least an arguable case of bad faith on the part of SEHK or Ms Chan. 17.It is perhaps because of this inability to adduce proper evidence which causes SEHK and Ms Chan to complain in these applications that there is no proper plea of bad faith (compare the requirements of RHC Ord 18 r 12(1)(b); see also Hong Kong Civil Procedure (2017) Vol 1, para 18/12/11). Further, no particulars of bad faith have been provided. 18.As has been pointed out correctly by SEHK and Ms Chan, Mr Zhi’s case on bad faith is further diminished by his earlier case (set out in his affirmation of 29 March 2016) where he merely alleged possible negligence, incompetence and collusion. In other words, earlier Mr Zhi merely put forth bad faith as one of 3 possible cases. 19.By reason of the above, and despite the high threshold to be met in a striking out application, I agree with SEHK and Ms Chan that s 22, Cap 571 is applicable to Mr Zhi’s claim against them. Accordingly, Mr Zhi’s pleading against them should be struck out, and the claim against them be dismissed (this conclusion also deals with para 1(b) above). Mr Zhi’s applications 20.Because of the conclusion reached in para 19 above, the applications set out in para 1(a) and (c) to (d) above, insofar as they may involve SEHK and/or Ms Chan, should be dismissed. 21.It is unnecessary to deal with those applications in detail. For the record, I agree with SEHK and Ms Chan that, for the reasons set out in their skeleton submissions (9 September 2016), the injunction application (para 4 to 9 thereof; para 1(a) above), the summary judgment application (para 19 to 22 thereof; para 1(c) above) and the 2016 report application (para 25 to 27 thereof; para 1(d) above) should be dismissed in any event. Other matters 22.The parties’ written submissions also mentioned various other points. These have not been expressly set out or dealt with above. This is so only because of the need to balance between the length of the decision and its comprehension. It does not mean those other points are thought to be irrelevant (or have been overlooked). To avoid doubt, those other points have also been considered. Costs order nisi 23.There is no apparent reason to depart from the usual rule that costs should follow the event. There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of the applications as between Mr Zhi and SEHK and Ms Chan are to be paid by Mr Zhi. 24.I consider summary assessment of costs to be appropriate. The above costs shall thus be so assessed. For this purpose:
The plaintiff appeared in person Mr Eugene Kwok, instructed by Baker & McKenzie, for the 15th defendant Mr Bernard Man, SC leading Mr Thomas Wong, instructed by Linklaters, for the 17th and 19th defendants Mr David Harrington of Reed Smith Richards Butler, for the 20th defendant | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment