Elliott International, L P and Others v. The Bank of East Asia, Ltd and Others

HCMP 1812/2016

[2018] HKCFI 1647

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1812 OF 2016

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REASONS FOR DECISION

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1.On 17 and 18 July 2017 I heard an application by the 2^nd to 19^th Respondents, who are directors (“Directors”) of the 1^st Respondent, Bank of East Asia Limited (“Bank”), for an order that the Petition be struck out on the grounds that it was an abuse of process and that the Action be dismissed. On 21 August 2017 I dismissed the application. At the hearing the Petitioners were represented by Charles Sussex SC, Jose Maurellet SC and Jason Yu and the 2^nd to 19^th Respondents were represented by Benjamin Yu SC and Bernard Man SC.

2.The Directors sought the dismissal of the Action on the grounds that it is plain and obvious that the Petition is advanced by the Petitioners for a collateral purpose and should be struck out.

3.The background to these proceedings is discussed in detail in my decision of 5 June 2015,[1] which concerned an application by the 1^st Petitioner, Elliott International, L P, and associated companies, for disclosure of documents pursuant to section 740 of the Companies Ordinance, Cap 622.  The 2^nd to 7^th Petitioners are shareholders in the Bank.  They are all associated with the 1^st Petitioner, which is a well‑known activist investor.  In my June 2015 decision I made, on the application of the 3^rd Petitioner, an order pursuant to section 740 that the Bank disclose documents relating to a substantial placement of shares to Sumitomo Mitsui Banking Corporation (“SMBC”).

4.The Petition was issued subsequent to a review by the Petitioners of the documents disclosed to them.  In short the claim advanced is that placements of shares to CriteriaCaixa (“Caixa”) and SMBC were made for an improper purpose, namely to entrench the control of the Bank by Sir David Li and his Family.  The Petitioners seek declarations to this affect and orders that the Bank release Caixa and SMBC from undertakings given by them to the Bank restricting the way in which they would exercise their voting rights.

5.The alleged collateral purpose for which the Petition has been presented is to facilitate a sale or takeover of the Bank.  The Directors suggest that the Petitioners, who for convenience I shall refer to collectively as “Elliott”, acquired shares in the Bank with the intention of campaigning for a sale or takeover, which they anticipated would prove profitable for them.  The presentation of the Petition and the relief that is sought are not motivated by a genuine desire to remedy the alleged improper placements, but rather as part of Elliott’s campaign to create a situation, which increases the likelihood of a takeover or sale.

6.The applicable legal principles, which govern how the court should determine strike-out applications, are not controversial.  A petition should only be struck out if it is plain and obvious that it is unsustainable.  The Directors emphasise that “plain” does not mean the same as simple and “obvious” does not mean the same as short[2] and that the court should not decline to strike out a claim merely because the issues are difficult or complicated.[3]  I accept that this is correct, although, in practice the more difficult or complicated the issues the less likely it is that a court will be satisfied that a claim is plainly and obviously going to fail.

7.Similarly, I accept Mr Yu’s submission that the court does not accept unquestioningly the evidence of the resisting party.  The court will have regard to matters such as contemporaneous correspondence and the inherent probabilities of the case and assess a claim having regard to commercial and common sense considerations.[4]  However, the court will also be mindful that it is assessing a case on affirmation evidence and that in deciding whether to reject a sworn assertion of purpose, as there is in the present case, the court should proceed with care particularly given the requirement that a claim should only be struck out if it is plain and obvious that it will not succeed.

8.If a petition is not launched not with the genuine object of obtaining the relief claimed, but with the object of exerting pressure in order to achieve a collateral purpose it is prima facie an abuse of process[5] and is liable to be struck out.  In his argument before Mr Yu went further and submitted that even if the Petitioners genuinely desire the relief that they seek, but they do so because the relief will provide a bridge, which enables them to achieve something further that the court cannot order, the Petition is an abuse of process.  This submission finds support in the decision of Jonathan Parker J in Re Astec (BSR) plc.[6]  At 592c–d the Judge says this:

“The petitioners’ attempt to use s 459 as, in effect, a tactical ploy to force Emerson to make a takeover bid, though no doubt wholly well-intentioned, is in my judgment misguided as a matter of law. As such it constitutes in my judgment an abuse of process. That in itself would be sufficient ground for striking the petition out.”

9.Accepting for present purposes that this application of the principle is correct, determining whether or not the purpose for bringing a petition seeking relief under section 724 is not to obtain the order sought in the petition itself, but the anticipated consequence of an order being granted, which goes beyond the relief that the court can grant, will generally be difficult to assess unless the purpose is admitted as it was in Re Astec.  Assessing in a case as complex as the present one Elliott’s motives principally on the basis of an analysis of Elliott’s public statements in relation to the Bank and other investments in which Elliott’s motives have come in for comment, seems to me problematic.  What I am concerned to determine is whether or not, assuming Re Astec is correct, it is plain and obvious that Elliott have issued the Petition with the intention of advancing a strategy to procure the sale or takeover of the Bank rather than the narrower purpose of establishing that the placements were intended to secure the Li Family’s continuing control of the Bank and to release Caixa and SMBC from the restrictions on how they vote their shares with a view to allowing them to assess on their merits any resolutions which concern the future control of the Bank.  It does not seem to me on the evidence before me that it is plain and obvious that Elliott’s motive was predominantly the former rather than, for example, a more complex and nuanced combination of motives and purposes, which may or may not justify concluding, to quote from Jonathan Parker J, that Elliott “desire that relief not for itself but because they hope that, if granted, it will lead to something else, that something else being something which the court would not order.…”  I am not, therefore, satisfied that it is plain and obvious that the Petition has been brought for an impermissible collateral purpose and that consequently it is plain and obvious that it will fail.

10.I would add that it does not seem clear to me that if a petitioner genuinely wants the relief he seeks, but his reasons for doing so form part of a broader strategy, which the relief if granted will advance, presentation of a petition under section 740 is an impermissible use of the jurisdiction.  The guileless admission of the purpose for presenting the petition in Re Astec[7] perhaps made the issue of principle seem rather simpler to Jonathan Parker J than, with respect, it seems to me to be.  For example, I ask rhetorically, does it make a difference if Elliott as sophisticated investors anticipate that a desirable consequence of obtaining the order they seek would probably be the Bank becoming a takeover target, as opposed to Elliott being motivated to some degree in deciding to issue the Petition by a desire that the Bank becomes a takeover target?  Again asked rhetorically, what if the members of the board of the relevant members of the Elliott Group, whilst all agreeing to a resolution that the Petition should be presented, had varying views on why this should be done?

11.Mr Yu submitted that if I were to find against him I should not deal with the factual and legal arguments advanced before me other than in general terms as it might unhelpfully influence the way in which the parties prepared their cases if the matter proceeds to trial.  I agree.  It does not seem to me appropriate to purport to determine any of the issues on a strike-out application, as in the case of the collateral purpose issue Mr Sussex invited me to do, and I agree with Mr Yu that to produce a detailed reasoned decision would risk influencing the way in which the parties shaped their cases going forward.

12.The strike-out application is dismissed with a costs order nisi that the 2^nd to 19^th Respondents pay the Petitioners’ costs forthwith with a certificate for two counsel.

Mr Charles Sussex SC, Mr Jose Maurellet SC and Mr Jason Yu, instructed by Akin Gump Strauss Hauer & Feld, for the petitioners

Mr Tom Fyfe, of Simmons & Simmons, for the 1^st respondent

Mr Benjamin Yu SC and Mr Bernard Man SC, instructed by Linklaters, for the 2^nd to 19^th respondents