Shih Hua Investment Co., Ltd v. Zhang Aidong and Others

CAMP 76/2017

[2018] HKCA 805

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 76 OF 2017

(ON AN INTENDED APPEAL FROM HCA NO 2682 OF 2016)

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Before: Hon Lam VP and Kwan JA

Dates of Written Submissions: 21 August 2018, 6 September 2018 and 12 September 2018

Date of Judgment: 7 November 2018

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the court):

1.This is an application of the plaintiff, Shih-Hua Investment Co Ltd (“SH”), for leave to adduce further evidence in support of its application for leave to appeal to the Court of Appeal against part of the decision of Harris J on 26 July 2017, by which the judge discharged two injunction orders in a derivative action brought by SH being HCA 2682/2016. The further evidence sought to be adduced consisted of two affirmations made by the solicitors of SH, Mr Liu Kwok Fai Alvan and Ms Luk Ka Yan[1], the principal and an assistant solicitor of Messrs Alvan Liu & Partners (“ALP”).

2.This application is opposed by the 1^st to 4^th defendants.

3.The parties have filed affirmations and lodged submissions in compliance with the automatic directions in Practice Direction 4.1 §36.  Having considered the application bundle and the submissions, we do not think it necessary to hold an oral hearing.  We will determine the application on paper.

4.On 26 July 2017, Harris J discharged two ex parte injunction orders granted in HCA 2682/2016 by Lok J on 25 October 2016 and by Deputy High Court Judge Kent Yee on 22 November 2016.  He also ordered HCA 2682/2016 to be struck out.  SH brought an appeal against the order to strike out as of right.  This is CACV 188/2017.  It sought leave to appeal against the discharge of the injunction orders.  Leave was refused by the judge on 30 November 2017.  SH renewed its application for leave to appeal before the Court of Appeal by the summons issued in the present proceedings on 13 December 2017 (CAMP 76/2017).  The Court of Appeal gave directions on 14 December 2017 that the proceedings in CACV 188/2017 and CAMP 76/2017 be withheld until after Harris J had handed down his reasons for judgment.

5.Reasons for the judgment on 26 July 2017 were handed down on 4 June 2018 (“the Reasons”).  On 18 July 2018, SH filed the present summons for leave to adduce the further evidence as mentioned in support of its application for leave to appeal.

6.We do not propose to repeat the background matters giving rise to the present application, which have been set out in some detail in the Reasons.  Suffice it to say that one of the reasons for discharging the injunctions was the view taken by the judge that the ex parte application before Lok J was an abuse of process, because of his finding that the applications to Lok J and DHCJ Yee involved “conscious and impermissible forum shopping”[2].  This is what the judge said in §22 of the Reasons:

“In my view SH and its legal team were guilty of impermissible forum shopping and failed in their duty of full frank disclosure. In my view it is also a compelling inference that this was not the result of inadvertence. It resulted from a conscious decision by SH’s solicitor, Alvan Liu, to reformulate SH’s claim with a view to obtaining an interim injunction having failed to obtain in the proceeding [sic] months immediate appointment of provisional liquidators or reconstitution of the board[3] and to provide only limited information about how I had dealt with the earlier interlocutory applications to Lok J to minimise the possibility of the Judge referring the application to me. The subsequent application before DHCJ Yee was, unsurprisingly, subject to the same flaws.”

7.The further evidence sought to be adduced is intended to address the above findings and severe criticisms of the judge.  In gist, Mr Liu and Ms Luk categorically denied there was any conscious decision of the legal team of SH to avoid bringing the two injunction applications made on 25 October 2016 and 22 November 2016 before Harris J.  They averred that they had reviewed all the relevant correspondence between their firm, counsel and lay client as well as internal memos, and there was absolutely no discussion on forum selection, and no discussion how to “re‑package” the case before the duty judge for the injunction application in HCA 2682/2016.  They adduced the written submissions of counsel for SH in three hearings of HCCW 198/2016 on 29 August 2016, 12 September 2016 and 3 October 2016, a letter dated 20 October 2016 of ALP to the judge’s clerk requesting for directions regarding four summonses in HCCW 198/2016, and the reply of the court dated 25 October 2016.

8.In the affirmations filed in support of the present application, Mr Liu and Ms Luk deposed that SH had “no fair opportunity” to address the point of “conscious and impermissible forum shopping”, that the judge’s reliance on this point “without allowing a fair opportunity for [SH] to give evidence in response is a serious breach of procedural fairness and a serious procedural irregularity”, and that the new evidence intends to provide the Court of Appeal with a “full picture” of what had happened to enable this court to deal with SH’s challenge against the judge’s holding fairly and properly.  This was further developed in the submissions of Mr Robert Chan, who contended that an “effective surprise has been sprung on SH” and the appeal court should be “liberal” in the exercise of its discretion to admit further evidence, citing Technograph Printed Circuits Ltd v Mills & Rockley (Electronics) Ltd [1969] RPC 395 at 411, per Sachs LJ.

9.It is not disputed that the test in Ladd v Marshall [1954] 1 WLR 1489 at 1491 applies and all three conditions laid down must be satisfied for further evidence to be admitted on appeal.  The first of these conditions is that the further evidence could not have been obtained at the hearing below with reasonable diligence.

10.These are the matters advanced on behalf of SH that the first condition is satisfied:

(1) Pursuant to an order made by A Chan J in HCA 2682/2016 on 25 November 2016, the defendants filed and served a list of issues on 16 May 2017 for their application to discharge the injunctions and to strike out the statement of claim, which was heard by Harris J on 25 and 26 July 2017.  The ground of “conscious and impermissible forum shopping” was not raised in the defendant’s list of issues.  When SH filed its last affirmation in the application on 5 July 2017[4], it did not deal with this ground as it was not “on the agenda”.  Whilst this ground was mentioned in the defendants’ skeleton argument dated 14 July 2017, this was after the last affirmation of SH and as such SH had “no fair opportunity” to address this ground in its evidence.

(2) At the hearing before the judge on 25 and 26 July 2017, the ground of “conscious and impermissible forum shopping” “suddenly appeared” to be one of the principal arguments of the defendants.  This was “quite possibly (if not probably) fuelled by” a letter of the judge sent to the parties’ counsel the day before the hearing, in which it was stated that the judge “takes a serious view of the way in which this matter was dealt with by [SH’s] solicitors in particular and also counsel”[5].

(3) It was the understanding of SH that the allegation of abuse of process relating to “forum shopping” made in the 2^nd affirmation of Zhang Aidong filed on 1December 2016[6] concerned only the substantial overlap between HCA 2682/2016 and HCCW 198/2016 and the re‑packaging of SH’s claims in HCCW 198/2016 for use in HCA 2682/2016[7]. H ence, the evidence filed by SH (5^th affirmation of Yang Shiheng filed on 17 March 2016) sought to reply that there was no abuse of process in that respect as HCA 2682/2016 involved different causes of action and sought different remedies and the injunction order was sought based on different grounds and newly available evidence[8].

(4) SH’s solicitors could not reasonably have been expected to file the further evidence after receiving the judge’s letter the day before the hearing.  They would have to review all the relevant correspondence and internal memos to properly prepare the further affirmations to be made by Mr Liu and Ms Luk.  The “surprise” first came with the judge’s letter a day before the hearing and it was “fully elaborated only about a year later in the Reasons”.  Hence, the further evidence could not have been provided with reasonable diligence at the hearing before the judge.

11.We firmly reject the contention that SH was taken by surprise about the allegation of forum shopping or that there was any procedural irregularity or breach of procedural fairness in how this issue was raised and dealt with in the court below.

12.The construction SH sought to put on the allegation of “forum shopping” in the 2^nd affirmation of Zhang Aidong filed on 1December 2016 is wholly contrived.  The meaning of the relevant paragraphs in that affirmation could not have been clearer.  Zhang clearly asserted that the bringing of HCA 2682/2016 and obtaining the injunction ex parte without notice before the duty judge constituted an abuse of process, that the injunction application should have been made to Harris J on an inter partes basis, and that SH “has transparently engaged in judge shopping of a highly abusive nature”.

13.We do not need to speculate why SH chose to answer the allegations of “forum shopping” in Zhang’s 2^nd affirmation in the way it did in the 5^th affirmation of Yang Shiheng instead of adducing the further evidence it now seeks to file.  The test we apply is reasonable diligence.  As the allegations of forum shopping were squarely made in December 2016 on a fair and proper reading of Zhang’s 2^nd affirmation, and SH have had the opportunity to file evidence in answer and did so by filing the 5^th and 6^th affirmations of Yang Shiheng, the requirement of reasonable diligence is plainly not met.

14.As for the defendant’s list of issues in which forum shopping did not feature, we reject the contention that this must mean this allegation was no longer on the agenda.  The list of issues was intended as an aide memoire for the judge, it ought not to be treated as a document binding a party to argue only the matters as listed despite the fact that they have been canvassed in the evidence filed.

15.Further, on SH’s own admission, forum shopping was raised in the defendants’ skeleton argument dated 14 July 2017[9], and that was ten days before the hearing.  This was plainly not an argument sprung on SH with surprise a day or two before the application was due to be heard.  With reasonable diligence, in the space of ten days, SH could have prepared the further evidence it now seeks to adduce and sought leave to file those affirmations for the hearing.

16.Much was sought to be made of the letter sent by the judge to counsel for both sides a day before the hearing.  We see no unfairness on the judge’s part in writing the letter.  From his reading of the papers in preparation for the hearing, the judge summarised in his letter what happened in the hearings before him from 20 July 2016 to 3 October 2016, for the benefit of counsel who did not appear before him in the previous hearings.  SH, which was represented by a Senior Counsel, did not seek an adjournment to deal with anything arising from the judge’s letter.

17.As the first condition in Ladd v Marshall is not satisfied, the application to adduce further evidence must be dismissed.  It is not necessary to consider the other conditions (namely, the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and the evidence must be such as is presumably to be believed, in other words it must be apparently credible, though it need not be incontrovertible).

18.We would only say this.  It does not appear to us the further evidence would probably have an important influence on the outcome of the application for leave to appeal.  SH has a high threshold to surmount to successfully appeal against the exercise of discretion of the judge in discharging and not re‑granting the injunctions.  The judge discharged the injunctions not just because of “conscious and impermissible forum shopping”.  He had also taken into consideration a host of other factors: SH and its legal team manifestly failed in their obligations to make full and frank disclosure in a number of aspects[10]; HCA 2682/2016 should be struck out[11] due to the absence of any wrongdoer in control since 19 January 2017 when the board was re-constituted by the order of A Chan J in HCCW 198/2016, so the question of re-granting the injunctions does not arise[12]; even if HCA 2682/2016 had not been struck out, the judge would not have exercised his discretion to re-grant the injunctions as the evidence failed to show that Zhang and the entities he controls would divert future payments unless enjoined, there is nothing to suggest that Zhang intended to divert monies due to the company after the new independent directors have been appointed[13]; the judge was also not satisfied there is sufficient risk of loss to the company and consequently to SH to make it unjust to refuse to re-grant the injunctions[14].

19.We dismiss SH’s summons to adduce further evidence in its application for leave to appeal.

20.There is no reason to depart from the general rule that costs should follow the event.  We order SH to pay the costs of the 1^st to 4^th defendants.  Having considered the defendants’ statement of costs for summary assessment, we allow costs to them in the sum of $115,000.

21.The costs order and gross sum assessment are orders nisi.  If there is no application to vary within 14 days of the handing down of this judgment, they will be made absolute.

Written submissions by Mr Robert G M Chan, instructed by Alvan Liu & Partners, for the Plaintiff (Applicant)

Written submissions by Mr Justin Ho, instructed by W K To & Co, for the 1^st to 4^th Defendants (Respondent)