Joseph Ghossoub v. Team Y&R Holdings Hong Kong Ltd and Others

HCMP 1074/2015

[2019] HKCFI 589

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1074 OF 2015

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D E C I S I O N

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1.This is an application by the Respondents for the exercise of the Court’s discretion to stay the Petition filed in these proceedings, pending determination of the underlying disputes in Claim CL-2015-000901 (“English Proceedings”) by the High Court of Justice of England and Wales.

2.The Petition was issued in April 2015 by Mr Joseph Ghossoub (“JG”), under s 724 (1) of the Companies Ordinance Cap 622 (“Ordinance”), for an order that the 2^nd, 3^rd and/or 4^th Respondents purchase JG’s 20% shares in the 1^st Respondent (“Company”), on the ground that the affairs of the Company have been conducted by the 4^th Respondent in a manner unfairly prejudicial to the interests of JG.  The 2^nd and 3^rd Respondents are shareholders holding a total of 60% of the Company.  They are wholly controlled by the 4^th Respondent.  The balance 20% of the shares in the Company are held by one Talal Elias Makdessi (“Makdessi”).

3.The present application for stay was initially on the ground that the claims made by JG consist of issues or disputes which JG had agreed to refer to the exclusive jurisdiction of the English Court, and alternatively, on case management grounds that the Petition should be stayed pending determination of the underlying disputes in the English Proceedings, or at least pending an application for summary judgment made in those proceedings.  By the time of the hearing of the application for stay before this Court, the application for summary judgment in the English Proceedings had already been dismissed, so that ground is no longer pursued.

4.The Respondents accept that they had made an earlier application, in November 2015, (“2015 Summons”) to stay these proceedings.  That application was dismissed by Deputy High Court Judge Le Pichon on 16 June 2016. The Respondents had appealed, and the appeal was dismissed by the Court of Appeal in July 2017.  Leading Counsel for the Respondents emphasized that the present application for stay is not an attempt at re-litigation, and certainly not an abuse of process.  The Court of Appeal’s decision in Chu Hung Ching v Chan Kam Ming [2011] 1 HKC 396 (CA) was relied on, to support the Respondents’ contention that the dismissal of the stay made by the 2015 Summons does not constitute res judicata, and that by reason of the material change of circumstances since the disposal of the 2015 Summons, it would not be unjust or unreasonable for this second application for stay to be heard.

5.The facts and history of the underlying dispute between JG and the Respondents have been outlined in paragraphs 1 to 29 of the Decision of DHCJ Le Pichon of 16 June 2016 (“LP Decision”), and will not be repeated here.  I will adopt the abbreviations used in the LP Decision.

6.I can accept the Respondents’ arguments that it will not be unjust or unreasonable to allow a second interlocutory application on the same issue to be heard, if it can be shown that there is a material change of circumstances of a non-evidentiary nature (Chu Hung Ching).  In the present case, the Respondents rely on JG’s “clarification” of the basis of his claim, when he filed an answer on 26 January 2018 (“Answer”) to a request made by the Respondents for further and better particulars of the Petition (“Request”). The Request was dated 13 October 2017, after the Defence was served upon dismissal of the 2015 Summons.  The focus of the present application and the Petition now rests on the plea made in paragraph 26 of Section B of the Petition, to which the Request was directed. 

7.Section B of the Petition sets out the “bases of cooperation” between the parties and relied upon by JG as petitioner.  The provisions of the SPA and the SA are set out in paragraphs 20 to 25 of the Petition.  The SPA is the agreement for sale and purchase made between JG, Y&R, and WPP 2005 Limited (as guarantor of Y&R).  Under a Deed of Novation, Cavendish (the 2^nd Respondent) replaced Y&R and assumed all the obligations of Y&R under the SPA.  The SA was a service agreement made between JG and the Company only.

8.Paragraph 26 of the Petition sets out the “mutual understanding and legitimate expectation of JG”, which is the entire basis of his claim for relief in the Petition, and pleads as follows:

“26 In view of the above provisions of the SPA and the SA, and the circumstances in which (JG) sold part of his interests in the Menacom businesses to WPP, it was the mutual understanding between all shareholders of (the Company) and WPP, and certainly the legitimate expectation of (JG), that:

26.1 JG would be entitled to participate in and would not be excluded from the management of (the Company) and the Group; etc” (emphasis added)

9.As was recognized throughout in these proceedings, and as reflected in both the LP Decision and the Decision of the Court of Appeal dated 21 July 2017 (“CA Decision”), JG’s case framed in the Petition for unfair prejudice is that the complaints he made are not confined to strict legal rights under the relevant contracts (the SPA and the SA), but they constitute a breach of the legitimate expectations of JG arising out of the general circumstances concerning the share sale.  On that basis, JG prays in aid the principles applying equitable considerations as explained by Lord Hoffman in O’Neill v Phillips [1999] 1 WLR 109 2 at 1098D to 1099 F (para 87 of the LP Decision and para 15 of the CA Decision).

10.As can be expected, therefore, the Request refers to paragraph 26 as follows:

“(a) Please confirm if the “circumstances” in which Mr Ghossoub sold part of his interests in the Menacom business to WPP are fully pleaded in section A2 of the Petition.

(b)   If not, please give full particulars of such other circumstances in which Mr Ghossoub sold part of his interests in the Menacom businesses to WPP by which Mr Ghossoub’s legitimate expectation was allegedly formed in part.

(c)   Please state which shareholders of WPP allegedly have a mutual understanding of each of the matters set out in paragraphs 26.1-26.5.

(d)   Please give full particulars as to how it is alleged that each such shareholder of WPP is stated to have founded and be party to the alleged mutual understanding in each of paragraphs 26.1-26.5.

(e)   To the extent that the alleged mutual understanding and legitimate expectations are not reflected in the express provisions of the SPA and SA please give full particulars as to how the alleged mutual understanding of the shareholders and the legitimate expectation of Mr Ghossoub are said to have arisen from “the circumstances in which Mr Ghossoub sold part of his interests in the Menacom businesses to WPP”, in respect of each of the entitlements as alleged under paragraphs 26.1 to 26.5 of the Petition, to included details of any communication, the date and persons involved.”

11.The Answer states:

“(a) Yes

(b) Not applicable

(c)-(d) The preamble of paragraph 26 refers to “all shareholders of TYRH” and WPP itself. It does not allege any mutual understanding with “shareholders of WPP”.

(e) Not applicable.  As stated in the preamble of paragraph 26, the mutual understanding between shareholders and legitimate expectation of Mr Ghossoub were based on the provisions of the SPA and SA referred to in Section B1 and B2 of the Petition.”

12.The issue is whether the Answer in (e) above states the case of JG in such a way as to constitute a material change of circumstances, as compared to his originally pleaded case in the Petition, to which the Court should have regard and order a stay on reconsideration of the matter.

13.On first reading, paragraph 26 and the Answer may indeed be understood as JG’s acknowledgment that his legitimate expectation was entirely based on the provisions of the SPA and the SA, such that he was not relying on any extraneous matters raised or terms discussed in the negotiations and meetings prior to the signing of the SPA and the SA, as giving rise to his legitimate expectations.  The Respondents argued that this was contrary to the case hitherto contended for JG for the purposes of the 2015 Summons, that the basis of the alleged mutual understanding and legitimate expectations extend beyond the scope of the SPA and SA.

14.For the record, Leading Counsel for JG confirmed at the outset of her submissions that when JG referred in the Petition to the “mutual understanding” and expectation, he was seeking to distinguish between the position of the parties and the non-parties to the SPA and the SA, and that because there were entities who were not parties to the SPA and the SA, JG could not just rely on the terms of the SPA itself as the basis of the “mutual understanding” and reasonable expectation.  As against the entities who were not parties to the SPA and the SA (namely, Y&R and WPP), JG’s case has always been (as Leading Counsel confirmed on 30 January 2019) that reliance could not be placed by him on the SPA and SA, but that he must look to the circumstances in which WPP had (for example) approached JG to increase its shareholding, and how the parties had decided to incorporate the Company in Hong Kong. 

15.It might be remarked that this was not so stated expressly, or clearly, in paragraph (e) of the Answer. 

16.On behalf of JG, Ms Chan emphasized that the Answer for paragraph (e) of the Request has to be read in the context of the entire Request itself, and the Answer.  She stressed that it is apparent from the Request and the Answer for paragraph (a) that the circumstances in which JG had sold part of his interests in the Menacom businesses to WPP are already fully pleaded in section A2 of the Petition.  These include WPP’s approach in 2006 and the negotiations between JG and the representatives of WPP (not a party to the SPA later signed) including Sir Martin.

17.Hence, in response to the Request which was: “to the extent that the alleged mutual understanding and legitimate expectations are not reflected in the express provisions of the SPA and SA”, the Answer states that this was “not applicable”, and further states that “the mutual understanding between shareholders and legitimate expectation of (JG) were based on the provisions of the SPA and the SA referred to in Section B1 and B2 of the Petition”.

18.Ms Chan emphasized at the hearing that this has all along been JG’s case, and that there is no change. 

19.From this clarification in court, I understand JG’s case to be that the mutual understanding and his legitimate expectations are (as stated in the first part of (e) of the Answer) all reflected in the express provisions of the SPA and the SA, but because there are entities such as WPP and Y&R which are not/no longer parties to those agreements, JG does not rely only on his contractual claims under the SPA and the SA, but relies on the provisions of the SPA and the SA as the “basis” to give rise to some mutual understanding, and to the reasonable expectation on his part, which he seeks to enforce through the Petition, in reliance on O’Neill v Phillips [1999] 1 WLR 1092 (that equitable considerations might make it unfair for those conducting the affairs of the Company to rely on their strict legal powers).  The Answer to (e) itself does not refer to other circumstances, but Ms Chan appears to suggest that there may be (for the non-parties), but confirmed that they are all pleaded in Section A2 of the Petition, and that the mutual understanding of at least the shareholders of the Company, and the legitimate expectations of JG, are already reflected in the express provisions of the SPA and SA.

20.The ambiguity as to the “mutual understanding” and how it arose may be due to the manner of pleading paragraph 26 of the Petition, and the language used in the Request and the Answer.  Paragraph 26 refers to the “mutual understanding between all shareholders of (the Company) and WPP”, namely, an understanding shared by all the shareholders of the Company and by WPP.

21.The Request refers to the extent to which “the alleged mutual understanding and legitimate expectations” are not reflected in the express provisions of the SPA and SA, to which the Answer in response states that it was not applicable (ie that they are so reflected).  The Request then sought particulars of how “the alleged mutual understanding of the shareholders” arose from the circumstances.  In response, the Answer refers to the mutual understanding “between shareholders”, and states that this was based on the provisions of the SPA and SA.

22.It was against these cross-references, somewhat directed to cross-purposes, that JG and the Respondents took opposing stance.  Ms Chan stated that on JG’s pleaded case, the mutual understanding of the shareholders of the Company (and parties to the SPA) were all reflected in the SPA, and that JG’s claims against the shareholders are contractual claims, but JG does not only rely on the terms of the SPA as against the non-parties.  On their part, the Respondents maintain that JG’s case has now been changed, to one in which the alleged mutual understanding (of everyone – shareholders of the Company, and WPP itself) is based entirely on the express provisions of the SPA and SA.

23.Because the pleading in paragraph 26, the Request and the Answer use different references to “mutual understanding”, on a strict view of the pleadings, it can still be said that it is as yet unclear how it is alleged by JG that the alleged “mutual understanding” between the shareholders of the Company, including himself, and WPP (as pleaded in paragraph 26) arises from the circumstances referred to in section A2 of the Petition.

24.Whilst those acting for JG claim that their pleading and case on the alleged mutual understanding and reasonable expectation has been clear and certain from day one, the English Court was similarly unconvinced that JG’s pleading of the alleged mutual understanding and his reasonable expectations do go beyond claims of breach of the provisions of the SPA, and it took the view (in the Judgment of Lawrence Rabinowitz QC of 6 October 2017) that such allegations were in any event lacking in particularity. 

25.It was not necessary for the pleading in paragraph 26 of the Petition to be analyzed in detail, in either the LP Decision or the CA Decision.  However, it is clear from both decisions that the application for stay made by the 2015 Summons was considered and decided on the basis that the claims of JG under the Petition are made, not only against the parties to the SPA and the SA, but also against entities which are not parties to the 2 agreements, and that the complaints made by JG in the Petition are all directed against WPP.  The claims made in the Petition (categorized as the “exclusion complaint”, the “dividends complaint” and the “Makdessi complaint” in the CA Decision) were analyzed, in the context of the scope of the exclusive jurisdiction clauses contained in the SPA and SA (“EJ clauses”), and it was concluded in the LP Decision (see paragraph 67) that only the dividends complaint against Cavendish (the 2^nd Respondent herein) falls within the scope of the EJ clauses.  The exclusion complaint and the Makdessi complaint are directed against WPP, and were found in the LP Decision to fall outside the EJ clauses, as does the dividends complaint against parties other than Cavendish.  The findings were upheld in the CA Decision.

26.The Court refused to grant the stay on the 2015 Summons, on the basis that the EJ clauses fetter the statutory right of JG (“Fetter Issue”), as a shareholder of a company incorporated in Hong Kong, the shareholders of which had decided and agreed that the Company and its operations including its status and internal affairs should be subject to all the provisions of the Ordinance, to present an unfair prejudice petition to the Hong Kong Court, and to seek remedies from the Hong Kong Court pursuant to the Ordinance, for (inter alia) valuation of JG’s shares to be bought out by those controlling the Company.  The CA Decision also made it clear that there were no exceptional circumstances to warrant a stay of the Petition on case management grounds.

27.As Ms Chan highlighted, any complaint of insufficient or unclear particulars in the Petition can be dealt with by further requests, but this is not a ground for seeking a stay of proceedings.

28.I consider that the Answer in paragraph (e) may still be unclear as to the extent to which WPP’s alleged understanding with the shareholders of the Company is reflected in the SPA and the SA, and is certainly unclear as to how it is said that such understanding of WPP arose from the circumstances in which JG’s interests in the relevant business were sold.  This should be clearly stated by JG without further protraction. However, I am not satisfied that objectively but carefully read, the Answer can be said to constitute a change in circumstance since the LP Decision and the CA Decision.  The Answer given in paragraph (e) is confined to the alleged mutual understanding between the shareholders of the Company only, and the basis of such understanding is said to be the provisions of the SPA and SA.  There has been no change in the pleading in paragraph 26 of the Petition.  If the pleading was unclear as to the basis of WPP’s alleged understanding, it remains unclear, notwithstanding the Request and the Answer.  The Answer does not, on my reading, put forward the “new” case of JG as contended by the Respondents.  It is at most ambiguous, and clarification should be sought and, at the appropriate stage, tested by the evidence and on cross-examination.

29.Even if there was such a change as contended by the Respondents, I am not satisfied that such change is sufficient to warrant the exercise of this Court’s discretion to order a stay of the resolution of the underlying dispute in this Petition, until the determination of the English Action.

30.In essence, the Respondents’ case on the stay is that as acknowledged in paragraph (e) of the Answer, the claims against all the shareholders of the Company and WPP are in fact based entirely upon the provisions of the SPA/SA, and that even as against the non-parties to these agreements, the complaints made against them are so closely linked with the SPA and SA that, although they are not formulated as a contractual claim, they fall within the EJ clauses in respect of all disputes arising out of or in connection with the SPA and SA.  The determination by the Court in the English Proceedings, on whether JG can be found to be a “Defaulting Shareholder” under the SPA by reason of his misconduct, will have significant impact on whether JG is entitled to the primary relief of the buyout order sought in the Petition, and will further narrow the issues in dispute between the parties in these proceedings.  For case management purposes, the Respondents argued that the Court’s determination of JG’s claims of unfair prejudice and his entitlement to the buyout order should be stayed, until the English court has made findings on the facts in dispute in the English Proceedings.

31.The Respondents argued that the Fetter Issue does not arise, since they are not seeking to prevent or deter JG from seeking the Hong Kong Court’s determination of the Petition and his claims for relief under the Ordinance.  They only ask that the Court should stay its determination of the Petition, pending and until the findings made in the English Proceedings.  It was emphasized that the application for stay is not on the basis that the EJ clause should be enforced (when it was held in the LP Decision, and upheld by the Court of Appeal, that the EJ clause fetters the statutory right of JG to present an unfair prejudice petition to the Hong Kong Court under the Ordinance).  The Respondents argued that the present stay is sought simply on case management grounds, and that it would be costs effective to stay the determination of the Petition until the English court has decided on the claims in dispute in the English Proceedings.  It would not be contrary to public policy to order a stay, since the Hong Kong Court will still determine the Petition and whether JG should be granted relief under the Ordinance, and if yes, to value his shares to be bought out, on the basis of and taking into consideration the findings made in the English Proceedings as to whether or not JG is a Defaulting Shareholder as claimed by the Respondents. 

32.I accept the submissions made on behalf of the Respondents in this regard.  The jurisdiction of the Hong Kong Court will not be ousted by reason only of any temporary stay of the Petition, if such stay is appropriate and just in all the circumstances.  JG’s claims in the Petition are only sought to be stayed temporarily, not shut out entirely or removed entirely from the Hong Kong Court.  When the Hong Kong Court determines, in due course, the issues which arise in the Petition, it can take into consideration, when deciding whether JG is entitled to relief and the appropriate relief to grant under the Ordinance, the relevance of any findings made by the English court on the facts in dispute in the English Proceedings.  The key issue remains: whether it would be just to order the temporary stay sought.

33.In deciding whether to stay an action on case management considerations under the inherent jurisdiction of the Court, both Mr Coleman and Ms Chan referred to Reichhold Norway ASA v Goldman Sachs [2000] 1 WLR 173 and Linfield Ltd v Taoho Design Architects Ltd [2002] 2 HKC 204 for the applicable principles.

34.In Reichhold, the English court granted a stay of an action pending the completion of arbitral proceedings in Norway.  In exercising its discretion to order such a stay, the court took into consideration the relationship between the parties to the proceedings in England and abroad, any prejudice the plaintiff may suffer if the action is stayed, the delay which may be occasioned, whether such delay can be compensated by an award of interest, and whether the ends of justice would be better served by granting a stay in terms of considerations of cost and convenience.  On appeal, the stay was upheld but it was stated that such stays are only granted “in rare and compelling circumstances”.

35.The Respondents further rely on the decision of the Singapore court in Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57, where the Court of Appeal held that they would not set the bar for the grant of a case management stay at the “rare and compelling” threshold held in Reichhold.  The Singapore Chief Justice held in Tomolugen that a plaintiff’s right to sue whoever he wants and where he wants is fundamental, but not absolute, and is restrained only to a modest extent when his claim is stayed temporarily pending the resolution of a related arbitration, as opposed to when a plaintiff’s claim is shut out in its entirety.  He observed that in appropriate cases, the right of the plaintiff may be curtailed or may even be regarded as subsidiary to holding the plaintiff to his obligation to arbitrate where he has agreed so to do.

36.The case of Linfield concerned multiple proceedings involving different parties, with arbitration clauses governing the contracts affecting some defendants only.  The 4^th defendant in the action sought to stay the action against it, pending the outcome of the arbitrations between the plaintiff and other parties, despite the fact that its own contract with the plaintiff did not contain any arbitration clause.  The court considered that the 4^th defendant’s application approximated roughly to a lis alibi pendens application, whereby a party seeks a stay on the basis of concurrent proceedings elsewhere, involving the same or a similar subject matter and identical parties.  Ma J (as the Chief Justice then was) held in Linfield that the starting point was to apply lis alibi pendens-type principles, namely that (1) the court must consider what would serve the ends of justice between the parties to the litigation and the administration of justice generally; (2) a stay should not cause an injustice to the plaintiff; (3) the applicant for stay must satisfy the court that continuing the proceedings would be oppressive or vexatious to him or an abuse of process and unjust, and (4) where a plaintiff commences proceedings as of right, he should not be deprived of the right to continue those proceedings in the absence of “very good reasons to the contrary”.  For multiple proceedings involving similar or the same issues, but no identity of parties, the court considered that it is not desirable or possible for one or more of the proceedings to be stayed pending resolution of the others, even though a risk of inconsistent findings would inevitably arise.  This is because determination of issues in proceedings between different parties would not be binding on any other party in another set of proceedings.

37.As analyzed in the LP Decision and the CA Decision, only the dividends complaint against Cavendish falls within the ambit of the EJ clause, by which JG agreed to submit to the jurisdiction of the English court for determination of any dispute “arising out of and in connection with the SPA”.  The exclusion complaint and the Makdessi complaint are essentially claims against WPP, which is alleged in this Petition to be in control of the Company.  WPP is not a party in the substantive English Proceedings, whereby Cavendish and the Company seek a declaration that JG is a Defaulting Shareholder under the SPA.

38.As the majority and the substance of the complaints made in the Petition are directed against WPP, which is not a party to the SPA/SA, the findings made in the substantive English Proceedings do not bind WPP - which is not a party thereto.  Whatever the outcome of the English Proceedings, the substantive complaints made in the Petition against WPP will still have to be argued before and decided by the Hong Kong Court.

39.The underlying dispute in the English Proceedings (the Defaulting Shareholder claim, in proceedings which had been commenced by Cavendish and the Company against JG), which the Respondents wish to have resolved first, before the Hong Kong Court decides the issues relevant to the Petition, is whether JG can be declared to be a Defaulting Shareholder under the SPA, by virtue of his misconduct and breach of the provisions contained in the SPA (which prohibited him from engaging in competition with the corporate group to which the Company belonged, holding interests in companies which competed against the Company, etc).  The Respondents claim that the English court’s determination of whether JG is a Defaulting Shareholder by virtue of his misconduct would have significant impact on the claims made in the Petition.  On the dividends complaint, the Respondents pointed out that JG would not be entitled to receive any dividends from the date he became a Defaulting Shareholder, and there would be res judicata issues in respect of any findings made of JG’s misconduct.  On the exclusion complaint, findings on JG’s misconduct and whether he had been engaged or interested in competition with the Company would be relevant to the Hong Kong Court’s determination of whether any steps taken by WPP to exclude him from management were justified.  Further, a declaration made by the court in the English Proceedings, that JG is a Defaulting Shareholder, would narrow arguments on the relief to which he would be entitled, as the declaration would mean that under the SPA, he would no longer have shares to be bought out.

40.However, there is no reason why the question of whether JG was in breach of the provisions of the SPA, and/or his duties owed to the Company and/or the other shareholders, cannot be raised and determined in the Petition.  Indeed, the Respondents in the Petition have raised JG’s alleged misconduct and breach of duties (“Misconduct Claim”) in these proceedings, albeit on the basis that this is without prejudice to their stance that the issue should be determined in the English Proceedings. 

41.Leading Counsel for JG emphasized that there has been extensive discovery on the Misconduct Claim in the Petition, which discovery process has taken a period of 9 months, with the incurring of significant costs.  The Misconduct Claim raises issues which are identical to the claim made in the English Proceedings, of JG being a Defaulting Shareholder.  I agree that the Respondents cannot be seen to suffer any injustice, if the Misconduct Claim should be determined in the Petition itself, and not in the English Proceedings. All the parties said to be affected by JG’s alleged misconduct and breach are before the Court in the Petition.

42.On the evidence, there has not been much progress in the English Proceedings, after the dismissal of the application for summary judgment.  There is no evidence that a trial is likely to take place in the near future.  By way of contrast, since the dismissal of the appeal against the stay granted under the 2015 Summons, the Points of Defence to the Petition was filed in August 2017, the Request and Answer were served, and there has been extensive discovery made in the Petition.  There is no good reason why JG’s claim for relief in the Petition should be delayed, pending the determination of the facts in dispute between JG and Cavendish in the English Proceedings, which cannot be shown to be imminent in the near future.  The CJR underlying objectives of expeditious disposal of a case, and increasing the cost effectiveness of procedures, cannot be attained if the Petition should now be stayed, when it has not been established that any prejudice would be sustained by the Respondents if the issues raised in the Petition, including the Misconduct Claim, should be determined in Hong Kong.  Nor has it been established that continuing the Petition would be oppressive, vexatious or unjust to the Respondents.

43.For all the above reasons, I decline to grant the stay sought by the Respondents.  It follows that the costs of the application should be paid by the Respondents to JG, with certificate for counsel.

44.I see no justification for the hearing of the Petition to be further delayed, and the parties should take immediate steps to proceed with setting a date for the determination of this dispute. 

Ms Linda Chan SC and Mr Keith Lam, instructed by Holman Fenwick Willan, for the petitioner

Mr Russell Coleman, SC and Ms Theresa Chow, instructed by Allen & Overy, for the 1^st to 4^th respondents