Houtai Investment Holdings Ltd v. Leung Yat Tung and Others

HCA 1725/2019

[2021] HKCFI 2192

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1725 OF 2019

_____________

_____________

Before: Hon Mimmie Chan J in Chambers

Dates of Written Submissions: 23 June 2021, 7 and 12 July 2021

Date of Decision: 27 July 2021

_____________

D E C I S I O N

_____________

1.On 27 May 2021, this Court granted a stay of the Plaintiff’s action against the Defendants (“Decision”). The stay of the action against the 4^th Defendant was on the basis of the claims made in this action falling within the scope of an arbitration agreement contained in the Subcontract between the Plaintiff and the 4^th Defendant. The action against the 1^st to 3^rd and 5^th to 8^th Defendants (“Remaining Defendants”) was stayed in the exercise of the Court’s case management power.

2.The Plaintiff applied on 9 June 2021 for leave to appeal against the stay granted against the Remaining Defendants.

3.The definitions in the Decision are adopted and used below.

4.In gist, the Plaintiff seeks to argue on the appeal that the Decision was plainly wrong in granting the stay of the action against the Remaining Defendants, that the stay ordered was irrational, erred in principle and had led to injustice for the Plaintiff.  The Plaintiff contends that the Court failed to take into account the fact that there was no arbitration agreement between the Plaintiff and the Remaining Defendants, that there was no identity of parties in the Plaintiff’s action against the Remaining Defendants and the Plaintiff’s arbitration proceedings against the 4^th Defendant.  The Plaintiff further claims that the Court failed to give adequate reasons to identify the very good reasons required to justify the stay of the action, and failed to take into account the constitutional right of the Plaintiff to take action against the Remaining Defendants, and failed to consider the decision in Linfield Limited v Taoho Design Architects Limited [2002] 2 HKC 204.

5.The intended appeal is against a case management decision of the Court.  Leave to appeal is not likely to be granted for such appeals.  In Xiamen Xinjindi v Eaton Properties HCMP 13 of 2012, 14 February 2012, the Chief Judge explained:

“No leave to appeal should be granted unless the threshold test of reasonable prospect of success is satisfied, or (which is not relevant to the present case) there is some other reason in the interests of justice why the appeal should be heard: section 14AA(4), the High Court Ordinance (Cap 4). But the court still retains a discretion whether to grant leave even if the threshold test is satisfied. This is particularly so in relation to an intended appeal against a case management decision. In relation to such an intended appeal, this court rarely intervenes save in exceptional circumstances. As Kwan JA reiterated in the recent case of Mimi Kar Kee Wong Hung v Severn Villa Limited, HCMP 2192/2011, 12 January 2012, para 31, it need hardly be emphasized that generally, an appellate court will not interfere with a judge’s exercise of discretion unless the judge has misunderstood the law or the evidence or the exercise of his discretion was plainly wrong such that it was outside the generous ambit within which a reasonable disagreement is possible. In relation to case management decisions, the intended appellant must show that the judge ‘has gone clearly wrong and made orders which will clearly involve an injustice or an inability for the trial court to carry out its task’, or if the judge ‘erred in principle or the order was irrational having regard to the issues that had to be resolved’. It is of great importance that this court does not descend to micro-managing cases pending before the court below.”

6.It is clear from the Decision (paragraph 1 in particular which identifies the ground of the application for stay made by the Remaining Defendants) that the stay granted was not on the basis of the existence of any arbitration agreement between the Plaintiff and the Remaining Defendants.  There is no basis to claim that the Court failed to take into account the fact that there was no such arbitration agreement.

7.The factors considered and the reasons for the grant of the stay are sufficiently set out in paragraphs 35 and 36 of the Decision.  It is not necessary to deal with each and every argument that had been raised by the Plaintiff at the hearing.

8.It is also clear from the facts recited in the Decision that the Plaintiff’s claims against the Remaining Defendants are made on the basis that the 4^th Defendant’s possession, use and delivery of the Vessels to the 6^th Defendant was a breach of the alleged oral lease agreement between the Plaintiff and the 4^th Defendant, and that the 4^th Defendant had no right to possess, detain and use the Vessels, or to deal with or deliver same to the 6^th Defendant, such that its acts constituted conversion.  Only if conversion can be established as against the 4^th Defendant, that the 6^th Defendant, and the shareholders and/or directors of the 4^th and 6^th Defendants (namely, the 1^st, 2^nd, 3^rd, 5^th, 7^th and 8^th Defendants) can be said to have assisted the alleged conversion, detinue or any wrongdoing of the 4^th Defendant.  If there was no conversion or other wrongful act on the part of the 4^th Defendant, in that the Vessels had been provided by the Plaintiff to the 4^th Defendant under and pursuant to the Subcontract, for the Vessels to be used for the purpose of carrying out the Project as the 4^th Defendant claims, and that was indeed the use to which the Vessels had been put, then there can be no conspiracy amongst the Defendants to do any unlawful act, or to injure the Plaintiff by any unlawful means.

9.The claims against the Remaining Defendants were therefore explained, in paragraph 35 of the Decision, to be dependent and contingent upon the existence of the binding oral lease agreement, and on the terms alleged by the Plaintiff.  There are obviously factual issues which substantially overlap in the claims against the 4^th Defendant, and those against the Remaining Defendants, and the Court considered these to be reasons for the exercise of the discretion to order the stay.  It would be an unnecessary wastage of the time and resources of the Court and the parties, for these overlapping factual issues to be determined separately, when they could have been saved by staying these proceedings until all the factual issues have been determined in the arbitration, when the lease and use of the Vessels can be considered in the wider context of the performance of the Subcontract by the Plaintiff and the 4^th Defendant.

10.Whether a stay should be ordered on case management grounds is an exercise of the Court’s discretion, taking into consideration all the facts and circumstances of the case which include those factors outlined in Linfield.  All the relevant matters are to be weighed in the balancing exercise of doing justice, and in furtherance of the objectives of the CJR set out in Order 1A RHC.  As the Court explained in Linfield (at paragraph 14 of the Judgment), the starting basic principle is serving the ends of justice between the parties to the litigation and the administration of justice.  The justice of the case is one factor to be considered in deciding whether the action should be stayed.

11.The facts of this case are distinguishable from those in Linfield.  In Linfield, the action against one defendant (MML) was proceeding notwithstanding and apart from the arbitration (involving other defendants), whilst another defendant (the 4^th defendant) applied to stay the action.  One of the reasons for the Court’s refusing the stay was that it would be unacceptable to allow the action against MML to proceed, while staying the action against the 4^th defendant. Another important reason was that the duties owed to the plaintiff by the other defendants were considered by the Court to be “not necessarily identical” to those duties owed by the 4^th defendant.  In the present case, apart from the important matters explained in paragraph 8 above, the action against all the Defendants is stayed, pending the determination of the Plaintiff’s claims against the 4^th Defendant in the arbitration.

12.As to identity of parties, the 1^st, 2^nd, 3^rd and 5^th Defendants are being sued as shareholders/directors and controllers of the 4^th Defendant and/or of the Vessels.  The 6^th Defendant is alleged to have taken delivery of the Vessels from the 4^th Defendant.  Findings made in the arbitration as to the terms of the Subcontract and the duties of the Plaintiff to provide the Vessels to the 4^th Defendant are of course binding on the Plaintiff, with regard to whether it can claim that the 4^th Defendant had wrongfully possessed, detained or used the Vessels.  If the arbitrator finds that the 4^th Defendant had the right to use the Vessels, and that the Vessels were delivered by the Plaintiff to the 4^th Defendant pursuant to the Subcontract rather than the alleged oral lease agreement, the Plaintiff will be estopped in this action to claim otherwise.  Alternatively, it will at least be an abuse of process (in the sense discussed in Henderson v Henderson (1843) 3 Hare 100, 115) for the Plaintiff to claim that the 4^th Defendant had converted the Vessels, by delivering them to the 6^th Defendant for the purpose of the Project.

13.Issue estoppel applies where the same question has been decided in a final decision, and the parties to the final decision, or their privies, were the same persons as the parties to the proceedings in which the estoppel is raised, or their privies (Carl-Zeiss-Stiftung v Rayner & Keeler (No 2) [1966] 2 All ER 536).  Privity of interest is a matter of substance, not form, and courts have been prepared to pierce the corporate veil and recognize the substantial identity between a company and its controlling directors and shareholders (Spencer Bower and Handler on Res Judicata 4^th edition, at para 9.47).  The 1^st, 2^nd, 3^rd, and 5^th Defendants as beneficial shareholder/directors, managers and controllers of the 4^th Defendant, can be considered as the “privies” of the 4^th Defendant.

14.In all the circumstances of this case, I can see no reasonable prospect of success in the Plaintiff’s intended appeal, on the basis that the grant of the stay is irrational, or plainly wrong such that it was outside the generous ambit within which reasonable disagreement is possible.  Nor is there any other reason for the appeal to be heard.

15.The application for leave to appeal is refused. The Plaintiff is to pay to the Remaining Defendants the costs of the application for leave to appeal, to be summarily assessed.  The Remaining Defendants should file their statement of costs for summary assessment within 7 days and the Plaintiff may file its objections within 7 days thereafter.

Mr Vincent Lam, Mr Kurt Ng and Mr Ben Chan, instructed by Siao, Wen and Leung, for the plaintiff

Mr Joseph Wong, instructed by Poon & Cheung, for the 1^st to 3^rd and 5^th to 8^th defendants