Chu Kong (Suing on behalf of Himself and All Other Shareholders in (I) Ocean Sino Limited (Except Lau Wing Yan) and (Ii) Pbm Asset Management Limited) v. Lau Wing Yan and Others

HCA 1885/2021

[2023] HKCFI 2703

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1885 OF 2021

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D E C I S I O N

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A.  INTRODUCTION

1.There are 5 summonses before this Court. Three are strike-out summonses respectively taken out by D4 (“Mr Greenwood”) on 30 January 2023, by D2 (“Mr Yen”) on 27 March 2023 and by D1 (“Mr Lau”) on 11 April 2023, to strike out the amended statement of claim (“Strike-out Summonses”). The 4^th summons is taken out by the Plaintiff on 12 May 2023 for leave to re-amend his statement of claim as per the draft attached to the summons (“DRASOC”). The 5^th summons is taken out by D4 on 5 July 2023 for leave to adduce evidence of a judgment of the Court of Appeal in the BVI, which is not opposed.

2.D5 (“OSL”), in liquidation, is the parent company of D6 (“PBM”). This is a double derivative action which the Plaintiff (“Mr Chu”) purports to commence on behalf of OSL and PBM to sue former directors of PBM for various breaches of fiduciary duties.

3.Mr Yen, Ms Chan and Mr Greenwood (collectively “D2-D4”) were 3 of the 4 joint and several liquidators of OSL (“OSL JLs”). As part of their duties to investigate into the affairs of OSL and its group, the OSL JLs appointed themselves as directors of PBM (“JL Directors”). As of the date of this hearing, D4 remains one of the 2 OSL JLs (the other being Mr Bailey) and he is the sole director of PBM.

4.Through PBM, the OSL JLs petitioned to wind-up BGA Holdings Ltd (“BGAH”), a joint venture of which PBM held 49% shares and Beibu Gulf Holding (Hong Kong) Co Ltd (“BBGH”) held 51%. The basis, amongst others, was that BGAH had been the victim of a substantial asset‑stripping scheme orchestrated by Mr Chu and his associates in around 2015-2016 to dissipate all operating assets of BGAH. The Petition was also brought on insolvency grounds. That was the HK Winding-Up Proceedings.

5.The Petition was vigorously opposed by BGAH, which even applied to strike it out. A Chan J refused to strike out the Petition and, on 6 December 2021, ordered that BGAH be wound-up (“BGAH Winding Up Order”).

6.Mr Greenwood has since (together with Mr Bailey) been appointed as the liquidators of BGAH (“BGAH Liquidators”). The BGAH Liquidators have commenced claims against Mr Chu and his associates as part of their asset recovery exercise. Mr Chu and his associates have sought to obstruct the efforts of the BGAH Liquidators including: (i) challenging their appointment in Hong Kong; and (ii) seeking to remove the OSL JLs in the BVI. All such efforts have comprehensively failed.

7.This action is taken out just one week after the BGAH Winding Up Order was made.

8.The 3 Strike-out Summonses are essentially based on the same grounds – that the action discloses no reasonable cause of action, is frivolous or vexatious and is an abuse of process on the court. In gist, the reasons are that:

(1)  Mr Chu has no locus to bring this derivative action because he has not demonstrated that PBM (presently controlled by the OSL JLs) is under a wrongdoer’s control;

(2)  There is lack of proper factual bases for launching attack against the JL Directors. Mr Chu’s complaints against them had already been raised in his BVI application to remove the OSL JLs. The BVI Court’s decision was upheld on appeal. There is no proper factual basis in support of Mr Chu’s serious but baseless attack against D2-D4 for dishonestly commencing the HK Winding-Up proceedings out of self-interest as the petition ended up with the BGAH Winding Up Order. Mr Chu’s regurgitated claim against Mr Greenwood has been brought for the improper motive of obstructing the OSL JLs’ investigation into Mr Chu’s alleged misfeasance; and

(3)  Mr Chu is precluded by issue estoppel from pursuing the present action because before this action was commenced, all the allegations in this action have been dismissed by BVI and Hong Kong Courts. His conduct was an abuse of process and/or a collateral attack on prior judgments.

9.Mr Chu opposes the Strike-out Summonses. He contends that:

(1)  PBM is not in liquidation. This is a case concerning a Hong Kong company and its directors, which must be subject to the Hong Kong Court’s jurisdiction to regulate PBM’s affairs;

(2)  There is no issue estoppel because the issues in the previous Judgments concern issues different to those in the present action. There is an issue as to finality of the Judgments and whether Mr Chu was privy in those Judgments. One Judgment is under appeal. He denies that there was abuse of process or collateral attack on other Judgments;

(3)  Mr Chu recently discovered a Security Assignment Deed with PBM as chargor and OSL as lender, whereby PBM purportedly agreed to provide security in respect of OSL’s “continuing provision of certain credit facilities” to PBM. That security was to benefit Mr Lau as the funder of OSL’s liquidation but was plainly against the interests of PBM and its creditors. This complaint has never been the subject of substantive determination in any previous proceedings and is something within the jurisdiction of the Hong Kong Court;

(4)  Mr Chu has a meritorious case which should not be summarily dismissed. The findings of the Courts must be viewed in the context of the fresh evidence from third parties which were not before the previous Courts. The present claim is supported by ample evidence with its factual case on the Acquisition Agreement echoed in the Judgments of BVI and Privy Council; and

(5)  Considered in the grander scheme of things, Mr Lau and his affiliates have at least prima facie been found to have committed serious acts of contempt. The history between the parties renders it unsafe for these proceedings to be, in essence, summarily determined.

10.The parties have proceeded to argue the Strike-out Summons on the basis of the DRASOC. I have classified the issues into the following limbs:

(1)  Whether PBM is under wrongdoer’s control;

(2)  Whether the claim is precluded by issue estoppel and abuse of process or amounts to a collateral attack on a final decision of a court;

(3)  Whether the claim is frivolous or vexatious, without proper foundation; and

(4)  Whether there are other grounds to contest the applications.

B.  BACKGROUND

B1.  Corporate structure

11.OSL is incorporated in BVI. It is a joint venture set up by Mr Chu and Mr Lau, who hold equal shares. Prior to its liquidation, Mr Chu and Mr Lau were its only directors.

12.PBM is incorporated in Hong Kong and is wholly owned by OSL. Until around January 2018, Mr Chu and Mr Lau were its only directors.

13.PBM held a 49% interest in BGAH, a joint venture between PBM and BBGH for investing in dry bulk supply chain business and international trading of commodities.

B2.  Winding up of OSL

14.On 27 May 2015, Mr Lau presented a petition in the BVI Court to wind up OSL on the just and equitable aground. Mr Chu and OSL were the respondents to that petition.

15.On 29 June 2017, the BVI Court granted an order to wind up OSL on the petition (“OSL Winding-Up Order”).

16.On 23 August 2017, Mr Bailey, D2-D4 were appointed as the OSL JLs. The OSL JLs procured the appointment of Mr Yen and Ms Chan as directors of PBM on 12 September 2017 and the removal of Mr Chu and Mr Lau from PBM’s board on 17 January 2018. Mr Greenwood was appointed as director of PBM on 23 January 2018.

17.On 17 January 2020, Mr Chu successfully appealed against the OSL Winding-Up Order in the Court of Appeal of the Eastern Caribbean Supreme Court (“BVI CA”). As a result, on 21 February 2020, D2-D4 resigned from the board of PBM and appointed Mr Chu and Mr Lau as PBM’s directors.

18.On 12 October 2020, the Privy Council unanimously allowed Mr Lau’s appeal and restored the OSL Winding-Up Order.

19.On 28 October 2020, the OSL JLs procured the re-appointment of Mr Yen and Mr Greenwood to the board of directors of PBM. On 26 November 2020, Mr Chu and Mr Lau ceased to be PBM’s directors. On 21 December 2020, Mr Yen also resigned from PBM’s board. Since then, Mr Greenwood has been PBM’s sole director.

B3.  Winding up of BGAH

20.In the course of investigations into the affairs of OSL and its subsidiaries (including PBM and BGAH), the OSL JLs discovered that an asset-stripping scheme had been orchestrated by Mr Chu and his associates in around 2015-2016 to dissipate all operating assets of BGAH.

21.Based on the OSL JLs’ findings, PBM issued a statutory demand dated 12 December 2017 to BGAH to demand for payment of shareholder’s loans of US$36,298,272 advanced by PBM to BGAH between 2010 and 2011 (“PBM Loan”). PBM issued a petition on 23 August 2019 (“HK Winding-Up Proceedings”) to wind up on 2 grounds: (i) the “Insolvency Ground”, ie on the basis of BGAH’s inability to pay the PBM Loan pursuant to the Statutory Demand; and/or (ii) on the just and equitable ground, in view of the alleged asset-stripping scheme.

22.On 22 October 2019, BGAH issued an application to strike out the petition (“BGAH Strike-Out Summons”), contending that there was a bona fide dispute on substantial grounds over the PBM Loan. The application was supported by evidence filed by Mr Chu personally, being BGAH’s former director. In gist, BGAH, amongst others, contended that (i) the PBM Loan was not repayable upon demand; and (ii) the PBM Loan had been discharged by setting off against the purchase price of 2 vessels pursuant to a Vessel Purchase Agreement (or “Acquisition Agreement”).

23.The BGAH Strike-out Summons was dismissed and BGAH’s arguments were comprehensively rejected by A Chan J in his Decision dated 26 November 2021 (“A Chan J’s Strike-Out Decision”). His Lordship held that (i) the PBM Loan must have become repayable on demand; and (ii) the alleged Vessel Purchase Agreement did not exist and/or the PBM Loan was not discharged by it. (§§50 and 64 of the Decision)

24.At the resumed hearing of the petition on 6 December 2021, A Chan J ordered that BGAH be wound up.

25.Although BGAH lodged a notice of appeal to appeal against A Chan J’s Strike-Out Decision and the BGAH Winding Up Order, BGAH has not even proceeded to fix a hearing date for the appeal.

26.In another decision dated 14 December 2021 (dismissing BGAH’s application for leave to appeal against A Chan J’s Strike-Out Decision), A Chan J indicated that there is no reasonable prospect of success in BGAH’s appeal.

27.On 13 June 2022, BGAH applied for leave to adduce, amongst others, the affirmation of Zhou Zhuoli dated 21 January 2022 together with the exhibits thereto (“Zhou-Affirmation”) for the purpose of the appeals. BGAH’s application was dismissed by the Court of Appeal, amongst others, on the ground that the second condition of Ladd v Marshall was not satisfied. In particular, Zhou-Affirmation did not have an important influence on the outcome of the appeals. She did not have personal knowledge of an alleged Agreed Treatment. Her personal views would not add anything more to BGAH’s argument.

28.On 13 January 2023, pursuant to the Order of Master Rita So dated 13 January 2023, Mr Greenwood, Mr Roy Bailey and Mr Tsui Chi Chiu were appointed as joint and several BGAH Liquidators.

B4.  BVI Removal Application

29.On 15 March 2021, Mr Chu applied to the BVI Court for an order to remove the OSL JLs (“BVI Removal Application”), to which D1‑D4 were parties.

30.On 24 November 2021, the BVI Court handed down a judgment (“BVI Removal Judgment”) rejecting Mr Chu’s allegations and dismissing the BVI Removal Application.

31.Mr Chu’s appeal against the BVI Removal Judgment was dismissed by the BVI CA by a judgment handed down on 3 July 2023 (“BVI CA Removal Judgment”).

B5.  This action

32.This action was taken out on 15 December 2021, just 3 weeks after the BVI Removal Judgment and a week after the BGAH Winding Up Order was made. Mr Chu sought to commence a double derivative action suing the JL Directors, on behalf of himself and other shareholders of PBM except Mr Lau.

33.Mr Chu alleges that the PBM Loan was not repayable on demand (being subject to an alleged Agreed Treatment and would be set off against part of the purchase price under an alleged Acquisition Agreement. Mr Lau had allegedly caused PBM to act in breach of the Agreed Treatment and Acquisition Agreement, thereby causing loss to PBM.

34.As against D2-D4 (being directors of PBM and 3 of the OSL JLs), it is alleged that they breached their duties as independent officers by taking a wholly partisan approach to the liquidation by favouring Mr Lau’s interest over Mr Chu’s. They had refused to implement Mr Chu’s proposed Splitting Arrangement (or “the Summary Disposal Proposal” referred to in the BVI Removal Judgment) to distribute the single asset owned by OSL (ie its share in PBM) equally between Mr Chu and Mr Lau. The JL Directors’ intention was to create work and profits for themselves, using part of OSL’s resources. They had procured PBM to petition for winding up of BGAH on the basis of Mr Lau’s preferred account of the treatment of the PBM Loan. In the course of OSL’s liquidation, D2-D4 as directors of PBM had acted in breach of their duties to PBM and/or dishonestly assisted D1 in his breach of duty to PBM.

35.By the DRASOC, Mr Chu intends to include a further allegation against Mr Greenwood, in that he had caused and procured PBM to enter into a Security Assignment Deed with PBM as chargor and OSL as lender dated 21 October 2022 (“Security Assignment Deed”). He did so against the interest of PBM and without regard to the interest of creditors of PBM (which was near insolvent), to benefit Mr Lau as funder of OSL’s liquidation, and ultimately benefit Mr Greenwood as liquidator of OSL. Mr Chu claims that these new allegations fall outside the scope of the Strike-Out Applications.

36.It is asserted that both PBM and OSL are presently under wrongdoers’ control. D2-D4 would not procure PBM to sue themselves or Mr Lau, their funder, so it is necessary for Mr Chu to commence this derivative action.

37.Mr Chu says that his case is corroborated by the evidence of third parties including Zhou Zhuoli and Ma Zhengguo.

C.  BVI REMOVAL JUDGMENT

38.There is a near overlap of allegations in the present action and the BVI Removal Application. With regard to D2-D4, I can do no better than to adopt the comparison table of Mr Joffe SC (leading Mr Justin Ho, and Mr Jonathan Ng), counsel for Mr Greenwood:

Present action (DRASOC)	BVI Removal Application
“70. …[D2-D4] have displayed a total disregard of Mr. Chu’s interests as: (ii) a creditor (through his company CK Assets Limited) and (ii) an equal shareholder of OSL (and an indirect shareholder of PBM), by:	“The [JLs] have displayed a total disregard of Mr Chu’s interests as: (i) a creditor (through his company CK Assets Limited) and (ii) an equal 50% contributory of OSL (and an indirect shareholder of PBM), by:
(1)  Damaging Mr. Chu’s interest in the joint venture business of [BGAH], which represents the only investment of PBM, by issuing the Statutory Demand against [BBGH], and later commencing HCCW 251/2019 [i.e. the HK Winding-up Proceedings];	(1)  Damaging his interest in the joint venture business of [BGAH], which represents the only investment of PBM, by issuing the Statutory Demand against [BGAH], and later commencing the [HK Winding-Up Proceedings];
(2)  Using Mr Chu’s resources to deal with any unmeritorious accusations raised by Mr Lau but objected by Mr Chu, such as launching HCCW 251/2019 [i.e. the HK Winding-Up Proceedings] on the basis of Lau’s preferred account of the treatment of the PBM Loan, even though it is directly contradicted by the 15/16 Dec 2015 Resolutions which Mr. Lau signed;	(2)  Using his resources to deal with any unmeritorious accusations raised by Mr Lau but objected by him, such as launching the [HK Winding-Up Proceedings] on the basis of Mr Lau’s preferred account of the treatment of the PBM Loan, even though it is directly contradicted by the 15/16 Dec 2015 Resolutions which Mr Lau signed;
(3)  Refusing to consider or pursue the proposed Splitting Arrangement without any good reason, which would have brought the winding-up of OSL to an immediate close without the need for further litigation and with a significant saving of time and cost;	(3)  Refusing to consider or pursue the Summary Disposal Proposal [i.e. the Splitting Arrangement (as defined in the ASOC)] without any good reason, which would have brought the winding-up of OSL to an immediate close without the need for further litigation and with a significant saving of time and costs.
(4)  Displaying bias in favour of Mr. Lau by actively pursuing Mr. Lau’s interest and creating work and profits for themselves, with an intention to benefit themselves to the prejudice of Mr. Chu who is interested in the assets of the Company.”[1] collectively, “Complaint 1A”.	Accordingly, the [JLs] have failed to act independently or properly discharge their duties as [JLs] and/or that their conduct is below the standard that may be expected of a reasonably competent liquidator, that they are unable to act independently given their siding with Mr. Lau’s interests…”[2]

39.In §65 of the BVI Removal Judgment, Wallbank J considered Complaint 1A in detail before declining to remove the OSL JLs.

40.Firstly, Wallbank J held that it was proper for the OSL JLs to investigate into Mr Chu’s alleged misfeasance and recover assets improperly diverted instead of adopting the Splitting Agreement proposed by Mr Chu.

“[65](1) Mr. Chu criticises the JLs (in what has become a constant refrain in these proceedings), that the JLs are refusing to consider or pursue his Summary Disposal Proposal [i.e. the Splitting Arrangement] without any good reason. I am satisfied and find that is not the case. The JLs have a good reason for not pursuing the so-called Summary Disposal Proposal at this point. I am also satisfied that they have considered it and that they do not think it appropriate at present. The JLs have an entirely reasonable belief that Mr. Chu has committed misfeasance in diverting considerable sums of money and business opportunities to himself and to his immediate family. Simply to split OSL’s asset in half and distribute a half each to Mr. Chu and Mr. Lau would be patently unfair, if it is that Mr. Chu has already helped himself to a significant part of the value which should be within the assets indirectly held through OSL but no longer is.

(2) …

(3) The Privy Council itself considered that it would in principle be proper and reasonable for liquidators to investigate Mr Chu’s possible misfeasance and recover any assets improperly diverted by him. I agree that it is perfectly proper, and indeed normal, for the JLs to carry out such investigations and attempt to recover possibly misappropriated assets. After all, this would be in the interests of all the contributories or members of the company in liquidation, including Mr Chu. If there has been such misappropriation by Mr Chu, the ultimate value of Mr. Lau’s and Mr Chu’s respective share will have been depleted thereby. It is proper for liquidators to seek to restore such value before moving on to a distribution.

(4) Counsel for Mr Chu provided no authority to support a proposition that in a solvent liquidation (if indeed this is a solvent liquidation, which has not yet been established), liquidators should simply distribute the assets without further investigations or proceedings lower down in the corporate structure intended to recover greater value. That would indeed be a surprising proposition. Ultimately, whether such investigations and proceedings should properly be taken is a question of degree. A cost–benefit consideration comes into it. So do the merits on the law and the facts. Clearly, liquidators do not have a brief to reel in every last cent of misappropriated funds at disproportionate cost. In any reasonably complex commercial situation, the Court would expect its office holders to seek and follow professional legal advice from appropriately qualified and experienced lawyers. The JLs say they have done so here, including at an appropriate senior and/or high level. I have no reason to doubt that evidence.

(5) Moreover, there is no requirement that in a solvent liquidation the assets of the company should be distributed in specie, which is what Mr. Chu says should happen here. It need hardly be said that the term “liquidate” derives from the notion of turning assets into money (and indeed for the best price reasonably obtainable). This is normally what liquidators do in both solvent and insolvent liquidations. In the usual course, liquidators should ultimately be able to report to the Court and to the stakeholders in the liquidation how much the liquidation estate is worth. Right now, since it remains unknown how much money has been misappropriated from OSL’s asset base and how much can reasonably be recovered – both matters which the JLs are still working on – the JLs can only say “we do not yet know”. That itself strongly indicates that any distribution is premature.

(6) Part of Mr. Chu’s complaint is that by charging to the liquidation estate costs properly attributable to PBM, the JLs are damaging his own financial interests. Instead, Mr. Chu considers that there should simply be a distribution (by way of a share split) and Mr. Lau will then be free to take whatever legal steps he wishes to take against Mr. Chu, at his own expense, not that of the liquidation estate. This argument ignores that it is, in general, perfectly proper for liquidators, as part of their work of liquidating a company, to take control of its subsidiaries and to ascertain and get in their assets, so that the liquidators can proceed to an orderly distribution. Indeed, liquidators need to be able to account to the Court and to stakeholders in the liquidation for an eventual shortfall in the value of the company’s assets. This is an important consideration. Liquidators can face significant monetary claims for errors, omissions and negligence if they are not able to do so.”

(underline added)

41.Secondly, Wallbank J ruled against Mr Chu on the question of the OSL JLs’ alleged bias and their decision to procure PBM to petition for winding up BGAH.

“[65](9) Mr. Chu’s allegations of bias ultimately fair no better. The picture Mr. Chu paints of the JLs acting partially towards Mr. Lau as their funder, to the exclusion of Mr. Chu, for the JLs’ own mercenary benefit, is a simplistic caricature. The fact of the matter is that there are only two protagonists here: Mr. Lau and Mr. Chu, and there is a binary choice whether or not the JLs should investigate and attempt to recover assets possibly misappropriated by Mr. Chu. Clearly, Mr. Lau would want this, and Mr. Chu does not. Thus, if the JLs, as part of their duties as officers of the Court, see a need to investigate Mr. Chu’s conduct and cause proceedings to be taken to recover assets as a result, it is all too easy to characterise – and perceive – the JLs to be siding with Mr. Lau against Mr. Chu, particularly where funds and information to pursue such steps derive from Mr. Lau. But what is missing in this characterisation is that the JLs have sought and followed professional legal advice in respect of the legal proceedings they have caused PBM to bring. That is a crucial aspect which reduces the likelihood of actual bias.

(10) On a more specific level, Mr. Chu contends that [BGAH] has an arguable defence to the winding up petition and that it is a result of the JLs’ bias in Mr. Lau’s favour and against Mr. Chu, and the JLs’ desire to earn fees, that the JLs are causing this petition to be brought. But it would be perverse for liquidators to desist from taking any legal action where a counterparty so much as raises an ‘arguable’ defence. Liquidators of any reasonably complex liquidation can be expected to obtain the assistance of professional legal, and other, advisors to help them weigh the merits of an eventual cause of action. This includes assessing evidence which Mr. Chu says goes against such a case, including documents signed by Mr. Lau and arguments he may have run in other proceedings. It moreover includes assessing findings of another court, albeit qualified ones, not intended to be relied upon in courts of other jurisdictions, that Mr. Lau had fabricated evidence. It is not for the JLs to justify at this stage their legal decisions, nor to disclose the legal advice they have thus far received. Indeed, this could jeopardize their claims in respect of Mr. Chu’s alleged misfeasance and misappropriations. It would be mistaken to proceed from a presumption that the JLs’ decision-making and advice obtained was somehow wrong. Whilst of course legal advice from an internationally renowned commercial law firm such as Messrs. Dentons might be incorrect, or otherwise vitiated (one is dealing with human beings after all and dishonest professionals can sometimes be found at every level), absent reason to believe otherwise, there is no grounds for assuming the JLs’ approach was anything other than competent and/or proper. Indeed, if PBM’s case is so weak and so readily answered by the points Mr. Chu makes, one is bound to ask why it has not been dismissed on a summary basis but remains ‘hard fought’ as Mr. Chu says…

(11) In the present case, the interests of Mr. Lau appear to be aligned with the interests of the JLs in seeking to investigate and remedy alleged misfeasance and alleged misappropriation on the part of Mr Chu. Such an alignment can be perfectly proper, particularly where, as here, the JLs face a binary choice whether or not to pursue possible misappropriations by Mr Chu. It does not mean the JLs are biased towards Mr. Lau against Mr Chu. Bias entails being swayed in making a decision by reasons other than the merits of the matter requiring consideration. In the words of Lord Phillips MR. in Re Medicaments and related Classes of Goods (No. 2), ‘an attitude of mind which prevents the judge from making an objective determination of the issues that he has to resolve’. There is no indication of such an attitude here that I can see.

(12) That Mr. Lau is the JLs’ funder does not take Mr Chu’s allegations of bias much further. The JLs are professional insolvency practitioners. Whilst it does regrettably sometimes happen that professionals of every discipline make work for themselves in order to generate fees, this is not the rule. As with the sanctioning of liquidators’ costs, the Court should start from the basis that court appointed liquidators and their staff are honest, rather than dishonest. Funding from a particular source does not necessarily make liquidators biased in favour of that source, in the same way that professionals do not as a rule conduct themselves in a manner that benefits themselves the most financially. In the present case, I am satisfied that a fair minded and informed observer in possession of all the facts presently before the Court would have no reason to conclude that the JLs have compromised their integrity.”

(emphases added)

42.Thirdly, Wallbank J was highly critical of Mr Chu’s motives.

“[16] … [there was] a motive on the part of Mr. Chu to obstruct further investigations and any procedures that could result in Mr. Chu having to account and eventually possibly restore value ultimately to OSL, in respect of assets appropriated to his own and his own family's benefit to the exclusion of Mr. Lau…

[65] (7) Yet Mr Chu urges, with much insistence, that the JLs should depart from this norm. The reason is not hard to see. Mr Chu has a patent self-interest in having a veil drawn over his alleged misfeasance, or at least to obstruct and delay as much as possible the day of reckoning. This self-interest appears to be stronger than Mr Chu’s interest as a member of OSL in restoration of the value of OSL’s asset base for the purposes of its liquidation. Mr Chu pretends he does not have such a self-interest, or rather, he is careful to skirt around this ‘elephant in the room’, but I am satisfied that that is the real reason behind Mr Chu’s Summary Distribution Proposal (and indeed behind this application as a whole).

…

(15) Mr. Chu says he has lost confidence in the JLs, including his own nominee Mr. Greenwood. That is easy for him to say, when he has an apparently strong self-interest in avoiding their scrutiny. Seen objectively, the picture is different. It is that the JLs appear to be coming steadily closer to concluding their efforts to recover monies for the liquidation estate, which is an outcome that Mr. Chu desperately seeks to avoid and forestall. There is no sign that the creditors have lost confidence in the JLs, nor the other contributory and the JLs' funder Mr. Lau. The Court has no reason to have lost confidence in them either.”

(underline added)

43.Mr Chu appealed against the BVI Removal Judgment. He sought leave to adduce further evidence with additional allegations against the OSL JLs, claiming that:

(1)  They caused OSL to enter into a facility agreement to lend a substantial amount of money to PBM, upon the assignment of PBM’s receivables in the liquidation of BGAH as a security in favour of OSL (a complaint similar to that in the DRASOC);

(2)  PBM, under the control of Mr Greenwood, refused to provide a copy of the facility letter or any explanation regarding the facility letter to Mr Chu, notwithstanding that Mr Chu is a 50% shareholder in OSL, and so has a direct interest in the liquidation;

(3)  Mr Greenwood admitted to making a false statement on oath to the Hong Kong Court; and

(4)  Mr Greenwood and Mr Bailey made an ex parte application for the examination of Mr Chu to the BVI Court which was set aside for material non-disclosure.

(collectively, “Complaint 1B”).

44.The BVI CA refused to grant leave for Mr Chu to adduce the new evidence and rejected Complaint 1B on the basis that such evidence would not probably have an important influence on the outcome of the BVI Removal Application (§§162-164 of the BVI CA Removal Judgment).

45.The BVI CA also refused to remove the OSL JLs. As held at §162 of the BVI CA Removal Judgment as follows:

“iii. … the Liquidators submitted that the subject loan and security arrangements are an extension of an existing loan facility arrangement between OSL and PBM which was entered into on 30^th November 2020. They further contended that this facility was previously sanctioned by the BVI Court which consequentially granted an order under seal. That application for sanction was apparently made on an ex parte basis and [Mr Chu] was not a respondent.

iv. Given that the Judge in the court below would have been fully aware of the underlying financing arrangements and was prepared to sanction the same on an ex parte basis the Liquidators argue that it is incongruous that the court considering an extension of that existing loan facility would have come to any different conclusion. Moreover, the Liquidators have represented that these financing arrangements were put in place by the Liquidators to allow for PBM to pursue litigation against its 49% investee, [BGAH], namely by way of a petition to wind up BGAH (the HK Petition)…

vi. … at paragraph 47 of the learned Judge’s Judgment he observed:

‘What is clear from the judgment of Justice Kaye, QC (Ag) is that there was a finding that the PBM loans were in fact loans to [BGAH]. Based on the fact that substantial sums of money are owed to PBM and exercising their obligations as director of PBM, a petition was issued on 23^rd August 2019 in the Hong Kong Special Administrative Court seeking the winding up of that entity. The Court had been informed by the JLs when seeking sanction for funding of potential litigation by OSL’s subsidiary.’ Emphasis added.

vii. Given the way the court below considered and opined on these matters (see paragraph 63 of the Judgment) and given the findings herein, I am not satisfied that the appellant has advanced any basis upon which this court can conclude that the Liquidators have acted improperly and should be removed from office…

viii. … Ultimately at the end of the financing arrangement tunnel is the HK Litigation in which the Liquidators seek to recover monies for the liquidation estate, which are alleged to have been misappropriated by [Mr Chu]. The Judge was satisfied that this was an outcome that [Mr Chu] would desperately wish to avoid and forestall. He clearly formed the view that [Mr Chu’s] complaints that the Liquidators failure to consult with or share information relevant to that endeavour carried no weight since it is Mr. Chu’s alleged misfeasance and misappropriations that the Liquidators are ultimately seeking to investigate and make financial recoveries in respect of, it stands to reason that the JLs do not want to give Mr. Chu knowledge and opportunities with which to frustrate the process…”

(underline added)

D.  LEGAL PRINCIPLES ON STRIKING OUT

46.The principles on striking out are trite. The Court will only make an order to strike out in a plain and obvious case. There should be no trial on affirmations. Disputed facts are to be taken in favour of the party sought to be struck out: Hong Kong Civil Procedure 2023, Volume 1, §18/19/4.

E.  ISSUE 1 – WHETHER PBM IS UNDER WRONGDOER’S CONTROL

E1.  Legal principles on derivative action

47.The principles on common law derivative action are well settled:

(1)  It is a fundamental principle of company law, expressed as part of the rule in Foss v Harbottle, that where a wrong has been done to a company, it is the company itself which is the proper plaintiff: Waddington Ltd v Chan Chun Hoo (2008) 11 HKCFAR 370 §11.

(2)  It follows that where a wrong is alleged to have been done to a company and a minority shareholder purports to bring a derivative action on the company’s behalf, it is incumbent on the shareholder (in the present case, Mr Chu) to show that the general “proper plaintiff” rule is displaced and that the case falls within the relevant exception: Waddington §12.

(3)  Multiple derivative actions are recognised and available under Hong Kong law. A multiple derivative action should be permitted to deal with cases where the wrongdoers who, through their control of the parent company also control its subsidiaries, defraud a subsidiary or sub-subsidiary, such that wrongdoer control precludes action by the company in which the cause of action is vested: Waddington, §67.

(4)  A derivative action is only permitted where it can prima facie be shown that: (a) there exists a viable cause of action or equitable claim vested in the company; (b) which, if made good, would establish a fraud on the minority; and (c) the alleged wrongdoers are in control of the company so as to enable them to stifle any proposed action against themselves. See Waddington §13.

(5)  The rationale for relaxing the usual rule that “a company wronged and no other should bring the action” is that, without such right to bring a derivative action, the grievance of the shareholders could not be aired and dealt with: Ever Joint (Holdings) Ltd v Nice Theme Ltd [2006] 4 HKLRD 516 §8.

(6)  A derivative action will not be available where a company is in liquidation. The rationale is that the company in liquidation, as well as its wholly-owned subsidiary, comes under the control of the court through the liquidator as an officer of the court and is no longer in the control of the wrongdoers and the decision whether to continue with the action should best be left to the judgment of an independent liquidator. Accordingly, in such circumstances, the “wrongdoer control” element is not fulfilled and the derivative action is liable to be struck out: Re Shun Kai Finance Co Ltd [2015] 2 HKLRD 264 (CA) §22; Jingang Group Investment Limited v Jaime Che [2021] HKCFI 948 §§5‑6; Shih-Hua Investment v Zhang Aidong [2018] HKCFI 1234 at §§35-37 per Harris J. This is due to the general principle that if another adequate remedy is available, the court will not allow the derivative action to proceed: Barrett v Duckett [1995] B.C.C. 362 at 367H, per Peter Gibson LJ.

(7)  A challenge to the plaintiff’s locus generally takes the form of an application by the relevant defendants to strike-out the claim or to have the Court determine as a preliminary issue that the plaintiff has no locus to sue on the company’s behalf: Waddington §14.

48.The courts administering laws with respect to bodies corporate will not allow their officers to be subject to an action in another court which is based on the conduct of such an officer in the discharge of duties of the office, whether right or wrong; the proper remedy is to apply to the court in the proceedings in which the court officer was appointed, and that if any wrong has been done by the officer, that court will grant the appropriate remedy: Sydlow Pty Ltd (in liq) v TG Kotselas Pty Ltd, Kotselas & Hamilton (1996) 20 ACSR 47 at p 54 per Tamberlin J.

E2.  Application of the legal principles

49.D2 and D3 are no longer in control of OSL and PBM.

50.Specifically, as regards D2, even on Mr Chu’s own case, D2’s role in the special committee was established solely to deal with the statutory demand issued by Mr Chu against PBM. It is not in dispute that the special committee has no power to control decisions made or to be made by PBM’s board in relation to other legal proceedings. D2 could not, as a matter of fact, have been a wrongdoer in control of PBM.

51.OSL is in liquidation and is currently controlled by independent liquidators as officers of the court under the supervision of the BVI court. PBM (a wholly owned subsidiary of OSL) is not presently in the control of a wrongdoer either: Re Sun Kai Finance; Jingang Group.

52.It is in the discharge of his duties as OSL JLs that Mr Greenwood and the other OSL Liquidator have become directors of PBM. If Mr Chu is aggrieved by an act, omission or decision of Mr Greenwood in the liquidation of OSL or, by reason of Mr Greenwood having control, PBM is prevented from pursuing any claims vested in it, his remedy lies the liquidation regime, ie to apply to the BVI Court to challenge the OSL Liquidators’ decisions: section 273 of the BVI Insolvency Act 2003; and/or to apply to remove them from their office. This is not a situation where Mr Chu is left without alternative remedy.

53.Having resorted to the BVI Court and BVI CA to seek to remove the alleged wrongdoers but failed, it is not open to Mr Chu to turn round to institute a derivative action. He simply has no locus to do so. This finding is fatal to present action.

F.  ISSUE 2 – WHETHER THE CLAIM IS PRECLUDED BY ISSUE ESTOPPEL AND ABUSE OF PROCESS, OR AMOUNTS TO A COLLATERAL ATTACK ON A FINAL DECISION OF A COURT

F1.  Legal principles

54.An issue estoppel prevents a party from asserting or denying, as against the other party, an issue which has been determined in a previous judgment: Capital Wealth Finance Company Limited v Lai Yueh-Hsing, HCA 686/2012 (unrep., 31 July 2015), A Chan J, §22. “The res judicata effect of a foreign judgment cannot be avoided by a plaintiff attempting to sue under a different system of law”: Spencer Bower and Handley, Res Judicata (5^th edn.), §8.28.

55.For an issue estoppel to arise, 3 conditions need to be satisfied:

(1)  The same question must have previously been decided;

(2)  The judicial decision which is said to create the estoppel must have been a final decision of a court of competent jurisdiction; and

(3)  The parties to the prior judicial decision (or their privies) must have been the same persons as the parties to the subsequent proceedings in which the estoppel is raised (or their privies).

See Company A v Company D [2019] HKCFI 367, §25, Mr Recorder Eugene Fung, SC; Zheng Zhengxin v Chan Chun Keung [2018] HKCFI 2284 at §30; Lo Kai Shui at §56 per Wilson Chan J.

56.“Privity” in this context refers to a relationship of “blood, title or interest”. A pragmatic guide to existence of privity of interest is that the required commonality is a direct interest in the subject matter of the litigation, a parallel or corresponding interest in that subject matter and not simply a financial interest in the result of the action. To that end, where the companies that are parties to the 2 sets of proceedings are wholly owned holding company and subsidiary such that they may be regarded as alter egos of each other, or as companies within the same group they have a direct interest in establishing the existence or otherwise of a matter which may impact the business or operations of the group, that would be sufficient to establish privity of interest for the purpose of abuse: Chan Benjamin Ki-Wood v Young Won Ken [2023] HKCFI 240 §52(4), Madam Recorder Eva Sit, SC.

57.Merely having some commercial interest in the litigation is insufficient to establish privity of interest. The corporate relationship between parent and subsidiary and financial interest cannot be sufficient to establish privity of interest. A mere commercial interest in the outcome is also insufficient: Standard Chartered Bank (Hong Kong) Ltd v Independent Power Tanzania Ltd [2015] EWHC 1640 at §§143-145 per Flaux J.

58.The supply of witnesses could not in any way make a party a privy: Kirin-Amgen Inc v Boeringer Mannheim GmBH [1997] FSR 289 (CA) at 309.

59.Issue estoppel applies to fundamental (not collateral) issues determined in an earlier proceeding which formed the basis of the judgment, and not as to evidentiary facts found in the course of determining the affirmative or negative effect of an issue: Spencer Bower and Handley, Res Judicata (5^th ed) at §§8.01 and 8.23.

60.The dismissal of an interlocutory application on procedural grounds or on the merits is not final and does not bar a further application: Spencer Bower and Handley, at §5.32.

61.Unless there is an issue estoppel, a judgment and factual finding of another court or tribunal in earlier proceedings is inadmissible. That is to ensure a fair trial in the specific sense that the judge of the subsequent case makes his own decision on the evidence and submissions presented to him without being influenced by the opinion of an earlier adjudicator. Capital Century Textile Company Limited v Li Dianxiao [2018] HKCFI 729 at §§23‑28.

62.A claim can be struck out for Henderson v Henderson abuse. The essence of the doctrine is that a party ought generally not to be permitted to raise in subsequent proceedings matters which that party could and should have raised in earlier proceedings: Ko Hon Yue v Chiu Pik Yuk (2012) 15 HKCFAR 72 §82. “Issue estoppels created by foreign judgments extend to questions that a party should have raised but did not”: Res Judicata §8.28.

63.The starting point is that the doctrine is founded on an abuse of process. It ought only to be applied when the facts are such as to amount to an abuse. Otherwise, there is a danger of a party being shut out from bringing forward a genuine subject of litigation. This abuse will usually take the form of the other party being “vexed”, “oppressed”, “unjustly harassed” or “unjustly hounded” by the subsequent set of proceedings; or the administration of justice is brought into disrepute: Ko Hon Yue §§83(1)-(4).

64.The court must bear in mind not just the parties before it in any particular litigation, but also the position of other litigants in the court process. The court must ensure that the resources of the court are distributed fairly: Ko Hon Yue §83(4).

65.For striking out on the basis of abuse of process,

(1)  The burden of establishing abuse rests upon the party who relies on the earlier decision and it is highly fact sensitive.

(2)  The jurisdiction will be engaged if it is shown to the satisfaction of the court that permitting a party to relitigate would either be manifestly unfair to the other party or would bring the administration of justice into disrepute. If either of these conditions is satisfied, there is no need to show any further special circumstances.

(3)  Relitigation based on substantially the same evidence would bring the administration of justice into disrepute and the jurisdiction can be invoked on that ground.

(4)  The exercise of this power is based on the jurisdiction of the court to prevent abuse of process, as it is in the public interest that there should be an end to litigation and judicial resources should not be wasted trying the same issue all over again.

(5)  A court should not deprive a litigant of his day in court lightly and should only exercise such jurisdiction by way of striking out in a plain and obvious case.

See Secretary for Justice v FTCW [2014] 1 HKLRD 849 §97; applied in Chan Benjamin Ki-Wood, §53, Madam Recorder Eva Sit SC.

66.The Court has jurisdiction to strike out collateral attacks as an abuse of process under the doctrine of issue estoppel or the wider doctrine of abuse under the Henderson v Henderson principle.

F2.  Issue estoppel

67.In gist, Mr William Wong SC (leading Ms Tinny Chan), counsel for Mr Chu, contends that the previous judgments concerned different subject matter from the present action and lacks finality. There is no issue estoppel in the present action.

68.Firstly, with regard to the BVI Winding-Up Judgment, Mr William Wong SC contends that the subject matter there was whether OSL should be wound up on the just and equitable grounds, when Mr Lau’s principal complaint was that OSL was deadlocked at both shareholder and director level. The BVI Court had to consider if there was an alternative remedy or whether to decline appointing liquidators. See §25 of the BVI Trial Judgment, Kaye J. It was in that context that Kaye J considered Mr Chu’s allegations of the Agreed Treatment and the Acquisition Agreement. Rather than finding for or against Mr Chu or Mr Lau on their factual accounts, Kaye J was concerned with setting out the differences between the Plaintiff and D1 in their perception of the treatment of the PBM Loan. At §101, Kaye J reiterated that the court did not have to decide everything about everything.

69.Whilst Mr Wong SC is correct with his view on the BVI Winding-Up Judgment in this aspect, he has overlooked A Chan J’s Strike‑Out Decision. That Decision has rejected Mr Chu’s arguments as to the PBM loan not being repayable, and the existence of the Alleged Treatment and Acquisition Agreement on the merits. There is issue estoppel as against Mr Lau.

70.Further, with the grant of the BGAH Winding Up Order, there is issue estoppel that the OSL JLs had wrongly petitioned for the winding up of BGAH. The fact that there is a pending appeal cannot undermine the fact that there was a prior final judgment which decided the issue on the merits.

71.Secondly, with regard to the BVI Removal Judgment, Mr William Wong SC contends that the subject matter was whether due cause was shown to remove the OSL JLs; which was different from the issue of whether the OSL JLs also breached their duties as directors of PBM in the present case; there was no cause of action involved and hence it was an interlocutory decision. The Judgment also lacks finality. Mr Chu is free to make another application to remove the OSL JLs.

72.Whether a judgment is interlocutory or final depends on the nature and substance of the ruling: Re Chime Corp Ltd (No.2) [2003] 2 HKLRD 945. The question is whether it finally decided on the existence of a cause of action or a discrete issue of law or of fact. What is important is not the stage of an action at which a matter is decided, but whether the decision is final in the sense that it cannot be reopened in the action except by way of an appeal. See Barnes, the Law of Estoppel, §9.31.

73.Applying these principles, the BVI Removal Judgment and BVI CA Judgment are plainly final judgments over the issue of misconduct of the OSL JLs and whether they should be removed.

74.This hearing is about issue estoppel, not cause of action estoppel. The BVI Removal Judgment affirmatively decided the issue of removal of the OSL JLs. Mr Chu was a party to the BVI proceedings. Mr Greenwood was nominated by Mr Chu himself: §65(15) of the BVI Removal Judgment. Having been twice denied by the BVI Court and BVI CA the relief of removal of the OSL JLs, Complaints 1A and 1B are plainly re-litigation, as is apparent from the comparison table prepared by Mr Joffe SC, and Mr Chu must be estopped.

75.Thirdly, Mr Chu contends that what he is seeking to do is not to remove the OSL JLs but to sue the directors of PBM, a company that falls within the jurisdiction of Hong Kong. He relies on §74 of the BVI CA Removal Judgment to show that even the BVI CA acknowledged that “while it is clear that the [OSL JLs] are subject to the supervision of the BVI Court, it is equally clear that conduct of the directors of PBM is governed by Hong Kong company law and that board is required to act in the interests of that company.”

76.Such contention must be rejected because:

(1)  The JL Directors took up the appointment only because they were OSL JLs.

(2)  As stated in §5 of the BVI Removal Judgment, Mr Chu alleged that, by reason of the Complaints, OSL JLs should be removed because they breached their duties as liquidators, that their conduct was below the standard of reasonably competent liquidators, that the liquidators’ interest conflicted with their roles as liquidators and/or that there was some other reason for their removal.

(3)  The Complaints against D2-D4 were not limited to their role as OSL JLs but also their role as PBM’s directors in petitioning for the winding up of BGAH (§2 of the BVI Removal Judgment). Therefore, it cannot be suggested that the BVI Removal Judgment did not concern D2-D4’s conduct as PBM’s director or that it was not the issue decided by the BVI Court. Indeed, it would be surprising that if the BVI Court had considered D2-D4 to have breached their duties as PBM directors that they had not misconducted themselves as OSL JLs.

(4)  It was an essential step in the ruling that there was no due cause to remove the OSL JLs that the BVI Court rejected Mr Chu’s Complaints and held that D2-D4 (whether in their capacity as an OSL JL, or PBM’s directors) had not committed any misconduct or wrongdoing; and

(5)  BVI CA was “satisfied that there is a credible basis for the Judge’s rejection of [Mr Chu’s] arguments. The [BVI Removal Judgment] reflects that he was fully aware of each of the Appellant’s complaints and it is clear that he obviously felt there was little merit in them.” (§129 of the BVI CA Removal Judgment).

77.Fourthly, Mr Chu had tried to advance his latest allegations as regards the Security Assignment Deed (Complaint 1B) when he sought leave to adduce new evidence on his appeal against the BVI Removal Judgment. BVI CA refused leave, holding that it was not satisfied that adducing evidence in the appeal could have any likelihood of influencing the decision of the lower court or the BVI CA (§162 of the BVI CA Removal Judgment). He is estopped from raising the same now.

78.Fifthly, Mr William Wong SC contends that determination of a winding up petition does not necessarily give rise to issue estoppel as a liquidator may go behind a judgment against the company in his adjudication of a proof of debt: Dayang Marine Shipping Co., Ltd v Asia Master Logistics Ltd [2020] 2 HKLRD 423 at §§72-76. The procedural nature of the making of a winding up order does not necessarily make any final adjudication: see for example Parmalat Capital Finance Ltd and Ors v Food Holdings Ltd [2008] UKPC 23 at §8 per Lord Hoffmann.

79.I am unable to agree. A decision by the winding up court may give rise to binding finding capable of supporting an estoppel in relation to the issue decided. A liquidator going behind a judgment against the company in his adjudication of the proof of debt is a special power available to liquidators where there is a possibility of fraud, collusion or miscarriage of justice. It cannot sensibly be suggested that because of existence of this power, no judgment against a company which is subquently wound up may be regarded as having determined a dispute. See Re Lam Kwok-Hung Guy Lam [2022] 4 HKLRD 793 at §§69 and 70, per G Lam JA.

80.A Chan J rejected BGAH’s case as being “so full of holes to be credible or bona fide”, ie Mr Chu failed to meet the low threshold of showing a bona fide dispute on substantial ground with precise evidence concerning issues on the PBM Loan, the Agreed Treatment and the Acquisition Agreement. Unless overturned on appeal, this is a binding finding.

81.Sixthly, Mr Chu contends that no issue estoppel arises from the HK Winding-Up Proceedings because he was not a party to A Chan J’s Strike‑Out Decision but merely a witness in support of BGAH.

82.Further, mere shareholding, let alone indirect shareholding, is insufficient and the Court does not lightly pierce multiple corporate veils. A corporate veil is only pierced in the limited circumstance where a person under an existing legal obligation or liability or subject to an existing legal restriction deliberately evades or deliberately frustrates the enforcement of the same by interposing a company under his control: Lord Sumption in §§34-35 of Prest v Petrodel [2013] 2 AC 415. Mr William Wong SC submits that the alleged relationship between Mr Chu and Beibu Gulf clearly does not fall within this scenario.

83.These contentions principally affect Mr Lau, as D2-D4 do not rely on the HK Winding-Up Proceedings for issue estoppel. Mr Chu and Mr Lau have always been the main protagonists in the ongoing disputes between them. Mr Chu held or controlled 51% of BGAH through 2 corporate vehicles. He also held or controlled the remaining interests in BGAH indirectly through OSL and PBM, with Mr Lau being the other party holding such interests indirectly. Mr Chu was the key witness in BGAH Strike-Out Summons. He clearly had a personal interest in advancing his case based on the Agreed Treatment and Acquisition Agreement so as to avoid a winding-up order being made against BGAH and hence avoid exposure of his misfeasance. His and BGAH’s positions in that proceeding were aligned. He truly had privity of interest in the HK Winding-Up Proceedings and had exercised the full opportunity to advance his case there.

84.For the reasons given in this sub-section, there is plainly issue estoppel that operates against Mr Chu.

F3.  Henderson abuse

85.Even if the BVI Removal Judgment had not determined that D2-D4 had breached their duties as PBM’s director, Mr Chu’s claim should still be struck out on the alternative ground of Henderson abuse. The Complaints against the OSL JLs as JL Directors could and should have been raised in the BVI Removal Application as part of the grounds to show that they had breached their duties as OSL JLs. To allow Mr Chu to make the Complaints in the present action is an abuse of process in that D2-D4 will be vexed twice by the same allegations.

86.Apart from the passages cited in §42 above, the abusive litigation conduct of Mr Chu has been criticized by Wallbank J.

(1)  In §73 of the BVI Removal Judgment, it was stated that:

“Mr. Chu has launched a number of applications, rehearsing iterations of his same complaints, with the clear goal of ending or stalling the liquidation and the JLs’ investigations, and whilst this requires the JLs to expend finite resources of time and money to the detriment of their work in recovering value for the liquidation estate, the JLs and Mr Lau are protected by the doctrine of res judicata/issue estoppel.” (underline added)

(2)  At the hearing on 18 May 2022, Wallbank J again remarked that:

“It is also abundantly clear that Mr Chu appears to have taken every single opportunity to oppose the making of this winding up order of Ocean Sino Limited and to oppose the more probing type of administration of the company estate which the liquidators have proposed. Mr Chu has, of course, launched a number of applications in this Court designed, it would appear… designed to derail the liquidation, understandably.”

87.In the decision in respect of the appointment of BGAH’s liquidators dated 13 January 2023 at §33, Master Rita So also accepted that the present action is an “[attempt] from Mr Chu’s camp to disrupt the OSL liquidators’ investigations at all costs.” [3]

88.The present action taken out just one week after the BGAH Winding Up Order is but another abusive attempt of Mr Chu to vex D1-D4.

F4.  Collateral attack on previous judgments

89.Complaint 1A is a collateral attack on the BVI Winding-Up Judgment, BVI Removal Judgment, BVI CA Removal Judgment, and A Chan J’s Strike-Out Decision and BGAH Winding-Up Order.

90.Complaint 1B, the allegation that D2-D4 has acted improperly in rejecting Mr Chu’s Splitting Arrangement, being biased in favour of Mr Lau, petitioning for BGAH’s winding up and entering into the Security Assignment Deed are collateral attacks on the BVI Removal Judgment, BVI CA Removal Judgment and A Chan J’s Strike-Out Decision and BGAH Winding-Up Order.

91.Mr William Wong SC invites this Court to consider the evidence in relation to the Splitting Arrangement to show that there are merits in the appeal. With respect, this Court will not act as appeal court. The suggested consideration of the evidence is precisely what the Court should not do since there are prior final judgments concerning Mr Chu’s factual matrix already.

92.In my view, this action is a clear example of a scandal to the administration of justice if Mr Chu were allowed to relitigate by changing the form of the proceedings into a double derivative action and set up the same Complaints for breach of duties against D1-D4. It is particularly egregious given the previous judicial criticisms against Mr Chu for making attempts to frustrate the OSL JLs’ investigations into his alleged misfeasance.

G.  ISSUE 3 – WHETHER THE CLAIM IS FRIVOLOUS OR VEXATIOUS, WITHOUT PROPER EVIDENTIAL FOUNDATION

G1.  Legal principles

93.The court’s power to strike out a pleading can be exercised where it is plain and obvious that the case pleaded “simply has no factual basis”, or “has not a solid basis capable of proof, but that the story told in the pleadings is a myth, … and has no substantial foundation”, or presents “a tissue of improbabilities which ought not to be sent to proof”. If a plaintiff pleads as a fact something which can clearly be shown to be incontrovertibly false, on an application to strike out on this basis the court is not bound to accept the allegation as true and to proceed on a fictional basis: Chinachem Charitable Foundation Ltd v Chan Wai Tong Christopher [2022] HKCA 1907 §6(1).

94.This power is to be exercised with the greatest care, lest the plaintiff be wrongly deprived of his right to a trial. It is a jurisdiction which ought to be very sparingly exercised, and only in very exceptional cases. Its exercise is not justified merely because the story is highly improbable, and one which it is difficult to believe could be proved: Chinachem §6(2).

G2.  Application of the legal principles

95.Arising from the issue estoppel, Mr Chu is debarred from suing Mr Lau on the issues concerning the PBM Loan, the Agreed Treatment and the Acquisition Agreement.

96.Arising from the issue estoppel under the BVI Removal Judgment, BVI CA Judgment, Mr Chu is debarred from asserting in this action that D2-D4 have acted in breach of their duties (as JLs or directors) by adopting a wholly partisan approach by favouring Mr Lau’s interest over Mr Chu’s or in breach of D2’s director’s duties owed to PBM. Allegations were found not to be established and the BVI Courts have concluded that the OSL JLs had not compromised their integrity.

97.Also arising from issue estoppel over the BGAH Winding-Up Order, Mr Chu is debarred from complaining about the JL Directors’ decision to wind up BGAH.

98.Likewise, Mr Chu is barred by issue estoppel under the Privy Council Judgment from re-opening the issue of the Splitting Arrangement. The Privy Council found that the Splitting Arrangement did not appear on its face to be as suitable as winding-up of OSL, and that such Splitting Arrangement would not achieve a clean break between P and D1 (see §67).

99.D2-D4 have further explained that after Mr Chu proposed the Splitting Arrangement in his letter to the JLs dated 8 September 2017, the JLs had invested considerable time and efforts to understand and evaluate the viability of the Splitting Arrangement. However, they had not received sufficient details from Mr Chu despite multiple requests, nor had they sufficient and adequate information to evaluate the viability of the Splitting Arrangement. The JLs considered that the Splitting Arrangement fell substantially short of a solution to the deadlock between Mr Chu and Mr Lau.

100.In these circumstances, Mr Chu cannot be allowed to launch any claim against D2-D4 once again in Hong Kong based on their refusal to accede to his Splitting Arrangement.

101.Specifically as regards D2, at the time the BVI Removal Application was made, D2 was sued as one of the OSL JLs. By the time the appeal was lodged by Mr Chu against the BVI Removal Judgment, D2 had ceased to be an OSL JL by 4 December 2020 and a director of PBM by 21 December, well before the commencement of the present action. D2’s current role in PBM is a member of a special committee set up for the purpose of dealing with a statutory demand against PBM, which is far removed from controlling PBM or OSL.

102.In the premises, the claim against all Defendants is frivolous or vexatious and has no proper evidential foundation and ought to be struck out.

H.  ISSUE 4 – WHETHER THERE ARE OTHER GROUNDS TO CONTEST THE APPLICATIONS

103.Mr William Wong SC invites the Court to consider “fresh evidence” and the conduct of Mr Lau and his associates.

104.The “fresh evidence” from Zhou Zhuoli (“Zhou-affirmation”) and Ma Zheng Guo (“Ma‑affirmation). Those 2 witnesses were senior management of Guangxi Beibu Gulf International Port Group Ltd, the shareholder of BBGH.

105.However, the Hong Kong Court of Appeal has unequivocally held that the Zhou-affirmation could have been obtained and adduced by reasonable diligence before the hearing of the Strike-out Summons before A Chan J. The Court of Appeal held that it was not admissible and did not have an important result on the appeals against A Chan J’s Strike-Out Decision and A Chan J’s Winding-Up Judgment because Zhou did not have personal knowledge of the matters prior to 2014 and her evidence about the meetings in December 2015 added nothing.

106.Mr William Wong SC claims that Ma-affirmation is entirely fresh. Ma was present at the December 2015 Meeting. Her evidence merits consideration by the Court and cross-examination at a trial. With respect, the fact that there is new evidence does not justify re-litigation of a decided issue when there is nothing close to fraud or collusion on the part of the Defendants.

107.With regard to conduct, Mr William Wong SC contends that it lies ill in the Defendants’ mouths to refer to various other proceedings involving or relating to the parties in an attempt to portray Mr Chu as a vexatious litigant when both Mr Chu and Mr Lau are equally to blame for the proliferation of litigation between parties. The Defendants have had negative findings made against them as well. For example:

(1)  In the BVI Winding-up Proceedings, Mr Chu successfully set aside an ex parte examination order obtained by Mr Lau as one of the joint liquidators (“Setting Aside Application”), on the grounds that it was “oppressive” to Mr Chu and that there had been material non-disclosure of various matters pertaining to the factual and legal bases of the application. Subsequently, Mr Greenwood even lied in the Hong Kong Winding-up Proceedings about his attendance of the hearing of the Setting Aside Application;

(2)  Mr Lau’s abuse of process by “the pursuit of a legal action based on fabrication of facts is an abuse of the court’s process”: HCA 2562/2014, DHCJ Winnie Tsui;

(3)  Mr Lau’s subordinates lodged a final appeal concerning contempt of court in FACV 6/2022 but was rejected by the Court of Final Appeal as not only in conflict with principle, but also not supported by law; and

(4)  Mr Yen’s actions as a liquidator have received scathing criticisms of the Court in unrelated proceedings in Re Luen Tat at §§51, 73, 80, 102, 129 and 131.

108.With respect, the findings of misconduct of the Defendants in other proceedings are irrelevant to the causes of action in the present action and certainly would not undermine the impropriety of Mr Chu’s own abuse of process in the present case.

109.Given the reasons in Section F, it is manifestly unfair that (i) D2-D4 should be required to expend finite resources of time and money to defend the same substantive Complaints raised by Mr Chu to the detriment of the liquidators’ work in recovering value for the liquidation estate; and (ii) Mr Chu should be able to relitigate the matter against the Defendants based on substantially the same evidence (as he had given in both the BVI Removal Application and the HK Winding-Up Proceeding). This would undoubtedly bring the administration of justice into disrepute and would be an unfair distribution of limited judicial resources.

I.  CONCLUSION

110.Even proceeding on the basis of the RASOC, it is plain and obvious that Mr Chu’s claim is still liable to be struck out. In such circumstances, the application to re‑amend ought to fall as well.

111.Cost should follow the event and be borne by Mr Chu in respect of all summonses, to be summarily assessed, with certificates for two counsel. Given that the present action is one of a series of Mr Chu’s abusive conduct, the costs should be on indemnity basis. I make an order nisi accordingly.

112.I thank counsel for their assistance.

Mr William Wong SC & Ms Tinny Chan, instructed by Sit, Fung, Kwong & Shum, for the Plaintiff

Mr Anson Wong SC and Mr Lai Chun Ho, instructed by DLA Piper Hong Kong, for the 1^st Defendant

Mr Tommy Cheung, instructed by Reynolds Porter Chamberlain, for the 2^nd Defendant

Attendance of the 3^rd Defendant is excused

Mr Victor Joffe SC, Mr Justin Ho & Mr Jonathan Ng, instructed by Dentons Hong Kong LLP, for the 4^th Defendant