Rajesh Kishor Mehta v. Vijay Kirtilal Mehta and Others

HCA 411/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 411 OF 2006

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BETWEEN

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Before: Recorder Rimsky Yuen, SC in Chambers

Date of Hearing: 20 November 2006

Date of Decision: 13 April 2007

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D E C I S I O N

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1.This is a derivative action brought by the Plaintiff on behalf of the 2^nd, 3^rd and 4^th Defendants (collectively the “BVI Companies”).  The Plaintiff’s claim was, however, overtaken by subsequent events and the key disputes between the parties when this matter came before this Court are whether this action should be stayed or struck out and how the costs previously incurred should be dealt with.

Background

2.The 1^st Defendant is the Plaintiff’s uncle.  Prior to the appointments of liquidator referred to below, they were the only directors of each of the BVI Companies.  They are also the only registered shareholders of each of the BVI Companies, each of them holding 50% of the shares the BVI Companies.

3.The 5^th Defendant (“VRL”) is a private limited company incorporated in Hong Kong.  By reason of an agreement made in March 2004, VRL became entitled to a sum of around US$40 million by way of a settlement in respect of certain legal proceedings not relevant to this action.  In the rather voluminous affidavits lodged before this Court, there are allegations and cross-allegations concerning this settlement and the handling of the said sum of US$40 million.  For the present purpose, it is not necessary to go into the details of the underlying factual disputes.  Suffice it to say that the settlement money appears to be one of the principal assets of VRL.

4.The BVI Companies are the registered shareholders of VRL in that the 2^nd, 3^rd and 4^th Defendants respectively holds 49.9%, 49.8% and 0.01% of the shares in VRL.  The remaining shareholders of VRL are Rashmi Mehta and Prabodh Mehta, who each holds 0.1% of the shares in VRL.  The BVI Companies’ shareholdings in VRL constitute their sole assets.

5.On 14 December 2005, the 1^st Defendant held shareholders meetings in London for the BVI Companies (collectively the “BVI Shareholders Meetings”) and the following resolutions were, amongst others, passed (collectively the “BVI Resolutions”):

(1)     that the company would use its shareholding in VRL to take whatever necessary steps to take control of the management and affairs of VRL for the purposes of tracing and collecting in all the assets of VRL, including taking proceedings in any part of the world, so that the assets of company might be realized and distributed;

(2)     that the 1^st Defendant be appointed and authorized for and on behalf of the BVI Companies to exercise all their rights as shareholders of VRL and to take all steps referred to in (1) above.

6.Basing upon the BVI Resolutions, the 1^st Defendant issued notice dated 25 January 2006 to convene an extraordinary general meeting of VRL to be held in Hong Kong on 28 February 2006 (“Intended EGM of VRL”) as the authorized representative of the BVI Companies.  This notice provided for the removal of three directors from the board of VRL, and the appointment of two directors in their place.  It is the Plaintiff’s case that the two proposed directors were the nominees of the 1^st Defendant.

7.The Plaintiff contended that the BVI Shareholders Meetings and the BVI Resolutions were invalid and of no effect and therefore the 1^st Defendant was not validly appointed or authorized to act on behalf of the BVI Companies.  It is also the Plaintiff’s case that the notice calling for the Intended EGM of VRL was invalid since the 1^st Defendant did not have any authority to issue the notice on behalf of the BVI Companies.

8.On 24 February 2006, the Plaintiff issued the Writ in this Action against the 1^st to 4^th Defendants and claimed, inter alia, the following relief:

(1)     a declaration that the BVI Resolutions are invalid, void and of no effect;

(2)     a declaration that the 1^st Defendant has no authority to act on behalf of the BVI Companies in their capacity as shareholders of VRL, and in particular, has no authority to act on behalf of the BVI Companies in relation to the Intended EGM of VRL;

(3)     an injunction to restrain the 1^st Defendant from acting on behalf of the BVI Companies in any dealings or matter concerning VRL and in particular in respect of the Intended EGM of VRL.

9.On the same date when this Action was commenced, the Plaintiff applied for and was granted an interim injunction against the 1^st Defendant restraining him from acting on behalf of the BVI Companies in respect of any dealings concerning VRL and in particular in relation to the Intended EGM of VRL (“Injunction”).  A sealed copy of the Injunction was served on Messrs. Haldanes under cover of a letter dated 25 February 2006.  By a letter dated 27 February 2006, Messrs. Haldanes informed the Plaintiff’s solicitors that they had instructions to accept service on behalf the 1^st Defendant.

10.By a Summons dated 27 February 2006, the Plaintiff applied for a continuation of the Injunction.  On the other hand, by a Summons dated 13 April 2006, the 1^st Defendant applied to stay this Action on the ground that the High Court in the British Virgin Islands (“BVI”) is the natural and appropriate forum for resolving the issues in this action.

11.Subsequently, by an Order dated 9 June 2006, the Plaintiff was granted leave to join VRL as the 5^th Defendant.  Consequential upon such joinder, both the Writ and the Statement of Claim were amended on 13 June 2006.  In addition to the original relief, the Plaintiff claimed a declaration that the notice in respect of the Intended EGM of VRL is invalid and of no effect and also an injunction to restrain VRL from acting upon any instruction or representation based on the authority said to have been granted to the 1^st Defendant under the BVI Resolutions.

12.On 11 July 2006, the 1^st Defendant issued proceedings in the BVI seeking the appointment of a liquidator for each of the BVI Companies.  On 10 November 2006, the BVI Court allowed the applications and appointed Mr. Andrew Bickerton as the liquidator for each of the BVI Companies.  The BVI Court held that the BVI Companies are hopelessly deadlocked and there is a total lack of trust and confidence between the two directors (i.e. the Plaintiff and the 1^st Defendant) such that the BVI Companies have ceased to function effectively or at all.

13.Following the decision by the BVI Court, the 1^st Defendant issued the Summons dated 14 November 2006 whereby he applied to strike out this action or alternatively the claim against the 1^st Defendant and for his costs of this action.

The Questions for Determination

14.In light of the above background, the key questions that require determination by this Court are these:

(1)     whether this action, or alternatively the Plaintiff’s claim against the 1^st Defendant, should be struck out since a liquidator has been appointed for each of the BVI Companies;

(2)     if this action is to be struck out as contended by the 1^st Defendant (or to be stayed, as contended by the Plaintiff), what should be the appropriate costs order in respect of the costs previously incurred by the parties.

1^st Defendant’s Summons for Striking Out

15.As stated above, the BVI Court appointed a liquidator for each of the BVI Companies on 10 November 2006.  Following such appointments, the Plaintiff cannot continue this derivative claim.  In Victor Joffe, Minority Shareholders: Law, Practice and Procedure (LexisNexis UK) (2^nd edn.), the position is explained as follows (para. 1.89, at p. 27):

“Where a company is in liquidation, a derivative claim cannot be brought by a minority shareholder.  The reason lies in the nature of the derivative claim as a procedural device which enables proceedings to be brought on behalf of the company notwithstanding that it is under the control of persons who have committed or acquiesced in the wrongdoing.  ‘But once the company goes into liquidation the situation is completely changed, because one on longer has a board, or indeed a shareholders’ meeting, which is in any sense in control of the activities of the company of any description, let alone its litigation ...... the liquidator is the person in whom that right is vested’.  In these circumstances, the reason for any exception to the rule in Foss v Harbottle disappears.”

See also: Ferguson v Wallbridge [1935] 3 DLR 66 (Privy Council), Fargro Ltd. v Derek Godfroy [1986] BCLC 370 (Walton J.) and Ever Joint (Holdings) Ltd. v Nice Theme Ltd., unrep., HCA No. 2153 of 2005 (8 November 2006) (Deputy High Court Judge Gill) (para. 8 & 16-20).

16.The parties do not dispute the law as expounded in these authorities.  They, however, differed on what should be the appropriate order to make.  The 1^st Defendant applied to strike out this action or alternatively the Plaintiff’s claim against the 1^st Defendant.  The Plaintiff, on the other hand, submitted that this action should be stayed.

17.In principle, both options contended by the Plaintiff and the 1^st Defendant are open to this Court.  In Fargro Ltd. v Godfroy (above), Walton J. observed (at p. 374j) that a derivative action could properly be struck out when the company on whose benefit the action was brought went into liquidation.  In Ever Joint (Holdings) Ltd. v Nice Theme Ltd. (above), Deputy High Court Judge Gill ordered a stay of the derivative claim so that the liquidator could decide whether to continue with the claim against the former directors for breach of fiduciary duties concerning alleged misappropriation of company assets.  In Zempilas v JN Taylor Holdings Ltd. (in liq.) (No. 6) (1991) 5 ACSR 28, Debelle J. similarly ordered a stay so that the liquidator could take over the claim against the former directors for damages.

18.The facts and the nature of the Plaintiff’s claim in the present case are different from those in Ever Joint (Holdings) Ltd. v Nice Theme Ltd. (above) and Zempilas v JN Taylor Holdings Ltd. (in liq.) (No. 6) (above).  In the present case, the gist of the Plaintiff’s claim is to prevent the 1^st Defendant from acting as the representative of the BVI Companies so as to gain control over VRL.  Although there is a claim for breach of fiduciary duty against the 1^st Defendant, it is clear from paragraph 11 of the Amended Statement of Claim that the basis of this claim is also grounded on the challenge against the BVI Resolutions and the 1^st Defendant’s attempt to gain control over VRL.

19.Following the appointment of a liquidator for each of the BVI Companies, the substratum of the Plaintiff’s claim is gone.  Irrespective of whether the 1^st Defendant was right or wrong in seeking to gain control over VRL by passing the BVI Resolutions, it was the 1^st Defendant who applied to the BVI Court to place the control of the BVI Companies in the hands of a liquidator.  Once appointed, the liquidator takes over the control of the BVI Companies and thus, albeit indirectly, the control of VRL.  Approached this way, I cannot see any need for the liquidator of the BVI Companies to continue with this derivative claim against the 1^st Defendant.  In any event, although this Action was commenced in February 2006 and the appointments of liquidator were made in November 2006, there is no indication that the liquidator of the BVI Companies is interested to take over these proceedings.  In the circumstances, the appropriate order to make in this case is to strike out the Plaintiff’s derivative claim.  It follows that the 1^st Defendant should (subject to the matters dealt with below) have the costs of and occasioned by the 1^st Defendant’s Summons dated 14 November 2006.

20.Since I have decided to strike out the Plaintiff’s claim, strictly it is not necessary to decide the Plaintiff’s application to continue the Injunction and the 1^st Defendant’s application to stay this action on the ground of forum non conveniens.  However, since there remain the question of costs, these two applications will be considered in the context of which party is entitled to the costs incurred prior to the striking out. 

Costs - The Parties Submissions

21.On the question of costs, the 1^st Defendant’s contention is two-fold.  First, it is argued that costs should follow the event if this Court decides to strike out the Plaintiff’s claim.  In support of this primary contention, Mr. Jonathan Harris S.C., appearing for the 1^st Defendant, relied on Order 62, rule 3(2) as well as the authorities of Inchroy Credit Corp Ltd. v Cheung Man Cheung [1991] 2 HKC 619 (especially per Kaplan J. at p. 623E-F) and Trend Publishing Ltd. v Vivien Chan & Co. (a firm) [1996] 2 HKLR 227 (especially per Keith J. at p. 231E-F).  Second, as a fall back position, Mr. Harris S.C. accepted that this Court would have to consider the 1^st Defendant’s application for stay and the Plaintiff’s application to continue the Injunction if this Court does not see fit to apply the general rule that costs should follow the event.

22.The Plaintiff did not accept that costs should follow the event.  Mr. Robert Whitehead S.C., appearing for the Plaintiff, highlighted the fact that the Plaintiff did not apply to discontinue his claim and invited this Court to consider whether the 1^st Defendant would have been able to succeed in his stay application.  In addition, relying on the authority of Brawley v Marczynski [2002] 4 All ER 1060 (per Longmore LJ at p. 1065b-c), Mr. Whitehead S.C. submitted that there should be no order as to costs if it is unclear as to whether or not the 1^st Defendant and the Plaintiff would have succeeded in their respective applications.

23.The Plaintiff and the 1^st Defendant aside, the only other party who appeared before this Court is VRL (i.e. the 5^th Defendant).  Apart from filing the Affidavit of Charu Mehta for the purpose of answering certain allegations made by the 1^st Defendant concerning the underlying factual dispute, VRL has adopted (and in my view rightly) a neutral stance.  Mr. Charles Manzoni, who appeared for VRL, submitted that either the Plaintiff or the 1^st Defendant should pay VRL’s costs since the disputes in this action are only disputes between the Plaintiff and the 1^st Defendant and that VRL is only joined so as to ensure that it would be bound by the Injunction and all future Court Orders.

24.Through the good sense between Mr. Whitehead SC and Mr. Harris SC, it was agreed that should the Court see fit to make no order as to costs between the Plaintiff and the 1^st Defendant, the costs incurred by VRL should be equally paid by the Plaintiff and the 1^st Defendant.

Costs – The Proper Approach

25.In this case, I do not think the 1^st Defendant’s primary contention on costs is correct.  The only ground relied on by the 1^st Defendant in support of its striking out application, which is accepted by this Court, is that a liquidator has been appointed for each of the BVI Companies.  There is no suggestion that the Plaintiff did not have any cause of action prior to the appointments of liquidator.  In other words, it is the appointments of liquidator, which only took place after the commencement of this action, that rendered the Plaintiff unable to continue this derivative claim.  In the circumstances, it does not necessarily follow that the 1^st Defendant should have all his costs upon the striking out of the Plaintiff’s claim.

26.Although Order 62, rule 3(2) provides that costs should generally follow the event, it goes on to provide that some other order should be made as to the whole or any part of the costs if the Court thinks appropriate.  Further, both Inchroy Credit Corp Ltd. v Cheung Man Cheung (above) and Trend Publishing Ltd. v Vivien Chan & Co. (a firm) (above) relied on by the 1^st Defendant are authorities concerned with discontinuance of action (which involved consideration of Order 22, rules 2 and 3 and also Order 62, rule 10(1), R.H.C.). Although the appointment of a liquidator for each of the BVI Companies in a way rendered the Plaintiff’s derivative claim academic, the Plaintiff has not applied for discontinuance and the Plaintiff was entitled not to do so.

27.In Ta Tung China & Arts Ltd. v Fontana Restaurant Ltd. [1999] 1 HKLRD 404, Mortimer VP expounded as follows (at pp. 406I-407A):

“There is no doubt that there are two ways in which a party can have the matter of costs determined if the liability issues in the action have become academic.  First, he may apply for leave to discontinue the action and ask for the costs to be determined. .......

The second way in which this issue can be resolved is for the parties to go to trial and to have the costs dealt with after trial.  Of course, the issues on such a trial would be extremely limited. ......”

28.In the same case, Godfrey JA observed as follows (at p. 407F-G):

“Where a plaintiff seeks to recover costs against a defendant in an action in which the substantive issues have been determined in one way or another before the trial, the only way which the plaintiff can recover his costs (if the defendant refuses to pay them) is to bring the action to trial for the purpose of doing so.  The issues at the trial will be limited and no additional expense should be incurred by adopting that course .....”

29.In light of the above passages quoted from Ta Tung China & Arts Ltd. v Fontana Restaurant Ltd. (above) and in the absence of an application by the Plaintiff to discontinue this action, the correct approach in this case is to consider the likely outcome of the 1^st Defendant’s stay application on the ground of forum non conveniens and the Plaintiff’s application to continue the Injunction.  In this regard, see also Re Super Deluxe International Ltd., unrep., HCCW No. 186 of 2001 (3 June 2003), per Kwan J. at para. 2-13, and Scott Baker J.’s observation in Boxall v Waltham Forest London BC [2000] All ER (D) 2445 as quoted by Longmore LJ in Brawley v Marczynski (above) (at pp. 1065h-1066b).

30.In considering the 1^st Defendant’s stay application and the Plaintiff’s application to continue the Injunction, I do not think the appointments of liquidator should be taken into account although I note that the 1^st Defendant submitted to the contrary.

31.The approach in cases like Ta Tung China & Arts Ltd. v Fontana Restaurant Ltd. (above) is to consider the likely outcome of the trial or the interlocutory application in question had it gone ahead so as to determine the question of costs.  Hence, logically, when the question of costs in the present case is considered, it must be considered on the basis that no appointment of liquidator has been made for the BVI Companies and that the Plaintiff’s derivative claim had not been struck out.

The 1^st Defendant’s Application for Stay

32.The 1^st Defendant did not dispute that the Courts of Hong Kong have jurisdiction to adjudicate the parties’ disputes.  Instead, it was contended by the 1^st Defendant that this action should be stayed because the BVI Court is the appropriate forum for resolving the disputes.

33.The test applicable is the one stated in The ‘Adhiguna Meranti’ [1987] HKLR 904, where Hunter JA expounded as follows (at p. 907E-I):

“...... The court has now to answer a single question namely: “Is there some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action, i.e., in which the case may be tried more suitably for the interests of all the parties and the ends of justice”. ...... we still think it convenient for the purpose of analysis to view the problem at three separate stages namely:

(I)     Is it shown that Hong Kong is not only not the natural or appropriate forum for the trial, but that there is another available forum which is clearly or distinctly more appropriate than Hong Kong....  The evidential burden is here upon the applicant.  The emphasis is upon “appropriate” rather than “convenient” because this is not simply a matter of practical convenience.  The purpose is to identify the forum “with which the action has the most real and substantial connection” ....  Failure by the applicant at this stage is normally fatal.

(II)    If the answer to (I) is yes, will a trial at this other forum deprive the plaintiff of any “legitimate personal or juridical advantages”? The evidential burden here lies upon the plaintiff ....

(III)   If the answer to (II) is yes, a court has to balance the advantages of (I) against the disadvantages of (II) .......”

34.Having considered the evidence and the parties’ submissions, I do not think the 1^st Defendant can establish that the BVI Courts are “clearly and distinctly” more appropriate than the Courts of Hong Kong for resolving the parties’ disputes.  My reasons can be summarized as follows.

35.The key, if not the only, connection of these disputes with the BVI is the fact that the BVI Companies were incorporated in the BVI.  It is well established that the law of the place of incorporation determines who is entitled to act on behalf of a corporation and other matters of internal management.  See: Dicey, Morris & Collins on The Conflicts of Law, 14^th edn., Vol. II, para. 30-024 & 30-099.  However, the Courts of the place of incorporation does not have exclusive jurisdiction.  The question of connection remains relevant.  See: Konamaneni v Rolls Royce Industrial Power (India) Ltd. [2002] 1 WLR 1269, per Lawrence Collins J. at para. 55. In particular, Lawrence Collins J. observed (at para. 66) as follows:

“I also consider the effect of Pergamon Press Ltd. v Maxwell [1970] 1 WLR 1167 is, at the least, that if issues arise relating to the exercise of what Pennycuick J. described as discretionary powers of management, then I should accord considerable weight to the potential role of the courts of the place of incorporation.  I doubt whether they have exclusive jurisdiction to deal with such issues.  For example it may be wholly unjust to require recourse to an offshore haven to pursue fraudulent directors in a case which has no connection with the jurisdiction other than that it is the place of incorporation.”

36.Apart from the fact that the BVI Companies were incorporated in the BVI, the disputes in the present case have little, if any, connection with the BVI.

37.Both the Plaintiff and the 1^st Defendant do not reside in the BVI.  The Plaintiff resides in England and Belgium, whilst the 1^st Defendant resides in Belgium and India.

38.At all material times prior to the appointment of a liquidator for each of the BVI Companies, the Plaintiff and the 1^st Defendant were their only directors.  However, they did not operate the affairs of the BVI Companies in the BVI.  For instance, the shareholders meeting of 14 December 2005 at which the BVI Resolutions were passed did not take place in the BVI but in London.  Further, as pointed out by Mr. Whitehead SC, the affairs of the BVI Companies were handled by a Trident Corporate Services (Asia) Ltd., which (as can be seen from the correspondence) was based in Hong Kong.

39.It is not in dispute that the law governing the disputes are the laws of the BVI.  In fact, from the very beginning, the Plaintiff had adduced expert evidence on the laws of the BVI in support of his challenge against the validity of the BVI Resolutions.  However, the laws of the BVI in this area are not materially different from the laws of Hong Kong.  With the appropriate assistance of expert evidence, the Courts of Hong Kong are in a position to apply the laws of the BVI to resolve the parties’ disputes.  Thus, the fact that the laws of the BVI applies is relevant but definitely not conclusive.  See, for example, Ho Wong Mary Mee Tak v Wong Shik Ho Tong, unrep., HCMP No. 1853 of 2005 (27 October 2005), per Deputy High Court Judge L. Chan at para. 62.

40.On the other hand, considering the evidence in the round, the parties’ disputes have a much closer connection with Hong Kong.  Although the Plaintiff’s claim is a derivative claim made on behalf of the BVI Companies, the real disputes between the parties concerned the control over VRL, which is a company incorporated in Hong Kong.  Rightly or wrongly, the passing of the BVI Resolutions were no more than attempts on the part of the 1^st Defendant to gain control over VRL.  This is clear from paragraph 17 of the 1^st Defendant’s Skeleton Submissions dated 14 November 2006, which reads as follows:

“Therefore, the 1^st Defendant upon legal advice sought to obtain control of the board of VRL in order to investigate what had happened to VRL’s assets and thereafter collect the money due pursuant to the Settlement Agreement for distribution to the shareholders.” [emphasis added]

41.Also of importance is the fact that the Intended EGM of VRL was scheduled to take place in Hong Kong.  Looking at the way in which the Amended Statement of Claim is framed and the relief sought, clearly the Plaintiff commenced this action for the purpose of restraining the 1^st Defendant from gaining control over a Hong Kong company, viz., VRL, by convening an extraordinary general meeting to be held in Hong Kong.

42.There is no suggestion that the BVI Companies have any business operation or assets in the BVI.  On the evidence, the only assets of the BVI Companies are their shareholding in VRL.  In other words, the only assets of the BVI Companies are in Hong Kong.

43.For these reasons, I rule that the 1^st Defendant cannot satisfy the first stage of the test laid down in The ‘Adhiguna Meranti’ (above).  It is thus not necessary to proceed to consider the second and third stages of the test.  In any event, no evidence has been adduced nor any submissions made by the parties in respect of the second and third stages of the test.

44.In the circumstances, I rule that the 1^st Defendant would not have succeeded in his application for stay on the ground of forum non conveniens had the application proceeded.  It thus follows that the Plaintiff should be entitled to the costs of and occasioned by the 1^st Defendant’s Summons dated 13 April 2006 and I so order.

The Plaintiff’s Application to continue the Injunction

45.In light of my above determination on the 1^st Defendant’s stay application, it becomes necessary to consider whether the Plaintiff would have succeeded in his application to continue the Injunction.

46.Mr. Whitehead SC argued that the Injunction would have been continued since there was clearly a serious issues to be tried and damages would not be an adequate remedy.  He also argued that the balance of convenience lies in favour of continuing the Injunction.

47.On the other hand, Mr. Harris SC argued that regardless of the outcome of the stay application, the Injunction would not be continued.  His submissions are mainly two-fold:

(1)     First, the Plaintiff has failed to apply for leave to serve the BVI Companies despite they are clearly necessary parties and any such application would inevitably fail because: (1) the Plaintiff and the 1^st Defendant are not resident of Hong Kong; and (2) the disputes concern the internal management of the BVI Companies.

(2)     Second, the disputes between the parties have arisen because the Plaintiff prevented the 1^st Defendant from finding out what had happened to the settlement sum payable to VRL.  In the affidavits filed by or on behalf of the Plaintiff, no disclosure has been made to the whereabouts of the money.  The 1^st Defendant has been vindicated by the proceedings in the BVI since the BVI Court appointed a liquidator for each of the BVI Companies on the ground of deadlock between the Plaintiff and the 1^st Defendant.

48.Having considered the parties’ submissions, I agree with Mr. Whitehead SC.  If the Plaintiff’s claim were not struck out, the Plaintiff would have obtained an Order whereby the Injunction would be continued until trial or further Order.

49.As regards the first limb of the 1^st Defendant’s submissions, I do not think the Plaintiff’s failure to apply for leave to serve the BVI Companies out of jurisdiction is fatal.  The 1^st Defendant is the real target of the Plaintiff’s claim.  The BVI Companies were only joined so as to ensure that they would be bound by any decision made in this action.  As stated above, Messrs. Haldanes confirmed by letter dated 27 February 2006 that they had instructions to accept service on behalf of the 1^st Defendant.  Once the 1^st Defendant was properly served and there is no dispute in this aspect, the Plaintiff would be entitled to rely on Order 11, rule 1(1)(c) on the ground that the BVI Companies are necessary or proper parties.  Besides, as dealt with above in the context of the 1^st Defendant’s stay application, the disputes between the parties did have a close connection with Hong Kong.  Hence, the factual situation is different from that in Konamaneni v Rolls Royce Industrial Power (India) Ltd. (above) and it is unlikely that the Plaintiff could not obtain leave to serve the BVI Companies out of jurisdiction.  Further, insofar as may be necessary, the Plaintiff might rely on Order 15, rule 6, which provides that no cause or matter shall be defeated by reason of the misjoinder or nonjoinder of any party and the Court may in any cause or matter determine the issues or questions in dispute so far as they affect the rights and interests of the persons who are parties to the cause or matter.

50.The 1^st Defendant’s second limb of submissions likewise does not provide a sufficient reason not to continue the Injunction.  Whether the Plaintiff was seeking to hide the settlement money from the 1^st Defendant is part of the underlying factual disputes that would not be resolved at the hearing of the continuation of the Injunction.  Further, whether the 1^st Defendant was vindicated by the proceedings in the BVI as he contended is neither here nor there.  If the BVI Resolutions were invalid and of no legal effect as contended by the Plaintiff, there is no suggestion, let alone evidence, that the deadlock between the Plaintiff and the 1^st Defendant would provide a valid defence under the laws of the BVI (or the laws of Hong Kong, assuming that the laws of BVI are the same as the laws of Hong Kong in the absence of expert evidence on the laws of BVI in this regard).

51.Although I have come to the conclusion that the Plaintiff would have succeeded in his application to continue the Injunction, that does not entirely dispose of the question of costs incidental to the Injunction.

52.In the normal circumstances, it is generally the practice of the Court for a successful plaintiff granted an interlocutory injunction or a continuation thereof to be granted his costs in the cause.  See: Hong Kong Civil Procedure 2007, Vol. I, para. 29/1/44 (p. 531).  There are certainly cases where the Court departed from this practice and ordered costs in any event.  See: Steepleglade Ltd. v Stratford Investments Ltd. [1976] FSR 3; Bushbury Land Rover Ltd. v Bushbury Ltd. [1997] FSR 709 and Hong Kong Civil Procedure 2007, Vol. I, para. 29/1/44 (p. 531).  However, those cases are clearly not the norm.  See: David Bean, Injunctions, 9^th edn., para. 5.41 (p. 104).  In the present case, there is no reason to depart from the general practice and to hold that the appropriate costs order should be the Plaintiff’s costs in the cause had there been a need to continue the Injunction.

53.In the normal circumstances, a plaintiff in such scenario will obtain his costs if he wins at the trial.  In the present case, there will not be any trial since the Plaintiff’s claim has already been struck out for the reasons dealt with above.  Further, since this action is only at a very early stage, there is simply no way to ascertain whether the Plaintiff or the 1^st Defendant will win if this action had proceeded to trial.

54.In the circumstances, the only appropriate course is to apply the approach in Brawley v Marczynski (above, at pp. 1065b & 1066a) as suggested by Mr. Whitehead SC.  Hence, as between the Plaintiff and the 1^st Defendant, I make no order as to costs in respect of the Plaintiff’s Summons dated 27 February 2006.

Other Outstanding Issues of  Costs

55.Apart from the areas already dealt with above, there remain the costs of the hearing on 20 November 2006 and the remaining costs of the action.  In addition, there is the costs of the 5^th Defendant (i.e. VRL).

56.It is evident from the above discussion that the hearing on 20^th November 2006 was concerned with three main aspects, namely: (1) the 1^st Defendant’s application to strike out the Plaintiff’s claim; (2) the costs concerning the Plaintiff’s application to continue the Injunction; and (3) the costs of the 1^st Defendant’s application to stay this action on the ground of forum non conveniens.  The 1^st Defendant has succeeded in having the Plaintiff’s claim struck out instead of stayed, whereas he has lost in respect of the costs argument concerning his application to stay this action on the ground of forum non conveniens.  As regards the costs concerning the Plaintiff’s application to continue the Injunction, there is no real winner since I have decided not to make any order as to costs (although I note this was the fall back position adopted by Mr. Whitehead SC).  In the circumstances and adopting a robust approach, I think it is fair to order that the Plaintiff and the 1^st Defendant do bear their own costs in respect of the hearing on 20 November 2006.

57.As regards the remaining costs of this action (including any costs that have previously been reserved), I likewise adopt the approach in Brawley v Marczynski (above, at pp. 1065b & 1066a) and make no order as to costs between the Plaintiff and the 1^st Defendant.

58.As regards the costs incurred by the 5^th Defendant (i.e. VRL), I agree with Mr. Manzoni that his client should be paid the costs by either the Plaintiff or the 1^st Defendant.  The disputes are between the two shareholders.  VRL has rightly adopted a neutral stance and it should not be made to suffer by reason of the disputes between the two shareholders.  In light of the agreement between the Plaintiff and the 1^st Defendant mentioned in paragraph 24 above, I order that VRL’s costs be equally paid by the Plaintiff and the 1^st Defendant.

The Order

59.For the avoidance of doubt and to assist the parties in preparing the Order to be sealed, my Order is as follows:

(1)     The Plaintiff’s action herein be struck out.

(2)     Save for the issues of costs dealt with below, there be no order in respect of the Plaintiff’s Summons dated 27 February 2006 and the 1^st Defendant’s Summons dated 13 April 2006.

(3)     Subject to (5) below, the 1^st Defendant’s costs of and occasioned by the 1^st Defendant’s Summons dated 14 November 2006 be paid by the Plaintiff to be taxed if not agreed.

(4)     Subject to (5) below, the Plaintiff’s costs of and occasioned by the 1^st Defendant’s Summons dated 13 April 2006 be paid by the 1^st Defendant to be taxed if not agreed.

(5)     Save as specifically dealt with in (3) and (4) above, there be no order as to costs between the Plaintiff and the 1^st Defendant in respect of this action (including the hearing on 20 November 2006 and any costs previously reserved).

(6)     The costs of the 5^th Defendant incurred in this action (including the costs of the hearing on 20 November 2006 and any costs previously reserved) be paid by the Plaintiff and the 1^st Defendant in equal share and to be taxed if not agreed.

60.The above is sufficient to deal with the question of costs.  There remain two outstanding matters.  When granting the Injunction, Sakhrani J. ordered the Plaintiff to pay the sum of US$100,000.00 into Court in fortification of his undertaking as to damages.  Further, I was informed by Counsel that a further sum of HK$800,000 was paid into Court by the Plaintiff as security for costs.

61.Since the hearing on 20 November 2006, the 1^st Defendant’s solicitors had written to confirm that the 1^st Defendant will not seek to enforce the Plaintiff’s undertaking as to damages.  In the circumstances, I order that the sum of US$100,000.00 (together with any interest accrued thereon) be paid out and released to the Plaintiff.

62.As regards the sum of HK$800,000.00 (and any interest accrued thereon), I order that the same be stayed with this Court until the Plaintiff has fully discharged his costs obligations as ordered above.

63.Last but not least, it remains for me to express my gratitude for the able assistance provided by the parties’ Counsel.

Mr Robert Whitehead, SC, instructed by Messrs Allen & Overy, for the Plaintiff

Mr Jonathan Harris, SC, and Lee Jung Soo, instructed by Messrs Deacons, for the 1^st Defendant

Mr Charles Manzoni, instructed by Messrs Lovells, for the 5^th Defendant