Indian Corridor Sdn Bhd and Another v. China Idea Development Ltd and Others

HCA 1/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1 OF 2008

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BETWEEN

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Before : Deputy High Court Judge Carlson in Chambers

Date of Hearing : 1 February 2008

Date of Delivery of Ruling : 4 February 2008

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R U L I N G

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Introduction

1.This has been a short-lived derivative action brought by the Plaintiffs on behalf of the 3^rd Defendant.  They had obtained ex parte Mareva injunctions on 31 December last, prohibiting disposal by the 1^st and 2^nd Defendants of their assets worldwide.  Last Friday, the 1^st February, had been set aside for the first two defendants to apply for, amongst other orders, the discharge of the injunction but on Thursday afternoon, the 31 January, the Plaintiffs served a Notice of Discontinuance on all three Defendants. 

2.Later in the day the 2^nd Defendant, represented by Mr Barlow SC, served a summons, received in the evening by the Plaintiffs’ solicitors, for a series of orders which appear in seven paragraphs in the summons.  Having heard argument, I have already made some orders under parts of the summons which I will mention in a moment and I have reserved to this morning my Ruling in respect of paragraphs 5, 6 and 7 and also in respect of paragraph 1 as to the precise form of the order under that paragraph.

3.I should just complete the short history of this matter by mentioning that on 18 January Reyes J, on the application of the 2^nd Defendant, varied the ex parte injunction by staying, until 1 February, the 2^nd Defendant’s disclosure obligations and permitted it to spend up to $8 million on business expenses and a further $1 million on legal expenses.  Significantly, he also directed the Plaintiffs to fortify their undertaking in damages in the sum of $8 million by 31^st January. 

4.On 25 January, I heard an identical application by the 1^st Defendant and made orders as to $28,787,260 for business expenses, $1 million for legal expenses and fortification by the Plaintiff in the sum of $9 million, also to be provided by 31 January.

5.No fortification has been forthcoming before service of the Notice of Discontinuance.

The Orders That I have Already Made

6.Under paragraph 1, I have set aside the Notice of Discontinuance in order to permit the Defendants to apply for the remaining six orders applied for under the summons and to provide Mr Smith SC, on behalf of the Plaintiffs, with the necessary locus to respond.  What now remains under this paragraph is for me to decide whether the Notice of Discontinuance should be permanently discharged, leaving it to the Plaintiffs to issue another one once they have complied with the other orders made under the summons, as Mr Barlow submits, or whether, as Mr Smith submits, it should now take effect subject to compliance by the Plaintiffs with the court’s other orders under the summons.  To this I will return presently.

7.Under paragraph 2, I have ordered the Plaintiffs to pay all of the Defendants’ costs of the action on an indemnity basis.  Under paragraph 3, I have discharged the injunction against all the Defendants, also with costs on an indemnity basis.  Under paragraph 4, I have ordered an enquiry into damages to ascertain the amount of damages, if any, which the Plaintiffs should be liable to pay the Defendants pursuant to their undertaking in damages under the injunction.  I also propose to give directions as to the enquiry after delivery of this Ruling.

8.As to paragraph 5, I have made an order in terms of the paragraph in favour of all the Defendants but I have provided the Plaintiffs and Messrs Robertsons, their solicitors, with an opportunity to go on affirmation to explain why they may not be able to comply as ordered or to discharge or vary the order, this on the basis that I have treated this application, given the short notice, as an ex parte application on notice.

The Outstanding Orders

9.This then leaves over the three matters which remain outstanding and upon which I must now rule.

Paragraph 1

10.It seems to me that Mr Smith’s analysis of the situation is the correct one.  The Plaintiffs will not be required to issue a further Notice of Discontinuance.  The present Notice will remain in place.  As in the case of a Plaintiff who requires leave to discontinue the action, the court is able to make such further orders as may be necessary to give effect to rights acquired by the Defendant in the course of the proceedings for example, as in this case, where the Plaintiff has given an undertaking in damages in obtaining the injunction, an enquiry as to damages has been ordered after discontinuance (See the Note at 21/5/12 of the current practice, page 404).  I propose therefore, after I have ruled on the remainder of this summons, to allow the Notice of Discontinuance to take effect subject to the Plaintiffs complying with the terms of the orders that I have already made and will now additionally make under the summons.  There is therefore no need for the action to be stayed, it will stand discontinued in accordance with the Notice on those terms.  This accords with what was said by Lord Scarman in Castanho v Brown & Root (UK) Ltd and Anr (1981) AC 557, 577B-D.

An Anti-Suit Injunction

11.This is the subject of paragraph 6 of the summons.  The Defendants, Mr Scott, SC on behalf of the 1^st Defendant who given the shortage of time, has not taken out a summons has supported the way that Mr Barlow has put the case for the 2^nd and 3^rd Defendants, all seek an injunction and I read from paragraph 6, “restraining the Plaintiffs from bringing or continuing in any other jurisdiction, any legal proceedings raising the same disputes or issues as they have raised in their Statement of Claim … against the (as it now reads) Defendants herein, until the Plaintiffs have discharged or provided security for all their liabilities to the Defendants in these proceedings.”  What this contemplates is that the Plaintiffs should first discharge their obligations to the Defendants in respect of costs and any damages that they may be adjudged to owe the Defendants under their undertaking in the injunction before they can proceed with any other action in another jurisdiction.  As matters presently stand the most likely venue for such an action by the Plaintiffs is Malaysia where there is already an action in the High Court which pre-dates this action and another concerning the calling of an EGM which Mr Barlow and Mr Scott are content to exclude from the purview of such an order.

12.The basis of the application is that where the Plaintiffs have brought what Mr Barlow has variously described as misconceived, abusive and other even less flattering descriptions, proceedings in this court which have caused the Defendants very considerable loss and expense, they should first be required to discharge these obligations before being at liberty to bring any other actions arising from the same subject matter against these defendants elsewhere.

13.The jurisdiction to make such orders is well-established going back to 1800 (See Wharton v May (1799) 5 Ves. Jun. 26, 70) but it is one which needs to be exercised with great care and only on proper grounds.  A convenient starting point is the case of British Airways v Laker Airways Ltd [1985] AC 58.  The speech of Lord Scarman at page 95 indicates the way in which a court may approach such an application, subject to a comment that I will make in a moment:

“

The approach has to be cautious because an injunction restraining a person within the jurisdiction of the English court from pursuing a remedy in a foreign court where, if he proves the necessary facts, he has a cause of action is, however disguised and indirect, an interference with the process of justice in that foreign court.  Caution is needed even in a ‘forum conveniens’ case, i.e., a case in which a remedy is available in the English as well as in the foreign court.  Caution is clearly very necessary where there is no remedy in the English court in respect of the cause of action which, if the facts be proved, is recognised and enforceable by the foreign court.

Nevertheless, even in the latter case, the power of the English court to grant the injunction exists, if the bringing of the suit in the foreign court is in the circumstances so unconscionable that in accordance with our principles of  a ‘wide and flexible’ equity it can be seen to be an infringement of an equitable right of the applicant.  The right is an entitlement to be protected from a foreign suit the bringing of which by the defendant to the application is in the circumstances unconscionable and so unjust.  This equitable right not to be sued abroad arises only if the inequity is such that the English court must intervene to prevent injustice.  Cases will, therefore, be few: but the jurisdiction exists and must be sustained.”

Mr Barlow has referred to Midland Bank v Laker Airways [1986] 1 QB 689, a decision of the English Court of Appeal in which Niell LJ referred to Lord Scarman’s speech at page 712.  It should be observed that in Dillon LJ’s judgment in this case, he noted at page 701E-F that the speeches in British Airways Board v Laker supra., whilst providing guidance as to how this jurisdiction is to be exercised arising through the “width and flexibility of equity”, should be taken as primarily directed to the facts of that case, which perhaps serves to emphasis how fact sensitive every such decision will be.

14.It seems to me that the more recent decision of the House of Lords in Turner v Grovit [2002] 1 WLR 107 provides more detailed assistance.  I need to refer to two passages from the speech of Lord Hobhouse of Woodborough in which he set out what needs to be demonstrated before such an order will go to restrain the bringing of foreign proceedings.  At page 119C-E he noted that:

“

27.

The applicant for a restraining order must have a legitimate interest in making his application and the protection of that interest must make it necessary to make the order.  Where the applicant is relying upon a contractual right not to be sued in the foreign country (say because of an exclusive jurisdiction clause or an arbitration clause), then, absent some special circumstance, he has by reason of his contract a legitimate interest in enforcing that right against the other party to the contract.  But where he is relying upon conduct of the other person which is unconscionable for some non-contractual reason, English law requires that the legitimate interest must be the existence of proceedings in this country which need to be protected by the grant of a restraining order.”

That the exercise of this jurisdiction needs to be mindful of international comity was underlined by Lord Hobhouse at 119H to 120B in this way:

“

28.

Similarly, English law attaches a high importance to international comity (Airbus Industries GIE v Patel, per Lord Goff, at pp 133 and 138) and the English court has in mind how the restraining order will be perceived by foreign courts.  This is the prime reason for strictly limiting the making of restraining orders on grounds of forum non conveniens. It is recognised that to make an order against a person who is a party to proceedings before a foreign court may be treated as an interference (albeit indirect) in the foreign proceedings.  Thus English law requires the applicant to show a clear need to protect existing English proceedings.  The protection of English proceedings is, understandably, regarded as a legitimate subject matter for an English court.  It is not the concern of any other court.  The order made operates in personam and relies for its enforcement solely upon the English court. ”

15.This therefore is a jurisdiction which is to be used sparingly and exercised only after careful consideration of all the facts and circumstances of the case before the court.  Mr Barlow submits that it is unconscionable to allow the Plaintiffs, who have brought these proceedings here only to discontinue them within a matter of weeks but not before they have caused that the Defendants to incur substantial legal costs, and expense and disruption of their commercial interests, for which they have now been found liable by this court, to be at liberty to pursue other proceedings in another jurisdiction which would cause the Defendants to have to spend yet more of their time and resources in defending such proceedings, before they have discharged their liabilities to the Defendants here.  And this in circumstances, where the Plaintiffs may well not be companies with readily realisable assets against which orders for costs and damages could be executed.  It strikes me that these are powerful considerations which would sound in favour of making the orders asked for.  The contrary consideration relates to the question of comity where the courts of foreign jurisdictions, to which the Plaintiffs may be advised to have recourse, must be able to regulate the conduct of litigation before them.  In this regard, Mr Smith has drawn attention to the current action in the Malaysian High Court which pre-dates these proceedings and to which these parties are well committed.

16.The overall justice of the matter, it seems to me, would be properly met by my making the order that the Defendants are seeking but to exclude from the order the current action in Malaysia as well as the separate proceeding relating to the calling of the EGM.  I propose to rule in this way because it seems quite wrong for the Plaintiffs to bring an action such as this here, which they have now discontinued and yet be at liberty to sue the Defendants in a foreign jurisdiction on the same subject matter without putting their house in order in this jurisdiction.  They must pay their dues to the Plaintiffs here before they can be at liberty to pursue them elsewhere.  I have excluded the current set of proceedings in Malaysia because these pre-date this action to which, as I have said, the parties are well and truly joined and committed and also it seems to me that to direct the Plaintiffs to call an immediate halt to those proceedings would offend against comity.  No doubt, the court in Malaysia could, if it thought it right, take appropriate measures against the Plaintiffs to protect the interests of the Defendants before it in that action, particularly if it could be shown that the Plaintiffs were not companies worth powder and shot, but that is a matter entirely for that court.

17.For these reasons therefore the Defendants will have this order in terms of paragraph 6 of the summons save for the two excepted overseas proceedings which I have identified.

The Wasted Costs Application Against the Plaintiffs’ Solicitors

18.Lastly, I turn to this matter which is the subject of paragraph 7 of the summons.  The Defendants accept that this can only be heard after the conclusion of the enquiry as to damages and propose that it should be adjourned generally with liberty to restore but not before the conclusion of that enquiry.  Mr Smith submits that the Plaintiffs should either be invited to withdraw it and issue another such summons after the enquiry is concluded and that if they are not minded to do so that I should dismiss the application without prejudice to their right to make a fresh application in due course.  In making this submission, Mr Smith has relied on the Final Court of Appeal’s judgment in Ma So So v Chin Yuk Lun [2004] 3 HKLRD 294, in the course of which the Chief Justice analysed the nature of the court’s jurisdiction to make such orders, the exercise of that jurisdiction and the procedure to be adopted in doing so, largely adopting the approach of the English Court of Appeal in Ridehalgh v Horsfield [1994] Ch 205.  What is plain is that an application of this sort may well have the effect of driving a wedge between a client and his solicitor in which the solicitor may well wish to call into question the client’s conduct in the litigation, the instructions given and the advice given by the solicitor.  Similarly, the client may well criticise the advice given by his solicitor.  This being the case, Mr Smith suggests that if this part of the summons is adjourned rather than dismissed or withdrawn the Plaintiffs’ present solicitors may feel unable to continue to act for the Plaintiffs — the potential conflict of interest making it inappropriate for them to continue in the case.  This being so, the Plaintiffs would be put to it to instruct other solicitors to represent them in the outstanding matters, principally the enquiry as to damages.  If new solicitors have to come into the case, the Plaintiffs would have to incur additional costs associated with the new solicitors having to read themselves into the case.

19.Whilst this is a very reasonable argument to advance, I tend to think that whether there is a withdrawal, adjournment or dismissal it will make no difference to the present solicitor/client relationship.  If the Plaintiffs and their present solicitors are at one on the matter then whatever I do to this part of the summons is irrelevant.  If they see the potential for a conflict of interest between them then whether I dismiss it or adjourn it generally will also make no difference.  The point is that the die has been cast by the making of this application.  Even if it is dismissed, the Plaintiffs and their solicitors now know what the Defendants intend to do, which leaves them in precisely the same position.  This is an application which the Defendants are entitled to make — whether they ultimately choose to pursue it, given the difficulties which they face in obtaining such an order and the costs that they will have to expend in prosecuting the application — is a matter entirely for them and in such circumstances I see no grounds to summarily dismiss it as Mr Smith submits I should do, even without prejudice to the Defendants’ right to make a fresh application in future.  Consequently, I propose to adjourn it in the way that Mr Barlow and Mr Scott submit that I should.

Clifford Smith SC and Frances Lok, instructed by Messrs Robertsons, for the 1^st and 2^nd Plaintiffs

John Scott SC and Janine Cheung, instructed by Messrs Richards Bulter, for the 1^st Defendant

Barrie Barlow SC, instructed by Messrs Lovells, for the 2^nd Defendant