Read the full judgment text of HCA 001462/2006 on BabelCite. This High Court CFI judgment was delivered on 24 October 2008 before Anthony To (Deputy High Court Judge).
Civil procedure – service out of jurisdiction – setting aside – Order 11 rule 1(1)(c) – necessary or proper party – Order 11 rule 1(1)(d)(i) – contract made within jurisdiction – Order 11 rule 1(1)(f) – tort causing damage within jurisdiction – double actionability – lex loci delicti – Debt Restructuring Agreement – pari passu distribution – notional liquidation – contractual liquidation – conspiracy – unlawful means – breach of contract – implied terms – good faith – reasonable endeavours – costs – GDE Group – US$4.9 billion default – French Banks – GDI Guarantee – Restructuring Consideration – General Reserve D – French Banks Agreement – pari passu principle – British Eagle principle – Investors Compensation Scheme principles. The GDE Group defaulted on approximately US$4.9 billion of debts in late 1998, with Guangdong Enterprises (Holdings) Limited having a contingent liability to the French Banks under a guarantee in respect of a French hotel financing arrangement (Credit Bail Immobilier) with GDI, a French subsidiary. After two years of negotiation, the Debt Restructuring Agreement (DRA) was signed on 22 December 2000 among GDH Limited, Creditor Co. Limited, the French Banks and others, providing for a pool of Restructuring Consideration contributed by the Guangdong Provincial Government for distribution to creditors. US$15.5 million was set aside for the French Banks' contingent claim. Rather than submit a proof of claim, the French Banks entered into the French Banks Agreement on 27 March 2002 with GDI and GDH to settle the hotel financing obligations early. CreditorCo refused to release the US$15.5 million to GDH, GDH sued CreditorCo for breach of the DRA, and CreditorCo counterclaimed against GDH and the French Banks for breach of the DRA and conspiracy to use unlawful means. The first issue was whether CreditorCo's counterclaim fell within O.11 r.1(1)(c) as the French Banks were necessary or proper parties. Held: yes – common questions of fact and law arose, and section 16(2) of the High Court Ordinance required the avoidance of multiplicity of proceedings; separate trials for a conspiracy allegation would be particularly inappropriate. The second issue was whether the DRA was a contract made within the jurisdiction under O.11 r.1(1)(d)(i). Held: yes – Hong Kong was the geographical centre of negotiations and the French Banks signed through agents in Hong Kong under powers of attorney executed in France. The third issue was whether the conspiracy claim fell within O.11 r.1(1)(f). Held: CreditorCo had shown a good arguable case – under the double actionability rule, the burden lay on the French Banks to prove non-actionability under French law, which they failed to discharge, and under Hong Kong law damage is an essential ingredient of the tort of conspiracy. The fourth and decisive issue was the true construction of DRA clause 10.1(c) and whether the French Banks were obligated to submit a proof of claim. Held: the construction contended by CreditorCo was wholly unarguable. The DRA was a negotiated arrangement differing from an ordinary liquidation because the shareholder contributed additional assets; clause 10.1(c) unequivocally prescribed the consequence of non-submission – return of the Restructuring Consideration to GDH; the pari passu principle in British Eagle v Compagnie Nationale Air France did not apply to assets outside the pool of the GDE Group. The fifth issue was whether terms of good faith and reasonable endeavour to file a proof of claim could be implied into the DRA. Held: the implied terms were wholly unarguable – there is no general principle of good faith in Hong Kong contract law, the DRA worked equally well without the terms, and an implied obligation to file would contradict the express provisions of clause 10.1(c). The sixth issue was whether the conspiracy counterclaim was arguable. Held: unarguable – the alleged unlawful means (breach of DRA) could not be established given the unarguability of the contractual counterclaim. The appeal of the 2nd to 4th Defendants by counterclaim was allowed, the service of the concurrent writ out of the jurisdiction on the French Banks was set aside, and an order nisi was made for costs. A further order nisi was made requiring the 3rd Defendant by counterclaim to pay 50% of the costs of the 1st Defendant by counterclaim, whose attendance at the hearing was found to be unnecessary.
Legal issues: Whether the French Banks are necessary or proper parties under O.11 r.1(1)(c) for service out of the jurisdiction · Whether the DRA is a contract made within the jurisdiction under O.11 r.1(1)(d)(i) · Whether the conspiracy claim falls within O.11 r.1(1)(f) – tort causing damage within the jurisdiction · True construction of DRA clause 10.1(c) – whether French Banks were obligated to submit a proof of claim · Whether terms of good faith and reasonable endeavour to file a proof of claim can be implied into the DRA · Whether the conspiracy counterclaim is arguable
Outcome: Appeal of 2nd to 4th Defendants by counterclaim allowed; service of the concurrent writ out of the jurisdiction on the French Banks set aside; CreditorCo's counterclaim found wholly unarguable.
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