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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R U L I N G

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Introduction

1.  On 24 October 2008, I had before me a summons for directions, taken out by the 1^st Defendant, dated 3 September.  It sought standard directions in respect of the forthcoming enquiry as to damages which is to be heard over a number of days starting on 9 April next year.

2.  The Plaintiffs appeared by their newly instructed solicitors, who had come on the record the previous day.  The Defendants were represented by leading counsel and solicitors.  It is a feature of this case that at all of the previous contested hearings, the parties have fielded leaders to appear for them.  At the hearing on 24 October, I made an order which broadly reflected the terms of the summons and which only deviated from it in respect of the length of time that would be allowed for the various steps to be carried out.  My order was that the Plaintiffs would have to file and serve their witness statements within 35 days of the date of the order and that within 14 days after that the Plaintiffs are required to identify any issue or issues that are said to require the assistance of experts for agreement by the 1^st and 2^nd Defendants.   Failing agreement, the matter is to be listed before me for directions.  Finally, the Defendants are to file their witness statements in reply (if any) within 35 days thereafter.

3.  This order having been made, counsel for the Defendants asked for orders for costs in their favour to include the costs of instructing leading counsel and that these costs be taxed and paid forthwith by the Plaintiffs.  After some argument, I directed that written submissions should be lodged largely in order to give Mr Darton, who had only been instructed the previous day to appear for the Plaintiffs, to have more time to familiarise himself with the papers.  The final round of written submissions has been sent to the court on 14 November and I am now in a position to give my ruling on costs.

The Arguments

4.  Mr Darton submits that the usual order on such occasions is one of costs in the cause and that no doubt that is why the 1^st Defendant drafted its summons seeking such an order.  What the Plaintiffs’ case comes to is that the Defendants’ instruction of leaders has been an unnecessary extravagance for which the Plaintiffs should not bear any consequences as to the costs of that particular decision.

5.  The Defendants, given the pre-hearing correspondence with the Plaintiffs’ previous solicitors, had anticipated a substantial contest on the day in which they were fearful of the Plaintiffs seeking to extend the ambit of the enquiry at the trial which would had a substantial impact on how the enquiry would have to be conducted in terms of issues and the evidence to be called on those issues.

6.  In the event, what had been foreshadowed in that correspondence did not eventuate on the day and such argument as there was fell within a narrow compass and was easily resolved by me.  As to that Mr Darton, submits that just because there was far less of a contest on the day than may have been anticipated by the Defendants, does not justify a departure from the usual order of costs in the cause.  This after all is what not infrequently happens and nobody suggests that on such occasions that there should be an order for costs between the parties, let alone one for the payment of costs for the appearance of Senior Counsel when such hearings are more than adequately conducted by solicitors who are familiar with the case.

7.  The correspondence passing between the parties then solicitors and the Defendants’ solicitors has been referred to in some detail in the written submissions.  Mr Darton submits that when one looks at the position, there was no relevant correspondence after the issue of the summons on 3 September.  What one gets from that is that had there been an anticipated contest on the summons that must have been apparent before the issue of the summons and yet the summons itself only sought an order of costs in the cause.  The Defendants, having decided to instruct leaders, should not now be allowed to resile from the stance that they had chosen to adopt on costs in the summons.

8.  It seems to me that the matter needs to be tested against an appraisal of the relevant correspondence which the parties have attached to their submissions.

9.  As this is a question of whether the instruction of leading counsel was justified a convenient starting point is the letter dated 26 August from Robertsons, who were then representing the Plaintiffs.  By that stage, it had become clear on the correspondence that the parties were in disagreement as to the content and the order of compliance of the directions that were to be sought from the court.  On the 2^nd page of their letter, Robertsons said this:

“Perhaps you can let us know as to whether or not you want the matter to be restored for a hearing or if you consider there is any merit in trying to reach an agreement rather than trouble the judge, and if this is restored, whether you want the restored hearing to involve counsel (our view is that this not necessary but we would like to hear from you in this regard).” [My emphasis]

And so, whatever the disagreements as to the content of the directions and their scope, Robertsons were expressing the view that counsel was not necessary on the restored hearing if one was to take place.  By the following day, it appeared that the matter would need to come before the court because there were at that stage, rival sets of directions upon which I would have to rule on.  Robertsons wrote to the court on 27 August (copied to the Defendants’ solicitors) suggesting a brief directions hearing at which the rival approaches on directions could be explored with the court, pointing out that the Defendants’ solicitors had, as an alternative, suggested that the two differing orders be presented to the court for the court to consider and decide what order to make, without the necessity of a hearing.  Presented with these alternatives, I directed an oral hearing with an hour set aside to consider the various proposals.  This was done on 29 August.  On 3 September, the 1^st Defendant’s solicitors issued their summons. 

10.  The only letter that I have been shown after the date of the summons is that dated 11 September from the 1^st Defendant’s solicitors asking for an early sight of the Plaintiffs’ anticipated amended-defence.  That letter received no response.

11.  Thereafter, there was silence.  Robertsons were permitted to come off the record on 20 October and on the 23^rd, the present solicitors came on the record and the summons was heard the following day.  Up to that point, the Plaintiffs stated position was that they wished to amend their defence and there was a question about whether those amendments would seek to venture into forbidden territory so far as the Defendants were concerned, including Robertsons stated intention to plead issues relating to the alleged invalidity of the Management Agreement upon the basis of the claim being pursued in related proceedings in Malaysia which had been embargoed by this court as being in breach of an anti-suit injunction that the Defendants had obtained from me in February 2008.

12.  The Defendants’ justification for appearing by leading counsel is that they feared that they were going to be taken by surprise at the hearing of the summons with a proposed amended-defence which sought to do precisely that.  This widening of the Plaintiff’s case was to be strenuously opposed and in any event it had added ramifications in terms of the evidence to be filed, including expert evidence.  In the context of the enquiry, this was very important and it required representations at this senior level.  In the event, at the hearing of the summons of 24 October, there was no application to amend the defence and the matter proceeded in a very straightforward way.

13.  So far as the Defendants are concerned this was all a waste of time.  Had the Plaintiffs made their position clear much earlier, only solicitors would have appeared on behalf of the Defendants.  The Plaintiffs had caused this to happen by not saying what they intended to do beforehand and in the circumstances of this hotly-contested case, it was reasonable to have leaders.  Costs have been wasted and these costs should now be borne and paid for forthwith by the Plaintiffs.

Conclusion

14.  Whilst this case has suffered from a paucity of communication, it strikes me that fault is to be found on both sides.  No doubt, by September and certainly by October, Robertsons were having little communication with their clients.  Robertsons’ summons to come off the record had been issued in early September which may account for the absence of a reply to the 1^st Defendant’s solicitors’ letter of 11 September.  Nevertheless, it strikes me that if a party is going to justify having an order for costs being made in its favour and for those costs to include the costs of leading counsel, they should have indicated their intention to appear by leading counsel at least a few days before the hearing.  This they did not do.  In this regard, it seems to me that Robertsons’ letter to them on 26 August telling them that they did not consider it necessary to appear by counsel at the directions hearing is something that I ought to have regard to.  This aspect of the letter had not been responded to by the Defendants.  Had the Plaintiffs appeared with a leader on 24 October, which is what the Defendants say they feared and expected, and the Defendants only by solicitors and not by counsel, it seems to me that this letter could have been referred to by those representing the Defendants.  In the event that the Plaintiffs were to ask me to make highly controversial orders which the Defendants wished to have argued by their own leading counsel it would have been reasonable to expect that in such circumstances, where contrary to the expectation, as expressed in the letter of 26 August, that only solicitors would appear for the Plaintiffs and they in fact came armed with a leader that the Defendants could have obtained an adjournment to instruct their own leading counsel to ague the issues on their behalf.

15.  As it happened, the Plaintiffs appeared by solicitors and the Defendants by their leading counsel for what turned out to be a very straightforward hearing.  In my judgment, if the Defendants are to succeed in getting an order for costs in respect of leading counsel, they will need to show firstly, that the matter was of sufficient importance and complexity to justify a leader and that it was reasonable in the circumstances to have done so.  For my part, without having indicated by letter to the plaintiffs’ solicitors that they were minded to take that course on the hearing of summons where they had said on the face of summons that they would ask for an order of costs in the cause and, against the background that Robertsons had said on 26 August that they did not believe that this was a case for counsel, let alone leading counsel, I consider that the Defendants must now bear the consequences of that decision.  This quite apart from the question of whether there should be an order for costs between the parties.  I accept Mr Darton’s submission that this is one of those summonses which one frequently comes across where what appears to be a highly contested matter substantially falls away at the door of the court and is largely settled save for some fine tuning by the court.  This was a summons that was always likely to require a hearing in court.  I had directed such a hearing which in the event went reasonably short.  The Defendants’ concerns about being taken by surprise on the day by a leader on the other side ready to argue for a substantial enlargement would have exposed the Plaintiffs to the very real risk of an adjournment with costs against them, in order that the Defendants should have an opportunity to be similarly represented.  In my judgment, the appropriate order for costs is one of costs of the cause.  If the Defendants succeed in the enquiry then they will get these costs but limited to a taxation for representation by junior counsel only to which they would have been entitled in the High Court.  Leaders on this occasion were simply not justified.  This costs order will of course also include the preparation of these written submissions.

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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R U L I N G

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Introduction

1.  I am required to rule on a number of interlocutory matters as this case proceeds to its final goal which is the 1^st and 2^nd Defendants’ application to have awarded to them damages consequent upon the Plaintiffs’ undertaking in damages upon its having obtained an ex parte Mareva injunction against them on 31 January 2007.  Subsequently, on 18 January 2008 and also on 25 January 2008, on which dates they were required to fortify their undertakings, the Plaintiffs decided that they would not to do so and applied to discontinue the action, which they were given leave to do by me by a Ruling dated 4 February this year [Bundle 1/69], the resulting Order being at Bundle 1/83.  The main features of the Order were that upon the discontinuance the injunction was discharged and an enquiry as to damages was ordered, together with standard directions as to the conduct of the enquiry leading to its ultimate hearing.  I also granted the 1^st and 2^nd Defendants, an injunction preventing the Plaintiffs from removing from Hong Kong any assets up to $20 million, to safeguard the Defendants’ position pending the outcome of the enquiry as to damages.  Finally, I also granted the Defendants an anti-suit injunction preventing the Plaintiffs from bringing, in any other jurisdiction, any new proceedings raising the same disputes or issues as they had raised in their Statement of Claim against the Defendants, until such time as they had discharged or provided security for all their liabilities to the Defendants in these proceedings.  It seemed to me that this was a proper order to make in view of the fact that the Plaintiffs, having sued the Defendants here and obtained a very substantial Mareva injunction freezing some $647 million only to discontinue the action a month later, should be required to put their house in order in this jurisdiction before being allowed to litigate against the Defendants on the same subject matter elsewhere.  So much for the background.  I now need to recount what has happened since then.

2.  On 29 April, both Defendants filed their Particulars of Claim of Loss in the enquiry as to damages [Bundle 1/pages 85 and 102 respectively].  The 1^st Defendant’s claim exceeds $70 million and the 2^nd Defendant’s is quantified at $87.5 million.  On 9 May, the 1^st Defendant took out a summons.  That is at Bundle 1/118.  Its solicitors had learnt that Messrs Robertsons, the Plaintiffs’ solicitors, who held over $2 million belonging to the Plaintiffs which they held to the court’s order as part of the injunction that I had made on 4 February requiring the Plaintiffs not to remove up to $20 million from Hong Kong, had applied to cease acting.  The 1^st Defendant’s solicitors were therefore anxious to obtain an order from the court, as the summons recites, requiring Messrs Robertsons to pay the amount they held into court and also for an order for costs on the summons.  In the event, in circumstances that I will explain presently, Messrs Robertsons have continued to act for the Plaintiffs and the amount held by them has now been paid into court.  Nevertheless, there remains outstanding the issue of the costs of that summons which the 1^st Defendant wishes me to award to it.  This therefore is one of the matters which I will need to rule on.

3.  The next matter is that the 2^nd Defendant’s solicitors were informed by their counterparts in Malaysia that, amongst other parties, the 2^nd Defendant had been made a Defendant to an Originating Summons in the High Court of Malaya by a company called Pan Stone Development Sdn Bhd (“Pan Stone”) in which Pan Stone is, inter alia, seeking a declaration setting aside the same Management Agreement which was the subject of the Statement of Claim in this action and also declarations on behalf of the 6^th and 7^th Defendants to the Originating Summons, who are the two Plaintiffs before me.  This will need more detailed consideration in due course but by way of introduction all I need to say is that the 2^nd Defendant has taken the view that Pan Stone is no more or less than an emanation of the Plaintiffs in this action and that some of the matters raised by it in the Originating Summons in the High Court of Malaya amount to the same issues that had been raised in the Statement of Claim in this action, in consequence of which parts of this Originating Summons are in breach of the anti-suit injunction that I had granted on 4 February.  As a result the 2^nd Defendant has taken out a summons dated 13 May [Bundle 1/121].  In this summons, it seeks two orders.  Firstly, now that it has been able to quantify its claim for damages against the Plaintiffs in the enquiry, that the amount that the Plaintiffs have been ordered to retain in Hong Kong by virtue of the injunction that I granted on 4 February should be raised from $20 million (which was the best estimate of the 2^nd Defendant’s losses caused by the grant of the Mareva on 31 December 2007) to $87.5 million which is the amount now claimed by it in the enquiry.  Secondly, in relation to the anti-suit injunction, also granted by me on 4 February, that the Plaintiffs should see to it that Pan Stone stays the Originating Summons proceedings in the High Court of Malaya against the Plaintiffs in this action for whose benefit Pan Stone is said to have started those proceedings.  In other words, the 2^nd Defendant is asking for an extension of the anti-suit injunction to encompass that matter.

4.  Pausing there, those two summonses of 9 and 13 May, were initially heard by me on 23 May which resulted in a Ruling dated 26 May [B1/135.14].  The Ruling provides a description of the course of the hearing on 23 May which I propose to briefly summarise.  The Plaintiffs, by then represented by Mr Sussex SC, sought to have me re-open the hearings of 1and 4 February on the basis that what had then taken place was an ex parte on notice hearing and that his clients were entitled to a proper inter partes hearing.  He also wanted me to indicate whether, in making the orders that I had in February, I had taken into account matters about which my Ruling of 4 February was silent.  The effect of all of this was that this argument on the day occupied all of the allotted time and I was not able to hear, in particular, the 2^nd Defendant’s summons of 13 May.  As to the 1^st Defendant’s summons concerning the payment into court by Messrs Robertsons of the $2 million, agreement was reached and the amount has now been paid in, leaving over the question of the costs of that summons which is now before me.  As to the 2^nd Defendant’s summons, the matter had been compounded by the service of a very late affidavit on behalf of the Plaintiffs and so inevitably, the 2^nd Defendant’s summons had to go over.  I have already referred to its terms and the orders that it seeks.

5.  Following that adjournment, the Plaintiffs had sought to appeal parts of my orders of 4 February to the Court of Appeal which involved an application to extend their time for appealing.  That application was dismissed by a single justice of appeal in the latter part of July.

6.  Finally, by way of introduction, I turn to two other matters which I need to determine.  On 24 July, the 2^nd Defendant issued a summons to strike out parts of the Plaintiffs’ defence to the 2^nd Defendant’s particulars of claim of loss, on the basis that those parts of the pleading raise matters that are simply not open to the Plaintiffs to advance in the enquiry as to damages, the background to this being the reference in the defence to the Management Agreement.  I will come to the argument presently.  Mr Barlow SC, for the 2^nd Defendant, submits that these parts of the pleading are bound to fail.  They do not disclose a reasonable cause of defence and that given their subject matter these amount to an abuse of process — more of which shortly.

7.  The last matter of substance concerns the timetable and further directions to be given before the hearing of the enquiry.  On 4 February, I had already provided fairly standard directions as to the service of pleadings and discovery which substantially have now been complied with.  Nevertheless, further directions will need to be given and complied with to ensure readiness.  The matter that concerns both Defendants which Mr Strachan, who appears for the 1^st Defendant, has addressed is that there should be no further delay in setting down the enquiry which is estimated to last between five and seven days.  I will therefore have to deal with this as well.

8.  There are other incidental summonses, if I can so describe them, concerning the filing of late affirmation evidence which I propose to accede to.  I will leave it to the parties’ solicitors to draw up appropriate orders based on those summonses.  From that somewhat lengthy introduction, I now turn to each of the contentious issues which I have referred to. 

The 1^st Defendant’s Summons of 9 May

9.  This relates to the application for costs on the summons because, as Mr Strachan puts it, the Plaintiffs, through their solicitors Messrs Robertsons declined to pay the $2 million plus into court when invited to and only did so after the 1^st Defendant had brought the matter to court on 23 May.  Mr Strachan has traced the short history of this issue.  It having come to the notice of the 1^st Defendant’s solicitors that Robertsons were applying to cease to act, this summons was made returnable on the same day as Robertsons’ summons to be removed from the record.  The Master, not having the jurisdiction to grant an injunction, this aspect forming part of the injunction that I granted on 4 February, remitted the summons to me as the judge seised of the matter.

10.  This issue of costs falls to be determined on the exchange of correspondence.  Upon being invited to pay the money into court, Mr Strachan submits that his instructing solicitors were met with a refusal.  Agreement was only forthcoming at court on 23 May.  It seems to me that when one considers the terms of Robertsons’ letter of 6 May upon which Mr Strachan places reliance, it is rather harsh to characterise it merely as a refusal.  I will set out its material parts which come at the top of the page 193 in Bundle 1:

“The monies (which, we wish to clarify, are not ‘trust’ monies as you state) will remain in the designated account until such time as any further directions or Orders are given by the Court (which granted the Injunction) for the monies to be transferred into Court and/or otherwise dealt with.

We will certainly not be dealing with the monies or applying to the Court unnecessarily but we agree that we will on the hearing of the application to cease to act on our part, bring a copy of Lovells’ letter dated 5^th May 2008 and this issue i.e. as to the Injunction which remains in place over the monies in the Designated Account, to the attention of the Court.”

It strikes me that this is a perfectly sensible response by Robertsons.  The money was perfectly safe and it was going nowhere until the court otherwise directed, it having gone into the designated account pursuant to the court’s previous order on 4 February.  Having come before me on 23 May, Robertsons agreed to pay the amount into court.  To now order the Plaintiffs to pay the costs of the 1^st Defendant’s summons inviting a payment in would not be a just reflection of the parties respective conduct.  Whilst the issuing of the summons was perfectly understandable given that Robertsons appeared to be on the verge of ceasing to act their letter of 6 May should have satisfied the 1^st Plaintiff’s solicitors.  In the event, the matter was resolved by agreement on the next court appearance on 23 May.  The appropriate order for costs is one of no order for costs on the summons including the costs previously reserved under it.

11.  The other two matters which have concerned Mr Strachan relate to the filing of further evidence in the enquiry and the fixing of a date for the hearing of the assessment.  As this is of general relevance to all the parties I propose to leave this aspect to last.

The 2^nd Defendant’s Summons of 13 May

12.  This comprises two aspects.  Firstly, the application to raise the amount of the existing embargo on removal of assets from Hong Kong from $20 million to $87.5 million, which is the amount claimed on the assessment of damages by the 2^nd Defendant.  Mr Barlow, on its behalf, submits that this is perfectly justified and fits into the scheme of the orders that I made on 4 February, the whole purpose of which was to protect and compensate these wronged Defendants from the extravagance of the Plaintiffs’ conduct in bringing this derivative action against them, obtaining a substantial Mareva injunction, now said to have caused them very considerable loss, only to withdraw the action within a few weeks of its initiation.

13.  Mr Sussex replies by saying that there is simply no reason for such an order.  It would be meaningless.  The injunction is a domestic one, its reach is not world-wide.  The Plaintiffs have no assets in Hong Kong save for the just over $2 million now paid into court, and that the court should not make an order that would serve no purpose.  Equity does not act in vain he says and, although he does not specifically say so, the fact is that the Plaintiffs would almost certainly see to it that no assets of theirs would come to Hong Kong whilst there is in place the current regime of orders and the enquiry as to damages remains to be heard.

14.  Mr Barlow’s response is to say that if this is the Plaintiffs’ approach then if they are to be consistent with it, they should be applying for a reduction of the order from $20 million down to the figure currently paid into court.

15.  Whilst one has sympathy for the 2^nd Defendant’s position and the court would wish to afford it all proper interlocutory protection, I also need to approach this with a degree of realism.  It strikes me that Mr Sussex is right.  The truth of the matter is that there is nothing within this jurisdiction beyond what is now in court and it is very unlikely indeed that there ever will be.  I propose to leave matters as they are.  To order the amount to be increased would be acting in an entirely academic way.  No practical purpose would be served now nor, as best as one can predict such matters, in the future.  This part of the summons must therefore fail and will stand dismissed.

16.  The next aspect concerns the extension of the anti-trust injunction to cover Pan Stone’s Originating Summons in the High Court of Malaysia.  It seems to me that Mr Barlow’s analysis as to whether Pan Stone is in effect controlled by Mr Ooi Kee Liang is entirely correct.  Mr Goh Teng Whoo, who is on paper, the person in control of the affairs of Pan Stone is very much a subordinate of Mr Ooi.  The researches of Mr Peter So of Lovell’s, the 2^nd Defendant’s solicitors, as set out in his second affidavit [B1/168.5] clearly shows that Mr Goh is an employee, albeit a senior one, of Mr Ooi within Mr Ooi’s property development businesses Concept Intelligence Sdn Bhd and Ideal Homes.  Given the nature of that relationship, which Mr Ooi has attempted to diminish, I have no doubt that it is within Mr Ooi’s power to see to it that Pan Stone, through Mr Goh, can take steps to stay such parts of the Originating Summons as this court considers it should.  In order to make any headway on this aspect, Mr Barlow needs to have demonstrated that Mr Ooi, as the controlling mind behind the Plaintiffs, is also in that position so far as the affairs of Pan Stone are concerned, which on my finding he has.  Without that Mr Barlow would have failed in limine.

17.  I now need to consider, given the nature of the proceedings instituted by Pan Stone, whether these proceedings are of such a nature as to be caught by the terms of the anti-suit injunction of 4 February.  If they are not, or any part of them is not, then the application to extend the order to cover these proceedings must fail either entirely or in respect of such part as is outside the purview of the order of 4 February.

18.  The starting point to this is the Originating Summons itself which appears as Exhibit STMP4 of Mr So’s first affidavit sworn on 13 May [see B1/196].  The relevant parts of the pleading are at pages 198 and 199.  There are two sets of declarations that are asked for.  I take those at paragraph 2 of the prayer first because it strikes me that these cannot be said to raise the same issues or disputes as those appearing in the Statement of Claim in this action.  These declarations relate to Malaysian securities and company law, and I would have thought, raising as they do rights of representation on the Board of Directors of 6^th and 7^th defendants (the Plaintiffs in this action), are matters which fall outside the issues raised in the Statement of Claim.  Mr Barlow has not really suggested a way in which these declarations could be caught by the terms of 4 February anti-suit injunction.  I do not believe they are and accordingly, certainly as to these declarations, the application to have the anti-suit injunction extended to them must fail.  The same fate must befall the injunction asked for at paragraph 3 of the Originating Summons insofar as that is said to support any declaration that is made by the court in Malaysia in respect of those paragraph 2 declarations.

19.  As to the declarations asked for under paragraph 1, Mr Barlow refers to the fact that these declarations are the same as the declaration asked for in the Statement of Claim in this action.  This refers to the Management Agreement and when one considers the terms of paragraph 1 of the prayer to the Statement of Claim [B1/44] which seeks a declaration that the Management Agreement is “null and void and of no legal effect”, it seems to me that Mr Barlow must be right in submitting that this part of the prayer of the Originating Summons in Malaysia covers the same issue as that raised in this action.  The Originating Summons seeks to achieve the same result as the Statement of Claim in this court had before the action was discontinued.  This being so I am of the view that an order should go in terms of paragraph 2 of the 2^nd Defendant’s summons [B1/122] which will have the effect of requiring Pan Stone to stay paragraph 1 of the prayer to the Originating Summons and paragraph 3 insofar as any injunction that might have gone to give effect to a declaration under paragraph 1.  This therefore concludes what I need to say about the 2^nd Defendant’s summons of 13 May.  As to the costs of this summons, I take of view that broadly speaking honours have been shared and accordingly I propose to make an order nisi that there should be no order as to costs on this summons.

The 2^nd Defendant’s Summons of 24 July [B1/135.57-59]

20.  By this summons, the 2^nd Defendant seeks to strike out any reference to the Management Agreement by the Plaintiffs in their defence to the 2^nd Defendant’s Particulars of Claim of Loss.  I have already referred to the basis of the application.  Mr Barlow says that this is an attempt to re-litigate the effect of the Management Agreement after the action has been discontinued.  The Plaintiffs’ pleading is at B1/135.30-135.38.  It is very clear from paragraphs 6(2)(3) and 13(2)(3) that if allowed to the Plaintiffs intend to attack the validity of this Agreement and further refer to it on the basis that the obtaining of the injunction was not causative of any loss or damage as the 2^nd Defendant may be able to prove.

21.  Mr Sussex analyses the matter in this way.  He says that just because the action has been discontinued the Management Agreement has not gone away.  The court in assessing damages retains a discretion as to what damages the Plaintiffs ought to pay.  In this regard, causation of losses claimed by the 2^nd Defendant (and indeed the 1^st Defendant as well) is up for dispute.  If the Management Agreement is shown to be invalid and should therefore go then any losses that are said to flow from that Agreement cannot be recoverable. 

22.  It seems to me that such an argument must at least be fairly arguable, in which circumstances those parts of the Plaintiffs’ defence ought to be allowed to stand and contested over at the hearing of the assessment.  The assessment must inevitably take in all aspects of the grant of the Plaintiffs’ injunction which are said to have caused the Defendants’ losses.  The Defendants rely on the Management Agreement in their Particulars of Claim of Loss and it must be at least fairly arguable that the Plaintiffs should be able to submit that this Agreement is invalid and therefore cannot be relied on as having been a source of the Defendants’ losses.  Accordingly, I propose to dismiss this summons with an order nisi that the costs of the summons should be to the Plaintiffs in any event.  The way that Mr Sussex has put the matter on behalf of the Plaintiffs must therefore be left to the hearing of the assessment itself, as the 1^st Defendant has I think correctly accepted by at this stage only challenging the Plaintiffs’ contentions in its pleadings and therefore reserving the position for argument to the hearing of the assessment.  This is all I need to say on this summons.

Directions and Setting Down

23.  The Defendants are anxious to have the assessment set down for hearing now.  Estimates for the length of the hearing range from five to seven days.  Whichever of these estimates is taken will mean that a fixture will not be obtained much before January next year leaving sufficient time for any outstanding interlocutory matters to be argued over and dealt with in time.  Mr Sussex for the Plaintiffs complains that his clients should not be bounced into court before they are ready.  This is a very substantial claim that is being made against them and it should not be dealt with summarily.  I agree with those sentiments, nevertheless Mr Strachan, who has dealt with this aspect, is also right.  I will direct that the hearing of the assessment should now be set down for hearing with a 7-day estimate.  There are three parties and the canvassed issues are likely to take some time to work through.  The listing should be in consultation with counsel’s dairies.  Such witnesses as the parties intend the call will make themselves available for cross-examination at the option of any of the opposing parties.  Affidavits and, witness statements if any, will stand as part of the witnesses’ evidence in chief unless otherwise ordered at the hearing.  I have already provided for pleadings and discovery.  I will leave it to the parties themselves to draw up any further pre-hearing directions.  Failing agreement, the disputed directions will need to be listed before me for decision.  I do not think it is necessary to list a formal Check List Review hearing but I direct a Pre-trial Review before me 56 days before the start of the hearing.  Any outstanding directions which the parties are able to agree should be sent to me for approval within 21 days of this Ruling.  The costs of this part of the hearing will be costs in the assessment.  This will be an order nisi.

24.  Hopefully, this Ruling has dealt with the contentious matters and that the parties can now devote their energies to getting the matter listed and disposed of.  There should not be much to argue about that I can see in terms of outstanding directions.  I am grateful to counsel for their assistance so far.  Where I have made orders for costs all these orders will come with a certificate for two counsel.

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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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.

HCA1/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1 OF 2008

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R U L I N G

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1.  What I am required to rule on this afternoon is short.  The 1st defendant is inviting me to vary the existing ex-parteMareva injunction dated 31 December last to permit it to pay its reasonable business expenses and legal fees.

2.  Mr Smith, SC, who appears for the plaintiff has suggested that this is already provided for under the terms of the existing order circumscribed by what, in the circumstances, might be reasonable.  Nevertheless, it seems to me that Mr Scott, SC, is right in saying that I should provide an amount, otherwise the bank or banks which hold the 1st defendant’s account will not be able to release any money.  In the circumstances, I will in a moment provide what I judge to be a reasonable amount as matters presently stand.

3.  The next issue concerns fortification of the plaintiffs’ undertaking in damages; something over $11 million is sought by the 1st defendant.  Lastly, I also need to make some ancillary orders which I will do presently.

4.  As to the amount for business expenses, a sum of $28,787,260 is asked for, justification for which is to be found in bundle E, pages 263 and 264, which will enable the project to continue, this all coming from the first affirmation of Mr Kwan Wah-kwun dated 24 January this year.  

5.  I propose to allow this to be spent as a maximum at this stage on terms of the 1st defendant provides the plaintiff, on a fortnightly basis, a schedule setting out the amount spent on its business expenses and bank accounts from which those expenses are met; secondly, copies of documents supporting and/or demonstrating the payments made in each case.

6.  Mr Smith had suggested that this should come on a weekly basis.  It seems to me that fortnightly is probably less onerous and is sufficiently frequent to protect the plaintiffs’ interests.  I will also allow $1 million to be withdrawn for legal expenses.

7.  I now turn to fortification.  The plaintiffs being overseas companies with no assets to speak of in Hong Kong, Mr Justice Reyes has ordered the plaintiff to provide $8 million to the 2nd defendant but the basis for that amount is different from that which is put forward on the 1st defendant’s behalf, putting its potential losses at this more substantial figure of $11 million and these losses are sought to be justified at pages 254A, B, C and D of bundle E.

8.  In this regard, Mr Smith has addressed a number of persuasive submissions as to why I should order, in effect, a nominal amount.  But it seems to me that Mr Scott has been able to demonstrate a proper basis for saying that the 1st defendant faces very substantial losses arising from this injunction if it turns out that the injunction should not have been ordered.

9.  I propose to err on the side of conservatism if only because this can be looked at again if need be.  Fortification should be provided in the sum of $9 million on or before 31 January, the terms of the order being as appear in (d) on page 2 of Mr Scott’s skeleton.  I will also extend the 1st defendant’s time for service of its defence and counter-claim to 27 February this year and say that today’s costs should be reserved, in the first instance, to 1 February when I will hear the substantive argument as to whether the injunction can stand.  This order will go with certificate for two counsel.

10. So the order therefore will be as appears at paragraph 5 of Mr Scott’s skeleton with the additions that I have just provided in this ruling.  I think that is all I need to say.