JOSEPH GHOSSOUB v. TEAM Y&R HOLDINGS HONG KONG LTD AND OTHERS

HCMP 1074/2015

[2019] HKCFI 589

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1074 OF 2015

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D E C I S I O N

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1.  This is an application by the Respondents for the exercise of the Court’s discretion to stay the Petition filed in these proceedings, pending determination of the underlying disputes in Claim CL-2015-000901 (“English Proceedings”) by the High Court of Justice of England and Wales.

2.  The Petition was issued in April 2015 by Mr Joseph Ghossoub (“JG”), under s 724 (1) of the Companies Ordinance Cap 622 (“Ordinance”), for an order that the 2^nd, 3^rd and/or 4^th Respondents purchase JG’s 20% shares in the 1^st Respondent (“Company”), on the ground that the affairs of the Company have been conducted by the 4^th Respondent in a manner unfairly prejudicial to the interests of JG.  The 2^nd and 3^rd Respondents are shareholders holding a total of 60% of the Company.  They are wholly controlled by the 4^th Respondent.  The balance 20% of the shares in the Company are held by one Talal Elias Makdessi (“Makdessi”).

3.  The present application for stay was initially on the ground that the claims made by JG consist of issues or disputes which JG had agreed to refer to the exclusive jurisdiction of the English Court, and alternatively, on case management grounds that the Petition should be stayed pending determination of the underlying disputes in the English Proceedings, or at least pending an application for summary judgment made in those proceedings.  By the time of the hearing of the application for stay before this Court, the application for summary judgment in the English Proceedings had already been dismissed, so that ground is no longer pursued.

4.  The Respondents accept that they had made an earlier application, in November 2015, (“2015 Summons”) to stay these proceedings.  That application was dismissed by Deputy High Court Judge Le Pichon on 16 June 2016. The Respondents had appealed, and the appeal was dismissed by the Court of Appeal in July 2017.  Leading Counsel for the Respondents emphasized that the present application for stay is not an attempt at re-litigation, and certainly not an abuse of process.  The Court of Appeal’s decision in Chu Hung Ching v Chan Kam Ming [2011] 1 HKC 396 (CA) was relied on, to support the Respondents’ contention that the dismissal of the stay made by the 2015 Summons does not constitute res judicata, and that by reason of the material change of circumstances since the disposal of the 2015 Summons, it would not be unjust or unreasonable for this second application for stay to be heard.

5.  The facts and history of the underlying dispute between JG and the Respondents have been outlined in paragraphs 1 to 29 of the Decision of DHCJ Le Pichon of 16 June 2016 (“LP Decision”), and will not be repeated here.  I will adopt the abbreviations used in the LP Decision.

6.  I can accept the Respondents’ arguments that it will not be unjust or unreasonable to allow a second interlocutory application on the same issue to be heard, if it can be shown that there is a material change of circumstances of a non-evidentiary nature (Chu Hung Ching).  In the present case, the Respondents rely on JG’s “clarification” of the basis of his claim, when he filed an answer on 26 January 2018 (“Answer”) to a request made by the Respondents for further and better particulars of the Petition (“Request”). The Request was dated 13 October 2017, after the Defence was served upon dismissal of the 2015 Summons.  The focus of the present application and the Petition now rests on the plea made in paragraph 26 of Section B of the Petition, to which the Request was directed. 

7.  Section B of the Petition sets out the “bases of cooperation” between the parties and relied upon by JG as petitioner.  The provisions of the SPA and the SA are set out in paragraphs 20 to 25 of the Petition.  The SPA is the agreement for sale and purchase made between JG, Y&R, and WPP 2005 Limited (as guarantor of Y&R).  Under a Deed of Novation, Cavendish (the 2^nd Respondent) replaced Y&R and assumed all the obligations of Y&R under the SPA.  The SA was a service agreement made between JG and the Company only.

8.  Paragraph 26 of the Petition sets out the “mutual understanding and legitimate expectation of JG”, which is the entire basis of his claim for relief in the Petition, and pleads as follows:

“26 In view of the above provisions of the SPA and the SA, and the circumstances in which (JG) sold part of his interests in the Menacom businesses to WPP, it was the mutual understanding between all shareholders of (the Company) and WPP, and certainly the legitimate expectation of (JG), that:

26.1 JG would be entitled to participate in and would not be excluded from the management of (the Company) and the Group; etc” (emphasis added)

9.  As was recognized throughout in these proceedings, and as reflected in both the LP Decision and the Decision of the Court of Appeal dated 21 July 2017 (“CA Decision”), JG’s case framed in the Petition for unfair prejudice is that the complaints he made are not confined to strict legal rights under the relevant contracts (the SPA and the SA), but they constitute a breach of the legitimate expectations of JG arising out of the general circumstances concerning the share sale.  On that basis, JG prays in aid the principles applying equitable considerations as explained by Lord Hoffman in O’Neill v Phillips [1999] 1 WLR 109 2 at 1098D to 1099 F (para 87 of the LP Decision and para 15 of the CA Decision).

10.  As can be expected, therefore, the Request refers to paragraph 26 as follows:

“(a) Please confirm if the “circumstances” in which Mr Ghossoub sold part of his interests in the Menacom business to WPP are fully pleaded in section A2 of the Petition.

(b)   If not, please give full particulars of such other circumstances in which Mr Ghossoub sold part of his interests in the Menacom businesses to WPP by which Mr Ghossoub’s legitimate expectation was allegedly formed in part.

(c)   Please state which shareholders of WPP allegedly have a mutual understanding of each of the matters set out in paragraphs 26.1-26.5.

(d)   Please give full particulars as to how it is alleged that each such shareholder of WPP is stated to have founded and be party to the alleged mutual understanding in each of paragraphs 26.1-26.5.

(e)   To the extent that the alleged mutual understanding and legitimate expectations are not reflected in the express provisions of the SPA and SA please give full particulars as to how the alleged mutual understanding of the shareholders and the legitimate expectation of Mr Ghossoub are said to have arisen from “the circumstances in which Mr Ghossoub sold part of his interests in the Menacom businesses to WPP”, in respect of each of the entitlements as alleged under paragraphs 26.1 to 26.5 of the Petition, to included details of any communication, the date and persons involved.”

11.  The Answer states:

“(a) Yes

(b) Not applicable

(c)-(d) The preamble of paragraph 26 refers to “all shareholders of TYRH” and WPP itself. It does not allege any mutual understanding with “shareholders of WPP”.

(e) Not applicable.  As stated in the preamble of paragraph 26, the mutual understanding between shareholders and legitimate expectation of Mr Ghossoub were based on the provisions of the SPA and SA referred to in Section B1 and B2 of the Petition.”

12.  The issue is whether the Answer in (e) above states the case of JG in such a way as to constitute a material change of circumstances, as compared to his originally pleaded case in the Petition, to which the Court should have regard and order a stay on reconsideration of the matter.

13.  On first reading, paragraph 26 and the Answer may indeed be understood as JG’s acknowledgment that his legitimate expectation was entirely based on the provisions of the SPA and the SA, such that he was not relying on any extraneous matters raised or terms discussed in the negotiations and meetings prior to the signing of the SPA and the SA, as giving rise to his legitimate expectations.  The Respondents argued that this was contrary to the case hitherto contended for JG for the purposes of the 2015 Summons, that the basis of the alleged mutual understanding and legitimate expectations extend beyond the scope of the SPA and SA.

14.  For the record, Leading Counsel for JG confirmed at the outset of her submissions that when JG referred in the Petition to the “mutual understanding” and expectation, he was seeking to distinguish between the position of the parties and the non-parties to the SPA and the SA, and that because there were entities who were not parties to the SPA and the SA, JG could not just rely on the terms of the SPA itself as the basis of the “mutual understanding” and reasonable expectation.  As against the entities who were not parties to the SPA and the SA (namely, Y&R and WPP), JG’s case has always been (as Leading Counsel confirmed on 30 January 2019) that reliance could not be placed by him on the SPA and SA, but that he must look to the circumstances in which WPP had (for example) approached JG to increase its shareholding, and how the parties had decided to incorporate the Company in Hong Kong. 

15.  It might be remarked that this was not so stated expressly, or clearly, in paragraph (e) of the Answer. 

16.  On behalf of JG, Ms Chan emphasized that the Answer for paragraph (e) of the Request has to be read in the context of the entire Request itself, and the Answer.  She stressed that it is apparent from the Request and the Answer for paragraph (a) that the circumstances in which JG had sold part of his interests in the Menacom businesses to WPP are already fully pleaded in section A2 of the Petition.  These include WPP’s approach in 2006 and the negotiations between JG and the representatives of WPP (not a party to the SPA later signed) including Sir Martin.

17.  Hence, in response to the Request which was: “to the extent that the alleged mutual understanding and legitimate expectations are not reflected in the express provisions of the SPA and SA”, the Answer states that this was “not applicable”, and further states that “the mutual understanding between shareholders and legitimate expectation of (JG) were based on the provisions of the SPA and the SA referred to in Section B1 and B2 of the Petition”.

18.  Ms Chan emphasized at the hearing that this has all along been JG’s case, and that there is no change. 

19.  From this clarification in court, I understand JG’s case to be that the mutual understanding and his legitimate expectations are (as stated in the first part of (e) of the Answer) all reflected in the express provisions of the SPA and the SA, but because there are entities such as WPP and Y&R which are not/no longer parties to those agreements, JG does not rely only on his contractual claims under the SPA and the SA, but relies on the provisions of the SPA and the SA as the “basis” to give rise to some mutual understanding, and to the reasonable expectation on his part, which he seeks to enforce through the Petition, in reliance on O’Neill v Phillips [1999] 1 WLR 1092 (that equitable considerations might make it unfair for those conducting the affairs of the Company to rely on their strict legal powers).  The Answer to (e) itself does not refer to other circumstances, but Ms Chan appears to suggest that there may be (for the non-parties), but confirmed that they are all pleaded in Section A2 of the Petition, and that the mutual understanding of at least the shareholders of the Company, and the legitimate expectations of JG, are already reflected in the express provisions of the SPA and SA.

20.  The ambiguity as to the “mutual understanding” and how it arose may be due to the manner of pleading paragraph 26 of the Petition, and the language used in the Request and the Answer.  Paragraph 26 refers to the “mutual understanding between all shareholders of (the Company) and WPP”, namely, an understanding shared by all the shareholders of the Company and by WPP.

21.  The Request refers to the extent to which “the alleged mutual understanding and legitimate expectations” are not reflected in the express provisions of the SPA and SA, to which the Answer in response states that it was not applicable (ie that they are so reflected).  The Request then sought particulars of how “the alleged mutual understanding of the shareholders” arose from the circumstances.  In response, the Answer refers to the mutual understanding “between shareholders”, and states that this was based on the provisions of the SPA and SA.

22.  It was against these cross-references, somewhat directed to cross-purposes, that JG and the Respondents took opposing stance.  Ms Chan stated that on JG’s pleaded case, the mutual understanding of the shareholders of the Company (and parties to the SPA) were all reflected in the SPA, and that JG’s claims against the shareholders are contractual claims, but JG does not only rely on the terms of the SPA as against the non-parties.  On their part, the Respondents maintain that JG’s case has now been changed, to one in which the alleged mutual understanding (of everyone – shareholders of the Company, and WPP itself) is based entirely on the express provisions of the SPA and SA.

23.  Because the pleading in paragraph 26, the Request and the Answer use different references to “mutual understanding”, on a strict view of the pleadings, it can still be said that it is as yet unclear how it is alleged by JG that the alleged “mutual understanding” between the shareholders of the Company, including himself, and WPP (as pleaded in paragraph 26) arises from the circumstances referred to in section A2 of the Petition.

24.  Whilst those acting for JG claim that their pleading and case on the alleged mutual understanding and reasonable expectation has been clear and certain from day one, the English Court was similarly unconvinced that JG’s pleading of the alleged mutual understanding and his reasonable expectations do go beyond claims of breach of the provisions of the SPA, and it took the view (in the Judgment of Lawrence Rabinowitz QC of 6 October 2017) that such allegations were in any event lacking in particularity. 

25.  It was not necessary for the pleading in paragraph 26 of the Petition to be analyzed in detail, in either the LP Decision or the CA Decision.  However, it is clear from both decisions that the application for stay made by the 2015 Summons was considered and decided on the basis that the claims of JG under the Petition are made, not only against the parties to the SPA and the SA, but also against entities which are not parties to the 2 agreements, and that the complaints made by JG in the Petition are all directed against WPP.  The claims made in the Petition (categorized as the “exclusion complaint”, the “dividends complaint” and the “Makdessi complaint” in the CA Decision) were analyzed, in the context of the scope of the exclusive jurisdiction clauses contained in the SPA and SA (“EJ clauses”), and it was concluded in the LP Decision (see paragraph 67) that only the dividends complaint against Cavendish (the 2^nd Respondent herein) falls within the scope of the EJ clauses.  The exclusion complaint and the Makdessi complaint are directed against WPP, and were found in the LP Decision to fall outside the EJ clauses, as does the dividends complaint against parties other than Cavendish.  The findings were upheld in the CA Decision.

26.  The Court refused to grant the stay on the 2015 Summons, on the basis that the EJ clauses fetter the statutory right of JG (“Fetter Issue”), as a shareholder of a company incorporated in Hong Kong, the shareholders of which had decided and agreed that the Company and its operations including its status and internal affairs should be subject to all the provisions of the Ordinance, to present an unfair prejudice petition to the Hong Kong Court, and to seek remedies from the Hong Kong Court pursuant to the Ordinance, for (inter alia) valuation of JG’s shares to be bought out by those controlling the Company.  The CA Decision also made it clear that there were no exceptional circumstances to warrant a stay of the Petition on case management grounds.

27.  As Ms Chan highlighted, any complaint of insufficient or unclear particulars in the Petition can be dealt with by further requests, but this is not a ground for seeking a stay of proceedings.

28.  I consider that the Answer in paragraph (e) may still be unclear as to the extent to which WPP’s alleged understanding with the shareholders of the Company is reflected in the SPA and the SA, and is certainly unclear as to how it is said that such understanding of WPP arose from the circumstances in which JG’s interests in the relevant business were sold.  This should be clearly stated by JG without further protraction. However, I am not satisfied that objectively but carefully read, the Answer can be said to constitute a change in circumstance since the LP Decision and the CA Decision.  The Answer given in paragraph (e) is confined to the alleged mutual understanding between the shareholders of the Company only, and the basis of such understanding is said to be the provisions of the SPA and SA.  There has been no change in the pleading in paragraph 26 of the Petition.  If the pleading was unclear as to the basis of WPP’s alleged understanding, it remains unclear, notwithstanding the Request and the Answer.  The Answer does not, on my reading, put forward the “new” case of JG as contended by the Respondents.  It is at most ambiguous, and clarification should be sought and, at the appropriate stage, tested by the evidence and on cross-examination.

29.  Even if there was such a change as contended by the Respondents, I am not satisfied that such change is sufficient to warrant the exercise of this Court’s discretion to order a stay of the resolution of the underlying dispute in this Petition, until the determination of the English Action.

30.  In essence, the Respondents’ case on the stay is that as acknowledged in paragraph (e) of the Answer, the claims against all the shareholders of the Company and WPP are in fact based entirely upon the provisions of the SPA/SA, and that even as against the non-parties to these agreements, the complaints made against them are so closely linked with the SPA and SA that, although they are not formulated as a contractual claim, they fall within the EJ clauses in respect of all disputes arising out of or in connection with the SPA and SA.  The determination by the Court in the English Proceedings, on whether JG can be found to be a “Defaulting Shareholder” under the SPA by reason of his misconduct, will have significant impact on whether JG is entitled to the primary relief of the buyout order sought in the Petition, and will further narrow the issues in dispute between the parties in these proceedings.  For case management purposes, the Respondents argued that the Court’s determination of JG’s claims of unfair prejudice and his entitlement to the buyout order should be stayed, until the English court has made findings on the facts in dispute in the English Proceedings.

31.  The Respondents argued that the Fetter Issue does not arise, since they are not seeking to prevent or deter JG from seeking the Hong Kong Court’s determination of the Petition and his claims for relief under the Ordinance.  They only ask that the Court should stay its determination of the Petition, pending and until the findings made in the English Proceedings.  It was emphasized that the application for stay is not on the basis that the EJ clause should be enforced (when it was held in the LP Decision, and upheld by the Court of Appeal, that the EJ clause fetters the statutory right of JG to present an unfair prejudice petition to the Hong Kong Court under the Ordinance).  The Respondents argued that the present stay is sought simply on case management grounds, and that it would be costs effective to stay the determination of the Petition until the English court has decided on the claims in dispute in the English Proceedings.  It would not be contrary to public policy to order a stay, since the Hong Kong Court will still determine the Petition and whether JG should be granted relief under the Ordinance, and if yes, to value his shares to be bought out, on the basis of and taking into consideration the findings made in the English Proceedings as to whether or not JG is a Defaulting Shareholder as claimed by the Respondents. 

32.  I accept the submissions made on behalf of the Respondents in this regard.  The jurisdiction of the Hong Kong Court will not be ousted by reason only of any temporary stay of the Petition, if such stay is appropriate and just in all the circumstances.  JG’s claims in the Petition are only sought to be stayed temporarily, not shut out entirely or removed entirely from the Hong Kong Court.  When the Hong Kong Court determines, in due course, the issues which arise in the Petition, it can take into consideration, when deciding whether JG is entitled to relief and the appropriate relief to grant under the Ordinance, the relevance of any findings made by the English court on the facts in dispute in the English Proceedings.  The key issue remains: whether it would be just to order the temporary stay sought.

33.  In deciding whether to stay an action on case management considerations under the inherent jurisdiction of the Court, both Mr Coleman and Ms Chan referred to Reichhold Norway ASA v Goldman Sachs [2000] 1 WLR 173 and Linfield Ltd v Taoho Design Architects Ltd [2002] 2 HKC 204 for the applicable principles.

34.  In Reichhold, the English court granted a stay of an action pending the completion of arbitral proceedings in Norway.  In exercising its discretion to order such a stay, the court took into consideration the relationship between the parties to the proceedings in England and abroad, any prejudice the plaintiff may suffer if the action is stayed, the delay which may be occasioned, whether such delay can be compensated by an award of interest, and whether the ends of justice would be better served by granting a stay in terms of considerations of cost and convenience.  On appeal, the stay was upheld but it was stated that such stays are only granted “in rare and compelling circumstances”.

35.  The Respondents further rely on the decision of the Singapore court in Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57, where the Court of Appeal held that they would not set the bar for the grant of a case management stay at the “rare and compelling” threshold held in Reichhold.  The Singapore Chief Justice held in Tomolugen that a plaintiff’s right to sue whoever he wants and where he wants is fundamental, but not absolute, and is restrained only to a modest extent when his claim is stayed temporarily pending the resolution of a related arbitration, as opposed to when a plaintiff’s claim is shut out in its entirety.  He observed that in appropriate cases, the right of the plaintiff may be curtailed or may even be regarded as subsidiary to holding the plaintiff to his obligation to arbitrate where he has agreed so to do.

36.  The case of Linfield concerned multiple proceedings involving different parties, with arbitration clauses governing the contracts affecting some defendants only.  The 4^th defendant in the action sought to stay the action against it, pending the outcome of the arbitrations between the plaintiff and other parties, despite the fact that its own contract with the plaintiff did not contain any arbitration clause.  The court considered that the 4^th defendant’s application approximated roughly to a lis alibi pendens application, whereby a party seeks a stay on the basis of concurrent proceedings elsewhere, involving the same or a similar subject matter and identical parties.  Ma J (as the Chief Justice then was) held in Linfield that the starting point was to apply lis alibi pendens-type principles, namely that (1) the court must consider what would serve the ends of justice between the parties to the litigation and the administration of justice generally; (2) a stay should not cause an injustice to the plaintiff; (3) the applicant for stay must satisfy the court that continuing the proceedings would be oppressive or vexatious to him or an abuse of process and unjust, and (4) where a plaintiff commences proceedings as of right, he should not be deprived of the right to continue those proceedings in the absence of “very good reasons to the contrary”.  For multiple proceedings involving similar or the same issues, but no identity of parties, the court considered that it is not desirable or possible for one or more of the proceedings to be stayed pending resolution of the others, even though a risk of inconsistent findings would inevitably arise.  This is because determination of issues in proceedings between different parties would not be binding on any other party in another set of proceedings.

37.  As analyzed in the LP Decision and the CA Decision, only the dividends complaint against Cavendish falls within the ambit of the EJ clause, by which JG agreed to submit to the jurisdiction of the English court for determination of any dispute “arising out of and in connection with the SPA”.  The exclusion complaint and the Makdessi complaint are essentially claims against WPP, which is alleged in this Petition to be in control of the Company.  WPP is not a party in the substantive English Proceedings, whereby Cavendish and the Company seek a declaration that JG is a Defaulting Shareholder under the SPA.

38.  As the majority and the substance of the complaints made in the Petition are directed against WPP, which is not a party to the SPA/SA, the findings made in the substantive English Proceedings do not bind WPP - which is not a party thereto.  Whatever the outcome of the English Proceedings, the substantive complaints made in the Petition against WPP will still have to be argued before and decided by the Hong Kong Court.

39.  The underlying dispute in the English Proceedings (the Defaulting Shareholder claim, in proceedings which had been commenced by Cavendish and the Company against JG), which the Respondents wish to have resolved first, before the Hong Kong Court decides the issues relevant to the Petition, is whether JG can be declared to be a Defaulting Shareholder under the SPA, by virtue of his misconduct and breach of the provisions contained in the SPA (which prohibited him from engaging in competition with the corporate group to which the Company belonged, holding interests in companies which competed against the Company, etc).  The Respondents claim that the English court’s determination of whether JG is a Defaulting Shareholder by virtue of his misconduct would have significant impact on the claims made in the Petition.  On the dividends complaint, the Respondents pointed out that JG would not be entitled to receive any dividends from the date he became a Defaulting Shareholder, and there would be res judicata issues in respect of any findings made of JG’s misconduct.  On the exclusion complaint, findings on JG’s misconduct and whether he had been engaged or interested in competition with the Company would be relevant to the Hong Kong Court’s determination of whether any steps taken by WPP to exclude him from management were justified.  Further, a declaration made by the court in the English Proceedings, that JG is a Defaulting Shareholder, would narrow arguments on the relief to which he would be entitled, as the declaration would mean that under the SPA, he would no longer have shares to be bought out.

40.  However, there is no reason why the question of whether JG was in breach of the provisions of the SPA, and/or his duties owed to the Company and/or the other shareholders, cannot be raised and determined in the Petition.  Indeed, the Respondents in the Petition have raised JG’s alleged misconduct and breach of duties (“Misconduct Claim”) in these proceedings, albeit on the basis that this is without prejudice to their stance that the issue should be determined in the English Proceedings. 

41.  Leading Counsel for JG emphasized that there has been extensive discovery on the Misconduct Claim in the Petition, which discovery process has taken a period of 9 months, with the incurring of significant costs.  The Misconduct Claim raises issues which are identical to the claim made in the English Proceedings, of JG being a Defaulting Shareholder.  I agree that the Respondents cannot be seen to suffer any injustice, if the Misconduct Claim should be determined in the Petition itself, and not in the English Proceedings. All the parties said to be affected by JG’s alleged misconduct and breach are before the Court in the Petition.

42.  On the evidence, there has not been much progress in the English Proceedings, after the dismissal of the application for summary judgment.  There is no evidence that a trial is likely to take place in the near future.  By way of contrast, since the dismissal of the appeal against the stay granted under the 2015 Summons, the Points of Defence to the Petition was filed in August 2017, the Request and Answer were served, and there has been extensive discovery made in the Petition.  There is no good reason why JG’s claim for relief in the Petition should be delayed, pending the determination of the facts in dispute between JG and Cavendish in the English Proceedings, which cannot be shown to be imminent in the near future.  The CJR underlying objectives of expeditious disposal of a case, and increasing the cost effectiveness of procedures, cannot be attained if the Petition should now be stayed, when it has not been established that any prejudice would be sustained by the Respondents if the issues raised in the Petition, including the Misconduct Claim, should be determined in Hong Kong.  Nor has it been established that continuing the Petition would be oppressive, vexatious or unjust to the Respondents.

43.  For all the above reasons, I decline to grant the stay sought by the Respondents.  It follows that the costs of the application should be paid by the Respondents to JG, with certificate for counsel.

44.  I see no justification for the hearing of the Petition to be further delayed, and the parties should take immediate steps to proceed with setting a date for the determination of this dispute. 

HCMP 1074/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1074 OF 2015

________________________

________________________

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D E C I S I O N

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1.  These two summonses were taken out by the 1^st to 4^th respondents (“the respondents”):

(i) A summons dated 30 June 2016 (returnable on 7 October 2016) for leave to appeal the decision of this court dated 16 June 2016 (the “Decision”) dismissing the respondents’ application to stay an unfair prejudice petition presented by thepetitioner on 30 April 2015 (“the leave to appeal summons”).

(ii) A summons dated 2 September 2016 issued pursuant to Order 59, rule 13 and the inherent jurisdiction of the court to “adjourn” the petitioner’s summons for directions in the petition dated 21 July 2016; alternatively, that (a) no order be made until the determination of the respondents’ proposed appeal and (b) in the event that leave is refused, until the final determination of the respondents’ renewed application to the Court of Appeal for leave to appeal.  In substance, the respondents seek a stay of execution of the order made on 16 June 2016 and it would be convenient hereafter to refer to it as (“the stay of execution summons”).

2.  At the conclusion of the hearing, the court reserved its decision which I now give.

3.  The relevant background and issues arising from the respondents’ application dated 4 November 2015 to stay the petition (“the stay application”) are fully set out in the Decision giving rise to the present summonses to which reference should be made.

4.  After the dismissal of the stay application, on 21 July 2016 the petitioner issued a summons for directions in the petition returnable on 15 September 2016 before Harris J.

5.  On 2 September 2016 the respondents took out the stay of execution summons made returnable on 15 September 2016 before Harris J.  He declined to entertain the stay of execution summons, adjourning it to this court for hearing on 7 October 2016 and gave directions for the further conduct of the petition unless this court stays or varies such directions.

The leave to appeal summons

6.  Mr Smith SC counsel for the respondents put forward four grounds of appeal, namely:

(1) the court erred when construing the exclusive jurisdiction clauses and in finding that two of the petitioner’s complaints do not fall within the jurisdiction clauses;

(2) the court erred in law in finding that the exclusive jurisdiction clause in the SPA fetters the petitioner’s statutory right to present an unfair prejudice petition, and finding that it is inoperative to the extent it does so fetter;

(3) the court erred in finding that the petitioner did not have an effective remedy if it was bound to bring its action in England; and

(4) the court failed to consider whether to exercise its discretion to stay the proceedings against non‑parties to the exclusive jurisdiction clauses and/or failed properly to consider whether to stay the petition pending determination of the substantive English proceedings.

(A)   Questions of law

7.  Mr Smith identified two areas of the law where it was said the lines of authorities are unclear, uncertain and would benefit from review.  The submission was that they are important points of law that should be considered by the Court of Appeal.

8.  The first relates to the question of the fettering of statutory rights (the second ground in the draft notice of appeal).  The nub of Mr Smith’s submission is that the court failed to refer to Re Quiksilver Glorious Sun JV Ltd [2014] 4 HKLRD 759 in its discussion of the application of Re Fulham Football Club (1987) Ltd v Richards [2012] Ch 333. It was said that the court failed to appreciate the significance of Quiksilver in that there was no mandatory stay in that case as section 20 of the Arbitration Ordinance does not apply to winding up proceedings yet Harris J stayed the petition and applied Fulham.

9.  Quiksilver concerned an arbitration clause and not a jurisdiction clause.  In that case the court had to consider the extent to which it was appropriate to stay the petition issued by the shareholders on a just and equitable ground when there was a comprehensive shareholders’ agreement requiring disputes to be determined by arbitration.  It is important to note that unlike the petition in the present case, in Quiksilver, no non‑parties were involved and all the issues were arbitrable.  The considerations here are very different.

10.  Quiksilver relied on four grounds for resisting the stay (§13) which the judge rejected.  The first two grounds were made on the erroneous basis that a just and equitable winding up is an exercise of a class right.  The third ground was based on the fact that as there was no mandatory stay (because winding up proceedings do not fall within section 20 of the Arbitration Ordinance) the petition ought not to be stayed.  The fourth ground is linked to the third ground in that it was submitted that the court had no residual inherent jurisdiction to stay for determination by arbitration.  The judge rejected those points and exercised his discretion to order a stay pending arbitration.

11.  It will be seen that unlike the present case, Quiksilver did not have to resolve any issue concerning a fetter on the statutory right to present a petition.  The substantive dispute between the parties in that case was arbitrable: it concerned the basis upon which the joint‑venture was to end, that being the commercial disagreement that required resolution.

12.  For those reasons I do not agree that the omission of any reference in the Decision to Quiksilver renders it a matter worthy of review.

13.  The second area of law Mr Smith identified as worthy of review (said to form part of the fourth ground of the draft notice) is whether or not the fact that some respondents to the unfair prejudice petition (in fact three out of four) were not parties to the underlying agreement containing the exclusive jurisdiction clause prevents the court from staying the petition.

14.  In that regard, having reviewed that part of the Decision, I do not resile from the reasons given for coming to the conclusion that I did on the issue.

(B)   Appeal against the exercise of the court’s discretion

15.  The other main points raised by the respondents are the defaulting shareholder point and the no effective remedy point.  Both concern the exercise of the court’s discretion.  The principles in Hadmor Productions Ltd v Hamilton [1983] 1 AC 191 therefore apply.

16.  As to the defaulting shareholder point, the submission was that if the petitioner were found to be a defaulting shareholder in the English proceedings, then the whole exercise of the unfair prejudice litigation in Hong Kong will have been wasted because the petitioner would not have the necessary locus to bring proceedings as a shareholder in the first place.

17.  The English proceedings only commenced in December 2015, 7 months after the petition was issued.  At this point no assumptions can be made regarding the outcome of the English proceedings and certainly there is no basis for assuming that it is bound to be in Cavendish’s favour.

18.  The petitioner undoubtedly has the necessary locus to complain of the matters that had already occurred at the date of the petition (such as non‑payment of dividend) and remains a shareholder until the date he is declared to be a defaulting shareholder and required to sell his shares to Cavendish.

19.  Ms Chan SC (who appeared for the petitioner) submitted that in the event of the petitioner being declared a defaulting shareholder in the English proceedings, his complaints against non‑parties remain and would still require resolution.  That must be correct.  Even as against Cavendish, the petitioner is entitled, qua shareholder, to make the complaints, his cause of action having ‘accrued’ on the presentation of the petition.  I agree.

20.  For those reasons, I do not accept that simply because Cavendish has chosen to challenge the petitioner’s locus, the Hong Kong proceedings necessarily would be a waste of time and resources.

21.  As to the no effective remedy point, the submissions are a re‑run of those made at the hearing and considered in the Decision.  It calls for no further comment.

22.  In conclusion, I do not consider that proper grounds have been made out for leave to appeal to be granted.  Accordingly, the leave to appeal summons is dismissed.

The stay of execution summons

23.  The respondents seek a stay of this court’s order dated 16 June 2016.

24.  The petitioner made the obvious point that there is nothing to be stayed as the only order made by this court was dismissal of the stay application.  The court did not make any other order that the petitioner may seek to enforce or execute.  The logic of the argument cannot be faulted.

25.  The stay of execution summons is nothing more than an attempt to achieve a stay of the petition through the back door which, it was submitted, amounts to an abuse of process.  When so analysed, I am inclined to agree.

26.  It is a fact that the petitioner has not been able to proceed with the petition for 18 months as a result of the stay application and the listing of the stay of execution summons before Harris J rather than to this court which made the order under appeal as the respondents are required to do pursuant to Order 59, rule 13(1).

27.  In any event, the respondents have the burden of showing that there are good reasons to justify a stay of execution since a successful litigant should not be deprived of the fruits of his litigation.  While prejudice in the form of the expense and inconvenience of having to litigate in Hong Kong contrary to the jurisdiction clauses might arise, it could be compensated for, but there is nothing to show that the proposed appeal would be rendered nugatory.

28.  It was then contended that the respondents would be forced to file a defence and decide whether or not to run the defaulting shareholder provision as part of it.  If they do, it was submitted that the respondents will have cut themselves off effectively from dealing with it in the English proceedings because they will have chosen to litigate that point in Hong Kong.

29.  But the fact is that they do have a free choice in the matter however difficult the choice might appear to be.  The respondents are not under any compulsion or obligation to act one way or the other.  In any case, I cannot see how the proposed appeal would be rendered nugatory if a stay is not granted.

30.  Accordingly, the stay of execution summons falls to be dismissed and the directions given by Harris J on 15 September 2016 take immediate effect.

Application for an interim stay

31.  The respondents have intimated that they will consider making a renewed application for stay of execution to the Court of Appeal and, meanwhile, they seek in Mr Smith’s words “a mini‑stay” in the interim.

32.  Leaving aside the question whether the relief falls within the terms of §1(b) of the stay of execution summons, justification for such relief has not been shown.  Shortness of the stay is not a reason for granting it.  The application is refused.

Costs

33.  Costs should follow the event.  There is to be an order nisi of costs in favour of the petitioner.

HCMP 1074/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1074 of 2015

________________________

________________________

________________________

________________________

DECISION
________________________

1.  This was an application by summons dated 4 November 2015 (“the stay summons”) taken out by Team Y&R Holdings Hong Kong Limited (“the Company”), Cavendish Square Holding BV (“Cavendish”), Young & Rubicam International Group BV (“Y&R”) and WPP PLC (“WPP”) (collectively “the respondents”) for a stay of a petition presented by Joseph Ghossoub (“the petitioner”) on 30 April 2015 “pending determination of the issues raised therein by the High Court of Justice of England and Wales on the ground that the allegations in the [p]etition consist of or give rise to issues or disputes which the [p]etitioner has agreed should be referred to the exclusive jurisdiction of that court”. At the conclusion of the hearing judgment was reserved which I now give.

BACKGROUND FACTS

2.  The petitioner holds 20% of the issued shares in the Company.  The other shareholders are (1) Cavendish (as to 47.4%), (2) Y&R (as to 12.6%) and (3) Talal Elias Makdessi (“M”) (as to the remaining 20%).

3.  Cavendish and Y&R are Dutch companies wholly owned by WPP.  WPP itself was incorporated in Jersey with its main management and executive offices based in the United Kingdom.

4.  The Company was incorporated in Hong Kong on 27 November 2007 and is a holding company, holding various subsidiaries and other business entities (collectively “the Group”) that carry on business in advertising, media buying and public relations in the Middle East.

5.  In about 1994 M in collaboration with the petitioner founded the original business, operating in United Arab Emirates, Lebanon and Saudi Arabia.  In the late 1990s Y&R acquired a 25% stake in the business.  Sometime in 2000 WPP acquired Y&R.

6.  In about 2006 WPP wished to increase its stake in the business to a majority interest and began negotiations with the petitioner and M.  The parties reached agreement and pursuant thereto the business was restructured.

7.  In outline it was agreed that the Company would be incorporated for the purpose of holding the business following WPP’s acquisition.  The existing business including various entities and subsidiaries would be injected into the Company for new shares to be issued by the Company to the existing shareholders so that the shares would be held as to 419 to the petitioner, 455 to M and 126 to Y&R.  The petitioner and M would then sell 219 and 255 respectively of their shares in the Company to Y&R.

8.  On 28 February 2008, for the purpose of implementing the acquisition and restructuring the parties executed a series of agreements including the following:

(1) The petitioner, M, Y&R and WPP 2005 Ltd (“WPP 2005”) entered into a sale and purchase agreement whereby the petitioner and M agreed to sell in the aggregate 47.4% of the shares in the Company held by them to Y&R (“the SPA”).  WPP 2005 acted as a guarantor of the purchaser’s obligations.

(2) The petitioner and the Company entered into a Service Agreement under which the petitioner was employed as sole chief executive of the Company (“the SA”).

9.  On the following day, by a Deed of Novation, Cavendish replaced Y&R as the purchaser of the 47.4% of shares in the Company from the petitioner and M (collectively “the sellers”) “as if [Cavendish] were named in the SPA in place of [Y&R]”.

10.  The salient provisions of the SPA, for present purposes, include the following:

(i) US$34 million to be paid on completion to the sellers, the remainder (subject to a total maximum of US$147.5 million) to be paid over several instalments.

(ii) If a seller whose employment with the Company was summarily terminated for acts of gross misconduct or is found to have engaged in a competing business (a “defaulting shareholder”), the instalments then unpaid would not be payable: clause 5.1 and schedule 12, §1.

(iii) If the seller becomes a defaulting shareholder, the purchaser has an option to acquire all the shares of that defaulting shareholder at the defaulting shareholder option price which is calculated by reference to the net asset value and hence significantly lower than the actual value of the shares: clause 5.6 and schedule 12, §1.

(iv) The sellers and the purchaser agreed to procure the Company and its subsidiaries to promptly distribute as dividends the maximum amount of profits that may lawfully be distributed as dividends at the end of each financial year: clause 13.4.

(v) The purchaser agreed to procure that the sellers would be kept informed as to the financial and business affairs of each of the companies in the group: clause 13.6.

(vi) Each of the sellers is entitled to remain a director as long as he continues to hold shares in the Company: clause 14.2.

(vii) Each seller has an option to require the purchaser to purchase from him all his shares in the Company at a price calculated by a formula by reference to the audited consolidated operating profit of the group (“OPAT”) and in the case of the petitioner he could only exercise the option between 1 January and 31 March 2017 and any subsequent year: clause 15.2.

(viii) Clause 6 contains provisions for the calculation of OPAT and the resolution of differences.

(ix) Clause 23.2 reads:

“The English courts have exclusive jurisdiction to settle any dispute arising out of or in connection with this agreement and the parties submit to the exclusive jurisdiction of the English courts.” (emphasis added)

11.  It is to be noted that following the execution of the Deed of Novation, the only parties to SPA are the petitioner, M, WPP 2005 and Cavendish.  Thus the respondents other than Cavendish are not parties to the SPA.

12.  The SA is an employment contract between the Company and the petitioner governing the latter’s role in the Company.  For present purposes it is only necessary to mention the following provisions:

(i) The petitioner to be the sole chief executive of the Company and entitled to serve on its board: clause 1.

(ii) The Company shall not appoint anyone to act jointly with the petitioner unless the latter is unable through illness or incapacity to carry out his duties: clause 3.2(c).

(iii) The petitioner will be accountable directly to the board and the Company shall not insert tiers of management between the petitioner and board: clause 3.3.

(iv) Clause 29.2 reads:

“This Agreement is governed by and interpreted in accordance with the laws of England and Wales and the parties submit to the exclusive jurisdiction of the English Courts.” (emphasis added)

13.  None of the respondents other than the Company is a party to the SA.

14.  Upon completion of the acquisition and restructuring, the petitioner became the sole chief executive of the Company. M was the non-executive chairman of the Company until his resignation as such in April 2009 and in July 2009 he resigned as non-executive director of all companies in the Group save for the Company itself.  In April 2011 M was removed from the Company’s board.

15.  As appears from §§60 – 64 of the judgment of the Supreme Court dated 4 November 2015 in Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67 (“the Makdessi case”), in December 2010 Cavendish and the Company commenced proceedings against M, with Cavendish suing for breach of the SPA and the Company for breach of fiduciary duty based on M’s breach of certain restrictive covenants by soliciting/poaching clients and customers away from the Group.

16.  M subsequently admitted that from 1 July 2008 he had been in breach of the SPA and his fiduciary duty to the Company which rendered him a defaulting shareholder for the purposes of the SPA.  The Company’s claim for breach of fiduciary duty was settled by its acceptance of a payment into court by M of US$500,000.

17.  Cavendish sought a declaration that M was a defaulting shareholder and obliged to sell all his shares in the Company to Cavendish at the defaulting shareholder option price.  The issue ultimately determined by the Supreme Court was whether clauses 5.1 and 5.6 of the SPA were valid and enforceable as Cavendish contended or whether those provisions constituted penalties and were void and unenforceable.  The Supreme Court upheld the validity of those provisions.

THE PETITION

18.  Pending the hearing of the Makdessi case by the Supreme Court, the petitioner presented a petition pursuant to section 724 of the Companies Ordinance, Cap 622 (“the Ordinance”) based on the unfairly prejudicial conduct of the Company by WPP, Cavendish and Y&R and seeks an order for a buyout of his 20% shareholding in the Company without any discount for the fact that his shareholding represents a minority shareholding.

19.  The petitioner’s case is summarised in §26 of the petition, namely, that by reason of the provisions in the SPA and the SA and the circumstances in which the petitioner sold part of his interest in the Group to WPP, it was the mutual understanding between all shareholders of the Company and the legitimate expectation of the petitioner that:

(1) The petitioner would be entitled to participate in and would not be excluded from the management of the Company and the Group.

(2) The petitioner would be kept informed and be consulted on all major matters concerning the Company and the Group.

(3) Any major decisions affecting the Company and the Group and in particular their financial position, would be reserved to the petitioner as sole chief executive and/or to the board as a whole.

(4) So long as the petitioner remained a shareholder of the Company, each of the companies within the Group, including the Company, would promptly distribute by way of dividend the maximum amount of profits lawfully available for distribution at the end of each financial year.

(5) As part of or in order to give effect to the above entitlements, the petitioner would be kept informed and be supplied with information as to the financial and business affairs of each of the companies within the Group.

20.  The petitioner’s unfair prejudice complaints are threefold, namely:

(1) The Company’s failure to declare or distribute any dividends to the petitioner.

(2) Wrongful exclusion of the petitioner from the management of the affairs of the Company.

(3) Improper stewardship by WPP of a major corporate asset in that the Company settled its claim in the English court against M for his widespread breaches of contractual and fiduciary and financial obligations owed to the Company (“the Makdessi dispute”) for a token sum, in circumstances where WPP was acting in its own best interests but contrary to the best interests of the Company and petitioner.

21.  The Company has been in operation since the restructuring mentioned above but has not declared any dividends despite the fact that it has been generating substantial profits every year.  The petitioner had communicated his demand for payment of dividends to WPP on a verbal basis since 2011 and in writing since 2013.

22.  Those demands culminated in the letter dated 11 February 2015 from the petitioner’s solicitors threatening proceedings to enforce his rights failing an unconditional acknowledgment by WPP of its obligation to procure the Company to declare and pay dividends.

23.  The letter led to a chain of correspondence between the parties’ respective solicitors trading allegations and counter allegations.

24.  The petition was presented on 30 April 2015.

PROCEEDINGS IN ENGLAND

25.  Two sets of proceedings were commenced in England after the petition was presented.

26.  About two weeks after the presentation of the petition, on 15 May 2015 the respondents and WPP filed anti-suit proceedings in England seeking declarations that the Hong Kong proceedings are in breach of clause 23 of the SPA and clause 29.2 of the SA respectively, and injunctions prohibiting the petitioner from (i) further pursuing the Hong Kong proceedings; (ii) commencing or pursuing any proceedings relating to the “Disputes” in any court or tribunal other than the High Court of Justice of England and Wales; and (iii) an injunction requiring the petitioner to discontinue the Hong Kong proceedings (“the anti-suit proceedings”).

27.  The “Disputes” referred to in the claim form are described in §27 of the particulars of claim of the anti-suit proceedings as concerning the questions whether (i) Cavendish was in breach of the SPA by failing to procure the distribution of profits of the Company by way of dividends; (ii) Cavendish and the Company have wrongfully excluded the petitioner from management in the Company; and (iii) the conduct of the Makdessi dispute by the Company and Cavendish was improper.  It is to be noted that no mention was made of either WPP or Y&R’s involvement or role (if any) in the “Disputes”.

28.  Second, on 21 December 2015, Cavendish and the Company commenced an action against the petitioner (“the substantive English proceedings”) in England.  Cavendish sought a declaration that the petitioner is a defaulting shareholder for the purposes of the SPA and is obliged under clause 5.6 to transfer all of his shares in the Company to Cavendish at the defaulting shareholder option price as well as specific performance.  The Company’s claim was for an account of profits and damages from the petitioner for alleged breaches of duty.

29.  The petitioner has not yet been served in either the anti-suit proceedings or the substantive English proceedings (collectively “the English proceedings”).  Mr Smith SC, leading counsel for the respondents, blamed the petitioner for his alleged lack of cooperation in accepting service.  I pause here merely to observe that it would appear that both sides were not shy at resorting to similar procedural tactics.

THE PRESENT APPLICATION

30.  The stay summons was not issued until 4 November 2015, more than six months after the presentation of the petition. In support of the substantive stay application, Mr Smith submitted that:

(1) The English court is the proper forum for determining the scope and effect of the exclusive jurisdiction clauses and its impact on the petition.

(2) The disputes raised in the petition arise out of and/or are connected with the SPA and SA and are subject to the exclusive jurisdiction of the English court.

(3) The findings, orders and determinations made in the substantive English proceedings will affect the petitioner’s ability to maintain his claim for the various reliefs claimed in the petition.

31.  Ms Chan contended that the stay application must fail for the following reasons:

(1) The court should not grant a stay on the basis of the jurisdiction clauses because:

(a) most of the petitioner’s complaints do not fall within the scope of the jurisdiction clauses;

(b) the Company, Y&R and WPP are not parties to the SPA; and

(c) Cavendish, Y&R and WPP are not parties to the SA.

(2) If and in so far as the jurisdiction clauses apply or govern any of the petitioners complaints, they are at their highest a private agreement between two shareholders.  As such, they cannot override the agreement between all shareholders made at the time when they chose to incorporate the Company in Hong Kong that the Company should be subject to and be governed by the Ordinance.

(3) The petitioner’s right as a shareholder to present an unfair prejudice petition cannot be fettered by the jurisdiction clauses and to that extent they should not be given effect.

(4) The petitioner cannot obtain effective relief in the English courts because the remedy of buyout is not available.

(5) Under forum non conveniens principles, Hong Kong is the more appropriate forum and substantial justice would not be done in the English courts because the remedy of buy-out is not available.

32.  It only transpired upon receipt of the respondents’ written skeleton that, in addition to seeking a stay pursuant to the stay summons, they were also seeking an interim stay pending the anti-suit proceedings although no summons seeking that relief is before the court.

33.  Not surprisingly, Ms Chan SC (leading counsel for the petitioner) protested at the last minute application depriving the petitioner of a proper opportunity of dealing with it and filing evidence in response. I pause here to observe that the respondents’ legal advisers should have known better.  It is conduct that merits the strongest disapproval and matter can be dealt with swiftly.

34.  I propose to deal with the issues that arise under the headings below.

I. INTERIM STAY

35.  It is not suggested that this court is not competent to decide the stay application.  Nor is it suggested that English law is different for the purpose of determining the stay summons.  In fact, since the Company was incorporated in Hong Kong, the Hong Kong court is the most natural and appropriate forum for determining matters concerning its legal status and internal affairs since the law of the place of incorporation governs those matters. Moreover, service of the two sets of English proceedings has yet to be effected.

36.  In short, no good reason has been articulated as to why the court should entertain an application for an interim stay. Nothing more needs be said on the subject.

II. SCOPE OF EXCLUSIVE JURISDICTION CLAUSES

37.  Mr Smith submitted that the term “arising out of” in jurisdiction clause is liberally construed: Donohue v Armco Inc [2002] 1 All ER 755 (at §14).  He submitted that as long as the substance of the dispute to be determined falls within the jurisdiction agreement, it will still be subject to the jurisdiction clause notwithstanding the fact that the issue/dispute arises in the context of an unfair prejudice petition, citing ReVocam Europe Ltd [1998] BCC 396 and Fulham Football Club (1987) Ltd v Richards and Anor [2012] Ch 333.  Those authorities are considered in greater detail below.

(A) Position of non-parties

38.  The question that arises in the present case is whether on the assumption that the petitioner is bound by the jurisdiction clause vis-a-vis Cavendish, he should not be allowed to bring the petition against the remaining three respondents namely the Company, Y&R and WPP who are not parties to the SPA.  A similar point arises in relation to the SA.

39.  Re Vocam Europe Ltd [1998] BCC 396 concerned an agreement that contained an arbitration provision for settling all disputes “whether or not they arise under the agreement”.  In that case, the court exercised its discretion to grant a stay (similar to that granted to the other party to the agreement) to three other respondents to the petition that were non-parties to the agreement.  Two of them were individuals beneficially interested in the majority shareholder with one of them holding one of the shares on trust for the majority shareholder.  The third was the company which was a nominal respondent.

40.  This appears to be a difficult area of the law. Support can be found for diametrically opposed views: contrast the approach of Rix J in Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd [1999] 1 All ER 237 (at 252 a–c) and Lord Scott’s approach in Donohue v Armco (at §§60 – 61) which Norris J applied in Winnetka Trading Corp v Julius Baer International Ltd [2009] 2 All ER (Comm) 735 (at §27 – 29).  The other members of the court in Donohue did not address that issue except that it would appear that Lord Bingham did not share Lord Scott’s view: see Donohue at §76.

41.  Teare J reviewed those authorities in Morgan Stanley & Co International plc v China Haisheng Juice Holdings Co Ltd [2010] 2 All ER (Comm) 514 (at §§17 – 19).  He concluded (at §§21, 23) that the true construction of the exclusive jurisdiction clause must depend upon its own terms.  The key question is whether it would reasonably be understood that the parties to the agreement had promised each other that claims arising out of the agreement would be brought in England regardless of whether the claims were against the other or a non-party to the agreement.

42.  He also considered the argument that rational businessmen are likely to have intended that all disputes arising out of or connected with the relationship into which they had entered would be decided by the same court.  It was an approach that Lord Hoffmann had adopted as a starting point for the construction of an arbitration clause in Fiona Trust & Holding Corporation v Privalov [2007] 4 All ER 951 at §13.

43.  Teare J noted the fact that such an approach would result in “considerable imbalance between a party and a non-party” in that:

(i) there would be an absence of reciprocity in as much as the party would have to sue the non-party in the designated forum but the non-party would not be obliged to do so; and

(ii) the designated forum may not have jurisdiction over the non-party since it had not submitted to the jurisdiction or waived any objections to jurisdiction.

On the facts of the case before him, Teare J concluded that the parties did not promise each other that claims against non-parties could only be brought in England.

44.  Turning to the exclusive jurisdiction clause in the SPA (see §10(ix) above), it will be seen that the first part is cast in very broad language conferring jurisdiction on English courts. However it is immediately followed by the second part of that clause which reads: “and the parties submit ...”.  That is a clear and express limitation of the submission to jurisdiction to the parties inter se: they were promising each other that claims against the other arising out of the SPA are to be decided by the English courts.  Nothing in the clause itself mentions disputes with or involving non-parties.

45.  §§16 and 21 of the SPA contained provisions governing the transfer of shares.  §16.1 prohibited the sellers from disposing of the shares in his name and §21.2 restricted the purchaser’s right of assignment except as to entities within the WPP Group, requiring the sellers’ prior written consent in all other cases.  §21.11 went on to provide:

“Except as otherwise expressly stated in this agreement, a person who is not a party to this agreement may not enforce any of its terms under the Contracts (Rights of Third Parties) Act 1999.”

46.  The express exclusion of third party rights is significant.  Those provisions taken together offer strong support for the view that the rights and obligations created are confined to and intended to take effect among the parties inter se only.  In other words only parties to the SPA could take the benefit of or invoke rights thereunder and, correspondingly, be subject to the obligations so created.

47.  When those matters are coupled with the considerations of ‘imbalance’ between a party and a non-party discussed in the Morgan Stanley case, they support a construction that the parties to the SPA did not promise each other that claims arising out of the SPA were to be submitted to the English court regardless of whether the claims are against the other or a non-party.  In my view, the jurisdiction clause is not a bar to a party from bringing proceedings against non-parties in a jurisdiction other than England.

48.  As regards the jurisdiction clause under the SA (see §12(iv) above), not only is it more restrictively worded, it is an employment contract.  The petitioner’s complaints are all directed against WPP.  It is well established that in unfair prejudice proceedings as here, the Company is joined as a nominal party and the real dispute is between the petitioner and WPP.  There is no dispute as such between the Company and the petitioner arising under the SA.  Further, nothing in the SA suggests that the jurisdiction clause was intended to cover claims against non-parties.

49.  While a stay was granted against non-parties in ReVocam, it would not appear from the judgment that the judge was troubled with arguments such as those made in the present case.  It seems that the issue of non-parties was not seriously debated if at all.

50.  It was accepted in Re Vocam that “success on the petition was essentially dependent on the reliance the petitioners placed on the 1995 agreement”.  The question whether the complaints in the present case fall squarely within the SPA/SA is disputed and considered in §§52 – 67 below.

51.  In conclusion, I do not consider that the two jurisdiction clauses prevent the petitioner from commencing and pursuing his petition in Hong Kong against non-parties and is not a legitimate reason for staying the petition at least vis-à-vis them.  The question as to how the court should exercise its discretion as regards Cavendish is considered later (see §§108 – 111 below).

(B) Whether the petitioner’s complaints fall outside the scope of the jurisdiction clauses

52.  The first matter to consider is whether the petitioner’s complaints fall within the jurisdiction clauses.

53.  As earlier noted, the petitioner has three complaints (see §20 above) relating to (1) the non-declaration and non-distribution of dividends, (2) exclusion from management and (3) improper stewardship of the Makdessi dispute. Mr Smith submitted that adopting the liberal construction approach, they could all be said to arise under the SPA/SA.

54.  Ms Chan readily acknowledged that there was considerable overlap between the first head of complaint relating to dividends and breaches of section 26 of the SPA.  However the point made is that the complaints arise as a result of the mutual understanding between all shareholders of the Company and the legitimate expectation of the petitioner as set out and particularised in the petition rather than a contractual claim under the SPA.

55.  But Mr Smith’s objection was more fundamental.  He submitted that the dividends complaint could only arise under section 26 of the SPA because the non-payment of dividend alone is not a ground for an unfair prejudice petition citing Harman J in In re A Company, ex parte Glossop [1988] 1 WLR 1068 (at 1075A) to the effect that no section 459 petition could be based upon conduct that has an equal effect on all the shareholders and was not intended to be discriminatory between shareholders.

56.  The reasoning in Re Glossop was contrary to the views expressed by other judges in earlier cases (see Slade J in In re Bovey Hotel Ventures Ltd (unreported) 31 July 1981, Nourse J in In re RA Noble & Sons (Clothing) Ltd [1983] BCLC 273, 290, Hoffmann J in In re A Company [1986] BCLC 362, 367): see the detailed review by Peter Gibson J in re Sam Weller Ltd [1990] 1 Ch 682 (at 688F – 692G).  It was also clear that Harman J had not been referred to Meyer v Scottish Textile and Manufacturing Co Ltd (1954) SLT 273 where at 277 Lord Cooper said this:

“... The most dangerous type of ‘the oppressor’ is the person who, having other fish to fry, can afford deliberately to curtail or even destroy the business of the company in which he holds perhaps the majority of the shares, and if the section bears the meaning suggested by the respondents it will fail of effect in a class of case to which its spirit is plainly applicable ... The section is not concerned with the results to the oppressor but with the results to those who complain of the oppression. When the section inquires whether the affairs of the company are being conducted in a manner oppressive to some part of the members including the complainer, that question can still be answered in the affirmative even if, qua member of the company, the oppressor has suffered the same or even a greater prejudice.”

57.  The Court of Appeal upheld the Meyer case and on appeal the House of Lords dismissed the appeal.  It could not have done so had it not accepted that conduct that adversely affected all of the members could amount to oppression.

58.  Further, it has been held that a shareholder has a legitimate complaint in relation to the continuing non-payment of dividends where there are substantial reserves: see Quinlan v Essex Hinge Co Ltd [1996] 2 BCLC 417 at 427d.  The fact that re Glossop was not cited to the court in Quinlan does not undermine its authority when Harman J in re Glossop itself accepted (at 1076F) that as a matter of concept to retain profits which could with entire propriety and commercial ease be paid out to members in dividends must be capable of being an improper conduct of the affairs of the company under the just and equitable ground.

59.  For my part, I am unable to accept Mr Smith’s submission.  In my view, non-declaration and non-distribution of dividends could constitute a ground for an unfair prejudice petition irrespective of whether there has been a breach of the SPA.

60.  The second complaint concerns exclusion from management.  Again it is based on the mutual understanding and legitimate expectation of the petitioner.  It is also clear that while clauses 13 and 14 of the SPA concern certain aspects of the Group’s management, they are by no means exhaustive.  Other aspects including the Company’s internal management fall to be governed by general company law of the place of incorporation which is Hong Kong.

61.  In so far as it was submitted by Mr Smith that WPP might seek to rely on the 1999 Act as regards enforcement of the exclusive jurisdiction clause in the SA, that submission cannot be correct.  A third party may not enforce any term of an employment contract against the employee: see section 6(3)(a) of the Contracts (Rights of Third Parties) Act 1999.

62.  Ms Chan submitted that the exclusion from management complaint is not directed at the Company but at WPP.  It is not a claim made under the SPA.  Nor does it arise out of the SA since there is no claim made against the Company (which is joined as a nominal party).  It is the conduct of the other shareholders and WPP which is not a shareholder that is the subject matter of the complaint.

63.  Thus analysed, the claim is not one that is based on breach of the SA or even the SPA.  I agree.

64.  Mr Smith’s stance as regards the third complaint is that it is ‘linked’ to the SPA and SA and so adopting a liberal construction that complaint also falls within the jurisdiction clauses.  But the gravamen of the Makdessi dispute concerns WPP’s conduct (through the directors it caused to be appointed to the Company’s board) in advancing the interest of Cavendish at the expense and to the detriment of the Company and the petitioner.

65.  The real advantage gained through acceptance of the payment in accrued to Cavendish.  It was thus able to take advantage of M’s admission of wrongdoing and so acquire M’s shares in the Company at an advantageous price on the basis that M was a defaulting shareholder.  But that advantage could only be gained at the expense the Company (and the petitioner).  By accepting the payment in, the Company gave up its claim in damages potentially worth many times the amount it accepted from M in settlement.

66.  In those circumstances, the substance of the complaint concerns oppression by a non-party to the SPA/SA, I do not consider that the third complaint could possibly be said to fall within the jurisdiction clauses.

67.  To sum up, I consider that (1) the complaints relating to exclusion from management and the Makdessi dispute do not fall within the jurisdiction clauses; (2) the dividends complaint falls within the SPA jurisdiction clause only in so far as the complaint is made against Cavendish; (3) the petitioner is at liberty to make the dividends complaint against the respondents other than Cavendish.  As to how the court should exercise its discretion as regards Cavendish, see §§108 – 111 below.

III. THE STATUTORY RIGHT ISSUE

68.  On the basis that Cavendish has a prima facie entitlement to enforce the jurisdiction clause as regards the dividends complaint, Ms Chan submitted that it should not be enforced in as much as a stay of the unfair prejudice petition would be tantamount to a fetter on the petitioner’s statutory right as a minority shareholder of the Company to petition for a buyout under the Ordinance.

69.  As a matter of law the fact that all the shareholders decided to incorporate the Company in Hong Kong has the important consequence that the Company and its operations including its status and internal affairs would be subject to the condition that all the provisions of the Ordinance would apply to the Company.  So if the articles of a company were to limit the right of a shareholder to petition for its winding up, those provisions would be invalid.

70.  In re Peveril GoldMines Ltd [1898] 1 Ch 122 Byrne J held(at 124) that the right to petition to wind up is a right conferred by the Companies legislation:

“of which a contributory cannot be deprived, either entirely or in a modified way, by the terms of the articles of association unless upon the footing that by becoming a shareholder the petitioner has done what is equivalent to validly releasing an individual legal right, and I am of opinion that he has not done so.”

71.  He considered that the right to petition to wind up by every single shareholder is a condition of incorporation under the Companies Acts whatever independent contract may be separately made between the company and an individual who happens to be or intends to become a shareholder, or between individuals who happen to be the shareholders.

72.  The Court of Appeal upheld his decision.  As Lindley MR explained in In re Peveril Gold Mines Ltd [1898] 1 Ch 122 (at 131):

“... registered limited companies are incorporated on certain conditions; they continue to exist on certain conditions; and they are liable to be dissolved on certain conditions ... the any article which says that the company is formed on the condition that its life shall not be terminated when any of the circumstances mentioned in s. 79 [of the Act of 1862] exist or which limits the right of a contributory under s. 82 to petition for a winding up, would be an attempt to enforce on all the shareholders that which is at variance with the statutory conditions and is invalid. It is no answer to say that the right to petition may be waived by any contributory personally .... But to say that a company is formed on the condition that its existence shall not be terminated under the circumstances, or on the application of the persons mentioned in the Act is to say that it is formed contrary to the provisions of the Act and upon conditions which the Court is bound to ignore.”

73.  When Peveril was decided, the legislation did not give minority shareholders the option of petitioning for a buyout. That right was not conferred on them until 1948.  Ms Chan submitted that the principle Peveril established could not be circumvented by some private agreement between shareholders and the right to bring an unfair prejudice petition is indistinguishable from the right to petition for a winding up; both are statutory rights and as a matter of principle the same public policy rationale applies to both, citing the Court of Appeal’s judgment in Re Greater Beijing Region Expressways Ltd [1999] 4 HKC 807 (“GBRE”).

74.  In that case, the Court of Appeal applying Peveril held that (i) the provisions protecting shareholders in respect of their interest in a company ultimately turn upon their right to present a petition under section 177(1) and their right to relief under section 168A; (ii) the right of contributories to present a winding up petition and their right to relief under section 168A of Cap 32 are statutory rights; (iii) any article that sought to preclude such statutory rights was contrary to public policy; (iv) if a matter is contrary to public policy, the court will not give effect to an agreement whether the agreement is constituted by the articles or whether it is constituted by some outside agreement: see GBRE at 816A – 817E.

75.  In GBRE Rogers JA noted (at 816I) that both Lindley MR and Chitty LJ left open the question as to whether an individual shareholder could by contract fetter his personal rights.  But if the agreement (as in GBRE) purports to bind future shareholders, it operates beyond a personal contract between individual shareholders and would be struck down if its tenor were against the policy in the companies legislation: see the decision of J Lam J (as he then was) in Muir v Lampl [2005] 1 HKLRD 338 at §§15(e) and 19 where he rejected the attempted distinction made on the basis that the agreement was one inter se among the shareholders concerning their individual or private rights and did not purport to bind future shareholders.

76.  Central to Mr Smith’s response to the petitioner’s statutory right submission is the English Court of Appeal’s decision in Fulham Football Club (1987) Ltd v Richards [2012] Ch 333 to which I now turn.  In that case, the petitioner was a member of F Ltd and R was its chairman.  The petitioner presented an unfair prejudice petition alleging that R’s actions had caused F Ltd to conduct its affairs in a manner that was unfairly prejudicial to the petitioner’s interests as one of its members.  The issue for the English Court of Appeal was whether to stay the unfair prejudice petition presented under section 994 of the Companies Act 2006 (“CA 2006”).  The case proceeded on the basis that all the matters complained of in the petition fell within the arbitration agreement.

77.  The court in Fulham was concerned with two competing public interests: (a) the public interest in giving certainty to arbitration agreements is evident from the Arbitration Act 1996 which “give[s] primacy to the arbitration agreement even in domestic disputes by making a stay of court proceedings relating to the same dispute mandatory”: see per Patten LJ in Fulham, §31; and (b) the statutory right of a minority shareholder to present an unfair prejudice petition conferred by the Companies Act.

78.  It was in that context that the court considered whether there was any rule of public policy that had the effect of rendering the arbitration agreement either void or unenforceable in so far as it purported to bind the parties to an arbitral determination of unfair prejudice issues that fell within section 994.  It concerned the arbitrability of particular issues, with the court recognising that there are certain types of disputes that are non-arbitrable.

79.  Patten LJ was of the view that the relevant considerations in each case was whether the matters in dispute engage third party rights or represent an attempt to delegate to the arbitrators what is a matter of public interest which cannot be determined within the limitations of a private contractual process: Fulham, §§40 and 42.

80.  It is stated at §77 that:

“The determination of whether there has been unfair prejudice consisting of the breach of an agreement or some other unconscionable behavior is plainly capable of being decided by an arbitrator .... We are not therefore concerned with a case in which the arbitrator is being asked to grant relief of a kind which lies outside his powers or forms part of the exclusive jurisdiction of the court. Nor does the determination of issues of this kind call for some kind of state intervention in the affairs of the company which only a court can sanction. A dispute between members of a company or between shareholders and the board about alleged breaches of the articles of association or a shareholders’ agreement is an essentially contractual dispute which does not necessarily engage the rights of creditors or impinge on any statutory safeguards imposed for the benefit of third parties.”

81.  The issue was thus seen and evaluated exclusively from the perspective of arbitrability because of the mandatory requirement of a stay in every case concerning a matter that is arbitrable. That has to be borne in mind when considering the observations made in Fulham that address the scope of public policy considerations and their applicability or otherwise in other contexts.

82.  The same observation applies to Patten LJ’s restrictive reading of Peveril to the effect that the decision is “limited to the narrow point of whether the articles of a company can effectively restrict or re-model the conditions for the presentation of a petition” under section 122 of the Insolvency Act 1986 and did not decide whether an agreement to resolve disputes between shareholders which might justify a winding up would be void on grounds of public policy or infringe the statute. It was assessed from the standpoint of arbitrability only.  On that basis the English Court of Appeal was able to hold that there was no binding authority to prevent it from deciding “whether the provisions of section 994 are to be construed as restricting the resolution of unfair prejudice disputes to the exclusive jurisdiction of the court”: Fulham, §§80 – 83.

83.  Patten LJ concluded that the arbitration would operate as an agreement not to present a petition until the underlying dispute has been referred to arbitration.  If the arbitrator upholds the complaints of unfair prejudice, the shareholder would then be entitled to present a petition based on the arbitrator’s determination.

84.  Because the issue of arbitrability was at the core of Fulham and necessarily coloured its approach, I do not consider that decisionto be of particular relevance in the statutory right debate. When one dispenses with the filter of arbitrability, the right to present an unfair prejudice petition is undoubtedly a statutory right for the reasons given by Rogers JA in GBRE: see §75 above.  No valid distinction can be drawn between the right to present a winding up petition and the right to present an unfair prejudice petition.  Both rights are conferred by statute for the protection of shareholders.

85.  Further, on the respondents’ case, the effect of a jurisdiction clause would be seriously adverse to the petitioner: not only would he be deprived of his right as a minority shareholder to present an unfair prejudice petition under section 724 of the Ordinance, as considered more fully at §§90 – 101 below, the parallel English provision is not available to him in the English court as it does not apply to foreign companies like the Company and, as will become apparent, he would not be able to obtain an effective remedy from the English court should his complaints be upheld.

86.  Mr Smith prayed in aid Millett LJ’s observation in Aggeliki Charis Cia Maritime SA v Pagnan SpA, The Angelic Grace [1995] 1 Lloyd’s Rep 87, 96 that he saw no difference in principle between an injunction to restrain proceedings in breach of an arbitration clause and one to restrain proceedings in breach of an exclusive jurisdiction clause. But there was no issue of the arbitration agreement being a fetter in that case and hence no discussion of that issue.  On that basis, it cannot assist in the determination of the statutory right issue.

IV. NO EFFECTIVE REMEDY

87.  The petitioner also submitted that his complaints are not confined to strict legal rights but a breach of his legitimate expectations arising out of circumstances concerning the share sale.  The applicable principles are those explained by Lord Hoffmann in O’Neill v Phillips [1999] 1 WLR 1092, 1098D-1099F. Those equitable considerations apply to a petition pursuant to section 724 but not to a claim in contract for breach of the SPA.  In those circumstance to limit the petitioner’s remedies to a claim in contract would be unjust and unfair.

88.  The plaintiff in the substantive English proceedings is Cavendish only.  While the parties to the share sale included WPP and Y&R, they are not parties to the SPA.  Further, it was submitted that if by reason of section 994(3) of CA 2006, the English court has no jurisdiction to deal with unfair prejudice because the Company is a foreign company, it would also lack jurisdiction to deal with the valuation of shares for a buyout as a result of unfair oppression.  In such a case the basis of valuation is very different for a buyout in normal circumstances: see Lord Millett’s judgment in CVC/Equal Equity Partners Ltd v Demarco Almeida [2002] 2 BCLC 108 at §§36 – 40 where the different bases are considered.

89.  As I understand it, Mr Smith’s answer is that (a) all the petitioner’s claims can be brought and adjudicated by the English court in response to the substantive English proceedings; and (b) the petitioner can obtain the remedy he is seeking from the English court.

90.  Mr Smith’s approach is that there is nothing to stop the petitioner from joining Y&R and WPP as parties to the substantive English proceedings and seek appropriate declarations from the English court for relief that mirror §76 of the petition for a buyout with the desired adjustments to cure any unfair conduct made out as the SPA contains the contractual mechanism for the petitioner’s exit from the Company.

91.  In short, however it is put, Mr Smith’s submission necessarily entails the circumvention of section 994(3) and the exercise by the English Court of jurisdiction that it does not have. For that reason the respondents’ submission is unattractive and merits immediate rejection.

92.  Mr Smith’s other argument is that the relief the petitioner seeks is a buyout.  Under the SPA, if the petitioner were held not to be a defaulting shareholder, he would be able to exercise a put option during the first quarter of any year commencing 2017 requiring the purchase of his shares by Cavendish, the option price to be calculated by applying the formula stipulated in §15.3 of the SPA.  It was submitted that given that the contractual mechanism already exists for a buyout, the petitioner could obtain the relief he seeks from the English court.

93.  An order for a buyout made on a section 724 petition and the basis of valuation of the petitioner’s shareholding a court could order has nothing to do with the put option negotiated and agreed between the parties to the SPA.  For one thing, severance of the relationship through the exercise of the put option does not turn on unfairly prejudicial conduct: it merely caters for the possibility of an exit of a contracting party as a commercial reality but in circumstances that do not involve unfairly prejudicial conduct which triggers the application of equitable considerations.

94.  Moreover, why should the petitioner be subject to the constraints of the put option and the formula for calculating the price that obviously was not negotiated or drawn to take wrongdoing into account?  As already noted, where there is unfairly prejudicial conduct, the basis of valuation could be very different: see §88 above and CVC/Equity Partners Ltd v Demarco Almeida (supra).

95.  In was then said that provided the petitioner could obtain ‘substantial justice’ in the substantive English proceedings the fact that the form of relief he seeks is unavailable is not sufficient reason for not granting a stay, citing the approach adopted in Li Guozhu v New Century Iatrical Investment Management Ltd, unreported, HCMP 3353/2014, 13 November 2015 at §30.  It is therefore necessary to consider Mr Smith’s further submissions concerning the contractual mechanism for exercising the put option and the question whether the mechanism in §6 of the SPA would be available to take into account, inter alia, the true value of the Makdessi dispute.  What matters could be taken into account using the §6 mechanism was disputed, with the parties espousing entirely different positions.

96.  The relevant provisions are §§6 and 15 of the SPA and central to those provisions is “OPAT”, defined in Schedule 12 as “the audited consolidated operating profit or loss of the Group”.  §15 governs the calculation of the put option price.  The immediately striking feature is that one is not in a position to calculate the price until three years after the option is exercised.  This is the result of the stipulated formula requiring the average OPAT for four years coupled with the fact that the petitioner may not exercise his put option except during the first quarter of any year commencing 2017.  The formula itself cannot be applied until the lapse of two full calendar years after the calendar year during which the put option is exercised.  That necessarily already involves a delay at least two years plus nine months.  The accounts would then have to be prepared which requires time and disregarding the possibility of objections which could delay matters even further.

97.  The respondents do not disagree that payment under the put option is a delayed payment.  In my view that is a major and serious disadvantage from the perspective of the petitioner that seriously undermines the value and effectiveness of the remedy.  Significantly, there is no such delay involved in a court ordered buyout under section 724.

98.  Mr Smith also submitted that §6 of the SPA contains a dispute mechanism enabling the petitioner to raise a dispute in relation to the draft OPAT, suggesting that the petitioner could use that mechanism to require the independent auditor to take into account, for example, the improper settlement of the Makdessi dispute and adjust the accounts accordingly.

99.  The right given to the petitioner under §6.3 is to challenge the draft statement of OPAT circulated simultaneously with the audited accounts of the Group within 42 days by notice to the purchaser (ie Cavendish), such notice “to include reasonable details of the reason for any disagreement and, where practicable, any suggested amendment”.  The independent accountant appointed is to act as an expert and not as an arbitrator.  The first matter to note is that no right is given to challenge the consolidated accounts.  Indeed, as Ms Chan pointed out, there is no mechanism for ensuring the reliability of the Group’s audited accounts.

100.  Then what matters would be in the draft OPAT that could be challenged?  In the definition of OPAT in Schedule 12, one finds an extensive list of what should and what should not go into the calculations for OPAT.  For example, if an item had not been taken into account in the draft OPAT statement when it should have been or a wrong deduction made, they would be matters that would fall within the mechanism and could be corrected or obtaining redress, much less adequate redress, for unfair prejudice complaints that are substantiated.

101.  In the circumstances, I do not accept that the petitioner would be able to obtain substantial justice in the English court if he were to have his complaints aired in that forum in the substantive English proceedings.

V. OTHER RELEVANT CONSIDERATIONS

102.  Mr Smith referred to the Court of Appeal’s decision in Makdessi v Team Y&R Holdings Hong Kong Limited, unreported, CACV 199/2012 where the court stayed an order of Barma J ordering the Company (the defendant in that case) to provide inspection to M of nine categories of accounting and other records in the Company.  M had issued proceedings in Hong Kong in 2011 under section 152FA of Cap 32 in exercise of rights as shareholder and obtained the order for inspection on 11 July 2012.

103.  For reasons that are not apparent, it took over two and a half years before the appeal was heard.  Meanwhile, on 8 October 2012, the Company settled the Makdessi dispute (Petition §59).  Much also happened in relation to the Makdessi case.  Burton J rejected M’s penalty clause argument.  The English Court of Appeal reversed him and when the appeal from Barma J came to be heard, the Supreme Court had granted leave to appeal from the English Court of Appeal decision.

104.  As Cheung JA observed that “subsequent developments have a material bearing on the outcome of the appeal” and recognised (at §9) that Burton J’s decision had a direct bearing on Barma J’s judgment: see §§6 and 9 of the Reasons in CACV 199/2012. For those reasons, that decision has little relevance as this court faces a wholly different set of circumstances.

105.  I accept that where there is a jurisdiction clause in a contract, the starting point is that the parties should be held to their bargain but the rule is not absolute, as it is for the courts to ultimately determine where the interests of justice lie.  They may in exceptional cases ignore the contractual bargain but strong reasons must be demonstrated if the court is to free the parties from their contractual bargain.  It is not a matter of weighing up the connecting factors as though the court were faced with a stay application based on forum non conveniens: Noble Power Investments Ltd v Nissei Stomach Tokyo Co Ltd [2008] 5 HKLRD 631 at §§27, 29, 36 and 40.

106.  Both sets of English proceedings are at the commencement stage.  As earlier noted, they have not progressed beyond issuance of the writs.  Mr Smith emphasised that if the petitioner were found to be a defaulting shareholder in the substantive English proceedings triggering the default shareholder option provision, he would not even have the relevant locus standi to pursue an unfair prejudice petition because in those circumstances he would no longer be a member of the Company.

107.  I can see the force of the argument.  At the same time, I am seriously troubled by the absence of ‘reciprocity’ in that the petitioner would not be able to obtain adequate redress or substantial justice from the English court if his complaints of unfair prejudice are made out, quite apart from the fact that WPP and Y&R are not parties to the English proceedings.  If circumstances so warrant, it would be open to the judge hearing the petition to stay the execution of any order made on the petition pending the English court’s adjudication of the defaulting shareholder issue.  On the other hand Cavendish would not be correspondingly handicapped if it were willing to have its complaints adjudicated here.

VI.   EXERCISE OF THE COURT’S DISCRETION

108.  I am conscious that the existence of multiplicity of proceedings on the same or similar issues may lead to inconsistent decisions and findings and, where possible, it is desirable to avoid such conflict from arising.  Nevertheless, situations could arise where this cannot be avoided.  The Morgan Stanley case is one example.  In that case, under the master agreement between the claimant (MSIP) and the defendant (CH) the parties submitted to the exclusive jurisdiction of the English court.  The defendant brought proceedings in China against both the claimant and MSAL an affiliate of the claimant.

109.  Teare J (after holding that the defendant had not promised not to sue MSAL in England but only the plaintiff) came to the conclusion (at §38) that the case was one where the court could not ensure that all issues are determined in one jurisdiction.  In such circumstances, the best that the court could legitimately do in accordance with the ends of justice was to ensure that all claims and counterclaims concerning MSIP were heard in one jurisdiction (viz England) by reason of the exclusive jurisdiction clause.  Significantly, Teare J noted that there was no strong reason for refusing to grant the injunction restraining CH from pursuing its claims against MSIP in China in that case.

110.  In the present case, strong reasons do exist in that there is no effective remedy available to the petitioner were he to bring his complaints against the respondents in England, assuming they (other than Cavendish) are willing to be joined as parties.  That is not an outcome that would serve the ends of justice.

111.  Equally important are public policy considerations: as the exclusive jurisdiction clause fetters the petitioner’s statutory right to present an unfair prejudice petition, to that extent it must be held to be inoperative.

VII. CONCLUSION

112.  For all the reasons considered above, I have little hesitation in refusing the stay and dismissing the respondents’ stay summons.  There is to be an order nisi of costs in favour of the petitioner with a certificate for two counsel.