ZHI CHARLES v. LIM HOSOK AND OTHERS

HCA 584/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 584 OF 2016

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D E C I S I O N

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Introduction

1.  This decision aims at dealing with the following 6 applications (4 were taken out by the plaintiff (“Mr Zhi”), one by the 17^th defendant (“SEHK”) and one by the 19^th defendant (“Ms Chan”)):

(a) Mr Zhi’s application for an interlocutory injunction enjoining SEHK from allowing the share of the 15^th defendant (“SMG”) to be traded at SEHK;

(b) Mr Zhi’s application that s 22, Securities and Futures Ordinance (Cap 571) be declared unconstitutional and has no effect on him or SEHK;

(c) Mr Zhi’s application for summary judgment to be entered against Ms Chan;

(d) Mr Zhi’s application that SMG do produce the “New Technical Report” issued on 11 August 2016 (“the 2016 report”) and that all defendants herein be prohibited from using the 2016 report;

(e) SEHK’s application to strike out the statement of claim and dismiss the action against it;

(f) the application of Ms Chan (a vice-president (and a team leader within the compliance and monitoring of the listing department) of SEHK) to strike out the statement of claim  and dismiss the action against her.

Background

2.  Mr Zhi is a well known user of the courts.  As has been pointed out by the court in Siberian Mining Group Co Ltd v Zhi, Charles [2016] 4 HKLRD 88, from April 2013 onwards Mr Zhi has instituted a number of legal actions (against a publicly listed company known as SMG) (para 5 thereof).  The court also observed:

“Many of these actions overlap or are simply repetitive of and needlessly duplicate one another” (para 6 thereof).

It was also mentioned that, by September 2015, there were 15 such actions, none of which has succeeded, or were discontinued, stayed or struck out.  Another 8 legal actions were started between September 2015 and June 2016.  (The Siberian Mining Group decision, para 7, 8 and 13)

3.  The outcome of the Siberian Mining Group decision was that (among other things) an order was made prohibiting Mr Zhi from commencing fresh claims or issuing proceedings against SMG without leave.

4.  Against that backdrop, the facts relevant to the present applications can be summarized as follows.

5.  Mr Zhi is a shareholder of SMG.  Stock trading of SMG shares was suspended in April 2013.  In July 2014, SEHK permitted stock trading to be resumed upon conditions.  One of the conditions was that SMG must conduct an investigation into one of its coal mines in order to ascertain the validity of the issuance of certain financial instruments (“3^rd Convertible Note”).  This would require an assessment of the quantity of coal reserves of that coal mine.

6.  According to an SMG announcement (22 April 2015), an investigation has been carried out about the coal reserve.  Mr Zhi is dissatisfied with the said announcement, and alleges that SMG used misleading technical terms to confuse the public.  Hence, he opines that SMG did not fulfill the said condition.  He also complains that SEHK knew about this and yet permitted trading to be resumed.  He says SEHK has not adequately protected the interests of the investing public.

7.  Essentially a similar criticism has been levied by Mr Zhi against Ms Chan. He also complains in gist that both she and SEHK have not acted (or have failed to act) in good faith.

Striking out applications

8.  SEHK and Ms Chan rely on s 22, Cap 571:

“… no civil liability, whether arising in contract, tort, defamation, equity or otherwise, shall be incurred by-

(a) a recognized exchange company; or

(b) any person acting on behalf of a recognized exchange company …

in respect of anything done or omitted to be done in good faith in the discharge or purported discharge of the duties of the company under section 21 or in the performance or purported performance of its functions under its rules”,

as the main ground for striking out the claim against them.

9.  Mr Zhi contends firstly that s 22, Cap 571 is unconstitutional.  In his affirmation he said (insofar as is legally relevant):

(1) Article 35, Basic Law confers on Hong Kong residents the right to institute legal proceedings in the courts against the acts of the executive authorities and their personnel;

(2) there is an overwhelming imbalance in financial resources between him and SEHK because SEHK has much greater funds than him;

(3) with that in mind, s 22, Cap 571 does not satisfy the “proportionality” test.

10.  For the reasons below, I agree that:

(a) Art 35, Basic Law is not engaged.  As has been decided in cases such as Matthews v Ministry of Defence [2003] 1 AC 1163 (para 51 and 53) and Roche v United Kingdom (2006) 42 EHRR 30 (para 116 to 121), Art 35, Basic Law is only concerned with a citizen’s procedural right of access to court, and not with the contents or substance of his claim;

(b) even if Art 35, Basic Law is engaged, its restrictions are concerned with a legitimate aim, are proportional to that aim and do not impair the very essence of the right to access the court: Ng Yat Chi v Max Share Ltd & Another (2005) 8 HKCFAR 1 (para 73).

11.  In relation to para 9(1) above, s 22, Cap 571 does not limit or exclude Mr Zhi’s procedural right of access to court, but is a limitation of civil liabilities on the part of SEHK and Ms Chan.  This concerns substantive law.

12.  Further to para 11 above, the role of SEHK in the stock market is mainly regulatory in nature.  Conferring certain degree of immunity from legal suit serves a legitimate aim.  There is at least potentially a tension between the interests of those seeking listing (so as to attract public funding) and those of the investors.  SEHK should be able to act firmly and without fear of liabilities.  To remove that immunity would bring about hesitations in decision making or even non-action, and uncertainty.  Recourse is still available to the public because the Securities and Futures Commission may still impose sanctions against SEHK (s 28, Cap 571).  The immunity conferred is not absolute; acts done in bad faith will still attract civil liabilities.

13.  Civil liabilities other than for bad faith (such as one grounded on common causes of action like tort and contract) fall within s 22, Cap 571.  The factors which favour the restrictions against such liabilities are the fact that SEHK (and its personnel) has to regularly tackle potentially complicated investment instruments and corporate matters, make decision relying on information provided by third parties such as corporate directors or officers and professional advisers, and often may have to do so within relatively short time frames.

14.  In relation to para 9(2) above, differences in resources (be it because of funding or other reasons) is a fact of life to be reckoned with.  However, there is no evidence to show that the efficacy of our legal system has noticeably suffered as a result (for example, it is not uncommon for litigants acting in person to conduct their case successfully).  Moreover, legal aid and other forms of free or subsidized legal assistance are available to help litigants with limited financial resources.  Finally, a relative more proactive approach adopted by the courts since the Civil Justice Reform also has the effect of redressing any such imbalance.

15.  For the above reasons, I agree that s 22, Cap 571 is not unconstitutional.

16.  Secondly, in his affirmation, Mr Zhi also alleges that SEHK and Ms Chan have acted in bad faith.  However, apart from such an allegation, and setting out therein matters which Mr Zhi considers to be unsatisfactory, he has not adduced evidence which provides at least an arguable case of bad faith on the part of SEHK or Ms Chan.

17.  It is perhaps because of this inability to adduce proper evidence which causes SEHK and Ms Chan to complain in these applications that there is no proper plea of bad faith (compare the requirements of RHC Ord 18 r 12(1)(b); see also Hong Kong Civil Procedure (2017) Vol 1, para 18/12/11).  Further, no particulars of bad faith have been provided.

18.  As has been pointed out correctly by SEHK and Ms Chan, Mr Zhi’s case on bad faith is further diminished by his earlier case (set out in his affirmation of 29 March 2016) where he merely alleged possible negligence, incompetence and collusion.  In other words, earlier Mr Zhi merely put forth bad faith as one of 3 possible cases.

19.  By reason of the above, and despite the high threshold to be met in a striking out application, I agree with SEHK and Ms Chan that s 22, Cap 571 is applicable to Mr Zhi’s claim against them.  Accordingly, Mr Zhi’s pleading against them should be struck out, and the claim against them be dismissed (this conclusion also deals with para 1(b) above).

Mr Zhi’s applications

20.  Because of the conclusion reached in para 19 above, the applications set out in para 1(a) and (c) to (d) above, insofar as they may involve SEHK and/or Ms Chan, should be dismissed.

21.  It is unnecessary to deal with those applications in detail.  For the record, I agree with SEHK and Ms Chan that, for the reasons set out in their skeleton submissions (9 September 2016), the injunction application (para 4 to 9 thereof; para 1(a) above), the summary judgment application (para 19 to 22 thereof; para 1(c) above) and the 2016 report application (para 25 to 27 thereof; para 1(d) above) should be dismissed in any event.

Other matters

22.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order nisi

23.  There is no apparent reason to depart from the usual rule that costs should follow the event.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of the applications as between Mr Zhi and SEHK and Ms Chan are to be paid by Mr Zhi.

24.  I consider summary assessment of costs to be appropriate.  The above costs shall thus be so assessed.  For this purpose:

(1) SEHK and Ms Chan be at liberty to lodge with court and serve a statement of costs within 14 days from today;

(2) Mr Zhi be at liberty to lodge with court and serve a statement of objections within 14 days thereafter.