PROSPERFIELD VENTURES LTD v. TRIPOLE TRADING LTD AND OTHERS

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J U D G M E N T

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1. I am now required to make a ruling on an application for a Mareva Injunction by the successful plaintiff in HCCL 98/95, Panco Industrial Holdings Limited, consequent upon my judgment on the 27 January. There are also directions that I need to give as to the assessment of damages and/or the taking of an account which must follow the judgment. Finally, I also have to make an order for costs in both actions.

The Mareva Injunction

2. What has been applied for appears in the plaintiff's summons of 28 January. The object of the summons is to preserve the 5th defendant's shares in SFC pending the outcome of the assessment of damages or the taking of the account so that once an amount is known the plaintiff company in exercising its various options as to the execution of judgment may have tangible assets against which execution may be levied. Otherwise, the judgment which the plaintiff has obtained may prove to be illusory.

3. In the course of my judgment (paragraphs 98 and 99) I gave reasons for my refusal to order the return to the plaintiff by China Projects, the 5th defendants, of its shares in SFC. My assessment was that the Shenzhen authorities would not countenance a transfer of any shares in SFC to Mr Peng or to a company controlled by him. I was also concerned not to be seen to meddle in a restructuring process that had been carried out by the Shenzhen authorities over ten years ago following a lengthy and careful investigation into SCIC and Mr Peng's conduct of its affair. I also took into account the considerations that persuaded me to refuse Mr Whitehead's application for an injunction made on the 19th day of the trial to restrain any dealings by the defendants in China Project's shares in SFC.

4. Now with the benefit of this judgment in his favour, Mr Whitehead invites me to grant the injunction which he submits is quite different in nature from an order directing the return of Panco's shares in SCIC/SFC by China Projects. To this extent, Mr Whitehead must be right. The shares will remain with China Projects subject to the order that there must be no dealing in them until further order which, in effect, will mean until the process of execution has been completed.

5. This being the case, his task is less formidable than the one the plaintiff had set itself by asking for a transfer back of its shares. What is now proposed is, in essence, an order of the type which I declined to make during the course of the judgment. Before judgment, the purpose of the injunction would have been to preserve the shares, the plaintiff's ultimate goal, pending the outcome of the trial. Now the purpose is to do the same pending execution of the judgment. I have absolutely no doubt that if these shares were those of a publicly-listed company in Hong Kong, I would have had every inclination to do what Mr Whitehead has asked for and, I daresay, that having regard to my findings in the judgment I would also have made the primary order which is to order the return of the shares to their rightful owner, the plaintiff company.

6. My principal concerns, which I have already expressed in my ruling of 31 October, relate to the effects of such an order on third parties, such as creditor banks, other shareholders and investors. The other aspect of my concern is that such an order would run across the regulatory regime of the Shenzhen stockmarket authority which no doubt has its own rules and regulations as to the terms under which shares are traded. I apprehend that a court in a foreign jurisdiction should be very wary about making orders that would have a substantial impact on the trading of shares on the stockmarket of another jurisdiction. I say that notwithstanding the fact that, as a Hong Kong company, China Projects is fully amenable to the effects of any order of this court.

7. Mr Whitehead has sought to allay any concern that I may have over the effects of an injunction of this sort on third parties. He submits that the judgment, of itself, will inevitably have and perhaps already has had an effect in any event, given what I have had to say about the conduct of Madam Ding and Mr Zheng in their acquisition of Panco's shares. The regulatory authorities will also become aware of the terms of the judgment and may take steps of their own to address this issue. He submits that these concerns should not be exaggerated. As to the creditor banks, they would, in any event, appear to be well protected having regard to the value of the shares charged to them in relation to the amount of the loans.

8. It is further submitted that I am now required to balance all of these factors against the interests of the successful plaintiff which has been "robbed" of its shares, the victim of corporate piracy, as Mr Whitehead has described it. He also draws attention to the fact that under the judgment I have made a declaration that 45,661,500 shares in SCIC and the rights to a debt of $160 million, are held by China Projects as constructive trustee for the plaintiff. I should now give effect to that declaration and the injunction sought would be a first step towards that process.

9. All of this is set against the overall picture that a failure to hold the position pending execution of the other parts of the judgment would or at least make it highly probable that the judgment would ring very hollow. I have every sympathy for that submission, particularly where I have found the actions of Madam Ding and Mr Zheng completely underhand. I have made the court's position clear about their behaviour in the judgment itself.

10. What might be a hollow judgment in the face of such behaviour offends every sense of what is just and proper in the circumstances but ultimately I am brought back to the fact that these are shares in a Shenzhen company established by those authorities following a most careful enquiry into SCIC and Mr Peng. I am told by Mr Whitehead that this authority enjoys a high reputation which it values. I am sure that is right. Once these matters are properly drawn to their attention, I express the hope that they will feel able to take appropriate measures to consider how it was that Madam Ding and Mr Zheng were able to acquire Panco's shares in SCIC and whether what was done by them should be allowed to sit easily with their well ordered corporate regime which demands integrity and high standards.

11. From what I have said, it must follow therefore that my judgment that this matter is essentially one for the Shenzhen regulatory authorities remains unchanged. With very considerable regret, I must decline to make the injunction in the form asked for by the plaintiff. Given the strength of the court's sense of indignation at what was done by Madam Ding and Mr Zheng, I would have thought that the plaintiff may wish to test the correctness of this decision and I will provide ample opportunity to Mr Whitehead to address me on a more limited form of order which will hold the position pending an opportunity to list the matter before a single justice of the Court of Appeal for him to consider whether the injunction should run until an appeal against my refusal is heard and, indeed, until after any appeal against my judgment, if that course is also pursued. I will hear Mr Whitehead on this in a moment.

Directions and Costs

12. Now some miscellaneous directions.

13. As to the position of Tripole in HCA 5370 of 1993, both counsel have indicated that no order may be necessary. I will merely adjourn this aspect generally with liberty to apply to both parties.

14. As to the assessment of damages, I will adjourn this to chambers to a date to be fixed and direct that it should be heard by me. The plaintiffs must elect as to whether they should seek an award of damages or an account of profits but I will allow them to defer that election until after the close of discovery. There will be a summons for directions in due course when they will put to their election.

15. Automatic directions will now follow as to the assessment pursuant to Order 37, Rule 1. The time limits there are clearly inadequate for a case of this weight. Accordingly, discovery will be complete within 63 days, 9 weeks, with inspection 28 days thereafter. Mr Whitehead has asked for specific discovery of a number of matters. I prefer to let general discovery take place first and if further orders for specific discovery are required, let the appropriate application be made then.

16. I also make an order that the parties be allowed to instruct two experts each, if so advised.

17. As to costs between the plaintiffs and the represented defendants, these must of course follow the event. As between the plaintiffs and the successful unrepresented defendants who have written to say that they cannot attend this hearing, the court will write to them to enquire whether they wish to have their costs. If they do so, then I direct that the plaintiff should reply in writing as to why it should not pay those costs.

18. Lastly, there are other costs which I ought to deal with. There are the costs of two adjournments, one to allow the unrepresented defendants to prepare their witness statements, and another more substantial adjournment of the case in April necessitated by the SARS outbreak and Mrs Kaplan's medical condition, I am prepared to say that these costs really do come out in the wash, as it were. I will say costs in the cause as to those two matters.

19. As to the costs of the unsuccessful injunction application on 5 November, I had neglected to ask Mr Whitehead what he had to say about that in reply yesterday and I will hear him on that first.