STUART JAMES BROMLEY AND ANOTHER v. CIC HIGHTIME RESOURCES LTD

HCMP 2623/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2623 OF 2005

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D E C I S I O N

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1.  This is a summons issued by the plaintiffs in this action and the defendant to the counterclaim to stay the counterclaim pending further order, on grounds that:

(1) British Columbia, Canada, is a more suitable jurisdiction in which for the matters the subject of the counterclaim to be determined; and/or

(2) allowing the counterclaim to be pursued in Hong Kong will result in undesirable duplication of litigation, the matters the subject of the counterclaim are already being litigated in British Columbia in Action Nos. L051577 (“the BC Action”) and L052976 (“the BC Petition”).

2.  The summons was issued on 17 February 2006.  It was adjourned to me by the Registrar on 23 February 2006.  It came before me on 11 July 2006, I adjourned it and gave directions on the filing of further evidence with an order that the parties are to seek directions by letter before setting down for substantive argument.  Evidence was filed in compliance with the order in August and September 2006, but no one took steps to have the summons set down for hearing until the solicitors for the defendant in the action and the plaintiff to the counterclaim wrote to the court in November 2007 requesting to restore the summons for hearing.

3.  Thus this application only came on for hearing more than 2 years after the summons was issued.  I have sought an explanation from counsel on both sides at the outset of the hearing.  I have not been provided with any satisfactory explanation by Mr Paul Carolan, who appeared for the plaintiffs and applicants, for the delay on his side.  Mr Charles Manzoni, who appeared for the defendant, told me that as the respondent in the application, it is not incumbent on his side to run the application.  In any event, when his solicitors found the delay intolerable, they did take steps to restore the hearing in November 2007.

4.  It is regrettable that by not proceeding with the application for well over a year, the plaintiffs have got a de facto stay during that time.

5.  I do not propose to give a detailed introduction or set out the background matters.  I have covered these matters in the decision I gave in this action on 5 January 2006, paragraphs 3 to 15, and they are very comprehensively set out in the judgment of Groves J in the BC Action and the BC Petition on 21 March 2006, in an application to stay those proceedings on the ground that British Columbia was not the appropriate forum.  Groves J dismissed the application for stay.  On 13 September 2006, the Court of Appeal of British Columbia dismissed all appeals on jurisdictional challenge from his decision.

6.  I will adopt the same abbreviations for the parties and entities as in my previous decision and I set out some of them here for ease of reference:

Stuart James Bromley (“Bromley”) – the 1^st plaintiff in this action

CIC Hightime Resources Limited (“CICH-HK”) – the defendant in this action, a company incorporated in Hong Kong, wholly owned by a company registered in the British Columbia, CICH Resources Limited (“CICH”)

CIC Resources Limited (“CIC”) – the 2^nd plaintiff in this action, a company incorporated in Hong Kong owned by Bromley, holding 48% of the shares in CICH

Hawkshead Investments Limited (“Hawkshead”) – a company incorporated in the United Kingdom, holding 48% of the shares in CICH

CIC Mining Resources Limited (“CICM Bromley”) – a company incorporated in Canada, formerly known as Providence Diamond Corporation

7.  The action commenced first in time is the BC Action.  It was brought on 24 June 2005 by Hawkshead against CICH, CIC, CICM Bromley, Bromley and another individual Rick Lu.  It alleges breach of fiduciary duties owed by Bromley as a director of CICH.  The main allegations are that Bromley conspired to transfer or usurp CICH’s indirectly held interest in some mining leases in the People’s Republic of China to or in favour of CIC.  Hawkshead claims, inter alia, a declaration that the actions of Bromley, Rick Lu, CIC and CICH constituted actions oppressive and unfairly prejudicial to Hawkshead, and an order to set aside any transaction between CIC, Bromley and CICM Bromley with respect to the mining leases.

8.  On 1 September 2005, Bromley and CIC filed a counterclaim in the BC Action, naming as defendants by counterclaim CICH-HK, Mark Bojanjac and Robert Gardner and companies owned and controlled by them.  It is alleged that Bojanjac, Gardner and companies owned by them conspired to breach various agreements under which Bromley and his companies were to provide various services in relation to the development of mining leases in China, to force Bromley to resign from positions he held with CICH, CICH-HK and the Chinese joint venture companies, to attempt to force Bromley to give up his shares in CICH, and that they failed to fund the continued development of the mining properties in China.  CICH-HK is not involved in that aspect of the counterclaim in the BC Action.

9.  Bromley and CIC further counterclaimed in the BC Action against CICH-HK for:

(1) money due from CICH-HK under a management services agreement entered into on 1 June 2004;

(2) money due from CICH-HK under a promissory note; and

(3) other monies which Bromley and CIC have paid for and on behalf of CICH-HK (“the CICH-HK Loan”).

All these amounts which Bromley and CIC allege are due arose out of the gold mining projects which underlie the disputes between the parties.

10.  It is not in dispute that the debts counterclaimed in the BC Action are the same as the debts claimed in this action in Hong Kong.

11.  On 1 November 2005, CICH-HK filed a defence to the counterclaim in the BC Action.  It avers that the Canadian court has no jurisdiction over the matters in the counterclaim made against it, alternatively the court should decline jurisdiction.  It admits the mining leases in the counterclaim were corporate opportunities belonging to and for the benefit of CICH.  In further answer to the claims, it denies the making of and the validity of the promissory note, the validity of the management services agreement and the making of and the validity of the CICH-HK Loan.

12.  On 28 November 2005, Bromley and CIC issued the originating summons in these proceedings in Hong Kong, seeking an injunction to restrain CICH-HK from holding a board meeting to consider his removal as a director of CICH-HK.  They obtained an ex parte injunction on the same day.  That injunction was discharged by me at the inter partes hearing on 5 January 2006.  On the same day, I gave directions on a summons issued by Bromley and CIC on 30 December 2005 that the proceedings by originating summons be continued as if begun by writ and provided a timetable for the filing of pleadings.

13.  In the meantime, on 9 December 2005, CIC and Bromley presented the BC Petition, naming as respondents CICH, Hawkshead and Bojanjac, making the same claims as in the counterclaim in the BC Action that the affairs of CICH were conducted in a manner unfairly prejudicial to them.  The main difference is that in the BC Petition they allege that the conduct of Hawkshead and Bojanjac amounted to oppression and they seek a variety of remedies other than damages.  CICH-HK is not involved in the BC Petition.

14.  On 18 January 2006, Bromley and CIC filed the statement of claim in this action in Hong Kong, making the same claims as it has already made against CICH-HK in the counterclaim in the BC Action.  Mr Carolan explained to the court today the reason why the same claim was made again is because CICH-HK has disputed jurisdiction of the court in British Columbia in its defence to counterclaim filed in the BC Action.  I note that it was only on 8 February 2006 that CICH-HK delivered a notice of motion for dismissal or stay of the BC Action on the basis that the court in British Columbia lacked jurisdiction or should have declined jurisdiction.

15.  On 8 February 2006, CICH-HK filed a defence to the statement of claim in this action in Hong Kong.  As summarised in Mr Manzoni’s submission, the action is defended on the following lines:

(1) Under the terms of the management services agreement there was no liability to pay Bromley or CIC the various sums claimed (paragraphs 8.1 to 8.4).

(2) There was an agreement reached on 7 December 2004 under which it was agreed that Bromley and CIC would not be entitled to fees under the management services agreement.  That agreement was tied into the anticipated initial public offering of CICH (paragraph 8.5).

(3) The management services agreement contained terms which required the fidelity of Bromley and CIC, and as a result of the various factual matters raised in the counterclaim, Bromley and CIC are in repudiatory breach of that agreement, such that there is no entitlement to the fees and other amounts claimed (paragraph 8.7).

(4) Further or alternatively, CICH-HK is entitled to set off any damages which may be due by virtue of its counterclaim.  That is an equitable set-off which amounts to a defence (paragraphs 9.2, 10.3 and 13.4).

(5) Further or alternatively, CICH-HK seeks to assert the counterclaim as a cross claim, which gives rise to a diminution of any claims made (paragraph 17).

16.  The counterclaim raises allegations that Bromley was in breach of fiduciary duties and duties of care as a director of CICH-HK.  It makes essentially the same complaint against Bromley and CIC as the allegations made by Hawkshead in the BC Action.  Unlike the defence of CICH-HK in the counterclaim to the BC Action, it alleges that the mining leases in China were corporate opportunities of CICH-HK instead of CICH, and that Bromley and CIC had misused the confidential information of CICH-HK instead of CICH.

17.  As mentioned earlier, the application of CICH-HK and other parties for stay of the BC Action and the BC Petition was heard by Groves J who dismissed it on 21 March 2006.  Discovery has taken place in those proceedings.  The Court of Appeal in British Columbia held that the notice of appeal filed in respect of the appeal against the decision of Groves J was a nullity on 13 September 2006, so there is no longer any jurisdictional challenge in the proceedings in Canada.

18.  I understand that in September 2006, trial dates for the BC Action and the BC Petition were set for 20 hearing days commencing in November this year.  There is to be a second case management conference in the BC Action in June 2008.  I was further told that the trial dates have been released owing to an intervening dispute to set aside a default judgment.

19.  In this application, it is important to bear in mind that Bromley and CIC are seeking a stay of the counterclaim only.  They are not seeking a stay of the action.

20.  I have asked Mr Carolan about this.  He has no instructions to amend his summons to seek a stay of the entire proceedings.  He said however that the plaintiffs in this action would apply to stay the entire action, on condition that CICH-HK accepts it has submitted to jurisdiction in the BC Action.  Alternatively, he submitted that because the court has wide powers in granting a stay and can grant a stay on terms, the court can, of its own motion, order not only a stay of the counterclaim as sought by Bromley and CIC, but the entire proceedings.

21.  I have difficulty about Mr Carolan’s stance and submission.

22.  As stated, the jurisdictional challenge of CICH-HK to the BC Action has been determined against it.  As Mr Carolan recognised in his written submission, despite its jurisdictional challenge and its brief defence to the counterclaim in the BC Action, CICH-HK may well have submitted to the jurisdiction of the courts in British Columbia.  Mr Carolan said the Canadian lawyers might think otherwise.  I have no evidence on that.  Even if there were uncertainty whether CICH-HK has submitted to jurisdiction in the Canadian courts, I have no doubt there must be a procedure to resolve this in the BC Action, without requiring Bromley and CIC to pursue an identical claim against CICH-HK in another jurisdiction.  The choice is really that of Bromley and CIC, whether it wishes to ask this court to stay the entire action.  There is no reason why this should be dependent on what CICH-HK is or is not required to do, or that it should be left to the initiative and discretion of this court.

23.  That being the position, I think there is no answer to Mr Manzoni’s submission that the application to stay the counterclaim should be dismissed, as to accede to this would be to deny CICH-HK the right to defend the counterclaim in the way it chooses.  It would be unjust to hold otherwise.  Bromley and CIC have chosen to bring this action in Hong Kong.  CICH-HK must be free to defend as it chooses.  I see no reason why CICH-HK should be compelled to pursue its counterclaim in the BC Action by amending its defence to counterclaim to include a counterclaim to counterclaim as suggested by Mr Carolan (assuming there is similar provision on this in British Columbia as in Hong Kong), or by CICH-HK joining Hawkshead as co-plaintiff in the BC Action.

24.  I agree with Mr Manzoni at this stage, one does not even look at the principles of forum non conveniens.  The application must be dismissed for so long as the counterclaim remains an integral part of the defence to the claim.  It is only if the claim goes that the court should go on to look at the forum non conveniens aspect of the counterclaim, see Australian Commercial Research Development Limited v ANZ McCaughan Merchant Bank Limited [1989] 3 All ER 65 at 69d and 70b to e.

25.  Even if I were to apply the principles of forum non conveniens in Spiliada Maritime Corp v Cansulex Limited [1986] AC 460, I would have arrived at the same conclusion, albeit by a different route.  I am not persuaded that Hong Kong is not the natural and appropriate forum for the trial of the counterclaim, which is concerned with claims of breach of fiduciary duties by Bromley as a director of a Hong Kong company.  Even if it were shown that the court in British Columbia is clearly or distinctly more appropriate than the Hong Kong court to try the counterclaim, a trial at the court in British Columbia would deprive CICH-HK of the legitimate personal or juridical advantage, in that it would have lost its ability to defend the claim of Bromley and CIC in the way it has chosen to do in Hong Kong.  I would not, by applying the principles of forum non conveniens, have exercised my discretion to stay the counterclaim.

26.  For the above reasons, I dismiss the application to stay the counterclaim.  I recognise this is not a desirable state of affairs, with proceedings going on in two jurisdictions, and there may be a risk of inconsistent findings between the two courts.  CICH-HK is content to litigate in Hong Kong notwithstanding this.  Bromley and CIC could have chosen to proceed against CICH-HK in the BC Action only, it has declined to do so and must live with the consequence.

27.  Mr Manzoni seeks costs on an indemnity basis to be paid forthwith.  I am not minded to award indemnity costs, so it would be on a party-and-party basis.  However, I see no reason why costs should not be paid forthwith.  This is a discrete application, and it should not have been brought.  Bromley and CIC have more than sufficient opportunity to take advice from Canadian lawyers if there was indeed any doubt whether CICH-HK has submitted to the jurisdiction of the Canadian courts after the dismissal of its appeal on jurisdictional challenge.

28.  I order the plaintiffs to pay the defendant’s costs of this application forthwith on a party-and-party basis including all costs reserved earlier in relation to this application, to be taxed if not agreed.