BAI JUN TIAN CHENG LTD v. ANGOLA GROUP HOLDINGS LTD

HCA 1284/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1284 OF 2005

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(Heard Together)

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REASONS   FOR   DECISION

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1.  There are 4 summons taken out in the related proceedings of HCA 1284/2005 and HCA 1987/2005:

(1) HCA 1284/2005

The summons dated 8 February 2007 taken out by Bai Jun (the Plaintiff) for discontinuation of the action;

(2) HCA 1987/2005

The summons dated 8 February 2007 taken out by Zhong Xin and Bai Jun (1^st and 2^nd Plaintiffs by Counterclaim) for speedy trial and consequential directions;

(3) HCA 1987/2005

The summons dated 21 March 2007 taken out by Angola and Zhao (3^rd and 4^th Defendants by Counterclaim) to strike out part of the Amended Defence and Counterclaim;

(4) HCA 1987/2005

The summons dated 23 June 2008 by Angola and Zhao for amendment by their Defence to the Counterclaim.

2.  At the hearing, I made the following orders:

(1) Leave to withdraw HCA 1284/2005 with costs in the cause in HCA 1987/2005;

(2) Leave to withdraw the striking out summons with costs in the cause save that the costs of leading counsel for the hearing on 26 June 2008 be to Clarigain and Bai Jun in any event and there be no order as to costs for Achieve Gold and Ng;

(3) There be speedy trial in HCA 1987/2008 with consequential agreed directions and costs of the summons be in the cause;

(4) The amendments to the Defence to the Defence and Counterclaim proposed by Angola and Zhao be allowed save as to para. 92(e)(i) to (iv) and the particulars to para. 92(f)(ii) with costs to Clarigain and Bai Jun in any event;

(5) A statement framed in lieu of further pleadings under O. 18, r. 21(2), RHC as follows:

“In the event that para. 92(e) of the Amended Defence to the Counterclaim by Angola and Zhao is proved, it is agreed that there is no injection of capital by Bai Jun.”

3.  I now give my reasons.

Background

4.  On 28 February 2008, I heard a summons in HCA 1987/2005 for joinder of Clarigain, 50% shareholder of Zhong Xin, to bring a Counterclaim by way of derivative action on behalf of Zhong Xin against Angola and Zhao, etc.  Angola is the other 50% shareholder of Zhong Xin and the company is in deadlock.  For further background of the case, please see my Reasons for Decision dated 6 March 2006. 

5.  The striking out summons was based, in the main, on the lack of authority to sue by Zhong Xin.  By a consent summons dated 23 March 2007, the striking out summons was adjourned to be heard after another summons taken out by Angola and Zhao challenging Zhong Xin’s authority to sue.

6.  At the joinder hearing, I adjourned the authority to sue summons to be heard at the trial of the derivative action as the same live witnesses were proposed to be called on both matters.

7.  Upon my adjournment of the authority to sue summons, I ordered the striking out summons be restored and dealt with in an appropriate manner.

Discontinuation of HCA 1284/2005

8.  Mr. Leung SC, for Clarigain and Bai Jun, asked for costs in HCA 1284/2005 be in the cause of HCA 1987/2005, and Mr. Chan, for Angola, asked for costs on an indemnity basis in HCA 1284/2005 upon its discontinuance.

9.  The court has a discretion to depart from the usual costs order in favour of the defendant upon discontinuance of an action if it is just in the circumstances (see JT Stratford Ltd v Lindley [1969] 1 WLR 1547).

10.  Bai Jun first started HCA 1284/2005 against Angola for breach of the joint venture agreement for the failure to make a capital contribution in Zhong Xin, praying for rescission and damages.  Angola filed the Defence alleging it had discharged its obligation under the joint venture agreement by procuring Achieve Gold to make a loan to Bai Jun. 

11.  Theereafter, Achieve Gold started HCA 1987/2005 against Zhong Xin for repayment of the loan.  Clarigain and Bai Jun raised the defence that Angola and Achieve Gold were related parties and the loan was induced by misrepresentation, and asked for specific performance of the joint venture agreement and reduction of Angola’s shareholding in Zhong Xin as represented by the loan to be deemed capital contribution, and the previous election of rescission in HCA 1284/2005 be abandoned.

12.  Mr. Chan submitted that there is a radical change in stance from rescission to specific performance (challenge to the propriety of which is reserved) between the actions, and steps taken in HCA 1284/2005 (application for security for costs by Angola, summons for direction and discovery) are wasted.  Costs should be on indemnity basis by reason of parallel steps taken deliberately by Bai Jun in 2 actions.

13.  Mr. Leong submitted that the issues originally canvassed in HCA 1284/2005 came to be subsumed in HCA 1987/2005, there is no reason for the 2 actions to proceed in parallel.  Steps taken in HCA 1284/2005 were prior to the discovery of the relation between Angola and Achieve Gold, and the change in stance was justified by the new evidence discovered.

14.  No doubt the 2 actions share a factual nexus and there is the allegation that Angola and Achieve Gold were acting in concert in making misrepresentation on Bai Jun.  The question is not what issues were raised in HCA 1284/2005, but what issues could have properly been raised in either cases when litigation progressed.  It is not unreasonable that HCA 1987/2005 is chosen for ultimate resolution of the issues.

15.  The steps taken in HCA 1284/2005 are not wasted.  Payment of security for costs against Bai Jun is transferred to HCA 1987/2005, and in any case, costs had already been ordered against Bai Jun for its unsuccessful resistance.

16.  The duty on discovery is continuing, and no doubt will be so occasioned by the discovery of new evidence in the present case.

17.  Hence, I agree with Mr. Leung that costs in HCA 1284/2005 should be in the cause of HCA 1987/2005.

Striking out summons

18.  Angola and Zhao now seek to withdraw the striking out summons with costs in the cause.  Clarigain and Bi Jun ask for costs due to the late withdrawal of the summons.  Achieve Gold and Ng ask for no order as to costs towards them as they have taken a neutral stance.

19.  The withdrawal of the striking out summons was first ventilated at the joinder hearing.  Shortly afterwards, solicitors for Clarigain and Bai Jun proposed to restore the striking out summons, and solicitors for Angola and Zhao asked for time to consider a withdrawal.  The striking out summons was then fixed for hearing on 19 April 2008, and adjourned by consent to today, with half day reserved upon the suggestion of Angola’s solicitors.

20.  Mr. Chan submitted that the striking out summons was taken out on the ground, that Zhong Xin was not a signatory to the joint venture agreement and also Zhong Xin had no authority to sue.  Even upon the withdrawal of the striking out summons, those issues would still have to be determined at the trial.  Hence, costs in the cause would preserve the parties’ position.

21.  Mr. Leong submitted that Angola and Zhao had ample time to consider the matter since March this year and the decision to withdraw only 13 days before the hearing was simply too late.

22.  No doubt the substantive issue of the striking out summons will have to be determined at the trial.  But the fixing of half a day for the hearing of the summons is wasted now that the application is withdrawn.  And the waste is due to the delay in the decision given that that the issue was first raised in February.  Hence, notwithstanding that the costs of the summons should be in the cause, the costs of the wasted hearing should be to Bai Jun and Clarigain.  Counsel would properly have to be instructed given the various matters to be dealt with, but not leading counsel on the basis of any substantive argument on the striking out summons. 

23.  Hence, I ordered that the brief for leading counsel for the hearing on the assumption of argument be to Bai Jun Clargain in any event.

Amendment

24.  Most of the amendments are agreed by consent. The only dispute is on the proposed amendment in para. 92(e)(i) to (iv) and the particulars to para. 92(f)(ii).

25.  Bai Jun alleged in the Defence and Counterclaim that it had made capital contribution to Zhong Xin upon the failure of Angola to do so.  Since Angola had been allocated 50% shares in Zhong Xin at the outset, but had only put in a small part (in the form of a loan by Achieve Gold), the shareholding should be rateably reduced.

26.  Angola raised the defence that the fund contributed by Bai Jun, which ultimately was invested in the joint venture company CLB, was sourced in CLB.  Hence there was in fact no injection of fresh capital.  The proposed amendment sought to plead that such circuitous routing of funds is against the criminal law and company law of the Mainland. 

27.  Mr. Leong submitted that the legal effect is of no relevance since if Angola could prove the fact that the fund was sourced in CLB, there is no investment of capital by Bai Jun.

28.  Mr. Chan is content with this statement, but apprehensive of the lack of a record on file.  Parties agreed to the framing of the statement in lieu of further leading under O. 18, r. 21(2), RHC at my suggestion.

Directions

29.  Parties have agreed to a speedy trial and the directions.

30.  Finally, I thank counsel for their helpful submissions.