GREAT RIVER CORPORATION LTD AND OTHERS v. CHINA NTG GANSU GAS LTD AND ANOTHER

HCMP 1967/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1967 OF 2012

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DECISION

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Introduction

1.  This is an application of China NTG Gansu Gas Limited (“Gansu Gas Limited”) by its summons dated 25 July 2014 (“the Summons”) to apply to discharge the injunctions (“the Injunctions”) granted by DHCJ Seagroatt on 18 September 2012 and continued on 5 October 2012 by Mimmie Chan J. DHCJ Seagroatt granted the Plaintiffs upon their application by their summons dated 28 September 2012 the Injunctions as interim relief pending resolution of the Plaintiff’s Originating Summons (“the OS”) dated 13 September 2012.

2.  By the OS, the Plaintiffs apply for essentially the same injunctions in aid of the proceedings commenced in the Eastern Carribbean Supreme Court in the High Court of Justice Virgin Islands Commercial Division under claim no. BVIHC (COM) 63 of 2012 (“the BVI Action”).

3.  The Plaintiffs consist of Great River Corporation Ltd (“Great River”), Carlye Tsui (“CT”), Eleanor Chan (“EC”) and Adrian Chan (“AC”). All of them are the directors of China NTG Investments Limited (“the Company”) which was incorporated in the BVI. The Company holds 99.5% shares in China NTG Gas Group Limited (BVI) which completely owns Gansu Gas Limited.

4.  Mr Song Lian Zhong (“Song”), the 2^nd defendant, has never responded to the OS.  Indeed none of the documents of the Plaintiffs have been effectively served on Song. Song does not take any part in the present application.

Background Facts

5.  The disputes between the parties in these proceedings and the BVI Action are complicated. For the purpose of the present application, the essential factual background facts are summarized as follows.

6.  In the BVI Action, the Company sues all the Plaintiffs for, among other matters, breach of fiduciary duties and fraud. By way of counterclaim, the Plaintiffs in their capacity of minority shareholders pray that the Company be wound up on just and equitable grounds and a liquidator be appointed over the Company pursuant to the BVI insolvency law. Their major complaint is that Song wrongfully procured Gansu Gas Limited to sell its main asset, namely 49% of the shares in Gansu CNPC Kunlun Gas Utilization Company (“the Shares”), a subsidiary of the Company to Gansu Zhong Peng Energy Technology Co., Ltd which is wholly owned by Song for nil consideration.

7.  On the other hand, CT, EC and AC caused Gansu Gas Limited to file a claim in the Gansu Province Court of the People’s Republic of China dated 10 January 2012 (“the Gansu Proceedings”) against Song and other parties in respect of, among other matters, the wrongful disposal of the Shares.   

8.  In the BVI Action, on 27 July 2012, the Plaintiffs succeeded in their ex parte on notice application and obtained two injunctions against the Company (“the BVI Injunctions”). The BVI Injunctions are in broadly similar terms with the Injunctions save that the party to be enjoined in the former is the Company only and not Song.

9.  On 15 August 2012, in the BVI Action, Great River, EC and AC issued a notice of their application for an appointment of receivers over the asset of the Company including the Shares (“the Receivership Application”).

10.  On 30 August 2012, Wallbank J extended the BVI Injunctions and enlarged them to enjoin Song till the return day falling on 28 September 2012. The matter came before Bannister J on the return day and Bannister J ordered that the BVI Injunctions be continued until the determination of the Receivership Application.

11.  Before the continuation of the BVI Injunctions by Bannister J, the Plaintiffs issued the OS in Hong Kong to apply interim relief in terms of the BVI Injunctions to assist the BVI Action.

12.  On 18 September 2012, Deputy High Court Judge Seagroatt granted the Injunctions (in the absence of Song) in the following terms:

“(1) The 1^stand 2^ndDefendants and each of them be restrained, whether by itself/himself, its directors or officers or by its subsidiaries, from causing or procuring directly or indirectly the transfer or disposition of 49% of the shares in Gansu CNPC Kunlun Gas Utilization Company (the “Shares”) to any third party including any connected party until 5 October 2012 or until further order.

(2) Without limitation, each of the 1^st and 2^nd Defendants, shall not whether by himself/itself, its directors or officers or by its subsidiaries and China NTG Gansu National Gas Ltd (a wholly owned foreign owned PRC company) take or continue to take any steps in Gansu Court Proceedings the short title of which is 28 of 2012 and 122 of 2012 (the “Gansu Proceedings”) to allow or cause the Shares to be transferred to a third party (including, for avoidance of doubt, terminating for that purpose the retainer by the plaintiff party in the Gansu Proceedings of Mr. Cao Liu Sheng of EVERWIN Law Office as its legal advisors and/or counsel) until 5 October 2012 or until further order.”

13.  Up till now, none of the Plaintiffs has taken any step to procure the final adjudication of the OS, apparently being satisfied with the interlocutory relief offered by the Injunctions.

Relevant Legal Principles

14.  The parties are in agreement about the relevant legal principles. The OS was taken out pursuant to section 21M of the High Court Ordinance, Cap.4. Sections 21N and 21L are also relevant. Both Mr Wong SC, together with Mr Chow and Ms Law, for the Plaintiffs, and Mr Lau, together with Ms Chan, for Gansu Gas Limited helpfully refer to this court the decision of Zervos J in Pacific King Shipping Holdings Pte Ltd v Huang Ziqiang, unreported, HCMP 2464/2012, 4 April 2014 where his Lordship explained the operation of the said two sections in the following terms:

“9. The provision (section 21M) relies on comity between the courts of different jurisdictions and this is reinforced by s 21N which provides that the court is required to have regard to the fact that the power is ancillary to foreign proceedings and for the purpose of facilitating such proceedings. A court therefore under s 21M is exercising an ancillary jurisdiction in order to grant interim relief in support of substantive proceedings taking place elsewhere and avoids the need to commence substantive proceedings in Hong Kong. It should be noted, however, that a court is not bound to grant relief, and may decline to do so if in its opinion, the fact that it is exercising ancillary jurisdiction in support of substantive proceedings elsewhere makes it unjust or inconvenient to grant relief. A court in the exercise of this power is required to abide by the general principles governing interim relief. This was held in Prema Birkdale Horticulture (Macau) Ltd v Venetian Orient Ltd [2009] 5 HKLRD 89 and is also provided for under s 21N (2) which states that the power is the same as if the order were granted under s 21L in relation to Hong Kong proceedings.”

15.  It can be seen that the court has to be satisfied that it is just and convenient to grant relief under section 21M and that the essential principles expounded in American Cyanamid Co v Ethicon Ltd [1975] AC 396 in respect of the grant of interlocutory injunctions remain relevant considerations.

Three Grounds

16.  Mr Wong does not say that the Injunctions should never have been granted at the ex-parte stage. Rather, he relies on the alleged changing circumstances since the grant of the Injunctions and in the main he relies on the following three grounds in support of the present application of Gansu Gas Limited:

(1) The BVI Injunctions have lapsed;

(2) The BVI Action has stayed; and

(3) The Gansu Proceedings forming the substratum of paragraph 2 of the Injunctions have effectively fallen away.     

17.  I shall deal with these grounds in turn bearing in mind the relevant guiding principles set out above.

Discussion

Lapse of the BVI Injunctions

18.  The factual basis of this ground is not in dispute. Pursuant to the order of Bannister J, the BVI Injunctions were continued until the determination of the Receivership Application.

19.  The Receivership Application was set down to be heard on 21 March 2013. On 18 March 2013, Messrs. Harney Westwood & Reigels, solicitors for the relevant Plaintiffs sent a letter (“the Letter”) to Gansu Gas Limited to indicate their unwillingness to proceed with the Receivership Application. The Letter was also enclosed with a draft consent order for the purpose of the withdrawal of their Receivership Application. The Receivership Application was eventually withdrawn by a consent order dated 21 March 2013.

20.  Mr Wong makes the simple point that the BVI Injunctions have already been discharged with the withdrawal of the Receivership Application and the mirroring Injunctions must go as a result.

21.  Mr Lau argues that though the lapse of the BVI Injunction is a relevant consideration, it is not necessary to have an existing foreign proceedings let alone a foreign mirroring injunction to justify a grant of interim relief under section 21M. He relies on Fourie v Le Roux [2007] 1 All ER 1087 to support this contention.   

22.  As a matter of law, Mr Lau is correct in his submissions but a section 21M injunction is only justified when it is intended to be ancillary to expected foreign proceedings. Further, as rightly pointed out by Mr Wong, in the supporting evidence of EC, it is clearly stated that the Injunctions were sought in support of the BVI Injunctions. Even the date of the BVI Injunctions was specified. This was exactly the basis upon which the Injunctions were granted. There is no other basis advanced by the Plaintiffs.

23.  In the premises, the argument of Mr Wong must prevail. The Injunctions have already served their purpose and ceased to do so once the BVI Injunctions have been allowed to lapse. There is no evidence that any of the Plaintiffs has made or makes any effort to apply for a re-grant or renewal of the BVI Injunctions. This being the case, the Injunctions must be discharged as the matter now stands.

24.  Mr Lau seeks to argue that the relevant plaintiffs decided to withdraw the Receivership Application not because of its lack of merit or those of the entire BVI Action but, as shown in the Letter, because of the practical reality that all the assets of Gansu Gas Limited including the Shares had already been dissipated. As a result, there was nothing left to be managed by a receiver and a receiver was no longer necessary.

25.  Be that as it may, no matter how sound the reason behind the withdrawal of the Receivership Application is, the fact remains that the principle underlying reason why the Injunctions were granted has become invalid. On this ground alone, the Injunctions must be dismissed.

Stay of the BVI Action

26.  This ground is also straightforward and the factual basis again is not disputed. On 8 February 2013, Song and other persons commenced proceedings against the Plaintiffs and another person under HCA 277 of 2013 (“the HK Action”). In the HK Action, Song alleges to be the rightful owner of the shares in the Company currently registered in the name of the Plaintiffs.

27.  On or about 15 July 2013, Song and other plaintiffs in the HK Action applied for a stay of the BVI Action and the counterclaim in favour of the HK Action. In fact on or about 26 April 2013, the Plaintiffs applied to stay the HK Action in favour of the BVI Action on the grounds of forum conveniens. On 2 October 2013, the application was refused with costs.

28.  Shortly afterwards, on 9 October 2013, the Plaintiffs gave their consent to an order of the BVI court dated 9 October 2013 whereby the BVI Action be stayed with no order as to costs (“the Stay Order”). The Stay Order also provided that the parties do have liberty to apply.

29.  Against these background, Mr Wong relies on the dictum of Bannister J in VTB v Nutritek International Corp. & Ors., unreported, Claim No. BVIHC (Com) 103 of 2011, 20 and 27 March 2013:

“5. The [English] proceedings in support of which the BVI Injunction was granted and continued having coming to an end, it seems obvious to me that there can be no justification for keeping it on foot. Mr Malofeev has an absolute right to have it discharged. There is no justification for making him wait until 28 May 2013, or any other date, to have his application dealt with, nor can there be any good reason fro refusing to discharge the freezing order… an injunction granted in support of foreign proceedings must fall away as of right when such proceedings become abortive. The reason for this is that the jurisdical basis for the grant of the injunction and, with it, the Court’s reason for granting it has fallen away. The point is incapable of further elaboration.”

30.  In that case, the BVI freezing order was first granted in aid of an injunction in broadly similar terms made by the High Court in London. Bannister J finally discharged the BVI freezing order on the ground that the Supreme Court in London had finally ruled against the merit of the London injunction.

31.  In the present case, though I find force in Mr Wong’s submission that there has been no application to uplift the stay for almost a year, I cannot accept the BVI Action has become abortive despite the lack of expert evidence of BVI law. On the face of the Stay Order, the stay is not permanent in nature and the BVI Action has not been finally adjudicated. There is every chance that the stay can be uplifted.

32.  That said, I believe I should take into account the Plaintiffs’ own view of and/or inaction in the BVI Action in addition to the lapse of the BVI Injunctions (more than 18 months). Mr Lau also confirms that the Shares have already been transferred, meaning there is no real utility in paragraph 1 of the Injunctions. All in all, I am not persuaded that it is just and/or convenient that the Plaintiffs should be allowed to continue to enjoy the interim relief under section 21M.     

Lapse of Gansu Proceedings

33.  The final ground is that the Gansu proceedings, the subject matter of paragraph 2 of the Injunctions, have come to an end because the Gansu Higher People’s Court was required to relinquish its jurisdiction and direct the dispute to the Public Security Bureau of Lanzhou. In this regard, Gansu Gas Limited adduced expert evidence by way of PRC law expert report to support its contention that the dispute has become a matter of criminal prosecution and civil proceedings can only be started afresh to recover the interest in the Shares after the conclusion of the criminal prosecution.

34.  On the other hand, the Plaintiffs rely on the opinion of their PRC legal expert, namely, Beijing Reliance Law Firm, and point out that the Gansu proceedings have merely been stayed pending the conclusion of the criminal proceedings. They contend that the Gansu Proceedings are capable of being resumed.    

35.  Mr Wong is quite right in saying that the legal basis of the Plaintiffs’ expert opinion is not apparent. That said, I am unable to come to a clear conclusion as to the finality of the Gansu Proceedings on the conflicting expert evidence available to me. The parties further go into lengthy and detailed arguments over the merit of the Gansu Proceedings but again I do not think I am able to decide its merit on affidavit evidence filed in this action.

36.  However, I note that the Injunctions granted in respect of the Gansu Proceedings only lasted until 5 October 2012. It was extended by Mimmie Chan J on 5 October 2012 until it is varied or discharged by further order of the BVI court AND this court.

37.  Of course the Injunctions can only be varied or discharged by this court and not any BVI court. Now that the BVI Injunctions have lapsed for so long, by the same token, there is no reason why the Injunctions relating to the Gansu Proceedings being only ancillary in nature should be allowed to be kept alive. I believe that it is only just and convenient that the Injunctions should be discharged altogether.

Delay

38.  Mr Lau complains about the delay of the present application to discharge. In this regard, he highlights to this court that all the alleged changing circumstances in fact took place more than 1 year ago and there is no reason why Gansu Gas Limited has allowed such delay. Mr Lau further complains that Gansu Gas Limited fails to explain the urgency of the discharge now applied for.

39.  I cannot accept his submissions, which seem to me to be putting the cart before the horse. It is trite that a litigant who has obtained a Mareva injunction should prosecute the action expeditiously and should not be merely content with the interlocutory relief. Such a litigant is under the duty either to proceed with his claim or to apply on his own motion to have the injunction discharged: Hong Kong Civil Procedure 2015 Vol.1 §29/1/64, p.671.

40.  Mr Wong pertinently refers to me the following dicta of Hoffmann J (as he then was) in Newsgroup Newspaper Ltd v The Mirror Group Newspapers (1986) Limited [1991] FSR 487:

“… In my judgment it is incumbent upon a plaintiff whose position has been protected in that way by an interlocutory injunction to proceed with the action with due diligence so as to limit as far as possible the period during which the defendant’s liberty is restricted without there having been any determination of the merits.” (p.489)

“… A plaintiff who has obtained an interlocutory injunction is not in my view entitled simply to rest upon that injunction, to assume, as the plaintiff in this case expressly said he assumed, that in the absence of complaint the defendant is content to treat the injunction as permanent without any further steps having to be taken and to wait until the defendant finds the situation sufficiently burdensome to prompt him to make an application for variation of its terms.” (p.490)

41.  In the present case, though we are not dealing with Mareva injunctions, I fail to see how the Plaintiffs, probably in reliance of the Injunctions, could allow the BVI Action to be stayed and the BVI Injunctions to expire and to delay the final adjudication of the OS for so long a time. The dilatory approach taken by the Plaintiffs is alarming and the delay in these proceedings provides this court another reason to discharge the Injunctions.     

Other Miscellaneous Arguments

42.  Mr Lau raises some other arguments, mostly relating to the merits of the BVI Action, the Hong Kong Action and the Gansu Proceedings. I do not think such arguments would assist the Plaintiffs to any material extent, without respect to counsel’s impressive industry. I do not accept that this is the proper occasion to make forensic analysis of the parties’ respective case on limited affidavit evidence. The reasons given above should suffice to determine the present application.

Conclusion and Orders

43.  I am satisfied that the Injunctions should be discharged on the incontrovertible evidence. I therefore accede to the application of Gansu Gas Limited and make an order in terms of the Summons.

44.  As regards costs, there is no apparent reason why I should depart from the general principle that costs should follow the event. I thus make an order nisi that the Plaintiffs do pay Gansu Gas Limited its costs of and occasioned by the Summons, to be taxed if not agreed. I am also of the view that this matter justifies the engagement of two counsel and I hence certify such an engagement on the part of Gansu Gas Limited.

45.  It remains for me to thank all counsel on both sides for their considerable assistance.