XCHRX ASIA-PAC INFRASTRUCTURE DEVELOPMENT LTD. AND ANOTHER v. NISSHO IWAI HONG KONG CORPORATION LTD.

HCA 1398/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1398 OF 2000

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J U D G M E N T

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1. This is the defendant's application to strike out the plaintiffs' action on the grounds that it discloses no reasonable cause of action; it is frivolous or vexatious; and it is an abuse of the process of the Court. The action was commenced by writ on 8 February 2000, the defendant's Defence was filed on 21 March 2000, and its summons to strike out the plaintiffs' action was filed on 26 October 2000.

2. The 1st plaintiff is a member of the so-called "Asia-Pac group of companies", all of which companies are incorporated in Hong Kong, and which the 2nd plaintiff alleges are beneficially owned and/or controlled by him. The 1st plaintiff carried on the business of developing telecommunications, power, gas and infrastructure projects in Asia.

3. The defendant is a company incorporated in Hong Kong, inter alia, as a registered money lender.

4. The plaintiffs' claim is for damages which they allege they suffered in consequence of the defendant's breach of fiduciary duties which it owed them; and/or the defendant's having knowingly assisted Mr Alexander Ing to commit breaches of fiduciary duties and/or breaches of trust which he owed to the 1st plaintiff; and/or the defendant's breach of a "Cooperation Agreement" which it had allegedly concluded with the plaintiffs.

5. The plaintiffs' claim is in more or less identical terms to the draft Defence and Counterclaim which were advanced by the 2nd plaintiff and another member of the so-called Asia-Pac group of companies, namely, Saint Joy International Company Ltd ("St Joy"), in HCA 1747/2000, in which they were sued by the present defendant ("Nissho Iwai") for repayment of the balance of a loan of US$10 million which had been advanced to St Joy by Nissho Iwai, and the repayment of which had been guaranteed by the 2nd plaintiff David Ho.

6. In HCA 1747/2000 Nissho Iwai applied for summary judgment against both the defendants under RHC Order 14, and on 13 November 2000 I granted summary judgment in favour of Nissho Iwai against both defendants, on the basis that the defendants had failed to demonstrate that they had any real defence or counterclaim, or that there were any triable issues in the case.

7. Mr Scott accepts that the issues which are raised on the pleadings in the present case, and the evidence which is relied upon by the plaintiffs in support of their claims are essentially the same as the issues which were raised and the evidence which was relied upon by St Joy and David Ho in support of their defence and counterclaim in HCA 1747/2000.

8. Mr Chan submits that the findings which I made in the summary judgment application in HCA 1747/2000, inter alia to the effect that the defence and counterclaim which had been advanced in that matter were in my view "practically moonshine", apply with equal force to describe the plaintiffs' claims against Nissho Iwai in these proceedings, and that it inevitably follows from my findings in that matter that the plaintiffs' present action should be struck out as disclosing no reasonable cause of action and as being frivolous and vexatious and an abuse of the process of the Court.

9. Mr Scott contends that the judgment and findings in HCA 1747/2000 do not necessarily apply to the plaintiffs' claims in the present proceedings, bearing in mind the different tests which apply in an application for summary judgment under RHC Order 14 rule 1 on the one hand, and an application to strike out under RHC Order 18 rule 19 on the other hand.

10. I agree that it does not necessarily follow from the findings and orders which I made in granting summary judgment to Nissho Iwai in HCA 1747/2000, that the plaintiffs' action in the present proceedings is liable to be struck out. It is important to have regard to the different context of the plaintiffs' present action, which is for damages for the defendant's alleged breach of fiduciary duties and/or "the cooperation agreement", from the context in which the defence and counterclaim appeared in HCA 1747/2000, namely, Nissho Iwai's action to recover the balance of the loan of US$10 million which had admittedly been advanced to St Joy, and the repayment of which had been guaranteed by David Ho.

11. It should be noted that an appeal has been lodged against the judgment and orders which were made in HCA 1747/2000, by a Notice of Appeal filed on 7 December 2000 (CACV 1016/2000). Mr Scott submits that the hearing of the present application should await the determination of that appeal, and has suggested a via media, namely that the present application should be adjourned to a date to be fixed after the determination of the appeal in HCA 1747/2000, in the meantime that the present proceedings be stayed, thus preserving the status quo pending the Court of Appeal's determination of the issues raised by the appeal, which are common to both HCA 1747/2000 and the present action.

12. Mr Scott further points out that discovery has not yet taken place, and submits that the action should be allowed to continue at least up to the stage of discovery in order to afford the plaintiffs' the opportunity to throw light upon the "unedifying dealings" between the defendant and Mr Ing.

13. The present application being brought under paragraphs (a), (b) and (d) of Order 19(1), involves an examination of not only the pleadings but also all of the evidence which has been filed by the parties. The approach to be adopted was clearly set out by the Court of Appeal in Ha Francesca v. Tsai Kut Kan (No 1) [1982] HKC 382 :

"(1) An application to strike out an action should only be granted in plain and obvious cases. There should be no trial upon affidavit. Disputed facts were to be taken in favour of the party sought to be struck out.

(2) The court must be careful not to drive a plaintiff from the judgment seat. ... The claim must be obviously unsustainable, the pleadings unarguably bad and that it was impossible, not just improbable, for the case to succeed, before a court would strike it out. If the court did not think the matter to be clear beyond doubt or if it failed to be satisfied that there was no reasonable cause of action or that the proceedings were frivolous or vexatious, then there should be no striking out. ..."

14. I note also the following in Hong Kong Civil Procedure 2001, Order 18/19/6 :

"The jurisdiction should not be exercised if it requires a minute and protracted examination of the documents and facts of the case in order to see whether the plaintiff really has a cause of action. ....

Where an application to strike out pleadings involves a prolonged and serious argument the Court should as a rule decline to proceed with the argument unless it not only harbours doubts as to the soundness of the pleading but, in addition, is satisfied that striking out the pleading would obviate the necessity for a trial. ... However, where the Court comes to the conclusion after full argument that the case is plainly and obviously one for striking out it should not decline to do so on the ground that the issues are difficult or complicated. ...

The jurisdiction will not be exercised except with great circumspection and unless it is perfectly clear that the plea cannot succeed."

Mr Scott urged upon me, and I accept that an order to strike out the action should only be made in "plain and obvious" cases, and that any discretion should be exercised "with great circumspection".

15. Having revisited the Statement of Claim and the evidence, and making due allowance for the different context in which the present action is set and the different test to be applied, I am of the firm view that this is a plain and obvious case where the action should be struck out, for the reasons which I gave in my judgment in HCA 1747/2000.

16. In my view the plaintiffs have no prospect of being able to prove the so-called "long term oral cooperation agreement and memorandum of understanding" which is alleged to have been entered into by the defendant with the plaintiffs; and furthermore no prospect of being able to prove their allegations that the relationship between the parties was such that at all material times the defendant owed the plaintiffs the fiduciary and/or other duties in common law or equity, as pleaded in paragraph 8 of the Statement of Claim.

17. Even if they had been able to prove the alleged agreement and to establish that such fiduciary or other similar duties had been placed upon the defendant, in my view the plaintiffs have no prospect of making good their allegations that the defendant, by its actions in entering, without the consent of the plaintiffs, into "an arrangement whereby the defendant and Ing agreed to exchange financial proposals" in relation to the Beijing Guotong and the Shanghai Pudong Gas Projects, knowingly assisted Ing in committing breaches of fiduciary duty and/or breaches of trust owed to the plaintiffs or either of them, and/or intentionally induced or procured Ing to do so, all in breach of the so-called "Cooperation Agreement", and is thereby jointly and severally liable with Ing for damages to the plaintiffs. (It should be noted in this connection that there is no dispute that Nissho Iwai, after conducting its normal due diligence inquiries, declined Ing's financing proposals, and no loan was in the event advanced to Ing or Tri-Tel Limited.)

18. It is clear to me, looking at the whole of the materials which have been placed before the Court, that the plaintiffs' Statement of Claim, while achieving the appearance of an elaborate edifice is in reality a house of straw, built upon no foundations. As Mr Chan submitted, it is not only a short or simple pleading which can be demonstrated to be plainly and obviously unsustainable. In my view it is impossible for the plaintiffs' claims to succeed; the action is frivolous and vexatious; and, bearing in mind once again the observation of Godfrey JA (as he then was) in Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225 at 227C, that the procedures of the courts are designed for the resolution of genuine disputes, it is an abuse of the process of the Court.

19. In these circumstances, Mr Scott's proposed via media, while having certain attractions in view of the pending appeal in HCA 1747/2000, would in my view fail to do justice to the situation. The defendant is entitled to have the Statement of Claim struck out immediately, without any further ado.

20. I grant an order that the Statement of Claim be forthwith struck out, and an order nisi that the plaintiffs pay the defendant's costs of this action, including the costs of this application.