CHINA ASIA ENTERPRISES LTD v. HOLIDAY ASIA INVESTMENTS CO LTD AND ANOTHER

HCCW746/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO. 746 OF 2009

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BETWEEN

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REASONS  FOR  DECISION

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1.  On 17 May 2010, I refused the respondents’ application for an interim stay of these winding up proceedings pending the determination of HCA1113/2009. These are my reasons for so doing.

The petition

2.  The 2^nd respondent is a Hong Kong company. It is owned by the petitioner and the 1^st respondent as to 25% and 75% respectively. It engages in the trading of gold bullion. It is the petitioner’s case that it is owned by the wife of Mr Michael Lam Yih Jiun (“Mr Lam”) and that the petitioner arranged Mr Lam to work as a consultant in the 2^nd respondent.

3.  In this petition, the petitioner complains that the affairs of the 2^nd respondent had been conducted in a manner unfairly prejudicial to its interests as a minority shareholder. It seeks a winding up order or alternatively a buying out order. The petitioner alleged, among other things, that it had been excluded from the management of the 2^nd respondent, contrary to the shareholders’ agreement and understanding that they were to run the 2^nd respondent’s business together; that the 1^st respondent had misappropriated clients’ trust monies; and that the 1^st respondent engaged in an unlawful business venture in the Mainland.

4.  The protagonists involved in the matters complained of were on the petitioner’s side, Mr Lam, and on the respondents’ side, Mr Tandijono Honus. They were involved in the discussions leading up to the acquisition of the 2^nd respondent and its subsequent restructuring.

5.  The parties have already completed the affidavit evidence. They need further discovery since the documents involved are quite voluminous.

6.  Recently, a Mr Wong Yu Kit (“Mr Wong”), the head of the 2^nd respondent’s treasury department, has filed a notice to appear.

HCA1113/2009

7.  In HCA1113/2009, the 2^nd respondent is the plaintiff. The 1^st defendant is, according to the 2^nd respondent’s case, set up by Mr Lam for the purpose of receiving deposits from the 2^nd respondent’s Mainland clients. The 2^nd defendant is Mr Lam. The 3^rd defendant is Mr Wong.

8.  The 2^nd respondent sued the 1^st defendant for failure to return some HK$6.3 million being trust money received on its behalf; Mr Lam and Mr Wong for breach of fiduciary duties for, among other things, misappropriating the said sum of HK$6.3 million; all the defendants for passing off and conspiracy to injure.

9.  The trial will take place in early June 2010.

Discussion

10.  It can be readily seen that the respondents seek a stay where there exist concurrent proceedings but not involving exactly the same parties. The applicable principles are to be found in Linfield Ltd v Taoho Design Architects Ltd & Ors [2002] 2 HKC 204, where Ma J (as he then was) said :

“14.  One starts with the basic principle: what would serve the ends of justice between the parties to the litigation and as far as the administration of justice is concerned?  This recurrent theme can be found in all cases involving stays on the basis of lis alibi pendens : see The Abidin Daver at 412B-D (noting in particular the well known words of Lord Diplock, ‘It is a recipe for confusion and injustice’).  I have also found helpful a statement of principle contained in the judgment of Sellers LJ in Compagnie Nouvelle France Navigation SA v. Compagnie Navale Afrique du Nord (The ‘Oranie’ and The ‘Tunisie’) [1966] 1 Lloyd’s Rep 477, where at 487(1), he said :

‘The guiding principles are :
(1)	that the stay must not cause injustice to the claimant in the arbitration, and
(2)	that the applicant for a stay must satisfy the Court that the continuance of the arbitration would be oppressive or vexatious to him or an abuse of the process of the Court: in short, that it would be unjust.’

I would add that where a plaintiff institutes proceedings as of right (and not in breach of an arbitration agreement or exclusive jurisdiction clause) he is not to be deprived of carrying on those proceedings unless very good reasons exist to the contrary.

15.  In Paladin Agricultural Limited v. Excelsior Hotel (Hong Kong) Limited [2001] 2 HKC 215, Burrell J dealt with an application similar to GWA’s in the present case.  There, proceedings had been commenced by a tenant (the 1^st plaintiff in that case) against its landlord (the defendant) in relation to a tenancy of restaurant premises.  The complaint was in relation to the fact that the premises became infested with vermin, although it is not clear from the report just what the cause of action against the plaintiff was since it was the tenant’s obligation to keep the premises free of pest and vermin.  The business carried on at the premises was in the name, not of the tenant, but of the 2^nd plaintiff.  No contractual relationship existed between the 2^nd plaintiff and the defendant and it is significant as well that the tenancy agreement did not permit the use or occupation by any one other than the 1^st plaintiff.  Both plaintiffs, however, joined in an action against the defendant.  The proceedings as between the 1^st plaintiff and the defendant were stayed upon the 1^st defendant’s application owing to the existence of an arbitration agreement.  This therefore gave rise to an application by the 2^nd plaintiff to stay the proceedings until after the final award had been given in the arbitration between the 1^st plaintiff and the defendant.  Burrell J granted the stay in the exercise of the court’s inherent jurisdiction, taking into account five factors, namely (see page 224 of the report) :

(1)	The 2nd plaintiff only came into the litigation relatively late and after there had been a change of solicitors.
(2)	The 2nd plaintiff’s existence as a separate legal entity operating the restaurant appeared to be in breach of the tenancy agreement between the 1st plaintiff and the defendant.
(3)	The 2nd plaintiff’s claim, in money terms, was about 4% of the amount of the 1st plaintiff’s claim.
(4)	There were many common issues and although the claims were not similar, the root cause was the same and the majority of consequential issues were the same.
(5)	The duplication of proceedings created the risk of inconsistent findings and the inevitability of increase costs.

16.  Although there was apparently no identity of parties in the two proceedings, in my view what was obviously of significance to the learned judge was the fact that the 2^nd plaintiff’s existence as a ‘separate legal entity’ appeared to be in breach of the tenancy agreement.  As I understand the learned judge’s reasoning, he must have treated the two sets of proceedings as more or less involving the same parties.  It was for this reason that the existence of common issues, the risk of inconsistent findings and the inevitability of increased costs therefore became important features.  These would not have been important features at all if the parties had been completely different.  Even if there are multiple sets of proceedings involving similar or even the same issues, if there is no identity of parties, I fail to see how it is desirable or even possible for one or more of such proceedings involving different parties to be stayed pending the resolution of any other set or sets of proceedings.  The determination of any issues in proceedings between different parties would not be binding on any other party in another set of proceedings.  I recognize immediately that this may give rise to a risk of inconsistent findings, but where findings made in earlier proceedings (even on the same issues) are not binding in later proceedings, the risk is inevitable.  However desirable it may be to have consistency, findings made in different proceedings between different parties cannot be made binding on other persons.”

11.  Applying the principles here, I think the following factors militate strongly against an interim stay.

12.  First, the parties involved are not identical. Any finding in the HCA1113/2009 will not be binding on the parties here.

13.  Second, although factually the background of the two actions may overlap, the issues involved are not identical. I fail to see how the determination of the issues in HCA1113/2009 would impart on how the issues in the winding up petition are to be decided.

14.  Third, on the evidence before me, I am unable to see how the determination of HCA1113/2009 will affect the outcome of the petition. It will be quite unacceptable if the petitioner is to be prevented from continuing with the winding up petition now.

15.  Mr Poon, counsel for the respondents, took a number of points. He argued that the interim stay ought to be granted as a matter of case management. Proper case management is no doubt required in every case. But I do not think an interim stay is warranted in light of the factors mentioned above.

16.  Mr Poon next submitted that the respondents wanted to save costs by staying the petition pending the determination of HCA1113/2009. This submission is correct only if the outcome of HCA1113/2009 will help dispose of the petition wholly or substantially. But plainly that is not the case. I fail to see how costs can be saved.

17.  Finally, Mr Poon said if the petition is to be proceeded with only after the result in HCA1113/2009 is known, it may encourage the parties to consider alternative dispute resolutions. But the parties can and should consider alternative dispute resolutions now. They do not need to wait until the outcome in HCA1113/2009 is known.

Conclusion

18.  For the above reasons, I refused the application with costs.