JOSEPH GHOSSOUB v. TEAM Y&R HOLDINGS HONG KONG LTD AND OTHERS

HCMP 1074/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1074 OF 2015

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D E C I S I O N

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1.  These two summonses were taken out by the 1^st to 4^th respondents (“the respondents”):

(i) A summons dated 30 June 2016 (returnable on 7 October 2016) for leave to appeal the decision of this court dated 16 June 2016 (the “Decision”) dismissing the respondents’ application to stay an unfair prejudice petition presented by thepetitioner on 30 April 2015 (“the leave to appeal summons”).

(ii) A summons dated 2 September 2016 issued pursuant to Order 59, rule 13 and the inherent jurisdiction of the court to “adjourn” the petitioner’s summons for directions in the petition dated 21 July 2016; alternatively, that (a) no order be made until the determination of the respondents’ proposed appeal and (b) in the event that leave is refused, until the final determination of the respondents’ renewed application to the Court of Appeal for leave to appeal.  In substance, the respondents seek a stay of execution of the order made on 16 June 2016 and it would be convenient hereafter to refer to it as (“the stay of execution summons”).

2.  At the conclusion of the hearing, the court reserved its decision which I now give.

3.  The relevant background and issues arising from the respondents’ application dated 4 November 2015 to stay the petition (“the stay application”) are fully set out in the Decision giving rise to the present summonses to which reference should be made.

4.  After the dismissal of the stay application, on 21 July 2016 the petitioner issued a summons for directions in the petition returnable on 15 September 2016 before Harris J.

5.  On 2 September 2016 the respondents took out the stay of execution summons made returnable on 15 September 2016 before Harris J.  He declined to entertain the stay of execution summons, adjourning it to this court for hearing on 7 October 2016 and gave directions for the further conduct of the petition unless this court stays or varies such directions.

The leave to appeal summons

6.  Mr Smith SC counsel for the respondents put forward four grounds of appeal, namely:

(1) the court erred when construing the exclusive jurisdiction clauses and in finding that two of the petitioner’s complaints do not fall within the jurisdiction clauses;

(2) the court erred in law in finding that the exclusive jurisdiction clause in the SPA fetters the petitioner’s statutory right to present an unfair prejudice petition, and finding that it is inoperative to the extent it does so fetter;

(3) the court erred in finding that the petitioner did not have an effective remedy if it was bound to bring its action in England; and

(4) the court failed to consider whether to exercise its discretion to stay the proceedings against non‑parties to the exclusive jurisdiction clauses and/or failed properly to consider whether to stay the petition pending determination of the substantive English proceedings.

(A)   Questions of law

7.  Mr Smith identified two areas of the law where it was said the lines of authorities are unclear, uncertain and would benefit from review.  The submission was that they are important points of law that should be considered by the Court of Appeal.

8.  The first relates to the question of the fettering of statutory rights (the second ground in the draft notice of appeal).  The nub of Mr Smith’s submission is that the court failed to refer to Re Quiksilver Glorious Sun JV Ltd [2014] 4 HKLRD 759 in its discussion of the application of Re Fulham Football Club (1987) Ltd v Richards [2012] Ch 333. It was said that the court failed to appreciate the significance of Quiksilver in that there was no mandatory stay in that case as section 20 of the Arbitration Ordinance does not apply to winding up proceedings yet Harris J stayed the petition and applied Fulham.

9.  Quiksilver concerned an arbitration clause and not a jurisdiction clause.  In that case the court had to consider the extent to which it was appropriate to stay the petition issued by the shareholders on a just and equitable ground when there was a comprehensive shareholders’ agreement requiring disputes to be determined by arbitration.  It is important to note that unlike the petition in the present case, in Quiksilver, no non‑parties were involved and all the issues were arbitrable.  The considerations here are very different.

10.  Quiksilver relied on four grounds for resisting the stay (§13) which the judge rejected.  The first two grounds were made on the erroneous basis that a just and equitable winding up is an exercise of a class right.  The third ground was based on the fact that as there was no mandatory stay (because winding up proceedings do not fall within section 20 of the Arbitration Ordinance) the petition ought not to be stayed.  The fourth ground is linked to the third ground in that it was submitted that the court had no residual inherent jurisdiction to stay for determination by arbitration.  The judge rejected those points and exercised his discretion to order a stay pending arbitration.

11.  It will be seen that unlike the present case, Quiksilver did not have to resolve any issue concerning a fetter on the statutory right to present a petition.  The substantive dispute between the parties in that case was arbitrable: it concerned the basis upon which the joint‑venture was to end, that being the commercial disagreement that required resolution.

12.  For those reasons I do not agree that the omission of any reference in the Decision to Quiksilver renders it a matter worthy of review.

13.  The second area of law Mr Smith identified as worthy of review (said to form part of the fourth ground of the draft notice) is whether or not the fact that some respondents to the unfair prejudice petition (in fact three out of four) were not parties to the underlying agreement containing the exclusive jurisdiction clause prevents the court from staying the petition.

14.  In that regard, having reviewed that part of the Decision, I do not resile from the reasons given for coming to the conclusion that I did on the issue.

(B)   Appeal against the exercise of the court’s discretion

15.  The other main points raised by the respondents are the defaulting shareholder point and the no effective remedy point.  Both concern the exercise of the court’s discretion.  The principles in Hadmor Productions Ltd v Hamilton [1983] 1 AC 191 therefore apply.

16.  As to the defaulting shareholder point, the submission was that if the petitioner were found to be a defaulting shareholder in the English proceedings, then the whole exercise of the unfair prejudice litigation in Hong Kong will have been wasted because the petitioner would not have the necessary locus to bring proceedings as a shareholder in the first place.

17.  The English proceedings only commenced in December 2015, 7 months after the petition was issued.  At this point no assumptions can be made regarding the outcome of the English proceedings and certainly there is no basis for assuming that it is bound to be in Cavendish’s favour.

18.  The petitioner undoubtedly has the necessary locus to complain of the matters that had already occurred at the date of the petition (such as non‑payment of dividend) and remains a shareholder until the date he is declared to be a defaulting shareholder and required to sell his shares to Cavendish.

19.  Ms Chan SC (who appeared for the petitioner) submitted that in the event of the petitioner being declared a defaulting shareholder in the English proceedings, his complaints against non‑parties remain and would still require resolution.  That must be correct.  Even as against Cavendish, the petitioner is entitled, qua shareholder, to make the complaints, his cause of action having ‘accrued’ on the presentation of the petition.  I agree.

20.  For those reasons, I do not accept that simply because Cavendish has chosen to challenge the petitioner’s locus, the Hong Kong proceedings necessarily would be a waste of time and resources.

21.  As to the no effective remedy point, the submissions are a re‑run of those made at the hearing and considered in the Decision.  It calls for no further comment.

22.  In conclusion, I do not consider that proper grounds have been made out for leave to appeal to be granted.  Accordingly, the leave to appeal summons is dismissed.

The stay of execution summons

23.  The respondents seek a stay of this court’s order dated 16 June 2016.

24.  The petitioner made the obvious point that there is nothing to be stayed as the only order made by this court was dismissal of the stay application.  The court did not make any other order that the petitioner may seek to enforce or execute.  The logic of the argument cannot be faulted.

25.  The stay of execution summons is nothing more than an attempt to achieve a stay of the petition through the back door which, it was submitted, amounts to an abuse of process.  When so analysed, I am inclined to agree.

26.  It is a fact that the petitioner has not been able to proceed with the petition for 18 months as a result of the stay application and the listing of the stay of execution summons before Harris J rather than to this court which made the order under appeal as the respondents are required to do pursuant to Order 59, rule 13(1).

27.  In any event, the respondents have the burden of showing that there are good reasons to justify a stay of execution since a successful litigant should not be deprived of the fruits of his litigation.  While prejudice in the form of the expense and inconvenience of having to litigate in Hong Kong contrary to the jurisdiction clauses might arise, it could be compensated for, but there is nothing to show that the proposed appeal would be rendered nugatory.

28.  It was then contended that the respondents would be forced to file a defence and decide whether or not to run the defaulting shareholder provision as part of it.  If they do, it was submitted that the respondents will have cut themselves off effectively from dealing with it in the English proceedings because they will have chosen to litigate that point in Hong Kong.

29.  But the fact is that they do have a free choice in the matter however difficult the choice might appear to be.  The respondents are not under any compulsion or obligation to act one way or the other.  In any case, I cannot see how the proposed appeal would be rendered nugatory if a stay is not granted.

30.  Accordingly, the stay of execution summons falls to be dismissed and the directions given by Harris J on 15 September 2016 take immediate effect.

Application for an interim stay

31.  The respondents have intimated that they will consider making a renewed application for stay of execution to the Court of Appeal and, meanwhile, they seek in Mr Smith’s words “a mini‑stay” in the interim.

32.  Leaving aside the question whether the relief falls within the terms of §1(b) of the stay of execution summons, justification for such relief has not been shown.  Shortness of the stay is not a reason for granting it.  The application is refused.

Costs

33.  Costs should follow the event.  There is to be an order nisi of costs in favour of the petitioner.