INDIAN CORRIDOR SDN BHD AND ANOTHER v. CHINA IDEA DEVELOPMENT LTD AND OTHERS

CACV 248/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 248 OF 2008

(ON APPEAL FROM HCA NO. 1 OF 2008)

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a judgment of Deputy High Court Judge Carlson given on 7 August 2008.  The judge had before him a number of interlocutory applications.  That which concerns this appeal is an application by the second defendant to strike out various parts of the plaintiffs’ defence to the second defendant’s particulars of claim of loss in the enquiry as to damages ordered by the judge on 4 February 2008.  At the conclusion of the hearing of the appeal judgment was reserved to be handed down in writing, which we now do.

Background

2.  The background to this action can be gleaned from the Ruling given by the judge on 4 February 2008 and the Reasons for Decision which I handed down on 11 August 2008.

3.  For present purposes it suffices to say that on 31 December 2007 the plaintiffs went ex parte before a deputy judge and obtained a very wide order which included a number of injunctions.  Paragraph 1 of that order was an injunction in the Mareva form to restrain the first defendant from disposing or dealing with any of its assets on a worldwide basis up to the value of HK$647,449,536.  Subparagraph (iv) of that paragraph read:

“This prohibition includes the following asset in particular the development project at The Royal Garden located at Lane 715, Block 1, Part A, Qi Boa Town, Ming Hang District, Shanghai, PRC (“the Project”), or the proceeds of sale of the Project.”

4.  Paragraph 3 of the order was an injunction also in the Mareva form restraining the second defendant amongst other things from:

“(iii)  in any way dealing with or disposing of any monies obtained or to be obtained by the second defendants or its subsidiaries in dealing with (including but not limited to selling) the Project (as defined herein below) or any part or parts thereof and/or disposing of any assets purchased with the said monies obtained by the 2^nd defendants or its subsidiaries in dealing with the Project or any part or parts thereof.”

5.  The endorsement on the writ, which was not issued until 2 January 2008, made it clear that the plaintiffs’ claim was on behalf of the third defendant.  It was thus a derivative action.  The relief that was sought included a declaration that the Management Agreement dated 25 July 2007 (“the management agreement”) that had been made between the first and second defendants was void and of no legal effect.  The statement of claim was served on 15 January 2008.  Almost immediately upon its service, it was severely criticised in a written skeleton argument dated 17 January 2008 on behalf of the second defendant.  The skeleton was prepared to be used in an application to strike out the action.  In the words used in that skeleton the plaintiffs’ pleaded case was confused and misconceived.

6.  As noted in the Ruling and Reasons referred to above, the plaintiffs chose to discontinue the action on the eve of the day when the matter was to be heard in court.  The plaintiffs have offered a reason for abandoning the injunctions on the basis that they were required to provide fortification.  That, in itself, is something which hardly reflects well.  But that does not constitute a rational reason for discontinuing the whole action.  At the moment I consider that Mr Barlow SC, who prepared the skeleton argument referred to above and who appeared on this application, is correct in saying that as presently framed that statement of claim is embarrassing because it seeks to put forward a cause of action which is not properly constituted.

7.  Be that as it may, as already noted, the judge ordered that there should be an enquiry as to damages.  Leave to appeal that order was refused and the enquiry is to take place sometime in the near future.

8.  The second defendant complains of two matters relating to the defence which the plaintiffs have filed in response to the second defendant’s claim.  The first matter relates to the attempt by the plaintiffs to raise the question of the validity of the management agreement.  The second matter is the references in the defence to the statement of claim.

9.  Turning to the first matter it is true that in the second defendant’s particulars of claim of loss, reference is made in paragraph 9(a) to the management fees payable to the first defendant.  However it is quite clear that the second defendant’s claim is based upon the effect of the injunctions which are referred to in paragraphs 3 and 4 above.  In paragraph 8 of the particulars of claim the Mareva injunction is referred to and in paragraph 10 of the particulars it is stated:

“As a result, the progress of the construction of the Royal Garden Project was seriously delayed, causing loss and damage to YSL and the 2^nd defendant.  To the extent that there is any loss and damage suffered by YSL (which is wholly owned by the 2^nd Defendant) as a result of the Ex Parte Injunction Order, such loss and damage is loss and damage suffered by the 2^nd Defendant, in the form of or representing a diminution in the value of the shares in YSL held by the 2^nd Defendant or a diminution in the distribution by way of dividends or otherwise of profits of YSL to the 2^nd Defendant.”

10.  When the claim is considered, although it is extremely high, in total of more than RMB78 million, it can be seen that it is subdivided into claims in respect of payment of compensation to purchasers for the late delivery of units, additional payments to “cooperation companies” as a result of the delay, claims by contractors for resumption of construction work after the cessation and idling costs, increase in prices of materials and furniture and freight charges, additional interest on loans to YSL and legal costs.  Any fees payable to or profits payable to the first defendant are not included in any such claim.  Our attention was also drawn to the particulars on behalf of the first defendant and they would appear to mirror almost exactly the claim on behalf the second defendant.  As discussed at that hearing, it may well be that the first defendant will not find it necessary to pursue the enquiry as to damages since the damages would appear to be those claimable by the second defendant and were the second defendant to succeed in its claim for damages, the first defendant could not also succeed at the same time.

11.  It appears to me that any reference to the validity of the management agreement is irrelevant to the claim made by the second defendant.  If the plaintiffs were allowed to raise the question of the validity of the management agreement in the enquiry for damages, what they would be doing would be delaying the matter by raising irrelevant considerations no doubt at great expense because of such matters as considerable discovery and extended evidence and cross-examination on something which has no bearing on the second defendant’s claim.  There is no claim based upon the management agreement.  Even were the management agreement be held to be void it would have no effect on the outcome of the enquiry.  In my view, references to the validity of the management agreement in the defence should be struck out.

12.  As Mr Barlow pointed out, the statement of claim pleaded a derivative claim by minority shareholders on behalf of the third defendant which focused on the management agreement that had been made between the first and second defendants.  The third defendant was not a party to the management agreement.  The statement of claim did not purport to be a double derivative action in respect of wrongs done to the second defendant, still less did it purport to be a triple derivative action in respect of wrongs supposedly done to YSL which is a wholly owned subsidiary of the second defendant.  This is quite apart from the fact that the second defendant is itself a wholly owned subsidiary of the third defendant and is, also, alleged to be a tortfeasor.

13.  In my view it would be quite wrong to allow the plaintiffs now to raise matters obliquely when they have deliberately discontinued the action which sought to raise those matters, particularly after the pleading has been promptly and, seemingly, effectively challenged.

14.  In my view the second defendant is entitled to the orders sought in the summons and in the notice of appeal.  I would make an order nisi of costs in favour of the second defendant.

Hon Le Pichon JA:

15.  I agree.