SHIH-HUA INVESTMENT CO., LTD (suing for and on behalf of itself as shareholder of EVERGLORY ENERTY LTD) v. ZHANG AIDONG AND OTHERS

HCA 2682/2016

[2018] HKCFI 1335

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2682 OF 2016

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R E A S O N S   F O R   D E C I S I O N

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1.  On 26 June 2017 I struck out the Statement of Claim in these proceedings and discharged orders dated 25 October and 22 November 2016 (“Orders”). The Plaintiff sought leave to appeal the discharge of the Orders on 30 November 2017. At that time my reasons for the decisions of 26 June 2017 were not available. I dismissed the application.

2.  The Plaintiff accepts that in order to obtain leave it must show that its appeal has a reasonable prospect of success.  It advanced four grounds in support of its submission that this threshold is satisfied:

(1)  Ground 1:

The court erred in striking out the Statement of Claim on the grounds that the Action infringed the Rule in Foss v Harbottle.[1] There are two main components to this contention as it was advanced before me.  First, it is suggested that although the Board is independent at shareholder level there is deadlock.  No authority has been cited (and I do not recall the point being argued before me) in support of the argument that this is a relevant consideration.  It does not seem to me either as a matter of principle or on the facts of this case that this is relevant.

Secondly, it was argued the Rule was not infringed because in practice the Board is not able to assess and pursue the claims in the Action.  This is a disingenuous argument as such financial impediments as the reconstituted Board has in this regard seem to have arisen from the Plaintiff’s failure to provide the finance that had said they would at the time of the reconstitution.

(2)  Grounds 2 and 3:

This concerns my findings that in applying ex parte for the Orders the Plaintiff and its legal team were guilty of improper forum shopping and serious material non-disclosure.  As I understand the argument the Plaintiff contends that the decision to apply for the first order from the Duty Judge rather than the Companies Judge and to provide very limited information about what had transpired in applications in the Petition proceedings did not involve material non-disclosure and, in any event, I should have considered the merits first and, presumably, if I had thought that, but for the material non‑disclosure the Plaintiff was entitled to the Orders, I should notwithstanding the material non-disclosure continue the Orders.

I have dealt with these matters at length in my Reasons of 4 June 2018 (“Reasons”) and I shall not repeat them here.  It seems to me that there was clearly serious material non‑disclosure and that the approach, which the Plaintiff advances for assessing how it should have been dealt with, is wrong in principle.

(3)  Ground 4:

That I was plainly wrong in not ordering a regrant because of the strength of the Plaintiff’s case.  For the reasons explained in my Reasons at [54–61] even ignoring the material non‑material disclosure I was not satisfied the Orders were justified.

3.  I dismiss the application and make a costs order nisi that the Plaintiff pays the Defendants’ costs with a certificate for two counsel.