CHINA IDEA DEVELOPMENT LTD v. OOI KEE LIANG

HCA 811/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 811 OF 2015

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D E C I S I O N

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Background

1.  The parties in this action have been embroiled in acrimonious proceedings since 2008.  This is only one of various actions in which they are involved.

2.  The plaintiff (“CID”) is a company incorporated in Hong Kong.  The defendant (“OKL”) is the beneficial owner, Chief Executive Officer and the controlling and directing mind of two Malaysian companies, Indian Corridor Sdn Bhd (“IC”) and Pembangunan Qualicare Sdh Bhd (“PQ”).  IC and PQ were shareholders of Golden Plus Holdings Bhd (“Golden”), a company incorporated in Malaysia, the shares of which had been listed on the Malaysian stock exchange.  Yanfull Investment Limited (“Yanfull”) is a company incorporated in Hong Kong, which is a wholly owned subsidiary of Golden, and the parent company of Yanfull Shanghai Co Ltd (“Yanfull Shanghai”).  Yanfull Shanghai is a company incorporated on the Mainland, which was engaged in the development of a construction project in Shanghai (“Project”).  CID entered into a management agreement with Yanfull on 25 July 2007 (“Management Agreement”), under which CID agreed to provide services in relation to the management and operation of Yanfull Shanghai and the Project.

The 2008 Action

3.  On 31 December 2007, IC and PQ obtained a Mareva injunction against CID, Yanfull and Golden (“Injunction”) in Hong Kong, alleging in proceedings instituted under HCA 1/2008 on 2 January 2008 (“2008 Action”) that (inter alia) the Management Agreement was a fraudulent scheme, entered into by its directors in breach of their fiduciary duties and with the assistance of CID and Yanfull, that funds of Golden and its profits from the Project had been misappropriated, and that CID was a knowing recipient of such funds diverted from Golden by directors acting in breach of their fiduciary duties.

4.  This action (HCA 811/2015) was commenced by CID against OKL on 16 April 2015.  By these proceedings, CID claims that the 2008 Action and the Injunction brought against CID were false claims, and in fact were part of a conspiracy between OKL and others to injure CID by unlawful means.  According to CID, the false claims made in the 2008 Action including the procurement of the Injunction on false evidence was part of OKL’s scheme to take over the control of Golden, to remove the then existing directors of Golden and to appoint his own nominees and associates as the directors of Golden.  When this action was first commenced, the claims made by CID were in fact for damages for malicious prosecution of the 2008 Action, malicious procurement of the Injunction, damages for abuse of process, deceit and fraudulent misrepresentations made in the affirmations and witness statements made by OKL in the 2008 Action, in addition to damages for conspiracy.  By amendments made to the Writ in August 2016, the relief sought by CID in this action was confined to damages for conspiracy.

5.  The 2008 Action was in fact discontinued on 31 January 2008, and the Injunction discharged on 4 February 2008.  On discharge of the Injunction, the Court ordered an enquiry (“Enquiry”) to ascertain the damages payable to CID and Yanfull pursuant to the undertakings as to damages given by IC and PQ.  The Enquiry was contested by IC and PQ, until 2 weeks before the hearing of the Enquiry, when IC and PQ proposed terms of settlement, which led to a Consent Order being made by the Court on 20 April 2009 (“Consent Order”).  Under the Consent Order, IC and PQ were to pay to CID HK$15 million by way of damages and HK$10 million as legal costs.  IC and PQ were also ordered to pay Yanfull HK$35 million by way of damages and HK$5 million as legal costs.  According to the evidence filed for the Enquiry, CID and Yanfull had suffered damages as a result of delay in the Project which was occasioned by reason of the grant of the Injunction, increased costs in the development of the Project, and compensation which had to be paid to purchasers of units comprising the Project.

Claims in this action

6.  In these proceedings, CID claims that as part of OKL’s conspiracy (with IC, PQ and other associates) to injure CID, OKL had not only procured IC and PQ to use false evidence in the 2008 Action to obtain the Injunction, but had taken further steps with the objectives and intention of defeating CID’s entitlement to the damages payable upon the Enquiry, and thus injuring CID.  These steps and overt acts constituting elements of the claim of conspiracy included, and as pleaded in paragraphs 9, 13, 14 of the Statement of Claim (“SOC”):

(1) OKL making false representations that the total value of the shares of IC and PQ in Golden was in excess of RM49 million, that the shares were not encumbered in any way, and that further, IC and PQ had arranged for HK$2 million to be deposited with their solicitors by way of fortification of their undertaking as damages.  CID claims that these representations were in fact false, and known by OKL to be false, as IC’s shares in Golden had in fact already been mortgaged by OKL, and could not be made available for fortification or for payment of damages;

(2) OKL causing IC and PQ to contest the Enquiry, causing CID to incur further legal costs and expenses in pursuing the Enquiry;

(3) OKL causing IC and PQ to agree to and procure the Consent Order, by representations that IC and PQ were able and intended to pay the damages and costs of HK$25 million (“Settlement Sum”);

(4) OKL colluding with creditors to wind up IC and PQ without opposition, to ensure that CID would be deprived of the Settlement Sum.

7.  By way of relief, CID claims in these proceedings damages particularized as the Settlement Sum, interest, and costs and expenses incurred in enforcing the Consent Order.

HCA 687/2015

8.  Yanfull also commenced proceedings against OKL in Hong Kong, by HCA 687/2015 instituted on 30 March 2015 (“Yanfull Action”).  In reliance on the claims made by IC and PQ in the 2008 Action and the Injunction obtained against Yanfull, Yanfull claims from OKL damages in respect of abuse of court process, malicious prosecution and deceit through the fraudulent misrepresentations made by OKL in the 2008 Action. 

9.  On 15 April 2016, the claims made by Yanfull in the Yanfull Action were struck out by the Court, on the ground that they were time-barred.  Yanfull’s appeal was dismissed by the Court of Appeal on 15 March 2017.

The Malaysian proceedings

10.  On 24 March 2008, after the Consent Order, CID had commenced legal proceedings in Kuala Lumpur against IC and PQ, claiming that IC and PQ were indebted to CID and liable to pay damages to CID. 

11.  Separately, CID also commenced action against OKL (and 4 other directors of IC and PQ) in the High Court of Malaya at Kuala Lumpur (Suit No 22NCVC-197-04/2015 (“KL Suit 22 NCVC”)), nearly contemporaneously with the commencement of these proceedings, on 17 April 2015. By reference to the Consent Order, the representations made leading to the making of the Consent Order, and the winding up orders made against IC and PQ and allegedly procured by OKL, CID claims in KL Suit 22 NCVC that OKL had carried on the business of IC and PQ with intent to defraud CID, and/or for fraudulent purposes of avoiding personal liability.  CID claims that under s 304 (1) of the Malaysian Companies Act 1965, OKL and the other defendants should be jointly and severally liable, in their personal capacity, to CID for all debts of IC and PQ pursuant to the Consent Order.  The trial of KL Suit 22 NCVC commenced hearing in May 2017, was adjourned part heard, and is scheduled to continue in November 2017 and January 2018.

12.  Legal proceedings had also been commenced by Yanfull against OKL in Kuala Lumpur on 19 April 2015.  Those proceedings were apparently withdrawn by Yanfull on 29 October 2015.

Applications for stay and striking out

13.  On 28 November 2016, after the Yanfull Action was struck out by the Hong Kong Court, OKL applied to stay these proceedings of CID against him, on the ground that Hong Kong is not the appropriate forum, and that the High Court of Malaya is the more appropriate forum for the trial of this action.

14.  On 8 August 2017, OKL issued a further summons for CID’s claims to be struck out in this action, on the ground that the SOC discloses no reasonable cause of action, is frivolous and vexatious and/or is an abuse of the process of the court.

Stay on forum inconveniens

15.  The principles applicable to the determination of applications for stay of proceedings on the ground of forum non conveniens have been clearly set out in Rambas Marketing Co LLC v Chow Kam Fai David [2001] 4 HKC 250 at 253G-254G, and involve a 3 stage approach.  These principles are not disputed, and will not be repeated here.  In essence, the evidential burden is on the applicant for stay to show that Hong Kong is not only not the natural or appropriate forum for the trial, but that there is another available forum which is clearly or distinctly more appropriate than Hong Kong.  The purpose of the exercise is to identify the forum with which the action has the most real and substantial connection.  Failure by the applicant to establish this at the first stage is normally fatal.

16.  In this case, CID has emphasized that it had commenced these proceedings as of right, as OKL was served with the Writ within Hong Kong (Pei Zheng Middle School v China Pui Ching Education Foundation Ltd, CACV 262/2005, 21 February 2006).  The learned editors of Hong Kong Civil Procedure are of the view that such proposition is no more than a reflection of where the burden of proof lies, rather than of how heavy such burden is, and that at most, the weight to be attached to the factor of the writ having been served in Hong Kong depends on the circumstances and the strength of the underlying connections to Hong Kong (see para 11/1/10A, Hong Kong Civil Procedure 2017).  It is, in any event, certainly a factor to be given proper recognition and consideration.

17.  OKL seeks to place reliance on the decisions of the courts at 1^st instance and on appeal in the Yanfull Action, and argued that the Hong Kong Court has found that Hong Kong is not the forum conveniens for the Yanfull Action.  In this respect, I agree that there is a distinction now between the Yanfull Action and these proceedings.  The claims made in the Yanfull Action were abuse of process, malicious prosecution and deceit.  The amended claim made by CID in this action is for conspiracy, although the claim of conspiracy is still based on the procurement of the Injunction and the Consent Order as part of the overt acts taken pursuant to the alleged conspiracy.  The decisions in the Yanfull Action have to be read in this context.

18.  In the determination of whether Hong Kong is the appropriate forum for the trial of this action, consideration is to be given to the connections between Hong Kong and: the trial of the claim in this action, the parties to the action, and the events comprising the cause of action of conspiracy.  The burden is on OKL to show that in these respects, Hong Kong is not the natural or appropriate forum, and that Malaysia is (as he claims) clearly or distinctly the forum with which the action has the most real and substantial connection.

19.  OKL relies on the fact that IC, PQ and Golden are all Malaysian companies the operation of which are governed by the laws of Malaysia.  OKL himself is a Malaysian citizen ordinarily residing in Malaysia, although he was served with the Writ in Hong Kong.  Apart from his being served here, there is little evidence of OKL’s connections with Hong Kong.

20.  It is unclear where the agreement to conspire was allegedly made, although OKL, IC, PQ and the other relevant associates would all appear to be Malaysian individuals or entities.  CID relies on the fact that the overt acts taken pursuant to the agreement took place in Hong Kong.  CID points to Hong Kong as being the place where the 2008 Action was commenced and the Injunction was granted, where the false evidence contained in OKL’s affirmations or statements were filed, and where the Consent Order was agreed through the Hong Kong solicitors, and was filed in court.  CID further relies on the fact that its damage was sustained in Hong Kong, where CID was incorporated, where the obligation of IC and PQ to pay and CID’s entitlement to receive the Settlement Sum arose under the Consent Order.  Counsel further points to the fact that the Settlement Sum was agreed upon using Hong Kong currency, and that the Settlement Sum was for settling the damages payable and incurred as a result of the Injunction made and legal costs incurred in Hong Kong in the 2008 Action.

21.  In short, it was argued on behalf of CID that the tort of conspiracy was committed in Hong Kong, which is the lex loci delicti, and that this is a strong indication that Hong Kong is the natural forum due to the strong factual connections.

22.  On the question of the place where the pleaded overt acts took place or had a substantial connection, it should not be ignored that the petitions for the winding up of IC and PQ were filed in Malaysia.  It is alleged by CID that OKL had colluded with the Malaysian creditors to petition for the winding up of IC and PQ, which were Malaysian companies.  Conspiracy, being an economic tort, is actionable only on proof of damage.  The damages said to have been sustained by CID as a result of the conspiracy comprise not only legal costs incurred in Hong Kong, but also damages caused by delay in and disruption to the Project and the sale of units in the development in Shanghai - although neither party has suggested that Shanghai is the appropriate forum for the trial.

23.  In any event, the place of the commission of the tort is not determinative of the forum for trial of the tort.  It is no more than a convenient starting point, or the prima facie position (The Peng Yan [2009] 1 HKLRD 144, 28).

24.  It has not been alleged that OKL, despite being resident in Malaysia, would have difficulties coming to Hong Kong for the trial of the action.  Nor has it been suggested that any documents which may be in Malaysia would not be made available for the trial in Hong Kong.  The finance and security agreements relating to the encumbrances over the shares of IC/PQ were executed in Malaysia.  They are governed by Malaysian law, but that may not have significant, if any, impact on the claims made in or the trial of this action.  The documents relating to the 2008 Action, the Injunction and the Consent Order were all made and are available in Hong Kong.

25.  In considering the most real and substantial connection between the trial of this action in Hong Kong and the claim of conspiracy made, one should not lose sight of the essence of the claim of conspiracy, as alleged, and what the trial of the action entails.  What is asserted by CID is that the 2008 Action, and the application for the Injunction, which is part of the conspiracy to injure CID, were based on the false claim and evidence that the Management Agreement between CID and Yanfull for CID’s management of Yanfull Shanghai and the Project in Shanghai was a sham, or a fraudulent scheme to misappropriate or “skim off” funds and proceeds of sale from the Project to CID, and to the detriment of Golden. 

26.  To substantiate and establish the alleged conspiracy by unlawful acts, the allegedly false claims and evidence would be investigated at the trial of this action, to ascertain whether the 2008 Action and the Injunction were indeed obtained on false claims made as to the Management Agreement being a sham, or whether, as IC and PQ claimed in the 2008 Action, the Management Agreement was indeed null and void and unenforceable under the Malaysian Companies Act 1965, the Malaysian Securities Commission Act 1993, and the other relevant provisions of Malaysian law as alleged, such as to form the basis of a genuine and valid cause of action for the 2008 Action.  The Malaysian court should be in a better position to decide whether there are grounds on which to hold the Management Agreement as null, void and/or unenforceable.

27.  The Management Agreement is silent as to the governing law.  It was made between two Hong Kong companies, but related to CID’s management of the Project in Shanghai on behalf of Yanfull and its parent company Golden, and the sale of units in the development located in Shanghai.  It is arguable that the Management Agreement had the closest and most real connection with Shanghai, rather than Hong Kong.

28.  The trial of the claim of conspiracy would also entail investigating the other overt acts claimed to have been taken pursuant to the agreement between OKL, IC and PQ and other associates.  Witnesses will have to be called, to give evidence on matters such as: OKL’s false representations as to the value of the shares of IC and PQ in Golden, whether they were encumbered, whether IC and PQ were able to pay any damages pursuant to their undertakings, whether OKL knew that the representations were false, whether there were false representations made by OKL in relation to the Consent Order, and whether OKL had colluded with the Malaysian creditors of IC and PQ to wind up these companies in order to defeat CID’s claim to payment under the Consent Order.  All these involve evidence from OKL, relating to the Malaysian companies, IC, PQ and their creditors, and the assets of IC and PQ in Golden, a company listed in Malaysia.

29.  The application for and discharge of the Injunction, the evidence filed for the Injunction, the issue and discontinuance of the 2008 Action, and the making of the Consent Order, do not appear to be in dispute.  They are all recorded in documents filed in the Hong Kong Court.

30.  Having considered the matters to be investigated at trial, and the factors showing connection with Hong Kong on the one hand, and Malaysia or Shanghai (a forum other than Hong Kong) on the other hand, I cannot see that Hong Kong is the natural or appropriate forum for the trial.  The connecting factors with Malaysia are substantial, even after giving due recognition to the fact that these proceedings were commenced “as of right” and were served on OKL in Hong Kong. The existence of ongoing proceedings in the court of Malaya, and the advanced stage to which those proceedings have developed, are significantly relevant matters in this case in the context of deciding the appropriate forum for trial of this action.

31.  KL Suit 22 NCVC was commenced by CID itself against OKL, at the same time as commencement of these proceedings.  There are 4 other directors joined in KL Suit 22 NCVC, and the claims made are for OKL’s fraudulent trading alleged under the Malaysian Companies Act, but such claims are based on the same facts and events of the Consent Order, the allegation that OKL, IC and PQ had never intended to pay the Settlement Sum under the Consent Order, and the procurement of the winding up of IC and PQ in collusion with Malaysian creditors.  The relief sought is in respect of the same damage and loss, essentially, the defendants’ payment of the Settlement Sum to CID.  Even if there is no identity of cause of action, the existence of such proceedings are relevant to the consideration of whether the Court of Malaya provides the appropriate forum for the trial of the matters in dispute.  Support is to be found in the judgment of Lord Goff in de Dampierre v de Dampierre [1998] 1 AC 92, at 107H-108D:

“The effect is that the court in this country looks first to see what factors there are which connect the case with another forum. If, on the basis of that inquiry, the court concludes that there is another available forum which, prima facie, is clearly more appropriate for the trial of the action, it will ordinarily grant a stay, unless there are circumstances by reason of which justice requires that a stay should nevertheless not be granted: see the Spiliada case [1987] AC 460, 475-478. The same principle is applicable whether or not there are other relevant proceedings already pending in the alternative forum: see The Abidin Daver [1984] AC 398, 411, per Lord Diplock. However, the existence of such proceedings may, depending on the circumstances, be relevant to the inquiry. Sometimes they may be of no relevance at all, for example, if one party has commenced the proceedings for the purpose of demonstrating the existence of a competing jurisdiction, or the proceedings have not passed beyond the stage of the initiating process. But if, for example, genuine proceedings have been started and have not merely been started but have developed to the stage where they have had some impact upon the dispute between the parties, especially if such impact is likely to have a continuing effect, then this may be a relevant factor to be taken into account when considering whether the foreign jurisdiction provides the appropriate forum for the resolution of the dispute between the parties.”

32.  KL Suit 22 NCVC was initiated and pursued by CID in Malaysia.  The matter has progressed to trial, which commenced in July 2017, and will resume in November 2017 and January 2018.  The determination of the claims in KL Suit 22 NCVC, and a decision by the Court of Malaya on the same facts as those which are the subject matter of these proceedings in Hong Kong, no doubt will have impact upon the issues in dispute between CID and OKL in this case, namely, whether the winding up of IC and PQ were procured by OKL in collusion, whether false claims had been made by OKL in relation to the solvency of IC and PQ and their unencumbered assets, or as to IC’s ability to honour its undertaking as to damages given for the grant of the Injunction, and the intention of OKL and/or IC and PQ to satisfy the payment under the Consent Order.  The evidence to be given in KL Suit 22 NCVC and in this action will be substantially similar, if not identical in many material respects, and will be relevant to the claim that there was the conspiracy alleged in this action.

33.  No claim has been made on behalf of CID that it will be deprived of any juridical advantage, if the trial of this action should take place in Malaysia.  Malaysia is the forum it chose for the commencement of KL Suit 22NCVC on the same facts and matters as those in this action.

34.  Having regard to the matters for determination at trial, and the connecting factors this action has with Malaysia, I am satisfied in the overall circumstances and justice of this case that it would be right to stay the present action, which may be tried more suitably in the Court of Malaya at Kuala Lumpur which has competent jurisdiction over the dispute (as CID itself accepts by the commencement of proceedings there).

Striking out

35.  By his summons of 8 August 2017, OKL seeks the striking out of the SOC only if the application for stay is unsuccessful.  Since I have ordered a stay, it is unnecessary to deal with the striking out.

36.  Should I be wrong on the question of staying these proceedings, I am not satisfied that this is a clear and obvious case for striking out the claims made by CID, on the ground that such claims are time-barred when the Writ was issued on 16 April 2015.  Again, the decisions of the Court in the Yanfull Action on time limitation should be read in the light of the causes of action in those proceedings.

37.  For the claim of conspiracy, the tort is only complete when damage is sustained by CID.  On behalf of CID, it was highlighted that there is no cause of action, and time limitation does not begin to run, until damage actually occurred, and that each fresh damage caused gives a fresh cause of action (Clerk & Lindsell On Tort (21^st edition 2014), para 32- 09).

38.  The overt acts pleaded in the SOC filed in this action include not only the procurement of the Injunction in December 2007 but also OKL causing IC and PQ to contest the Enquiry from February 2008 to April 2009, causing CID to incur further legal costs and expenses in pursuing the Enquiry, the procurement of the Consent Order in April 2009 upon false representations as to the intention and ability of IC and PQ to pay the Settlement Sum, and OKL colluding with Malaysian creditors in causing IC and PQ to be wound up between March 2009 and 4 April 2013.

39.  Whereas damage was sustained by CID by virtue of the commencement of the 2008 Action and the procurement of the Injunction, the further legal costs and expenses incurred up to April 2009 were further damage sustained as a result of the unlawful acts pleaded and relied upon by CID, in relation to their procurement of the Consent Order upon false representations. The latest damage sustained as a result of the unlawful acts carried out pursuant to the conspiracy claimed by CID would be the costs incurred and damages up to making of the Consent Order on 20 April 2009, at the least.  It is arguable that the procurement of the winding up of IC and PQ did not result in any further damage to CID.

40.  As the Writ in these proceedings was issued on 16 April 2015, it is not plain and obvious that CID’s claims of conspiracy should be struck out as being time-barred.

41.  It is not plain and obvious that the witness immunity rule relied upon by OKL applies to defeat CID’s claims of conspiracy based on the overt acts pleaded in this action.  I do not acede to striking out on this ground.

Orders

42.  For all the above reasons, I grant the stay of proceedings sought by OKL by his summons of 28 November 2016, but dismiss his summons for striking out issued on 8 August 2017.  I make an order nisi that CID is to pay to OKL the costs of and occasioned by the first summons for stay, whereas OKL is to pay to CID the costs of and occasioned by the summons for striking out, both with certificate for 2 counsel.