GAO HAIYAN AND ANOTHER v. KEENEYE HOLDINGS LTD AND OTHERS

HCA 1315/2009
& HCA 466/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1315 OF 2009

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AND

ACTION NO. 466 OF 2012

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(Heard Together)

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REASONS FOR DECISION

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1. I am seized of two summonses. The first in HCA 1315/2009 (“1315”) is an Order 14 summons taken out on 9 July 2012 and the second is an application in HCA 466/2012 (“466”) where the plaintiff is seeking an order that 466 and 1315 should be tried together.

2. The grounds relied upon in support of the 2^nd summons were that there were substantially overlapping issues of fact and law and rights to relief arise out of the same transaction or series of transactions.

3. At the commencement of the hearing Mr Clark Wang who was representing the defendant in 466 informed me that as a consequence of the short notice which had been given for this summons he had been unable to sufficiently prepare himself for the hearing.  This being the case he applied for an adjournment.  Although the application was opposed I granted it and gave Directions for the adjourned hearing.

4. I heard the Order 14 summons.

5. The relief being sought by the plaintiffs is as follows:

(1)  A Declaration that the plaintiffs are the legal and beneficial owners of all the issues shares of and in Baijun.

(2)  A Declaration that the agreements the purported transfer documents, the purported transfers and the purported further transfers are null and void and of no legal effect.

(3)  A Declaration that the Resolutions purportedly made on 27 August, 23 September and 8 October 2008 and any other Resolution purporting to change the Directors and the company secretary of Baijun after the purported transfers are null and void and of no legal effect.

“AGAINST THE 1^st TO 4^th AND 6^th TO 7^th DEFENDANTS:

(vii) An Injunction restraining the 1^st, 2^nd, 6^th, and 7^th Defendants, whether by themselves, their officers, servants, nominees or agents or otherwise how-soever from acting or purporting to act as shareholders of the 5^th Defendant, whether within or outside Hong Kong;

(viii) An Injunction restraining the 3^rd and 4^th Defendants, whether by themselves, their nominees or agents or otherwise howsoever from acting or purporting to act as directors of the 5^th Defendant, whether within or outside Hong Kong;

(ix) An Order that 6^th and 7^th Defendants do transfer all their shares of and in the 5^th Defendant to the Plaintiffs in equal share;

(x) Restitution and account of all monies, benefits, profits and interest received by the 1^st, 2^nd, 6^th, and 7^th Defendants, their associates or nominees in their purported capacity as shareholders of the 5^th Defendant;

(xi) Restitution and account of all monies, benefits, profits and interest received by the 3^rd and 4^th Defendants, their associates or nominees in their purported capacity as directors of the 5^th Defendant;

(xii) Damages or equitable compensation in respect of all losses and damages suffered by the Plaintiffs as a result of or in connection with (a) the Agreement, (b) the Purported Transfer Documents, (d) the Resolutions referred to in paragraph (v) above; and (e) the Purported Settlement;

(xiii) Interest;

(xiv) Further or other relief as the Honourable Court deems appropriate;

(xv) Costs.”

6. For the purposes of this Order 14 summons it is not in my view necessary to go into all of the detailed background of the history of the relationship between the parties.

7. Suffice it to say that there is a dispute between the parties concerning the ownership of 100 issued shares in Baijun.  

8. It is claimed that the plaintiffs are the legal and beneficial owners of 100 issued shares in Baijun.  

9. Baijun had a 50% interest in Zhongxin Ore—Material Holdings Co Ltd. (“Zhongxin”).  Its shares being held in trust by Clairigain Enterprises Ltd. (“Clairigain”).

10. Baijun and Clairigain claim to be entitled to the other 50% interest in Zhongxin.  These shares are currently held by Angola Group Holdings Ltd.  There is ongoing litigation in relation to this.

11. Zhongxin had a 70% interest in a coalmine in Yulin County Shanxi Province which is very valuable.

12. D1, D2, D6 and D7 which are BVI companies were all under the same control and at the present time the person exercising control over these companies is Mr Ma Maogen who is the plaintiff in 466.

13. D1 and D2 commenced arbitration proceedings in the PRC seeking a Declaration that various agreements which had been entered into between the various parties were valid.

14. The plaintiffs counterclaimed for a Declaration they were void and the Arbitral Tribunal ordered the revocation of the said agreements.

15. The plaintiffs eventually obtained leave to enforce the Arbitral Award in Hong Kong against D1 and D2.  However D1 and D2 have purportedly transferred the shares in Baijun to D6 and D7 and the main purpose of 1315 is to enforce the said Award against D6 and D7.

16. Mr Edward Chan SC, for the plaintiffs attaches great weight to the fact that the claim his clients is making is to enforce an Arbitral Award and that accordingly the scope for ventilating issues the subject matter of an Arbitration is severely circumscribed.

17. He also makes the point that a distinction is not made between Mr Ma and the various companies he controls and this also is an important factor in this litigation.

18. It is apparent even from this very brief summary of this complicated outstanding situation that Mr Chan has forcused his attentions almost exclusively upon the issues being ventilated in 1315 to the virtual exclusion of the issues being ventilated in 466.

19. Amongst the relief sought in 466 are three Declarations calling in question the issue as to whether the defendants (i.e. the plaintiffs in 1315) have any interest at all in Baijun.  The plaintiff in 466 also sought injunctive relief.

20. He obtained an Ex parte injunction the operation of which was stayed by a consent order in which the defendants gave various undertakings the effect of which was to maintain the status quo.

21. Mr Benjamin Yu, SC who is representing the plaintiffs in both these actions, submitted that although the scope for re-litigating an Arbitral Award is limited, this does not in any way limit a court from adjudicating upon issues which have arisen subsequent to the Award.

22. While it is true that I did not make an order that 1315 and 466 should be heard together, I certainly did not make any order to indicate that the cases should not be heard together.

23. It will be noted from the relief which is being sought in these actions includes Declaratory Relief.

24. There is a useful commentary on this subject in Chapter 6 of the “Declaratory Judgment” by Lord Woolf and Jeremy Woolf Sweet and Maxwell at 260:

“1. Necessary defendants

The general approach

The general rule is that it is desirable that all persons who appear to have a real interest in objecting to the grant of a declaration claimed in legal proceedings should be made defendants. As Viscount Maugham said:

‘The persons really interested were not before the court. It is true that in their absence they were not strictly bound by the declaration, but the courts have always recognised that persons interested are or may be indirectly prejudiced by a declaration made by the court in their absence, and that, except in very special circumstances, all persons interested should be made parties, whether by representation orders or otherwise, before a declaration by its terms affecting their rights is made’.

This is a sensible approach: first, as the court can take into account the interests of anyone who would be affected in reaching its decision as to whether or not to grant a declaration, it is only just that those who may be affected should be given an opportunity to present any argument which they want the court to take into account; secondly, a declaration will only bind the parties to the proceedings. If, therefore, someone who should have been joined as a defendant is not joined, there will be a danger of having to bring fresh proceedings in which he is joined, involving the expense and delay simply to re-determine a question already decided in the previous proceedings and thirdly, it is important that there is someone before the court who will properly contest the issue in Metzger v DHSS Megarry V.C. indicated the usual approach to the grant of declarations as to the law when he said:

‘The court does not make declarations just because the parties to litigation have chosen to admit something. The court declares what it has found to be the law after proper argument, not merely after admissions by the parties. There are no declarations without argument: that is quite plain.’

In Aldrich v Attorney General Ormrod J. expressed the position in this way:

‘If I had jurisdiction to grant a declaration I would have to consider whether it would be right to grant it without a proper contradictor. If the court has to adjudicate on an issue it will do so on the best evidence available. But it does not have to adjudicate on an issue when the sole relief sought is a declaration and it should not do so in cases where the evidence cannot be properly investigated and verified.’

   This is an application of the same principle which makes a court reluctant to grant a declaration without a trial unless to refuse to do so would be contrary to the interests of justice.”

25. It would certainly appear to be desirable that there should be a trial so that all of the relevant circumstances can be considered.  This is not a case where it is appropriate for the matter to be resolved as a mini trial and on affidavit evidence.

26. The factors to be weighed in determining whether Order 14 applications should be resorted to were considered by Godfrey JA (as he then was) at 228 in Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225:

“Unless it is obvious that the defence put forward by the defendant is ‘frivolous and practically moonshine, O 14 ought not to be applied’ : see Codd v. Delap (1905) 92 LT 510, per Lord Lindley at 511.

For those who may believe that these sentiments are outdated, a salutary reminder is provided in Crown House Engineering v. Amec Projects Ltd (1990) 6 Const. LJ 141, where at 154, Bingham LJ says this :

‘..... Order 14 is for clear cases; that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise ..... The procedure is entirely inappropriate where the plaintiff's entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. This is not to say ..... that a defendant with no or no more than a partial defence can cheat a plaintiff of his just deserts by producing hefty affidavits and voluminous exhibits to create an illusion of complexity where none exists. Where the point at issue is at heart a short one the court will recognise the fact and act accordingly no matter how bulky its outer garments. But it does mean that where there are substantial issues of genuine complexity the parties should prepare for trial ..... rather than dissipate their energy and resources on deceptively attractive short-cuts.’

I would express the hope that those practitioners, of whom there are too many, who appear to be prepared to advise every client with what seems to be a good case to invoke this extraordinary procedure, without reflecting on the fact that, if the attempt fails, the result will be to keep the plaintiff out of the judgment to which he may well be entitled for far longer than would have been the case if they had concentrated, instead, on bringing the matter to trial, will in future think twice before giving such advice.”

27. The issues ventilated in these cases were lengthy and to an extent quite complex.  I would add that the helpful skeleton argument prepared by Mr Yu was 25 pages long and contained closely argued facts and law.

28. The Defences which were before me certainly could not be described as “frivolous or moonshine”.

29. It was for this reason that I dismissed the Order 14 summons.

30. I make an order nisi that the defendants will have their costs with a certificate for 2 counsel.  In the absence of agreement the costs will be taxed.

HCA 1315/2009

HCA 466/2012