VALUABLE RESOURCES LTD v. CHARU MEHTA AND OTHERS

HCCL10/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.10 OF 2007

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J U D G M E N T

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1. I have before me an application by the 1^st and 2^nd defendants in respect of a service out Order 11 made by Stone J.  The action has been brought by the plaintiff against the three defendants and the service out order was based on a well-drafted affidavit of Mr Andrew Bickerton.  The substance of present action is that US$40 million, the only assets of the plaintiff had come in to the plaintiff as a result of the settlement in what has been called, I think, a Goyal Settlement and that this money was wrongly diverted or paid out or left the control of the plaintiff by the defendants who were directors of the plaintiff company and this was in breach of contract, fiduciary duty and equitable obligations.

2. The case of the plaintiff is that there was contract made within the jurisdiction as well as breaches within the jurisdiction and that the claim comes within Order 11 and that Hong Kong having regard to the circumstances described in the affidavit of Mr Bickerton’s is therefore the most convenient forum.

3. The application that has been made by the 1^st and 2^nd defendants is really an attack on the Hong Kong jurisdiction, that is that either the Hong Kong Action should be stayed because of the Criminal Complaint that is now pending in the Criminal court in India or alternatively that the order should be set aside because of material non-disclosure of the Indian Criminal Complaint. 

4. Before I can go on to analyse each of these two aspects of the application, I should first briefly describe the persons involved.  The Mehta family has four brothers, Vijay and Kishore being two of the brothers.  Kishore has a wife who is the 1^st defendant, who has a number of sons.  One son, Prashant is the 2^nd defendant, and another son Rajesh is an important player in the transactions.  The US$40 million that came into the plaintiff company, I think there is not too much dispute, was meant to be in trust for the whole Mehta family and members of the Mehta family are meant to have beneficiary interest in that US$40 million.

5. Unfortunately, what had happened is that the Mehta family made arrangement so that the vehicle of the plaintiff’s company was used to hold that US$40 million asset.  The directors of the company previously had been Vijay and Rajesh.  They left the directorship in around 2004 and as replacement there was the wife of Kishore, that is the 1^st defendant and the 2^nd defendant, the son of Kishore.  I do not think there is, at least I have not heard, too much dispute that while they were directors, the money, if I may call it, disappeared or left the company and now the company has got no money. 

6. The case therefore of the plaintiff brought in Hong Kong is a very straightforward one.  Criminal Complaint was made by Vijay in India to the Indian Criminal court that there had been acts done in India such as conspiracy and misrepresentation as to cause the breach of trust by the four accused, namely Rajesh, the 1^st defendant, 2^nd defendant and, if I am not mistaken, Kishore.  The result of that Criminal Complaint made was the Indian court made an order to ask the Indian Police to investigate the Complaint.  Now obviously the subject matter of the Complaint is the loss of the US$40 million to the Mehta family.  Pursuant to the order of the Indian court, the Indian Police started to take action and this resulted in a Petition under the Rules of the Criminal Procedure in India by the four accused (which includes the 1^st and 2^nd defendants) to set aside the Order of investigation and it was basically a jurisdictional challenge by the accused under the Petition that the Indian court did not have jurisdiction to make the Order because the criminal acts complained of were not done in India but were alleged to be done outside.

7. I hope I have adequately but crudely summarised the Criminal   Complaint proceedings in India without the fine details.  The questions therefore before this court are two : First, whether on the present material the Civil Action in Hong Kong should be stayed because of what I may call the pending Criminal Complaint that had been lodged in the Criminal court in India.  Secondly, whether this Hong Kong court should set aside the Order 11 leave to serve out because of material non-disclosure of the Criminal Complaint and the Petition in India.  I would deal with the Stay aspect first because it seems to me that is critical.

8. The heart of this stay dispute involves the question of what is the materiality of the Criminal Complaint to the present Civil Action.  Obviously, it is over the common subject matter, namely the US$40 million.  Obviously, it is also by the same persons involved, that is the 1^st and 2^nd defendants.

9. But the Hong Kong civil action by the plaintiff is against 1^st and 2^nd defendants in respect of breach of their obligations as directors causing the loss of the plaintiff’s only asset.  The Criminal Complaint in India made to the State, as far as I can make out from what had been read to me, is not by the plaintiff but by Vijay for the conspiracy and misrepresentation in India by the four persons including the 1^st and 2^nd defendants.  The two are consistent, and complimentary but there is no overlap of the essential elements.

10. At the present moment, everything would depend on the petition to strike out if I may call it that, in India, and I understand a decision or judgment will be given today.  Now if that Petition succeeds then that is the end of the case of the defendants, so far as objection to this Order 11 is concerned.  But even if that Petition fails, then there will be steps taken by the Indian Police to investigate and that may take some time one just does not know.  Then after investigation, there may not be an indictment, if I may call it that, and if there is no indictment there is again the end of the concern or the present complaint by the defendants.  If there is actual indictment or prosecution in India, then of course the picture may become clearer as to what is the serious vulnerability of the defendants in Hong Kong in relation to what will be happening in India in relation to the actual prosecution.  One looks at the charges, one looks at the details and then if necessary the defendants can come before this court for the necessary protection. 

11. I therefore do not see at present on the material now before this court that the Criminal Complaint and the Petition against it can be in any way relevant or be a reason for granting a stay of the Hong Kong proceedings.  If there is any fear of documents coming out of the Hong Kong proceedings from the defendants which could be used in India by the Plaintiff or the liquidator, then it can normally be dealt with under the cover of the implied undertaking in discovery, not to make use of the documents in discovery except for the purpose of Hong Kong litigation.  The court can also make special orders to ensure the defendants are not in any way prejudiced in India by such Hong Kong discovery. 

12. It seems to me therefore that it is really too premature at present for the Hong Kong court at present to grant any of the relief of stay sought by the defendants.  Having said that, I do wish to impose upon the plaintiff the undertaking of not using any of the documents that come out from the Hong Kong proceedings except for the purpose of Hong Kong proceedings and not to give them to any third party.  I think that undertaking should come from both the liquidator as well as from the company.  I understand the parties will discuss this and agree on a formula.  So the order I would make is the appropriate undertaking agreeable to both side should be given. 

13. This is to ensure the orderly progression of this piece of litigation so that the defendants do not feel their need to come back to the court again and again, for definite assurance, or safety protection having regard to the unique situation now prevailing. 

14. I now turn to the 2^nd ground namely non-disclosure.  I of course accept right from the start that in any ex-parte application, there is an obligation for the plaintiff to make full and frank material disclosure.  I emphasis the word “material”.  Disclosure should be made to the court only on relevant aspects of the proceedings.  The court should not be burdened and vexed by vast amount of material.  This is a case in which there is vast amount of material.  I therefore do not consider, unless it is material, that background material should be disclosed. 

15. Having regard to what I have held earlier, I do not regard any of the Criminal Complaint material as being material for the purposes of Order 11 disclosure.  The Complaint as I have said earlier, and the Hong Kong Action of course touched on the same subject matter, that is the loss of US$40 million, but they covered different aspects of the case — the plaintiff and the family having been out of that US$40 million asset, of course can resort to whatever remedy that is open to them.  One of the remedies open to them, is the Indian Criminal Complaint, the other remedy is the Hong Kong Action.  There is no critical overlap as to cause the Hong Kong court to believe that there should be a disclosure in the Order 11 application of the Indian Criminal Complaint or the Petition against the Complaint.

16. For me, the Complaint at the moment is “background material” and it gives a greater understanding of what has been happening, but they are not, in my view as I have indicated earlier, necessary or material disclosure for Order 11 because they do not provide the Hong Kong court with a justification for not granting the Order 11 even it had been disclosed.  I accept of course that Order 11 is an exorbitant jurisdiction although in this modern age with a global world that we live in, it is now considered far less exorbitant than some one century ago.  But the case of the plaintiff is overwhelmingly strong on not only the merit, but on Hong Kong being the appropriate jurisdiction and the proof of this is that there is no other suggestion on jurisdiction, that Hong Kong is not an appropriate jurisdiction.

17. I do not see the disclosure of the Criminal Complaint could even cause a flicker of doubt to any mind, to the mind of either myself or, I suspect, to that of Stone J, as to the granting of that ex-parte order on paper.  I see therefore no merit in the non-disclosure application and therefore I think the whole of the summons of the plaintiff subject to the undertaking must be dismissed.

18. By way of addendum to what I have just said, I think I should also say something about self-incrimination.  Mr Whitehead submitted to me that this aspect is relevant where there is a possibility of self-incrimination and is a material factor both in terms of stay as well as in terms of material non-disclosure.  He referred me to the judgment of Recorder McCoy in the case of Salt & Light Development Inc.  I of course appreciate it very much that self-incrimination is an important aspect of the protection of the right of defendants and I accept for the limited purpose of this judgment that in appropriate circumstances, the court should look into this carefully and that this is notwithstanding what is involved is foreign criminal prosecution.  But this is a case where, as I have said earlier, it is really much too early at the present stage for Civil proceedings in Hong Kong to be stopped merely because of Criminal Complaint in India.  Had it reached a much more advanced stage where actual prosecution has been brought I can perhaps look at it more sympathetically.  So I do not believe that self-incrimination adds to the further dimension that would cause this court in any way to hesitate or to regard that as material.