AGRITRADE RESOURCES LTD AND ANOTHER v. ASHOK KUMAR SAHOO

HCA 1660/2020

[2022] HKCFI 3126

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1660 OF 2020

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DECISION

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1.  By an application dated 3 March 2021 (“the Subject Application”), the Defendant seeks to set aside the ex parte leave granted by the court on 28 September 2020 to serve a concurrent writ out of the jurisdiction on the Defendant (“the Service Out Order”). The Defendant also seeks a declaration that the court has no jurisdiction over the claims and that the action should be dismissed or stayed.

2.  By an earlier application on 25 September 2020 and continued on 28 September 2020, the 1^st and 2^nd Plaintiffs, namely Agritrade Resources Limited and Fair Thermal Power Limited respectively, were granted a world-wide Mareva injunction (“the Injunction”)  by Godfrey Lam J (as he then was)  (“the Ex Parte Judge”), restraining the Defendant from dealing with his assets up to the sum of US$12,675,000.  The Ex Parte Judge also granted leave to serve outside the jurisdiction (i.e. the Service Out Order).

3.  On the return day on 9 October 2020, the Injunction was continued until the substantive determination of the Plaintiffs’ inter partes continuation summons.

4.  On 23 December 2020, DHCJ To heard the substantive application for the continuation of the Injunction and related matters.  In his decision dated 23 March 2021 (“the Substantive Decision”)[1], the Judge ordered, inter alia,that the Injunction be continued in a reduced sum of US$5,060,000.

5.  The Defendant applied for leave to appeal against the Substantive Decision.  DHCJ To dealt with the leave application on paper and on 8 June 2021 handed down his decision refusing leave to appeal on the basis that the proposed appeal had no prospects of success.

6.  After the oral hearing of the Subject Application before this court, the Defendant renewed the leave to appeal application before the Court of Appeal.  The Court of Appeal handed down the decision dismissing the leave application (“the Appeal Decision”)  on 24 February 2022.[2] Since the Appeal Decision is directly relevant to some of the issues raised in the Subject Application, I have invited the parties to make further submissions in light of the Appeal Decision.  Only the Defendant elected to do so.

Background and the issues in the Subject Application

7.  The background of this case has been set out in §§7-60 of the Substantive Decision and §§2 to 15 of the Appeal Decision and I do not want to repeat the same here.

8.  The grounds put forward in support of the Subject Application can be summarised as follows:

(i)  The Plaintiffs have abused the O 11 r 1 regime by using O 11 r 1(1)(d)  as a springboard by presenting a simple contractual case to the Ex Parte Judge, where subsequently the pleaded case was a case of constructive trust which should have been placed under O 11 r 1(1)(p)  which is now bypassed (“the New Claim Ground”);

(ii)  The 2^nd Plaintiff’s claim falls outside O 11 r 1(1)(d)  and therefore the Service Out Order (“the 2^nd Plaintiff’s Claim Ground”);

(iii)  The Plaintiffs’ case is doomed to fail (ie. for want of any serious issues to be tried on merits)  as their claims are barred by the “no reflective loss” principle (“the Reflective Loss Ground”);

(iv)  The Hong Kong court is forum non-conveniens whereas the National Company Law Tribunal, Mumbai (“NCLT)  or the courts of Mumbai are forum conveniens (“the Forum Ground”);

(v)  There had been serious material non-disclosure at the ex parte stage justifying the discharge of the Service Out Order forthwith (“the Non-Disclosure Ground”).

9.  In respect of the 2^nd Plaintiff’s Claim Ground, Mr Brown, counsel for the Plaintiffs, concedes that the 2^nd Plaintiff will not pursue the claim against the Defendant.  Hence, there is no issue that the claim by the 2^nd Plaintiff should be dismissed and the outstanding matter is only one on costs.  Despite that, I find no merit in the other grounds advanced by the Defendant.  I will now give my reasons.

The New Claim Ground

10.  The Defendant claims that the 1^st Plaintiff’s claim, as now pleaded, is in fact a claim in constructive trust only and not in contract, and as a result the Plaintiffs wrongly applied for service out under gateway r 1(1)(d)  rather than r 1(1)(p).  I disagree.

11.  The Defendant is a party to the appointment letter dated 1 August 2013 (“the Appointment Letter”), by which he was appointed as an Executive Director of the 1^st Plaintiff.

12.  The Appointment Letter provides:

“This letter shall be governed by and construed in accordance with the laws of Hong Kong and each of the parties shall irrevocably submit to the non-exclusive jurisdiction of the Hong Kong Courts.”

13.  As was stated in the skeleton argument for the ex parte application (“the Ex Parte Skeleton”), the r 1(1)(d)  gateway was engaged as a result of the provisions quoted above specifying Hong Kong law and non-exclusive jurisdiction.

14.  I agree with Mr Brown that, as the Defendant was appointed to his position as a director of the 1^st Plaintiff by contract, a breach of any of his duties as a director will be a breach of that contract.  For example, the Appointment Letter provides at clause 5:

“[The Defendant] shall faithfully and diligently perform such functions and exercise such powers as are appropriate to your position as a Director….”

15.  It is stated in the writ that the basis of the Plaintiffs’ claim is as follows:

“The Plaintiffs’ claims arise from the Defendant’s breach of his appointment contract dated 1 August 2013 appointing the Defendant as the Executive Director of the 1^st Plaintiff and the breach of the Defendant’s duties in his capacity as a director of the 1^st Plaintiff and the 2^nd Plaintiff.”

16.  As the 1^st Plaintiff’s claim is brought to enforce, rescind, dissolve, annul or otherwise affect a contract or to recover damages or obtain other relief in respect of the Appointment Letter, it falls squarely within the r 1(1)(d)  gateway.

17.  The Defendant’s argument proceeds on the basis that because the Statement of Claim (“the SOC”)  makes reference to constructive trust in the prayer for relief, that makes the 1^st Plaintiff’s case “plainly a case in constructive trust”.  Having then categorized the claim as being in constructive trust, leave to serve out is only available under gateway r 1(1)(p).

18.  However, it is and remains the 1^st Plaintiff’s case that the Defendant, by misappropriating the Operation Funds, is in breach of the Appointment Letter, including by breaching the Defendant’s duties owed to the 1^st Plaintiff.  This has been made clear in the Ex Parte Skeleton:[3]

“[The Defendant’s] position as executive Director of [the 1^st Plaintiff was pursuant to [the Appointment Letter]. Insofar as there is a breach of contract claim it is in respect of [the Appointment Letter], albeit that any such claims are largely coextensive with [the Defendant’s obligations as a director of [the 1^st Plaintiff] …”

19.  This recognizes that while the 1^st Plaintiff has claims purely based on breaches of fiduciary duties, the 1^st Plaintiff brings the claim in breach of contract.  Further, the Ex Parte Skeleton makes it clear that the contract claim is in respect of the Appointment Letter and not the Defendant’s Singapore employment contract as Chief Financial Officer.[4]  This is again made clear when dealing with Singapore as an alternative forum conveniens, wherein the Ex Parte Skeleton provides:

“However, it is [the Plaintiffs’] position that Hong Kong is the better jurisdiction primary because [the Plaintiff’s] claim is pursuant to the duties owed to the 1^st Plaintiff specifically in his position as director and therefore under the Hong Kong [Appointment Letter] and not the Singapore employment contract.”

20.  Whilst the relief that is claimed in the SOC is expanded from the writ, what must fall within r 1(1)(d)  is the 1^st Plaintiff’s claim itself.  The 1^st Plaintiff does not need leave to serve out in respect of each and every relief claimed.

21.  It is true that a declaration is sought in the SOC that the Operation Funds remain the 1^st Plaintiff’s property.  This is consequential on the claim that the Operation Funds belonged to the 1^st Plaintiff despite being wrongly misappropriated by the Defendant.   Similarly, the declaration that the Operation Funds were held by the Defendant on constructive trust (if in his hands)  is merely a legal consequence of the Operation Funds being the 1^st Plaintiff’s property, and that the Defendant must then account to the 1^st Plaintiff for the Operation Funds arising from his position as trustee.  It is not an independent cause of action.  Under such circumstances, I agree with Mr Brown that the so-called “new” claims are in fact merely relief consequential on the claim under the Appointment Letter.

22.  Indeed, gateway r 1(1)(p)  provides that where a claim is brought against a constructive trustee, the court will allow service out of jurisdiction, provided that the liability as trustee arises from acts within Hong Kong, even if there is no other nexus with Hong Kong.  However, it is wrong to say that any claim in constructive trust can only be brought through gateway r 1(1)(p). Where the court has the jurisdiction to hear a case in respect of a contract that is governed by Hong Kong law or provides for Hong Kong jurisdiction, there is nothing to prevent the plaintiff from seeking any relief that flows from the contractual breach.

23.  Mr Ng, counsel for the Defendant, refers the court to the case of張才奎所託管中國山水投資有限公司股份相關員工 v 張才奎[5].  However, that case only established the following propositions:

(i)  each claim (not relief)  requires separate leave and where one claim within a writ falls within O 11 but not another, the court would only grant leave in respect to the claim that falls within O 11;

(ii)  a writ cannot be amended to add a claim where that claim requires, but has not been granted, leave to serve out of the jurisdiction; and

(iii)  where a writ that includes a claim that lies outside O 11, the court can set aside the leave in respect of that claim.

24.  None of these propositions affects the 1^st Plaintiff’s claim or the validity of the Service Out Order.  The writ contains a claim for the breach of the Appointment Letter and the breach of the Defendant’s duties that arise from that appointment, the breach of which is a breach of the Appointment Letter.  It is the 1^st Plaintiff’s position that these claims fall within r 1(1)(d).  It must at least arguably be so for the purposes of this application, being all that the 1^st Plaintiff needs to establish at this stage.  If the 1^st Plaintiff had argued at the ex parte stage that it was bringing two separate claims: one for breach of contract (where the breaches may include breaches of fiduciary duties)  and a stand-alone breach of fiduciary duty claim independent of the Appointment Letter, the Defendant may have had an argument to exclude leave given in relation to the stand-alone breach of fiduciary duty claim.  However, the fact remains that the claim was presented to the Ex Parte Judge as a claim against the Defendant in respect of his engagement under the Appointment Letter which is a contractual claim.

25.  Further, even if the reference in the prayer for relief to constructive trust is to bring a claim in constructive trust and such claim could only be served out under gateway r 1(1)(p), which I do not accept it to be the case, the consequence would be that the 1^st Plaintiff would not be able to pursue that relief in these proceedings without making a separate application for leave to serve out in respect of that claim or relief. It would not affect the validity of the Service Out Order, service of the writ or the court’s jurisdiction to deal with the 1^st Plaintiff’s claim that the Defendant is in breach of the Appointment Letter.

26.  For these reasons, I reject the Defendant’s challenge based on the New Claim Ground.

The Reflect Loss Ground

27.  I can dispose of this ground rather quickly for the simple reason that the Defendant’s argument had been rejected by DHCJ To in the Substantive Decision and subsequently by the Court of Appeal in the Appeal Decision.

28.  In determining whether the 1^st Plaintiff has a good arguable case, DHCJ To expressly found that there is a serious issue to be tried in respect of the 1^st Plaintiff’s claim.  In doing so, the judge also specifically considered the “reflective loss” argument (which is the sole point raised on merits by the Defendant in this application)  and found it to be “unarguable”.[6]

29.  The Court of Appeal also considered the Defendant’s reflective loss argument in §§22 to 30 of the Appeal Decision.  The Court of Appeal affirmed the decision of DHCJ To that the 1^st Plaintiff has a good arguable claim against the Defendant.  In view of these findings and rulings, the Defendant cannot possibly advance an argument that the 1^st Plaintiff does not have a good arguable case by reason of the reflective loss principle.

The Forum Ground

30.  The Defendant contends that Hong Kong court is not the forum conveniens. 

31.  The principles to be considered in determining the question of forum non conveniens are trite.  However, if there is an exclusive or non-exclusive jurisdiction clause in the relevant contract, the court’s considerations on this issue may be different.

32.  It is common ground that the Appointment Letter contains both a Hong Kong governing law clause and a Hong Kong non-exclusive jurisdiction clause.  As the 1^st Plaintiff is listed in Hong Kong, it can hardly be suggested that the choice of Hong Kong law or jurisdiction for the appointment of one of its directors is artificial.

33.  The facts of the present case are similar to those in Noble Power Investments Ltd v Nissel Stomach Tokyo Ltd.[7] According to the Court of Appeal in that case:

(i)  In a case of a non-exclusive jurisdiction clause where a party has agreed to submit to a particular jurisdiction, the court will hold that party to its bargain.  The court may in exceptional circumstances ignore that bargain.[8]

(ii)  As part of the agreement to submit to Hong Kong’s jurisdiction, a party has agreed that Hong Kong is an appropriate forum, and it is not open to it to contend that it is not convenient.[9]

(iii)  Where the proceedings are commenced in the named forum, one does not simply consider the connecting factors with the competing jurisdictions.  Further, factors must be those not in the reasonable contemplation of the parties at the time the jurisdiction agreement was made.[10]

(iv)  Once a party cites an exclusive jurisdiction clause, the burden moves to the counter-party to establish that the agreed forum is not the convenient forum, taking into account the contractual bargain between the parties about the agreed forum.[11]

34.  Applying these principles, it is not difficult to see that the Defendant’s Forum Ground has no merit at all.   The Defendant is simply asking the court to consider the connecting factors with the competing jurisdictions, which is not the appropriate approach according to the Court of Appeal in Noble Power Investments Ltd.

35.  In support of his contention, Mr Ng refers the court to a claim brought in the NCLT in Mumbai (“the Indian Proceedings”)  against the Defendant.  However, NCLT is a special tribunal for proceedings in respect of oppression and mismanagement in Indian companies; in this case SKS Agritrade India (“SKS”).  The NCLT is constituted to hear specific matters under the Indian Companies Act and is not a civil court of unlimited jurisdiction. The NCLT cannot resolve the 1^st Plaintiff’s contractual claim in respect of the Defendant’s appointment as a director to a non-Indian company under Hong Kong law.

36.  Further, the argument that the 1^st Plaintiff has forfeited its rights in the jurisdiction clause via the Indian Proceedings has no merit at all.  The Indian Proceedings are brought by Agritrade Singapore (not the 1^st Plaintiff)  as the 99.21% shareholder in SKS.  Not only are the Indian Proceedings commenced by a different party, there are 15 respondents of which the Defendant is only one of them.

37.  The Defendant also claims that the 1^st Plaintiff has failed to discharge its burden of showing deprivation of a personal or juridical advantage.  However, once the 1^st Plaintiff is relying a jurisdiction clause, the burden moves to the Defendant.  In any event, as the Defendant is not specifying the purported more convenient jurisdiction, it is difficult to answer the deprivation question.  If the Defendant is saying that there is no disadvantage if 1^st Plaintiff brings its claim within the Indian Proceedings, that is not possible because, as mentioned above, the 1^st Plaintiff is not a party in the Indian Proceedings and the NCLT cannot resolve the 1^st Plaintiff’s contractual claim in respect of the Defendant’s appointment as a director to a non-Indian company under Hong Kong law.  If the Defendant is saying the Plaintiff can bring the claim in separate proceedings in India, then the Indian Proceedings are largely irrelevant.  Further, it may take a long time for the new proceedings in India to conclude, whereas the present proceedings in Hong Kong are now in the advanced stage having gone to the Court of Appeal once for a preliminary assessment as to whether, inter alia, the 1^st Plaintiff has a good arguable case against the Defendant.

38.  In the hearing, there is also an issue as to whether the 1^st Plaintiff has been making overlapping claims in these proceedings and the Indian Proceedings.  The hearing was adjourned for clarification on such matter, and as a result the 2^nd Affirmation of Mr Mustafa Motiwala (“Motiwala’s 2^nd Affirmation”)  was filed.

39.  Although the Hong Kong proceedings and the Indian Proceedings have a similar factual background, it is now clear that there is no overlap in the relief claimed in these proceedings.  It has all along been the Plaintiffs’ claim that the Defendant has perpetuated a massive fraud against them.  In the Substantive Decision, DHCJ To noted that the Defendant had diverted enormous funds destined for SKS’s operation.  Despite repeated requests for an explanation in relation to those funds or other irregularities, the Defendant has to date not responded.[12] Under such circumstances, the 1^st Plaintiff would be seriously prejudiced if it was not allowed to continue with its claim in Hong Kong.

40.  Hence, I reject the challenge based on the Forum Ground.

The Non-Disclosure Ground

41.  In the earlier proceedings, the Defendant has already made certain allegations of non-disclosure relating to the merits of the claim such as the failure to produce the spreadsheets.  All of these allegations were rejected by DHCJ To and the Court of Appeal in the Substantive Decision and the Appeal Decision respectively.  For the purposes of the Subject Application, I only need to deal with the remaining allegations of material non-disclosure relating to other matters such as forum conveniens.

42.  The Defendant first complains that the 1^st Plaintiff misstated its case to bypass gateway r 1(1)(p).  That is not correct for the reasons given above.  The Defendant then complains that the 1^st Plaintiff simply relied on the non-exclusive jurisdiction clause and did not disclose the lack of any connection between the breaches of duty by the Defendant and Hong Kong.  In particular, the misappropriation of the funds took place in India.  However, as mentioned in Noble Power Investments, the 1^st Plaintiff has discharged its burden on forum conveniens by relying on the jurisdiction clause.  I agree with Mr Brown that the 1^st Plaintiff had no knowledge then (or even now)  of exceptional reasons that were not within the parties’ contemplation that would undermine the operation of the jurisdiction clause such that they would need to be disclosed.

43.  Second, the Defendant complains that the Plaintiffs failed to draw to the court’s attention that the transfers were for share capital.  The Defendant claims this might have been considered by the Ex Parte Judge as part of the “weighing” process in considering the question of forum conveniens.

44.  I agree with Mr Brown that there are two flaws in such contention.  First, this issue has nothing to do with jurisdictional connectivity, but rather it has to do with the merits as it is part of the reflective loss argument.  Second, it assumes that the forum conveniens issue is merely a weighing of connections.  But as I have mentioned above, that is not the correct approach where there is a jurisdiction clause.  To the extent that this non-disclosure is then said to be relevant to the merits-based argument on reflective loss, DHCJ To has already decided that it was not material non-disclosure for not having raised the reflective loss issue on the merits.  The judge also held that the reflective loss argument is not arguable.[13]

45.  Finally, the Defendant complains that although the Plaintiffs did disclose the Indian Proceedings, the reference to the petition in Plaintiffs’ evidence was in fact only the listing application and not the substantive petition itself.  However, the material point was to make clear that there was no overlap in the relief sought by the Plaintiffs in these proceedings and the relief in the Indian Proceedings, though there might be overlapping factual issues in both sets of proceedings.  As clarified in Motiwala’s 2^nd Affirmation, that remains the case.

46.  I therefore also reject the Defendant’s challenge on the Non-Disclosure Ground.

Conclusion

47.  For these reasons, there is no merit in any of the grounds put forward by the Defendant in supporting the Subject Application.  I therefore dismiss the application.  I also make a costs order nisi that: (i)  the costs of the Subject Application be paid by the Defendant to the 1^st Plaintiff; and (ii)  there be no order as to costs on the Subject Application vis-à-vis the 2^nd Plaintiff and the Defendant. The order nisi shall be made absolute 21 days after the date of the handing down of this Decision.