RE MR. JOHN MANNERS JARVIS, Q.C.

HCMP 2011/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2011 of 2008

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J U D G M E N T

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1.  The Applicant seeks admission to represent Olivia Lee Sin Mei (“the Defendant”) in HCA 167/2008 in an application to strike out the Writ and Statement of Claim, as well as in an application by the Plaintiffs in that action to amend the Statement of Claim.  The application to amend is linked to the strike out application.  His admission is also sought in relation to any appeals in relation to these matters.

2.  The Defendant was a former non-executive director of the 1st Plaintiff (Moulin Global Eyecare Holdings Limited) (“Holdings”), a company incorporated in Bermuda.  Significantly, she was also an officer of the company, being a member of what was known as the Audit Committee (in fact the allegation is that she advised on the setting up of this Committee).  Holdings was a publicly listed company in Hong Kong until July 2007 when it was delisted.  It is now in liquidation.  The Defendant was at the relevant time a partner of a well-known law firm.  The range of her duties is pleaded in wide terms in the Statement of Claim but essentially they focus on her expertise in corporate and financial governance.  This is a feature that is at the heart of the action.

3.  These duties were said to be owed not only to Holdings but also to the wholly owned subsidiary company that was said to be the largest operating subsidiary within the Moulin group of companies (the 2nd Plaintiff - Moulin Global Eyecare Trading Limited) (“Trading”) and to another wholly owned subsidiary which performed treasury functions within the group (the 3rd Plaintiff - Oaktree Investments Limited)(“Oaktree”).

4.  The duties of the Audit Committee of Holdings were set out in the minutes of a meeting of its Board of Directors and these duties were said to supplement those contained in the Code of Best Practice (as set out in the Main Board Listing Rules of the Hong Kong Stock Exchange).

5.  The case against the Defendant is based on a series of financial transactions in relation to the three Plaintiffs that involved one or more of the following : -

(1)    Trade debtors and the bills receivable from them were factitious.

(2)    Cash advances were made to persons who were related to or had close connections with the major shareholders of the Group companies, these advances eventually finding their way back to Trading.  The purported loans to these connected persons were unsecured and had no fixed terms of repayment.  The eventual destination of the funds being Trading meant that the transactions were allegedly wholly circular.

(3)    There were other misleading statements in the financial affairs of the three companies.

6.  The breach of duty pleaded against the Defendant is extensive and runs to some 15 pages of a 55-page Statement of Claim in single line spacing.  In a nutshell, it is alleged that she was negligent or breached her duties in not taking appropriate action or making due enquiries to prevent the three companies from having these irregular financial transactions in their books.  The companies’ auditors were not apparently aware of these transactions either.  I say apparently because it appears that the auditors (or some of them) have been sued in a separate action.  In brief, it is alleged that the Defendant played a major part in these financial misstatements.  The claim against her amounts to approximately $350 million, these being the amount of dividends, tax and interest paid by the Plaintiffs.

7.  On 16 June 2008, the Defendant issued a summons seeking to strike out the Statement of Claim and the Writ on the following grounds : -

(1)    Holdings is in breach of a covenant not to sue the Defendant, this covenant being contained in a Deed of Indemnity.

(2)    There is a circuity of action in that Holdings must provide an indemnity to the Defendant to cover any losses she may incur in the action.

(3)    No duty of care or duties were in any event owed by the Defendant to Trading or Oaktree.

(4)    Even if the Defendant were in breach of duty as alleged, this was not the dominant or effective cause of the losses sustained by the companies.

(5)    There are temporal limits to the extent of the Defendant’s liability as well.

8.  I am of the view, particularly given to the rather special features of this case, that the action as a whole involves questions of unusual difficulty or complexity.  These special features largely have to do with the nature of the position that the Defendant occupied and the duties that were owed as a consequence.  The need for a publicly listed company to give special attention to the regulatory requirements involved in properly and openly disclosing its true financial state is an inescapable feature of modern company law and practice.  There are wide repercussions.  The focus of the present case being that of a person with particular responsibilities in this regard is a feature that persuades me, even at the strike out stage, that there are involved issues of sufficient difficulty or complexity.  Complex legal, factual and auditing considerations may well come into play.  Mr Andrew Mak for the Hong Kong Bar Association relies on the court’s remarks in Re Crystal QC, unreported, HCMP 598/2005, 7 April 2005 in relation to strike out applications, but those remarks were directed to the particular applications in that case.

9.  In this rather specialist area of the law and the context in which the legal and factual issues arise, I am of the view that the Applicant will be able to add a significant dimension to the resolution of a difficult case.  For this reason, I would, perhaps on a somewhat exceptional basis, admit him for the purposes of the strike out application and also the application for leave to amend which is to be heard at the same time.  The application to amend seeks to introduce allegations that the Defendant was a de facto or shadow director of Trading and Oaktree, as well as to bring in an additional defendant.

10.  There remain two matters with which I ought to deal.  First, in the exercise of its discretion, the court must be provided with details of the inquiries made of suitable leading counsel in Hong Kong.  It appears from the affidavit in support in the present case that none has really been made.  The solicitors have been content to instruct Mr John Scott, SC and Ms Linda Chan who appears today for the Applicant.  In my view, it is incumbent on solicitors to make inquiries of the availability of suitable leading counsel in Hong Kong in order to reveal to the court the full extent of what has been referred to in the cases as the pool of suitable counsel.  The larger the pool the less inclined the court may be to admit leading counsel from overseas; vice versa in the case of a smaller pool.

11.  If it is to be suggested that there is really no pool of suitable leading counsel or there is some other reason why inquiries have not been made, this ought to be explained in the affidavit evidence.  In other words, the basis for any assertion along these lines should be provided.  These matters should generally not be left to oral argument.

12.  In the present case, given the special features to which I have already alluded, I am of the view that the pool is somewhat small in Hong Kong, and that the Applicant’s expertise to add a significant dimension to the case assumes some importance.  There was some delay in making the application but this has been explained this morning by Ms Chan.

13.  Next, in relation to that part of the present application that prays for an order that the Applicant be admitted for the purposes of any appeal, this is premature at this juncture.  I am not persuaded that such an order is either necessary or justified.

14.  For the above reasons, I order that the Applicant be approved, admitted and enrolled to practise as a barrister of the High Court of Hong Kong for the purpose of advising and appearing for Olivia Lee Sin Mei, the Defendant in HCA 167/2008, at the hearing of the Defendant’s strike out application dated 13 June 2008 and the Plaintiffs’ application for leave to amend the Statement of Claim dated 9 September 2008.