WILLIAM HUGH LUCKMAN AND OTHERS v. AAMAXAN TRANSPORT GROUP, INC. AND OTHERS

HCA1929/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1929 OF 2008

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D E C I S I O N

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1.  This is an application by D2 and D4 to discharge Mareva injunctions and related orders made against them on 6 October 2008 and 7 November 2008 respectively.

2.  The action concerns a claim by three plaintiffs, who are all minority shareholders in D1 which is a USA company that D2, D3 and D4 have misappropriated substantial sums from D1.  It is therefore a common law derivative action in which P1 to P3 are bringing an action against its own company for and on its behalf.

3.  In a nutshell, D1 was set up to enable investment into a PRC company called Shanghai Medical Technology Co. Ltd (“SMT”).  An investment fund was gathered for the purpose of investing in SMT’s hemodialysis business.  However, it is alleged that D4 sought approval to invest US$8.2 million of the fund (i.e. most of it) into a “mine and port” venture.  According to the original agreements the proper use of the funds was carefully prescribed and “acquiring any new line of business … or engaging in any other business activities beyond the scope of the Business” was specifically disallowed.  The allegation is that after he failed to get consent to embark on a wholly different venture, he misappropriated the funds to himself in any event.

4.  This is the barest outline of what is alleged and, of course, does not pretend to give the full picture of all the commercial complexities and detailed events of what has occurred during the last, approximately, 12 months.  It is however sufficient for present purposes because the application to discharge focuses on two discrete issues with which I shall briefly deal below.

5.  First, however three preliminary facts are worthy of mention so as to put the whole matter in context :

(i)  In spite of being invited to do so the defendants have filed no evidence in this application with the exception of a one page hearsay affirmation stating that D4 is not a resident of Hong Kong and has not been here since August 2008.  The plaintiffs on the other hand have filed a number of detailed affirmations both before and since the ex parte Mareva injunctions were granted.  Mr Ronald Lau, appearing at this hearing for D2 and D4, submitted that as the burden of proof lay on the plaintiffs, the defence was content to rely on the plaintiffs’ evidence in this application.  Be that as it may, the fact remains that this court must consider the two issues in the light of a complete absence of evidence from D2 and D4.

(ii)  The defence take no issue with the contention that there is a serious issue to be tried.  Mr Lau so confirmed.  Indeed the evidence of misappropriation is plentiful.  Moreover, the plaintiffs are unaware of any defence.  There is no evidence of what the defence, if any, might be.

(iii)  No acknowledgement of service has been served or filed by D2 and D4.  One of the matters to be decided is whether the court should set aside the leave granted to serve writs out of the jurisdiction pursuant to Order 11.  Such an application is made under Order 12, rule 8 which requires an acknowledgement of service to be filed.  In the absence of an acknowledgment the court can refuse the application.  As will be seen hereafter the application to discharge is refused, primarily on the merits for the reasons which follow, but also for this reason as well.

GROUNDS FOR DISCHARGE

(1)  Forum non conveniens

6.  D1 is a company incorporated in the state of Delaware in the USA.  The action has been commenced in Hong Kong because that is where the investment fund was banked, the banking documents in support are here in Hong Kong and, naturally, the act of alleged misappropriation occurred in Hong Kong.  It transpires also that some of the misappropriated money has been spent not a “port or mine” in China but in high quality retail outlets in Hong Kong.

7.  Because it is a derivative action Mr Lau submits that the issue at trial will be whether D1 was prevented by the wrongdoers from seeking redress so that the minority shareholders had to commence the claim and name the company as the first defendant.  The burden is on the plaintiffs to show that Hong Kong is the proper forum for that issue.

8.  Mr Paul Shieh SC, counsel for the plaintiffs, relies, inter alia, on Rambas v Chow [2001] 3 HKC 250.  It is true, and acknowledged by Mr Shieh, that Rambas concerned an issue of staying the proceedings rather than the order under Order 11 itself and thus the burden of proof was different.  In Rambas the burden was on the defendant, in the present situation it is on the plaintiff.  However, the principles to be extracted from Rambas remain the same regardless of where the burden lies.

9.  The points in the plaintiffs’ favour, which persuade me to continue the injunction are these :

(a)  The defence have produced no evidence as to what the defence will be therefore it cannot be said what the issues at trial will be, as per Rambas p.255 :

“… Mere convenience is not enough nor is it enough simply to point to factors which connect a case or the parties to any particular jurisdiction.  The approach in forum non conveniens applications is not just an exercise in loading up with factors which point to any particular jurisdiction.  The court is required to focus on the appropriateness of a forum from the point of view of the trial of the action.  This would in part explain the need to identify the particular court in favour of which the action is to be stayed, for it is to the appropriateness of that court for the trial that the court’s attention is directed.

It is stated by Lord Goff of Chieveley in Spiliada at 477E, ‘In my opinion, the burden resting on the defendant is not just to show that England is not the natural or appropriate forum for the trial but to establish that there is another available forum which is clearly or distinctly more appropriate than the English forum’.”

(b)  The convenience of witnesses is a factor.  In this case such a factor clearly falls in the plaintiffs’ favour and again, no evidence is available from D4, Mr Shao, to suggest that it would be more convenient for him and his witnesses to be heard in Delaware.  Neither D2 nor D4 have any connections with Delaware at all.

(c)  The issue of choosing Delaware law in preference to Hong Kong law does not arise because the only evidence which is available (from the plaintiffs’ side) suggests that there are no material differences between the two in relation to the likely issues in this case.  There is no corresponding risk of misunderstanding or injustice as to the applicable law.

(d)  The alleged fraud or misappropriation occurred in Hong Kong in the sense that the money was brought here and taken away from here.  There is an abundance of email evidence from D4 himself, which could be regarded as admissions to this effect.

(e)  It was D2’s account in Hong Kong at HSBC which held the money.

(2)  Material non disclosure

10.  Mr Lau raises two main points under this heading both of which can be disposed of briefly.

  (a)  Wrongdoer control :

11.  If the sole issue at trial turns out to be whether the company was improperly prevented from seeking redress by its directors, the identity of the directors and the identity of the alleged wrongdoers at the material time will be factual issues.  Was there a fraud on the minority by those in control of the company?  Only if so may a derivative action be brought.

12.  Mr Lau points out that at the material time the directors of the company were a Mr Chen and a Ms Zhao, not D4.  If so, any suggestion that the controllers of the company inflicted the wrong on the minority would fail (under either Delaware law or Hong Kong law) and these directorships were not disclosed at the time of the ex parte application.

13.  I am not persuaded that such lack of disclosure as there may have been is sufficient to discharge the injunction.  I have in mind the following :

(i)  I am satisfied that the court below was not misled.  The court was alive to the point as is demonstrated by the transcript.  The plaintiffs’ counsel merely informed the court that they did not have the necessary information about the board’s composition.  That state of affairs ultimately did not cause the judge below to not make the order.

(ii)  There was some evidence that Ms Zhao had resigned as a director prior to the ex parte application and this was disclosed in the affirmation in support.

(iii)  There was abundant evidence, not challenged at this hearing, that the reality was that even if Mr Chen was a or the sole director he was under the strong influence of D4 and was not a person who exercised any independent control of the company.  There was unchallenged evidence to the effect that Mr Chen was in Mr Shao’s pocket and that it was Mr Shao who was the true controller.  In short, the plaintiffs’s contention that Mr Shao was the wrongdoer in control was amply supported.

  (b)  Non compliance with Order 11

14.  Complaint is made that neither the affirmation nor the application ex parte specified which sub-sections of Order 11, rule 1 were being relied on and neither was a statement made that the plaintiffs believed they had a good cause of action, pursuant to Order 11, rule 4(1)(b).  

15.  I consider both of these complaints to be technical and without merit.  The transcript shows that the particular sub-sections of Order 11(1) being relied on, namely (b), (f) and (p), were brought to the judge’s attention and plainly considered by him.  Also, any reading of the plaintiffs’ affirmation in support at the ex parte stage could only be interpreted as bona fide belief in a good cause of action.  The absence of a particular formula of words, in this case, does not diminish that belief.

16.  To summarise, I am satisfied that the plaintiffs have discharged the burden on them to show that these injunctions were properly granted at the ex parte stage and should be continued on the same terms hereafter.

17.  The applications by D2 and D4 are dismissed with an order nisi that the costs of this application be paid by D2 and D4 in any event.