PACIFIC BULK INVESTMENT LTD v. CHU KONG AND OTHERS

HCA 379/2019

[2022] HKCFI 1716

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 379 OF 2019

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D E C I S I O N

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1.  This is the second contested interlocutory application which this court has to deal with during this month relating to the raft of litigations between the Lau Camp and the Chu Camp: see the earlier Decision dated 23 May 2022 ([2022] HKCFI 1419 (“Decision”)). The previous application was made by the Lau Camp. In this application, the Chu Camp seeks a stay of these proceedings pending the determination of HCA 228/2017.

2.  This is a statutory derivative action by Mr Lau Wing Yan on behalf of Pacific Bulk Investment Ltd (“PBI”) against Mr Chu Kong and others alleged to be associated with him in respect of alleged misappropriation of assets belonging to PBI which was committed in breach of fiduciary duties. The assets in question were an 18% shareholding in a Mainland company called Huiyu (“Huiyu Shares”), which were acquired by PBI in 2007 at the cost of US$7.25 million. The funds for the acquisition were provided by Pacific Bulk Maritime Holdings Co Ltd (“PB Maritime”) and PBI was solely owned by it. In 2010, there was an additional share subscription by PBI and the funds for the same, US$4,112,600, were provided by CK Assets Ltd (“CKA”).

3.  This application by the Chu Camp is premised on the ground that there is a common issue in this case and HCA 228/2017 (which is to be tried with HCA 1431/2015), namely, the ownership of PB Maritime. The Chu Camp says that Chu was the sole beneficial owner of PB Maritime and the funds provided to PBI by CKA also belonged to him beneficially. Staying this action pending the resolution of HCA 228/2017 will result in saving of costs as well as the court’s resources because the determination of the common issue may lead to the disposal of this action.

4.  There is no dispute over the applicable legal principles: see Re Hsin Chong Construction Co Ltd [2021] HKCFI 1295, [39]-[40] and Luen Tat Watch Band Manufacturer Ltd v Li Sin Man Seline, unrep, HCA 1428/2012, 25 July 2014, [40]-[42].

5.  I regret to say that I am far from convinced over the merits of this application. This action was one of 25 proceedings on foot between the two Camps which was considered by this court at a global CMC which took place on 23 March 2021: see Decision, [3] to [5]. During the global CMC, it was agreed by the two Camps that this action should not be stayed.

6.  I reiterate the observation made in the Decision, [15], that neither Mr Lau nor Mr Chu has shown any enthusiasm in having their disputes resolved by the court expeditiously. There is no adequate explanation by Chu as to why he is changing the stance he adopted at the global CMC that this action should proceed in parallel with HCA 228/2017. The suggestion in his evidence that it is attributable to the change of advising counsel is difficult to understand when the same junior counsel represented the Chu Camp at the global CMC.

7.  This application fortifies the above observation. It appears to this court that, instead of pressing forward to resolve their disputes, the parties, with their considerable resources, are keen to engage in adversarial manoeuvres with the belief that some advantage over the other side may be gained. Staying this action will simply allow it to be delayed. It is no coincidence that the last application was made by the Lau Camp in relation to proceedings brought against them by the Chu Camp (HCCW 352/2014). In this application, the roles are reversed.

8.  As regards the overlapping of issue between this action and HCA 228/2017, I agree with the analysis of Mr Joffe, who appears with Mr McLeish for PBI, that whilst the ownership of PB Maritime is a common issue to both proceedings, it is unlikely that the resolution of this issue will dispose of this action. It should be noted that the ownership of the funds provided by CKA is not an issue in HCA 228/2017.

9.  It is common ground that the Chu Camp has advanced two defence in this action: (i) the impugned transfers were of an internal nature resulting in no detriment to PBI; and (ii) in any event, the funds used to acquire the Huiyu Shares were provided by PB Maritime, which was owned by Chu, and thus there could have been no misappropriation by the Chu Camp.

10.  In respect of the funds provided by CKA, PBI says that it is not relevant to the defence raised in this action and makes no admission to the same.

11.  If the common issue is resolved against the Chu Camp, this action will simply proceed on the internal transfers defence. Given the litigious nature of the two Camps, I see little likelihood of a compromise even if the Chu Camp has lost on the common issue.

12.  If the common issue is resolved in favour of the Chu Camp, it is unlikely for the Lau Camp to abandon this action. Being the beneficial owner of PB Maritime would not have entitled Chu to do what he liked with it assets. He had neither legal nor beneficial ownership over PB Maritime’s assets.

13.  For these reasons, I dismiss the stay application. I shall hear the parties on costs.