VITALY ORLOV v. MAGNUS LEONARD ROTH AND ANOTHER

HCMP 1331/2017

[2020] HKCFI 279

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1331 OF 2017

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AND

HCMP 2753/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2753 OF 2017

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(Heard together)

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D E C I S I O N

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1.  In July and August of this year, 2019, I heard what might be described as cross-petitions in two actions commenced in June and December 2017 respectively, in which Mr Vitaly Orlov (“Orlov”) and Mr Magnus Roth (“Roth”) as petitioner and 1^st respondent in the actions respectively, claimed unfair prejudicial conduct against the other in respect of the 2^nd respondent company, TTC.

2.  I gave Judgment on 28 August 2019.  In essence, I found that each had on occasions conducted themselves unfairly prejudicially towards the other, but I also rejected some of the allegations each made against the other.

3.  As it happened, even before the trial began, it was agreed between the parties that if there was a proper jurisdictional basis for the court to make a buyout order, the appropriate remedy was for one party to buy out the other and, indeed, it was agreed that it was Roth who should buy out Orlov.  I so ordered, and this morning’s hearing was originally fixed to finalise the terms of the order to enable the appropriate valuation to be given to the shares in TTC which are to be bought by Roth from Orlov.

4.  In my Judgment at paragraph 27, I referred to the fact that there was another dispute between a Mr Alexander Tugushev (“Tugushev”) and Orlov and Roth, the subject of proceedings brought by Tugushev against Orlov and Roth and, indeed, one other person, in England on the back of which ancillary injunctive proceedings had been launched by Tugushev in Hong Kong.  But I took the view then that Tugushev’s claim need not have any impact on these proceedings where both Roth and Orlov said, as a matter of common ground, that they were equal and the only two equal shareholders of TTC.

5.  Now by summons dated 24 December 2019, Tugushev applies to be heard in these proceedings and it is said, firstly, to inform the Court of certain important recent developments which may have serious implications on the Court’s sanction of any ultimate buyout between Orlov and Roth and their legal shareholdings in TTC, and on Tugushev’s claimed interest in that.

6.  This morning, Mr Laurence Li SC, leading Mr Byron Chiu, asserts that the core point relates to what he says is a crystallized common issue now in the English proceedings and the Hong Kong proceedings.

7.  In the English proceedings, Tugushev claims that Orlov, Roth and a third gentleman, Mr Petrik, conspired to misappropriate and had misappropriated his one-third stake in the international fishing business which they ran and which he says was co-founded by the three of them (Tugushev, Orlov and Roth), and which group of companies included those currently under the Russian company, JSC Norebo Holding Limited, as well as the TTC Group.

8.  Tugushev’s claim was first launched in mid-2018, and on the back of his claim he sought ancillary orders in the form of a worldwide freezing order from the London court against Orlov.  It was originally granted on an ex-parte basis and on the back of that order, a back-to-back injunction was granted in favour of Tugushev in Hong Kong.

9.  However, on 26 July 2019, on an inter partes argument, Mrs Justice Carr discharged the freezing order on the grounds of material non-disclosure and, importantly for present purposes, on the ground that Tugushev had failed to establish any real risk of dissipation. She nevertheless held that the English court had jurisdiction over the claim and over Orlov and was, therefore, persuaded that Tugushev was right that the London courts were the proper forum for the resolution of the disputes raised by him against Orlov and Roth.

10.  What is said to have prompted this current application at this time is that on 6 December 2019 Roth filed his defence in the English proceedings in which he apparently expressly confirms that Tugushev is entitled to one-third of a joint venture and of joint venture assets which include the TTC Group, albeit on a basis that requires Tugushev to pay to make up for what he failed to contribute to the joint venture when he was absent from participation in it.

11.  Roth suggests that the way to assess what is due from Tugushev is by reference to the value of the TTC Group on the date of the issue of Tugushev’s claim, because it is pleaded the joint venture assets in the TTC Group were developed without Tugushev’s input and do not operate in the fishing business in Russia or Norway.  As I have indicated that relevant date for valuation would be July 2018.

12.  The principles applicable on joinder are well settled.  The application is made pursuant to Order 15 Rule 6(2)(b) of the Rules of the High Court which materially provides:

“Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application:

(b) order any of the following persons to be added as a party, namely:

(i)   any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii)   any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

13.  Obviously, Mr Li on behalf of Tugushev accepts that he must establish that he falls within either one or both of those limbs in order to be able to intervene in the proceedings.

14.  It is also common ground that the rule requires some interest by the would-be intervener which is directly related to the subject matter of the action, that a mere commercial interest in the outcome of the action divorced from its subject matter is not sufficient, and that the interest of the intervener must raise an existing pleaded issue not merely a contingent one.

15.  Mr Li submits that Tugushev has a material interest in the further conduct of these proceedings as Roth and Orlov proceed to valuation.

16.  Firstly, he says the valuation of TTC and the TTC Group is now a crystallized common issue, to use his phrase, in both the Hong Kong and the English proceedings and he says he has the benefit of now being able to say that it is not simply a claim raised by Tugushev in the English proceedings but there is an admission or acceptance on the part of Roth in those proceedings, being an admission against his own interest, that the one-third interest lies and an assertion as to how to value an appropriate payment towards obtaining it.

17.  He says that Roth himself has averred in the London action that the steps would involve, and that Roth would seek to adduce, expert evidence on the appropriate valuation of the TTC Group as at July 2018.  So, says Mr Li, there is a risk of duplication of expenditure and a risk of inconsistency in findings and orders between those orders that might be made in the Hong Kong Court and those in the English Court if intervention is not permitted.

18.  Mr Li says, secondly, the valuation of TTC would also affect the claim for damages which Tugushev makes against Orlov and Roth in the English proceedings and, thirdly, that because Roth’s own case in the English proceedings is that Tugushev is entitled to one-third of the joint venture assets including the TTC Group, the English Court will have to make a determination for which the buyout order potentially has some effect, because it potentially involves shares which in fact belong to Tugushev.

19.  As to that last point, it seems to me that that has always been the position on the face of Tugushev’s claim in London and he has chosen to pursue that claim and has persuaded the Courts in England that it is the appropriate forum for the pursuit of the claim, in London.  The fact that Roth now accepts in the London proceedings that Tugushev may well have such interest subject to various other matters does not seem to me fundamentally to have changed that position.

20.  Of course, there is also force in the points made by Mr Justin Lam appearing with Ms Euchine Ng that it is really not open to Roth to adopt in the Hong Kong proceedings, a stance which is so diametrically inconsistent with his previous position in these proceedings.  I note that Mr McLeish has confirmed that Roth has no objection to Tugushev intervening in this action, which I confess comes as no great surprise in the context of the way in which Roth has pleaded his defence in the London action.

21.  Though there is force in the abuse point, I do not think it necessary to deal with it any further for the purposes of resolving the current application.

22.  At bottom, I am not persuaded that it is necessary for Tugushev to be allowed to intervene in these proceedings to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, nor is it my opinion that it would be just and convenient to determine as between Tugushev and Orlov and Roth in these proceedings, those matters which he says are common issues in the other proceedings.

23.  Firstly, I accept Mr Lam’s point that the valuation process is likely to be different between the two sets of proceedings where what is being dealt with in the Hong Kong Court is the personal remedy of a buyout order on the findings of unfairly prejudicial conduct, whereas what is being dealt with in the London Court is likely to be either a calculation of damages for any proved tortious wrongdoing or possibly a valuation of some sort of quantum meruit after the event contribution which is required from Tugushev for him to be able to take the value of one-third of the joint venture and joint venture assets.

24.  There is also at least a difference of some months in the apparently relevant valuation dates where I have set the valuation date as 1 January 2018 and the relevant valuation date in London is said to be July 2018, when there was significant commercial activity in and around that six-month period.

25.  Mr Lam also accepts on behalf of Orlov that, in any event, Tugushev would not be bound by the valuation exercise that would be performed in this Court and so there is no real prejudice to Tugushev even if, as Mr Li says, there might be taken as a starting point the Hong Kong valuation when looking at the appropriate values to be attached, if relevant, in the London action.

26.  For those reasons, I reject the intervention application.

(Submissions re on costs)

27.  I will order costs against the intervener or attempted intervener to be amended on a summary basis.