VITALY ORLOV v. MAGNUS LEONARD ROTH AND ANOTHER

HCMP 1331/2017 and
HCMP 2753/2017
(Heard Together)
[2019] HKCFI 876

HCMP 1331/2017

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

MISCELLANEOUS PROCEEDINGS NO 2753 OF 2017

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(Heard Together)

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DECISION

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Introduction

1.  I have before me a summons dated 29 January 2019 by which Mr Magnus Roth (“Mr Roth”) seeks a stay of two sets of petition proceedings HCMP 1331/2017 and HCMP 2753/2017, and the vacation of the dates fixed for trial of liability being 3 July 2019 with 10 days reserved; alternatively vacation of the trial dates (“the Summons”).

2.  HCMP 1331/2017 is an unfair prejudice petition issued by Mr Vitaly Orlov (“Mr Orlov”) against Mr Roth and Three Towns Capital Limited, a Hong Kong company (“the Company”) on 8 June 2017.  HCMP 2753/2017 is a cross-petition by Mr Roth alleging unfair prejudicialconduct by Mr Orlov relating to the Company, issued on 22 December 2017.  (Together “the HK Petitions”.)

3.  The HK Petitions both:

   (a)   allege that Mr Roth and Mr Orlov each hold 50% of the shares of the Company;

   (b)   allege that over and above the usual legal rights attached to their shareholding, they had a mutual understanding and/or legitimate expectation of certain matters including the sharing of profits on a 50:50 basis, the sharing of material information concerning the Company, and a right to participate in the management and decision-making of the Company;

   (c)   pray for a buy-out of one or other of the 50% shareholdings.

4.  In July 2018, a Mr Tugushev commenced an action in the Commercial Court of England and Wales against Mr Orlov and Mr Roth (inter alia) alleging that he is the owner of one-third of the Company (inter alia) and seeks a declaration to that effect (“the English Proceedings”).

5.  In support of the English Proceedings:

   (a)   Mr Tugushev obtained a worldwide freezing order dated 23 July 2018 against Mr Orlov prohibiting him from disposing of or diminishing the value of his assets up to the value of US$350 million.  Identified assets of Mr Orlov subject to the prohibition include Mr Orlov’s shareholding in the Company.

   (b)   On or about 24 July 2018, Mr Tugushev obtained a similar Mareva injunction against Mr Orlov prohibiting him from removing from Hong Kong or disposing of or diminishing the value of his assets in Hong Kong up to the value of US$350 million.  Identified assets of Mr Orlov subject to the prohibition include Mr Orlov’s shareholding in the Company.

6.  Mr Orlov and Mr Roth have both challenged the jurisdiction ofthe English Court to hear the English Proceedings, with Mr Orlov’s challenge having been substantively heard in January 2019 with judgment reserved.  Mr Roth’s challenge has not yet been argued.  The English Proceedings are self-evidently at an early stage.

7.  Mr Tugushev has not sought to take any part in the HK Petitions.  He has not sought any proprietary injunction against any shares in the Company.

8.  On about 23 August 2018, Mr Roth and Mr Orlov by joint letter to the Court proposed dates for the pre-trial review and the trial of liability in the HK Petitions, namely 16 April 2019 and 3 July 2019 respectively.  Those dates are milestone dates.

9.  In the HK Petitions, there has been amendment of pleadings, exchange of discovery and exchange of witness statements. Outstanding requests for further discovery are the subject of a summons to be heard on 28 March 2019.

The Summons

10.  Mr Roth, by his counsel Mr Joffe and Mr McLeish, argue that the trial of the HK Petitions should not proceed before resolution of the English Proceedings on the basis that:

   (a)   In the HK Petitions, the Court cannot proceed on the basis that the Company is a quasi-partnership (which is a necessary finding in order to superimpose equitable principles of mutual understanding and legitimate expectations) as Mr Tugushev may dispute this if he is indeed the owner of one-third of the shares.

   (b)   In the HK Petitions, the Court cannot decide what was the mutual understanding of the Company’s shareholders as Mr Tugushev may dispute this if he is indeed the owner of one-third of the shares.

   (c)   No buy-out order can be made in the HK Petitions whilst the ownership of the Company’s shares is subject to Mr Tugushev’s unresolved claim.

11.  It is uncontroversial that milestone dates cannot be varied unless there are exceptional circumstances justifying the variation: Order 25, rule 1(B)(3) of the Rules of the High Court.

12.  Despite the able arguments of Mr Roth’s counsel, I am not persuaded that any exceptional circumstances have arisen justifying the vacation of the trial dates.  I am greatly assisted by the arguments of Ms Winnie Tam SC and Mr Justin Lam, counsel for Mr Orlov: 

   (a)   Mr Tugushev’s claim to an interest in the Company’s shares has been known since July 2018.  No application was made to stay the HK Petitions pending resolution of the English Proceedings at an appropriate time.  Mr Roth participated in the setting down of the HK Petitions for trial on 23 August 2018 with knowledge of the English Proceedings and the fact that they could not in the normal course of litigation be determined before July 2019, especially when jurisdiction of the English Court was to be challenged.

   (b)   Mr Roth and Mr Orlov appear to be agreed in the HK Petitions as to the size of their shareholdings, their rights in respect to share profits on a 50:50 basis, and their rights to receive information and participate in decision-making in respect of the Company.  There is currently no dispute as to these matters in the HK Petitions.

   (c)   Mr Tugushev himself has not sought to participate in the HK Petitions.  As Mr Roth’s own counsel submit at paragraph 61 of their skeleton submissions, Mr Tugushev could apply to join the HK Petitions as a respondent and invite the Court to have due regard to his alleged beneficial ownership of one-third of the Company’s shares.  I note that Mr Orlov’s counsel dispute Mr Tugushev’s ability to be joined, but (in the absence of full argument or any authority on the issue) I do not express any view other than that I would be surprised if the Companies Court would not be interested in hearing evidence from a beneficial owner where the registered owners were shutting him out.  In any event, Ms Tam accepts that Mr Tugushev could make an appropriate application in Hong Kong to protect his interests if he wanted.  It therefore seems fanciful to suggest thatMr Tugushev would seek to dispute issues of quasi-partnership, mutual understanding and/or appropriate relief in the HK Petitions.  I do not address the speculative submissions as to whether Mr Tugushev as a Russian resident would wish to be registered as the shareholder of a foreign company.  I prefer to rely on the fact that he has not himself asked the Hong Kong Court to have regard to his alleged interest in the Company.

Conclusion

13.  I would therefore dismiss the Summons.