Et China.Com International Holdings Limited v Rose

[2017] NSWSC 1747

Supreme Court

New South Wales

Medium Neutral Citation:

ET China.Com International Holdings Limited v Rose [2017] NSWSC 1747

Hearing dates:

08/12/2017

Date of orders:

08 December 2017

Decision date:

08 December 2017

Jurisdiction:

Equity - Commercial List

Before:

McDougall J

Decision:

Order that until the further order of the court, the 2nd and 6th defendants be restrained from continuing with a proceeding in the Royal Court of Jersey for the winding up of the first plaintiff.

Catchwords:

CIVIL PROCEDURE – injunctive relief – application to restrain defendants from continuing with a proceeding in the Royal Court of Jersey – inherent jurisdiction of the Court to restrain foreign proceedings to avoid interference with Court process

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

CSR Ltd v Cigna Insurance Australia Limited (1997) 189 CLR 345
Pelechowski v The Registrar, Court of Appeal (NSW) (1999) 198 CLR 435

Category:

Procedural and other rulings

Parties:

ET-China.com International Holdings Limited (Jersey Company Registration Number 97573) (First Plaintiff)
Matthew Chik-Hui Ng (Second Plaintiff)
Christopher Peter Rose (First Defendant)
Marco Marcou (Second Defendant)
Pyma Pty Ltd (Third Defendant)
Vision Capital (Asia) Limited (British Virgin Islands Company No. 1623274) (Fourth Defendant)
Financial International Holdings Limited (British Virgin Islands Company No. 1067293) (Fifth Defendant)
MAP Et-China Holdings Pty Ltd (Sixth Defendant)
Ian Martin Holdings Pty Ltd (Seventh Defendant)

Representation:

Counsel:
W G Muddle SC (Plaintiffs)
N M Bender (Second and Sixth Defendants)

   

Solicitors:

  Finn Roache Lawyers (Plaintiffs)
Norton Rose Fulbright Australia (Second and Sixth Defendants)

File Number(s):

2017/96917

Judgment   (ex tempore – revised 8 december 2017)

1. HIS HONOUR: The matter for decision today is the application by the plaintiffs in the substantive proceedings in this Court to restrain the second and sixth defendants from continuing with a proceeding in the Royal Court of Jersey in which proceeding those defendants seek the winding up of the first plaintiff (which I will call ETC). The injunction sought is only until the final determination of the issues in the substantive proceedings in this Court.

2. The injunction is sought on two bases. The first invokes the inherent jurisdiction of this Court to restrain foreign proceedings where those proceedings interfere or have a tendency to interfere with proceedings pending in this Court. The second and quite distinct ground is based on the plaintiffs' argument that the moving party in the Jersey proceeding (as I will call it), the sixth defendant (which I will call MAP) is brought in circumstances that place MAP into an irremediable position of breach of duty: more accurately, a conflict between one set of duties that it owes as a trustee to one set of beneficiaries, and another set of duties that it owes as trustee to another set of beneficiaries.

3. The factual background to the application is complex and I hope that what follows is a sufficient summary. ETC, which as I have said is a company incorporated in Jersey, held the issued shares in a company which I will call ETHK. Either through ETHK or otherwise, there was conducted within the People's Republic of China a group tourism business.

4. The plaintiffs say that the defendants Messrs Marcou and Rose caused ETC wrongfully and without authority to dispose of its sole or at least substantial asset, namely its shareholding in ETHK. Messrs Marcou and Rose say that, on the contrary, they acted in the best interests of ETC in doing so, because, by reason of wrongful actions undertaken by the second plaintiff Mr Ng, ETC's assets were at risk of confiscation by the authorities in China (and in fact, substantial assets had already been confiscated). Messrs Marcou and Rose say that the actions that they took were not only lawfully taken, in the sense of having the power to do so, but properly taken, to preserve the remaining assets of ETC.

5. In short, what is in issue is who controls the affairs of ETC, and who has acted properly (or improperly) in all the circumstances underlying those that I have all too briefly outlined.

6. The plaintiffs commenced their proceedings in this Court some months ago. In the substantive proceedings, they claim relief aimed at procuring compensation for ETC for what they say are the wrongful acts of Messrs Marcou and Rose. In principle, as may be seen, the action is one which could be said to be for the benefit of ETC and thus of its shareholders (except, perhaps, any shareholders who have benefitted wrongfully by the transactions in question if it be found that those actions were indeed wrongful). However, because the action is being funded by Mr Ng personally, it is not at the cost or risk of ETC.

7. There is no dispute but that the jurisdiction of this Court was regularly invoked. There is no dispute but that, for a period of some months, directions were given by consent to ensure that the quasi-pleadings were framed adequately so as to bring up for resolution all issues properly in dispute between the parties, and for the parties to serve their evidence. The pleadings do appear to be complete, at least in substance, but it is apparent that the evidence is not. Nonetheless, as I have said, matters have moved along in the usual way that matters ought move in this list.

8. However, some six months or so after proceedings were commenced in this Court, MAP commenced the proceeding in the Royal Court of Jersey for the winding up of ETC. Its application to that Court stipulated that winding up was sought on the just and equitable ground, because in the events that have happened over the past few years, the substratum of ETC's business has disappeared. It is apparent that the acts of Messrs Marcou and Rose have contributed to (although they may have not have been the sole cause of) that alleged basis for winding up.

9. The application makes it clear that it is brought so as to prevent Mr Ng from, as the defendants see it, intermeddling or further intermeddling in the affairs of ETC. Indeed, MAP says that Mr Ng's action in bringing the proceedings in this Court is a prime example of intermeddling. The effect of winding up, if ordered, would be to stay these proceedings and to leave it to any liquidator who might be appointed to decide whether or not they should be continued. Again, it is evident from MAP's application that achieving such a stay is one of the reasons for which the winding up application has been brought. I should make it plain that I intend no criticism by saying this. I proceed on the basis that the claims and counterclaims in this Court are each brought properly, in the sense that each party believes it has an arguable case, and that likewise MAP believes it has a proper case for the relief that it seeks in the Royal Court of Jersey.

10. The winding up application has apparently been fixed for hearing in February next year. If it proceeds then, it will be heard (and, one might think, decided) before any hearing date that can be allocated in this Court. In saying that, I take into account not only the state of the list but also the fact that there is still work to be done in the proceedings in this Court before they can be said to be ready for hearing.

11. As I have said, the first ground upon which relief is sought is that the Jersey proceeding tends to interfere with the proceedings in this Court. The existence of that power is not in doubt. It was explained in CSR Ltd v Cigna Insurance Australia Limited [1] . In their joint reasons Dawson, Toohey, Gaudron, McHugh, Gummow and Kirby JJ said [2] that courts have not only the power to prevent their processes from being abused, they have a counterpart or corresponding power to protect the integrity of those processes once set in motion. Their Honours said that the power to protect the integrity of the court's processes may be exercised where foreign proceedings interfere for have a tendency to interfere with proceedings pending in the court. And as their Honours pointed out, the power is not one to be restricted to defined and closed categories. It is one to be exercised whenever the interests of justice require, or when necessary for the protection of the court's processes.

    1. (1997) 189 CLR 345.

    2. At 391-392.

12. The reference to necessity may suggest an unduly severe test. However, in an analogous (but I think applicable) case, it has been interpreted to mean as reasonably necessary, or "subjected to the touchstone of reasonableness". See Gaudron, Gummow and Callinan JJ in Pelechowski v The Registrar, Court of Appeal (NSW) [3] .

    3. (1999) 198 CLR 435 at [51].

13. In the present case, having regard to some of the submissions put for the respondents, it is necessary to emphasise that the power does not require the actual demonstration of interference (perhaps more accurately, the demonstration of actual interference). Of course, where actual interference is shown, the paradigm situation for the exercise of the power may arise. But as the joint reasons in CSR indicate, the power may be exercised where the foreign proceedings have a tendency to interfere with proceedings pending in this Court.

14. In the present case, it seems to me, there has been shown at least the existence of such a tendency. If a winding up order is granted, there will be the statutory stay to which I have referred. And as I have said, that is what MAP or Messrs Marcou and Rose, who stand behind it, aver that they want.

15. I accept, as Mr Bender of counsel for the respondents submitted, that the effect of granting the order would be to put in the hands of a liquidator (by hypothesis, an independent officer of an independent court) the question, whether to continue with or dispose of these proceedings. However, accepting that point, there remains the fact that these proceedings will be disrupted by the statutory stay, and on any view there will be delay while the liquidator assembles the information and advice necessary to enable a decision to be taken.

16. It cannot be imagined that the effect of proceeding in the way that Mr Bender outlined would involve no additional cost. Mr Ng said, on the basis of somewhat scanty information from lawyers in Jersey, that there might be an upfront cost of the order of 50,000 pounds. Mr Bender attacked that estimate and the way it was put together. Although the precise figure may be open to doubt, it cannot be doubted, in my view, that at the very least, the appointment of a liquidator in the proceeding in Jersey will have the effect of interfering with these proceedings by delaying their prosecution, and by adding to the cost of prosecution should, ultimately, they proceed. Mr Ng said, further that he could not fund an additional (to the costs of conducting these proceedings) expense of that order.

17. Accordingly, as it seems to me, the power (the inherent power to stay to avoid interference with process) has been enlivened.

18. A number of factors were relied upon as telling against the exercise of the power. However, on analysis, I am not sure that they do so.

19. Mr Bender submitted that there would be a comity issue, because the grant of the relief sought would interfere with the exercise by the Jersey Court of the jurisdiction granted to it by statute and apparently regularly invoked. I do not think this is correct.

20. First of all, the injunction sought is not a final injunction. It is an injunction to restrain proceeding with the winding up application in Jersey until the issues in this Court are heard and decided.

21. Next, as it seems to me, the decision of this Court on the issues raised before it would not decide on a final (or indeed any) basis an issue that is properly one only for the Jersey Court. I do accept, as Mr Bender submitted, that a number of the factual issues apparently to be raised in the Jersey Court will also be raised in this Court. However, those issues seem to me to be ancillary or incidental to the fundamental question for decision, which is whether a corporation registered in Jersey and liable to be wound up in accordance with the laws of Jersey on one or other of the bases assigned for winding up, ought be wound up because the substratum of that company's business has disappeared.

22. I do accept that a decision in this Court will not be without impact on the proceeding in Jersey. For example, if the plaintiffs succeed, they will, presumably, establish that ETC has assets: namely the claim that, on the hypothesis presently under consideration, would be vindicated by a decision in their favour. But that, as I have said, does not seem to me to be an issue that is properly to be regarded as one only for the decision of the Jersey Court.

23. Although there was some suggestion that the plaintiffs had delayed in bringing the present application, I do not agree. On the other hand, I think that to the extent there is relevant delay, it is delay on the part of Messrs Marcou and Rose. As I have said, they consented to directions in this Court, and allowed the matter to move forward pursuant to those directions, for some six months before they decided to move in Jersey. It is to be noted, as one of the exhibits to Mr Marcou's exhibit makes good, that Mr Marcou had considered moving in Jersey for the winding up of ETC as long ago as February 2015. Quite why he waited from then until a couple of months ago to bring that application is something totally unexplained by the evidence. Since there was no cross-examination, I draw no adverse inference. I note, simply, that the issue of winding up has been occupying his mind (to a greater or lesser extent) for many months, but that he did not give impetus to the thoughts, by putting them into action, until six months after these proceedings had continued down their ordained track.

24. It has not been suggested that any harm, whether or not compensable by damages, would result from the grant of the orders sought. Mr Ng is prepared to give the usual undertaking as to damages. There is no need to question the worth of that undertaking because, as Mr Bender very properly conceded, it is unlikely to be called upon in any significant amount.

25. In this context, I point out that the winding up is not sought on the ground of insolvency. There is no question of the protection of rights of creditors. There is thus no need to consider whether delay in winding up, to permit the company to prosecute its claim, might have an adverse impact on the interests of creditors.

26. As I have said, the effect of the stay will be to permit the action to proceed. That is an action for the benefit of ETC. It is not being brought at ETC's costs. It is hard to see how that can be of any detriment to shareholders (except, if there are any, those whose own wrongful actions will cause them to be the losers by ETC’s success in the action).

27. For those reasons, I consider that there is no discretionary reason to refuse the jurisdiction that has been enlivened. On the contrary, I think, the circumstances that I have summarised provide good reason for its exercise.

28. Having regard to the conclusion I have just expressed, there is no need to express a concluded view on the second basis for relief. In summary, it is said that MAP, as a trustee of its shareholding in ETC for various beneficiaries pursuant to a series of bare trusts, has put itself in a position where its various duties conflict. That conflict arises because some beneficiaries want it to proceed with the winding up application whereas others have directed it not to proceed.

29. Mr Bender said that it was a question of conflict that could be resolved by some appropriate mechanism. I am prepared to concede that a mechanism may be put in place. However, in the absence of some suggestion of the nature of that mechanism (as opposed to its possible existence), I do not think that it can be said, with any degree of confidence, that the conflict can be dealt with in some satisfactory way.

30. However, since it is not necessary to express a concluded view, I will say no more.

31. The result is that the plaintiffs as applicants have made good the relevant claims for relief in the two notices of motion and I will make those orders. There remains the question of costs. Although the applicants sought costs, this seems to me to be the sort of case where the ultimate merits of the parties' conflicting positions cannot be assessed until there has been a final hearing. Accordingly, whilst I recognise that there could be said to be an "event", I think that the better approach is to defer deciding costs until the true justice of the parties' competing positions has been established: an approach which might be thought to be consistent with UCPR r 42.7. However, I will hear counsel on that point.

32. The other issue that remains to be decided, bearing in mind the orders I have said I will make, is what directions ought be given for the further conduct of these proceedings.

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Endnotes

Decision last updated: 14 December 2017