Contentious CommentaryHong Kong

Family feud ..................................................................................................................... 3

Delay can be costly ........................................................................................................ 3

A constitutional question .............................................................................................. 3

Show me the money....................................................................................................... 4

Pushing the boundaries ................................................................................................. 4

Bye bye baby ................................................................................................................... 5

No show is no defence................................................................................................... 5

Advertising adversaries.................................................................................................. 6

Guaranteed win............................................................................................................... 7

In the public interest....................................................................................................... 7

Fax and figures................................................................................................................ 7

Contacts........................................................................................................................... 8cont

ents

Family feudSuccessful claim in longrunning property disputeYang Foo Oi v Wai Wai Chen [2016]HKEC 2583 concerned the distribution ofsignificant family properties by the latefounder of Nan Fung Group, a majorHong Kong property developer, back in2004. The plaintiff’s daughter enteredinto agreements with the plaintiff wherebythe plaintiff would receive cash in lieuof properties.

The plaintiff asked for these agreementsto be set aside, on the grounds ofmisrepresentation, breach of fiduciaryduty and duty of full disclosure underfamily arrangements, as well as undueinfluence, primarily because the defendant(daughter) failed to disclose to the plaintiff(mother) the true value of the assets andthe extent of their appreciation. The caseinvolved prime properties in Hong Kongand London valued at over HK$ 20 billion(over US$ 2.5 billion).

The Court granted the plaintiff equitablecompensation of more thanHK$ 8 billion (over US$ 1 billion) or anaccount of profits. Clifford Chance actedfor the successful plaintiff in a trial whichbecame a hotly contested battleinvolving several complicated legalissues, as highlighted by the judge,Anthony Chan J.

Delay can be costlyCourt of Appeal upholds needfor speedy finality in arbitralenforcementThe Court of Appeal in Astro NusantaraInternational BV v PT Ayunda Prima Mitra[2016] HKEC 2633 upheld the importanceof speedy finality in the context ofenforcement of arbitration awards, anddismissed the appellant’s appeal againstthe lower court’s decision handed down inFebruary 2015. Clifford Chance acted forthe successful respondents in the appeal.

The Court declined to extend time for theappellant to apply for setting aside certainHong Kong judgments and ordersenforcing Singapore arbitration awards infavour of the respondents. The Court saida more disciplined approach was calledfor in the arbitration context, with itsemphasis on rapidity and short statutorytime limits. The time allowed for a party toapply to set aside an order to enforce anaward was 14 days. The 14-month delay– coupled with the deliberate calculatedinaction on the part of the appellant – wasunacceptable. No English or Hong Kongcases had been cited in which this sort ofdelay had been excused in theenforcement of a Convention award.

The Court of Appeal also consideredwhether the appellant was precluded by theprinciple of “good faith” from relying onsection 44(2) of the Arbitration Ordinance

(Cap 341) (as it was then), to resistenforcement of the Singapore arbitrationawards. The section sets out circumstancesin which enforcement of a Convention awardmay be refused, including where thearbitration agreement is not valid or dealswith a difference not falling with the scope ofthe arbitration itself. Holding in favour of theappellant, the Court emphasised theimportance of the decision of the supervisorycourt of the seat of arbitration whenconsidering the conduct of the arbitration.The Court accepted the appellant’sarguments that as a matter of Singapore law,the law of the seat of arbitration, theappellant was entitled to act in the way it did.

The Court also noted that where a partyhad concealed its objection before thearbitral tribunal and carried on with thearbitration, it would be likely that a breach of“good faith” could be invoked. However theCourt also cautioned against applying theprinciple too rigorously whenever there is afailure to take positive steps to invalidate anarbitral award at the seat of the arbitration.

A constitutionalquestionCourt of Appeal rejects oathtakers’ bid to re-take the pledgeThe Court of Appeal in HKSAR v Presidentof Legislative Council [2016] HKEC 2587dismissed the appeals of Sixtus LeungChung Hang and Yau Wai Ching, upholdingthe decision of the court below that their

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refusal to take the oaths as prospectivemembers of the Legislative Council (LegCo)in accordance with the requirements of theOaths and Declarations Ordinance Cap.11and Article 104 of the Basic Law, meantthey should be disqualified from taking theirseats in LegCo. The Court of Appeal ruledthat it was plain from their actions thatneither Leung nor Yau intended to upholdthe Basic Law of the HKSAR or bearallegiance to the HKSAR – both elementsbeing mandatory parts of the LegCo oath.

Much of the Appeal Court’s analysis wasfounded on the constitutional supremacyof the Basic Law. It ruled that the questionof whether key constitutional requirementshad been complied with were matters overwhich the Hong Kong courts had thepower and the responsibility to decide.That said, the Court of Appeal didconsider the interpretation by the StandingCommittee of the National People’sCongress (the Standing Committee) of thetrue meaning of Article 104, given earlier inNovember (the NPC Interpretation). TheCourt noted that the NPC Interpretation“sets out the true and proper meaning ofArticle 104 from day one.”

Notwithstanding the Standing Committee’sreadiness to involve itself in a politicallysensitive issue, the Hong Kong courts haveconfirmed their own powers and duties torule on this matter under Hong Kong’s“one country, two systems” Basic Lawregime, whilst also coming to a similarconclusion as did the Standing Committee.Leung and Yau have said they will appealto the Court of Final Appeal.

Show me the moneyBank allowed to debit clientaccount after email fraud The plaintiff in Fast Track Holdings Ltd vBOCI Securities Ltd [2016] HKEC 2212

applied for continuation of an ex parteinjunction restraining the defendant fromdebiting the plaintiff’s account for anamount equivalent to the price of sharesthat had been fraudulently purchased byhackers who had gained access to theplaintiff’s securities account. Whilst theplaintiff had immediately sought and wonan injunction preventing the defendantfrom making settlement for the shares,the action came too late to preventCCASS from making settlement ofthe share transaction with some76 intermediaries. As a result, thedefendant had to use its own house fundsto settle the transactions with CCASS.

The defendant pointed to clauses withinits customer agreement that would allowit to act on “instructions given by you…orany other person purporting to be you”.Anderson Chow J sitting in the CFI ruledthat the plaintiff would suffer no prejudiceif the defendant were allowed to debit theaccount and contrasted that with thedetriment caused to the plaintiff by theenforced decrease in its liquidity ratio.The Court ruled that damages would bean adequate remedy for the plaintiff andthat the balance of convenience stronglyfavoured the non-continuation of the exparte order against the defendant.

Pushing theboundariesTwo significant decisions incross-border insolvency In the continued absence of any statutoryregime for cross-border insolvencyrecognition in Hong Kong, two recentdecisions of Mr Justice Harris in the Courtof First Instance have provided guidanceto liquidators in this developing area.

In Joint Provisional Liquidators of BJBCareer Education Company Limited(in provisional liquidation) v XuZhendong [2016] HKEC 2516, Harris Jconfirmed that the powers of the HongKong court to assist foreign regulatorsof companies incorporated overseasextend to ordering the oral examinationof an officer of a foreign company orother persons in possession ofinformation which the foreign liquidatorrequires to conduct properly hisinvestigations into the company’s affairs.This would be the sort of order that inthe domestic context would be madepursuant to section 221 of theCompanies (Winding Up andMiscellaneous Provisions) Ordinance,Cap 32.

A few days earlier, Harris J had givena judgment in Bay Capital Asia LP vDBS Bank (Hong Kong) Ltd [2016] HKEC2377, in which the liquidators ofa Cayman Islands-incorporated companyapplied amongst other things for an orderrecognising their appointment. Harris Jsaid if a bank receives a request forinformation from liquidators of a companywhich has an account with them – andthe bank is satisfied that the liquidatorshave been properly appointed – theyshould hand over documents to whichthe directors of the company would havebeen entitled without requiring a HongKong court order.

In practice, given their duty ofconfidentiality to their clients, banks willneed to feel comfortable that theliquidators have been properlyappointed, particularly if the liquidator inquestion has not been appointed by thecourt but rather voluntarily. Banks maytherefore find themselves, whenpresented with requests for assistancefrom foreign liquidators, facing trickypractical issues, despite the Court’sguidance in Bay Capital.

Bye bye babyCourt rules no commonintention in loan agreementThe plaintiff life insurance company inFTlife Insurance Co Ltd v Choy Hou YanJacqueline [2016] HKEC 2348 soughtrepayment of what it claimed wasa HK$3 million loan it had given to aneighteen-year old school girl who hadbeen appointed a self-employed agent ofthe plaintiff to sell long term insurance.The defendant, Jacqueline, was thedaughter of a Madam Choy, who rana successful business arranging forwealthy pregnant women from the

PRC to come to Hong Kong to give birth.The business dried up in 2014 followinga change in the law.

In evidence, it became clear the insurer’sreal interest was to access MadamChoy’s business connections as potentialpurchasers of life assurance. DeputyJudge Field sitting in the CFI acceptedJacqueline’s evidence that she signed theloan agreement, an agency agreementand one other in order to help her motherearn commission. The Court found thethree agreements were mere windowdressing to give the appearance ofsatisfying the plaintiff’s regulatory andinternal requirements. There was nointention to create legal relations.“Jacqueline was just a piece on the chessboard to be moved into a position byher mother, with the connivance of theplaintiff, that would allow (their) mutualambitions to be realised without Madam

Choy having to enter into an Agent’sContract”. The Court found theagreement was unenforceable against thedefendant and dismissed the claim.

No show isno defencePRC defendant loses contractcase in his absenceAt the opening of the trial (whichconcerned monies payable under analleged joint venture) the seconddefendant, Mr Chen, asked his counsel toapply for an adjournment of three monthsas he did not have permission to come toHong Kong from the PRC to attend thetrial. The parties in Noble Field OverseasLtd v United Best Developments Ltd[2016] HKEC 2394 had had notice of thedate of the trial for ten months.

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Deputy Judge Field sitting in the CFIrefused the application, following whichcounsel for Chen told the Court that therewas to be no cross-examination of theplaintiff’s witnesses, none of Mr Chen’s ownwitnesses were to be called; there wouldbe no submissions as to the facts or thelaw advanced by Mr Chen; and the writtenopening submissions that had been servedby Mr Chen pre-trial were withdrawn.The Court gave judgment to the plaintiff.

The Court found that Mr Chen’snon-appearance at the trial was entirelyof his own doing and that he haddeliberately brought about a situation thatmade it impossible for him to attend thetrial. Deputy Judge Field suspected thatChen’s instructions “not to challenge theplaintiff’s case evidentially or legally (was an)endeavour to render the inevitablejudgment in the plaintiff’s favourunenforceable outside Hong Kong ina jurisdiction where Mr Chen has assetssusceptible to execution”. If this was indeedMr Chen’s plan, it ought to fail. The Court’sjudgment was “as deserving to be enforcedoutside Hong Kong as it would be ifMr Chen had fully participated in the trial.”

AdvertisingadversariesHong Kong companylaw overridesjurisdictional concernsJoseph Ghossoub v Team Y&R HoldingsHong Kong Ltd [2016] HKEC 2332

The respondents (Team Y&R Holdings,Cavendish Square Holding BV, Young &Rubicam International Group BV andWPP PLC) applied for stay of a petitionpresented in April 2015 on the groundsthat the allegations in the petition giverise to issues which the petitionersupposedly agreed should be referred tothe exclusive jurisdiction of England &Wales. The petitioner held 20% of theshares in a joint venture company, withthe other shareholders being Cavendish,Young & Rubicam and Talal EliasMakdessi. In 2008, the parties enteredinto agreements restructuring theinterests in the company. The partiesthen became embroiled in proceedingsin England.

Meanwhile, the petitioner broughtproceedings in Hong Kong pursuant tosection 724 Companies Ordinance, Cap622, claiming unfairly prejudicial conductof the company by WPP, Cavendish andYoung & Rubicam and seeking a buyoutof his shareholding. The respondentsand WPP filed anti-suit proceedings inEngland and sought to restrain thepetitioner from pursuing theHong Kong proceedings.

Deputy Judge Le Pichon in the Court ofFirst Instance ruled that the fact that allthe shareholders decided to incorporatethe company in Hong Kong meant thatthe company and its operations would besubject to the provisions of Hong Kongcompany law. Whilst it was undesirable tohave multiple proceedings on the same orsimilar issues in different fora, situationscould arise where this could not beavoided. The petitioner would not be ableto obtain substantial justice in the Englishcourt if he were to have his complaintsaired in the substantive Englishproceedings. The Court refused theapplication for a stay.

Guaranteed winNo obligation for bank to pursuedebtors before guarantorThe defendant in Standard Chartered Bank(Hong Kong) Ltd v Pak Kwan Ho [2016]HKEC 1848 appealed against a June 2016order granting summary judgment to thebank for HK$16 million in respect of hisliability as a guarantor under threeguarantees for the payment of debts due tothe bank by four principal borrowers. Thedefendant was a director of the borrowers.The guarantee contained a provision thatthe guarantor expressly waived any right hemight have to require the creditor to firstproceed against the principal borrowers.The Court said that such a clause is aperfectly normal provision in a guaranteeand rejected a defence that the bank shouldfirst obtain judgment against the principalborrowers before pursuing the defendant.

The defendant was required to giveparticulars if it were to suggest that anypart of the plaintiff’s claim was not owed bythe defendant. The defendant’s responsedid not even amount to a general denial.The fact the defendant was not legallyrepresented at the hearing before theMaster was no defence at all. The Courtfound the defendant had failed to show(i) any arguable defence; (ii) any otherissue, question in dispute which ought tobe tried; or (iii) any other reason for there tobe a trial, and dismissed the appeal.

In the public interestCreditor’s petition can bere-amended to includesubsequent debtsThe Court of Appeal in Hin-ProInternational Logistics Ltd [2016] 5 HKLRD282 considered the position of a petitionerwho commenced winding-up proceedings

against the company, Hin-Pro, based onan unsatisfied costs order which wassubsequently discharged. The petitionersought leave to re-amend the petition bysubstituting, in place of the original debt,a number of outstanding debts arisingfrom judgments and orders which accruedafter the date of the petition. The Courtwas asked whether the Eshelby rule,under which a court may not amend a writwithout the consent of the parties, appliedto a creditor’s petition.

The Court said that the rule, which wasa matter of practice not of law, did notapply to a creditor’s winding up petition as itasserted a class remedy on behalf of all thecompany’s creditors. It was in the publicinterest that an insolvent company not beallowed to continue to trade. There wasnothing in the relevant provision of theCompanies (Winding-up) Rules or RHCO.20 which precluded the court’s discretionto allow a creditor’s winding-up petition tobe amended to include post-petition debts.A rigid insistence on requiring a freshpetition for each subsequent debt as andwhen it arose would result in multiplicity ofproceedings, unnecessary waste of costs,time and the Court’s resources.

The situation involving a creditor’s positionwas distinct from a petition under s.168Aand a winding-up petition presented bya shareholder on the just and equitable

ground, where the public interest elementwas seldom present.

Fax and figuresCourt of Appeal lays down thelaw for litigants in personThe defendant in AXA China RegionInsurance Co Ltd v Leong Fong Cheng[2016] HKEC 2327 relocated to Thailandbut failed to provide a Hong Kongaddress for service when lodging anappeal against a May 2016 civil judgment,providing only an unspecified postaladdress in Thailand and a Hong Kong faxnumber. On 11 August 2016, the Courtmade an order directing her to providea Hong Kong address for service.

Whilst sending documents to the otherside by fax does not normally constitutegood service, the Court of Appeal in thisinstance made an order for substitutedservice upon the defendant by fax, giventhe difficulties inherent in serving process inThailand. The Court also noted its view thatthe time had come for the court to“reinstate firmly the proper proceduraldiscipline” in cases involving litigants inperson. All litigants had to abide by therules and procedures that are in place, andnot bother the Court with lengthy and timeconsuming correspondence.

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