Classroom Investments Inc. Plaintiff/Applicant v (1) China Hospitals, Inc. (2) China Healthcare Inc. Defendants/Respondents
|The Hon. Anthony Smellie
|15 May 2015
|Grand Court (Cayman Islands)
|CAUSE FSD 64 OF 2015 (ASCJ)
|15 May 2015
The Hon. Anthony Smellie, CHIEF JUSTICE
Mr. Robert Levy QC, instructed by Mr. Nicholas Dunne of Walkers (with them Mr. Solursh, in-house counsel to the Ontario Teachers” Pension Plan (‘OTPP’), owner of Classroom Investments Inc.)
Injunctive and disclosure orders granted as protective measures in aid of foreign proceedings — statutory jurisdiction to make such orders -applicable principles.
This is an application by the Plaintiff (‘Classroom’) for injunctive relief against the Defendants (‘Hospitals’ and ‘Healthcare’) in aid of proceedings instituted in Hong Kong against them (and other defendants).
The application is made pursuant to the recently enacted section 11A of the Grand Court Law 1 which places on a statutory footing the jurisdiction of this Court to grant interim relief in aid of foreign proceedings 2.
It is believed that these are the first proceedings under section 11A and so I provide these written reasons for my decision to grant the relief sought.
The evidence filed in this matter is substantial and is presented under cover of an affidavit from Jeffrey Michael Davis, a director and General Counsel of Classroom.
A brief summary of the issues as he presents them will nonetheless suffice for setting the context for the application.
Classroom is a wholly owned subsidiary of OTPP, described by Mr Davis as one of the world's largest pension funds. In late January 2014, in return for a payment to Hospitals of USD175 million, (the ‘subscription monies’); Classroom (a) purchased certain shares in Hospitals from a company owned by a Dr. Chuanping Frank Hu (‘Dr. Hu’), and also subscribed directly for further shares in Hospitals.
The documents executed as part of the January 2014 transaction (the ‘2014 Transaction Documents’) gave certain representations and warranties as to the assets owned by Hospitals (namely certain hospitals in mainland China (‘the PRC’) and contained provisions whereby Hospitals was to use the subscription monies towards acquiring other hospitals operating in the PRC. In that regard, Hospitals represented and warranted that it had entered into binding agreements to acquire those other hospitals (the ‘new hospitals’).
The 2014 Transaction Documents contained a provision whereby within 30 months, the various shareholders in Hospitals would use their best endeavours to achieve an Initial Public Offering of Hospitals; either on the Hong Kong Stock Exchange (‘HKSE’) or the New York Stock Exchange (‘NYSE’).
Sometime after entering into the transaction, Classroom made a number of very disturbing discoveries. The essence of the discoveries is that far from Hospitals”subsidiaries having entered into binding contracts to acquire the new hospitals, in fact companies which came to form part of the Healthcare structure (which is a structure ultimately owned and controlled by Dr. Hu that is entirely separate from and parallel to the Hospitals structure, and in which Classroom has no shares) had entered into contracts to acquire the new hospitals (and purported to have completed on such purchases). Further, Classroom discovered that rather than preparing for an IPO of Hospitals, the intention was to arrange an IPO of Healthcare.
So the upshot, as argued by Classroom, is that Classroom invested a total of US$175 million in the belief (as represented and warranted by various entities) that Hospitals owned various hospitals and would acquire the new hospitals, and that Hospitals would be the subject of an IPO, only to find that its money has been used to enable companies in the Healthcare structure, in which Classroom has no interest whatsoever, to acquire the new hospitals.
On 6 May 2015, Classroom commenced its proceedings in the High Court in Hong Kong against numerous defendants (including Hospitals and Healthcare) seeking various proprietary and/or personal relief against Hospitals and Healthcare 3 and a number of their direct and indirect subsidiaries. A copy of the Writ is exhibited to Mr. Davis” affidavit.
Also on 6 May 2015, Classroom sought and obtained an ex parte injunction from the Honourable Mr Justice P. Li in the High Court in Hong Kong. This is injunctive relief which restricts various of the defendants in the Hong Kong Proceedings from disposing with their assets (in certain cases on a worldwide basis) and requires them to provide certain information to Classroom. The Hong Kong Order is also exhibitedto Mr. Davis” affidavit. The Hong Kong Order provides for a return day on 16 May 2015 (unless varied or discharged in the meantime). That Order also granted Classroom permission to issue a concurrent writ and to serve it, and the Hong Kong Order, in Cayman 4.
However, the High Court in Hong Kong does not have personal jurisdiction over either Hospitals or Healthcare, both of which companies are incorporated in Cayman, and accordingly, Classroom now seeks relief from this Court in aid of the Hong Kong proceedings against those companies which are subject to the jurisdiction of this Court. As explained by Mr. Levy, the freezing relief sought by Classroom is intended to ensure that the structures put in place from the time of the January 2014 transactions and thereafter, remain in place pending the determination of the Hong Kong proceedings. Such relief is designed to protect Classroom's tracing claims, and ensure that the structure that Classroom has been told exists (as described at paragraphs 9 and 10 above) remains in situ pending that final determination.
Further, an important part of the relief Classroom seeks is the disclosure of information from Hospitals and Healthcare. This relief, Mr. Levy submits, is most appropriately sought in the ‘home’ Court of those Defendants (i.e. the Cayman courts).
From that summary of the factual background, it is plain that Classroom's case is one based upon allegations of fraud — the fraudulent misrepresentations as to the intended application and the alleged misappropriation of the subscription monies.
The juridical purpose of the powers now codified in statute by section 11A was succinctly explained by Millet LJ (as he then was), referring to the equivalent English provision in section 25 of the Civil Jurisdiction and Judgment Act, 1952 (the ‘English Act’) 5:
‘The jurisdiction of national courts is primarily territorial, being ordinarily dependent on the presence of persons or assets within their jurisdiction. Commercial necessity resulting from the increasing globalization of trade has encouraged the adoption of measures to enable national courts to provide assistance to one another, thereby overcoming difficulties occasioned by the territorial limits of respective jurisdictions….
A court which is invited to exercise its ancillary jurisdiction to provide assistance to the Court seized of the substantive proceedings need feel no reluctance in supplying a want of territorial jurisdiction but for which the other Court would have acted. But it should be very slow to grant relief which the primary Court would not have granted even against persons present within its own jurisdiction and having assets there. Assisting a foreign Court by supplying a want of territorial jurisdiction is plainly within the policy of the Act; assisting plaintiffs by offering them a lower standard of proof is not obviously within the legislative policy. I recognise, however, that the dividing line may sometimes be hard to draw, and that the distinction is not by any means necessarily decisive. I do not wish to be understood to becircumscribing a valuable jurisdiction, but rather, to be indicating matters relevant to be taken into account when the Court is invited to exercise it. ‘
With that framework in mind, section 11A must be construed and provides (in relevant part) as follows:
‘(1) The Court may by order appoint a receiver or grant other interim relief in relation to proceedings which –
(a) have been or are to be commenced in a court outside of the Islands; and
(b) are capable of giving rise to a judgment which may be enforced in the Islands under any Law or at common law.
(2) The Court may, pursuant to this section, grant interim relief of any kind which it has power to grant in proceedings relating to matters within its jurisdiction.
(3) An order under subsection (1) may be made either unconditionally or on such terms and conditions as the Court thinks fit.
(4) Subsection (1) applies notwithstanding that –
(a) the subject matter of those proceedings would not, apart from this section, give rise to a cause of action over which the Court would have jurisdiction; or
(b) the appointment of the receiver or the interim relief sought is not ancillary or incidental to any proceedings in the Islands.
(5) The Court may refuse an application for the appointment of a receiver or the grant of interim relief if in its opinion, it would be unjust or inconvenient to grant the application.
(6) In exercising the power under subsection (1), the Court shall have regard to the fact that the power is –
(a) ancillary to proceedings that have been or are to be commenced in a place outside the Islands; and
(b) for the purpose of facilitating the process of a court outside the Islands that has primary jurisdiction over such proceedings. ….
(7) The Court has the same power to make any incidental order or direction for the purpose of ensuring the effectiveness of an order granted under this Section as if the order was grated in relation to proceedings...
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