Classroom Investments Inc. v China Hospitals Inc. and China Healthcare Inc.

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 15 May 2015
• Court: Grand Court (Cayman Islands)
• Date: 15 May 2015

Grand Court, Financial Services Division

(Smellie, C.J.)

CLASSROOM INVESTMENTS INCORPORATED

and

CHINA HOSPITALS INCORPORATED and CHINA HEALTHCARE INCORPORATED

R. Levy, Q.C., N. Dunne and S. Solursh for the applicant.

Cases cited:

(1) A v. C, [1981] Q.B. 956; [1981] 2 W.L.R. 629; [1980] 2 All E.R. 347; [1980] 2 Lloyd”s Rep. 200, referred to.

(2) A.J. Bekhor & Co. Ltd. v. Bilton, [1981] Q.B. 923; [1981] 2 W.L.R. 601; [1981] 2 All E.R. 565; [1981] 1 Lloyd”s Rep. 491, referred to.

(3) Ahmad Hamad Algosaibi & Bros. Co. v. Saad Invs. Co. Ltd., 2010 (1) CILR 553; further proceedings, 2011 (1) CILR 178, followed.

(4) American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396; [1975] 2 W.L.R. 316; [1975] 1 All E.R. 504; [1975] F.S.R. 101, applied.

(5) Bank of Nova Scotia v. Emerald Seas Ltd., 1984–85 CILR 180, applied.

(6) Bankers Trust Co. v. Shapira, [1980] 1 W.L.R. 1274; [1980] 3 All E.R. 353, referred to.

(7) CPC (United Kingdom) Ltd. v. Keenan, [1986] F.S.R. 527, followed.

(8) Cancer Research UK Ltd. v. Morris, [2008] EWHC 2678 (QB), considered.

(9) Credit Suisse Fides Trust S.A. v. Cuoghi, [1998] Q.B. 818; [1997] 3 W.L.R. 871; [1997] 3 All E.R. 724; [1997] C.L.C. 1187, applied.

(10) Derby & Co. Ltd. v. Weldon (No. 1), [1990] Ch. 48; [1989] 2 W.L.R. 276; [1989] 1 All E.R. 469; [1989] 1 Lloyd”s Rep. 122, referred to.

(11) Donelly v. Karess Properties Ltd., Grand Ct., Cause No. 818 of 1997, March 12th, 1998, unreported (noted at 1998 CILR N–12), followed.

(12) ETI Euro Telecom Intl. NV v. Bolivia (Republic), [2009] 1 W.L.R. 665; [2009] 2 All E.R. (Comm) 37; [2009] Bus. L.R. 310; [2008] 2 Lloyd”s Rep. 421; [2008] C.P. Rep. 41; [2008] 2 C.L.C. 153; [2008] EWCA Civ 880, considered.

(13) Felderhoff v. Deloitte & Touche Inc., 2011 (2) CILR 35, referred to.

(14) Haiti (Republic) v. Duvalier, [1990] 1 Q.B. 202; [1989] 2 W.L.R. 261; [1989] 1 All E.R. 456; [1989] 1 Lloyd”s Rep. 111, considered.

(15) Hannice Indus. Ltd. v. Elite Union (Hong Kong) Ltd., [2012] HKCFI 413, referred to.

(16) J.P. Morgan Multi-Strategy Fund L.P. v. Macro Fund Ltd., 2002 CILR 569, referred to.

(17) Legg v. Inner London Educ. Auth., [1972] 1 W.L.R. 1245; [1972] 3 All E.R. 177, followed.

(18) Mediterranea Raffineria Siciliana Petroli S.A. v. Mabanaft GmbH, English C.A., 1978 M No. 4019, December 1st, 1978, unreported, referred to.

(19) Mediterranean Shipping Co. v. OMG Intl. Ltd., [2008] EWHC 2150 (Comm), considered.

(20) Mothercare Ltd. v. Robson Books Ltd., [1979] F.S.R. 466, referred to.

(21) Ninemia Maritime Corp. v. Trave Schiffahrts GmbH & Co. K.G., ‘The NiedersachsenWLR’, [1983] 1 W.L.R. 1412; [1984] 1 All E.R. 398; [1983] 2 Lloyd”s Rep. 600, followed.

(22) Pearson Educ. Ltd. v. Prentice Hall India PTE Ltd., [2006] F.S.R. 8; [2005] EWHC 636 (QB), referred to.

(23) Polly Peck Intl. plc v. Nadir (No. 2), [1992] 4 All E.R. 769; [1992] 2 Lloyd”s Rep 238; [1993] BCLC 187, referred to.

(24) Refco Inc. v. Eastern Trading Co., [1999] 1 Lloyd”s Rep. 159, followed.

(25) Ryan v. Friction Dynamics Ltd., [2001] C.P. Rep. 75, considered.

(26) Siskina v. Distos Cia. Naviera S.A., ‘The Siskina’, [1979] A.C. 210; [1977] 3 W.L.R. 818; [1977] 3 All E.R. 803; [1978] 1 Lloyd”s Rep 1; [1978] 1 C.M.L.R. 190, referred to.

(27) Unilever plc v. Procter & Gamble Co., [2000] 1 W.L.R. 2436; [2001] 1 All E.R. 783; [2000] F.S.R. 344, referred to.

(28) VTB Capital plc v. Malofeev, 2011 (2) CILR 420, referred to.

(29) VTB Capital plc v. Universal Telecom Management, 2013 (2) CILR 94, referred to.

(30) Walsh v. Deloitte & Touche Inc., [2001] UKPC 58, referred to.

Legislation construed:

Grand Court Law (2008 Revision), s.11A, as added by the Grand Court (Amendment) Law 2014, s.3: The relevant terms of this section are set out at para. 17.

Injunctions-Mareva injunction-aid of foreign proceedings-injunction in aid of foreign proceedings under Grand Court Law (2008 Revision), s.11A particularly justified if injunction sought in response to fraudulent behaviour-court to consider (a) reaction of foreign courts seised of dispute; (b) whether it would have granted orders sought in domestic proceedings; and (c) whether injunction inexpedient or unjust

Injunctions-Mareva injunction-dissipation of assets-fraudulent behaviour by defendant to injunction sufficient to establish risk of dissipation of assets-ordinarily necessary to show that defendant likely to engage in activities outside ordinary course of business to remove assets from jurisdiction

The plaintiff sought an injunction preventing the defendants from disposing of their assets and an order requiring them to disclose the location of their assets.

The plaintiff company agreed to pay US$175m. for shares in the first defendant prior to an IPO. The first defendant agreed that the money would be used to expand its operations in China, and warranted that it had entered agreements to acquire a number of hospitals. Subsequently, the plaintiff discovered that the money had been used by the second defendant (a company connected with the first defendant, but in which the plaintiff had no interest) to purchase the hospitals, and no initial public offering (‘IPO’) of the first defendant was intended.

The plaintiff commenced proceedings in Hong Kong seeking various remedies from the defendants and others, and obtained injunctions from the High Court preventing the defendants from disposing of any assets and requiring them to disclose the whereabouts of the US$175m. paid to the first defendant. However, the Hong Kong court had no personal jurisdiction over the defendants as they were registered in the Cayman Islands, and the plaintiff therefore made the present ex parte application to the Grand Court seeking identical orders to those sought in Hong Kong in aid of actions to remedy fraudulent misrepresentation, breach of contract and unlawful means conspiracy.

The plaintiff submitted that (a) the court had jurisdiction under the Grand Court Law (2008 Revision), s.11A to make the orders sought as they were in aid of foreign proceedings; (b) in applications concerning fraudulent behaviour the court should readily exercise its jurisdiction and grant injunctions; (c) the injunctions and orders sought should be granted as it had an arguable claim, an award of damages would be inadequate as the defendants did not have sufficient assets, damages would be an adequate award to compensate the defendants for any loss caused by the injunctions, and, further, the defendants were likely to dissipate their assets in order to prevent the plaintiffs gaining access to them; (d) an ex parte application was justified in order to prevent the defendants from dissipating their assets prior to a court order; and (e) any delay in seeking injunctive relief was justified as it resulted from a contractual consultation period and attempts to resolve the dispute with the defendants.

Held, granting the injunctions:

(1) It was expedient, just and convenient that the injunctions and orders sought should be granted. Section 11A of the Grand Court Law (2008 Revision), which allowed the court to make an order in aid of foreign proceedings, was engaged as proceedings had been commenced outside the Cayman Islands and could give rise to a judgment enforceable in the Cayman courts. In applying s.11A of the Law, English case law on the ambit of s.25 of the Civil Jurisdiction and Judgments Act 1982 was of assistance, and indicated that the court should be cautious, but not reluctant, to exercise its jurisdiction, and should consider (a) the reaction of any foreign court seised of the dispute; (b) whether it would have granted the order sought if proceedings had been initiated within the jurisdiction; and (c) whether it would be inexpedient or unjust to grant the order or injunction. These considerations indicated that the court had jurisdiction as the Hong Kong court itself had approved of proceedings being brought in the Islands and the court was best placed to make the orders sought as the defendants were Cayman-registered companies. Further, the dispute concerned fraudulent behaviour involving the misappropriation of US$175m., and the court should be ready to use its powers to assist the victim of such a fraud. The fact that the defendants might not have assets in the Cayman Islands did not prevent the court from making the orders sought, particularly as the plaintiff sought disclosure of the location of the defendants” assets (paras. 37–44).

(2) An injunction would be granted restraining the first defendant from disposing of its assets as (i) the plaintiff clearly had an arguable case that it should have a proprietary remedy, and would in fact be likely to succeed at trial; (ii) any loss caused to the first defendant by the injunction would be compensable in damages; and (iii) the plaintiff would not be adequately compensated by an award in damages as it was unclear that the defendants had adequate resources to meet any award made against it. Further, as the remedy sought against the first defendant was proprietary, strong measures were justified to ensure that the plaintiff”s assets would be dissipated.

In addition, it would be justified to order the first defendant to disclose the location of its assets in order to allow the plaintiff to trace its assets (para. 47; paras. 51–53).

(3) A worldwide injunction preventing the second defendant disposing of its assets would also be granted as the plaintiff had an arguable case for damages and it was highly likely that the second defendant”s assets would be dissipated and moved out of the jurisdiction, particularly given the defendant companies” seemingly fraudulent practices, making it likely that any award against the plaintiff would not be satisfied. A worldwide order was justified when a plaintiff had a good arguable case for damages, there was a real risk of dissipation of the defendant”s assets and those assets which were within...