Zhao Long v Endushantum Investments Company Ltd, Lunan Pharmaceutical Group Corporation v Zhao Long
| Jurisdiction | British Virgin Islands |
| Judge | Jack, J |
| Judgment Date | 17 March 2022 |
| Neutral Citation | VG 2022 HC 018 |
| Judgment citation (vLex) | [2022] ECSC J0317-3 |
| Docket Number | CLAIM NO. BVIHC (COM) 2017/0151 |
| Court | High Court (British Virgin Islands) |
EASTERN CARIBBEAN SUPREME COURT
IN THE HIGH COURT OF JUSTICE
(COMMERCIAL DIVISION)
CLAIM NO. BVIHC (COM) 2017/0151
CLAIM NO. BVIHC 2017/0125
AND BY COUNTERCLAIM
AND BY ANCILLARY CLAIM
Mr. Tom Lowe QC, with him Mr. Christopher Bromilow of Forbes Hare for Endushantum Investments Co Ltd
Mr. Oliver Clifton, Ms. Meenaa Azmayesh and Ms. Yegâne Güley of Walkers BVI in a watching brief for Ms. Zhao
Mr. Stephen Rubin QC, with him Ms Laure-Astrid Wigglesworth of Appleby (BVI) Ltd for Lunan Pharmaceutical Group Corporation
Jack, J [Ag.]: I heard the trial in this matter over thirteen days in March of 2021. I gave judgment on 20 th July 2021. 1 This judgment should be read in conjunction with that substantive judgment. I shall use the same shorthand for the various protagonists as I used in it.
This judgment deals with three issues. Firstly, on 14 th September 2021 I gave Endushantum leave to issue an ancillary claim under CPR 18.4(2) against Lunan. In accordance with CPR
18.5(2), I directed that the ancillary claim be served on Lunan's legal representatives, Appleby. That application was determined ex parte. This is the return date on the application. Lunan challenges both Endushantum's ability to bring its ancillary claim against Lunan and the order for service on Appleby. Lunan by application of 20 th October 2021 also applies to set aside the grant of leave to bring an ancillary claim and the order in respect of service. This challenge is now made on three bases. (a) The existing action is at an end, so it is too late to bring an ancillary claim. (b) This Court has no jurisdiction under CPR 7.3 to try the causes of action in the ancillary claim and should in any event decline to do so on forum conveniens and lis alibi pendens grounds. (c) Lunan has not been validly served with the ancillary claimSecondly, by application dated 7 th January 2022 Endushantum seeks summary judgment on the ancillary claim against Lunan.
Thirdly, Lunan sought an extension of time to the end of March 2022 for payment of the interim costs order which I made as long ago as 14 th September 2021 in the sum of US$2 million. I had already by order of 2 nd December 2021 extended time for payment to 1 st February 2022. In the event the parties agreed that I should make a final order giving Lunan until the end of March 2022 to make the payment with interest. It is noticeable that, although Lunan asserted that its bank in China was putting up difficulties with making a foreign payment, it produced no documentary evidence from the bank to that effect.
In order to deal with these issues, it is necessary to set out some facts beyond those in the July judgment. It will be recalled that latterly Endushantum held 25.7 per cent of the shares of Lunan, 25 per cent of the shares in Shandong NT (which in turn held 100 per cent of the shares in Hope and Better) and 25 per cent of the shares in Biotech. (I shall call these shares in Lunan, Shandong NT and Biotech “the PRC shares”.) On 5 th February 2021 the Lunan shares and on 9 th February 2021 the Shandong NT and Biotech shares were transferred to Berpu and Provision.
On 5 th December 2019, Lunan issued proceedings against Endushantum before the Intermediate People's Court of Linyi City. That Court gave judgment on 3 rd April 2020. The operative part of the judgment is in these terms:
“the litigation request by the plaintiff for recognizing release of the relationship of entrusted shareholding between both parties shall be established, it [the release] is recognised by our court…”
The Linyi Court did not make any order that Endushantum transfer the shares to Lunan or to Lunan's order. Instead the judgment consists of, what we would procedurally call, a declaration.
Following the judgment, there was a Court-supervised “mediation” between Lunan (with Zhang Guimin as its legal representative) and Endushantum (with Mrs. Wei as its legal representative). This resulted in a written “enforcement agreement”, signed on 9 th January 2021 by Zhang Guiman and on 18 th January 2021 by Mrs. Wei. So far as material it reads (in not very good translation) as follows:
“In respect of the case of application for enforcement made by Lunan. the applicant for enforcement according to (2019) Lu 13 Min Chu No.773 the Civil Judgment against Endushantum. the person subject to enforcement, both parties under mediation hosted by Linyi Intermediate People's Court have reached the following enforcement of settlement agreements:
1. The person subject to enforcement undertakes that before 1 May 2021, 21 million shares of equity interest that it held in Lunan. the applicant for enforcement shall be made transfer in the names of Berpu. and/or Provision. as designated by the applicant; of which Berpu shall be transferred 12.8288 million shares, Provision shall be transferred 8.1712 million shares. If such equity interests are unable to register and make transfer in the names of the above companies, the person subject to enforcement consents that as per the instruction of the applicant, the above equity interests shall be made transfer in the names of other companies as further instructed by the applicant.
2. [A similar provision in respect of the Shandong NT and Biotech shares.]
3. The person subject to enforcement authorizes Qiaofeng Du. as an agent being entrusted for administering all of the relevant procedures in the course of the transfer of equity interest.
4. Within thirty (30) days upon signing of this agreement, the applicant for enforcement consents to pay the person subject to enforcement the disbursement and management fees during the period of equity interest being held by entrust in a total of RMB323,200.00.
5. The enforcement fee of this case and the acceptance fee of the original case shall be assumed by the applicant.
6. This agreement for settlement is an agreement for enforcement of settlement reached on the basis of the principle of voluntary of both parties and under the host of Linyi Intermediate People's Court, and shall become effective since the date of signing or seal affixed by both parties on the agreement.”
On 22 nd January 2021, the Linyi Intermediate People's Court made what is described as an “enforcement ruling”. (Lunan plead it as the “termination judgment”.) This provided:
“In the enforcement proceeding in relation to the dispute over the entrustment contract between Lunan… and the party subject to enforcement, British Virgin Islands Endushantum…, the Civil Judgment ( [2019] Lu 13 Min Chu No.773) rendered by the Linyi Intermediate People's Court has come into force, and the enforcement proceeding has been carried out by this Court on January 11, 2021. Through mediation, the Applicant, Lunan. and the party subject to enforcement, BVI Endushantum entered into the settlement agreement on enforcement of the judgment. When the settlement agreement is being performed, the Applicant for enforcement submitted to this Court in written form to withdraw its application for enforcement.
NOW, THEREFORE, in accordance with Items (1) and (6) of the Civil Procedure Law of the People's Republic of China, the rules are as follows:
Terminate the enforcement proceeding of (2021) Lu 13, Zhi No. 64.
This ruling shall take effect immediately upon service.”
It will be recalled that the Linyi judgment and the fact of the transfer of the PRC shares held by Endushantum to Berpu and Provision were only disclosed shortly before the trial held before me in March 2021. No explanation was given for the late disclosure of that judgment or the documents submitted to the Linyi court in that case. Nor has any apology been forthcoming for what was on any view a serious breach of Lunan's and Endushantum's disclosure obligations. It was also a gross breach of undertakings given in correspondence by Endushantum's lawyers in 2017 whereby Endushantum promised not to part with the PRC shares. The late disclosure of the Linyi judgment and the breach of the 2017 undertakings, however, was not the end of their deliberate non-disclosures. At the time of the trial, neither Lunan nor Endushantum (which at that time was still under the control of Mrs. Wei) had disclosed the enforcement agreement or the enforcement ruling. These documents were only disclosed under cover of a letter from Appleby of 30 th August 2021. Again this appears to be a deliberate and flagrant breach of the disclosure obligations of Lunan and those then having control of Endushantum. Again no explanation or apology has been forthcoming.
The April 2020 judgment in the Linyi proceedings and the share transfers were disclosed only shortly before the trial was due to commence before me. This led to timetabling difficulties. In particular, Ms. Zhao (assuming she won on the merits) would want an order that the shares transferred by Endushantum to Berpu and Provision be transferred back to Endushantum. Until she won at trial this could only have been done by Ms. Zhao bringing derivative proceedings in the name of...
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