Great Future International Ltd and Others v Sealand Housing Corporation ((in Liquidation)) and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lightman |
| Judgment Date | 03 December 2002 |
| Neutral Citation | [2002] EWHC 2454 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC2000 00718 |
| Date | 03 December 2002 |
[2002] EWHC 2454 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Lightman
Case No: HC2000 00718
Mr Leslie Kosmin QC and Mr James Potts (instructed by Messrs Eversheds, Senator House, 85 Queen Victoria Street, London EC4V 4JL) for the Claimants
Mr A Connerty (instructed by Messrs Magwells, 6 Angel Gate, City Road, London EC1V 2PB) for the Defendants
Hearing dates: 11 th—29 th July. 24 th—30 th October and the 4 th November 2002
Judgment 3 rd December 2002
———
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
………………………………………………….
| PART I | INTRODUCTION OVERVIEW LIST OF ISSUES BETWEEN THE PARTIES | Paragraph(s) 1 – 13 14 – 16 |
| PART II | ISSUES OF LAW NON-ISSUE OF MEASURE OF DAMAGES THE VALUATION DATE GENERAL PRINCIPLES CONSENT ORDER MITIGATION PLEADING—ALL OR NOTHING | 17 18 19 10 – 30 31 – 37 38 39 – 42 |
| PART III | CRITICAL DOCUMENTS THE USA LAND CONTRACTS | 43 44 – 50 51 – 53 |
| PART IV | EVIDENCE WITNESSES OF FACT (1) Claimants' witnesses of fact (2) Defendants' witnesses of fact EXPERT WITNESSES DefendantS' APPROACH TO THIS LITIGATION | 54 – 76 77 – 94 95 – 96 97 |
| PART V | THE INDIVIDUAL ISSUES CONTEMPT—INTERFERENCE WITH MR BROOKE DEFAULT OF DIRECTORS IN RESPECT OF REDEMPTION OF THE A SHARES REDEMPTION OF THE A AND B SHARES ADVANCE OF $7 MILLION PAID UP INVESTMENT DISCHARGE OF TAX LIABILITY EXPENDITURE ON ENGINEERING AND ADMINISTRATION MANAGEMENT ARTICLE 7.4 OF THE SUBSCRIPTION AGREEMENT ARTICLE 9.4 OF THE SUBSCRIPTION AGREEMENT INDEMNITY FROM SLGCC ATTITUDE OF HUAXIA MITIGATION RICHARDS BUTLER OFFER RESALE TO XING YE GOOD FAITH IN DEALINGS WITH MR DARBY FAILURE TO SETTLE WITH HUAXIA IN RELATION TO OUTSTANDING INSTALMENTS CREDITS TO BE GIVEN BY THE CLAIMANTS | 98 – 111 112 – 121 122 123 124 – 125 126 128 – 130 131 – 132 133 134 – 139 140 – 146 147 – 149 150 – 151 152 – 154 155 – 158 159 – 163 164 – 170 |
| PART VI | VALUATION—PRELIMINARIES FACTS IN ISSUE RELEVANT TO VALUATION RIGHTS TO BE VALUED EXERCISE TO BE UNDERTAKEN VALUERS' REPORTS VALUATION OF HOUSING AND GOILF COURSE LAND THE HOUSING LAND | 171 – 176 177 178 179 – 205 206 – 212 213 – 228 |
| PART VII | CONCLUSION | 229 |
ABBREVIATIONS USED IN THIS JUDGMENT
APGF—Asia Pacific Growth Fund II LP
BT—Bankers Trust
CFI—China Fund Inc
CDGF—China Dynamic Growth Fund LP
Drewson—Drewson Capital Corporation Limited
DB—Deutsche Bank
DBTC—Deutsche Bank Trust Company
Ellis—CB Richard Ellis
Firstee—Firstee Investments LLC
GCMI—Global Capital Markets Inc
GFI—Great Future International Limited
Huaxia—Shanghai Pudong Huaxia Industry and Commerce Corp.
H&Q—H&Q Asia Pacific
IB—Insignia Brooke
ILC—International Leisure Consultancy
JSM—Messrs Johnson Stokes & Master
LTOA—Long Term Occupancy Agreement
Lubo—Shanghai Pudong Lubo Industrial Company
NYLI—New York Life Insurance Company
PEML—Private Equity Management BVI Limited
SAIC—Shanghai Agricultural Investment Corporation
Sealand—Sealand Housing Corporation
SHTI—Shanghai Huaxia Trip International Country Club Co
SLEC—Shanghai Links Executive Community Limited
SLGCC—Shanghai Links Golf and Country Club Limited
SWWB—Shanghai Water Works Bureau
TCI—Turks and Caicos Islands
TCS—Twa Cochrane Skatfield
USA—Unanimous Shareholders Agreement
Wardley—Wardley China Investment Trust
Xing Ye—Shanghai Xing Ye Housing Corporation
Mr Justice Lightman
PART I
INTRODUCTION
OVERVIEW
The Claimants are investment funds or investment companies. At the time of the investment the subject of these proceedings the First Claimant Great Future International Limited ("GFI") and the Second Claimant Wardley China Investment Trust ("Wardley") were owned or managed by HSBC; the Third Claimant Asia Pacific Growth Fund II LP ("APGF") and the Fourth Claimant China Dynamic Growth Fund LP ("CDGF") were owned or managed by H&Q Asia Pacific ("H&Q"); and the Fifth Claimant Firstee Investments LLC ("Firstee") was owned by Bankers Trust ("BT") now part of Deutsche Bank ("DB").
Pursuant to a Subscription Agreement dated the 13 th March 1997 ("the Subscription Agreement") the Claimants and the China Fund Inc ("CFI") (thereinafter together referred to as "the Investors") subscribed $50 million for shares in Shanghai Links Executive Community Limited ("SLEC") a company incorporated in the Turks and Caicos Islands ("the TCI"). They subscribed $5 million for 5 million (representing 40% of the issued) Common Shares ("the Common Shares") and $45 million for 45 million (representing 100%) of the redeemable (preference) Class A Shares ("the A Shares"). CFI, which is not a party to the proceedings, as such subscriber subscribed $100,000 for 100,000 Common Shares and $900,000 for 900,000 A Shares. The Claimants aggregate subscription price accordingly was $49 million. (Where in this judgment I refer to dollars, I refer to US dollars). I shall refer to the shares for which the Claimants subscribed as "the Subscription Shares". The First Defendant Sealand Housing Corporation ("Sealand"), which is also incorporated in the TCI and has at all times been owned and controlled by the Second Defendant Mr Barry Hansen, subscribed or agreed to subscribe $20,906,489 for 60% of the Common Shares and $20 million for 100% of the redeemable (subordinated preference) Class B Shares ("the B Shares"). In the Subscription Agreement the Defendants represented and warranted to the Claimants that Sealand paid the total subscription price of $40,906,489 by releasing (in consideration of its allotment of shares) a loan of $40,906,489 originally owed by SLEC to Shanghai Links Golf and Country Club Limited ("SLGCC") and assigned by SLGCC to Sealand for this purpose. The Subscription Agreement was completed on the 31 st March 1997 ("the Closing Date"). On the same day the Investors, Sealand and SLEC entered into a Unanimous Shareholders Agreement ("the USA") regulating the management structure and the rights of the three classes of shareholders in SLEC.
The project for which SLEC was financed in this manner was the development of certain housing land ("the Housing Land") and (in association with SLGCC) a golf course ("the Golf Course Land") in Shanghai China which SLEC had contracted to purchase from Shanghai Pudong Huaxia Industry and Commerce Corporation ("Huaxia") under two land use rights transfer contracts which I shall call respectively "the Housing Contract" and "the Golf Course Contract" and together "the Land Contracts". (I shall refer to the development project in respect of the Housing Land as the Housing Project and the development project in respect of the Golf Course as the Golf Course Project and the two projects together as "the Projects"). The purchase price for the Housing Land was $19,969,375 and for the Golf Course Land was $17,614,994. Under the Land Contracts the purchase price was payable by seven instalments and by the Closing Date five instalments in respect of each contract had accrued due totalling $33,596,096 made up as to $17,850,278 in respect of the Housing Land and $15,745,728 in respect of the Golf Course Land. In order to induce the Claimants to enter into the Subscription Agreement, the Defendants falsely represented and warranted that all the five instalments ("the Five Instalments") had been paid in full, and that SLGCC (as part of the loan of $40,906,489) had advanced the sum to SLEC to enable SLEC to pay (and that SLEC had paid) the same sum to Huaxia. No such advance or payment has been made.
The Claimants learnt the truth in November 1999. In December 1999 Sealand commenced proceedings in the TCI against SLEC and the non-executive directors of SLEC appointed by the Claimants. The Claimants were joined as defendants in February 2000, and in March 2000 served a Defence and Counterclaim invoking the provisions of Articles 7.1 and 7.6 of the USA. On the 16 th February 2000 commenced this action. In view of an overlap between the two sets of proceedings in May 2000 (as the parties agreed was necessary and sensible) the proceedings in the TCI were stayed pending judgment on liability in this action. They were thereafter resumed and culminated on the 28 th October 2002 in summary judgment being given for the Claimants under Article 7.1. In February 2000 the Claimants applied in the TCI for the appointment of receivers of SLEC and such an order was made on the 5 th May 2000. Two members of the firm of KPMG were receivers from the 5 th May 2000 until the 4 th April 2001 ("the First Receivers"). They were then replaced by two members of the firm of Lowe Enterprises Community Development Inc ("Lowe") who have continued in office ever since. The ground for the appointment of receivers was the gross mismanagement of the affairs of SLEC by the Hansens and their alleged fraudulent conduct the subject of this action. For the first time the Defendants were dislodged from control of SLEC which they tenaciously retained until that date.
Prior to the appointment of the receivers the Hansens dealt with SLEC's assets and administered its affairs with regard only to their own interests and treated its assets as their own. Amongst their acts of maladministration unlawfully they transferred the Golf Course Land from SLEC to SLGCC, a company wholly owned by Mr Barry Hansen. The Hansens also unlawfully caused SPNA to enter...
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