Paul Weiss LLP lose jurisdiction dispute over carrying on business in Hong Kong

25/10/19

The Hong Kong court has given judgment in a jurisdiction battle between the international law firm Paul Weiss and the liquidators of China Medical Technologies (CMT).

The auditors of CMT received an anonymous letter warning them of a fraud within the company, and the CMT audit committee appointed Paul Weiss LLP to investigate the allegations. Paul Weiss ultimately reported that there was no substance in the allegations. In fact, the allegations were correct and many of the directors and officers of CMT were involved in a major fraud involving the siphoning off of hundreds of millions of dollars. The liquidators of CMT sued Paul Weiss for negligence, proceeding only in tort. Paul Weiss contended that New York law applied and the proceedings should be heard in New York, where they said the very wide pari delicto principle under New York law would prevent any action by CMT succeeding against them.

Although the principal defendant was Paul Weiss LLP, a New York limited liability partnership, the liquidators had not sought leave to serve the proceedings (now time-barred) out of the jurisdiction. They argued that this was unnecessary because Paul Weiss LLP carried on business in Hong Kong within the test in Adams v Cape Industries plc.   Paul Weiss LLP denied this and contended that they only carried on business in Hong Kong through a separate entity, Paul Weiss HK, with whom CMT had no retainer. They argued that if Paul Weiss LLP were in fact carrying on business in Hong Kong, they would be committing a criminal offence. However, their notepaper, engagement letter and website all made reference to their Hong Kong office without qualification under the heading “Paul Weiss LLP”.

Godfrey Lam J’s 142 page judgment covers a wide range of jurisdictional and Spiliada issues. He found for the liquidators and held that the proper forum was Hong Kong. Based on Coupland v Arabian Gulf Oil and Henderson v Merrett  he held the proper law which would have applied had a claim been made in contract was not relevant to determination of the proper law in tort.

On the key “carrying on business” issue, Godfrey Lam J said he was not concerned with whether or not Paul Weiss might be committing a criminal offence if they were carrying on business in Hong Kong, but only with the evidence before him. He concluded that the liquidators had established a good arguable case that Paul Weiss LLP were carrying on business in Hong Kong, and indeed had much the better of the argument.

The judgment is here.