LAFARGE S.A. AND OTHERS v. CONTINENTAL CEMENT CORPORATION AND ANOTHER

HCCT 33/2006

in the high court of the

hong kong special administrative region

court of FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 33 of 2006

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REASONS FOR RULING

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Hon Le Pichon JA:

1.  The question which arose for determination was whether, after the commencement of an examination pursuant to Orders 48 and 49B of the Rules of the High Court, the court has power under either one or both of those orders to order the examinee to disclose further documents.  I ruled that the court did have power to so order for written reasons to be given later which I now do.

Background

2.  On 21 October 1998 the plaintiffs entered into a Sale and Purchase Agreement (the “SPA”) of a cement manufacturing plant in the Philippines with Continental Cement Corporation (“CCC”) and Gregory T. Lim (“Mr Lim”) who were collectively referred to in the SPA as the “Seller”.  The first defendant is a corporation organised under the laws of the Philippines and the second defendant who is a Philippine national was the President of CCC.  The second defendant entered into the SPA in his personal capacity as “majority shareholder” of the first defendant.

3.  Following the sale, disputes arose which went to arbitration.  The arbitration was held by the ICC International Court of Arbitration in Singapore in July and October 2003 and culminated in an award dated 31 August 2005 in favour of the plaintiffs.  The defendants were held liable jointly and severally for sums totalling approximately US$130 million together with interest from the date of the award until payment.  The award remains wholly unsatisfied.

4.  The plaintiffs obtained leave from Reyes J on 25 April 2006 to enforce the award as a Hong Kong judgment and to enter judgment in terms of the award pursuant to section 2GG of the Arbitration Ordinance, Cap. 341.  A judgment to that effect was entered on 12 May 2006 against the defendants.

5.  On 16 May 2006 Master Kwan issued a prohibition order against the second defendant and on 31 May 2006, Barma J granted a worldwide mareva injunction against both defendants, with the return date fixed for 9 June 2006.  He also made an ancillary disclosure order.

6.  The second defendant arrived in Hong Kong on 26 May 2006 but when he tried to leave on 30 May 2006, he came to learn of the prohibition order and the mareva injunction.  The various orders were extended to 16 June 2006 when an inter partes hearing took place before Reyes J.  Apart from continuing the mareva injunction and the prohibition order, Reyes J made orders for the examination of the defendants as debtors.  An order for examination under Order 48 was made against the Mr Lim as an officer of CCC and an order under Order 49B was made against Mr Lim personally.

7.  In the interest of expediting the process having regard to the prohibition order against Mr Lim, the judge acceded to the request of counsel for the defendants that he should give directions for the oral examination at that inter partes hearing rather than to adjourn the matter to be dealt with by the master.  The directions order made in relation to the Order 49B examination of Mr Lim is in the following terms:

“		IT IS ORDERED that:
	1.	the examination of GREGORY T. LIM is adjourned to a date to be fixed with an estimated time of 5 hours.
	2.	the said GREGORY T. LIM shall as far as possible, supply copies of or make available originals for copying the following documents not later than 21 days before the adjourned hearing and shall also produce the following documents at that hearing:
		a.	passbooks and copies of bank statements for the last 3 years of all bank accounts in Hong Kong and elsewhere in his sole name or jointly with any other person, or of any firm or business of which he is sole proprietor or a partner.
		b.	accounts for the last 3 years of any business in which he is sole proprietor or a partner or a shareholder in the case of a private company.
		c.	tax returns and assessments for the last 3 years.
		d.	all shares and stock certificates held in his name.
		e.	the deeds or Land Registry entries in respect of all property in his name or owned beneficially by him.
		f.	registration details of all vehicles owned by or in his name.
	3.	costs reserved.
	4.	liberty to apply.
WARNING
	a.	GREGORY T. LIM is warned of the requirement to make full disclosure when complying with clause 2 herein, and if it is not done there may be another adjournment and GREGORY T. LIM may be liable for the costs incurred.
	b.	The said GREGORY T. LIM is further warned that he must attend the examination whenever required and if he fails to attend the examination without good cause being shown, the Court may order that GREGORY T. LIM be arrested and brought before the Court for examination before the expiry day after the day of arrest.”

A directions order was also made in respect of the Order 48 examination in similar, though not identical, terms.

8.  The examination of Mr Lim commenced on 16 August 2006 before me sitting as an additional judge of the Court of First Instance.  During the first three days of examination, Mr Mallard who was conducting the examination on behalf of the plaintiffs indicated on a number of occasions that he would be applying to the court for further documentary disclosure by Mr Lim.  In order that Mr Lim not be detained in Hong Kong longer than is necessary, the court invited the parties to consider coming to some arrangement for the production of further documentary evidence as the examination progressed.  The impression given to the court throughout was that the parties were willing to cooperate so as to expedite matters.  At the end of the third day, Mr Mallard undertook to provide Mr Lim’s solicitors with a written list of the documents sought that same evening which was a Friday.  Mr Lim was represented by counsel throughout and as from the second day of the examination by Mr Westbrook SC.

9.  It was not until the examination resumed on Monday 22 August that there was any hint of there being any question as to the court’s jurisdiction.  Mr Westbrook SC, in what can be described as an ‘about turn’, opposed the plaintiffs’ application on jurisdictional grounds.

The court's jurisdiction

10.  Mr Westbrook SC submitted that after the commencement of the oral examination under Order 48 and/or Order 49B, the court has no jurisdiction to order further documentary disclosure.  It was said, first, that the question of what documents Mr Lim has to produce had been carefully considered at the hearing on 16 June and the judge had limited production to the documents specified in the orders for good reason so that any further order would amount to “overruling” the earlier order and, second, that nothing in either Order 48 and/or Order 49B authorises the court to order further documentary disclosure.

11.  As to the first point, I think that even Mr Westbrook shied away from saying that once directions for production have been given, no further directions or orders for production could be made.  In my view, the fact that an initial order had been made by the judge at the directions hearing for the production of documents does not and cannot preclude the making of further orders for production.  Although much was made by Mr Westbrook of the fact that the scope of production was determined with the benefit of heard submissions from both parties, it is clear from the face of the orders made that there was “liberty to apply”.  That the judge did not rule out the possibility of further applications (and consequential orders) being made is evident.  That is confirmed by a perusal of the transcript which has since become available.  When Mr Whitehead SC who appeared for the plaintiffs at the 16 June hearing asked if the directions being made were “without prejudice” to further applications for directions if appropriate, he was given the answer that there would be liberty to apply.

12.  If the court does have jurisdiction to make further orders for discovery upon further applications for directions, is that jurisdiction somehow spent once the examination has commenced?  There does not appear to be any reason or logic to take away the court’s jurisdiction once the examination has commenced.  As Enfield J observed in Australia National Bank Ltd v Stern, unreported, (amended judgment 26 May 2000) [2000] FCA 588 (4 May 2000), at para. 12

“	The purpose of the examination is thus to ascertain whether the persons bound to pay the judgment are withholding assets or means to pay the debt or … have disposed of assets they had so as to put them in a position where they cannot pay the debt.”

He further observed at para. 16 that:

“

16

… whether or not an examination is a proceeding in the strict statutory sense, it is a very different type of court situation than a piece of ordinary adversarial litigation when the major issues have not yet been determined….  An examination of that kind is a very particular type of proceeding, if it be a proceeding at all.  It must be viewed against the background that a judgment has been obtained, that the examinee is the person bound by the judgment, that the examinee has not paid the judgment, that the examiner is the person for whose benefit the judgment was pronounced, and that that person seeks to enforce the judgment by investigating whether the non-payment and presumably the claimed inability to pay are properly and justifiably based.”

I agree.  The overriding purpose of orders for the examination of judgment debtors is “to enable a judgment creditor to come to an informed decision as to how best to enforce the judgment which he has obtained”.  Bloomsbury International Ltd v Nouvelle Foods (Hong Kong) Ltd [2005] 1 HKC 337 at 334F.  The means employed is discovery by a debtor of his means and property including property rights against third parties. 

13.  The oral examination is but one part of that discovery process.  The production of documents is an equally important part of that process.  Therefore if it were to emerge from an oral examination conducted pursuant to an order made under Order 48 and/or Order 49B that documents exist which, if discovered, would or are likely to further the purpose of the examination order, then, in the absence of any clear provision in Orders 48 and 49B to the contrary, there would be no discernible reason why the commencement of the oral examination should make any difference to the court’s jurisdiction and every reason why production should be ordered.  The proposition that the judgment debtor is obliged to make full disclosure by answering the questions put to him but that he cannot be ordered, once he has started his examination, to produce documentation relevant to his assets the existence or likely existence of which emerged during the examination is simply absurd.  If it were correct, the discovery process would be stultified.

14.  I now turn to the relevant provisions of Orders 48 and 49B:

“	Order for examination of judgment debtor (O.48, r.1)
	1.—	(1)	Where a person has obtained a judgment or order for the payment by some other person (hereinafter referred to as "the judgment debtor") of money, the Court may, on an application made ex parte by the person entitled to enforce the judgment or order, order the judgment debtor or, if the judgment debtor is a body corporate, an officer thereof, to attend before the Registrar or such officer as the Court may appoint and be orally examined on the questions-
		(a)	whether any and, if so, what debts are owing to the judgment debtor, and
		(b)	whether the judgment debtor has any and, if so, what other property or means of satisfying the judgment or order;
	and the Court may also order the judgment debtor or officer to produce any books or documents in the possession of the judgment debtor relevant to the questions aforesaid at the time and place appointed for the examination.
	…
	Examination of debtor (O.49B, r.1A)
	1A.—	(1)	Upon appearance of the judgment debtor for examination, he shall give evidence and he may be examined on oath by the judgment creditor and the Court; and the Court may receive such other evidence as it thinks fit.
		(2)	The judgment debtor shall, at his examination, make a full disclosure of all his assets, liabilities, income and expenditure and of the disposal of any assets or income and shall, subject to the directions of the Court, answer all questions put to him.”

It will be seen that the powers of the court to order discovery of assets are considerably wider under the latter rule.

15.  Mr Westbrook SC drew attention to the fact that Order 48 rule 1 empowers the court to order the judgment debtor or officer to produce any books or documents “at the time and place appointed for the examination”.  It was said that it must follow that any order for production under Order 48 must be made prior to the time of the oral examination.  Mr Westbrook further submitted that the words “the Court may receive such other evidence as it thinks fit” in paragraph (1) of Order 49B rule 1A is purely permissive and that nothing in either paragraphs (1) or (2) of that role empowers the court to order the production of documents.

16.  What is the proper approach to the construction of Orders 48 and 49B?  The observations of Reyes J in the Bloomsbury case appear apposite:

“

107.

… Order 48 is a way of obtaining discovery against the debtor as to his assets for discharging a judgment debt.  Because the debtor has committed a wrong in failing to pay, the Court must not be overly solicitous in his favour.  The Court can be robust Without good reason, it should refrain from drawing too refined distinctions as to what can or cannot be encompassed within an Order 48 examination.”

What is said there is equally applicable and even more so in the case of an Order 49B examination.

17.  In my view, the court should adopt a purposive approach in interpreting the rules, with the overall purpose of examination orders in mind.  A microscopic examination of the language employed and a restrictive interpretation are unnecessary and unwarranted.

HCCT 33/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 33 OF 2006

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R U L I N G

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1.  I think that the Mareva injunction should be continued as sought by the relevant Plaintiffs’ summons.  I will also make an Order for examination of the Defendants as debtors pursuant to the Plaintiffs’ summons of 14 June 2006.  The latter summons asks for a prohibition order against the 2^nd Defendant.  I grant such order as well.

2.  My reasons are as follows:-

3.  First, contrary to Mr. Barlow’s submission on the Defendants’ behalf, I am not persuaded that there was material non-disclosure or subterfuge in the obtaining of the ex parte Mareva and prohibition orders.

4.  Second, I do not accept Mr. Barlow’s argument that it is an abuse for the Plaintiffs to seek Marevas, prohibition orders or other enforcement-type relief in Hong Kong.

5.  Mr. Barlow suggests that there is abuse because the Plaintiffs and Defendants are foreign, there are apparently no assets in Hong Kong, and the arbitral award was obtained in Singapore under an agreement with a Filipino proper law.

6.  But I believe that Mr. Whitehead SC is right to point out that there is now an effective Hong Kong Order making the arbitral award enforceable as a Hong Kong Judgment.  There is no reason why the Plaintiffs should be barred from using all means available (including a worldwide Mareva) within the Hong Kong jurisdiction to ensure that what is now a Hong Kong Judgment is satisfied.  I note that there has been no application by the Defendants to set aside the Hong Kong Order and Judgment.

7.  I also accept Mr. Whitehead’s submission that, because one is dealing with an arbitral award enforceable under international convention, comity points to the Hong Kong Court assisting a judgment creditor to enforce such award to the greatest extent possible.

8.  Third, like Mr. Justice Barma at the ex parte hearing, I believe that there is evidence of a real risk of dissipation of assets.  I am thinking of the matters stated in Ms. Chan’s affidavit in support of the Plaintiffs’ Mareva application, especially the transfer of overseas properties to the 2^nd Defendant’s relations. 

9.  Fourth, I am not persuaded by the medical evidence adduced that the 2^nd Defendant is in urgent need of medical attention.  Even if he were, I believe that he should be able to receive an adequate standard of medical attention for his condition in Hong Kong.

10.  Fifth, although the Mareva already includes an order for disclosure of assets, I believe that it is still appropriate to make an order for examination of the Defendants at this stage, rather than later.   I hope that this will mean that the 2^nd Defendant can be examined as soon as possible and that he will not be detained in Hong Kong any longer than necessary.  I accept Mr. Whitehead’s submission that, without an ancillary prohibition, a mere order for disclosure on affidavit and a mere order for examination as a debtor may be ineffective.  The 2^nd Defendant would otherwise simply leave the jurisdiction.

11.  On all orders made, there will be a liberty to apply.

12.  I shall now hear the parties on costs and any other outstanding matters.