TRENUS OCEANWAY LTD v. RICHLAND INTERNATIONAL LTD AND ANOTHER

HCCW 352/2014

[2022] HKCFI 1419

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)  PROCEEDINGS NO 352 OF 2014

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HCA 228/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 228 OF 2017

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(Heard Together)

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DECISION

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1.  This is the application of the Defendant in HCA 228/2017 and the 1^st Respondent in HCCW 352/2014 (“Lau Camp”)[1] to have the said two sets of proceedings tried together or heard at the same time. The application is resisted by the other side in those proceedings (“Chu Camp”).

2.  Mr Lau Wing Yan and Mr Chu Kong are the primary antagonists in not only these proceedings.  Between them and their associates or nominees, they had generated over 30 sets of proceedings in Hong Kong alone.  Their disputes can be traced to a business divorce when they decided to terminate their cooperation in January 2014. 

3.  On 23 March 2021, after 5 of the proceedings between the two Camps were docketed to this court, a global CMC was held.  In addition to the 5 proceedings, all other proceedings which were on foot between the two Camps[2] were considered by the court with the view to minimising the wastage of the court’s resources.

4.  At the end of the global CMC, 2 set of proceedings were directed to be tried together, namely, HCA 228/2017 and HCA 1431/2015 (both docketed to this court).  It was agreed by the two Camps that the determination of these proceedings would resolve the core dispute between Mr Lau and Mr Chu over the division of their business.  The resolution of the core dispute should either dispose or lead to the disposal of many of the other proceedings.  With the consensus of the two Camps, the other 3 actions which were docketed to this court were stayed pending the final determination of HCA 228/2017.

5.  Having elicited the view of both Camps on whether the other proceedings on foot should be stayed, the stay was subsequently extended to 7 additional actions after consulting the parties involved.

6.  HCCW 352/2014 was discussed in the course of the global CMC and there was a general consensus that it should not be stayed because winding up proceedings should be resolved quickly, and it should be allowed to run its course.

7.  In support of this application, the Lau Camp says that there are common issues of law and facts in both HCA 228/2017 and HCCW 352/2014; the rights to relief claimed are intertwined; there is significant overlap in the evidence; and having the two proceedings tried together is desirable as a matter of proper case management. 

8.  In opposing the application, the Chu Camp says that it is both contrary to the consensus of the parties at the global CMC and the earlier decision of Mr Justice Harris made on 13 September 2019 (Decision dated 26 March 2020)  by which Mr Lau’s application to have HCCW 352/2014 tried together with HCA 227/2017 and HCA 228/2017 was dismissed. 

9.  Whilst I accept that case management decisions may be revisited with sufficient cause, it would not be conducive to efficient and effective case management if pervious decisions are changed without sufficiently strong reason. 

10.  I am unable to accept that the reason advanced by the Lau Camp, namely, change of circumstances, has been made out.  In particular, this court was informed at the global CMC about the overlap of issues in HCCW 352/2014 as well as the development in those proceedings – the vacation of the trial and existence of unresolved interlocutory applications. By the same token, it is not clear why the Lau Camp is now changing their mind on letting HCCW 352/2014 run its course.

11.  Although there is force in the grounds advanced in support of this application, on careful analysis there is much downside in having the 3 actions tried together. 

12.  Firstly, HCA 228/2017 and HCA 1431/2015 involve many issues in addition to those which overlap with HCCW 352/2014 (“Common Issues”).  This can be seen from the Lists of Agreed Issues filed in HCA 228/2017 and HCA 1431/2015.  Those Lists may be amended pursuant to the order given by this court on 26 April 2022.  HCCW 352/2014 also involves other issues in addition to the Common Issues.  In particular, there will be company law issues such as whether Mr Chu has come to court with clean hands in seeking winding up relief on just and equitable grounds. 

13.  There can be no doubt that a trial of all 3 actions will be very complex in terms of the magnitude of issues alone, and it will last many days.  The adjourned trial of HCCW 352/2014 was fixed for 10 days.  More days will likely be required as a consequence of additional issues introduced after the adjournment.  On a conservative estimate, a consolidated trial of all 3 actions will likely require no less than 20 days.  This brings the second point.  As far as this court’s diary is concerned, a 20-day trial can only be accommodated in 2024 at the earliest.  Taking 10 years to have a winding up action tried is highly undesirable.

14.  Thirdly, I am not convinced by the Lau Camp that HCCW 352/2014 and HCA 228/2017 are at similar stage of readiness.  At the global CMC, the court had expressed the view that the core dispute should be resolved as soon as possible.  More than a year later, at the next CMC on 26 April 2022, there was little real progress made by the parties to get the case ready for trial.  The pleadings still required amendments and supplemental witness statements had to be filed. 

15.  I pause to observe that, given their considerable resources, the delay in advancing actions started in 2015 and 2017 tends to show that neither Mr Lau nor Mr Chu is keen to have their disputes resolved by the court with speed. 

16.  Judging by the multiplicity of interlocutory applications in HCCW 352/2014, including applications for leave to appeal against interlocutory decisions, there is little reason to believe that the parties will be less contentious in the conduct of HCA 228/2017 or HCA 1431/2015 and the trial of these actions can be set down in the near future.  Having all 3 actions tried together will not assist in resolving any of the disputes with expedition.

17.  Finally, the risk of inconsistent findings by different court is mitigated by the acceptance by both Camps that the findings made in any of the 3 proceedings on the Common Issues will be binding on Mr Lau, Mr Chu and their proxies. 

18.  For these reasons, I dismiss the application (both Summonses).  I make an order nisi that the costs of the application be paid by the Lau Camp with a certificate for two counsel.  The order nisi will become absolute in the absence of variation application made within 14 days from the date of this Decision.

19.  The costs are to be summarily assessed on paper, if not agreed, for which purpose a Statement of Costs is to be lodged and served by the Chu Camp within 14 days from the date of this Decision.  The Lau Camp is to lodge and serve their comments thereon (limited to 3 pages in font size 14 with double line spacing)  within 7 days thereafter.  Reply to the comments (limited to 2 pages in font size 14 with double line spacing), if any, is to be lodged and served by the Chu Camp within 3 days thereafter. 

Mr Victor Joffe QC, Mr Mike Lui and Ms Theresa Chow, instructed by DLA Piper Hong Kong, for the 1^st Respondent in HCCW 352/2014 and Defendant in HCA 228/2017

Mr William Wong SC and Mr John Hui, instructed by Sit Fung Kwong & Shum, for Petitioner in HCCW 352/2014 and Plaintiff in HCA 228/2017

HCCW 352/2014

[2021] HKCFI 3294

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 352 OF 2014

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D E C I S I O N

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1.  On 25 March 2021 I delivered my decision in respect of the 1^st Respondent’s application for third party discovery against HSBC and DBS (collectively “Banks”). I dismissed the application for the reasons explained in my decision. The 1^st Respondent seeks leave to appeal.

2.  The relevant principles are summarised in my decision delivered four days ago in the same proceedings, which was an application by the Petitioner on that occasion for leave to appeal my dismissal of an application by it for specific discovery.  I will repeat what I say in [2]–[3] of that decision[1]:

“2. The Petitioner seeks leave to appeal that decision. The principles that apply to leave applications are not controversial. It is convenient to quote the summary of them in [5]–[7] of the Petitioner’s skeleton.

‘5. The relevant principles are trite and were recently considered by this Court in Re Smartplace Limited[2021] HKCFI 1924 at §2. In brief:

(a)  Leave to appeal will generally be granted where there is a reasonable prospect of success or some other reason in the interest of justice for permitting an appeal is demonstrated.

(b)  Where a decision involves the exercise of discretion, the Court of Appeal will only interfere with the same where it is demonstrated that decision was reached under mistake of law and disregard to principle, or under misapprehension as to facts.

6. To be fair, it has also been held by the Court of Appeal (consisting of Kwan JA, as she then was, and Fok JA, as he then was)  in Sunny Tadjudin v. Bank of America, NA (Unrep., HCMP 691/2012, 29 June 2012)  at §25, “[U]nless very special circumstances are made out, an exercise of the discretion in refusing specific discovery would not be disturbed on appeal”.

7. Regard may also be had to the considerations summarised at §7 in K&L Gates v. Navin Kumar Aggarwal[2019] HKCFI 200, as follows:

(a)  Leave to appeal may only be granted if the applicant can demonstrate reasonable prospects of success, meaning that the prospects of succeeding must be reasonable and therefore more than fanciful, without having to be probable. Merely showing that the appeal is arguable and not fanciful is not sufficient.

(b)  In specific discovery applications, the scope of the order often requires a judgment call to be made, having regard to all the circumstances. The fact that some irrelevant materials may be caught, of itself, is no basis to say the judge has erred, or that the Court of Appeal should intervene.

(c)  It is a misuse of the appellate process to give the litigant (or his counsel)  a platform for regurgitating his arguments again in the hope that the appellate judges may come to a different view. The relevant question for the Court of Appeal is whether the judge has fallen into palpable errors which can give rise to grounds for intervention by the appellate court.

(d)  Lodging an appeal with ill-considered and unsatisfactory grounds of appeal, particularly those that provide no more than a lengthy critique of the judgment rather than identify a justifiable basis for the Court of Appeal interfering in the decision of the judge below, is not acceptable.

(e)  Even if the threshold test of reasonable prospect is satisfied, the court still retains a discretion whether to grant leave, and may refuse leave in the interests of procedural economy and proportionality.

(f)  Case management decisions made in the exercise of discretion (which include orders for specific discovery)  are only subject to appeal in rare circumstances, and the hurdle faced by the appellant is very high.

(g)  In the context of specific discovery, one consideration relevant to the exercise of discretion is the progress (or lack thereof)  in the prosecution of the action and whether further arguments over discovery would impede, as opposed to progress, the determination of the real disputes between the parties.’

3.  In short, it is necessary for the Petitioner to demonstrate that I have made not only an error, but an error of sufficient gravity to justify the Court of Appeal interfering in what is a matter of discretion.”

3.  The 1^st Respondent advances three proposed grounds of appeal.  The first is that my reasoning in [4] of the decision was erroneous because the 1^st Respondent was seeking orders that the Banks state when they parted with the documents and not simply disclosure of what they still have in order that the information in the documents could be considered.  It is correct that my decision preceded on the basis that the purpose of the specific discovery application was to obtain documents from the Banks in order to consider their contents, although [2] of the summons makes reference to an order that the Banks explain the circumstances in which they ceased to have possession custody or power of documents which they once had but no longer have.  The reason for this is that this was the way the application was framed and advanced by Mr Joffe.  Mr Lui, who appeared for the 1^st Respondent on the leave application, fairly accepted that it was not argued before me that, as is now suggested, it was also important to see whether or not, for example, records of transfers might have not existed during the period in which the Petitioner says the transfer took place as this would be relevant to a determination of the veracity of part of the Petitioner’s case that they did.  I proceeded on the basis that if I concluded, as I did, that it had not been demonstrated that it was likely that the Banks had the documents sought there was no justification for ordering discovery as it was not necessary (RHC O 24 r13)  as it had not been suggested to me that even if the Banks no longer had the documents, whether they had ever had them was relevant.

4.  The second and third grounds concerns my assessment of the evidence and whether it demonstrated as is required by Section 42 of the High Court Ordinance, Cap 4 that it is likely that the Banks have or had in their possession the relevant documents.  What is now argued is that in the Petitioner’s own affirmations there was evidence that suggested that the Banks had more documents and this evidence, in combination with the letters referred to in my decision, was sufficient to demonstrate that it was likely the Banks had the documents.  However, Mr Lui again very fairly accepted that the evidence was not drawn to my attention in either the 1^st Respondent’s written or oral submissions, which is why I did not have regard to it in reaching my decision.

5.  I accept that with the benefit of further thought the 1^st Respondent is able to point to relevant matters to which I did not have regard.  It may be that if these matters had been drawn to my attention and their relevance developed during submissions it might have had a bearing on my ultimate decision. However, this is not what happened.  This raises the question of whether the exercise of a discretion in respect of a discovery application can properly be appealed if the basis for saying that the decision is wrong is that weight was not given to matters, which had not been brought to the court’s attention, or not adequately brought to the court’s attention.  In these circumstances can it be said that the court, in a relevant way, misapprehended the facts?  No authority on this question was brought to my attention.  However, given the principles that I explain in the passages from the authorities quoted earlier it seems to me that the answer is no.  If it is only in cases which involve “very special circumstances” or in which “the judge had fallen into palpable error” that the Court of Appeal will intervene then it would seem to me that the failure to bring the relevant facts and matters adequately to the court’s attention leading to a possible misapprehension by the court of what are the relevant facts and matters, is not something that justifies intervention by the Court of Appeal and, therefore, the 1^st Respondent has not demonstrated that it has a reasonable prospect of success.  Otherwise a party is simply being given the opportunity to have another go at putting its case in a more persuasive form.

6.  I, therefore, dismiss the application.  The 1^st Respondent shall pay the Petitioner’s costs with a certificate for counsel, such costs to be taxed if not agreed and paid forthwith.

Mr Michael Lok, instructed by Sit, Fung, Kwong & Shum, for the petitioner

Mr Mike Lui and Ms Theresa Chow, instructed by DLA Piper Hong Kong, for the 1^st Respondent

HCCW 352/2014

[2021] HKCFI 3157

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 352 OF 2014

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D E C I S I O N

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1.  On 5 March 2021 I handed down my decision in respect of a number of interlocutory applications including an application by the Petitioner for specific discovery. This is dealt with in [6]–[10]. In [9]–[10] I explain why I dismissed the application:

“9. The difference between the Parties centers on the extent to which Mr Lau’s conduct from January 2014 is capable of being relevant to the clean hands defence. The difficulty it seems to me that the Petitioner faces in maintaining its argument is that it has not pleaded to [44.1] in the Points of Reply. Mr Wong argued that it must follow from the character of the matters that the Petitioner pleads in [39]–[44] of the Points of Claim concerning misappropriation and diversion of business from January 2014 that they are relevant to the question of clean hands even though they were not pleaded to address that issue. It does not seem to me that this is the correct way to construe pleadings with a view to identifying with precision the issues for determination at trial. Self-evidently [39]–[44] were not directed to issues, which had not yet been pleaded. It does not seem to me that a judge coming to this matter for the first time and reading the totality of the pleadings would recognise that the facts and matters pleaded in [39]–[44] were relied on to counter the clean hands defence and how it was intended to argue they did so. If the judge had also been told before reading the pleadings of Mr Joffe concession on behalf of the 1^st Respondent, I think it is highly unlikely that the judge would anticipate the matters pleaded in [39]–[44] having to be explored at all at trial.

10. It seems to me clear that if the Petitioner wishes to advance a case that the determination of the clean hands defence requires certain conduct of the 1^st Respondent to be considered that needs to be pleaded.  Given Mr Joffe’s clear confirmation that the 1^st Respondent accepts that there has been sufficient diversion of business to justify a winding-up order unless the 1^st Respondent establishes its clean hands defence, I do not see any justification for ordering specific discovery of the very substantial quantity of documents sought by [2]–[4] as for the purposes of proving the claim for all practical purposes [39]–[44] are admitted.”

2.  The Petitioner seeks leave to appeal that decision. The principles that apply to leave applications are not controversial.  It is convenient to quote the summary of them in [5]–[7] of the Petitioner’s skeleton.

“5. The relevant principles are trite and were recently considered by this Court in Re Smartplace Limited[2021] HKCFI 1924 at §2. In brief:

(a) Leave to appeal will generally be granted where there is a reasonable prospect of success or some other reason in the interest of justice for permitting an appeal is demonstrated.

(b) Where a decision involves the exercise of discretion, the Court of Appeal will only interfere with the same where it is demonstrated that decision was reached under mistake of law and disregard to principle, or under misapprehension as to facts.

6. To be fair, it has also been held by the Court of Appeal (consisting of Kwan JA, as she then was, and Fok JA, as he then was) in Sunny Tadjudin v. Bank of America, NA (Unrep., HCMP 691/2012, 29 June 2012) at §25, ‘[U]nless very special circumstances are made out, an exercise of the discretion in refusing specific discovery would not be disturbed on appeal’.

7. Regard may also be had to the considerations summarised at §7 in K&L Gates v. Navin Kumar Aggarwal[2019] HKCFI 200, as follows:

(a) Leave to appeal may only be granted if the applicant can demonstrate reasonable prospects of success, meaning that the prospects of succeeding must be reasonable and therefore more than fanciful, without having to be probable. Merely showing that the appeal is arguable and not fanciful is not sufficient.

(b) In specific discovery applications, the scope of the order often requires a judgment call to be made, having regard to all the circumstances. The fact that some irrelevant materials may be caught, of itself, is no basis to say the judge has erred, or that the Court of Appeal should intervene.

(c) It is a misuse of the appellate process to give the litigant (or his counsel) a platform for regurgitating his arguments again in the hope that the appellate judges may come to a different view. The relevant question for the Court of Appeal is whether the judge has fallen into palpable errors which can give rise to grounds for intervention by the appellate court.

(d) Lodging an appeal with ill-considered and unsatisfactory grounds of appeal, particularly those that provide no more than a lengthy critique of the judgment rather than identify a justifiable basis for the Court of Appeal interfering in the decision of the judge below, is not acceptable.

(e) Even if the threshold test of reasonable prospect is satisfied, the court still retains a discretion whether to grant leave, and may refuse leave in the interests of procedural economy and proportionality.

(f) Case management decisions made in the exercise of discretion (which include orders for specific discovery) are only subject to appeal in rare circumstances, and the hurdle faced by the appellant is very high.

(g) In the context of specific discovery, one consideration relevant to the exercise of discretion is the progress (or lack thereof) in the prosecution of the action and whether further arguments over discovery would impede, as opposed to progress, the determination of the real disputes between the parties.”

3.  In short, it is necessary for the Petitioner to demonstrate that I have made not only an error, but an error of sufficient gravity to justify the Court of Appeal interfering in what is a matter of discretion.

4.  Although, the Petitioner has divided its grounds of appeal into four heads, in my view the 2^nd to 3^rd do not add materially to the thrust of the first of them.  The 4^th concerns the period for which discovery of some document are to be given.

5.  So far as the 1^st ground is concerned it is said that as clean hands had already been pleaded by the 1^st Respondent and I accepted “…the plea of clean hands by its nature requires a consideration of the respective relevant behaviour of both parties…”, [7] it was not necessary for the Petitioner to plead the facts and matters that it relies on as relevant to clean hands.  This seems to be plainly wrong.  Of course it is necessary to consider the conduct of both parties in relation to the matters relied on by the 1^st Respondent, which is what [7] is referring to.  There is no dispute that the 1^st Respondent is required to disclose all documents relevant to those matters.  My grounds for objecting to the Petitioner’s application for specific discovery of further documents was that the Petitioner had not pleaded what additional matters it relied on as being relevant to an assessment of clean hands.  The court and the 1^st Respondent are, so the Petitioner would seem to contend, meant to intuit what is relevant.  For the reasons I explain in [9]–[10] in my view this is wrong.  It seems to me that the Petitioner now simply wishes to   re-argue the point.

6.  The 4^th point concerns [13] of the judgment.  It is said that I was wrong to limit the time period to June 2003 to January 2014, and that the end date should be indefinite.  However, again nowhere in the Points of Reply is it pleaded that there are transactions that are relevant to the later period.  Again the reader is apparently meant to intuit this as well.  It does not seem to me that the Petitioner has a realistic prospect of challenging this decision.

7.  As a general observation it is difficult not to feel that it might have been rather more effective in terms of advancing its case if the Petitioner had simply amended its pleadings rather than making the present application, which I dismiss.  The Petitioner shall pay the 1^st Respondent’s costs such costs to be taxed and paid forthwith.

HCCW 352/2014

[2021] HKCFI 1924

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 352 OF 2014

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D E C I S I O N

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1.  On 1 February 2021 I delivered my decision in respect of the Petitioner’s application to strike out those paragraphs of the amended defence described in [2] of the decision. The Petitioner seeks leave to appeal that decision.

2.  The following principles are relevant to this application and are uncontroversial.

(1)  Leave to appeal will generally be granted where there is a reasonable prospect of success or some other reason in the interest of justice for permitting an appeal is demonstrated [1].

(2)  My decision involved the exercise with discretion and the Court of Appeal with any interfere with the exercise for the discretion.  If it is demonstrated, that decision was reached under mistake of law and disregard to principle, or under misapprehension as to facts [2].

(3)  A pleading should only be struck out if it is plain and obvious that it does not show a sustainable defence.

3.  It follows that the Petitioner is required to show that there is a reasonable prospect of persuading the Court of Appeal that I misapprehended a relevant legal principle or a material fact with the consequence that what I should have seen as a plainly unsustainable defence I wrongly concluded was arguable.  In practice it follows that the Petitioner should be able to identify succinctly a clear mistake of law or fact in the decision: something crisp and immediately convincing.  In my view it is plain on the face of the Notice of Appeal that the Petitioner’s complaint is not that I made a clear mistake.  The complaint is that it had the better of the argument.  This does not satisfy the test for granting leave.  I dismiss the application.

4.  The Petitioner will pay the 1^st Respondent’s costs of the application forthwith, such costs to be taxed if not agreed with a certificate for one counsel.

HCCW 352/2014

[2021] HKCFI 767

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 352 OF 2014

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D E C I S I O N

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1.  The 1^st Respondent controlled by Lau Wing Yan has applied by summonses filed on 19 October 2020 for third party discovery against HSBC and DBS Bank (“Banks”) of documents in their possession, which Mr Lau contends are relevant to the present Petition. In the case of HSBC the documents fall into the following categories:

(1)  Documents relating to the receipt of money by the seven companies and individuals identified in sub-paragraph 1(4) of the summons in respect of the transactions listed in the Annex to the summons, which is the same as the schedule referred to in previous decisions in these proceedings relating to discovery [1].

(2)  Documents relating to payments made between 4 August 2003 and 31 December 2013 including the transactions referred to in the Annex by the companies and individuals identified in the summons.  There are 32 in total, which include the seven relevant for the purposes of the first category.

In the case of DBS the scope of the application differs only in the identity of the companies and individuals, which to some degree overlap.  Both Banks are neutral in respect of the application against them.

2.  The 1^st Respondent says that the applications are justified because of the Petitioner’s unsatisfactory compliance with the discovery order that I made on 29 April 2020 (“April order”).  I will not repeat the history of the disputes concerning the Petitioner’s compliance with the discovery orders.  They are adequately explained in previous decisions.  It will suffice to say that on 16 September 2020 Chu Kong, who controls the Petitioner, filed his 10^th affirmation verifying the specific discovery given pursuant to the April order, compliance with which had been extended on three occasions, but disclosing very few documents.  Mr Chu says that he is not in possession of the substantial number of documents, which the April order directed the Petitioner to disclose.  In these circumstances the 1^st Respondent argues that it has no choice but to seek an order that the Banks disclose the documents that they have, which the 1^st Respondent has unsuccessfully sought to obtain from the Petitioner.  The principal difference between the formulation of the application against the Banks and my April order is that rather than refer to documents in the possession, custody or power of “Chu Kong or any company directly or indirectly controlled by him” the 1^st Respondent has identified in the body of the order not just in the Annex, all the relevant companies and individuals. The lists of entities contained in the body of the order includes some entities not expressly referred to in the Annex.

3.  As it transpired it proved possible to agree at the hearing the form of any order that I might make and some of the disputes raised in the skeleton arguments fell away.  What remains for determination is one issue, namely, whether or not the 1^st Respondent has demonstrated that the Banks are likely to have any of the documents of which third party discovery is sought [2]. The Petitioner says that Mr Chu has written to both Banks seeking the documents and has been told that they do not have them because they do not keep documents any longer for the relevant period: April 2003 to June 2013.  In these circumstances Mr Wong it cannot be said that either Bank is likely to have the documents even if at one time they did.  The contrary arguments advanced by the 1^st Respondent are, first, that in response to the summonses neither Bank has written saying that the applications are pointless because they no longer have the documents and, secondly, it cannot be presumed that simply because the Banks told Mr Chu that they do not have the documents that when placed under the greater compunction of a court order it will not transpire that they have at least some of the documents of which discovery is sought.

4.  Section 42 of the High Court Ordinance, Cap 4, provides that the court has the power to order discovery by a person who is not a party to the proceedings and who appears to the court “to be likely to have or to have had in his possession custody or power any documents…..”.  The 1^st Respondent is not seeking discovery of documents that it is likely the Banks have had in order to establish that documents once existed.  The application is directed only to those they currently have and will assist in determining the issues to which they are relevant, which is explained in my previous decisions.

5.  I accept that despite what Mr Chu has been told the Banks may have more documents.  However, it does not seem to me that the 1^st Respondent has demonstrated that it is likely that the Banks have them more than seven years after the most recent of them will have come into existence.  In order to satisfy the test it was necessary for the 1^st Respondent to obtain from the Banks a statement that suggested that if they searched thoroughly something more might be found. I do not think I can read into the letters that have been written, as Mr Joffe invited me to do, the conclusion that because neither Bank has replied saying we have nothing that it is likely that they do have some of the documents. Common sense suggests in my view that the bank staff probably gave little thought to the substance of the application and their answers are standard responses to applications of this sort reflecting a fairly perfunctory consideration of the material.

6.  For this reason the applications fail and I will dismiss the summonses with an order that the 1^st Respondent pays the Petitioner’s costs of the application with a certificate for two counsel.  Had I not reached this conclusion I would have ordered that the Banks make discovery of the documents in their possession, custody or power relevant to the transactions in the Annex only.  I would have amended paragraphs 1(1) to (3) of the summons to order disclosure of documents evidencing receipt or payment by the persons or entities referred to in the Annex in respect of the transactions listed in the Annex including instructions given in respect of them.  I would have deleted      sub-paragraphs (4) and (5), ordered that the Banks redact details of transactions other than those listed in the Annex, granted liberty to apply and reserved the costs.  As I have already mentioned I understand that both parties would have been content with an order framed in these terms.

HCCW 352/2014

[2021] HKCFI 560

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 352 OF 2014

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D E C I S I O N

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1.  The Petitioner has issued a summons for specific discovery and directions for expert evidence to be adduced dated 12 August 2020. This I heard on 19 February 2021. It followed on from a series of interlocutory applications dealing with associated matters; most recently my decision of 1 February 2021 in respect of a strike-out application by the Petitioner. I will not repeat the background to the applications, which is adequately explained in my earlier decisions particularly as this application is less controversial.

2.  I shall deal first with the expert evidence, which is straightforward. What is sought is leave to adduce opinion evidence to be given by an accountant in respect of the following matters:

“ SCHEDULE 2

Having regard to generally accepted accounting and/or business standards and practice:

1.  What information and documents (including books, accounts, ledgers and financial and other records) are required to establish and purpose and nature of any transaction, including but not limited to proving that any particular transaction constitutes a misappropriation.

2.  Having regard to the answer to question 1 above, provide a descriptive analysis, including the explanation of the pattern(s) and feature(s) if any, of the transactions in the table said to make up the US$70M Allegation (‘Transactions’).

3.  Opine, in view of the findings in the descriptive analysis in question 2 above, on the nature and purpose of the Transactions.”

3.  Paragraph 2 is agreed by the 1^st Respondent. Mr Joffe opposed [1] and [3] on the grounds that they invite the experts to suggest answers to factual matters, which are the preserve of the judge.  I agree.  However, I see nothing objectionable in the experts explaining accounting practices peculiar to shipping transactions, which is the underlying subject matter, indeed it would probably be of assistance.  I will, therefore, add a new paragraph 1 in the following terms:

“What financial documents and accounting practices, if any, are specific to shipping transactions of the sort defined as Transactions in the next paragraph.”

4.  The parties also agreed the directions for the preparation and exchange of experts reports in [2(a) to (c)] of body of the summons.  I asked the parties to agree and send to my Clerk more comprehensive directions dealing with the meeting of experts and production of reports recording those matters on which they agree and disagree.

5.  Turning to specific discovery, what is sought is disclosure of the categories of documents listed in Schedule 1 to the summons.  Paragraph 1 is agreed as to some degree are [5] and [6], although there is some controversy over the Petitioner’s request that a verifying affirmation is produced as there is also controversy in respect of the 1^st Respondent’s submission that the Petitioner provide an express undertaking not to use the documents disclosed other than for the purposes of the proceedings.  I deal with these matters later in this Decision.

6.  Paragraphs 2 to 4 of Schedule 1 to the summons seek:

“2.  All bank statements, financial reports and other accounting documents of Pacific Bulk Shipping (Cayman) Ltd (“PB Cayman”) since 1 January 2014;

3.  All contracts of affreightment, charterparties and fixture notes for dry bulk shipping contracts of PB Cayman;

4.  All contracts of affreightment, charterparties and fixture notes for dry bulk shipping contracts entered into between 1 January 2014 and 31 December 2019 by companies in which Lau Wing Yan has a direct or indirect 51% interest or more, including but not limited to Pacific Bulk Cape Company Limited, Pacific Bulk Enterprises Company Limited, Pacific Bulk Panamax Company Limited, Pacific Bulk Supramax Company Limited and Pacbulk Pte Limited.”

7.  Central to the controversy over [2]–[4] of the Schedule is how the documents sought are relevant to the issue of “clean hands” pleaded in [44.1] of the Amended Points of Defence.  It is not, however, argued that they are relevant to the factual matters relied on by the 1^st Respondent in support of its allegation that the Petitioner should not be entitled to the relief it seeks if it establishes matters, which support the relief pleaded in the Prayer, which is equitable in character because the Petitioner does not come to court with clean hands.  Instead what is said is that the plea of clean hands by its nature requires a consideration of the respective relevant behavior of both parties.  I accept for present purposes that this is arguable.  Mr Wong went on to submit that all matters pleaded by the Petitioner in the Points of Claim concerning the 1^st Respondent’s unfair conduct of the 2^nd Respondent’s affairs are relevant to the determination of the clean hands issue and that documents relevant to them should be disclosed.  In particular misappropriations and diversion of business by the 1^st Respondent (in practice its guiding mind Mr Lau) need to be considered and, therefore, documents relevant to all pleaded misappropriation or diversion of business need to be disclosed.  This justifies, says Mr Wong, disclosure of documents from January 2014, which is the date the 1^st Respondent contends Mr Chu (the owner and guiding mind of the Petitioner) and Mr Lau reached an agreement (referred to as the PB Restructuring Agreement in the Points of Defence), pursuant to which Mr Chu agreed to immediately withdraw from the PB Group and the business was as a result taken over by Mr Lau.

8.  The 1^st Respondent says this is wrong.  Mr Lau accepts that from the date he took over the PB Group he treated the Company as his own.  If (it being in dispute) the PB Restructuring Agreement was never made and consequently he accepts he wrongly excluded Mr Chu from the PB Group business, it is the 1^st Respondent’s case that the details of matters, which constitute misappropriations and diversion of business are immaterial because it is accepted that the 1^st Respondent’s conduct was wrongful.  Mr Joffe accepted on the 1^st Respondent’s behalf that if the PB Restructuring Agreement was not made Mr Lau’s subsequent appropriation of Company assets and conduct of the Company’s business is sufficient to support the relief sought and, if I understood Mr Joffe correctly, but for the clean hands defence the Petitioner would be entitled to judgment.  Consequently, says Mr Joffe the details of the 1^st Respondent and Mr Lau’s dealing with the Company and its assets from January 2014 need not be explored and discovery of documents relevant to them, which would be copious in quantity, is not necessary to determine the issues and for the fair disposal of the Petition.

9.  The difference between the Parties centers on the extent to which Mr Lau’s conduct from January 2014 is capable of being relevant to the clean hands defence.  The difficulty it seems to me that the Petitioner faces in maintaining its argument is that it has not pleaded to [44.1] in the Points of Reply.  Mr Wong argued that it must follow from the character of the matters that the Petitioner pleads in [39]–[44] of the Points of Claim concerning misappropriation and diversion of business from January 2014 that they are relevant to the question of clean hands even though they were not pleaded to address that issue.  It does not seem to me that this is the correct way to construe pleadings with a view to identifying with precision the issues for determination at trial.  Self-evidently [39]–[44] were not directed to issues, which had not yet been pleaded.  It does not seem to me that a judge coming to this matter for the first time and reading the totality of the pleadings would recognise that the facts and matters pleaded in [39]–[44] were relied on to counter the clean hands defence and how it was intended to argue they did so.  If the judge had also been told before reading the pleadings of Mr Joffe concession on behalf of the 1^st Respondent, I think it is highly unlikely that the judge would anticipate the matters pleaded in [39]–[44] having to be explored at all at trial.

10.  It seems to me clear that if the Petitioner wishes to advance a case that the determination of the clean hands defence requires certain conduct of the 1^st Respondent to be considered that needs to be pleaded. Given Mr Joffe’s clear confirmation that the 1^st Respondent accepts that there has been sufficient diversion of business to justify a winding-up order unless the 1^st Respondent establishes its clean hands defence, I do not see any justification for ordering specific discovery of the very substantial quantity of documents sought by [2]–[4] as for the purposes of proving the claim for all practical purposes [39]–[44] are admitted.

11.  The Petitioner will have to consider amending the Points of Reply (of which it was given leave in April 2020 when the clean hands defence was expressly pleaded, but did not avail itself of the opportunity) to plead to [44.1] if it remains of the view that any purpose will be achieved by attempting to rely on post January 2014 events in response to the clean hands defence.

12.  In relation to [5]–[6] the dispute is the period during which the documents are relevant.  The summons seeks all documents within these categories:

“5.  Bank and accounting documents evidencing receipt and/or repayment by Mr. Lau, his wife and any company directly or indirectly controlled by him of monies from the companies listed in ‘Annex B’ to this schedule, and all instructions given by Lau Wing Yan or at his direction in respect of the said transfers; and

6.  All bank statements, financial reports and other accounting documents of the companies listed in ‘Annex B’ to this schedule.”

13.  As drafted an order for disclosure would cover the period from the incorporation of the Company in 2004 to the current date with a continuing obligation for discovery if any new documents falling within these paragraphs were to be generated.  Mr Joffe submitted that there is no reason why disclosure should be not be limited to the period of the transactions in Annex A to Schedule 1, namely June 2003 to June 2013, which is the same period as for the transactions pleaded in the Amended Points of Defence as being misappropriations by Mr Chu.  Given my conclusion in respect of the application in respect of [2]–[4] it follows that until such time, if any, as the Reply is amended to make the period after January 2014 relevant the order in respect of [5]–[6] should be limited to the period June 2003 to January 2014 inclusive.

14.  I will order that the 1^st Respondent files within seven clear of service of a further list of documents in compliance with the order I make, a verifying affirmation in compliance with Order 25 rule 5(3) of the Rules of the High Court.  It is for the 1^st Respondent to determine what he can properly say about the way in which discovery has been conducted and for the Petitioner to decide whether or not it is content with what it receives.  I agree with Mr Wong that so far as the suggestion of an express undertaking is concerned for the same reasons I rejected this request when made by the 1^st Respondent of the Petitioner I will not order it in respect of disclosure of documents pursuant to the order made on the application I am presently dealing with.

15.  In conclusion I make the following order:

(1)  In respect of paragraph 1 of the summons an order for discovery of the following classes of documents:

(a)  Paragraph 1 of Schedule 1.

(b)  Paragraphs 5 and 6 of Schedule 1 for the period 1 June 2003 to 31 January 2014 inclusive.

(2)  An order in terms of paragraph 2 of the summons and the further paragraphs to be provided for my consideration by the parties.

(3)  I will make a costs order nisi that the costs of the summons be in the cause with a certificate for two counsel.

Mr William Wong SC, Mr Michael Lok and Ms Jasmine Cheung, instructed by Sit, Fung, Kwong & Shum, for the petitioner

Mr Victor Joffe and Mr Mike Lui, instructed by DLA Piper Hong Kong, for the 1^st Respondent

HCCW 352/2014

[2021] HKCFI 243

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 352 OF 2014

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________________

________________

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D E C I S I O N

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Introduction

1.  As the action number for the present unfair prejudice petition demonstrates the present proceedings have been on foot for some considerable time.  Although the Petitioner and the 1^st Respondent, are companies the real antagonists are their beneficial owners (Chu Kong and Lau Wing Yan) respectively, whose disputes have given rise to a number of actions both here and in the British Virgin Islands and on appeal have reached on one occasion the Privy Council.  Until about 2014 they were partners carrying on a successful shipping business known as the Pacific Bulk group.  In short it is Mr Chu’s case in the Petition that in 2014 Mr Lau engineered Mr Chu’s exclusion from the Pacific Bulk group’s business and he seeks an order that either the 1^st Respondent, Mr Lau, buys his shares or the Company be wound-up.

2.  The Petitioner seeks by its summons dated 16 October 2020 to strike out the following paragraphs of the Amended Defence:

(1)     Paragraphs 29.10(a) to (d).

(2)     Part of Paragraph 44.1.

(3)     Part of paragraph 46.

(4)     The annex to the Amended Defence.

The controversial pleading

3.  Before addressing the applications it is necessary to understand the defences that are advanced in the controversial paragraphs and also the background to the present application.  Mr Lau does not dispute that in 2014 he took over control of the Pacific Bulk group. He pleads in paragraphs 29.3 and 29.4 of the Amended Defence that in or around January 2014 he and Mr Chu entered into an oral agreement defined in the Amended Defence as the “PB Restructuring Agreement”, which is how I shall refer to it.  In paragraph 29.9 Mr Lau pleads:

“Moreoever, since the PB Restructuring Agreement, Mr. Chu fully acknowledged and recognised that the PB Restructuring Agreement was binding and effective. Richland will rely inter alia on the correspondence between and/or involving Mr. Lau and Mr. Chu both prior to and/or subsequent to the PB Restructuring Agreement. Subsequent to the PB Restructuring Agreement, Mr. Chu immediately withdrew from the management of the PB Group and moved out of the office premises used by the PB Group in early 2014, and began to set up his own shipping and logistics business using companies with the different brand/prefix ‘Quadrolink’ in April2014.”

4.  In the first of the paragraphs, which, Mr Chu, seeks to  strike-out (29.10(a) to (d)) it is then pleaded:

“29.10. Further to and/or by reason of the matters aforesaid in this Paragraph and insofar as is necessary, it is averred that (i) it would be unconscionable for Mr. Chu (and his corporate vehicles, including the Petitioner) to deny, and/or (ii) Mr. Chu (and his corporate vehicles, including the Petitioner) are estopped, debarred or prevented from denying, the PB Restructuring Agreement, the PB Trust Arrangement and/or that Mr. Lau’s full beneficial ownership over the PB Companies (including the Company and PB Cayman) as from around January 2014. Richland further avers as follows:

(a) For the purposes of implementing the auditing process under the PB Restructuring Agreement, Mr. Lau caused reviews to be conducted on the accounts of a number of the operating and cash management entities of the PB Group in around April to May 2014.

(b) Following the said reviews, Mr. Lau discovered that, without the knowledge or consent of Mr. Lau, Mr. Chu had transferred or caused to be transferred more than US$200 million from the companies jointly owned by Mr. Lau and Mr. Chu (including the PB Companies), to Mr. Chu himself (and/or his associates).

(c) Pending discovery and/or interrogatories, it is averred that approximately US$70 million had not been returned by Mr. Chu (and/or his associates) to the PB Companies, and it is averred that the said transfers constituted wrongful misappropriations from the PB Group (including PB Cayman) for the personal benefit of Mr. Chu (and/or his associates) (the ‘Unlawful Misappropriations’). A table setting out the aforesaid transfers, including the Unlawful Misappropriations, is attached as the Annex herein.

(d)   Despite repeated requests from Mr. Lau, Mr. Chu has failed to return the sums wrongfully transferred by way of the Unlawful Misappropriations, nor provided any proper explanation as to the Unlawful Misappropriations.”

5.  The Annex referred to in paragraph 29.10(e) runs to some 153 items consisting of transfers between August 2003 and June 2013 (alleged “Unlawful Misappropriations”).  This plea was in the original defence, which was served in November 2018.

6.  Paragraphs 44.1 and 46 were also in the original Defence, although they were substantially amended in May 2020.  They read as follows.  The amendments are underlined and it is those parts of the paragraphs, which the Petitioner seeks to strike-out.

“44.1. Paragraph 48(1) is denied in its entirety. It is denied that the affairs of the Company and/or PB Cayman have been and/or continued to be conducted by Mr. Lau in an ‘oppressive’ and/or ‘unfairly prejudicial’ manner, whether as alleged or otherwise. Further or alternatively, by reason of the matters aforesaid, the Petitioner and/or Mr. Chu in seeking to wind-up the Company on just and equitable grounds did not come to the Court with clean hands.

…

46.       Paragraph 50 is denied in its entirety.  It is denied that Richland should be ordered to purchase the Petitioner’s shares in the Company, and/or that Mr. Lau had committed any ‘breaches’, whether as alleged or otherwise.  Richland repeats the matters aforesaid, and avers that Mr. Lau is and remains the full beneficial owner of the Company, pursuant to the PB Restructuring Agreement.  Further or alternatively, by reason of the matters aforesaid, Mr. Lau’s conduct was not unfairly prejudicial to the Petitioner and/or Mr. Chu, and/or Mr. Chu should not be granted any of the relief’s pleaded in the Points of Claim (and the Petition); and that if (which is denied) the 1^st Respondent is to be ordered to purchase the Petitioner’s shares in the Company, any valuation must take into account the Unlawful Misappropriations.”

7.  Essentially what is being asserted by Mr Lau is that the Unlawful Misappropriations have the following consequences for Mr Chu’s claim:

(1)  The Petitioner is prevented from denying the PB Restructuring Agreement; alternatively,

(2)  as a consequence Mr Chu does not come to court with clean hands and this inhibits any right he might otherwise have had to equitable relief.

(3)  Mr Chu’s conduct is relevant to whether or not Mr Lau’s conduct was unfairly prejudicial and by reason of Mr Chu’s conduct whatever action Mr Lau might be found to have caused to occur was not unfairly prejudicial.

8.  The inclusion of paragraphs 29.10(a) to (d), 44.1 and 46  first became controversial when I heard a summons issued on 26 September 2019 for leave to file an additional witness statement and amend the Defence and a summons issued by the 1^st Respondent on 20 November 2019 for specific discovery.  Due to the general adjournment period caused by Covid-19 the applications were dealt with on paper and I delivered a decision on 29 April 2020.  I granted the summons dated 26 September 2019 and allowed the amendments, which introduced to paragraphs 44.1 and 46 the parts that the Petitioner now seeks to strike-out.  The specific discovery application sought disclosure of documents relevant to the 153 items.  I allowed the application.  I will not repeat the reasons, which are explained in my April 2020 decision.

9.  In July 2018 trial dates had been fixed for 12 October 2019 with 12 days reserved.  The Pre-Trial Review (“PTR”) took place on 17 September 2020.  However, at this time the Petitioner had still not completed complying with the specific discovery order.  In addition the 1^st Respondent indicated that it wished to adduce expert accounting evidence relevant to the transactions detailed in the Annex to the Amended Defence.  The implication of this was that the trial dates would have to be vacated.  The Petitioner opposed this course and invited me to determine that the defence advanced in paragraphs 29.10(a) to (d) and 44.1 and 46 were obviously meritless, the 1^st Respondent should not be permitted to advance them at trial and, if I so ordered, the trial could commence on 12 October 2020.  I rejected this course.  As I explained at the PTR if the Petitioner took the view that the defence pleaded in paragraphs 29.10(a) to (d) and 44.1 and 46 were unsustainable it should have applied to strike them out.  I note that as is clear from paragraph 9 of my April decision I took the view that the amendments to paragraphs 44.1 and 46 did not introduce anything substantively new, they simply clarify the import of the two paragraphs.

Strike-out application

10.  The present application to strike-out the controversial paragraphs was issued and an early date for its hearing arranged in order that it could be determined before further applications for specific discovery and expert evidence are heard on 19 February and 18 March 2021 respectively as if I grant the application it is likely to render the subsequent applications otiose.  On 19 October 2020 the 1^st Respondent served Answers to the Petitioner’s request for further and better particulars of the paragraphs of the Amended Points of Defence to which the Petitioner takes objection.

11.  It seems to me clear that the application to strike-out paragraphs 44.1 and 46 stands or falls depending on my determination of the application in respect of paragraph 29.10.  I say that because having allowed the amendments on the basis that they do not add anything substantively new any attempt to persuade me now to strike-out those paragraphs because they are individually objectionable, rather than as a consequence of them becoming unsustainable or irrelevant as a consequence of striking-out paragraph 29.10, is inviting me to reverse the decision to allow the amendments, which is impermissible.  Mr Joffe sought to persuade me that I should reject the whole application because by allowing the amendments I must be taken to have accepted that the defence, which they sought to clarify was sustainable otherwise I would not have allowed the amendment.  I do not accept that this is a correct characterisation of what I decided as at that time I was not focusing on the question of the sustainability or otherwise of the whole of defence as I was faced with piece-meal complaints about the defence on behalf of Mr Chu rather than a strike-out application.  In my view it is, therefore, permissible for Mr Chu to attempt to strike-out the entire controversial paragraphs, although I accept that the amendments in isolation are not susceptible to striking-out at this stage having been allowed by me.  If the Petitioner thought that the amendments should not have been allowed because they disclose no reasonable cause of defence it should have appealed my order of 29 April 2020.  However, as these amendments did not materially change the defence pleaded in the relevant paragraphs before amendment and I was told by Mr Joffe that they were intended to clarify the pleas, little turns on this.

12.  Mr Wong argued that the substance of the defence pleaded in the controversial paragraphs is that even if the PB Restructuring Agreement was never concluded Mr Chu is not entitled to rely on the consequence of that, namely, that Mr Lau’s diversion of the Company’s assets was unlawful and necessarily unfairly prejudicial conduct, because of the Alleged Misappropriations.  Mr Wong submits that any misappropriations by Mr Chu between August 2003 and June 2013 cannot possibly be a defence to the wrongful diversion complaint.  If the court were to reject the existence of the PB Restructuring Agreement and find that Mr Lau had wrongfully diverted the Company’s business to companies under his control a finding of misappropriation cannot deprive Mr Chu of a right to relief to which he might otherwise be entitled.  Mr Chu also complains about the inadequacies of some parts of the pleading, which I shall address later.  Before considering whether the principal complaint and other criticisms are correct I will address the legal principles relevant to this application.

Legal Principles

13.  It is not controversial that I should only strike-out the relevant paragraphs if I am satisfied that it is plain and obvious that they do not disclose a sustainable cause of defence.  In fact this I take to be so uncontroversial that neither team of counsel cited authority for the proposition.  It follows that I am not concerned to resolve disputed issues of fact or law unless the it is clear what the answer is.  This is relevant in relation to the clean hands issue.  Mr Joffe argues on behalf of Mr Lau that guidance as to the ambit of a clean hands defence is to be found in the decision of the Court of Appeal in which Rogers VP says this [1]:

“Abuse of position in the Company

Quite separately from the foregoing considerations, there is also the question of whether any special relationship could be prayed in aid by Mr Ng given his conduct in defrauding the Company of its profits and assets and sharing the spoils with Mr Kei. At p.14 of the judgment, the Judge referred to the argument by Counsel on behalf of the second respondent that Mr Ng’s real objective was not to further the Company’s prosperity but to siphon off the profits. The Judge dismissed the point on the basis that there was no evidence that this was Mr Ng’s intention when forming the Company. That is, to all appearances, correct. However, in my view, it is reading Lord Wilberforce’s speech too literally to hold that simply because at the formation of the Company there was a personal relationship which involved mutual confidence which may have been intended to be faithfully carried out, that relationship survived a blatant abuse of confidence on the part of the person seeking to found his case of justice and equity upon it. In short, by abusing his position and siphoning off profits, Mr Ng had destroyed the basis of the mutual trust and confidence.

Whether one considers this to be an application of the equitable maxim of ‘clean hands’ in my view matters not. The Judge below dismissed the application of the maxim on the basis that the petitioner’s misconduct was only relevant if it was causative of the breakdown in confidence on which the petition was based. Of course, if the misconduct were causative of the breakdown, that in itself would be conclusive. But I do not consider that a petitioner can consistently and persistently abuse his position to defraud the Company and then rely upon some prior arrangement based upon mutual confidence, to which he had not adhered, to found his claim.

There is a clear distinction between such a concept and the one which Lord Oliver was dealing with in the case of Vujnovich & Another v Vujnovich (1989) 5 BCC 740. In that case, the misconduct complained of was not merely not causative of the breakdown, but had taken place after the events which gave rise to the action in the first place.

Whilst the dictum of Lord Cross in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at p.387F:

‘A petitioner who relies on the “just and equitable” clause must come to court with clean hands, and if the breakdown between him and the other parties to the dispute appears to have been due to his misconduct he cannot insist on the company being wound-up if they wish it to continue.’

addresses the position of misconduct that was causative of the breakdown, the Judge’s statement was not directed to misconduct which negatived the original agreement of mutual trust and confidence. It does not avail the petitioner in this case to say that the second respondent was not aware of his misconduct. The reason that the second respondent was not so aware lay in the fact that the petitioner co-operated with the second respondent’s agent to deceive the second respondent. It seems to me that it cannot be right that a person can rely on principles of justice and equity when he founds his claim on an agreement which not only has he not honoured but has deliberately abused.

      For this reason also, I consider that Mr Ng cannot bring himself within the just and equitable provisions of s.177.”

14.  The matter went to the Court of Final Appeal. At [17] Ribeiro PJ agreed with the approach of the Court of Appeal [2]:

“We also agree with the Court of Appeal that it lies ill in the mouth of a petitioner who has defrauded the company and his fellow investors to complain that he has not been accorded equitable treatment by those other investors, characterised as members of an alleged quasi partnership. It is a well-known principle that he who seeks equity must do equity.”

15.  It is clear from these passages that it is at least arguable that Mr Lau can rely on misconduct by Mr Chu as a defence to Mr Chu’s claim for relief which is equitable in character regardless of whether or not the conduct was causative of the breakdown in the relationship between the shareholders.  Mr Wong argued that the English authorities demonstrate that there must be a causal relationship.  This maybe, but apart from the obvious point that it does not follow that the law in Hong Kong is the same, it is not an issue, which I should attempt to resolve on a strike-out application.  It is arguable that Mr Lau can rely on misconduct by Mr Chu regardless of whether or not it caused the behaviour by Mr Lau, of which Mr Chu complains and says lead to the breakdown of their relationship.  As a consequence matters, which      pre-date the breakdown ([29.10]) or occurred after them such as the competition claim ([40.3]) may be relevant to a consideration of what relief Mr Chu is entitled to if Mr Chu establishes the complaints on which he relies and the court finds they constitute unfairly prejudicial behaviour.

16.  This disposes of Mr Wong’s principle argument that the events relied on by Mr Lau are not capable of constituting a “clean hands” defence and thus the pleadings raising the matters said to constitute “clean hands” are demurrable.

17.  As I mention in [12] Mr Wong also took subsidiary points on the adequacy of the pleadings.  It seems to me that now that the amendments to the Points of Defence and the Answers to the Requests for Further and Better particulars have been served the complaints are arid particularly as the debates that have taken place on the hearing of the discovery application, at the Pre-Trial Review and now on the present strike-out application leave no room for misunderstanding, about what the defences are.

Conclusion

18.  I, therefore, dismiss the summons.  I make a costs order nisi that the Petitioner pay the 1^st Respondent’s costs forthwith with a certificate for two counsel such costs to be taxed if not agreed.

HCCW 352/2014

[2020] HKCFI 2774

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 352 OF 2014

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BETWEEN

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________________

D E C I S I O N

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1.  On 17 September 2020 I heard the pre-trial review for the trial of this matter, which had been fixed for a 10-day trial commencing on 12 October 2020. For reasons that are not material to the short application that I deal with in this decision the trial was adjourned.

2.  By a summons dated 12 August 2020 the Petitioner seeks an express undertaking that the 1^st Respondent and Mr Lau Wing Yan (the beneficial owner of the 1^st Respondent) provide an express undertaking that they do not use any of the documents disclosed to them in these proceedings for any purpose other than the conduct of HCCW 352/2014.  These proceedings are a shareholders’ dispute.  They form part of a series of actions between the beneficial owner of the Petitioner (Mr Chu Kong) and Mr Lau (I believe 20 actions) arising from the termination of their joint shipping business.  As the number of actions between them demonstrates the ending of their business relationship was acrimonious and no trust exists between them.  Presumably this at least, in part, accounts for the application for an express undertaking not to misuse disclosed documents.

3.  Mr Lau and the 1^st Respondent are already under an implied undertaking not to use any documents disclosed other than for the conduct of these proceedings without the permission of the court or the Petitioner.  Presumably Mr Lau has now been advised of this (if he had not before) and the serious consequences of breaching the implied undertaking. It does not seem to me that the evidence in Mr Chu’s 9^th affirmation in support of the application justifies requiring an express undertaking to be made.  What Mr Chu largely seems to be complaining about is Mr Lau in various circumstances referring to some aspects of the litigation between them.  It does not follow that this involves misuse of disclosed documents. The litigation these gentlemen have generated is taking up enough court time already without adding applications of this sort, which I will dismiss with costs to the Respondents payable forthwith with a certificate for one counsel given the simplicity of the application.

Mr William Wong SC, Mr Michael Lok and Ms Jasmine Cheung,   instructed by Sit, Fung, Kwong & Shum, for the petitioner

Mr Victor Joffe, Mr Mike Lui and Ms Theresa Chow, instructed by DLA Piper Hong Kong, for the 1^st Respondent

HCCW 352/2014

[2020] HKCFI 634

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 352 OF 2014

________________________

________________________

________________________

________________________

D E C I S I O N

________________________

1.  I have two summonses before me issued by the 1^st Respondent:

(1)  A summons issued on 26 September 2019 for leave to rely on the witness statement of Sun Min and amend the Points of Defence; and

(2)  A summons issued on 20 November 2019 for specific discovery of documents listed in the schedule to the summons and for leave to make the application out of time [1].

2.  Both summonses are opposed.

3.  The trial of the Petition is to commence on 12 October 2020 with 10 days reserved, in other words, more than 12 months after the first summons was issued.  The trial dates were fixed by me on 17 July 2019.

4.  The Company is incorporated in the British Virgin Islands.  The Petitioner is owned by Chu Kong who owns 50% of the Company.  The other 50% is owned by the 1^st Respondent, which is owned by Lau Wing Yan.  The Company has a wholly owned subsidiary: Pacific Bulk Shipping (Cayman) Limited (“PB Cayman”).

5.  In 2000 Mr Lau established the Pacific Bulk shipping group, which Mr Chu joined in 2002. PB Cayman was formed in 2008 to carry out their dry shipping business.  In time they fell out.  The Petition forms part of wider litigation between them concerning the Pacific Bulk shipping group (“PB Group”).

Summons to rely on new witness statement and amend the Points of Defence

6.  On 11 April 2019 Master Au-Yeung ordered, amongst other things, that “Unless the parties exchange or serve the witness statements in reply by 4pm on 20 June 2019, the parties in default be debarred from doing so”[2].  The parties proceeded to exchange witness statements.    Self-evidently, the 1^st Respondent subsequently found another person, Sun Min, who her legal advisers believe can give useful evidence.

7.  Ms Sun was involved in the management of the PB Group between 2008 and 2014.  It seems to me quite clear from her witness statement that she can give relevant evidence. The point is taken on behalf of the Petitioner that the application for leave to adduce Ms Sun’s witness statement is in breach of the unless order made by           Master Au-Yeung.  It is correct that the order required the parties to exchange witness statements in one tranche and to that extent the application for leave to rely on Ms Sun’s witness statement is inconsistent with the order.  However, it seems to me fairly clear that the intention of the order was to ensure that the Petition proceeded expeditiously to trial.  Witness statements were exchanged and trial dates fixed.  The introduction of the witness statement will not have any adverse effect on the preparation for trial.

8.  I will make an order in the terms of paragraphs 1 and 2 of the summons.  I will also order that the Petitioner can file and serve witness statements in reply within 35 days, which shall stand as evidence in chief at the trial unless otherwise directed by the trial judge.  I deal with costs in [11].

9.  The 1^st Respondent seeks leave to amend the following paragraphs to the Points of Defence: 3.6, 29.10, 44.1 and 46.  As Mr Joffe submits this are minor amendments. Paragraphs 3.6 and 29.10 are as Mr Joffe concedes more cosmetic than substantive.  The proposed amendment to [44.1] pleads “Further or alternatively, by reason of the matters aforesaid, the Petitioner and/or Mr Chu in seeking to wind-up the Company on just and equitable grounds did not come to the Court with clean hands.”  The proposed amendment to [46] pleads “Further or Alternatively, by reason of the matters aforesaid, Mr Lau's conduct was not unfairly prejudicial to the Petitioner and or Mr Chu should not be granted any of the reliefs pleaded in the Points of Claim (and the Petition); and that if (which is denied) the 1^st Respondent is to be ordered to purchase the Petitioner’s shares in the Company, any valuation must take into account the unlawful misappropriations.”

10.  I have considerable difficulty understanding why the Petitioner has spent time and money opposing these amendments.  I will allow them and grant an order in terms of [3] of the summons.

11.  In [42] of the Petitioner’s submissions it is proposed that if I do not dismiss the summons I invite the Parties to file submissions on costs.  I decline this invitation.  The application is straightforward and it would have been sensible to agree it.  I will make the order sought in the summons, namely, that costs of the application be costs in the cause.

Summons for Specific Discovery

12.  Discovery was ordered on 14 February 2019 in the following terms: “Within 28 days from the date hereof, parties do make and serve on the other parties a list of the documents which are or have been in their possession, custody or power relating to any matter in issue between them in these proceedings, save and accept any documents hitherto exhibited in the affidavits filed, and that there be inspection of documents within 14 days after the filing and service of the list of documents by the parties”.  An unless order was made on 11 April 2019.  On 13 September 2019 I made an order that all further interlocutory applications be made by 6 September 2019.

13.  The summons dated 18 November 2019 is an application pursuant to RHC O 24 rr 3 & 7 seeking comprehensive specific discovery of a wide range of documents relating to 153 transactions covering a period from 4 August 2003 to 14 June 2013.  Each document is identified in a schedule to the summons.  The introductory paragraphs to the summons describe the type of documents relating to the transactions of which discovery is sought.  They are as follows:

(1)  Bank and accounting documents evidencing receipt by Mr Chu Kong (“Mr Chu”) and/or his nominees / associates of the total sum of $US262,726,304.02 belonging to companies jointly owned by Mr Chu and Mr Lau Wing Yan as set out in the attached transactions schedule (the “Transactions Schedule”) disclosed by the 1^st Respondent at item 258 of its List of Documents.  In particular, please provide the relevant bank and accountings documents for transactions nos 1-4, 6-8, 10, 12-13, 15-23, 25-45, 48, 51, 56-65, 69, 72, 74-79, 81-82, 85-93, 95-106, 113, 115-116, 119-125, 129-130, 133, 135-136, 139-140, 142-143, 145, and 147-150 in the Transactions Schedule (collectively, the “Payments”).

(2)  Documents explaining the reasons for the Payments and/or that they were made to Mr Chu and/or his nominees / associates for proper business purpose(s).

(3)  Documents evidencing that the Payments (or any parts thereof) were paid back by Mr Chu and/or his nominees / associates to the companies jointly owned by Mr Lau and Mr Chu.

(4)  All contracts of affreightment, charterparties and fixture notes for dry bulk shipping business entered into from 1 January 2014 to date by companies outside of the PB Group in which Mr Chu has or had any beneficial interest or is or has been a director (the “Chu New Companies”). The Chu New Companies should include but are not limited to: (i) Quadrolink Shipping Limited; (ii) Quadrolink Group Limited; (iii) Quadrolink Resources Limited; (iv) Quadrolink Finance Limited; (v) BDH Quadrolink International Holdings Limited; (vi) BDH Quadro Marine Limited; (vii) BDH Quadrolink Food Limited; (viii) PB Maritime Company Limited; (ix) Ausca Shipping Limited; (x) Ausca Shipping HK Limited; (xi) Ausca Energy Limited; (xii) Ausca (Hong Kong) Limited; and (xiii) Ausca Shipping HK Pte. Ltd.

14.  The application is supported by the 6^th affirmation of Mr Lau.

15.  The documents are said to be relevant to the claim pleaded in section F [29] of the Points of Defence. They concern two claims.  First, which the 1^st Respondent refers to as the “Misappropriation Issue”, namely, that Mr Chu misappropriated approximately US$70m from companies in the PB Group and PB Cayman and that in these circumstances it would be unconscionable for Mr Chu and his corporate vehicles to deny, or they are estopped or debarred denying that the Pacific Bulk restructuring agreement described earlier in section F of the Points of Defence altered the arrangements between Mr Chu and Mr Lau and their respective duties.  Paragraph 29.10(a) to (d) of the Points of Defence pleads that Mr Chu had misappropriated approximately US$200m from the companies jointly owned by Mr Lau and Mr Chu (primarily the PB Group and PB Cayman) and that approximately US$70m has not been repaid.  In [29.10(c)] it is pleaded that “A table setting out the aforesaid transfers, including the Unlawful Misappropriations, is attached as the Annex herein”.  The annex contains a list of 153 transactions.  They commence with a transaction dated 4 August 2003 and end with a transaction dated 14 June 2013.  So far as I can see they are the same transactions detailed in the schedule to the summons.

16.  Secondly, what the 1^st Respondent refers to as the “Competition Issue”.  In [29.9] it is pleaded that: “moreover, since the PB Restructuring Agreement, Mr Chu fully acknowledged and recognised that the PB Restructuring Agreement was binding and effective.  Richland will rely inter aliaon the correspondence between and/or involving Mr Lau and Mr Chu both prior to and/or subsequent to the PB Restructuring Agreement. Subsequent to the PB Restructuring Agreement, Mr Chu immediately withdrew from the management of the PB Group and moved out of the office premises used by the PB Group in early 2014, and began to set up his own shipping and logistics business using companies with the different brand/prefix ‘Quadrolink’ in April 2014”.  In [40.3] it is further pleaded that: “in Section F above, Mr Lau acquired ownership over the Pacific Bulk Brand pursuant to the PB Restructuring Agreement.  On the other hand, to the best of Richland’s knowledge, Mr Chu began to set up his own shipping and logistics business in April 2014 using companies with the different brand/prefix ‘Quadrolink’, including inter alia Quadrolink Group Limited, Quadrolink Resources Limited, Quadrolink Shipping Limited, BDH Quadrolink International Holdings Limited, etc”.

17.  Both the Misappropriation Issue and the Competition Issue are dealt with in the witness statements.

18.  As can be seen from the order for discovery quoted in [12] (there is no automatic discovery in winding-up proceedings), what was ordered was general discovery in the Peruvian Guano sense.  All documents relevant to the 153 transactions that the Petitioner has it in its possession, custody of power should have been disclosed.  In Peruvian Guano [3] Brett LJ explains what documents will be relevant: a document that “contains information which may enable the party (applying for discovery)either to advance his own case or to damage that of his adversary, if it is a document which may fairly lead him to a train of inquiry which may have either of these two consequences.”  On the face of the matter I would have expected the Petitioner to have disclosed a considerable number of the documents of which discovery is sought by the November summons.

19.  Strangely in neither Parties’ skeleton arguments filed for this written application does it appear to be recognised that the Petitioner is already obliged to make (for all practical purposes) general discovery of documents relevant, in the sense that I have described in the previous paragraph, to the allegations contained in [29] and [40.3] of the Points of Defence dated 20 November 2018.  Mr Wong’s attempts in his skeleton argument to demonstrate that most of the transactions in the schedule do not relate to the Company and are irrelevant.  However, as is clear from [8] of Mr Wong’s proposed directions and note for the hearing on 14 February 2019 it was the Petitioner who proposed the discovery order, which other than for changing 14 to 21 days for compliance was exactly in the language sought by the Petitioner.  I also note that in [18(1)] of the 1^st Respondent’s written submissions for the hearing on 14 February 2019 it is specifically stated that discovery will be extensive.

20.  It does not seem to me that it is now open to the Petitioner to argue that what is clearly a material part of the 1^st Respondent’s defence is irrelevant and discovery in respect of the Misappropriation Claim and the Competition Claim need not be made.  If the Petitioner took the view that [29] and [40.3] are hopeless it could and should have proposed a more restricted and focused discovery on 14 February 2019 and, alternatively, applied to strike out [29] and [40.3].

21.  It is clear from the evidence filed by Mr Chu and Mr Wong’s skeleton argument that the Petitioner has not attempted to comply with the February 2019 order in respect of [29] or [40.3] of the Points of Defence.  In [7] of his 7^th affirmation Mr Chu says “To start with, it essentially speaks for itself that Mr. Lau is only seeking discovery at this late juncture.”  It would appear that the drafter (presumably not Mr Chu) of this affirmation did not appreciate that the Petitioner had already been ordered to make discovery in respect of the relevant allegations and that it had failed to comply with my February 2019 order.

22.  Given it is still over seven months trial to the Petitioner has time to make discovery.  I will make the following order:

(1)  The Petitioner do within 14 days from the date of this order make, file and serve an affirmation or affidavit made by a duly authorised officer of the Petitioner stating whether it has or has ever had in its possession, custody or power any of the documents or classes of documents referred to in the schedule to this order.

(2)  Leave be granted to the 1^st Respondent to issue the summons dated 18 November 2019.

(3)  There be liberty to apply.

(4)  The costs of the summons be paid by the Petitioner to the 1^st Respondent in any event with a certificate for two counsel.

23.  The schedule will read as follows:

(1)  Bank and accounting documents evidencing receipt by Chu Kong and any company directly or indirectly controlled by him of receipt of monies in respect of the transactions listed in the annex marked “Annex A”[4] to this schedule.

(2)  Bank and accounting documents evidencing repayment by Chu Kong or any company directly or indirectly controlled by him to any company jointly owned by Chu Kong and Lau Wing Yan of any of the monies any monies received in respect of transactions listed in the annex marked “Annex A” to this schedule.

(3)  All instructions given by Chu Kong or at his direction in respect of transfers described in sub-paragraphs 1 and 2 of this Schedule.

(4)  All contracts of affreightment, charterparties and fixture notes for dry bulk shipping contracts entered into between 1 January 2013 and 31 December 2019 by companies in which Chu Kong has either a direct or indirect 51% interest other than companies in the Pacific Bulk group.

Mr William Wong SC, Mr Michael Lok and Ms Jasmine Cheung,   instructed by Sit, Fung, Kwong & Shum, for the petitioner

Mr Victor Joffe and Mr Mike Lui, instructed by DLA Piper Hong Kong,    for the 1^st Respondent

HCCW 352/2014 & HCA 227/2017 & HCA 228/2017

(HEARD TOGETHER)

[2020] HKCFI 497

HCCW 352/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 352 OF 2014

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 227 OF 2017

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 228 OF 2017

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REASONS FOR DECISION

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1.  On 13 September 2019 I heard three summonses, which I determined that day:

(1) The 1^st Respondent’s summons dated 12 June 2019 in HCCW 352/2014 for the petition and HCA 227/2017 and HCA 228/2017 (and corresponding summonses in the two High Court Actions) to be tried together or at the same time.  These summonses I dismissed and ordered that the 1^st Respondent pays the Petitioner’s costs forthwith with a certificate for two counsel.

(2) The 1^st Respondent’s summons dated 23 August 2019 to extend time for the parties to take out any interlocutory applications pursuant to an order dated 17 July 2019.  I granted an order in terms.

2.  In addition there was a summons dated 11 February 2019 issued by the 1^st Respondent to stay the Petition, which was withdrawn.  I ordered that the costs be paid by the 1^st Respondent.

3.  In this decision I summarise for the record why I dismissed the summonses to have the Petition and the High Court Actions heard together.

4.  The Petition has been fixed for hearing commencing on 12 October 2020 with 10 days reserved.  The central and principal issue in the Petition concerns the existence of an alleged restructuring agreement.  The ambit of the dispute is fairly discrete. The issue also arises in the High Court Actions.  However, those Actions concern additional issues.  They are nowhere near as advanced.  Pleadings have closed.  No further steps have been taken in the Actions.  In the High Court Actions the Defendants filed a case management summons on 6 September 2019 for a hearing not earlier than 15 January 2020. Putting to one side the impression that this gives that the Defendants are in no hurry to advance the High Court Actions it seems to me that there is no sensible reason now to vacate the trial dates and leave the Petition to await the progress of the High Court Actions.  On the contrary it seems to me that resolution of the issue in the Petition is more likely than not to narrow the room for argument in the High Court Actions and hopefully (although given the animosity between the owners of the respective corporate parties this may be overly optimistic) some negotiated resolution of their dispute.