HCA 227/2017
[2018] HKCFI 1402
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 227 OF 2017
______________
| BETWEEN |
| | CANTON PLUS ENTERPRISE LIMITED | 1st Plaintiff |
| | ANAIS DEVELOPMENT SA
(suing on behalf of themselves as shareholders in PROFIT FAR LIMITED (other than Team Sino Limited) and PACIFIC BULK SHIPPING LIMITED)
| 2nd Plaintiff |
| and |
| | TONG ZHENJUN (童楨軍) | 1st Defendant |
| | LIANG PAN (梁攀) | 2nd Defendant |
| | LAU WING YAN (劉永人) | 3rd Defendant |
| | PROSPEROUS ELITE VENTURES LIMITED | 4th Defendant |
| | (also known as 鑫傑創投有限公司) | |
| | PACIFIC BULK CAPE COMPANY LIMITED | 5th Defendant |
| | PACIFIC BULK ENTERPRISES COMPANY LIMITED | 6th Defendant |
| | PACIFIC BULK PANAMAX COMPANY LIMITED | 7th Defendant |
| | PACIFIC BULK SUPRAMAX COMPANY LIMITED | 8th Defendant |
| | PROFIT FAR LIMITED (also known as 益遠有限公司) | 9th Defendant |
| | PACIFIC BULK SHIPPING LIMITED | 10th Defendant |
______________
(By Original Action)
|
| AND BETWEEN |
| | LAU WING YAN (劉永人) | Plaintiff |
| and |
| | CHU KONG (朱江) | 1st Defendant |
| | CANTON PLUS ENTERPRISE LIMITED | 2nd Defendant |
| | ANAIS DEVELOPMENT SA | 3rd Defendant |
______________
(By Counterclaim) |
______________
| Before: Deputy High Court Judge Saunders in Chambers |
| Date of Hearing: 10 May, 13 and 14 June 2018 |
| Date of Decision: 22 June 2018 |
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D E C I S I O N
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Introduction
1. This case concerns the delicate interface between the provisions of the Rules of the High Court (“RHC”) contained in Order 29, rule 2, entitled “Detention, preservation etc., of subject-matter of cause or matter”, which empowers the court to make orders both for the preservation of property and the inspection of that property, and Order 24, rule 10, entitled “Inspection of documents referred to in pleadings and affidavits” which empowers the court to make orders for the inspection of documents in the discovery process.
2. At the heart of these proceedings is a dispute between Lau Wing Yan (劉永人) (“Mr Lau”) and Chu Kong (朱江) (“Mr Chu”), over the ownership of a group of companies known as the Pacific Bulk Shipping Group, (the PB Group). Ultimately, the court will have to decide whether documents made in January 2014 had the effect of transferring Mr Chu’s 50% interest in the PB Group to Mr Lau.
3. Mr Chu says agreement has not been concluded nor completed, and the PB Group is still owned by Mr Chu as to 50% and Mr Lau as to 50%.
4. Mr Chu says the documents constitute an effective agreement and he now owns 100% of the Group, and has done so since January 2014.
5. In the meantime, the litigation is being hard fought with every point being taken and virtually every application being vigourously opposed. The proceedings have spawned significant satellite litigation. It appears that the parties are determined to occupy the time of the court with satellite litigation rather than direct their attention to the real issues between them.
6. As always, when examining and applying the RHC, it is necessary for the court to bear in mind the objectives of the Rules and in particular, in this case, Order 1A, rule 1. In this case I have regard to all six subparagraphs of that rule, and in particular the requirement to ensure that a case is dealt with as expeditiously as is reasonably practical: Order 1A, rule 1(b), to promote a sense of reasonable proportion and procedural economyinto the conduct of the proceedings: Order 1A, rule 1(c) and to ensure fairness between the parties: Order 1A, rule 1(d).
Background to this application
7. It is necessary, first, to review briefly the pleadings, as the claim and counterclaim provide the fundamental backdrop to the applications that have been made.
8. Since 2008 Mr Chu and Mr Lau have been engaged, by way of a network of companies, owned either between them or individually, or through other companies, in the business of operating Capesize vessels with the centre of its business operation based in Hong Kong. Capesize vessels are vessels which are too large to pass through the Suez Canal or the Panama Canal, and consequently must make their passage between oceans by way of Cape Horn or the Cape of Good Hope. The network of companies used fall roughly into two categories, the Pacific Bulk companies (“PB Group”) and the Beibu Golf Ocean Group (“BBG Group”).
9. The dispute between the parties in respect of the BBG Group is the subject of litigation in the British Virgin Islands. The litigation with which this court is concerned is in relation to the PB Group.
10. It is not in dispute that in around January 2014 discussions took place between Mr Chu and Mr Lau with a view to dividing the PB Group and the BBG Group equally between them. There is a significant issue for the trial as to whether or not any agreement was reached, and if agreement was reached, whether or not that agreement was performed.
11. I do not understand that be any disagreement that essentially from 29 January 2014 Mr Chu and Mr Lau each operated independently, with each setting up new companies through which to undertake business in relation to Capesize vessels.
12. The case for Mr Chu is that in fact no agreement was reached, and that he has been wrongly denied access to the documents, premises and profits of the PB Group and the BBG Group. He says that Mr Lau has wrongfully misappropriated US$9 million from the accounts of the PB Group. Mr Chu says further that as a no agreement between himself and Mr Lau has either been reached or completed, he remains a 50% owner of the PB Group.
13. In January 2017, Mr Chu issued a writ of summons endorsed with a statement of claim. The action is a double derivative action brought by the plaintiff companies on behalf of themselves as shareholders in two other companies which I understand to be the principal owners of the PB Group and the BBG Group. The statement of claim alleges breaches of duty by directors of the companies, breaches of a “Common Understanding”, diversion of company business and poaching staff, misappropriation of funds, unauthorised use of trademarks, passing off, a conspiracy to injure and/or fraud/deception. The relief sought by the statement of claim comprises, inter alia, declarations of liability in respect of the misappropriation of funds, tracing of those funds and assets, an accounting and an assessment of damages.
14. On 31 May 2017, Mr Lau filed a defence and counterclaim. The defence asserts that two restructuring agreements were entered into between Mr Chu and Mr Lau in January 2014, one in respect of the PB Group and one in respect of the BBG Group (the “PB Restructuring Agreement” and the “BBG Restructuring Agreement”).
15. The allegation is that Mr Chu would immediately withdraw from the PB Group and from 1 January 2014, Mr Lau would be solely responsible for the management, operation and profit of loss of the PB Group. It is alleged that Mr Chu’s shareholding and interest in the PB Group would be assigned to Mr Lau, the price for which would be equivalent to 50% of the total audited net asset value of the PB Group as at 31 December 2013. Although there are minor references to the BBG Group, the counterclaim is essentially concerned with the PB Group.
16. For reasons that the parties dispute, an audit has not been completed. It seems not to be in dispute that steps were taken to begin undertaking an audit of the PB Group. Although the two restructuring agreements are asserted in the counterclaim, relief in the counterclaim is limited to that in respect of the PB Group Restructuring agreement.
17. In the defence, Mr Lau alleges that Mr Chu has unlawfully misappropriated approximately US$70 million from the PB Group. Annexed to the counterclaim is a nine page schedule setting out the dates, the PB Group companies and accounts from which funds were deducted or credited, and the companies and accounts controlled by Mr Chu from which funds were deducted or credited and the amount of each transaction. The net balance, which Mr Lau says Mr Chu owes to the PB Group, is a little under US$70 million.
18. By way of relief sought in the counterclaim, Mr Lau seeks specific performance of the “PB Restructuring Agreement”, appropriate declarations as to the ownership of shares, delivery of relevant documents, injunctions and damages or equitable compensation to be assessed.
19. Although not specifically (or even tangentially) referred to in the counterclaim, Mr Anson Wong SC accepted my proposition that in the event that Mr Lau’s case was established, it would be contended that the US$70 million allegedly misappropriated by Mr Chu should be credited to Mr Chu by way of a part payment of the sum to which Mr Chu would be entitled under the PB Agreement. Thereafter there would have to be an accounting to determine the final situation.
The removal of documents
20. Prior to January 2014 Mr Chu and Mr Lau together, used a property in the Shun Tak Centre as office space in which documents relating to the PB Group were held. Prior to that time both Mr Chu and Mr Lau had full access to all of the documents held. Both parties appear to accept that from January 2014 although Mr Chu had physical access to the office space, he had been denied access to the operating documents and accounting documents of the PB Group.
21. On 16 June 2017, the documents relating to the PB Group, and other documents, were unilaterally, and without notice to Mr Chu, removed by Mr Lau from that office space. I will refer to the documents removed on 16 June 2017 as “the removed documents” collectively. Mr Anson Wong says that approximately 1,000 lever arch files were removed and are now in storage. He estimated the number of documents at millions, however I doubt that there are that many documents. The average box file will contain something in the order of 350 pages, which would mean some 350,000 pages of documents.
22. Mr Chu has taken great exception to the removal and apparent securing of the removed documents. His case now is that as he is still a 50% shareholder of both the PB Group and the BBG Group he is fully entitled to access to all of the removed documents.
23. Mr Lau, on the other hand, says that he is solely entitled to the assets of the PB Group, and consequently he is the sole owner of all of the removed documents. Mr Lau does not deny that he did not inform Mr Chu of the intended removal of the documents, nor did he obtain Mr Chu’s consent or agreement to the removal of the documents.
24. The dispute now before the court is what is to be done with the removed documents, who may have access to them, and in what form or manner that access should be allowed.
25. On 1 August 2017, Mr Chu issued a summons, pursuant to Order 29, rule 2, for the following orders to be made:
“ 1. [Mr Lau] be ordered to provide to (Mr Chu) in writing within 7 days thereof, a list of all properties removed from the Rooms 1901, 1902 and 1912, 19th Floor, West Tower, Shun Tak Centre, Nos 168–200 Connaught Road Central, Hong Kong (the ‘Property’) on 16 June 2017;
2. Until trial or further order, (Mr Lau) be ordered to deliver up within 3 days hereof all documents removed from the Property on 16 June 2017 (the ‘Removed Documents’) to the office of Messrs Zhong Lun, or alternatively, Messrs DLA Piper, or alternatively, such other places as may be agreed between the [Mr Lau] and [Mr Chu] (the ‘Storage Location’), subject to an undertaking not to release the same without the consent of the parties or an order of the Court; and
3. Until the trial or further order, [Mr Lau] be ordered to enable reasonable repeated access into the Storage Location and the inspection of the Removed Documents by [Mr Lau] whether acting by himself or by his agents or otherwise, upon the giving of 24 hours’ notice.
Dated this 1st day of August 2017”
26. On 4 August 2017, Deputy High Court Judge Kenneth Kwok SCheard leading counsel for both Mr Chu and Mr Lau on this summons. The Judge made an interim order in the following terms:
“ Upon the application of the 1st and 2nd Plaintiffs (by Original Action)(the ‘Plaintiffs’) by way of Summons filed herein on 1 August 2017 (the ‘Summons’)
AND UPON reading the Affirmation of [Mr Chu] filed herein on 2 August 2017 together with the exhibits referred to therein and the Affirmation of [Mr Lau] filed on 3 August 2017 together with the exhibits referred to therein
AND UPON hearing Senior Counsel for the Plaintiffs and Senior Counsel for [Mr Lau]
IT IS ORDERED that:–
1. [Mr Chu] and [Mr Lau] do by 4:00 pm on 18 August 2017 jointly appoint an independent third party firm of solicitors (the ‘said Firm’) for the purposes mentioned below. In the event that the parties cannot agree on the firm to be appointed, a firm be nominated by the President of the Law Society shall be appointed;
2. [Mr Lau] do provide to the said Firm access to all documents within his possession, custody or power (including those previously located in Rooms 1901, 1902 and 1912, 19th Floor, West Tower, Shun Tak Centre, Nos. 168–200 Connaught Road Central, Hong Kong (the ‘Property’)) belonging to the companies listed in the Appendix herein (the ‘said Companies’), by 4:00 pm on 18 August 2017 for the purpose of making copies, save and except such documents as to which there is a claim of privilege or other reason for not providing a copy, which dispute shall be agreed or decided by a Master of the High Court;
3. [Mr Chu] do provide to the said Firm access to all documents within his possession, custody or power belonging to the said Companies (if any) by 4:00 pm on 18 August 2017 for the purpose of making copies, save and except such documents as to which there is a claim of privilege or other reason for not providing a copy, which dispute shall be agreed or decided by a Master of the High Court;
4. The said Firm do retain and safekeep the copies of the documents made pursuant to paragraphs 2 and 3 above, and shall not release the same to any other party (including[Mr Chu] and [Mr Lau] withoutfurther order of the Court or agreement of [Mr Chu] and [Mr Lau]. Upon completion of copying in paragraphs 2 and 3 above, the said Firm shall return the original documents;
5. Costs of the said Firm (including storage costs) in relation to performance of paragraphs 1 to 4 above be shared by [Mr Chu] and [Mr Lau] in equal shares at first instance, such costs shall form part of the costs of the Action herein;
6. The Summons be adjourned for argument with 1 day reserved in consultation with Counsel’s diary;
7. [Mr Lau] do have leave to file and serve affirmation evidence in opposition to the Summons by 4:00 pm on 1 September 2017;
8. The Plaintiffs do have leave to file and serve affirmation evidence in reply by 4:00 pm on 22 September 2017 (if so advised);
9. There be no further affirmation evidence without leave of the Court;
10. Costs of the Summons and today’s hearing be reserved with certificates for two counsel.
Dated the 4th day of August 2017.
[The Appendix to the Interlocutory Order contains a list of 31 companies.]”
27. It is to be noted that the order made was not one sided, as was the summons, but posed reciprocal burdens on each of Mr Lau and Mr Chu.
28. On 14 September 2017, Mr Lau issued a summons containing an application for leave to appeal the interim order, and a stay of execution. Following various procedural steps which are irrelevant to the present proceedings, by the time the matter came to me, Mr Chu had abandoned his appeal, but a stay granted by the Court of Appeal remained in place. The terms of the interim order have not been put into effect. The documents remain in each party’s sole possession, and to date neither has not given access to those documents to the other.
29. Now, there must be a substantive decision on Mr Chu’s application.
The reciprocal application by Mr Lau
30. Central to the argument of Mr William Wong SC, when the matter first came before me on 10 May 2018, was a contention that fairness demanded that there should be an “equality of arms” between the parties to the litigation. Mr Lau, Mr William Wong said, had had access to all of the removed documents to enable him to prepare his case. Fairness demanded, the submission was, that Mr Chu should have equal access to those documents to prepare his case.
31. Mr Anson Wong countered that argument with an assertion that to allow Mr Chu access to the removed documents uninhibited would be to prejudge the case, and in effect to hold, at this early stage, that Mr Chu and Mr Lau were equally entitled to the assets of the PB Group. The fallacy of the argument is seen in an examination of the reverse proposition. It may equally be argued that to deny Mr Chu access to the documents would be, in effect, to hold that Mr Lau was now the sole owner of the PB Group.
32. Whatever decision is made, I am satisfied that the case is in no way being prejudged. The steps to be taken in respect of the documents cannot be dictated by this factor. Access to the removed documents must be determined simply in accordance with the rules of court.
33. However, the concept of “equality of arms”, was an attractive concept which, together with the reciprocal nature of the interim order, led me, at that time, to suggest to Mr Anson Wong that if an order was to be made against Mr Lau, then Mr Lau may well be entitled to a reciprocal order against Mr Chu in respect of any documents he held that were relevant to the proceedings. I invited Mr Anson Wong to make an oral application to that effect at the hearing. The application was made.
34. Mr William Wong then informed the court that on that day he did not represent Mr Chu, but only the plaintiff companies. He said that as Mr Chu was not before the court and oral application could not proceed as Mr Chu was entitled to due process and to receive a formal application with an affidavit in support which he could then consider. The proposition that Mr William Wong did not represent Mr Chu at that time came as somewhat of a surprise to both myself and Mr Anson Wong, as there had been copious reference to the counterclaim which named Mr Chu individually. However as it was the stated proposition of Mr William Wong that he was not representing Mr Chu that day, the statement was accepted.
35. The matter was then adjourned to 13 and 14 June to enable the argument to continue, and to enable Mr Anson Wong’s solicitors, if so instructed, to file an appropriate application with an affidavit in support. A summons was duly filed seeking preservation and inspection pursuant to Order 29, rule 2, by both Mr Chu and Mr Lau, in relation to the documents of 102 companies listed in an appendix to the summons. In due course I will refer to that summons and to the schedule of the companies, which was divided into a total of five different groups.
Discussion
36. Mr William Wong said that the jurisdiction of the court to make the order he sought arose first, under the inherent jurisdiction, second, under Order 29, rule 2, and also under Order 24, rule 10.
37. In so far as the inherent jurisdiction was concerned, Mr William Wong submitted that at least up until January 2014, when it was not in dispute that both parties were the joint owners of the PB Group, common sense must prevail, and each party must have been entitled to inspect the documents they jointly owned.
38. As to the Order 29, rule 2 jurisdiction, Mr William Wong said that the jurisdiction was plain, that in the light of Mr Lau’s conduct it was clear that preservation of the removed documents was a vital, and as Mr Lau had access to the removed documents to prepare his case it was entirely logical that Mr Chu should be able to inspect the documents in order to prepare his case.
39. Hong Kong Civil Procedure 2018, Vol 1 (“HKCP”), at 29/8/1, records that “It would seem that, in relation to [the interlocutory orders available under Order 29, rules 2 and 3], the source of the court’s power is the inherent jurisdiction to secure by orders a just and proper trial of the issues.” That must be right.
40. In support of his argument that an order could be made under Order 24, rule 10, Mr William Wong referred me to the decision of Harman J in Dun & Bradstreet v Typesetting Facilities [1992] FSR 320 (Ch D), where the judge treated an application under Order 29, rule 2, for inspection, as an application under Order 24, rule 10, and ordered inspection. That decision arose in an action for breach of copyright. That was a case where inspection was sought before the issue of the statement of claim.
41. The judge pointed out that literal inspection of the items sought would be of no value as what was required in reality was disclosure of information contained in electronic form. He held that Order 29, rule 2 wasnot the appropriate route to achieve what the plaintiff sought. However, the judge found that where there was a genuine case in breach of confidence and copyright infringement on its merits, that in order to plead a full and proper statement of claim for the proper determination of the case, it was essential as well as being sensible, desirable and/or reasonable to allow inspection. Inspection was accordingly ordered under Order 24, rule 10.
42. The case is, in my view, one which turns very much on its own particular factual circumstances, and in this case does not assist Mr William Wong, other than to demonstrate that there are cases where it may be appropriate for the court to treat an application under Order 29, rule 2 as an application under Order 24, rule 10. Each such case will turn very much on its own particular facts.
43. On an application under Order 29, rule 2, an order may be made in relation to property in the form of a document: see Re Saxton [1962] 1 WLR 859. However, that decision also makes it clear that it is appropriate to make an order under Order 29, rule 2 when what is in issue is the form of the document or by whom it is made. Where what is in question is the content of the document, an application for inspection is governed by the rules relating to discovery of documents: see Huddleston v Control Risks Information Services Ltd [1987] 2 All ER 1035. It is this situation that gives rise to the interface between inspection under Order 29, rule 2 and inspection under Order 24, rule 10.
44. It is unusual to order inspection under Order 24, rule 10 without there having been a previous order for an affirmation under Order 24, rule 7. An important element of that affirmation is that the other party is not entitled to contravene what is sworn or affirmed in the affirmation by a further contentious affidavit or by obtaining an order to cross-examine the party, since the affirmation in answer is conclusive at the interlocutory stage of the action: see HKCP 24/7/1. An affirmation under Order 24, rule 7 is accordingly a precursor to a series of further steps which might give rise to an order for inspection.
Preservation
45. As I understood his position, by the end of the argument, Mr Anson Wong did not dispute that it would be appropriate for a preservation order to be made in respect of the removed documents. In the circumstances of this case that was a sensible position to adopt. It is equally sensible, in the hard fought circumstances of this case, that both parties should be required to preserve the documents each holds.
46. In my view the removed documents will fall into four broad categories. First, there will be a group of documents, I suspect small and limited, which belong to neither Mr Chu or Mr Lau, either individually or collectively, but which belong to employees and which were held by them in the premises. Those should be easily identifiable and easily separated from the other documents. Neither Mr Lau nor Mr Chu will be entitled to inspect those documents.
47. Second, there will be a group of documents which solely belong to either Mr Chu or Mr Lau. In respect of those documents a right of inspection will be appropriately dealt with under the discovery procedure where it is necessary for the party seeking inspection and disclosure of those documents to establish, in terms of the rules of Court an entitlement to inspect the documents. It may well be that some of those documents are simply irrelevant to the present proceedings in which case neither party will be entitled to inspect the other party’s documents falling into this category.
48. Third, there will be the PB Group documents which came into existence prior to January 2014, to which both parties were in possession prior to the removal. In respect of those documents prior to removal, Mr Chu would have had unlimited rights of inspection. Those rights have been taken away from Mr Chu, unilaterally, by Mr Lau’s “self-help” action in removing and securing the documents.
49. I accept Mr William Wong’s submission that in respect of those documents was that Mr Chu should not have to, as Mr William Wong put it, “jump through the technical hoops” of the discovery procedure.
50. Fourth, there will be PB Group documents which came into existence after January 2014, during a period when it appears that each were conducting separate businesses. Here, the question of inspection is more delicate. It is plain that the inspection sought by Mr Chu is not simply to establish the existence of the documents or to identify them or to ascertain who made them, but to examine their content for the purpose of the preparation of his case. It seems to me that inspection for that purpose falls more appropriately and comfortably within the category of discovery.
51. In so saying I do not disregard Mr Chu’s assertion that he equally owns the documents with Mr Lau, but that is an assertion which is in issue and is yet to be determined. In my view before any right in Mr Chu to inspect the PB Group or BBG Group documents that have arisen after January 2014 can be established, the body of documents will have to be identified. That is an exercise which can be undertaken by way of orders for preservation and identification.
52. It will not be necessary to identify individual documents. Documents may be identified by either their box file or by a bundle. For example, some of the box files will contain a series of similar documents, such as bank statements or invoices. Such a file would be appropriately and sufficiently identified as being “File containing X Company Limited bank statements with Y Bank for the period 1 February 2014 to 31 March 2014”. Each file should be appropriately identified, whether prior to January 2014 or after that date.
53. I am accordingly satisfied that there must be an order under Order 29, rule 2 that the documents removed from the premises by Mr Lau bepreserved and identified in accordance with this decision. There must also be an order under Order 29, rule 2 requiring Mr Chu to preserve and identify in accordance with this decision, all documents and all bank statements relating to the companies listed in the appendix to the order, within his possession, custody or power.
Inspection
54. Mr Anson Wong took the position, by the end of the argument, that it was too soon at this stage of the proceedings to make orders for inspection. There were issues, he said, as to which documents Mr Chu would be entitled to inspect, and whether the inspection was under Order 29, rule 2 or Order 24, rule 10. If the entitlement to inspection arose under discovery procedures, certain criteria were required to be established. I think that is right. For the reasons I have already given it appears to me that quite different criteria apply to the entitlement to inspection under the two rules.
55. Further, it may well be, but in my view cannot be determined until the categories of documents are identified, that certain of the documentsshould be made available to Mr Chu’s solicitors only. The usefulness of thatprocedure was identified by Hoffmann J (as he then was) in Lock Internationalplc v Beswick [1989] 1 WLR 1268, 1281, and see per Sakhrani J in Overholt v Overholt [1999] 2 HKLRD 445.
56. I accordingly do not propose to order inspection at this time but reserve the issue of inspection to be considered following preservation, identification and copying of the documents.
57. Leave is accordingly reserved to apply.
The reciprocal application
58. Annexed to the draft order prepared by Mr Anson Wong in respect of the reciprocal application was a schedule of 102 companies in respect of which Mr Lau sought a reciprocal order against Mr Chu. Although the application was couched in terms of Order 29, rule 2, I understand that some of those companies at least are companies which came into existence after January 2012. In so far as that is the case, the application is properly to be considered under Order, 24 rule 10, an application for inspection. As indicated above, a pre-requisite to the application for inspection under that Order is an affirmation under Order 24, rule 7.
59. The case for Mr Chu is that he had no documents in respect of all of those companies except for 10 on a list which was attached to a draft order prepared by Mr William Wong. Mr Chu had made an affirmation to that effect.
60. That however proved not to be the case, for Mr William Wong was obliged to acknowledge that companies number 85 – 91 in the appendix to the draft order prepared by Mr Anson Wong were companies in which the pleadings on the part of Mr Lau recorded were involved in the alleged misappropriation. Plainly, documents held by Mr Chu in respect of those companies were properly discoverable.
61. Mr Anson Wong submitted that the assertion by Mr William Wong that an affirmation already filed by Mr Chu Mr Chu asserting that he held no documents for any other companies was not sufficient. Mr Anson Wong said, correctly in my view, that that affirmation was not an affirmation made under Order 24, rule 7, and that such an affirmation was essential to commence the series of steps that needed to be taken if it was intended to challenge the conclusiveness of an O 24 r 7 affirmation. For that reason, Mr Anson Wong said that the order to be made under the reciprocal application should require a further affirmation from Mr Chu.
62. I agree. More than enough technical points have been taken in these proceedings to date, and the door should not be opened to further technical delays.
63. However, I do not order inspection of any documents referred to in an Order 24, rule 7 affirmation to be made by Mr Chu at this stage, for the same reasons that I do not order inspection of the removed documents at this stage. Requiring Mr Chu and Mr Lau to make Order 24, rule 7 affirmations at this stage will assist in advancing the proceedings. It will ensure that the proceedings are not delayed by a technical objection that there is no Order 24, rule 7 affirmation.
The entities to be the subject of Order 24, rule 7 affirmations
64. Mr Anson Wong’s draft order in respect of the reciprocal application set out a list of the entities in respect of which Mr Lau requested that Mr Chu should make an affirmation. The list contains five categories.
65. The first category were 31 companies relating to the PB Group Restructuring Agreement and referred to in the order made on 4 August 2018. I do not understand Mr William Wong to dispute that list other than in respectof Pacific Logistics CN-Net Limited. I am satisfied that the evidence establishes in correspondence that Mr Lau has made a claim in respect of that company and that it is accordingly to be included in the list.
66. The second category comprised a list of 19 companies which were involved in the PB Group but not included in the original list. I did not understand Mr William Wong to dispute that list and those 19 companies must be included.
67. The third category are described as companies relating to the BBG Restructuring Agreement. Mr Anson Wong was obliged to acknowledge that neither the claim nor the counterclaim related to the BBG Restructuring agreement. There is accordingly no basis upon which documents relating to that group might be the subject of orders. As the matter presently stands they are irrelevant. In the event that the pleadings develop further they may become relevant, but that is a matter for the future.
68. The fourth category of documents are described as companies related to the suspected misappropriations. Attached to the counterclaim is a schedule setting out details of the transactions which Mr Lau contends amount to misappropriations. Each of the 7 companies in this category are contained in that list, described as either the payers or recipients of the sums of money alleged to have been misappropriated. However, as Mr William Wong says, any right of disclosure or inspection must be limited to the documents establishing the transactions alleged in the schedule. The order in that respect will be so confined.
69. The fifth category are described as “other companies”. As I understand it, companies 92 – 96 on the list are companies owned by Mr Chu and are companies which he has used to conduct the business since January 2014.
70. If, as is asserted by Mr William Wong, Mr Chu does not hold any documents that are relevant he must say so in an affirmation, in proper form, pursuant to an order under O 24 r 7.
71. I understand that the companies listed as 97 – 102 were not part of the PB Group or the BBG Group and are personal companies owned by Mr Chu which are not relevant to the proceedings. No affirmation need be made in respect of those companies, but leave is reserved to apply.
The order
72. I propose that the order will be in the following terms:
1. Mr Chu Kok Wing (Mr Chu) and Mr Lau Wing Yan (Mr Lau) shall by 4.00 p.m., 28 days after the sealing of this Order, jointly appoint an independent third party firm of solicitors (the Firm) for the purposes mentioned below. In the event that the parties cannot agree, within that time, on the Firm to be appointed a firm to be nominated by the President of the Law Society of Hong Kong, not more than 7 days thereafter, shall be appointed.
2. Mr Lau shall provide to the Firm access to all documents within his possession, custody or power, including all those documents previously located in Rooms 1901, 1902 and 1912, 19th Floor, Shun Tak Centre, Nos 168-200 Connaught Road Central, Hong Kong, (the property), belonging to the companies listed in the Appendix hereto (the Companies) not later than 14 days after the appointment of the Firm.
3. The Firm shall, as soon as convenient, identify the documents provided by Mr Lau in accordance with paragraph 46 of the Decision herein. A copy of the list of documents so identified shall be provided by the Firm to Mr Lau and Mr Chu following the completion of the identification.
4. Mr Chu shall provide to the Firm access to all documents within his possession, custody or power belonging to the Companies, not later than 14 days after the appointment of the Firm.
5. The Firm shall, as soon as convenient, identify the documents provided by Mr Chu in accordance with paragraph 46 of the Decision herein. A copy of the list of documents so identified shall be provided to Mr Lau and Mr Chu following the completion of the identification.
6. In the event that either Mr Lau or Mr Chu wishes to object to the disclosure of any document or group of documents upon the basis of a claim of privilege or other proper reason for nondisclosure, he shall provide a list of the documents identified to which objection is taken no later than 14 days following the provision by the Firm of the list of identified documents in which objected documents are included. In the event of any dispute in relation to an objection that dispute shall be resolved by the parties by agreement, or if no agreement can be reached, determined by a Master of the High Court.
7. The Firm shall, as soon as convenient following the completion and supply of the lists of documents, make copies of all documents provided by Mr Lau and Mr Chu, save and except such documents as to which a claim for nondisclosure has been made pursuant to paragraph 6 hereof. Following the resolution of any such claim copies shall be made of all documents in respect of which a claim has failed. In the event of a successful claim for nondisclosure, the relevant documents shall be returned to the provider following the resolution of the claim, without being copied.
8. Neither Mr Lau nor Mr Chu shall, without further order of the Court, be entitled to inspect the copies of the documents provided by the other to the Firm.
9. The Firm will retain and safekeep the copies of the documents made pursuant to paragraph 7 herein and shall not release the same to any other party (including Mr Lau and Mr Chu) without further order of the Court or the agreement of Mr Lau and Mr Chu.
10. Upon completion of the copying referred to in paragraph 7 hereof, the Firm shall return the original documents to the parties who provided them to the Firm. Upon receipt of the returned original documents Mr Lau and Mr Chu shall preserve the said documents.
11. Pursuant to O 24 r 7 Rules of the High Court, within 14 days following the provision of the list containing the identification of the documents provided by Mr Lau pursuant to paragraph 3 hereof, Mr Lau shall make an affirmation as to the list of documents.
12. Pursuant to O 24 r 7 Rules of the High Court, within 14 days following the provision of the list containing the identification of the documents provided by Mr Chu pursuant to paragraph 4 hereof, Mr Chu shall make an affirmation as to the list of documents.
13. The costs of the Firm (including storage costs) in relation to the performance of the provisions of this Order shall be shared by Mr Lau and Mr Chu in equal shares at first instance and shall be payable forthwith upon the receipt of an invoice from the Firm. Any such costs shall form part of the costs of the action herein.
14. Leave is reserved to apply.
15. Costs are reserved.
73. In the event of any disagreement as to the precise form of the order I would hope that the parties’ solicitors and counsel will be able to resolve the disagreement in accordance with this decision. If any issue arises, leave to apply at short notice is reserved.
Costs
74. The issue of inspection of documents, the ultimate object of both applications, is far from complete. The question of costs is reserved.
| | (John Saunders) |
| | Deputy High Court Judge
|
Mr William Wong SC, leading Mr Michael Lok and Ms Cherry Xu instructed by Sit Fung Kwong & Shum, for the 1st and 2nd plaintiffs
(by original action) and the 1st defendant (by counterclaim)
Mr Anson Wong SC, leading Mr Martin Kok, instructed by DLA Piper Hong Kong, for the 3rd defendant (by original action)
and the plaintiff (by counterclaim)