IP PUI LAM ARTHUR AND ANOTHER v. ALAN CHUNG WAH TANG AND OTHERS

HCB 3819/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 3819 OF 2011

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D E C I S I O N

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INTRODUCTION

Background

1.  This is an application for enforcement of a discovery order and for a fresh discovery order, pursuant respectively to Order 45, rule 7 of the Rules of the High Court (“RHC”) and section 29 of the Bankruptcy Ordinance. 

2.  On 2 August 2011, a bankruptcy order was made upon the bankrupt (the “Bankrupt”) on his own petition.  In a general meeting of creditors held on 30 September 2011, the Applicants were appointed the joint and several trustees in bankruptcy of the Bankrupt (the “Trustees”).

3.  The 1^st Respondents, Alan Chung Wah Tang (“Tang”) and Alison Wong Lee Fung Ying (“Wong”) are the joint and several liquidators of CWT Textile Supplies Company Limited (in creditors’ voluntary liquidation) (“CWT”).  At the time, they were partners of an accounting firm known as JBPB & Co (“JBPB”), formerly known as Grant Thornton.  JBPB is the 2^nd Respondent herein.  Subsequently, JBPB had a split into two camps consisting of Tang and Wong (the “minority partners”) in one camp and the other ten partners (the “majority partners”) in another camp.  The 2^nd Respondent is now represented by its majority partners (the “majority partners”).

4.  The Bankrupt declared negligible assets.  To investigate the financial affairs of the Bankrupt, the Trustees successfully obtained a number of disclosure orders against third parties pursuant to section 29 of the Bankruptcy Ordinance.  As result of the investigation, the Trustees believe that the Bankrupt has been operating a complex scheme using about 30 offshore companies and nominees to conceal his assets; carry on his business ventures and litigations; and pay his personal and family expenses. The investigation also revealed that through those offshore companies and his family members the Bankrupt had diverted significant amount of funds out of reach of his creditors. 

5.  On 1 November 2013, upon the joint application and by consent of the Trustees and the 1^st Respondents, in their capacity as liquidators of CWT, Deputy High Court Judge Le Pichon made an order pursuant to section 29 of the Bankruptcy Ordinance (“R1’s Order”).  Under paragraph 1 of the R1’s Order, Tang and Wong are required to produce certain documents set out in a schedule attached to the order, or if those documents are no longer in their possession, custody and/or power, to make an affirmation under paragraph 2 of the order.  At the time, the 1^st Respondents were represented by Messrs Cheng Yeung & Co (“CY”). 

6.  Similarly, on 5 November 2013, upon the joint application and by consent of the Trustees and the majority shareholders of JBPB, who were then represented by Messrs Chiu, Szeto & Cheng (“CSC”),Deputy High Court Judge Le Pichon made an order requiring JBPB, under paragraph 1 of the order, to produce certain other documents set out in the schedule attached to that order or under paragraph 2 to make an affirmation if those documents are no longer in their possession, custody and/or power (“R2’s Order”).  The 1^st Respondents dispute that they are bound by the R2’s Order which was made by the consent and instructions of the majority partners of JBPB.  They also deny CSC had authority to represent them in that application.

7.  On 2 December 2013, in purported compliance with the R1’s Order, the 1^st Respondents served a copy of a consultancy agreement between 1^st Respondents and Topmark Asia Ltd (“Topmark Asia”) and a funding agreement between the 1^st Respondent and Sun Ascent International Limited (“Sun Ascent”) (collectively, the “CWT Agree-ments”).  Thereafter, they refused the Trustees’ request for production of other documents required to be produced under the R1’s Order. 

8.  The CWT Agreements show that the 1^st Respondents secured funding from Sun Ascent to sue CWT’s former auditors for professional negligence and with consultancy services agreed to be provided by Topmark Asia to the 1^st Respondents.  The litigation was settled and the 1^st Respondents were paid a settlement sum, a significant part of which was paid to Topmark Asia and Sun Ascent, pursuant to the CWT Agreements.  The Trustees believe that the CWT litigation was one of the Bankrupt’s investments in distress assets with himself being the person behind Sun Ascent funding the litigation and Topmark Asia pocketing on his behalf the proceeds of that successful investment.  

9.  Pursuant to the R2’s Order, the majority partners of JBPB produced some documents and filed an affirmation saying that they do not have any other documents specified in that order and that those documents, if they existed, were in the possession, custody and control of the 1^st Respondents who were the partners responsible for handling the matters to which those documents related.    

10.  Hence, on 7 February 2014 the Trustees took out the present summons seeking:

(1) an order pursuant to Order 45, rule 7 of the RHC that Tang and Wong, in their capacity as the joint and several liquidators of CWT, to comply with paragraphs 1 and 2 of the R1’s Order within 14 days (the “R1’s Enforcement Order”);

(2) an order pursuant to section 29 of the Bankruptcy Ordinance that Tang and Wong, in their capacity as partners of JBPB, to produce certain documents set out in the schedule (which is the same schedule as the one in the R2’s Order) or to make an affirmation if those documents are no longer in their possession, custody and/or power (“R2’s Fresh Order”);

(3) an order that penal notice be indorsed on the order to be made (“Penal Notice Order”); and

(4) costs.

At the hearing, Mr Yu, counsel for the Trustees, asks for personal service of the order to be made be dispensed with.

Legal principlesapplicable to an application under Section 29 of the Bankruptcy Ordinance

11.  The legal issue at the heart of this application is what documents are discoverable by a trustee in bankruptcy under section 29 of the Bankruptcy Ordinance.  In Re Lee Priscilla Hwang (bankrupt)[1], Recorder Anderson Chow SC, as he then was, answered that question by making reference to discovery under the statutory regime in company insolvency under the Companies Ordinance for which there is a Court of Final Appeal authority: see Joint and Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd[2].  I agree entirely with that approach and the conclusion he reached.

12.  The functions of a trustee in bankruptcy and those of a liquidator in the company insolvency context are essentially similar in nature: ie to put the affairs of the bankrupt or the insolvent company in order and to administer his or its affairs in all their various aspects, including the getting in of any of his or its assets to pay creditors.  For that purpose, the court is given very wide power under the Bankruptcy Ordinance and the Companies Ordinance to secure production of information and documents from third parties so as to enable the trustee or the liquidator to discover the truth and circumstances connected with and to gather information about the assets, affairs and dealings of the bankrupt or insolvent company as effectively as possible, and with as little expense as possible, to complete those functions. 

13.  The court’s power to order discovery is derived from section 29(1) of the Bankruptcy Ordinance in the case of personal bankruptcy and from section 221(1) and (3) of the Companies Ordinance in the case of company insolvency.  Section 29(1) of the Bankruptcy Ordinance provides as follows:

“The court may, on the application of the Official Receiver or trustee, at any time after a bankruptcy order has been made against a bankrupt summon before it the bankrupt or his spouse, or any person known or suspected to have in his possession any of the estate or effects belonging to the bankrupt or supposed to be indebted to the bankrupt, or any person whom the court may deem capable of giving information respecting the bankrupt, his dealings or property, and the court may require any such person to produce any documents in his custody or power relating to the bankrupt, his dealings or property.”

These provisions are essentially similar to those in section 221(1) and (3) of the Companies Ordinance, which reads:

“(1) The court may, at any time after the appointment of a provisional liquidator or the making of a winding-up order, summon before it any officer of the company or person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or any person whom the court deems capable of giving information concerning the promotion, formation, trade, dealings, affairs, or property of the company.

…

(3) The court may require him to produce any books and papers in his custody or power relating to the company …”

14.  The court’s power to order discovery under these two sections is discretionary.  These two sections serve the same purpose of arming the trustee or the liquidator as officers of the court with the necessary powers to investigate the affairs of the bankrupt or the insolvent company.  A trustee in relation to the bankrupt is in the same position as a liquidator in an insolvent company. He is a stranger to the affairs of the bankrupt and faces similar difficulties as those facing a liquidator.  Thus, in my view, the principles governing the court’s exercise of the discretion under the two sections are essentially the same.  Accordingly, I would adopt the principles as set out in the judgment of the Court of Final Appeal in Joint and Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd[3], which is the leading authority in Hong Kong on the exercise of the court’s powers under Section 221 of the Companies Ordinance, as equally applicable to the exercise of the court’s powers under section 29(1) of the Bankruptcy Ordinance.  In paragraph 25 of that judgment, Lord Millett NPJ, with whom the other members of the Court of Final Appeal agreed, set out the principles as follows:

“25. The section is a vital part of the statutory insolvency regime. It is designed to meet the difficulties faced by liquidators in finding out what has happened to the company’s assets and what has caused the failure of the company. It has often been observed that a liquidator is usually a stranger to the affairs of the company. He relies on orders for examination and production to reconstitute the knowledge of the company, in circumstances where the records are often inadequate, in order to be able to perform his duties in recovering the company’s assets and generally to enable him to carry out his functions effectively and with as little expense and as expediently as possible.

…

27. It has been repeatedly stated, and the legislative purpose demands, that the powers conferred on the court by the section or its overseas equivalents are wide, general and unlimited. The liquidator must satisfy the court that the information or documents sought are reasonably required to enable him to carry out his functions. In considering this question, the authorities establish that great weight should be given to the views of the liquidator, for he is an officer of the court and alone has the necessary knowledge of the problems facing him in understanding the affairs of the company and his reasons for seeking production of documents in the terms proposed; moreover, there are often great difficulties in seeing how the terms of the order can be cut down and remain effective: see In re Rolls Razor Ltd (No.2) [1970] Ch 576 at p.592 per Megarry J; In re Castle New Homes Ltd[1979] 1 WLR 1075at 1092, per Slade J; Cloverbay Ltd (Joint Administrators) v. Bank of Credit and Commerce International SA[1991] Ch 90 per Sir Nicolas Browne-Wilkinson V.-C. at p.104; and British & Commonwealth Holdings Plc v. Spicer and Oppenheim (supra).

28. The jurisdiction conferred on the court by the section is necessarily wide, and being of an inquisitorial nature it is capable of working with great severity against third parties: see Re North Australian Territory Co. (1890) 45 Ch D 87 at p.93 per Bowen LJ. The width and potentially oppressive nature of the jurisdiction, however, is tempered by the fact that it does not follow that the court is bound to make an order merely because it has jurisdiction to do so. It has a discretion to make or refuse the order sought or to modify or limit its terms…

29. In exercising its discretion, the court must endeavour to strike a balance between the liquidator’s reasonable requirements and the need to avoid making an order that is unreasonable, unnecessary or oppressive to the party from whom the documents or information are sought: see for example In re British & Commonwealth Holdings Plc (Nos 1 and 2)[1992] Ch 342 at p.370 perRalph Gibson LJ, and at p.384 per Woolf LJ; British & Commonwealth Holdings Plc v. Spicer and Oppenheim (supra)at p.439; Re BCCI (No.12)[1997] 1 BCLC 526 at p.537 per Robert Walker J. These cases have been consistently followed in Hong Kong: see for example the Chark Fungcase (supra).

30. Over the years the courts have laid down general principles governing the balancing exercise which the court is called upon to undertake. They are conveniently set out in the Cloverbay case (supra) at pp 102-103 per Sir Nicolas Browne-Wilkinson V.-C. and In re British & Commonwealth Holdings Plc (Nos 1 and 2) [1992] Ch 342 at p.372 per Ralph Gibson LJ and at p.392 per Woolf LJ. They can be summarised as follows:

(1) The liquidator must show that the documents are reasonably required to enable him to carry out his functions, not that they are necessary to enable him to do so;

(2) the case for making an order under the section in respect of a former officer is usually stronger than in respect of a stranger who owes no fiduciary duties to the company and who is not under a statutory duty to assist the liquidator;

(3) there is an element of oppression in requiring a party to provide information which exposes him to potential liability;

(4) an order for oral examination is likely to be more oppressive than an order to produce documents;

(5) it is oppressive to require a person suspected of wrongdoing to prove the case against himself on oath prior to proceedings being brought;

(6) an order is not necessarily oppressive because it is inconvenient for the party subject to it or causes him a lot of work or may make him vulnerable to future claims;

(7) in the light of the summary nature of the procedure and the need for expedition, the court cannot be expected to indulge in fine judgments as to the precise width of the order which should be made; and

(8)     the court must take care not to cut down the width of the order sought by the liquidator in a way which would risk making it ineffective.”

15.  Tang and Wong do not accept the first proposition set out above in the bankruptcy context, ie the test for discovery is just reasonable requirement to enable the trustee to carry out his functions. They argue that the discovery sought must be relevant and discovery of the nature of a “fishing” expedition should not be allowed.  Presumably, they equate discovery under section 29 of the Bankruptcy Ordinance with general discovery under Order 24 of the RHC.   This issue was dealt with in the context of company insolvency by Lord Millett NPJ when he contrasted discovery under section 221 of the Companies Ordinance with discovery under Order 24.  He said in paragraph 33 of the judgment:

“The power of a court or arbitral tribunal to order discovery is very narrow, and narrower than the powers of the court under s.221 in at least two respects. First, discovery is limited to documents which “relate to any matter in question in the action” in circumstances where there are existing proceedings in which the issues have been defined by the pleadings.  Section 221 by contrast is concerned with documents “relating to the company” in circumstances where there is no dispute and there are no existing proceedings or issues defined by pleadings.  Secondly, a party seeking discovery is not entitled to the production of documents which may help him discover whether he has other claims not covered by the pleadings; he must not be engaged on a “fishing” or speculative expedition.  The liquidator, by contrast, is necessarily engaged in just such an expedition and the purpose of s.221 is to enable him to carry it out effectively.”

(emphasis underlined)

16.  As in the case of company insolvency, the jurisdiction conferred on the court by the section 29 of the Bankruptcy Ordinance is inquisitorial in nature.  It must of necessity be general, wide and unlimited. The trustee has a wider agenda than a party seeking discovery under Order 24.  His general mandate is to investigate the affairs and property of the bankrupt.  His functions are to put the bankrupt’s affairs in order and administer his affairs to which he is a total stranger.  He needs far wider discovery to enable him to discharge his functions than what is permissible in an ordinary inter-party or third party discovery under Order 24.  He may not know what he had to unravel from the bankrupt’s affairs.  He cannot be confined to pleaded issues.  He is not required to prove any pleaded issues on a balance of probability.  It is therefore inappropriate to compare the discovery sought under section 29 of the Bankruptcy Ordinance with that under Order 24.  Public policy requires that the trustee in bankruptcy be given a “fishing license” for the benefit of the creditors.  As in the case of company insolvency, the essential requirement is whether the information or documents sought are reasonably required to enable the trustee to carry out his functions in gathering information about the assets, affairs and dealings of the bankrupt as effectively as possible, and with as little expense as possible. 

17.  From the judgment of Lord Millett NPJ, the authorities cited therein and the analogy to company insolvency, the following principles applicable to the court’s exercise of its power under section 29(1) of the Bankruptcy Ordinance could be distilled:

(a) the power conferred by the section is general, wide, unlimited, and discretionary in nature;

(b) to invoke the court’s exercise of this discretion, the trustee bears the burden of proving (i) that the provision of information or documents is reasonably required for him to carry out his functions; and (ii) a prima facie case that the respondent is able to provide such information or documents; and in considering the issue of reasonable requirement, great weight should be given to the views of the trustee;

(c) as the power is general, wide and unlimited, exercise of such power may be oppressive to a third party or the bankrupt, the court must carefully strike a balance between the trustee’s reasonable requirements and the need to avoid making an order which is wholly unreasonable, unnecessary or oppressive to the person concerned; the burden is on the trustee to satisfy the court, after balancing all the relevant factors, it is a proper case for such an order to be made; and in this balancing exercise, the court may consider the factors mentioned in paragraph 30 of the judgment of Lord Millett NPJ quoted above.

R1’S ENFORCEMENT ORDER

The applicable legal principles

18.  The legal basis of the Trustees’ application for the R1’s Enforcement Order is Order 45 rules 6(1) which provides as follows:

“(1) Notwithstanding that a judgment or order requiring a person to do an act specifies a time within which the act is to be done, the Court shall without prejudice to Order 3, rule 5, have power to make an order requiring the act to be done within another time, being such time after service of that order, or such other time, as may be specified therein.”

19.  This jurisdiction is an absolute one.  The rule enables the court to give the respondent one last chance to comply with its order before the applicant may invoke the penal sanctions available in the court’s armory.  The burden is on the applicant to prove that an order had been made requiring the respondent to perform an act within a specified time and the respondent failed to do so.  Once that is proved, the burden is then shifted to the respondent to show why he should not be required to comply with the order to perform the act, upon being given a second chance. The obligation to perform the act required had been determined and made an order of the court.  Thus, in considering whether to exercise the discretion under this rule, there is no need for the court to revisit the appropriateness or otherwise of its previous order.  The question is simply whether in all the circumstances the respondent should be excused from performing the act under its previous order.  As the court’s orders are made to be complied, such circumstances must be very rare indeed.  A possible example would be impossibility of performance as a result of change in circumstances.

The documents required to be produced and non compliance

20.  The documents required to be produced are set out in the schedule attached to the R1’s Order, which are as follows:

“Copies of the supporting documents of the following payments made by the 1^st Respondent (on behalf of CWT Textile Supplies Company Limited (“CWT”)), including but not limited to, agreement(s) pursuant to which the following payments were made, correspondence(s) in relation to the following payments, minutes of meeting(s)/written resolution(s) of the creditors/  committee of inspection of CWT/court order(s) approving the following payments, invoice(s) and receipt(s) for the following payments:

(a) cheque no. 404944 dated 6 March 2009 in the sum of HK$20,842,330 in favour of Topmark Asia Limited;

(b) cheque no. 404943 dated 6 March 2009 in the sum of HK$4,041,965 in favour of Sun Ascent International Limited (“Sun Ascent”); and

(c) bank transfer on 8 April 2009 in the sum of HK$1,039,530 to the HSBC account no 047-896717-001 of Sun Ascent.”

The schedule is clear and unequivocal.  The documents required to be produced are documents in various classes of documents described in the schedule and not specific documents.  In short, the 1^st Respondents were required to produce all supporting documents falling within those classes in respect of three payments made by CWT to Topmark Asia and Sun Ascent, including agreements, correspondence, minutes of meeting or written resolutions of the creditors or committee of inspection of CWT or court orders.  

21.  The obligation is not at all an onerous burden to the 1^st Respondents, as joint and several liquidators of CWT.  However, they only served a copy of the CWT Agreements to the Trustee’s solicitors, Li, Wong, Lam & WI Cheung (“LWLC”) on 2 December 2013 and nothing else. Despite repeated requests, they obstinately refused to produce any correspondence, minutes of meetings, resolutions, court orders, invoices or receipts as set out in the schedule; or file any affirmation pursuant to paragraph 2 of the R1’s Order stating in respect of each document whether it had been in their custody and/or power, when it was last in their custody and/or power and the reason it is now no longer so.

22.  On 9 December 2013, LWLC wrote to CY reminding them that production of the CWT Agreements was not sufficient compliance with the R1’s Order.  CY replied on 13 December 2013 that by producing the CWT Agreements, the 1^st Respondents had discharged their obligations under the R1’s Order and R2’s Order because those agreements have proved the business relationship between CWT, Topmark Asia and Sun Ascent.

23.  When repeatedly pressed for production of all documents falling within the description of the schedule, CY wrote on 2 January 2014 and made the follow points:

“1. The documents requested by the Trustees concern 3 payments by CWT Textile Supplies Company Limited (“CWT”), and nothing more.  You and the Trustees already have the requisite bank transfer documents.

2. The supporting documents for the 3 payments are the two Agreements that our clients have disclosed under our letter dated 13^th December 2013, based on which the payments were calculated and made, and nothing else.

3. There is no need for “approval” of the payments per se as such; the payments were made pursuant to the terms of the two Agreements.  Approval of the agreements (given many years before the payments) is a totally different matter which is of no concern to the Trustees.  Approval of these agreements has no bearing whatsoever on the Trustees’ case to prove that Topmark Asia and/or Sun Ascent belong to the Bankrupt.

4. Calculation of the amount paid is part of the “working papers” of the CWT case administration, and is based on the settlement amount recorded in the settlement deed concerning the relevant litigation involving third parties (hence subject to confidentiality undertakings).  These calculations have no bearing whatsoever on the Trustees’ case to prove that Topmark Asia and/or Sun Ascent belong to the Bankrupt.

5. The Order is essentially an interlocutory order pending the Trustees establishing their claims and case to prove that various companies which the Trustees allege belong to the Bankrupt, including Topmark Asia and Sun Ascent, do indeed belong and are owned by the Bankrupt as at the date of the Bankruptcy Order (and not before, subject to bankruptcy claw back provisions).  Before the Trustees have proven their case, they cannot assume that they are in control of Topmark Asia and/or Sun Ascent and then attempt to seek unrelated and unnecessary information and documents from third parties concerning (or even NOT concerning) these two companies.”

24.  In his second affirmation filed for the purpose of resisting this application, Tang recited and adopted the position taken by CY in these two letters.  While asserting in point 2 through their solicitors that there are no other documents, the 1^st Respondents repeatedly refused to file an affirmation deposing to that effect in respect of each class of documents.  That is not performance of paragraph 2 of the R1’s Order.  Point 3 indicates there are actually documents in existence  relating to approval of the agreement for payments, but the 1^st Respondents obstinately refused to produce them.  

25.  The thrust of CY’s argument, which is adopted by the 1^st Respondents, is that the CWT Agreements which have been produced  proved the business relationship between CWT, Topmark Asia and Sun Ascent is sufficient for the Trustees, that the calculations and approval for payment are of no concern to the Trustees and have no bearing on the Trustee’s case that Topmark Asia or Sun Ascent belong to the Bankrupt. These arguments are futile.  On their own admission, the 1^st Respondents had received legal advice and instructed their solicitors to consent to an order to be made in the terms of the R1’s Order, though Tang now says he consented to save time and costs.  An order in the terms of the R1’s Order has been made by the court with their consent.  It is not for them to define what the documents the Trustees need or to re-define the terms of the order of the court.  It is not for them to have second thoughts about their consent and decide whether a document is relevant for proving the Trustee’s case and not to produce it, if it is not.  If a document exists and is within one of the classes of documents set out in the schedule, it shall be their obligation to produce it under paragraph 1 of R1’s Order.  If the document does not exist, it shall be their obligation to file an affirmation in the terms of paragraph 2 of R1’s Order.  It is not permissible for them to hide behind their solicitors to assert their non-existence, without doing so on oath.  Tang merely recited the contents of CY’s letters.  His second affirmation plainly falls short of compliance with paragraph 2 of R1’s Order.  The 1^st Respondents’ failure to perform the act required under the R1’s Order is manifest. 

Conclusion

26.  As I have said, in considering whether to exercise its discretion to grant an enforcement order under Order 45, rule 6, the court shall not revisit the issue as to the propriety of its previous order.  But, if I have to do so, I would have no difficulties at all to find it appropriate to make a fresh discovery order under section 29 of the Bankruptcy Ordinance.

27.  Firstly, I am satisfied that the various classes of documents sought are reasonably required for the Trustees to perform their functions. This is particularly so, as I shall demonstrate later, because the Trustees have established a strong case that the Bankrupt operated a complex scheme using nominees and offshore companies, including Topmark Asia and Sun Ascent to conceal his assets from his creditors.  There is clear evidence that, at least, some of the funds paid by CWT to Topmark Asia and Sun Ascent found their way to the Bankrupt through those offshore companies and were used to discharge the Bankrupt’s personal liabilities.  This suggests it is possible that Topmark Asia and Sun Ascent are under the control of the Bankrupt and that the CWT litigation is one of the Bankrupt’s investments in distress assets.  It is therefore reasonably necessary for the Trustees to obtain the documents sought to enable them to investigate whether it is proper to treat Topmark Asia and Sun Ascent as alter egos of the Bankrupt for the purpose of establishing the Trustees’ right to claim the funds paid by CWT to Topmark Asia and Sun Ascent for the benefit of the Bankrupt’s creditors.  

28.  Secondly, the documents sought are reasonably expected to be in the possession, custody or control of the 1^st Respondents as the joint and several liquidators of CWT.  The 1^st Respondents never disputed their existence and even consented to the R1’s Order to be made.  I am satisfied that the Trustees have made out a prima facie case that the documents existed and are in the possession, custody or control of the 1^st Respondents. 

29.  Thirdly, the 1^stRespondents have not asserted that the production of the documents would be oppressive, whether to CWT or to themselves in their personal capacity, so that upon balancing the oppression to them as third parties against the interest of the Bankrupt’s creditors a discovery order should not have been made.   

30.  The 1^st Respondents only adopted an antagonistic, as opposed to a neutral, approach towards the discovery application and towards this application for enforcement order.  I am surprised by the stand they are now adopting.  They have utterly failed to offer any reason why the enforcement order should not be made.  There is no suggestion that the R1’s Order is now incapable of performance.  There is no change in circumstances.  Accordingly, I grant the Trustees’ application for the R1’s Enforcement Order in the terms sought.

R2’S FRESH ORDER

Companies allegedly under the control of the Bankrupt or his nominees

31.  The thrust of the Trustees’ case that the documents sought are reasonably required is founded on their belief that the Bankrupt is operating a complex scheme using about 30 offshore companies and nominees to conceal his assets, to carry out his business ventures and litigations and to pay his personal and family expenses. 

32.  The following seven of those companies are featured in the present application, the first four of which are related to the documents sought under the R2’s Order and the R2’s Fresh Order:

(1) Topmark Asia Limited (“Topmark Asia”);

(2) DH China Consulting Limited (“DH China”);

(3) Grand Asia Capital Services Limited (“Grand Asia”);

(4) Asia-PacInfrastructureDevelopmentLimited(“APIDL”);

(5) Sun Ascent International Limited (“Sun Ascent”);

(6) Hawthorn Agents Limited (“Hawthorn Agents”); and

(7) Mainwell Development Ltd (“Mainwell”).

33.  The Trustees believe that the following family members of the Bankrupt and nominees are central to his asset concealment scheme:

(1) Jade Ho: the Bankrupt’s sister, partner of the Bankrupt’s firm of solicitors, David YW Ho & Co (the “Firm”); a director and a signatory of the bank accounts of Topmark Asia, Hawthhorn Agents, Sun Ascent, Grand Asia and DH China;

(2) Brian Chan: a former partner of the Firm, admitted nominee director of DH China; and a signatory of the bank accounts of Topmark Asia, Hawthhorn Agents, Grand Asia and DH China;

(3) Fong King Yiu: a law clerk of the Firm; a director and a signatory of the bank accounts of Topmark Asia, Grand Asia and DH China; and signatory of the bank account of Mainwell;

(4) Kellie Chan: The Bankrupt’s secretary, a director of DH China, a signatory of the bank accounts of Topmark Asia, Hawthorn Agents, Sun Ascent, Grand Asia, Mainwell, and DH China;

(5) Jeff Li: the accountant of APIDL from 1998 to 2005; an admitted nominee director of Topmark Asia; an admitted nominee director and signatory of the bank accounts of APIDL, Grand Asia, Sun Ascent and DH China;

(6) Peter Lo: the accountant who handled the Bankrupt’s investment projects held under APIDL from 2001 to 2006, an admitted nominee director of APIDL, Topmark Asia, Sun Ascent and DH China, bank account signatory of Sun Ascent and Grand Asia;

(7) Yu Yang: a staff member of the Bankrupt’s business in the People’s Republic of China (“the PRC”); the brother of the Bankrupt’s rumoured girlfriend; a director of Grand Asia; and a signatory of the bank accounts of Topmark Asia, Grand Asia and Mainwell; and

(8) Pei Xin Yu: an accounting manager employed in the Bankrupt’s PRC business, director of Topmark Asia.

Topmark Asia

34.  The Bankrupt was the sole director and bank account signatory of Topmark Asia upon its incorporation until 17 December 2004.  He was succeeded by his nominees in the following order: Jeff Li, Peter Lo, Fong King Yu, Jade Ho and lastly, Pei Xin Yu.  All the successors are related in one way or another to the Bankrupt as set out in paragraph 33 above.  In particular, Jeff Li and Peter Lo admitted to be the Bankrupt’s nominees.  Brian Chan admitted that he signed documents and arranged payments to APIDL on the instruction and behalf of the Bankrupt.

35.  Under the CWT Agreements, Topmark Asia provided consultancy services to CWT in connection with CWT’s litigation against its former auditors for professional negligence and with Sun Ascent providing the funding.  The litigation was settled.  The 1^st Respondents were paid a settlement sum, out of which substantial sums were paid to Topmark Asia and Sun Ascent pursuant to the CWT Agreements.  On 6 March 2009, the 1^st Respondent paid $24.8 million to Topmark Asia on behalf of CWT.  Four days later, Topmark Asia made payments in excess of $12 million to Grand Asia and Hawthorn Agents, which paid substantial sums to the Bankrupt, DH China and his nominees to settle the Bankrupt’s expenses shortly afterwards.  At that material time, Jade Ho was the sole director of Topmark Asia and sole signatory of its bank account.  The payments-out by Hawthorn Agents and Grand Asia were effected by cheques signed by Jade Ho and Kellie Chan.

36.  From the above fund flow and the use of the funds of Topmark Asia as his own, the Bankrupt’s beneficial interest in and control over Topmark Asia could be readily inferred.  This inference is reinforced by the fact that the line of directors of Topmark Asia after the Bankrupt were all admittedly his nominees, employees of his Firm or his business in the PRC or otherwise related to him, particularly his sister Jade Ho who was the sole signatory of the bank account of Topmark Asia at the time of those fund transfers.

Sun Ascent

37.  Jade Ho, Jeff Li and Peter Lo were directors and bank account signatories of Sun Ascent.  Jade Ho was represented to the Hong Kong and Shanghai Banking Corporation as the ultimate beneficial owner of Sun Ascent.

38.  On 6 March and 8 April 2009, pursuant to the CWT Agreements, the 1^st Respondents paid Sun Ascent two sums totalling over $5 million on behalf of CWT.  Between 19 March and 17 July 2009, about the same amount was paid by Sun Ascent to Grand Asia and Mainwell, which then made payments to settle the Bankrupt’s personal expenses and to APIDL.  The payments-out by Sun Ascent were all effected by cheques signed by the Bankrupt’s secretary, Kellie Chan.  The payments-out from Mainwell were signed by Kellie Chan.  The payments-out from Grand Asia were signed by Kellie Chan.

39.  From the above fund flow, it is manifestly obvious that the funds received from CWT by Sun Ascent were paid to Mainwell and Grand Asia which used the funds to pay the Bankrupt’s personal expenses and to pay APIDL.  All these payments were effected by the Bankrupt’s secretary and law clerk of his Firm, who were obviously his nominees.  From the use of the funds of Sun Ascent as his own, the Bankrupt’s beneficial interest in and control over Sun Ascent could be readily inferred.

DH China

40.  The Bankrupt was a director of DH China until 17 December 2004 when he was succeed by Jeff Li, Peter Lo, Fong King Yiu.  Initially, he  and Jade Ho were signatories of the bank account of DH China.  Then Fong King Yiu succeeded as the sole signatory in 2005 and by Kellie Chan since 2008.

41.  Between March and August 2009, which was around the time when Topmark Asia paid substantial sums to Grand Asia, DH China received numerous payments from Grand Asia.  Between 2009 and 2012, DH China made numerous payments to a number of companies believed to be under the control of the Bankrupt, including a payment of $120,000 to Mainwell in November 2011.  It should be recalled that between March and July 2009 Mainwell received substantial payments from Sun Ascent which are thought to be related to the settlement sum received by CWT.

Grand Asia

42.  The Bankrupt was a director of Grand Asia and its sole bank account signatory with Hang Seng Bank.  He was later succeeded as bank account signatory by Jade Ho, Jeff Li, Peter Lo, Brian Chan and Fong King Yiu and Kellie Chan.

43.  On 1 April 2011, one share in Grand Asia was transferred to Yu Yang, the Bankrupt’s employee in the PRC for US$1.  The Trustees believe that Yu Yang held the share as a nominee of the Bankrupt.

44.  It should be recalled that Grand Asia received $12 million from Topmark Asia on 10 March 2009.  It is significant also to note that Grand Asia paid the Bankrupt’s ex-wife up to 22 Mary 2012 and settled Wilkinson & Grist’s legal fees up to 9 May 2011.  Notably, Wilkinson & Grist was engaged by the Bankrupt to act for him in his personal litigations. Grand Asia also settled the travel expenses of his children up to 15 October 2010 and their dental expenses up to 15 April 2010.  Those payments were effected by cashier orders or cheques signed by Kellie Chan.

45.  Thus, through Grand Asia and with the help of his secretary, Kellie Chan, funds originating from CWT and on the face belonging to Topmark Asia were applied to discharge the Bankrupt’s liabilities to his ex-wife, children and his personal expenses.  The inference that the Bankrupt was the beneficial owner and person in control of Grand Asia can be readily drawn. 

APIDL

46.  APIDL is a member of the Asia-Pac group.  The Bankrupt alleged that he had disposed of his entire interest in APIDL in 2004 and that the company underwent a re-capitalization with issue of 750,000 shares to new owners, which further dissociated himself from APIDL.  However, the Trustees have shown that the 2004 sale and the 2007 re-capitalization were all fictitious. 

47.  It is the Bankrupt’s assertion in his tenth affirmation filed in HCA 806/2006 that he had sold his entire interest in APIDL in 2004 and exhibited a cashier order dated 18 November 2004 in the sum of $2 million as evidence of his receipt of the sale proceeds.  However, it transpired that the cashier order was issued by Brian Chan, a partner of his Firm, through his shelf company under the Bankrupt’s instruction and from funds which the Bankrupt arranged to be paid into Brian Chan’s shelf company.  Put another way, the consideration for the Bankrupt’s purported sale of his interest in APIDL was paid by the Bankrupt himself.  The sale was a sham engineered by the Bankrupt to put up a façade that he is no longer the owner of APIDL.

48.  As for the re-capitalization in 2007, the Bankrupt deposed that APIDL issued 500,000 shares to Ontrade Properties Limited (“Ontrade”) in return for the only issued share in Tsun King Group Limited (“Tsun King”) which holds certain properties in Beijing City (“Ontrade Subscription Agreement”); and issued 250,000 shares to King Ocean Development Inc (“King Ocean”) in return for cash of $25 million (“King Ocean Subscription Agreement”).  The Trustees’ case is that the re-capitalization scheme was a complex one.  For the present purpose, the Trustees’ burden is to show that the documents sought are reasonably required to enable them to perform their functions.  There is therefore no need to engage in detail analysis of the evidence.  Simply put, there is evidence to support that the properties held by Tsun King are properties belonging to the Asia-Pac group and the consideration for the subscription under the King Ocean Subscription Agreement, if paid, also originated from the Asia-Pac group.  Hence, the Trustees argue that the Bankrupt is the ultimate beneficial owner of the shares in APIDL issued under the re-capitalization scheme.  They believe that the re-capitalization was a sham and have commenced action in HCA 971/2012 to recover the shares in APIDL issued under the Ontrade Subscription Agreement and King Ocean Subscription Agreement. 

49.  The Trustees have also shown that there were significant fund transfers between APIDL and other offshore companies which the Trustees believe to be under the control of the Bankrupt, including Sun Ascent and Mainwell mentioned above.

The documents required to be produced

50.  The R2’s Order was directed at all the partners of JBPB, including the 1^st Respondents, in respect of documents in the possession, custody and/or power of JBPB.  Now that the 1^st Respondents dispute their consent to be bound by the decision of the majority partners in consenting to the order to be made, to avoid unnecessary argument, the Trustees seek a fresh order solely against the 1^st Respondents in similar terms as the R2’s Order.  The documents sought to be produced are set out in the schedule to the R2’s Order which reads:

“Copies of the supporting documents of the following payments made to the 2^nd Respondent, including but not limited to, agreement(s) pursuant to which the following payments were made, correspondence(s) in relation to the following payments, minutes of meeting(s)/written resolution(s) of creditors/ committee of inspection/court order(s) approving the following payments, invoice(s) and receipt(s) for the following payments:-

(a list of twelve particularized payments, including one cashier order and eleven payments by DH China, Topmark Asia, Grand Asia and APIDL)” 

Whether the documents sought are reasonably required

51.  The first item sought under the R2’s Fresh Order relates to a payment by a cashier order dated 23 December 2004 in the amount of $500,000 to JBPB.  The Trustees believe that Topmark Asia and Sun Ascent were vehicles established and used by the Bankrupt to carry out his personal investment in distressed assets.  This belief is based on Jeff Li’s letter to the Trustees dated 22 April 2013.  In the letter, Jeff Li told the Trustees that during his employment with the Bankrupt, he learned that the Bankrupt invested in distressed assets in Hong Kong and the PRC which were under litigation and that the Bankrupt told him that he had a friend in JBPB who introduced the distressed assets to him.  Jeff Li recalled that the payments made to JBPB were related to the Bankrupt’s investments in those distress assets.  The Trustees believe that “the friend” mentioned by Jeff Li was Tang who was the partner in JBPB responsible for handling the affairs of APIDL and that the payment of $500,000 by cashier order to JBPB dated 23 December 2004 was related to the Bankrupt’s investment in distressed assets.  In addition, according to Brian Chan, this payment was made by him while he was a partner of the Firm and at the instruction of the Bankrupt who told him that the payment was in relation to litigation expenses he or his companies incurred.

52.  Jeff Li was an accountant of APIDL from 1998 to 2005.  He admitted he was appointed by the Bankrupt as a nominee director of Topmark Asia, Sun Ascent, APIDL, Grand Asia and DH China and a signatory of their bank accounts.  He has left the employment of the Bankrupt or APIDL and may be regarded as an independent and credible witness.  It is reasonable for the Trustees to act on his assertions relating to affairs of APIDL which occurred during his employment with APIDL or the Bankrupt.  Brian Chan was a former partner of the Bankrupt’s Firm.  For the same reasons, there is no reason not to believe him.  Hence, taking the two assertions together, the Trustees reasonably believe that the documents sought in relation to this cashier order may cast light on the Bankrupt’s investments and more specifically his personal role in the litigation funding arrangements under the CWT Agreements and other arrangements that the Bankrupt may have had with Tang or JBPB.  Hence, it is reasonably necessary to discover documents relating to the cashier order.     

53.  The other eleven items sought are documents relating to payments to JBPB made by DH China, Topmark Asia, Grand Asia and APIDL (“the four companies”).   The Bankrupt was the sole director of the first three of these companies and then he was succeeded by people who admittedly were his nominees and by his employees or secretary.  From the Bankrupt’s use of the funds of these companies as his own, it could be inferred that he is the beneficial owner of these three companies. 

54.  Though the Bankrupt alleged that he had disposed of his entire interest in APIDL in 2004 and that there was another re-capitalization in 2007 which further distanced him from APIDL, the Trustees have demonstrated prima facie that the disposal in 2004 was a sham and the issue of new shares to Ontrade and King Ocean under the re-capitalization scheme in 2007 were also shams.  The Trustees therefore entertain a reasonable belief that these disposals were made to create a façade to cover up the Bankrupt’s very substantial beneficial interest in APIDL. 

55.  The Trustees have demonstrated substantial fund flows between the Bankrupt and the four companies and Sun Ascent.  In particular, substantial funds received from CWT, which possibly represent the Bankrupt’s return for his investment in distressed assets, were transferred to Topmark Asia and Sun Ascent, which were then siphoned to APIDL or to Grand Asia, Hawthorn Agents, Mainwell and DH China to be applied to settle the Bankrupt’s personal or family expenses, litigation costs and payments to his ex-wife.  The Bankrupt used the funds of these companies as if they were his own.  The natural persons in three of these companies, namely, DH China, Topmark Asia and Grand Asia, who effected or authorised the transfers were his sister Jade Ho and his secretary Kellie Chan.  It is reasonable for the Trustees to believe that the Bankrupt is the beneficial owner of these four companies.

56.  In addition, the documents or information in relation to the above twelve payments may throw light on the Bankrupt’s investments or more specifically his personal role in the litigation funding arrangements under the CWT Agreements and other arrangements that the Bankrupt may have had with JBPB through Tang.  The documents sought may also assist the Trustees to identify the corporate entities used by the Bankrupt in carrying out his investments and asset concealment scheme, which may lead to a further train of inquiry.

57.  Along the lines of CY’s letter dated 2 January 2014 quoted above, Tang argues rigorously that the discovery order is essentially an interlocutory order pending the Trustees establishing their case that the various companies which the Trustees allege belong to the Bankrupt, including these four companies, do indeed belong to and are owned by the Bankrupt as at the date of the Bankruptcy Order (and not before, subject to bankruptcy claw back provisions).  He submits that before the Trustees have proven their case, they cannot assume that they are in control of these companies and entitled to seek unrelated and unnecessary information and documents from third parties relating to these companies.  He also accused the Trustees of “fish trawling”.

58.  For reasons as already explained, the arguments of CY and Tang are based on a false premise that discovery under section 29 of the Bankruptcy Ordinance stands on the same principles as discovery under Order 24.  The test for discovery under section 29 is whether the documents are reasonably required to enable the trustee in bankruptcy to perform his functions, to discover the truth relating to the bankrupt’s affairs, business and his assets; and a  fair amount of fishing is expected and permissible under section 29: see paragraphs 15 and 16 above.  There is no need for the Trustees to prove that the Bankrupt is the actual owner of the four companies and Sun Ascent at the time of his bankruptcy.

59.  Even after the hearing, the 1^st Respondents wrote to my clerk to make further submissions on this ownership argument and accuse Mr Yu of unprofessional conduct.  I do not find it necessary to deal with the points raised in their letter.  The reasons given in the above paragraph and the legal principles as set out in paragraph 17 above are sufficient to dismiss their arguments.  I would just make the remark that their accusation of unprofessional conduct and breach of duty on the part of Mr Yu is wholly unfounded.  “Ownership” of the various companies as mentioned by Mr Yu was intended and understood to mean beneficial ownership and not legal ownership.  It is all along the Trustees’ case that these four companies and Sun Ascent are façades under the control of the Bankrupt to conceal his assets.  I have to repeat that the test for an application for discovery under section 29 of the Bankruptcy Ordinance is whether the documents sought are reasonably required to enable the trustee in bankruptcy to perform his functions.  It does not depend on proof of ownership of the companies issuing the documents.

60.  Tang argues that the Trustees should not be allowed to “improperly” use evidence obtained from other actions in support of the present application.  The evidence relied on by the Trustees are mainly affirmations filed in proceedings brought by APIDL in HCA 806/2006, in particular the Bankrupt’s tenth affirmation filed in that action.  They are not obtained by way of compulsion in other proceedings, eg by discovery, but were voluntarily produced.  As was held by Rogers VP in Shun Kai Finance v Japan Leasing (HK) Ltd[4], where a party voluntarily chooses to refer to a document in his pleading or an affidavit, it is he who has destroyed the privacy of the documents and not the other party or the court.  I do not find there was any impropriety in using the affirmations and exhibits produced by the Bankrupt and others in those other proceedings which were introduced voluntarily and not by compulsion.

61.  To enable the Trustees to discover the truth and circumstances connected with the Bankrupt’s affairs, his assets and dealings, it is reasonably necessary for them to be given access to supporting documents relating to the payments received by JBPB from these companies.  I am fully satisfied that the documents sought are reasonably required to enable the Trustees to perform their functions.

Whether R1 are able to provide the documents sought

62.  There is no dispute that JBPB has had possession of the relevant documents sought.  However, the majority partners claimed that the documents are in the possession of Tang and Wong who had conduct of the affairs of APIDL and the Bankrupt on behalf of JBPB.  This is denied by the 1^st Respondents who assert that the documents remain with the majority partners.

63.  The managing partner of JBPB, Jonathan Russell Leong (“Leong”) filed an affirmation on behalf of the majority partners.  According to Leong, Tang and Wong were the only partners in JBPB specialized in insolvency and restructuring work and were therefore the only partners engaged in the CWT liquidation.  Hence, they were the only partners of JBPB privy to the communications between CWT and others.  JBPB had two offices, one in Causeway Bay and another one in Central.  Tang and Wong and the administration department of JBPB operated in the Causeway Bay office while the other ten partners operated in the office in Central.  JBPB ceased trading on 31 December 2010.  To wind down its business, JBPB instructed Tang and Wong, who had by then joined Shinewing (HK) CPA Limited (“Shinewing”) to, inter alia, maintain the books and records of JBPB and update the general and sub-ledgers/ accounts for payments made to creditors and funds received from debtors.  Hence, since 31 December 2010, the books and records of JBPB were by and large under Tang’s and Wong’s control.  After cessation of trading, the majority partners had only retained part of JBPB’s electronic documents from the office in Central and kept the books and records subsequent to around mid-2011.  Leong averred that the books and records of JBPB prior to that time were never returned to the majority partners and they had no knowledge where they are now being kept.  Leong further alleged that despite numerous requests, Tang and Wong did not return the books and records.  The majority partners produced three documents which they said are the only documents they were able to locate.

64.  In his third affirmation filed for the purpose of this application, Tang said that the partnership under JBPB split in December 2010 and the partners have since been in litigation amongst themselves.  He said that the administration function, including storage of books and records and computer system was the responsibility of either the managing partner, Leong, or the chief executive officer, Rozario.  He and Wong were never involved with any of those functions and had no idea where and how the books and records are kept.   In response to Leong’s affirmation, he said that while he and Wong in their engagement of Shinewing agreed to update the accounting books and records of JBPB, they were never asked and never agreed to take care of or be responsible for any and all the past books and records of the partnership.  He believed that the vast volumes of old books and records would have been kept at some off-site storage which neither he nor Wong knew about.   Thus, they are unable to produce the documents now sought.

65.  Mr Yu argues that Tang’s averment is entirely inadequate.  He submits that Tang had opportunity to file his first affirmation in opposition to the Trustees’ summons dated 27 June 2013 (the “2013 summons”) applying for the R2’s Order, but chose to remain silent in the face of the above allegations by the majority partners that he and Wong had possession of the documents sought. He did not correct the Trustees of any misunderstanding about his and Wong’s position on the R2’s Order, including their ability to provide the documents, even when the consent summons for the R2’s Order was executed.  Now for the first time since the present application, Tang alleges that the documents were kept and maintained by the administration department of JBPB.  He submits that Tang’s assertion is incredible.   

66.  I cannot help feeling a sense of skepticism about Tang’s equivocal conduct.  He admitted that he was aware of the 2013 summons seeking the R2’s Order against JBPB, including the majority partners and themselves as minority partners, and had notice that CSC was to be engaged by the majority partners to represent JBPB.  He kept silent in the face of the majority partner’s assertion that he and Wong had possession of the documents sought. He also adopted an antagonistic, as opposed to a neutral, approach towards the discovery application and towards this application for enforcement order and the R2’s Fresh Order as if the Bankrupt is standing in his shoes.  Anyway, this is not a mini-trial on affidavit evidence.  Even assuming that his assertion is to be accepted, his Third Affirmation failed in two respects.

67.  First, Tang said nothing to respond to Leong’s assertion that he and Wong are the only partners of JBPB who had the conduct of the affairs relating to CWT liquidation, APIDL and the Bankrupt and that they were the partners who were privy to the communication with CWT and APIDL.  They operated in the Causeway Bay office where the records and documents sought were kept. They had conduct of the CWT liquidation, the affairs of APIDL and the Bankrupt.  In that position, the likelihood is that they had possession of the documents at some stage and should know from whom they obtained the books and records and where they were kept and are in a better position than the majority partners in the remote office in Central who had nothing to do with those matters which they were handling.  Tang’s simple assertion of no knowledge is inadequate, apart from being incredible, irresponsible, insincere, and evasive.  Tang and Wong cannot just get away with a bald assertion of lack of knowledge without giving more particulars.

68.  Second, under section 29(1), an order for discovery may be made against a person “whom the court may deem capable of giving information respecting the bankrupt, his dealings or property”.  In Re Hau Po Man Stanley[5], the Court of Appeal held that an order may be made against a respondent if the applicant can “establish a prima facie case that the respondent is able to provide such information or documents”.  The applicant need not assume the higher burden of proving that the respondent actually has the documents or information in his possession.  In my view, even if a person does not have physical possession or custody of a document, he may be deemed capable of producing the document if the document is within his control or power in the discovery context.  I would construe the words “deem capable” in section 29(1) or the word “able” as used by the Court of Appeal in Re Hau Po Man Stanley as having the same meaning as the word “power” in the discovery context and adopt the following meaning of the word “power” as construed in Gotland Enterprises v Kwok Chi Yau[6]:

“a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else.”

69.  Section 26 of the Partnership Ordinance provides:

“The interests of partners in the partnership property, and their rights and duties in relation to the partnership, shall be determined, subject to any agreement, express or implied, between the partners, by the following rules-

(i)           the partnership books are to be kept at the place of business of the partnership …, and every partner may, when he thinks fit, have access to and inspect and copy any of them.”

70.  As partners of JBPB, Tang and Wong have a presently enforceable right under section 26 of the Partnership Ordinance to inspection of partnership property and to discovery from their co-partners of all matters relating to the partnership dealings and transaction.  This right is incontestable: see Lindley & Banks on Partnership[7].  As I have said, Tang and Wong are in a better position than any of the majority partners to know where and how the records and documents were kept. The majority partners are likely to assist them in complying with the R2’s Fresh Order. Their willingness to assist the Trustees is amply demonstrated by their consent to the R2’s Order.  Tang and Wong said nothing about their inability to provide the documents, including their inability to seek such documents from the majority partners and their staff.  Tang’s as well as Wong’s position is wholly contrived.  They either have the documents in their possession and custody or have a power to obtain them from the majority partners.

Conclusion

71.  I am satisfied that the documents sought are reasonably required to enable the Trustees to perform their functions and that the 1^st Respondents are able to provide the information or documents.  There is nothing to suggest that making an order against them would be oppressive.  Accepting the possibility that they might need the cooperation of the majority partners to produce the documents, I would make the order and grant them 21 days to comply.

PENAL NOTICE AND DISPENSATION OF PERSONAL SERVICE

72.  The 1^st Respondents have demonstrated a determined refusal to comply with the R1’s Order which was made with their consent.  Tang adopted a hostile, as opposed to a neutral, attitude towards this application as if the Bankrupt were standing in his shoes.  Wong adopted Tang’s position.  They impressed me that they will not comply with any order of this court unless endorsed with a penal notice.  It is appropriate that a penal notice be endorsed on the order to be made.   

73.  The Trustees also seek dispensation with personal service on Tang and Wong.  Mr Yu referred me to the difficulties the Trustees had encountered in effecting personal service on them and urges me to dispense with personal service as the 1^st Respondents are attending the hearing and could be notified of the terms of the orders to be made including the penal notice and consequences of default.  As I was not in the position to make an order forthwith, I do not think it appropriate to take that course now.

COSTS

74.  Mr Yu asks for costs of this application be made against the 1^st Respondents on an indemnity basis. 

75.  Tang and Wong have shown themselves to be evasive and unduly antagonistic towards the application.  The terms of the R1’s Order are plain. Despite that, Tang and Wong still maintain the untenable position that disclosure of the CWT Agreements suffices.  Such a stance is plainly contradicted by the terms of the R1’s Order.  The R1’s Enforcement Order is entirely necessitated by their recalcitrant attitude in failing to comply with the R1’s Order and in attempting to re-define the terms of that order.  Tang is an experienced accountant and has ample experience in liquidation.  He should be familiar with the legal principles applicable discovery in company insolvency which are applicable to discovery in personal bankruptcy.  He took every possible technical objection and made unfounded accusations of unprofessional, oppressive and hostile conduct against the Trustees, their solicitors and their counsel.  I am surprised that he is taking such a hostile stance in this application as if he is appearing on behalf of the Bankrupt resisting discovery. Wong adopted the same stance.  They have stepped outside the realm as joint and several liquidators of CWT.  There is no reason why the creditors or contributories of CWT should bear the costs of their contesting the application on behalf of the Bankrupt.  Tang and Wong should therefore bear the Trustees’ costs of the application for the R1’s Enforcement Order on an indemnity basis and personally. 

76.  Mr Yu argues that the R2’s Fresh Order is also necessitated by Tang’s and Wong’s equivocal conduct.  They were aware that CSC was representing JBPB, including themselves.  Though Tang sent an email to CSC expressly stating that CSC should not act for him, neither Tang nor Wong brought that issue to the attention of the Trustees or their solicitors, LWLC, before the R2’s Order was sought by consent.  The 1^st Respondent could and should have filed an affirmation in response to the summons in their capacity as minority partners of JBPB.  They did not.  Had they done so, the argument today could have been disposed of at the hearing before Deputy High Court Judge Le Pichon in November 2013.  By their silence, the Trustees were led down the path of error into thinking that CSC represented all the partners of JBPB.  The application for the R2’s Fresh Order is necessitated by Tang and Wong.  There is no merit in Tang’s and Wong’s resisting the application.  For the same reasons as given in relation to the R1’s Enforcement Order, Tang and Wong should pay the costs of the application for R2’s Fresh Order on indemnity basis.  They resisted the application in their personal capacity as minority partners of JBPB.  They should therefore bear the costs of the application for the R2’s Fresh Order personally. 

77.  Accordingly, I make an order that the 1^st Respondents shall pay the Trustees’ costs of the entire application on an indemnity basis and personally.

78.  The Trustees and the majority partners agree that the latter’s costs of this application be paid out of the estate of the Bankrupt.

CONCLUSION

79.  Accordingly, I make an order against Tang and Wong in terms of paragraphs 1, 2 and 6 of the Trustees’ inter partes summons dated 7 February 2014 and in terms of paragraph 5 of the said summons but allow them 21 days to comply.  I also make an order nisi that Tang and Wong shall personally bear the costs of the said summons and the costs of the hearing on an indemnity basis.  Any party who wishes object to the costs order nisi shall do so by taking out an inter partes summons for that purpose within 14 days.  I also make an order by consent that the costs of the majority partners of JBPB shall be paid out of the estate of the Bankrupt.