CSIL LTD v. LO FONG HUNG AND OTHERS

HCA 431/2022

[2024] HKCFI 1200

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 431 OF 2022

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D E C I S I O N

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A.  INTRODUCTION

1.  By summons of 14th August 2023 (“the Summons”), the 4th to 7th Defendants (“D4-7”) applied to discharge an order made by DHCJ Pow SC (“the Judge”) of 31st July 2023 (“the Disclosure Order”); alternatively, leave to appeal against the Disclosure Order.

2.  Under the Disclosure Order, the Industrial and Commercial Bank of China (Asia) Limited (“ICBC”) was required to disclose account opening documents and bank records for the period from April 2016 onwards in respect of D4-7’s accounts held with ICBC.  The Disclosure Order had been sought by the Plaintiff (“CSIL”) to assist in tracing the funds which it says were misappropriated by D4-7 from CSIL in 2016.

B.  THE FACTUAL BACKGROUND

B1.  The parties

3.  CSIL, a Hong Kong company, is owned as to 70% by New Bright International Development Ltd (“New Bright”).  New Bright in turn is owned as to 70% by Fung Yuen Kwan, Veronica (“Ms Fung”) and as to 30% by the 1st Defendant Lo Fung Hung (“Ms Lo”).

4.  CSIL initially had three directors: Ms Fung, Ms Lo, and Eder Egidio Pires Ferreira (“Mr Ferreira”).  It is Ms Fung’s case that on 12th January 2022, two further directors were appointed, namely, her brothers Fung Ting Hang, Baton and Fung Ting Bong, Harry (together, “the Fung Brothers”); Ms Lo challenges the validity of these appointments and says that they are in breach of a “Co-operation Agreement” which governs the running of New Bright.

5.  Ms Lo was an authorised signatory of CSIL’s bank accounts. She is represented by Messrs Sit Fung Kwong & Shum (“SFKS”).

6.  The 2nd Defendant is Ms Lo’s husband.  He was the Financial Consultant of CSIL, and an authorised signatory of CSIL’s bank accounts. He is the director of the 6th and 7th Defendants.

7.  The 3rd Defendant was a former employee of CSIH Ltd, an associate company of CSIL.  She was also the Assistant Finance Manager / Finance Manager of CSIL and its subsidiaries.  She is represented by Messrs Kwok, Ng and Chan (“KNC”).

8.  D4-7 are companies incorporated in the British Virgin Islands (“the BVI”) or the Cayman Islands.  Ms Lo is a director of the 4th and 5th Defendants, a former director of the 6th and 7th Defendants, and the beneficial owner of all of D4-7. D4-7 were represented KNC until 31st August 2023, when SFKS replaced KNC as the solicitors on record.

9.  The 8th Defendant was not a subject of CSIL’s application for disclosure.

B2.  This action and related proceedings

10.  CSIL’s claim against D4-7 relates to the proceeds from a project involving the sale of its equity interest in various subsidiaries (“the Haikou Proceeds”).

10.1  CSIL says that between April and June 2016, a substantial portion of the Haikou Proceeds were transferred from CSIL’s bank account to the bank accounts of D4-7 (and the 8th Defendant) pursuant to the instructions and/or approvals of Ms Lo, the 2nd Defendant and/or the 3rd Defendant.  It is said that US$81m was transferred to D4-7’s bank accounts with ICBC (“the Accounts”).

10.2  D4-7 accept that part of the Haikou Proceeds was transferred to them, but they say that they were made pursuant to a consensus between one Sam Pa (Ms Fung allegedly being his mistress) and Ms Lo.

11.  Ms Lo says that unbeknownst to her, on 20th April 2022, Ms Fung, the Fung Brothers and Mr Vyasa Mahizhnan Arunachalam (“Mr Arun”), said to be an associate of Ms Fung, procured Messrs MinterEllison LLP (“ME”) to commence the current proceedings.  She says that ME did not have authority to represent CSIL and Mr Arun did not have authority to give instructions to ME, as the purported authority stemmed from board resolutions of CSIL at which the Fung Brothers voted.^[1]

12.  Ms Lo then complains that whilst the writ in the current proceedings was issued in April 2022, it was not served at the time, and only in April 2023 were steps taken to extend the validity of the writ and for leave to serve the writ out of the jurisdiction.  Accordingly, the current proceedings were not subject to the order for a stay made on 1st November 2022 in HCMP 2219/2020 (see below).

13.  On 26th April 2023, CSIL was given leave to serve a concurrent writ of summons out of the jurisdiction against Ms Lo and D4-7.  The application for leave to serve out of the jurisdiction was supported by the 1st Affirmation of Vyasa Mahizhnan Arunachalam (“Arun 1st”).

14.  On 16th May 2023, CSIL obtained an extension of time to file and serve its statement of claim.  The application had been opposed by the 2nd and 3rd Defendants, who were represented by SFKS and KNC respectively.  At this hearing, the 2nd and 3rd Defendants were informed of CSIL’s intention to seek disclosure against ICBC.

15.  On 13th July 2023, CSIL issued a summons seeking disclosure of documents relating to the Accounts, including correspondence between ICBC and D4-7, records of ownership and control of the Accounts, and records of payment out of the Accounts for the relevant period pursuant to s.21 Evidence Ordinance (“EO”) and the court’s inherent jurisdiction (“the Disclosure Summons”).

16.  On 21st July 2023, CSIL served on D4-7 the concurrent writ of summons, Master Lai’s order giving leave for service out of the jurisdiction, the Disclosure Summons, the 3rd Affirmation of Sham Yiu Kam, and the 2nd Affirmation of Vyasa Mahizhnan Arunachalam (“Arun 2nd”).

17.  At a hearing on 31st July 2023, the Judge granted the Disclosure Order.  CSIL was represented by Mr Harrison Miao of counsel, and D4-7 by Mr Ng Man Kin of KNC (“Mr Ng”).

18.  On 14th August 2023, D4-7 issued the Summons, seeking to discharge the Disclosure Order, or alternatively leave to appeal against it.

B3.  Related proceedings

19.  There are various other proceedings ongoing between the parties, including the following.

20.  The challenge to the validity of the Fung Brothers’ appointment is the subject of HCMP 51/2022 (“the CSIL OS”).

21.  In December 2020, Ms Lo commenced HCMP 2219/2020, an unfair prejudice petition in relation to New Bright.  It is in those proceedings that Ms Lo has asserted the existence of the Co-operation Agreement.

22.  In HCMP 2219/2020, on 1st November 2022, Anthony Chan J ordered that there be a trial of a preliminary issue relating to the existence of the Co-operation Agreement, and a stay of various sets of related proceedings including the CSIL OS pending such trial.

C.  D4-7’S GROUNDS

23.  D4-7 say that the Disclosure Order was “in substance made ex parte”, and should be discharged on the grounds of lack of urgency, material non-disclosure, and misleading statements.^[2]

C1.  Whether Disclosure Order ex parte

24.  It will be apparent that D4-7’s grounds are premised on the Disclosure Order having been made ex parte.  D4-7 say that CSIL obtained the Disclosure Order on an ex parte basis, as:

24.1  CSIL failed to serve Arun 1st on D4-7.  Whilst Arun 2nd was the supporting affirmation for the Disclosure Summons, and both of these documents were served on D4-7, Arun 2nd referred to Arun 1st, which was not served; both had to be read together in order to properly understand the application for disclosure;

24.2  D4-7 did not have a reasonable opportunity to respond to the Disclosure Summons.  Although the Disclosure Summons was issued on 13th July 2023, the summons (and other documents) was served on D4-7 at their address in the BVI and Cayman Islands on Friday 21st July 2023 local time (around midnight on Saturday 22nd July 2023), and came to the notice of D4-7’s directors, who were based in Hong Kong and mainland PRC, only on 25th July 2023, after D4-7’s offshore company secretary forwarded the papers to their Hong Kong secretary.

C1.1  Service of Arun 1st

25.  An application under s.21 EO for discovery of banker’s records may be made without summoning the bank or any other party (which would of course include the banker’s customer): s.21(2) EO.  This does not, however, shed light on whether an application made in the absence of such service is one made ex parte.

26.  The starting point in the present case is that CSIL in fact served the Disclosure Summons and the supporting affirmation Arun 2nd on D4-7, some nine to ten days^[3] before the hearing of 31st July 2023.  Pursuant to O.32 r.3, the requisite two clear days’ notice of the Disclosure Summons was given.  I agree with the submissions of Mr Laurence Li SC (appearing with Mr Harrison Miao), counsel for CSIL, that this constitutes proper notice of the application under the rules of court, such that the application should be treated as an inter partes application.  A hearing is an inter partes hearing if due notice of it has been given to the responding party: Chu Shu Ho David v Lam Hon Lit Harry, unreported, HCA 3525/2002 and HCA 3618/2002, 30th October 2002, at [15] (Chu J, as she then was).  Given that there are express rules of court providing for the time frame for service of a summons, where that time frame has been observed, it should be taken that the respondent has been given proper notice of the application: Alpha & Leader Associates Ltd v Victory Mega Trading Ltd [2023] HKCFI 2322 at [153] (DHCJ Winnie Tsui).

27.  Counsel for D4-7, Mr William Wong SC (appearing with Ms Sharon Yuen and Mr Jiang Zixin) cited a number of authorities in support of the submission that the lack of service of Arun 1st meant that the hearing of 31st July 2023 was ex parte.

27.1  Tiger Resort Asia Ltd v Kazuo Okada [2018] HKCFI 472 was cited for the proposition that where, in an application under s.21 EO, the account holder has not been served, the application will be considered ex parte vis-a-vis the account holder.  In that case, what DHCJ Yeung SC (as he then was) held was that even if an account holder has not been served, that would not prevent an order under s.21 EO being made. See [17] to [24].  He observed that two of the parties had not been served with the summons or supporting affidavit and in that context described the application as being ex parte as far as they were concerned (see [10]).  I do not consider that it follows that where an account holder has been served with the s.21 EO summons and supporting affidavit, but that supporting affidavit refers in turn to an earlier affidavit, the lack of service of that earlier affidavit means that the hearing must be ex parte vis-a-vis the account holder.

27.2  In Aisan Corporation of America & anor v Unknown Bank Account Holder(s) with DBS Bank (Hong Kong) Ltd & ors [2023] 2 HKC 556, reference to Tiger Resort Asia Ltd was made for the proposition that the court has the power to make an order ex parte under s.21 EO (see [12], Au-Yeung J).  This does not take the matter further.

27.3  Mr Wong went on to submit that even where two clear days’ notice has been given, an application is treated as ex parte where the respondent was not afforded a reasonable opportunity to respond by the time of the hearing, citing Muginoho Co Ltd v Vimiu HK Co Ltd, unreported, HCMP 107/2012, 24th February 2012; Chen Lingxia v 中國金谷國際信託有限責任公司[2019] HKCFI 379.  I note that in Muginoho, the application was treated as ex parte as the defendant had not been afforded a reasonable opportunity to argue against the grant of the injunction against it, but Mimmie Chan J went on at [5] to consider the matter on the alternative basis that the application  was inter partes in the sense that due notice had been given.  In Chen Lingxia at [41] to [42], it was held that the application was inter partes, the requisite two clear days’ notice having been given.

28.  Mr Wong further submitted that in such a situation (where the requisite notice has been given, so that the hearing is conducted on an inter partes basis, but the respondent has not had a reasonable opportunity to respond by the time of the hearing), the duty to give full and frank disclosure nevertheless arises.  In this regard, I agree with the analysis in Alpha & Leader Associates Ltd at [146] to [161] that the duty of full and frank disclosure is one that arises in ex parte applications and does not extend to inter partes applications.  I summarise DHCJ Winnie Tsui’s analysis as follows.

28.1  The reason why the duty arises in an ex parte application is because the respondent has not been notified of it, and consequently is absent from the hearing at which the ex parte order is made.  This is prima facie in conflict with one of the cardinal rules of our legal system that the court hears both sides before making an order.  To compensate for that the court requires an ex-parte applicant to make known to the court all material matters fully and frankly before it makes its decision.

28.2  Where notice has been given in compliance with the express rules of court (in this case O.32 r.3), the court can and should proceed on the basis that the respondent has been given proper notice of the application.  In our adversarial system of litigation, it falls to the respondent to adduce evidence and make submissions in response to the application as it sees fit.

28.3  If the threshold giving rise to the duty of full and frank disclosure is one of where the respondent has not had a reasonable opportunity to respond by the time of the hearing, then this would give rise to uncertainty.  Even where an applicant has properly served his application within the timeframe provided for under the rules, he would not know precisely what his obligations of disclosure will be at the hearing and would not be able to prepare accordingly.  It will depend not on whether the applicant has complied with the rules, but on whether the respondent has had a chance to prepare his evidence and arguments, which are matters that the applicant cannot usually control or necessarily foresee.  I would add that whilst it may be argued that a standard of “reasonable” opportunity provides a sufficiently objective standard, there would nevertheless be uncertainty.  In the context of the present case, for example, Mr Li pointed out that:

28.3.1  some nine days’ notice had been given.  CSIL and its lawyers could not know about the internal workings of D4-7, including that D4-7 would only arrange to relay the relevant documents to their directors on 25th July 2023, and instruct lawyers only on 27th July 2023;

28.3.2  Arun 2nd was the supporting affirmation relied upon and had already set out CSIL’s evidence, such that D4-7 would have understood the position sufficiently – it only made references to Arun 1st for a more detailed explanation of CSIL’s position.

28.3.3  D4-7 were aware of the references to Arun 1st^[4] but had not requested a copy, nor was complaint made at the 31st July 2023 hearing that they did not have a copy. (The complaint that D4-7 did not have a copy of Arun 1st prior to the 31st July 2023 hearing was not made until the 1st Affirmation of Lo Fong Hung of 5th September 2023 (“Lo 1st”));

28.3.4  CSIL had already intimated at the hearing of 16th May 2023, at which SFKS and KNC were present in their capacities as solicitors for the 2nd and 3rd Defendant, that a discovery application against ICBC would be made.

28.4  The duty to make a full and frank disclosure in an ex parte context is an onerous one.  If an applicant fails to discharge it, any order obtained may be discharged for that reason alone, irrespective of the substantive merits.  This is a dire consequence.  Our procedural regime should operate in such a way that parties and their legal representatives know precisely when the duty arises, and when it does not.  I would add that, as Mr Li submitted, if the imposition of the duty depends on whether a respondent has had sufficient opportunity to respond, then respondents might be perversely incentivised to say that they have not had sufficient time to prepare evidence and submissions, and that there were numerous material matters which were not disclosed.

28.5  Even at an inter partes hearing, it remains open to a respondent to submit that he has not had sufficient time to prepare evidence and arguments, and that the court should adjourn the matter to enable him to do so before making any substantive order.  It is also open to a respondent to submit that there are matters which are relevant but have not been brought to the court’s attention by the applicant, and if necessary to ask for time to prepare evidence accordingly.  It will then be for the court to decide whether the respondent should be given additional time, and if so, how much, depending on the circumstances of the case.  In the present case, D4-7 attempted to persuade the court at the hearing of 31st July 2023 that no immediate order should be made and that they should be given more time, but the court was not persuaded, given the content of the submissions, which I return to in section F below.  As the Judge observed at the directions hearing of the Summons on 18th September 2023, the D4-7’s lack of opportunity to respond was a consequence of the Judge’s ruling against the application for an adjournment (rather than because of CSIL’s insistence on an urgent order).

28.6  Even if there is a need for immediate interim relief at the inter partes hearing, pending an adjourned hearing, the respondent will still have the chance to rebut the case at the later hearing, at which time the court can make further appropriate orders based on the evidence then before it.

28.7  Even if an applicant is not subject to the duty to make full and frank disclosure, it remains under a duty not to mislead the court.

29.  I therefore respectfully agree with DHCJ Winnie Tsui’s conclusion at [160]:

“In sum, not imposing a duty of full and frank disclosure in an inter partes hearing does not mean that the court cannot do justice to the case. Where the court finds that the respondent is genuinely not in a position to argue the case at the first hearing because of shortness of time and yet it is asked by the applicant to grant immediate interim relief, no doubt the court would be vigilant and be particularly alert to points that may potentially be in the respondent’s favour. For the same reason the applicant would be expected to present his case fairly. However, conceptually speaking, this is a totally different thing from imposing on the applicant a full-blown duty of full and frank disclosure with its attendant severe penal consequence.”

30.  I note also what the learned authors of Gee, Commercial Injunctions, 7th ed., said at paragraph 9-014:

“An applicant for inter partes relief on an application made with notice as required under the CPR, does not have a duty to make full disclosure of material facts, but is under an obligation not to mislead the court, including knowingly.”

31.  Of course, “[w]here one party is not there, the difference between non-disclosure and misrepresentation may be imperceptible.  A half truth may be a misrepresentation” (Gee, paragraph 9-013). Conceptually, however, there remains a distinction between non-disclosure and misrepresentation.

32.  Mr Wong submitted that there is a local practice in our jurisdiction to nevertheless treat an inter partes summons as being an ex parte summons on notice, so that the duty of full and frank disclosure applies.  Mr Wong cited Joint and Several Receivers of Pacific Bulk Shipping Limited (Osman Mohammed Arab and Wong Kwok Keung) v Tong Zhenjun, unreported, HCMP 1244/2015, 22nd May 2015, at [5] to [6] and a number of other cases which in turn cited Muginoho Co Ltd v Vimiu HK Co Ltd, unreported, HCMP 107/2012, 24th February 2012 at [4] to [6]. It was said that there are seven or eight cases which adopt this approach on the one hand, as against the lone case of Alpha & Leader, and that the observations in the latter were obiter only.

33.  Of course, the identification of principles from legal authorities is not an exercise in counting the number of cases falling on one side of the line and comparing them with the number of cases falling on the other.

34.  More importantly, the crux of the complaint against the plaintiff in Muginoho Co Ltd was that it had presented a misleading picture to the court, no matter whether the application was ex parte or inter partes in nature: see [5] to [8].  In most of the subsequent cases which applied Muginoho Co Ltd, the nature of the duty of disclosure was not an issue that arose for consideration, and/or did not make any difference to the outcome.^[5]

35.  Whilst it is true that the observations in Alpha & Leader were obiter, the issue of the nature of the duty of disclosure was analysed at some length.

C1.2  Reasonable opportunity to respond

36.  In any event, I do not agree with the submission that D4-7 did not have a reasonable opportunity to respond to the Disclosure Summons.

37.  Complaint is made that CSIL delayed the service of the Disclosure Summons and the supporting affirmation until Friday 21st July 2023 (local time in the BVI and Cayman Islands; around midnight on Saturday 22nd July 2023), and that the documents did not come to the notice of D4-7’s directors, who were based in Hong Kong and mainland PRC, only on 25th July 2023, after D4-7’s offshore company secretary forwarded the papers to their Hong Kong secretary.

38.  As Mr Li pointed out, a defendant who chooses to incorporate in an overseas jurisdiction can hardly complain that it is served in that jurisdiction, even though it may have officers within the local jurisdiction; and the defendant’s internal arrangements as to transmission of information and documents to its officers are not a matter with which the plaintiff needs to be concerned.

39.  Complaint is also made^[6] that Ms Fung could have separately notified Ms Lo (the director of the 4th and 5th Defendants) or the 2nd Defendant (the director of the 6th and 7th Defendants), but chose not to do so.  However, Ms Fung had no obligation to do so.  Nor could it be said that the lack of notification has any bearing on whether D4-7 had a reasonable opportunity to respond.

40.  D4-7 complain that they were not served with Arun 1st. However, the supporting affirmation was Arun 2nd, and that affirmation had already set out CSIL’s case at length.  Whilst Arun 2nd referred to Arun 1st for details of certain aspects of CSIL’s case, Arun 2nd summarised the points from Arun 1st and also set out the point sought to be made.  D4-7 would have understood CSIL’s case from Arun 2nd.  In this regard, and as noted above, D4-7 did not complain about the lack of Arun 1st at the 31st July 2023 hearing, and raised the complaint only in Lo 1st.  Nor did D4-7 ask for a copy of Arun 1st prior to the 31st July 2023 hearing, even though it would have been readily apparent from Arun 2nd that it had been referred to.

41.  It is also relevant to note that the Disclosure Summons should not have come as a surprise to D4-7.  As mentioned above, CSIL’s intention to seek disclosure against ICBC had been raised at the hearing of 16th May 2023 (regarding CSIL’s application for an extension of time to file its statement of claim) and the 2nd and 3rd Defendants, represented by SFKS and KNC, had been present at the hearing.  The 2nd Defendant was the director of the 6th and 7th Defendants.  By the time KNC later came to be instructed to represent D4-7, they would already have been familiar with the background.

C1.3  31st July 2023 hearing not ex parte; no obligation to serve Arun 1st 

42.  I therefore conclude that as CSIL served the Disclosure Summons and the supporting affirmation of Arun 2nd on D4-7, the hearing on 31st July 2023 was an inter partes one, and there was no obligation on CSIL to make full and frank disclosure such as to require service of Arun 1st on D4-7.

D.  URGENCY

43.  Given my views above, the complaint that CSIL failed to demonstrate the urgency required to justify proceeding on an ex parte basis is one that falls away.

44.  In any event, I do not accept the submission that CSIL sought to justify the application at the hearing of 31st July 2023 on the grounds of urgency.  As D4-7 themselves accept, Mr Miao, who appeared for CSIL, stated to the Judge that he could not say that the case was one of urgency.

45.  D4-7 say that CSIL then backtracked by saying that (1) it was important to carry out the tracing exercise as soon as possible, and (2) CSIL needed the documents to assist in preparing its statement of claim which was due to be filed up to 15th August 2023.  However, reading pages 11 and 12 of the transcript of the hearing, it can be seen that:

45.1  Mr Miao’s submission was that if the court was minded to allow D4-7 more time to consider their position, they should be required to indicate their position within 14 days, and if they decided to object to the application, to file their affirmation within 28 days;

45.2  this was in response to D4-7’s submission that they wished to have 28 days to consider their position as to whether they would object or consent to the application.  Mr Miao submitted that D4-7 should not be given an open-ended 28-day period merely to consider their position, but should instead be required to actually file their evidence in opposition by the end of that period, if it was their decision to oppose the application;

45.3  it was in this context that Mr Miao submitted that whilst there was no immediate urgency, the tracing exercise ought nevertheless to be carried out as soon as possible, and furthermore, the discovery would assist in preparing the statement of claim which was due to be filed on 15th August 2023.

46.  Nor did Arun 2nd suggest that the application was being advanced on the basis of urgency.  It indicated that disclosure was sought in order to particularise its claims and to potentially identify further defendants, but did not suggest that this was a matter of urgency (so as to justify an ex parte hearing).

47.  Whilst the Judge referred in his ex tempore decision referred to CSIL’s need for disclosure in order to meet the deadline for filing of the statement of claim, the transcript of the decision should not be construed as if it were a statute, and should be understood in the context of the submissions which were made to the court.  Furthermore, given that the Disclosure Order set the deadline for disclosure to fall after the statement of claim was due to be filed, the Judge could not have been granting the disclosure for the purpose of enabling CSIL to obtain documents for preparing the statement of claim.

E.  ALLEGATION OF MATERIAL NON-DISCLOSURE

48.  Again, given my views above, the complaint that CSIL was guilty of material non-disclosure is one that falls away.  I will therefore set out some brief observations only on this issue.

E1.  Allegation of material non-disclosure relating to Fung Brothers’ authority

49.  D4-7 say that CSIL failed to disclose that the validity of the Fung Brothers’ appointment as directors of CSIL was the subject of legal proceedings between Ms Lo and Ms Fung.  Since the validity of the appointment would affect the authority of ME (and Mr Arun’s) authority to prosecute this action, the challenges to the Fung Brothers’ appointment should have been disclosed.  It is said that the point was not mentioned in any of the materials before the Judge.

50.  However, the point was in fact raised in Arun 2nd and Arun 1st.  Arun 2nd noted that there was a “potential challenge” to ME’s appointment and referred back to Arun 1st.  Arun 1st set out Ms Lo’s and the 2nd Defendant’s allegations that the Fung Brothers had been wrongly appointed and that as the appointment of ME was passed by, inter alia, the Fung Brothers’ votes, it was null, void and of no effect.  Arun 1st also set out CSIL’s response that in the absence of a court ruling in respect of the Co-operation Agreement, CSIL had no right or duty to look beyond its registered shareholding and act on the alleged private arrangement between shareholders, and referred to the fact that there was to be a trial of a preliminary issue as to whether the Co-operation Agreement had been entered into, and that there was a stay of various proceedings pending such determination.  Arun 1st expressly referred to the possibility that Ms Lo and the 2nd Defendant might allege that ME’s appointment is not valid and therefore that the present proceedings have not been duly authorised by CSIL.

51.  D4-7 also say that CSIL failed to disclose that it was common ground between Ms Lo and Ms Fung that if Ms Lo prevailed in the trial of the preliminary issue, this would vindicate her position as regards the invalidity of the Fung Brothers’ appointment to CSIL’s board.  Had this been disclosed, it would have indicated that disclosure should not be ordered before the outcome of the trial of the preliminary issue.

52.  However, the part of the skeleton before Anthony Chan J relied on by D4-7 should be read in context.  Ms Fung’s position was that to the extent that Ms Lo relied on the Co-operation Agreement to argue that the appointment of the Fung Brothers was invalid, this would be addressed by the court’s determination as to whether the Co-operation Agreement existed.  It was not a concession that the determination would also be finally determinative of the validity of the Fung Brothers’ appointment, as, amongst other things, it was Ms Fung’s position that any such agreement had been repudiated.

53.  D4-7 then say that CSIL failed to disclose that CSIL’s board resolution of 5th September 2022, which sought to ratify the authorisation of Mr Arun and ME, could not have achieved this result.  They say that it was misleading for Arun 1st to suggest that even if Ms Lo successfully challenged the appointment of the Fung Brothers, such that the CSIL board only consisted of Ms Lo, Ms Fung and Mr Ferreira, the resolution of 5th September 2022 would still be valid as Ms Fung and Mr Ferreira both voted in favour of the resolution.  Rather, if the Fung Brothers were not validly appointed as directors, any resolution passed by the board with their casting reporting votes would be invalid; it would not merely be a case of ignoring their votes.  This is because the irregularity principle could not apply as the defect (non-directors voting as directors) went beyond a mere informality or irregularity, and CSIL failed to show that the correct procedure been followed, the result would inevitably have been the same: Lohas Holding Ltd v Registrar of Companies [2022] 5 HKLRD 653 at [24], [25].

54.  However, CSIL says that the evidence shows that Ms Fung and Mr Ferreira would inevitably have voted to ratify and ME’s authorisation.  Mr Ferreira was aware of the parties’ disputes before he voted at the 5th September 2022 meeting.  Even at a more recent board meeting on 29th December 2023, no steps were taken to revoke ME’s authority.

55.  I therefore do not consider that this allegation of material non-disclosure would be made out in any event.

E2.  Allegation of material non-disclosure relating to merits of CSIL’s claim of misappropriation

56.  D4-7 say that CSIL also failed to disclose material matters as regards its claim that it had been fraudulently deprived of funds which were traceable to the accounts of D4-7, and that the court was given a misleading picture as regards the alleged misappropriations.

57.  I would first note that at the 31st July 2023 hearing, the Judge was not tasked with assessing the merits of CSIL’s claim beyond being satisfied that the requirements for a s.21 EO order had been made out.  As was observed in Zhang Rui Kang v Tunghsu Group Co Ltd [2023] HKCFI 1866 at [37] (DHCJ MK Liu, citing Qatar Airways Group QCSC v Middle East News FZ LLC [2020] EWHC 2975 (QB)), the duty of full and frank disclosure only relates to the matters which the court has to decide.  Thus, for example, where only a serious issue to be tried needs to be demonstrated, a failure to refer to arguments on the merits which the defendant may raise should not generally be characterised as a failure to make a full and frank disclosure, unless they are of such weight that their omission may mislead the court in exercising its discretion as to whether to grant leave.

58.  Mr Wong did not take issue with this, but submitted that the nature of CSIL’s application was one that was final in nature, and called for a standard higher than merely showing a serious issue to be tried; indeed, it had been CSIL’s submission at the 31st July 2023 hearing that a disclosure order was justified in circumstances where there was “strong evidence” of fraud.

59.  In CTO (HK) Ltd v Li Man Chiu & Others [2002] 2 HKLRD 875, DHCJ Poon (as he then was) held at [12] that although the court would not lightly use its powers to order disclosure of full information touching the confidential relationship of banker and customer, such an order would be justified even at the early interlocutory stages of an action where the plaintiff sought to trace funds which, in equity, belonged to it and of which there was strong evidence that it had been fraudulently deprived, and where delay might result in the dissipation of funds before trial.

60.  The question is therefore whether CSIL failed to make disclosure of material facts bearing on the question of whether it had demonstrated strong evidence of fraud.

61.  D4-7 say that the Haikou Proceeds were not misappropriated. They were paid to D4-7, and then on-paid in part to third parties to pay various expenses related to CSIL and associated companies (“the Group”), pursuant to an agreement and understanding between Ms Lo and Sam Pa (“the Mutual Understanding”).

62.  D4-7’s argument of material non-disclosure is premised on Ms Fung’s knowledge of the Mutual Understanding – if she was not aware of it, she could not have disclosed matters which pointed towards the existence of the Mutual Understanding (and D4-7’s defence).  However, CSIL’s case is that the Mutual Understanding is a recent fabrication of Ms Lo to seek to explain the transfer of the Haikou Proceeds from CSIL to entities controlled by her.  It was not noted in any of New Bright’s or CSIL’s corporate records; and it was not referred to in Ms Lo’s earlier affirmations in related proceedings, even when she addressed the claim of misappropriation of the Haikou Proceeds.

63.  In Lo 1st, it is said that Ms Fung was well aware of the Mutual Understanding, given that:

63.1  she signed and approved at least 41 of the transactions in 2017 and 2018, more than half of which involved the 6th and 7th Defendants;

63.2  she has been an authorised signatory of the 5th Defendant’s ICBC account since 2015; and

63.3  the 6th Defendant had also transferred substantial funds to Ms Fung and her daughter in 2015 and 2016, and also paid rent for Ms Fung.

64.  However:

64.1  the 41 transfers took place in 2017 and 2018, which was after both the remittance of the Haikou Proceeds from CSIL to D4-7 and the onwards dissipation to other entities in 2016 complained of.  Ms Fung’s evidence is that she would have signed the payment request forms under the impression that the transfers were made from Group companies;

64.2  even if Ms Fung was an authorised signatory of the 5th Defendant’s bank account, it does not follow that Ms Fung was aware of the Mutual Understanding, or that the 5th Defendant had been receiving funds from the Group or paying for any expenses of the Group.  Ms Fung’s evidence is that she never provided her signature for the purpose of opening the 5th Defendant’s account, and had only provided specimen signatures on blank forms for future use by the Group;

64.3  Ms Lo’s evidence is that she made the payments to Ms Fung in 2015 and 2016 and paid Ms Fung’s rent out of her own goodwill, as she was concerned about Ms Fung’s financial difficulties at the time.  In other words, such payments were not pursuant to the Mutual Understanding and would not have demonstrated Ms Fung’s awareness of the same.  Ms Fung’s evidence is that she believed the payments had been made by a Group company.

65.  D4-7’s skeleton argument embarked on a detailed analysis of the evidence with a view to showing that they tended to support D4-7’s claim that the Mutual Understanding existed, rather than CSIL’s claim that the Haikou Proceeds had been misappropriated; challenged the credibility of Ms Fung’s evidence; and sought to draw inferences regarding the state of knowledge of Ms Fung.

66.  I hope I will be forgiven for not condescending into the same level of detail.  Whilst it is the case that in the context of the duty of full and frank disclosure, “material facts” mean all those that are relevant to the court’s weighing operation in deciding whether or not to grant an order, at the same time, the duty to disclose material facts and identify possible defences does not extend to a detailed analysis of every possible point which may arise.  A defendant must identify with clarity, and if necessary restraint, the failures of which it complains, rather than adopting a scattergun approach.  See Tsai Lee Ting v Best Leader Precious Metals Ltd [2023] HKCFI 2124 at [66], [72].

67.  Having considered the defence advanced in Lo 1st to the claim of misappropriation, namely that of the Mutual Understanding, and the three matters relied in Lo 1st to say that Ms Fung was aware of the Mutual Understanding, it does not seem to me that these were matters which would have been material to the court’s consideration of whether to order disclosure (or that non-disclosure meant that the court was given a misleading picture).  Nor does it seem to me that the other matters complained of should have been disclosed, such as the fact that the 4th Defendant and 5th Defendants were previously subsidiaries of New Bright because (the argument goes) this demonstrates that there is nothing illegitimate about the similarity in names between Group entities and D4-7.

F.  D4-7’S ALTERNATIVE CASE

68.  D4-7’s alternative case is that they seek leave to appeal against the Disclosure Order.

69.  The intended ground of appeal is that the Judge erred in refusing D4-7’s request for an adjournment of the Disclosure Summons.

70.  It is said that the appeal has a reasonable prospect of success as:

70.1  the Judge failed to have regard to the fact that Arun 1st had not been served on D4-7 and that it had also not been served on the 1st to 3rd Defendants;

70.2  D4-7 had not been given a reasonable opportunity to respond to the Disclosure Summons.

71.  However:

71.1  although the Judge did (mistakenly) say that Arun 1st was served on the 1st to 3rd Defendants on 19th April 2023, he did not say that he thought Arun 1st was served on D4-7;

71.2  as I have already held above, D4-7 had been given a reasonable opportunity to respond to the Disclosure Summons.

72.  In referring to D4-7’s application for a 28-day adjournment, the Judge noted (1) that the affidavit of service and time chops showed a date of service of 21st July 2023, notwithstanding D4-7’s claim to only have been served on 25th July 2023, (2) that KNC had been representing the 3rd Defendant throughout the proceedings (in other words, that it would have been familiar with the background of the case), (3) that the request for 28 days’ adjournment was merely for the purpose of considering whether to consent to, or oppose, the application (in other words, rather than for actually preparing any evidence in opposition), and (4) the inability of Mr Ng to provide any proposed grounds of opposition.

73.  In my view, it is not reasonably arguable that the Judge’s exercise of discretion in refusing to give an adjournment was an error of law or plainly wrong.  This is a case where a plaintiff, complaining of misappropriation of funds, sought discovery from a third-party bank; the defendant account-holders were notified of the application and instructed solicitors to attend the hearing of the application; no grounds of opposition were identified, and indeed the solicitors expressly told the court that they had no instructions as to whether the account-holders even had any proposed grounds of opposition; a 28-day adjournment was sought simply for the purpose of deciding their stance; the solicitors could not even confirm or deny whether the documents had been served on their clients as the time chops (bearing the recipients’ signatures) showed.  On the other hand, the plaintiff indicated that discovery was needed to enable tracing of the funds and to assist in preparing pleadings.  I cannot see how it can be said that the Judge acted beyond the proper bounds of his discretion in refusing the adjournment.

G.  DISPOSITION

74.  I dismiss the Summons.  I further make a costs order nisi that the costs of and occasioned by the Summons are to be paid by D4-7 to CSIL, to be summarily assessed.  CSIL should lodge and serve its statement of costs (limited to 3 pages) within 5 days; D4-7 should lodge and serve its list of objections (limited to 3 pages, in bullet point form) within 5 days thereafter; CSIL has leave to lodge and serve a reply (limited to 2 pages) within 3 days thereafter.