GENERAL LITE GROUP CORP. v. T & L SECURITIES LTD

HCMP 2113/2021

[2022] HKCFI 2121

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2113 OF 2021

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DECISION

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BACKGROUND

1.  By Originating Summons filed on 13 December 2021 (“the Originating Summons”), the plaintiff applied for an order of production and inspection of documents pursuant to sections 620, 653W and 740 of the Companies Ordinance (Cap.622, Laws of Hong Kong). The application was supported by the Affidavit of Lo Kwan Wong George filed on the same day (“George Lo’s 1^st Affidavit”).

2.  The defendant opposed the Originating Summons and filed the Affirmation of Pu Mei Lee Teresa on 11 May 2022 (“Teresa Pu’s 1^st Affirmation”) for this purpose.

3.  In reply, the plaintiff filed the followings on 20 June 2022:

(1)  2^nd Affidavit of Lo Kwan Wong George (“George Lo’s 2^nd Affidavit”).

(2)  1^st Affirmation of Li Kin Keung (“Bobby Li”).

4.  The substantive hearing of the Originating Summons was initially fixed to be heard on 30 June 2022. By consent, it was ordered on 2 June 2022 that the matter shall be dealt with by way of paper disposal.

5.  On 27 June 2022, the defendant took out a summons (“the Summons”) and asked for leave to file the 2^nd Affirmation of Pu Mei Lee Teresa (“Teresa Pu’s 2^nd Affirmation”).

6.  This is the hearing of the Summons which was opposed by the plaintiff.

THE NEW EVIDENCE

7.  It was explained in Teresa Pu’s 2^nd Affirmation that the defendant should be given a further opportunity to file evidence for the following reasons:

“7. I have also been advised that the exceptional circumstances presented in the current proceedings would be valid grounds and justification for the Court to order parties to file and serve further round of affidavit evidence and we respectfully seek the Court’s indulgence for the same and the reasons are set out as follows:

(1) The constructions and renovation costs of HK$70 million (the ‘Alleged $70M Costs’) allegedly provided and settled by King Wong is blatantly false and misleading and not supported by any evidence; and more importantly, this very allegation was not mentioned in the Lo’s 1^st Aff, intentionally or otherwise, which the Defendant should have the opportunity to address the same to assist the Court’s truth finding in respect of the Alleged $70M Costs, among others baseless allegations carefully plotted by the Plaintiff for no other purpose than framing the Defendant as the wrongdoer for such fanciful but non-existent fault in the Plaintiff’s head.

(2) There is no reason to deprive the Defendant from reply to such new allegations which ultimately will be important assistance for the Court to reach its decision for the OS, as well as safeguarding the procedural fairness; and

(3) To show to the Court that, by documentary evidence exhibited hereto, the allegations raised by the Plaintiff for supporting its OS was wrong, without basis and completely unjustified, and that these proceedings are not the 1^st occasion the Plaintiff put on this particular show. This time I decided to stand up for myself firmly in the hope shut this nonsense drama of the Plaintiff once and for all.

8. With these in mind, I shall limit the content of this affirmation in replying to the following issues:-

(1) The Alleged HK$70M Costs which King Wong In Fact Never Paid [see Part A hereinbelow];

(2) The Plaintiff’s newly raised concerns over the magnitude was nothing but the fanciful wrongdoing which never happened – the Mortgage Loan was well supported by the Values of the 868 Development at the material time as shown in the relevant valuation reports arranged by the Lending Bank which are new evidence previously unavailable to the Defendant [see Part B hereinbelow];

(3) Clarifications on other allegations created against the Defendant [see Part C hereinbelow].”

8.  I will deal with these matters in turn below.

DISCUSSION

The Alleged $70M Costs

9.  As a matter of background, it is undisputed that the defendant was used as a vehicle for the development of 11 luxurious houses on Lot 868 of District Lot 1 in Nga Kau Wan, Lamma Island (“the Development”).

10.  It goes without saying that this project required capital injection.

11.  While it is the plaintiff’s case that the Development was funded partly ($70 million) by King Wong Development Limited (“King Wong”), a company through which Bobby Li (and others) conducted property development business, the defendant denied such an assertion.

12.  By virtue of Teresa Pu’s 2^nd Affirmation, the defendant would like to adduce evidence so as to explain, among other things, that:

(1)  The Judgment of Lok J given on 15 May 2019 in HCA 341/2013 and HCA 873/2013 (“Lok J’s Judgment”) in which it was mentioned[1] about the Alleged $70M Costs should be disregarded for the purpose of the present case;

(2)  The reason why Teresa Pu had decided not to dispute certain assertions made by Bobby Li in court hearings;

(3)  How the Alleged $70M Costs was in fact used by Bobby Li.

13.  As aforesaid, the defendant alleged that it should be given a chance to file new evidence at this stage because, it was said, the plaintiff’s allegation that King Wong had provided and settled the Alleged $70M Costs was not mentioned in George Lo’s 1^st Affidavit at all. Teresa Pu referred to paragraph 9 of George Lo’s 2^nd Affidavit which provided that:

“The only other matter I referred to the Lok J Judgment for is the fact that it was King Wong (Bobby Li’s company) which paid for the construction and renovation costs of the Development (see paragraph 18 of my 1^st Affidavit). It is clear from paragraph 18 of my 1^st Affidavit that this is my direct evidence (I was personally involved in the matter since 2010 and I have also confirmed this with Bobby Li). I referred to the finding in the Lok J Judgment for the fact that this was disputed in those proceedings by Pu and how the Judge in the end ruled in Bobby Li’s favour out of fairness and completeness. I am advised and I verily believe that: (1) Pu has not given any evidence in her Affirmation disputing that King Wong did contribute those costs, and she has not suggested who else has done so (and I believe this is because she has no basis whatsoever for suggesting otherwise); and (2) in any event this is not an issue that needs to be finally resolved by the Court in this application.”

14.  With greatest respect, the defendant’s allegation that the Alleged $70M Costs was a new matter raised in George Lo’s 2^nd Affidavit is plainly incorrect.

15.  In George Lo’s 1^st Affidavit, it was stated that:

“16. In around 2004, construction work for the Development began. The construction cost of the Development was funded partly by a construction loan and partly by King Wong Development Ltd (‘King Wong’), a company through which Bobby Li (and others) conduct a property development business.

[…]

18. In relation to the funding from King Wong, King Wong has paid for the construction and renovation costs of the Development throughout the years in the total sum of over HK$70 million (to be precise: HK$28.6 million in construction costs and HK$44.7 million in renovation costs). For completeness, this was disputed by Pu in earlier legal proceedings between Bobby Li and Pu, and in the end the Court made the finding that King Wong did contribute such costs. For the present purpose, it is sufficient for me to refer to the finding made in a Judgment by Mr Justice Lok dated 15 May 2019 in HCA 341/2013 & HCA 873/2013) (‘Lok J Judgment’), at paragraph 88 […]” (emphasis added)

16.  In fact, in her 1^st Affirmation in opposition, Teresa Pu had expressly referred to paragraph 18 of George Lo’s 1^st Affidavit. This was what she stated:

“I agree with the background and funding of the construction of the Lot 868 Development mentioned in paragraphs 15 to 17. While I do respect the decision made by Mr Justice Lok as to the contribution of the construction costs of the Lot 868 Development during the early stage of the construction, as a matter of law, the plaintiff could not rely/refer to the finding made in Lok J Judgment as he did in paragraph 18 of P’s Aff.”

17.  Since the Alleged $70M Costs was not a newly raised topic in George Lo’s 2^nd Affidavit, there is no reason why the defendant should be allowed to file further evidence on this issue.

18.  Before I leave this matter, I need to refer to the “Court Note” of counsel for the defendant (taken to be their skeleton submissions) in which they argued in paragraph 9 that:

“These new evidence in Pu’s 2^nd Affirmation is mainly to address the allegations contained in paragraph 9 of Lo’s Affidavit that ‘Pu has not given any evidence … disputing that King Wong did contribute those costs…’. This statement made by Lo was simply untrue and it is only fair if the Plaintiff is allowed to adduce Pu’s 2^nd Affirmation and the new exhibits to correct this contention.”

19.  With greatest respect to counsel, they should not have omitted a very important part of the said paragraph 9 of George Lo’s 2^nd Affidavit. The whole sentence which counsel quoted actually read:

“Pu has not given any evidence in her Affirmation disputing that King Wong did contribute those costs […]” (emphasis added)

20.  In my view, it is clear that George Lo did not say anything untrue when he stated that Teresa Pu did not give any evidence in Pu’s 1^st Affirmation disputing the assertion that King Wong did contribute to the Alleged $70M Costs.

21.  Counsel must be reminded that they must think twice if they chose to omit a part of a sentence when they quoted any passage from the evidence, and they have got to be satisfied that, by doing so, they were not twisting the meaning of the evidence.

The magnitude of the loans

22.  Under this heading, Teresa Pu referred to paragraphs 14 to 23 of George Lo’s 2^nd Affidavit and alleged in her 2^nd Affirmation that:

“19. […] as can be seen in paragraph 18.1 of Lo’s 2^nd Affirmation, the so-called concern from the Plaintiff is now on the magnitude of the bank loans taken out by the Company over the years.

[…]

21. In view of the Plaintiff’s present concern, I am advised that there has been a shifting in goalpost by the Plaintiff who initially claimed in Lo’s 1^st Aff that its concern was ‘some apparently irregular and unexplained transactions disclosed in the Company’s latest financial statements’.

22. I wish to emphasisze that never had the Plaintiff in Lo’s Aff expressed its particular concern over the magnitude of the loans taken out by the Company. As such, I only explained in My 1^st Affirmation the areas and/or nature of the expenses incurred and I simply was not able to respond to such allegation concerning the magnitude which I should have been afforded an opportunity to do so.

23. In the circumstances, as a matter of fairness, I verily believe that I should be given a chance to respond to the Plaintiff’s alleged concern over the magnitude of the loans.” (Teresa Pu’s emphasis)

23.  What was stated in paragraph 18.1 of George Lo’s 2^nd Affidavit was as follows:

“The point I made in my 1^st Affidavit is not concerned with the fact that there were further loans after the completion of construction in 2012 at all, but the magnitude of the further loans. As I mentioned in paragraph 48 of my 1^st Affidavit, the outstanding amount of bank loans was only about HK$43 million in 2011. But the amount of the bank loans increased to about HK$110 million in 2017 (see paragraph 47 of my 1^st Affidavit). Even if the Company had to pay interest on the mortgage loans, such interest cannot possibly account for a drastic increase of the outstanding loan amount of about HK$57 million in the space of 6 years.”

24.  I only have to quote the following paragraphs of George Lo’s 1^st Affidavit to demonstrate that the defendant’s argument here is totally hopeless:

“47. From the audited financial statements for 2018 and 2019, it can be seen that the amount of bank loans under the ‘Non-Current Liabilities’ section for the preceding three years was:

47.1 HK$109,995,877 as at 31 March 2017;

47.2 HK$107,275,704.36 as at 31 March 2018; and

47.3 HK$110,525,164 as at 31 March 2019.

[…]

48. This was a significant increase from 2011, when according to publicly available information, the outstanding amount of bank loans was only about HK$43 million.

[…]

50. In other words, the Company’s borrowing has somehow more than doubled in the period from 2011 to 2017 (a period when the Company was completely controlled by Pu and Franklin Li), and is continuing to increase up to now. As far as Bobby Li and I are aware, there appears to be no legitimate reason for the Company to incur such significant bank loans […]” (emphasis is mine)

25.  While the word “magnitude” did not appear in George Lo’s 1^st Affidavit, the concern on the part of the plaintiff had been clearly expressed therein. There was nothing new in this regard in George Lo’s 2^nd Affidavit. The defendant’s case to adduce further evidence on this matter is simply not made out.

The defendant’s alleged failure to respond to shareholders’ enquiries

26.  Teresa Pu sought to reply by her new Affirmation to the plaintiff’s case that the defendant had failed to respond to shareholders’ enquiries.

27.  Here, she did not even attempt to justify the filing of further evidence.

28.  Worse still, as pointed out by Mr Lam for the plaintiff, the letters which Teresa Pu exhibited to her 2^nd Affirmation had in fact been produced already by George Lo.

29.  The defendant should therefore not be permitted to file further evidence in this regard.

The defendant’s alleged failure to consult Li Kin Keung

30.  Again, this matter had plainly been raised in George Lo’s 1^st Affidavit. The defendant should therefore not be allowed to file further evidence at this stage.

The defendant’s production of documents

31.  By her 2^nd Affirmation, Teresa Pu also sought to provide the plaintiff with some of the documents requested. She does not need to do this by way of affirmation.

The plaintiff’s alleged abuse of process

32.  The last point which Teresa Pu wanted to bring to the attention of this Court was her assertion that the plaintiff’s application under the Originating Summons in fact overlaps with the issues in the matrimonial proceedings between her and Bobby Li. She exhibited an Affirmation which she made in the said matrimonial proceedings (“the FCMC Affirmation”), and submitted that “it is not unreasonable to believe that these proceedings were planned to be oppressive”[2].

33.  It cannot be disputed that this point could have been made in Teresa Pu’s 1^st Affirmation. Further, by the time Teresa Pu’s 1^st Affirmation was filed on 11 May 2022, the FCMC Affirmation was already in existence. There is no doubt that she could have produced this document herein if she so wished.

Other general arguments

34.  Counsel for the defendant further argued that:

“Ultimately, irrespective of how the Plaintiff views the relevancy or probative value of Pu’s 2^nd Affirmation, it should be clear that no significant prejudice would be suffered by the Plaintiff if leave is granted to adduce Pu’s 2^nd Affirmation:

(1) First, directions have been given for the Originating Summons to be proceeded on paper. Thus, the filing of Pu’s 2^nd Affirmation would not disrupt any milestone date previously fixed.

(2) Second, it does not appear that there is any urgency in these proceedings and parties’ rights to substantiate their cases properly should not be compromised;

(3) Third, in the event that leave is granted to adduce Pu’s 2^nd Affirmation, the Company agrees that the Plaintiff should have the right to reply. The Plaintiff will therefore continue to have the last say which was originally accorded to it.”[3]

35.  These arguments are rejected:

(1)  The substantive hearing of the Originating Summons was originally fixed to be heard on 30 June 2022. The hearing date was vacated only because of the Court’s decision to deal with the matter on paper. I am quite sure that the Summons would have been fixed to be heard on 30 June 2022 if the hearing was not vacated. If the Summons were heard on 30 June 2022 right before the substantive hearing of the Originating Summons, the Court would not have agreed to accede to the application made in the Summons unless the defendant could demonstrate that there were exceptional circumstances, because granting leave to file and serve further affirmations would necessarily mean that the substantive hearing date (which is a milestone date) had to be varied. Although we do not have any milestone date as such at the moment[4], this is a matter which the Court must take into account;

(2)  Directions had been given for the purpose of paper disposal of the Originating Summons. According to the timetable set, but for the defendant’s application herein, the defendant should have lodged and served its written submissions by today, followed by the plaintiff’s written reply submissions to be lodged within 2 weeks thereafter. In other words, the making of the present application by the defendant has already caused delay to the whole matter;

(3)  It cannot be disputed that the plaintiff has the right to have the Originating Summons adjudicated on as soon as possible. Hence, the plaintiff would be prejudiced if the directions for lodging of submissions for paper disposal of the Originating Summons have to be stayed any further;

(4)  Even if “no significant prejudice would be suffered by the plaintiff” by reason of the filing of further affirmations, this is just one of the factors which this Court would take into account;

(5)  This Court must bear in mind the underlying objectives of the Civil Justice Reform, especially Order 1A rule 1(b) of the Rules of the High Court (“RHC”) (to ensure that a case is dealt with as expeditiously as is reasonably practicable), rule 1(c) (to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings) and rule 1(d) (to ensure fairness between the parties) in the present case. In my view:

(a)  the Originating Summons should be disposed of as expeditiously as is reasonably practicable;

(b)  a sense of reasonable proportion requires that no leave should be granted for the filing of further evidence unless it is justified in the circumstances;

(c)  it would not be fair to the plaintiff if the defendant is allowed to file further evidence even if such a request cannot be justified;

(d)  I do not agree with the defendant’s counsel when they submitted that “it would be extremely unfair” to the defendant if it were to be deprived of the opportunity to reply to George Lo’s 2^nd Affidavit. The defendant had had its chance to respond to the plaintiff’s case when it filed Teresa Pu’s 1^st Affirmation. There was nothing new in George Lo’s 2^nd Affidavit;

(e)  I also disagree with the defendant’s suggestion that parties’ rights to substantiate their cases properly would be compromised if the Summons is dismissed. As aforesaid, the defendant had had its chance. It cannot blame anyone if for whatever reason it decided not to put in all evidence it had when the affirmation in opposition was filed.

ORDER

36.  By reasons of the aforesaid, the Summons is dismissed.

COSTS

37.  Costs should follow the event.

38.  The defendant shall bear the plaintiff’s costs of the Summons summarily assessed pursuant to Order 62 rule 9A(1)(a) of the RHC at $69,500, which shall be payable on or before 25 July 2022.