ASIA CREDIT COMPANY LTD v. CS ASIA OPPORTUNITIES MASTER FUND

HCCT 21/2022

[2024] HKCFI 2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO 21 OF 2022

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REASONS FOR DECISION

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A.  Introduction

1.  This appeal is brought by CS Asia Opportunities Master Fund (the “Respondent”) from the order dated 26 April 2024 (the “Order”) of Master SP Yip (the “Master”).

2.  The Order contains the usual directions for the examination of the Respondent’s directors, namely Frank Dominick and Patrick Nicholas Maloney (the “Directors”), scheduled to take place on 13 November 2024. As is the “normal practice”, the Directors were ordered to give discovery of documents prior to the actual oral examination. The directions given are the usual ones set out in Hong Kong Civil Procedure 2024 at §48/3/1C.

3.  The sole question to be determined in this appeal which is by way of actual rehearing, is whether it is appropriate for the Order to be given. At the conclusion of the hearing, the appeal was dismissed for the reasons set out below.

Relevant background

4.  Asia Credit Company Limited (the “Judgment Creditor”) obtained an award in an arbitration against the Respondent on 23 February 2022.

5.  On 26 April 2022, Mimmie Chan J granted an enforcement order in relation to the award and on 16 November 2022 she entered judgment (the “Judgment”) in favour of the Judgment Creditor.

6.  The Judgment Creditor obtained a Charging Order Nisi on 17 November 2022. That was made Absolute on 8 March 2023 over the shares standing in the name of the Respondent in New Sparkle Roll International Group Limited, Pujiang International Group Limited and WT Group Holdings specified in the schedule thereto.

7.  As at 3 November 2023, the date of the Judgment Creditor’s application to examine the Directors pursuant to RHC O 48, r 1, the amount payable by the Respondent under the Judgment (together with interest, costs and fees) stood at just over HK$22 million.

8.  On the Judgment Creditor’s ex parte application, on 23 November 2023, the Master ordered that the Directors be orally examined pursuant to O 48, r 1 (the “Examination Order”) as to

“what debts are owing to the [Respondent] and whether the [Respondent] has any and what other property or means of satisfying the [Judgment] and the [Directors] do produce any books or documents in the possession or power relating to the [Respondent’s] assets and liabilities at the time of examination …”

9.  The present application made under O 48, r 1 is to ascertain what property or means of satisfying the judgment debt the Respondent has as foreshadowed in the Examination Order.

10.  On 29 January 2024, on the Judgment Creditor’s application, Master Kent Yee further adjourned the examination hearing pending service on the Directors, with leave to serve (by way of substituted service) the Examination Order or other subsequent court documents pertaining to the proceedings on the Directors as therein set out (the “January 2024 Order”).

11.  There is no appeal against the Examination Order nor any suggestion that the service of the Examination Order on the Directors[1] was irregular.

12.  The parties’ respective legal representatives attended the Registry on 28 February 2024 and fixed the adjourned examination hearing ordered by Master Kent Yee to take place on 26 April 2024. At that adjourned hearing, the Master made the Order.

Legal principles

13.  When approaching the question whether it is appropriate to make an examination order pursuant to O 48 r 1, it is salutary to have its “overriding purpose” in mind.

14.  The “overriding purpose” as distilled from the judgment in Lafarge SA & Ors v Continental Cement Corp & Anor, unrep., HCCT 33/2006, 21 August 2006 is:

(a) to ascertain whether the persons bound to pay the judgment are withholding assets or means to pay the debt or … have disposed of assets they had so as to put them in a position where they cannot pay the debt[2]; and

(b) to enable a judgment creditor to come to an informed decision as to how best to enforce the judgment which he has obtained[3].

15.  Further, O 48 is a way of obtaining discovery against the debtor as to his debts for discharging the judgment debt[4].

Admissibility of the 3^rd affirmation of Frank Dominick

16.  On 11 July 2024, the Respondent took out a summons (the “Summons”) for leave to file and serve the 3^rd Affirmation Frank Dominick (“Dominick 3^rd”) in support of the present appeal. As a preliminary matter, it is necessary to decide whether or not Dominick 3^rd should be admitted into evidence.

17.  Ms Lilian Ip, counsel for the Respondent, accepts that it is incumbent on the Respondent to show that the “stringent legal requirements laid down in Ladd v Marshall” are satisfied. They are that:

(a)  the evidence could not have been obtained with reasonable diligence for use at the trial;

(b)  the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and

(c)  the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.

18.  Dominick 3^rd consists of 7 pages and comprise 17 paragraphs:

(a)  §§1-5 contain introductory and background remarks;

(b)  §§6-13 contain a description of the ordinary business and operations of the Respondent;

(c)  §14 sets out preliminary questions that the Respondent asserts have to be answered before any order for disclosure is to be made;

(d)  §15 takes the Master to task for failing to consider factual evidence before making the Order;

(e)  §16 sets out 5 “Preliminary Questions” that the Respondent considers arise and its arguments as to why they need to be resolved before any order for disclosure is made;

(f)  §17 is the Respondent’s request for the order it seeks.

19.  It is immediately apparent that the contents of Dominick 3^rd do not meet the first requirement. Dominick 3^rd does not contain “evidence” that could not have been obtained with reasonable diligence for use at the trial. Such evidence as it contains is a description of how the Respondent conducts its ordinary business and operations. Plainly, that evidence is not “new” and does not relate to matters or events that occurred since the date of the Order.

20.  As will become apparent, the Respondent could have placed such evidence before the Master but chose not to do so.

21.  This ties in with, and answers, §3 of Dominick 3^rd which criticised the Master for making the Order ‘prematurely’ in that the hearing on 26 April 2024 was but the 1^st call-over hearing and directions should have been given for the Respondent to file the necessary evidence. According to the Respondent, it should “be given full opportunity to file factual evidence to support its intended scope of disclosure[5]”.

22.  Perusal of the timeline of events following the January 2024 Order shows that the Judgment Creditor served the Examination Order on the Respondent on 23 February 2024 and the Respondent’s representative attended the Registry on 28 February 2024 to fix the date for the adjourned hearing.

23.  The Respondent was thus aware of the terms of the Examination Order that specifically contemplated that the Directors would have to produce books or documents in their possession or power relating to the Respondent’s assets and liabilities at the time of the examination.

24.  As stated in §48/3/1C of HKCP 2024 under the rubric “Jurisdiction to order discovery”, the normal practice is for the court to order discovery of documents prior to the actual examination. The scope of discovery is not limited to the documents referred to in the standard directions referred to in the annotation that followed in §48/3/1. The court retains jurisdiction to make further orders for discovery after the initial order for discovery is made and even after the oral examination has commenced, citing Lafarge.

25.  Given the terms of O 48, r 1[6] as well as the annotation at §48/3/1, and bearing in mind the overriding purpose of an examination order, the giving of directions for the oral examination of the Directors by the Master is unexceptional and, indeed, should not have come as a surprise.

26.  On 25 April 2024, the day prior to the hearing before the Master, the Respondent’s counsel lodged a “Speaking Note” which contained a description of the nature of the Respondent’s business and operations but did not see fit to file any evidence for that hearing.

27.  So far as the ‘Preliminary Questions’ are concerned, they do not arise because of events that occurred subsequent to the Order. Rather, they arise because the Respondent’s arguments are premised on them.

28.  In short, I have no hesitation in concluding that Dominick 3^rd which does not meet the Ladd v Marshall requirements is not admissible as evidence for the purposes of this rehearing. In those circumstances, the Summons is dismissed.

Other objections to the making of the Order

29.  The Respondent’s primary objection to the making of the Order is the absence of factual evidence. However, as is apparent from §§20-28 above, its absence is attributable to the Respondent’s own choice in the matter.

30.  Be that as it may, it was said that the Respondent had no opportunity to comment on the Order which was handed up to the Master who made an order in terms and that the Respondent is put in difficulty in complying with the Order having regard to the ‘penal’ nature of the order.

31.  When asked to identify the specific difficulty, Ms Ip referred to §2(d) of the Order which reads as follows:

“[The Directors] shall as far as possible, supply copies of or make available originals for copying the following documents not later than 35 days before the adjourned hearing and shall also produce the following documents at the hearing:-

(d)  All shares and stock certificates held in the [Respondent’s] name.”

32.  She explained that because of the Respondent’s contracts with prime brokers, it is not the beneficial owner of shares shown registered in the name of the Respondent which are subject to those contracts.

33.  Ms Ip also referred to §19 of her written submissions which identified further difficulties that may arise. In particular, it stated that there are “exchanges for differences” type agreements which are confidential in nature. She stressed the penal nature of the order in that non-compliance would trigger adverse costs consequences and the Directors would be guilty of contempt of court.

34.  Mr Billy Liu, counsel for the Judgment Creditor submitted that the Order contains a specific provision[7] directing the Directors to make an affidavit at the time of the disclosure to explain the nature and beneficial ownership of the relevant asset and property. That provision caters for the situation that the Directors may wish to offer an explanation alongside the disclosure.

35.  The same applies, mutatis mutandis, to any question of confidentiality that may arise. Where privilege is claimed on the ground confidentiality, the master has a discretion and may consider whether fairness requires that the particular line of enquiry be allowed in the course of the

Conclusion

36.  In my view, the Respondent is anticipating ‘difficulties’ that may or may not arise. If and when they do arise, they will be dealt with and addressed.

37.  Further, all §2(d) of the Order requires the Directors to do is to identify all shares and stock certificates held in the Respondent’s name. The Directors’ duty is to supply copies of or make available originals “as far as possible”. It is open to the Directors, where appropriate, to explain why the Respondent does not beneficially own certain shares and stock and/or is unable to supply copies available originals.

38.  If the answers given are honest and truthful, it is difficult to envisage that the Directors would be visited with adverse consequences.

39.  For all the above reasons, the appeal was dismissed with costs in favour of the Judgment Creditor, such costs to be summarily assessed and payable forthwith.

40.  As the Judgment Creditor lodged its statement of costs at the conclusion of the hearing, the Respondent was directed to lodge its objections (limited to 2 pages) within 7 days of the hearing for costs to be assessed.