CHINA GOLD (PRECIOUS METAL) STRATEGIC INVESTMENT LTD v. CHINA GOLD (CAPITAL) LTD AND OTHERS

HCA1113/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1113 OF 2009

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J U D G M E N T

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1.  There are two matters before me today.  The first and most important is whether I should direct that the 3rd defendant in this matter should submit himself for cross-examination.  The nature of the cross-examination would relate to discovery of the 1st defendant’s financial position, this against the background of a case where the plaintiff alleges that in effect, orchestrated by the 3rd defendant, the 1st defendant has hijacked the business of the plaintiff, is currently passing itself off as the plaintiff in such a way that the plaintiff’s good name is being used to the advantage of the 1st defendant, and also at the same time conducting business in such a way that it is affecting the good name of the plaintiff.

2.  When the matter was first before me there was still outstanding, production of the 1st defendant’s audited accounts.  The complaint on the last occasion was that the discovery had been insufficient, and I took the view that it was perhaps rather premature to direct cross-examination in this way at his interlocutory stage, which in any event would be a most unusual order, before I had an opportunity of looking at what the auditors have had to say about it.  This report is now available.   I am bound to say it is disappointing, because the auditor’s report, which is to be found at bundle B2, starting at page 663, contains a paragraph B64, entitled “Limitation of Scope” the following:

“We write in the report to you that during the past three months, ended 14 July 2009, your company is busy in updating the accounting records of the company.  The company’s operations involved those of Hong Kong operations and People’s Republic of China.  Accounting transactions are voluminous and complicated.  Our work was restricted as currently your computer trading system and the detailed information contained in thereto could not be accessed by your staff nor our staff to carry out an audit.  Accordingly, we are unable to express an opinion whether the company has maintained proper books and accounts.”

3.  Notwithstanding that an account has been produced it is I’m bound to say, pretty thin.  So given the contents of this auditor’s report, hedged as it is by that sort of disclaimer and qualification, Mr Poon now says that really the matter has become sufficiently urgent and the state of disclosure worryingly patchy, that I ought to exercise my power to direct that the 3rd defendant should be cross-examined at this interlocutory stage.  He has also relied on a very recently filed affirmation.  It is affirmed on 17 July - this is last Friday, today being Monday - by a Mr Ng Man-kit, who is the assistant general manager of the plaintiff, to show that worryingly clients are still attempting to get access to their funds and this has not been possible.  They have been referred by the 1st defendant to the plaintiff.  The plaintiff is not in a position to give the sort of assistance that it would wish to simply because it is not aware of the 1st defendant’s financial position, it does not know where it stands vis-à-vis  these people and all of this is harming its good name and reputation.

4.  It is quite clear from the authorities - and I was referred to them on the last occasion - that this is an order that is to be sparingly made.  The leading case is the decision of the English Court of Appeal in House of Spring Gardens Limited & Ors v Waite & Ors [1985] FSR  at 173.  More recently - and more importantly because it is a decision in Hong Kong - is the case of Yau Chu Wah v Gold Chief Investment Limited & China Broadband Corporation Limited, HCA807/2001, a decision of Ma J, as he then was.  The principles are now clear from those authorities.  Firstly, this is a jurisdiction to be exercised sparingly.  It is a jurisdiction that is one which the court will exercise as a matter of discretion.  The object of it all is to make the Mareva injunction more effective. 

5.  As matters presently stand, Mr Poon complains that his client is in receipt of the benefit of the Mareva injunction, but the truth is that the disclosure here has been so sketchy that, without an order for cross-examination, his client will have to wait until trial to get at this information, by which time it might all be far too late.  I take the view that this is a submission that has merit in these circumstances, and I am reinforced in that conclusion by the contents of the auditors report.  Whereas on the last occasion I thought it would have been rather precipitate to make this order, and I wanted to give more time to the 1st defendant and those controlling its activities to come up with more disclosure, what has been produced has merely served to make the matter more worrying so far as the plaintiff is concerned, and more importantly on this occasion, so far as the court is concerned. 

6.  So I am going to direct that there be cross-examination of the 3rd defendant.  It will be a cross-examination directed to disclosure of the 1st defendant’s financial position.  I shall, in a moment, invite both counsel to indicate to me what directions they would wish me to give to give effect to the order that I have just made.  So that is going to be the order. 

7.  Then there is another summons which relates to the passing-off by the 1st defendant of a number of logos and so forth relating to the plaintiff’s corporate persona.  I have been shown a consent summons which had been prepared on behalf of the plaintiff.  It is right that it had been indicated to me that this was probably going to be agreed to and there would be no difficulty about it.  So I was prepared to merely adjourn the matter. 

8.  What has happened is that the plaintiff has prepared a consent summons.  It is a consent summons in two parts.  The first part effectively gave it summary judgment.  Unsurprisingly, when those advising the defendants looked at it they felt unable to consent.   So all of that has been struck out, that is the first three paragraphs, and I think rightly so.  This would be far too premature and too substantial a concession to expect at this stage.

9.  But the interim injunction contained what one might call the usual orders in respect of a passing-off action.  Much of it has also been struck out.  The justification for doing so is put forward by Miss Mak in this way; “Well, there is an undertaking that covers all of these matters.”  I do not think those undertakings, in the light of the evidence, is sufficient.  So I am going to make orders in respect of the passing-off in terms of paragraph 4, 5 and paragraph 6 of what was then described as a consent summons.  These orders are usual orders.  They should go, including paragraph 5, which requires delivery up on oath.  That is the usual order, and it should be made at this stage. 

10.   So far as costs are concerned, paragraph 6, where the plaintiff has been successful on an interlocutory basis the usual order is plaintiff’s costs in the cause, and I think that is the order that should be made.  So that is what I say about both of these matters. 

(Discussion re directions sought and costs)

11.   Order for costs will be Plaintiff’s costs in the cause.