TRENUS OCEANWAY LTD v. RICHLAND INTERNATIONAL LTD AND ANOTHER

HCCW 352/2014

[2020] HKCFI 634

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 352 OF 2014

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D E C I S I O N

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1.  I have two summonses before me issued by the 1^st Respondent:

(1)  A summons issued on 26 September 2019 for leave to rely on the witness statement of Sun Min and amend the Points of Defence; and

(2)  A summons issued on 20 November 2019 for specific discovery of documents listed in the schedule to the summons and for leave to make the application out of time [1].

2.  Both summonses are opposed.

3.  The trial of the Petition is to commence on 12 October 2020 with 10 days reserved, in other words, more than 12 months after the first summons was issued.  The trial dates were fixed by me on 17 July 2019.

4.  The Company is incorporated in the British Virgin Islands.  The Petitioner is owned by Chu Kong who owns 50% of the Company.  The other 50% is owned by the 1^st Respondent, which is owned by Lau Wing Yan.  The Company has a wholly owned subsidiary: Pacific Bulk Shipping (Cayman) Limited (“PB Cayman”).

5.  In 2000 Mr Lau established the Pacific Bulk shipping group, which Mr Chu joined in 2002. PB Cayman was formed in 2008 to carry out their dry shipping business.  In time they fell out.  The Petition forms part of wider litigation between them concerning the Pacific Bulk shipping group (“PB Group”).

Summons to rely on new witness statement and amend the Points of Defence

6.  On 11 April 2019 Master Au-Yeung ordered, amongst other things, that “Unless the parties exchange or serve the witness statements in reply by 4pm on 20 June 2019, the parties in default be debarred from doing so”[2].  The parties proceeded to exchange witness statements.    Self-evidently, the 1^st Respondent subsequently found another person, Sun Min, who her legal advisers believe can give useful evidence.

7.  Ms Sun was involved in the management of the PB Group between 2008 and 2014.  It seems to me quite clear from her witness statement that she can give relevant evidence. The point is taken on behalf of the Petitioner that the application for leave to adduce Ms Sun’s witness statement is in breach of the unless order made by           Master Au-Yeung.  It is correct that the order required the parties to exchange witness statements in one tranche and to that extent the application for leave to rely on Ms Sun’s witness statement is inconsistent with the order.  However, it seems to me fairly clear that the intention of the order was to ensure that the Petition proceeded expeditiously to trial.  Witness statements were exchanged and trial dates fixed.  The introduction of the witness statement will not have any adverse effect on the preparation for trial.

8.  I will make an order in the terms of paragraphs 1 and 2 of the summons.  I will also order that the Petitioner can file and serve witness statements in reply within 35 days, which shall stand as evidence in chief at the trial unless otherwise directed by the trial judge.  I deal with costs in [11].

9.  The 1^st Respondent seeks leave to amend the following paragraphs to the Points of Defence: 3.6, 29.10, 44.1 and 46.  As Mr Joffe submits this are minor amendments. Paragraphs 3.6 and 29.10 are as Mr Joffe concedes more cosmetic than substantive.  The proposed amendment to [44.1] pleads “Further or alternatively, by reason of the matters aforesaid, the Petitioner and/or Mr Chu in seeking to wind-up the Company on just and equitable grounds did not come to the Court with clean hands.”  The proposed amendment to [46] pleads “Further or Alternatively, by reason of the matters aforesaid, Mr Lau's conduct was not unfairly prejudicial to the Petitioner and or Mr Chu should not be granted any of the reliefs pleaded in the Points of Claim (and the Petition); and that if (which is denied) the 1^st Respondent is to be ordered to purchase the Petitioner’s shares in the Company, any valuation must take into account the unlawful misappropriations.”

10.  I have considerable difficulty understanding why the Petitioner has spent time and money opposing these amendments.  I will allow them and grant an order in terms of [3] of the summons.

11.  In [42] of the Petitioner’s submissions it is proposed that if I do not dismiss the summons I invite the Parties to file submissions on costs.  I decline this invitation.  The application is straightforward and it would have been sensible to agree it.  I will make the order sought in the summons, namely, that costs of the application be costs in the cause.

Summons for Specific Discovery

12.  Discovery was ordered on 14 February 2019 in the following terms: “Within 28 days from the date hereof, parties do make and serve on the other parties a list of the documents which are or have been in their possession, custody or power relating to any matter in issue between them in these proceedings, save and accept any documents hitherto exhibited in the affidavits filed, and that there be inspection of documents within 14 days after the filing and service of the list of documents by the parties”.  An unless order was made on 11 April 2019.  On 13 September 2019 I made an order that all further interlocutory applications be made by 6 September 2019.

13.  The summons dated 18 November 2019 is an application pursuant to RHC O 24 rr 3 & 7 seeking comprehensive specific discovery of a wide range of documents relating to 153 transactions covering a period from 4 August 2003 to 14 June 2013.  Each document is identified in a schedule to the summons.  The introductory paragraphs to the summons describe the type of documents relating to the transactions of which discovery is sought.  They are as follows:

(1)  Bank and accounting documents evidencing receipt by Mr Chu Kong (“Mr Chu”) and/or his nominees / associates of the total sum of $US262,726,304.02 belonging to companies jointly owned by Mr Chu and Mr Lau Wing Yan as set out in the attached transactions schedule (the “Transactions Schedule”) disclosed by the 1^st Respondent at item 258 of its List of Documents.  In particular, please provide the relevant bank and accountings documents for transactions nos 1-4, 6-8, 10, 12-13, 15-23, 25-45, 48, 51, 56-65, 69, 72, 74-79, 81-82, 85-93, 95-106, 113, 115-116, 119-125, 129-130, 133, 135-136, 139-140, 142-143, 145, and 147-150 in the Transactions Schedule (collectively, the “Payments”).

(2)  Documents explaining the reasons for the Payments and/or that they were made to Mr Chu and/or his nominees / associates for proper business purpose(s).

(3)  Documents evidencing that the Payments (or any parts thereof) were paid back by Mr Chu and/or his nominees / associates to the companies jointly owned by Mr Lau and Mr Chu.

(4)  All contracts of affreightment, charterparties and fixture notes for dry bulk shipping business entered into from 1 January 2014 to date by companies outside of the PB Group in which Mr Chu has or had any beneficial interest or is or has been a director (the “Chu New Companies”). The Chu New Companies should include but are not limited to: (i) Quadrolink Shipping Limited; (ii) Quadrolink Group Limited; (iii) Quadrolink Resources Limited; (iv) Quadrolink Finance Limited; (v) BDH Quadrolink International Holdings Limited; (vi) BDH Quadro Marine Limited; (vii) BDH Quadrolink Food Limited; (viii) PB Maritime Company Limited; (ix) Ausca Shipping Limited; (x) Ausca Shipping HK Limited; (xi) Ausca Energy Limited; (xii) Ausca (Hong Kong) Limited; and (xiii) Ausca Shipping HK Pte. Ltd.

14.  The application is supported by the 6^th affirmation of Mr Lau.

15.  The documents are said to be relevant to the claim pleaded in section F [29] of the Points of Defence. They concern two claims.  First, which the 1^st Respondent refers to as the “Misappropriation Issue”, namely, that Mr Chu misappropriated approximately US$70m from companies in the PB Group and PB Cayman and that in these circumstances it would be unconscionable for Mr Chu and his corporate vehicles to deny, or they are estopped or debarred denying that the Pacific Bulk restructuring agreement described earlier in section F of the Points of Defence altered the arrangements between Mr Chu and Mr Lau and their respective duties.  Paragraph 29.10(a) to (d) of the Points of Defence pleads that Mr Chu had misappropriated approximately US$200m from the companies jointly owned by Mr Lau and Mr Chu (primarily the PB Group and PB Cayman) and that approximately US$70m has not been repaid.  In [29.10(c)] it is pleaded that “A table setting out the aforesaid transfers, including the Unlawful Misappropriations, is attached as the Annex herein”.  The annex contains a list of 153 transactions.  They commence with a transaction dated 4 August 2003 and end with a transaction dated 14 June 2013.  So far as I can see they are the same transactions detailed in the schedule to the summons.

16.  Secondly, what the 1^st Respondent refers to as the “Competition Issue”.  In [29.9] it is pleaded that: “moreover, since the PB Restructuring Agreement, Mr Chu fully acknowledged and recognised that the PB Restructuring Agreement was binding and effective.  Richland will rely inter alia on the correspondence between and/or involving Mr Lau and Mr Chu both prior to and/or subsequent to the PB Restructuring Agreement. Subsequent to the PB Restructuring Agreement, Mr Chu immediately withdrew from the management of the PB Group and moved out of the office premises used by the PB Group in early 2014, and began to set up his own shipping and logistics business using companies with the different brand/prefix ‘Quadrolink’ in April 2014”.  In [40.3] it is further pleaded that: “in Section F above, Mr Lau acquired ownership over the Pacific Bulk Brand pursuant to the PB Restructuring Agreement.  On the other hand, to the best of Richland’s knowledge, Mr Chu began to set up his own shipping and logistics business in April 2014 using companies with the different brand/prefix ‘Quadrolink’, including inter alia Quadrolink Group Limited, Quadrolink Resources Limited, Quadrolink Shipping Limited, BDH Quadrolink International Holdings Limited, etc”.

17.  Both the Misappropriation Issue and the Competition Issue are dealt with in the witness statements.

18.  As can be seen from the order for discovery quoted in [12] (there is no automatic discovery in winding-up proceedings), what was ordered was general discovery in the Peruvian Guano sense.  All documents relevant to the 153 transactions that the Petitioner has it in its possession, custody of power should have been disclosed.  In Peruvian Guano [3] Brett LJ explains what documents will be relevant: a document that “contains information which may enable the party (applying for discovery) either to advance his own case or to damage that of his adversary, if it is a document which may fairly lead him to a train of inquiry which may have either of these two consequences.”  On the face of the matter I would have expected the Petitioner to have disclosed a considerable number of the documents of which discovery is sought by the November summons.

19.  Strangely in neither Parties’ skeleton arguments filed for this written application does it appear to be recognised that the Petitioner is already obliged to make (for all practical purposes) general discovery of documents relevant, in the sense that I have described in the previous paragraph, to the allegations contained in [29] and [40.3] of the Points of Defence dated 20 November 2018.  Mr Wong’s attempts in his skeleton argument to demonstrate that most of the transactions in the schedule do not relate to the Company and are irrelevant.  However, as is clear from [8] of Mr Wong’s proposed directions and note for the hearing on 14 February 2019 it was the Petitioner who proposed the discovery order, which other than for changing 14 to 21 days for compliance was exactly in the language sought by the Petitioner.  I also note that in [18(1)] of the 1^st Respondent’s written submissions for the hearing on 14 February 2019 it is specifically stated that discovery will be extensive.

20.  It does not seem to me that it is now open to the Petitioner to argue that what is clearly a material part of the 1^st Respondent’s defence is irrelevant and discovery in respect of the Misappropriation Claim and the Competition Claim need not be made.  If the Petitioner took the view that [29] and [40.3] are hopeless it could and should have proposed a more restricted and focused discovery on 14 February 2019 and, alternatively, applied to strike out [29] and [40.3].

21.  It is clear from the evidence filed by Mr Chu and Mr Wong’s skeleton argument that the Petitioner has not attempted to comply with the February 2019 order in respect of [29] or [40.3] of the Points of Defence.  In [7] of his 7^th affirmation Mr Chu says “To start with, it essentially speaks for itself that Mr. Lau is only seeking discovery at this late juncture.”  It would appear that the drafter (presumably not Mr Chu) of this affirmation did not appreciate that the Petitioner had already been ordered to make discovery in respect of the relevant allegations and that it had failed to comply with my February 2019 order.

22.  Given it is still over seven months trial to the Petitioner has time to make discovery.  I will make the following order:

(1)  The Petitioner do within 14 days from the date of this order make, file and serve an affirmation or affidavit made by a duly authorised officer of the Petitioner stating whether it has or has ever had in its possession, custody or power any of the documents or classes of documents referred to in the schedule to this order.

(2)  Leave be granted to the 1^st Respondent to issue the summons dated 18 November 2019.

(3)  There be liberty to apply.

(4)  The costs of the summons be paid by the Petitioner to the 1^st Respondent in any event with a certificate for two counsel.

23.  The schedule will read as follows:

(1)  Bank and accounting documents evidencing receipt by Chu Kong and any company directly or indirectly controlled by him of receipt of monies in respect of the transactions listed in the annex marked “Annex A”[4] to this schedule.

(2)  Bank and accounting documents evidencing repayment by Chu Kong or any company directly or indirectly controlled by him to any company jointly owned by Chu Kong and Lau Wing Yan of any of the monies any monies received in respect of transactions listed in the annex marked “Annex A” to this schedule.

(3)  All instructions given by Chu Kong or at his direction in respect of transfers described in sub-paragraphs 1 and 2 of this Schedule.

(4)  All contracts of affreightment, charterparties and fixture notes for dry bulk shipping contracts entered into between 1 January 2013 and 31 December 2019 by companies in which Chu Kong has either a direct or indirect 51% interest other than companies in the Pacific Bulk group.