NOBLE HOLDINGS LTD v. NOBLE GROUP HOLDINGS LTD

HCMP 1842/2023

[2024] HKCFI 1538

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1842 OF 2023

____________________

________________________________

____________________

____________

DECISION

____________

Overview

1.  This is the application of Noble Holdings Limited (“the Plaintiff”) by summons dated 28 November 2023 (“the Production Summons”) for an order under RHC O. 24, rr 10-11 that Noble Group Holdings Limited (“the Company”) do produce two documents (“the Presentations”) referred to in the 1^st affirmation of Matthew Frank Hinds filed on 27 November 2023 (“Hinds 1^st”). At the conclusion of the hearing, the decision was reserved which I now give.

2.  Hinds 1^st was filed in response to the Plaintiff’s application by originating summons (“OS”) under s 740 of the Companies Ordinance (Cap 622) (“CO”) seeking disclosure by the Company of a wide range of documents. The OS will be heard on 26 and 27 November 2024 (“the November hearing”).

3.  It is common ground that the Presentations should be produced. The issue for determination is whether, pending the November hearing, the disclosure of the Presentations should be made subject to appropriate safeguards.

Relevant background

4.  The Noble Group Limited (“NGL”) (in liquidation), an Asia-based commodities trader, was founded and formerly chaired by Richard Samuel Elman (“Mr Elman”). It was the entity through which the Noble Group was held.

5.  NGL posted a US 1.7 billion loss at the end of 2015 following an industry wide fall in commodity prices. Mr Elman stepped down as Chairman in May 2017.

A.  The 2018 Restructuring

6.  In January 2018, in view of the massive amount of debt that NGL had accumulated, the creditors had to consider restructuring. It culminated in the 2018 Restructuring when Schemes of Arrangement were approved by scheme creditors and sanctioned by the English and Bermudan Courts.

7.  The 2018 Restructuring was a debt for equity swap. NGL transferred its assets to the Company, after which NGL was wound up.

8.  The Company held NGL’s assets through two lines of subsidiaries:

(1)  Noble Trading HoldCo Limited (“Trading HoldCo”) the holding company of the commodities trade business carried through a wholly-owned subsidiary, Noble Trading Company Limited (“Trading”); and

(2)  Noble New Asset Co Ltd (“AssetCo”) which held NGL’s other principal assets.

The Company and its subsidiaries are collectively referred to as “the Group”.

9.  In exchange, NGL’s senior creditors released their debts for shares amounting to 70% of the equity in the Company as well as new debt instruments including US $300 million notes issued by Trading HoldCo due 2025 (“2025 Notes”) and US $700 million notes issued by Trading due 2023 (“2023 Notes”).

10.  Existing shareholders of NGL (20%, including the Plaintiff) and former management (10%) indirectly held the remaining 30% of the Company’s shareholding.

11.  The 2018 Restructuring resolved the Group’s immediate issues but left it with US $1.5 billion in debt, ongoing regulatory scrutiny, and low levels of confidence among counterparties, suppliers, customers and financiers. The Group was effectively locked out of the trade finance market. In order to support the continuation of its trading business, it had to rely on a bespoke US $700 million trade finance facility (“TFF”) fronted by Deutsche Bank and supported by the 2023 and 2025 Noteholders.

12.  In the course of 2021, both commodity demand and price exceeded the Group’s earlier projections and resulted in an increase in the required levels of TFF and immediately available cash, placing considerable strain on the Group’s liquidity. For the trading business to continue to operate beyond December 2021, the Group had little option but to extend and increase the TFF. However, Deutsche Bank and the 2023 and 2025 Noteholders providing credit support required the Group to deleverage.

B. The 2022 Restructuring

13.  In July 2021, the Company engaged Macquarie Capital (Europe) Ltd (“Macquarie”)  and FTI Consulting LLP (“FTI”) to advise its Board of Directors on the options available to the Group:

(1)  Macquarie was engaged to evaluate the Group’s debt and liquidity position, as well as to identify transactions to create value for its shareholders, including potential sales of its assets.

(2)  FTI was engaged to develop an entity priority model to appraise the business and establish a baseline for potential returns to creditors and shareholders (commonly referred to as a liquidation analysis).

14.  In October 2021, Macquarie and FTI indicated, through their Presentations, that Trading HoldCo’s value (US $197 million to US $394 million) was far less than its debts, which exceeded US $1 billion. They concluded that “value broke” within the 2023 Notes indicating that only the 2023 Noteholders were likely to make a partial recovery while the 2025 Noteholders and the Company’s shareholders were wholly out-of-the-money.

15.  The 2022 Restructuring was implemented by the 2023 Noteholders exercising their enforcement rights. Grant Thornton was engaged to value the trading business and assigned an enterprise value to Trading of approximately US $397 million (“GT’s valuation”) and the 2023 and 2025 Noteholders released more than US 1 billion of debt in exchange for the equity in Trading.

16.  On 14 December 2021, the Company’s Board resolved to approve the restructuring of Trading. This was followed by the Company’s announcement on 17 December 2021 of a restructuring (“the 2022 Restructuring”) involving the disposal of the entirety of its trading business in exchange for the cancellation of approximately US $1 billion worth of the Group’s indebtedness.

C. Events since October 2021, culminating in the OS

17.  In October 2021, even before the 2022 Restructuring was announced, Mr Elman representing the Plaintiff, accused the Board of acting in a position of conflict and warned them against asset stripping.

18.  On 3 April 2023, the Company’s past and present directors received a letter before action from Braddell Brothers (the Plaintiff’s Singaporean solicitors) . The Plaintiff claimed that the 2022 Restructuring was a “ruse” and that Trading had been undervalued by US $287 million. The Plaintiff demanded a written confirmation of breach and compensation of US $287 to the shareholders failing which legal action would be taken.

19.  The Plaintiff’s claims were rejected[1] because

(a)  the higher valuation (even if accepted) would not result in any surplus available for shareholders (including the Plaintiff) since all surplus would have gone to the 2025 Noteholders; and

(b)  any derivative action on the part of the Plaintiff would be barred by the waiver and indemnity in Article 164[2] of the Company’s bylaws.

20.  The Plaintiff did not pursue the threatened proceedings. Instead, it sought disclosure under s 740 of the CO of a wide range of documents.

21.  The OS filed in the present proceedings on 19 October 2023 superseded an earlier application made on 4 August 2023 (“the superseded application”) in identical terms for disclosure. The superseded application was discontinued on 29 September 2023 due to a lack of standing. Mr Elman’s affirmations filed in support of the superseded application and the present application are substantially identical.

22.  Within days of the superseded application, an article setting out Mr Elman’s allegations against the Board of “serious corporate mismanagement” and “collusion” already appeared in Bloomberg News[3].

23.  The same news article referred to Mr Elman citing a valuation by Grant Thornton for the purposes of Deleveraging and Reorganisation which was in breach of contractual obligations of confidence the Plaintiff and Mr Elman had given for access to the valuation.

24.  As earlier noted, the Company filed Hinds 1^st in opposition to the OS. While it referred to the Presentations, they were not exhibited. The Company offered to produce the Presentations subject to (i) a supervision undertaking from the Plaintiff’s solicitors to ensure that the Presentations are only read in their presence; and (ii) the undertaking by the Plaintiff and Mr Elman not to use the information in those documents for any purpose except for the purpose of these proceedings.

25.  On the same day, the Company’s solicitors filed a summons seeking confidentiality restrictions in respect of the use of the affidavits, affirmations and the documents exhibited to them (“the confidentiality summons”).

26.  The confidentiality summons was resolved by consent on 30 November 2023. The order of DHCJ Roxanne Ismail SC recorded the following undertaking:

“… the Plaintiff’s undertaking that, whether by itself, its employees and/or agents, it will not publish or disclose the affidavits and affirmations filed by the [Company] in HCMP 1842/2023, and the documents exhibited to them, to any third party (other than its professional advisers) pending the substantive determination of the Plaintiff’s [OS] or further order of the court (the “Confidentiality Undertaking”). The Confidentiality undertaking shall in no way restrict the Plaintiff’s ability to enforce or pursue any rights or causes of action available to it, including but not limited to the commencement of any substantive proceedings, whether against the Defendant or its directors or former directors.”

27.  Meanwhile, on 24 November 2023, the Plaintiff requested the production of the Presentations pursuant to O. 24, rr. 10, 11 and 11A.

28.  Upon refusal of the Plaintiff’s request[4], the Plaintiff issued the Production Summons on 28 November 2023.

Legal principles

29.  The rules of Court relevant to the Production Summons are the following:

Inspection of documents referred to in pleadings and affidavits (O.24, r.10)

(1) Any party to a cause or matter shall be entitled at any time to serve a notice on any other party in whose pleadings, affidavits or witness statements served under Order 38, rule 2A, or experts’ reports, reference is made to any document requiring him to produce that document for the inspection of the party giving the notice and to permit him to take copies thereof.

(2) The party on whom a notice is served under paragraph (1) must, within 4 days after service of the notice, serve on the party giving the notice a notice stating a time within 7 days after the service thereof at which the documents, or such of them as he does not object to produce, may be inspected at a place specified in the notice, and stating which (if any) of the documents he objects to produce and on what grounds.

Order for production for inspection (O.24, r.11)

(1) If a party … who is served with a notice under rule 10(1) …

(a) fails to serve a notice under rule … 10(2), or

(b) objects to produce any document for inspection, or

(c) offers inspection at a time or place such that, in the opinion of the Court, it is unreasonable to offer inspection then or, as the case may be, there,

then, subject to rule 13(1), the Court may, on the application of the party entitled to inspection, make an order for production of the documents in question for inspection at such time and place, and in such manner, as it thinks fit.

Production to be ordered only if necessary, etc. (O.24, r.13)

(1) No order for the production of any documents for inspection or to the Court or for the supply of a copy of any document shall be made under any of the foregoing rules unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

30.  In Moulin Global Eyecare Holdings Limited v Olivia Lee Sin Mei [2013] 3 HKLRD 72, Fok JA (as he then was) explained (at §35) how those rules operate. In summary, they involve a two-stage process:

(1)  First, a party who has referred to a document in a pleading has the burden of showing good cause why an order for production should not be made.

(2)  There is not then a presumptive rule in favour of an order for production as the referring party may be able to show that the document is privileged from production.

(3)  Under r.13, there remains, secondly, and independent of the first stage, a burden on the applicant for an order for production to show the Court that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

31.  Relevantly (at §§39-40), Fok JA observed that

“39 … there is no rigid, inflexible rule that production of a document referred to in the pleading or affidavit will always[5] be ordered. On the contrary, the underlying rationale of O.24 r.10 and the theme in the cases both reflect a general rule and, as such, one to which there may be exceptions…

40. … the rule providing for an order for production (O.24 r.11) is expressly subject to O.24 r. 13 which requires the court to consider the necessity of an order for production in terms of the disposal of the cause or matter or the saving of costs. That enquiry necessarily imports and evaluation of the circumstances in order to determine whether an order for inspection should be made.”

32.  The approach set out in §40 of the Moulin case is consonant with that expressed by Godfrey V-P in Dynamic Way International Limited & Anor v Ho Kui Chee & Ors [2000] 4 HKC 138 at 142C.

The Plaintiff’s case

33.  Mr Charles Sussex SC, and Mr Jason Yu, counsel for the Plaintiff submitted that there is no dispute that the express references to the Presentations have the effect of engaging the application of O 24 r. 10. The Company’s present stance is that it does not oppose production and disclosure of the Presentations but simply seeks appropriate safeguards to be put into place pending the outcome of these proceedings. Its justification for having the protection is because the documents are “especially sensitive and confidential”.

34.  On the question of confidentiality, Mr Sussex submitted that Shun Kai Finance Co Limited & Ors v Japan Leasing (HK) Ltd (In liq) [2000] 3 HKLRD 539 (which is binding on this Court) is authority for the proposition that documents produced under O 24 r 10 and 11 are not subject to the usual implied undertaking. The Company’s act of referring to the Presentations has the effect of destroying their confidentiality and the Company cannot now attempt to resuscitate that confidentiality and rely on it as the reason why additional protection is required.

35.  Mr Sussex further submitted that, in any event, there is nothing to substantiate the claim to confidentiality. The Presentations contain a “liquidation analysis” which outlines how a company would wind down its operations. It was said that their disclosure could negatively impact supplier, customer, credit insurer, and financier confidence and cause employees to question their job security and viability of the business[6].

36.  Mr Sussex submitted that those considerations and concerns are misplaced because that analysis was obtained for the 2022 Restructuring, a transaction that occurred 2 years ago and any sensitivity is spent.

37.  As regards confidentiality clauses in the engagement letters of Macquarie and FTI, the fact that they authorised the reference to be made in Hinds 1^st would have destroyed any confidentiality that existed on the basis that in so doing, they must be taken to understand Hong Kong law. However, no authority was cited in support of that proposition. It is to be noted that they gave their consent based on “clear and unequivocal restrictions” against disclosure[7].

38.  Turning to the Confidentiality Undertaking, the Plaintiff invited attention to the fact that in giving it, the Plaintiff made no admission that the Company was entitled to it. Further, the Confidentiality Undertaking did not extend to the Presentations since they were not exhibits to Hinds 1^st.

39.  While the Plaintiff did offer to extend the Confidentiality Undertaking to the Presentations, it was not accepted. Rather, in its letter dated 19 December 2023, the Company proposed that disclosure of the Presentations should be made subject to the following undertaking (“Presentations Confidentiality Undertaking”):

“UPON Richard Samuel Elman submitting to the jurisdiction of this Court

AND UPON each of the Plaintiff and Richard Samuel Elman undertaking that, whether by themselves, their employees and/or agents, they will not publish or disclose the documents listed in Schedule 1 of the affirmation of Matthew Frank Hinds filed on 27 November 2023 in HCMP 1842/2023 to any third party (other than on a confidential basis to their professional advisers for the purposes of these proceedings) pending the substantive determination of the Plaintiff’s Originating Summons or further order of the court”

40.  Mr Elman has indicated in Elman 3^rd[8] and through counsel that he is prepared to agree to appropriate protections to expedite these proceedings although he does not consider that any restriction on use should be imposed.

41.  The Plaintiff made it clear that it is not a question of the Court having to choose between the Confidentiality Undertaking and the Presentations Confidentiality Undertaking. Instead, it is open to the Court to order disclosure without imposing restrictions because there is no foundation for additional safeguards.

The OS

42.  The proceedings underlying the Production Summons are proceedings brought under s 740 of the CO. §1 of the OS seeks disclosure of documents set out in its Schedule. §2 seeks leave to report any serious misconduct to the relevant regulatory authorities[9].

43.  It is apparent that the disclosure sought is intended to serve a dual purpose. First, to obtain legal advice as to whether the Plaintiff has a viable cause of action against the Company, inter alia, in relation to the 2022 Restructuring and, if so, to pursue legal proceedings against the Company. Second, to file regulatory complaints in relevant jurisdictions against the Company. To succeed in its s 740 application, the Plaintiff must demonstrate that production is for a “proper purpose”.

44.  Hinds 1^st is the Company’s evidence filed in opposition to the s 740 application and in response to Mr Elman’s 26-page affirmation dated 19 October 2023 (“Elman 1^st”). As such, the Company had to provide a comprehensive and detailed response to what it considered to be “a raft of misleading and factually inaccurate statements[10]”. It sought to do this by way of Hinds 1^st which, including its 7 schedules, exceed 100 pages[11].

45.  Ms Rachel Lam SC and Mr Cyrus Chua, counsel for the Company confirmed that the Company does not dispute the general applicability of Shun Kai, namely that documents produced under O 24 rr. 10-11 are not subject to the usual implied undertaking.

46.  The Company’s position is that the present case is outside the realm of Shun Kai itself in that it was necessary for the Company to refer to the Presentations in answer to the s 740 application and the fact that the Presentations themselves have within them confidentiality provisions. The Company relied on the Moulin case.

47.  It is apparent from Fok JA’s observations in §77 of the Moulin case that in any given case involving an application for production under O 24 r 11, what the court strives to achieve is a balance of fairness. In each of Dynamic Way (at 141H) and Moulin (at §§75-76), the alternatives considered by the court (whether to strike out the relevant paragraphs, to order partial production or impose additional safeguards) are examples of means by which a court could achieve that balance.

48.  The Presentations were created in the specific context of the 2022 Restructuring and the Company is subject to express confidentiality obligations. The passages in Hinds 1^st that refer to the Presentations[12] are primarily the conclusions within the Presentations and, as such, fall within the Confidentiality Undertaking.

49.  However, the Presentations themselves (which run to 130 pages) are detailed, technical and complex. Much of the methodology and analysis as well as the underlying figures remain confidential. Ms Lam submitted that referencing certain conclusions within them does not destroy the confidentiality of the entire Presentations.

50.  Ms Lam submitted that the Company’s concerns that the Presentations would be used for collateral purposes are real and not hypothetical:

(1)  Mr Elman, acting for the Plaintiff, has repeatedly threatened litigation against the Company’s current and former directors[13].

(2)  The Plaintiff and Mr Elman have, in the past, resorted to airing their grievances in the media, casting aspersions on the reputation of the Company and its board[14].

(3)  The Plaintiff and Mr Elman have a prior pattern of disclosure of documentation to third parties[15].

51.  Those concerns are borne out by the following extract taken from §23 of Elman 3^rd affirmation:

“The Plaintiff has every right to use the contents of the [Presentations] for other purposes, including for the purposes of seeking advice on the merits of potential substantive proceedings or regulatory complaint which would require the disclosure of such documents to third-party legal or professional advisors. Indeed, even assuming (as the [Company] speculates) that the Plaintiff were to publish or disclose the [Presentations] through new substantive proceedings against the [Company] and/or its current or former directors prior to the determination of the OS, this would likely bring the OS to an end and hence facilitate the fair disposal of the OS and the saving of costs.”

52.  Ms Lam submitted that the whole point of the OS is to determine whether or not the Plaintiff satisfies the relevant threshold to be entitled to access the Presentations, inter alia, for the purposes identified in the OS. That is a matter for determination at the November hearing.

53.  If access is granted at this hearing without safeguards to maintain the status quo until the November hearing as proposed in the Presentations Confidentiality Undertaking[16], effectively, the Plaintiff would be allowed to “jump the gun”. That would be manifestly unfair to the Company because it would be denied the opportunity of having the issue (the merits of the s 740 application) properly determined. The extract cited in §51 above leaves no doubt as to how the Plaintiff intends to utilise the Presentations.

54.  The Plaintiff does not accept that the Company did not have a choice but to make specific reference to the Presentations. It was suggested that Mr Hinds could have said “I was advised that …” or “the view expressed by me was confirmed …” without specific reference to documents. It was specific reference to the Presentations that triggered the obligation under O 24 r 10 which gave the Plaintiff “a freestanding right” to see those documents.

Disposition

55.  The applicable principles are those set out in the Moulin case (at §§35, 39 and 40) summarised in §§30-31 above. They involve a two-stage process.

56.  Of particular relevance is what is stated in §40 of Moulin which for ease of reference is reproduced here:

“40. … the rule providing for an order for production (O.24 r.11) is expressly subject to O.24 r. 13 which requires the court to consider the necessity of an order for production in terms of the fair disposal of the cause or matter or the saving of costs. That inquiry necessarily imports and evaluation of the circumstances in order to determine whether an order for inspection should be made.”

57.  The Court is required to evaluate all circumstances in order to determine whether or not to order inspection. Fok JA considered that O24 r 13 confers a broad discretion rather than a narrow or fettered the discretion, citing the following passage from Taylor v Anderton [1995] 1 WLR 447 at 462[17]:

“… The crucial consideration is, in my judgment, the meaning of the expression ‘disposing fairly of the cause or matter.’ Those words direct attention to the question whether inspection is necessary for the fair determination of the matter, whether by trial or otherwise. The purpose of the rule is to ensure that one party does not enjoy an unfair advantage or suffer an unfair disadvantage in the litigation as a result of the document not being produced for inspection. It is I think, of no importance that a party is curious about the contents of the document or would like to know the contents of it if he suffers no litigious disadvantage by not seeing it and would gain no litigious advantage by seeing it. That, in my judgment, is the test.”

58.  Fok JA also opined (at §56) that the concept of the fair disposal of a cause or matter must entitle and require the Court to make an assessment of the “degree of relevance or importance of the document to that matter”. It is an important safeguard deliberately put in place to allow the court to assess each case in its context and determine whether production is warranted under the particular circumstances of the case.

59.  In arriving at a determination, the overriding consideration is to achieve a balance of fairness. The Plaintiff has the burden of showing that it is entitled to the relief that it seeks in the OS. That is due for determination in November which is only a few months from now. Its entitlement is not a foregone conclusion.

60.  The Presentations lie at the heart of the parties’ dispute. To order partial production limited to the passages referred to Hinds 1^st would not appear to be what Plaintiff is after[18]. Striking out the passages in Hinds 1^st that refer to the Presentations would emasculate the Company’s opposition and response to the Plaintiff’s allegations.

61.  That leaves the options of ordering production of the Presentations without any safeguard or condition or ordering production subject to appropriate safeguards[19].

62.  In my view, it would unquestionably be unfair to the Company to make an order for production without safeguards as it would allow the Plaintiff to short-circuit its own OS, due to be heard in November and avoid having its own application determined on its merits.

63.  The remaining option is to order production subject to appropriate safeguards. In this regard, I have considered the Presentations Confidentiality Undertaking the Company proposes.

64.  In the present case, having regard to its limited scope (affecting 2 documents), duration (of under 20 weeks), the fact that there exists a real risk (given Mr Elman’s past conduct) of disclosure to 3^rd parties in the absence of suitable restrictions, the Presentations Confidentiality Undertaking has much to commend it.

65.  In all the circumstances, I consider it appropriate to order that the production of the Presentations be subject to an undertaking in terms of the Proposed Confidentiality Undertaking.

Order

66.  Accordingly, I make an order in terms of the Plaintiff’s summons dated 28 November 2023 subject to the Presentations Confidentiality Undertaking.

67.  I make an order nisi of costs in favour of Company with certificate for 2 counsel, such costs to be taxed if not agreed.