TRENUS OCEANWAY LTD v. RICHLAND INTERNATIONAL LTD AND ANOTHER

HCCW 352/2014

[2021] HKCFI 560

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.  The Petitioner has issued a summons for specific discovery and directions for expert evidence to be adduced dated 12 August 2020. This I heard on 19 February 2021. It followed on from a series of interlocutory applications dealing with associated matters; most recently my decision of 1 February 2021 in respect of a strike-out application by the Petitioner. I will not repeat the background to the applications, which is adequately explained in my earlier decisions particularly as this application is less controversial.

2.  I shall deal first with the expert evidence, which is straightforward. What is sought is leave to adduce opinion evidence to be given by an accountant in respect of the following matters:

“ SCHEDULE 2

Having regard to generally accepted accounting and/or business standards and practice:

1.  What information and documents (including books, accounts, ledgers and financial and other records) are required to establish and purpose and nature of any transaction, including but not limited to proving that any particular transaction constitutes a misappropriation.

2.  Having regard to the answer to question 1 above, provide a descriptive analysis, including the explanation of the pattern(s) and feature(s) if any, of the transactions in the table said to make up the US$70M Allegation (‘Transactions’).

3.  Opine, in view of the findings in the descriptive analysis in question 2 above, on the nature and purpose of the Transactions.”

3.  Paragraph 2 is agreed by the 1^st Respondent. Mr Joffe opposed [1] and [3] on the grounds that they invite the experts to suggest answers to factual matters, which are the preserve of the judge.  I agree.  However, I see nothing objectionable in the experts explaining accounting practices peculiar to shipping transactions, which is the underlying subject matter, indeed it would probably be of assistance.  I will, therefore, add a new paragraph 1 in the following terms:

“What financial documents and accounting practices, if any, are specific to shipping transactions of the sort defined as Transactions in the next paragraph.”

4.  The parties also agreed the directions for the preparation and exchange of experts reports in [2(a) to (c)] of body of the summons.  I asked the parties to agree and send to my Clerk more comprehensive directions dealing with the meeting of experts and production of reports recording those matters on which they agree and disagree.

5.  Turning to specific discovery, what is sought is disclosure of the categories of documents listed in Schedule 1 to the summons.  Paragraph 1 is agreed as to some degree are [5] and [6], although there is some controversy over the Petitioner’s request that a verifying affirmation is produced as there is also controversy in respect of the 1^st Respondent’s submission that the Petitioner provide an express undertaking not to use the documents disclosed other than for the purposes of the proceedings.  I deal with these matters later in this Decision.

6.  Paragraphs 2 to 4 of Schedule 1 to the summons seek:

“2.  All bank statements, financial reports and other accounting documents of Pacific Bulk Shipping (Cayman) Ltd (“PB Cayman”) since 1 January 2014;

3.  All contracts of affreightment, charterparties and fixture notes for dry bulk shipping contracts of PB Cayman;

4.  All contracts of affreightment, charterparties and fixture notes for dry bulk shipping contracts entered into between 1 January 2014 and 31 December 2019 by companies in which Lau Wing Yan has a direct or indirect 51% interest or more, including but not limited to Pacific Bulk Cape Company Limited, Pacific Bulk Enterprises Company Limited, Pacific Bulk Panamax Company Limited, Pacific Bulk Supramax Company Limited and Pacbulk Pte Limited.”

7.  Central to the controversy over [2]–[4] of the Schedule is how the documents sought are relevant to the issue of “clean hands” pleaded in [44.1] of the Amended Points of Defence.  It is not, however, argued that they are relevant to the factual matters relied on by the 1^st Respondent in support of its allegation that the Petitioner should not be entitled to the relief it seeks if it establishes matters, which support the relief pleaded in the Prayer, which is equitable in character because the Petitioner does not come to court with clean hands.  Instead what is said is that the plea of clean hands by its nature requires a consideration of the respective relevant behavior of both parties.  I accept for present purposes that this is arguable.  Mr Wong went on to submit that all matters pleaded by the Petitioner in the Points of Claim concerning the 1^st Respondent’s unfair conduct of the 2^nd Respondent’s affairs are relevant to the determination of the clean hands issue and that documents relevant to them should be disclosed.  In particular misappropriations and diversion of business by the 1^st Respondent (in practice its guiding mind Mr Lau) need to be considered and, therefore, documents relevant to all pleaded misappropriation or diversion of business need to be disclosed.  This justifies, says Mr Wong, disclosure of documents from January 2014, which is the date the 1^st Respondent contends Mr Chu (the owner and guiding mind of the Petitioner) and Mr Lau reached an agreement (referred to as the PB Restructuring Agreement in the Points of Defence), pursuant to which Mr Chu agreed to immediately withdraw from the PB Group and the business was as a result taken over by Mr Lau.

8.  The 1^st Respondent says this is wrong.  Mr Lau accepts that from the date he took over the PB Group he treated the Company as his own.  If (it being in dispute) the PB Restructuring Agreement was never made and consequently he accepts he wrongly excluded Mr Chu from the PB Group business, it is the 1^st Respondent’s case that the details of matters, which constitute misappropriations and diversion of business are immaterial because it is accepted that the 1^st Respondent’s conduct was wrongful.  Mr Joffe accepted on the 1^st Respondent’s behalf that if the PB Restructuring Agreement was not made Mr Lau’s subsequent appropriation of Company assets and conduct of the Company’s business is sufficient to support the relief sought and, if I understood Mr Joffe correctly, but for the clean hands defence the Petitioner would be entitled to judgment.  Consequently, says Mr Joffe the details of the 1^st Respondent and Mr Lau’s dealing with the Company and its assets from January 2014 need not be explored and discovery of documents relevant to them, which would be copious in quantity, is not necessary to determine the issues and for the fair disposal of the Petition.

9.  The difference between the Parties centers on the extent to which Mr Lau’s conduct from January 2014 is capable of being relevant to the clean hands defence.  The difficulty it seems to me that the Petitioner faces in maintaining its argument is that it has not pleaded to [44.1] in the Points of Reply.  Mr Wong argued that it must follow from the character of the matters that the Petitioner pleads in [39]–[44] of the Points of Claim concerning misappropriation and diversion of business from January 2014 that they are relevant to the question of clean hands even though they were not pleaded to address that issue.  It does not seem to me that this is the correct way to construe pleadings with a view to identifying with precision the issues for determination at trial.  Self-evidently [39]–[44] were not directed to issues, which had not yet been pleaded.  It does not seem to me that a judge coming to this matter for the first time and reading the totality of the pleadings would recognise that the facts and matters pleaded in [39]–[44] were relied on to counter the clean hands defence and how it was intended to argue they did so.  If the judge had also been told before reading the pleadings of Mr Joffe concession on behalf of the 1^st Respondent, I think it is highly unlikely that the judge would anticipate the matters pleaded in [39]–[44] having to be explored at all at trial.

10.  It seems to me clear that if the Petitioner wishes to advance a case that the determination of the clean hands defence requires certain conduct of the 1^st Respondent to be considered that needs to be pleaded. Given Mr Joffe’s clear confirmation that the 1^st Respondent accepts that there has been sufficient diversion of business to justify a winding-up order unless the 1^st Respondent establishes its clean hands defence, I do not see any justification for ordering specific discovery of the very substantial quantity of documents sought by [2]–[4] as for the purposes of proving the claim for all practical purposes [39]–[44] are admitted.

11.  The Petitioner will have to consider amending the Points of Reply (of which it was given leave in April 2020 when the clean hands defence was expressly pleaded, but did not avail itself of the opportunity) to plead to [44.1] if it remains of the view that any purpose will be achieved by attempting to rely on post January 2014 events in response to the clean hands defence.

12.  In relation to [5]–[6] the dispute is the period during which the documents are relevant.  The summons seeks all documents within these categories:

“5.  Bank and accounting documents evidencing receipt and/or repayment by Mr. Lau, his wife and any company directly or indirectly controlled by him of monies from the companies listed in ‘Annex B’ to this schedule, and all instructions given by Lau Wing Yan or at his direction in respect of the said transfers; and

6.  All bank statements, financial reports and other accounting documents of the companies listed in ‘Annex B’ to this schedule.”

13.  As drafted an order for disclosure would cover the period from the incorporation of the Company in 2004 to the current date with a continuing obligation for discovery if any new documents falling within these paragraphs were to be generated.  Mr Joffe submitted that there is no reason why disclosure should be not be limited to the period of the transactions in Annex A to Schedule 1, namely June 2003 to June 2013, which is the same period as for the transactions pleaded in the Amended Points of Defence as being misappropriations by Mr Chu.  Given my conclusion in respect of the application in respect of [2]–[4] it follows that until such time, if any, as the Reply is amended to make the period after January 2014 relevant the order in respect of [5]–[6] should be limited to the period June 2003 to January 2014 inclusive.

14.  I will order that the 1^st Respondent files within seven clear of service of a further list of documents in compliance with the order I make, a verifying affirmation in compliance with Order 25 rule 5(3) of the Rules of the High Court.  It is for the 1^st Respondent to determine what he can properly say about the way in which discovery has been conducted and for the Petitioner to decide whether or not it is content with what it receives.  I agree with Mr Wong that so far as the suggestion of an express undertaking is concerned for the same reasons I rejected this request when made by the 1^st Respondent of the Petitioner I will not order it in respect of disclosure of documents pursuant to the order made on the application I am presently dealing with.

15.  In conclusion I make the following order:

(1)  In respect of paragraph 1 of the summons an order for discovery of the following classes of documents:

(a)  Paragraph 1 of Schedule 1.

(b)  Paragraphs 5 and 6 of Schedule 1 for the period 1 June 2003 to 31 January 2014 inclusive.

(2)  An order in terms of paragraph 2 of the summons and the further paragraphs to be provided for my consideration by the parties.

(3)  I will make a costs order nisi that the costs of the summons be in the cause with a certificate for two counsel.