CHIN CHOON ONN AND ANOTHER v. LAI SUM HUNG AND OTHERS

HCA 1227/2022

[2024] HKCFI 108

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1227 OF 2022

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D E C I S I O N

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[Submissions on ongoing disclosure in relation to the Wang Fat income]

1.  Before me today is the amended summons taken out by the plaintiffs dated 2 May 2023. 

2.  I shall first deal with paras 1(1) and 2 of the amended summons.

3.  The 1^st defendant does not dispute that he is under an ongoing obligation to disclose the future Wang Fat income under the disclosure order made on 21 September 2022 (as continued).

4.  The only outstanding point is whether the ongoing disclosure should be made on a monthly basis or on a half-yearly basis.  I would consider that a monthly basis would be a suitable timeframe for such reporting obligation. 

5.  One must go back to the purpose of the disclosure order.  A preservation order was made in respect of the Wang Fat income.  For that order to be effective, the ancillary disclosure order was made, so that the plaintiffs would know in a timely manner the whereabouts of the assets which are supposed to be preserved under the injunction. 

6.  My understanding is that the rental income received by Wang Fat are all paid on a monthly basis.  Hence, prima facie, a reasonable and timely reporting timeframe would be one month.  To allow a six-month reporting timeframe would not fully serve the purpose of the ancillary disclosure order because the plaintiffs would have to wait for a number of months before they are in possession of the relevant information about the rental income. 

7.  The 1^st defendant submits at today’s hearing that the one-month reporting obligation would impose an administrative burden on him and on the company.  However, there is no affidavit evidence to that effect or to the effect that it would be an unduly burdensome exercise on the part of the 1^st defendant or the company. 

8.  Also one would assume that such rental income would be collected and information compiled by the company itself internally for accounting purpose.  So in order to fulfil the ongoing obligation under the disclosure order, it is really a matter of reproducing the same information in writing to the plaintiffs. 

9.  Hence my decision in favour of the monthly reporting timeframe.

10.  I will make an order in terms of paras 5(1) and 6 of the draft order with the date in para 5(1) be changed from “5 July 2023” to “4 November 2022”.  And in para 6, the words in the second line “on the 1^st working day of” be changed to “within seven days from the 5^th of”. 

[Submissions on disclosure in relation to the withdrawal of $600,000]

11.  Now, I turn to para 1(3) of the amended summons which is in relation to the withdrawal of the sum of $600,000 made on 26 September 2022 from the 4^th defendant’s bank account. 

12.  I would direct that the 1^st defendant should disclose details of the payments made as set out in the table in Exhibit “LSH-7” to his second disclosure affirmation.  My reasons are as follows. 

13.  The sum of $600,000 was withdrawn in cash.  When compared with the expenditure in the year 2020 and in the year 2019, this sum of $600,000 is a substantial sum. 

14.  For 2020, the audited financial statements reveal that the expenditure was only around $300,000, that is excluding director’s remuneration and depreciation. 

15.  For the year 2019, the audited financial statements reveal that the expenditure for the company was around $400,000.  Again, that is excluding director’s remuneration and depreciation. 

16.  Hence, there is prima facie ground to suspect that the sum of $600,000 was not expended in the ordinary and proper course of the 4^th defendant’s business and hence does not fall within the exception allowed in the injunction order.  Hence, there is a prima facie case for saying that there is a breach of the injunction order. 

17.  In such a case, it is for the 1^st defendant to explain adequately where the money had gone and how they had been used.  The purpose of the ancillary disclosure order is after all to enable the plaintiffs to know the whereabouts of the assets which are supposed to be preserved under the injunction. 

18.  Here I note that the sum of $600,000 was withdrawn in cash.  The table referred to this sum as petty cash.  But it goes contrary to how one would normally understand the size of petty cash. 

19.  Furthermore, it raises the question as to why the 4^th defendant would use cash to pay, say for instance, legal fees, accountancy fees, insurance premium and government rates, and also contractor’s fees. 

20.  The plaintiffs’ counsel also raise queries over the legitimacy of some other payments as shown in the table.  

21.  For instance, there was a sum of $50,000 paid out as director’s remuneration on 30 September 2022.  And, to the knowledge of the plaintiffs, there had been no shareholders’ resolution in relation to such remuneration. 

22.  As a further example, there was a payment of $150,000 made on 29 September 2022 for legal fees.  However the injunction does not contain any exception for fees on legal advice and the 1^st or 4^th defendant had never made any request for variation of the injunction order. 

23.  Lastly, there is also a sum of $15,000 paid on 12 October 2022 purportedly to be accounting fee for 2021.  However, it would appear that the 4^th defendant has never produced its audited accounts for that year. 

24.  All these queries are, in my view, legitimate.  And they raise doubt as to whether the rental income received by Wang Fat, which is supposed to be preserved under the injunction, had been used other than for the ordinary business of the company.  The 1^st defendant should therefore make the disclosure as requested so that the plaintiffs would know where the sums of money have gone. 

25.  The 1^st defendant again says that it would impose an administrative burden on him and on the company to produce such further information.  I reject that reason as a good justification for resisting disclosure. 

26.  A table has already been compiled.  The 1^st defendant has confirmed on oath that all these items were legitimate business expenditures of the company.  I do not see how it can be an administrative burden on the 1^st defendant to now produce the underlying supporting documentation to fulfil his disclosure obligation. 

27.  Hence, I make an order in terms of para 5(2) of the plaintiffs’ draft order but with the specific and express reference to Exhibit “LSH-7”, as discussed with counsel just now. 

[Submissions on release from implied undertaking]

28.  By concession of the 1^st defendant (save as for costs), I make an order in terms of paras 7, 8 and 10, as amended. 

[Submissions on costs]

29.  The plaintiffs’ costs of the amended summons be summarily assessed at $280,000 payable by the 1^st defendant on or before 2 January 2024.  I grant certificate for one counsel only. 

30.  This is a fairly straightforward application.  I understand that some time had been spent on reviewing the bank statements produced by the 1^st defendant.  I agree that that is a time-consuming process.  However, I think part of those costs should be costs of the action instead of costs of this application because those time would need to be spent in any event in this action.  Hence my deduction from the costs sought in the statement of costs produced by the plaintiffs.