SEA HERITAGE HOLDINGS LTD v. NICE WAVE INTERNATIONAL LTD AND OTHERS

HCMP 2204/2022

[2023] HKCFI 3076

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2204 OF 2022

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D E C I S I O N

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1.  This is an application for inspection and production of documents of the 1^st Defendant, Nice Wave International Limited (the “Company”), pursuant to s.740 of the Companies Ordinance (Cap 622). The Company was incorporated in Hong Kong in April 2013.

2.  The Plaintiff, Sea Heritage Holdings Limited, is a company incorporated in Samoa in March 2013. Mrs Wang Li Jui Ying is the sole shareholder and director.

3.  The 3^rd Defendant, Navigator Prosperity Capital Co., Ltd, is a company incorporated in May 2013 also in Samoa. There are four shareholders, of whom one is Mr Hu Jiangang, the 2^nd Defendant, who is based in Shanghai. He is joined in the proceedings as the sole director of the Company.

4.  The share capital of the Company is held as to a third by the Plaintiff, and as to two thirds by the 3^rd Defendant. Thus in effect the control and management of the Company lies with the 3^rd Defendant. The 3^rd Defendant is joined solely as regards the issue of costs.

5.  The evidence is that the Company was formed to engage in real estate investments in the United States. The relevant properties are identified in the proceedings by their location in San Francisco, being the “Market Street Properties” and the “Mission Street Properties”. Interests in each were acquired in by the Company indirectly through US subsidiaries in July and September 2015 respectively. Mrs Wang’s son, Mr Michael Wang, who is based in California, is the manager and/or President of the subsidiaries. Thus though ownership lay indirectly with the Company, in effect the management of the properties lay with the Plaintiff.

6.  As noted further below, there is a Shareholders’ Agreement which was entered into on 4 November 2015. Its status is not agreed between the parties. On its face, it defines the Plaintiff and the 3^rd Defendant as “Ordinary Shareholders”. It sets out a “Liquidation Preference” as regards distribution of proceeds among Ordinary, Class A Preferred Shareholders, and Class B Preferred Shareholders.

7.  The Plaintiff asserts that this agreement does not reflect a common understanding reached between Michael Wang on behalf of Mrs Wang for the Plaintiff and Mr Lee Chain-Cheng (one of the shareholders in the 3^rd Defendant and formerly a director of the Company) for the 3^rd Defendant. The Plaintiff’s case, denied by the Defendants, is that it was agreed or understood that the proceeds of sale of the properties should be distributed one third, two thirds, as per their shareholdings.

8.  In 2019, the Company’s interest in the Market Street Properties was sold, and the net proceeds of the sale were transferred by Mr Wang to the Company. However, the parties are in dispute as to deductions made by Mr Wang, a dispute which remains unresolved. Proceedings have been threatened against him in the courts of California, but have at this time not been commenced.

9.  In 2020, the Company’s interest in the Mission Street Properties was sold, but the proceeds remain in the subsidiaries. Mr Wang’s evidence is that the proceeds have not been transferred to the Company because of his discovery of what he considers to be impropriety by the 3^rd Defendant and the Company in undisclosed transactions with Eastone Equities LLC, a New York LLC (“Eastone”). The Defendants maintain that he is withholding the money to put pressure on them to meet his unfounded demands.

10.  A request to provide records and documents by reference to s.740 Companies Ordinance was first made to the Company by the Plaintiff’s lawyers on 9 December 2020, and subsequently followed up. The Defendants have not challenged the Plaintiff’s assertion that there was no response to these requests prior to the issue of this application on 30 December 2022.

The relief sought

11.  There is no dispute that the Plaintiff as a member of the Company satisfies the requirements specified in s.740(6) Companies Ordinance to make the application.

12.  Nor is there any dispute as to the legal principles applicable. The Court’s discretion is engaged if it is satisfied that (a) the application is made in good faith, and (b) the inspection applied for is for a proper purpose: s.740(2).

13.  The “good faith” and “proper purpose” requirements constitute two separate and independent tests. The applicant must first, establish that it is acting in good faith, and second, satisfy the Court that the circumstances are such that the inspection sought is for a proper purpose: see Re Bank of East Asia Ltd [2015] 4 HKC 137, §25(1) (Harris J).

14.  By the Originating Summons, the Plaintiff seeks inspection and production of four categories of documents:

(1)  All written resolutions of members and minutes of shareholders’ meetings of the Company from 21 May 2015 onwards (“Category (1) Documents”);

(2)  All director’s reports and audited financial statements of the Company from 2015 to 2022 (“Category (2) Documents”);

(3)  All documents and records relating to the transactions involving Eastone (and/or or its associate companies) on one hand and the Company and/or the 3^rd Defendant and/or the 3^rd Defendant’s associates on the other hand (“Category (3) Documents”); and

(4)  All documents and records relating to and/or reflecting on (i) the whereabouts of the sum of US$6,800,000 (“Market Street Properties Proceeds”) being the proceeds of sale of the Market Street Properties received by the Company, and (ii) any subsequent use/or transfer of the proceeds (“Category (4) Documents”).

The objection to the Plaintiff’s affirmation in reply

15.  A preliminary objection is made by the 2^nd and 3^rd Defendants as regards the evidence in reply of Mr Wang. Pursuant to an order dated 4 August 2023, the Plaintiff was subject to an “unless” order for the filing of its affirmations in reply, the deadline being 15 September 2023. A signed copy of Mr Wang’s affirmation was exhibited to his solicitor’s affirmation of 15 September 2023, filed within time. Mr Wang’s affirmation was subsequently notarised in California on 21 September 2023 and couriered to Hong Kong and filed in notarised form.

16.  It is submitted on behalf of the 2^nd and 3^rd Defendants that such a draft affirmation (not being a properly executed or notarised affirmation filed within the “unless” deadline) is to be disregarded. Reliance is placed on China Shanshui Cement Group Ltd v Zhang Caikui (HCMP 863/2017, 10 May 2017, at §§4-7 per Lam VP, as Lam PJ then was; and HCMP1574/2016, 6 January 2017, at §§14-16, Au-Yeung J).

17.  The principle is clear, but on the facts, I do not accept this submission. As pointed out on behalf of the Plaintiff, although the sequence is the same, the present case differs from the China Shanshui Cement case where there was a background of non-compliance with orders of the court (see at first instance §16). Nor is it a case where the evidence “is being slipped in by other means” to avoid the “unless” order (see on appeal at §6). There was, in substance, compliance with the “unless” order upon the basis that the signed text of the draft affirmation was the evidence of the deponent, subject only to notarisation in California upon which the notarised affirmation was filed and served (as to practice generally in such circumstances see CMBICDHAW Investments Ltd v Li Lei [2023] HKCFI 2176 at §63). Accordingly, the affirmation is to be treated as part of the evidence before the Court on the application.

18.  If that is wrong, I would have given relief against sanctions, and permitted the evidence to be adduced albeit late. This is because although the summons seeking relief was issued outside the 14 day period stipulated in O. 2, r. 4, it was issued promptly when the 2^nd and 3^rd Defendants indicated that objection was being taken to its admissibility – nearly a month went by before they did so. This is not a case which shows “attempts … to continually stretch the time within which [the party concerned] must take any steps” (as in China Metal Recycling (Holdings) Ltd v Chun Chi Wai (HCA 1412/2013, 25 June 2014), at §82, under O.2, r.4,).

Categories (1) and (2) documents

19.  These categories cover all written resolutions of members and minutes of shareholders’ meetings of the Company from 21 May 2015 onwards (Category (1) Documents), and all director’s reports and audited financial statements of the Company from 2015 to 2022 (Category (2) Documents).

20.  It is not in dispute that a shareholder is entitled to inspect members’ written resolutions, minutes of shareholders’ meetings, directors’ report and audited financial statements as a matter of statutory right: CO ss.357(2), 429, 430 618, 610; Re Opes Asia Development Ltd (unrep., HCMP 447/2012, 17 May 2012) at §4 (Harris J).

21.  As to Category (1) Documents, following the commencement of these proceedings, the 2^nd Defendant has deposed to the fact that there are only two instances of such documents, and he exhibited them to his affirmation. That being so, the Plaintiff does not ask the Court make an order in respect of the Category (1) Documents, whilst submitting that it should be entitled to costs as the Defendants completely failed to respond to the Plaintiff’s request.

22.  As to Category (2) Documents, it is accepted in the 2^nd Defendant’s evidence that the Company did not audit its financial statements from 2015 to 2017 and “arrangements are being carried out to redo the same”. Referring to the sale of the properties, the 2^nd Defendant states that disputes arose between the parties regarding Mr Wang’s remuneration, and “he has not provided the financial statements of the subsidiaries in the US to the 1^st Defendant, hence the 1^st Defendant was unable to audit the consolidated financial statements. The 1^st Defendant will strive its best to complete the audit of the financial statements for each of the financial years from 2018 to 2022 by this November”.

23.  In their written and oral submissions for the hearing, however, the Defendants initially went back on this, arguing that as the evidence now stands, the documents do not exist, and so there is no jurisdiction to, alternatively it would be futile to, order inspection and production.

24.  This was not a satisfactory answer, since the Company is under an obligation to produce audited financial statements. To meet this point, by letter dated 17 November 2023 sent after the hearing, the Company has given an undertaking to provide audited unconsolidated financial statements of the Company for the years 2015 to 2022 within 56 calendar days.

25.  As regards consolidation of the accounts, the Company gives a further undertaking to provide revised accounts within 72 calendar days of the provision by the Plaintiff of audited financial statements of the US subsidiaries (that is, San Francisco Prosperity Group, Inc and San Francisco Prosperity 2 Corporation). Mr Wang is the President, CFO and secretary of these companies, and manager of their subsidiaries which held the properties prior to their sale, and is clearly in a position to provide audited financial statements if he chooses to do so.

26.  Neither the Plaintiff nor the 2^nd and 3^rd Defendants have any comments on these undertakings. In my view, they are sensible steps which give content to Category (2), and by stating the parties’ respective obligations at this stage, save them future costs and inconvenience. The text of the undertakings is annexed to this judgment. There is no need for any further order in respect of this category.

Category (3) documents

27.  The Category (3) documents consist of documents relating to the transactions involving Eastone and the Company and/or the 3^rd Defendant alluded to earlier. These transactions involved the transfer of the shares held by the Company in San Francisco Prosperity Group, Inc and San Francisco Prosperity 2 Corporation (which indirectly held the Company’s interest in the Market Street Properties and Mission Street Properties) to Eastone. The Plaintiff’s case (not challenged by the Defendants) is that Mr Wang learned about the transactions in November 2018 when documents were accidentally sent to him by the secretary to Mr Wong Sun (who is one of the four shareholders in the 3^rd Defendant).

28.  It appears from the evidence and the parties’ submissions that the Eastone matter arises from transactions seemingly unrelated to the Market Street/Mission Street investment through the Plaintiff company. By the transactions, a company called 29 West Chelsea Member LLC (“29 West Chelsea”), an associate of the 3^rd Defendant parties, was loaned US$14,000,000 by Eastone against the shares in 29 West Chelsea as collateral. This happened in June 2018. Upon failure to repay the loan, a series of transactions was executed by which (in effect) the Company’s shares in San Francisco Prosperity Group, Inc and San Francisco Prosperity 2 Corporation were substituted as collateral by transfer to Eastone. However, the Plaintiff asserts, and it is not challenged, that no consideration flowed to the Company. There were several other transactions, culminating in the repurchase of the shares by the Company for US$21 million in June 2019.

29.  The Plaintiff’s case is that transfer of its shares to Eastone in these circumstances was plainly contrary to the interest of the Company, and that the 3^rd Defendant parties who procured the transfer committed a wrongdoing against the Company.

30.  Further, the Plaintiff relies on an Amendment to the Memorandum & Articles of Association of the Company dated 15 June 2015 by which the Plaintiff and the 3^rd Defendant agreed that all major decisions or actions affecting the Company’s assets, liabilities and equities such as pledge, sale, loan acquiring, transfer etc had to be agreed in writing by all members. The transfer of the shares in the two companies was, it submits, an action affecting the Company’s assets, and was a blatant breach of the June 2015 Agreement.

31.  Accordingly, the Plaintiff submits, there can be little doubt that the matter should be further investigated.

32.  The Company’s response is that the matter is academic now that the properties have been sold. The position has been restored to what it was previously, and practically, it submits, no loss has been occasioned to the Plaintiff as a member of the Company, so there is nothing to investigate.

33.  The Company also relies on an agreement reached on 25 May 2019 evidenced in “Minutes of the General Meeting of the Member(s) of the Company” signed on behalf of both members. The document refers to the Plaintiff recently discovering about the Eastone matter, and records the Plaintiff’s requirement for its immediate unwinding. It records the 3^rd Defendant’s agreement to be responsible for “any management misconducts and failures that may be inflicted upon [the Plaintiff]”. On this basis, the Company submits if the Plaintiff suffers any loss, it is protected, and this shows further that there is nothing to investigate.

34.  The Company also relies on the affirmation evidence of the 2^nd Defendant to the effect that at this meeting the Plaintiff “had agreed not to pursue any claim in relation to the loan transactions with Eastone”.

35.  My views are as follows. Whatever the conclusions on the matter may be, the Plaintiff has plainly raised a case that these transactions involve a breach of the Amendment to the Memorandum & Articles of Association of the Company. That gives reasonable support to its case that there are matters to investigate.

36.  As regards the agreement recorded in the Minutes of 25 May 2019, there is no statement in the document to the effect that the Plaintiff agreed not to pursue any claim in relation to the loan transactions with Eastone. The 2^nd Defendant’s unsupported assertion in his affirmation that the Plaintiff agreed to waive its rights runs contrary to the written terms of the document. It is noticeable that the tenor of the document is to acknowledge that there has been wrongdoing in relation to Eastone, the parties agreeing that the 3^rd Defendant should be completely responsible for all financial loss incurred by the Plaintiff.

37.  On behalf of the 2^nd and 3^rd Defendants, it is submitted that the Plaintiff has a limited economic interest in the Company. It is submitted that a lack of good faith can be inferred from the excessiveness of the application.

38.  It is not possible in these proceedings to determine whether the Company’s and/or the Plaintiff’s loss (if any) has been made good. On this application, I accept the Plaintiff’s submission that its economic interest, though not (as discussed below) as extensive as it initially suggested in its evidence, is sufficiently real to support of the application.

39.  As to the excessiveness of the application, its scope is reasonably identified in the four categories of documents, which are in terms limited to documents of the Company, in other words owned by or belonging to the Company (Hao Xiaoying v Wong Yiu Lam William (CACV 70/2015, 2 March 2016) at §§3.18-3.23, Cheung JA). This answers a specific objection by the 2^nd and 3^rd Defendants that the effect of the order could be to require the 2^nd Defendant to produce his own documents. Where the Schedule of the Originating Summons refers to transactions to which the Company and its subsidiaries are not parties, it is to be read as limited to documents owned by or belonging to the Company, and the order as made should make that clear. The fact that such documents may concern transactions to which the Company is not a party is not of itself relevant – this is because the evidence is that it became involved in the Eastone transactions, on the Plaintiff’s case improperly, whether as a party or otherwise.

40.  It is further submitted on behalf of the 2^nd and 3^rd Defendants that the real purpose of the application is to put pressure on the Defendants to give the Plaintiff a larger share of the sale proceeds of the properties than it is entitled to. Doubtless the Plaintiff brings these proceedings with a view to the wider dispute between the parties. However, as held in Wong Kar Gee Mimi v Hung Kin Sang Raymond [2011] 5 HKLRD 241 at §§55-58 (Harris J), a party’s motivation in seeking document production under s.740 CA is not material if the good faith and proper purpose test is satisfied.

41.  Finally, as Harris J has stated, the court should incline to a liberal interpretation of “proper purpose” with a view to advancing the protection of shareholder rights and the maintenance of appropriate standards of corporate governance: Re Bank of East Asia Ltd (supra) §25(6). On the face of it, and without making findings which are not appropriate on a s. 740 application, there has been a considerable departure from appropriate standards of corporate governance in relation to the Eastone matter.

42.  I consider therefore that the Plaintiff has made out its entitlement to an order in respect of the Category (3) documents.

Category (4) documents

43.  The Category (4) documents relate to the whereabouts of the sum of US$6,800,000 which are the proceeds of sale of the Market Street Properties received by the Company and any subsequent use/or transfer of the proceeds.

44.  The factual position is that the sale completed on 27 November 2019, and the net proceeds of the sale are said by the Plaintiff to be US$6,800,000. US$300,000 of this sum (being the deposit) was transferred to the Company on 11 April 2019, and the remaining US$6,500,000 was transferred to the Company on 27 November 2019. As noted previously, there is a dispute between the parties as to whether the deductions made by Mr Wang were justified.

45.  The Plaintiff’s case is that there is a sufficiently reasonable case for investigation regarding whether the 3^rd Defendant and its associates have misappropriated the proceeds for their own benefit. It emphasises that to date, the Defendants have still failed to produce any documentary proof as to the whereabouts and use of the proceeds.

46.  The Defendants’ case is that the real basis for the Plaintiff’s purported desire to investigate is the alleged entitlement of the Plaintiff to get one third of the proceeds corresponding to its one third shareholding in the Company. It is the Defendants’ case that the documents show clearly that the Plaintiff has no basis for asserting one third or any entitlement over the proceeds. If so, they submit, there is similarly no basis for inspection of documents purportedly to investigate the whereabouts of the proceeds.

47.  This point having been raised in the 2^nd Defendant’s affirmation, the Plaintiff responds that a one third share is properly recoverable regardless of the shareholding given the substantial contribution of Mr Wang to the property transactions. It submits that the Plaintiff’s application is not grounded on its entitlement to the proceeds, and thus it is not necessary for this Court to resolve related factual disputes.

48.  There are nevertheless some facts that I consider should be taken into account when assessing the Plaintiff’s case (without embarking on a mini-trial which is not appropriate in this kind of case).

49.  In November 2020, US lawyers acting for the Plaintiff made demand on the Company for a one third share of the proceeds of US$6,800,000 – in other words, from the start the claim has been put on the basis of a one third entitlement to the proceeds.

50.  In support of that case, Mr Wang’s first affirmation asserts that the Plaintiff invested about US$7,000,000 in the Company. The 2^nd Defendant then produced records showing that it provided only US$668,000, and Mr Wang now accepts that his earlier evidence was mistaken in this regard.

51.  The Defendants’ case is that the sources of funding the Company’s investments in the Mission Street Properties and the Market Street Properties came from over 20 investors investing through a PRC-based fund. This is supported by documentary evidence in the form of the Shareholders’ Agreement (“SHA”) entered into on 4 November 2015. As noted previously, this defines the Plaintiff and the 3^rd Defendant as Ordinary Shareholders, setting out a “Liquidation Preference” as regards distribution of proceeds among Ordinary, Class A Preferred Shareholders, and Class B Preferred Shareholders. There are other contemporaneous documents evidencing the structure.

52.  The Defendants’ case is that the Plaintiff’s entitlement is regulated by the SHA which limits it to the repayment of its consideration paid (US$668,000) and a proportion of the residual proceeds after distributions to the Class A and B Preferred Shareholders. The Company’s evidence that the proceeds have been paid in accordance with this procedure.

53.  The Plaintiff responds that the “Class A Preferred Shareholders” and “Class B Preferred Shareholders” have never been allotted any shares, so that any preferential treatment to them as set out in the share subscription agreements or the shareholders’ agreement would not be engaged. Indeed, it says, it is Defendants’ own case that the investors’ investments were “disguised debts”, and putting the Defendants’ case at its highest it may be said that the Company has various creditors including the alleged investors, the Plaintiff and the 3^rd Defendant parties.

54.  However, in my view these submissions have to be seen in the light of the contemporary documentation. The Plaintiff does not take issue with the documentation as such, but asserts that the SHA does not reflect a common understanding reached between Michael Wang on behalf of Mrs Wang for the Plaintiff and Mr Lee Chain-Cheng (one of the shareholders in the 3^rd Defendant and formerly a director of the Company) for the 3^rd Defendant. It was, it is said by the Plaintiff, agreed or understood that the proceeds of sale of the properties should be distributed one third, two thirds, as per their shareholdings.

55.  The difficulty with this submission is that the SHA providing for a completely different distribution is signed by Mrs Wang, the sole shareholder and director of the Plaintiff, on its behalf. Further, Mr Wang’s evidence of the “common understanding” is vague and unsubstantiated. Though he says that the Amendment to the Memorandum & Articles of Association of the Company reflects the common understanding, the document does not mention this issue at all. The fact – if it is a fact – that the SHA may have been misunderstood by the signatory does not negate its binding nature (Ming Shiu Chung v Ming Shui Sum (2006) 9 HKCFAR 334, §§86-87 per Ribeiro PJ). There is a credible case that the Plaintiff was well aware from the start that the financing arrangements for the Company’s investments included investors from the PRC.

56.  As noted earlier, to grant the statutory relief, the Court must be satisfied that (a) the application is made in good faith; and (b) the inspection applied for is for a proper purpose: Companies Ordinance s. 740(2). On an application under s. 740, it is not appropriate to reach conclusions as to the merits of the matter (Leung Chung Pun v Masterwise International Ltd [2014] 1 HKLRD 1129 at §25), Recorder Anderson Chow as he then was).

57.  But while I am satisfied that the application is made in good faith, considering all the surrounding circumstances on the basis of the available evidence (Wong Kar Gee (supra) at §16), I am not satisfied that the Plaintiff has made out a proper purpose for the broad and far ranging relief sought in paragraph 4 of the Originating Summons, save in one respect.

58.  The exception is as follows. The Defendants’ evidence is that the proceeds have been paid to the fund manager of the Class A Preferred Shareholders (said to be Shanghai Jinsong Investment Centre) for disposition and distribution in accordance with the SHA procedure. But as is pointed out on behalf of the Plaintiff, this is asserted but not substantiated by any documentary evidence. There is no reason suggested by the Defendants as to why such documentation could not have been forthcoming to the extent that it belongs to the Company. I consider that the Plaintiff is entitled to that.

59.  The result will be that paragraph 4 of the Schedule to the Originating Summons will be limited to documents and records belonging the Company (i) as to the transfer of the proceeds to the fund manager, and (ii) as to the use of the proceeds to properly discharge any liability owed to alleged investors and/or Class A Preferred Shareholders.

The position of the 2^nd Defendant

60.  A number of distinct points which are not dealt with above are raised on behalf of the 2^nd Defendant who is joined in the proceedings as the sole director of the Company. The first can be put on one side. Although Mr Wang refers in his evidence to the 2^nd Defendant as a “purported officer” appointed without his knowledge or approval, his status was not questioned in the submissions made on the Plaintiff’s behalf since he is indisputably the director on the record of the Company.

61.  The more substantial submission is that there is no need to make an order against the 2^nd Defendant personally, and there are a number of reasons advanced as to why it would be wrong to do so. Generally there is no need to join directors to such applications. Further, reliance is place on the fact that prior to the hearing, the 2^nd Defendant offered an undertaking which would have adequately protected the Plaintiff. It is pointed out that at common law a shareholder has no enforceable rights against a director, and it is undesirable to make an order in circumstances where the 2^nd Defendant may or may not be a director when the order is enforced if that eventuality is reached.

62.  Whilst acknowledging these principles, my conclusions on this point are as follows. The position of an officer of the company as to production of documents is expressly dealt with in s. 740(4) CA. This subsection is concerned with the mechanics of an order for inspection under s. 740(1), and gives effect to it among other things by providing that an order may be made “requiring the company, or an officer of the company, to produce any record or document” to the inspecting party. Thus, it is in the discretion of the court whether to make a production order against an officer such as the 2^nd Defendant.

63.  In the present case, by the undertaking which was proffered the 2^nd Defendant offered to undertake “… to vote, as a director of [the Company] if he remains a director at the time of voting, in favour of [the Company]’s compliance with any order made against D1”. This was an opaque form of words and was a long way short of indicating that the 2^nd Defendant – the only director of the Company and one of the four shareholders in the 3^rd Defendant with which the Plaintiff is in dispute – would ensure compliance. The point was reasonably made in the Plaintiff’s skeleton argument for the hearing that it exposed the likelihood of the 2^nd Defendant resigning as director making enforcement of the order more, not less, difficult. This prompted the 2^nd Defendant to offer a further undertaking not to resign for a year. In my view, this simply underlines the frailty of the position.

64.  Whatever the general position of directors as regards joinder to a 740 CA application (a matter which is dealt with in the case law), the reality in this case is that the efficacy of the order is dependent on the 2^nd Defendant – or any successor as director of the Company – taking proper steps to implement it. The fact that the 2^nd Defendant may not be director at the time of enforcement (if that becomes necessary) is a relevant consideration, but not a determinative one. I accept the submissions on behalf of the Plaintiff that joinder is justified in this case.

The position of the 3^rd Defendant

65.  The 3^rd Defendant which, as noted earlier holds two thirds of the shares in the Company, is joined solely as regards the issue of costs. See below.

Disposition

66.  In summary, the Plaintiff is entitled to an order under s. 740 Companies Ordinance. The terms of the draft order should be agreed by the parties in accordance with the terms of the Originating Summons modified as indicated in this Decision. The order will be made upon the undertakings given by the Company as annexed to the Decision. The order should include clarification of what is already implicit in the Originating Summons namely that the documents covered are the Company’s documents – this is to meet the 2^nd Defendant’s concerns that it might be read as extending to his personal documents. Once agreed, the draft order should be submitted to the Court for approval within 7 days from the date of this decision. The parties have liberty to apply in case they cannot agree.

67.  As to costs, the Plaintiff has been largely successful, but not entirely so. Further, so far as it relates to the financial statements, the production of the documents was facilitated by the undertaking given by the Company. The Plaintiff should have two thirds of its costs of the application.

68.  It seeks such costs against the 2^nd and 3^rd Defendants. The position as regards the 2^nd Defendant is explained above.

69.  It is submitted on behalf of the 3^rd Defendant that there is no basis to seek costs from it or to join it solely for costs purposes. This is on the ground that there is no common law duty owed by one shareholder to another, and the voting powers of a shareholder are not of a fiduciary character: Sunlink International Holdings Ltd v Wong Shu Wing [2010] 5 HKLRD 653 §§20-22.

70.  Again, whilst acknowledging these principles, the incidence of costs is based on the fact that the shareholders are the effective protagonists in the litigation. I accept the Plaintiff’s submissions that a particularly relevant point is that there are only two shareholders in the Company, and that the 2^nd and 3^rd Defendant are in control of the Company. Further, the Category (3) and (4) Documents, which are the focus of the dispute, relate to matters in which the 2^nd Defendant and 3^rd Defendant have personal interests.

71.  In Wei Xing v Willwin Development (Asia) Co Ltd (unrep., HCMP 1922/2016, 13 April 2017), G Lam J (as he then was) ordered the controlling shareholder/director to pay costs to the plaintiff on bases similar to the above: see §27 (and see the costs order in Wong Luen Hang v Topmix (International) Company Ltd [2020] HKCFI 245, Linda Chan J). I consider that this is the correct approach here.

72.  Accordingly, on a nisi basis, I order that two thirds of the Plaintiff’s costs of and occasioned by the Originating Summons dated 30 December 2022 be paid by the 2^nd and 3^rd Defendants to be taxed if not agreed.

73.  I thank counsel for the economy and quality of their written and oral submissions. As noted at the hearing, however, the dispute is stale and (perhaps because of the interruption of the pandemic) seemingly stuck in a cul de sac. Whatever the reason, the parties should consider now whether alternative means of settling their dispute other than by legal proceedings are available to them.

ANNEX

Nice Wave International Limited

景涛国际有限公司

Nice Wave International Limited, the 1^st Defendant of the Proceedings (the “Company”), hereby provides the following undertakings to the Court:

景涛国际有限公司，该案件的第一被告人(下称「本公司」)，谨此向法庭提供下列承诺:

1.  The Company shall provide Sea Heritage Holdings Limited, the Plaintiff of the Proceedings (“Sea Heritage”), with copies of the audited financial statements of the Company for the financial years from 2015 to 2022 (without consolidating the financial positions of San Francisco Prosperity Group, Inc. and San Francisco Prosperity 2 Corporation (collectively, the “US Companies”) for the financial years from 2018 to 2022) within 56 calendar days from the date hereof or any other date as agreed by the Company and Sea Heritage; and

本公司须自本承诺书日期起的56个历日(或其他本公司及Sea Heritage同意的日期)内向Sea Heritage Holdings Limited，该案件的原告人 (下称「Sea Heritage」)，提供本公司由2015年至2022年的财政年度经审计的财务报表副本 (未合并San Francisco Prosperity Group, Inc. 及San Francisco Prosperity 2 Corporation (统称「该2间美国公司」) 由2018 年至 2022年的财政年度之财务状况)；及

2.  In the event that Sea Heritage provides the Company with the audited financial statements of the US Companies for the financial years from 2018 to 2022, the Company shall provide Sea Heritage with copies of the revised audited financial statements of the Company for the financial years from 2018 to 2022 (taking into account the financial information of the US Companies provided by Sea Heritage), where appropriate, within 72 calendar days thereafter or any other date as agreed by the Company and Sea Heritage.

倘若Sea Heritage 向本公司提供该2间美国公司2018年至2022年的财政年度经审计的财务报表，本公司须于Sea Heritage提供该等财务报表之日期后起计的72个历日(或其他本公司及Sea Heritage同意的日期)内，向Sea Heritage提供本公司于2018年至2022年的财政年度经修订及经审计的财务报表副本(计入由Sea Heritage提供的该2间美国公司之财务资料) (如适用)。

Date: 17 November 2023

日期：2023年11月17日

For and on behalf of Nice Wave International Limited

谨代表景涛国际有限公司

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Hu Jiangang 胡健岗

Sole Director 唯一董事