SABAH SHIPYARD SENDIRIAN BERHAD v. S.P.P'NG & CO CERTIFIED PUBLIC ACCOUNTANTS AND ANOTHER

HCMP 415/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 415 OF 2009

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R U L I N G

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Introduction

1.  This is a Norwich Pharmacal application that is made by the Plaintiff in aid of an action that it has brought in the High Court of the British Virgin Islands (“BVI”) against two companies, Starweaver Limited (“Starweaver”) and Energycorp Limited (“Energycorp”).  This action was started on 4 November 2008 against Starweaver only, Energycorp having subsequently been joined, and on the same day a High Court judge in the BVI granted an interlocutory injunction to the Plaintiff and appointed a Receiver in respect of the subject matter of the action which I will describe presently [Bundle 1/18-26]. 

2.  On 11 May 2009 Bannister J in the BVI High Court entered judgment in default against both Starweaver and Energycorp [Bundle 2/237-238].  The form of the judgment was as appears below.  I set it out because it explains why it is that the Plaintiff is now seeking these orders against the two Defendants:

“UPON the application to determine the form of the default judgment coming on for hearing AND UPON HEARING John Carrington and Patrick Thompson of Counsel for the Claimant AND UPON considering the evidence filed herein IT IS ORDERED, DECLARED AND DIRECTED that judgment be entered for the Claimant against 2^nd Defendant pursuant to Rule 12.10 (4) of the Civil Procedure Rules 2000 in the following:

(i) It is declared that that the Claimant is the beneficial owner of the 6,504,023 shares in Energycorp UK Limited transferred by the 1^st Defendant to the 2^nd Defendant on 27 June 2007 and that the 2^nd Defendant holds the said shares as trustee for the Claimant.

(ii) The 2^nd Defendant whether by itself its servants or agents is restrained from disposing of or dealing with or encumbering or diminishing the value in any way whatsoever of the said 6,501,023 shares in Energycorp UK Limited transferred to the 2^nd Defendant by the 1^st Defendant on 27 June 2007.

(iii) The 2^nd Defendant shall transfer to the Claimant the said 6,504,023 shares in Energycorp UK Limited transferred to the 2^nd Defendant by the 1^st Defendant on 27 June 2007.

(iv) The 2^nd Defendant shall disclose to the Claimant on or before 8 June 2009 details of all benefits derived from the said shares and paid over to the 2^nd Defendant and shall pay to the Claimant all such benefits.

(v) The costs of the claim against the 2^nd Defendant including the costs of this Application are to be assessed and paid to the Claimant.”

The Defendants’ position

3.  The Defendants have common office premises in Hong Kong.  The 1^st Defendant has been the “Master Client” of Energycorp and gave all of the instructions on behalf of Energycorp for the incorporation of Energycorp in 2003 [Bundle 2/190].  The 2^nd Defendant is the company secretary to both Starweaver and Energycorp.  As so often happens in applications such as this one, it is said on behalf of the Plaintiff that in such circumstances a party in the position of Defendants such as these will have or will have had documentation and/or information which will be of use to it in enforcing its judgment, as in this case, by tracing the assets of Starweaver and Energycorp and in taking steps to freeze those assets until it is able to execute its judgment upon them.  It is not suggested in this application that these two Defendants have been complicit in any wrongdoing.  For their part the two Defendants here have no instructions to release any information or documents that they may have and that in such circumstances, given their duty of confidentiality to their principals, they are unable to consent to the Plaintiff’s request.  Accordingly, they take a dual position.  One hand they would be willing to comply with any order that may be made, and that is to be expected, but they also seek to point out that if an order were made they have no helpful information that might assist the Plaintiff and also that what is asked for comes from sources that are not credible and that the court therefore should not make the order.

4.  This is a reasonable stance to take and I propose to rule on what is said.  The Plaintiff, as is required on an application such as this, is willing to indemnify the Defendants for their costs in providing the information and documents, as well as in respect of any damages that they may suffer in making disclosure.

Background to the BVI action

5.  This has been very fully provided in the affidavit of Mr James Davis, the Plaintiff’s London solicitor [Bundle 2/1-239].  What I am about to relate is no substitute for what Mr Davis has set out in his affidavit and the documents exhibited to it.  Suffice it to say that I have read the affidavit and the exhibits.  All I need do for present purposes is to provide a brief summary of the case against Starweaver and Energycorp, which is a compelling one of fraud practised by those behind these two companies against the Plaintiff.

6.  The Plaintiff is a Malaysian shipyard which builds power barges which are in an effect mobile power stations.  The BVI action relates to a barge called the Victoria Two.  Starweaver was the purchaser of the Victoria Two for which it was to pay the Plaintiff US$34 million.  The purchase price was to be by instalments.  Starweaver had paid US$4.25 million and thereafter contracted to pay the balance of US$29.75 million either by letter of credit or in 36 monthly instalments.  Starweaver took possession of the power barge which it was to let out for power generation in Ecuador.  In order that its import into Ecuador might be facilitated, the Plaintiff agreed that the Victoria Two could be registered into the name of Starweaver as owner but subject to a Deed of Trust that it was to hold the barge for the benefit of the Plaintiff until it paid all that it owed.  The Deed dated 4 May 1999 is exhibited to Mr Davis’ affidavit and is in Bundle 2/53-57.  If Starweaver defaulted in its payments the stakeholder, of the Deed, who is a solicitor called Mr Leung, would be able to release the Deed and other documentation to the Plaintiff who would then be in a position to have itself re-registered as owner.

7.  Starweaver made one instalment payment in March 2000 and by December 2000 was in default of the Sale and Purchase agreement.  The stakeholder duly released the Deed of Trust and other documentation lodged with him to the Plaintiff.  The Plaintiff then registered itself as the owner of the Victoria Two with the Belize Registry as from 18 May 2001.  It then initiated proceedings in Ecuador to have possession restored to it.  These proceedings remain ongoing.  Since October 2001 an Ecuadorian company called Intervisatrade SA (“Intervisatrade”) has been operating the Victoria Two in carrying out lucrative power generating contracts with the Ecuadorian government.  Transfer of possession of the power barge to Intervisatrade could only have happened with Starweaver’s agreement for which Starweaver would have been paid chartering or hiring fees for the use of the Victoria Two.  On 11 February 2004 Starweaver purported to sell the Victoria Two to Intervisatrade for US$27 million who had entered into a 25 year power generation contract with an Ecuadorian government agency responsible for power generation.  Intervisatrade then sought to have itself registered as owner by the Belize Registry.  A director of Starweaver made a false declaration to the Belize Registry to the effect that Starweaver was the owner of the Victoria Two and was able to pass title to Intervisatrade.  In such circumstances Intervisatrade has been able to obtain international investment for its operation of the Victoria Two.  The investors are, no doubt, able to participate in the profits of the power generation contract with the Ecuadorian government agency.

8.  By the BVI action the Plaintiff has sought and obtained orders to obtain its due under the contract to sale of the Victoria Two to Starweaver and its privy Energycorp.

9.  Starweaver’s receiver has discovered that it had tried to dispose of its assets through Energycorp in order to avoid their attachment by the receiver.  By 27 June 2007 Energycorp was the owner of Starweaver.  Shares held by Starweaver in a company called Energycorp (UK) Limited (“EUK”), which owns two power-barges in Bangladesh was sold at a gross undervalue to Energycorp.  This took place on 27 June 2007 but not shown in EUK’s annual return for 2007 but only in an amended-return for the period ended 20 October 2007 filed on 5 December 2008 which was after EUK had been informed of the Plaintiff’s BVI action against Starweaver and the appointment of a receiver on 14 November  2008.  It is submitted that all of this is designed to obfuscate matters, transfer assets as represented by shareholdings to make execution of the BVI judgment more difficult.

10.  In all of this the 2^nd Defendant, as company secretary, will have been instrumental, albeit innocent of any mala fides, and the 1^st Defendant involved by having given instructions for the establishment of Energycorp in 2003.

11.  Both, it is submitted, will have as a result of their respective instruction and positions, have possession of relevant and useful documents and information to aid the Plaintiff in enforcing its judgment and preserving assets.  These tracing exercises are apt to be long and can be complicated with each piece of disclosure being a stepping stone to the next piece of information and frequently the next object of a Norwich Pharmacal application.

The Law

12.  I am abundantly satisfied that these two Defendants have been properly made the subject of this application.  For the exercise of this jurisdiction in Hong Kong, Ma J (as the Chief Judge then was) has set out the basis and the parameters of the exercise of the court’s discretion to make these sort of orders.  I reproduce here the relevant part of his judgment in Av.B [2003] 3 HKLRD 111 at 116F-118B.

“10.    Where innocent parties are caught up or have become involved in the tortious or wrongful activities of others, thus facilitating the perpetration (or continuation) of such activities, justice may require (and therefore the court may order) that such innocent persons come under a duty to assist the victim of the tort or wrongful activities, by the provision of full information even though such innocent persons cannot be shown to incur any personal liability at that stage.  The foundation of the court’s jurisdiction here is its equitable jurisdiction.  The court’s ability to make such orders was confirmed by the House of Lord’s decision in Norwich Pharmacal Co v Customs and Excise Commissioners [1974] AC 133: see in particular the speech of Lord Reid at pp.173F-175E.  The principles and approach established by that decision have consistently been applied in Hong Kong.

11.      The jurisdiction is a wide one.  It is not restricted, as was at one time thought, to the disclosure of the names of wrongdoers only.  In particular, where a plaintiff wishes to investigate the passage of monies in and out of bank accounts in aid of a tracing claim, discovery can be ordered of a bank’s books and documents: see Bankers Trust Co v Shapira [1980] 1 WLR 1274 at pp.1281F-1282F.

12.      Though founded ultimately on notions of justice, nevertheless, it is important to emphasise the extraordinary nature of this relief because it is not a usual order and is not one that a court would lightly grant in the absence of powerful factors.  I emphasise the following characteristics of this type of order:

(1) It is made against an innocent party whose only involvement is to become mixed up in the tortious or wrongful activities of others.  There is, at that stage, no evidence of any wrongdoing on the part of the innocent party.

(2) Instead, whatever wrongdoing there is, exists only on the part of a person or persons against whom no relief may be sought at that stage and indeed against whom there is probably insufficient evidence to found an action.  In other words, this person or these persons will most probably not be before the court and would not be able to answer what are often very serious allegations made against them.

(3) Usually, there will, moreover, exist a legal relationship between the innocent person against whom a discovery order is sought and the alleged wrongdoer and this relationship may involve strict duties to be observed on the innocent party’s part.  The present case offers what is a common scenario: the innocent defendant is a bank and the alleged wrongdoers its customers.  In this situation, any discovery to be made by the innocent party may well, apart from a court order, expose that innocent party to liability, both civil and possibly even criminal.  At the very least, a breach of confidentiality is involved.

(4) The court, accordingly, in applications for Norwich Pharmacal relief must, in its discretion, balance the competing interests of the victim of the alleged wrongdoing and an innocent party caught up in the wrongdoing.

13.    Given these characteristics as I have outlined, such orders are therefore not lightly made as I have said.  In my view, it is essential for the court to bear the following in mind before a Norwich Pharmacal order is made:

(1) There must be cogent and compelling evidence to demonstrate that serious tortious or wrongful activities have taken place.  And where fraud or similar serious allegations are made, the degree of proof must correspondingly be high: see Re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563 at p.586C-H.  All the more so when the alleged wrongdoer is not and will not likely be before the court.

(2) It must also be clearly demonstrated that the order will or will very likely reap substantial and worthwhile benefits for the plaintiff.  Where, as in the present case, the plaintiff is likely to make a tracing claim, there must be a serious possibility that the discovery sought must either allow the plaintiff to preserve what may well be his assets or realistically lead to the discovery of such assets: see Arab Monetary Fund v Hashim (No 5) [1992] 2 All ER 911 at pp.916D-E, 918J-919A.

(3) The discovery sought must not be unduly wide.  There is no entitlement to general discovery (by general discovery is meant discovery in the Compagnie Financière et Commerciale du Pacifique v Peruvian Guano Co (1882-83) LR 11 QBD 55 sense): see Arab Monetary Fund v Hashim (No 5) [1992] 2 All ER 911 at pp.918D-E, 919H.  It follows therefore that not only must any order be specific, it must also be restricted to those or those classes of documents that are necessary to enable the plaintiff to preserve or discover assets.  This is not to say that discovery orders cannot he wide; what is important is that the discovery, whether wide or narrow, is necessary.”

13.  It seems to me that where judgment has already been obtained, and in the absence of a judgment the facts anyway would have disclosed a most compelling case of fraud by both Starweaver and Energycorp against the Plaintiff, the Plaintiff has amply satisfied the first condition that its application discloses a proper reason for being given the information asked for.  Secondly, there is no doubt in my mind that these two Defendants by virtue of their, albeit innocent, involvement with the two BVI Defendants are likely to have information that will be both relevant and useful to the Plaintiff.  I do not believe that what is asked for can be said to be too wide.  As to the prospect, as explained by Mr S.P.P’ Ng in his affirmations that the Defendants have no relevant discovery to give, let them say so on affidavit, now under compulsion of an order, and it will then be for the Plaintiff to decide what steps to take next.  For my part, I am satisfied that every aspect of this jurisdiction has been complied with by the Plaintiff.  On the face of it this is an application that ought to, on its face, bear fruit given the part that the Defendants have played in the affairs of both Starweaver and Energycorp.

The Order

14.  Accordingly, I propose to make an order in terms of the Originating Summons, as amended in the course of the hearing.  The Plaintiff’s solicitors must now draw up the order and show it to the Defendants’ solicitors before it is lodged with the court for approval and
entry into the record.  The order as drafted will need to include the indemnity as to costs and damages in favour of the Defendants.