CHEN YUNG NGAI KENNETH AND ANOTHER v. CHINA MERCHANTS BANK CO LTD

HCB 3819/2011

[2023] HKCFI 2786

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 3819 OF 2011

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Re: HO YUK WAH DAVID (the “Discharged Bankrupt”)

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D E C I S I O N

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A.  INTRODUCTION

1.  This is an application made the Trustees in Bankruptcy of David Ho for discovery of documents from the respondent (“CMB”), pursuant to section 29 of the Bankruptcy Ordinance, Cap 6.

2.  Despite the terms of the summons, the Trustees have made clear in Ms Kong’s submission that they are only seeking the documents of the consolidated bank account of Million Nice Corporation Ltd (“Million Nice Account”) held with CMB as described in the summons and not “any account”. The Trustees suspect that Million Nice is a corporate vehicle of David Ho’s nominee. The documents sought relate to the Bankrupt’s dealings or property.

3.  Million Nice has been served with the summons and supporting affirmation on 21 April 2023 but has not responded.

4.  CMB maintains a neutral stance and makes no representation.

B.  LEGAL PRINCIPLES

5.  Section 29 BO provides (where material) that:

“(1) The court may, on the application of the … trustee, at any time after a bankruptcy order has been made against a bankrupt, summon before it … any person whom the court may deem capable of giving information respecting the bankrupt, his dealings or property, and the court may require any such person to produce any documents in his custody or power relating to the bankrupt, his dealings or property.”

6.  The applicable principles have been set out in Re Ho Yuk Wah David (No. 5) [2020] 2 HKLRD 608, §§22 and 31, Au-Yeung J; confirmed in the Court of Appeal judgment in Re Ho Yuk Wah David (No. 5) [2022] HKCA 110, §12. In gist, the Trustees must satisfy the court that the information or documents “relate to the bankrupt, his dealings or property”; that the provision of information or documents is reasonably required for them to carry out the Trustees’ functions; and that the respondents are able to provide such information or documents. The standard of proof is reasonable suspicion. Confidentiality is no bar to an order for disclosure: §19.

C.  BACKGROUND

7.  In January 2023, this Court gave a section 29 Order in this action requiring 2 firms of solicitors, HIP and OLN, to produce various classes of documents (“HIP/OLN Order”); the relevant decision is [2023] HKCFI 151 (“HLP/OLN Decision”). Those documents related to funding provided to what were known as the 971 Defendants of HCA 971/2012 (“971 Action”).

8.  The bases of the Trustees’ application against HIP and OLN accepted by this Court as per the HIP/OLN Decision, were that:

(1)  D2-D5, D8 and D9 (“971 Defendants”) have been found in the judgment in the 971 Action handed down by Ng J on 28 September 2020 (“971 Judgment”) to be nominees of David Ho and hence belonged beneficially to David Ho. The Trustees have stepped into the shoes of David Ho (§23 of the HIP/OLN Decision);

(2)  Yu Yang (the former brother-in-law of David Ho) and Liu Shu (a person closely associated with David Ho by reason of her association with Yu Yang) were found to be nominees of David Ho (§28 of the HIP/OLN Decision);

(3)  Yu Yang and Liu Shu essentially controlled the 971 Defendants at the material time of the 971 Action, when HIP or OLN were the instructing solicitors for the 971 Defendants (§§18 and 22); and

(4)  the Trustees have always suspected that David Ho was involved in funding arrangements for various actions and took the view that those nominees’ litigation expenses for the trial of the 971 Action must have been funded or at least related to David Ho, given that the 971 Defendants, Yu Yang and Liu Shu were found to be his nominees (§30).

9.  Pursuant to the HIP/OLN Order, both HIP and OLN produced documents to the Trustees.

10.  Amongst the documents produced by OLN, it was discovered that a total of HK$3.3 million was remitted to OLN from an HSBC account 718-5xx5xx-888 (“Unidentified Account”) in 2019 and 2020. The sum were costs on account to OLN for the 971 Action (“971 costs on account”).

11.  On 16 September 2019, specific instructions were given by Sun Li Hua (“Sun”) by email, to allocate part of the 971 costs on account as follows:

(1)  HK$360,000 for “settlement of P’s statutory demand against Grassmere”;

(2)  HK$200,000 for “settlement of Grassmere’s outstanding bill and Henry Ho’s past and future costs”; and

(3)  HK$54,000 (out of the above HK$200,000) to Luck Creation as reimbursement by making remittance to the Million Nice Account, because Henry Ho’s bill of HK$54,000 has been settled.

12.  However, on 20 September 2019, only HK$48,600 was transferred by OLN to the Million Nice Account.

13.  In respect of documents produced by HIP, it was discovered that, on 28 September 2018, Million Nice remitted HK$100,000 to HIP as the costs on account for the 2587 Action. However, Million Nice was neither a client of HIP, nor a party to the 2587 Action.

14.  On 29 May 2023, upon the application of the Trustees, this Court made a Section 29 Order against HSBC in the present proceedings in respect of the Unidentified Account: [2023] HKCFI 1429.

15.  On 31 May 2023, this Court made another Section 29 Order against Indo-Sino Manufacturing & Trading Institute Ltd (“Indo-Sino Order”) to produce documents relating to the loans provided by Indo-Sino to Grassmere Services (“Grassmere”): [2023] HKCFI 1462. Grassmere was one of the defendants in HCA 2587/2017 (“2587 Action”), which concerned the recovery of the shares held by Grassmere of Dan Form International Ltd valued at HK$55 million. In resisting the Trustees’ application, Indo-Sino claimed to have been misled into granting the loans upon the lies and non-disclosure of Sun/Grassmere. The Indo-Sino Order was premised on the reasonable suspicion that the loans were not genuine and were related to David Ho due to strong evidence of his continued beneficial ownership of Grassmere.

16.  On 27 June 2023, pursuant to the Indo-Sino Order, Indo-Sino produced documents via its solicitors. The documents disclosed by Indo‑Sino show that monies had been given to law firms (including ONC who had nothing to do with Grassmere or the shares of Dan Form). The cover letter of Indo-Sino’ solicitors confirmed that “as at 30 September 2022, HK$43,986,417.43 (after deducting repayment of HK$220,000) plus costs on an indemnity basis are still outstanding due from Grassmere to Indo-Sino”. The HK$220,000 was repaid by Million Nice when it was neither a party to the Indo-Sino loans nor the 2587 Action.

D.  REASONABLE SUSPICION

17.  The Trustees say that they have reasonable suspicion that Million Nice was a corporate vehicle used by David Ho to conceal his assets, through his nominee, Sun Li Hua (“Sun”).

D1.  Million Nice

18.  Million Nice was incorporated on 13 October 2014. Sun became a shareholder and was appointed a director since 17 November 2014. In her email dated 16 September 2019, Sun had admitted that she was a director of Million Nice.

19.  On 16 December 2019, Sun resigned from Million Nice and was replaced by one Liu Xiao Li (“Liu”) on the same day.

20.  On 24 December 2020, Sun disposed of her entire shareholding of Million Nice to Liu who allegedly resides in Mainland China. This took place right after OLN’s reimbursement of Luck Creation’s alleged advancement on 20 September 2019, followed by the 971 Judgment on 28 September 2020.

21.  The Trustees suspect that the information or documents held by CMB in the Million Nice Account relate to assets of David Ho because (i) Sun was neither a director nor a shareholder of any of the 971 Defendants. Despite being authorized by the 971 Defendants, there was no justification for her to receive money through the Million Nice Account from the 971 Defendants; (ii) Million Nice was neither a party to the 971 Action nor 2587 Action; (iii) Sun was responsible to procure the alleged loans for Grassmere in the 2587 Action; it was inconceivable that she was acting in any other capacity but as David Ho’s nominee; and (iv) No evidence has been provided to the Trustees to justify why the 971 Defendants had to make reimbursement for Grassmere in the 2587 Action or for Million Nice to repay Indo‑Sino, unless both the 971 Defendants and Grassmere are owned or controlled by David Ho and/or David Ho has interest in both the 971 Action and 2587 Action.

D2.  Other bases of the Trustees’ reasonable suspicion

22.  First, the 971 Defendants were not parties to the 2587 Action. Grassmere was not a party to the 971 Action but only a defendant in the 2587 Action. And yet the 971 costs on account under OLN’s file were used for both the 971 Action and 2587 Action.

23.  Second, from the documents disclosed by OLN, it can be seen that the source of the costs on account was not the 971 Defendants, Yu Yang or Liu Shu (who were the shareholders and/or directors of the 971 Defendants)

24.  Third, Sun was involved in the procurement of the costs on account. She was alleged to a nominee of David Ho in another instance when a section 29 order was granted against various banks: [2023] 2 HKLRD 586, §26(1), Au-Yeung J. Sun gave instructions to HIP and OLN on behalf of the 971 Defendants to make remittances to the client accounts from the Unidentified Account. However, Sun was neither a client nor shareholder of any of the 971 Defendants at the time of the 971 Action.

25.  OLN claimed that they have documentary proof that Sun had authority to represent the 971 Defendants. However, OLN declined to produce the proof to the Trustees because it was not covered by the HLP/OLN Order.

26.  In my view, whether OLN has produced the documentary proof of Sun’s authority or not, the Trustees do have reason to suspect that Sun had a role to play in the dealings and property of David Ho.

27.  Fourth, Sun appeared to have been using Million Nice to move money around for the purposes of the 971 Action and 2587 Action. Million Nice had remitted money to HIP and received remittance from OLN, when there appeared to be no reason for Sun / Million Nice to get involved in money with the 971 Defendants.

28.  Fifth, Luck Creation was not a party to the 971 but it was related to Grassmere in the 2587 Action and Sun Bo, the sole shareholder and director of Luck Creation. Yu Yang sold Grassmere to Luck Creation in July 2012. Luck Creation then sold Grassmere to an individual called Su Lan Lan in July 2016. Su Lan Lan appeared to have taken control after 14 July 2019. There was no apparent reason why Luck Creation should make advance payment for the law costs draftsman’s fees of Grassmere and the reimbursement was made to Million Nice’s Account.

29.  Sixth, on 3 February 2021 Million Nice repaid HK$220,000 to Indo-Sino when Liu was still the sole director and shareholder. There was no reason for Million Nice to do so when (i) Sun should have nothing to do with Million Nice anymore; and (ii) Million Nice was not a party to the loan from Indo-Sino, nor a party to the 2587 Action or 971 Action.

30.  Seventh, Indo-Sino had actually been making payments to various firms in Hong Kong, including HIP, OLN, ONC Lawyers, and Kwok, Yih & Chan. Apart from the 971 Action and the 2587 Action, the legal actions also included HCA 806/2006 and HCB 3819/2011.

31.  Eighth, in the 971 Action, the Plaintiffs in the HCA 806/2006 (“806 Action”) were found to be related to David Ho. The 1^st Plaintiff/liquidators of APIDL and the 3^rd Plaintiff/APGIL were found to be beneficially owned and controlled by David Ho. Persons ruled to be David Ho’s nominees were employed by the 3^rd Plaintiff/APIFL and 4^th Plaintiff/Greater Beijing Region Expressways Limited. All the corporate defendants were found to be beneficially owned and controlled by David Ho.

32.  I am satisfied that the Trustees have shown bases set out above for holding reasonable suspicion that Million Nice was a corporate vehicle used to handle money transactions by David Ho and that David Ho had interests in both the 971 Action and 2587 Action.

E.  DOCUMENTS SOUGHT

33.  The Trustees seek documents in relation to Million Nice’s Account. The stated purposes are to find out:

(1)  How much funds were remitted into and out of the Million Nice Account;

(2)  What the sources and destinations of the funds in the Million Nice Account were;

(3)  What other matters the Million Nice Account was funding; and

(4)  Whether each of the remitters to the Million Nice Account or the recipient of funds from that Account was related to David Ho or his nominees.

34.  Apart from purpose (3), which I find to be pure fishing, the other purposes are valid in assisting the Trustees to investigate David Ho’s property and dealings and trace his assets.

35.  By a letter dated 24 March 2023, the Trustees have sought the documents from Million Nice but to no avail. They have no other means to obtain the documents.

36.  CMB has no objection in principle to the present application, though they would not consent to the making of an order. The documents are in their possession. They have made suggestions to the proposed order, which the Trustees agree. The draft order is limited in scope and time.

37.  The draft is in order save that for §§2(a) and (b), I have deleted the word “details” as details are not documents. I have also replaced the phrase in §3 which refers to “beneficial owner’s account” with “Million Nice Account”.

F.  ORDER

38.  For the reasons given, the Trustees have satisfied the tests for a section 29 Order. I therefore make an order as follows:

(1)  The Respondent do within 45 days of the day on which the Order is served on the Respondent produce the account opening records and documents (if any and available), in its possession, power and/or custody relating to the Million Nice Account from the account opening date to present;

(2)  The term “documents” in sub-paragraph (1) above refers to:

(a)  records and/or documents in connection with the opening of account or accounts including, without limitation, records or forms identifying the beneficial owner or owners of the Million Nice Account and/or the authorized signatory(ies) provided by the Million Nice Account holder; and or

(b)  records of all transactions in the account or accounts including, without limitation, bank statements, bank vouchers, forms, instructions, transaction advices, cheques and correspondence issued by China Merchants Bank Co., Ltd, Hong Kong Branch to the Million Nice Account holder in the ordinary course of business in relation thereto;

(3)  The term “account opening records” in sub-paragraph (1) above refers to all bank account opening documents and changes to the particulars and authorized signatory and any power of attorney of the Million Nice Account with the Respondent.

39.  I thank Ms Kong for her assistance.