HJ INNOXCELL LTD v. TEH BOON KHUAN

HCA 1707/2018

[2019] HKCFI 730

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1707 OF 2018

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DECISION

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1.  This is the application by HJ InnoXcell Ltd (“the plaintiff”) by summons dated 24 July 2018 for delivery up of information and documents relating to and/or belonging to the plaintiff that are within the possession, custody, power or control of Teh Boon Khuan (“the defendant”), its former director and CEO. At the conclusion of the hearing, the Decision was reserved which I now give.

BACKGROUND

2.  Andy Kwok (“Mr Kwok”) is the founder and managing director of the PrimeVest Group of companies (“PrimeVest” or “Hong Jing”) including International Institute of Professional Development Limited (“IIPDL”).  Mr Kwok operated various companies in the PRC.  The defendant controls InnoXcell Limited (“IX”).

3.  In late 2016, Mr Kwok and the defendant agreed to collaborate and to that end they entered into a Memorandum of Understanding (“MoU”) dated 10 January 2017.  The plan as reflected in the recitals was that (1) IIPDL would purchase the fixed assets of IX for US$29,000 to be paid by 10 January 2017; (2) thereafter, the parties would form the plaintiff, to be held as to 51% by Mr Kwok through Hongjing Emerging Technology Co Ltd (“HETCL”) (another company within PrimeVest) and the remaining 49% by the defendant; (3) the plaintiff would take over the entire operation of IX and would continue and further develop event management business; (4) existing revenue for the year 2017 and thereafter of IX and its associated companies would be transferred to the plaintiff and IX would no longer be conducting any business.  The defendant became the plaintiff’s CEO.

4.  The collaboration began to unravel gradually from about May 2017 when Mr Kwok first became suspicious about how the plaintiff’s affairswere being conducted.  By early November 2017, the joint venture came toan end and on 8 November 2017, the staff of the plaintiff in Hong Kong and Shenzhen were laid off.  The defendant was not removed as director until 4 June 2018 and as CEO until 8 June 2018.

5.  Confrontation as such did not arise until the latter part of June 2018, commencing with the letter dated 22 June 2018 from the plaintiff’s solicitors to the defendant.

6.  It would be convenient at this point to deal with the correspondence between the plaintiff’s solicitors P C Woo & Co (“PC Woo”)and the defendant’s solicitors Wellington Legal (“WL”) that resulted in the summons before the court.

7.  The letter of 22 June 2018 to the defendant referred to an internal audit of the plaintiff which revealed “a number of suspected wrongdoing/‌breaches of fiduciary duty/‌fraudulent and/or dishonest conduct” during the defendant’s directorship.  It was a 7-page letter containing particularised allegations of unauthorised payments (reimbursement of expenses, undisclosed purported director’s remuneration, Inland Revenue Department, employees’ salary, commissions and MPF contributions); unreasonable expenses without valid supporting documents; trademark; potential understatement of income and the defendant’s other directorships.

8.  When WL (who were instructed by the defendant) replied on 3 July requesting documentation in support of the allegations in order that the defendant could provide a meaningful response, PC Woo expressed surprise as the defendant had all along indicated that he had all relevant documents in his possession but had “failed/refused to provide” them to the plaintiff without reasons.  PC Woo threatened legal proceedings unless a substantial reply was received within 7 days.

9.  On 6 July, WL clarified that the request was for documents forming the basis of the allegations made against the defendant and, given the number of allegations made, the defendant had passed on the available documents in his possession to his accountant for assistance and requested the withholding of proceedings for a month.

10.  On 10 July, PC Woo required delivery up of the plaintiff’s documents within 48 hours.

11.  WL’s reply of 13 July stated that the documents the plaintiff was demanding in the defendant’s possession had in fact been previously provided via a Baidu Cloud account accessible by the plaintiff (for the purposes of monthly review by third-party accountants) and should be retained by the plaintiff.  Copies the defendant retained were for his own records, reaffirming the defendant’s willingness to assist but that he would require more time to collate the data and documents and present them properly.

12.  The writ which was issued on 24 July 2018 alleged that the defendant had been in breach of duties as fiduciary, agent and/or employee.

13.  At the first hearing of the interim injunction summons on 27 July 2018 for delivery up to the plaintiff of “all the information and documents relating to and/or belonging to the Plaintiff which are within the possession, custody, power or control of the Defendant, including (but not limited to) such information and documents as are set out in Schedule 1”, the defendant gave an undertaking to the court (“the undertaking”):

“ (a) To within 14 days deliver up to the Plaintiff’s solicitors all the information and documents belonging to the Plaintiff which are within the possession, custody, power and/or control of the Defendant (which may have been previously uploaded to the plaintiffs ‘Baidu Cloud’ account (as referred to in the letter of Messrs Wellington Legal dated 13 July 2018));

(b)   To within 14 days list and identify (with meaningful description) all the information and documents passed on to the Defendant’s accountant (as referred to in the letter of Messrs Wellington Legal dated 6 July 2018, other than any information and documents already delivered up pursuant to paragraph (a) hereinabove and to provide such list to the Plaintiff’s solicitors”

Directions were then given for the filing of evidence.

14.  Pursuant to the undertaking, through his solicitors, the defendant delivered 6,960 pages of documents and one USB drive consisting of 2,865 emails to the plaintiff’s solicitors on 10 August 2018 (“the August delivery up”).  Additional documents delivered to the defendant’s accountant were identified in the covering letter from WL to PC Woo.

15.  Notwithstanding the August delivery up, the plaintiff remained concerned that the defendant had not delivered all the documents in his possession.  Hence, it proceeded with the present summons. In other words, it is the plaintiff’s case that the defendant is in breach of the undertaking.  Nevertheless, there are no contempt proceedings on foot nor is there any application to cross-examine the defendant.

APPLICABLE PRINCIPLES

16.  It is trite law that company documents and records are assets of the plaintiff who is entitled to require its directors to deliver up company documents that are in their possession, custody, power and control.

17.  It is also not controversial that in an application for delivery up, the plaintiff must set out precisely what it wants in the summons.  It must satisfy the court and demonstrate that the relevant class of documents it seeks exists and that they are in the defendant’s possession, custody, power and control: see Unimax Property Consultancy Ltd v Ng Lai Ching & anor [2019] HKCFI 45 (unreported, HCA 2575/2018, 11 January 2019), §§7 and 20.  Once the defendant has, on oath, positively confirmed that he does not have the documents requested, that is the end of the matter: see Unimax at §22.

THE CLASSES OF DOCUMENTS SOUGHT

18.  The classes of documents the plaintiff seeks are set out in schedule 1 to the summons which is a list containing 8 separate items or categories of documents.  Items 1 to 6 (inclusive) concern operational matters of the plaintiff.  Item 8 concerns the password and/or information to access the Baidu Cloud account set up by the plaintiff.

19.  Item 7 concerns information, books etc relating to the companies listed in schedule 2 to the summons.  8 such entities are listed but the schedule 2 companies do not belong to the plaintiff.  Item 7 has now been qualified by the addition of a phrase to the description: see §65 below.  The plaintiff has further refined schedule 2 by dropping 3 of the 8 companies named in schedule 2 to the summons.

20.  The plaintiff referred to all 8 items in schedule 1 collectivelyas the “Relevant Documents and Information” or the “Documents/Information”while in the defendant’s evidence, the “Relevant Documents and Information”means only items 1 to 6 of schedule 1. Schedule 1 is attached as an appendix to this Decision.

21.  To avoid confusion, I will deal first with items 1 to 6.  After that, item 8 and item 7 will be addressed in that order.

THE PLAINTIFF’S APPLICATION

(A) Items 1 to 6

22.  Mr Thomas Lee, counsel for the plaintiff, stated that the plaintiff’s claim is based on (i) its proprietary right to the documents/‌information; (ii) the defendant’s duty as former director and CEO of the plaintiff to yield up the documents/information in his possession, custody, power and/or control; and (iii) the defendant’s own admission that he does have the documents/information of all 8 items in his possession and/or control.

23.  It is clear from well-established principles that the plaintiff has to prove present possession by the defendant of the documents/information sought.  The plaintiff relied on two matters as evidence of possession, namely,(i) the defendant’s own evidence and (ii) PwC’s report.

24.  Dealing first with PwC’s report, it was produced on 28 December 2018 pursuant to an engagement letter of 2 November 2018 with PC Woo to conduct an independent review of the documents delivered on 10 August 2018 “and other relevant records” of the plaintiff.  It was stated in the executive summary that the reason for engaging PwC was the plaintiff’s concern that the defendant “may have acted inappropriately while he was a director and CEO … including diverting receipts from customers due to [the plaintiff] to another company’s bank accounts, withdrawing monies … via unapproved director’s fees, and making or authorising expense claims without evidence of receipts …”.

25.  Based on the documents made available to it, PwC made a number of findings relating, inter alia, to completeness of available information and identified “numerous key or essential documents” that were not provided which it set out in Appendix C to the report.

26.  Mr Lui who appeared for the defendant highlighted the fact that it was not part of PwC’s remit to “investigate” and make findings on whether the defendant had withheld documents or information.  It was said that the instructions had emanated from the plaintiff were self-serving and, inevitably, give rise to issues of impartiality.

27.  Those matters aside, it is to be noted from the executive summary in the PwC report that the review was conducted on the basis not only of documents delivered on 10 August 2018 but also on “other relevant records” of the plaintiff. In that connection, it is the defendant’s evidence that until he was removed as director and CEO, he and his staff regularly passed physical copies as well as original documents to Elaine (who was the sole representative of PrimeVest/Hong Jing stationed in Hong Kong) until her resignation on 27 January 2018.  They were also required to upload all documents concerning the plaintiff’s affairs to the Baidu Cloud account operated by the plaintiff.  That evidence has neither been controverted nor denied.  

28.  It is also the defendant’s evidence that he had no knowledge of how Elaine or the Hong Jing staff handled the physical copies and the documents uploaded onto the Baidu Cloud account, the latter being for the sharing of documents rather than a secure storage system.  Plainly, that information (as processed by Elaine and Hong Jing staff as well as the hard copies provided to Elaine) would have become the plaintiff’s own records, thus being the “other relevant records” to which PwC made reference.

29.  In those circumstances, if PwC was unable to locate what it regarded as essential documents, it would not necessarily mean that the missing documents are a result of a withholding on the part of the defendant: that could also be attributable to “other relevant records” of the plaintiff being incomplete or deficient.  As there is no information concerning how uploaded documents were handled by Hong Jing staff, deficiencies in the handling procedure giving rise to the lacuna in information is equally possible.

30.  Significantly, there is also no evidence from Elaine (the recipient of the documents/information from the defendant and his staff) to shed light on the whereabouts of the hard copies and the Baidu Cloud information despite the fact that, for the purposes of the present application, the plaintiff has been in touch with Elaine.

31.  While Mr Lee attached considerable significance to the PwC report, I cannot see that it assists on the question of whether the defendant is presently in possession of documents that he has not disclosed pursuant to the undertaking.  All that can be derived from the report is that PwC considers essential information (required to ascertain and validate the total revenue and expenses) of the plaintiff to be missing.  It would be wrong to treat PwC’s report as “findings” of what the defendant failed to deliver pursuant to his undertaking.

32.  On the issue of the defendant’s own admissions, the plaintiff relied on a number of matters.

 (a) §83 of the defendant’s affirmation

33.  The defendant stated as follows:

“ … I have never deliberately removed the Plaintiff’s documents or kept them out of Kwok’s reach. Original documents now in my possession were collected by me when I found them just lying around at the Former Office Premises after Hong Jing staff had moved out. Copies of documents now in my possession were printed from my own digital records, and I have kept them all along such that I would be able to answer queries raised by Kwok and his Hong Jing Staff ….”

34.  The plaintiff submitted that this was a clear admission by the defendant that he still had originals in his possession as at the date of the affirmation which was well after the August delivery up.  

35.  That passage has to be understood in context.  In the earlier part of that affirmation, the defendant gave an account of how Mr Kwok maintained a tight grip over the plaintiff’s operations, finances and accounts since inception.  In summary, the plaintiff itself did not have accounting staff and until her resignation on 27 January 2018, Elaine was in charge of managing the plaintiff’s internal accounts and records and handled its finances.  She also arranged for Mr Kwok’s staff in Shenzhen to handle the plaintiff’s accounting work.  All documents concerning the plaintiff’s affairs were required to be uploaded onto the Baidu Cloud account and physical copies given to Elaine.

36.  The defendant also explained how the originals delivered on 10 August 2018 to PC Woo came to be in his possession.  They were the plaintiff’s original documents left behind in the plaintiff’s former office premises when the plaintiff moved out of the 10^th floor of Casey Building. That occurred on 27 October 2017: see §4 of the affirmation of Ziai Deng (“Mr Deng”).  The plaintiff moved to another unit on the 2^nd floor of that building.  The former office premises were taken over and occupied by IX.  It was in those circumstances that the defendant came into possession of the originals that he had delivered in August 2018.

37.  The defendant acknowledged that he did make and keep soft copies of the plaintiff’s documents while he was CEO for his own bookkeeping purposes and to answer queries from Hong Jing staff.  Copies of the soft copies kept by the defendant together with original documents that had been left behind when the defendant took over the former office premises were the documents constituting the August delivery up.

38.  To read §83 as a clear admission by the defendant that as at the date of his affirmation (5 October 2018) and/or at the date of this hearing (23 January 2019) he still had original documents in his possession would contradict what the defendant had earlier stated in §4 of the same affirmation.  The literal reading the court is invited to adopt is not one that could sensibly and rationally be made unless one were to accept that the deponent would intentionally admit contempt.  This goes against all common sense and is a reading I am not prepared to accept.

39.  The defendant stated on oath that he has delivered up the documents in compliance with the undertaking.  As earlier noted, that is the end of the matter. It was open to the plaintiff to issue committal proceedings against the defendant for breach of the undertaking but it has not done so nor has there been any application for leave to cross-examine the defendant.

 (b) The defendant’s email of 13 April 2018

40.  The plaintiff also made reference to the defendant’s email dated 13 April 2018 sent to Mr Kwok in which the defendant stated:

“ … I have all the documents, invoices contract and etc, I am already in the process of locating them one by one and ready to send to you and James.

All I want is for you to honour your agreement of signing the trademark back …

Once I received the signed letter, I will send you everything you need and fully cooperate.”

It was said that that was an express admission that the defendant had the documents in connection with the plaintiff.

41.  At the time that email was written, the defendant was still in office although the plaintiff’s business had ceased actual operations.  The August delivery up took place nearly 4 months later.  It is difficult to see the relevance of the 13 April email on the question whether post–10 August 2018, the defendant was in possession of documents that fell within the undertaking beyond what made up the August delivery up.

42.  Be that as it may, reading the chain of email exchanges from 11 to 13 April, it would appear that (i) Rebecca who is the defendant’s assistant had been providing information to the plaintiff in response to various requests from Alina (who was either employed by the plaintiff or by its “investor”) in email exchanges under the subject heading “Outstanding Issue List”; (ii) Mr Kwok would not sign the trademark back to the defendant because it was the decision of the “investor”; (iii) the defendant’s position was that there was such an agreement (concerning the trademark) between him and Mr Kwok/the plaintiff.

43.  There is no further evidence or follow-up on this subject after the 13 April email set out in §40 above.  In the circumstances, there is no adequate basis for inferring that the defendant was in possession of documents/‌information beyond what constituted the August delivery up.

 (c) The September 2018 phone calls

44.  The plaintiff also placed reliance on the evidence of Mr Deng concerning telephone calls he received from the defendant in the 3^rd and 4^th weeks of September 2018.  Mr Deng (an employee of HETCL) who was seconded to the plaintiff as chief financial officer on 25 June 2018, sent out payment reminders to clients who had attended events in 2017 but, according to the plaintiff’s records, whose payments were still outstanding.

45.  The defendant allegedly told him on both occasions not to contact the defendant’s clients because they had paid in full and that if Mr Deng needed any materials, he should contact the defendant directly. It was submitted that the inference from those conversations is that the defendant had retained all necessary information dealing with income registration, event organisation etc.

46.  Quite apart from the fact that the defendant has not had an opportunity to deal with this evidence which was filed after the date of the defendant’s affirmation, it is his evidence that he had retained soft copies of the plaintiff’s records.  When that is coupled with the fact that the defendant was running the business of the plaintiff before the joint venture came to an end and had full control over the plaintiff’s operations, it is hardly surprising that the defendant should consider that he was in a position to answer Mr Deng’s queries.  That does not prove that he had documents/‌information in his possession that he had not disclosed to the plaintiff.

47.  For all those reasons, I do not consider that the plaintiff has shown that the defendant has withheld documents/information that should have been delivered up in compliance with the undertaking and that such documents/information remained in the defendant’s possession after the August delivery up.

(B) Item 8

48.  This relates to the password and/or information to access theBaidu Cloud account.

49.  It is common ground the Baidu Cloud account was created in the plaintiff’s name by Van Fan (“Fan”), an employee of Hong Jing based inShenzhen who worked at Hong Jing’s Shenzhen office.  It is the defendant’sevidence and it would not appear to be disputed that the plaintiff’s staff were required to upload soft copies of all documents about its affairs to the Baidu Cloud account so that Elaine and other Hong Jing staff in Shenzhen (who handled, inter alia, all of the plaintiff’s accounting work) could review them.

50.  The defendant’s evidence is that he does not read Chinese and so he never uploaded documents himself onto the Baidu Cloud account which operated in Chinese.  He did not have the password.  Instead, he required assistance from his staff Rebecca Learoyd whenever he had to upload documents as required by the plaintiff’s internal procedures.

51.  It is the plaintiff’s allegation that shortly after Fan’s departure,the plaintiff discovered that the password had been changed with the consequence that the plaintiff could not access the information stored in the Baidu Cloud account.

52.  According to Mr Kwok’s 2^nd affirmation (“Kwok-2^nd”) §§55 – 56:

 (i) although Fan was engaged by Hong Jing, he worked exclusively for the defendant or the plaintiff’s projects;

 (ii)  he was the only staff who could change the password;

 (iii)  on 9 November 2017, Hong Jing terminated Fan’s employment allegedly upon the defendant’s instructions that Fan’s services were no longer required;

 (iv) Fan immediately joined IX Shenzhen (one of the companies set up by the defendant in late 2017 early 2018 as competing businesses);

 (v) Fan was appointed Supervisor in General of IX Shenzhen according to a copy of public search record dated 29 May 2018 which was exhibited.

53.  The allegation that Fan was the defendant’s staff was made in Mr Kwok’s 1^st affirmation (“Kwok-1^st”) at §19 and denied by the defendant in his affirmation at §81.  The public search record dated 29 May 2018 exhibited in support shows that IX Shenzhen was incorporated on 21 December 2017 and that the defendant and Fan are respectively its general manager and supervisor but that is as far as it goes.

54.  §19 of Kwok-1^st made the following allegation, viz, “it is believed that [the defendant] deliberately instructed one of his staff Van Fan to change the password and close the account, [the plaintiff] and I are now unable to access its contents”.

55.  The defendant denies the allegation: see the defendant’s affirmation, §80.  It is to be noted that the basis of the plaintiff’s ‘belief’ was nowhere stated.  In those circumstances and given the matters set out in §§51 – 53 above, for present purposes, there is simply no evidence to show that the defendant had “deliberately instructed” Fan to change the password and close the account.   

56.  In so far as the remaining allegations made in Kwok-2^nd §§55 – 56 are concerned, the defendant has not had any opportunity of responding to them.  For present purposes, those assertions cannot be taken as true.  The fact that Fan, being the defendant’s subordinate, is arguably under the defendant’s control is neither here nor there where a prima facie case has not been shown that the defendant had deliberately instructed Fan to change the password and close the account.

57.  On 8 November 2017, Suqi, a staff member of Hong Jing sent an email to the defendant asking for “the account and password of Baidu Cloud Disk”.  The defendant replied stating that he did not have it and it was the China accounting team who set it up in January, adding “let me call Rebecca”.  There were no further follow-up emails by either Suqi or the defendant.

58.  Pausing here, it is to be noted that the plaintiff has interpreted the phrase “let me call Rebecca” as equivalent to “Rebecca has the password”.But that was not what the defendant actually said which was noncommittal, being nothing more than “let me make enquiries”.  The defendant was criticised for not following up with Rebecca or reporting the outcome of such follow-up.  I do not consider such criticism justified when Suqi also made no effort to follow up the enquiry made of the defendant.

59.  The plaintiff also relied on email exchanges that occurred between 11 and 13 April 2018 under the subject heading “Outstanding Issue list”.  

60.  The email chain starts with an email from Alina (using Suqi’s email account) to Rebecca requesting all documents relevant to the outstanding issue list be provided by 15 April 2018.  In her reply sent the same day (which, incidentally, shows that Rebecca was cooperating and providing information and clarification to the plaintiff), Rebecca prefaced it stating “I do have to dig a while back through my records”.  Plainly, the records being referred to were Rebecca’s own records.  It could not reasonably be read as a reference to the Baidu Cloud account at all.

61.  There was a follow-up email from Alina the following day (12 April).  Before Rebecca could respond to it, the defendant emailed Rebecca informing her that Mr Kwok would not sign back the trademark to the defendant, adding: “There is no point to collaborate any more.  Don’t waste your time”.

62.  That same evening (12 April) there was an exchange of emails between Mr Kwok and the defendant when the defendant informed Mr Kwok that he had “decided to submit all the documents to my auditor”.

63.  The following evening (13 April), there was a further exchange with Mr Kwok indicating to the defendant that he (Mr Kwok) needed to stop there and let the appropriate person communicate with the defendant.  The defendant then made it clear that unless the agreement to sign back the trademark was honoured, he would not hand over documents requested.

64.  While the email of the 13 April 2018 might amount to a refusal to deliver up company documents to the plaintiff, it is irrelevant in the context of the defendant’s alleged refusal to provide the plaintiff with the password/information of the Baidu Cloud account.  In short, that chain of email exchanges had nothing to do with the Baidu Cloud account.

(C) Item 7

65.  In its original form, item 7 was plainly problematic.  The plaintiff has now qualified item 7 by adding at the end a phrase (shown in italics) in the draft order attached to the Note of Reply (“the reply”) received by the court on 22 January 2019.  Item 7 as qualified now reads:

“ All information, books, correspondence, documents, accounts and records relating to the companies listed in Schedule 2 hereto, which also relate or belong to the [plaintiff].”

66.  The plaintiff submitted that there are two aspects to the plaintiff’sapplication, one based on property rights which extends to information whichmight not be in tangible form and the other is a claim based agency and that a former director is not just required to return documents and information because they are company assets but also because it is an aspect of his duty as a former director.

67.  Fairstar Heavy Transport NV v Adkins [2013] 2 CLC 272 was cited for the proposition (at §53) that:

“ as a general rule, it is a legal incident of that relationship that a principal is entitled to require production by the agent of documents relating to the affairs of the principal”.

68.  The defendant submitted that those remarks were made in the context of the relevant emails requested (stored in the recipient’s personal computer) having been received or sent by the recipient on behalf of the company.  In other words, those emails were sent and received in his capacity as CEO for the purpose of the discharge of his duties for the purpose and benefit of his principal at Fairstar.

69.  I agree with the defendant that insofar as the words “relating to” in item 7 are concerned, they have to be understood in that context: it has to arise from the principal/agent relationship.

70.  Turning to §39 of Kwok-1^st filed in support of the plaintiff’s application, it reads:

“ The businesses of the above companies appear to engage in identical or similar businesses as the [plaintiff]’s, and I had previously not been fully and completely informed of [the defendant]’s role therein. Therefore, the [plaintiff] also needs information as to the [plaintiff]’s relationship with such companies (if any). As such, in the present application, the [plaintiff] seeks the documents and information relating to/belonging to the [plaintiff] which also relates to the companies above in question. Any such documents and information would inform us as to the [plaintiff]’s relations with these other companies (if any).”

71.  There is a discrepancy between the wording used in item 7 (as qualified) and that in §39.  Be that as it may, it is to be noted that the phrase “(if any)” was used twice in the reasons given in §39 in support of item 7.  That suggests that the plaintiff did not know or was not certain of the existence of a relationship.

72.  It is trite law that it is not permissible for a party to seek discovery in a delivery up application.  Mr Lui submitted that if Mr Kwok genuinely did not know of the relationship of the plaintiff with those subsidiaries, then the request must fall into the “fishing” exercise category.

73.  In §24 of the reply, the plaintiff submitted that this was not a discovery application and the plaintiff is not fishing for evidence in relation to competing companies set up by the defendant. §24 went on to make six specific allegations that concern several of the subsidiaries specified in schedule 2.

74.  Mr Lui made a very fair point that all those matters did not emerge until Kwok-2^nd when the defendant was no longer in a position to respond to them.  Could (and should) those allegations have been made in Kwok-1^st so that the defendant could have responded to them?

75.  The defendant submitted that the fact that in §24 the plaintiff was making a positive case of relationships and competing businesses of theschedule 2 companies (or some of them) would suggest that the plaintiff did know of the relationships that formed the basis for the specific allegations made in Kwok-2^nd.  In that case those allegations could and should have been made in Kwok-1^st.  

76.  Further, in §21(a) of the reply the plaintiff made the additional point that the present application is necessary as there is serious cause for investigation into the affairs of the plaintiff as conducted by the defendant.  Particulars of misconduct were then provided in schedule 2 to the reply. 

77.  The defendant made submissions to show that the complaint (in so far as it related to the first item of the alleged misconduct listed in schedule 2), was wholly misconceived.  The misconduct alleged was a failure to meet a profits guarantee of US$1.65 million for the year 2017 in that, as of late May 2017, the defendant fell well short of meeting it.

78.  Having been taken to the relevant evidence in the hearing bundles, suffice it to say that the evidence does not appear to support there being such a guarantee.  Rather, the figures given by the defendant were “gross event profits” (ie revenue generated from events less direct expenses of the events alone) which is totally different from a profits guarantee.  Consequently, while the issue whether or not there was a profits guarantee is a matter for trial, on the materials before the court, the misconduct alleged in item 1 of schedule 2 to the reply would not appear to be one of any substance.

79.  The unavoidable and overwhelming impression immediately conveyed on any fair reading of §39 of Kwok-1^st and the matters considered above is that the plaintiff is engaged in a “fishing” exercise.  In my view, in essence, item 7 is a discovery application before pleadings which is not permissible.  

80.  In any event, as presently formulated, the scope of item 7 is excessive and unclear.  It does not reflect the ratio of Fairstar considered above and the documents/information targeted remain opaque and elusive.

CONCLUSION

81.  For the reasons stated above, the plaintiff’s summons is dismissed.  There is to be an order nisi of costs in favour of the defendant.

Appendix

Schedule 1

1.  All information, books, correspondence, documents, accounts and records relating to the Company or its affairs.

2.  All information, books, correspondence, documents, accounts and records relating to the revenues, profits, losses, costs or expenses of the Plaintiff.

3.  All information, books, correspondence, documents, accounts and records relating to the transactions relating to or entered into by the Plaintiff.

4.  All information, books, correspondence, documents, accounts and records relating to or evidencing the wages or commissions paid by the Plaintiff to the Plaintiff’s employees.

5.  All information, books, correspondence, documents, accounts and records relating to or evidencing the reimbursements claimed by the Plaintiff’s employees from the Plaintiff.

6.  All information, books, correspondence, documents, accounts and records relating to or evidencing the payments and expenditures of the Plaintiff, including but not limited to payments and expenditures relating to the events held or organized by the Plaintiff.

7.  All information, books, correspondence, documents, accounts and records relating to the companies listed in Schedule 2 hereto, which also relate or belong to the Plaintiff.

8.  The password to the Plaintiff’s Baidu Cloud account and any information necessary for the Plaintiff to effectively access the said account.