IRONWOOD CAPITAL LTD v. KTH CAPITAL MANAGEMENT LTD

HCA2836/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2836 OF 2004

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R U L I N G

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1. This is an application by the defendant by Summons dated 13 February 2008 for leave to serve/administer upon the plaintiff Interrogatories as per the draft annexed to the Summons. 

Background

2. The plaintiff is a BVI company set up in about 2000 by Luo Xian Ping (“Luo”) as an investment vehicle in distressed debts of Chinese corporations.  Luo was assisted by his assistant Guo Dan (“Guo”). 

3. The defendant, an Exempted Company incorporated in the Cayman Island, was at all material times under the control of Du Wang (“Wang”) and his wife Vivian Ding Li (“Li”). 

4. It was intended that the plaintiff’s knowledge of Chinese corporations and their financial affairs could be combined with the defendant’s expertise in distress debt trading to enable successful trades to be made. 

5. For such investment purposes, the defendant assisted the plaintiff to open an account with the ABN AMRO Bank (“the ABN Account”).  Li was one of the authorized signatory to the ABN Account and the mandate given to the bank was such that for trading purposes, Li’s signature alone would be sufficient to operate the ABN Account. 

6. In December 2000 the defendant caused to be opened a sub-account on behalf of the plaintiff with Bermuda Trust (Far East) Ltd  (“BTFE”) in the name of KTH Capital Management Ltd — Ironwood Capital Ltd (“the Sub-Account”).  Wang and Li were the only authorized signatories of the Sub-Account. 

7. Thereafter the defendant was able to move funds between the ABN Account and the Sub-Account and conducted investments through the Sub-Account on behalf of the plaintiff. 

The plaintiff’s claim

8. It is the plaintiff’s claim that the defendant, who operated the various accounts on behalf of the plaintiff have not accounted to the plaintiff for all that is due to them.  The major relief sought by the plaintiff in the present action is for a declaration that the plaintiff is the sole beneficiary of the Sub-Account and also for an account of all investments made and all assets held by the defendant for and on behalf of the plaintiff. 

Order for Summary Account

9. In the present claim, an order for summary account has already been made for the defendant to deliver a summary account of all the dealings and investments it has made on behalf of the plaintiff from the funds in the ABN Account as well as the Sub-Account. 

10. That order for summary account was made on the basis that the defendant did not dispute that it was an accounting party vis-à-vis the plaintiff in the sense that it had been dealing with the investments on behalf of the plaintiff by transferring funds from the ABN Account to the Sub-Account and using the funds so transferred into the Sub-Account for such investments on behalf of the plaintiff. 

11. The order for summary account was made on 20 November 2007 in a written Ruling after hearing arguments from both parties. 

12. In a nutshell that order for summary account required the defendant to give a summary account to the plaintiff of the dealings and investments made by them using moneys from the ABN Account and the Sub-Account on behalf of the plaintiff within 28 days and to verify same by affidavit.  Thereafter the plaintiff could serve notice of objection thereto within 56 days after it had been served with the summary account taken by the defendant. 

13. After the order for summary account was made, the time given to the defendant to provide such summary account was extended such that the summary account was served by the defendant and verified by affidavit on 26 February 2008. 

14. I am told that the plaintiff has not, as yet, provided/served any notice of objection to the summary account served by the defendant due to the fact that the plaintiff has taken out a summons which is due to be heard some time in October, and that the notice of objection will have to wait until that summons is dealt with. 

15. It was also made clear in the written Ruling dealing with the summary account application that the order for summary account as well as giving liberty to the plaintiff to file a notice of objection thereto were intended to crystallize the specific issues in dispute between the parties relating to the accounts between them. 

The present application for Interrogatories

16. The request for interrogatories were initially made by the defendant dated 15 January 2008. 

17. Upon the plaintiff objecting to answer such interrogatories, a Summons dated 13 February 2008 was taken out by the defendant for leave to administer the interrogatories pursuant to Order 26, rule 1 of the Rules of the High Court with the interrogatories sought attached to the Summons. 

18. In a nutshell, the interrogatories sought can be conveniently compartmentalized into three separate categories :

(a)  Interrogatories 1, 2 and 3 ask whether any money was paid by or on behalf of the plaintiff into the ABN Account and the Sub-Account, if so the details of such payments and the instructions given by the plaintiff to the defendant relating to each of such payments;

(b) Interrogatories 4 and 5 ask whether the plaintiff or anyone on its behalf received money from the ABN Account and/or the Sub-Account pursuant to any of the instructions referred to in the answer to Interrogatory 3, and if so the details of same; and

(c) Interrogatories 6 and 7 ask whether the plaintiff or anyone on its behalf received money from the ABN Account and/or the Sub-Account without instructions from the plaintiff to the defendant, and if so the details of same. 

Discussion

19. It can at once be seen from the interrogatories asked that such interrogatories are framed in a completely general way. 

20. Admittedly, counsel for the defendant conceded at the hearing that although no date is included in the interrogatories, it should be understood that the interrogatories relate only to the time when the defendant was given authority to deal with and invest the funds of the plaintiff on its behalf. 

21. Even given that is so, and within the period of the defendant being given such authority to invest the funds for the plaintiff, those interrogatories are still all encompassing in that they seek to elicit from the plaintiff all the payment made by the plaintiff into the ABN Account and the Sub-Account as well as all the moneys received by the plaintiff from those two accounts during such times. 

22. In that sense the interrogatories make no distinction as to what are the specific items in dispute between the parties in so far as those accounts are concerned. 

23. Indeed, the specific items relating to the ABN Account and the Sub-Account which may be in dispute between the parties cannot at this stage be seen, at least not until the plaintiff has seen fit to file its List of Objections to the Summary Account given by the defendant. 

24. It follows from that that since the interrogatories sought are not geared either to the Summary Account given by the defendant or the List of Objection as yet to be filed by the plaintiff, in that sense, what is asked for by the interrogatories may well be much wider than what would ultimately be in dispute between the parties. 

25. In that sense, it neither saves costs nor can it be said to be necessary. 

26. Admittedly, that rules provides that in a proper case, the right to interrogate is not confined to the facts directly in issue, but extends to any facts the existence or non-existence of which is relevant to the existence or non-existence of the facts directly in issue.  However, that can only come about when it is known what facts are in issue between the parties.  In the present case, without the List of Objections being filed by the plaintiff, that stage has not even been reached. 

27. Secondly, there is nothing on the pleadings which would suggest that the moneys in the ABN Account belonged to anyone other than the plaintiff.  In those circumstances, I agree with Mr Thompson that it is both unnecessary and irrelevant for the plaintiff to have to identify every specific payment made by or on behalf of the plaintiff into the ABN Account. 

28. As for the Sub-Account, there is no dispute that the defendant had full control of the Sub-Account at all times, and therefore it must be within the defendant’s knowledge what had been paid into that account by the plaintiff, if that was done. 

29. On this basis the interrogatories sought are neither relevant, necessary nor do they save costs, but rather would incur further costs unnecessarily. 

30. In so saying I have in mind that the plaintiff’s claim relates to moneys transferred from the ABN Account into the Sub-Account by the defendant for the purpose of investment on behalf of the plaintiff, and what had become of those moneys. 

31. For the above reasons, the application for leave to administer the interrogatories sought is refused. 

32. There will be a cost order nisi that the cost of this application and the hearing be to the plaintiff in any event.