UNIMAX PROPERTY CONSULTANCY LTD v. NG LAI CHING AND ANOTHER

HCA 2575/2018

[2019] HKCFI 45

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2575 OF 2018

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JUDGMENT

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1.  By a summons dated 1 November 2018 (the “Summons”), Unimax Property Consultancy Limited (the “Plaintiff”), sought an injunction against its directors, namely, Ng Lai Ching (the “1^stDefendant”) and Yuen Kwok Cheung (the “2^nd Defendant”) for the provision and delivery up of the following information and/or documents:

“ (a) Audited account for the year ended 2016;

(b) Bank reconciliation statement of the Company’s account(s) with Nanyang Commercial Bank for the period from April 2018 to September 2018;

(c) Bank reconciliation statement of the Company’s account(s) with Standard Chartered Bank for the period from April 2018 to September 2018;

(d) Accounts receivable ageing analysis, for the months ended April 2018, August 2018, and September 2018;

(e) Bank statements of the Company’s account(s) with the Hong Kong and Shanghai Banking Corporation from April 2014 to September 2018;

(f) Bank statements of the Company’s account(s) with Nanyang Commercial Bank from January 2015 to September 2018;

(g) Bank statements of the Company’s account(s) with Standard Chartered Bank from January 2015 to September 2018;

(h) Breakdown of the following items in the Balance Sheets of the Company for the financial years ended 2015 to 2018 and for the months from April 2018 to September 2018:

(i) Deposits placed

(ii) Prepayment

(iii) Fixed assets register

(iv) Depreciation calculation

(v) Long service payment provision

(vi) Accrued expenses

(vii) Tax payables

(i) Breakdown of revenue and costs by individual buildings for the financial years ended 2015 to 2018 and for the months from April 2018 to September 2018;

(j) Breakdown of processing charges by individual buildings for the financial years ended 2015 to 2018 and for the months from April 2018 to September 2018;

(k) List of audit adjustments for the financial years ended 2015 to 2018;

(l) Hong Kong profits tax computation for the period of financial year ended 2015 to years ended 2016;

(m) Annual employer’s return BIR56A for the period offinancial years ended 2016 to years ended 2018;

(n) Annual employer’s return BIR56B for the period of financial years ended 2016 to years ended 2018;

(o) Total headcount as at September 2018;

(p) Statement of profit and loss projections for the period of financial years ended 2019 to years ended 2020;

(q) Cash flow projections for the period years ended 2019 to 2020;

(r) Internal control questionnaire outstanding items as per attached list;

(s) Management Account for the month of September 2018.”

2.  On 9 November 2018, there was a call-over hearing before Deputy High Court Judge Leung.  At the hearing, the 1^st Defendant opposed the application and asked for time to prepare and file affirmation in opposition.  The 2^nd Defendant also opposed the application on the ground that the Plaintiff did not have authority to issue the Summons and he did not have the requested documents.  Parties have since filed substantive affirmations.  This court was served with 10 hearing bundles on this application.

3.  Before this hearing, out of the 19 classes of documents as applied for in the Summons, the Plaintiff has obtained 13 classes in two post-writ visits, namely, documents listed under classes (a), (b), (c), (d), (e), (f), (g), (h), (k), (l), (m), (r) and (s).  On the Plaintiff’s case, class (n) documents, namely, the employer’s returns of the 1^st and 2^nd Defendants, Ng Lai Yin and Ng Ka Yip were received by the Plaintiff on 20 December 2018.  On the 1^st Defendant’s case, the said documents were provided during an inspection of documents on 26 November 2018.

4.  The outstanding matters that need to be resolved are classes (i), (j), (o), (p) and (q).  In the draft order attached to the Plaintiff’s Skeleton Submissions, the Plaintiff sought the following classes of documents:

“ (a) Breakdown of payroll to staff (in terms of costs and processing charges) by individual buildings for the financialyears ended 31 March 2016, 2017, and 2018, and the months from April 2018 to September 2018;

(b) The employer’s returns BIR56B for the following staffs of the Company:

(i) Ng Ka Yip (for the years ended 31 March 2018, 2017,and 2016);

(ii) Ng Lai Yin (for the years ended 31 March 2018, 2017,and 2016);

(iii) Ng Lai Ching (for the years ended 31 March 2017 and 2016);

(iv) Yuen Kwok Cheung for the years ended 31 March 2017 and 2016.

(c) Total headcount of the Company as at September 2018;

(d) Statement of profit and loss projections for the period of financial years ended 2019 to years ended 2020;

(e) Cash flow projections for the years ended 2019 and 2020.”

5.  The Plaintiff also sought an order that the Defendants do file affidavits stating whether any documents specified or described in paragraph 4 above are, or at any time have been, in their possession, custody or power and, if not in their possession, custody or power, when did it part with them.

6.  This court will deal with the outstanding 4 classes of documents first and then deal with the issue of costs which is really the main contention amongst the parties.

RELEVANT LEGAL PRINCIPLES

7.  First, there can be no dispute that the Plaintiff, as the company, is entitled to require its directors to deliver up company documents which are in their possession, custody, power and control.  Company documents and records are assets of the Plaintiff company.  Ms Tam for the 1^st Defendant and Mr Law for the 2^nd Defendant did not argue to the contrary (see Liao Chen Toh v Loyal International Enterprises Co Ltd & Ors HCA 2302/2014, unreported, 20 April 2016, per Deputy High Court Judge Yee).

8.  Secondly, in cases where the grant of an interlocutory relief would be finally dispositive of the dispute in the plaintiff’s favour, justice requires some consideration as to whether the plaintiff would be likely to succeed at a trial.  The correct approach was set out by G Lam J inUniversity of Hong Kong v Hong Kong Commercial Broadcasting Co Ltd[2016] 1 HKLRD 536 (HCMP 2801/2015, 30 November 2015) at §§59 – 60:

“ 59. The approach hitherto adopted by the courts in Hong Kong based on American Cyanamid mandates that the court should strive to adopt a course which appears to carry the lower risk of injustice if it should turn out to be wrong: Music Advance Ltd v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041, [12(d)], per Ma J (as he then was); adopting whatHoffmann J said in Films Rover International Ltd v Cannon FilmSales Ltd [1987] 1 WLR 670, 680. Revisiting that topic in 2009, Lord Hoffmann said in National Commercial Bank Jamaica v Olint Corp [2009] 1 WLR 1405 at [16]–[17], that the purpose of an interlocutory injunction is to “improve the chances of the court being able to do justice after a determination of the merits at the trial”, and that the basic principle is that “the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other”. This approach was also applied by Chow J in Sima Sai Er v Next Magazine Publishing Ltd(HCA 1500/2014, [2014] HKEC 1357; 8 August 2014).

60. The established approach allows for a closer examination,in an appropriate case, of the merits of the plaintiff’s claim even at the interlocutory stage, for example where the grant of interlocutory relief would be finally dispositive of the dispute in the plaintiff’s favour: Lansing Linde Ltd v Kerr [1991] 1 WLR 251; NWL Ltd v Woods [1979] 1 WLR 1294, 1306F–G; Lawrence David Ltd v Ashton [1989] ICR 123.  But even there the deeper inquiry into the merits of the case is but one factor in the consideration of the balancing exercise: Lai Hoi Ping v Persons Occupying Portions of Nathan Road (HCMP 2975/2014,[2014] HKEC 1888; 15 November 2014), [10] per Cheung CJHC.”

9.  In Abbot GmbH & Co KG v Pharmareg Consulting Co Ltd [2009] 3 HKLRD 524, Sakhrani J at §§20 – 24 held:

“ 20.   The defendants relied on the statement in Hong Kong CivilProcedure 2009, Vol.1 p.545 para.29/1/18 that where the grantingof an injunction would effectively dispose of the entire action, theplaintiff had to show “at least a high likelihood of success at trial”.  

21.   Mr Yan SC, for the plaintiff, submitted, rightly in my view, that the cases cited do not support that proposition.

22.   In Lansing Linde Ltd v Kerr [1991] 1 WLR 251, a restraint of trade case, it was held that in determining whether or not, on the balance of convenience, to grant an injunction the Judge hadproperly taken account of the plaintiff’s prospect of success at trialhaving regard to the fact that it would not be possible to hold a trial before the period for which the plaintiff claimed to be entitled to an injunction had expired or substantially expired. It was not enough to decide merely that there was a serious issue to be tried.

23.   Staughton LJ said at p.258:

If it will not be possible to hold a trial before the period for which the plaintiff claims to be entitled to an injunction has expired, or substantially expired, it seems to me that justice requires some consideration as to whether the plaintiff would be likely to succeed at a trial.  (Emphasis added)

24.   Staughton LJ did not say the plaintiff would have to show at least a high likelihood of success. All that is required is ‘some consideration’ as to whether the plaintiff would be likely to succeed at trial.”

10.  Thirdly, the burden rests on an applicant to adduce prime facieevidence to prove at least the existence of documents he or she requested for and that such documents are in the possession, custody, power or control of the respondent.  It is not for the respondent to prove a negative.

OUTSTANDING CLASSES OF DOCUMENTS

11.  The Plaintiff in its draft order asked for documents in relation to breakdown of payroll to staff (in terms of costs and processing charges)by individual buildings for the financial years ended 31 March 2016, 2017, 2018 and the months from April 2018 to September 2018.

12.  First, I agree with Ms Tam for the 1^st Defendant that this class of document is not asked for in the Summons.  Although processing charges is referred to in Class (j), it is not clear to me that it is the same as when it is now specifically referenced to payroll to staff.  There were no proposed amendments to the Summons.  The duty is on the Plaintiff to set out precisely what it wants in its Summons.

13.  Mr Kwong for the Plaintiff submitted that the request for the breakdown of payroll to staff is in fact incorporated in the request for Class (i) documents, namely, the breakdown of revenue and costs by individual buildings.  I presume he proceeded on the basis that the breakdown of costs by individual buildings would have included the breakdown of payroll to staff.  However, even if there is evidence that there is a breakdown of revenue and costs by individual buildings which is denied by the 1^st Defendant, it is not clear to me that such document would necessarily have included a breakdown of payroll to staff.

14.  Secondly, this court has to be satisfied that this class of documents exists.  Fundamentally, the Plaintiff is asking for a separate and specific document which sets out the breakdown of payroll to staff (in terms of costs and processing charges).  There is no evidence before thiscourt that such document exists.  I agree with Ms Tam, for the 1^st Defendant, that the court cannot order the Defendants to create a document which does not exist for the Plaintiff.

15.  Mr Kwong referred the court to an email dated 23 March 2018from Peter Lee, an external provider of accounting services to the Plaintiff company, to a staff of the Plaintiff company named Carol in which reference was made to “Po Yip Building Monthly Reconciliation Table ‘每月對數表’”).  Mr Kwong submitted that this Monthly Reconciliation Table “每月對數表” would contain breakdown of revenue, costs and processing charges by individual buildings.  Mr Kwong might well be correct.  However, there is no positive evidence from the Plaintiff that this Monthly Reconciliation Table “每月對數表” would have contained documents now requested in the draft Order.  The Plaintiff could have simply asked for the inspection of this Monthly Reconciliation Table “每月對數表” in relation to each individual building, but it did not do so.  If the Plaintiff asks for this Monthly Reconciliation Table “每月對數表” of each individual building, there is no reason why it would not get it as it is the company’s own document.

16.  Mr Kwong also referred this court to an email dated 4 October2018 from Triscta Chau, a director of the Plaintiff, to Peter Lee which stated:  

“ Please provide the following information:

For the year: 2016, 2017, 2018, April–Sept 2018:

– BS

– P&L

– Ledger

– Bank statement

– Bank Rec

– BS item breakdown

– Income breakdown by building

– Processing charge breakdown by building

– Audit adjustment list

– Tax computation”

17.  Mr Kwong submitted that there was no reply from the Defendants to say that such documents do not exist.  If there were no suchdocuments, it would have been simple for the Defendants to simply say sobut they chose not to.  That is correct.  However, to be fair, in the said email, Triscta Chau was asking for information not documents.  Ms Tam is right that information of the same are contained in the general ledgers which have since been provided.  Mr Kwong submitted that it is very difficult to gather the requested information from the general ledgers.  I am of the view that, difficult or not, it is up to the Plaintiff company to instruct its professional accountants to prepare such analysis if so required.  The court simply cannot order the Defendants to deliver up documents which,prima facie, do not exist.

18.  Hence, in the absence of concrete evidence that such documents exist, I am of the view that it is not right to grant an injunction order on this specific class of documents against the Defendants.  

19.  Thirdly, as a matter of discretion, given that (1) the availability of the Monthly Reconciliation Table “每月對數表”, (2) the availability of the general ledgers and (3) the uncertainty, to put it neutrally, as to the existence of this class of documents, this court will not accede to the Plaintiff’s request for this class of documents.

20.  Finally, Mr Kwong submitted that if the Defendants do not havesuch documents, it would have been simple for them to file an affirmationto confirm the same.  There was a debate as to whether the use of the word“we” in Mr Peter Lee’s affirmation referred to the Defendants or not.  I am of the view that that is putting the cart before the horse.  The burden is on the Plaintiff to demonstrate to the court that the relevant class of documents exists and they are in the Defendants’ possession, custody, power and control.

21.  The above reasoning applies equally to the requested documents in classes (o), (p) and (q).  Paragraph 37 of the 1^st Defendant’s affirmation positively stated that:

“ … They also know the Defendants do not have those documentsunder items (i), (j), (o), (p), (q) and (r) as requested in the Plaintiff’sSummons filed herein.” (Emphasis added)

22.  Whether the Plaintiff’s other directors should have known is a different matter, but the 1^st Defendant has, on oath, positively confirmed that the Defendants do not have documents under classes (i), (j), (o), (p), (q)and (r) as requested in the Summons.  I am of the view that this is the end of the matter.  This is as good as any affirmation that the Plaintiff could get.

23.  Mr Kwong submitted that a large company like the Plaintiff should have profit or loss projections and cash flow projections.  Again, this court cannot speculate.

24.  Mr Kwong further submitted that it was only on 30 November2018 that the 1^stDefendant in her affirmation confirmed that the Defendantsdo not have such documents.  However, this is a matter of costs which will be analysed later in this judgment.

25.  Finally, in relation to class (n) documents, they were provided at the latest on 20 December 2018.  Mr Kwong asked for the originals.  I accept Ms Tam’s submission that the originals of the employer’s returns were filed with the Inland Revenue Department.  As to what the Plaintiff company would like to do with its concerns about the alleged discrepanciesin the said employer’s returns, it is a matter entirely for the Plaintiff company.  

26.  For the above reasons, I make no order on the outstanding classes of documents as set out in the Summons.

COSTS

27.  The main bone of contention in this hearing is really costs.  This is regrettable because with the clear and uncontroversial legal principles, there should not be any substantial dispute as to the Plaintiff company’s right to have majority of the documents requested in the Summons.  Mr Kwong’s submission is very simple.  The Plaintiff company has to come to court in order to get most of the documents and indeed obtained most of the documents after the call-over hearing, so the Plaintiff is entitled to its costs.

28.  Ms Tam on behalf of the 1^st Defendant advanced four main arguments:

   (1)   As to the documents which do exist (primarily comprising of financial statements, ledgers, balance sheets and supporting documentation), such documents have all along been available to the Plaintiff.

   (2)   Insofar as the documents supplied which were said to be incomplete or inadequate, the Plaintiff did not follow up with further requests for more documents.

   (3)   There were no requests in relation to some classes of documents and in any event there was no letter before action;

   (4)   The 1^st Defendant did not and does not personally handle the operational tasks of storage of documents and book-keeping. Those were and are handled by the Plaintiff’s staff, in particular the accounting department and accounting consultant. Insofar the Plaintiff complained that the staff or the accounting consultant did not respond with sufficient speed or comprehensiveness, or should have compiled information in documents which had previously not been compiled, that constitutes a different cause of action altogether.

29.  Mr Law for the 2^nd Defendant’s main argument is that the 2^nd Defendant does not have possession or custody of the requested documents.  He also very fairly dropped the objection based on want of authority on the part of the Plaintiff to issue the Summons.

30.  In order to determine the issue of costs, it is necessary to understand how this current dispute arose.

Material facts

31.  The Plaintiff is a limited liability company incorporated on 4 May 1998 in Hong Kong.  At all material times it carried and is still carrying on the business of properties management.  The 1^st and 2^nd Defendants were and are, at all material times, shareholders and directors of the Plaintiff since its incorporation.

32.  In or about end of May 2018, the 1^st and 2^nd Defendants sold a total of 49.06% of their shareholdings in the Plaintiff to King Victory Investment Limited (“King Victory”).

33.  After King Victory became a shareholder of the Plaintiff, Mr Ko Chun Hay Kelvin (“Kelvin Ko”), Mr Woo See Shing also known asLouis Woo (“Louis Woo”) and Chau Chui Fan also known as Triscta Chau(“Triscta Chau”) were appointed as directors of the Plaintiff on 31 May 2018.  So currently, the Plaintiff has five directors, the 1^st and 2^nd Defendants, Kelvin Ko, Louis Woo and Triscta Chau.

34.  The Plaintiff’s case is that the new and majority directors then started to request for inspection of the books and records of the Plaintiff.  Paragraph 11 of the 1^st Affirmation of Triscta Chau stated:

“ … There were repeated verbal requests from the board of the Company made to Karen Ng and K.C. Yuen from the Company to access books and records of the Company but no positive reply from Karen Ng and K.C. Yuen at all.”

35.  On 29 September 2018, King Victory issued a letter to the 1^st Defendant and it stated, inter alia, that:

“ 1. You have in several occasions rejected or obstructed our appointed directors, Ms Triscta Chau, to gain access to the books, accounts and records of Unimax. You have also instructed Unimax’s accountant, Mr. Peter Lee to withhold accounting and financial information of Unimax from our appointed directors.

2. You have adopted a hostile and unreasonable attitude to our appointed directors and have shown disrespect to the board of directors of Unimax. You have jointly with Mr KC Yuen to disregard agendas nor notices of directors’ meetings, and have not turned up at directors’ meetings. On one occasion, you said that you had to attend a dental appointment for checking up and did not have time for the preparation of required documents for directors’ meeting.

3. When our appointed director with her assistant asked for vital accounting and financial information from you. You rejected such requests without giving a proper reason.

…

9. In order to avoid Unimax going into confusion or a downturn,our appointed directors have made some constructive proposals. You have jointly with Mr KC Yuen to reject such a proposal rudely,emotionally and without giving any reason ….

We are looking forward for your cooperation in all matters on Unimax.  Such you continue to act unreasonably, we have no alternative but to consider taking Court proceedings to safeguard our lawful interest.”

36.  There was no reply from the 1^st Defendant to the said letter.

37.  It is the Plaintiff’s case that on 3 October 2018, Triscta Chau together with her assistant on behalf of the Plaintiff company went to the Plaintiff’s office to access its books and records but was denied of such access.

38.  On 4 October 2018, Triscta Chau issued an email to the 1^st Defendant and stated that:

“ As you know, I together with my assistant, want to assess the books and records of Unimax on yesterday morning, 3 October 2018. However, I have received the following experience during the morning in our office:

1) The staff has, under your instructions, not entertained me toassess the relevant records. She asked me to contact Nancy Kao.

2) When Nancy Kao received our requested records list, she heldup my requested list. Then, after about 1.5 hours, she under your instructions, left office without giving me any reply. I trust that her attitude is rude and impolite.

3) You told me that you and the staff are busy at the moment. You also promise to provide our requested documents on Monday, 8 October 2018. I left the office because of your confirmation.

Please note that I will come to office on 9:30 am Monday, 8 October 2018 to assess our requested records.

Please also note that I will come to office tomorrow morning to assess the accounting books and records.”

39.  On 5 October 2018, Triscta Chau issued yet another email to the 1^st Defendant and stated that:

“ As you know, I will arrive office to assess the books and records ofUnimax on today morning, 5 October 2018. You are not in office in this morning. Nancy Kao approached us for our purpose to attend and she told me that she is busy. I told her that I can approach the relevant staff to collect the relevant documents and will not disturb her work. After about 45 minutes though, to my surprise, she comes back to me that the documents have been kept in warehouse.

Further to my request in yesterday, I hereby give you a written request to provide the following additional documents by next Monday morning:

– ledger of 2016/2017/2018 together with bank statements for the periods

– income breakdown by buildings

– account receivables and account payables breakdown for the above period;

– annual Employer’s Return (BIR56A and IR56B) in 2016, 2017 and 2018;

– staff list by building;

–   total headcount as at 30/9/2018.”

40.  On the same day, the 1^st Defendant replied to Triscta Chau and simply stated that “you tell lie” to which Triscta Chau replied on 8 October 2018 to refute the 1^st Defendant’s allegation.  On 8 October 2018, the 1^st Defendant replied by email and stated:

“ I demand your apologies

‘You were avoiding your responsibilities’

My responsibility? To check the accounts? again and again? And give the so call accounting information to Triscta, Perry, Peter Li ….

Who else will come?

We have been busy bidding the tender and now taking over the security management of the estates.

We have been working over Sunday and Public Holiday.”

41.  Also on 8 October 2018, Triscta Chau replied by email and stated that:

“ It is the Board’s decision to gain access of books and records and the right of the Director. As you are busy to bid tenders etc, the operation, you should leave all the books and records for our checking without disturbing your daily work. However, your response is strange.

I must tell all Directors that you have expressly rejected my requestto gain access of the books and records of Unimax, when I arrive at our office with my assistant Perry Wong in today’s morning. Thus, I have failed to perform my assigned duties by the Board and my legal right as well, with your express rejection.”

42.  On 10 October 2018, Louis Woo issued an email to the 1^st Defendant and copied to all directors of the Plaintiff including the 2^nd Defendant.  The said email stated that:

“ Please kindly understand that without any information from you,we cannot make any comment and understanding about Unimax’s business and latest situation. It is definitely impacted Unimax business development and daily operations. Your verbal presentation and update without solid figure could not satisfy us and limited our understanding. Please kindly do not put anything in personal. As per one of Unimax’s director, we have responsibility to understanding and make the best decision to Unimax based on the sufficient and latest accuracy date and information. All your effort on it should be very important for us to judge the coming company business and operation directions. We are looking for your support to provide the related information as per Triscta requested below.

– ledger of 2016/2017/2018 together with bank statements for the periods

– income breakdown by buildings

– account receivables and account payables breakdown for the above period;

– annual Employer’s Return (BIR56A and IR56B) in 2016,2017 and 2018;

– staff list by building;

– total headcount as at 30/9/2018.

It would be appreciated that you could ready those requested information by tomorrow 4.30 pm. I will arrive the Unimax’s office with my assistant to collect the above informations for our understanding and study.

Besides, since the board of directors meeting has been changed many times and the outstanding issue became a critical factor for the company now.  I would like to recommend keeping the original schedule for the board of director meeting at 1430, Friday, 12 October 2018 in Unimax’s office, Central.”

43.  On 10 October 2018, the 1^st Defendant sent an email to all other directors of the Plaintiff and stated that:

“ It is not necessary to submit any historical information before April 2018 and we will not do that anymore. I believe its not necessary to have any board meeting, instead shareholders need tosit down and sort out the problems and misunderstanding, if any.

I am very uncomfortable being accused of not performing well after working so hard for bidding new business and taking over new security management of estates.

Maybe Mr Ko or King Victory can buy all my shares and run the management company in his own way.” (Emphasis added)

44.  I agree with Mr Kwong that this email does show that the 1^st Defendant was refusing access to the Plaintiff’s books and records to which she has, at least, power and control.

45.  On the same day, the 2^nd Defendant also sent out an email which stated that:

“ In view of the confrontation and negative sentiments aroused among a few directors and the operation team regarding the requested financial information, I would like to express my observation as follows:

a. The directors of the new management have the right to gain access to the financial information before the changeover of share entitlement and management is beyond doubt. Nevertheless, the request for financial information before the changeover date ie April 2018 is far beyond the power of the present directors.

b. There isn’t any formal request being made to previous management.

c. The request was wrongly addressed to the operation team for financial information prior to the changeover date.

d. If the request was made to Karen with the hat of previous management, the request was made in a rude manner without respect.

There is an urgent need to understand our role and re-adjust ourselves as directors of the New management. Otherwise Unimax will be destroyed in our own hands.” (Emphasis added)

46.  Paragraph a of the 2^nd Defendant’s said email does not makessense unless there was a typo, i.e., the word “before” should read as “after”. Be that as it may, I agree with Mr Kwong that this email does show that the 2^nd Defendant did not agree to allow for inspection of books and records prior to the changeover, namely, April 2018.

47.  On 12 October 2018, Kelvin Ko issued the following email to all directors of the Plaintiff and addressed to the 2^nd Defendant. The said email stated that:

“ It is my duty as one of the directors of Unimax to remind you that it is the rights and duties of all directors of Unimax to have access, to inspect and to review ALL the accounting records of Unmax, whenever they were complied. The accounting records are the properties of Unimax, not personal properties of yourself nor Madam Karen Ng.

The confrontational and negative sentiments were originated from the fact that both you and Karen Ng have been wrongfully holding back accounting records from the other directors.

You would appreciate that the inspection and review of accountingrecords of Unimax is necessary for the benefit of the company as a whole for accounting, profit and cashflow forecast and policy formulation.

The day-to-day management team of Unimax has remained in both the hands of you and Karen Ng in the past 20 years.

Unless both of you have some unspeakable reasons, there is no reason for so called ‘negative sentiments’, or even be confrontational.

My communication has been polite and sensible. The outbreak of rage from Karen was a manner of her own. You should know better, as you have been working with her for such a long time.

The role and duties of a director of any company are clearly stated in law. I am fully aware of that, I hope you also do.

I want to see development and prosperity of Unimax and I have a duty to safeguard the interest of the all the shareholders.  I hope that Unimax will not be destroyed in the hands of wrongdoers.”

48.  On the same day, Kelvin Ko also issued the following email to all directors of the Plaintiff but addressed to the 1^st Defendant.  The said email stated that:

“ I trust that duties of a director to a company has been clearly stated in my email to Mr KC Yuen today and repeat the same. I hope you could cooperate with other directors of the Company to advance the interest and benefit of the Company.

The Company has been managed by the board of directors since its incorporation. I do not agree to your view that the meeting of board of directors is not necessary.

Due to your failure to supply to books and records of the Company despite of repeated requests and demand, other directors have been in a difficult position to assess the Company’s performance and formulate the Company’s future strategy and development. Such failure is not in the interest and benefit of the Company. The dissatisfaction of your performance by other directors was based on objective standard and facts. In coming days, I hope you may change your attitude, to consider the interest and benefit of the Company as priority, to cooperate with other directors of the Company and to comply with the decision of the Board.

We may consider your proposal of disposing your shares in the Company at a proper valuation.”

49.  On 22 October 2018, there was a board meeting to which the 1^st and 2^nd Defendants did not attend.  A resolution was passed in the said meeting in the following terms:

“ The Company hereby request Madam Ng Lai Ching and Mr. YuenKwok Cheung do forthwith open, make available and allow all theCompany’s books, records and accounting records to be providedto the Board in the next 5 days, which can be inspected and madecopy by anyone of the directors of the Company, and confirm to the availability of the books and records and accounting records to all of the directors of the Company on or before 27^th October 2018. A list of books and records and accounting records that are required are attached with this minutes.”

50.  On 24 October 2018, the new and majority directors further issued a notice of inspection of books of the Plaintiff and served the same on the 1^st and 2^nd Defendants.  The said notice stated, inter alia, that:

“ Despite all of us became directors of the Company since May 2018, we have been denied access to the books and records of the Company notwithstanding our repeatedly requests and demands from late August 2018 up to now. It is unequivocal to the boardof directors of the Company when K.C. Yuen issued an email to all of us on 10 October 2018 expressly stating that both Karen Ng and K.C. Yuen would not provide the copy of with financial information to us prior to April 2018.

…

We, as directors of the Company are now exercising our right to request you, Karen Ng and KC Yuen to open the Company’s accounting record for our inspection on 29 October 2018 at 9:30 a.m. in the registered office of the Company in accordance with s.374(1)(b) of the Companies Ordinance.”

51.  What happened according to what is stated in the 2^nd Affirmation of Triscta Chau was that:

“ 5. On 29 October 2018, Kelvin Ko together with his two assistants attended the registered office of the Company at 9:35 a.m. expecting to have inspection of the books and accounts of the Company pursuant to the Notice of Inspection. He met Nancy Kao at the office but the reply from Nancy Kao was that Karen Ng had not left as book any records of the Company for his inspection. Further, Nancy Kao informed Kelvin Ko that she had no instructions from Karen Ng to handle the matter in relation to our requests for inspection of books and records. Kelvin Ko left the Company’s office at or about 9:50 a.m. on that day upon further refusal of inspection of books and records by Karen Ng.”

52.  The meeting notes prepared by Kelvin Ko stated, inter alia, that:

“ 3. One Nancy Kao met me and confirmed that both Karen Ng and KC Yuen were not in the office. She rang Karen Ng in front of us.

4. After the call with Karen Ng, Nancy Kao confirmed me that Karen Ng did not have leave any books and records for us nor she instructed her to give us any books and records of Unimax for our inspection.

5. Nancy Kao only passed the message of Karen Ng that she is waiting for the reply of Kelvin Ko for meeting on the coming Tuesday. I told Nancy Kao that our Company will reply Karen Ng or her legal adviser about the meeting arrangement.

6. I also instructed Nancy Kao to tell Karen Ng that we haveproper notice to Karen Ng to provide books and records of Unimax to us on today.  If she insisted to hold up the books and records,we would pass the case to our Company.  Nancy Kao repeated thatshe has no instructions to provide any documents to us.  As such,we left the registered office of Unimax on or about 9:50 am.”

53.  It was against such background that the Plaintiff issued the Writ of Summons and the Summons on 1 November 2018.

54.  From the letter dated 27 December 2018 from the Plaintiff’s solicitors to this court attaching to it a transcript of the call-over hearing on 9 November 2018 before Deputy High Court Judge Leung, it does appear that the Writ of Summons and the Summons were served, inter alia, at the registered office of the Plaintiff and the 1^st Defendant got possession of the same on 2 November 2018.

55.  It is regrettable that such a simple application by a company toinspect its own books and records was opposed by the 1^st and 2^nd Defendants at the call-over hearing before Deputy High Court Judge Leung.

ANALYSIS

The 1^st Defendant’s grounds of objection

56.  First, Ms Tam for the 1^st Defendant submitted that there was nopre-action letter and that the classes of documents as set out in the Summons were not precisely the same as those that were previously requested for.  She submitted that had there been a letter before action, there might not have been any action at all.

57.  I am not convinced that this submission is correct.  The notice to inspect issued by the new and majority directors set out clearly the specific request to inspect the books and records of the Plaintiff generally.  I do not see how a pre-action letter could have added anything to the notice to inspect.  Further, in the notice to convene a directors’ meeting dated 22 October 2018, it was specifically stated that:

“ To consider the steps to protect the rights of the Company and the directors against wrongdoers in relation to keeping books and records of the Company privately in contravention of the laws of Hong Kong and to resolve necessary actions to be taken against the wrongdoers.”

58.  There is no dispute that the said notice to convene a directors’meeting was served on both the 1^st and 2^nd Defendants.

59.  Hence, it is rather disingenuous for the 1^st Defendant to suggest that had she received a letter before action, the present action would not have been necessary.

60.  Similarly, I do not think there is much force in the submissionthat there are some discrepancies between the requests previously made inthe emails and the terms of the Summons.  It is a very basic legal principle that a company can demand its directors to allow it to have full access to its own books and documents generally.

61.  I also bear in mind that the 1^st Defendant had already had noticeof the Summons on 2 November 2018 and yet she chose to file substantive affirmation and evidence in opposition to the Summons.  There is also no dispute that the employers’ returns were only delivered to the Plaintiff’s solicitors at the earliest on 26 November 2018.

62.  Ms Tam’s argument will have force if the 1^st Defendant agreed to allow the Plaintiff to have full access and inspection of its books and records immediately after the Summons was served.  The fact that the Summons was defended substantively makes the requirement of a letter before action otiose.

63.  Secondly, Ms Tam submitted that some of the documents were actually delivered by Peter Lee, the external accounting consultant of the Plaintiff, and if the Plaintiff considered that they were incomplete, the Plaintiff should have followed up with further requests which it failed to do so.  Mr Kwong, for the Plaintiff agreed that some documents were actually delivered.  In a schedule entitled “Master Table for Items sought in Summons and Date of Receipt by the Plaintiff” helpfully prepared by Mr Kwong, it can be seen that:

   (1)   For Class (a) documents, partial documents were obtained in March 2018 by King Victory and all outstanding documents were finally obtained in the 2^nd post-writ visit on 26 November 2018;

   (2)   For Class (b), (c), (f), (m) and (r) documents, they were finally obtained in the 2^nd post-writ visit on 26 November 2018;

   (3)   For Class (d) documents, partial documents were obtained in August and September 2018 and all outstanding documents were finally obtained in the 2^nd post-writ visit on 26 November 2018;

   (4)   For Class (e) documents, partial documents were obtained in March 2018 by King Victory and June to July 2018 by the Plaintiff. All outstanding documents were finally obtained in the 2^nd post-writ visit on 26 November 2018;

   (5)   For Class (g) documents, partial documents were obtained in July 2018 by the Plaintiff.  All outstanding documents were finally obtained in the 2^nd post-writ visit on 26 November 2018;

   (6)   For Class (h) documents, partial documents were obtained in May by King Victory and in July to September 2018 by the Plaintiff.  All outstanding documents were finally obtained in the 1^st post-writ visit on 19 November 2018;

   (7)   For Class (k) documents, audited adjustments for 2016 and 2017 were obtained by King Victory.  All outstanding documents were finally obtained in the 2^nd post-writ visit on 26 November 2018;

   (8)   For Class (l) documents, draft profit tax computation for 2016 was obtained by King Victory.  All outstanding documents were finally obtained in the 1^st post-writ visit on 19 November 2018;

   (9)   For Class (s) documents, only draft management account was provided in August to October 2018 to the Plaintiff.  All outstanding documents were finally obtained in the 1^st post-writ visit on 19 November 2018.

64.  Mr Kwong’s submitted that the Plaintiff had to undergo a very painful and long process in order to have access to the documents which the Plaintiff is, as a matter of law, entitled to.  In view of the above facts as set out by the Plaintiff, I agree that the Plaintiff has established a very strong prima facie case that it has been wrongly denied of access to its own books and records.

65.  I am of the view that it is incorrect for the 1^st Defendant to complain that there were no follow up emails from the Plaintiff chasing for outstanding documents.  The burden falls squarely on the 1^stDefendant to provide full and unobstructed access of the same to the Plaintiff.

66.  Thirdly, from the contemporaneous documentary evidence, I am satisfied that contrary to the 1^st Defendant’s affirmation evidence and submission that all such documents have all along been available to the Plaintiff and those documents have been accessed by Triscta Chau, Louis Woo and Kelvin Ko, the Plaintiff has established a strong prime face case that its access to its own books and records had been wrongly denied by the1^stDefendant. 

67.  Mr Kwong submitted that in the email correspondences, there was never a positive confirmation that the 1^st and 2^nd Defendants would provide access to the Plaintiff’s books and records.  He also pointed out that the documents obtained by King Victory in March 2018 were only partial documents that it obtained in the process of the due diligence exercise for its purchase of the 1^st and 2^nd Defendants’ shares.  I am of the view that, on the existing evidence, the Plaintiff has satisfied this court that it would be likely to succeed at trial.

68.  Indeed, I am of the view that there is force in Mr Kwong’s submission that if indeed the Plaintiff has had full access to its books and records as alleged, there would not be any need for it to make the present application. 

69.  Fourthly, the 1^st Defendant submitted that she did not and does not personally handle the operational tasks of storage of documents and book-keeping.  Those were and are handled by the Plaintiff’s staff, in particular the accounting department and accounting consultant.  Insofar the Plaintiff complains that the staff or the accounting consultant did not respond with sufficient speed or comprehensiveness, or should have compiled information in documents which had previously not been compiled,that constitutes a different cause of action altogether.

70.  I have no difficulties in rejecting this submission.  From the evidence, it does appear that the staff of the Plaintiff dutifully followed theinstructions of the 1^stDefendant.  Nancy Kao is the sister of the 1^st Defendant.  I do not think it is correct to shift the blame onto the staff of the Plaintiff.  There is strong prima facie evidence that the 1^st Defendant does have power and control of the Plaintiff’s books and records.

The 2^nd Defendant’s grounds of objection

71.  Mr Law for the 2^nd Defendant very sensibly and fairly did not pursue the point of want of authority by the Plaintiff in view of the board resolution dated 22 October 2018.

72.  The 2^nd Defendant’s main ground of objection is that he was an inactive director of the Plaintiff and he had no involvement in the preparation of books and accounts of the Plaintiff. In his letter dated 25 October 2018, he stated that:

“ My understanding of my involvement in Unimax is providing technical advice with respect to buildings related issues. I have taken up this role and being remunerated since the incorporation of the company up to the present moment.”

73.  Mr Law relied on the case of Thunder Air Limited v Hilmarsson[2008] EWHC 355 and submitted that as a matter of general law, directors of a company do not ipso facto have possession or control of its assets (§36).  However, I am of the view that the case of Thunder Air Limited v Hilmarsson is distinguishable.  First, the cause of action in that case was conversion.  In the present case, the Plaintiff was simply asking for access to its own books and records.  The Plaintiff does not have to prove possession and custody by the 2^nd Defendant personally. Secondly, a key issue in that case was the meaning of control.  Patten J at §33 said:

“ There is no doubt that Mr Hilmarsson was able to direct Avijet’s staff to produce the material referred to in the order but it does not follow from this that the documents can be said to have been in his control at the time of the demand, or indeed at any time when they were also in the possession of Avijet. Control in the context of ss.3 and 4 of the 1977 Act means control of the goods. Under normal circumstances this is co-extensive with possession but if goods are handed by the Defendant to a nominee (e.g. a bank or storage facility) to hold them on his behalf and to his order, then they clearly remain under his control notwithstanding the absence of physical possession.”

74.  On the facts of the present case, the 2^nd Defendant only deposed that he does not have possession or custody of the Plaintiff’s books and records which must be right.  It will be rare for a director of a company to have physical possession or custody of the company’s books and records personally.  The real issue is that he has power and control as a director to allow the Plaintiff to have access to its books and records.  The 2^nd Defendant is also a founding shareholder and director of the Plaintiff.

75.  I agree with Mr Kwong that by the 2^nd Defendant’s email dated 10 October 2018, the 2^nd Defendant wrongly drew a line that no access would be allowed for pre-changeover documents.  That is certainly wrong as a matter of law.

76.  I also agree with Mr Kwong that the section on King Victory’sbreach of Clause 7.11 of the Share Transfer Agreement in the 2^ndDefendant’s affirmation is irrelevant for the purposes of this hearing.

CONCLUSION

77.  For all the reasons stated above, I am of the view that there is a strong prima facie case that the Plaintiff had been denied of access to its own books and records and the Plaintiff is likely to succeed at trial.  As the Plaintiff has a legal right to its own books and records, I do not find it is necessary for this court to consider the issue of balance of convenience.

78.  Suffice it to say that, save for classes (i), (j), (o), (p) and (q), this court would have granted the injunction sought by the Plaintiff but forthe substantive compliance of the terms of the Summons prior to this hearing.

DISPOSITION

79.  I make no order in terms of paragraph 1 of the Summons.

80.  As for the costs of the Summons including the costs of this hearing, I make an order nisi that the Plaintiff is to have 80% of its costs of and occasioned by the application and to be paid by the 1^st and 2^nd Defendants jointly and severally, on a party to party basis, with certificate for one counsel, to be taxed if not agreed.  The deduction of 20% is to reflect this court’s refusal to grant an injunction in terms of paragraph 1(i), (j), (o), (p) and (q) of the Summons.

81.  The above costs order nisi will be made absolute within 14 days from the date hereof unless the parties take out an application to vary the same within the 14-day period.

82.  Finally, it remains for me to thank Mr Kwong and Ms Wong for the Plaintiff, Ms Tam for the 1^st Defendant and Mr Law for the 2^nd Defendant for their helpful assistance rendered to this court.