NEW SHIPPING LTD v. LAU WING YAN

HCA 1280/2018

[2020] HKCFI 2933

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1280 OF 2018

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DECISION

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INTRODUCTION

1.  This is an appeal by the Defendant against the Order of Master Winnie Tsui made on 8 April 2020 (the “Order”) whereby (1) the Defendant’s Summons for discovery dated 5 November 2019 (the “Discovery Summons”) was dismissed; and (b) the Plaintiff’s Summons dated 5 December 2019 for withdrawal of certain interrogatories without leave served by the Defendant (the “Interrogatories Summons”) was allowed.

2.  Mr Victor Joffe (together with Ms Jacqueline Law) appeared on behalf the Defendant and Ms Queenie Lau (together with Ms Shenna Wong) appeared on behalf of the Plaintiff.

BACKGROUND

3.  The appeal herein is just an episode in a series of litigations involving the Defendant and the Plaintiff (and parties related to the Plaintiff) across a few jurisdictions.  By a Writ of Summons dated 1 June 2018, the Plaintiff claims damages arising from various defamatory statements published by the Defendant on divers dates (between 18 September 2017 and 7 March 2018) to various business counterparts of the Plaintiff. 

4.  By way of defence, the Defendant has pleaded that even if the published words were defamatory, they were substantially true and hence the publications were justified.  Further, the Defendant contends that the publications were made on privileged occasions.

The Two Vessels

5.  On the Plaintiff’s case, at the material times of the publications, it was the bareboat charterer and the “commercial operator and manager” of the two dry bulk cargo vessels (the “Vessels”), namely MV New Prestige (ex MV BBG Hope) and MV Honor (ex MV BBG Glory).  The Vessels were chartered from the Plaintiff’s own “trading arm” companies, namely, New Prestige Company Limited (“NPCL”) and New Glory Group Limited (“NGGL”) on 20 August 2017.

6.  In turn, NPCL and NGGL had chartered the Vessels back-to-back from Victory Sail Investment Limited (“Victory Sail”) and Plain Sail Holding Limited (“Plain Sail”).  The series of proforma charterparties (under the STANDARD BAREBOAT CHARTER CODE – BARECON 2001 published by BIMCO[1]) has been discovered but with some parts redacted.  Therefore, information such as the charter period(s) is unclear at this stage. 

7.  Although the relevant company searches have not been put before the Court, it is discernible from the charterparties that the Plaintiff, NPCL and NGGL are all companies incorporated in Hong Kong. Both Victory Sail and Plain Sail were incorporated in the British Virgin Islands (BVI) on 28 July 2017[2] and they were not registered as overseas companies in Hong Kong until 11 October 2019[3]. 

8.  It is beyond dispute that Victory Sail and Plain Sail became the registered owner of the Vessels on or about 15 August 2017 (ie date of the Bills of Sale[4]). Shortly before the series of chartering of the Vessels as aforesaid, Victory Sail and Plain Sail purchased the Vessels (then under the names of MV BBG Hope and MV BBG Glory) from their previous owners. Upon completion of the purchase, the Vessels were renamed MV New Prestige and MV New Honor respectively. 

9.  At the same time, the flag administration of the Vessels was changed from HKSAR to Panama.  The Protection and Indemnity Club (P&I Club) of the Vessels was changed from Britannia to Assuranceforeningen Skuld (Gjensidig), also known as “Skuld”, established in Norway. 

The Corporate Structure

10.  To complete the background, the Defendant and one Mr Chu Kong (“Mr Chu”) each owns 50% of the shares in Ocean Sino Limited, a BVI company (“Ocean Sino”). 

11.  Ocean Sino wholly owns PBM Asset Management Limited (“PBM”), a Hong Kong company, which owns 49% of the shares in Beibu Gulf Holding (Hong Kong) Co, Limited (“BBGOS”).  BBGOS has since been renamed BGA Holdings Limited (“BGAH”) in the circumstances described at paragraph 21 hereinbelow. 

12.  The other 51% interest BBGOS was held by a state-owned enterprise under the administration of and/or associated with the Guangxi Provincial Government in the PRC (the “Guangxi entity”).  In turn, BBGOS wholly owned :

(1)  The Palace Limited (“Palace”), which owned Hope BBG Shipping Limited (“BBG Hope Ltd”), the former owner of the MV BBG Hope;

(2)  Shining Centre Limited (“Shining”), which owned Glory BBG Shipping Limited (“BBG Glory Ltd”), the former owner of the MV BBG Glory.

13.  Further, up to about 23 May 2016[5], BBGOS wholly owned:

(1)  Beibu Gulf Shipping Limited (“BBG Shipping”), a Hong Kong company, which operated a vessel chartering business as part of the BBGOS group of companies;

(2)  Beibu Gulf Resources Limited (“BBG Resources”), another Hong Kong company, which operated a trading business as part of the BBGOS group of companies. 

14.  These four (direct and indirect) subsidiaries of BBGOS, namely Palace, Shining, BBG Hope Ltd and BBG Glory Ltd, will be referred to as the “BBGOS Subsidiaries”.

15.  In about August 2010, at the inception of the business of the BBGOS group of companies, PBM injected USD36,298,272 into BBGOS by way of shareholder’s loan.  Likewise, the Guanxi entity injected USD37,779,833.24 into BBGOS.  Of these 2 shareholders’ loans, a sum of USD46M was earmarked for the construction of 6 dry bulk carriers and the remainder of the construction costs was funded by a loan from Credit Suisse AG.  In the end, only 4 such carriers were constructed[6] (ie MV BBG Hope, MV BBG Glory and two sister ships).

16.  Since about 2015, the Defendant and Mr Chu have fallen out.  In a board meeting of BBGOS held on 15 December 2015, an agreement in principle was reached for PBM to repurchase two of the 4 vessels (ie MV BBG Hope and MV BBG Glory).  Likewise, it was agreed that the Guangxi entity could repurchase the remaining two vessels.  It would appear that the repurchase of two vessels by the Guangxi entity was effected with nothing untoward and it dropped out of the picture thereafter.  However, it is unknown whether and how the Guangxi entity disposed of its 51% shareholding in BBGOS (see Paragraph 18 hereinbelow). 

17.  In order to repurchase the Vessels, PBM had to come up with the money to discharge the Credit Suisse loan (or the relevant part thereof).  The Defendant asserted that all along there was enough asset in PBM to proceed with the repurchase.  However, at a board meeting of PBM held on 14 January 2016, Mr Chu claimed that a further sum of USD18M was necessary for the repurchase to be completed.

18.  On the Defendant’s case, Mr Chu engineered a scheme to oust him from his directorship on the board of BBGOS.  In January 2016, Mr Chu caused 51% shares in BBGOS to be transferred to Bright Good (Asia) Limited, a Hong Kong company owned or controlled by Mr Chu. 

19.  Further, in February 2016, Mr Chu caused 6% (out of the 51% share) to be transferred from Bright Good (Asia) Limited to Polyrise Team Limited (“Polyrise”), also a company owned or controlled by Mr Chu.

20.  Thereafter, on 10 March 2016, Mr Chu caused BBGOS to convene a shareholders’ meeting, which was rendered quorate with the participation of the representatives of Bright Good (Asia) Limited and Polyrise, to remove the Defendant from BBGOS’s board of directors.

21.  On about 25 July 2016, the Defendant became aware of an announcement made by BBGOS that its business was sold to a “third party”[7]. On or about 2 August 2016, the name of BBGOS was changed to BGAH. 

22.  In about mid-September 2016, market information available to the Defendant suggested that the business of BBGOS had been sold to Ausca Shipping Limited (“Ausca”), which is a Hong Kong Company incorporated only on 25 July 2016.  Based on information mustered from company searches, the Defendant postulated that Mr Chu was 62% shareholder of Ausca through various companies owned or controlled by him[8].

23.  On 21 November 2016, the Defendant received a notice of Annual General Meeting of BGAH.  He duly attended on 23 December 2016 (as a representative of PBM) during which he learnt that the businesses of BBG Shipping and BBG Resources (ie the main business of BBGOS) had been sold but no details such as the price were given[9].    

The BVI Winding-Up Proceedings

24.  The Defendant complained that despite his indirect interest in BBGOS (through his 50% ownership in Ocean Sino and PBM), Mr Chu had not been forthcoming with information pertinent to the finance and operation of BBGOS.  This was all the more so after the cessation of his directorship on the board of BBGOS on 10 March 2016 (see Paragraph 20 hereinabove).  In essence, Mr Chu deliberately kept him in the dark.   

25.  As a result of various disputes between them, in May 2015 the Defendant commenced proceedings in the BVI Commercial Court to wind up Ocean Sino (the “BVI Winding-Up Proceedings”).

26.  In the course of the BVI Winding-Up Proceedings, the Defendant received the 4^th Affidavit of Mr Chu on 18 April 2017 through which he learnt that the business of BBG Shipping and BBG Resources were in fact sold of Ausca at a price of USD5.1M (allegedly over and above the valuations rendered by Jones Lang LaSalle in March 2016 at the respective sums of USD33,857 and USD1,902,570).  Mr Chu also alleged that the sales was approved at the board meeting of BBGOS held on 23 May 2016 with full disclose that Ausca, the buyer, was controlled by his son, Tyler Chu. 

27.  The Defendant alleged that a draft judgment was issued by the BVI Commercial Court on 20 June 2017, which was in his favour.  Immediately thereafter, steps were taken by Mr Chu to effect sales of the Vessels surreptitiously and/or hastily at undervalue[10] in the guise of an enforcement on the security afforded by, inter alia, the Vessels upon default of the repayment of a loan in the sum of USD18M, which had been advanced from Premier Bright Holdings Limited (“Premier”) as arranged by Mr Chu[11].

28.  In summary, the Defendant alleges all the steps taken by Mr Chu as aforesaid constitute an “Asset-Stripping Arrangement” to put the asset of BBGOS (including the Vessels) beyond his reach.  It is a fraud perpetrated by Mr Chu (and his associates) on the BBGOS group of companies in breach of his fiduciary duties.     

29.  On 29 June 2017, the BVI Commercial Court ordered Ocean Sino to be wound up.  However, the order was subsequently overturned on appeal on 17 January 2020.   

Events Leading To The Sale Of The Vessels

30.  As said, the Defendant complained that Mr Chu had not been forthcoming with the information pertinent to the finance and operation of BBGOS.  He only learned more about it in the course of the BVI Winding-Up Proceedings.

31.  Based on the information so obtained, it is the Defendant’s case, on or about 28 December 2015, one Mr Cheung Kai Fung (“Mr Cheung”), an associate of Mr Chu, acted on behalf of Premier, to enter into a loan agreement for USD35M with the BBGOS Subsidiaries, represented by Mr Chu (the “Loan Agreement”).  Premier was portrayed by Mr Chu to be an independent financier but it was in fact associated with him.

32.  On 23 May 2016, the BBGOS Subsidiaries (represented by Mr Chu) with Premier (represented by Mr Cheung) entered into a variation agreement to Loan Agreement whereby the BBGOS Subsidiaries were allowed to make a drawdown of USD8,700,000 (instead of minimum drawdown size of USD9,000,000 under the Loan Agreement). 

33.  Further, it was agreed, inter alia, that (1) ship mortgages over the Vessels; (2) mortgages of all shares in Palace and Shining, were to be granted in favour of Lohas Finance Limited (“Lohas”), the nominee of Premier.  A guarantee was also executed by BBGOS for the liabilities of the BBGOS Subsidiaries under the Loan Agreement. 

34.  By virtue of a nomination agreement (also dated 23 May 2016) Premier appointed Lohas as its nominee or trustee in respect of the securities for the loan facility under the Loan Agreement.  On 17 June 2016, the said ship mortgages were registered. 

35.  Thereafter, on 12 August 2016, Lohas purported issued a Default Notice making known its intention to exercise its option to convert the outstanding loan into non-voting preference shares of Shining and Palace.  On 24 August 2016, Shining and Palace instructed their registered agents to convert the convertible bonds into shares of Shining and Palace.  Meanwhile, on or about 15 August 2016, Mr Cheung executed the Bills of Sale on behalf of BBG Hope Ltd and BBG Glory Ltd for sales of the Vessels to Victory Sail and Plain Sail. 

36.  In the circumstances, the Defendant alleges that the Loan Agreement and security provided thereunder were all a sham engineered by Mr Chu as part of the Asset-Stripping Arrangement[12]. 

37.  On the face of the materials before the Court, there is some substance in the Defendant’s allegation that the Default Notice was part of the Asset-Stripping Arrangement since there was no lack of means for BBGOS Subsidiaries to make timely repayment under the Loan Agreement (as varied).  Firstly, the Credit Suisse loan had been paid off at the beginning of 2016.  Secondly, the drawdown of USD8.7M and USD5.1M from the sales of BBG Shipping and BBG Resource, if it had in fact been paid by Ausca, would be sufficient to service the debt owed to Premier.  Thirdly, there would be considerable income by way of charter hires generated by the Vessels. 

38.  After the the BVI Commercial Court had issued the draft judgment on 20 June 2017 and unbeknownst to the Defendant at the material time, the Vessels were put on the market for sales on about 28 June 2017 at the instigation of Premier and/or Lohas.

39.  On 5 July 2017, Wilmar Ship Holdings offered to purchase the Vessels at a total price of USD29,000,000 to USD30,000,000 in a  “distressed sales[13]” or “fire sale[14]”. However, after being warned of the shareholders’ dispute by the Defendant, the intended purchase was not proceeded with[15].

40.  On or about 15 August 2017, the Vessels were sold to Victory Sail and Plain Sail respectively at a price of USD11,000,000 each.  This was substantially less than the price of USD14,500,000 to USD15,000,000 offered by Wilmar.  Bearingin mind that each vessel was said to have been constructed in 2013 at a cost of USD33,000,000[16], it would appear that substantial depreciation had already been factored into Wilmar’s offer. 

41.  Needless to say, there might well be a multitude of other factors at play in the second-hand market for bulk carriers.  Notably, there is no information as to the consideration for the repurchase of the two sister ships by the Guanxi entity, which would be a good reference point.  Notwithstanding these limitations, it does appear that the significant disparity between Wilmar’s offer and the actually selling price to Victory Sail and Plain Sail ought to be accounted for.

THE RELEVANT ISSUES

42.  It is against the foregoing background that the Defendant pleaded justification and privileged publication in his defence to the Plaintiff’s claim for defamation.

43.  In particular, the genuineness and propriety of the mortgage transaction, the sales of the Vessels and the series of back-to-back bareboat charters of (1) MV New Prestige (involving the Plaintiff, NPCL and Victory Sail) and (2) MV New Glory (involving the Plaintiff, NGGL and Plain Sail) have been called into question in the Defence.  Hence, the use of the prefix “Purported” throughout the pleading.

44.  In essence, the Defendant says that these purported transactions are all part of the “Asset Stripping Arrangement” engineered and executed by Chu and/or his associates including Mr Shum Chun Lawrence, the sole director of the Plaintiff, NPCL and NGGL. 

45.  Mr Joffe drew my attention to the observation of Anthony Chan J in Li Tak Yee Samuel v Societe Generale Bank and Trust [2013] HKCFI 584 that :

“28.     On the other hand, the relevance of a document should not be solely tested against the detailed particulars pleaded by the parties.  It is the pleaded case of the parties in the broad sense that one should be concerned with.  A document may be generally relevant to a party’s case as pleaded (many so-called “background documents” are of this nature) although its relevance cannot be specifically pinned to some pleaded particulars.  For discovery purpose, the pleadings have to be looked at broadly: Billion Lead Investment Ltd v Union Joyce Ltd (HCMP 2145/2011, 14 December 2012), §16 per Mimmie Chan J.”

46.  Although there is no specific allegation[17] that the series of bareboat charters of the Vessels to the Plaintiff are a “sham”, I accept the Defendant’s characterization[18] as to key issues in dispute between the parties, which are at the core of the defence of justification and privileged publication.  They are as follows:

(1)  Whether the Purported Owners [Victory Sale and Plain Sail] are in fact the rightful owners of the Vessels, and whether [the Plaintiff] was entitled to charter, and indeed genuinely chartering, the Vessels to third parties through its “trading arms”, [NPCL and NGGL].  If [the Plaintiff] had no such entitlement, the Words Complained Of would be substantially true;

(2)  Such entitlement in turn depends upon the propriety of the Purported Sale and the Purported Bareboat Charters of the Vessels.  The propriety of the Purported Bareboat Charters in turn involves issues of the true identity of [the Plaintiff, NPCL and NGGL], and the true relationships and dealings amongst them, the Purported Owners and/or Mr Chu, including individuals behind these corporate entities (collectively, the “Sale and Charter Issues”); and

(3)  Whether P suffered special damages including the Alleged Legal Costs charged by HFW, and if so, whether the same were caused by the Words Complained Of (the “Special Damages Issue”).

47.  In response to the interrogatories served by the Defendant on 7 November 2019 pertinent to the beneficial ownership of the Victory Sail and Plain Sail, Mr Shum has gone on affidavit (dated 12 December 2019) to say :

(1)  in Answer to Request 3(3) that “I learnt from Mr Wong Ben Koon about [Victory Sail] and [Plain Sail’s] acquisition of the Vessels from [BBG Hope Ltd] and [BBG Glory Ltd] when I met him for discussing the chartering business for the [two vessels] in around mid-year in 2017”;

(2)  in Answer to Request 4(c) that “I am not certain what was meant by “related to” Mr Chu but I have no knowledge of Mr Chu’s personal dealings with any party as I do not know Mr Chu at all”. (emphasis added)

48.  There is some evidence to suggest that Mr Wong Ben Koon (“Mr Wong”) was a business associate, or at least an acquaintance, of Mr Chu[19]. Significantly, Mr Wong was named as a director of Victory Sail and Plain Sail in August 2017 on the record of the Panama Maritime Registry (ie upon registration of the two vessels after sales). 

49.  Further, the Plaintiff (a Hong Kong company), as the alleged “commercial operation and/or manager” of the Vessels, was not incorporated until 9 August 2017.  It tends to suggest that the Plaintiff was only incorporated to operate or manage the Vessels (as opposed to the Vessels being enlisted into a fleet already operated or managed by a pre-existing entity such as NewOcean Energy Holdings Limited (“NEHL”) as suggested by Mr Shum[20]).

50.  Significantly, Mr Shum became the sole director of Victory Sail and Plain Sail on 30 April 2019, which is quite unusual if the Plaintiff was a mere “bareboat charterer” or the “commercial operator and/or manager”.

51.  This appointment of Mr Shum as the sole director is indicative that between 20 August 2017 and 30 April 2019, whosoever behind the scene represented by Mr Shum and/or the Plaintiff (allegedly a bareboat charterer) has acquired certain additional interest, whether proprietary, equitable or otherwise, in Victory Sail and Plain Sail and hence in the Vessels. This is a subject matter at the core of the outstanding discovery and interrogatories, which Mr Shum seems determined not to answer.

52.  In normal circumstances, a person is quite entitled to conduct his business through various corporate entities and to structure such corporate entities in a particular way so as to take the benefits of the protection of confidentiality afforded by the company registries in some jurisdictions (such as BVI and the Marshall Islands). 

53.  However, in approaching this appeal, it has to be borne in mind that it is the Plaintiff who brought this action founded on defamation.  The Defendant is at the receiving end of the claim and should be given reasonable opportunities and facilities to establish his defence.  Otherwise, the protection of confidentiality will become a means of oppression.  Needless to say, if the Defendant fails to make good his case of fraud as encapsulated in the alleged Asset-Stripping Arrangement, he will no doubt be penalized by way of an award of damages and an order for costs, and rightly so. 

54.  I accept Mr Joffe’s submission that the Court should approach the discovery on the presumption that the case of the party seeking discovery is true (see Slade LJ in Format Communications MFG Ltd v ITT (UK) Ltd [1983] FSR 473 (at 477).  I will adopt the same approach when it comes to the interrogatories.

55.  It goes without saying that the party seeking discovery or administering interrogatories will have to adduce sufficient evidence to show relevance of the documents or information sought with reference to a plausible case in order for the Court to act upon it.  Without intending to interfere in the slightest way with the finding of facts to be made at the trial of this matter, I am satisfied that the Defendant has passed muster in this regard. 

56.  The appeal herein is by way of a hearing de novo.  That said, there is nothing to prevent the Court from giving regard to the decision and reasoning of the learned Master and to adopt the same, if deemed appropriate (see Hong Kong Civil Procedure (2020) n 58/1/2).

THE DISCOVERY SUMMONS

57.  Originally, 12 categories of documents were identified in the Schedule to the Discovery Summons.  To the credit of the parties, the dispute pertinent to discovery of most of the items was resolved. By the time when the application reached Master Tsui, only those items under Categories (1), (3) to (6) were outstanding.  These remain live issues in this appeal for which I have had the benefit of the helpful tabulated summaries prepared by the respective legal teams led by Ms Lau and Mr Joffe respectively.

58.  The legal principles governing discovery are not in dispute.  A good summary can be found in the decision of Lok J in K&L Gates v Aggarwal & Ors (HCA 1061/2011, 27 November 2017) [2017] HKCFI 2094 (at paragraphs15-19) which have been succinctly summarized by the Ms Lau in the following terms.

(1)  There is no jurisdiction to make an order under O 24, r 7 unless: (i) a document exists which the other party has not disclosed; (ii) it is in or has been in the respondent’s possession, custody or power; and (iii) the document is relevant. 

(2)  The discovery must be necessary either for disposing fairly of the case or for saving costs.  The Court should have regard to third party interests, including confidentiality, in deciding whether to order discovery.

(3)  Jurisdiction aside, the Court has a discretion not to order disclosure.

(4)  The order must identify with precision the documents or categories of documents which are required to be disclosed, for otherwise the person making the list may find himself in serious trouble for swearing to a false affidavit, even though doing his best to give an honest disclosure.

(5)  Where discovery is sought in relation to a class of documents, it is important that the class should not be defined or described too widely, and should not be defined so as to include documents which are not relevant.

(6)  Statement in a party’s affidavit of documents are conclusive.  The respondent may answer an application for specific discovery by an affidavit stating that he does not have the documents, and this will be conclusive at the interlocutory stage.

(7)  Whilst test for relevance remains that of Peruvian Guano: (a) despite its apparent width, ultimately the question is whether the discovery is necessary for disposing fairly of the proceedings; (b) “fishing” is not permissible; and (c) discovery should not be oppressive – if oppression is in issue, the Court would weigh any such potential oppression against the possible injustice that would be caused if the materials were not available at trial.

(8)  In considering the discovery application, the Court would take into account the objectives of the CJR, which are to promote proportionality, cost effectiveness and fairness between the parties.

59.  To this, I would add that in an application for discovery after commencement of an action, the burden to show that the discovery is not necessary rests on the party resisting the application (see RHC O 24, r 8(1) and Innovisions Ltd v Chan Sing Chuk & ors [1992] 1 HKC 348 at 351 adopted by G Lam J in Zhang Shouen v Standard Chartered Bank (Hong Kong) Ltd (unrep), HCMP 682/2015, 15 October 2015, at paragraph 31).

Category 1 : Unredacted copy of the Purported Bareboat Charters

60.  I agree with Master Tsui that the series of charterparties are relevant and the redacted parts concerning “Charter period” and “Charter hire” (in Boxes 21 and 22 of the BARECON 2001 proforma) would reflect on the reasonableness and commercial sense (or the lack of it) of the charters and hence the propriety of the transactions.

61.  However, with due respect to the learned Master, I disagree that the commercial sense of the charters was not specifically pleaded and hence not in issue. Quite apart from the allegation of the Asset-Stripping Arrangement culminating in the wrongful sales of the Vessels, which have been specifically pleaded, I am of the view that the reasonableness and commercial sense and hence propriety of the charterparties in the general sense has been raised, for instance, by the truthfulness (or otherwise) of the Words to Oldendorff referring to:

(1)  the Plaintiff as “the commercial manager of purported head owner of the Vessels”;

(2)  the change of technical management and commercial management of the Vessels without PMB’s consent as being unlawful amounting to fraudulent conduct on the part of Mr Chu and his associates.

62.  Hence, this application is not a “fishing expedition”.  As to the concerns about confidentiality, given that the series of bareboat charters dated back as early as 20 August 2017, I am of the view that information as to the rate of charter hire and duration of the charter is almost historical.  The market sensitivity of such information has been reduced, now that the Vessels had been repeatedly sub-chartered over the last 3 years.

63.  In any event, the concern of confidentiality has been fully addressed by the Defendant’s offer to undertake not to divulge the unredacted information to any third party except his legal advisor in addition to the usual implied undertaking not to use the documents for any purpose other than the proceedings herein.  Further, the Defendant himself is willing to undertake not to seek inspection from his own legal representatives unless with leave of the Court.

64.  For the sake of completeness, although no specific argument has been canvassed, I notice that Box 29 of all the proforma charterparties has also been deliberately redacted[21].  Box 29 reads “Insurance (hull and machinery and war risks)(state value acc to Cl.13(f). . .”.  The information thereunder falls within the request for discovery under this category.

65.  Normally, the insured amount written on a hull policy is a reflection of the replacement value of a vessel in the event of a total loss.  It constitutes indirect information of the current value of the vessel put on it by its owner.  This information is likely to shed light on the issue as to whether the Vessels had been sold to Victory Sail and Plain Sail at undervalue.  Hence, the same should also be discovered.

66.  In summary, the appeal under this category is allowed subject to the undertaking as to confidentiality as aforesaid.

Category (3) – Post-Bareboat Charters documents concerning due ownership of the two vessels exchanged (1) between the Plaintiff and NPCL (and NGGL) and (2) between the Plaintiff (NPCL and NGGL) and Victory Sail (and Plain Sail)  

67.  I respectfully agree with Master Tsui that this request for discovery is too vague, although the due (or true) ownership of the Vessels is a live issue.

68.  Notably, a similar request for discovery in respect of Pre-Bareboat Charters period (Category 2) is now not pursued in light of the Plaintiff’s response that no such documents had come into existence.

69.  However, the appeal is maintained on the basis that the Defendant wrote an email to Mr Shum on 29 August 2017 to complain about the Asset-Stripping Arrangement perpetrated by Mr Chu and his associates and hence calling into question the true ownership of the Vessels. 

70.  Thus, it is argued that upon receiving this email from the Defendant, Mr Shum (or the Plaintiff) was likely to have directed their enquiry to the Victory Sail and Plain Sail.  Hence, argued the Defendant, it was likely that some documents touching upon the true ownership of the Vessels would have come into existence. 

71.  I do not find this argument attractive since if the Defendant is correct that Mr Shum was in fact an associate of Mr Chu, albeit not personally acquainted with Mr Shum, in executing the Asset-Stripping Arrangement, there would be no need for Mr Shum to make such enquiry.  In any event, it is unlikely for such enquiry, if any, to be documented.  It would be more fruitful for this line of discovery to be pursued by way of interrogatories (see below).  Accordingly, I dismiss the appeal under this category.

Category (4) – Documents evidencing contractual arrangement entered into by the Plaintiff (whether as commercial operator and/or manager of the Vessels) with third parties for the operation and management of the Vessels, including but not limited to technical and crew management contracts and P&I insurance polices

72.  Master Tsui refused the Defendant’s application under this category on the ground that relevance has not been established.  It is also held to be a “fishing discovery” since the crux of the Defendant’s complaint is that the assets were being stripped fraudulently but not how those assets were managed or operated, after being stripped.

73.  In the main, I share the view of the learned Master that how the assets were managed or operation, after being stripped, is not a pleaded issue.  However, it should be borne in mind that a major issue is the true ownership of the Vessels, which is likely to be reflected, for instance, in the insurance documents and management contracts in respect of the Vessels .

74.  Thus far, only one Certificate of Entry dated 22 August 2017 (the “Certificate of Entry”) covering MV New Prestige for a period from 20 August 2017 to 20 February 2018 has been discovered by the Plaintiff.  However, it appears that the Certificate of Entry would be automatically renewed every year[22].

75.  In the Certificate of Entry, the Plaintiff is described as “Manager/Managing Owner” (as opposed to a “Bareboat Charterer” or “commercial operator and/or manager”); Victory Sail as “Registered Owner”; NPCL as the “Bareboat Charterer” and Seacon Ships Management Co Limited (“Seacon”) as “Technical Manager”. 

76.  To some extent, the description of the Plaintiff as a “Manager/Managing Owner” is contradictory to the Plaintiff’s case that it was a “Bareboat Charterer”.

77.  I would allow the appeal to the limited extent that the Plaintiff is ordered to make discovery of the following documents within Category (4) in respect of each of the Vessels:

(1)  A copy of the proposal and/or application for membership to Skuld showing in particular (a) identities of all parties with insurable interests in the vessel; and (b) the nominated value of the vessel for the purpose of the insurance coverage of hull and machinery;

(2)  A copy of the policy evidencing membership of the Plaintiff (and all parties referred to in (1) above) in Skuld showing all the terms and conditions including rider clauses, if any, less the standard terms of Skuld unless the same is not available on Skuld’s website (www.skuld.com);

(3)  A copy of the application for Certificate of Entry in respect of the vessel made to Skuld;

(4)  Copies of all Certificates of Entry of the vessel issued by Skuld since 20 August 2017 in so far as it has not already been discovered;

(5)  All contracts pertinent to operation or management of the vessel entered into between Seacon and any other party in respect of the vessel (such as the Plaintiff, NPCL, NGGL and the registered owner of the vessel) since 20 August 2017;

(6)  All contracts pertinent to crew management in respect of the vessel since 20 August 2017. 

Category (5) – Documents evidencing (a) Payment of charter hire to NPCL and NGGL; and (b) the Plaintiff and/or NPCL and NGGL’s chartered hire to Victory Sail and Plain Sail

78.  This item was disallowed by Master Tsui on the same ground as Category (1) documents hereinabove notwithstanding that relevance was held to have been established. 

79.  Whist I disagree with the learned Master that the “commercial senses of the charters” is not in issue, I am of the view that the discovery under this category is not necessary, at least, at this stage in light of the more relevant evidence pertinent to the true ownership of the Vessels, to be elicited by way of discovery or interrogatories, which have been allowed.

80.  In Air Canada v Secretary of State for Trade [1983] AC 394, Lord Edmund Davies said (at 441F-H):

“It follows that, at every stage of interlocutory proceedings for discovery, the test to be applied is : Will the material sought be such as is likely to advance the seeker's case, either affirmatively or indirectly by weakening the case of his opponent? …

It is accordingly insufficient for a litigant to urge that the documents he seeks to inspect are relevant to the proceedings.  For, although relevant, they may be of merely vestigial importance, or they may be of importance (great or small) only to his opponent's case. And to urge that, on principle, justice is most likely to be done if free access is had to all relevant documents is pointless, for its carries no weight in our adversarial system of law."

81.  I am of the view that the evidence of the payment made to Victory Sail and Plain Sail based on an arms-length bargain, if available, is more likely to advance the Plaintiff’s case.  The appeal under this category is dismissed.

Category (6) – Documents evidencing the nature and scope of work done by HFW corresponding with the Alleged Legal Costs charged under the bills of HFW (in item 11 of P’s LOD)

82.  I agree with Master Tsui that while relevance of this category of documents has been established, the discovery is disproportionate in the overall context of this case, particularly, where there may be issues of legal professional privilege depending on the content (see Passmore on Privilege (4^th Ed) at 2-209 to 214).

83.  Again, in light of the evidence to be elicited by way of discovery or interrogatories, which have been allowed, the significance of this category of documents has been reduced.  The discovery is not necessary, at least, at this stage.  The appeal under this category is dismissed accordingly.

84.  In so deciding, I have not lost sight of the “unusual” mistake made by HFW as to the payment of HFW Bill No 51-18003026 (the “Bill”) as explained in the Affirmation of Ma Hoi Shan (dated 20 February 2020). That said, the connection between the Plaintiff and NEHL, a listed company in Hong Kong, was known to the Defendant[23]. This has also been revealed by the Plaintiff[24].

85.  In the Defendant’s submission, it is stated that NewOcean Petroleum Co Ltd, to which the receipt for the Bill was erroneously issued, is a subsidiary of NEHL[25]. Although the relevant company search has not been exhibited, it is not difficult to infer from the names that NewOcean Petroleum Co Ltd, was probably related to NEHL, both being clients of HFW.

86.  It is also the Defendant’s case that NEHL has entered into a joint-venture business with Ausca (controlled of Mr Chu or his son, Tyler Chu) in Singapore known as NewOcean Fuel (Singapore) Pte Ltd[26].  Therefore, it is doubtful how much further could be inferred from this “unusual” mistake.

87.  That said, if the quantum of the claim remains in dispute, one would expect the Plaintiff to adduce evidence in the form of a detailed breakdown of the total sum charged on each bill showing (1) the time spent by each identified fee earner; (2) the relevant charge out rates; and (3) a brief description of the work undertaken identifying the date and the persons involved. Such information should be readily available in the billing system of the Plaintiff’s solicitors. If such evidence is not forthcoming, it is up to the Defendant to make a further application to the Court, if so advised. In the absence of full arguments, I shall leave open the question as to whether the work product such as the written communications between the Plaintiff (whether directly or through its solicitors) with parties including Oldendorff and Skuld should be discovered.

THE INTERROGATORIES SUMMONS

88.  The interrogatories without leave administered by the Defendant on 7 November 2019 consisted of 16 paragraphs and over 40 sub-paragraphs.

89.  By the Affirmation of Shum Chun Lawrence (dated 12 December 2019), the majority of the interrogatories has been answered. Before Master Tsui, only 2 interrogatories (under 6 sub-paragraphs) remained outstanding which were ordered to be withdrawn.  These interrogatories are the subject matter of the appeal before this Court.

90.  Again, the principles governing the administration of interrogatories have been neatly summarized by Ms Lau in the follow terms, which are not disputed by Mr Joffe.

(1)  Interrogatories must relate to a matter in question between the parties.  They are not confined to the facts directly in issue, but extend to any facts the existence or non-existence of which is relevant to the existence or non-existence of the facts directly in issue.

(2)  They must be necessary either: (i) for disposing fairly of the cause or matter; or (ii) for saving costs.

(3)  Interrogatories must not be oppressive, prolix or imprecise.  They must not be questions which go to the evidence the opposing party intends to adduce, nor questions which require an answer which is a matter of opinion.

(4)  Interrogatories must not be “fishing” in the sense that they were made or aimed: (i) to enable the party to see if he can find a case, of which at present he knows nothing and which will be a different case from that which he currently makes; (ii) to ascertain the names of witnesses whom the applicant may wish to call; or (iii) to establish a cause of action against a third party or to obtain evidence in subsequent proceedings.

(5)  Interrogatories which relate solely to credit or credibility are not allowed.

(6)  In the exercise of the court’s wide and unfettered discretion, the key consideration is the factor of necessity. Necessity is a stringent test, and the interrogator must be able to show that his interrogatories will serve a clear litigious purpose.

See Wang Pengying v Ng Wing Fai & Ors [2019] HKCFI 2430 (HCA 1619/2018, 16 September 2019)at §§15-19 (Coleman J); Lee Nui Foon v Ocean Park Corporation (No 2) [1995] 2 HKC 395 at 396-399 (Cheung J); Kao Lee & Yip v Donald Koo Hoi Yan, unrep, HCA 8847/1993, 23 April 2002), §7 (Ma J); Hong Kong Civil Procedure (2020), n 26/4/5-15.

91.  I would also reiterate that due consideration should be given for the fact that (1) the Defendant is at the receiving end of this action; (2) information pertinent to ownership, operation and management of the Vessels are likely to be in the possession of the Plaintiff (as opposed to the Defendant).  As such, care should be taken to maintain a level playing field so that the Defendant would not be stonewalled in the conduct of his defence.

The 2^nd Interrogatory – Paragraphs 2(1)(B) And 2(2)

92.  The 2^nd Interrogatory reads:

“2. Of the allegation at paragraph 1 of SOC that [the Plaintiff] bareboat chartered the Vessels thorough its trading arms, [NPCL and NGGL]. . .

(1) In respect of NPCL and NGGL. . .

. . .

(b) Who is/are the ultimate beneficial owner(s) if they are not the registered shareholder(s)?

(2)  How did each of NPCL and NGGL act as the Plaintiff’s trading arms?”

93.  The connection between the Plaintiff, NPCL and NGGL can readily be discerned from the sole directorship of Mr Shum in all 3 companies. Since Paragraph 2(1)(b) of this interrogatory is directed at the issue as to whether these 3 companies are related to Mr Chu or his associates, I agree with Master Tsui that this interrogatory is relevant in that the evidence to be elicited is likely to be probative of the issue.

94.  However, I differ from the learned Master that the issue should be explored during cross-examination at trial.  It is highly likely that follow-up enquiries would be necessary and the Defendant may be handicapped if the information is only revealed at trial.  Hence, the appeal under this sub-paragraph is allowed.

95.  However, the same cannot be said about the interrogatory under Paragraph 2(2).  As presently formulated, it is too imprecise and the probative value of any answer in reply thereto is doubtful.  The appeal under this sub-paragraph is dismissed.

The 3^rd Interrogatory – Paragraph 3(1)(A), 3(2) And 4(B) And (D)

96.  The 3^rd Interrogatory reads:

“3. Of the allegation at paragraph 1 of the SOC that “Victory Sail and Plain Sail had acquired the Vessels from their former owners [BBG Hope Ltd] and [BBG Glory Ltd] in around August 2017” and of the allegation at paragraph 7 of the Witness Statement of Shum Chun Lawrence dated 9 September 2019. . .that “I understand from Mr Wong. . , the then director of Victory Sail and Plain Sail that Victory Sail and Plain Sail acquired the Vessels from their former owners [BBG Hope Ltd] and [BBG Glory Ltd] in around August 2017”:

(1) When, how and under what circumstances did Mr Shum come to know (a) Mr Wong. . .

(2) To the best of the Plaintiff’s and/or Mr Shum’s knowledge, when was Mr Wong. . .a director of VSIL and PSHL and what was the date he ceased to be a director of VSIL and PSHL?

(3) . . .

(4) To the best of the Plaintiff’s and/or Mr Shum’s knowledge:

. . .

(b) Who are the current beneficial owner(s) of VSIL and PSHL?

. . .

(d) Who are the current director(s) or authorized representative(s) of VSIL and PSHL.”

97.  It has been pleaded in 33(1)(i) of the Defence that Mr Wong is a long time acquaintance or business associate of Mr Chu.  Mr Shum said he did not know Mr Chu at all[27] and he was in contact with Mr Wong in mid-2017 for the purpose the bareboat charters.  However, it is beyond dispute that Mr Wong, as the then director of Victory Sail and Plain Sail, played a pivotal in the purchase of the Vessels.  Given the fact that:

(1)  Ausca, under the control of Tyler Chu and/or Mr Chu, was the purchaser of the businesses of BBG Shipping and BBG Resources from BBGOS on about 23 May 2016;

(2)  In late September 2017, Ausca represented to the outside world that it was the owner of MV BBG Glory (renamed MV New Honor)[28];

(3)  That was around the time when the “distressed sale” of the Vessels to Victory Sail and Plain Sail took place on or about 15 August 2017, without going through a shipbroker and apparently at undervalue;

(4)  NEHL, which was related to the Plaintiff, and Ausca entered into a joint-venture in Singapore, inter alia, for chartering of vessels[29];

a reasonable inference, nothing higher than that, to be drawn is that the foregoing transactions are all parts of the scheme of things referrable to the Asset-Stripping Arrangement and Mr Shum was involved although he was not personally acquainted with Mr Chu.

98.  To further buttress this point, the company searches show that Victory Sail and Plain Sail maintained a principal place of business at “Room 2107, 21/F Emperor Group Centre, 288 Hennessy Road, Wanchai, Hong Kong[30]” which is also one of the Plaintiff’s business addresses.

99.  As said, Mr Shum became the sole director of Victory Sail and Plain Sail on 30 April 2019 and Mr Wong has apparently dropped out of the picture.  It is plausible that the Plaintiff (whether as nominee or agent of NEHL or other persons) has acquired additional interest in the Vessels since 20 August 2017 pursuant to a scheme of things referable to the Asset-Stripping Arrangement.

100.  To a large extent, this series of interrogatories serve similar purpose as the discovery under Categories (3), (5) and (6) hereinabove.  If it is proved that Mr Chu or his associates, including Mr Shum, were in fact behind the scene of all these transactions and Mr Shum (whether representing the Plaintiff, NPCL, NNGL and NEHL) is only a front person, the defence of justification and privileged publication may well be established.

101.  On the foregoing analysis, I agree with Master Tsui that these interrogatories are relevant.  As such, the Defendant should be afforded reasonable opportunity to establish his defence by administering these interrogatories.  Given the likelihood of the need for follow-up investigation, I differ from the learned Master that the issues should be explored in cross-examination at trial.  Accordingly, I would allow the appeal under Paragraphs 3(1)(a), 3(2), 4(b) & (d) of the 3^rd Interrogatory.

102.  For the avoidance of doubt, sub-paragraph 4(b) should be answered to the level of natural person(s) to the best of the Mr Shum’s and the Plaintiff’s knowledge.  Further, sub-paragraph 4(d) should be answered, to the best of Mr Shum’s and the Plaintiff’s knowledge, with reference to the information held by the relevant BVI authorities since the corporate information pertinent to Victory Sail and Plain Sail maintained by the Companies Registry of the HKSAR has already been obtained.

DISPOSITION

103.  The appeal in respect of the Discovery Summons and the Interrogatories Summons are allowed to the extent identified hereinabove.  The Plaintiff is ordered to make discovery and answer the interrogatories within 28 days.

104.  As to costs, I would make an order nisi that the costs of and occasioned by the applications before Master Tsui and the appeal herein be costs in the cause, with certificate for two counsel.

105.  By way of general observation, Master Tsui apparently resorted to paper disposal of the applications under the two summonses by reason of the General Adjourned Period occasioned by the pandemic.

106.  In contrast, I had the benefit of the assistance of counsel at the oral hearing, which I found most helpful.  It would probably have made a difference if the same assistance had been rendered to the learned Master.  Consequently, the Defendant has no choice but to take the matter to appeal.  That said, he is only partially successful.

107.  Lastly, I shall leave it to the parties to draw up the order for which I grant liberty to apply.