TOP ONE INTERNATIONAL (CHINA) PROPERTY GROUP CO LTD AND ANOTHER v. TOP ONE PROPERTY GROUP LTD AND OTHERS

   HCA1244/2009

IN THE HIGH COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

   COURT OF FIRST INSTANCE

   ACTION NO.1244 OF 2009

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BETWEEN

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REASONS FOR DECISION (No. 2)

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Introduction

1.  This decision should be read together with the Decision dated 16 October 2009 (“the 1^st Decision”). For present purposes, I adopt the abbreviations used previously.

2.  By the 1^st Decision, I allowed the 1^st plaintiff’s application to continue the 1^st and 2^nd Orders; ordered the 3^rd defendant to make discovery in aid of the 2^nd Order in terms of para. 2.1 thereof (“the 4^th Order”); and allowed the 2^nd plaintiff’s application for an order restraining the 3^rd defendant from disposing of his shares in the 1^st defendant and the appointment of receivers over the shares of the 1^st defendant (“the 5^th Order”).

3.  The 3^rd defendant filed his 4^th affirmation (“the 4^th Affirmation”) in purported compliance with the 4^th Order. He said :

“3.  I made this Affirmation pursuant to [the 4^th order].  Information concerning the disclosure of the assets is set out in Schedule 1 to this Affirmation (‘the List of Assets’).

4.  Because of the time constraint, I am not able to carry out a detailed assessment of the value of the relevant assets, and the value of assets set out in Schedule 1 are the best of my belief.

…”

4.  The List of Assets is reproduced here :

“Details of Assets

1	70% shareholding in Good Idea International Investment Limited	RMB386,333,605
2	100% shareholding in China Biotechnology Group Limited	HKD1,000,000, being its registered capital
3	100% shareholding of Thumb (China) Group Limited	HKD1,000,000, being its registered capital
4	Loan to Top One International (China) Property Group Co Ltd (Top One A)*	RMB62,707,382 + interest RMB77,861,986
5	Loan to Top One Property Group Limited (Top One B)	RMB257,849,010.98
6	Property at The Arch (凱旋門), Hong Kong	Approximately HKD10,000,000 being current market price minus bank loan
7	Loan to Thumb (China) Holdings Group Limited #	SGD586,000,000
8	A property at Changsha, PRC	Approximately RMB700,000
9	A property at Chongqing, PRC	Approximately RMB2,000,000
10	PRC deposits	Approximately RMB200,000

*  If Top One A cancels the transaction transferring Chongqing Dading to Top One B, the amount of the credit claim will be increased by RMB200,000,000.

^#  Thumb (China) Holdings Group Limited is holding the shares of two Singapore listed companies, namely Sino-Environment Technology Group Limited and Radiance Electronics.  The holding in Sino-Environment Technology Group Limited is valued at around SGD100,000,000.”

Applications

5.  The parties now return before me with four further applications.

6.  Three are brought by the 1^st plaintiff against the 3^rd defendant for :

(1)    discovery in compliance with para. 2 of the 2^nd Order by providing the information and documents set out in the schedule attached to the summons dated 11 November 2009 (“the 1^st Discovery Application”);

(2)    discovery in compliance with para. 2 of the 2^nd Order by providing information and documents set out in the schedule attached to the summons dated 12 November 2009 (“the 2^nd Discovery Application”); and

(3)    variation of the 2^nd Order as continued by the 3^rd Order such that particular assets of the 3^rd defendant as disclosed in the 4^th Affirmation be attached in the priorities set out in the summons dated 4 February 2010 (“the Attachment Application”).

7.  Separately, the 3^rd defendant applied by summons dated 11 November 2009 for an order that the interim receivers of the 1^st defendant appointed under the 1^st Order and the interim receivers of the shareholding of the 1^st defendant appointed under the 4^th Order do take steps to reinstate the 3^rd defendant as a director of the 1^st defendant and to execute an irrevocable undertaking in writing to the effect that the 3^rd defendant would have authority to continue to represent the 1^st defendant in proceedings in Hong Kong and Chongqing (“the Reinstatement Application”).

8.  The 3^rd defendant, like other defendants, is now acting in person. He did not appear at the hearing on 17 March 2010.

9.  After hearing counsel, I allowed the 1^st Discovery Application in full and the 2^nd Discovery Application in part and adjourned the balance with liberty to apply. I also allowed the Attachment Application but dismissed the Reinstatement Application. I now give the reasons for my doing so.

The Discovery Applications

10.  The 1^st and 2^nd Discovery Applications can be dealt with together conveniently.

11.  Discovery in aid of a Mareva injunction is an important tool in the court’s armoury for the purpose of preventing or policing the disposition of assets which would inhibit the enforcement of an order. Litigants subject to a discovery order is required to produce the information and documents to the best of their ability. Failures to make discovery can be enforced by further discovery. And the court will take such reasonable steps to ensure that there is substantial practical compliance with the order : Dadourian Group v Simms (No. 2) [2007] 2 All ER 329, per Arden LJ at 335E, followed in Akai Holdings Ltd & Ors v Ho Wing On Christopher, unreported, 1 June 2009, per Stone J at paras.52-54.

12.  Para.2.1 of the 2^nd Order mandates the 3^rd defendant to :

“… inform the Plaintiff in writing at once of all his assets of an individual value of HK$100,000 or more, whether in or outside Hong Kong, whether in his own name or not and whether solely or jointly owned, giving the value, location and details of all such assets.  The Third Defendant may be entitled to refuse to provide some or all of this information on the groups that it may incriminate him.”

13.  The purported discovery by the 3^rd defendant in the 4^th Affirmation is wholly inadequate. As rightly observed by Mr Batchelor for the interim receivers in his 6^th affidavit dated 30 November 2009 :

“The 1^st Disclosure Application

8.  The 1^st Plaintiff has appended in the Schedule to the 1^st Disclosure Application a list of further information required to be provided by the 3^rd Defendant to ensure meaningful compliance with paragraph 2.1 of the Injunction Order and to enable the Plaintiffs to monitor the 3^rd Defendant’s compliance with the Injunction Order.  By way of example, the following deficiencies are evident on the face of the List of Assets :

(a)  item 2 is the 100% shareholding in China Biotechnology Limited which the 3^rd Defendant values at HK$1 million, being its registered capital.  The 3^rd Defendant has not provided any information as to the financial position of this company and therefore the Receivers cannot assess the value of the 3^rd Defendant’s shareholding.  Further, the 3^rd Defendant values his shareholding by the amount of registered capital which, on its own, has no significance because it is not necessarily a true reflection of the value of the company.  The 1^st Plaintiff seeks further information in relation to this company including all audited financial statements and up to date management accounts so that it can properly ascertain the value of the 3^rd Defendant’s shareholding;

(b)  item 3 is the 100% shareholding in Thumb (China) Group Limited and the 3^rd Defendant has again stated the value of this shareholding as being the registered capital of the company without providing further information.  The 1^st Plaintiff seeks all audited financial statements and up to date management accounts of the company to assess the true value of this shareholding for the reasons set out in paragraph (a) above.

(c)  items 5 and 7 are loans to Top One B and Thumb (China) Holdings Group Limited respectively, however, the 3^rd Defendant has not provided any documents evidencing either of these loans.  The 1^st Plaintiff seeks this information and details of the amount of the loans outstanding.

(d)  item 6 is a Hong Kong property at The Arch.  The 3^rd Defendant has not provided any information to verify the valuation provided and therefore the 1^st Plaintiff has asked for an independent valuation so that it can assess the value of this property;

(e)  items 8 and 9 of the List of Assets are two properties in Changsha and Chongqing in the PRC valued by the 3^rd Defendant at approximately RMB700,000 and RMB2,000,000 respectively.  The 1^st Plaintiff seeks further details relating to the location of these properties and a valuation to support Mr. Sun’s estimate of the value of these properties; and

(f)  item 10 are ‘PRC deposits’ valued at approximately RMB200,000.  The 3^rd Defendant has not provided any information on these PRC Deposits including the number of deposits, the bank at which each deposit is held and when such deposits are due.  This information is sought by the Plaintiffs.

The 2^nd Disclosure Application

9.  The 2^nd Disclosure Application relates to Sun’s 70% interest in Hong Kong company Good Idea International Limited (‘Good Idea’) which is the first item on the List of Assets.  In the First Affirmation of Sun Jiangrong dated 17 July 2009 (‘Sun’s First Affirmation’) he exhibited what purported to be valuations of his shareholding in Good Idea.  The Plaintiffs consider that the 3^rd Defendant’s evidence in support of the valuation of the shares in Good Idea is inadequate and contains a number of inconsistencies which throws significant doubt on the value of the shares in Good Idea as claimed.  The Plaintiffs’ requests for clarification on the purported asset valuation reports have been ignored and Sun’s 4^th Affirmation has not provided any further details on the valuation of the Good Idea shares to assist the Plaintiffs.

10.  An application substantially the same as the 2^nd Disclosure Application was made by the 1^st Plaintiff in August 2009 and I now refer to and rely on the contents of my Third Affidavit in support of the 2^nd Disclosure Application.

Failure to disclose all assets

11.  For completeness, I also note that the 3^rd Defendant has not even set out all of his assets in the List of Assets.  On 6 November 2009, Lovells wrote to Peter Lau to say that the List of Assets is grossly inadequate (see pages 5 to 16 of JHB-5).  Lovells asked Peter Lau to explain :

…

12.  As at the date of this affidavit, I am informed by Lovells that they have not received a response to this letter.  The Plaintiffs intend to address this issue in a separate application.”

14.  I agree with Mr Lam, for the plaintiffs, that in order to make his disclosure in aid of the 2^nd Order meaningful, it is necessary to order the 3^rd defendant to provide the information and documents sought in the Schedule attached to the summons for the 1^st Discovery Application. I therefore allowed the 1^st Discovery Application.

15.  According to Mr Batchelor, the purpose of the 2^nd Discovery Application is to enable the plaintiffs to have a more accurate assessment of the true value of the 3^rd defendant’s interest in Good Idea. In his 1^st affirmation dated 20 July 2009, the 3^rd defendant alleged that his interest is worth some RMB386 million. He produced valuation reports on three of Good Idea’s subsidiaries in the Mainland in support. However, he had not produced any financial documentation concerning Good Idea at all.

16.  The discovery by the 3^rd defendant in the 1^st affirmation is inadequate. But I think the information and documents sought by the 1^st plaintiff by way of the Schedule attached to the summons for the 2^nd Discovery Application are far too wide. I think they are only entitled at this stage to the audited financial statements for the financial years of 2007 to 2009 and updated management accounts of Good Idea and the three subsidiaries and their tax returns for the last 3 years. I therefore only allowed the 2^nd Discovery Application in respect of paragraphs 1, 2 and 8 of the Schedule and adjourned the balance of the Application with liberty to apply.

The Attachment Application

17.  In para. 70 of the 1^st Decision, I quoted the English Court of Appeal’s judgment in Motorola Credit Corporation v Uzan and others (No.2) [2004] 1 WLR 113 at para. 146 :

“The purpose of disclosure is to make the freezing order effective.  In the ordinary way a defendant is required to disclose all his assets above a certain value.  This is because if he can choose which assets to disclose he is likely to choose those which are the least available or accessible to the claimant for the purposes of execution.  That is what the claimant says the defendants have done in this case.  If there are assets which are more readily available, a claimant is entitled to be told what they are.  In such circumstances a freezing order may be varied, so that particular assets are attached and others are released and, this way, the order may be made more effective.”

18.  It is apparent that some of the assets of the 3^rd defendant as disclosed in the 4^th Affirmation is more readily available than others to meet any eventual judgment. An obvious example is his property at “The Arch”. Applying what the English Court of Appeal had said, I varied the 2^nd Order so that it attaches to assets in the order as set out in the summons for the Attachment Application.

The Reinstatement Application

19.  The Reinstatement Application is unmeritorious.

20.  Plainly, the interim receivers have power to remove the 3^rd defendant as the 1^st defendant’s director. And on the evidence before me, his removal is justified. In any event, the 1^st Order expressly gives the 3^rd defendant the power to continue to defend the 1^st defendant in the proceedings concerned. The receivers have also in correspondence confirmed that they agree to allow the 3^rd defendant to do so.

21.  I therefore dismissed the Reinstatement Application.

Costs

22.  Costs should follow the event. The 1^st plaintiff shall have the costs of the 1^st Discovery Application, the Attachment Application and the Reinstatement Application, to the paid forthwith, and to be taxed if not agreed. I further give leave to the 1^st plaintiff to apply within 14 days for summary assessment in lieu of taxation. The costs of the 2^nd Discovery Application are reserved for the time being.