CHEUNG SHUK MEI v. POON KIN FAI AND ANOTHER

HCCW 461/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 461 OF 2012

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D E C I S I O N

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1.  On 15 August 2013 I made an order for discovery in these proceedings. Paragraph 1 of that order provided:

“Parties do exchange within 28 days hereof list of the documents in their possession, custody and power relevant to the issues in the Petition”.

2.  On 11 September 2013 the 1^st and 2^nd respondents produced a list of documents.  Schedule 1 Part 1 listed just two documents.  The first is an audited report of the company for the year ending 31 March 2012, the second is a copy of a draft balance sheet of the company for the period from April 2012 to July 2013.

3.  On 29 October 2013 the petitioner issued a summons for orders that the 1^st and 2^nd respondents do serve on the petitioner a further and better list of documents which are or have been in their possession, custody or power relating to any matter in question in the proceedings, and secondly for an order that the 1^st and 2^nd respondents file an affirmation verifying such a list.

4.  The Petition was issued under section 168A of the Companies Ordinance Cap 32, and as the action number indicates also contains an alternative prayer for a winding-up order.  It is not necessary for the purposes of disposing of this application to go into the background, it is sufficient to summarise the grounds of complaint in the Petition. 

5.  The first of these is mismanagement of the affairs of the company.  Paragraph 13 of the Petition contains a complaint directed to the state of the company’s accounting and filing system.  Paragraph 13 states:

“Since the incorporation of the company, the 1^st respondent has failed and/or refused to prepare and keep proper books and accounts. The company’s accounting and filing system were in a complete mess and chaos. Relevant documentation such as payment vouchers, invoices, purchase orders, cheques stubs, bank statements and receipts were never in place, most of which have either gone missing, or in a state of disarray, or kept to the exclusion of the petitioner… Despite the ongoing concern of the petitioner of having a proper accounting and filing system for the company, the 1^st respondent had patently failed to do so regardless of the fact that it was his duty and responsibility...”

6.  This complaint is in issue.  It is clear on the face of paragraph 13 that the complaint is directed to the state of the company’s accounts records and accounts maintenance.  There are also complaints concerning failure to pay the company’s suppliers and exclusion of the petitioner from the management of the company.

7.  Given the allegation contained in paragraph 13 of the Petition, it might be thought surprising that the 1^st and 2^nd respondents’ list of documents only referred to two documents and did not disclose any documents which might properly be characterised as forming part of its accounts records and systems.  A possible explanation for that might be that the documents have unfortunately been destroyed.  However, that is not the case, and it appears to be common ground that the company has substantial accounts records and the respondents have simply failed to disclose them.

8.  The respondents’ counsel Mr Kelvin Leung served 18 pages of written submissions before the hearing attempting to address the petitioner’s application.  The submissions explain the background to the dispute, summarise the contents of the Petition, list what the respondents see as the issues in dispute, recite the history of the orders that I have made in the proceedings, contain a lengthy section explaining the general principles that apply in relation to discovery applications citing a significant number of cases on the subject and finally purports to deal with the substance of the application.

9.  However, what is not addressed is the fairly obvious point that if the contents and form of the company’s accounting records are in issue, those records have to be looked at in order to determine whether the state that they are in supports the petitioner’s claim or not.  It may be they do.  It  may be they do not.  I do not know.  It may be that even if the accounting records are in a mess the reason for this is not the responsibility of the 1^st respondent but is, as I understand the 1^st respondent will contend, the responsibility of the petitioner herself.

10.  However, none of that is relevant to the fact that the accounts records are themselves relevant to the first complaint relied upon by the petitioner.  I asked Mr Leung various questions to illicit the reason for what seemed to me to be a clear failure to comply with my order.

11.  The answers focused on various matters, such as the substance of the complaint, whether the petitioner could access the documents in her capacity as a director of the company, the large quantity of documents involved, but it seems to me quite clear that the material issue, which is whether or not the accounts records and their state are relevant to the first complaint in the Petition, was not satisfactorily answered.

12.  I will therefore make an order that a further list of documents be provided.  As I explained in an exchange with Mr Leung, this does not require every single document that the company has to be listed, what it requires is for the respondents and their solicitors to look at the company’s records and see what files it has which they consider either contain or arguably contain documents which are relevant to the issues referred to in the Petition, and then to list the files in a manner which allows their contents to be understood by the petitioner and her legal advisors in order that they can decide whether it is necessary to inspect them or not.

13.  As I also explained given the nature of the complaint, the actual form and state of the original files itself is relevant to the first issue in the Petition.  I would therefore expect the petitioner to want to look with her legal advisors at the state that the original files are in to see whether it supports her complaint or not. 

14.  I will therefore make an order in the terms of paragraphs 1 and 2 of the summons and the draft can be submitted to my clerk for approval. 

15.  That brings me to the question of costs.  Mr Leung handed up to the court two letters.  The first was from his instructing solicitors to the petitioner’s solicitors dated 3 December 2013. In this they offer to supply a further and better list of documents in which the following documents they say would be included:

(1)    All accounts ledgers of the company; and

(2)    All bank statements of the company. 

16.  They then proposed that the summons can be dealt with by consent, and that there be no order as to costs.  The petitioner’s solicitors replied on 6 December 2013.  In that letter they simply requested that a further and better list of documents be provided and that their client have the costs of the summons up to that date.  It seems to me to be quite clear that the respondents should have agreed to do this.  I can see no reason why the letter of 3 December 2013 which is headed “Without prejudice save as to the costs” should impact on the incidence of costs in this application.

17.  Of more importance it seems to me is the basis on which the costs should be ordered.  As I have endeavoured to explain in these extemporary reasons, it is quite clear that the first list of documents was unsatisfactory.  I would have expected that before this hearing took place that it would be recognised by the respondent’s legal advisors that opposing the application was not viable.  This is not what has happened and it seems to me that the way in which the matter has been dealt with is sufficiently unsatisfactory that it is appropriate to order that the costs are paid on a higher basis than normal. 

18.  I will therefore order that the costs be taxed on a common fund basis and paid forthwith.