IRONWOOD CAPITAL LTD v. KTH CAPITAL MANAGEMENT LTD

HCA2836/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2836 OF 2004

---------------------------------

----------------------

----------------------

R U L I N G

--------------------

1.  By an order dated 20 November 2007, given pursuant to a written ruling in this matter, the defendant was ordered to give a Summary Account in this matter.

2.  Pursuant to such order, the defendant filed two affirmations, being the 3^rd Affirmation of Wang Du and the 8^th Affidavit of Kevin Richard Bowers both dated 26 February 2008.

3.  In this application, by Summons dated 22 April 2008, the plaintiff complains that the defendant has not complied with the order of 20 November 2007, and seek a further order for the defendant to fully comply with that order for summary account.

BACKGROUND

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

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

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

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

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

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

10.  The plaintiff brings this claim on the basis that after the defendant had been given such authority to move funds between the ABN Account and the Sub-Account, the defendant had conducted investments from and moved funds between the ABN Account and the Sub-Account without the plaintiff’s knowledge and failed to properly account to the plaintiff in respect of such moneys and investments conducted by the defendant on behalf of the plaintiff.

11.  Since it was not disputed by the defendant that it stood in such a relationship as between it and the plaintiff to amount to an accounting party to the plaintiff, the Summary Account order was made.  In ordering the Summary Account to be given by the defendant, there was a further order that the plaintiff will be able to file its objections to the Summary Account when the Summary Account was given.  That was done in order to crystallize the issues in dispute between the parties herein.

THE ORDER FOR SUMMARY ACCOUNT

12.  Paragraph 1 of the order for Summary Account are in the following terms :

“1. the following Accounts (‘the Accounts’) be taken that is to say

(A)  all dealings by the Defendant or its directors or any of them since November 2000 with monies paid into or withdrawn from the accounts referred to in the Schedule to this Summons (the ‘relevant accounts’);

(B)  all transactions carried out since November 2000 by the Defendant or its directors or any of them using directly or indirectly monies from time to time withdrawn from the relevant accounts;

(C)  all investments made since November 2000 by the Defendant or its directors or any of them using directly or indirectly monies belonging to the Plaintiff; and

(D)  all monies and other assets currently held by the Defendant for and on account of the Plaintiff as a result of the dealings, transactions and investments referred to in (A) (B) or (C) above.”

13.  The “relevant account” referred to in that Order is a reference to both the ABN Account and the Sub-Account.

WHAT WAS DONE BY THE DEFENDANT IN PURPORTED COMPLIANCE WITH THE ORDER

14.  In purported compliance with such order for Summary Accounts, the defendant filed the 3^rd Affirmation of Wang Du exhibiting (inter alia) Exh. WD2 to WD10 inclusive.

(a)  In respect of the ABN Account

15.  Of these exhibits, Exh. WD2 to WD7 were the bank statements of the ABN Accounts (which had been disclosed by the plaintiff on 17 February 2006) and those bank statements purported to be the summary accounts given by the defendant relating to the ABN Accounts.

(b)  In respect of the Sub-Account

16.  Exh WD8 to WD10 were exhibited by the defendant as being the summary account relating to the Sub-Account.

PLAINTIFF’S COMPLAINT

17.  In this application, the plaintiff complains that the order for Summary Account has not been complied with by the defendant in the following ways :

(i)  For the ABN Accounts, all that has been given by the defendant were the bank statements of the ABN Accounts, which were in fact documents disclosed by the plaintiff, and which simply cannot amount to a summary account as ordered.  In short the defendant has simply not rendered any account in that respect;

(ii)  As for the Sub-Account :

i.  there were two outflows item, both of US$3,305,000 transferred out on 11 December 2001.  While the defendant has explained one of the two outflows, there is no explanation given in the purported Summary Account of the other amount of US$3,305,000;

ii.  there were two outflow items of HK$17 million withdrawn on 23 March 2001, and the defendant has failed to render any account or give any explanation as to what happened to the other sum of HK$17 million;

iii.  as for HK$15 million withdrawn on 26 April 2001, the defendant has failed to account for what happened to the money after it was withdrawn on 26 April 2001 up to the time when it was allegedly refunded to the plaintiff on 10 and 11 May 2001 or whether any interest had been gained from such money during that time; and

iv.  as for the withdrawal of HK$78,000 on 3 July 2001, no explanation has been given relating to this withdrawal.

DEFENDANT’S STANCE

18.  In respect of the Summary Account which has been ordered to be given by the defendant, the defendant takes the stance that since the defendant is not an accounting party in respect of the ABN Account, all it could do is to produce the bank statements (namely Exh. WD2 to Exh. WD7).

19.  As for the Sub-Account, the defendant has given a summary account in the form of Exh. WD8 to WD10 and says that it has provided all the explanations now sought by the plaintiff in Bowers 8^th in so far as they relate to the Sub-Account.

20.  Whatever further material sought by the plaintiffs should properly be included in the List of Objections for which the plaintiff has been given leave and which should rightly be the subject matter of dispute between the parties in this matter.

DECISION

21.  In so far as the ABN Account is concerned, I accept the plaintiff’s suggestion that simply by producing the bank statements relating to the ABN Account does not comply with the Order Summary Account.

22.  I cannot accept the stance of the defendant that all it could do is to produce the bank statements as being the Summary Account ordered.

23.  There is no dispute that the defendant is an accounting party to the plaintiff in respect of monies which the defendant invested on behalf of the plaintiff at the material time.

24.  It is also not in dispute that money from the ABN Account was utilized for such investment by the defendant on behalf of the plaintiff.

25.  In its pleadings, the defendant has pleaded that it has properly accounted to the plaintiff for all such money which it has invested on behalf of the plaintiff.  That would imply that the defendant should have no difficulty identifying the money which came to the defendant from the ABN Account for investment carried out by the defendant on behalf of the plaintiff.

26.  Therefore there can be no difficulty for the defendant to be able to give an account of all such monies which was transferred to the defendant from the ABN Account and more importantly, what the defendant did by way of investment on behalf of the plaintiff with such monies.  The defendant should also have no difficulty in stating how much money was transferred back to the ABN Account by the defendant after such investment.

27.  That is the summary account which the defendant has to give in relation to the ABN Account.

28.  The above matters cannot be ascertained simply by the defendant producing the bank statements of the ABN Account.

29.  As for the other objections raised by the plaintiff in relation to the summary account provided by the defendant relating to the Sub-Account and contained in Exh. WD8 to WD10, such summary account has been provided by the defendant.  Any objection by the plaintiff to such summary account provided should rightly be included in the plaintiff’s List of Objection thereto.  That would crystallize the issue in dispute between the parties which is the very purpose for which the summary account was ordered in the first place.

30.  Having decided the substantive issue relating to the plaintiff’s present summons, it has to be noted that the plaintiff’s summons seek an “Unless Order”.

31.  This is not such a case whereby the defendant has flatly refused to comply with a court order.  The defendant has made some effort to furnish a summary account as ordered, however, in relation to one part of it (namely relating to the ABN Account) what was furnished by the defendant failed to meet up with what was ordered.

32.  Given the circumstances, I do not see that an “unless order” is called for at this stage.

33.  There will accordingly be an order that the defendant do replace Exh. WD2 to WD7 with a proper summary account of the movement of funds to the Sub-Account from the ABN Account (and vice versa) of those monies used by the defendant for investment on behalf of the plaintiff in the manner ordered as per paragraph 1(A), (B), (C) and (D) of the Order dated 20 November 2007 within 28 days from today.

34.  There will be a consequential order that the leave given to the plaintiff for filing its List of Objections to such Summary Account be extended by 28 days after compliance of the above order by the defendant.

COST

35.  This application having been made necessary because of the failure of the defendant to fully comply with the Order of 20 November 2007, there will be a cost order nisi that the defendant is to bear the cost of this application and hearing in any event.