XCHRX NG YAT CHI v. MAX SHARE LTD. AND ANOTHER

HCCW 321/96

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) NO. 321 OF 1996

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D E C I S I O N

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[Summons dated 25/1/1999]

1. The first summons is one dated of 25th January 1999 for discovery under Order 24 r. 10. The only remaining dispute is as to costs. The Petitioner had issued the summons as I said on 25th January 1999. Three days before that, the Respondent's solicitors had by letter offered various undertakings which were more or less in line with the order made by this court on 8th February 1999 whereby the Respondent was given time to produce various documents and to serve its Rule 10(2) notice, and I reserved costs on that occasion.

2. The Respondents' notice was filed on 15th February 1999 objecting to the production of some documents with brief reasons and also producing the non-objected items. There has been some dispute between the parties as to whether the non-objected items were produced in time. This is a sterile argument because it is impossible for this court to ascertain from the present evidence whether certain documents were handed over or not on a particular day, and it is unfortunate in the extreme that solicitors who are officers of the Court are wasting time dealing with the question between them as to whether documents were actually produced or not.

3. In my view, given the fact that the Respondents had been late in responding to the requirement for production of documents referred to in affirmations, but also given that the Respondents had offered undertakings prior to the issue of the summons, I think the correct order as to costs would be that they should be costs in the cause which would also include the costs of this summons today.

[Summons dated 17/3/1999]

4. This is an application by the Petitioner under Order 24 r. 7 for various documents which have been listed in a schedule to the summons filed on 17th March 1999. The principles governing the exercise of my discretion are well-known. The usual conditions for the exercise of discretion are firstly, that the applicant must show that the documents exist; secondly, that they are relevant; and thirdly that they are in the Respondents' possession. Clearly the whole point of having further discovery such as this is to save time and costs.

5. I shall refer to the list set out in the schedule and indicate what has become of each request. In relation to the first request, that is pertinent to para. no. 31 of exhibit "RTB-1" to the affidavit of Mr. Roger Best, that is no longer pursued.

6. In relation to item no. 2 which is the project management agreement, I agree with Mr. Reyes that whether that management agreement shows that the project management fee was higher or lower than as set out in Mr. Best's report, that really does not affect the bottom line because whether the project management fee was higher or lower, the figure of $71.691 million would be the same, because whatever can be saved in project management fees would be an increase in the gross profit. And similarly, whatever was expended by way of project management fees would become a deduction from what would have been the gross profits. Therefore, I would dismiss the application as far as item no. 2 is concerned.

7. As for item no. 3, which is all accounting records and documents recording total sales made by Mount Land Ltd. in the sum of $220 million odd including a detailed breakdown, that is a basis for the calculation of 7.4%, which led to the calculation of $5.291 million which the Petitioner has complained about in para. 26(b) of the Re-Amended Petition which reads as follows:

"In the same audited accounts for the year ended 31st December 1991 at p.19 under notes to the financial statements note (9), there is still a clear sign of an accounting manipulation:

Completed properties for sale for the Group (the company plus all Subsidiaries) being $38,945,000.00;

Completed properties for sale for the company alone being $44,236,000.00

Exceeding the company plus all subsidiaries by $5,291,000.00."

8. Mr. Yip's case was that since this $220,000,000.00 was used as the basis for calculating 7.4% which in turn led to $5.291 million, it is relevant to see if the 7.4% proportion applied was correct. However, Mr. Reyes submitted that the Petitioner already has got the audited financial statements of Mount Land showing total sales of $220,000,000.00. The Petitioner has made out no case that the figure of $220,000,000.00 was wrong; if anything was wrong, it would be in the proportion which was applied, such as led to the $5.291 million which is disputed. Accordingly in my view, it is not relevant to the matter which has been put in dispute in para. 26(b) and I will not grant that.

9. In relation to paras. 4(a), (b) and (c), these are no longer pursued.

10. In relation to 4(d), I refer to the order of Mrs. Justice Le Pichon which was made on 23rd October 1998 filed on the 16th November 1998, in which the Petitioner has undertaken that his case is that Hennessy Road was the only property which was truly beneficially owned by the 1st Respondent, and that he was not putting forward the case that there were any properties other than Hennessy Road which CRC, the 2nd Respondent, had acquired using the 1st Respondent's money. The only connection that Mr. Yip could show me in relation to the item in the Trial Balance of 051115 "loan from CRC 1991" $108,000,000.00 odd was that he said this loan was made in 1991 and Hennessy Road was acquired in 1991 and that was the only link. In my view, it seems a fishing expedition to require documents relating to this loan simply because there was a co-incidence in time between the acquisition of Hennessy Road and this loan in 1991.

11. This is particularly so when one sees in the same Trial Balance under code 051119, a loan from CRC in the amount of $58.08 million which expressly referred to Hennessy Road. Mr. Reyes, I think, accepts that this item is relevant and his only submission was that the Petitioner had already sufficient documents. I do not agree. Since this Hennessy Road property is a bone of contention between the parties, the Petitioner is, in my view, entitled to item 4(e) which is "account documents and record including but not restricted to ledgers, vouchers and cheques indicating loan from CRC - Hennessy Road for the sum of $58.08 million referred to in the Trial Balance of the 1st Respondent for 31st December 1991".

12. In relation to item 4(f) again Mr. Yip could only say that the only link between Hennessy Road and this item (which appears under description "loan by CRC - TSV") was a linkage of time. In my view again that link is too tenuous for them to pursue an order for specific discovery and I would not grant an order in relation to item 4(f).

13. Item 4(g) has not been pursued by Mr. Yip.

14. Items 5(a) and (b) have not been pursued nor have been items 6(a) and 6(b).

15. Items 7(a) and 7(b) are no longer pursued.

16. In relation to item 8, this concerns the transfer documents for two shares in Redland Consultants. The beneficial ownership of the Hennessy Road property is seriously in dispute, as is the ownership of the shares in the property holding company namely, Redland Consultants Ltd. In my view, although I note Mr. Reyes' submission that the Petitioner's case was that the beneficial interest had been created prior to these transfers, all documents which are relevant to this issue should in my view be disclosed, and therefore I would allow the application in relation to item 8, namely "Instrument of Transfer and corresponding Bought and Sold Note executed by Bao Feng to the 2nd Respondent or its nominee and the Instruments of Transfer and corresponding Bought and Sold Note from Wang Hong Ling to China Resources Trade Consultancy Company Limited to the 2nd Respondent (or its nominee) of the 2 shares in Redland Consultants Ltd., and accounting record of the 2nd Respondent recording and substantiating such payment of consideration in acquiring the beneficial ownership of the said 2 shares".

17. Finally, there is item 9 which is a more elaborate form of what had been sought under item 6(b). This is for "accounting documents and records including but not restricted to ledgers, vouchers and cheques of the 2nd Respondent recording movement of the advance up to $358,391,233.36 from the 2nd Respondent to the 1st Respondent, accounting records and documents of the 1st Respondent recording actual receipt of the advance up to that figure and final utilisation of the said figure".

18. It is clear from the Advance Notices that this figure was advanced in a number of tranches. The request by Mr. Yip for bank statements to show the utilisation of this amount is clearly oppressive; monies in banks are mixed and it would be if not impossible at least oppressive for the Respondents to be required to produce all documents relevant to this amount. However, I agree with Mr. Yip that the Petitioner should have the accounting records showing into what accounts these various tranches have been credited in order to see what led to the 1st Respondent's dire financial condition so as to require these loans from CRC, and from then to see if the company actually needed to increase the capital which the Petitioner was complaining about in his Re-Amended Petition.

19. I shall now hear the parties as to costs.