IP PUI LAM ARTHUR AND ANOTHER v. ALAN CHUNG WAH TANG AND OTHERS

HCB 3819/2011

[2019] HKCFI 1398

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 3819 OF 2011

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D E C I S I O N

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1.  By summons dated 27 April 2018, the applicants (“Trustees”), the joint and several trustees of the estate of Ho Yuk Wah David (“Bankrupt”), applies for an order under Order 45, rule 6(1) to enforce the order made by Au-Yeung J on 7 April 2017 against the 1^st and 2^nd respondents for production of various documents relating to the Bankrupt or his dealings, affairs or property (“Production Order”).

2.  The 1^st respondents, Mr Tang and Mrs Wong, are the joint and several liquidators of CWT Textile Supplies Company Limited (“CWT”).  The 2^nd respondents, Mr Tang and Ms Hou, are the joint and several trustees in the bankruptcy of Lee Siu Fung Siegfried (“LSF”).  Mr Tang, Mrs Wong and Ms Hou became partners of Shinewing Specialist Advisory Services Limited (“Shinewing”) in 2011.  Mrs Wong retired as a partner on 30 June 2014 although she remains a liquidator of CWT.

3.  The Production Order was the fourth order obtained by the Trustees under section 29 of the Bankruptcy Ordinance (Cap 6) against the 1^st and 2^nd respondents for production of documents relating to the affairs of the Bankrupt. 

Background

4.  The background fact has been set out in the judgment of To J in Re Ho Yuk Wah David (bankrupt) [2015] 2 HKLRD 603 at 606 – 608 and the judgment of Recorder Eugene Fung SC in Ip Pui Lam & anor v Alan Chung Wah Tang& anor [2019] HKCFI 149 at §§1 – 11, 17 – 19.  The salient fact relevant to the present application is as follows.

5.  On 2 August 2011, a bankruptcy order was made under a petition presented by the Bankrupt himself.  The Trustees were appointed on 30 September 2011.  The Trustees are of the view that the Bankrupt has been operating a complex scheme using about 30 offshore companies and nominees to carry on business ventures and litigations, conceal his assets and pay his personal and family expenses.  The offshore companies include Topmark Asia Ltd (“Topmark”), Sun Ascent International Ltd (“Sun Ascent”), Keentrade Investments Ltd (“Keentrade”) and Sinowood International Ltd (“Sinowood”), all of which were incorporated in the British Virgin Islands (collectively “BVI Companies”).

6.  Amongst the documents obtained by the Trustees pursuant to previous production orders, there was a consultancy agreement between the 1^st respondents and Topmark and a funding agreement between the 1^st respondents and Sun Ascent, both of which relate to CWT’s claim against its former auditors for alleged professional negligence.  After the claim had been settled, a sum of HK$45 million was paid to the 1^st respondents who, in turn, caused payments to be made to Topmark and Sun Ascent.  According to the 1^st respondents, the CWT liquidation was completed by 2009.  

7.  Similarly, there was an agreement between the 2^nd respondents and Keentrade in respect of funding for litigations arising from the bankruptcy of LSF, and a consultancy agreement for providing service in respect of such litigations.  No recovery, payment or refund was made to Keentrade or Sinowood.  The agreements were terminated in March 2013.  Since then, the funder of LSF bankruptcy has changed a number of times.    

8.  As recorded in the Decision of Au-Yeung J dated 7 April 2017, the Production Order was made without any opposition from the 1^st and 2^nd respondents.  The only points raised on behalf of the 1^st and 2^nd respondents were the time limit for production of documents and costs.  Under the Production Order, the 1^st and 2^nd respondents were ordered to produce, by 6 June 2017, copies of the following three categories of documents:  

(1)  documents in connection with 10 payments made between 28 November 2003 and 25 March 2008 in the aggregate sum of HK$4,198,240.30 set out in a document entitled “CWT Textiles Supplies Company Limited (in creditors’ voluntary liquidation) Interest calculation on Fundings [sic] (excluding HK$920,000 security for costs)”;

(2)  the supporting documents in connection with the amount of HK$1,560,200 set out in a document entitled “Distribution schedule for settlement sum of HK$45 million”; and

(3)  the documents in connection with a funding agreement dated 4 August 2005 made between Keentrade and the 2^nd respondents.

9.  In relation to these three categories of documents, it was expressly stated in the Production Order that they included, but not limited to, the agreement(s), correspondence, minutes of meeting(s) / written resolution(s) of the creditors / committee of inspection / court order(s), cheque(s), bank draft(s), cashier order(s), invoice(s), receipt(s) and any other accounting documents in relation thereto.

10.  Under §2 of the Production Order, if any of the documents falling within the three categories “had never been or is no longer in his/her custody and/or power, the 1^st Respondents and/or the 2^nd Respondents (where applicable) do by 6 June 2017 file an affidavit/affirmation in respect of each document whether it had been in his/her custody and/or power, and if it had been, when it was last in his/her custody and/or power, and the reason it is now no longer in his/her custody and/or power”.  

11.  It is common ground that the Production Order covers the documents falling within the scope of the three categories, whether they were stored in electronic or physical form.    

12.  The 1^st and 2^nd respondents through their solicitors provided the Trustees with 151 items consisting of 835 pages of documents on 6 June 2017, 7 August 2017 and 11 December 2017.  They considered thatthey had complied with the Production Order.  This is despite the fact that they have not filed any affirmation as required by §2 of the Production Order.  

13.  Although Mrs Wong retired from Shinewing in June 2014 and has since then spent most of her time looking after her family members, she accepts that as a liquidator of CWT, she was (and still is) under an obligation to comply with the Production Order.  The only steps taken by her in compliance with the Production Order were:

(1)  to request for a list of books and records concerning CWT from Ms Hou on 28 February 2018, which was provided to her on 2 March 2018. Thereafter, Mrs Wong inspected five box files of documents and was satisfied that they relate to litigation funding; and

(2)  to invite the Trustees’ solicitors to attend the office of Shinewing for the purpose of inspecting the files of CWT (approximately 250 box files) on 13 March 2018.  However, the Trustees declined to take up the invitation on the basis that it was the responsibility of the 1^st respondents to go through the files and identify the documents which fall within the scope of the Production Order and produce them to the Trustees. 

14.  The Trustees were dissatisfied with the extent of the documents produced by the 1^st and 2^nd respondents and their failure to file the requisite affirmation and issued the summons to secure compliance with the Production Order.

Applicable principles

15.  Order 45, rule 6(1) provides that:

“ Notwithstanding that a judgment or order requiring a person to do an act specifies a time within which the act is to be done, the Court shall, without prejudice to Order 3, rule 5, have power to make an order requiring the act to be done within another time, being such time after service of that order, or such other time, as may be specified therein.”

16.  In Re Ho Yuk Wah David (bankrupt) [2015] 2 HKLRD 603, To J stated (at §19 [1]) the principle governing an application made under Order 45, rule 6(1) in this way:

“ This jurisdiction is an absolute one. The rule enables the court to give the respondent one last chance to comply with its order before the applicant may invoke the penal sanctions available in the court’s armory. The burden is on the applicant to prove that an order had been made requiring the respondent to perform an act within a specified time and the respondent failed to do so. Once that is proved, the burden is then shifted to the respondent to show why he should not be required to comply with the order to perform the act, upon being given a second chance. The obligation to perform the act required had been determined and made an order of the court. Thus, in considering whether to exercise the discretion under this rule, there is no need for the court to revisit the appropriateness or otherwise of its previous order. The question is simply whether in all the circumstances the respondent should be excused from performing the act underits previous order. As the court’s orders are made to be complied with, such circumstances must be very rare indeed. A possible example would be impossibility of performance as a result of a change in circumstances.”

Discussion

17.  The Trustees contend that the 1^st and 2^nd respondents have failed to comply with the Production Order. They identified 18 specific instances of documents which fall within the scope of the Production Order but have not been produced by the 1^st and 2^nd respondents.  Mr David Chen, counsel for the Trustees, has helpfully summarised the 18 instances of alleged failure to produce documents and the response of the 1^st and 2^nd respondents in a table (“Table”) based on the contents of the 2^nd Affirmation of Ip Pui Lam Arthur filed on behalf of the Trustees on 7 August 2018 and the 3^rd Affirmation of Hou Chung Man filed on behalf of Mr Tang and Ms Hou on 8 November 2018 (“Hou 3^rd”).

18.  At the hearing, Mrs Wong (acting in person) and Mr Patrick Siu, counsel for Mr Tang and Ms Hou, do not dispute the accuracy or completeness of the Table.  Accordingly, I shall refer to the Table on the basis that it is an accurate summary of the Trustees’ specific complaints onnon-compliance and the 1^st and 2^nd respondents’ response to such complaints.  

19.  For Items 1 – 17, the Trustees identified the source documents which suggest that further documents might be in existence but have not been produced by the 1^st and 2^nd respondents. Mr Chen submits that:

(1)  the 1^st and 2^nd respondents must be aware that the documents which they failed to produce are directed to (a) establishing the connection between the Bankrupt and the BVI Companies and (b) identifying the payors and payees of the fund flows between the BVI Companies, the 1^st and 2^nd respondents and the Bankrupt;

(2)  the documents under Items 4, 6, 8, 9 and 12 were only produced by the 1^st and 2^nd respondents in Hou 3^rd, as exhibits “HCM-17” to “HCM-19”, “HCM-21” to “HCM-23” and “HCM-25”;

(3)  the documents belatedly produced by the 1^st and 2^ndrespondents are said to have been located after further detailed search of CWT and LSF case files. This suggests that either the earlier production of documents was incomplete or the 1^stand 2^nd respondents deliberately withheld production of certain documents falling within the scope of the Production Order.  There is no explanation as to why these documents were not produced earlier; and

(4)  although the 1^st and 2^nd respondents assert that the specific documents identified by the Trustees in Items 1 – 3, 5, 7, 10 and 11 are not available, such assertion should not be accepted as their search was only confined to the CWT and LSF physical case files.  Under the Production Order, the 1^st and 2^nd respondents are required to produce the documents that are within their custody or power. This requires the 1^st and 2^nd respondents to search for the relevant documents stored in electronic form.  For example, there might be email correspondence stored in the email servers of the office wherethey practised, and copies of cheques, invoices, cashier orders,receipts kept by the accounting department.  

20.  As for Item 18, it concerns the 1^st and 2^nd respondents’ failure to file an affirmation to explain the documents which were once, but no longer in, their custody or power.

21.  Mr Siu, on behalf of Mr Tang and Ms Hou, advances the following grounds in opposition to the summons:

(1)  the Trustees have failed to say, let alone prove, what documents the 1^st and 2^nd respondents have omitted to produce under the Production Order.  It is not sufficient for the Trustees to say that there are “outstanding documents” which the 1^st and 2^nd respondents have failed to produce or to refer to source documents which suggest that further materials “might be available”;

(2)  the 1^st and 2^nd respondents never said that they had only searched the physical but not the electronic files.  Indeed, it was from their search of the electronic files that they were able to identify and produce some emails which show the involvement of the Bankrupt in dealing with the litigation of CWT including the use of the settlement sum paid to CWT;

(3)  the 1^st and 2^nd respondents have searched the files again and, where possible, produced some additional documents.  There is “nothing further that the Respondents can do”;

(4)  the documents identified in Items 2, 3, 5 to 12 fall outside the scope of the Production Order as they relate to “outward payments” (i.e. payments made by CWT), but the Production Order only requires the 1^st and 2^nd respondents to produce documents relating to “inward payments” (i.e. payments made to CWT);

(5)  the Production Order requires the 1^st and 2^nd respondents to produce documents within their “custody and/or power”.  However, under section 29 of the Bankruptcy Ordinance, the court can only order a respondent to produce documents within his “possession and control”;  

(6)  Ms Hou has already explained (in Hou 3^rd) that given the “very vague description of the documents sought”, the long lapse of time, their endeavour to locate the relevant documents and produced all such documents, she “cannot tell if there would beother documents that may have existed, and the whereabouts of those documents that may have existed but can no longer be located”.  Mr Tang has adopted the same stance.  In the premises, Ms Hou and Mr Tang have already complied with §2 of the Production Order “by explaining every relevant matter known to them”. It would be futile to make an order against the 1^st and 2^nd respondents as they would only file an affirmation to say that the same thing; and

(7)  it is now clear law that the court cannot under section 29 of theBankruptcy Ordinance order a respondent to make an affidavit as required by §2 of the Production Order, citing Ip Pui Lam & anor v Alan Chung Wah Tang & anor [2019] HKCFI 149, §§39 – 42, per Recorder Eugene Fung SC.  As such, the court“should not exercise its discretion to continue with an obvious and indisputable legal mistake”.   

22.  As for Mrs Wong, her grounds in opposition to the summons may be summarised as follows:

(1)  she does not have direct access to or control over the records covered by the Production Order;

(2)  the documents sought by the Trustees go beyond what they reasonably require;

(3)  she did not know what further documents the Trustees sought and they should have accepted her invitation to inspect the case files of CWT and LSF so as to identify the documents they wanted; and

(4)  she trusted that Mr Tang and Ms Hou are “decent professionals” and have responded to the requests made by the Trustees.

23.  I consider these grounds in turn.    

24.  First, I am unable to accept the 1^st and 2^nd respondents’ contention that the Trustees have not identified or proved that they had failed to comply with the Production Order (§21(1) and §22(4) above).  As can be seen from the Table, it is indisputable that when the summons was issued, the 1^st and 2^nd respondents had failed to produce the documents identified in Items 4, 6, 8, 9 and 12.

25.  Second, I do not think there is a proper basis for Mr Siu’s submission that the 1^st and 2^nd respondents have already searched all the physical and electronic files within their custody or power or that there is “nothing further that the Respondents can do” (§21(2) – (3) above):

(1)  The 1^st and 2^nd respondents have not in Hou 3^rd made clear what files or records (physical or electronic) she had searched and reviewed for the purpose of complying with the Production Order.  This was despite the fact that in the emailscorrespondence between Ms Hou and Mrs Wong (“AWLFY-6”), it is clear that Ms Hou had obtained a list of books and recordsof CWT generated from “the latest available storage records”.  

(2)  Instead, in §10 of Hou 3^rd, Ms Hou used general wordings to describe her search, stating that she together with Mr Tang andMrs Wong had “tried (and continue to try) to locate and review in detail the remaining available files and documents of the CWT and LSF cases, which are the two main insolvency administrations that are subject to the [Production Order]”.  She even emphasises that “although there was a general filing system (subject to modifications) which was supposed to be followed by supporting staff who did the filing …, the completeness and correctness of the actual filing or safekeeping of documents cannot be guaranteed by anyone.  It is common business knowledge that documents do go missing or get mis-filed over time (and following a number of office relocations)”.

(3)  A similar point was made in §17 of Hou 3^rd, where Ms Hou stated that “Mr Tang and I cannot guarantee all the documents sought ever existed in the first place; and to the extent they might have existed, that all of these documents can now be located and retrieved, as most of the transactions were over at least 10 years ago”.

26.  Third, the suggestion that §1 of the Production Order only requires the 1^st and 2^nd respondents to produce documents relating to “inward payments” (§21(4) above) is plainly wrong. Each of the three categories is described in terms of documents “in connection with” the specific payments, the specific sum in the distribution schedule and the funding agreement made between Keentrade and the 2^ndrespondents.  Such description is wide enough to cover both inward and outward payments.  Indeed, that was the understanding of the 1^st and 2^nd respondents, evidencedby their act in producing documents relating to the outward payments made by CWT.    

27.  Fourth, the contention that the Production Order, to the extent that it requires the 1^st and 2^nd respondents to produce documents in their “custody or power”, was made without jurisdiction (§21(5) above), is wholly without merit:

(1)  It is not open to the 1^st and 2^nd respondents to ask the court to revisit the appropriateness or propriety of the Production Order.

(2)  In any event, under section 29(1) of the Bankruptcy Ordinance,“the court may require any person to produce any documents in his custody or power relating to the bankrupt, his dealing or property”.

(3)  §1 of the Production Order does not refer to “custody or power”.  In light of the wordings of section 29(1) of the Bankruptcy Ordinance, it is clear that the 1^st and 2^nd respondents can only be required to produce documents which are within their custody or power.  Indeed, this was the understanding of the Trustees and the 1^st and 2^nd respondents.

(4)  While §2 of the Production Order refers to documents “which had never been or is no longer in his/her custody and/or power”, it does not render §2 of the Production Order to be made without jurisdiction. As discussed in §30 below, §2 of the Production Order is an ancillary order made by the court to ensure that §1 of the Production Order is effective, and the court has inherent power or jurisdiction to make such an order.  

28.  Fifth, I do not accept Mr Siu’s bold suggestion that Hou 3^rd constituted an affirmation in compliance with §2 of the Production Order (§21(6) above). Indeed, neither the 1^st and 2^nd respondents have made such a suggestion in their affirmations.  Nor have they explained why theyhad failed to file the affirmation as required by §2 of the Production Order.

29.  Sixth, I am unable to accede to the submission that the court has no jurisdiction to make an order in terms of §2 of the Production Order or that the court should not enforce such an order (§21(7) above).  It is not the occasion to ask the court to revisit the propriety of the Production Order.

30.  Further and in any event, as Mr Chen submits, the court has inherent power under section 29 of the Bankruptcy Ordinance or the inherent jurisdiction to make an ancillary order to ensure that the exercise of its jurisdiction or the remedies it grants is effective. He relies on the well established principle propounded in AJ Bekhor & Co Ltd v Bilton[1981] 1 QB 923, a case concerned with the jurisdiction of the court to makean ancillary order requiring disclosure of assets in aid of Mareva injunction,at 940G–H, 942G–H, per Ackner LJ.  I agree. Indeed, an order requiring a respondent to file an affirmation to explain the whereabouts of the documents which were once, but no longer in, the “custody or power” of the respondent is frequently made by the court under section 286B[2] of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32), which confers the power on the court to make an order for private examination and production of documents against the respondent.

31.  As for the other grounds raised by Mrs Wong, they are equally without merit:

(1)  The suggestion that she has no direct access to or control over the records falling within §1 of the Production Order (§22(1) above) is untenable.  She is a liquidator of CWT and, in that capacity, has power over the records of CWT.  As a matter of fact, she has exercised such power and obtained access to the CWT files without any difficulty.

(2)  The argument that the documents sought by the Trustees go beyond what they reasonably require (§22(2) above) is an attempt to ask the court to revisit the Production Order, which is not permissible.

(3)  The suggestion that she did not know what further documents the Trustees sought and that the Trustees should inspect the case files of CWT and LSF to identify the documents they want runs contrary to the terms of §1 of the Production Order,which requires the 1^st and 2^nd respondents to produce the three categories of documents.

32.  For the above reasons, I hold that the Trustees have discharged the burden of proving that the 1^st and 2^nd respondents had failed to comply with the Production Order. None of the grounds advanced by the 1^st and 2^nd respondents constitute a valid reason for not complying with the Production Order.

Conclusion

33.  I order the 1^st and 2^nd respondents to comply with §§1 and 2 of the Production Order within 28 days of this Decision.

34.  As for costs, I make an order nisi that:

(1)  the costs of the summons be paid by 1^st and 2^nd respondents to the Trustees, to be assessed by way of gross sum assessment. The Trustees do submit their statement of costs within 3 days of this Decision, and the 1^st and 2^nd respondents do submit their objections to the statement of costs, if any, within 3 days thereafter; and

(2)  the costs of the summons shall be borne by Mr Tang/Ms Hou and Mrs Wong as to 85% and 15% respectively, on the basis that most of the grounds in opposition to the summons are raised by Mr Tang and Ms Hou.