HU HUNG CHIU v. PACIFIC ELECTRIC WIRE & CABLE CO LTD AND OTHERS

HCMP 1944/2017

[2021] HKCFI 840

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1944 OF 2017

_________________

_________________

BETWEEN

_________________

________________

J U D G M E N T

________________

Introduction

1.  There is before this court the Applicant’s (“Hu”) Notice of Originating Motion (“Motion”) dated 14 September 2017 for inter alia: (i) the dissolution of Central Pacific Enterprises Limited (“CPE”) be declared void and (ii) the former joint and several liquidators of CPE viz the 2nd and 3rd Respondents be removed and joint and several liquidators nominated by Hu and approved by the court be appointed in their place.

2.  The application is opposed by the 1st Respondent (“PEWC”) while the 2nd and 3rd Respondents remain neutral. 

Background

3.  PEWC is a Taiwanese company formerly listed on the Taiwan Stock Exchange. Hu was its director and executive vice-president until he resigned from those positions in September and October 1999. 

4.  CPE was incorporated in Hong Kong in March 1994.  It was a wholly-owned subsidiary of PEWC which acted as a treasurer within the PEWC Group.  As a treasurer within the PEWC group, CPE received funds from one entity and lent them onto another entity.  Between 1994 to 1999, the funds channeled through it amounted to US$800 million.  Hu was a director of CPE from incorporation until his resignation in October 1999. 

5.  In November 1999, CPE went into members’ voluntary liquidation.  Its auditor Mr Lau Dick Pau of D P Lau & Co (“DP Lau”) was appointed its liquidator.  The final general meeting was held on 16 August 2001 at which it was resolved that the books, accounts and documents of CPE be retained by DP Lau and be destroyed at the expiration of 3 months from dissolution.  Pursuant to section 239(4) of the Companies Ordinance, Cap 32 (“CO”), the dissolution of CPE became effective on 22 November 2001 (“1st Dissolution”). 

6.  On 4 November 2003, CPE was revived by Order of Kwan J (as she then was) in HCMP 4691 of 2003 upon PEWC’s application.  The purpose of the revival was to enable PEWC to carry out an investigation into CPE’s intra-group transactions which involved potential misappropriation of funds. Joanne Oswin and Rainier Lam of PricewaterhouseCoopers (“PWC Liquidators”) were first appointed as joint and several liquidators of CPE.  They were later replaced by the 2nd and 3rd Respondents in August 2004. 

7.  Between 2003 and 2005, the PWC Liquidators and later the 2nd and 3rd Respondents instituted various sets of legal proceedings to compel uncooperative parties to produce documents and information for the purpose of PEWC’s investigation.  These proceedings resulted in inter alia (i) an Order for the oral examination of 2 directors of CPE viz Amy Lui and Ko Kan in relation to CPE’s affairs and for the production of books and papers, (ii) an Order against DP Lau to give full disclosure of relevant documents and information totalling 19 lever arch files, (iii) an Anton Pillar Order against Trident (Asia) Ltd and its executive director Robert Ma to search for books and documents relating to CPE and its subsidiaries totalling 42 boxes of documents, (iv) an Order for oral examination of Robert Ma.  On the other hand, PEWC obtained an Order in December 2005 for both CPE and the 2nd and 3rd Respondents to allow PEWC to inspect and take copies of all books and papers in their possession.  As a result, 259 lever arch files were retrieved by PEWC. All the aforesaid documents so obtained had been disclosed by PEWC to the defendants in the HCCL Actions as well as Hu’s criminal trial in Taiwan referred to below. 

8.  On 2 November 2016, the 2nd and 3rd Respondents held the final meeting of members of CPE at which it was resolved to pass the books and papers of CPE and the 2nd and 3rd Respondents to PEWC for it to hold.  Around 81 cartons of documents were released by them to PEWC. The 2nd and 3rd Respondents then ceased to act as its liquidators. In January 2017 the documents were shipped to PEWC’s factory in Taiwan for storage together with other documents relating to the HCCL Actions and Hu’s civil appeals in Hong Kong and his criminal trial and appeals in Taiwan as detailed below.

9.  On 8 February 2017, CPE was dissolved again (“2nd Dissolution”).

10.  Meanwhile, in 2004, PEWC instituted 3 High Court Actions, subsequently transferred to the Commercial List as HCCL Nos 16, 17 and 18 of 2009 (“HCCL Actions”) against inter alia Hu to recover three groups of assets in Hong Kong: (1) shares in a Hong Kong listed company viz PacMOS Technologies Holdings Ltd, (2) four residential houses in Shouson Hill, and (3) shops and carparking spaces at the South Horizons Commercial Centre (collectively “Properties”).

11.  PEWC claimed that Hu and two of its former senior officers set up a secret network of companies to acquire the Properties with PEWC’s funds in the 1990s but failed to account for or hand over the same to PEWC. The companies at the heart of the secret network were PCHL, Blinco and Patagonia.

12.  Hu’s defence in the HCCL Actions was that he, with the authorization of PEWC, transferred the Properties to a Swiss banker viz Robin Willi (“Willi”). This was done in 1999 by transferring the two companies at the pinnacle of the corporate network viz Blinco and Patagonia to Top Selection, a BVI company owned and controlled by Willi, in return for loans injected into one of PEWC’s companies in Hong Kong in order to save it from its financial difficulties.  Hu alleged that the transfer was effected pursuant to a “Takeover Arrangement” negotiated between himself and Willi and authorized by PEWC.  It was thus Hu’s case that, as a result of the “Takeover Arrangement”, PEWC no longer had any rights over the relevant companies within its corporate structure or the underlying assets which PEWC sought to recover.

13.  After an 18-day trial in February and March 2012, Reyes J handed down his judgment on 12 April 2012.  In the Judgment, the learned Judge found the “Takeover Arrangement” was belatedly fabricated by Hu to cover up his ownership and control, through Top Selection, of the Properties.  The learned Judge also found Willi was not a bona fide purchaser for value without notice.  Instead, Willi and Top Selection were nominees of Hu.  The learned Judge imposed a constructive trust over the Properties and ordered their return to PEWC.

14.  Hu’s appeals to the Court of Appeal were dismissed in September 2013 (“HCCL Appeals”).  At [83] of the appeal Judgment, Kwan JA repeated Reyes J’s observation in the HCCL Actions that not all the records of CPE were available.  Since many records were destroyed or lost upon CPE’s 1st Dissolution, it was not possible to have a complete picture of the fund flows between PEWC or PEWC-related companies and PCHL.

15.  In January and October 2014 respectively, Hu’s applications to the Court of Appeal and then to the Appeal Committee for leave to appeal were also dismissed.  Hu was ordered but failed to pay the taxed costs at the levels of the Court of First Instance and Court of Appeal to PEWC.

16.  In 2004, Hu was charged with a number of criminal offences involving forgery, breach of trust, false accounting and misappropriation of assets.  Allegations concerning CPE and the alleged destruction of accounting records by Hu were said to be central to the Taiwan proceedings.  In July 2010, he was convicted at first instance by the Taiwanese Court for violation of the Taiwanese Securities Exchange Act and other offences.  Hu then appealed to the Taiwan High Court of second instance.  In March 2016, the second instance Court dismissed the first instance conviction but convicted Hu of the offences based on alternative grounds.  By the Taiwanese second instance Judgment, a sentence of 14 years and 6 months imprisonment and a total fine of NT$1 billion were imposed on Hu.

17.  On 31 August 2017, Hu’s appeal to the Supreme Court, the final Court in Taiwan, was dismissed and all channels of appeal by Hu in Taiwan were exhausted.  Since 29 September 2017, Hu has started to serve his custodial sentence in Taiwan.

18.  Shortly after the Taiwan Supreme Court Judgment, PEWC instructed the staff at its Taiwan factory to dispose of all the documents stored there.  On 25 September 2017, the vice chairman of PEWC was informed that the CPE documents released by the 2nd and 3rd Respondents to PEWC had already been disposed of.

19.  It is Hu’s belief that the 2nd and 3rd Respondents had not discharged their duties properly.  It is also Hu’s evidence that his lawyers in Taiwan have advised him that he may apply for a re-trial based on newly discovered evidence.[1] Hence, Hu commenced the present action in order to appoint new liquidators of CPE so that proper investigations may be carried out to uncover evidence to establish his innocence.

Deliberation

Hu’s case

20.  As summarised in Hu’s skeleton, the gist of his case is as follows.

(1) CPE’s affairs are central to Hu’s criminal convictions in Taiwan.  As a result of, inter alia, PEWC’s allegations that Hu had deliberately destroyed books and records of CPE in order to conceal a fraud that he had committed, Hu was convicted, sentenced to imprisonment and fined NT$1 billion.  Hu strenuously denies these allegations.

(2) In 2003, Kwan J (as she then was) revived CPE to enable PEWC to investigate CPE’s intra-group transactions.  But the 2nd and 3rd Respondents failed to properly conduct the investigation.  For instance, crucial individuals with the relevant knowledge were not interviewed.

(3) This fact became clear to Hu after CPE’s 2nd Dissolution. Hu learned that the 2nd and 3rd Respondents did little work and ultimately failed to complete the investigation because of lack of funding from PEWC from 2006 onwards.  This left significant questions about CPE and its transactions open, including questions about Hu’s conduct in relation to those transactions.

(4) Hu has a substantial and cogent interest in bringing this action. 

(5) First, his personal liberty is at stake.  He seeks a last opportunity to have a proper and independent investigation into the affairs of CPE.  Granting Hu’s application would enable such investigation to be undertaken which may reveal potentially useful evidence or facts justifying an application for a retrial in Taiwan and an overturn of Hu’s convictions.  Hu anticipates that new liquidators may disprove or cast doubt about the allegation that he destroyed CPE’s accounting records to conceal a fraud. 

(6) Second, Hu has a considerable pecuniary interest as the investigation may uncover new evidence to enable him to overturn or reduce the hefty fine imposed on him in Taiwan.

The Law

21.  S 290(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, provides:

“Subject to subsection 1(A), in the case of a company which has been dissolved under section 226A, 227, 239 or 248, the court may at any time within 2 years of the date of the dissolution, on an application being made for the purpose by the liquidator of the company or by any other person who appears to the court to be interested, make an order, upon such terms as the court thinks fit, declaring the dissolution to have been void, and thereupon such proceedings may be taken as might have been taken if the company had not been dissolved.”

22.  It is common ground that the power under s 290(1) is discretionary and the court’s discretion is unfettered.  However, while the section appears to confer an unrestricted discretion on the court, the judicial exercise of any statutory discretion is impliedly limited to the purposes for which it is conferred: Stanhope Pension Trust Ltd v Registrar of Companies [1994] BCC 84, 87A (Hoffmann LJ).

23.  In Re Servers of the Blind League [1960] 1 WLR 564 at 565 Pennycuick J held that, generally speaking, the purpose of an Order under the English equivalent of s 290(1) was to enable the distribution of an overlooked asset belonging to the company.  In Stanhope Pension Trust Ltd v Registrar of Companies at 87D-E, Hoffmann LJ took the matter a step further and held that ordinarily the purposes of the English equivalent of s 290(1) were to enable the liquidator to distribute an overlooked asset or to enable a creditor to make a claim which he has not previously made.

24.  In re Matrix Industries Limited [2004] 1 HKLRD 44 at [47], Kwan J (as she then was) held that the purpose of s 290(1) is not limited to the two identified by Hoffmann LJ.  As an example, the learned Judge cited Re Oakleague Ltd [1995] 2 BCLC 624 where Robert Walker J held that the provision should not be limited to a situation in which a liquidator was quite unaware of an asset belonging to a company, and that it is apt to cover analogous situations such as where a liquidator was aware of an asset but unaware that the asset has any realisable value.

25.  In Re Roehampton Swimming Pool Ltd [1968] 1 WLR 1693, Megarry J had the opportunity to consider the meaning of the phrase “any other person who appears to the court to be interested” in s 352(1) of the UK Companies Act 1948.  In that case, an infant suffered personal injuries allegedly caused by the negligence of a dissolved company.  In order to bring an action against the company, the infant’s solicitor made an application in her own name to revive the company.  At 1698E-G, Megarry J observed:

“The word ‘interest’ is, of course, susceptible of more meanings than one; and like so much of the English language, its meaning often has to be discerned from the context. In relation to making an order for the revival of a defunct company, it seems to me to be more probable that the word refers to a pecuniary or proprietary interest[2] than that it embraces all matters of curiosity or concern. After all, those who are interested in companies are nearly always interested financially or in a proprietary way; the whole field is dominated by finance. I cannot conceive that Parliament intended that a man who felt a lifelong concern for dissolved companies should be free to gratify his passion by reviving them under section 352, however deep and genuine his feelings …” (emphasis added)

26.  The learned Judge then concluded at 1698H to 1699A that notwithstanding the solicitor’s natural interest in her client and in the success of the litigation, she was not a person who appeared to the court to be interested in relation to the dissolved company.  Whether the case was lost or won, the solicitor would be entitled to the proper costs, and would not have any proprietary interest in any part of the fruits of victory.

27.  Although a person’s pecuniary or proprietary interest in restoring a dissolved company does not need to be firmly established or highly likely to prevail, the purported interest must not be “merely shadowy”: Re Wood and Martin (Bricklaying Contractors) Ltd [1971] 1 WLR 293 at 297F-G; Re Matrix Industries Ltd at [43]-[44].

28.  In addition to someone who has a pecuniary or proprietary interest in the restoration of a dissolved company, it has been held that a person may apply to restore a dissolved company if it has become necessary for him to perform his statutory duties with respect to the regulation of companies: In Re Townreach Ltd [1995] Ch 28.

29.  In Kevin John Hellard v Registrar of Companies [2020] EWHC 1561 (Ch), a case heavily relied upon by Mr Dawes SC, ICC Judge Barber concluded at [23] that “From existing case law, however, what is clear is that the Claimants must identify some interest in the ‘matter’ of restoration beyond idle (or officious) curiosity: Roehampton Swimming Pool Ltd [1968] 1 WLR 1693.”

30.  Relying on that paragraph from Judge Barber, Mr Dawes SC submits that what needs to be identified is merely some interest in restoration beyond idle or officious curiosity.

31.  With respect, this court cannot agree that the threshold under s 290(1) is as low as Mr Dawes SC suggests.  And if that was what Judge Barber intended to lay down, this court is not minded to follow it.  As can be seen from Roehampton Swimming Pool Ltd, the solicitor’s interest in restoring the dissolved company is clearly beyond idle or officious curiosity.  But she did not have sufficient pecuniary or proprietary interest in the restoration and for that reason was not accepted by Megarry J as an interested person.

32.  To conclude, it appears to this court that (i) the legislative purposes of s 290(1) are the two identified by Hoffmann LJ in Stanhope Pension Trust Ltd v Registrar of Companies or should at least be analogous thereto and (ii) the applicant under s 290 (1) must be able to show a sufficient pecuniary or proprietary interest in the restoration of the company which is more than merely shadowy (or has statutory duties to perform).

Legislative purpose

33.  The first point to note is that what Hu seeks to achieve does not even come close to the 2 paradigm legislative purposes of s 290(1) or anything analogous thereto.  As stated earlier, he is seeking a last opportunity to have a proper investigation by the new liquidators into the affairs of CPE with a view to overturning his conviction and/or sentence.  But reviving a dissolved company for that purpose has never been accepted as one of the purposes of s 290(1). 

34.  The closest authority that Mr Dawes SC can find is the judgment of Kwan J (as she then was) in HCMP 4691 of 2003 when the learned Judge revived CPE in November 2003.  But a closer look at the judgment would reveal that her Ladyship had not laid down any principle that reviving a dissolved company for the purpose of conducting a general and roving investigation[3] into its affairs was a permissible purpose of s 290(1). 

35.  At [8], [9], and [12] of the Judgment in HCMP 4691 of 2003, the learned Judge observed:

“8. The report of KPMG was provided to the regulatory authorities in Taiwan and resulted in the suspension of trading in PEWC’s shares in the Taiwan Stock Exchange on 1 September 2003. PEWC was notified by the authorities that it must satisfy them that the write-off of US$291 million is properly classified as an investment loss by 28 February 2004, failing which the shares of PEWC would be delisted. To do so, PEWC would need to investigate all intra-group transactions.

9. It would further appear form the working papers provided by DP Lau to PEWC in September 2003 that the receivables of the subsidiaries of Moonview had been assigned by them to Mae Sai Enterprises Limited (‘Mae Sai’), a company registered in the British Virgin Islands not connected with the PEWC group, and following the purported assignment, most of the claims were set off against debts of US$186 million allegedly owed to the Company and the balance of US$80 million was waived by Mae Sai. PEWC has no knowledge of these transactions prior to the inspection of the working papers of DP Lau. These transactions may be a device by the previous management of the Company to extinguish all creditors’ claims before the declaration of solvency which preceded the voluntary winding-up. There may be a potential misappropriation of funds which requires investigation.

…

12. PEWC clearly qualifies as a ‘person who appears to the court to be interested’ under section 290(1) as the beneficial owner of all the shares in the Company. It has the requisite proprietary or pecuniary interest to bring this application in that the potential irregularities in which the Company was involved have been extremely prejudicial to PEWC and it is necessary for the Company to be revived so that investigation may be carried out to avoid the delisting of the shares of PEWC.” (emphasis added)

36.  Mr Fung SC submits and this court agrees that it is clear from the passages quoted above that Kwan J did not revive CPE in 2003 in order to subject it to a general and roving investigation.  Instead, the revival of CPE was for the specific and focused investigation into potential irregularities in which CPE was involved and potential misappropriation of funds.  As the investigation may uncover a potential misappropriation of funds or potential irregularities involving CPE, it can be said one of the purposes in reviving CPE is analogous to the case of a creditor seeking to revive a dissolved company in order to make a claim.

37.  In this court’s view, Hu’s application fails at the outset since it cannot come within any of the permissible purposes for invoking s 290(1).

Pecuniary interest

38.  As Mr Fung SC submits, Hu can only begin to say he has a pecuniary interest in the restoration of CPE if he can establish an arguable case that the investigation would produce evidence which he can use to overturn his criminal convictions and/or sentence in Taiwan.  Mr Fung SC submits and this court agrees that Hu has failed to do so.

39.  Hu had been engaged in lengthy civil and criminal litigation in Hong Kong and Taiwan for some 13 years from 2004 to 2017.  At the time, Hu was facing serious allegations in relation to CPE’s affairs and would in all probabilities have used all available means to collate evidence to establish his innocence, including interviewing relevant individuals whom he and his legal team considered would provide useful information/ documents and following up on leads from them.

40.  In paragraph 29 of Hu’s skeleton, he had painstakingly listed out the failure of the 2nd and 3rd Respondents to interview the so-called key individuals (with names provided) who are likely to have personal knowledge of, inter alia, the background concerning the Mae Sai Waiver[4], the auditing work for CPE and other subsidiaries of Moonview Ventures  Limited[5]. Mr Dawes SC then submits at para 32 that had the 2nd and 3rd Respondents examined these individuals and pursued these natural follow-up points, the Taiwanese Court would have had a “complete picture” of the background to the Mae Sai Waiver, the auditing process for CPE, and the truth behind the first Dissolution of CPE including support for Hu’s contention that he did not destroy CPE records to hide a fraud.  There is no further elaboration of what sort of “complete picture” these key individuals were or are able to provide.

41.  This begs the question: if Hu truly believes that these key individuals are likely to prove his innocence if CPE is restored and his proposed new liquidators are able to obtain useful information from them about events which took place almost 2 decades ago, would he and his eminent legal team not have done so during the 13 years from 2004 to 2017?  Would he not have used all means as he saw fit to find out whether or not the 2nd and 3rd Respondents had done their job properly[6] and, if not, to appoint new liquidators to replace them much earlier than September 2017?  Yet, he had not done so.

42.  The reality is that Hu has had years to defend himself against allegations of his wrongdoings associated with CPE in Hong Kong and Taiwan, but has completely failed to produce sufficient evidence to persuade the Hong Kong and Taiwan Courts at every level to accept his innocence.  It seems to this court rather far-fetched for Hu to suggest the investigation by the new liquidators now would produce evidence which he can deploy to try to overturn his criminal convictions and/or sentence in Taiwan.  This is especially so given that (i) the fraud and misappropriation of assets occurred in the 1990s, (ii) CPE’s original books and records had been destroyed and lost by 2003 when CPE was revived, (iii) all the documents which the 2nd and 3rd Respondents subsequently obtained had been returned to PEWC and had been destroyed.  Without the documents to refresh one’s memory, it is wholly unlikely that the so-called key individuals, or anyone else for that matter, would be able to provide information useful to Hu.  After all, the criminal prosecution of Hu has been described as the “largest and most complex case of embezzlement in the history of Taiwan”[7].

43.  To conclude, this court agrees with Mr Fung SC that Hu cannot show he has the necessary interest in reviving CPE.  For this reason also, the discretion conferred on this court by s 290(1) must be exercised against Hu.

Disposition and costs order

44.  This court hereby dismisses the Motion.

45.  Regarding costs, the parties had already made submissions to this court at the hearing.

46.  As far as PEWC is concerned, this court hereby orders costs of and occasioned by the Motion be to PEWC, to be taxed if not agreed, and paid by Hu forthwith.  Certificate for 2 counsel.

47.  As far as the 2nd and 3rd Respondents are concerned, the 2nd Respondent has stated in an affirmation dated 20 March 2019 that they maintain a neutral position but they have to make the affirmation in order to respond to some specific allegations made by Hu against them.  That is a reasonable stance to take.

48.  This court however does not see the need of their attendance by solicitors and counsel at the hearing, and if they did, it should not be at Hu’s expenses. Having filed the affirmation, they could have written to the court to highlight their position and then followed what the 4th Respondent had done ie seeking the court’s approval to excuse them from attendance.

49.  In these circumstances, this court is only prepared to grant an order that the costs of preparing the 2nd Respondent’s said affirmation be borne by Hu, to be taxed if not agreed, and paid forthwith.