ASIA ALUMINUM HOLDINGS LTD AND ANOTHER v. KWONG WUI CHUN AND ANOTHER

HCA 341/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 341 OF 2010

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DECISION

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1.  This was an application by Kwong Wui Chun and Chan Yiu Tsuan Benby (“the defendants”) by summons dated 7 April 2017 for specific discovery in an action brought against them by Asia Aluminum Holdings Limited (in liquidation) (“P1”) and Alpha Smart Investments Ltd (“P2”) (collectively “the plaintiffs”).

Background

2.  On 16 March 2009 P1 was placed into members’ voluntary liquidation and on the same day P1 presented a winding up petition on the ground that it was insolvent and made an ex parte application for Roderick John Sutton and Fok Hei Yu to be appointed provisional liquidators of P1.  The court made the appointment sought.  P2 was a wholly owned subsidiary of P1, its sole shareholder.  As a result, the provisional liquidators also controlled P2.

3.  A winding up order was made in relation to P1 in July 2009 and on 18 November 2009, the provisional liquidators were appointed its liquidators (“the liquidators” which expression shall hereafter where the context so requires include a reference to the provisional liquidators). 

4.  In March 2010 the liquidators caused the writ in the present action to be issued in the names of the plaintiffs against the defendants who were the former directors of P1, alleging that they were negligent in causing P2 to enter into an agreement on 20 November 2008 (“the agreement”) to acquire all the issued share capital of Polywell Enterprises Ltd (“Polywell”) for RMB 1.15 million (“the Polywell transaction”).  They seek damages in the sum of RMB 345 million.

5.  P1 was a subsidiary of AA Investment Company Limited which through its group (“the Group”) engaged in manufacturing, designing and selling customised aluminum extrusion products.  P1 was a substantial concern.  It was listed on the Main Board of SEHK from 1998 until 2006 when it was privatised on financing provided by noteholders.

6.  During the second half of 2007, there were negotiations between P1 and China Development Bank (“CDB”) for a mid- to long-‌term loan facility.  By 2008, the Group which was then suffering from a serious liquidity crisis needed to restructure and the negotiations with CDB became one for loan facilities of:

(i) US$700 million to finance the repurchase of its bonds and the restructuring of the Group’s debts (“the proposed CDB loan”) and

(ii) US$264 million for the construction of an onshore flat-rolled aluminium products project

(collectively “the CDB financing proposals”).

7.  It is the defendants’ case that CDB’s representatives made it clear to the defendants in the negotiations that one of the conditions of the CDB financing proposals and therefore for the proposed CDB loan was that the Group must invest in bauxite mines in Guangxi (“the CDB condition”).  It should be noted that CDB is a state-owned bank and at the time it was the Central Government’s policy to develop mines in western China.

8.  The Polywell transaction would enable P2 to acquire:

(a) a half share of an 85% interest in exploration rights in 4 bauxitemines in Guangxi (“the mines”) and so fulfil the CDB condition and

(b) an interest in a refinery project.

9.  Polywell through a corporate structure owned 50% of Asia Pacific Aluminum Holdings (HK) Ltd (“APAH”). APAH wholly owned Guangxi Asia Pacific Aluminium Co Limited (“GAPA”) and Baise Asia Pacific Mining Co Limited (“Baise Mining”), the latter holding an 85% interest in the exploration rights in the mines.  GAPA held the interest in the refinery project.

10.  Pursuant to the Polywell transaction, a first instalment of RMB 345 million was paid shortly after the execution of the agreement.  The agreement contained an exit clause (§3.5 thereof) that provided for the reversal of the Polywell transaction if financing for the refinery project was not obtained within 12 months.

The parties’ respective cases

11.  The liquidators’ pleaded case is that (i) GAPA never had a legal interest in Baise Mining and (ii) Baise Mining never possessed exploitation (as opposed to exploration) rights in the mines and for those reasons Polywell had no value.

12.  It is further alleged that in causing P2 to enter into the Polywell transaction, the defendants were negligent in two respects: (a) the defendants failed to carry out proper due diligence before or after the agreement that would have revealed the ownership issues in §11 above; and (b) it was financially imprudent and irresponsible for the defendants to procure P2 to enter into the agreement because of the financial position of the Group at the time, the likely further costs for developing the mines and the time gap before began commercial operation could begin.  In other words, the agreement exacerbated the financial predicament of the Group and was detrimental to its interests.

13.  In outline, the defence raised is as follows:

(i) As to the matters raised in §11 above, the defendants’ case is that P2 intended to acquire exploration rights rather than exploitation rights in the mines because the then prevailing PRC government practice was only to grant exploration rights in the first instance.

(ii) As to the due diligence exercise, it was undertaken primarily through Mao Ji Ye (“Mr Mao”), the Vice President – Government Affairs of the Group and the Group’s PRC law firm to undertake prior to the transaction:

(a) Mr Mao and PRC law firm were satisfied as to Polywell’s interest in the mines from the suite of agreements they were provided with and also by the oral confirmations made by various responsible PRC officials whom Mr Mao had met.  Mr Mao was assured that the local government was very supportive of the Group’s investment and would assist in the procedures for the transfer of the interests.

(b) The PRC lawyers confirmed Polywell’s interest under the suite of agreements in a written opinion dated 15 November 2008: Polywell’s rights were valid and enforceable although the formal transfer of those rights to Baise Mining would still require the approval of the Guangxi EDC.

(c) The defendants therefore had reasonable grounds to believe that Polywell did have 50% of the 85% interest in the exploration rights of the mines and so were not negligent in procuring P2 to enter into the agreement.

(d) A confirmation letter was issued by the Guangxi EDC on 16 January 2009 resulting in a 2^nd legal opinion from the PRC lawyers advising that the transfer of the 85% stake in the exploration permits to APAH or its nominee was confirmed and approved by the Guangxi EDC.  Consequently, the defendants were not negligent in respect of making enquiries post-agreement.

(iii) As to the issue of financial imprudence, the defendants rely on the fact that investment in the mines would ensure the steady supply of raw materials and vertical integration of upstream supply capabilities the Group required.  The Group was in need of the proposed CDB loan which was conditional on an investment in the mines.  Further, the exit clause earlier mentioned (at §10 above) would ensure that P2 could reverse the acquisition which was the purpose of the Polywell transaction and obtain a full refund if bank financing could not be obtained within 12 months.

(iv) The defendants also rely on section 358 of the former Companies Ordinance and section 60 of the Trustee Ordinance.

Procedural history

14.  This action has been on foot for 7½ years.

15.  Its procedural history is lengthy but relevant to the issues to be resolved and a reasonably detailed account is unavoidable.

16.  A perusal of the detailed chronology before the court shows two extended periods of inaction:

(1) a period of 37 months between 28 January 2011 (the date when the defendants served answers to the liquidators’ request for particulars) and 4 March 2014 (the date of the liquidators’ notice of intention to proceed); and

(2) a period of 10 months between 8 April 2014 (the date the liquidators filed their first list of documents (“the 1^st List”)) and 13 February 2015 of the liquidators’ CMC summons, a timetabling questionnaire and a mediation certificate for hearing. 

It is clear from that account that the liquidators took no steps during the two periods of inactivity mentioned to prosecute the action and thus were responsible for the delay.

17.  It is relevant to note that during the periods of inactivity, the liquidators were pursuing proceedings in the PRC (“the PRC action”) concerning issues that significantly overlapped with those arising in the action.

18.  By the time the liquidators reactivated the action on 13 February 2015 after the second period of inactivity, almost 5 years had elapsed since the date of the writ and almost 6 years since the liquidators had taken over control of the plaintiffs to the exclusion of the defendants.

19.  On 15 June 2015 the defendants complained about inadequate discovery as a large part of documents disclosed in April 2014 in the 1^st List were of marginal relevance and requested further discovery for 22 categories of documents.   

20.  Upon their request being refused, on 15 July 2015, the defendants made their 1^st discovery application.  At the call over hearing 5 days later, the liquidators’ solicitors confirmed to the master that the liquidators had disclosed all relevant documents and would oppose the defendants’ discovery application.

21.  Despite having given that confirmation, a 2^nd list (with 23 items)was provided two months later followed by a 3^rd list (with 3 items) a further two months after that that were responsive to the defendants’ 1^st discovery application.  On 27 November 2015, the master ordered costs against the liquidators.

22.  Upon the defendants’ further requests made in January and February 2016 arising from documents discovered upon perusing documents in the 2^nd and 3^rd Lists, a 4^th List was filed on 2 March 2016 and, in May 2016, further documents were provided upon the defendants’ request.

23.  Following the further discovery made, the pleadings were further amended in June 2016, raising new issues.  On 15 July 2016, the defendants requested disclosure of documents pertinent to the new issues that concerned the proposed CDB loan and the liquidators’ actions (in particular in securing financing) to complete the Polywell transaction by its 1^st anniversary, the completion date.

24.  By consent the proceedings were stayed for settlement discussions.  Meanwhile, on 17 November 2016 the master extended the then deadline of 6 July 2016 for all interlocutory applications to be made to 30 December 2016. 

25.  The stay was lifted on 30 November 2016.  Shortly thereafter, in early December 2016 the defendants fine-tuned the outstanding July 2016 request seeking further discovery relating to the new issues.  The documents requested were provided on 23 December 2016 and at the same time the liquidators sought further discovery from the defendants concerning communications between the defendants and CDB relating to the CDB loan and CDB condition as well as communications relating to the due diligence exercise.

26.  In view of the impending deadline of 30 December 2016, the defendants proposed that it be further postponed to 3 February 2017 which would fall before the 4^th CMS.  In the event, notwithstanding the fact that no formal order was ever drawn up, it is common ground that a consent order was made on 2 February extending the deadline to 17 February 2017.

27.  In response to the liquidators’ December 2016 requests (see §25), the defendants provided some documents they had identified relating to the proposed CDB loan as well as 4 documents which, while not directly responsive to the liquidators’ request, might be considered to be of some assistance to the issue of the proposed CDB loan.

28.  The 4 documents mentioned in §27 jogged the defendants’ recollection of the circumstances giving rise to them and caused the defendants to make further requests for discovery from the liquidators during the 2^nd half of January 2017.  The liquidators provided some of the documents requested and filed their 5^th List on 17 February 2017 being the deadline under the consent order referred to §26 above.  

29.  The present summons (being the defendants’ 2^nd discovery summons) was issued on 7 April 2017.

The discovery sought and the liquidators’ objections

30.  A preliminary matter must first be mentioned.

31.  Since their appointment the liquidators have been in control of the plaintiffs and, in the normal course, they would have gained access to and control of all its documents including those stored electronically.  The court order of 16 March 2009 appointing the liquidators gave them extensive powers.  In §20 of his affirmation, D2 deposed inter alia to his understanding that upon their appointment on 16 March 2009 the liquidators seized all documents at the Group’s headquarters including both hard copies and electronic information stored at the servers, various desktops, laptops and mobile devices of P1’s employees. 

32.  That fact was never denied or challenged, whether in the pleadings, the liquidators’ affidavits or in correspondence.  Mr Hui, counsel for the liquidators, invited the court not to place reliance on any suggestion that the defendants had not put up resistance when the provisional liquidators took over.  Surprisingly, the allegation that the defendants had wiped clean some of the hard disks of the plaintiffs before handing over control was raised for the very first time notwithstanding the fact that the liquidators had taken office 7½ years earlier.

33.  Such an allegation is serious.  Yet, it was made absent not only any evidential basis for it but also any credible explanation for the gross delay.  It was highly inappropriate.  

34.  Also, one should not lose sight of the fact that the appointment had been made at the behest of P1.  That no immediate complaint should have been made if its directors had obstructed the smooth transition would be inexplicable on any view of the matter.  In the circumstances, those allegations deserve and fall to be disregarded altogether.

35.  I now turn to consider the requests set out in the schedule to the 2^nd discovery summons and the liquidators’ objections thereto.  The requests fall under 6 broad categories comprising 11 classes/items of documents.   2 over-arching themes concerning relevance and possession dominate the liquidators’ objections.

(a)   Relevance

36.  In approaching the question of relevance in relation to Requests 1A, 1B, 1C, 2, 3, 4A, 4B and 4C, the liquidators’ stance is that the issues at trial are limited in scope.  §§10 and 12 of the statement of claim made 2 specific complaints — that the defendants failed to enquire into GAPA’s interest in Baise Mining and whether Baise Mining had an exploitation interest in the mines.  In §14 it is alleged that: (1) no proper due diligence had been carried out to enable the defendants to know about the matters complained of in §10; and (2) had the defendants known, they would not have caused P2 to enter into the Polywell transaction.

37.  It was then said that on the pleadings the defendants have not disputed the fact that GAPA did not have any legal interest in Baise Mining at the date of the Polywell transaction and also that the board minutes did refer to “exploitation” interest (albeit that the defence considered it arose out of a mistranslation of the Chinese minutes).  It was submitted that as those allegations are not in issue, the CDB condition is irrelevant.  Insofar as technically there is a dispute as to the existence of the CDB condition, it is irrelevant because at trial, the defendants would still need to show prudence in conducting the due diligence exercise.

38.  In my judgment, the liquidators’ approach reflects a narrow and blinkered view of the issues from only the plaintiffs’ perspective of the case rather than an overview of all the issues arising that will be before the trial judge.  In other words, they adopted a micro- as opposed to a macro-‌view of the issues at trial.

39.  That approach cannot be correct as it fails to cater for the issues arising from the defence (as to which see §13 above).  The re-amended defence at §15(15), 15A and 15D plead much wider circumstances as constituting the relevant circumstances when assessing the negligence claim against the defendants.  

40.  In essence, the defence on the issue of financial imprudence is that the decision to enter into the Polywell transaction was within the reasonable range of proper business judgment that directors could have made notwithstanding the capital outlay required.  First, there were legitimate business needs as the Group needed to achieve vertical integration to secureits upstream supply chain through acquiring rights in bauxite mines.  Second, negotiations were ongoing for the proposed CDB loan to pay off certain noteholders and to restructure the Group and for that to happen, the CDB condition had to be satisfied by investing in the mines.  Whether the directors were financially imprudent had to be viewed against this entire backdrop.

41.  To the extent that the liquidators’ objection to the following items/classes of documents is based on irrelevance, it is rejected.  In my view, the various categories of documents sought are directly relevant not only to the issue of due diligence undertaken by Mr Mao and the PRC lawyers for the defendants and but also to the financial imprudence claim:

(a) Requests 1A and 1B (for documents and discussions pertaining to the CDB financing proposals and the CDB condition with, respectively, external parties and internal parties (namely officers and employees named and identified in Annexures A and B attached to the schedule));

(b) Request 1C (for a signed copy of the letter dated 5 February 2009 from the Group to CDB (an unsigned copy having been produced));

(c) Request 2 (for a CDB letter addressed or copied to the Group in the 4^th quarter of 2008 concerning its intent to grant a loan facility);

(d) Request 3 (for documents exchanged with the plaintiffs’ PRC lawyers relating to the Polywell transaction);

(e) Requests 4A and 4B (for external and internal documents and discussions similar to those sought under Requests 1A and 1B in connection with the Polywell transaction);  

(f) Request 4C (for a letter dated 6 November 2008 to D1/P1 from the Marubeni Group, a potential trade partner expressing interest in the supply chain envisaged upon the acquisition of the mines).  It plainly goes to the existence or otherwise of the need for vertical integration pertinent to the financial imprudence issue.  In that regard, there is also letter of intent of 1 November 2008 (before the Polywell transaction) from APAH to a company indicating an in principle agreement to supply various materials to that company in anticipation of the availability of minerals from the mines;

(g) Request 5 (for documents created by the liquidators from the date of their appointment to 20 November 2009 the completion date of the Polywell transaction).

42.  The liquidators have also raised a host of other objections to certain of the requests mentioned in the preceding paragraph.  Before addressing the more salient of those objections, it would be convenient to deal first with the other over-arching theme — that the liquidators do not have in their possession the documents requested. 

(b)   Possession

43.  The recurrent theme in objecting to Requests 1C, 2, 3, 6A and 6B, is that “the Liquidators do not have in their custody, power and possession” the documents sought.  This statement was made over and over again in the 3^rd affirmation of Mr Gronow filed on behalf of the liquidators.  They submitted that the normal rule that at the interlocutory stage such a statement is conclusive applies and a party seeking discovery cannot seek to controvert what is sworn by another contentious affidavit: see Tai Fook Futures Ltd v Cheung Moon Hoi Jeff [2006] 4 HKC 81 at §31.

44.  However, the conclusiveness rule does not apply where the affidavit is shown to be a lie or is illusory or wilfully defective, showing no conscientious effort to meet the part’s discovery obligations: Ka Wah Bank Ltd v Low Chung-song [1989] 1 HKLR 451.  In that regard, the defendants highlighted 3 matters.

45.  The first matter is that the liquidators’ assertion is but a bald assertion without particulars or explanation in the following context.  This action was brought by the liquidators a year after they took office.  Given §§31 – 32 above and their extensive powers to obtain documents, it would not be unreasonable to assume that upon appointment, the liquidators would have collected all the plaintiffs’ documents, reconstituted the company’s affairs, interviewed relevant personnel and outside advisors and conducted a comprehensive review of material in their possession (and where necessary obtaining them from relevant third parties) before instituting this action.  They have now been in office for 7½ years and the action on foot for 6½.

46.  There is also the undeniable fact that a considerable part of thedocuments discovered were only produced in response to the defendants’ requests when they are clearly relevant to this action and ought to have been produced by the liquidators in the first place had they been diligent in the discharge of their discovery obligations.  That is certainly what one would expect of a conscientious liquidator.

47.  The second matter is that in relation to some of the classes of documents sought, the liquidators clearly have documents falling within the class.  For example, the liquidators have disclosed an agreement dated 23 August 2006 (“the 2006 agreement”) made between the Guangxi EDC and Baise Industrial Investment and supplied a copy. That agreement has 7 annexes. While the liquidators have supplied 3 of the annexes, they say they do not have the rest.  Request 6A concerns the missing annexes which go to the precise percentage of Polywell’s interest in the mines.

48.  The 2006 agreement stated that the calculation of the respective interests of the parties thereto in the exploration rights in the mines is shown in Annex 7.  The liquidators’ allegation that Baise Mining did not have an 85% interest in the mines (but only an interest of 72.9852%) is grounded on Guangxi EDC’s letter of August 2009 which referred to the 2006 agreement as well as an agreement dated 29 September 2008 (“the 2008 agreement”) (which is the item sought in Request 6B) as the basis for the lower percentage stated.

49.  I agree with the defendants’ submission that it is virtually inconceivable that the allegation of negligence would have been advanced without any follow-up action with the Guangxi EDC to obtain proof of the exact ownership percentage.  The significance of such a document is glaringly obvious.  It would be pivotal to the issue of the true extent of Baise Mining’s in the exploration rights.

50.  In the circumstances, to assert that the liquidators’ do not have the documents in their possession without more stretches one’s credulity and quite simply is not a sufficient answer: it is incumbent upon the liquidators to explain whether they ever had them; if not, what steps or follow-up action they have taken to obtain one.

51.  Another example where the liquidators have documents within the categories that they now say they do not have is in a document the liquidators themselves had disclosed.  That document is an independent technical review dated March 2010 of, inter alia, the mines carried by an expert engaged by the liquidators.  The liquidators provided MMC (the expert) with relevant project documentation as had been provided to them by P1’s management.  Among documents listed under the heading “Additional documentation reviewed by MMC” was a “Note on the Alumina Project, Bauxite Exploration and Mining Application by Guangdong [Horizon] Law Firm” (“the Note”).

52.  Request 3 was for documents or communications with the PRC lawyers concerning the Polywell transaction.  The Guangdong Horizon Law Firm was the legal firm retained to advise the plaintiffs.  The liquidators say that they do not have the Note in their possession.  Yet this Note they provided to their own expert is just one such document.  One might well wonder how seriously the discovery requests were taken and the thoroughness of the liquidators’ search for responsive documents.  What has happened to the Note?  What steps have been taken to retrieve it?  Were copies made and retained?

53.  Moreover, given the nature of the Polywell transaction and the fact that the PRC lawyers had provided 2 written opinions, that there would not have been any other documents or communications back-and-forth between P1 and the PRC lawyers is also difficult to believe.

54.  The third matter relates to the events set out in §§20 – 21 above which I do not intend to repeat here.  They reveal a cavalier approach, one that is not remotely conscientious and verging on the flippant, indicating a total lack of seriousness in the discharge of the liquidators’ discovery obligations. 

55.  The discovery chronology set out above speaks for itself: the liquidators have effectively put the burden of discovery on the defendants who have been out of office since March 2009 with no access at all to the plaintiffs’ documents.  It belies any recognition of the liquidators’ duty to make full discovery of relevant documents and further, that the duty is a continuing one.

56.  Having regard to the highlighted matters, I agree with the defendants.  I consider that in the circumstances of the present case the conclusiveness rule has no application. “No possession” is not an adequate answer to Requests 1C, 2, 3, 6A and 6B.

The Requests

57.  I turn to address the more salient of the specific objections raised to the following requests.

Requests 1A and B

58.  Those requests have been framed with limitations as to subject matter, time and entities/‌individuals involved in the communications/‌discussions.  As to subject matter, the liquidators complained that the requests were too wide and were not focused on the CDB condition.  But it is not the defendants’ case that the CDB financing proposals or the proposedCDB loan being negotiated were for the purpose of making payment for the Polywell transaction.  Rather, the CDB condition was integral to or arose out of the CDB financing proposals and the Polywell transaction enabled it to satisfy the CDB condition through acquiring a 50% interest in 85% of the exploration rights.

59.  Objection was raised to the period covered by the requests.  It was said that negotiations concerning the CDB condition only took place in mid-2008 rather than mid-July 2007 and a large part of the material concerning the CDB financing proposals had nothing to do with the CDB condition.

60.  The 4 documents mentioned in §27 above included a CDB letter of intent dated 22 November 2007. That letter clearly related to negotiations concerning CDB financing for a new project that evolved into the CDB financing proposals.  I agree with the defendants’ submission that negotiations must have taken place prior to the issuance of the CDB letter of intent.  The evidence of D2 (formerly Deputy Chairman and Chief Executive Officer of the Group responsible for finance and management) isto the effect that it is his recollection that discussions with CDB concerning the CDB financing proposals took place from the second half of 2007 onwards: D2’s affirmation, §61.  To seek discovery from 1 July 2007 would not appear unreasonable in the circumstances.

61.  Mr Hui also raised an objection to the width of Request 1B(iii) which identified by name the Group’s 4 financial advisers/advisory firms and two individuals (Mr Sheldon Trainor and Mr Brian McCullough).  D2 deposed to the fact that he had contact (in-person meetings as well as by email) during the 4^th quarter of 2007 with those firms and individuals whom he identified in §66 of his affirmation.  That evidence finds support in one of the 4 documents mentioned in §27 above.

62.  The PowerPoint Merrill Lynch and Credit Suisse had prepared for the defendants concerning the proposed CDB loan evidenced the involvement of those advisers.  Mr Trainor who was then with Merrill Lynch was the point person at the time but he subsequently left to join Pacbridge.  While there are no documents showing the involvement of the other two firms, there is nothing at this stage to gainsay D2’s evidence that they were involved.  I am satisfied that there is no merit in the liquidators’ objection.

Requests 4A, 4B and 4C

63.  Those requests were said to be a fishing exercise.  In fact, they go to the extent of due diligence exercised by the plaintiffs before entering into the Polywell transaction and follow the pattern of Requests 1A and 1B in seeking external and internal documents.  

64.  The documents sought are those exchanged with external parties between 1 January 2008 and 31 March 2009 that refer to or evidence discussions with those external parties concerning the Polywell transaction.  The external parties named in Requests 4A(i) and 4B(ii) are identical to those named in Request 1A.

65.  Those named in Request 4A(ii) and 4B(iii) are 4 identified trade partners of the Group (Marubeni Group, Mitsui Group, Kobe Steel and Hindalco Industries). The Marubeni letter (see §41(f) above) shows that D2 did have contact with potential trade partners concerning P1’s acquisition of the mines as stated in D2’s affirmation (§§90 – 93).  There is no reason to doubt the evidence that D2 was also in contact with the other potential trade partners he identified.

66.  As regards internal communications, 7 individuals are named in Annexure B and include D2 and Mr Mao.  D2 was responsible for managing the Group’s non-PRC partnerships and non-PRC bank financing and investors’ relations and had to travel extensively.  D2 does not know how to type Chinese and his means of communication with his team was via email in English.  In discharging his duties, he worked closely with 4 colleagues who are 4 of the 5 remaining individuals listed in Annexure B.  The remaining individual on the list (Mr Zhong) was the head of the Group’s PRC finance team.  In those circumstances, given D2 role it is hardly surprising that there would be of wealth of internal communications.  I can see no valid objection to the width of this request.

Request 5

67.  This was also said to be a fishing exercise.  However, post-‌Polywell agreement documents are clearly relevant to both the issue of due diligence undertaken by the plaintiffs and also the question whether the liquidators had taken reasonable steps to procure financing to complete the Polywell transaction.

68.  In reconstituting the company’s affairs and preparing reports to the committee of inspection, it could reasonably be assumed that the liquidators would have interviewed all relevant management personnel and made enquiries with the plaintiffs’ advisors involved at the time and prepared reports/analyses to the stakeholders as to whether and how to proceed with the Polywell transaction.  It is D2’s understanding that at the request of the liquidators, Mr Mao accompanied them to inspect the mines in May 2009.  Such steps would have been documented.

69.  One would expect there to be documents referring to meetings, enquiries and reports on a number of issues such as contemporaneous statements concerning the due diligence efforts from Mr Mao and other former officers, the stance of government officials and the Guangxi EDC concerning the transfer of the exploration rights.

70.  The 2^nd aspect is causation.  The liquidators’ own documents would reveal what steps if any were taken to procure financing to complete the Polywell transaction as any failure on the part of the liquidators to take reasonable steps in that regard would be pertinent to the argument of novus actus interveniens concerning the recoverability of the payment made of RMB345 million which is the loss that is relied upon in the action.

71.  Finally, it should be mentioned that notwithstanding an assertion of legal professional privilege as an objection, this was not pursued at the hearing.

Conclusion

72.  For the reasons set out above, I have no hesitation in reaching the conclusion that the defendants are entitled to the documents sought.  Accordingly, I will make an order in terms save that the period of 28 days be substituted for the period of 21 days in §§1 and 2 of the summons.