FUNG TIN YAU v. FUNG TIN SHING AND OTHERS

HCCW 170/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 170 OF 2016

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AND

HCCW 171/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 171 OF 2016

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AND

HCCW 172/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 172 OF 2016

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D E C I S I O N

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1.  I have a series of summonses before me concerning discovery. A number of the summonses have been agreed subject in the case of the petitioner’s summons dated 15 May 2017 to a dispute concerning costs which I will deal with at the end of this decision.What remains for substantive determination are the petitioner’s three summonses dated 25 January 2017.

2.  The summonses have been issued in the three winding-up proceedings which constitute the dispute between members of the Fung family. They concern, in the case of HCCW 170/2016 a BVI company, Great Anchor International Limited (“Great Anchor”); in HCCW 171/2016 a Liberian company, Maxfortune Trading Limited (“Maxfortune”); and in HCCW 172/2016 a second BVI company, Premium Management Limited. The petitions are all substantively the same as are the summonses.

3.  The Companies were set up between 1994 and 2000 to administer the investments of the father of the petitioner and the 1^st and 2^nd respondents and with a view to estate planning.  Fung Senior died in 2002.  It would appear that certainly from the day of Fung Senior’s death, no efforts have been made to administer the Companies properly.  There are no audited accounts, nothing that would generally be recognised as management accounts, no shareholders meetings nor directors meetings have been held, and none of the alleged understandings about the way in which the Companies should be managed and their assets utilised recorded in writing. 

4.  The petitioner and the 1^st and 2^nd respondents and their mother Madam Lai became American citizens prior to 1997.  Although they have received payments from the Companies since 2002, they have not declared their income or any capital gains to the United States (“US”) tax authorities.  It appears that in 2014 certainly the petitioner began to become concerned that the family’s fairly flagrant evasion of US worldwide tax could not continue and he began to discuss with his siblings addressing the issue.  It is his case that he wanted to declare the receipts of payments they have received from the Companies, pay the tax and required penalty during a period of a partial tax amnesty.  He says his siblings and his mother disagreed.  The respondents dispute this.  What however seems tolerably clear is that the attempts to agree how the tax issue should be addressed and the tax liabilities of the petitioner, the 1^st and 2^nd respondents and Madam Lai paid along with disputes about the beneficial ownership of the Companies, led to increasingly acrimonious disagreements. 

5.  As a consequence, the petitioner was removed from the boards of the Companies on 17 March 2016.  The petitioner issued the petitions on 2 June 2016.  The petitioner’s complaints relied on to justify the winding-up order that is sought are pleaded in the petitions as follows:

(1) On 26 February 2016 without his agreement the Companies’ books and accounts were removed from their Sheung Wan office.

(2) Between February and March 2016, sizable sums were misappropriated from the Companies’ accounts:

“Prompted by fears that the 1^st and 2^nd Respondents intended to dissipate further assets of the Fung Companies, your Petitioner immediately enquired with OCBC Wing Hang Bank:-

(1) According to the OCBC Wing Hang Bank account statements, the total cash balance of the Fung Companies and Samdor (a subsidiary of Maxfortune) was HK$107,131,590.93 as at 12 January 2016.

(2) On 29 February 2016, your Petitioner visited the Central branch of OCBC Wing Hang Bank (situate at G/F, Henley Building, 5 Queen’s Road Central) and was advised by the teller that the total cash balance of the Fung Companies and Samdor was reduced to HK$74,857,766.90 as at 29 February 2016. A sum of more than HK$32 million had been dissipated on or before 29 February 2016.

(3) On 5March 2016, your Petitioner visited the Kowloon City branch of OCBC Wing Hang Bank (situate at 37 Nga Tsin Wai Road, Kowloon City) and was advised by the teller that the total cash balance of the Fung Companies and Samdor was further reduced. As far as your Petitioner was able to ascertain from the teller, at least a sum of HK$57 million had been dissipated within a period of 5 days, namely between 1 and 5 March 2016.

(4) In other words, between 12 January 2016 and 5 March 2016, a sum of at least HK$89 million was wrongfully removed from the bank accounts of the Fung Companies and Samdor without your Petitioner’s prior knowledge, consent or approval.” [1]

(3) Wrongful exclusion from management causing, along with the first two complaints, a breakdown of trust and confidence.

6.  The petitioner seeks discovery under The Rules of the High Court (Cap 4A) Order 24, rules 3 and 7 of the following categories of documents:

“1. The management accounts of Great Anchor International Limited, Premium Management Limited, Maxfortune Trading Limited and Samdor Company Limited (collectively ‘Companies’) for the period from 2014 to 2016 (the ‘Management Accounts’);

2. All monthly statements for all bank accounts that the Companies maintain or have maintained in Hong Kong or elsewhere from January 2015 to now (the ‘Bank Statements’);

3. The books, accounts and records of the Companies removed by the 1^st and 2^nd Respondents and/or by their agent or associates from the Companies’ Sheung Wan Office allegedly for the purpose of given the same to an accountant for the preparation of the Companies’ management accounts; and

4. Copies of payment slips and bank slips and bank statements of all withdrawals in relation to funds withdrawn from the Companies to Madam Lai Ng Nui on a monthly basis for her purported household and personal expenses and discharging Madam Lai’s personal tax liabilities under US laws.”

7.  The respondents’ grounds for opposing the applications can be summarised as follows:

(1) The respondents have provided such documents as they have falling into categories 1, 3 and up to 2 April 2016, category 2.

(2) Bank statements and category 4 documents do not relate to the determination of the issues raised by the petitions.

8.  I deal with the issue of relevancy first.  As Mr Justice Jerome Chan sitting as the Court of Appeal as an additional judge explains in Allington Investments Corp & Ors v First Pacific Bancshares Holdings Ltd & Anor [1995] 2 HKC 139:

“ With respect, the learned deputy judge fell into error when he held the view that the relevance of an issue can be dictated by a party unilaterally simply by placing it in his pleadings. Even if the opposing party has failed to apply to strike out an irrelevant allegation in the pleadings of the other side, he is not barred from taking the point in an application for specific discovery that the allegation made in the pleadings is irrelevant to the subject matter of the action and ought to be disregarded for the purpose of discovery. The court is certainly not bound to take account of any immaterial or irrelevant averment of fact improperly inserted into the pleadings by a party. Otherwise, the court will become helpless and innocent litigant will be held to ransom. An abuse of the discovery process in this manner not only frustrates the legitimate objectives of the judicial process, it will bring the administration of justice into disrepute. A denial, or an implied joinder on pleadings, by the opposing party per se is not sufficient to bring relevance to an otherwise wholly irrelevant allegation. The relevance of an issue, or of a document, is dependent on its substance and contents in the light of the subject matter of the trial; and not simply on its mere presence in pleadings or the existence of a denial of it by a party. The fundamental principle is well illustrated by the decision in Martin v Scrib (1950) 67 RPC 127 though that case is distinguishable from the present in several respects.”

Ms Chan SC argued that the petitioner’s complaint is that he has been improperly excluded from management and that discovery of the category 4 documents and bank statements from April 2016 are relevant to an assessment of whether his complaint of misappropriation is borne out by the conduct of the 1^st and 2^nd respondents after April 2016.  I disagree.  It seems quite clear that prior to the parties falling out, the petitioner had allowed monies to be withdrawn by his siblings, his mother, and that he had himself received payments from the Companies.  As is clear from the petitions, his complaint which requires determination at trial go to the reasons why he was excluded from the management of the Companies and the propriety of the transfers during the period February to March 2016 which he suggests constitutes misappropriations in para 27 of the petitions. 

9.  The suggestion that after April 2016 the Companies’ assets have been misappropriated is speculation and application for discovery of documents after that date in order that he can satisfy himself of whether or not there has been wrongdoing constitutes a classic example of a fishing expedition.  In so far as category 4 documents relate to the period prior to February 2016 given the petitioner’s involvement in the management of the Companies, in the absence of any pleaded complaint in the petitions (although there is reference to the Companies’ practices in respect of distributions in the Points of Defence), it also seems to me that such documents are irrelevant to the issues to be determined at trial.

10.  In practice it appears that the 1^st and 2^nd respondents have disclosed rather more documents than are relevant by virtue of disclosing all the documents they say were in the Sheung Wan office and which were removed for the purposes of dealing with US tax.  Those documents are very extensive and predate the dispute, in some instances by decades.  It appears that what is sought in categories 1 and 3 are documents that the petitioner thinks may exist but have been omitted from the list because the documents have been provided to US accountants to prepare tax returns, and it appears on the evidence this includes the preparation of statements for the Companies of their income and assets at least for the years 2012 to 2014. 

11.  The respondents say that they have provided everything that falls within these categories and the suggestion to the contrary arises from a pedantic reading of the solicitors’ correspondence and the 1^st respondent’s evidence.  I am inclined to agree, but largely as a matter of practicality I will direct that the 1^st and 2^nd respondents file an affirmation confirming that they have disclosed the documents in categories 1 and 3 in their possession, custody, or power. 

12.  In the case of category 2 the respondents also say they have disclosed all bank statements up to April 2016.  The petitioner disputes this and has identified bank accounts which he contends statements have not been disclosed.  They are as follows:

Great Anchor	OCBC Wing Hang Bank (“OCBC”) No 681288-100
Great Anchor	OCBC No 681288-160
Great Anchor	Wing Fat Securities Account No 07000617
Maxfortune	OCBC No 1915040-300, 801038-300, 734801-300, 701885-300
Samdor Company Limited	OCBC No 884464-302, 884464-386, 395751-300, 672822-300

13.  As I understand the evidence and the argument before me, the dispute under this category arises in two ways.  First, it would appear the respondents may not have disclosed the passbooks for bank accounts for which what would conventionally be described as monthly statements are not issued by the bank.  The second relates to the period from April 2016 onwards.  It does not seem to me that disclosure of monthly statements and passbooks are relevant for the period after April 2016.  However, for the relevant period relating to the complaint in para 27 of the petition, it seems to me that the petitioner is entitled to the bank records which are required in order to carry out a complete reconciliation of the withdrawals and deposits of the Companies and I will therefore direct that the bank statements or passbooks for the bank accounts identified earlier in these reasons are disclosed.

14.  Finally, there is an intermediary category which is not expressly identified in the summonses but it seems to me should be disclosed if the documents have not already been included by the respondents in either their original list of documents or supplemental list.  However, as the categories are divided in such a way in the summonses so that category 4 refers to payment slips, bank slips, bank statements in relation to funds withdrawn from the Companies and paid to Madam Lai, in order for any argument about what the order intends, I will order that the respondents make an affirmation verifying a list of documents in respect of all accounting records, including vouchers, invoices, receipts, payment slips, and instructions of whatever nature to any bank with which any of the Companies have an account, of deposits and withdrawals for the period 1 January 2016 to 30 April 2016. 

Costs

15.  The petitioner has been successful in obtaining an order for further discovery, but the ambit of the order is far narrower than that sought in the summonses.  It does seem to me that if the application had been restricted to something roughly in line with what I have ordered, it would be possible to have been either agreed it in entirety or the difference between the parties would have been very narrow.  Certainly it seems to me that a hearing which resulted in a bundle of in excess of 10 files and a hearing which lasted a whole day would not have been necessary. It seems to me in the circumstances it is appropriate to apportion the costs. 

16.  I will therefore order that the respondents pay 20% of the petitioner’s costs with a certificate for two counsel.