CENKY LTD v. ZEALOT & CO LTD AND ANOTHER

HCMP 1823/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1823 OF 2006

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D E C I S I O N

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1.  This is a summons made under Order 24 rule 10 of the Rules of the High Court.  The applicant is Cenky Limited (“Cenky”).  It seeks an order that the 2^nd respondent herein, Ma Ching Lai Gloria, is to produce for inspection certain documents referred to in her 2^nd affirmation filed on 18 January 2007.

2.  Various affidavits have been filed by Cenky and the 2^nd respondent in an originating summons issued by Cenky under section 114B of the Companies Ordinance, Cap. 32 to convene an extraordinary general meeting for the company in question, Zealot & Company Limited (“Zealot”), and in 2 summonses to be heard on 26 and 27 June 2007.  The summons earlier in time is that issued by Cenky on 10 October 2006, to appoint interim receivers and managers over Zealot.  The other summons was issued by the 2^nd respondent on 17 January 2007, to strike out the originating summons and to stay all further proceedings commenced by Cenky including its summons to appoint interim receivers, until after the determination of the legal and beneficial ownership of the 999 shares in Zealot in HCA No. 2269 of 2006.  The strike out and stay summons was made on the basis that Cenky, not being a member of Zealot, has no locus to commence or pursue proceedings herein.

3.  The documents sought to be produced in the present application are supporting documents relating to the loans advanced to Zealot referred to in paragraph 51 of the 2^nd affirmation of the 2^nd respondent.  The loans referred to in this paragraph are loans made by the 2^nd respondent and by her late mother Madam Law Chiu Bun to Zealot.  Mr Harris, SC has made clear that he would not be seeking supporting documents for the loans advanced by the mother.  Cenky would only be asking for supporting documents in respect of the 2^nd respondent’s loans to Zealot.  I will refer to the documents as “the loan documents”.

4.  Further, Cenky has decided not to pursue the other category of documents sought in its summons, having considered the 3^rd affirmation of the 2^nd respondent, in which she deposed that despite diligent search, she has not been able to locate the other category of documents also referred to in her 2^nd affirmation.

5.  It is not in dispute that the loan documents are referred to in her 2^nd affirmation.  The 2^nd respondent opposed production for a number of reasons.  I need be concerned with only 2 of them.  Firstly, to order production, I would need to be satisfied that the loan documents are necessary for disposing fairly of the originating summons or the 2 summonses.  Secondly, I would need to ask if it would be oppressive to order production of the documents concerned.

6.  Ms Linda Chan submitted for the 2^nd respondent that the loan documents are irrelevant to the originating summons or any of the summonses, as the originating summons and the summonses do not involve a determination on the balance of the loans owed by Zealot to the 2^nd respondent.  Further, the loan documents are irrelevant to the legal and beneficial ownership of the 999 shares in Zealot that Cenky claims ownership of.

7.  I do not agree with Ms Chan that the loan documents are irrelevant to the originating summons or the summonses.  I agree with the analysis of Mr Harris, set out in paragraphs 10 and 11 of his submission and paragraph 10 of his reply submission.

8.  In summary, the loans allegedly made by the 2^nd respondent to Zealot constitute an important element of her case and they are relevant for these reasons:

(1)     They tend to support the 2nd respondent’s case that it would make no sense for her to divest herself of her beneficial interest in the shares of Zealot, as she was owed substantial sums by Zealot between 1992 and 1999 and that her mother knew of this, and had full access to the supporting documents of her loans.  Hence, the amount of the loans outstanding and the knowledge of the mother of the outstanding loans are relevant.

(2)     The 2nd respondent claims that she has been using part of the cash of Zealot in its bank account to pay interest to her on her outstanding loans.  The existence of these loans and whether there are supporting documents for these loans would have a bearing on the question if the assets of Zealot are in danger of being misused or misappropriated so that interim receivers should be appointed.

(3)     If the 2nd respondent should fail to prove that her loans are outstanding and interest should be paid, this may call into question the veracity of her case generally.

(4)     Cenky sought to demonstrate the transfer of the 999 shares in 1992 and the settlement in 1995 took place with reference to the financial analysis of Zealot in the affirmations filed.  In response, the 2nd respondent prepared her own analysis of the financial position of Zealot.  The amounts of the 2^nd respondent’s alleged loans and interest are essential elements in all these analyses.

9.  I do not think Cenky is embarking on a fishing expedition in seeking production of the loan documents.

10.  The 2^nd respondent asserted in her 3^rd affirmation that she should not be ordered to produce the loan documents as she has already provided extensive documentation to the other side, including tax returns of Zealot from 1991 to 2005, various loan summary schedules, detailed breakdown of loan balances from 1974 to 2001, and detailed schedules of loan amounts of Zealot from 1995 to 2005.

11.  I do not regard these documents as sufficient.  They are all secondary documents prepared from source documents.  As pointed out by Mr Harris, Zealot has never had an audit of its accounts, and no management accounts were exhibited.  There is no evidence to suggest that the figures concerning the loans of the 2^nd respondent had been audited or verified in any way by a certified public accountant.  All that have been provided so far are schedules prepared by or on the instructions of the 2^nd respondent, for which she has provided no supporting documents.

12.  Ms Chan submitted that it would be oppressive to order production, as the documents sought are unlimited in time, covering 33 years and are very voluminous.  Cenky has not sought documents of 33 years.  What it seeks are the documents referred to in paragraph 51 of the 2^nd respondent’s 2^nd affirmation, limited to the supporting documents relating to her loans, copies of which she said were given to her mother, and which were kept in the financial records prepared by Zealot’s former book-keeper.  What the 2^nd respondent would have to do is to give access to the files of the book-keeper.  I do not think the exercise would be oppressive or onerous.

13.  For the above reasons, I will order production by the 2^nd respondent for inspection by Cenky’s solicitors of the original copies of the “supporting documents relating to the loans” advanced by the 2^nd respondent to Zealot referred to in paragraph 51 of her 2^nd affirmation, and permit Cenky’s solicitors to take copies of the same.

14.  I order that within 28 days hereof, the 2^nd respondent is to produce for inspection the original copies of the documents mentioned earlier to Cenky’s solicitors in Hong Kong or to provide a compact disc of the scanned documents to Cenky’s solicitors.  In the event that a disc is supplied, the 2^nd respondent is to produce such of the original copies of the documents for inspection by Cenky’s solicitors in Hong Kong within 7 days of a notice served on the 2^nd respondent’s solicitors for that purpose.

15.  I see no reason why costs of this application should not follow the event.  I order the 2^nd respondent to pay Cenky’s costs of this application in any event.