ALAN CHUNG WAH TANG AND ANOTHER v. LEE SIU FONG AND ANOTHER

HCB 345/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 345 OF 2001

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J U D G M E N T

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1.  This is my decision on the application of the trustees in bankruptcy for an order under s 29 of the Bankruptcy Ordinance (Cap 6) for the examination of the two respondents, who are both elder sisters of the bankrupt. For convenience, I shall refer to them together as the “Sisters”.

2.  This decision is handed down at the same time as my decision on the trustees’ application, heard earlier, for a similar kind of order against the bankrupt’s younger brother and son, and should be read together with that decision, especially because the Sisters have adopted much of the Brother’s evidence filed in opposition to the application.  I adopt the abbreviations used in that decision and shall not repeat here the background of the bankruptcy, the discussion of legal principles or the description of the transactions in the areas of investigation already set out in that decision.  Reference will also be made to my reasons of 12 October 2016 for ordering the private examination of the bankrupt himself.

3.  As against the Sisters, the trustees wish to examine them on the following areas of investigation: (1) the bankrupt’s 75% holding in SFPH; (2) the interest in BSW; (3) living expenses of the bankrupt.  In addition, the trustees wish to examine Lee Siu Fong in relation to the bankrupt’s undisclosed nominee accounts. 

4.  The trustees first wrote to the Sisters in November 2002 seeking information about the living and travelling expenses of the bankrupt, followed by reminders, but there was no reply.  The trustees wrote to Lee Siu Fong in 2012 and 2013 seeking information about the HK$11 million transfer from Account JN 519 (see below) but the request was ignored.  The information about that account mentioned below was only provided in her defence when the trustees brought an action against her (HCA 779/2013).  The trustees wrote again to the Sisters in December 2015 requesting written answers to a questionnaire and the production of documents. No substantive answer or document whatsoever was provided by them before the present summons was issued.

5.  The Sisters have now claimed that they did not receive some of the letters.  They have not however identified which letters they did not receive.

6.  In opposition to the present application, Lee Siu Fong has filed an affirmation, which Leelalertsuphakun Wanee has adopted in its entirety.

7.  As in the case of the Brother and the Son, counsel on the whole did not debate the propriety of individual questions proposed in the questionnaires for the Sisters.  The order for private examination made herein is not a carte blanche for the trustees to put any questions to the examinees; nor is it a wholesale endorsement of the questions set out in the questionnaires annexed to the summons: see §10 of my decision on the Brother and the Son.

Undisclosed nominee accounts

8.  I shall deal first with the undisclosed nominee accounts.  In the course of their investigation, the trustees have found that the bankrupt had maintained offshore bank accounts held in the name of others for himself.  In the 2016 Reasons, I summarised the evidence as follows:

“45. As referred to above, Daniel Chan had revealed that at least HK$25 million belonging to the 1^st respondent paid to him and his mother had been squirreled away in 1996 to a nominee account held with BNP Singapore (account no JN 519). The trustees’ investigations have revealed that that account was held by BNP Jersey. Daniel Chan was authorised by the 1^st respondent under a power of attorney to give instructions to BNP Jersey in relation to Account JN 519. The HK$25 million was then used to purchase shares in SFCH. In August 1996, 7.5 million SFCH shares (worth about HK$9 million) were transferred from Account JN 519 to another nominee account no JN 302 at BNP. On 6 September 1996, following a sale of 10.6 million SFCH shares in Account JN 519, a sum of HK$11 million out of the proceeds of sale was transferred from Account JN 519 to a Hong Kong bank account of Lee Siu Fong, one of the 1^st respondent’s sisters.

46. Documents obtained by the trustees under a Jersey court order in 2010 have further revealed that Account JN 302 was opened under the name of one Brian Law, an investment director of HSBC Private Equity Management Ltd at the time. A Mr David Wong was one of the authorised signatories for that account. David Wong was the person at CEF Brokerage responsible for operating the securities trading account of the 1^st respondent’s wife, found to have been used for insider dealing in 1996 (see §6 above). Further trading of SFCH shares was conducted after 7.5 million shares were deposited into this account in August 1996.

47. The evidence shows that on about 22 August 1997, a sum of US$2.5 million was transferred from Account JN 302 to a Swiss account with the Union Bank of Switzerland, Zurich, no CQUE775.069.

48. When asked in 2012 for an explanation of the nominee accounts, the 1^st respondent (through his solicitors Messrs Anthony Siu & Co) asked the trustees to provide documentary evidence of any nominee accounts. To help refresh his memory, the trustees provided him with a copy of an undated letter to BNP Jersey requesting nominee facilities signed by the 1^st respondent and countersigned by BNP Jersey. Despite this, the 1^st respondent has failed and refused to provide any information.

49. As for the HK$11 million paid from Account JN 519 to Lee Siu Fong’s bank account, an action has been brought by the trustees (HCA 779/2013). By way of defence, she has since said that the money was in turn transferred by her to NHD Systems (Asia) Ltd, a company over which the 1^st respondent had interest and control prior to its winding up.

50. The trustees consider they require further information and have raised further questions for the 1^st respondent on this matter, as set out in Section F (p 17) of Schedule 1 to the summons, such as whether the 1^st respondent was the owner of Account JN 519 and Account JN 302 at BNP and the account no CQUE775.069 at Union Bank of Switzerland, Zurich.”

9.  As stated above, Lee Siu Fong ignored the request for information relating to the HK$11 million transfer referred to in §49 of the 2016 Reasons.  It was only after the trustees commenced HCA 779/2013 in an attempt to recover that sum from her, that Lee Siu Fong admitted the sum of HK$11 million was paid from Account JN 519 to a bank account in her name with Nanyang Commercial Bank on 6 September 1996, but she stated that on the very next day, 7 September 1996, she drew a cheque for the same amount which was paid to NHD Systems (Asia) Ltd (“NHDA”), a company within the Group at the time, which held a 70% interest in Dubois Beijing.  She also produced a copy of both sides of the cheque in that action.  As a result, the trustees had to withdraw that action and pay costs.

10.  Because of this, however, the trustees consider it quite possible there were other fund transfers involving Lee Siu Fong and it is therefore necessary to obtain information from her.  They wish to ask her why HK$11 million was transferred from Account JN 519 to her account and then immediately from her account to NHDA and who gave her the instructions.  Further, the trustees seek information as to whether there were other sums of money or property she received from the bankrupt.

11.  It is difficult to understand why the sum of HK$11 million was transferred in 1996 in that tortuous manner.  Lee Siu Fong had given no explanation either in HCA 779/2013 or in these proceedings except as follows (as stated in her defence in HCA 779/2013):

“Shortly before the 1^st Transfer [ie the transfer of $11m into her account on 6 September 1996], [Lee Siu Fong] was informed by the Bankrupt or Daniel Chan on the Bankrupt’s behalf that the Bankrupt had given instructions for a sum to be remitted to her, and the Bankrupt or Daniel Chan requested [Lee Siu Fong] to subsequently write a cheque for the amount received at the Bankrupt’s direction. [Lee Siu Fong] agreed.”

A tempting inference is that in doing so the bankrupt had used Lee Siu Fong as a conduit for the money for the purpose of concealing something or giving a false impression.  There is no suggestion from Lee Siu Fong that this was a one‑off incident; she simply said the trustees are unable to identify any other fund transfers executed by the bankrupt in favour of the Sisters.  There is strong evidence that the bankrupt had maintained offshore nominee accounts, and there is basis for suspicion that he had used Lee Siu Fong in connection with his offshore money.  The trustees have in my view demonstrated a reasonable requirement to inquire into whether Lee Siu Fong had been involved in other fund transfers.

12.  On behalf of Lee Siu Fong, Mr Jeremy Cheung complained that the investigation, unlimited in time or amount, is oppressive. I recognise the force of this and I think the examination should — subject to any further need being demonstrated — be directed at sums in an amount equal to or over HK$100,000 (or its equivalent in other currencies) and to payments or transfers from 1996 onwards.

13.  As what happened in HCA 779/2013 shows, Lee Siu Fong managed in 2013 to produce documents and details relating to the transfer and payment in 1996.  I consider that the trustees have shown, prima facie, that she will be able to provide the information sought.

The bankrupt’s 75% holding in SFPH

14.  I refer to §§11–31 of my decision on the Brother and the Son.  Clearly, many of the transactions relating to SFPH directly concerned the Sisters, including (i) the allotment of 3.2 million SFPH shares in May 1997 to Lee’s Machinery Ltd (which was apparently owned by the Sisters) which were transferred later in April 2000 to Huby Technology Ltd, and (ii) the 1.6 million shares which the bankrupt transferred to his then wife’s company (Triumph Leader Ltd) apparently for HK$1 and which Triumph Leader Ltd later transferred to Dynamic Achieve Investments Ltd.  Further, as regards the transfer of 800,000 shares by the bankrupt to the Brother for HK$1 in December 1997, the Brother said it was done at the Sisters’ direction — a statement the Sisters have since adopted.  As regards the other transactions, the Sisters have not stated they have no knowledge; instead, they have expressly adopted the Brother’s evidence.  Clearly, many questions remain: for example, while the Brother has said that the 1.6 million shares which the bankrupt transferred to his then wife’s company, Triumph Leader Ltd, were transferred in return for two sums of HK$51,785,240 each, the Sisters have not explained why Triumph Leader Ltd, 2 years later, transferred those 1.6 million shares to Dynamic Achieve Investments Ltd (apparently their company) for apparently only HK$313,525.

15.  Mr Cheung submitted that before LPHL was eventually listed in 2002, the Stock Exchange must have satisfied themselves that the Sisters, as majority shareholders, actually beneficially owned the shares attributed to them.  I do not think this in any way answers the questions raised.  It is also too tenuous in itself as a basis to conclude at this stage that the trustees are pursuing a blind alley.

16.  I am satisfied that the trustees have shown a reasonable requirement for information from the Sisters in this area and that prima facie they have information to provide.

17.  In addition, the trustees wish to ask the Sisters about Lee’s Machinery Ltd and the origin of the general funding of that company.  It seems to me examination in this regard would be going too far. Lee’s Machinery Ltd was set up well before the time when the Group faced acute financial difficulties.  While it got involved in a number of transactions concerning SFPH, this does not in my view justify a line of examination extending to the general operation of Lee’s Machinery Ltd.  It is said (in Tang’s 9^th affirmation §§62-69) that Lee’s Machinery Ltd was used in the 1990s as an intermediary to purchase equipment overseas and then re-sell them to companies in the Group at a massive mark-up before the equipment was injected into Mainland joint ventures at an inflated price representing the Group’s capital contribution.  It seems to me difficult to justify investigation into this as part of an examination under s 29 for “information respecting the bankrupt, his dealings or property”.

The interest in BSW

18.  I refer to §§32–42 of my decision on the Brother and the Son.  The Sisters were not, on the face of the transactions, directly involved in this area.  However, the Brother has said that part of the consideration paid (HK$2 million) to acquire Dubois Beijing was contributed by the Sisters (a statement the Sisters have adopted).  Mr Cheung said part of the HK$1.36 million said to be paid by the Brother came from the Sisters.  Also, the Brother said that he transferred Capital Ocean to the Son in 2008 at the suggestion of the Sisters who have always doted on the Son.

19.  Within the apparently limited involvement of the Sisters in this area, I am satisfied that the trustees have shown they reasonably require information from the Sisters for the purpose of their further functions.  I also consider that prima facie they are in possession of the information sought.

Living expenses

20.  The bankrupt filed a statement of affairs reporting only HK$265 in assets and 3 annual statements each reporting he had no income whatsoever.  There is suspicion that he remained a wealthy man with assets at his disposal, as the Insider Dealing Tribunal found.  To explain how he continued to make a living, the bankrupt said the Sisters had provided for his daily living.  When asked for information in this respect in 2002, the Sisters gave no reply.  In their affirmations they simply assert that the questions do no fall within the scope of permissible inquiry.  I disagree – it is relevant for the trustees’ investigation to see whether the bankrupt in fact had his own assets at his disposal.  It seems to me a reasonable requirement is shown for the trustees to inquire, and that prima facie the Sisters should be able to assist.

Balancing exercise

21.  I refer to my decision on the Brother and the Son generally, and in particular §§48–54 much of which is applicable in relation to the Sisters as well.

22.  Mr Cheung argued that, in saying that the bankrupt was a man who was prepared to use his family members and others to execute his dishonest schemes, the Insider Dealing Tribunal was not referring to the Sisters, who were not implicated parties in that inquiry. I accept that the Tribunal in making the statement in their report might not in particular have had the Sisters in mind.  However, the Sisters were closely involved in the transactions involving SFPH from which questions arise which the trustees have shown a need to pursue. Further, in relation to at least the HK$11 million transferred from Account JN 519, it is clear Lee Siu Fong was prepared to be used by the bankrupt as a conduit.  The Sisters’ role in relation to the interest in BSW appears limited but nonetheless they were involved in the way they accept.  As regards how the bankrupt made a living, the Sisters are said to have been the source of his financial support.  The Sisters are not entirely independent, commercial third parties vis‑à‑vis the bankrupt.

23.  Like the bankrupt, the Brother and the Son, the Sisters have ignored all the trustees’ previous requests for information and have shown no willingness to assist the investigation at all.

24.  In one respect, the Sisters take a very different stance from the Brother and the Son.  While the Brother and the Son had effectively contended that any claim raised by the trustees would be completely baseless, Mr Cheung submitted on behalf of the Sisters that the wealth of material already available “overwhelmingly sustains an inferential intent to defraud creditors”,[1] presumably on the part of the bankrupt.  Similarly, the Sisters have said on affirmation that they have been advised the information the trustees already have “is more than sufficient to initiate legal proceedings to set aside the Undervalue Transfer of SFPH shares”[2], where the term “Undervalue Transfer” was used to refer apparently to all the changes of shareholdings explained by the Brother in his affirmations.  As such, Mr Cheung submitted that private examination would give the trustees an unfair advantage over the Sisters in any recovery proceedings.

25.  The purpose of s 29 is of course not to give the trustees an unfair advantage in litigation.  Considerations of public policy, however, underlie statutory provisions such as s 29 which enable trustees in bankruptcy and company liquidators to obtain information through private examination, a route that is not available to an ordinary litigant. Ultimately whether private examination becomes unfair or oppressive because of potential or existing proceedings against the examinee is a question of degree that depends on the circumstances of each case.  Here, in relation to the interest in BSW, the nominee accounts and the resources to support the bankrupt’s living, there is as yet no concrete reason to think that there is any potential claim against the Sisters.  Even in relation to SFPH, it seems to me the present case is not one where the trustees are “seeking merely to dot the i’s and cross the t’s of a fairly clear claim” (Cloverbay Ltd v Bank of Credit and Commerce International SA [1991] Ch 90, 102C).  There are numerous transactions involved in connection with SFPH and the information is not evenly spread. 

26.  Having said that, the transfer of 1.6 million shares by Triumph Leader Ltd to Dynamic Achieve Investments Ltd in July 2000 is a matter in relation to which the trustees are clearly “targeting” at the Sisters and already have a fair amount of information.  I consider that the potential oppression in this regard outweighs the trustees’ requirement for further information and the examination should therefore not cover this transaction.  The same does not apply to the allotment of 3.2 million shares to Lee’s Machinery Ltd, of which relatively little is known.

27.  On the other hand, Mr Cheung also argued that any action against the Sisters to recover assets would be time‑barred.  He submitted that such action would be likely to be grounded on constructive trust for knowing receipt or dishonest assistance, and that s 20(1)(b) of the Limitation Ordinance (Cap 347), which exempts an action to recover trust property from any limitation period, does not apply to such intended action against the Sisters.

28.  It seems to me that Mr Siu was correct in submitting, on behalf of the trustees, that it is premature at this stage to speculate what causes of action there may be against which persons, and that in an application for private examination the trustees need not formulate a cause of action.  If a person is shown to be holding pre-bankruptcy assets for the bankrupt, an action by the trustees (in whom all such assets have vested) might be an action to recover trust property and might be free from limitation (see also §27 of the 2016 Reasons).

29.  Lastly, the Sisters allege that the trustees have acted for an ulterior motive, in that they are making these applications under s 29 of the Bankruptcy Ordinance in order to get remuneration for themselves through the costs of these applications.  The allegation is premised on the contention that there is no viable action that could be brought which could achieve any recovery for the benefit of the creditors.  As I have stated, this is at best speculative at this stage. In any event, I do not think there is any sufficient basis to raise the inference sought.  It is unnecessary to deal with the argument whether a trustee’s own fees can be recovered as part of the costs of a contested application such as this.

30.  For the above reasons, there will be an order for the private examination of the Sisters, subject to the qualification mentioned in §§7, 17 and 26 above.  The examination is to take place before a master of the High Court.  On a nisi basis, I order that the costs of and relating to the trustees’ summons be paid forthwith by the Sisters to the trustees, to be taxed if not agreed.