Noble Group Ltd v. Arnaud Vagner and Another

HCA 594/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 594 of 2015

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D E C I S I O N
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1.By summons dated 26 November 2015 (“the Summons”), the plaintiff, Noble Group Limited (“Noble”), seeks an order under the inherent jurisdiction of the court that: the defendants having failed to comply with the unless order dated 15 October 2015, their Defence be struck out and final judgment be entered in terms of the prayer to the statement of claim dated 9 April 2015 (“the SOC”). The Summons does not identify in what way the defendants have acted in breach of the unless order.

Background fact

2.The plaintiff is a company incorporated in Bermuda and registered as a non‑Hong Kong company under Part 16 of the Companies Ordinance (Cap 622).  Its head office and central management are located in Hong Kong while its shares are listed on the Singapore Stock Exchange (“SGX”).  According to the SOC, the plaintiff manages a portfolio of global supply chains covering a range of agricultural and energy products, as well as metals, minerals and ores.  The plaintiff and its subsidiaries operate in over 60 countries and is ranked 76^th in the 2014 Fortune Global 500.

3.The 1^st defendant, Arnaud Vagner (“Mr Vagner”), is a French national and a Hong Kong resident.  He was employed by the plaintiff as a credit analyst from March 2011 to 7 June 2013.  There is a dispute as to whether Mr Vagner was terminated for cause.  The 2^nd defendant, Enlighten Ace Limited, was incorporated in the Republic of Seychelles on 14 January 2015 and Mr Vagner is its sole director and shareholder.

4.There is no dispute that the defendants set up the website www.iceberg‑research.com (“the Iceberg Website”).  Iceberg has no track record as an independent stock researcher and the plaintiff is the only company which has been the subject of attack on the Iceberg Website.

Summary of parties’ pleaded cases

5.In the SOC, two causes of actions are pleaded against the defendants, namely:

(1) conspiracy to injure the plaintiff by unlawful means, and

(2) conspiracy to injure the plaintiff.

In respect of both causes of action, the unlawful means and the overt acts pleaded in the SOC are the various statements contained in the three papers published on the Iceberg Website on 15 February, 25 February and 21 March 2015 (respectively defined as “the First Iceberg Report”, “the Second Iceberg Report” and “the Third Iceberg Report”, collectively “the Iceberg Reports”).

6.It is the plaintiff’s pleaded case that the following statements in the Iceberg Reports contain “false and misleading information concerning the plaintiff’s business operations and financial position” (collectively “the Representations”):

(1) In the First Iceberg Report:

(a) “that Noble has incorrectly treated Yancoal, a listed Australian miner, as an associate” when in fact such treatment was consistent with accounting standards and market practice by reason of the plaintiff’s significant influence over Yancoal;

(b) “that Noble incorrectly valued Yancoal and failed to take into consideration impairment to Yancoal’s value” when in fact the carrying value of Yancoal was tested for impairment using discounted cash flow models updated every quarter and the plaintiff decided in the fourth quarter of 2014 to impair Yancoal by US$200 million;

(c) “that Noble would have a difficult time selling the palm oil business as the license of one of its subsidiaries had been revoked by the local government” when the licence had not in fact been revoked; and

(d) “that Noble Agri’s performance for the 9 months ended 30 September 2014 was manufactured” when Noble Agri’s financial results reflected record volume for that period and a strong recovery in gross margin.

(2) In the Second Iceberg Report:

(a) “that Noble overstated fair value gains by US$3.8 billion and they should be impaired” when in fact Noble had not overstated the fair value gains and there was no need for fair value gains to be impaired;

(b) “that Noble manipulates the fair values and books 100% of the values of long dated deals on Day 1” when in fact the plaintiff has not done so;

(c) “that all movements in fair values are non‑cash” when in fact not all movements in fair values are non‑cash;

(d) “that Noble is increasingly struggling to hide its operating cash outflows” when the plaintiff has not hidden its operating cash outflows; and

(e) “that Noble pays too much interest for the level of debt it reports and therefore must be hiding off‑balance sheet activities” when the interest paid by the plaintiff is appropriate for the level of debts it reports and it does not have hidden off-balance sheet activities.

(3) In the Third Iceberg Report:

(a) “that there was no valid reason for the omission from Noble’s FY2014 results of the following negative assurance by Noble’s directors and Chief Executive Officer that had previously appeared in Noble’s quarterly results: ‘We confirm that to the best of our knowledge, nothing has come to the attention of the Board of Directors of Noble Group Limited which may render the unaudited financial statements for [the third quarter ended 30 September 2014] to be false or misleading in any material respect’ ” when the negative assurance was not required by SGX Listing Rules;

(b) “that as the result of a member of Iceberg acting as a whistle blower in relation to Noble’s commercial practices in Singapore, the Singapore Maritime Port Authority (“MPA”) decided not to renew Noble’s bunkering licence” when MPA did not refuse to renew the plaintiff’s bunkering licence and released a statement stating that Iceberg’s claims are untrue; and

(c) “that Noble has substantially understated its debts by omitting a corporate guarantee which it has granted in respect of 49% of certain borrowings by Noble Agri” when the plaintiff has disclosed such Guarantee as a contingent liability.

7.It is also pleaded in the SOC that the Representations were made by the defendants fraudulently in that they knew that they were false or were reckless, not caring whether they were true or false.  Induced by and acting in reliance on the Representations, the shareholders of the plaintiff sold vast number of shares, thereby causing the market price of its shares to slump by 24.79% from the date of the publication of the First Iceberg Report to the date of the writ (23 March 2015).  It is said that as a result of these matters, the plaintiff and its shareholders have suffered loss and damage.

8.In the prayer, the plaintiff claims damages for conspiracy, an injunction restraining the defendants from taking any further steps in pursuance of the alleged unlawful means conspiracy and/or conspiracy to injure including the publication of any further false and misleading statements concerning its business, together with interest and costs.

9.In their Defence filed on 2 July 2015 (“the Defence”), the defendants deny that the Representations are false and misleading, relying on their allegations that:

(1) the plaintiff failed to comply with their request to provide a copy of the Agri sale agreement, a document said to be in the public domain;

(2) the plaintiff failed to answer almost all the questions raised in each of the Iceberg Reports; and

(3) the “comprehensive research” undertaken by Iceberg from 2010 to 2014.

10.Further, the defendants contend that to the extent that “any report [was] based on published and public information, any reference to or comment on such is fair comment and promotes the fair workings of an open market”, and had the plaintiff responded to such comment in a full, transparent, valid and accurate manner, it would have prevented any drop in the share price in a rational market.  The matters referred to by the defendants are those pleaded in paragraphs 12 – 15 (in respect of the First Iceberg Report), paragraphs 17 – 21 (in respect of the Second Iceberg Report) and paragraphs 23 – 24 (in respect of the Third Iceberg Report).

Request for further and better particulars and unless order

11.By a Request for Further and Better Particulars dated 29 July 2015 (“the Request”), the plaintiff requested the defendants to provide further and better particulars (“F&BP”) of the various matters pleaded in the Defence.  The Request is a lengthy document running to 29 pages and contains 141 requests.  Upon the summons dated 17 August 2015 issued by the plaintiff, Master J Wong ordered the defendants to file and serve their F&BP by 5 October 2015.  On the last day for compliance, the defendants issued a time summons seeking an extension of 14 days to file their F&BP.  At the hearing on 15 October 2015, Master K Lo made an unless order in the following terms (“the Unless Order”):

“Unless the 1^st and 2^nd Defendants file and serve the Further and Better Particulars of the Joint Defence on or before 4pm on 23 October 2015, the Joint Defence be struck out and the Plaintiff be at liberty to apply for judgment with costs of the action …”

12.On 23 October 2015, the defendants filed and served their Answers to the Request (“the Answers”) providing F&BP on most of the requests except 28 requests which relate to their plea of justification and fair comment which the defendants said are not proper requests or are matters for which they cannot provide F&BP until after discovery.  Not satisfied with the Answers, the plaintiff issued the Summons which was returnable on 14 January 2016 before Deputy High Court Judge Burrell and was adjourned for full argument.  The learned Judge directed the defendants “to provide to the court [their] final answers to all the requests made by the Plaintiff for the purpose of final adjudication as to whether the request[s] have been complied with” (emphasis added).  Neither party has objected to this direction.  Accordingly, the defendants lodged their further Answers to the Request (“the Further Answers”) together with their skeleton argument with the court on 4 March 2016.

13.As the plaintiff did not have the opportunity to consider the Further Answers, at the hearing, I directed the defendants to provide the plaintiff with the Further Answers and gave liberty to the plaintiff to make submissions on the Further Answers, if any, within the next seven days.

Discussion

14.There are two broad issues which require determination, namely:

(1) whether the Unless Order is a “time order” which specifies the time limit for filing the F&BP or an order which specifies the mode of compliance; and

(2) whether there was a breach of the Unless Order.

15.It is well established that an unless order, to be operative, must be absolutely and perfectly precise in their terms.  This was explained by Somervell LJ in Reiss v Woolf [1952] 2 QB 557 at 599 which, in turn, referred to Abalian v Innous [1936] 2 All ER 834, 838, in this way:

“… The court in [Abalian v Innous] came to the conclusion that such [unless] orders must be absolutely and perfectly precise in their terms and, unless they were so, they were inoperative. Devlin J., applying the principle, said this: ‘If “default” means default in the sufficiency of one or more of the answers I should not consider that the event was defined with precision; whether or not it had taken place might be the subject of a genuine conflict of opinion which could only be resolved by a further adjudication. If I thought this to be the right construction of the order I should follow Abalian v Innous and treat it as inoperative. The order can conform with the principle in that case only if it is treated as an order that is dealing with the time of compliance rather than with the mode of compliance. The order does fix a time very precisely, and I think it can and should fairly be construed as a time order. So construed, “default” refers to default in the delivery of a document within the specified time. …’ ” (emphasis added)

16.Mr Barrie Barlow SC, counsel for the plaintiff, submits that the Unless Order is not a time order, but an order which specifies the mode of compliance.  He submits that the Unless Order requires the defendants to provide F&BP on all the requests and, as such, it is not open to the defendants to answer the 28 requests identified in his skeleton by stating that they are not proper requests or giving the reasons why they are unable to provide the F&BP on the matters requested.  Mr Barlow SC is unable to point to any term in the Unless Order which supports his contention.  Instead, he relies on the agreement or the assurance said to have been conveyed by the defendants’ solicitor at the hearing leading to the Unless Order and contends that the defendants accepted or acquiesced in the making of the Unless Order.  I am unable to accept the argument.

17.As pointed out by Mr Giles Surman, counsel for the defendants, it can be seen from the transcripts of the hearing that the submissions made by the parties and the exchanges with the Master were all directed to the time aspect.  There was no discussion about the mode of compliance.  This is not surprising as the only application before the Master was the time summons issued by the defendants.  In any event, I do not think it is right or proper to construe the Unless Order by reference to what was said by any party at the hearing, at any rate when such statement did not find its way in the Unless Order.

18.In my view, the Unless Order, properly construed, is a time order.  It specifies the time for compliance very precisely.  The only default which may trigger the sanction is a failure on the part of the defendants to file and serve F&BP of the Defence within the specified time.  There is nothing in the Unless Order which requires the defendants to file and serve F&BP on all the requests set out in the Request.  Indeed, the Unless Order does not even refer to the Request, still less all the requests contained therein.

19.There is no dispute that the Answers were served within the time specified in the Unless Order.

20.The next issue is whether the Answers can fairly be described as F&BP of the Defence, as the authorities suggest that to comply with an unless order, the documents filed within the specified time must be made in good faith and is one which can fairly be described as F&BP.  The principle was explained in Reiss v Woolf at 559–560 thus:

“… I do not, of course, mean that any document with writing on it will do. It must be a document made in good faith and which can fairly be entitled ‘particulars’. It must not be illusory; that is the word used by Mr Bankes in argument in Davey v Bentinck. That is the test, in my judgment, and not, as the plaintiff contends, whether each demand for particulars has been substantially met. Applying that test, I think there has been no default.” (emphasis added)

21.The above principle had been consistently applied by the English courts until it was reversed by the English Court of Appeal in QPS Consultants Ltd v Kruger Tissue Ltd [1999] BLR 366 at 377, where it was held that in the context of an unless order requiring a party to file F&BP, the modern approach is that if an unless order is breached, the court has a wide general discretion to do whatever is required in the interests of justice. It is not necessary to find that the particulars are “illusory” or that no genuine attempt has been made to answer them.  Nevertheless, the English Court of Appeal went on to say that it would be a breach of the unless order if a reply is “plainly incomplete or insufficient” or that the further and better particulars “considered as a whole can be regarded as falling significantly short of what was required”.

22.The principle expounded in Reiss v Woolf was consistently applied and followed by the courts in Hong Kong and remains good law.  As observed by Anthony Chan J in Re AJK Company Ltd, HCMP 3179/2013, 12 October 2015, §§21–26, Reiss v Woolf was applied by the Court of Appeal in Ka Wah Bank Ltd v Low Chung Son [1989] 1 HKLR 451 at 459B–460C and in Telford Development Ltd v Shui On Construction Company Limited, CACV 149/1989, 1 March 1990, at p 10.  It was also applied by Sakhrani J in Lau Chin Wang v Ip Fook Chuen [2003] 1 HKLRD 485 at §§30–34, and by Anthony Chan J in Re AJK at §§27–30.

23.Mr Barlow SC submits that as the defendants have failed to provide F&BP to the 28 requests relating to their pleas of justification and fair comment, they were in breach of the Unless Order.  Mr Barlow SC further submits that the defendants’ breach is contumelious in light of:

(1) the defendants’ “unparticularised false pleas of justification and fair comment” (evidenced by their inability to provide particulars of the same);

(2) the defendants’ false assurances made at the hearing at which the Unless Order was made that they “agreed” to provide the F&BP but just needed more time;

(3) the defendants’ “false acquiescence” in the making of the Unless Order while intending to disobey it;

(4) the defendants’ maintenance of their false pleas of justification and fair comment in their purported Answers; and

(5) their conduct in resisting the Summons.

24.In the further submissions lodged on 14 March 2016, Mr Barlow SC essentially repeats his arguments that a plea of justification or fair comment, if made without foundation in fact and evidence, is an abuse of process and the plea must be properly particularised.  As the defendants did not provide all the “mandatory particulars” in the Further Answers, the court should make an order in terms of the Summons.

25.It seems to me that these arguments are all predicated on the plaintiff’s contentions that the Unless Order is one which specifies the mode of compliance such that the defendants are not entitled to answer the 28 requests in the way they did.  In light of my earlier conclusion that the Unless Order is a time order, I do not think that these are valid grounds for contending that the way in which the defendants answered the 28 requests, by themselves, constituted a breach of the Unless Order.

26.Mr Surman submits that the Answers cannot be said to be “plainly incomplete or insufficient” or that they cannot fairly be described as F&BP of the Defence as the defendants have in good faith answered most of the requests where possible and to the extent that they are proper or legitimate.  I agree.

27.In my view, the Answers, viewed as a whole, can fairly be described as F&BP of the Defence and were made in good faith by the defendants.  They are certainly not illusory.  There are a number of reasons for this.

28.First, there is no dispute that despite the substantial number of the requests made, the defendants provided F&BP or sufficient answers to 123 requests, which is about 88% of all the requests.

29.Secondly, of the 28 requests complained of by Mr Barlow SC in his skeleton, in §§3.2(e), 4.2(e), 5.2(e), 6.2(e), 8.2(e), 9.2(e), 10.2(e), 11.2(e) and 13.2(e) of the Request, the plaintiff made an identical request in the following terms:

“3.2 Provide the missing particulars to the Defendants’ presently incomplete plea of justification including particulars of:‑

….

(e) How the Defendants say those statements of opinion are fair or reasonable.”

30.It seems to me that the drafter of these requests was labouring under a misapprehension that the plaintiff was entitled to ask the defendants to explain or justify the basis of the matters pleaded in the Defence by way of a request for F&BP.  When asked by the court as to whether this is a proper way to make a request for F&BP, Mr Barlow SC appears to accept that a request for F&BP cannot be framed in this way.  Where, as here, the requests are not proper requests for F&BP, the defendants must be entitled to answer the requests by stating that the plaintiff is not entitled to the matters requested.  Indeed, this was what the defendants did.  For example, in answer to request §3.2(e), the defendants stated: “Not entitled as this is a request for evidence, but refers to and repeats the above in any event”.

31.The same problem lies in the way the plaintiff framed the requests in §§4.3(b), 8.3(a), (b) and 9.3(b) in which the plaintiff requested the defendants to explain how they alleged the various matters pleaded in the Defence.

32.Thirdly, the following requests are not proper requests for the reasons stated:

(1) In §4.3(d), the plaintiff asked for matters which were not referred to or pleaded by the defendants in §§10, 11, 13 and 28 of the Defence.  The defendants are entitled to answer the request by pointing out this fact.

(2) In §6.3(a), the plaintiff asked “who, within the Plaintiff ‘manufactured’ or fabricated or falsified the Plaintiff’s reporting of Noble Agri’s performance”.  The defendants responded by stating that “this is a request for evidence and/or the Plaintiff is in a better position to provide this information.  The plea is as to the Plaintiff’s actions not of an individual”.  This seems to me to be a proper answer to the request.

(3) In §9.1(b), the plaintiff requested the defendants to state “all facts and matters upon which the Defendants shall rely in order to prove their plea that the meaning which they attribute to the published words was true”.  This is a request for evidence and therefore not a proper request.  In any event, the defendants answered this request by referring to the matters stated in §9.1(a) of the Answers.

(4) In §9.2(b), the plaintiff asked the defendants to provide “[a]ll facts upon which the comment was based.”  This again is a request for evidence.  In any event, the defendants answered the request by referring to §9.1(b) of the Answers (which in turn referred to the matters stated in §9.1(a)).

(5) In §15, the plaintiff referred to §25 of the Defence and requested the defendants to provide “like particulars to those conditionally requested in paragraphs 14.3 and 1.4 above mutatis mutandis”.  The defendants answered the request by pointing out the fact that in §25 of the Defence, they pleaded “not admitted” to §11(3) of the SOC.  I cannot see how this answer can be criticised.

33.As for the remaining requests, it seems to me that the defendants have made clear their position on the requests.  Where, as here, there was a genuine conflict of opinion on the sufficiency of the answers, the matter could only be resolved by further adjudication (Reiss v Roolf, at 599; Lau Chi Wang v Ip Fook Chuen at §35).

34.In light of my conclusion that the Answers can fairly be described as F&BP of the Defence and were made by the defendants in good faith, it is not necessary to consider the sufficiency of the Further Answers or the other points raised by Mr Surman save to observe that while it is correct that the plaintiff has not pleaded libel as a cause of action in the SOC, and it is only in Mr Barlow SC’s skeleton argument that he described the plaintiff’s cause of action as “Libels”, it is neither helpful nor relevant to describe this as the “root cause of the present procedural dispute”.  This is because rightly or wrongly, the defendants did in their Defence plead justification and fair comment as one of their defences to the plaintiff’s claims.  It seems to me that having pleaded such defences, the plaintiff must be entitled to request for F&BP of the matters pleaded so long as the requests are framed properly.

35.For the above reasons, the Summons is dismissed with costs.  I make an order nisi that the plaintiff do pay the costs of and occasioned by the Summons, on a party and party basis.  I will assess the costs of the Summons by way of gross sum assessment.  The defendants shall lodge and serve their statement of costs within the next three working days, and the defendants shall lodge and serve their comments, if any, on the defendants’ statement of costs within the next three working days thereafter.  I will assess the costs on papers.

Mr Barrie Barlow SC, instructed by Reed Smith Richards Butler,for the plaintiff

Mr Giles Surman, instructed by Tanner De Witt, for the 1^st and 2^nd defendants