Huinong Delta Investments Ltd and Others v. Cccc Financial Ltd and Others

HCMP 3194/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3194 OF 2016

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BETWEEN

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J U D G M E N T

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Introduction

1.These proceedings concern applications by plaintiffs against defendants, and vice versa, for inspection and taking copies of various company documents under sections 373-375, 377-378 and, 740 of the Companies Ordinance, Cap 622 (“Ordinance”).

2.The 1^st to 3^rd plaintiffs are shareholders holding an aggregate of 27% shareholding in the 1^st defendant/CCCC Financial (“Minority Shareholders”), and they are also the plaintiffs in a derivative action, namely HCA 2814/2016 (“Derivative Action”), together with the 4^th plaintiff, Hong Zhaohui, one of the three directors of the 1^st defendant/CCCC Financial.  The defendants in the Derivative Action include the other two of the three directors of CCCC Financial, namely the 2^nd and 3^rd defendants, or Chong WK and Chan KC as they were referred to in a judgment of this Court handed down on 6 November 2017 (“2814 Judgment”).

3.For easy reference, in this judgment, I shall adopt the abbreviations in the 2814 Judgment, unless otherwise indicated.

4.Pursuant to the 2814 Judgment, the Derivative Action has been struck out by this Court.  On the same day the Derivative Action was issued, 27 October 2016, the Minority Shareholders also issued the Asset Recovery Action, namely HCA 2813/2016, to amongst other things, recover the 73% shareholding from 1^st defendant therein (“CNHC Investment”) and the 2^nd defendant therein (“Sincere Wealthy”).

5.Thereafter on 8 November 2016, the lender of the HKD Loan, Amuse Peace, has also issued the HKD Loan Action, namely HCA 2913/2016, against CCCC International for recovery of the HKD Loan.

6.In the present action, the Minority Shareholders are seeking an inspection order of various company documents as CCCC Financial’s shareholders.  Hong is seeking an inspection order of the company documents as a director of CCCC Financial.

7.As seen in the 2814 Judgment, 17 June 2016 (“Relevant Date”) was the date that the 1^st and 2^nd plaintiffs herein transferred a total of 73% of the shareholding, namely 51% to Sincere Wealthy and 22% to CNHC Investment, and also the date when Chong WK and Chan KC were appointed Additional Directors of CCCC Finance.  Prior to the Relevant Date, Hong was the only director of CCCC Finance.

8.At the hearing before this court, the plaintiffs had made some modifications to the documents they were seeking inspection and copies of and presently, the documents they seek are (“Relevant Documents”) :

(i)   All written board and shareholders resolutions or board minutes of CCCC Financial from the Relevant Date until date of the order;

(ii)  All written board and shareholders resolution of board minutes in relation to the disposal of CCCC Financial’s shareholdings in Lightning Triumph to Chen WQ, and hence the 254,500,000 H shares of Bank of ZZ held by Lightning (“Disposal”);

(iii)  All books, accounts and vouchers of CCCC Financial from the Relevant Date until date of the order;

(iv)  All transaction documents and records in relation to the Disposal, including but not limited to the sale and purchase agreement(s) of Lightning Triumph and the bought and sold notes of the Disposal;

(v)  All bank statements of CCCC Financial from the Relevant Date until date of the order;

(vi)  All securities statements of CCCC Financial from the Relevant Date until date of the order;

(vii)  The management accounts of CCCC Financial as at date of the order.

9.The Additional Directors counterclaim against Hong for  inspection of various company documents of CCCC Financial prior to the Relevant Date (“Counterclaim”)[1], namely :

(i)   The latest auditor’s report and audited accounts of CCCC Financial and all documents/records supporting the same;

(ii)  Monthly management accounts, including income statement, balance sheet and general ledger;

(iii)  Monthly statements including bank statements and statements of security accounts, and other accounts of the company assets as identified in the Counterclaim;

(iv)  Contracts, resolutions, minutes, invoices, vouchers, receipts and other documents and accounting records that show and explain all the company’s assets as at the Relevant Date, including those assets identified in the Counterclaim;

(v)  Contracts, resolutions, minutes, invoices, vouchers, receipts and other documents and accounting records that show and explain all the company’s liabilities and their related transactions, as at the Relevant Date.

10.After the hearing, the parties have agreed to certain undertakings in the event that the Counterclaim is allowed.

The background to the parties’ dispute

11.The background to the parties’ dispute has been set out in the 2814 Judgment and I will not repeat what was set out therein, save to add a few matters.

12.As seen in the 2814 Judgment, it is the defendants’ case that the Minority Shareholders held/hold their shares as nominees for Yu Lian. 

13.Chong WK had filed 3 affirmations on behalf of the defendants in the present applications, and his evidence was, amongst other things that:

(i)   When the Minority Shareholders first became shareholders of CCCC Financial on or about 11 February 2016, CCCC Financial ceased to be part of the group of companies under the Parent Company, and that Yu Lian became the beneficial owner of all the shares in CCCC Financial, and as mentioned, the Minority Shareholders were/are holding their shares for Yu Lian, and the plaintiffs’s initial failure to make reference to Yu Lian in the present application was a concerted attempt to conceal from the Court that Yu Lian was the prime mover behind the plaintiffs’ application herein[2];

(ii)  The Parent Company issued a series of no less than 11 bonds in the Mainland of a value of about RMB19,650,000,000, and a further series of bonds in Hong Kong of a value of RMB2,500,000,000, and that the Hong Kong bonds were offered by CCCC International, of which RMB1,958,590,000 were surrendered on or prior to 5 June 2016, for early redemption on 20 June 2016[3].

(iii)  From early June 2016, there was a continuous process of Yu Lian pressing potential white knights through various middlemen to take over the Parent Company[4] and to provide rescue for the CCCC group of companies (“Continuous Process”)[5];

(iv)  It was in the Continuous Process and pending the finalization of the take over that Yu Lian made various requests through various middlemen for financial support from the potential white knights and other financiers and that Yu Lian offered substantial inducements for securing rescue packages from the white knights and the other finanaciers[6];

(v)  Apart from the HKD Loan and the RMB Loan, there were two other loans raised by the plaintiffs, namely RMB1,420,731,840 which was raised by way of a sale and purchase agreement dated 18 June 2016 between CCCC Zhuhai and Qian Hai Life Assurance Company Limited, and a further proposed loan of RMB550,000,000 by which Yu Lian and Yuan sought to raise in late June 2016[7];

(vi)  The characterization or completeness of those various assets set out by Hong in his affirmation, as being “securities” for the RMB Loan and HKD Loan, was disputed as the intended function of those various assets had to be viewed in the light of the Continuous Process[8];

(vii)  There had been misapplication of the funds raised as the proceeds of the loans had not been utilized for the avowed purpose of discharge of the outstanding bonds[9];

(viii)   CCCC Financial was part of the inducements for the white knights[10].

14.As for the 26.06.16 Meeting, Chong WK had this to say, amongst other things:

(i)   The 26.06.16 Meeting which took place at the Luk Kwok Office on a Sunday was pre-arranged between Yu Lian, Zhong WK and Yao JH (of Baoneng) earlier that day at a lunch as Yu Lian was pressing for the take over of the CCCC group of companies;

(ii)  It was agreed between the three that due diligence exercise for the companies in Hong Kong would commence immediately after lunch, Yu Lian agreed to contact Yuan who resided in Shenzhen and asked him to return to the Luk Kwok Office to assist in the due diligence by professionals engaged on behalf of the potential white knight, and it was a gross distortion for Yuan to suggest that 10 odd strong men descended on him out of the blue and without prior arrangement;

(iii)  All allegations of duress were strongly denied.

15.There were certain documents produced in the present proceedings but not in the Derivative Action, including :

(i)   the 4 RMB Loan Agreements, and all accompanying securities documents and bank remittance advices[11];

(ii)  the Loan Note dated 19 June 2016[12] indicating an amount of HKD450,000,000 was received on 17 June 2016 and an amount of HKD200,000,000 received on 19 June 2016, and that CCCC International undertook to use the loan amount for partial repayment of the RMB250,000,000 bonds issued in 2014 in Hong Kong.  The HKD Loan was for a period of 3 months, at a monthly interest of 1.5% and that CCCC International was to provide a post dated cheque (for HKD650,000,000 plus 3 months’ interest) as security, and the Loan Note was only signed by Guo and another on behalf of CCCC International, and there was no signature of the lender;

(iii)  Copies of police statements made by Yuan on 20 September 2016 and 14 October 2016[13].

Inspection by a director

The general principles

16.As seen in Ng Yee Wah v Lam Wah, [2012] 4 HKLRD 40, HCMP 4616/2001, 28.6.05, at common law, a director has a right to inspect a wide scope of company documents.

17.Section 373 of the Ordinance further provides, amongst other things, that a company must keep accounting records.  Section 374 (1)(a) provides that the accounting records must be kept at its registered office or any other place that the directors think fit, and section 374 (1)(b) provides that the accounting records must be open to inspection by the directors at all times without charge.

18.Section 375(1) also provides that a company must allow a director of the company to make a copy of its accounting records in the course of inspection.

19.It has been held by Kwan J (as she then was) in Ng Yee Wah that the legal principles are :

“(1) The right of a company director to inspect the company’s documents is well established at common law;

(2) The right of inspection flows from the director’s duties to the company and a director does not have to explain why the inspection is sought or demonstrate any particular ground or ‘need to know’ as a basis Thus, the inaction on the part of the director after grounds for suspicion concerning the company’s affairs have arisen is irrelevant; likewise, the intention of the director to discover misfeasance with the view to seeking relief, or that the desire to find evidence is motivated by vindictiveness;

(3) It is only where it can be proved that the director intends to abuse the confidence in relation to the company’s affairs and to injure the company in a material way that the director’s right of inspection can be interfered with, and such interference can only be effected in circumstances where a restriction on a director’s right can be imposed because of misuse of confidential information leading to damage;

(4) In view of the proposition in (3), the exercise of a director’s right of inspection is, generally speaking, not a matter of discretion with the Court;

(5) The onus of establishing that the right of inspection will be exercised for improper purpose lies on the person who asserts it and ‘clear proof’ is required to satisfy the court ‘affirmatively’ that the grant of the right of inspection would be detrimental to the interests of the company;

(6) The scope of inspection can potentially be very wide, covering any documents belonging to the company, corporate material, corporate records and accounts, corporate information and accounting and other records of the company;

(7) a director could exercise his right of inspection through his agent, and it is perfectly proper for him to engage an accountant to do so. A director is also entitled to take copies of the documents during inspection;

(8)  Whilst there may be some dispute in the authorities if the statutory provision (here, section 121(3) of Cap. 32) adds a statutory right of inspection to an existing common law right, it is abundantly clear that the statutory provision is consistent with and does not detract from the common law right[14].”

20.The above legal principles were restated by the Court of Appeal in Tsai Shao Chung v Asia Television Ltd [2012] 4 HKLRD 52 (CA)[15] by Fok JA, as he then was, who further observed that, there was a well-established common law right on the part of a company director to inspect the company’s documents, and that right was a corollary to the duties owed by each director individually to the company and was given to them in order they could properly discharge those duties[16].  As Fok JA further said, this is an important right.

21.In Re Boldwin Construction Co Ltd & Another [2001] 3 HKLRD 430 , it was held, amongst other things, that (1) as a general rule, the director’s rights and powers in relation to the inspection of company documents was not a matter of discretion with the court, and only if it could be proved that a director intended to abuse the confidence in relation to the company’s affairs and to injure the company in a material way, could the director’s right of inspected be interfered with; and (2) the plaintiffs in that case were entitled to inspect the company documents; they did not have to explain why inspection was sought, and it was immaterial that the purpose of the inspection might be to discover misfeasance on the part of the 2^nd defendant in that case and that did not begin to demonstrate abuse of confidence on the part of the plaintiffs[17].

22.Mr Wong SC had referred this Court to Oxford Legal Group Ltd v Sibbasbridge Services plc [2008] EWCA Civ 387 (CA), where it was held amongst others that, if it was clearly shown that a director was using the right to inspect for any improper purpose, then the court had no power to assist him[18]. Further, where a director sought an order for inspection by way of interim relief, it was for those opposing inspection to satisfy the court that there was a serious question as to improper purpose which could not be resolved without a trial, and if the court was satisfied that there was a question to be tried, the court should then consider where the balance of convenience would lie[19].

23.There was no dispute to the above general principles.

The present case

24.The defendants’ main objection to the application by Hong was that it was not made for the purpose of performance of his duties towards CCCC Financial[20].

25.As seen earlier in Tsai Shao Chung, a directors’ right to inspect company documents is given to the director in order that the director may properly discharge his/her duties owed by the director to the company, and it is for the party resisting a director’s inspection to prove that the right is exercised for improper purpose.

26.Mr Wong submitted that Hong’s application was essentially designed to obtain documents pertaining to the Disposal.  The documents in question only relate to one isolated incident in the past and that Hong has no duty to perform in relation to the asset in question.  Further, Mr Wong submitted apart from the directors’ meeting on 8 July 2016 there was no evidence indicating the holding of any other shareholders’ or directors meeting as the plaintiffs would invariably have been served notice of the same[21].  

27.Mr Wong further referred this Court to Akai Holdings Ltd v Everwin Dynasty Ltd [2016] 3 HKC 307 where it was held that a director’s duty extended only to protection of the corporate assets of the company.

28.As seen earlier, it is the defendants’ case that the plaintiff shareholders held/hold their share as nominees for Yu Lian, and Chong WK’s evidence was that “CCCC Financial was the personal portfolio of Yu Lian, and he willingly gave that group to the white knights by yielding up control at around the same time of the [16.06.16] Acquisition Agreement[22]  so as to gain much needed financial help.  From that point onwards, none of his nominees has any further real interest in CCCC Financial or its assets and must hold their nominal position in accordance with the directions of the 3^rd defendant and I acting on behalf of the white knights[23]”.

29.It is thus the defendants’ case that the asset in question, namely the 1 share in Lightning Triumph was part of the inducements transferred to the “white knights”[24], namely after the 17.06.16 Transfers, the share in Lighting Triumph was not corporate asset of CCCC Financial but held in favour of the rescue consortium[25], CCCC Financial was also said to be a separate head of inducement for the “white knights”[26].

30.The defendants’ allegations were disputed by the plaintiffs, and this will be an issue for the trial in both the Asset Recovery Action and also the HKD Loan Action. 

31.In any event, whether the Lightning Triumph share or whether CCCC Financial was given to the “white knights”, or “rescue consortium” or not, the 1 share in Lightning Triumph was held in name of CCCC Financial. 

32.As Chong KW himself admitted, while they owe duties to the “true owners” of various assets held in the name of CCCC Financial, they bear statutory duties towards CCCC Financial[27], and indeed this is the basis of the Counterclaim by the Additional Directors.

33.Therefore, similarly, pending the issue as to who the true beneficial owner/s of CCCC Financial and/or the 1 share in Lightning Triumph being determined at trial, Hong being a director of CCCC Financial has statutory duties and/or other director’s duties to perform in respect of all assets held in the name of CCCC Financial.  The Additional Directors had recognized this, and indeed, as seen in the 2814 Judgment, the notice for the directors’ meeting on 8 July 2016 to “consider and approve the sale of the 1 Lightning Triumph share” was in fact duly given to Hong.

34.Although Mr Wong submitted that there was no evidence indicating the holding of any other shareholders’ or directors’ meeting, there appeared to have been at least another proposed board meeting, as Hong’s evidence was that he received a notice dated 21 July 2016 notifying him of a board meeting on 25 July 2016 to approve (i) the transfer of 73% shareholding held by Sincere Wealthy in CCCC Financial to Chen WQ, (ii) change of CCCC Financial’s registered office, and (iii) any other business[28].  Hong said he sent a letter to object to the proposed resolutions, but did not attend the board meeting.  It is not quite clear at this stage as to whether a board meeting was indeed held on 25 July 2016, and if so, what resolutions were passed. 

35.Irrespective of whether there have any further board meetings or shareholders’ meetings held or not, in my view, the Relevant Documents sought by Hong are wider than merely those documents in relation to the 11.07.16 Transfer or the Disposal.

36.Mr Wong pointed out that the plaintiffs managed to mount the Asset Recovery Action and also the Derivative Action for the protection of CCCC Financial without any of the Relevant documents. 

37.Mr Wong had further submitted that the plaintiffs’ “admission” that any discovery would be passed to CCCC International which had threated to sue CCCC Financial could not be a proper discharge of Hong’s duty as director of CCCC Financial.

38.The “admission” above mentioned was said to have been made in a letter dated 18 April 2017 from the plaintiffs’ solicitors’ to the defendants’ solicitors[29], namely the plaintiffs alleging that the defendants “were deploying delaying tactics to sabotage the [plaintiffs’] efforts to obtain evidence of the [defendants’] misappropriation of the share of CCCC Financial and the corporate assets held thereunder – plainly to prevent CCCC International from using those documents for the purpose of defending summary judgment in HCA 2913/2016”.

39.However, in the same letter, the plaintiffs’ solicitors have indicated that the main purpose of their application is to obtain documents of CCCC Financial in relation to how the corporate assets of CCCC Financial have been misappropriated by the defendants.

40.As I have said, even though there is a dispute as to whether the Lightning Triumph share was the corporate asset of CCCC Financial, as a director of the company, Hong has a director’s duties to carry out.  As said by Kwan J, as she then was, in Ng Yee Wah,any intention to discover misfeasance with the view to seeking relief or even that the desire to find evidence is motivated by vindictiveness is irrelevant, so is any ulterior motive[30].  I see no reason why Hong should not investigate whether there has been misappropriation of corporate assets of CCCC Financial.

41.There is another point raised by Mr Wong, that as the present application by Hong is made on a summary basis, this is on the same footing as other applications for summary judgment.  If the defendants have raised a serious issue as to whether inspection is truly sought by the director for the benefit of the company and to enable the director to discharge its obligations as a director then the director is not entitled to summary judgment.  Further where a director seeks an order for inspection of interim relief, and if the court is satisfied that there is a question to be tried, the court should then consider where the balance of convenience lies[31].  In this respect, Mr Wong referred to the case of Oxford Legal Group cited earlier.  However, the application in that case for an order for inspection was by way of interim relief.

42.First of all, in my view the present application is not an interim application, nor a summary application.  The hearing before this court was for the substantive argument of the plaintiffs’ claim in the originating summons and the defendants’ counter claim, under the various sections of the Ordinance, and the judgment of this court will bring an end to the present action.  The parties have agreed to this substantive hearing being fixed for half day, and neither had sought any direction for oral evidence or for deponents to be cross examined.

43.In any event, even if one has to apply the balance of convenience test, in my view, there is a serious question to be tried and the balance of convenience lies with granting an order to Hong.

44.Further, on the evidence available before this Court, there is no sufficient evidence that there is any intention on the part of Hong to abuse the confidence in relation to CCCC Financial’s affairs and/or to injure the company in a material way, or the inspection be detrimental to the interests of the company, in particular in light of the undertaking that this court is prepared to impose.  

45.To allay any concerns on the part of the defendants, I am prepared to impose a condition that Hong is not to pass any of the Relevant Documents obtained to CCCC International and/or any other third parties, save professional advisors, until final judgment in the Asset Recovery Action and the HKD Loan Action whichever is later, unless otherwise ordered.

Inspection by the Minority Shareholders 

Legal principles

46.Section 740 (1) and (2) of the Ordinance provides that on application by members representing at least 2.5% of the voting rights of all the members having a right to vote at the company’s general meetings at the date of application, the court may make an order authorizing a person to inspect a record or document of a document if it is satisfied that (a) the application is made in good faith; and (b) the inspection is for a proper purpose.

47.The legal principles have been summarised by Anthony Chan J in Hao Xiaoying and Green Valley Investment Limited, HCMP 1393/2015,  judgment dated 17 February 2016, unrep, as follows[32]:

“(i) The “good faith” and “proper purpose” requirements constitute two separate and independent tests. The applicant must first, establish that he is acting in good faith and second, the court must believe the circumstances are such that the inspection sought is for a proper purpose.

(ii) The requirement of good faith merely requires that the applicant himself acts honestly with a purpose that he himself believes to be proper.

(iii) In order to satisfy the “proper purpose” criteria it is not necessary to satisfy the court that the applicant has a specific or personal right that can only be protected through the inspection of records. A wish to inspect documents to investigate a genuine and credible belief that there has been corporate mismanagement is capable of constituting a proper purpose. Generally, where the court is satisfied that the purpose is germane to a shareholder’s economic interest in the company a proper purpose will have been satisfied.

(iv) The court should incline to a liberal interpretation of “proper purpose” with a view to advancing the protection of shareholder rights and interest and the maintenance of appropriate standards of corporation governance.

(v) As part of establishing a proper purpose, the applicant has to show that there is a sufficiently reasonable “case for investigation” as regards past or future wrongful or other undesirable conduct. The shareholder may fail to obtain inspection where he fails to make out on his own material some kind of case for investigation, or where the corporation is able by leading evidence to dispel whatever suspicion has reasonably been aroused.

(vi) Once the primary or dominant purpose for the application for inspection is deemed by the court to be “proper” in that it is germane to the applicant’s status as a shareholder, then any further or secondary purpose in seeking the records is irrelevant. So long as the applicant acts in good faith and for a proper purpose, then the fact that there is hostility between the parties is equally irrelevant.

(vii) Even if a proper purpose is established, a shareholder is not entitled to abuse his entitlement by going on a fishing expedition through vast amounts of the company’s records in search of a cause of action to support his mere suspicion of wrongdoing. Such an approach would be excessively intrusive and beyond what is reasonably necessary.

(viii) Further, it should be remembered that a shareholder has no general right to access the records of the company in order to challenge the commercial decisions of its management.

48.The burden is on the Minority Shareholders to show that their purpose in applying for an inspection order is made in good faith and for a proper purpose.

Good Faith

49.It is the Minority Shareholders’ case that there is prima facie evidence to show that a wrong has been done to CCCC Financial by the Additional Directors, as it was less than a month after the Additional Directors were appointed that the 11.07.16 Transfer took place, and that the 1 share, representing the entire shareholding of Lightning Triumph and the most valuable asset of CCCC Financial was transferred away.

50.One can see that in respect of the RMB Loan, copies of the signed 4 RMB Loan Agreements, 5 signed guarantee agreements, 4 unsigned share charge agreements, one personal guarantee signed by Yu Lian to Chen WQ, totaling almost 35 pages of professionally prepared documents were produced.  Further, according to Hong, there was another share charge agreement in respect of 100% shares in another subsidiary of the Parent Company, namely 中城建(樂東)建設開發有限公司, of which written agreement was duly executed and the share charge was registered with the Administration of Industry and Commercial Bureau.

51.In the 4 unsigned share charge agreements, the parties were (i) the borrower of the RMB Loan, namely CCCC Zhuhai, (ii) the chargor, or the company providing the shares as security, namely 中城建投資控股有限公司, and (iii) the charge/lender of the RMB Loan.  The security was said to be 351,200,000 shares in the Hebei Bank. 

52.By comparison, there is almost a complete lack of documentation over the HKD Loan, save the Loan Note, which is a brief one paragraph document.  In particular, no share charge agreements or other securities agreements were produced, of which CCCC Financial was a party.

53.The 73% shareholding was transferred to Sincere Wealthy and CHNC Investment at a nominal value of HK $1 per share and the Instruments of Transfers were stamped accordingly at such consideration.  The 17.06.16 Transfers were approved by Hong, the then single director on the board.  The Additional Directors were also appointed by Hong.  All the relevant documents were prepared by the plaintiffs’ solicitor in Hong Kong on instructions from Yuan, or from the plaintiffs.

54.It was the evidence of Chong WK that after the 17.06.16 Transfers, the plaintiffs’ camp had de facto control over the resources of CCCC Financial and deliberately sabotaged the rights of the defendants’ camp to manage the company and to dispose of the assets held in favour of the “rescue consortium” [33].

55.As I have said, in the 2814 Judgment, the main issue is really what are the terms of the HKD Loan Agreement.  As said earlier, the 17.06.16 Transfers were at only nominal value, and almost giving away the 73% shareholding of CCCC Financial.  However, almost giving away the 73% shareholding does not necessarily mean giving away the major asset of the company or any assets of the company. 

56.Chong WK had alleged in his 1^st affirmation that the Minority Shareholders’ application was not made “bona fide with full disclosure of the material facts but for the improper purpose of trapping the 2^nd and 3^rd defendants and conducting a fishing exercise when the plaintiffs are fully equipped to advance the claims they already made in the [Asset Recovery Action], and in particular the [Derivative Action]”[34].  In particular, Cheng WK said those deponents who filed their respective 1^st affirmations on behalf of plaintiffs are no more than Yu Lian’s “front men” to conceal from the court the role of Yu Lian as the prime mover behind the plaintiffs’ application[35].

57.In my view, both camps are in the same position.  Chong WK had referred to “white knights” and/or rescue consortium on many occasions, without disclosing exactly who those “white knight” were/are, and Chong WK himself appears to be a “front man” for Zhong MW’s camp and/or others.  Based on the present evidence, one would have thought the key personalities would include Yu Lian on the plaintiffs’ part, Zhong MW on the defendants’ part, and also Wei LD on the part of CHNC Investment/Huinong Fund who attended a shareholders’ meeting of the Parent Company on 22 June 2016, and yet none of them has so far provided any evidence.

58.In the 2814 Judgment, I have said that in light of the evidence, the pleadings in the Derivative Action should not have been verified by a statement of truth by Guo.  In particular, the plaintiffs’ case in relation to the transfer of the 73% shareholding and the appointment of the Additional Directors was not consistent with the evidence.  However, as said earlier, the share in Lighting Triumph was held in the name of CCCC Financial of which the Minority Shareholders hold 27%.  As such, they have shareholders’ rights.  Having considered the present evidence, I am satisfied the Minority Shareholders are acting honestly with a purpose that they themselves believe to be proper, and in accordance with their case.

Proper purpose

59.As seen in the authorities, the court should incline to a liberal interpretation of “proper purpose” with a view to advancing the protection of shareholder rights and interest and the maintenance of appropriate standards of corporation governance.

60.Notwithstanding that Chong WK said the share in Lighting Triumph was held in favour of white knights or rescue consortium, on the face of it, or prima facie, the shareholding in Lightning Triumph was the asset of CCCC Financial.  As I have said, holding 73% of the shareholding of CCCC Financial does not mean that Sincere Wealthy or Zhong MW’s camp is entitled to 100% of the assets of CCCC Financial.  As pointed out by Mr Chang, there has been silence on the defendants’ part as to any details on the disposal of the CCCC Financial’s most valuable assets, and/or the whereabouts of the net sale proceeds.  There has been no sufficient evidence from the defendants to dispel whatever suspicion has reasonably been aroused by the plaintiffs.

61.As seen in Hao Xiaoying, a wish to inspect documents to investigate a genuine and credible belief that there has been corporate mismanagement is capable of constituting a proper purpose. 

62.Having considered the evidence, I am satisfied that the Minority Shareholders have shown a sufficient reasonable “case for investigation”, as regards of past or future wrongful or other undesirable conduct, and are not merely seeking inspection to go on a fishing expedition, and that they have established a proper purpose for inspection.   

63.However, similarly, as with Hong, to allay the concerns of the defendants, I am of the view that the order should be made subject to a similar condition that they are not to pass any of the Relevant Document obtained to CCCC International and/or other third parties, save professional advisors, until final judgment in the Asset Recovery Action and HKD Loan Action whichever is later, unless alternative ordered.

Scope of the Relevant Documents

64.There was no objection raised by the defendants in relation to those Relevant Documents sought in Relief (1) of the originating summons.

65.So far as the transfer by Lightning Triumph of the Portfolio to another (Join Right) on 18 July 2016 is concerned, Lightning Triumph is not a party in the present action, and as said earlier, at the hearing, the list of the Relevant Documents has been amended to exclude any company documents in respect of any subsidiaries of CCCC Financial.  Hence, in respect of board and shareholders resolutions and board minutes in relation to the Disposal in Relief (2), the inspection and taking copies of those Relevant Documents should be limited to only the sale/or transfer of the 1 share in Lightning Triumph to Chen WQ.

66.Under section 373 of the Ordinance, a company must keep accounting records.  Even though the defendants had complained that there was no proper handing over by the plaintiffs after the Relevant Date, there is no reason why CCCC Financial should not have kept accounting records after the Relevant Date.  I would thus allow the order sought in respect of the Relevant Documents in Relief (3).

67.The defendants have said that they do not have the bank statements, securities account statements and management accounts of CCCC Financial sought in Reliefs (6), (7) and (8).  Mr Wong also referred to a letter dated 7 April 2017 sent by solicitors on behalf of CCCC Financial to Hong, reminding him of an earlier letter sent on 12 August 2016 seeking the accounts and the list of assets of CCCC Financial, for the purpose of effecting changes to the bank signatories, and yet none had been received.

68.It is in fact the defendants’ case that these are not in their possession, custody or control, due to the plaintiffs’ suppression.  At the hearing, Mr Wong indicated that the defendants can file a further affirmation to make this “point blank” clear.  Subject to the filing of this affirmation, I am prepared to make no order as this stage in relation to Reliefs (6), (7) and (8).

The Counterclaim

69.The Additional Directors are also seeking company documents as set out in their Counterclaim, in their capacity as directors of CCCC Financial.  The same legal principles apply, as in the case of Hong.

70.The plaintiffs opposed the Counterclaim on the following grounds:

(i)   The Additional Directors intend to abuse the confidence in relation to CCCC Financial’s affairs and to injure the company in a material way;

(ii)  The defendants have failed to show that Hong has in his possession the documents sought.

71.At the hearing, leave was given to Hong to file a further affirmation, clarifying as to the documents the plaintiffs have been able to find in their possession, electronically or otherwise.  Thereafter, Hong did file a 2^nd affirmation on 29 August 2017 indicating what documents he has in his possession, custody or control.

72.Since then, the two camps have agreed to various undertakings in the event the orders sought in the Counterclaim are granted.

73.The Additional Directors claim that they require the documents sought to ascertain the opening balance and to prepare proper accounts of CCCC Financial, specifically in relation to the Bank account of CCCC Financial at Bank of Communication, and account receivables from various companies and the “Huarong Shares”[36].  Mr Chang submitted that on their own admission, the Additional Directors are eyeing the assets of CCCC Financial and intending to dispose of them in favour of the unidentified “true owners”.

74.In light of the defendants’ case and the undertaking they have agree, namely not to disprove of any assets of CCCC Financial as revealed by any documentary produced by Hong, their wish to inspect cannot be said to abuse the confidence in relation to the company’s affairs or to injure the company in a material way.  However, I am prepared to impose a similar condition to the order I make in respect of the plaintiffs’ application, namely the defendants shall not pass any document obtained from Hong to any other third parties, save their professional advisors, until final judgment in the Asset Recovery Action and the HKD Loan Action, whichever is later, unless otherwise ordered.

75.To make it clear, I will order inspection of those documents which are in the possession, custody or control of Hong, and subject to the agreed undertakings and the condition imposed by this Court. 

Orders

76.I will ask the parties to submit an agreed draft order reflecting the orders made, for this court’s approval.

Costs

77.The plaintiffs have abandoned part of the Reliefs sought by them, in the originating summons and succeeded with some Reliefs but subject to a condition.  The defendants have succeeded with their Counterclaim but subject to undertakings and condition imposed by the Court. In my view, a fair order for costs will be no order as to costs.  This is an order nisi, which shall be made final after 21 days.

Mr Jonathan Chang and Mr Chow Ho Kiu, instructed by C W Yuen & Co, for the 1^st to 4^th plaintiffs

Mr Ronny Wong SC and Mr Newton Mak, instructed by Peter K S Chan & Co, for the 1^st to 3^rd defendants