Ip Pui Lam Arthur and Another v. Alan Chung Wah Tang and Another

HCB 3819/2011

[2020] HKCFI 578

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 3819 OF 2011

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Re: HO YUK WAH DAVID (the Bankrupt)

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BETWEEN

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Before:  Hon Au-Yeung J in Chambers

Date of Hearing:  2 May 2019

Date of Decision:  8 April 2020

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D E C I S I O N

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A. INTRODUCTION

1.The applicants are the Joint and Several Trustees (“Trustees”) in bankruptcy of Ho Yuk Wah David (“Bankrupt”).

2.The respondents (“Tang” and “Hou” respectively and Liquidators collectively) are the Joint and Several Liquidators of Asia-Pac Infrastructure Development Ltd (“APIDL”), which commenced liquidation in April 2013.

3.This is the Trustees’ application by way of Summons dated 6 October 2017 under section 29 of the Bankruptcy Ordinance (Cap 6) (“section 29”) for an order that the Liquidators do produce information and documents set out in the Schedule to the Summons, or else explain by affidavit what has happened to those documents.

4.The information and documents sought pertain to APIDL’s commercial relationships with 3 companies which are Funders of APIDL’s claim against its former legal advisors in HCA 806/2006 (“806 Action”). The Trustees believe that the Bankrupt is involved in the operations of the Funders and might be entitled to share in their profits from funding the 806 Action.  The Trustees say that their duty to investigate the Bankrupt’s affairs requires them to look into the funding arrangements involving APIDL.

5.Further, having regard to the Bankrupt’s track record in litigation finance, the Trustees also seek to investigate the funding arrangements involving APIDL in legal proceedings other than the 806 Action.

6.The information and documents sought can be classified as follows:

(1)  Class 1 concerning the Funders (§§1, 4, 5.1-5.5 of the Schedule);

(2)  Class 2 concerning other funders in the 806 Action (§5.6 of the Schedule); and

(3)  Class 3 concerning other funders in proceedings other than the 806 Action (§6 of the Schedule).

§§2 and 3 of the Schedule are not pursued by the Trustees.

7.The Liquidators say that the Funders are not related to the Bankrupt.  The Trustees have not produced evidence that the Funders or other funders are related to the Bankrupt.  Information or documents sought simply have nothing to do with the Bankrupt and hence the Trustees’ functions as trustees of the estate.

8.The core issue turns on whether the Funders or other funders are related to the Bankrupt.

B.  BACKGROUND

9.The background is largely not disputed and is taken from the helpful summaries of Mr David Chen, counsel for the Trustees, and Mr Carolan and Mr Kwok, counsel for the Liquidators.

10.On 2 August 2011, a Bankruptcy Order was made against the Bankrupt on his own petition.  The Trustees were appointed on 30 September 2011 at the general meeting of creditors.  According to the Bankrupt’s Statement of Affairs, his debts exceeded $160 million but he had negligible assets.  The Trustees’ investigations, however, showed that the Bankrupt retains an interest in the Asia-Pac group of companies, including APIDL which he founded in about 1996.

11.Despite his bankruptcy, the Bankrupt has been operating a complex scheme using offshore companies and nominees to conceal his assets, continue to carry on his business ventures and litigation, and pay for his personal and family expenses.  (The Trustees say there are 30 of such offshore companies but have only named 12.)  Through these offshore companies and his family members, the Bankrupt diverted a significant amount of funds out of reach of his creditors.  See Re Ho Yuk Wah David (Bankrupt) [2015] 2 HKLRD 603 (“March 2015 Decision”), §4, To J.

12.APIDL was/is involved in various sets of legal proceedings in Hong Kong, including HCA 16778/1999 (“16778 Action”), the 806 Action and HCA 971/2012 (“971 Action”).

13.The 16778 Action was commenced by APIDL in 1999 against its former management for breach of duties.  It was settled at the beginning of 2011.

14.The 806 Action was commenced by APIDL in 2006 against its former solicitors for alleged negligence.  After APIDL was wound up on 10 April 2013 and Tang and Hou were appointed as its provisional liquidators (later full liquidators on 30 April 2013), they decided to continue the 806 Action on APIDL’s behalf.  However, as APIDL had limited funds, Tang and Hou had to seek litigation funders. 

15.From April 2013 to February 2015, Tang and Hou secured interim funding from 3 Funders: True Treasure Enterprises Ltd (“True Treasure”), China New Investments Ltd (“CNIL”) and Fidelity Insurance Company Ltd (“FICL”).

16.The 971 Action is an action by the Trustees against the Bankrupt and various BVI companies who allegedly hold APIDL on behalf of the Bankrupt.  On 18 November 2004, the Bankrupt sold his indirect shareholding in APIDL.  The Trustees contend that the sale was a sham and that the Bankrupt still retains a beneficial interest in APIDL (as at the commencement of his bankruptcy and as of now).  The Trustees seek against the Bankrupt and the 4 corporate shareholders: (1) a declaration that they hold their interest in APIDL for the Bankrupt; (2) an order that those shares be transferred to the Trustees.  The trial of the 971 Action has taken place in September 2019 and judgment has been reserved.  Nothing turns on the merits of the 971 Action here.

17.The Trustees believe that the Bankrupt is involved, through his offshore companies and family members, in litigation finance.  

18.Historically, one piece of the litigation funded by the Bankrupt and/or his associates concern CWT Textile Supplies Co Ltd (in creditors’ voluntary liquidation) (“CWT”), of which Tang and Alison Wong Lee Fung Ying (“Wong”) were the joint and several liquidators (“CWT Liquidators”).

(1)  CWT sued its former auditors for professional negligence.  The matter was settled and the CWT Liquidators were paid a settlement sum of $45 million.

(2)  A significant part of the settlement sum was paid to Topmark Asia Ltd (“Topmark”) as the consultant of CWT and Sun Ascent International Ltd (“Sun Ascent”) as the funder of the CWT litigation.

(3)  The Trustees believe that the Bankrupt was the person behind Topmark and Sun Ascent. The belief is substantiated by one Yu Yang’s evidence in the 971 Action that the CWT litigation was an investment project of the Bankrupt’s family members.

19.Another piece of historical litigation concerned the bankruptcy case of Lee Siu Fung Siegfried (“LSF Case”), of which Tang and Wong were the joint and several trustees in bankruptcy.

(1)  Out of the $45 million settlement sum received in the CWT litigation, $1.56 million was used for the LSF Case.

(2)  Hou’s own evidence was that “the funders for the LSF Funding and Sun Ascent apparently belonged/were related to same group of investors or they were investors with a close business relationship”.

20.Turning to the present Summons, the Trustees’ case as regards funding of APIDL’s claim in the 806 Action is as follows:

(1)  APIDL received funding from Yu Yang, who was the Bankrupt’s brother-in-law until the Bankrupt’s divorce with Yu Yang’s sister in 2015.  According to the agreement between Yu Yang and the Bankrupt, the proceeds obtained from the 806 Action would be paid out:

(a)  First, to the Bankrupt’s family members for their investment capital;

(b)  Then, to Yu Yang (and his sister) for their investment capital;

(c)  Finally, any remaining proceeds would be distributed between (i) Yu Yang and his sister (total 60%) and (ii) the Bankrupt’s family members (total 40%).

(2)  By three separate Deeds of Assignment all dated 3 August 2009, the 2^nd to 4^th plaintiffs in the 806 Action assigned their causes of action within that Action to APIDL, the 1^st plaintiff.  The 4^th plaintiff, Greater Beijing Region Expressways Ltd (“GBRE”), received $1 million and was entitled to receive 30% of the proceeds from the 806 Action.

(3)  Hou’s evidence was that:

(a)  True Treasure provided funding to APIDL from April 2013 to February 2015; and

(b)  CNIL and FCIL provided at least $6.5 million in funding to APIDL in February 2015.

C.  LEGAL PRINCIPLES UNDER SECTION 29 OF THE ORDINANCE

21.Section 29 of the Ordinance provides, insofar as relevant:

“(1) The court may, on the application of the Official Receiver or trustee, at any time after a bankruptcy order has been made against a bankrupt summon before it the bankrupt or his spouse, or any person known or suspected to have in his possession any of the estate or effects belonging to the bankrupt or supposed to be indebted to the bankrupt, or any person whom the court may deem capable of giving information respecting the bankrupt, his dealings or property, and the court may require any such person to produce any documents in his custody or power relating to the bankrupt, his dealings or property. (underline added)

(1A) The court may require a person referred to in subsection (1), other than the bankrupt, to submit an affidavit to the court containing an account of his dealings with the bankrupt or to produce any documents in his possession or under his control relating to the bankrupt or the bankrupt’s dealings, affairs or property.

(2) If any person so summoned, after having been tendered a reasonable sum, refuses to come before the court at the time appointed, or refuses to produce any such document, having no lawful impediment made known to the court at the time of its sitting and allowed by it, the court may, by warrant, cause him to be apprehended and brought up for examination.

(3) The court may, by itself or by a commissioner appointed for the purpose, examine on oath, either by word of mouth or by written interrogatories, any person so brought before it concerning the bankrupt, his dealings or property and any other matter the court considers relevant. (underline added)

(3A)  It shall be the duty of a person examined under subsection (3) to answer all questions that the court may put or allow to be put to him.”

22.The principles governing section 29 of the Ordinance are well-established and are taken from the helpful summaries of Mr Chen, Mr Carolan and Mr Kwok: see eg Joint and Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006) 9 HKCFAR 766, §§27, 29-30 ; Hau Po Man Stanley (in bankruptcy) v Joint and Several Trustees [2008] 1 HKC 256, §§20 & 21 (CA); Re Lai Kwok Ying (A Bankrupt) (unreported, HCB 8750/2007, 7 August 2009); Re Lee Priscilla Hwang (bankrupt) [2012] 4 HKLRD 581; Re Ho Yuk Wah David (bankrupt) (supra), §§15-17; Re Lee Siu Fung Siegfried [2017] 1 HKLRD 1155.

(1)  The power conferred by section 29 is general, wide, unlimited, and discretionary in nature (Kong Wah (§27), Re Ho Yuk Wah David (§17);

(2)  The information or documents must “relate to the bankrupt, his dealings or property” and not just any information that the trustee wants;

(3)  The applicant must satisfy the court the essential condition that the provision of information or documents is reasonably required for him to carry out his functions (Hau Po Man §21, Re Lee Siu Fung §30);

(4)  The applicant must also establish a prima facie case that the respondent is able to provide such information or documents (Hau Po Man §21, Re Lee Siu Fung §30);

(5)  If the above criteria are met, the court must carefully strike a balance between the applicant’s reasonable requirements and the need to avoid making an order which is wholly unreasonable, unnecessary or oppressive to the person concerned.  The burden is on the applicant to satisfy the court, after balancing all the relevant factors, that there is a proper case for such an order to be made (Hau Po Man §21, Re Lee Siu Fung §30);

(6)  In considering if the information or document is reasonably required to enable the trustees to carry out their functions, great weight would be given to the views of the trustees.  A production order is not necessarily oppressive merely because it is inconvenient for the party subject to it or would cause him a lot of work or make him vulnerable to future claims (Kong Wah §27, §30, Re Lai Kwok Ying §6, Re Lee Priscilla Hwang §24);

(7)  Since a trustee is a stranger to the affairs of the bankrupt, he relies on orders for examination and production to reconstitute the knowledge of the bankrupt, which would enable the trustee to perform and discharge his duties effectively and with as little expense and as expediently as possible (Kong Wah §25, Re Ho Yuk Wah David §14);

(8)  The information and documents discoverable under section 29 of the Ordinance are wider than those discoverable under RHC O.24, as the former are unrestricted by issues defined by pleadings (as there are no pleadings in the context of section 29).  Indeed, a trustee is necessarily engaged in a “fishing” or speculative expedition to discover whether he has further avenues to recover the bankrupt’s assets for the benefit of the creditors (Kong Wah §33, Re Ho Yuk Wah David §15-16); and

(9)  That said, the trustee is not entitled to embark on expeditions that ignore costs and proportionality, or to extract information from persons in respect of a matter when there is no well-founded ground upon which to consider him prima facie capable of giving information, or to conduct an examination without any clear suspicions and to conduct it to determine if matters or facts might emerge which may be of interest or assistance (Hau Po Man §§31-32, Re Lee Priscilla Hwang §§19, 23, Re Lee Siu Fung §§31-34).

23.Under sections 29(1A) and (3), the court may order the respondents to answer interrogatories by way of an affidavit.  Under section 29(1A), the court may also order a person to submit an affidavit to the court containing an account of his dealings with the bankrupt.  Other than those situations, section 29 does not confer power on the court to order the making of an affidavit to produce documents or to explain what has become of documents no longer in the respondent’s possession.  Re Ho Yuk Wah David [2019] 1 HKLRD 961, §§40 and 42.

24.There is no magic in the word “produce” in section 29; it simply means “hand over” or at least “make available for inspection”: Joint and Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006) 9 HKCFAR 766, at §22, Lord Millett NPJ.

D.  APPLICATION FOR AFFIDAVIT

25.Insofar as the Summons seeks an affidavit from the Liquidators, the application does not fall under section 29(1A) or (3).  The court has no power to order the making of an affidavit for the reasons given in paragraph 23 above.  Mr Chen has, rightly, conceded this point.

E.  CLASS 1 CONCERNING THE FUNDERS IN THE 806 ACTION

E1.  Trustees’ case

26.There is no dispute that the Bankrupt has been in the business of litigation funding, including in the CWT case and LSF case.  It was he who introduced Topmark and Sun Ascent to the CWT Liquidators in around 2003, some 8 years before the Bankruptcy Order was issued.

27.The Trustees believe that the Bankrupt retains beneficial interest in APIDL (which is the subject matter of the 971 Action) and, through the Funders, may receive proceeds from the 806 Action if APIDL’s claim were to prevail.  Their case is that:

(1)  The Bankrupt allegedly disposed of his interest in APIDL in November 2004.  Tanner De Witt (APIDL’s solicitors in the 16778 Action), however, continued to take instructions from him in 2009 and 2010, and the bills issued to APIDL in 2009 and 2010 were expressly addressed to the attention of the Bankrupt.  This supports the Trustees’ belief that the Bankrupt retains an interest in and continues to control APIDL.

(2)  It is reasonable for the Trustees to believe that the Bankrupt is connected with, if not beneficially interested in, the Funders because:

(a)  The Bankrupt has a track record of investing in litigation funding.

(i)  According to Yu Yang, the Bankrupt introduced him to investment in litigation involving APIDL and the Bankrupt himself (eg the 16778 Action, the 806 Action and HCA 1212/2002), and litigation which did not involve APIDL and the Bankrupt (eg the CWT litigation).

(ii)  It also appears that the Bankrupt has invested in the LSF Case.  As mentioned above, $1.56 million from the settlement sum out of the CWT litigation was used for the LSF Case.

(iii)  The Bankrupt’s continued investment in APIDL’s claim in the 806 Action is consistent with the Bankrupt’s previous business affairs and conduct.

(b)  On the limited evidence available to the Trustees, it could already be seen that the ultimate distribution of proceeds from the 806 Action was highly complicated.

(i)  At the very least, (1) the Bankrupt’s family members, (2) Yu Yang and his sister and (3) GBRE were entitled to a share of those proceeds, though the proportion of their respective entitlements was unclear.

(ii)  While it appeared from Yu Yang’s evidence that all of the proceeds would be distributed among the Bankrupt’s family members, Yu Yang and his sister, it was unclear how their shares would be affected by GBRE’s entitlement to 30% of the balance pursuant to the Deed of Assignment between APIDL and GBRE.

(c)  There was an injunction dated 1 June 2012 in the 971 Action that restrained APIDL from disposing of its assets pending trial (“the Injunction”).  The Funders might receive nothing out of their investments if the Trustees were to prevail in the 971 Action.

(d)  Given these complications and uncertainties, it was highly unlikely that an independent third party would participate in the funding of the 806 Action.  Any negotiations between the existing funders (ie the Bankrupt’s family members, Yu Yang and his sister, and GBRE) and the new funders would be difficult to come to fruition, unless the new funders are the same or related parties.

(e)  Accordingly, based on the materials presently available to the Trustees, the inference that the Funders are related to the Bankrupt and/or the existing funders is eminently sensible.

28.It could be seen from the Trustees’ evidence that the Bankrupt could be related to funders even though his name did not appear on formal legal documents as a shareholder, director or funder.

29.Having regard to the above, the Trustees believe that the information and documents sought by the Summons are reasonably required for them to further investigate the affairs of the Bankrupt and to get in his assets.  The Trustees’ views should be given great weight: paragraph 22(6) above.

E2.  The standard of proof required of the Trustees

30.The Liquidators deny that the Funders were related to the Bankrupt.  Mr Carolan submits that the Trustees need to “produce cogent evidence establishing that the Bankrupt controls or has a close connection with the Funders so as to justify the order sought”.

31.With respect, that is too high a burden because it was precisely due to the Trustees’ lack of full knowledge of the Bankrupt’s affairs that section 29 helps them to discover the truth and gather information about the bankrupt’s dealings or property: paragraph 22(7) above.  There is no merits threshold for the Trustees to get past.  There is an element of “fishing” on the part of the Trustees with some evidential foundation.  The threshold test remains that as stated in paragraphs 22(2), (4), (8) and (9) above.

32.That said, the Court must not ignore the evidence of a respondent.

E3.  Liquidators’ case

33.The Liquidators have expressly denied the Trustees’ allegation that the Bankrupt was related to the Funders by (i) letters before the Summons was issued; (ii) statement under oath; (iii) refuting the assertions in paragraphs 26-27 above; and (iv) objecting to the Trustees’ reliance on Yu Yang’s witness statement.

E4.  Letters before Summons

34.The first letter before the Summons was dated 31 May 2017 issued by ONC Lawyers (“ONC”) acting on behalf of the Liquidators to Li, Wong, Lam & WI Cheung, former solicitors for the Trustees as follows:

“…we are instructed that, regarding the third party funders for APIDL in HCA 806/2006, to our clients’ best knowledge, these are third party funders which are not connected to the bankrupt, Ho Yuk Wah, David (“Mr. Ho”) in any way.  If you have any information and/or documents which may suggest otherwise, please kindly provide the same to us.

…

… we are also instructed that there are no litigation funding arrangements for HCA 971/2012.”

35.The second letter was dated 15 August 2017, wherein ONC stated: 

“We see no indication that True Treasure, CNIL and FICL are financially related to the Bankrupt in any way.”

This statement was made in the context of ONC’s explanation that they had followed the anti-money laundering procedures, compliance with law and regulatory requirements, Practice Direction P of the Law Society and the common law offences of maintenance and champerty and that they had conducted background checks and had understood the Liquidators’ funding arrangements for the 806 Action. 

36.The Trustees never responded to ONC’s letters before they issued the Summons; or even commented on the inadequacy of steps taken by ONC in paragraph 35.

E5.  Statement under oath

37.After the Liquidators were served with the Summons, Hou stated on oath in unequivocal terms that the Bankrupt had no beneficial interest in any funding arrangements in relation to the 806 Action or other proceedings of which APIDL was a party:

“4.  At the outset, for the avoidance of doubt, let me make it very clear that, to the best of the Liquidators’ knowledge, information and belief, the Liquidators do not possess any documents or information which suggest, or may tend to suggest, or which lead to a line of enquiry which may suggest, or that may raise any doubts over, that the Bankrupt has any financial interest in the litigation funding agreements of the proceedings in HCA 806/2006 (“the 806 Action”) or any other legal proceedings APIDL is currently a party of.  The Liquidators are also unaware of any circumstances which may suggest, or which may tend to raise doubts over whether, the Bankrupt is or was in control of any of the litigation funders which have litigation funding agreements with the Company.”

38.The Liquidators have disclosed who the Funders are, supported by Certificates of Incumbency and Register of Members.

(1)  True Treasure was one of the existing creditors of APIDL, who agreed to provide interim funding for the 806 Action after the Liquidators were appointed, pending other longer term funding being secured.  True Treasure had provided approximately HK$1 million from April 2013 to February 2015.  This arrangement was approved by APIDL’s Committee of Inspection (“CoI”).

(2)  In early 2015, Tang was introduced to the 2 other Funders, CNIL and FICL by his primary school mate, Mr Tony Cheung. After approval by the CoI, CNIL provided funding of HK$6.5 million to meet an unless order for APIDL to provide further security for costs.  The involvement of the Funders and their identities were made known to DHCJ B Chu (as she then was) at the hearing of the unless order on 14 January 2015.

(3)  FICL (a Hong Kong company) is merely a co-funder of CNIL.

(4)  True Treasure and CNIL are both BVI companies.  The Liquidators have produced their Certificates of Incumbency and Registers of Members.  They show that Mr Tony Cheung is the sole director and shareholder of CNIL, whilst Ms Sun Bo is the sole director and shareholder of True Treasure.

(5)  Since 29 September 2009, CNIL has been under the administration of a firm of CPAs, who have stated by letter that:

“We confirm that the names, Ho Yuk Wah or Ho Yuk Wah David, have never been registered as a shareholder, director or beneficiary of China New Investments Limited from the date of incorporation to now.

We further certify that there has been no change in the shareholder, director or beneficiary of China New Investments Limited ever since 29th Sep 2009.”

39.Further, the Liquidators were never directly related to the Bankrupt.  The Liquidators were also trustees of LSF’s bankruptcy and Tang was a co-liquidator of CWT.  Tang became one of the Liquidators of APIDL.  Ip Pui Lam Arthur, who filed an affirmation filed on behalf of the Trustees, mistook Tang as an employee of APIDL.  In fact, Tang was never one.  He was engaged as an external consultant in 2008 to provide an independent review of APIDL’s audited accounts.

40.Neither an applicant nor the Court are, of course, obliged to accept at face value a respondent’s statement that no information could be given or that there was no relationship between the bankrupt and the funders. There must be assessment of the respondent’s statement against the background facts.

“31. It is apparent from the decision of Kwan J (as she then was) in Re New China (Hong Kong) Group Ltd unrep., HCMP 2180 of 2005, 14 February 2006, at paragraphs 16 – 20 that the trustees, and, a fortiori, the court are not bound to accept a respondent’s statement that he has no recollection or, by analogy, no information to give, at its face value. In my view, the proper approach is for the court to assess the weight to be given to such a statement against all the background facts and the manner in which the statement is made. This approach is sound in principle and accords with ample common sense.” Re Nanik Dayaram (HCB 7651/2011, 6 November 2015), Ng J.

41.However, looking at paragraphs 34-39, once can see that the Liquidators’ denial of the Bankrupt’s relationship with the Funders was not a bare denial but with credible details. 

42.The Liquidators have challenged the Trustees to show otherwise but the Trustees never came back with anything before the Summons was issued.

43.Considering the evidence and applying the low threshold set out in paragraph 31 above, even giving great weight to the views of the Trustees, I am not satisfied that the Trustees have shown that the Funders were/are related to the Bankrupt.

44.This Summons is similar to the one made before Recorder Eugene Fung SC in Re Ho Yuk Wah David [2019] 1 HKLRD 961:

“30. There is no dispute that the LSF Funding Agreement was terminated on 25 March 2013. According to the respondents, the LSF administration is now being funded by a company called China New Investment Ltd (“the New Funder”) [ie CNIL in the present application]. Further, Ms Anita Hou of the respondents, who is an officer of the Court, has both stated in correspondence and confirmed on oath that the New Funder is not related to the Bankrupt. (underline added)

31.  The applicants submitted that the Category 2 Documents are reasonably required to carry out their functions.  I can well understand the basis of this request if the applicants believe that the Bankrupt is in control of, or has a close connection with, the New Funder.  However, no evidence has been adduced by the applicants to assert that they believe, or have any reasonable suspicion, that the Bankrupt is related to or connected with the New Funder.  It follows that the applicants’ submission is nothing more than a bare assertion.  (underline added)

32.  Instead, Mr Chen submitted that the Court should not accept Ms Hou’s evidence that the New Funder is not related to the Bankrupt.  He criticised that Ms Hou has not given any details on how she came to her conclusion, and asked the Court not to accept her bare denial, citing §§26 – 32 of Ng J’s judgment in Re Nanik Dayaram (unreported, HCB 7651/2011, 6 November 2015).  In my view, I do not consider Ms Hou’s evidence as a bare denial and do not accept Mr Chen’s criticism of her evidence.

33.  Given that (1) the applicants have adduced no evidence to suggest that the Bankrupt is any way connected with the New Funder, and (2) the respondents have stated on oath that the Bankrupt is not related to the New Funder, I consider the applicants have failed to discharge their burden to satisfy the Court the Category 2 Documents are reasonably required for them to carry out functions.”

45.I note that the Trustees do not even rely on Nanik Dayaram in the present Summons.  They do not show what extra evidence has been adduced in relation to CNIL on the present summons.  However, they do invite the Court to draw the inferences based on what was set out in paragraphs 26 and 27 above.

E6.  Refuting the assertions in paragraphs 26 and 27

46.As a matter of law, inferences must be properly grounded on facts and not speculation.  Mr Carolan relies on Ming Shiu Chung & Ors v Ming Shiu Sum & Ors (2006) 9 HKCFAR 334, wherein Ribeiro PJ reiterated that:

(1)  an, “inference must be properly grounded in the primary facts found.  The court guards against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question” (at §78); and

(2)  “a court is not entitled to: “… choose between guesses, where the possibilities are not unlimited, on the ground that one guess seems more likely than another or the others.  The facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied”” (at §79).

47.With respect, that again is too high a standard for present purposes.  Mr Chen submits there is a distinction between fishing without well-founded grounds for suspicion and probing the circumstances in the hope of determining whether there is another line of enquiry which should be pursued to ascertain the truth: Re Lee Siu Fung Siegfried [2017] 1 HKLRD 1155, §34, G Lam J.  He says the Summons fell within the latter.

48.Do the matters set out in paragraphs 26 and 27 meet the submission of Mr Chen?

49.With regard to paragraph 26, the Liquidators point out that the CWT proceedings were commenced in 2002 and settled in 2009 at HK$45 million. They explained that, out of that amount, HK$20 million was distributed to Topmark and HK$5.6 million to Sun Ascent who were the consultant and funder respectively.  The Bankrupt had also made payments in 2004 to Grant Thornton to settle legal fees incurred by CWT.  Another sum of HK$1,560,200 was used to pay for legal fees in the LSF Case on the request of Sun Ascent.  At that time, Sun Ascent was related to the funders of the LSF bankruptcy (Keentrade and Sinowood, both controlled by the Bankrupt).

50.The settlement took place 2½ years before the Bankruptcy Order was made.  There was no evidence to show that the Liquidators had anticipated that bankruptcy.  I agree with Mr Carolan that whilst the Trustees could show what the Bankrupt was related to Topmark, and Sun Ascent, that could not form the basis to assert that the Bankrupt is related to the current Funders.

51.With regard to paragraph 27(1)(a), for present purposes, the 971 Action provides sufficient basis for the Trustees to think that the Bankrupt was related to APIDL.

52.With regard to paragraph 27(2)(a), it does not follow from the fact that the Liquidators have previously used funders introduced to them by the Bankrupt for other liquidations or bankruptcies that the current Funders must be related to the Bankrupt.

53.With regard to paragraph 27(2)(b) to (d), it should be borne in mind that litigation funding is a business.  The pleaded damages in the 806 Action were in the region of US$322,000,000 plus HK$62,000,000.  It is not inherently improbable for unrelated litigation funders to be interested.

54.Further, the Injunction was subsequently varied on 13 July 2012 so that, “The Injunction Order does not prevent the 6^th Defendant [ie APIDL] or any other party from taking any steps in, or raising funds in relation to, pursuing or prosecuting its cause of action in HCA 806 of 2006, or any matters ancillary thereto, including for the avoidance of doubt paying costs and disbursements in relation to HCA 806 of 2006 or matters ancillary thereto”: see Order of Barma J (as he then was) at §3i.

55.Both the Injunction and the variation order were made prior to the winding up of APIDL and well before the Liquidators had secured the assistance of the Funders.  Existence of the Injunction does not make it more likely that any funder is related to the Bankrupt.

E7.  Objection to the reliance on Yu Yang’s witness statement

56.Mr Carolan further disputes the Trustees’ case under §27 as follows:

57.Firstly, the Trustees claim that Yu Yang’s family funded APIDL from mid-2008 to 2012, basing themselves on Hou’s affirmation at §61.

58.However, Hou’s affirmation at §61 was merely a “Summary of defence of the shareholders of APIDL” in the 971 Action, according to the defence of those shareholders and the witness statements of Yu Yang and Liu Shu filed in that action.  Hou did not say that she was aware of any information concerning any funders before APIDL was wound up.

59.I agree that the Trustees have misunderstood Hou’s evidence.

60.Secondly, the Trustees rely on Yu Yang’s witness statement filed in the 971 Action to assert that the Bankrupt’s family members are existing funders of APIDL’s pursuit of 806 Action.  Mr Carolan objects to its use, relying on Order 38, rule 2A(11), which provides:

“Where a party serves a witness statement under this rule, no other person may make use of that statement for any purpose other than the purpose of the proceedings in which it was served –

(a)  unless and to the extent that the party serving it gives his consent in writing or the Court gives leave; or

(b)  unless and to the extent that it has been put in evidence (whether pursuant to a direction under paragraph (7)(a) or otherwise).”

61.Mr Carolan submits that until that witness statement has been put in evidence it remains confidential.  It is not permissible for the Trustees to use Yu Yang’s witness statement in the present case.  He relies on Hong Kong Civil Procedure 2019, §38/2A/11, p 880:

“Witness statements which have been exchanged under O.38, r.2A are not put in evidence by the fact of exchange, but remain confidential until the witness makes the statement public by verifying it on oath in the witness box, or the party who served the statement waives the privilege.”

62.With respect to Mr Carolan, the witness statement of Yu Yang was produced by Hou in her affirmation made in 2018, rather than by the Trustees. Accordingly, the Liquidators have waived the privilege attached to that witness statement and the Trustees are at liberty to refer to it.

63.With reference to Yu Yang’s statement, Yu Yang alleged that he and his sister had provided funding prior to the winding up of APIDL.  He claimed to be using his own money.  After the winding up of APIDL, Yu Yang considered his funding of APIDL’s pursuit of the 806 Action to have been completely lost.  This resulted in a dispute with the Bankrupt and the Bankrupt’s eventual divorce from Yu Yang’s sister.  However, all such funding occurred before the Liquidators took office.

64.Hou has stated on oath that the Liquidators are not in a position to provide any information or documents on any funding arrangements that APIDL might have prior to its winding up.  The Trustees have not contradicted her.

65.In summary, the guesses are many and the possibilities are not unlimited.  The Trustees have not begun to meet ONC’s challenge for something to suspect the Bankrupt’s relationship to the Funders.  I do not find enough evidential basis for me to support the Trustees’ suspicions.  I decline to make an order under section 29 for Class 1.

F.  CLASS 2 CONCERNING OTHER FUNDERS FOR THE 806 ACTION

66.There had been funders for APIDL’s claim in the 806 Action before APIDL was wound up – King Ocean Development Inc (“King Ocean”) and Sparkle Lanes Ltd (“Sparkle Lanes”) which are BVI companies related to the Bankrupt. They are parties to the 971 Action.

(a)  In respect of King Ocean Limited, the Bankrupt and his sister were signatories to the Hang Seng Bank account in 2002 though he was not a director.  In the 806 Action, APIDL was ordered to provide security for costs.  On 27 February 2008, APIDL issued a cashier order to Registrar of High Court for $1 million security.  The money had come from King Ocean.  Such a convoluted mode of providing security was probably to prevent people from detecting the Bankrupt’s involvement in APIDL’s litigation.

(b)  In respect of Sparkle Lanes, the Bankrupt could sign singly with company chop according to the mandate given by Sparkle Lanes to Hang Seng Bank on 18 March 2003.  The Trustees do not have the register of shareholder and director.

67.The funding through King Ocean was provided in 2008, 3 years before the Bankruptcy Order was made; and 5 years before APIDL was wound up and the Liquidators appointed.  By the time APIDL was wound up, existing funding arrangements had to cease.  The Liquidators had thus to secure the Funders to continue the 806 Action.

68.The Liquidators have confirmed on oath through Hou-2^nd, and I accept, that they are not in a position to comment on funding arrangements (if any) before the winding-up of APIDL and appointment of the Liquidators in April 2013.

69.Hou also stated on oath that:

(1)  “The Liquidators are not aware of any transactions between Topmark, Sun Ascent and King Ocean (or any other alleged BVI/nominee companies mentioned in paragraph 11 of Trustee 1^st [which includes Sparkle Lanes] (on the one hand) and the Company (on the other hand) since April 2013”: Hou-2^nd, at §23.

(2)  “The Liquidators do not have any records to show Ontrade and King Ocean (or for that matter Tsun King and the other two registered shareholders) were funders of the 806 action at any stage.”  Hou-1^st, at §25.

The Trustees have neither refuted this nor identified other funders.

70.The Trustees refer to APIDL’s co-plaintiffs assigning their causes of action to APIDL in paragraph 20(2) above.  That was not a funding arrangement and hence irrelevant to the present Summons.

71.On the evidence in Section F, I am not satisfied that there have been other funders for the 806 Action since the winding up of APIDL who are related to the Bankrupt.  I decline to make a section 29 order for Class 2.

G.  CLASS 3 CONCERNING FUNDERS OTHER THAN IN THE 806 ACTION

72.Other than the 806 Action, Mr Chen has referred to 3 actions in his skeleton submission – the 16778 Action, HCA 1212/2002 and the 971 Action.

73.The 16778 Action was settled in 2011.  HCA 1212/2002 ended with the Bankrupt losing in the Court of Final Appeal in 2011.  Both actions thus ended 2 years before the Bankruptcy Order and 4 years before the Liquidators took office.  The Liquidators claim that they are not in a positon to provide any information or documents on any funding arrangements that APIDL might have prior to its winding-up.  There is nothing to contradict this.

74.In respect of the 971 Action, ONC has stated affirmatively in their letter dated 31 May 2017, supra, that there are no litigation funding arrangements.  The Trustees have not begun to show otherwise.

75.There is simply no basis for making a section 29 order for Class 3.

H.  CLASSES OF INFORMATION AND DOCUMENTS

76.The Schedule of the Summons sets out the information and documents required.  I just deal with them for the sake of completeness in case I am wrong in my conclusions above.

(1)  §1 concerns the commercial relationship in general between APIDL and the Funders.  The funding arrangements have been admitted but the funding agreements are yet to be produced. 

(2)  §4 concerns the discussions pertaining to APIDL’s funding arrangements which may shed light on the persons in control of the Funders, and the precise terms of such arrangements.

(3)  §5 asks for the accounting documents (eg cheques, payment records, invoices and receipts) in relation to the funding agreements, as they would demonstrate the fund flow, and enable the Trustees to ascertain whether the relevant bank accounts overlap with the bank accounts in connection with other funding arrangements, eg those in relation to the CWT litigation and the LSF Case.  As the Bankrupt had a history of concealing his trails, such fund flows and correspondence may assist the Trustees in finding out the persons in control of the Funders, and the terms of such arrangements.  §§5.1-5.6 relate to particulars of information which would give the Trustees a more complete picture of the funding arrangements between APIDL and the Funders. 

(4)  §6 seeks the same documents and information in relation to §5 but in respect of funders other than the Funders.

77.The information and documents sought are clearly defined.  The Court is not expected to indulge in fine judgments as to the precise width of the order which should be made, and the Court must take care not to cut down the width of the order sought by the Trustees in a way which would risk making it ineffective (Kong Wah, §30(8), Re Ho Yuk Wah David §14).

78.Save for class 5.2, the Classes are clearly defined and not oppressive to the Liquidators.  Class 5.2 is ambiguous as it asks for “the degree of communication between the Liquidators and each of the Funders in relation to the conduct of the 806 Action”.  There is simply no objective standard to measure the “degree” of communication.

79.If the Bankrupt is related to the Funders/funders, the information and documents sought by the Trustees are reasonably required for them to properly discharge their duties.

I.  LIQUIDATORS’ ABILITY TO PRODUCE THE INFORMATION AND DOCUMENTS

80.There is no dispute that the Funders have in fact provided funding to APIDL for the 806 Action after the Liquidators took office in 2013. The information and documents sought are likely to exist in the ordinary course of things.  The Liquidators would be able to produce them.

81.Accordingly, if I were satisfied that the information and documents sought do relate to the Bankrupt’s dealings or property, I would make an order for production of all Classes except Class 5.2.

J.  CONCLUSION

82.I dismiss the Summons as the Trustees have failed to show that the information and documents sought are related to the Bankrupt’s property or dealings.

K.  COSTS

83.This matter initially came before me on 12 July 2018.  However, the Trustees’ evidence at the time (being affirmations of Dennis Lam, ie Lam-27^th and 30^th) was defective as these were made by solicitors, rather than the Trustees themselves.  The Summons was therefore adjourned to the present hearing with directions that the Applicants file proper evidence.  I ordered that:

(1)  the costs thrown away by Lam-27^th and -30^th; and

(2)  the costs of the “2018 Summons” (which was issued by the Trustees a day before the hearing for leave to file an affirmation by Mr Ip Pui Lam),

be to the Liquidators (with certificates for 2 counsel), to be dealt with by way of summary assessment at the present hearing.

84.I have considered the statement of costs of the Liquidators for the hearing on 12 July 2018.  Lam-27^th and -30^th were not put into the hearing bundle for this hearing, however, Hou-2^nd did refer to Lam-27^th.  Not all of the costs of those 2 affirmations were really thrown away.  Overall, I summarily assess and allow a sum of $200,000 for costs awarded to the Liquidators on 12 July 2018.

85.As for costs of the present application, costs should follow the event and be to the Liquidators.  The Liquidators asks for costs on indemnity basis with certificates for 2 counsel because the decision of Recorder Eugene Fung SC in the present case [2019] 1 HKLRD 961 made clear that (i) the affidavit sought in the summons was not within the Court’s jurisdiction to order; and (ii) there was no evidence of any relationship between the Bankrupt and at least CNIL.  The same legal team appeared for the Trustees in that decision.  By 2 letters dated 27 February 2019, ONC has drawn the Trustees’ attention to that decision but the Trustees had not responded to it.  Eventually, the Trustees are not successful over all Classes at this hearing.

86.I agree that costs should be on indemnity basis.  However, without disrespect, the present application is not more difficult than the one before Recorder Eugene Fung SC.  That application involved only one counsel on each side. 

87.I therefore make an order nisi that costs should be to the Liquidators on indemnity basis with certificate for only Mr Carolan.  Such costs are to be summarily assessed on the papers. The Liquidators shall lodge and serve their costs statement within 7 days of the handing down of this decision. The Trustees shall lodge and serve their grounds of objection within 7 days thereafter.

Mr David Chen, instructed by Hobson & Ma, for the applicants

Mr Paul Carolan & Mr Eugene Kwok instructed by ONC Lawyers for the respondents