Paloma Co Ltd v. Capxon Electronic Industrial Co Ltd

HCCT 53/2017

[2020] HKCFI 755

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 53 OF 2017

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D E C I S I O N

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The
“Disclosure Decision”

The Application

1.This is the hearing of the summons dated 26 September 2018 (the “Disclosure Summons”) taken out by the Judgment Creditor (“Paloma”) for post‑judgment disclosure against the Judgment Debtor (“Capxon”) regarding its assets.

2.The main issue is whether it is fair and convenient to order the discovery sought.

Affirmatory evidence

3.Altogether 9 affirmations have been placed before me.  Some of them were filed specifically for the Disclosure Summons, whilst others for certain earlier but related applications.  They are:

(a) on behalf of Paloma, 2 affirmations of Mr Yamaura (“Yamaura”) of 14 September 2018 and 25 September 2018 (“Yamaura 3^rd” and “Yamaura 4^th” respectively), and 2 affirmations of Mr Nakamura (“Nakamura”) of 23 July 2019 and 18 September 2019 (“Nakamura 1^st” and “Nakamura 2^nd” respectively);

(b) on behalf of Capxon, 5 affirmations of Mr Lin Chin Tsun (“Lin”) of 16 April 2018, 3 July 2018, 2 of 2 November 2018 and 23 September 2019 (“Lin 1^st” to “Lin 5^th” respectively).

The factual background

4.The parties have been before me.  On 6 August 2014, Paloma was awarded a sum of JPY 2,427,186,647 plus interest and costs (the “Award” and “Award Sum”) by an Arbitral Tribunal in Japan against Capxon.  On 12 October 2017, Mimmie Chan J granted leave to enforce the Award in Hong Kong (the “Enforcement Order”).  On 2 May 2018, the parties came before me when Capxon sought to set aside the Enforcement Order.  I dismissed Capxon’s application on the same day.  I explained the reasons in my Reasons for Decision handed down on 25 May 2018 (the “25/5 Reasons”[1]). I refer to the 25/5 Reasons for the background of the case, which I will not repeat.

5.On the strength of the Enforcement Order, Paloma on 23 November 2017 obtained a Charging Order Nisi (the “Charging Order Nisi”) in respect of 85,137,200 shares in Lancom Limited held by Capxon (the “Lancom Shares”).  The hearing to show cause took place before me on 20 November 2018.  Capxon objected to the Charging Order Nisi being made absolute. By another Decision of mine (the “Charging Order Decision”[2]) handed down together with the present one, I made the Charging Order Nisi absolute. I refer also to the Charging Order Decision, which again I will not repeat.

The disclosure sought

6.The documents and information disclosure of which being sought fall into 2 broad categories.  Mr Jason Yu, counsel for Paloma, has, having taken into account matters which had transpired since the issue of the Disclosure Summons, set them out in the draft order attached to his written submissions (the “Draft Order”).  In gist, they are:

(a) Information relating to the financial status of and certain transactions relating to Lancom Limited (“Lancom”, and the “Lancom Disclosure”), namely:

(1) the financial statements and management accounts of Lancom from 2014 — §§1(ii) of the Disclosure Summons and Draft Order;

(2) documents relating to the transfer by Lancom of its 100% equity interests in Capxon Trading (Shenzhen) Co. Ltd (“Capxon Trading”) to Multiple Investments Ltd (“Multiple Investments”) — §1(iii) of the Disclosure Summons and Draft Order;

(3) documents relating to the transfer by Lancom of its 37.03% equity interests in Capxon Electronic (Shenzhen) Co. Ltd (“Capxon Electronic”) to Multiple Investments — §1(iv) of the Disclosure Summons) and Draft Order;

(4) all transactions through which any of the assets of Capxon or Lancom had been disposed of / transferred / removed from Capxon or Lancom since August 2014 — §2(ii) of the Disclosure Summons and Draft Order; and

(b) General disclosure relating to Capxon’s financial statements, latest balance sheet, latest property inventory, account receivables, and all assets of an individual value of HK$10,000 or more in Hong Kong or anywhere in the world — §§1(i), (v) and 2(i) of the Disclosure Summons and Draft Order (“General Disclosure”).

The parties’ stance

7.Mr Yu’s submissions are that Capxon has taken repeated steps to hinder Paloma’s enforcement of the Award, and the present application was therefore necessary to assist Paloma’s efforts to enforce the Award, whether by facilitating a sale of the Lancom Shares or locating other valuable assets which may be used to satisfy the Award.

8.Mr Mike Yeung, counsel for Capxon resists the application.  His primary position is that given the on‑going liquidation of Capxon in Taiwan, there is no need for “self‑enforcement” of the Award by Paloma.  Absent that, there is no need for Paloma to obtain any discovery on Capxon’s assets.  He submits that “any allegation on [Capxon’s] attempt to frustrate or evade the award plainly cannot be made out, absent which there is no ground in support of the [Disclosure Summons]”[3]．  He submits further that it is neither just nor convenient to order the discovery sought “regardless of [Capxon’s] intention” in any event[4].

The applicable legal principle

9.Section 21L of the High Court Ordinance provides that:

“ (1) The Court of First Instance may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the Court of First Instance to be just or convenient to do so.”

10.Under that section, the Court may, if it is just or convenient to do so, grant an injunction in mandatory form ordering disclosure of a judgment debtor’s assets.

11.In Maclaine Watson v International Tin Council [1989] Ch 286, Kerr LJ:

(a) gave 2 grounds for the grant of such an injunction[5]:

(1) A judgment creditor has an order of the court against the judgment debtor to pay to the him the amount of its judgment.  The judgment debtor’s failure to do so is a failure to comply with an order of the court and a breach of an obligation owed to the judgment creditor;

(2) There is an inherent power under S 37(1) of the Supreme Court Act 1981[6] to make any ancillary order, including an order for discovery, to ensure the effectiveness of any other order made by the court.

(b) rejected the submission that an attitude of total passivity on the part of a judgement debtor involves no invasion of any legal or equitable of the judgment creditor, so that mere passivity can be sufficient for the court to invoke its jurisdiction to compel disclosure[7].

12.That power to order post‑judgment discovery of assets is a free‑standing one.  In Chinachem Charitable Foundation v Chan Chun Chuen (unrep, HCAP 8/2007, 27 February 2012), Poon J at §39 summarized the law as follows:

“ … in a post‑judgment situation, the jurisdiction to make the disclosure order arises both as a power ancillary to and in support of the injunction and independently of the injunction as a power in support of the execution of the judgment: Gidrxslme Shipping Co Ltd v Tantomar‑Transportes Maritimos Lda [1995] 1 WLR 299, per Colman J at p 310E‑G. His Lordship went on to observe at p 312E‑F that in cases of post‑judgment, ‘it is just and convenient that the judgment or award creditor should normally have all the information he needs to execute the judgment or award anywhere in the world’.”

13.The applicable legal principles have further been summarized by Deputy Judge Lok J (as the learned Judge then was) in BHP Billiton Marketing AG v Transfield Shipping Inc (unrep, HCA 2124/2011, 29 April 2013 at §30, that

“ (i) unlike the position before judgment, after judgment a plaintiff is able to attach assets of the defendant against whom he has obtained judgment;

(ii) after judgment has been obtained, there is no objection in principle to the judgment debtor being required to give disclosure of his assets worldwide under examination of debtor, injunction or appointment of receiver proceedings;

(iii) the object of ordering such disclosure is to render the judgment effective;

(iv) in a post‑judgment situation, the jurisdiction to make a disclosure order arises both as a power ancillary to and in support of a Mareva injunction and independently of the injunction as a power in support of the execution of the judgment; and

(v)     it is just and convenient for a judgment creditor to have all the information he needs to execute the judgment or award anywhere in the world.”

14.The above legal principles are not in serious dispute between the parties.  What is in dispute is Mr Yeung’s proposition that to obtain post‑judgment discovery, a judgment creditor has to demonstrate “practical impediment towards enforcement of judgment”.  Mr Yeung relies upon Karaha Bodas Company LLC v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara [2005] 1 HKLRD 21 per Reyes J at §17.  He further relies on BHP, and submits[8] that:

“ Practical impediment towards enforcement of its right as judgment creditor and discovery of information about the judgment debtor’s assets are factors in favour of a post‑judgment disclosure for the purpose of executing the judgment: BHP…per DHCJ Lok at §§31, 35. The corollary therefore is that, short of being able to demonstrate practical impediment towards enforcement of judgment or finding the whereabouts of a judgment debtor’s assets, a post‑judgment disclosure order should not be made.” (emphasis added)

15.I do not accept that proposition put forward by Mr Yeung:

(a) No such proposition has been suggested by Deputy Judge Lok in BHP, and it is logically wrong for Mr Yeung to suggest that the proposition is corollarial of Deputy Judge Lok’s observations at §§31 or 35;

(b) Karaha Bodas was a case on appointment of receivers.  In that case, having considered a number of authorities, Reyes J at §8 set out the principles applicable to the exercise of the Court’s discretion in the appointment of receivers by way of equitable execution, that:

“ (1) A receiver may be appointed when recovery of the judgment debt by normal means of legal execution is ‘not practicable’. In such case the courts grant equitable relief as a means of ‘taking out of the way a hindrance which prevents execution at common law’. An applicant must normally show that circumstances are such as to render it practically difficult, if not impossible, to obtain the fruits of his judgment …

(2) It is not necessary that a judgment debtor have a legal interest in the asset over which a receiver is sought to be appointed. Thus, it is possible to appoint a receiver to recover future debts from a third party, even though at the time of the garnishee order or appointment of a receiver such debts cannot be attached at common law.

(3)  Nonetheless, there must be some difficulty, arising from the nature of the property, which precludes execution at law but which can be overcome by the appointment of a receiver.”

(c) Mr Yeung has cited to me no authority in support of his stance that those same principles relevant to the appointment of receivers by way of equitable execution are equally applicable to an application for post‑judgment disclosure under s 21L, or that the statutory criterion of “just and convenient” should be so fettered.  Indeed, the authorities cited above (Maclaine Watson, Gidrxslme Shipping,Chinachem and BHP) all suggest that very different considerations are involved and engaged.

Mr Yeung’s objection on the basis that Paloma only had the benefit of a charging order nisi

16.One limb of Mr Yeung’s objections is made on the basis that Paloma at the time of the application only had the benefit of a charging order nisi (see eg §§8(b) and 22(a) of his written submissions).  Now that I have made the Charging Order Nisi absolute, that limb of his objections goes away.

Irrelevance of “Intention on the part of the Respondent to thwart the Applicant’s enforcement”^[9]

17.In his written submissions, Mr Yeung spends more than 7 pages of his 24‑page submissions on developing his submissions that Capxon had no intention to thwart Paloma’s enforcement of the Award.  He submits, inter alia, that:

“ 15. As [Paloma] fails to make out a claim of [Capxon’s] bad intention, and given the ongoing Taiwan Court‑controlled liquidation which has and will undoubtedly assist [Paloma] to obtain its just entitlements under the Award/Order, there is plainly no practical impediment towards enforcement of its right as judgment creditor. As such, the need for [Paloma] to take enforcement action simply does not arise.

16. In fact, [Lin’s] previous voluntary disclosure of [Capxon’s] financial information demonstrates strongly that there would not be practical impediment towards [Paloma’s] obtaining of relevant information on [Capxon’s] assets and financial position, should the need legitimately and justly arise…”

18.Those submissions are premised upon Mr Yeung’s submission on the law which I have rejected.  They have become quite irrelevant.  I will nonetheless consider them in so far as they are relevant to the question of “just and convenient”.

The Lancom Disclosure

19.I set out the in the following paragraphs factors and considerations which suggest that it is fair and convenient to order the Lancom Disclosure.

20.The Enforcement Order was made on 12 October 2017. According to Nakamura 1^st, 99% of the Award remains unsatisfied.

21.The non‑payment has to be viewed in the context of Capxon’s stance that Capxon was, on 10 April 2018 when the resolution was passed for its voluntary winding‑up, financially solvent.  So the non‑settlement of the Award was not the result of insolvency.

22.One recalls that even mere passivity can be sufficient for the court to invoke its jurisdiction to order post‑judgment discovery.

23.Lancom used to hold respectively 37.03% and 100% of the shares in Capxon Electronic and Capxon Trading.  On 13 October 2014 and 21 January 2015 respectively, Lancom transferred all those shares to Multiple Investments. Those dates were respectively about 2 months and 6 months from the date when the Award was handed down.

24.In Lin 3^rd, Lin claims at §§10 to 11 that those transfers “enabled the Group to simplify and rationalize the holding structure for its subsidiaries…”, that they “were conducted in compliance with the applicable Rules Governing the Listing of Securities on the Stock Exchange…”, that “Multiple had duly settled the consideration by cash payment in full…”, and that the transfers “were brought to the attention of the Stock Exchange which had no comments …”.

25.It is unusual, to say the least, for transactions of the nature described by Lin to be settled by “cash payment”.  Lin has chosen not to reveal the terms of “the transfers” or the amount of that “cash payment”.  In fact, not one single document has been produced in support of his assertions.

26.Paloma’s concerns about the motives behind those transfers are in my view justified.

27.Importantly, now that I have made the Charging Order Nisi absolute, and should the Award remain unsatisfied, Paloma will need to make an application for an order for sale of the Lancom Shares.  I agree with Mr Yu’s submissions that unless Paloma and its valuator have a complete set of verifiable information about Lancom’s financial affairs, Paloma will not be able to properly prepare for the application — see Order 88, rule 5A(2)(e) of the RHC, Timmar Co v Erwin Hardy [2001] 3 HKLRD 651 (at §§22‑25) and Ameritax Plus v Denice Foster Harris [2012] 5 HKLRD 757 (at §§20-26).

28.There is no suggestion that Capxon does not have the documents sought, or that the ordering of the Lancom Disclosure would otherwise be oppressive — compared with Ng Au Yuen Ngar Pamela v Ng Douglas [1977] 2 HKC 465 at 471-472.

29.I have also considered a number of points raised in objection by Mr Yeung, as follows.

30.In Lin 4^th at §5, Lin claims that:

“ … given that Paloma is targeting the Lancom Shares as means to enforcing the judgment debt under the Enforcement Order, I verily believe that [the Lancom Disclosure] are completely irrelevant to Paloma’s Charging Order application so long as the latest value of the Lancom Shares, as set out in the balance sheet and property inventory submitted to the Taiwan Shilin District Court for the purpose of [Capxon’s] dissolution and winding‑up, exceeds the amount of the judgment debt owing by [Capxon] to Paloma; and (ii) that, premised upon the foregoing basis, there is at present no necessity for other post‑judgment enforcement action in Hong Kong or elsewhere.”

31.The “balance sheet” mentioned by Lin there is the Updated Financial Statements I have referred to in the Charging Order Decision.  I agree with Mr Yu in this regard that that document, being a one‑page document with little details, containing as it does only one single entry said to be about the Lancom Shares (“採權益法之投資” stated to be valued at NT$1,234,998,432 at the percentage of 88.57), is hardly sufficient for the purposes which Paloma requires the Lancom Disclosure for.

32.The so‑called “property inventory” (the “Property Inventory”) is not much better.  It is only a 6 rows by 6 columns table occupying a quarter of an A4 paper, with no breakdown of the assets tabulated there (described in generic terms as “土地”, “房屋及建築”, “房屋附屬設備”, “生財設備” and “其他設備”).  Nor are their whereabouts disclosed. The table verges on being useless for enforcement purpose.

33.Mr Yeung relies on the existence of the Taiwan Winding‑up.  He submits that:

“ 22(d) There is no evidence before the Court why [Paloma] stands as a better person or in a better position than the Taiwan Court to realise the Lancom Shares or other assets of [Capxon]. Quite simply, the Taiwan Court’s competence or integrity cannot be called into question in the circumstances.

…

22(g)    As the proper recourse for [Paloma] to enforce its judgment debt under the Award/Order is to claim under the relevant liquidation procedures in Taiwan, [Paloma’s] request for the [Lancom Disclosure] for the purpose of an enforced sale is therefore ‘jumping the gun’ and is untenable, and cannot be just and convenient.”

34.I reject those submissions.  Paloma is not calling into question the competence or integrity of the Taiwan Court.  There is further no basis for Mr Yeung to submit that “the proper recourse” for Paloma is to join the queue in the Taiwan Winding‑up when it has the benefit of the Enforcement Order and the Charging Order Absolute in Hong Kong.  Paloma is justified in taking steps to enforce the Award in Hong Kong.

35.In all the circumstances, I allow the Lancom Disclosure.

The General Disclosure

36.In so far that Capxon is seeking to argue that since Paloma has applied for a Charging Order, it cannot now seek disclosure other than information relevant to the Lancom Shares, I accept Mr Yu’s submission on the strength of Diners Club International v Lau Lin Than (unrep, CACV 187/1985, 21 February 1986) that there is no bar in different remedies in execution being concurrently pursued.

37.In this regard, Mr Yeung submits that the enforcement of the Award by charging order has not at this stage been unsuccessful, and that[10]:

“ …whilst [Capxon] accepts that [Paloma] may elect to apply for different execution remedies concurrently, whether [Paloma] should be granted a disclosure order for information beyond Lancom in light of its continued pursuit of the perfection of the Charging Order Nisi goes back to the question of whether it is just and convenient to do so for facilitating the enforcement of the Award/Order.”

38.I have explained above why in my view the information so far revealed in the Updated Balance Sheet and the Property Inventory is inadequate.  The inadequacy goes both to the value of the Lancom shares and the financial position of Capxon.  I find it just and convenient for Paloma to at this stage concurrently seek the General Disclosure.

The scope of the disclosure sought

39.I have considered the scope of the Lancom Disclosure as set out in the Draft Order.  In my view, save §2(ii) which I will come back to, they are in order.

40.In so far as the General Disclosure is concerned:

(a) In my view, §1(i) is in order;

(b) Regarding §1(v):

(1) Paloma seeks details of “all accounts receivables”;

(2) I note that the “accounts receivables” are not limited by any threshold value.  In my view, they should be;

(3) I hence confine the “all accounts receivables” to “all accounts receivables of an individual value of HK$100,000 or more”;

(c) Regarding §2(i), I find the requested disclosure of “All [Capxon’s] assets of an individual value of HK$10,000” unnecessarily harsh.  I amend the value to HK$100,000;

(d) Regarding §2(ii):  

(1) Similar to §1(v), the disposals / transfers / removals are not qualified by any threshold value;

(2) I similarly put in a starting value of HK$100,000;

(e) If subsequently there appears to be any need to have the threshold value of HK$100,000 lowered, an application with appropriate supporting evidence may be made.

41.In so far as the time for compliance is concerned, Paloma in respect of both paragraphs requests “7 days of the date of the order”.  I am prepared to give Capxon 21 days instead, and the Draft Order is amended accordingly.

Disposition

42.For the reasons given above, I allow the Disclosure Summons, I grant §§1, 2 and 3 of the Draft Order as amended above.

43.In respect of costs, I make a cost order nisi that the costs of and occasioned by the Disclosure Summons be paid by Capxon to Paloma, to be taxed if not agreed.  Any application for variation should be made within 14 days of the date hereof, response with 14 days of receipt, and reply within 7 days.

Mr Jason Yu, instructed by Norton Rose Fulbright Hong Kong, for the Applicant (judgment creditor)

Mr Mike Yeung, instructed by Minter Ellison, for the Respondent (judgment debtor)