Securities and Futures Commission v. Mandarin Resources Corporation Ltd. and Another

CACV000036/1999

CACV 36/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 36 OF 1999

(ON APPEAL FROM HCCW 348 OF 1996)

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Coram: Hon Liu, JA, Hon Leong, JA, Keith, J in Court

Date of Hearing: 23 March 1999

Date of Judgment: 23 March 1999

Date of Handing Down of Reasons: 1 April 1999

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J U D G M E N T

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Liu, JA (giving judgment of the court):

1. The Securities and Futures Commission (SFC) presented a winding-up petition against Mandarin Resources Corporation Limited (the company) and Chim Pui Chung (Chim) on its belief that the minority interests of the company had been unfairly prejudiced and that it was expedient in the public interest to wind up the company under the just and equitable principle.

2. On 19 January 1999, SFC obtained an order against Chim from Burrell, J giving directions for, inter alia:

(1) expert evidence;

(2) replying a Notice to Admit Facts; and

(3) specific discovery against the 2nd respondent, Chim;

(4) the date of hearing of the petition.

The judge handed down his reasons on 22 January 1999. From these directions in the said order, Chim appeals.

3. Directions so given in a pre-trial review by the judge were largely matters of discretion, which cannot be interfered with by this court unless Chim can demonstrate on appeal that the judge is plainly wrong.

(1) Directions for expert evidence

4. In these directions, the judge granted leave to SFC to call Mr John Michael Grimsdick (Grimsdick) as an expert at the trial. Directions were also given for serving Grimsdick's expert reports on Chim. At the same time, leave was given to Chim to call his own expert evidence provided that service of the report be effected on all the other parties within 56 days from the date of the Order.

5. The company had considered the reports of Grimsdick and concluded that "there should be no need for the company to prepare an expert report in reply". Chim is not bound by the stance of the company. He does not accept Grimsdick as an expert on four grounds: first, Grimsdick is only an accountant and unfamiliar with takeover/merger transactions nor has he any working knowledge in the Stock Exchanges. Grimsdick is said, therefore, to be unqualified. Secondly, Grimsdick has been associated with SFC over a long period. He has become virtually SFC's man and lost his impartiality and independence. Grimsdick irresponsibly drew his own conclusions from complex transactions in what Chim claims to be unintelligible reports. Fourthly, Grimsdick's reports are as inaccurate as they are incomplete for the many deliberate omissions of information favourable to Chim. He is accused by Chim of being bent on misleading a judge presiding over a tedious proceeding with his offer of a convenient, albeit inaccurate and unfair, solution.

6. Chim also voices his frustration over the way in which his documents seized in 1994 by SFC and handed over to Commercial Crime Bureau (CCB) were withheld from him. He protests that the bulk of relevant documents were returned to him only ten odd days ago at a time well past the 56-day time limit for serving his own expert report. He is troubled by his limited resources and lack of proficiency in English. He explains that he is far from being at his best, suffering from high-blood pressure and detention restrictions and that he had to withstand pressure from all fronts. He also relies on human rights.

7. In fact, Chim had possession of most of the documents since June/July 1996. The documents provided to Chim some ten days ago were the 26-volume trial bundles. Grimsdick's two principle statements do not contain matters altogether unknown to Chim. The first statement is a re-cast in format of two statements made by Grimsdick in the criminal trial against Chim. There was little refutation of the two statements of Grimsdick at the trial and cross-examination of him was brief. The second statement of Grimsdick comprises matters raised in the petition with a view to explaining the complex transactions involved. The granting of leave to SFC to call Grimsdick as an expert was a matter of discretion. Chim had 56 days from the order made by the judge on 19 January 1999 to serve his own expert's report. Chim does not disclose what progress he has made in his consultation, if any, with experts or what his real difficulties are. There was apparently time enough for the company to consider Grimsdick's reports. The time allowed to Chim cannot be said, in these circumstances, to be unreasonable. In conclusion, there is no or insufficient ground for questioning the exercise of the judge's discretion. Leave was rightly granted to SFC to call expert evidence. There is no substance in these grounds of appeal.

(2) Reply to the Notice to Admit Facts

8. Turning to Chim's complaint of the 21 days given him by the judge to reply to the Notice to Admit Facts, similar comments are made as to his resources and lack of assistance while he is in custody. Chim claims to be only a representative of the majority shareholders. He became chairman of the company in 1994 but resigned as chairman and director on 20 June 1996. He seeks further time to respond after his release so that documents could be retrieved from the court and CCB. He also relies on human rights. He feels oppressed and expresses his want of confidence in the judge and in SFC. He challenges the unilateral right to serve the Notice to Admit Facts. The privilege, he explains, is not reciprocal because it is not available to him for the intrusive questions he is minded to ask. It is, therefore, an unequal right and unfair for SFC to take advantage of the procedure.

9. Chim had had the notice for a considerable long time before the judge set a time limit within which Chim had to respond. It was not in substance a peremptory order for a reply. It was not understood by Chim as such. He merely complaints of the insufficient time given him to reply; in effect he seeks a longer extension. Failure on the part of Chim to reply would attract no worse penalty than liability for wasted costs. In practical terms, the judge granted more time to Chim to reply to the Notice to Admit Facts and the complaint is really that the extension was less than adequate. Chim had been dilatory for a long time and the 21-day further extension in effect granted after a protracted delay cannot be said to be unreasonable. An extension was being considered, and in the light of Chim's attitude, another 21 days did not seem to be inappropriate. The judge rightly exercised his discretion.

(3) Order for specific discovery

10. The judge also required Chim to give specific discovery of all the documents relating to certain alleged running accounts between Chim and Sun Ying Chung or James Lee Cheung Keung within 28 days from the date of the order. Chim explains that he devoted his time to the criminal charges and only turned to this winding-up case after his conviction and appeals. After sentence, he has to endure the prison restrictions in Stanley. As to Sun Ying Chung, most of the transactions were allegedly done on a mutual trust basis without much documentation. Moreover, he has been unable to contact Sun since his incarceration. As to Lee Cheung Keung, he distanced himself from Chim during the criminal trial and after Chim's conviction, he maintained no contact. Chim also relies on human rights. Chim explains that but for these predicaments, he would have tried to give specific discovery, and the judge made the order, he says, in the full awareness that it could not possibly be complied with or complied with within the time limit. However, Chim has given the court no assistance as to whether he is in possession, custody or control of the documents for specific discovery. There is little evidence that Chim has made any genuine effort to comply with this or the other directions, and Mr Heslop for SFC informs this court that Chim would have otherwise been treated with sympathy. In a pre-trial review, some time limits would have to be imposed and often arbitrarily. In view of the vague excuses and the dilatory attitude of Chim who seems to have been unwilling to take any measures before his release, it would be difficult for Chim to demonstrate that the time limit of 28 days given him for making discovery was a wrongful exercise of the judge's discretion. These circumstances warranted the granting of only 28 days for making specific discovery. Chim's total indifference should not be encouraged by a more lengthy period.

(4) Hearing date of the petition

11. Lastly, it is complained that 19 April 1999 fixed for the hearing of the petition is oppressive and that the judge should have deferred commencement of the hearing until a reasonable time after Chim's release. Chim had the documents and he was supplied with the 26-volume trial bundles ten days ago. He has declined to identify what documents he requires under the pretext that information given would alert SFC to his defences. The order made by the judge on 19 January 1999 adjourned the trial from 8 February to 19 April 1999. SFC is anxious to contain the risk of dissipation of assets to the prejudice of the minority shareholders. SFC expresses concern over the fairly alarming state of affairs within the trading group of the company. Further delay will continue to generate opportunities for further misapplication of corporate funds. Mr Heslop also urges this court to take into consideration that delay would prejudice the minority shareholders and damage Hong Kong's image. Chim repeats his complaints of the restrictions imposed upon him by Prison Rules. Solicitors for SFC is to write, at the request of this court, to the Prison Authority, pleading for lifting some of the restrictions so as to enable Chim to be better assisted in the preparation of the hearing of the petition. Counsel recognises some inevitable further loss of time for putting in place any new arrangement by the Correctional Services Department. However, Chim has given this court a distinct impression that he is determined to be uncooperative. It is not certain whether an extension would encourage Chim to make any effort to prepare for the hearing of the petition. However, still it would seem desirable to grant some indulgence to Chim. Balancing these competing interests, we accept a further three weeks reluctantly offered by Mr Heslop.

12. On the then known circumstances, we are unable to fault the judge's fixture for the trial to commence on 19 April 1999, adjourned from 8 February. For these reasons, this court would allow Chim an extra three weeks.

13. At the conclusion of the hearing, we vacated the hearing date and we re-fixed it for Monday, 10 May 1999, 10 a.m. We dismissed the appeal with costs after listening further to Chim. We intimated that we would give our reasons later and this we now do.

Representation:

Mr Philip Heslop, QC & Anderson Chow inst'd by M/S Herbert Smith for Petitioner (1st Respondent).

2nd Respondent (Appellant) in person.