Chen Bin and Others v. Zpmc Red Box Energy Services Ltd and Others

HCMP 928/2020

[2021] HKCFI 618

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 928 OF 2020

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AND

HCMP 971/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 971 OF 2020

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(Heard Together)

Before:  Hon Linda Chan J in Chambers

Date of Hearing:  3 March 2021

Date of Judgment:  10 March 2021

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J U D G M E N T

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1.By originating summons dated 29 June 2020 (“928 OS”) the plaintiffs (“Ps”), Mr Chen Bin (“Chan”), Mr Liu Jianbo (“Liu”), Mr Sun Guangbo (“Sun”) and Mr Li Chunkai (“Li”), apply for an order under s 373 – 378 of the Companies Ordinance (Cap 622) (“CO”) requiring the 1^st to 3^rd defendants, ZPMC-Red Box Energy Services Limited (“Company”), Mr Philip Jeffrey Adkins (“Adkins”) and Mr Christiaan Pieter Muilwijk (“Muilwijk”), “and/or the individuals with actual control of” the Company to (1) provide the accounting records of the Company for their inspection forthwith and without charge; and (2) provide, or allow Ps to make, copies of such accounting records without charge if Ps so request.

2.At the hearing, Ps are represented by Mr Richard Zimmern while Adkins is represented by Mr Justin Ho.  The Company and Muilwijk are not represented and are absent at the hearing. 

(1)  Both counsel confirm that their respective clients took the view (correctly) that since the Company had effectively been divided into 2 camps (as further described in Section B below), it would be inappropriate for the Company to be represented by the solicitors engaged by either camp.  No resolution has been passed by the Board to appoint any solicitors to represent the Company in these proceedings. 

(2)  As for Muilwijk, he has only been served with the 928 OS out of the jurisdiction “recently”[3], and no affirmation has been filed by him.  It is not clear whether he intends to oppose the 928 OS. 

3.Shortly after the 928 OS was issued, on 7 July 2020, Adkins issued an originating summons in HCMP 971 of 2020 (“971 OS”) against the Company and Ps (as 2^nd to 5^th defendants) under ss 373 – 378 of the CO requiring Ps “and/or the individuals with actual control of” the Company to produce the accounting records of the Company’s bank account with Bank of China Hong Kong, number 012-875-92-69152-0 (“BOC Account”), including all the bank statements, documents in relation to the transactions reflected in the bank statements and a list of the names of the appointment of authorised signatories of the BOC Account (collectively “BOC Documents”) for Adkins’ inspection and taking copies without charge. 

4.By orders dated 20 July 2020 made with the consent of Ps and Adkins, directions were given for the 928 OS and the 971 OS to be heard together with one day reserved.  However, 6 days before the substantive hearing, Ps and Adkins filed a consent summons seeking an order to “adjourn” the 928 OS on the basis that Muilwijk had only been served with the papers “recently” and he might file evidence in respect of the application.  As for the 971 OS, the parties would proceed with the application at the hearing.  

5.As the 928 OS and the 971 OS both concern directors’ right to inspect the Company’s documents and involve common questions of law and fact, it would be a waste of the Court’s time and the parties’ costs to adjourn the 928 OS.  I therefore directed the parties to proceed with the application. 

6.At the hearing, counsel for Ps and Adkins submit a consent summons the terms of which are substantially the same as the order sought by Adkins in the 971 OS, and invite the Court to make an order in those terms.  However, there are a number of problems in the draft order in that:

(1)  it refers to “the 1^st and/or 2^nd and/or 3^rd and/or 4^th and/or 5^th [Defendants]” which is both imprecise and unclear and will give rise to unnecessary arguments as to whether all the defendants are required to comply with the order;

(2)  the BOC Documents are documents of the Company, rather than those of Ps, but the order does not state that Ps are required to procure the Company to provide the BOC Documents to Adkins;

(3)  it contains impermissible reference to “and/or the individuals with actual control of the [Company]”, which can only be a reference to third parties who are not parties to the proceedings.  It is difficult to see how the order can bind such non-parties;

(4)  it refers to provision of “information” and “an explanation”, which falls outside the scope of ss 373 – 378 of the CO or common law (which, according to Mr Ho, is the further basis upon which the application under 971 OS is made);  

(5)  it requires Ps to provide all the documents listed for Adkins’ inspection “forthwith”, which is unrealistic.  It will only give rise to unnecessary applications for extension of time or, worse, allegations of breach of Court order;

(6)  it does not require Ps to provide copies of the BOC Documents and, instead, requires Adkins to make request to Ps and/or the Company for copies of the Documents, but no mechanism is provided as to how the request should be made and the time limit for compliance with such request; and

(7)  it does not make clear that the BOC Documents, whether in hard copies or electronic copies, are covered by the order. 

7.At the hearing, Mr Wise, who appears for Ps in 971 OS, and Mr Ho, who appears for Adkins, both confirm that the parties are agreeable to revise the terms of the draft order to address the above problems. The revised draft order, as subsequently submitted by the parties, are reproduced in the Schedule hereto. 

A.   BACKGROUND FACTS

8.The following facts are not in dispute or are indisputable.

9.The Company was incorporated in Hong Kong on 26 March 2014 and its shares are held by 3 shareholders (collectively “Shareholders”) namely:

(1)  ZPMC Offshore Service Co, Ltd (“ZPMC”), holding 3,044,699 shares (51%).  It is a heavy-duty equipment manufacturer and a stated-owned company whose shares are listed on the A and B shares in the Shanghai Stock Exchange;

(2)  RBF HK Ltd (“RBF”), holding 1,940,250 shares (32.5%).  It was formed by the former management team of Fairstar Heavy Transport NV, which was a provider of marine heavy transport services, responsible for the construction, finance and operation of 6 semi-submersible vessels including RED ZED I and II; and

(3)  Lihua Logistics Company Limited (“ZHLG”), holding 985,050 shares (16.5%).  Its parent company is Zhenhua Logistics Group, an integrated logistics provider in the Mainland. 

10.By a shareholders agreement dated 23 April 2014, the 3 shareholders agreed to invest in, operate and manage the Company as a joint venture for the purposes and on the terms set out therein  (“Shareholders Agreement”).  These include:

(1)  the Board shall have the responsibility of the overall direction, supervision and management of the Company and the “Business”[4] save for the matters specifically reserved to the shareholders (clause 6.1);

(2)  the Board shall consist of 7 directors, 4 of them to be appointed by ZPMC, one by ZHLG and 2 by RBF (clause 6.2);

(3)  the quorum of Board meeting shall be 4 directors with one director nominated by each shareholder.  If quorum is not present, the meeting shall be adjourned for 10 business days and at the reconvened board meeting, the quorum will be any 4 directors (clauses 6.13, 6.14);

(4)  save for the matters requiring Special Majority Approval of the Shareholders, the Board shall decide on all matters of the Company by simple majority vote of the directors present and voting (clause 6.15);

(5)  the Board shall be responsible for determining the overall responsibilities and duties of the Company’s executive management personnel (“Executive Management”), which shall be responsible for the day-to-day management and operation of the Company and shall comprise:

(a)  a Chief Executive Officer (“CEO”), who shall be nominated or removed by RBF and shall have the overall responsibility of the Group’s (as defined in §11 below) day-to-day business;

(b)  a deputy CEO, who shall be nominated or removed by ZMPC and shall assist the CEO in having overall responsibility of the Group’s day-to-day business; and

(c)  a Chief Financial Officer (“CFO”), who shall be nominated or removed by ZPMC and be responsible for the financial affairs of the Group (clause 6.17);

(6)  subject to compliance with clause 6.17, the management organisation structure of the Company and the authority of the Executive Management shall be determined by the Board (clause 6.18);

(7)  the Executive Management shall implement the matters of the Group according to the decisions of the Board (clause 6.19); and

(8)  in the event of a dispute, controversy or claim arises out of or in connection with the Agreement, including any dispute regarding its breach, termination or invalidity (“Dispute”), the parties will attempt to resolve the Dispute through friendly consultations in good faith failing which the Dispute shall be submitted to the HKIAC and finally settled by arbitration (clause 31.2).

11.Under the Shareholders Agreement, the “Group” is defined as “the group of companies comprising the Company and any Subsidiary of the Company, and subject to and with effect from Completion, shall include the Red Box Group, and member of the Group or Group Company shall be construed accordingly”.  Of particular relevance to the 928 OS is the definition of the “Red Box Group”, which is defined as the 7 companies described in Part 2 of Schedule 1 (collectively “Subsidiaries”), namely:

Name of company	Place of incorporation	Shareholder(s)	Director(s)
Red Box Group B.V.	Rotterdam, Netherlands	JTC Securities Ltd (50%), JTC Corporate Services Ltd (50%)[5]	Cristijn Johan Carel du Marchie Sarvaas (“Sarvaas”)
Red Box International B.V.	Rotterdam, Netherlands	Red Box Group B.V. (100%)	Red Box Group B.V.
Red Box Marine Services B.V.	Rotterdam, Netherlands	Red Box International B.V.  (100%)	Red Box International B.V.
Red Box Energy Services B.V.	Rotterdam, Netherlands	Red Box International B.V.  (100%)	Red Box International B.V.
Red Box 1 B.V.	Rotterdam, Netherlands	Red Box International B.V.  (100%)	Red Box International B.V.
Red Box Group B.V.  Singapore Branch	Singapore	Red Box Group B.V.  (100%)	Sarvaas
Red Box Energy Services US Delaware Inc.	Delaware, U.S.A.	--	Sarvaas

12.The Shareholders Agreement[6] listed 13 shareholders of RBF including Adkins and Muilwijk who hold 52.3% and 4.8% respectively in RBF.

13.On the “Completion Date”, RBF caused all the issued shares in Red Box Group B.V. to be transferred to the Company and, in exchange, the Company issued 970,092 to RBF[7].  As a result, all the Subsidiaries become wholly owned by the Company, directly or indirectly.

14.The incumbent directors of the Company and their dates of appointments are as follows:

Name	Date(s) of appointment	Appointed by
Chen	26/3/2014	ZPMC
Liu	23/4/2014	ZPMC
Sun	23/4/2014	ZPMC
Li	27/11/2016	ZPMC
Liu Ming Tian	23/4/2014	ZHLG
Adkins	14/5/2015-24/8/2015; re-appointed 3/1/2016	RBF
Muilwijk	2/5/2017	RBF

15.Li has since 27 July 2015 been appointed as the CFO of the Company[8] and is its Chief Operating Officer (“COO”).  Muilwijk is the Financial Controller of the Company.

16.The BOC Account was opened in about April 2014 and its authorised signatories were (and still are) Chen and Liu. 

17.At the Board meeting held on 14 August 2015, it was resolved, inter alia, that (“2015 Resolutions”):

(1)  the Company had entered into 4 time charter agreements for Polar Vessel 1 and 2 both dated 23 May 2014, and for RED ZED I and II both dated 28 November 2014, which were approved, ratified and confirmed (§5(a));

(2)  the Company would open a designated bank account for receiving the hire payments in respect of RED ZED I and II (§6(ii));

(3)  the Company would open one or more bank account(s) with banks of international repute acceptable to the directors, which should be operated by the authorised signatories as stated in the “Authorised Signatories and Approval Levels” in Appendix 3 (“Approval Levels”), and the CEO and CFO would supervise the operation and administration of the bank account(s) of the Company and provide a monthly report to the directors of the Company (§6(i), (iii)-(v);

(4)  the Approval Levels would apply to all invoices, expenses payments in respect of the Company and its subsidiaries, which must be approved by at least 2 persons amongst the Financial Controller, the COO and CFO; and

(5)  the duties and powers of the directors, the CEO, the CFO and the COO are set out in the “Responsibility and Authority Levels” in Appendix 4, which would apply to the Company and its subsidiaries (§7(i)).

18.By a Board resolution dated 14 February 2017 passed by Ps as majority of the directors, Adkins was dismissed as CEO.  The validity of the dismissal is disputed by Adkins and forms the subject matter of HCMP 426/2017. 

19.In or around 2019, Adkins and Muilwijk engaged Messrs Zhen Hui Certified Public Accountants (“Zhen Hui”) to prepare and audit the Reports and Consolidated Financial Statements of the Company for the 3 years ended 31 December 2016, 2017 and 2018 (“2016 FS”, “2017 FS” and “2018 FS” respectively, and collectively “FSs”).  The 2016 FS and 2017 FS are both dated 28 February 2019, while the 2018 FS is dated 29 July 2019.  The Reports of directors to the FSs were signed by Adkins alone.

20.According to Adkins, the FSs were prepared by Zhen Hui and their Dutch correspondent firm (“Dutch Firm”) in consultation with Muilwijk, and the underlying documents required for producing the FSs were provided by Muilwijk to Zhen Hui and the Dutch Firm directly[9].

21.Although Zhen Hui issued disclaimers of opinion in respect of all the FSs, the bases of the disclaimers were attributed to the lack of bank confirmations (1) from BOC in respect of bank balances of US$51,945, and (2) from ICBC Paris branch in respect of a US$30 million bank loan, which was subsequently repaid by ZPMC and ZHLG as to US$25,551,000 and US$4,449,000 respectively[10]. Subject to these limitations, Adkins and Muilwijk, who were the directors responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with the requirements of, inter alia, the CO[11], approved all the consolidated statements of financial position in respect of the Company and the Group.

22.According to the 2018 FS:  

(1)  the Company and its subsidiaries (i.e. the Group) provide overall transportation solutions for energy infrastructure projects of leading Energy and EPC companies with their modern fleet of heavy transport vessels (Note 1);

(2)  the consolidated revenue of the Group for 2018 was US$81,102,444, which comprised (a) time chartered revenue Polar Vessels of US$78,898,994, (b) custodian income of US$2,158,000, and (c) other income of US$45,450 (Notes 4, 6);

(3)  the “cost of income” was US$7,695,474, which comprised (a) RED ZED I and RED ZED II expenses (US$1,041,473), (b) Polar vessels expenses (US$6,653,949), and (c) expenses of HYL (US$52); the administrative and operating expenses was US$18,506,431 (Notes 5, 7);

(4)  the net book value of the vessels owned by the Company was US$280,793,453, which represented 75.76% of its assets (Notes 12, 23);

(5)  the Group holds Polar vessels under a 5 year finance lease, which was recorded as “CSSC loans” and the balance was US$201,640,136 (Note 18);

(6)  during 2017, the Group’s US$30 million bank loan with ICBC Paris Branch was repaid by ZPMC and ZHLG as to US$25,551,000 and US$4,449,000 respectively (Note 19); and

(7)  the first 5 companies listed in the table in §11 above are principal subsidiaries of the Company (Note 24).

23.As can be seen from the terms of the Shareholders Agreement, the 2015 Resolutions and the FSs (described in §§10, 11, 17 and 19-22 above), it was the agreement of all the Shareholders (and accepted by all directors of the Company) that the business and affairs of the Company and the Subsidiaries should be managed as a group without any distinction as to the precise legal entities involved in operating the actual business and, save for the “Reserved Matters” (as defined in the Shareholders Agreement), the Board had ultimate authority to control and direct the business and affairs of the Company and the Subsidiaries. 

24.Consistent with this, in §8 of his 2^nd affidavit filed in respect of 928 OS, Adkins described the Company in this way:

“The nature of the Company is a holding company with subsidiary operations in The Netherlands, including Red Box Energy Services BV (the ‘Subsidiary’).” (underline added)

B.   971 OS

25.It is Adkins’ case that there are concerns over the legitimacy of the funds deposited into and withdrawn from the BOC Account, and he requires to inspect the BOC Documents for the purpose of discharging his duties as director of the Company, in light of the following matters:

(1)  he and Muilwijk were told by Li that the BOC Account had since the end of 2017 been inactive and dormant;

(2)  he and Muilwijk had since April 2018 been requesting Li to provide statements and information relating to the BOC Account but to no avail;

(3)  in June 2019, ZPMC’s parent company in the arbitration against RBF and Adkins, produced some statements of the BOC Account for the period from December 2018 to April 2019 which revealed that there had been movements of funds within the BOC Account.  Upon enquiries, in February 2020, Adkins was informed by a representative of ZHLG that they had used the BOC Account to receive the hires for RED ZED I and II in 2019; and

(4)  the movements of funds in the BOC Account are contrary to Li’s representation and constitute a breach of the Approval Levels.

26.In his skeleton submissions filed in respect of the 971 OS, Mr Ho submits that as director of the Company Adkins has “a strong prima facie entitlement to inspect” the BOC Documents, and he seeks the BOC Documents “in order to understand the true financial position of the Company” which, he says, “must be a proper purpose for inspection of company documents in order for a director to properly discharge his duties”.  He submits that the burden is on Ps to demonstrate with “clear proof” to the Court “affirmatively” that one or more of the exceptions discussed in Re Tanyuen Investments Ltd, HCCW 375/2008, 28 October 2009, §20, per Kwan J (as she then was) apply. 

27.Apparently after having sight of Mr Ho’s written submissions on 971 OS, Ps decided not to contest the application save for costs and so informed the Court.  As stated in §§6 – 7 above, on the date of the hearing, Ps consented to the Court making an order in terms of the consent summons and agreed to pay costs in the sum of US$42,800 to Adkins. 

28.It is necessary to recap the contentions and arguments raised by Adkins in support of his application in 971 OS and the terms of the order consented to by the parties in some details as they are relevant to assessing the validity of the contentions and arguments raised by Adkins in opposition to 928 OS. 

C.   928 OS

C1.   Applicable principles

29.The principles governing an application made by a director for inspection of the company’s documents have been sufficiently stated by Kwan J (as she then was) in Ng Yee Wah v Lam Chun Wah [2012] 4 HKLRD 40, §29, as follows:

“(1) The right of a company director to inspect the company’s documents is well established at common law (Burn v London and South Wales Coal Company and Risca Investment Company (1890-91) 7 TLR 118 at 118-119; Edman v Ross (1922) 22 SR (NSW) 351, at 360-361; Conway v Petronius Clothing Company Ltd [1978] 1 WLR 72, at 89-90; Berlei Hestia (NZ) Limited v Fernyhough [1980] 2 NZLR 150 at 163-164; Molomby v Whitehead & Australian Broadcasting Corp (1985) 7 FCR 541, at 550-552; Wuu Khek Chiang George v ECRC Land Pte Limited [1999] 3 SLR 65, paras 25, 27, 31-34; Law Wai Duen v Boldwin Construction Limited [2001] 3 HKLRD 430, 435-437).

(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 (Law Wai Duen, supra at 432 and 436; Molomby, supra at 550; Wuu Khek Chiang George, supra at paragraph 27). 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 (Law Wai Duen, supra at 436).

(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 (Law Wai Duen, supra at 435).

(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’ (Edman v Ross, supra at 361; Berlei, supra at 163; Wuu Khek Chiang George, supra at paragraphs 32 and 33; Law Wai Duen, supra at 435).

(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 (Wuu Khek Chiang George, supra at paragraph 34).

(6) The scope of inspection can potentially be very wide, covering any ‘documents belonging to the company’ (Burn v London and South Wales Coal Company, supra at 118; Edman v Ross, supra at 360), ‘corporate material’ (Molomby, supra at 550), ‘corporate records and accounts’ or ‘corporate information’ (Berlei, supra at 163), ‘accounting and other records of the company’ (Wuu Khek Chiang George, supra at paragraph 25).

(7) It is perfectly proper for a director to engage an accountant to conduct the inspection in exercise of his right. A director may certainly exercise his right through his agent (Edman v Ross, supra at 361; Law Wai Duen, supra at 436). A director is also entitled to take copies of the documents during inspection (Burn v London and South Wales Coal Company, supra at 118; Edman v Ross, supra at 361).

(8) Whilst there may be some dispute in the authorities if the statutory provision (our statutory provision is 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 (Conway v Petronius, supra at 85 and 89; Berlei, supra at 163; Wuu Khek Chiang George, supra at paragraphs 25 and 31).”

30.Mr Zimmern submits that the starting point is that Ps are entitled to inspect the documents of the Company and they do not need to  explain why inspection is sought.  Ps’ case is particularly strong given that they form the majority of the Board and article 135 of the Company’s articles of association mandates that the accounting records shall be subject to the directions of the Board:

“The accounting records shall be kept at the Office or, subject to the [CO], at such other place or places as the Directors think fit. The Company’s accounting records must be open to inspection by the Directors at all times in accordance with the [CO] and without charge” (underline added)

31.Reliance is placed on Tsai Shao Chung v Asia Television Ltd [2012] 4 HKLRD 52 where the Court of Appeal considered a similar article, and observed (at §31) that it “serves an additional purpose of expressly providing that the right may be enjoyed by the board at any time (always) and therefore confirms that no other procedural requirement is imposed on the board’s access to the company’s documents”.

C2.   Grounds in opposition

32.Mr Ho does not dispute the above points.  He raises 3 main grounds in opposition to Ps’ application:

(1)  Ps, as majority directors, are in control of the Company and it is wrong for them to bring the application against the Company which they control.  If Ps allege that Adkins and Muilwijk have taken away documents belonging to the Company, they should authorise and procure the Company to pass resolutions to direct them to return the documents or commence proceedings in the Company’s name to recover the same (Control Issue).

(2)  The Company does not carry on any business in its own right.  The documents kept in Rotterdam are documents of the Subsidiaries.  It is impermissible for Ps to use a document inspection application against the Company as a means to inspect the documents of the Subsidiaries which are not in the Company’s possession (Re Tanyuen Investments Limited, HCCW 375/2008, 28 October 2009, §28, per Kwan JA (as she then was) (Subsidiaries Issue).

(3)  There is a complete lack of particularisation of the documents sought in the 928 OS.  The Court will not make an order that is so wide and imprecise that it cannot reasonably be complied with (Chieng Tsai Wan Judy v Kwok Kam Fung, [2018] HKCFI 603, §17, per DJCH Blair) (Lack of Specificity Issue).

33.For the reasons explained below, I do not think any of the above Issue constitutes a valid ground in opposition to Ps’ application. 

C3.   Control Issue

34.Mr Zimmern submits that since 2016, the Company and the Subsidiaries have been “hijacked” by Adkins and the Red Box Team (of which Muilwijk has been a member) and have been under their control, evidenced by the following facts and matters:

(1)  In 2016, Adkins consented to a similar application made by Ps for inspection of the Company’s accounting records, which made specific reference to “those in control of the [Company]”.  Adkins consented to the application and agreed to pay the costs the day before the callover hearing which resulted in a consent order made by Anthony Chan J dated 28 September 2016 the terms of which are identical to those in the 928 OS (“Consent Order”).

(2)  Adkins and Muilwijk clearly had access to and possession of the accounting records of the Company and the Subsidiaries Records, as they were able to prepare the FSs (including the consolidated accounts of the Group), engage Zhen Hui to audit the FSs and approve the same qua directors of the Company.  This is reinforced by Zhen Hui’s confirmation, in the auditors’ reports, that the Dutch Firm and it had access to the accounting records of the Group for the purpose of carrying out the audit.

(3)  Adkins had signed “minutes” of the Company for the purpose of opening bank accounts at Deutsche Bank which showed that he had been appointed as an authorised signatory and representative of such accounts.

35.In my view, Adkins and Muilwijk clearly have had control over the accounting records of the Company and of the Subsidiaries (other than the BOC Documents) and are able to procure such records to be produced for Ps’ inspection, in light of the following matters:

(1)  Mr Ho’s argument on the Control Issue ignores the fact that despite being the majority of the Board, Ps had not been able to have access to the accounting records of the Company (including those of the Subsidiaries) and had to rely on the Consent Order to obtain such records.  Mr Ho’s suggestion that Ps could have procured the Company to commence proceedings against Adkins and Muilwijk to obtain access to the records is surprising, given that the 928 OS was issued precisely for that purpose.   

(2)  In Chen’s affirmation filed in support of the application which resulted in the Consent Order (HCMP 1886/2016), he described the reason for the application in this way[12]:

“Although ZPMC is the majority Shareholder in the [Company] and has four (4) out of seven (7) Directors on the Board, [Adkins] has effectively taken control of the [Company], including control of its accounting and financial affairs, and has deliberately refused to allow the ZPMC appointed directors access to any of the [Company’s] financial information and/or reports”.

(3)  Adkins did not deny the fact that he had been in control of the Company and its accounting records.  Instead, he on behalf of the Company and himself consented to the application.  As Mr Zimmern submits, in agreeing to the Consent Order without any qualification, Adkins must have accepted that he was in control of the Company’s accounting records. 

(4)  It is not in dispute that pursuant to the Consent Order, Ps had been provided with the accounting records of the Company up to the date of the Consent Order.

(5)  In each of the FSs, Zhen Hui clearly stated that the financial statements had been prepared by the directors, which must be a reference to Adkins and Muilwijk as they alone engaged Zhen Hui and signed the consolidated statements of financial position. 

(6)  As stated in §20 above, Zhen Hui stated that underlying documents required for producing the FSs had been provided by Muilwijk to Zhen Hui and the Dutch Firm.  This however does not support Adkins’ assertion that he does not have possession, custody or power of the underlying documents required for preparing the FSs, given that (a) he alone signed the Reports of Directors to all the FSs qua Chairman of the Company; (b) he had since April 2014 received substantial management fees and reimbursement of expenses through his company (Fathomless Advisory Services Limited) in return for providing services to the Company and the Subsidiaries. For the years 2017 and 2018, the Company paid US$1,197,033 and US$1,141,881 respectively for his services[13]; and (c) he is admittedly the single largest shareholder of RBF. It is unreal to suggest that Muilwijk, who only holds slightly over 4% shares in RBF, did not or would not provide access of the accounting records to Adkins if requested by him to do so. 

(7)  In an email dated 7 August 2019 (copied to Adkins) Muilwijk stated that the Company has 3 “large” Shareholders and the “controlling shareholder” is RBF (32.5%).

36.As regards the bank accounts at Deutsche Bank, Mr Ho complains that the point was only raised by Ps in Li’s 2^nd (made in December 2020) and, as such, Adkins did not have the opportunity to address it.  Nevertheless, Mr Ho asserts that Adkins does not have possession, custody or power of the documents pertaining to any bank accounts opened in the name of the Company at Deutsche Bank and the “minutes” relied on by Ps relate to a bank account opened in the name of Red Box Energy Services BV (a subsidiary), and that account has since 20 May 2020 been taken over by an affiliated company of 2 creditors of the Company by way of enforcement of the security created over such account.   

37.I am unable to accept Mr Ho’s assertions, which have not been  stated in any affidavit made by Adkins (he had ample time to file an affirmation to refute the points raised in Ps’ reply affirmation filed in December 2020).  More importantly, the evidence shows that the former and incumbent RBF-appointed directors had procured 3 sets of “minutes” of Board meetings of the Company which showed that the Board had resolved to appoint “Deutsche Bank AG, its branches and affiliates” (“DB”) as “its bankers, enters into the “Transaction Banking Service Agreement, accepts services or facilities from [DB] and enters into transactions with [DB]”, and to appoint the authorised representatives of the Company as follows:

Date of “minutes”	Place of “meeting”	Authorised Representatives
22/9/2015[14]	Rotterdam	Adkins (CEO),  Li (CFO)
13/12/2015[15]	Hong Kong	Adkins (CEO), Muilwijk (CCO), Mr Hendrikus J.B.  Verhoeven (COO) (“Verhoeven”)
5/4/2016[16]	New York	Adkins (CEO), Muilwijk (CCO), Verhoeven (COO)

38.Further, in the 2018 FS, it was recorded that the consolidated revenue of the Group was US$81,102,444 (see §22(2) above).  This has not taken into account the income generated by RED ZED I and II which was said to have been paid into the BOC Account.  Given the nature and magnitude of the income, it is reasonable to infer that such income would have been paid into the bank accounts opened in the name of the Company and/or the Subsidiaries, and Adkins and Muilwijk, being the directors who approved the consolidated accounts of the Group, must know which bank accounts such income had been deposited into and their present whereabouts.  If such bank accounts are opened at DB (including any of its branches and affiliates, as stated in the “minutes”), Adkins being an authorised representative must have (at least) the power over the documents relating to the accounts. 

C4.   Subsidiaries Issue

39.Mr Zimmern acknowledges that Ps intend to seek the accounting records of the Company and of the Subsidiaries (“Subsidiaries Records”).  Although the Subsidiaries Records appear to have been kept in The Netherlands, they formed part of the accounting records of the Company.  In any event, the Company, Adkins and Muilwijk clearly have access to the Subsidiaries Records given that:

(1)  the directors of the Subsidiaries are their respective shareholders which, in turn, are under the control of the Company;

(2)  in 2016, the Company’s solicitors had to courier the accounting records of the Company from Rotterdam to Hong Kong. Ps have no knowledge as to where they are kept;

(3)  Adkins and Muilwijk were able to prepare consolidated financial statements of the Group for the years 2016, 2017 and 2018; and

(4)  in Adkins’ affidavit, he displays detailed knowledge of the affairs of the Subsidiaries. 

40.Mr Ho emphasises that the Company is a holding company with subsidiaries’ operations in The Netherlands.  He submits that Ps’ contention that the Company’s accounting records are kept in Rotterdam is “demonstrably false” given that:

(1)  Zhen Hui simply had to work with the Dutch Firm to ascertain the financial position and information of the subsidiaries which operate in The Netherlands in order to prepare consolidated accounts;

(2)  The fact that in 2016, the Company’s solicitors had to courier the accounting records of the Company from Rotterdam to Hong Kong does not mean that the Company had accounting records kept outside of Hong Kong as at the present date;

(3)  The documents pertaining to the DB accounts demonstrate that any business operations are conducted by Red Box Energy Services B.V., not the Company; and

(4)  The Annual Return dated 26 March 2020 filed by the Company at the Companies Registry (“2020 AR”) stated that all of the Company’s records are located in the registered office in Hong Kong. 

41.I do not accept Mr Ho’s arguments. 

42.First, it is clear from the following facts and matters that the Shareholders and directors (including Adkins and Muilwijk) have all along treated the Subsidiaries’ business and affairs as the business and affairs  of the Company in that:

(1)  the terms of the Shareholders Agreement in particular clauses 6.17, 6.19 make clear that the business and operation of the Company are the business and operation of the Group (see §§10-11 above);

(2)  the 2015 Resolutions show that (a) the charter business agreements entered into by the Subsidiaries were treated as business of the Company; and (b) the bank account for receiving hire payments derived from such charter agreements were regarded as affair of the Company, and both matters were required to be approved and ratified by the Board of the Company (see §17(1)-(2) above);

(3)  the 2015 Resolutions show that (a) the Approval Levels apply to all invoices, expenses and payments in respect of the Company and the Subsidiaries; and (b) the duties and powers of the directors, the CEO, the CFO and the COO apply to the Company and the Subsidiaries (see §17(3)-(5) above);

(4)  the 2018 FS of the Company was prepared on the basis that the business and revenue of the Company included those of the Subsidiaries and the business and affairs of the Company and the Subsidiaries had been managed as a Group (see §22 above); and

(5)  Adkins himself acknowledges that the Company is a holding company with subsidiary operations in The Netherlands (see §24 above).

43.Second, it is common ground that the business of the Subsidiaries has always been carried on by the Red Box Team, who is employed by Red Box Energy Services B.V. (a Subsidiary) and is based in Rotterdam[17]. It is unreal to suggest that the accounting records of the Company which, in the words of Adkins, has “subsidiary operations in The Netherlands”, do not include the Subsidiaries Records.   

44.Third, as stated in §37 above, the “minutes” signed by the RBF-appointed directors (including Adkins) make it clear that before any bank accounts were opened at DB, it was necessary for resolutions to have been passed by the Board of the Company.  I am unable to see how Mr Ho can ignore this fact and contends that the documents pertaining to the DB accounts are or can only be regarded as documents of Red Box Energy Services B.V.   

45.Fourth, contrary to Mr Ho’s argument, in the 2020 AR (signed by Adkins) it was stated that the Company did not keep any records at the registered office in Hong Kong. This is consistent with the fact that in compliance with the Consent Order, the accounting records of the Company had to be couriered from Rotterdam to Hong Kong.  It also supports Ps’ case that the accounting records of the Company (including those of the Subsidiaries) have been kept by Adkins and Muilwijk (and the Red Box Team) in Rotterdam.    

46.For the above reasons, I hold that the Subsidiaries Records have always formed part of the accounting records of the Company.   

C5.   Lack of Specificity Issue

47.Mr Ho contends that the Ps’ application devoids of particularisation and cannot be complied with. The contention is artificial, to say the least. 

48.As stated in §§34 - 35 above, Adkins agreed to allow Ps to inspect all the accounting records of the Company on the same terms as the order sought in the 928 OS, and complied with the Consent Order without the alleged or any difficulty.   

49.In any event, as the directors in charge of the day-to-day management and operations of the Company and the Subsidiaries, Adkins and Muilwijk clearly have power, if not possession and custody, of all the accounting records the Company (including the Subsidiaries Records).  They do not need to be told by Ps what accounting records have been kept by the Company.

D.   CONCLUSION

50.For the above reasons, I am prepared to make an order to allow Ps to inspect and take copies of all the accounting records of the Company including the Subsidiaries Records from 28 September 2016 (i.e. date of the Consent Order) to the date of this Judgment, save that such records do not include the BOC Documents.  As some of the problems discussed in §6 above also apply to the order sought in the 928 OS, I direct Ps to submit a draft order, taking into account the comments from Adkins,  if any, within 7 days of this Judgment. The time limits for providing documents to Ps shall be the same as the order made in respect of the 971 OS save that the time shall run from the date the order is approved.

51.As for costs, I make a costs order nisi that Adkins shall bear the costs of and occasioned by the 928 OS on a common fund basis, to be assessed by way of gross sum assessment.  For the reasons explained in this Judgment, I do not think Adkins has any valid ground to oppose the application and his opposition to the 928 is unreasonable. This is particularly so after Ps have agreed to the application sought by Adkins in the 971 OS.   

52.For the purpose of gross sum assessment, Ps shall lodge and serve a statement of costs within 3 days of this Decision, and Adkins shall provide his comments on the statement, if any, within 3 days thereafter.

Mr Richard Zimmern, instructed by Lau, Horton & Wise LLP, for the 1^st to 4^th plaintiffs in HCMP 928/2020

Mr Justin Ho, instructed by Jones Day, for the 2^nd defendant in HCMP 928/2020 and plaintiff in HCMP 971/2020

Mr Steven Wise, of Lau, Horton & Wise LLP, for the 2^nd - 5^th defendants in HCMP 971/2020

The 1^st defendant in both cases is not represented and absent

The 3^rd defendant in HCMP 928/2020 is not represented and absent

SCHEDULE

1. Within 35 days of the date of this Order, the 1^st Respondent do provide and the 2^nd to 5^th Respondents do procure that the 1^st Respondent provide copies of the 1^st Respondent’s accounting records for its bank account with Bank of China Hong Kong, with the account number 012-875-92-69152-0 (the “BOC HK Account”) (the “BOC HK Account Records”), such records comprising of:-

a.  monthly bank statements for the BOC HK Account from the date it was opened up until the date of the Order (or the last available monthly statement);

b. all transaction documents reflected on the monthly bank statements (including the recipient/remitter details and the subject matter to which the transactions relate), together with supporting records (including invoices and receipts) for those transactions;

c.  any board resolutions or shareholder resolutions in relation to the transactions reflected in the monthly bank statements for the BOC HK Account;

d. any contracts signed under the 1^st Respondent’s seal or under a power of attorney related to the transactions reflected on the monthly bank statements for the BOC HK Account;

e.  any power of attorney issued with respect to the BOC HK Account, the transactions reflected on the monthly bank statements, or the contracts related to those transactions;

f.  the 1^st Respondent’s tax filings with the Hong Kong tax authorities with respect to the transactions reflected on the monthly bank statements for the BOC HK Account; and

g. a list of the names and date of appointment of all authorized signatories of the BOC HK Account from its creation to date,

for inspection by the Applicant or his authorised representatives without charge in accordance with section 375 of the Companies Ordinance (Cap. 622);

2. Upon the Applicant giving 7 days’ written notice to inspect, the 1^st Respondent do permit and the 2^nd to 5^th Respondents do procure that the 1^st Respondent permit the Applicant and/or his authorized representative to inspect the BOC HK Account Records without charge in accordance with section 374 of the Companies Ordinance (Cap. 622); and

3. The 2^nd to 5^th Respondents do pay the Applicant the costs of and occasioned by the Originating Summons dated 7 July 2020, in the agreed sum of USD42,800 (or its HKD equivalent), forthwith.