Delco Participation B.V. v. Chiho Environmental Group Ltd (Formerly Known As Chiho Tiande Group Ltd) and Another
Read the full judgment text of HCA 3040/2015 on BabelCite. This High Court CFI judgment was delivered on 10 May 2021.
1. This action is one of three actions being heard together, listed for trial due to commence on 12 July 2021 (with 15 days reserved). The general background to those actions can be found described in my previous Judgment [2019] HKCFI 3136 at §§7-17. I shall continue to adopt the definitions and abbreviations used in that Judgment.
Cited by 1 case · Cites 3 cases
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HCA 3040/2015 [2021] HKCFI 1272 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 3040 OF 2015 ________________________ BETWEEN
(By Original Action) ________________________ AND BETWEEN
(By Counterclaim) ________________________ Before: Hon Coleman J in Chambers (Open to Public) Dates of Hearing: 6 and 7 May 2021 Date of Decision: 10 May 2021 ________________________ D E C I S I O N ________________________ A. Introduction 1.This action is one of three actions being heard together, listed for trial due to commence on 12 July 2021 (with 15 days reserved). The general background to those actions can be found described in my previous Judgment [2019] HKCFI 3136 at §§7-17. I shall continue to adopt the definitions and abbreviations used in that Judgment. 2.On 6 and 7 May 2021, I dealt with the hearing of four summonses in this action, being:
3.At the hearings themselves, I granted the necessary short extension of time on the Time Summons, and I also granted the Leave Application. That leaves for resolution the Interim Payment Application and the Specific Discovery Application. 4.The slightly varying representation of the parties at the two hearings is identified at the end of this Decision. B. Interim Payment Application B.1 The Indemnity 5.CT applies for interim payment pursuant to a letter of indemnity executed as a deed by Fang and HWH (“LOI”). The LOI bears no date but was apparently signed on 17 December 2015. 6.As the LOI identifies in its preamble and recitals, the relevant indemnity was given in the context that:
7.By the terms of the LOI, Fang and HWH undertook to CT (for itself and on trust for each of its subsidiaries) (each an “Indemnified Person”) to indemnify and hold harmless on demand (on an after-tax basis) against:
8.By the LOI, Fang and HWH also undertook to indemnify and hold harmless the Indemnified Persons against losses and expenses incurred or suffered by them as a result of any third party claims against them (“Third Party Claims”), subject to the provisos and conditions stated in the LOI. 9.By Amended Notices, claiming indemnity and/or contribution against each of Fang and HWH, CT claims an indemnity and/or contribution in respect of matters including (a) any sum which Delco may recover against CT in this action A3040, and (b) CT’s expenses, including legal expenses, in connection with the defence of this action A3040. 10.The Amended Defences to those Amended Notices do not raise substantial disputes over the basis of CT’s claim. Instead, Fang and HWH admit (a) giving the indemnity, (b) that Delco has commenced this action A3040 against CT in relation to the Uncapitalised Portion Claim, and (c) that CT gave notice of A3040 in accordance with the LOI. But, in addition to various non-admissions, Fang and HWH plead certain defences, being (a) that no claim for an indemnity arises under the LOI until losses are suffered, made or incurred as a result of the Uncapitalised Portion Claim, and (b) CT is under a continuing obligation not to agree or compromise the Uncapitalised Portion Claim without the consent of Fang and HWH, and shall comply with the request to take such action as Fang and HWH may reasonably request by notice to cause the Uncapitalised Portion Claim to be withdrawn, or to dispute, resist, appeal against, compromise or defend that claim and any determination of it. 11.It is relevant to note that there has previously been an interim payment of CT’s legal expenses under the LOI. It was made, apparently without argument, in October 2016. B.2 Applicable Principles 12.The application is made under RHC Order 29 rules 11 and 12, under which the Court has the power to make an order for interim payment where it is satisfied that, if the action proceeded to trial, the plaintiff would obtain judgment (and the defendant would be held liable) either for substantial damages or for a substantial sum of money. 13.The correct approach to such applications is well-settled, and I do not think it requires reference to authority. 14.The burden is on the plaintiff to show on the material before the judge at the time of the application that on the balance of probabilities it would (and not merely that it would likely) succeed at trial, and so would obtain a substantial amount of damages or a substantial sum. The relevant standard of proof required is high. The Court must be satisfied that the defendant has no arguable defence or that there are sufficient doubts regarding the genuineness of the defence, so that the Court would not grant the defendant unconditional leave to defend in a summary judgment application. In essence, the test is the same as that for the grant of conditional leave to defend, namely whether the defence can be said to be shadowy. 15.The approach identifies that it is not appropriate to order interim payment where the plaintiff’s entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. Further, once the threshold requirements are satisfied, what the court has to do, if it thinks fit, is to make an interim payment of such amount as it thinks just not exceeding a reasonable proportion of the damages or the sum which in the opinion of the Court is likely to be recovered by the plaintiff after taking into account, for example, any set-off or counterclaim. Generally, it will be appropriate and just to make an order where there will be some delay until the final disposal of the case. B.3 Submissions and Analysis 16.Mr Man SC, for CT, submits that it is clear from the wording of the LOI, and in particular the wide scope of the indemnified losses, that CT will be entitled to recover the legal expenses that CT will have incurred in relation to A3040, irrespective of its result. Further, though CT may have a continuing obligation to comply with the relevant conditions under the LOI, there is no evidence to suggest that CT will not comply with them or that it would have any difficulties in complying with them. 17.Mr Nip, for Fang and HWH, submits that the claim to recover legal expenses that CT will have incurred in or in relation to A3040 ignores the fact that the Uncapitalised Portion Claim is only one specific claim within the rest of A3040, and that it is a claim to which CT has a complete defence. This action A3040 includes Delco’s claim against Fang and the issues arising from the defence of set-off pleaded by Fang and the Scheme pleaded by Delco, and further the issues of illegality under PRC law and CT’s counterclaims against Delco and Fang/HWH are now also raised. 18.Necessarily therefore, submits Mr Nip, some of the legal expenses now claimed by way of the indemnity cover matters which fall outside the Delco Proceedings indemnity obligation. In the original CT evidence there was no breakdown of the various legal expenses provided, so as to identify which legal expenses claimed or incurred suffered were as the result of the Uncapitalised Portion Claim, or some other claims. Even the late evidence, for which the extension of time was granted, merely asserts only on “a rough basis” that costs incurred or to be incurred in relation to the other claims are relatively minor amounts in the overall totals. But there are still no documents in the evidence properly showing the legal expenses, as might provide proper materials on which CT might be able to satisfy the Court that it would obtain a substantial amount of damages or a substantial sum at trial occurred specifically in relation to the Uncapitalised Portion Claim. 19.However, it seems to me that where the indemnity itself as given under the LOI is not in dispute, and where this action A3040 undoubtedly includes the Uncapitalised Portion Claim in relation to which (in part) the indemnity was given, the Court can be satisfied that if the claim were to go to a trial then CT would succeed and would obtain a substantial amount of damages or substantial sum. The monetary scope of the indemnity is really a matter for consideration in the context of the quantum of any interim payment and/or the exercise of the discretion. 20.I do not think there is any force in Mr Nip’s submission that it is somehow premature to determine whether CT has complied or will comply with the relevant conditions, being a continuing obligation. To suggest that, whilst there is no evidence that CT has not complied or that it will not comply, nevertheless it falls to CT to show that it actually has complied and will comply smacks of ‘Micawberism’. In any event, such conditions or provisos as attach to any part of the indemnity under the LOI really relate to the indemnity against Third Party Claims, and that can be taken into account in the context of quantum. 21.As to quantum, Mr Man identifies from the evidence that the sum sought totalling HK$22,184,096 is comprised of (a) legal expenses already incurred and demanded in a sum equivalent to HK$12,681,996, and (b) legal expenses to be incurred up to and including trial in the amount of $9,502,100. 22.However, Mr Nip submits that CT has failed to demonstrate that the legal expenses incurred or to be incurred are “reasonable”. As he puts it, a distinct feature of the present case is that CT’s position on liability has long been, and still is, fully protected. This is because CT’s defence has always been that its liability to pay the Uncapitalised Portion Claim was taken up by Fang personally, whereupon CT’s liability to Delco was extinguished, and that position has been unequivocally admitted by Fang in his own pleading (albeit that he relies on the defence of set-off against Delco to reduce or extinguish its claim against him). So, says Mr Nip, CT’s position can be described as having ‘no skin in the game’ in so far as the Uncapitalised Portion Claim is concerned. That means the substantial legal expenses claimed (both historical and predicted) must be unreasonable given that the burden of the defence rests on Fang, who is vigorously defending the Uncapitalised Portion Claim. 23.Though there is some force in this submission, it seems to me to elide two separate questions. The first question is as to the extent of the indemnity, and the second question is as to whether particular expenses fall within the extent of the indemnity. 24.As to the first question, I agree with Mr Man that the clear wording of the LOI identifies that the use of the word “reasonable” is plainly not intended to depart from the nature of the undertaking as an indemnity. Rather, the inclusion of only “reasonable” expenses is simply to identify the exclusion of only “unreasonable” expenses, as is consistent with taxation of costs on the indemnity basis. There, the recipient of indemnity costs is prima facie entitled to be paid all his costs of and incidental to the relevant proceedings, subject only to the qualification that any particular amount which is unreasonable must be excluded. 25.But, that Mr Man points to there having been a discount on the overall fees already incurred as showing that they must be all reasonable does not seem to me to deal with the second question. Nor does any comparison sought to be made between CT’s claimed costs and the costs incurred by Fang and HWH (which seems to me to be comparing ‘apples and oranges’). A better submission is to point to some previous recognition that there is some complexity to these proceedings, and that they have been ongoing for some years, and that there are significant sums at stake. It is also right to recognise that CT remains the primary target of Delco’s relevant claim, albeit that there is the claim against Fang in the alternative. 26.Mr Man’s further submission is that Fang’s argument is based on an unduly narrow reading of the scope of the indemnified losses. As he points out, the indemnity is expressed to cover (amongst other things) all legal costs and expenses incurred “arising out of, in relation to or in connection with the investigation, dispute, defence or settlement of or response to [the Uncapitalised Portion Claim]”. Whilst I agree with Mr Man that the description is wide, and that inclusion of the words “dispute” and “response to” identifies that the indemnified losses are not confined to expenses raised in “defence”, nevertheless all relevant legal costs and expenses indemnified must ultimately be traced back to some form of dealing with the Uncapitalised Portion Claim. 27.It suffices to say for present purposes that I do think that it is properly arguable that CT’s costs in pursuing the counterclaim and/or any other aspects of the action A3040 might fall outside the scope of the particular indemnity in the LOI. 28.But I agree with Mr Man that any argument that the claim to an interim payment on the indemnity does not extend to any future or estimated legal expenses is a bad argument, misunderstanding the nature of an interim payment application (which proceeds on the basis of considering what damages or sum of money would be awarded if the action proceeded to trial). 29.As to Mr Nip’s submission that the amount of legal expenses sought is on its face beyond any measure of reasonableness, justifying a detailed scrutiny of CT’s invoices and narratives of the costs incurred, more appropriately to be conducted by a taxing master than in the context of the present application, that seems to me to identify merely that the Court should be careful (perhaps even conservative) in its approach to identification of the correct sum as might be ordered by way of an interim payment. In other words, notwithstanding that Order 29 rule 17 gives the Court express power to order adjustments and/or repayments upon final judgment, the Court still needs to be satisfied as to the threshold requirements before making any order. 30.I take the point that the evidence before the Court on this application does not include narratives of expenses in the bills for costs already incurred, but Fang has had sight of those narratives through correspondence and has made no particular comment on them in the evidence. I also take the point that the future expenses appear simply to divide equally the anticipated expense across the two actions in which CT is involved, which may not be an appropriate division. B.4 Result 31.At the end of the day, this seems to be a case in which the discretion to order an interim payment should be exercised. I bear in mind the purpose of such an order, being to ensure a claimant is not kept out of money to which he is entitled. I also note that despite a previous (relatively small) interim payment made, CT has been kept out of pocket of legal expenses in relation to A3040 for a number of years, and will necessarily incur future expenses at the coming trial. I also accept the fact that that the trial, with all its attendant expenses, is just a few months away is a reason for exercising the discretion in favour of (rather than against) ordering an interim payment. 32.However, as indicated by reference to my analysis of the arguments on quantum, I do not think the sum claimed is an appropriate or proportionate sum to order by way of interim payment. Instead, on the materials presently available, and in the exercise of my discretion, it seems to me that the appropriate order should be for an interim payment of HK$9,200,000. It should be paid on or before 22 May 2021. B.5 Costs 33.It seems to me that costs should follow the event, and that the costs are amenable to summary assessment, if not previously agreed. Therefore, I order that the costs of the Interim Payment Application should be borne by Fang and HWH, jointly and severally. However, as I have not heard argument on costs I shall make the costs order first on a nisi basis. It will become absolute at 5pm on 15 May 2021, unless a variation application is made within that time. Any variation application will be dealt with on the papers. 34.Assuming the order becomes absolute, the costs will be summarily assessed me, in accordance with the following timetable: (1) CT will by 5pm on 20 May 2021 provide its Statement of Costs for Summary Assessment; (2) Fang/HWH will by 5pm on 27 May 2021 provide its Statement of Objections; (3) the parties will then have until 5pm on 2 June 2021 to seek to agree costs, and to notify me by 5pm on 3 June 2021; (4) if no agreement is reached between the parties, I shall proceed to the summary assessment without further submissions. C. Specific Discovery Application C.1 The Documents Sought 35.The documents sought by Fang/HWH from CT are identified in the Appendix to the Specific Discovery Application as follows:
36.In his skeleton argument for the Specific Discovery Application, Mr Nip has helpfully defined those three paragraphs as the “Class 1 Documents”, “Class 2 Documents” and “Class 3 Documents” respectively, but they can probably be considered together. C.2 Applicable Principles 37.The principles governing applications for specific discovery – and applications for discovery from third parties – are well-established, and again need no particular reference to authority. I recently set them out in my 16 April 2021 Decision [2021] HKCFI 869 at §§3-10 and 30. Slightly revised to fit the current circumstances, they can be repeated as follows. 38.There is no jurisdiction to make an order unless (1) there is sufficient evidence that the documents exist which the other party has not disclosed; (2) the documents relate to the matters in issue in the action; and (3) there is sufficient evidence that the documents are in the possession, custody or power of the other party. 39.The relevance of documents is to be determined by reference to the pleadings, looked at broadly. With respect to the requirement of ‘possession, custody or power’, ‘power’ means a presently enforceable legal right to obtain the document from the holder without the need to obtain the consent of anyone else. 40.When the three prerequisites for jurisdiction are established, the court has a discretion whether or not to order disclosure. But any order must identify with precision the document or documents or categories of documents which are required to be disclosed. If the party seeking discovery establishes a prima facie case, it falls to the party objecting to the order for discovery to satisfy the court that the discovery is not necessary either for disposing fairly of the cause or matter or for saving costs. 41.On the other hand, discovery should be sensibly controlled and should not be allowed to be used as an oppressive weapon. Therefore, in deciding whether any document relates to a matter in question in the action, whether any document is or has been in the possession, custody or power of a party, and whether discovery of documents sought is necessary either for disposing fairly of the cause or matter or for saving costs, the court necessarily bears in mind the objectives of cost effectiveness, proportionality, procedural economy and ensuring fairness between the parties. 42.‘Fishing’ – being the search for material in the hope of being able to raise allegations of fact, as opposed to the solicitation of evidence to support allegations of fact which have already been bona fide raised with adequate particulars – is not allowed. 43.The principles applicable to an application under section 42 of the High Court Ordinance Cap 4 and RHC Order 24 rule 7A(2) are also well-established. Essentially the principles are similar to those relating to an application for specific discovery. The applicant has to satisfy the Court that there is sufficient evidence that the documents exist, that they are relevant (in the Peruvian Guano sense) and that they are in the possession, custody or power of the third party. No order for discovery shall be made unless the court is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs. Therefore, the relevant principles to be applied are little different to an application for specific discovery against a party. 44.The question of necessity in the context of third party discovery may require consideration of one or more of the following points: (1) how important information is to the issues; (2) whether the applicant has taken appropriate steps to obtain the information within the proceedings, before seeking discovery from the third party; (3) whether it would be sufficient to draw adverse inferences, on the basis that the party from whom the information was sought within the proceedings has failed to supply the information; (4) the nature of the relationship between the parties to the proceedings and the third party; (5) whether, if disclosure is necessary and proportionate, editing of documents would protect private information; and (6) whether the existence of other routes or methods to obtained information sought militates against granting discovery. 45.Further, the result of a successful application for specific discovery or third party discovery is that the respondent to the application will be required to make an affidavit or affirmation stating whether any document is described in the order are or have at any time been in his possession, custody or power, and if not then in his possession custody or power, when he parted with them and what has become of them. Similarly, an application for specific discovery may be answered by a respondent by affidavit stating that he does not have the documents, and this will be conclusive at the interlocutory stage. 46.However, the principle that a respondent can simply say that he does not have the documents, and that that is conclusive at the interlocutory stage, may apply to circumstances where the answer to the request is simply that no such documents were ever in his possession, custody or power and no further explanation may be required. But this may not be an absolute answer, and the principle should not be applied mechanistically. The person making the affidavit must ascertain the facts of his case before making his affirmation, and must identify what search or enquiry has been made, before making it. C.3 Relevant Evidence 47.In his 9th affirmation, filed in support of the Specific Discovery Application, Fang deposes to the relevance and necessity of the requested classes of documents. They are said to relate to the Scheme. 48.As deposed to by Fang, Delco says the Scheme operated by the creation of two sets of invoices. The first set was issued to CT Metals for making payments, and for Delco Europe to book in its financial records. The second set would be issued for a higher price, and forwarded to China. The difference between the first and second sets of invoices formed part of what Delco calls the Unreported Profits, allegedly reinvested in the joint venture companies by Fang on Delco group’s behalf. Although the Unreported Profits were recorded as loans due by Delco Asia to Fang, HKM Metal and Chern, Delco says they were not genuine and were not intended to be repaid. 49.Fang says that, to the best of his information knowledge and belief, CT Metals had prepared shipping summaries of all shipments it received between 2000 and 2010, including those from Delco Europe. The summaries contain information including shipment dates, descriptions of goods, quantities, units and total prices. He refers to the exhibit “FAK-27” to his 8th affirmation producing copies of summaries prepared for 2000 to 2008. Having considered them, he thinks there were no significant price differences for the Scheme to be carried out, and to have enabled underreporting of profits for reinvestment in the joint venture companies on behalf of Delco. Fang wishes to rely on the shipping summaries, but as the accuracy of them may be challenged, he wishes to obtain the underlying documents (or a sample of them) for verification purposes. He says that as the Scheme is one of the main issues to be determined at trial, directly affecting Fang’s and HWH’s defence of set-off, disclosure and production of the documents are necessary. 50.The affirmation opposing the Specific Discovery Application is the 2nd affirmation from Fan Chew Wah Amelia (“Fan”), financial controller of CT. In the affirmation, Fan states CT’s position to be as follows. The classes of documents requested appear to be CT Metals’ documents, not CT’s documents. Further, CT was only incorporated on 15 May 2008 in the Cayman Islands, and CT Metals only became an indirect subsidiary of CT on or about 27 August 2008. Without prejudice to that position, Fan confirms that CT has conducted a search within its own records for the documents sought and has not located any, and that even assuming that the documents sought exist in the possession or custody of CT Metals, CT does not have power over them (in the sense of having a presently enforceable legal right to obtain them). 51.In reply, in his 13th affirmation, Fang asserts various matters in support of his belief that either CT has power over the documents requested, or at the very least CT has previously had them in its possession, custody or power. First, CT Metals remains a wholly-owned subsidiary of CT, so that CT has the power to appoint and remove directors of CT Metals, and it is reasonable to assume that the directors of CT Metals would oblige a request from CT for the documents. That CT Metals has an independent or separate board does not mean CT has no power over the documents. Further, as the invoices of Delco Europe and/or Delco Asia were audited by CTF’s joint auditors in 2008, and reconciliation reports regarding the invoices were created, the documents must have been in the possession, custody or power of CT. CT could and should therefore be required to depose as to what has become of them. 52.In Fan’s 3rd affirmation, for which I granted leave under the Leave Application, Fan seeks to register “surprise” that Fang’s 13th affirmation should seek to challenge some of the matters deposed to in her 2nd affirmation. That was in sharp contrast to the indication in a letter from Fang’s solicitors that he was prepared to sign a Consent Summons to dispose of the Specific Discovery Application upon CT filing and serving a verifying affirmation. 53.Fan also addresses what she says are new matters raised by Fang. First, Fan clarifies that CT Metals is an indirect subsidiary of CT, and CT does not have power to appoint and remove CT Metals’ directors. CT Metals is a Sino-foreign equity joint venture incorporated in Mainland China, with its own board of directors, a supervisor and legal representative. Only one of the directors is also on the board of CT. CT Metals has control over its own books and records. Its financial statements are prepared and audited in Mainland China by its own PRC auditors and PRC accounting rules, without CT’s involvement. 54.As to the contentions made by Fang based on any auditing activity in 2008 or 2010, Fan points out that those events took place 13 and 11 years ago respectively. None of the current management of CT have any current dealings with the relevant auditors or sponsors, nor any knowledge and/or information relating to the work they did as regards potential listing plans at the time. There is no evidence that copies were made of any relevant documents, and it is now outside the retention period of auditors and sponsors. On that basis, the current management is also unable to say whether CT has previously had possession, custody or power of any of the documents sought, and no further affirmation should be compelled. C.4 Submissions and Analysis 55.Mr Nip, for Fang, submits that there can be no question that the requested documents existed. CT does not say they do not exist, albeit CT has made no enquiry with CT Metals to ascertain whether they do, and any ‘uncertainty’ as to whether the documents exist falls short of the requirement of honest disclosure. 56.Further, as the documents relate to the existence of the Scheme, Mr Nip says they are plainly relevant. Indeed, Mr Nip says they have become relevant as an issue even as between CT and Fang as a result of CT’s introduction of the “Scheme Claims” and “Tax Claims” in its pleading – though I agree with Mr Chan that CT’s pleas relate to the legal consequences of any finding that the Scheme existed, and CT has not itself made any plea in respect of the existence or non-existence of the Scheme. 57.As to sufficiency of evidence or a prima facie case that the documents are in the possession, custody or power of CT, Mr Nip submits that CT has failed adequately to explain why the documents are not in its power. Mr Nip says that the only reason given by CT, namely that CT Metals is an indirect subsidiary with its own board of directors is not an adequate explanation, because CT Metals is an indirect wholly-owned subsidiary of CT. In law, it is a question of fact whether the documents of a subsidiary are within the power of its parent company, and CT has not deposed to any request made to CT Metals’ board for provisional disclosure of the requested documents, let alone any refusal on any legal or other grounds. So, says Mr Nip, Fang is justifiably dissatisfied with Fan’s 2nd affirmation, which does not state the facts of ‘when the party parted with’ and ‘what has become of’ the documents sought. 58.Further, says Mr Nip, Fan’s 3rd affirmation still falls short of the requirement of honest disclosure: (1) it does not explain why CT cannot appoint or remove directors of CT Metals through its 100% shareholding and shareholder’s rights at each level of the corporate structure; (2) where there is a common director between CT and CT Metals, it is even more incumbent upon CT to make enquiries of that director; (3) the quoted provisions of PRC company law do not purport to restrict or exclude shareholders’ right to appoint or remove directors, or the supervisor and legal representative themselves; and (4) the assertion that PRC laws and regulations restrict the transfer of financial documents out of Mainland China is not substantiated. 59.Mr Nip emphasises the likelihood that, during the work done by auditors and sponsors in the listing plans in 2008 and 2010, transactions with a major supplier of the issuer would have been scrutinised and verified. In light of that likelihood and the fact of the reconciliation reports, the documents requested must have been in the possession, custody or power of CT. Insofar as it does not now have possession or custody of them, it is reasonable to assume they are in the possession or custody of CT Metals to whom they would have been returned after the 2010 Listing. If so, CT should verify on affidavit the facts of ‘when it parted with’ and ‘what has become of’ the documents. 60.Mr Chan, for CT, submits that the Specific Discovery Application has several fundamental flaws. First, even Fang accepts the documents sought belong to CT Metals, and not to CT – merely alleging that CT has had possession, custody or power of the documents. Secondly, CT is a non-party for the purposes of the present application, and Fang has other avenues to obtain the documents sought which he has not tried, nor explained why not. Thirdly, CT has gone on affirmation to say (a) it has searched for and does not have possession or custody of the documents sought, (b) its present management cannot say whether CT previously had the documents, so that it follows that CT cannot say when it might have parted with the documents or what might have become of them, and (c) the facts show why as a matter of law CT does not have power over the documents sought. 61.As to the first point (a), there is no reason not to accept that evidence as being conclusive at the interlocutory stage. As to the second point (b), it seems difficult to challenge the logic of the point. But, in any event, I see no practical benefit in requiring a further affidavit to say that if CT previously had the documents, it lost possession of them at a time and in circumstances which it cannot now identify. 62.As to the last point (c), Mr Chan submits that Fang’s argument, as to how CT might appoint or remove directors or the legal representative of CT Metals through exercising its shareholder’s rights at various levels of the corporate structure, is untenable. As a matter of principle, it is not sufficient for an applicant for discovery to show that there are a series of steps open to the respondents which might have the result of giving them a legal right to obtain documents belonging to the subsidiary. He points to the House of Lords decision in Lonhro Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627, at 634H-635H. I agree. Indeed, it seems to me such a suggestion is the opposite of identifying a presently enforceable legal right to obtain the documents. 63.Further, whilst I accept Mr Nip’s submission that whether CT has “power” over documents is a question of fact, and that the facts in the Lonrho case are very different from the facts in the present case, I think the core principles translate across different facts. First, CT Metals is only an indirect, albeit wholly-owned, subsidiary of CT (actually with two intermediate levels within the corporate structure). Secondly, it is CT Metals’ board that has control of that company’s documents on its behalf, not its shareholders and not its indirect shareholders. Thirdly, even if a request were made for the documents, it is the duty of the board of CT Metals to consider whether to accede to the request would be in the best interests of that company. In case it matters, I do not think the fact that there is one director in common between CT and CT Metals makes a difference, where the director will be required to act in the best interests of the particular company relevant to the pertinent decision. Fourthly, it is also settled that CT is not required under Order 24 to seek consent from its indirect subsidiaries, however likely it might be that the indirect subsidiary would comply voluntarily with the request if it were made. 64.Further, there is the additional point that the evidence demonstrates that CT’s auditors conduct any relevant audit activities, for the purposes of preparing consolidated financial statements of the group, in Mainland China without CT’s involvement, and without the documents leaving Mainland China. I see no reason why that evidence should not be accepted. 65.Again, it bears emphasis that there is a distinction between (a) CT having the power to replace directors of subsidiaries and (b) whether CT has the relevant “power” over the documents, in the sense of having a presently enforceable (and not somehow potentially future) right. 66.I would, therefore, refuse the request on the basis that CT does not have the documents in its power. 67.Though unnecessary for the actual determination, it also seems to me that there is force in Mr Chan’s submission that the information underlying the Shipping Summaries is unnecessary for the purposes of checking the accuracy of those summaries. As Mr Chan points out, on the basis of Delco’s expert report, it appears that the accuracy of the information in the Shipping Summaries is not at issue and is not disputed. Further, where Delco’s expert’s view is that the Shipping Summaries show the lower of the two invoiced amounts, there seems little reason to think that the documents sought would serve any useful purpose in either proving or disproving any element of the Scheme. At bottom, the question is not really about what is shown in any summary, but rather what were the differences between two invoiced amounts and how they were treated. C.5 Result 68.In the light of materials available, it seems to me that the Specific Discovery Application falls to be dismissed. C.6 Costs 69.Mr Nip submits that it would only be by virtue of Fan’s 3rd affirmation that the Court might be satisfied that the requested documents are not in CT’s possession, custody or power. On that basis, Mr Nip says that CT should at least be liable for Fang’s costs up to 3 May 2021, when CT issued the Leave Application. Further, the costs of the Leave Application should also be to Fang. 70.Mr Chan says the argument is misconceived, on the basis that there was no reason to think that Fang would seek to challenge CT’s confirmation on affirmation that the documents sought are not in its possession, custody or power (which confirmation had been sought in correspondence). Mr Chan says the need for CT to prepare and file Fan’s 3rd affirmation arose only after Fang had raised a number of new allegations in his 13th affirmation, which sought to challenge the requested confirmation provided by CT. 71.It seems to me that the determinative point in relation to the central issue of whether CT has “power” over documents belonging to CT Metals arises on the face of the corporate structure. On that basis, I do not think it was only Fan’s 3rd affirmation that allowed me to reach the conclusion I have reached. On that basis, as a matter of the application of legal principle to the facts of this case, I think the application was for practical purposes bound to fail. Therefore, I see no reason why costs should not follow the event of the application. However, again, as I have not heard argument on costs I shall make the costs order first on a nisi basis. It will become absolute at 5pm on 15 May 2021, unless a variation application is made within that time. Any variation application will be dealt with on the papers. 72.Assuming the order becomes absolute, the costs will be summarily assessed me, in accordance with the following timetable: (1) CT will by 5pm on 20 May 2021 provide its Statement of Costs for Summary Assessment; (2) Fang/HWH will by 5pm on 27 May 2021 provide its Statement of Objections; (3) the parties will then have until 5pm on 2 June 2021 to seek to agree costs, and to notify me by 5pm on 3 June 2021; (4) if no agreement is reached between the parties, I shall proceed to the summary assessment without further submissions.
Mr Norman Nip and Mr Roger Phang, instructed by Stephenson Harwood, for the 2nd defendant and third party (by Original Action) and 2nd and 3rd defendants (by Counterclaim) Mr Bernard Man SC and Mr Jason Lee, instructed by LC Lawyers LLP, for the 1st defendant (by Original Action) and the plaintiff (by Counterclaim) (on 6 May 2021) Mr Anthony Chan and Mr Jason Lee, instructed by LC Lawyers LLP, for the 1st defendant (by Original Action) and the plaintiff (by Counterclaim) (on 7 May 2021) |
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