Chen Yung Ngai Kenneth and Another v. Indo-sino Manufacturing & Trading Institute Ltd and Others

HCB 3819/2011

[2023] HKCFI 1462

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 3819 OF 2011

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Re: HO YUK WAH DAVID (the “Discharged Bankrupt”)

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D E C I S I O N

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A.  INTRODUCTION

1.Before the Court is a summons taken out by the Trustees in Bankruptcy on 17 November 2021 (“the Summons”) under section 29 of the Bankruptcy Ordinance, Cap 6 (“BO”) against 3 Respondents (“Indo‑Sino”, “Mr Yeung” and “Ms Yeung” respectively and “Respondents” collectively). Mr Yeung and Ms Yeung have been the only directors and shareholders of Indo-Sino.

2.The Summons seeks an order that each of the Respondents do produce, by way of affirmation, and that Mr Yeung and Ms Yeung do undergo examination, concerning the following matters, namely, information and documents relating to:

(1)  All loans, past and present, provided by Indo-Sino to Grassmere Services Ltd (“Grassmere”), and repayments thereof; and

(2)  Payments by or on behalf of Indo-Sino to Grassmere’s lawyers and/or professional invoices relating to valuation of Grassmere’s shareholding in the DFIL Shares (defined below).

These documents/information are tied to the Trustee’s allegation that Grassmere is beneficially owned and funded by David Ho and that David Ho had used his hidden assets to effect those loans.

3.The summons is opposed by the Respondents, who deny having any relationship with David Ho or any of his alleged nominees/associates. Assets of the Respondents were and are theirs and had nothing to do with David Ho. The Respondents’ only involvement in the whole matter was Indo-Sino’s provision of loans to Grassmere, which were genuine and bona fide commercial transactions. The Respondents had no knowledge of the background involving Ho and the allegations about his relationship with Grassmere until the Summons and supporting affirmation of the Trustees were served on them. To the Respondents, this is but an application by over zealous Trustees in seeking discovery, at all costs and at the expense of innocent third parties.

4.The relevant affirmations filed by the Trustees will be referred to as “Chen-3^rd” and “Chen-5^th”; and the affirmation filed by Ms Yeung will be referred to as “Ms Yeung-1^st”.

B.  BACKGROUND

5.The background is taken from the succinct summary of Mr Szeto, counsel of the Respondents.

B1.  The Parties

6.David Ho was adjudged bankrupt in August 2011 upon his own petition in this case, and his bankruptcy was discharged in 2019.

7.The current Trustees were appointed in January 2020. Before that, the trustees-in-bankruptcy were Ip Pui Lam Arthur and Ip Pui Sum (“Former Trustees”).

8.Asia-Pac Infrastructure Development Limited (“APIDL”) is a company incorporated in Hong Kong. It was involved in extensive litigation. By a judgment in HCA 971/2012, dated 28 September 2020, Ng J held that APIDL was and is beneficially owned and controlled by David Ho: [2020] HKCFI 2518 (“971 Judgment”). APIDL went into creditors’ voluntary liquidation in April 2013, and Alan Chung Wah Tang (“Tang”) and Hou Chung Man (“Hou”) were appointed as liquidators (“APIDL Liquidators”).

9.Indo-Sino is engaged in, amongst others, substantial and legitimate trading business of shipping goods from Hong Kong and China and trading and distributing them in Nigeria and West Africa.

10.Grassmere, a BVI company, is the registered shareholder of the DFIL Shares, ie 5% of the shareholding in a BVI company known as Dan Form International Limited (“DFIL”). The remaining 95% was held by Harlesden Limited which was beneficially owned and controlled by one Mr Dai Xiao Ming (“Mr Dai”).

11.In turn, DFIL held, directly and indirectly, 34.416% of the shareholding of Dan Form Holdings Company Limited (“DFHCL”), a company listed on the Hong Kong Stock Exchange. On 16 November 2016, DFIL’s shareholding in DFHCL was acquired by Autobest Holdings Limited for over HK$1.17 billion.

B2.  Valuation of the DFIL Shares

12.In around late 2016, Mr Dai / Harlesden procured DFIL to redeem Grassmere’s DFIL Shares at fair value. Grassmere rejected Mr Dai’s offer of HK$10 million as redemption price and required the fair value to be determined by formal appraisal (“the Valuation”). DFIL deposited HK$75 million with Stephenson Harwood in escrow (“Escrow Money”) pending the Valuation and release of the fair value to Grassmere.

13.In around late 2016, Sun Li Hua Alison (“Sun Li Hua”), a director of Grassmere at the material time from 2016 onwards, invited Indo-Sino (via Ms Yeung) to invest in the Valuation.

14.Indo-Sino eventually lent a total of about HK$4.2 million (“the Loans”) to Grassmere, comprising:

(1)  HK$3 million pursuant to a written Loan Agreement dated 6 January 2017, for financing the Valuation, including paying professional fees related thereto; the material terms were as follows: -

(a)  The interest rate was to be 20% p.a. (clause 2.1);

(b)  If the Valuation was above HK$20 million, for each extra HK$10 million, Indo-Sino would receive a bonus of HK$2 million (clause 3.1); and

(c)  Within 30 days of completion of the Valuation, Grassmere was to repay the principal, accrued interest and any bonus (clause 4.1).

(2)  Subsequent short-terms loans of around HK$1.2 million (“Short-Term Loans”) for payment of professional fees.

15.In November 2017, the Former Trustees commenced HCA 2587/2017 (“2587 Action”) against, David Ho, APIDL, Grassmere, DFIL and Stephenson Harwood, contending that the DFIL Shares are held by Grassmere on trust for David Ho as nominee, and that David Ho was and is the beneficial owner of the DFIL Shares.

16.On 8 December 2017, the Former Trustees obtained interim interlocutory injunction against dissipation of the Escrow Money (“the Injunction”).

17.On 11 December 2017, the Former Trustees applied to continue the Injunction whereas Grassmere applied to discharge it 2 days later. The matter was argued before DHCJ Kent Yee on 4 January 2018 (“Injunction Hearing”).

18.On 8 January 2018, the Valuation was completed and the fair value of the DFIL Shares was assessed at HK$55,052,041 (“the Assessed Amount”).

19.On 20 April 2018, the decision to continue the Injunction was handed down (“Injunction Decision”). The Injunction is still in force.

20.The 2587 Action is ongoing. According to the exhibits to Chen 3^rd, the most recent filing was Grassmere’s Amended Defence filed on 28 January 2020.

21.Separately, HCA 2752/2015 was commenced by the Former Trustees prior to the 2587 Action to claim that certain companies, including Grassmere (instead of the DFIL Shares) were beneficially owned and controlled by David Ho. HCA 2752/2015 was discontinued against Grassmere after the latter had filed evidence to strike out that action.

C.  TRUSTEES’ CASE

22.The core contention of the Trustees in the 2587 Action is that the DFIL Shares were at all material times held on trust by Grassmere but beneficially owned by David Ho, and that a series of sham transactions were undertaken to prevent David Ho’s creditors from obtaining access thereto. The Respondents are not parties to the 2587 Action but the relevant background provides the context within which the present Summons was taken out.

23.The Trustees submit that they have reasonable grounds of suspicion that the Loans were not arm’s length transactions and were or are related to David Ho due to:

(1)  Strong evidence of David Ho’s continued beneficial ownership of Grassmere;

(2)  The role and involvement of Sun Li Hua, a person closely related to David Ho;

(3)  Attempts by Grassmere to conceal the identity of Indo-Sino and the identity of the actual payors of the remittance advices to professionals when the Loan Agreement was first disclosed in the 2587 Action at the inter parte stage of the Injunction application; and

(4)  Various unusual / irregular features of the Loans, including the Respondents’ apparent intimate knowledge of transactions and legal proceedings involving David Ho and/or companies under his control despite being just a creditor of Grassmere.

24.The Trustees submit that the Respondents are capable of giving the information sought. The information and the examination are not onerous or oppressive as the documents are of limited scope as relating to loan transactions which the Respondents must have ready access to. The information and examination are reasonably required for the Trustees to carry out their functions, in particular to investigate into David Ho’s financial affairs and to trace the fund source of the Loans.

D.  RESPONDENTS’ CASE AND GROUNDS OF OBJECTION

25.The Respondents assert that Mr Yeung and Ms Yeung came from a very rich and resourceful family with a group of companies (“Yeung’s Group”).

26.In December 2016, upon the misrepresentation of Sun Li Hua and the good impression formed of her, Ms Yeung was misled into granting the Loans on behalf of Indo-Sino which it would otherwise not have made had it known the truth. The Loans came from Indo‑Sino’s own resources and for its own benefit. Indo-Sino was to be repaid out of the Escrow Sum well within one year. After assessing the risks and returns, Ms Yeung procured Indo‑Sino to sign the Loan Agreement.

27.As confirmed by Ms Yeung, Indo-Sino procured Afrikon Industrial Ltd (“Afrikon”) to settle professional fees out of the internal resources of the Yeung’s Group’s, upon receipt of the invoices payable by Grassmere, in accordance with the Loan Agreement.

28.In respect of the Short-Term Loans, in around December 2017, Sun Li Hua asked Ms Yeung for a further loan to settle the appraisers’ final professional fees and compliance fees, in order to release the appraisers’ report. Sun Li Hua told Ms Yeung that as soon as the appraisers’ report was released, Grassmere would use the fair value to repay the total outstanding sum due to Indo-Sino before expiration of the one-year loan period in January 2018. Subsequently, Sun Li Hua confirmed that the assessed value was HK$55 million.

29.As the further loans were modest, attracted interest and was backed up by the security of HK$55 million sitting in escrow, had warranty and guarantee, Indo-Sino granted the Short-Term Loans. Given the strong financial position of the Group, there was no time pressure to recoup the Loans.

30.The Respondents only discovered the lies and material non‑disclosure of Sun Li Hua / Grassmere upon reading Chen-3^rd:

(1)  Failure to disclose the major risk factors including the complicated background of Grassmere, the significant amount of money claimed by Mr Dai (which would have wiped out the entire value of the DFIL Shares) and the Trustees’ claim of ownership of Grassmere;

(2)  Failure to disclose the commencement of the 2587 Action and the Injunction proceedings, which delayed repayment of the Loans; and

(3)  Failure to disclose that some of the Loans were used to settle legal fees for the Injunction rather than costs relating to release of the redemption money from the Escrow Sum.

31.The Respondents object to the Summons on the following grounds: -

(1)  Ground 1: This Summons is related to the true ownership of Grassmere, which is an issue to be investigated by APIDL’s Liquidators instead of the Trustees who are contributories of APIDL.

(2)  Ground 2: The Trustees have failed to show that the information or documents sought are related to the bankrupt, his dealings and his property. In particular: -

(a)  The Respondents contend that the correct test ought to be a “factual test” and not one of “reasonable suspicion”.

(b)  Even applying the test of “reasonable suspicion”, the Trustees have failed in showing that the Respondents are related to David Ho.

(3)  Ground 3: There appears to be no basis to suggest that David Ho has any hidden funds capable of being recouped by the Trustees.

(4)  Ground 4: There appears to be no basis to suggest that David Ho and Indo-Sino have any relationship of beneficiary and nominee.

(5)  Ground 5: This Summons is closely related to the 2587 Action, the merits of which are doubtful.

(6)  Ground 6: The balance does not swing in favour of the Trustees, it being oppressive and abusive brought without regard to costs and proportionality.

32.The Respondents emphasize that their objections to the Summons are based on the above grounds and are not to “assist Grassmere”.

33.The Trustees dispute these grounds. They assert that the Respondents’ case is full of internal inconsistencies, self-serving bare assertions, and is unsupported by documentary evidence. Their case is also inherently incredible for lack of due diligence on Grassmere / Sun Li Hua and lack of enforcement against Grassmere. Upon discovery of the “truth” from Chen‑3^rd, the Respondents continued to support and defend Grassmere’s position in the 2587 Action against the Trustees and failed to explain the irregular features in the Loans.

E.  LEGAL PRINCIPLES

34.The purpose of s.29(1) is to enable “the court to help a trustee to discover the truth and circumstances connected with and to gather information about the bankrupt’s property, affairs and dealings, in order that the trustee may be able, as effectively as possible, and with as little expense as possible, to complete his function; to put the affairs of the bankrupt in order and to administer the bankruptcy in all its various aspects, including the getting in of any assets of the bankrupt”: Hau Po Man Stanley (in bankruptcy) & others v Joint & Several Trustees [2008] 1 HKC 256 (Court of Appeal) at §20.

35.The relevant legal principles have been summarized in Re Ho Yuk Wah David (bankrupt) (No 5) [2020] 2 HKLRD 608 at §22, Au‑Yeung J; affirmed on appeal in CACV 83/2020, Cheng Yung Ngai v Alan Chung Wah Tang [2022] HKCA 110, §12 (“the CA Judgment”).

(1)  The power conferred by section 29 is general, wide, unlimited, and discretionary in nature;

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

(3)  The applicant must satisfy the court the essential condition that the provision of information or documents is reasonably required for him to carry out his functions;

(4)  The applicant must also establish a prima facie case that the respondent is able to provide such information or documents;

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

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

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

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

(9)  That said, the trustee is not entitled to embark on expeditions that ignore costs and proportionality, or to extract information from persons in respect of a matter when there is no well‑founded ground upon which to consider him prima facie capable of giving information, or to conduct an examination without any clear suspicions and to conduct it to determine if matters or facts might emerge which may be of interest or assistance.

36.The legal threshold is one of “reasonable suspicion”: CA Judgment, §12.

37.Applications for oral examination are more oppressive than those for disclosure of documents, and the Court should be cautious when considering such applications: The Joint and Several Trustees of the Property of So Ching Wan v Assen Ltd (in liq.) & others [2019] HKCFI 1491 at §24 per DHCJ William Wong SC.

F.  ANALYSES OF TRUSTEES’ CASE

38.In the 2587 Action, the Trustees’ causes of action are in David Ho’s continued beneficial ownership of Grassmere, holding of Grassmere shares through the use of nominees, or the DFIL Shares being held on resulting trust for David Ho and avoidance of transfer of the Grassmere shares in fraud of creditors.

39.The Trustees’ case is supported by, amongst others, a joint public announcement involving DFHCL dated 22 September 2016 (the “Joint Announcement”) which stated that: “The remaining 5% of DFIL is owned by Mr David Ho Yuk Wa”. The Joint Announcement is appended to the Escrow Agreement signed by Grassmere.

F1.  David Ho’s continued beneficial ownership of Grassmere

40.The table below shows Grassmere’s shareholding and directorship over the years:

From	Shareholder	Director
1992.06.20	David Ho	David Ho
1994.10.03	Timothy Sun Kwong Wah	Timothy Sun Kwong Wah
2004.01.19	Grand Asia Capital Investments Ltd	David Ho
2004.12.13		Chung Chen Ning
2006.11.13	Grand Asia Group Holdings Ltd	Fong King Yiu
2006.12.29	APIDL
2008.06.18		Yu Yang
2010.06.30	Yu Yang
2012.07.16	Luck Creation Limited (“Luck Creation”)	Sun Bo
2016.07.17		Sun Bo and Sun Li Hua
2016.07.18	Su Lan Lan
2016.07.19		Sun Bo, Sun Li Hua, Su Lan Lan, and Qi Yu Gang

41.In the 971 Judgment, Ng J held that David Ho continued to beneficially own and control APIDL and that David Ho had the tendency to use nominees for his clandestine purpose (§97). David Ho used at least 19 associates/nominees including, relevant to the present Summons, Yu Yang (§160), for the purpose of concealing his ownership of APIDL.

42.Even after ownership of Grassmere apparently changed hands from APIDL to Yu Yang and eventually to Su Lan Lan, Sun Li Hua and Sun Bo who are closely associated with David Ho, continued to be involved as directors of Grassmere.

43.More importantly, 2 months after the last change of shareholding in the Table above, the Joint Announcement stated that David Ho was the owner of the DFIL Shares.

44.The Trustees’ case in the 2587 Action is that the purported transfers of shares from APIDL to Yu Yang and eventually to Su Lan Lan were all shams to disguise David Ho’s continued beneficial ownership of Grassmere. Such purported transfers of shares were made with intent to defraud creditors and are thus voidable under section 60 of the Conveyancing and Property Ordinance (Cap 219) (“CPO”).

F2.  Use of Nominees / Persons Closely Associated with David Ho

45.Sun Li Hua is closely associated with David Ho and is yet another nominee of his:

(1)  She is extremely knowledgeable regarding the transactions, dealings, background and personal life of David Ho as evidenced by:

(a)  Her affirmation in the discontinued action in HCA 2752/2012; even if one accepts her assertion that the information was passed on by Yu Yang, she must have been a person within the “inner circle” of David Ho in order for such personal and private information to be passed on to her.

(b)  She signed the statement of truth in the original defence of Grassmere in the 2587 Action. There was reference to a class of persons defined as David Ho’s “UK Relatives and Friends”, which was only removed from the amended defence after the Former Trustees have taken out a request for further and better particulars regarding such “UK Relatives and Friends”.

(2)  Sun Li Hua was the Chairman of the Meeting of Creditors in APIDL’s voluntary liquidation in 2013. She, together with Liu Shu (already found to be a person closely associated with David Ho in the 971 Judgment, footnote 45), had confirmed the appointment of Alan Tang as one of the APIDL Liquidators.

(3)  Yu Yang claims in his witness statement in the 971 Action that Sun Li Hua was his friend or employee at APIDL in around 2010-2011.

(4)  Sun Li Hua had previously remitted HK$305,001.21 in November 2011 to Wendy Yim, an accounts supervisor of the law firm (named David YW Ho & Co, later renamed as YK Ho & Co) owned or previously owned or controlled by David Ho. Yim had admitted that she had been instructed by her employer to transfer monies in and out of her own bank account.

46.Sun Li Hua’s role was crucial as it was based on her representation that Ms Yeung procured Indo-Sino to grant the Loans.

47.Sun Bo is the sole shareholder and director of Luck Creation. Although she is not stated in Chen-3^rd to be a nominee of David Ho in respect of the Grassmere shares, the evidence shows that she is also the sole shareholder and director of True Treasure Enterprises Limited (“TTEL”), another BVI-incorporated company. In turn, TTEL claimed to be APIDL’s “major creditor”. As stated by APIDL’s Liquidators, TTEL previously funded APIDL’s action in HCA 806/2006 on a “needs” basis from April 2013 to February 2015 (when APIDL has all along been beneficially owned by David Ho).

48.Mr Szeto complains that the Trustees’ heavy emphases on the role of Sun Li Hua and her alleged connection with David Ho do not go anywhere to show any connection between the Respondents and David Ho, as the Loans were done on the bases of misrepresentation and material non‑disclosure of Sun Li Hua.

49.With respect, the Trustees’ case in Section F2 is not to show the direct connection between the Respondents and David Ho. That is too high a test: the CA Judgment. The Trustees’ case in the 2587 Action has some merits and reasonable suspicion to justify the Trustees’ further investigation into the Loans.

50.Mr Szeto further points out that despite finding that David Ho has had at least 19 nominees, the 971 Judgment made no finding that Luck Creation, Sun Bo, Su Lan Lan and Sun Li Hua were nominees. However, Mr Szeto has overlooked that Grassmere was not the subject matter of the 971 Judgment.

F3.  DFIL Shares held on trust for David Ho

51.It is also the Trustees’ case that David Ho solely funded the purchase of the DFIL Shares such that those Shares were and are held by Grassmere as nominee for and/or on resulting trust for David Ho.

52.The reasons are that: from June 1992 to early 1993, DFIL was a shelf company without any substantive assets. And yet DFIL was to invest US$18,000,000 in北京敬遠房地產開發有限公司 (“北京敬遠”), a PRC real estate development company, which in turn owned a real estate development project in Beijing. It was agreed that Mr Dai and David Ho would respectively contribute US$17,100,000 (ie 95%) and US$900,000 (5%). From May 1993 to October 1994, David Ho did inject US$900,000 as agreed, with money drawn from his personal bank accounts in 5 tranches. The ultimate shareholding in DFIL reflected the ratio of fund contribution by Mr Dai (95% held through Harlesden) and David Ho (5% held through Grassmere).

53.There is no counter evidence from the Respondents and there is an arguable case in resulting trust.

F4.  Irregular features of the transfers of shareholding in Grassmere

54.APIDL’s alleged transfer of its shareholding in Grassmere to Yu Yang was never recorded in APIDL’s audited accounts. The DFIL Shares continued to be booked as “available-for-sale investments” (the only assets which could have been so booked) even as of 31 December 2011. This calls for an explanation as to why the auditors of APIDL were never informed of the alleged transfer if it had in fact happened.

55.On 16 July 2012, Yu Yang allegedly transferred his shares in Grassmere to Luck Creation for HK$500,000. It would have been sale at a substantial undervalue in the light of David Ho’s proposed sale price of the DFIL Shares of HK$20m (or at least HK$10m) to Mr Dai in a letter dated 15 July 2008.

56.On 18 July 2016, Luck Creation allegedly transferred its interest in Grassmere’s shares to one Su Lan Lan for RMB10 million under the Share Sale and Repurchase Agreement. This happened just 3 weeks after DFHCL had made an announcement regarding the potential acquisition of the shares in DFHCL on 28 June 2016. Further, the alleged “transfer” simply did not give any shareholder’s rights to Su Lan Lan at all. According to the PRC legal opinion obtained by the Former Trustees, the Share Sale and Repurchase Agreement would be treated as a loan agreement with interest under PRC law, since Su Lan Lan did not enjoy any rights as a shareholder under it.

57.Mr Szeto points out that while the Respondents had no dealings with Grassmere before late 2016 and had no knowledge at all about the changes in ownership in Grassmere, from the documents exhibited to Chen-3^rd, there does not seem to be basis for suggesting that the sale at RMB10M was at an undervalue. This is because at the time, the DFIL Shares were already subject to 2 claims by Mr Dai against David Ho existing since August 2008 involving HK$303 million and HK$31.2 million respectively. This has been the case until December 2016, when the redemption and valuation issue arose.

58.Mr Szeto may be right in his observation, but that is a matter for trial. His observation cannot explain why in September 2016 David Ho was still regarded as owner of the DFIL Shares.

F5.  David Ho’s control over Grassmere

59.According to the organizational chart provided by the auditor of APIDL, it appears that Yu Yang was or had been a director of Grassmere at the time when Grassmere was holding the investment in DFHCL.

60.Further, certain invoices issued to Grassmere dated or around 2006 and 2007 were addressed to David Ho directly, whilst other invoices dated in or around 2009 and 2010 were addressed to Kellie Chan, David Ho’s secretary in the Firm.

61.There is reasonable suspicion that Grassmere was and continues to be beneficially owned by David Ho, and that he has always exercised control over Grassmere.

F6.  Attempts by Grassmere to conceal information in the 2587 Action

62.Sun Li Hua filed an affirmation (“Sun-1^st”) on behalf of Grassmere at the inter parte stage of the Injunction proceedings. She alleged that Grassmere would suffer irreparable harm unless the Injunction was discharged forthwith. Grassmere allegedly financed the Valuation and related legal proceedings by Short Term Loans and had to repay HK$10,799,517.36 (“the Debt”) by 6 January 2018. In default of repayment, Grassmere had to bear interest at 30% p.a. on the outstanding loan.

63.There is no dispute that Sun-1^st produced a copy of the Loan Agreement with the full name of Indo-Sino as the lender and its registered office redacted. Indo-Sino failed to confirm its identity as lender despite request of the Trustees’ solicitors in mid-2017.

64.In Sun-3^rd, the Loan money was allegedly applied towards paying various professionals acting for Grassmere, including its solicitor. Again, all the names of the payors in the remittance advices were completely redacted except one which was partially redacted. And even on that remittance advice, the name of the payor was “[redacted] Industrial Co” which was clearly not Indo-Sino. As can be seen from Ms Yeung 1^st, that company was probably Afrikon, the financial arm of the Yeung’s Group. Grassmere has not produced any invoices or receipts from those professionals.

65.Grassmere may have good reasons to redact the information as the Respondents were not parties to the 2587 Action. There was no evidence to show that the redaction was with the knowledge/consent of the Respondents. Ms Yeung even claims that they were not aware of the 2587 Action before receiving Chen-3^rd. However, Chen-5^th accused Ms Yeung of making bare assertions without documentary proof. Despite that, the Respondents have not produced the unredacted documents before this hearing.

66.The evidence, in my view, supports the Trustees’ reasonable suspicion that there was something in the Loan documents between Indo-Sino and Grassmere / David Ho hidden from the Trustees which may throw light on David Ho’s dealings or property.

F7.  Loan Agreement entered into under commercially inexplicable circumstances

67.Mr Szeto points out that, before signing the Loan Agreement, Indo‑Sino was presented with documentary evidence in support of all the matters mentioned in the recitals (in particular recitals E & F).

68.That may well be true. However, there was no due diligence on Grassmere itself before the Loan Agreement was entered into, contrary to the “prudent and cautious investment strategy” adopted by the Yeung’s Group as claimed by Ms Yeung. The matters that Ms Yeung now claims Sun Li Hua / Grassmere had failed to disclose (§30 above) were in fact publicly available and verifiable had Indo-Sino cared to investigate.

69.Further, had Indo-Sino cared to investigate before the Short-Term Loans were advanced, they would have found out the existence of the 2587 Action and the ex parte Injunction.

F8.  Unreal and irregular features of the Loans

70.The Loan Agreement was governed by PRC law. The returns thereunder were interest at 20% p.a. and a bonus. Based on the Assessed Value, Indo-Sino would be entitled to HK$ 600,000 as interest and HK$6,000,000 as bonus. It would result in a de facto annual interest rate of 220% (ie HK$6,600,000 ÷ HK$3,000,000). That was why DHCJ Kent Yee commented that the financing costs to Grassmere for the purpose of the Valuation were huge and disproportional to the Assessed Value (§89 of the Injunction Decision).

71.According to the PRC legal opinion obtained by the Former Trustees, the legally permissible interest rate should not exceed 24% per annum; any excess is unenforceable in the PRC courts.

72.It is also curious that the Loan Agreement was governed by PRC law when the parties were a Hong Kong company (Indo-Sino) and a BVI company (Grassmere); the loan was denominated in Hong Kong dollars, and the purpose of the loan was ostensibly for litigation / Valuation in the BVI.

73.Despite Sun Li Hua’s affirmation that Grassmere was obliged to repay the Debt to Indo-Sino by 6 January 2018, during the Injunction Hearing, Senior Counsel for Grassmere conceded that there was no urgency to repay.

74.Whilst his decision was pending, DHCJ Kent Yee raised a requisition on 13 March 2018 as to whether the Debt had been repaid or not. Sun Li Hua replied by affirmation 3 days later, stating that Grassmere had been unable to repay the Debt due by reason of the Injunction. However, since the Injunction Hearing, she had “repeatedly sought to reassure” Indo-Sino that the loan repayment (together with the default interest) would be repaid soon. Indo-Sino issued a demand letter to Grassmere dated 9 March 2018 threatening to take enforcement action, including taking winding-up proceedings if the Loan was not repaid within 30 days of the date of the letter.

75.Ms Yeung claims that the Respondents only looked after their own interests and they could choose to recoup the Debt in different ways, which was a commercial decision involving litigation and enforcement risks. There was no basis for the Trustees to allege that the interests of the Respondents were completely aligned with Grassmere.

76.However, I find it commercially inexplicable that:

(1)  Despite Sun Li Hua’s assertion that Grassmere would, if the Injunction were to continue, apply for immediate partial release of HK$10,799,517.36 from the Escrow Money for settlement of the Debt, Grassmere has not done so.

(2)  Indo-Sino has not taken out enforcement action even up to now, ie more than 5 years since the Loans allegedly first became due on 6 January 2018.

(3)  Indo-Sino took no proceedings against Sun Li Hua, despite discovery of her “misrepresentation” which induced Indo‑Sino to enter into the Loan Agreement.

77.Mr Szeto refers to the interest of 20% per annum, the bonus and an equitable assignment to use the HK$55 million to repay all Loans due to Indo-Sino (as evidenced in an email from Grassmere to Indo-Sino dated 6 December 2017). That equitable assignment would have the effect of keeping a certain sum of money out of a bankrupt’s estate: Secretary for Justice v Global Merchant Funding Ltd (2016) 19 HKCFAR 192. The Loans to Grassmere were genuine commercial transactions on acceptable risks with security and based on reasonable return. Through the Respondents’ solicitors, Cheng Yeung & Co (“CYC”), Indo‑Sino has given notice of the equitable assignment to the Trustees and that security would have taken priority over the Trustees’ claim in the 2587 Action.

78.Mr Szeto could well be right at the end of the day. However, the disproportionate bonus has not been explained by the Respondents. The Short‑Term Loan Agreements were never produced. These, together with §72 above, do give rise to reasonable suspicion on the part of the Trustees that neither Indo-Sino was an independent lender lending for profit, nor was Grassmere a responsible borrower keen on repaying the lender in a timely fashion; or that Indo-Sino was/is connected with Grassmere and would grant unlimited indulgence to Grassmere.

79.The Trustees further rely on the fact that the timing of the demand letter from Indo-Sino dated 9 March 2018 was suspect, suggesting that it was to facilitate a response to DHCJ Yee’s requisition on 13 March 2018 and appeared to allege a collusion between Grassmere and Indo-Sino.

80.I place little weight on that as pure speculation. The Loan was made in January 2017 with a repayment date a year later. The demand letter was issued after the Injunction Hearing. The Respondents could not speak to why Sun Li Hua only produced this demand letter to the Court on 16 March 2018 and not before, but it should not be taken against them.

F9.  Use of part of the Loans to pay for legal fees of Grassmere

81.From Recitals H and M and Clause 1.2 of the Loan Agreement, Indo-Sino was to advance money “upon presentation by [Grassmere]’s relevant lawyers’ or other professionals’ invoice(s) (including the Overdue Outstanding Professional Invoices incurred in connection with the Valuation”. Sun-2^nd also deposed that the loan was taken out for the sole purpose of financing the Valuation.

82.Contrary to the above terms of the Loan Agreement, about HK$300,000.00 were paid to Messrs Sit, Fung, Kwong & Shum (“SFKS”), solicitors for Grassmere in HCA 2752/2015. That action was completely unrelated to the Valuation, and had already been discontinued against Grassmere on 21 August 2017.

83.Another HK$300,000 from the Short-Term Loans were used to pay costs on account to Messrs Kwok, Yih & Chan, (“KYC”), the solicitors who formerly acted for Grassmere in relation to the inter parte Injunction application up until 5 July 2018. The sum was requested by Grassmere on 6 December 2017, one day after the Former Trustees took out the Summons for injunction against Stephenson Harwood and two days before the hearing on 8 December 2017 (in which Grassmere’s legal representatives were present).

84.Ms Yeung claimed that the Respondents simply did not know that a portion of the Loans were used for deviating purposes. She put the blame on Sun Li Hua / Grassmere, stating that “some of the settlement of legal fees were for the Injunction proceedings instead of legal costs for compliance or due diligence to release the Sale Proceeds as misrepresented to me”. However, there was no explanation as to why Indo-Sino would cause Afrikon to directly settle the professional fees of SFKS and KYC without even making any inquiries with Grassmere.

85.I would not hold the facts in Section F9 against the Respondents in this Summons. This is because,

(1)  As Mr Szeto points out, as a lender, Indo-Sino was only under a duty to ensure that the instructions to pay out the loan were genuine, but not to investigate the genuineness of the recipient or the purpose of the loan: Luk Wing Yan v CMB Wing Lung Bank Ltd [2021] HKCFI 279, at §§167 & 178, Coleman J.

(2)  The purpose of the Loan was to finance the Valuation and to apply the Escrow Sum to repay the Loans. The use of the Loans to overcome any opposition to release the Escrow Sum to repay the Loans would have been incidental to the purpose of the Loans.

F10.  The Court’s findings that the Loans were not genuine

86.In the Injunction Decision (§96), DHCJ Yee took the view that the Debt (due to Indo-Sino, whose identity was not revealed at the time) was not genuine and was skeptical of Grassmere’s ability to settle it without the HK$55 million. He found that Grassmere was obviously not frank with its financial position.

87.As Mr Szeto points out, Indo-Sino was not a party to the Injunction Hearing. However, in my view, that did not mean that the Trustees’ reasonable suspicion was not sustainable on the facts in Section F.

F11.  Intimate Knowledge of David Ho’s Affairs

88.Two letters dated 30 December 2021 and 9 February 2022 respectively had been sent by CYC in relation to the present matter. The Trustees rely on them to show that Indo-Sino, a mere creditor of Grassmere, somehow has in-depth knowledge of the past dealings and past legal proceedings involving David Ho and/or companies under his control. CYC even advised the Respondents that the 971 Judgment (of which Indo-Sino was not a party) was wrong. The Respondents appeared to be advancing the case of David Ho, claiming that he had been relying on relatives to finance his personal litigation, asserting that he has no hidden valuable assets, defended David Ho and Alan Tang and disputed the Trustees’ recovery actions against David Ho. The Respondents even say that the 2587 Action was liable to be struck out. They acted as if stepping into the shoes of Grassmere or whoever is ultimately interested in the outcome of the 2587 Action.

89.I have considered the 2 letters, which must be read in the light of the Respondents’ assertion of innocence. The letters contained the Respondents’ strong protests against the Trustees oppressive conduct in the issue of the present Summons, in that the Respondents were made to go through voluminous exhibits of 3,516 pages with judgments spreading over 16 substantial actions spanning over 20 years. The judgments were not binding on the Respondents and the complex background to the litigation have been withheld from them. They had to consider the documents carefully in the light of the Summons without enabling the Trustees to gain unfair advantage in the extant 2587 Action. They also commented that the alleged contingent claims (including that over the DFIL Shares) had negligible value but the Trustees have not been able to show cash/assets hidden by David Ho during the 10 years since commencement of his bankruptcy.

90.Those were observations based on documents disclosed by the Trustees and not necessarily personal knowledge of David Ho’s affairs. I will not hold them against the Respondents.

F12.  Summary

91.In summary, the facts analyzed in Section F do support the Trustees’ reasonable suspicion that the Respondents are in possession of information that relate to David Ho, his dealings or property.

G.  INHERENT IMPROBABILITIES AND INTERNAL INCONSISTENCIES OF THE RESPONDENTS’ CASE

G1.  R1’s legitimate business

92.The Respondents say that Indo-Sino is an independent third party unconnected to anyone, including Ho or Grassmere. The Group has been closely held and controlled by immediate members of the Yeung family without any third party interests for around 50 years. Since its incorporation in 1998, Indo-Sino has been under the sole control and ownership of the Group. The Group is a substantial trading and investment business with annual turnover in excess of HK$1 billion per annum. Indo‑Sino provided the Loans out of its own resources.

93.Indo-Sino and the Group are engaged in legitimate trading business of sourcing goods in Hong Kong and China and trading, marketing and distributing them in Nigeria and West Africa.

94.The Group has substantial assets and cash flow in Hong Kong and Nigeria, a small portion of which has been disclosed by Ms Yeung. They include Afrikon, which enjoys substantial banking facilities, has substantial credit balance in its bank accounts and acts as the financing arm of the Group. There are 2 other subsidiaries.

95.Mr Szeto submits that there is simply no basis to suggest that the financing for the relatively modest Loans of around HK$4.2 million compared to the Group’s assets, came from anywhere but Indo-Sino and the Group’s own financial resources.

96.On the other hand, Ms Lam SC and Mr Joseph Wong, counsel for the Trustees submit that the 3 companies within the group are not really parent and subsidiaries. Mr Yeung used to have the same address as Ms Yeung in the annual returns but he got a different address in Hong Kong in 2021. The banking facilities, as evidenced by letters from the banks, were for Afrikon and another company, but not Indo-Sino. It is not clear what the role of Indo‑Sino within the group is and there is nothing to show that Indo-Sino has substantial assets. Even if Indo-Sino is rich, that does not necessarily mean that it does not have connection with David Ho.

97.I fail to see how the submission of Ms Lam SC can assist her case. It is not uncommon for companies within a group to take up different roles. Given the financial background of Afrikon and the other company, I am not satisfied that the Group, through Indo-Sino, could not afford to lent the Loans to Grassmere. This is one factor for the Court to consider in the exercise of its discretion.

98.I now turn to the grounds of objection.

H.  GROUND 1 – INVESTIGATION OF GRASSMERE A MATTER FOR LIQUIDATORS OF APIDL

99.Mr Szeto contends that it is for the APIDL Liquidators and not the Trustees as shareholders/contributories of APIDL to investigate the affairs of APIDL, including the alleged sham transfers of shares in Grassmere away from APIDL and the assets of Grassmere including the DFIL Shares.

100.In support of his proposition, Mr Szeto relies on the authority of The Joint and Several Trustees of the Property of So Ching Wan v Assen Ltd (in liq.) & others [2019] HKCFI 1491. The trustees-in-bankruptcy of So Ching Wan made a s.29 BO application requiring the 1^st respondent, Assen, and each of R2-R4, as Assen’s directors, to answer questions and provide documents to help the trustee ascertain the worth of So’s shareholding in Assen. DHCJ William Wong SC dismissed the application on the grounds that:

(1)  The affairs of Assen were under the supervision of its liquidators, who had the primary responsibility to investigate its affairs (§§26-27).

(2)  Since the bankrupt was a shareholder of Assen, the trustees of the bankrupt could only exercise the rights of a shareholder of Assen (§27).

(3)  If disclosure of documents from R2-R4 was necessary, the liquidators of Assen would take responsibility to apply for the same. In that case, the liquidators had affirmed that they did not consider it to be in the interest of the liquidation to make such an application (§28).

(4)  If any interested parties in the liquidation were dissatisfied with the decisions of the liquidators in relation to the investigations, recoveries and/or distributions, the proper procedure was for such parties to take out an application before the Companies Court, as it was not conducive to the orderly administration of liquidation for concurrent investigations to take place (§31).

101.The Court of Appeal rejected the trustee’s appeal in [2020] HKCA 1081. Cheung JA held that: -

(1)  It should be borne in mind that whether and if so how the powers conferred on the Court under s.29 BO ought to be exercised in any given case will depend on the circumstances of the case. The court must exercise its powers effectively but of course not so as to support over‑zealousness or cause oppression. The court must do what, all things considered, appears at the time to be just and proper (§8.10).

(2)  There was no principle to be extracted from case law that, because the bankrupt had been a shareholder of Assen, the applicant would be entitled to obtain a section 29 order on the basis that it is for the bankrupt’s ultimate benefit (§8.15).

102.Mr Szeto points out that the Former Trustees have been informed of this stance of the Respondents already but for years the Trustees have bypassed the APIDL Liquidators.

103.Further, the APIDL Liquidators have already been ordered to disclose certain documents under a separate section 29 BO order pursuant to the CA Judgment, on appeal from this Court’s decision in the present case.

104.Still further, Mr Szeto submits that the Trustees in their capacities as contributories of APIDL need to satisfy the additional requirements under section 286B of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 in order to obtain a section 29 BO order. In other words, the application has to be made for the purpose of the winding-up of APIDL and not for some ulterior purpose. The contributory has to demonstrate that the examination will probably result in some benefit (such as a surplus) accruing to him as such: Embassy Art Products Ltd (1987) 3 BCC 292, at 297 by Hoffman J (as he then was); Burnden Group Holding Ltd v Hunt [2018] EWHC 463 (Ch); it would not be right to invoke section 29 BO to order the liquidators and directors of the company to carry out a futile exercise: So Ching Wan (CFI, §36).

105.Mr Szeto submits that the Trustees’ claim in the 2587 Action is liable to be struck out. Even if there is prospect of recovering the HK$55 million, there would not be any surplus going to the Trustees as contributory because the money has to first settle all outstanding liquidation costs and unsecured creditors’ claims. That would include the heavy costs of the APIDL Liquidators’ in HCA 806/2006 until the claims were dismissed in May 2021.

106.Without disrespect, I am unable to agree. The Trustee’s claim in the 2587 Action is premised on various causes set out in §38 above. If the Trustees are successful, the DFIL Shares would not fall into the estate of APIDL or Grassmere. This is not a situation of the Trustees (as contributory) taking the place of the APIDL Liquidators to investigate the affairs of APIDL in liquidation. Section 286B of Cap 32 simply does not apply.

107.Further, the orders made against APIDL in the CA Judgment concerned funding arrangements for APIDL’s litigation but not Grassmere or the DFIL Shares.

108.Ground 1 fails.

I.  GROUND 2 – FAILURE TO SHOW THAT INFORMATION OR DOCUMENTS SOUGHT ARE RELATED TO THE BANKRUPT, HIS DEALINGS AND HIS PROPERTY

109.Whilst accepting that the reasonable suspicion test laid down in the CA Judgment, §§12 and 14 is binding on this Court, Mr Szeto submits that it is not the correct test. The correct test is a “factual test”.

110.To the extent that he seeks to overturn the Court of Appeal’s reasonable suspicion test, this Court is not the proper forum.

111.However, Mr Szeto’s proposition on the “factual test” is that it is not enough that the documents may relate to the bankrupt or may be thought to relate to the bankrupt, unless the documents do relate to the bankrupt there is no power to order their production.” See Re Mid East Trading Ltd [1998] BCC 726 at 747D‑E (in the context of a company).

112.That proposition is in line with §35(2) of the legal principles above. In essence, it means that the Trustees should not embark on fishing and the Court would not have power to order production of documents not “relating to the bankrupt”: Re Weihong Petroleum Co Ltd (No. 2) [2003] 2 HKLRD 747 per Kwan J (as she then was) at §§39, 42 (in the context of a company under section 221(3) of the Companies Ordinance. Re Lee Priscilla Hwang [2012] 4 HKLRD 581 at §20 & 23, Recorder Anderson Chow SC (as he then was).

113.Mr Szeto submits that even if the APIDL liquidators were seeking a s.29 BO order, the documents and examination sought would not satisfy the “factual test” because:

(1)  The jurisdiction of the court under s.221, Cap 32, is limited to the production of documents which relate to the company in liquidation and does not extend to documents which relate to its current or former subsidiary or associated companies unless they also relate to the company itself: Joint & Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006) 9 HKCFAR 766 at §62.

(2)  The affairs of a subsidiary could be regarded as the affairs of a holding company for present purpose if the latter had de facto control over the former, which would normally be satisfied via the control of the composition of the board of directors or by the control of the voting power exercisable by the shareholders: Re China Metal Recycling (Holdings) Ltd (order for examination) [2015] 2 HKLRD 747, §§56-57.

(3)  According to the Table above, Grassmere has changed ownership many times since the bankruptcy of David Ho in 2011, with the last 2 genuine transfers (to Luck Creation and Su Lan Lan) for valuable consideration.

114.Accordingly, the Court has no jurisdiction to make any section 29 BO order because Grassmere or Indo-Sino is unconnected to David Ho, so Mr Szeto submits.

115.Sun Li Hua was removed as a director of Grassmere in July 2019. Mr Szeto submits that even if she was once adjudged as David Ho’s nominee, such could not be stretched to say that Sun Li Hua would forever and for all purposes remain as Ho’s nominee.

116.I am unable to agree. The DFIL Shares have always, on the Trustees’ case, been held by nominees. As late as the date of the Joint Announcement, the DFIL Shares were still owned by David Ho. It was not unreasonable for the Trustees to trace their whereabouts. The causes of action arguably rest in the Trustees and not APIDL.

117.Further, the bona fides of the transfers to Luck Creation and Su Lan Lan are the subject matter of the claim in the 2587 Action, of which the Court cannot now even form a preliminary view. As pointed out by Ms Lam SC, the terms of sale to Su Lan Lan were unusual. The sale and purchase agreement was subject to PRC law (which is not challenged by the Respondents) and looked more like a loan agreement than a sale and purchase agreement. There is basis for the Trustees to form a reasonable suspicion.

118.As for Sun Li Hua, at the time she was removed as director of Grassmere, Grassmere was still within the Asia Pacific Group, David Ho’s corporate web.

119.Accordingly, even applying the “factual test” that Mr Szeto propounds, the test is satisfied. Ground 2 is not established.

J.  GROUND 3 – NO BASES TO SUGGEST THAT DAVID HO HAS HIDDEN FUNDS

120.In the CA Judgment (§§8.1, 8.2 and 17.2), the Court of Appeal found that the Trustees’ did have reasonable suspicion that David Ho was involved in funding arrangements for HCA 806/2006 and other proceedings in which APIDL was a party, and thus assumed that David Ho still had substantial hidden funds to finance HCA 806/2006.

121.The suspicion underlying the present Summons is that David Ho has hidden funds capable of being invested in Indo-Sino or Grassmere, which are liable to be recovered by the Trustees.

122.Mr Szeto submits that from the objective undisputed facts, it is clear that David Ho cannot and could not have any hidden funds as early as at the end of 2007. As stated in the 971 Judgment:

(1)  David Ho had been in an unfavourable financial position after a number of litigation involving him and/or his corporate nominees ended unfavourably to him in 2004 and 2011 (§10);

(2)  By the end of 2007, David Ho had run out of funds for his litigation projects and had to rely on funding from Yu Yang and David Ho’s other relatives to finance his (or APIDL’s) litigation projects (§§57-58);

(3)  By the end of 2007, APIDL itself was in serious financial difficulties (§132); and

(4)  David Ho attempted to recapitalise APIDL in order to strengthen its balance sheet when faced with security for costs application in HCA 806/2006 (§§105-112) although the recapitalization exercise of APIDL was held to be a sham by Mr Justice Ng (§143).

123.APIDL was put into creditors’ voluntary liquidation in April 2013 such that it had to obtain funding from third parties to maintain HCA 806/2006 in 2015.

124.The Trustees have obtained documents via numerous successful s.29 BO applications but they have not been able to show any evidence that David Ho still has any funds since his bankruptcy in 2011 to be recouped by his bankruptcy estate, not least funds related to Grassmere’s actions.

125.I do not think these affect the overall view of the present Summons. Matters in §122 above were not findings of Ng J that David Ho was impecunious but were just background facts. As the 971 Judgment shows, David Ho put his assets into a complicated corporate web. It has taken about 10 years for the Trustees to obtain the 971 Judgment. It has not been an easy case of administration of David Ho’s estate. The fact that the Trustees have not been successful so far in recouping assets affects the discretion to be exercised but not jurisdiction of the Court in this Summons.

K.  GROUND 4 – NO BASES TO SUGGEST THAT INDO-SINO IS A NOMINEE

126.In the context of this Summons, the allegation is that Yu Yang was a first-tier nominee of David Ho, and Sun Li Hua, through assisting Yu Yang, is a second-tier nominee, and Indo-Sino who granted loans to Grassmere could be a third-tier nominee.

127.Mr Szeto points out that while the 971 Judgment declared that ownership of APIDL was vested in David Ho, the Former Trustees have never proved that the funding of HK$70 million provided to APIDL during 2007 to 2013 came from David Ho. There is no objective evidence showing how the above first tier nominees ever received funds from David Ho. Further, as discussed above, Indo-Sino’s funds to Grassmere came from the Yeung’s family business. There is simply no basis to say that Indo-Sino had any relationship with Ho or that it had facilitated fund flow to Ho.

128.In my view, Mr Szeto is pitching the Trustees’ case too high. The Trustees do not have to establish nomineeship at this stage. For the reasons given in Section F above, the reasonable suspicion threshold has been met.

L.  GROUND 5 – LACK OF MERITS OF THE 2587 Action

129.In the CA Judgment (§17.2), the Court of Appeal stressed that it was relevant to take into account the merits of the underlying action (HCA 971/2012 action, judgment of which was then outstanding) in support of a s.29 BO application for the relevant funding documents.

130.In the context of the present Summons, the underlying action is the 2587 Action. Although not parties to it, the Respondents submit that there may be grounds for striking it out. These include: lack of locus of the Trustees; the last 2 transfers of shareholding in Grassmere to Luck Creation and Su Lan Lan were to bona fide purchasers for value; and lack of basis for suggesting that the transfer to Su Lan Lan was a sale at an undervalue. Further, a claim against Grassmere was within the knowledge of the Former Trustees upon their appointment on 30 September 2011 but the writ was taken out only on 10 November 2017. The action appears to have been barred by time or laches. As the 2587 Action lacks merits, it follows that there is no reasonable suspicion that the Respondents are related to David Ho and/or would be capable of providing information or documents related to David Ho.

131.I am unable to agree that the 2587 Action lacks merits. The 2587 Action has stood for 6 years without any defendant applying to have it struck out. It is impossible for this Court to come the conclusion that the claim is so plainly and obviously bad as to justify striking it out. Further, Section F1-5 above also cast doubt on the suitability of striking out.

M.  GROUND 6 – BALANCE DOES NOT SWING IN FAVOUR OF TRUSTEES’ REASONABLE REQUIREMENTS

132.Mr Szeto submits that even if the Trustees can satisfy the requirements in section 29 BO, the Court in striking a balance should still deny the Trustees relief for three reasons: (i) it is oppressive and gives unfair advantage to the Trustees; (ii) it is abuse of power in that the Trustees ignore the costs and proportionality in making this application; and (iii) the rule in ex parte James should apply.

M1.  Oppressiveness and unfair advantage to the Trustees

133.The relevant legal principles are as follows:

134.Firstly, if the purpose of an application for private examination is to enable the applicant to gain advantage in an action that is above the ordinary advantages available to parties in litigation, the application will be refused: Re Bletchley Boat Co. Ltd [1974] 1 WLR 630, 637B-F; Joint Liquidators of Sasea Finance Ltd v KPMG (No. 1) [1998] BCC 216 per Robert Walker J at p.224F-G.

135.In Bletchley Boat, a former director of a company under voluntary liquidation applied to discharge the order for examination made against him. The director had issued proceedings against the company and the liquidators had in turn commenced an action against the director. Brightman J accepted the director’s submission that the real purpose in applying for private examination in that case was to enable the company to gain an advantage in the action brought by O’Connell and the action which the company had started, over and above the ordinary advantages available to ordinary litigants (p 637F). The order was discharged.

136.Secondly, it is wrong to require a person suspected of wrongdoing to prove the case against himself on oath prior to proceedings being brought: So Ching Wan (CA), at §§8.20-8.22.

137.Thirdly, the Court may not grant a section 29 BO order if the trustee has not exhausted available alternative sources of information or documents which he can readily obtain without incurring trouble or expense appreciably greater than would be incurred under section 29 BO. In Re Castle New Homes Ltd [1979] 1 WLR 1075, at 1093, Slade J held that: -

“The second principal reason advanced by the banks as to why the court should not exercise its discretion by making an order pursuant to section 268, at least at the present time, is that the liquidator has not yet exhausted all the possible alternative sources of information available to him in relation to the principal questions which concern him. …, I accept that this could be a relevant factor, at least in a case where the person against whom the order was sought demonstrated to the court that (a) there existed alternative sources available to the liquidator, which would afford the information which he sought; (b) he could readily obtain all such information from these sources, without incurring trouble or expense appreciably greater than would be incurred in the desired examination; (c) he had not chosen to avail himself of such alternative sources.” (underline added)

138.However, even if the preceding paragraph is satisfied, that does not necessarily mean that the court should be less willing to make an order against a particular respondent: Re Allied Weli Development Limited [2022] HKCA 664, §58, CA.

139.The Court should remind herself to exercise its powers effectively but not so as to support over-zealousness or cause oppression. The Court must do what, all things considered, appears at the time to be just and proper: So Ching Wan (CA), §8.10.

140.The classes of documents sought by the Trustees are as follows:

(1)  All documents relating to all loan(s) past and present made by, for and/or on behalf Indo-Sino to Grassmere and/or its designated recipient(s) (including but not limited to the Loan Agreement and the alleged Short-Term Loans and the status and purpose of the said loan(s);

(2)  All documents relating to any repayments made by, for and on behalf of Grassmere to Indo-Sino and/or its designated recipient(s) in respect of the said loan(s); and

(3)  In particular and without prejudice the generality of §(2) above, all documents relating to and/or evidencing all payemnts by, for and/or on behalf of Indo-Sino to Grassmere’s lawyers and/or other professional invoice(s) incurred in connection with the Valuation.

141.In respect of the Loans, I am satisfied that seeking a production order is not an abuse of the Trustees’ power in view of Section F above. At least the agreements relating to the Short-Term Loans have not been disclosed by Indo-Sino so far.

142.The Trustees have, of course, the alternative remedy of seeking discovery of the same documents against Grassmere in the 2587 Action. It appears that as early as January 2018, Grassmere had disclosed a substantial volume of loan documents which were challenged before DHCJ Yee as not genuine. However, there is reason for the Trustees to seek disclosure against Indo-Sino directly under the section 29 BO procedure because the production would enable the Trustees to find the fund source of the Loans and the person responsible for giving the wiring instructions to advance such Loans (Chen-5^th, §15), something which Grassmere may not be able to provide. If an order is granted, it may enable the Trustees to decide whether to pursue the 2587 Action against Grassmere, and/or to pursue Indo-Sino itself. A section 29 BO application in respect of the Loans is justified.

143.On the other hand, there is not a scintilla of evidence to show that Indo‑Sino had granted other loans to Grassmere or that any such loan is most likely related to funding of Grassmere in the litigation. It is oppressive, abuse of power and sheer fishing for the Trustees to infer, from the HK$4.2 million Loans, that there were other loans granted by Indo‑Sino to Grassmere. No order for production will be made for this class of documents.

144.As for the order for examination, there is no difference between this Summons and any other s.29 BO application re David Ho to justify examination as opposed to only production of documents. So Ching Wan also applies to prevent the Respondents from being examined prior to proceedings brought against them.

M2.  Abuse of Trustees’ power to ignore costs and proportionality

145.The powers of the Trustees should not be used abusively for improper purpose but “may only be invoked for a legitimate purpose in relation to the company which is being wound up, and the court, which has discretion to make or refuse an order, should be astute to see that the powers conferred by the section are not abused. It would plainly be an abuse to use those powers for a purpose which is foreign to the functions of the applicant in relation to the company which is being wound up.” See Re Wing Fai Construction Co Ltd [2004] 3 HKLRD 357, at §49 per Kwan J (as she then was), following Re Pantmaenog Timber Co Ltd [2004] 1 AC 158, §64, Lord Millett.

146.Mr Szeto points out that the Former Trustees have taken out more than 15 section 29 BO applications within HCB 3819/2011 itself in order to gather information. Since the current Trustees took over in 2020, they have also taken out around 10 s.29 applications ostensibly to gather information, over a decade after the commencement of Ho’s bankruptcy. The Trustees have been abusing their extensive investigatory power to badger innocent third parties including the Respondents. It is highly doubtful whether the Trustees’ numerous s.29 BO exercises assist them in discharging their functions as effectively and with as little expense as possible.

147.I do not think there is enough to enable me to make a finding of abuse against the Trustees. This is the 4^th section 29 BO application by the Trustees that came before me. In these applications (including the one which led to the CA Judgment), the Trustees were not found to be abusive.

M3.  Ordering the Trustees not to enforce their strict legal rights under the rule in ex parte James

148.In Lehman Brothers Australia Ltd v MacNamara [2020] EWCA, Civ 321, §35, David Richard LJ held that:

“The principle established by the decision of the Court of Appeal in Ex p James is that the court will not permit its officers to act in a way which, although lawful and in accordance with enforceable rights, does not accord with the standards which right-thinking people or, as it may be put, society would think should govern the conduct of the court or its officers. The principle applies to a failure to act, as much as to positive acts: see In re Hall; Ex p Official Receiver [1907] 1 KB 875, a decision of this court. As a public authority and given its role in society, the court is expected to apply standards to its own conduct which may go beyond bare legal rights and duties……Trustees in bankruptcy, liquidators in compulsory liquidations and administrators are all officers of the court……they are acting on behalf of the court and they will accordingly be held to these standards by the court.” (underline added)

149.Given the multiplicity of s.29 BO applications filed by the Trustees over the last decade, and the lack of bases for issuing this Summons against the Respondents, Mr Szeto invites the Court to order the Trustees not to enforce their strict legal rights under s.29.

150.In my view, this has not been an easy piece of administration for the Trustees, who got the 971 Judgment only 10 years after commencement of David Ho’s bankruptcy. The sheer number of section 29 BO applications is not sufficient, in itself, to show abuse on the part of the Trustees. The Court is not even shown the success or failure of those applications.

151.The reference to the Trustee’s aggressive attempt to bar one of the APIDL Liquidators, Alan Tang, from practice as an office-holder, which would remove one of the main grounds for striking out the 2587 Action is even more far-fetched in the context of this Summons.

152.Accordingly, I decline to accept Mr Szeto’s submission.

M4.  Summary

153.The balance swings in favour of granting a production order under s.29 BO in respect of the Loans only.

N.  CAPABILITY OF THE RESPONDENTS TO GIVE THE INFORMATION

154.A respondent is deemed capable of producing a document if the document is within his control or power in the discovery context. It covers a presently enforceable legal right to obtain, from whoever actually holds the document, inspection of it without the need to obtain the consent of anyone else. See Re Ho Yuk Wah David (bankrupt) [2015] 2 HKLRD 603, §68, To J.

155.In the present case, the classes of documents relating to the Loans are specific and limited in scope. They should be readily available to any commercial lender, especially since the Loans have not yet been repaid. Indo-Sino and Ms Yeung (the person in charge of the Loans) are plainly the persons against whom a section 29 BO order can be made. Ms Lam SC does not insist on production by affirmation.

156.However, Mr Yeung stands in a different position. He has been permanently resident in Nigeria since 1979. He is in charge of the family business in West Africa and is not involved in the Hong Kong or China side of the business. He was not involved in Indo-Sino’s granting of the Loans. Ms Yeung also deposed that she did not inform Mr Yeung of the loans until the Trustees threatened to serve the Summons on Mr Yeung’s family residence in Hong Kong. He only visits his family members in Hong Kong on vacations. Mr Yeung is in no position to provide information or documents in relation to the Loans.

157.Ms Lam SC submits that Mr Yeung has acted as alternate director of Indo-Sino since at least March 2017 and has acted as director (and shareholder) since at least March 2018 up to the present. The Loan Agreement was made on 6 January 2017, before he became a director. The Loans have never been repaid. Accordingly, Mr Yeung would at the very least prima facie have the power to produce the documents and information sought regarding the Loans. In any event, it remains a bare assertion of Ms Yeung that Mr Yeung was never involved in the Loans. In fact, Mr Yeung did not even make an affirmation himself to state his position. His silence is itself telling.

158.I am unable to agree with Ms Lam SC. I do not know what more Mr or Ms Yeung could have come up with to say that the former was not involved. Chen-5^th has not come up with anything to rebut Ms Yeung’s evidence that Mr Yeung was not involved. The fact that he himself has not made an affirmation does not help the Trustees either. Ms Yeung would be equally liable for perjury if she has not told the truth about Mr Yeung. I am not satisfied that an order for production should be made against Mr Yeung.

O.  CONCLUSION

159.The Trustees have demonstrated that there is reasonable suspicion that the information sought relating to the Loans is related to David Ho, his dealings or property. The provision of such information is reasonably required for the Trustees to carry out their functions of tracing the source of funds of the Loans to see if they had come from David Ho. Accordingly, I grant an order for production of documents against Indo‑Sino and Ms Yeung in relation to the Loans but dismiss the rest of the application for documents and examination.

160.The application against Mr Yeung is dismissed in its entirety.

P.  COSTS

161.The Trustees are agreeable to giving reasonable costs to the Respondents for comply with the section 29 BO order and I so order as regards Indo-Sino and Ms Yeung.

162.Additionally, on a nisi basis, costs of Mr Yeung are to be borne by the Trustees, as Ms Yeung has made clear Mr Yeung’s case right from the start.

163.The Trustees have only obtained an order in relation to a small class of documents. Their success is wholly disproportionate to the volume of exhibits to the Trustees’ affidavits. The Respondents have to trawl through 3,500 pages of documents to figure out the history of the litigation involving David Ho, which never involved the Respondents.

164.On the other hand, if the Respondents had conceded the Trustees’ application for production of documents relating to the Loans, a formal application would have been unnecessary. Anyhow, despite their rigorous contest, I am not satisfied that the Respondents were advancing the case of Grassmere / David Ho, or have otherwise gone beyond the bounds of assisting the Court in deciding on the propriety of the section 29 BO Summons.

165.Balancing all factors, I am of the view that there should be no order as to costs as between the Trustees and Indo-Sino and Ms Yeung.

166.I therefore order as follows: -

(1)  Within 28 days, the 1^st and/or 3^rd Respondents shall produce the following to the Trustees:

(a)  All documents relating to the loan agreement dated 6 January 2017 between the 1^st Respondents and Grassmere (the “Loan Agreement”) and an alleged short-term loan totaling HK$1,216,636 (allegedly covering settlement of FTI’s invoices of US$37,777, settlement of Ernst & Young’s invoices of HK$335,870, costs on account to Messrs. Kwok Yih Chan of HK$300,000, and 10% commitment fee and 20% lump sum interest totaling HK$286,106) and the status and purpose of the said loan(s) (including but not limited to any written agreements, written resolutions, correspondence(s) and minutes of meeting(s) of the 1^st Respondent approving / authorizing such loan(s) and records of loan drawdowns which include but are not limited to cheque(s), bank draft(s), cashier order(s), invoice(s), receipt(s) and any other accounting documents);

(b)  All documents relating to any repayments made by, for and/or on behalf of Grassmere to the 1^st Respondent and/or its designated recipient(s) in respect of the loan(s) under §(a) above and the status or purpose of the same (including but not limited to any demands made by, for and/or on behalf of the 1^st Respondent to Grassmere and/or its designated recipient(s) for repayment of such loan(s), bank draft(s), cashier order(s), invoice(s), receipt(s) and any other accounting documents);

(c)  In particular and without prejudice to the generality of §(b) above, all documents relating to and/or evidencing all payments by, for and/or on behalf of the 1^st Respondent to Grassmere’s lawyers and/or other professional invoice(s) incurred in connection with the valuation of Grassmere’s 5% shareholding in Dan Form International Limited as referred to under Clause 1.2 of the Loan Agreement (including but not limited to all invoices, receipts and records of payments which include but are not limited to cheque(s), bank draft(s), cashier order(s), invoice(s), receipt(s) and any other accounting documents);

(2)  The Trustees’ shall pay the costs of the 1^st and 3^rd Respondents to comply with §(1) above;

(3)  The Trustees shall bear the costs of the 2^nd Respondent for this Summons;

(4)  There be no order as to costs as between the Trustees, and the 1^st and 3^rd Respondents as regards the Summons; and

(5)  I make an order nisi as regards §§(3) and (4).

193.I thank counsel on both sides for their thorough preparation and great assistance to the Court.

Ms Rachel Lam SC and Mr Joseph Wong, instructed by Lee, Wong & Lam, for the Applicants

Mr Patrick Szeto, instructed by Cheng, Yeung & Co., for the 1^st to 3^rd Respondents