Re Might Foundate Development Ltd.

HCCW001137/2001

HCCW 1137/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 1137 OF 2001

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Coram: Hon Yuen J in Chambers

Date of Hearing: 24 April 2002

Date of Decision: 24 April 2002

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D E C I S I O N

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1.This is an application by an Opposing Creditor for essentially, discovery against a Petitioner. The matter arises in this way.

2.On 11 May 2001, the Opposing Creditor obtained a charging order nisi against the Company pursuant to a judgment debt which was itself based on an arbitration award. On 1 August 2001, before the charging order nisi was made absolute, a statutory demand was presented against the Company by a company known as Strong Bases Import & Export Co. Ltd (which I will refer to as "the Petitioner"). On 10 October 2001, the petition was presented.

3.It is not disputed that the Petitioner is "related" to the Company in this way:- that it is an associated company of one of the shareholders of the Company. On 27 January 2002, the Opposing Creditor opposed the petition on the basis that it disputed the genuineness of the Petitioner's debt. This challenge is mounted on a few bases, e.g. the figure of $35 million in respect of "management fees" said to be paid or payable to the Petitioner, and it has also been suggested that the finance required by the Company for the development of the site was obtained from financial institutions, rather than from the Petitioner.

4.Be that as it may, the matter is due to be heard on 9 May 2002, that date having been reserved for the hearing of the Petition together with the Opposing Creditor's application to make absolute the charging order nisi.

5.The summons before me is for 5 orders. In relation to the first 3 orders i.e. for cross-examination of Mr Li Ngai who made the affirmation in support of the petition, that is not objected to and I would make an order in terms of paragraphs 1, 2 and 3 of the summons of 11 April 2002.

6.Paragraphs 4 and 5 of the summons are connected, in that basically what the Opposing Creditor is seeking is discovery of various documents. It would appear that in this case no directions had been given by the deputy judge in relation to discovery and inspection, and this is the Opposing Creditor's attempt to get discovery before the hearing of the petition in 2 weeks' time.

7.In relation to the documents which have been set out in the Schedule, the 1st paragraph of that Schedule referred originally to 4 exhibits to the affirmation of Mr Li Ngai. In relation to 3 of those exhibits there is agreement and I do not need to deal with them. In relation to Exhibit "LN-10", that is a copy of a demand letter sent by the Petitioner to the Company. It is a letter dated 29 March 2001 and the exhibit is described as a "copy demand letter" from the Petitioner to the Company. What the Opposing Creditor is seeking is production by the sender, i.e. the Petitioner, of the original of the demand letter.

8.Mr Tsang, for the Opposing Creditor, said that he is asking for the original even though in the normal course of things, the original of the letter would have left the possession, custody and control of the sender, because (he said) of this "close relationship" between the Petitioner and the Company, so that (he said) the Petitioner would be in a position to get the original from the Company. With respect to Mr Tsang, I do not see how the evidence at the moment would show that the Petitioner would be able to get back the original of this letter from the Company. It would appear to me that if the Opposing Creditor (for whatever reason) does want to see the original, then the appropriate recipient of an application for discovery ought to be the Company rather than the sender of the letter - the Petitioner. So in relation to Exhibit "LN-10", I would dismiss the application for production of the original of this letter.

9.I now come to paragraph 2 of the Schedule which is for the audited accounts of the Petitioner for the years ended 31 March 1995 and 31 March 2001. In relation to the audited accounts of the Petitioner for the year ended 31 March 2001, Mr Dawes, counsel for the Petitioner, has said today on instructions that these accounts have not yet been finalized and Mr Tsang accepts that, and accordingly, this paragraph is now restricted to the audited accounts of the Petitioner for the year ended 31 March 1995.

10.In my view, this is clearly relevant to the issue between the parties. The agreements under which the loan is alleged to have been made by the Petitioner to the Company comprise 2 agreements:- one dated 1 March 1994 and the other dated 19 August 1994. It would appear that payment may have been made during that year or soon afterwards so that, in my view, it is clear that the audited accounts of the Petitioner for the year ended 31 March 1995 would be relevant to the issue of the genuineness of this alleged loan. Mr Dawes has submitted that the bank statement showing the transfer of money has been exhibited, but in my view, the mere transfer of funds is only part of the transaction because funds may well have been transferred for purposes other than the alleged loan and in pursuance of other arrangements. Therefore, in my view, it is clear that the audited accounts of the Petitioner for the year ended 31 March 1995 are relevant and ought to be produced.

11.The 3rd paragraph of the Schedule refers to the audited accounts of the Company for the years ended 31 March 1995 and 31 March 2001. I would not repeat myself save to say that again, the correct recipient of such an application ought to have been the Company rather than the Petitioner.

12.Then there is paragraph 5 of the Schedule which is for evidence of part repayment(s) from the Company to the Petitioner in respect of the loan of $68 million odd. It has been said by Mr Dawes that the application is oppressive and that it is too wide. I agree. However, I would be minded to make an order that the current account showing the state of the relationship between the Company and the Petitioner should be produced, which ought to show the state of affairs in relation to this loan from the Petitioner to the Company. I would therefore restrict my order in relation to paragraph 5 of the Schedule to the current account kept by the Petitioner in relation to the Company starting with the year 1994.

13.Finally, paragraph 6 in the Schedule refers to a letter dated 19 March 2001 which was apparently attached to the Petitioner's letter dated 29 March 2001 to the Company. It would appear that this was a letter written by solicitors for a bank to the Petitioner. It may or may not be relevant to the issue, but it would appear to me from O. 24 r. 10 that it states quite clearly that documents referred to in affidavits (including exhibits) should be ordered to be produced if sought. Also it has not been suggested that there will be any oppressiveness in producing this letter. Accordingly, I would make an order in terms of paragraph 6 of the schedule.

14.As far as the summons is concerned, paragraph 4 asks for the production of the originals of those documents at the hearing. It has not been suggested that that would not be convenient, but it would seem to me that it would be more efficient if inspection were to be given upon 3 days' notice which is what is sought in paragraph 5 of the summons. Accordingly, I would order that in relation to those documents which I have allowed, the Petitioner should give inspection of the originals of these documents upon 3 days' notice being given by the Opposing Creditor.

Representation:

Mr David Tsang, instructed by Deacons, for Opposing Creditor, CCECC(HK) Ltd

Mr Victor Dawes, instructed by K C Ho & Fong, for the Petitioner