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HCA 388/2006
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 388 OF 2006
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BETWEEN
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NGAN IN LEUNG |
1st Plaintiff |
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CHAN WAI IAN |
2nd Plaintiff |
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NGAN IEK |
3rd Plaintiff |
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NGAN IEK CHAN |
4th Plaintiff |
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NGAN IEK PENG |
5th Plaintiff |
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and
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CHU YUET WAH |
Defendant |
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Before: Deputy High Court Judge Au-Yeung in Chambers
Date of Hearing: 14 August 2012
Date of Decision: 7 December 2012
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D E C I S I O N
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THE APPLICATIONS
1. By 2 separate summonses, the plaintiffs seek specific discovery against the defendant (“the Chu Summons”) and a third party company called Kingston Financial Group Ltd (“Kingston”) (“the GR Summons”) respectively.
BACKGROUND
2. Kingston, a listed company, was formerly known as Golden Resorts Group Limited (“Golden Resorts”) and, before that, Medtech Group Co Ltd. In 2005, Golden Resorts acquired the plaintiffs’ interests in companies which owned the Casa Real Hotel with a casino in Macau. The price was HK$1.25 billion, payable partly in cash of HK$750 million and partly by allotment of newly issued ordinary shares of Golden Resorts (“the Shares”) at a value of HK$0.4545 each (equivalent to about HK$500 million). The negotiation for the acquisition was conducted by the defendant (“Chu”) and her father (“Mr Lee”) on behalf of Golden Resorts.
3. It is the plaintiffs’ case that in the course of negotiation, Chu represented, amongst others, that she was the controlling shareholder and the boss of Golden Resorts (“the representation”). She orally agreed to buy back the Shares at $0.4545 each should the value per share in the Hong Kong Stock Exchange fall below that price. It was allegedly in reliance on her offer that the plaintiffs agreed to accept the Shares as part of the consideration (“the share purchase agreement”).
4. The sale of the shares of companies holding the hotel and casino was completed on 31 May 2005 and the Shares were issued to the plaintiffs. At all times since the making of the agreement for the acquisition, the share price has been below $0.4545 per share.
5. It is the plaintiffs’ case that Chu assured them that the share price would recover as a result of a restructuring of Golden Resorts involving, amongst others,:
(i) acquisition of the Casa Real Hotel and associated business (“the Casa Real Acquisition”); and
(ii) completing an agreement to acquire the Grandview Hotel and share of the profits generated by the casino carried out in the Grandview Hotel (“the Grandview Acquisition”).
6. Chu also allegedly represented to the plaintiffs that if for any reason the buyer was unable to complete the Casa Real Acquisition, she or her nominee would take over the deal.
7. The plaintiffs were given 1.1 billion shares. After a 10:1 consolidation (“the consolidation”), they held 110 million shares. They transferred away 6 million shares to the casino operator and still hold 104,000,000 shares.
8. Before consolidation, the value was HK$0.196 per share (ie HK$1.96 after consolidation). The plaintiffs claim that there was an implied term that after consolidation, the buy-back price would become HK$4.545 per share. Accordingly, the Shares in the plaintiffs’ hands were worth only HK$20,384,000, representing a loss of HK$268,840,000.
9. The plaintiffs seek specific performance of the share purchase agreement, alternatively damages for its breach.
10. Chu is now a director, CEO and controlling shareholder of Kingston, but during the course of negotiations with the plaintiffs, she was still a minority shareholder in Golden Resorts. She denies having made the representation or entered into the share purchase agreement. Her case is that she negotiated the deal on behalf of Golden Resorts, on the instructions of its then Chairman, Mr Jenkin Cheung. The plaintiffs contended that the reverse was true, ie it was Mr Cheung who acted in accordance with the instructions of Chu and Mr Lee.
A. THE CHU SUMMONS
11. The plaintiffs seek specific discovery of 13 classes of documents relating to 3 key transactions as follows:
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Date of preliminary agreement |
Date of completion |
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The Subscription |
24.12.2003 |
13.4.2004 |
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The Casa Real Acquisition |
6.1.2005 |
31.5.2005 |
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The Grandview Acquisition |
24.11.2004 |
March 2005 |
The Subscription documents (classes 1-3)
12. By the Subscription, one Perfect View subscribed for 5 billion shares in Golden Resorts. The acquisition was financed by a loan of $50 million from Kingston Securities Ltd (whose controlling shareholder was Chu) to Perfect View. On 13 April 2004, the day of completion of the Subscription, Mr Cheung was appointed as executive director and chairman of Golden Resorts.
13. The plaintiffs seek discovery of the transaction documents in relation to the Subscription, correspondence and notes of meeting between Mr Cheung and/or Perfect View, Chu and/or Kingston relating thereto, the loan documentation and documents relating to repayment of the loan.
The Casa Real Acquisition documents (classes 4-5)
14. The share purchase agreement was allegedly entered into during the course of negotiation for the Casa Real Acquisition. There is no dispute that Chu had an active role in the negotiation and Mr Lee was also involved. Whether Chu acted on the instructions of Mr Cheung, or the latter acted on the instructions of Chu and Mr Lee, is in dispute.
15. No correspondence between Chu/Mr Lee and Mr Cheung/ Golden Resorts has been disclosed in the course of discovery. The plaintiffs seek discovery of :
(i) all correspondence and all notes of meetings between (a) Chu and Mr Lee and (b) Mr Cheung and/or Golden Resorts, concerning the Casa Real negotiation;
(ii) all correspondence and all notes of meetings between Chu, and Mr Cheung and/or Golden Resorts, in relation to Chu’s reward and/or remuneration (if any) for acting on behalf of Golden Resorts in the Casa Real negotiation.
The Grandview Acquisition documents (classes 6-13)
16. The Casa Real Acquisition and Grandview Acquisition were close in time and bore strikingly similar features:
(i) The consideration for both was partly in cash and partly by issuance of new shares in Golden Resorts.
(ii) Though not an officer of Golden Resorts and being a minority shareholder, Chu was extensively involved in the Grandview Acquisition to the extent of entering into the Chu Guarantee Agreement dated 24 November 2004, effectively to personally guarantee the completion of the Grandview Acquisition in order to protect Golden Resorts from losses.
17. On 6 April 2005, following completion of the Grandview Acquisition, (a) Chu was appointed the managing director of Golden Resorts and Mr Lee was appointed non-executive director; (b) Chu and Mr Lee, through their respective corporate vehicles, was bestowed by Perfect View with 1.6 billion shares (over 20% of the issued shares) in Golden Resorts.
18. The Grandview Acquisition and Casa Real Acquisition both formed part of Golden Resorts’ strategic business diversification into the Macau hotel and casino business at the material time: see circular of Golden Resorts dated 18 April 2005 on the Casa Real Acquisition.
19. The plaintiffs seek discovery of:
(i) all correspondence and all notes of meetings between (a) Chu and (b) Mr Cheung and/or Golden Resorts, concerning the Grandview negotiation (similar to those re the Casa Real Acquisition);
(ii) the Grandview provisional agreement;
(iii) documents created during the course of negotiations for the Grandview Acquisition relating to the nature and amount of consideration to be paid by Futuremind, being all drafts of the Grandview provisional agreement, all correspondence accompanying the same exchanged with the parties to the transaction and all notes of meetings relating to the same;
(iv) all correspondence and all notes of meetings between Chu, and Mr Cheung and/or Golden Resorts, in relation to Chu’s reward and/or remuneration (if any) for acting on behalf of Golden Resorts in the Grandview Acquisition (similar to those re the Casa Real Acquisition);
(v) the Chu guarantee agreement;
(vi) all correspondence and all notes of meetings between (a) Chu and (b) Mr Cheung and/or Golden Resorts, relating to or culminating in the Chu guarantee agreement;
(vii) the agreement for 1.2 billion ordinary shares of Golden Resorts to be conferred on Sure Expert in return for Chu agreeing to be a consultant of Golden Resorts in managing the Grandview Hotel (“the Chu consultancy agreement”);
(viii) all correspondence and all notes of meetings between (a) Chu and (b) Mr Cheung and/or Golden Resorts, relating to or culminating in the Chu consultancy agreement.
Bases of the application
20. The bases for the application have been summarized in a specific discovery table Exhibit WJGB-3. In a nutshell, it is said that the documents sought will shed light on whether Chu was the controlling/ de facto beneficial shareholder of Golden Resorts at the material time, with Mr Cheung as the front man. The documents will assist in explaining why she made the share purchase offer and support the existence of the share purchase agreement.
The applicable principles
21. To invoke the jurisdiction of the court under Order 24, rule 7 of the Rules of the High Court to order discovery, the 3 prerequisites are relevance, existence and possession of the documents. Once a prima facie case is made out, the court has a discretion whether or not to order disclosure: Paul’s Model Art GMBH & Co KG v UT Ltd [2006] 1 HKC 238. It is up to the party objecting to discovery to show that it is not necessary for disposing fairly of the cause or for saving costs: Hong Kong...
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