DANONE ASIA PTE LIMITED et al v GOLDEN DYNASTY ENTERPRISES LIMITED et al

BRITISH VIRGIN ISLANDS THE EASTERN CARIBBEAN SUPREME COURT IN THE HIGH COURT OF JUSTICE (CIVIL) CLAIM NO: BVIHCV2007/0262 Between: (1) DANONE ASIA PTE LIMITED (2) JINJA INVESTMENTS PTE LIMITED (3) NOVALC PTE LIMITED (4) MYEN PTE LIMITED Applicants/Claimants -and- (1) GOLDEN DYNASTY ENTERPRISES LIMITED (2) GOLD FACTORY DEVELOPMENTS LIMITED (3) PLATINUM NET LIMITED (4) SUNWORLD ENTERPRISES LIMITED (5) GREAT BASE INTERNATIONAL LIMITED (6) BOUNTIFUL GOLD TRADING LIMITED (7) EVER MAPLE TRADING LIMITED (8) WINTELL ENTERPRISES LIMITED (9) CENTRAL INTERNATIONAL INVESTMENT HOLDINGS LIMITED (10) TRILLION SINO INVESTMENTS LIMITED (11) WU TIANYAO (12) CHAN TAT HO (13) WU YAN JIAN (14) HE PING (15) LIANG LE PING (16) WU CHU KUN (17) CHEN YI FENG (18) MA NAM KIT (19) CHAN CHUN HING Respondents/Defendants Appearances: Mr Mark Phillips QC of 3-4 South Square, Gray’s Inn, London and Mr Robert Foote of Ogier for the Receivers Mr Stephen Moverley Smith QC of XXIV Old Buildings, London with Mr Phillip Kite and Mr Nicholas Fox of Harney Westwood & Riegels for the First to Ninth Defendants --------------------------------------------------------------------------------------- 2008: July 30 2008: September 30 ----------------------------------------------------------------------- JUDGMENT Introductory

[1]HARIPRASHAD-CHARLES J: By a Notice of Application filed on 16 July 2008 (“the Application”), the Receivers of the First to Ninth Defendants (“the Receivers”) seek directions to determine whether or not they are entitled to inspect and/or request copies of certain Confidential and/or Privileged Documents in the possession and/or control of the Seventh Defendant (“Ever Maple”).

[2]The Receivers rely on the Fourth Affidavit of Casey McDonald sworn to on 16 July 2008 in support of their application.

Background

[3]The Claimants are various companies within the Danone Group of Companies. They have initiated a number of lawsuits and arbitration cases within China and in several other jurisdictions for, among other things, knowing assistance and knowing receipt on the basis that the Defendants have been involved in a fraud against the Claimants in connection with various joint venture agreements and a Services Agreement entered into with Zong Qinghou (“Mr Zong”) in the People’s Republic of China (“PRC”).

[4]Similar proceedings have been instituted by companies in the Danone Group1 in Los Angeles against Ever Maple and three other Defendants claiming, amongst other things, intentional and negligent interference with prospective economic advantage, unjust enrichment and unlawful, unfair and fraudulent competition (“the LA Proceedings”).

[5]On 9 November 2007, the Claimants approached this Court. They applied for and obtained, ex parte, a Freezing Order over the First to Eight Defendants and a Receivership Order over the assets and undertaking of these Defendants. The Order was amended on 13 November 2007 and continued at the hearing on 29 November 2007 until further order. At that hearing, the Order was amended to provide that the Receivers were appointed over the assets and undertakings of the First to Ninth Defendants (“the BVI Companies”). The Order was further amended on 4 June 2008 following an application by Ever Maple. The Order provided the Receivers with various powers to enable them to preserve and secure the assets of the BVI Companies.2

[6]On 27 November 2007, the Court of First Instance in Hong Kong made a similar order appointing the Receivers and Eddie Middleton of KPMG Hong Kong as Receivers over the assets of the First to Eight Defendants. On 7 December 2007, that order was extended to include a receivership over Ever Maple.

[7]Subsequently, the BVI Companies applied to discharge the Receivership but in December 2007, the parties jointly announced a truce and that both sides were committed to resolving the dispute by negotiation. By Order of the Court dated 8 January 2008, the Receivership Order was suspended for a period of 60 days for the parties to try and agree a settlement. The suspension period was subsequently extended to 10 April 2008. The parties failed to reach a settlement by that date with the result that the receivership and the discharge application are again active.

Receivers’ requests for documents

[8]Following their appointment, the Receivers obtained various documents from the BVI Companies’ registered agents which included registers of directors and members, memorandum and articles of association, basic incorporation documents and certain of the registered agents’ related correspondence. Between 16 November 2007 and 10 December 2007, the Receivers and their legal advisors wrote to all of the BVI Companies providing them with a copy of the Receivership Order and asking them to provide the Receivers with copies of the books and records of the BVI Companies in order to assist them to identify and preserve the assets of these companies.

[9]To date, the Receivers’ attempts to obtain information and documents pursuant to the Order have been hampered by the BVI Companies’ uncooperativeness. Shortly put, the Receivers have been largely unsuccessful in their attempts. This is set out in the First and Fourth Affidavits of Casey McDonald.3 Apart from details of Ever Maple’s equity interests in various Chinese companies, bank account details and balances, the only information that the Receivers have been provided with at the date of this hearing is either publicly available or out of date and is accordingly of little value to the Receivers in the discharge of their duties.

[10]Against that unsatisfactory state of affairs, the Receivers approached Ever Maple’s attorneys in the LA Proceedings, Quinn Emmanuel, with the view of obtaining relevant documents relating to Ever Maple and the LA Proceedings generally. On 20 May 2008, the Receivers’ BVI lawyers, Ogier, wrote to Quinn Emmanuel seeking three categories of documents/information namely: a) Public Documents: Information and documents relating to the LA Proceedings which are of public record, for example documents filed at court by or on behalf of Ever Maple or other parties in the LA Proceedings; b) Confidential Documents: Information and documents arising out of the LA Proceedings, which are not in the public domain or are confidential or otherwise subject to restrictions as to their use (but which are not protected by legal professional privilege), for example discovery served on Ever Maple or documents received from Ever Maple by Quinn Emmanuel for review or discovery; c) Privileged Documents: Documents protected by legal professional privilege, comprising the remainder of categories of document set out in Ogier’s letter which are neither Public Documents nor Confidential Documents.

[11]On the following day, the Receivers’ Hong Kong lawyers, Lovells wrote to the BVI Defendants’ Chinese lawyers, King & Wood, stating that King & Wood had no authority, nor were they retained, to act for the BVI Companies in any capacity whatsoever, and argued that, on the face of the Order, it appeared that the Receivers were the only persons entitled to instruct lawyers and conduct proceedings for and on behalf of the BVI Companies.

[12]As a result of the letter from Lovells, Ever Maple issued an urgent application for a declaration that (1) the Receivers were not entitled to have conduct of the LA Proceedings, and (2) accordingly, that the Receivers were not entitled to be provided with legally professionally privileged documents relating to the LA Proceedings. Further or alternatively, Ever Maple sought rectification or variation of the Order so as to exempt the conduct of the LA Proceedings from the powers granted to the Receivers under the Order. No declaration was sought to the effect that the Receivers were not entitled to have access to the Confidential Documents.

[13]The Court heard Ever Maple’s application on 4 June 2008. At that hearing, Ever Maple’s claim for declaratory relief was formally dismissed. However, the Order was amended at paragraphs 16.4 and 19 to provide that the Receivers’ powers did not extend to them having conduct of the LA Proceedings. The Court did not make any findings as to whether the Receivers were entitled to inspect or have copies of legally privileged documents of Ever Maple and indicated that such an application should be dealt with by way of a separate application.

[14]Prior to filing that application, the Receivers had communicated an intention to intervene in their own right in the LA proceedings. Consequently, on 18 July 2008, the Receivers (including the Hong Kong Receiver) filed a notice of motion to intervene. That motion was scheduled to be heard on 10 September 2008 but from unconfirmed information, it has been adjourned to a date in October 2008.

[15]Then, on 10 June 2008, Ogier wrote to Quinn Emmanuel attaching a copy of the 4 June 2008 Order as amended, requesting Quinn Emmanuel to provide the documents and information that had been requested by the letter dated 20 May 2008. By letter of even date, Quinn Emmanuel responded by taking the point that the Receivers were not entitled to copies of any documents which attract legal professional privilege. Further details of Ever Maple’s position were set out in a letter dated 13 June 2008 from Harneys, the BVI Companies’ legal advisers. The relevance of the Confidential and the Privileged Documents

[16]The Receivers are of the view that access to the Confidential Documents and the Privileged Documents would assist them in discharging their duties under the Order with respect to the preservation and securing of the BVI Companies’ assets for the following reasons: (i) To enable them to determine what assets of Ever Maple are or may be being used in the LA Proceedings. Thus, if and to the extent assets of Ever Maple are referred to in Confidential or Privileged Documents it would be of great assistance to the Receivers to know what those assets are and to be able to assess how best to secure them. (ii) To determine the extent of Ever Maple’s exposure in the LA Proceedings. They say that the significance of this is that if Ever Maple’s exposure in the LA Proceedings is as great as or exceeds the total of its assets, there would be nothing remaining for the Receivers to preserve. (iii)To ascertain whether the LA Proceedings pose any threat to the preservation or securing of the BVI Companies’ assets. Thus, for example, if Ever Maple is thought to be exposed to good proprietary claims against assets held by Ever Maple which would take those assets out of the estate, it would be important for the Receivers to understand what the risks are. (iv) To provide information necessary for the Receivers’ compliance and discharge of their duties, including information about Ever Maple’s assets and liabilities (for example, in circumstances where Ever Maple has so far not disclosed to the Receivers, with reference to supporting documentation or at all, the source of its litigation funding, it would be helpful to know whether the litigation is being funded from a bank account or accounts of which the Receivers are presently unaware).

Powers of the Receivers

[17]The powers of the Receivers are derived from the Order. For purposes of this application, the relevant paragraphs are set out below. (i) Paragraph 13 provides that the Receivers are appointed to identify and secure the assets of the BVI Companies pending determination of the claim. (ii) Paragraph 14 requires the Receivers to take all steps to identify and secure the BVI Companies’ assets and to investigate the affairs of these Companies for the purposes of discharging their duties under the Order. (iii) Paragraph 15 provides that the Receivers shall have the power to do all acts and things necessary for the purpose of complying with the Order and carrying out their functions, including (a) to require any director or officer or former director or officer of the BVI Companies to supply all and any information and documents to them concerning the affairs of these Companies; and (b) to take control of all bank accounts and any other property included within the BVI Companies’ assets. In Schedule 1, assets are defined to include all of the BVI Companies’ assets and undertaking wherever situated and whether or not held in their name or by others, including any documentary records of the BVI Companies including communications with third parties. (iv) Paragraph 16.1 provides that the Receivers are authorised to take such steps as they consider necessary for the purposes of obtaining control and/or custody of and recovering all of the BVI Companies’ assets including commencing recognition proceedings in any jurisdiction. (v) Paragraph 16.4 provides that the Receivers are authorised to exercise all of the corporate powers of the BVI Companies which are vested in their Board of Directors, save for power to conduct the present proceedings or the LA Proceedings. (vi) Paragraph 19 provides that the powers of the Receivers in relation to the BVI Companies’ assets shall be vested in them to the exclusion of their Board of Directors and other Officers.

Legal status of receiver appointed by the court

[18]In determining the present application, regard must be had to the status of the Receivers. They are third party officers appointed by the court to carry out the duties set out in the order. Accordingly, they are officers of the court and are neither agents nor trustees of the Claimants nor of the BVI Companies.

[19]The appointment of a receiver by the court “practically removes the conduct and guidance from the directors appointed by the company, and places it in the hands of the receiver and manager, “who thereupon absolutely superseded the company itself, so that the company becomes incapable of making any contract on behalf of the company or exercising any control over any part of any property or assets of the company””4 The company is thereby dissolved or annihilated. Its powers in these respects are thereby in abeyance.”5

[20]The status of the Receivers is significant in the context of this application. They have no interest in the litigation either in this Court or elsewhere. Their primary obligation is to the Court properly to discharge their duties and to secure and preserve the assets of the BVI Companies. In a nutshell, their appointment is “the most effective way of “holding the ring” between warring litigants until the disputed issues could be finally determined.”6 Whether the Receivers are entitled to Confidential Documents and Privileged Documents?

[21]The Receivers are of the view that the Order is unclear as to whether they are entitled to inspect and/or request both the Confidential Documents and the Privileged Documents. They advanced four propositions which they say are responsible for the vagueness of the Order namely: 1. The right to see such documents appears to fall within the Receivers’ powers under paragraph 16(1) of the Order. The power granted under the paragraph is wide and does not limit or lay down the steps that the Receivers may take. Further and in any event, the request to inspect the documents was reasonable and justified in the context of the Receivers’ duties to preserve and secure the assets of the BVI Companies. 2. It is unclear whether the effect of paragraph 16.4 of the Order is to the power simply to conduct the current proceedings and the LA Proceedings. The Order does not appear to limit the powers exercisable by the Receivers which would previously have vested in the directors, in any other way. Paragraph 19 of the Order would tend to suggest that the exclusion should be narrowly construed.7 3. It may also be argued that the effect of paragraph 15 of the Order is that (i) the Confidential Documents and the Privileged Documents fall within the definition of “Assets” as being documentary records of the BVI Companies; and (ii) the Receivers are entitled to take control of such Assets. 4. Regard must be had to the purpose of the Order, namely to assist in the preservation and securing of the BVI Defendants’ assets. The Receivers consider that access to the Confidential Documents and the Privileged Documents will assist them in that task.

[22]Unquestionably, the Order must be read as a whole for its true effect. When read as a whole, there appears to be nothing unclear about the Order. As I examine it carefully, the critical paragraph of the Order appears to be 16.4. It provides that the Receivers are authorised to exercise all of the corporate powers of the BVI Companies which are vested in their Board of Directors, save for power to conduct the present proceedings or the LA Proceedings. As Mr Phillips correctly pointed out, the critical question is whether the exclusion of the power to conduct the LA proceedings includes an exclusion of the power to be provided with information about those proceedings bearing in mind that the appointment of the Receivers by the Court (as contained in paragraph 19 of the Order) practically removes the conduct and guidance from the directors of the company and places it in the hands of the Receivers.

Inspection of Privileged Documents

[23]Learned Queen’s Counsel, Mr Moverley Smith, who appeared for the BVI Companies argued that because the Receivers are third party officers of the Court, they do not have any automatic right by virtue of their status as Receivers to inspect communications protected by legal professional privilege (“LPP”). He submitted that unlike receivers appointed under a debenture, they are not agents or trustees of the BVI Companies. This feature, he correctly submitted, distinguishes receivers from provisional liquidators, who do act as agents for the company over which they are appointed.

[24]Mr Moverley Smith QC submitted that for the Receivers to have the right to inspect communications protected by LPP, the Court must have positively made an order to the effect that LPP be broken. Learned Queen’s Counsel submitted that there is a wealth of judicial authorities against the proposition that the Court should ever break LPP. In the recent case of General Mediterranean Holdings Ltd v Patel [2000] 1 WLR 272, Toulson J said this on LPP at p. 282D: “In Ex Parte B [1996] AC 487, 504-505, Lord Taylor of Gosforth CJ began by examining the history of “the rule that privilege is that of the client, which he alone can waive, and that the court will not permit, let alone order, the attorney to reveal the confidential communications which have passed between him and his former client.”

[25]He then considered its modern foundation, citing extracts from a number of cases including the following passage from the judgment of Sir George Jessel MR in Anderson v Bank of British Columbia (1876) 2 Ch D 644, 649: “The object and meaning of the rule is this: that as, by reason of the complexity and difficulty of our law, litigation can only be properly conducted by professional men, it is absolutely necessary that a man, in order to prosecute his rights or to defend himself from an improper claim, should have recourse to the assistance of professional lawyers, and of it being so absolutely necessary, it is equally necessary, to use a vulgar phrase, that he should be able to make a clean breast of it to the gentleman whom he consults with a view to the prosecution of his claim, or the substantiating of his defence against the claim of others; that he should be able to place unrestricted and unbounded confidence in the professional agent, and that the communications he so makes to him should be kept secret, unless with his consent…that he should be enabled properly to conduct his litigation.”

[26]In summary, the rule has been regarded as an essential part of a person’s right of access to justice. In Re Ontario Securities Commission and Greymac Credit Corp8 the Divisional Court of the High Court of Justice dealt with the issue of solicitor-client privilege. At page 6 of the judgment, Southey J considered the nature and importance of the solicitor-and-client privilege and referred to the case of Solosky v The Queen9 in which Dickson J had said (at p. 839): “…the right to communicate in confidence with one’s legal adviser is a fundamental civil and legal right, founded upon the unique relationship of solicitor and client….”

[27]No doubt, there are other very powerful factors weighing against breaking LPP. No court has countenanced the breaking of such privilege since the 16th Century and the Courts have remained astute to protect that right. However, the Receivers are saying that because they are “insiders”, they are entitled to the Privileged Documents. Mr Moverley Smith QC conceded that if the Receivers are to be considered “insiders,” then they will be entitled to Privileged Documents. Therefore, a key question to be decided now is whether the Receivers are indeed “insiders”?

[28]The Order, as amended on 4 June 2008, expressly provides at paragraph 16.4 that the Receivers are authorised to exercise all of the corporate powers of the BVI Companies which are vested in their Board of Directors, save for the power to conduct the present proceedings and the LA proceedings.

[29]Paragraph 19 states that “the powers of the Receivers in relation to the First to Ninth Defendants’ Assets shall be vested in them to the exclusion of the powers of its Board of Directors and other Officers save that the Board of Directors and other officers may cause the First to Ninth Defendants to make applications and take other steps in these proceedings and the LA Proceedings and otherwise with the permission of the court.”

[30]Reading these two paragraphs together, it seems to me that the Receivers, having been expressly excluded to conduct the LA proceedings are indeed third parties in those proceedings. Hence, they cannot be considered “insiders.” The power to make applications and take other steps in the LA proceedings still resile with the directors and have not been taken away from them. Therefore, the directors are still the “insiders.” In my opinion, the Canadian case of Re Ontario Securities Commission and Greymac Credit Corp, referred to by Learned Queen’s Counsel, Mr Phillips is distinguishable from the present application. The case concerned the powers of a registrar appointed as a receiver of companies under the Loan and Trust Corporations Act 1980, and specifically, whether the receiver could waive privilege of the companies over which it was appointed. The Divisional Court of the High Court held that pursuant to his appointment under the Act, the registrar had all the powers of the board of directors of the two corporations in question, “which would include the power to waive a solicitor-and-client privilege of either of those corporations, but those powers are expressly conferred for the purposes for which the registrar was ordered to take control.”

[31]In the instant case, the Order expressly provides that the Receivers are not to have conduct of the LA Proceedings. In other words, the conduct of those proceedings is left with the directors.

[32]Even if I am wrong to come to this conclusion, there are a number of factors which militate against breaking LPP in this particular case. These have been well-encapsulated by Mr Moverley Smith in his written submissions.10 I shall gratefully adopt them.

[33]Firstly, Ever Maple is only one of four defendants in the LA Proceedings (“the LA Defendants”). The LA Defendants have jointly instructed Quinn Emmanuel, and before them, Latham & Watkins. The LA Defendants accordingly enjoy a joint LPP. The remaining three Defendants are not parties to, or been served with this Application. Breaking LPP means that their rights are to be invaded. Moreover, it cannot be said that they should have chosen to be represented separately, because they should have envisaged such an application as is currently being made: not only is such an application without precedent, but when the LA Proceedings were commenced in June 2007, the LA Defendants could not have envisaged that some 6 months’ later, proceedings would be instituted in the BVI and the appointment of a Receiver obtained.

[34]Secondly, the Receivers are applying to be joined as a party to the LA Proceedings. If they were to be successful and become a party to the LA Proceedings, then they may very well approach the LA Court which is seized of the proceedings. In my opinion, that will be the better court to consider the issue of whether the Receivers should be excluded or not from inspecting and/or requesting Privileged Documents. The LA Defendants will inevitably take legal advice as to how to respond to any steps the Receivers might then take in those Proceedings. If the Application in relation to Privileged Documents were to be successful, it would have the intolerable result that the Receivers would gain access to such advice.

[35]Thirdly, the Court has ruled that the conduct of the LA Proceedings is out with the Receivership. Of course, the manner in which the LA Proceedings are conducted may ultimately affect the asset position of Ever Maple but the Court was well aware of that when it made its order confirming that the conduct of those proceedings should remain with the directors. In any event, there is nothing currently happening in the LA Proceedings which is likely to affect Ever Maple’s asset position. Prior to the disqualification application, the Los Angeles Court was concerned only with a jurisdictional motion by Ever Maple seeking a stay of the LA Proceedings on forum non conveniens grounds and the Receivers’ application to be joined as a party. As a result of the disqualification of Quinn Emmanuel, and pending the appointment of a replacement firm, a new timetable for the hearing of these applications has yet to be agreed (or might have been since the hearing of this application).

Confidential Documents

[36]On 27 May 2008, Ever Maple’s BVI’s Counsel, Harneys served Ogier with a Notice of Application seeking certain declarations. However, Ever Maple did not seek any form of declaration to the effect that the Receivers should not have access to the Confidential Documents. This of course, came as a surprise when the application came before me on 30 July 2008. On that date, Mr Moverley Smith, in his usual comprehensive style, fought hard in opposition to a request by the Receivers to inspect Confidential Documents. He argued that the Receivers have no role to play in relation to the LA Proceedings and as such, it is very difficult to see what possible justification there could be for directing the blanket disclosure of documents now sought.

[37]It is not entirely true to say that the Receivers have no role to play in the LA proceedings. Whilst the Receivers do not have conduct of the LA proceedings, this does not mean that they should not be privy to what is taking place there. After all, they have been appointed to preserve and secure the assets of the BVI Companies pending the determination of the claim. Paragraph 14 requires them to take all steps to identify and secure the BVI Companies’ assets and to investigate the affairs of these Companies for the purposes of discharging their duties under the Order. In his First and Fourth Affidavits, Casey McDonald described the difficulties that the Receivers are encountering at the hands of these un-cooperative BVI Companies including Ever Maple. To date, the Receivers have received very little information from the BVI Companies particularly Ever Maple. They are hampered in their task and have not fully identified the assets of Ever Maple. They feel that if they have access to the Confidential Documents, they will be assisted greatly in their investigations. They should not be shut out from discharging their duties to the Court. They have consistently repeated that they are independent court-appointed officers and not agents of the Claimants. They recognise that it is utterly improper to pass any confidential information and/or documents without the sanction of the Court.

[38]The BVI Companies are concerned that the Confidential Documents sought expressly include documents which are subject to restrictions as to their use (see paragraph 6b of Mr. McDonald’s Fourth Affidavit). It is self-evident that such restrictions will have been imposed by either the Los Angeles Court itself e.g. by making a “Protective” order (as has already happened); by Court rules or by express or implied undertakings given to the Court. Equally self-evident is the fact that such restrictions are for the benefit of persons providing discovery, not for the benefit of the persons receiving it.

[39]I agree with Mr Moverley Smith that this Court is in no position to require the BVI Companies to act in breach of such restrictions, particularly when the beneficiaries of those restrictions are not before it. Whether any particular restriction should be relaxed is exclusively a matter for the Los Angeles Court.

[40]However, there are documents which are not subject to restrictions. In my opinion, they do not interfere with any orders of the Los Angeles Court. For the record, I should state that this Court respects the principle of comity towards foreign courts of friendly nations and will not make any orders which are in conflict with orders of that court. It seems to me therefore that this Court could justly order that all confidential documents (future included) which are not subject to restrictions imposed by either the Los Angeles Court, by Court rules or by express or implied undertakings given to the Court be disclosed to the Receivers.

[41]In the premises, I will make the following orders that: 1. The Receivers are entitled to inspect the Public Documents and the Confidential Documents as detailed in paragraph 41(2) (a) and (b) of the Order. 2. Ever Maple do provide to the Receivers legible copies of the following documents: a) Public Documents: Information and documents relating to the LA Proceedings which are of public record, for example documents filed at court by or on behalf of Ever Maple or other parties in the LA Proceedings; and b) Confidential Documents: Information and documents arising out of the LA Proceedings, which are not in the public domain or are confidential or otherwise subject to restrictions as to their use (but which are not protected by legal professional privilege). Such documents should not be subject to restrictions imposed by either the Los Angeles Court, by Court rules or by express or implied undertakings given to the Court. c) The Confidential Documents should be marked “confidential” or for “attorneys’ eyes only.” d) The Public Documents and the Confidential Documents are to be provided within 14 days hereof. 3. Costs to be assessed if not agreed. The parties are to file submissions on costs within 21 days hereof.

[42]Last but not least, the Court is appreciative to all parties for their patience in awaiting this judgment.

Indra Hariprashad-Charles

High Court Judge

BRITISH VIRGIN ISLANDS THE EASTERN CARIBBEAN SUPREME COURT IN THE HIGH COURT OF JUSTICE (CIVIL) CLAIM NO: BVIHCV2007/0262 Between: (1) DANONE ASIA PTE LIMITED (2) JINJA INVESTMENTS PTE LIMITED (3) NOVALC PTE LIMITED (4) MYEN PTE LIMITED Applicants/Claimants -and- (1) GOLDEN DYNASTY ENTERPRISES LIMITED (2) GOLD FACTORY DEVELOPMENTS LIMITED (3) PLATINUM NET LIMITED (4) SUNWORLD ENTERPRISES LIMITED (5) GREAT BASE INTERNATIONAL LIMITED (6) BOUNTIFUL GOLD TRADING LIMITED (7) EVER MAPLE TRADING LIMITED (8) WINTELL ENTERPRISES LIMITED (9) CENTRAL INTERNATIONAL INVESTMENT HOLDINGS LIMITED (10) TRILLION SINO INVESTMENTS LIMITED (11) WU TIANYAO (12) CHAN TAT HO (13) WU YAN JIAN (14) HE PING (15) LIANG LE PING (16) WU CHU KUN (17) CHEN YI FENG (18) MA NAM KIT (19) CHAN CHUN HING Respondents/Defendants Appearances: Mr Mark Phillips QC of 3-4 South Square, Gray’s Inn, London and Mr Robert Foote of Ogier for the Receivers Mr Stephen Moverley Smith QC of XXIV Old Buildings, London with Mr Phillip Kite and Mr Nicholas Fox of Harney Westwood & Riegels for the First to Ninth Defendants ————————————————————————————— 2008: July 30 2008: September 30 ———————————————————————– JUDGMENT Introductory

[1]HARIPRASHAD-CHARLES J: By a Notice of Application filed on 16 July 2008 (“the Application”), the Receivers of the First to Ninth Defendants (“the Receivers”) seek directions to determine whether or not they are entitled to inspect and/or request copies of certain Confidential and/or Privileged Documents in the possession and/or control of the Seventh Defendant (“Ever Maple”).

[2]The Receivers rely on the Fourth Affidavit of Casey McDonald sworn to on 16 July 2008 in support of their application. Background

[3]The Claimants are various companies within the Danone Group of Companies. They have initiated a number of lawsuits and arbitration cases within China and in several other jurisdictions for, among other things, knowing assistance and knowing receipt on the basis that the Defendants have been involved in a fraud against the Claimants in connection with various joint venture agreements and a Services Agreement entered into with Zong Qinghou (“Mr Zong”) in the People’s Republic of China (“PRC”).

[4]Similar proceedings have been instituted by companies in the Danone Group in Los Angeles against Ever Maple and three other Defendants claiming, amongst other things, intentional and negligent interference with prospective economic advantage, unjust enrichment and unlawful, unfair and fraudulent competition (“the LA Proceedings”).

[5]On 9 November 2007, the Claimants approached this Court. They applied for and obtained, ex parte, a Freezing Order over the First to Eight Defendants and a Receivership Order over the assets and undertaking of these Defendants. The Order was amended on 13 November 2007 and continued at the hearing on 29 November 2007 until further order. At that hearing, the Order was amended to provide that the Receivers were appointed over the assets and undertakings of the First to Ninth Defendants (“the BVI Companies”). The Order was further amended on 4 June 2008 following an application by Ever Maple. The Order provided the Receivers with various powers to enable them to preserve and secure the assets of the BVI Companies.

[6]On 27 November 2007, the Court of First Instance in Hong Kong made a similar order appointing the Receivers and Eddie Middleton of KPMG Hong Kong as Receivers over the assets of the First to Eight Defendants. On 7 December 2007, that order was extended to include a receivership over Ever Maple.

[7]Subsequently, the BVI Companies applied to discharge the Receivership but in December 2007, the parties jointly announced a truce and that both sides were committed to resolving the dispute by negotiation. By Order of the Court dated 8 January 2008, the Receivership Order was suspended for a period of 60 days for the parties to try and agree a settlement. The suspension period was subsequently extended to 10 April 2008. The parties failed to reach a settlement by that date with the result that the receivership and the discharge application are again active. Receivers’ requests for documents

[9]To date, the Receivers’ attempts to obtain information and documents pursuant to the Order have been hampered by the BVI Companies’ uncooperativeness. Shortly put, the Receivers have been largely unsuccessful in their attempts. This is set out in the First and Fourth Affidavits of Casey McDonald. Apart from details of Ever Maple’s equity interests in various Chinese companies, bank account details and balances, the only information that the Receivers have been provided with at the date of this hearing is either publicly available or out of date and is accordingly of little value to the Receivers in the discharge of their duties.

[8]Following their appointment, the Receivers obtained various documents from the BVI Companies’ registered agents which included registers of directors and members, memorandum and articles of association, basic incorporation documents and certain of the registered agents’ related correspondence. Between 16 November 2007 and 10 December 2007, the Receivers and their legal advisors wrote to all of the BVI Companies providing them with a copy of the Receivership Order and asking them to provide the Receivers with copies of the books and records of the BVI Companies in order to assist them to identify and preserve the assets of these companies.

[10]Against that unsatisfactory state of affairs, the Receivers approached Ever Maple’s attorneys in the LA Proceedings, Quinn Emmanuel, with the view of obtaining relevant documents relating to Ever Maple and the LA Proceedings generally. On 20 May 2008, the Receivers’ BVI lawyers, Ogier, wrote to Quinn Emmanuel seeking three categories of documents/information namely: a) Public Documents: Information and documents relating to the LA Proceedings which are of public record, for example documents filed at court by or on behalf of Ever Maple or other parties in the LA Proceedings; b) Confidential Documents: Information and documents arising out of the LA Proceedings, which are not in the public domain or are confidential or otherwise subject to restrictions as to their use (but which are not protected by legal professional privilege), for example discovery served on Ever Maple or documents received from Ever Maple by Quinn Emmanuel for review or discovery; c) Privileged Documents: Documents protected by legal professional privilege, comprising the remainder of categories of document set out in Ogier’s letter which are neither Public Documents nor Confidential Documents.

[11]On the following day, the Receivers’ Hong Kong lawyers, Lovells wrote to the BVI Defendants’ Chinese lawyers, King & Wood, stating that King & Wood had no authority, nor were they retained, to act for the BVI Companies in any capacity whatsoever, and argued that, on the face of the Order, it appeared that the Receivers were the only persons entitled to instruct lawyers and conduct proceedings for and on behalf of the BVI Companies.

[12]As a result of the letter from Lovells, Ever Maple issued an urgent application for a declaration that (1) the Receivers were not entitled to have conduct of the LA Proceedings, and (2) accordingly, that the Receivers were not entitled to be provided with legally professionally privileged documents relating to the LA Proceedings. Further or alternatively, Ever Maple sought rectification or variation of the Order so as to exempt the conduct of the LA Proceedings from the powers granted to the Receivers under the Order. No declaration was sought to the effect that the Receivers were not entitled to have access to the Confidential Documents.

[13]The Court heard Ever Maple’s application on 4 June 2008. At that hearing, Ever Maple’s claim for declaratory relief was formally dismissed. However, the Order was amended at paragraphs 16.4 and 19 to provide that the Receivers’ powers did not extend to them having conduct of the LA Proceedings. The Court did not make any findings as to whether the Receivers were entitled to inspect or have copies of legally privileged documents of Ever Maple and indicated that such an application should be dealt with by way of a separate application.

[14]Prior to filing that application, the Receivers had communicated an intention to intervene in their own right in the LA proceedings. Consequently, on 18 July 2008, the Receivers (including the Hong Kong Receiver) filed a notice of motion to intervene. That motion was scheduled to be heard on 10 September 2008 but from unconfirmed information, it has been adjourned to a date in October 2008.

[15]Then, on 10 June 2008, Ogier wrote to Quinn Emmanuel attaching a copy of the 4 June 2008 Order as amended, requesting Quinn Emmanuel to provide the documents and information that had been requested by the letter dated 20 May 2008. By letter of even date, Quinn Emmanuel responded by taking the point that the Receivers were not entitled to copies of any documents which attract legal professional privilege. Further details of Ever Maple’s position were set out in a letter dated 13 June 2008 from Harneys, the BVI Companies’ legal advisers. The relevance of the Confidential and the Privileged Documents

[16]The Receivers are of the view that access to the Confidential Documents and the Privileged Documents would assist them in discharging their duties under the Order with respect to the preservation and securing of the BVI Companies’ assets for the following reasons: (i) To enable them to determine what assets of Ever Maple are or may be being used in the LA Proceedings. Thus, if and to the extent assets of Ever Maple are referred to in Confidential or Privileged Documents it would be of great assistance to the Receivers to know what those assets are and to be able to assess how best to secure them. (ii) To determine the extent of Ever Maple’s exposure in the LA Proceedings. They say that the significance of this is that if Ever Maple’s exposure in the LA Proceedings is as great as or exceeds the total of its assets, there would be nothing remaining for the Receivers to preserve. (iii) To ascertain whether the LA Proceedings pose any threat to the preservation or securing of the BVI Companies’ assets. Thus, for example, if Ever Maple is thought to be exposed to good proprietary claims against assets held by Ever Maple which would take those assets out of the estate, it would be important for the Receivers to understand what the risks are. (iv) To provide information necessary for the Receivers’ compliance and discharge of their duties, including information about Ever Maple’s assets and liabilities (for example, in circumstances where Ever Maple has so far not disclosed to the Receivers, with reference to supporting documentation or at all, the source of its litigation funding, it would be helpful to know whether the litigation is being funded from a bank account or accounts of which the Receivers are presently unaware). Powers of the Receivers

[19]The appointment of a receiver by the court “practically removes the conduct and guidance from the directors appointed by the company, and places it in the hands of the receiver and manager, “who thereupon absolutely superseded the company itself, so that the company becomes incapable of making any contract on behalf of the company or exercising any control over any part of any property or assets of the company”” The company is thereby dissolved or annihilated. Its powers in these respects are thereby in abeyance.”

[17]The powers of the Receivers are derived from the Order. For purposes of this application, the relevant paragraphs are set out below. (i) Paragraph 13 provides that the Receivers are appointed to identify and secure the assets of the BVI Companies pending determination of the claim. (ii) Paragraph 14 requires the Receivers to take all steps to identify and secure the BVI Companies’ assets and to investigate the affairs of these Companies for the purposes of discharging their duties under the Order. (iii) Paragraph 15 provides that the Receivers shall have the power to do all acts and things necessary for the purpose of complying with the Order and carrying out their functions, including (a) to require any director or officer or former director or officer of the BVI Companies to supply all and any information and documents to them concerning the affairs of these Companies; and (b) to take control of all bank accounts and any other property included within the BVI Companies’ assets. In Schedule 1, assets are defined to include all of the BVI Companies’ assets and undertaking wherever situated and whether or not held in their name or by others, including any documentary records of the BVI Companies including communications with third parties. (iv) Paragraph 16.1 provides that the Receivers are authorised to take such steps as they consider necessary for the purposes of obtaining control and/or custody of and recovering all of the BVI Companies’ assets including commencing recognition proceedings in any jurisdiction. (v) Paragraph 16.4 provides that the Receivers are authorised to exercise all of the corporate powers of the BVI Companies which are vested in their Board of Directors, save for power to conduct the present proceedings or the LA Proceedings. (vi) Paragraph 19 provides that the powers of the Receivers in relation to the BVI Companies’ assets shall be vested in them to the exclusion of their Board of Directors and other Officers. Legal status of receiver appointed by the court

[21]The Receivers are of the view that the Order is unclear as to whether they are entitled to inspect and/or request both the Confidential Documents and the Privileged Documents. They advanced four propositions which they say are responsible for the vagueness of the Order namely: The right to see such documents appears to fall within the Receivers’ powers under paragraph 16(1) of the Order. The power granted under the paragraph is wide and does not limit or lay down the steps that the Receivers may take. Further and in any event, the request to inspect the documents was reasonable and justified in the context of the Receivers’ duties to preserve and secure the assets of the BVI Companies. It is unclear whether the effect of paragraph 16.4 of the Order is to the power simply to conduct the current proceedings and the LA Proceedings. The Order does not appear to limit the powers exercisable by the Receivers which would previously have vested in the directors, in any other way. Paragraph 19 of the Order would tend to suggest that the exclusion should be narrowly construed. It may also be argued that the effect of paragraph 15 of the Order is that (i) the Confidential Documents and the Privileged Documents fall within the definition of “Assets” as being documentary records of the BVI Companies; and (ii) the Receivers are entitled to take control of such Assets. Regard must be had to the purpose of the Order, namely to assist in the preservation and securing of the BVI Defendants’ assets. The Receivers consider that access to the Confidential Documents and the Privileged Documents will assist them in that task.

[18]In determining the present application, regard must be had to the status of the Receivers. They are third party officers appointed by the court to carry out the duties set out in the order. Accordingly, they are officers of the court and are neither agents nor trustees of the Claimants nor of the BVI Companies.

[20]The status of the Receivers is significant in the context of this application. They have no interest in the litigation either in this Court or elsewhere. Their primary obligation is to the Court properly to discharge their duties and to secure and preserve the assets of the BVI Companies. In a nutshell, their appointment is “the most effective way of “holding the ring” between warring litigants until the disputed issues could be finally determined.” Whether the Receivers are entitled to Confidential Documents and Privileged Documents?

[22]Unquestionably, the Order must be read as a whole for its true effect. When read as a whole, there appears to be nothing unclear about the Order. As I examine it carefully, the critical paragraph of the Order appears to be 16.4. It provides that the Receivers are authorised to exercise all of the corporate powers of the BVI Companies which are vested in their Board of Directors, save for power to conduct the present proceedings or the LA Proceedings. As Mr Phillips correctly pointed out, the critical question is whether the exclusion of the power to conduct the LA proceedings includes an exclusion of the power to be provided with information about those proceedings bearing in mind that the appointment of the Receivers by the Court (as contained in paragraph 19 of the Order) practically removes the conduct and guidance from the directors of the company and places it in the hands of the Receivers. Inspection of Privileged Documents

[27]No doubt, there are other very powerful factors weighing against breaking LPP. No court has countenanced the breaking of such privilege since the 16th Century and the Courts have remained astute to protect that right. However, the Receivers are saying that because they are “insiders”, they are entitled to the Privileged Documents Mr Moverley Smith QC conceded that if the Receivers are to be considered “insiders,” then they will be entitled to Privileged Documents. Therefore, a key question to be decided now is whether the Receivers are indeed “insiders”?

[23]Learned Queen’s Counsel, Mr Moverley Smith, who appeared for the BVI Companies argued that because the Receivers are third party officers of the Court, they do not have any automatic right by virtue of their status as Receivers to inspect communications protected by legal professional privilege (“LPP”). He submitted that unlike receivers appointed under a debenture, they are not agents or trustees of the BVI Companies. This feature, he correctly submitted, distinguishes receivers from provisional liquidators, who do act as agents for the company over which they are appointed.

[24]Mr Moverley Smith QC submitted that for the Receivers to have the right to inspect communications protected by LPP, the Court must have positively made an order to the effect that LPP be broken. Learned Queen’s Counsel submitted that there is a wealth of judicial authorities against the proposition that the Court should ever break LPP. In the recent case of General Mediterranean Holdings Ltd v Patel [2000] 1 WLR 272, Toulson J said this on LPP at p. 282D: “In Ex Parte B [1996] AC 487, 504-505, Lord Taylor of Gosforth CJ began by examining the history of “the rule that privilege is that of the client, which he alone can waive, and that the court will not permit, let alone order, the attorney to reveal the confidential communications which have passed between him and his former client.”

[25]He then considered its modern foundation, citing extracts from a number of cases including the following passage from the judgment of Sir George Jessel MR in Anderson v Bank of British Columbia (1876) 2 Ch D 644, 649: “The object and meaning of the rule is this: that as, by reason of the complexity and difficulty of our law, litigation can only be properly conducted by professional men, it is absolutely necessary that a man, in order to prosecute his rights or to defend himself from an improper claim, should have recourse to the assistance of professional lawyers, and of it being so absolutely necessary, it is equally necessary, to use a vulgar phrase, that he should be able to make a clean breast of it to the gentleman whom he consults with a view to the prosecution of his claim, or the substantiating of his defence against the claim of others; that he should be able to place unrestricted and unbounded confidence in the professional agent, and that the communications he so makes to him should be kept secret, unless with his consent…that he should be enabled properly to conduct his litigation.”

[26]In summary, the rule has been regarded as an essential part of a person’s right of access to justice. In Re Ontario Securities Commission and Greymac Credit Corp the Divisional Court of the High Court of Justice dealt with the issue of solicitor-client privilege. At page 6 of the judgment, Southey J considered the nature and importance of the solicitor-and-client privilege and referred to the case of Solosky v The Queen in which Dickson J had said (at p. 839): “…the right to communicate in confidence with one’s legal adviser is a fundamental civil and legal right, founded upon the unique relationship of solicitor and client….”

[28]The Order, as amended on 4 June 2008, expressly provides at paragraph 16.4 that the Receivers are authorised to exercise all of the corporate powers of the BVI Companies which are vested in their Board of Directors, save for the power to conduct the present proceedings and the LA proceedings.

[29]Paragraph 19 states that “the powers of the Receivers in relation to the First to Ninth Defendants’ Assets shall be vested in them to the exclusion of the powers of its Board of Directors and other Officers save that the Board of Directors and other officers may cause the First to Ninth Defendants to make applications and take other steps in these proceedings and the LA Proceedings and otherwise with the permission of the court.”

[30]Reading these two paragraphs together, it seems to me that the Receivers, having been expressly excluded to conduct the LA proceedings are indeed third parties in those proceedings. Hence, they cannot be considered “insiders.” The power to make applications and take other steps in the LA proceedings still resile with the directors and have not been taken away from them. Therefore, the directors are still the “insiders.” In my opinion, the Canadian case of Re Ontario Securities Commission and Greymac Credit Corp, referred to by Learned Queen’s Counsel, Mr Phillips is distinguishable from the present application. The case concerned the powers of a registrar appointed as a receiver of companies under the Loan and Trust Corporations Act 1980, and specifically, whether the receiver could waive privilege of the companies over which it was appointed. The Divisional Court of the High Court held that pursuant to his appointment under the Act, the registrar had all the powers of the board of directors of the two corporations in question, “which would include the power to waive a solicitor-and-client privilege of either of those corporations, but those powers are expressly conferred for the purposes for which the registrar was ordered to take control.”

[31]In the instant case, the Order expressly provides that the Receivers are not to have conduct of the LA Proceedings. In other words, the conduct of those proceedings is left with the directors.

[32]Even if I am wrong to come to this conclusion, there are a number of factors which militate against breaking LPP in this particular case. These have been well-encapsulated by Mr Moverley Smith in his written submissions. I shall gratefully adopt them.

[33]Firstly, Ever Maple is only one of four defendants in the LA Proceedings (“the LA Defendants”). The LA Defendants have jointly instructed Quinn Emmanuel, and before them, Latham & Watkins. The LA Defendants accordingly enjoy a joint LPP. The remaining three Defendants are not parties to, or been served with this Application. Breaking LPP means that their rights are to be invaded. Moreover, it cannot be said that they should have chosen to be represented separately, because they should have envisaged such an application as is currently being made: not only is such an application without precedent, but when the LA Proceedings were commenced in June 2007, the LA Defendants could not have envisaged that some 6 months’ later, proceedings would be instituted in the BVI and the appointment of a Receiver obtained.

[34]Secondly, the Receivers are applying to be joined as a party to the LA Proceedings. If they were to be successful and become a party to the LA Proceedings, then they may very well approach the LA Court which is seized of the proceedings. In my opinion, that will be the better court to consider the issue of whether the Receivers should be excluded or not from inspecting and/or requesting Privileged Documents. The LA Defendants will inevitably take legal advice as to how to respond to any steps the Receivers might then take in those Proceedings. If the Application in relation to Privileged Documents were to be successful, it would have the intolerable result that the Receivers would gain access to such advice.

[35]Thirdly, the Court has ruled that the conduct of the LA Proceedings is out with the Receivership. Of course, the manner in which the LA Proceedings are conducted may ultimately affect the asset position of Ever Maple but the Court was well aware of that when it made its order confirming that the conduct of those proceedings should remain with the directors. In any event, there is nothing currently happening in the LA Proceedings which is likely to affect Ever Maple’s asset position. Prior to the disqualification application, the Los Angeles Court was concerned only with a jurisdictional motion by Ever Maple seeking a stay of the LA Proceedings on forum non conveniens grounds and the Receivers’ application to be joined as a party. As a result of the disqualification of Quinn Emmanuel, and pending the appointment of a replacement firm, a new timetable for the hearing of these applications has yet to be agreed (or might have been since the hearing of this application). Confidential Documents

[41]In the premises, I will make the following orders that: The Receivers are entitled to inspect the Public Documents and the Confidential Documents as detailed in paragraph 41(2) (a) and (b) of the Order. Ever Maple do provide to the Receivers legible copies of the following documents: a) Public Documents: Information and documents relating to the LA Proceedings which are of public record, for example documents filed at court by or on behalf of Ever Maple or other parties in the LA Proceedings; and b) Confidential Documents: Information and documents arising out of the LA Proceedings, which are not in the public domain or are confidential or otherwise subject to restrictions as to their use (but which are not protected by legal professional privilege). Such documents should not be subject to restrictions imposed by either the Los Angeles Court, by Court rules or by express or implied undertakings given to the Court. c) The Confidential Documents should be marked “confidential” or for “attorneys’ eyes only.” d) The Public Documents and the Confidential Documents are to be provided within 14 days hereof. Costs to be assessed if not agreed. The parties are to file submissions on costs within 21 days hereof.

[36]On 27 May 2008, Ever Maple’s BVI’s Counsel, Harneys served Ogier with a Notice of Application seeking certain declarations. However, Ever Maple did not seek any form of declaration to the effect that the Receivers should not have access to the Confidential Documents. This of course, came as a surprise when the application came before me on 30 July 2008. On that date, Mr Moverley Smith, in his usual comprehensive style, fought hard in opposition to a request by the Receivers to inspect Confidential Documents. He argued that the Receivers have no role to play in relation to the LA Proceedings and as such, it is very difficult to see what possible justification there could be for directing the blanket disclosure of documents now sought.

[37]It is not entirely true to say that the Receivers have no role to play in the LA proceedings. Whilst the Receivers do not have conduct of the LA proceedings, this does not mean that they should not be privy to what is taking place there. After all, they have been appointed to preserve and secure the assets of the BVI Companies pending the determination of the claim. Paragraph 14 requires them to take all steps to identify and secure the BVI Companies’ assets and to investigate the affairs of these Companies for the purposes of discharging their duties under the Order. In his First and Fourth Affidavits, Casey McDonald described the difficulties that the Receivers are encountering at the hands of these un-cooperative BVI Companies including Ever Maple. To date, the Receivers have received very little information from the BVI Companies particularly Ever Maple. They are hampered in their task and have not fully identified the assets of Ever Maple. They feel that if they have access to the Confidential Documents, they will be assisted greatly in their investigations. They should not be shut out from discharging their duties to the Court. They have consistently repeated that they are independent court-appointed officers and not agents of the Claimants. They recognise that it is utterly improper to pass any confidential information and/or documents without the sanction of the Court.

[38]The BVI Companies are concerned that the Confidential Documents sought expressly include documents which are subject to restrictions as to their use (see paragraph 6b of Mr. McDonald’s Fourth Affidavit). It is self-evident that such restrictions will have been imposed by either the Los Angeles Court itself e.g. by making a “Protective” order (as has already happened); by Court rules or by express or implied undertakings given to the Court. Equally self-evident is the fact that such restrictions are for the benefit of persons providing discovery, not for the benefit of the persons receiving it.

[39]I agree with Mr Moverley Smith that this Court is in no position to require the BVI Companies to act in breach of such restrictions, particularly when the beneficiaries of those restrictions are not before it. Whether any particular restriction should be relaxed is exclusively a matter for the Los Angeles Court.

[40]However, there are documents which are not subject to restrictions. In my opinion, they do not interfere with any orders of the Los Angeles Court. For the record, I should state that this Court respects the principle of comity towards foreign courts of friendly nations and will not make any orders which are in conflict with orders of that court. It seems to me therefore that this Court could justly order that all confidential documents (future included) which are not subject to restrictions imposed by either the Los Angeles Court, by Court rules or by express or implied undertakings given to the Court be disclosed to the Receivers.

[42]Last but not least, the Court is appreciative to all parties for their patience in awaiting this judgment. Indra Hariprashad-Charles High Court Judge