Hao Xiaoying v. Wong Yiu Lam William and Others

CACV 70/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 70 OF 2015

(ON APPEAL FROM HCMP NO. 1968 OF 2014)

________________________

BETWEEN

________________________

_____________________

J U D G M E N T
_____________________

Hon Cheung JA :

I. The appeal

1.This is the appeal by the 1^st, 2^nd and 3^rd defendants against the judgment of Anthony Chan J by which the 1^st defendant was committed to imprisonment for four months for contempt of court, subject to his purging of the contempt by complying with an order for production of certain documents.  The 2^nd and 3^rd defendants were fined HK$150,000 for their contempt of court, with a sentence of imprisonment for one month in default of payment.  

II.  Background

1) Application for inspection

2.1.Green Valley Investment Limited (‘the Company’) is a Hong Kong company.  The plaintiff, the three defendants and one Lu Jia Dong are the five shareholders of the Company each holding 20% of the shares in the Company.  The Company had received RMB 16,000,000 being the agreed compensation paid by Shanghai Xin Da Shi Yip Chung Company (上海鑫達實業總公司) (‘Shanghai Company’) pursuant to a mediation agreement dated 23 April 2009 (‘Compensation’).

2.2.On 22 April 2013 the plaintiff as a shareholder of the Company applied in HCMP 837 of 2013 for an order against the Company for inspection of the following documents pursuant to section 152FA of the then Companies Ordinance, Cap. 32 (‘Ordinance’):

(1) all profit and loss account(s), income and expenditure account(s), directors’ report(s) and auditors’ report(s) belonging to the Company for the period from 25 July 2000 to the date of the order;

(2) all bank entry record and any other documents showing receipt of the Compensation and the subsequent transfers and/or use thereof (the ‘Documents’).

2) The Orders

2.3.On 26 September 2013 the Company acceded to the plaintiff’s application and consented to the Judge making the following order for production (‘the 1^st Order’) :

‘ 1. The Defendant do forthwith produce to the Plaintiff his agents or representatives duly appointed by him the following documents:

(i) All bank entry record and any other documents showing receipt of the sum of RMB16,000,000 being the agreed compensation paid by Shanghai Xin Da Shi Yip Chung Company (上海鑫达实业总公司) (‘Shanghai Company’) in respect of the legal proceedings in Shanghai City (case no. (2007) 沪一中民五(商)初字第104号) pursuant to the mediation agreement dated 23 April 2009 and the subsequent transfers and/or use thereof;

(collectively ‘Documents’), whether in printed or documentary form or any other form including computer generated records and information inscribed on, stored in or otherwise fixed in tangible medium or that is stored in an electronic or other medium that is retrievable in a perceivable form in particular computer hard disc drive, floppy disc, compact disc and zip storage device.  For the avoidance of doubt, references to documents include, without limitation, correspondence, emails or other electronic communications, internal memoranda, meeting and/or telephone attendance notes, reports, presentations and drafts of the same.’

2.4.Although the 1^st Order was not in the form of a consent order, nonetheless, the defendants agreed that it was in the nature of a consent order.  

2.5.The Company, however, failed to produce the documents to the plaintiff.  Subsequently, the plaintiff applied by summons dated 4 November 2013 to compel the Company to do so.  After the summons was issued, the Company’s solicitors Fan, Wong & Tso (‘FWT’) by a letter dated 11 November 2013 informed the plaintiff’s solicitors Tony Kan & Co (‘TK’) that :

(1)  the Compensation was paid by the Shanghai Company and deposited into the bank account of the Company’s legal representatives in Shanghai (‘Shanghai Law Firm’);

(2)  the Compensation had since been kept by the Shanghai Law Firm ‘on account for legal fees incurred’ by the Company.

2.6.FWT also supplied to TK four bank statements dated 14 May 2009, 29 June 2009, 8 August 2009 and 26 November 2009 issued by the Bank of Shanghai evidencing the receipt of the Compensation by the Shanghai Law Firm in four instalments.  These appear to be electronic printouts which only showed the relevant entries of the deposits but not, for example, the balance of the account.

2.7.By a letter on 12 November 2013, TK pointed out that the Company had still failed to provide documents showing the transfers and use of the Compensation subsequent to the receipt of the same by the Shanghai Law Firm.  FWT replied on the same day that the Compensation had ‘remained in full in [Shanghai Law Firm]’s account up to now’ and ‘[n]owhere in our letter was it indicated that the [Compensation] or any part of it has been used or transferred out of the account’.

2.8.On 14 November 2013, immediately before the hearing of the plaintiff’s summons to compel the Company to comply with the 1^st Order, FWT confirmed that the Company would provide the further documents.

2.9.Accordingly, the Judge further ordered by consent, on 14 November 2013 the Company to comply with the 1^st Order within 10 days.  He also ordered that penal notice be endorsed on the Order (‘2^nd Order’).

2.10.Contrary to the previous statement that the Compensation was kept in the Shanghai Law Firm, FWT informed TK on 22 November 2013 that :

(1) the Compensation was actually kept in the Company’s bank account with Nanyang Commercial Bank Limited in Hong Kong (‘Nanyang Bank Account’) by way of a time deposit of USD 2,617,907.53 (‘Time Deposit’);

(2) a deposit confirmation evidencing the Time Deposit was enclosed.  It showed that the Time Deposit was placed on 20 November 2013 for 30 days.

2.11.Various correspondence was thereafter exchanged between TK and FWT from 25 November 2013 to 3 March 2014 by which the plaintiff reiterated his stance that the Company had failed to produce documents showing the transfers and use of the Compensation subsequent to the receipt of the same by the Shanghai Law Firm.

2.12.On 12 June 2014, the plaintiff made another application by summons to compel the defendants to comply with the 1^st Order. On 26 June 2014, the Judge ordered the Company to comply with the 1^st Order within 7 days from the service of the order (‘3^rd Order’).  It was specifically ordered that personal service be dispensed with and the previous orders made by the Judge be served on the directors, ie, the defendants by way of substituted service in the manner stated in the 3^rd Order. Penal notice was also endorsed on the 3^rd Order.

2.13.On 11 July 2014, the relevant orders were served on the defendants by way of substituted service.  No further document was produced within the seven days thereafter.

2.14.There is no dispute that the defendants, being the only directors of the Company, were in breach of the 3^rd Order by 18 July 2014.

3) The further explanation

2.15.By a letter dated 29 July 2014 from FWT to TK, the Company gave another version of the whereabouts of the Compensation:

(1) since the Company did not have any bank account in the Mainland, it was not possible for the Shanghai Law Firm to transfer the Compensation to the Company there after receipt;

(2) the Shanghai Law Firm had kept the Compensation on account for legal fees incurred and to be incurred by the Company in connection with litigations in Shanghai.  In view that the law suits in Shanghai were still on-going, and the amount of legal fees to be incurred could not be ascertained for quite some time, the Company authorized the 1^st defendant to receive the Compensation for and on its behalf;

(3) the Compensation was paid to the 1^st defendant by the Shanghai Law Firm on 21 May 2009, 30 June 2009, 10 September 2009 and 30 November 2009 by four instalments;

(4) out of the Compensation, RMB 11,300,000.00 were paid to the 1^st defendant’s bank account with 廣發銀行股份有限公司 (‘Guang Fat account’) in the Mainland and the balance of RMB 4,700,000.00 was paid to the 1^st defendant directly in cash; and

(5) the Company subsequently directed the 1^st defendant to arrange for the Compensation to be deposited into the Nanyang Bank Account.  The 1^st defendant therefore arranged a sum of USD 2,617,907.53 (equivalent to about RMB 16,067,716.41) to be deposited into the Nanyang Bank Account, which then became the Time Deposit.  The Compensation had not been used ever since.

4)  Documents produced

2.16.The 29 July 2014 letter also produced the following documents.  First, receipts by the 1^st defendant showing that he had received the following sums of money from the Shanghai Law Firm :

Date	Amount:RMB
21/5/2009	9,900,000.00	RMB3,200,000.00 was in cash and  RMB6,700,000.00 by bank deposit.
30/6/2009	2,100,000.00	RMB500,000.00 was in cash and RMB1,600,000.00 by bank deposit.
10/9/2009	2,000,000.00	RMB500,000.00 was in cash and RMB1,500,000.00 by bank deposit.
30/11/2009	2,000,000.00	RMB500,000.00 was in cash and RMB1,500,000.00 by bank deposit.
TOTAL:	16,000,000.00

2.17.Secondly, Guang Fat statements showing deposits into the 1^st defendant’s bank account of the following sums :

(1) RMB6,700,000.00 on 21 May 2009;

(2) RMB1,600,000.00 on 30 June 2009;

(3) RMB1,500,000.00 on 10 September 2009; and

(4) RMB1,500,000.00 on 30 November 2009.

2.18.Thirdly, the 1^st defendant’s bank passbook of Nanyang Bank Account No. 04347292116010 showing the deposit of the said sum of USD 2,617,907.53 on 20 November 2013, and the subsequent withdrawal of that sum into the fixed deposit; and the most recent Deposit Confirmation issued by Nanyang Commercial Bank dated 24 July 2014 and maturing on 25 August 2014 of the fixed deposit.

5)  Application for committal

2.19.On 18 August 2014, the plaintiff obtained leave to commence committal proceedings against the defendants.

2.20.The 1^st defendant filed an affirmation in which he says he was the only effective director of the Company and he confirmed that it was up to him to take steps to comply with the 1^st Order. He stated that the 2^nd and 3^rd defendants did not participate in the management of the Company.  In respect of the Compensation paid to him, the 1^st defendant said that a set off arrangement was implemented.  This is what he said :

‘ 25. As the Company’s solicitors have previously informed the Applicant, the Company all along does not maintain any bank account in Mainland China. Therefore, the Shanghai Law Firm could not pay the Agreed Compensation directly to the Company on the Mainland. By reason of the foreign exchange control in Mainland China, it would be very difficult for the Agreed Compensation to be remitted from Mainland China to the Company’s bank account in Hong Kong, as complicated and time-consuming application for approval of such remittance would be required, and we had no experience of doing such an application at all.

26. In such circumstance, it was decided that a ‘set off’ (對數) arrangement be used, namely I would receive the Settlement Money for and on behalf of the Company in Mainland China; and when directed by the Company, I would pay an equivalent amount to the Company’s bank account in Hong Kong using monies I have in Hong Kong.

28. By reason of the ‘set off’ arrangement, I may use funds in my bank account with the PRC Bank for my personal use after receiving the Agreed Compensation, so long as I recognize that I have to pay an equivalent sum in Hong Kong back to the Company’s bank account when directed to do so.  In fact, the Agreed Compensation has been paid to the Company’s Nanyang Bank Account and remains there up to now. …

29. As to documents relating to the use of funds in my said bank account with the PRC Bank after receipt of the Agreed Compensation, I verily believe that these documents are of no concern whatsoever to the Company or the Applicant, and are totally irrelevant.  Any such document does not fall within the scope of the Order for Production and/or 2^nd Order for Compliance, and need not be produced. … Indeed, I have been advised by my legal adviser and verily that the Order for Production was made pursuant to the now repealed section 152FA of the Companies Ordinance Cap 32, which was a section authorizing members of a specified corporation to inspect records of the specified corporation, and not records of any other entity. …

30. In the premises, the Company has already produced all documents pursuant to the Order for Production and the 2^nd Order for Compliance.  Nothing more can be produced by the Company. …’

III.  Compliance

1)  Section 152FA

3.1.At the hearing below the issue was mainly on the ambit of the 1^st Order. This, in turn, depends on the construction and application of section 152FA of the Ordinance (section 740 of the current edition of the Companies Ordinance (Cap. 622)).  The section provides that :

‘ (1) Subject to sections 152FD and 152FE, on application by such number of members of a specified corporation as is specified in subsection (2) (in this section referred to as “applicant”), the court may make an order―

(a) authorizing the applicant or any one or more of such members applying as applicant to inspect any records of the specified corporation; or …..

….

(3) The court may only make an order under subsection (1) if it is satisfied that―

(a) the application is made in good faith; and

(b) the inspection applied for is for a proper purpose.’

3.2.‘Record’ is defined in section 2(8A) of Cap 32 as including ‘book and paper’.  ‘Book and paper’ is in turn defined under section 2(1) to include ‘accounts, deeds, writings and documents’.  See Wong Kar Gee Mimi v Hung Kin Sang Raymond [2011] 5 HKLRD 241 Harris J at paragraph 9.

3.3.There is no issue about the good faith and proper purpose requirements.  The only issue is whether in this case after the Compensation had been paid into the 1^st defendant’s Guang Fat account, statements generated by Guang Fat for the 1^st defendant in respect of the movement of the Compensation deposited are records of the Company.

2)  The authorities

3.4.There are a number of decisions in which an application under section 152FA was made against a company for the inspection of the documents of its subsidiary company.  The starting point is that the documents of a subsidiary are not the documents of its parent company.  A parent company generally has no legal right or power to obtain the documents of its subsidiary in the capacity of a shareholder.  It is the board of the subsidiary that has control of the documents : Lonrho Ltd & Another v. Shell Petroleum Co. Ltd & Another [1980] 1 WLR 627, Re Gold Pleasure Industrial Co Ltd (unrep., HCCW 49/2006, 29 March 2007) paragraph 7. 

3.5.In Wong Kar Gee Mimi, Harris J at paragraph 46 held that :

‘ 46. I accept that records emanating from a subsidiary, whichbecomeownedbyorpossessedasofrightbythespecifiedcorporationcomewithin“recordsofthespecifiedcorporation”: Re Tecnion Investments Ltd [1985] BCLC 434 per Dillon LJ at pp.437d–439e; Innovisions Ltd v Chan Sing Chuk [1992] 2 HKLR 306 per Kaplan J pp.354C–356D.’ (emphasis added)

3.6.This approach was adopted in Veron International Ltd v RCG Holdings Ltd [2013] 3 HKLRD 657 where this Court, per Yuen JA, held that :

‘ 40. ….If the Company has possession of such documents of its subsidiaries, inspection should be given but not otherwise (Wong Kar Gee Mimi v Hung Kin Sang Raymond).’ (emphasis added)

3.7.In Wu Yang v Dayuan International Development Ltd & Ors, (unrep., HCMP 2143/2011, 4 June 2013), Harris J further explained that :

‘ 23. ….. There is an issue concerning what constitutes “records of the specified corporation”. The issue concerns the extent to which section 152FA applies to the documents of a subsidiary which are in the possession of the “specified corporation”. I considered this issue in paragraphs 44 to 49 of Wong Kar Gee Mimi. For the reasons explained in those paragraphs I concluded that “records emanating from a subsidiary, which become owned by or possessed as of right by the specified corporation come within “records of the specified corporation”. I rejected the argument that it extended to documents of a subsidiary, which did not fall into this category. I was taken by Mr Mok SC on behalf of the Respondents to Areva NC (Australia) Pty Ltd v Summit Resources (Australia) Pty Ltd [No 2] (2008) 26 WASC 10, which it was submitted demonstrated that “records of the specified corporation” had a more restrictive meaning and referred only to documents owned by the specified corporation. The Company argued that in paragraph 46 of Wong Kar Gee Mimi I appeared to be suggesting that temporary possession of a subsidiary’s documents by a specified corporation for a particular purpose satisfied this criterion and that this was wrong. This is to misunderstand my judgment. In my view, for the reasons explained in my earlier judgment, the records in question, by which I mean the relevant pieces of paper or electronic records, have to become the specified corporation’s records in the sense that the specified corporation (1) has them in its possession, (2) they form part of the records of the specified corporation’s affairs and (3) the specified corporation had a right or power to obtain them. An obvious example is a copy of an original document owned by a subsidiary which the specified corporation has obtained by virtue of its control of its subsidiary in order for it to have a complete record of the business activities and assets of the members of a group of companies, which it owns.’ (emphasis added)

3.8.In Leung Chung Pun v Masterwise International Ltd[2014] 1 HKLRD 1129, Recorder Anderson Chow SC (now Chow J) stated that :

‘ 21. Itseemstomeabundantlyclear,fromthelanguage of s.152FA(1), that the court’s jurisdiction extends to anything which can properly be regarded as forming part of the “records” of the specified corporation, regardless of the sources from which the documents came to become part of the records of the corporation in the first place. However, the “records” referred to in that subsection must, it seems to me, be a reference to the current records of the corporation. Accordingly, documents which are currently in the possession of the corporation, or of which the corporation is currently entitled as a matter of legal right to have possession, can, in my view, properly be regarded as forming part of the records of the corporation for the purpose of s.152FA(1). This having been said, the documents of a subsidiary are, generally speaking, not the documents of its parent company, and they are not within the power of the parent company: see Wong Kar Gee Mimi v Hung Kin Sang Raymond (supra).’ (emphasis added)

3)  The Judge’s decision

3.9.The Judge in this case agreed with the Leung Chung Pun approach.  This is what he held :

‘ 58. With respect, I am unable to agree with Mr Wong [counsel for the defendants]. Whilst I recognise that there is certain tension between Leung Chung Pun and Wu Yang in that the latter suggests that the disputed document must be in the possession of the corporation, I do not believe that this is a general requirement. To use a simple illustration, if the corporation has lost its bank statements but is in a position to obtain copies of the same from its bank, can it be seriously argued that the bank statements are not part of the corporation’s records which may be examined under the Section? I have no doubt that to answer the question in the negative would not be consistent with the language of the Section, and would render it quite pointless. Hence, I agree with the ratio of Leung Chung Pun.

59. With greatest respect, until the point has been ventilated in the higher court, perhaps Wu Yang should be understood in the context that the court was dealing with the documents of a subsidiary of the corporation, which were outside the power of the same. 

Failure to purge the contempt of court

60. Once it is accepted that the Section covers documents which the Company is currently entitled as a matter of legal right to have possession, the issue here allows little room for argument. 

61. It is trite that a beneficiary has equitable proprietary rights in all trust assets which extend to trust documents.  He is entitled to inspect and make copies of trust documents in relation to the trust property.

See: O’Rourke v Darbishire [1920] AC 581 at 626; Re Londonderry’s Settlement [1965] Ch 918 at 937C; Underhill and Hayton: Law relating to Trusts and Trustees (18^th edn, 2010) at §56.23.

62. Mr Wong did not quarrel with the foregoing principle of law.  Given W Wong’s position as a trustee of the Company in respect of the Compensation (see para 28 above), it must follow that W Wong’s Documents were and are covered under the Section.  Accordingly, the selective disclosure by W Wong and/or the Company on 29 July 2014 did not have the effect of purging the contempt of court by reason of the non-compliance with the 3^rd Order.’

4)  The defendants’ position

3.10.Mr Coleman SC together with Mr Jonathan Wong for the defendants argued that the documents generated by Guang Fat for the 1^st defendant are the records of the 1^st defendant and not of the Company.  Mr Coleman submitted that Leung Chung Pun is inconsistent with the other cases and the Recorder’s holding that a document may be regarded as a record of the corporation if the corporation is currently entitled as a matter of legal right to have possession is incorrect.  Mr Coleman submitted that the third requirement in Wu Yang, namely, the corporation had a right or power to obtain them, means only those records that the cooperation already has and not of records that the corporation may get from a third party. 

5)  Areva

3.11.In order to determine the meaning of records of a corporation, assistance can be gathered from the Supreme Court of Western Australia’s judgment in Areva NC (Australia) Pty Ltd v Summit Resources (Australia) Pty Ltd (No 2) [2008] WASC 10 which was referred to Harris J in Wu Yang.

3.12.Areva was concerned with an application for inspection of documents pursuant to section 247A of the Corporations Act 2001 (Cth) which empowers the court to make an order authorizing the inspection of ‘books of’ a company.  The word ‘books’ is given an expansive definition by section 9 of that Act, and includes :

(1) a register;

(2) any other record of information;

(3) financial reports or financial records, however compiled, recorded or stored; and

(4) a document.

3.13.Without going into the details of that case, the documents that were in issue were drafts of a statement of the evidence to be given by a witness of a corporation engaged in litigation with third party.  The corporation opposed the order for inspection on the grounds, among other things, that the draft statements are not books of the corporation. According to the affidavit of the solicitor who acted for the corporation, the incomplete draft witness statements had never been provided to the witness or to any officer or employee of the corporation.  Martin CJ held that :

‘ 5.  It is clear that the draft or drafts of the statements of the evidence to be given by [the witness] are ‘books’.  In this case, the critical question is whether they are the books of the [corporation].’

3.14.He referred to the following case :

‘ 6. In Hall v Sherman [2001] NSWSC 810; (2002) 40 ACSR 40, the same question arose in the context of s 431 of the Corporations Act. That section provides that a controller of property of a corporation is entitled to inspect at any reasonable time ‘any books of the corporation that relate to that property’. The question in issue in that case was whether the expression ‘books of the corporation’ included not only books which were owned by the corporation, but also books which were in the possession of the corporation at the time of the appointment of the relevant controller.

Austin J followed the decision of Gobbo J in Re Jet Corporation of Australia Pty Ltd [1985] VR 716 and held that the expression ‘books of the corporation’ extended only to books which belonged to the company.  Accordingly, his Honour concluded that books which did not belong to the company in question, but which were in its possession at the time of the appointment of the controller were outside the scope of s 431 of the Corporations Act.’

3.15.Martin CJ followed this decision and he framed the following question :

‘ 9.  Accordingly, in the present case the question becomes whether the draft or drafts of the statements of the evidence to be given by Mr Eggers [the witness] ‘belong’ to the Summit parties [the corporation] in the sense that they are the property of those parties.’  (emphasis added)

3.16.He then referred to the case of Wentworth v De Montfort (1988) 15 NSWLR 348, where the Court of Appeal of New South Wales held that documents in the possession of a firm of solicitors were the property of the client.

3.17.Martin CJ then held :

‘ 21. ….As the decision in Wentworth v De Montfort establishes that in both cases, property in the original of the document resides with the client - in this case the Summit parties [the corporation], I conclude that the draft or drafts of the statements of the evidence given by [the witness] and prepared by [the solicitor] at a time when he was acting for and on behalf of the Summit parties in relation to the relevant litigation are the property of and belong to those parties, and are therefore ‘books of’ those parties for the purposes of s 247A of the Corporations Act.’

6)  My view

3.18.Areva stands for the propositionthat the books of a corporation means books which are owned by or belong to the corporation. 

3.19.In my view, the Areva approach can be adopted in the construction of section 152FA. ‘Records of the corporation’ means records which are owned by or belong to the corporation.  Properly analysed, all the Hong Kong authorities that I referred to earlier have adopted this meaning in the construction of section 152FA.  The reference in Wu Yang to the right or power of a corporation to obtain a document can only mean that the document is owned by or belong to the corporation.  This is so even if it is not currently in the possession of the corporation.  An example is the draft witness statement in Areva. 

3.20.On the other hand, the mere possession by a corporation of a document which is not owned by or belong to it does not by itself make that document a record of that corporation.

3.21.Once Areva is properly understood, then one can see why Harris J referred to possession in Wong Kar Gee Mimi and Wu Yang.  As mentioned earlier, generally speaking the document of a subsidiary is not owned by and does not belong to the parent company.  Harris J was addressing the situation before him of a parent company having possession of the document of the subsidiary company by reason of the parent company’s ownership of that document.  Harris J gave the example of a copy of an original document owned by a subsidiary which the corporation has obtained by virtue of its control of its subsidiary in order for it to have a complete record of the business activities and assets of the members of a group of companies, which it owns.  Properly understood, Harris J’s formulation does not impose conjunctive requirements.  While possession by itself does not make a document a record of the corporation, the absence of possession does not disqualify a document from being a record of the corporation. 

3.22.Yuen JA’s reference to possession in Veron International Ltd is merely a short hand reference to the formulation in Wong Kar Gee Mimi.  So was Recorder Anderson Chow SC’s reference to possession in Leung Chung Pun and there is no inconsistency between that case and Wu Yang.

3.23.For the avoidance of confusion, I would suggest in future that the Court should simply adopt a single test of whether the document is owned by or belongs to the corporation in deciding whether it is the record of the corporation without any reference to possession.  In this regard, the reference to the discovery provision under Order 24, rule 2(1) of the High Court Rules is not helpful because of the use of express words there of ‘document in the possession, custody and power’ which are absent in section 152FA.

3.24.The next step is to determine whether the documents in question are owned by or belong to the Company.  Mr Dawes SC and Mr Man for the plaintiff argued that the documents in relation to the Guang Fat account possessed by the 1^st defendant are trust documents in which the Company has a proprietary right.  They relied, as the Judge did, on O’Rourke v Darbishire [1920] AC 581 at 626 :

‘ If the plaintiff is right in saying that he is a beneficiary, and if the documents are documents belonging to the executors as executors, he has a right to access to the documents which he desires to inspect upon what has been called in the judgments in this case a proprietary right. The beneficiary is entitled to see all trust documents because they are trust documents and because he is a beneficiary. They are in this sense his own. Action or no action, he is entitled to access to them. This has nothing to do with discovery. The right to discovery is a right to see someone else’s documents. The proprietary right is a right to access to documents which are your own.” (emphasis added)

3.25.Accordingly, Mr Dawes argued that the documents in relation to the Guang Fat account are documents to which the Company has a right to access as an incident of its proprietary right and there is no reason why they should not be regarded as part of the ‘records’ of the Company. 

3.26.However, as pointed out in Schmidt v Rosewood Trust Ltd [2003] 2 AC 709, the Court should approach a request by a beneficiary for disclosure of a document in the possession of the trustees in their capacity as such, as one calling for the exercise of discretion rather than an adjudication upon a proprietary right (see Lewin On Trusts 19^th Ed at paragraph 23–018).

3.27.In view of the new development of the law on trust documents, to pursue the inspection of the documents under the trust document route is too simplistic.  It ignores the discretionary aspect of the Court in ordering the production of the documents.  However, there can be no doubt that the 1^st defendant was an agent for the Company when he received the Compensation.  As the 1^st defendant was the only director responsible for the management of the Company, the set off arrangement was in effect decided by him alone.  The set off agreement was implemented to get around the foreign exchange control in the Mainland as the 1^st defendant had admitted in substance, if not in form, in his affirmation.  Even if he may be allowed to use the Compensation that was deposited into his Guang Fat account for his personal use, nonetheless, the money belonged to the Company because at the end of the day he has to account for the same amount in Hong Kong.  This being the case, the bank statements of Guang Fat in respect of the movements of the Compensation after it had been deposited into the 1^st defendant’s account must be records which are owned by or belong to the Company as the 1^st defendant received and held them as an agent for the Company.  On this basis, the 1^st defendant clearly had not complied with the order for production.

7) Ambiguity in the Production Order

3.28.Mr Coleman further argued that since the Judge recognised the tension between the two authorities and indicated that he was prepared to give the defendants the benefit of the doubt in respect of their belief over the proper scope of the Production Order (paragraph 68), this ought to have resulted in a dismissal of the proceedings for committal. 

3.29.I disagree.  The Judge had also held at paragraph 44 that the order for production was formulated in all embracing terms and the terms of the order are clear and unambiguous.  The 1^st defendant who was the only effective director of the Company had been making selective disclosure to serve his own purpose.  The Company which was legally represented by FWT and effectively under the control of the 1^st defendant had repeatedly agreed to comply with the order for production and had not sought clarification of its ambit from the Judge.  The defendants were also and still are represented by FWT in the contempt proceedings.  I agree with Mr Dawes that the position taken on the compliance with the order was clearly not the consequence of any ambiguity in the order but an obvious afterthought.

IV.  Conclusion

4.The Judge was correct in his decision and accordingly the appeal is dismissed.

V.  Costs

5.There will be a costs order nisi that the plaintiff be entitled to the costs of the appeal with certificate for two counsel.

Hon Yuen JA :

6.I agree with the judgment of Cheung JA.

Hon Pang JA :

7.I agree with the judgment of Cheung JA.

Mr Victor Dawes SC and Mr James Man, instructed by Tony Kan & Co., for the plaintiff

Russell Coleman SC and Mr Jonathan Wong, instructed by Fan Wong & Tso, for the 1^st to 3^rd defendants