China Shanshui Cement Group Ltd and Others v. Zhang Caikui and Another

HCMP 1574/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO1574 OF 2016

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D E C I S I O N

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BACKGROUND

1.The Plaintiffs commenced contempt proceedings against the Zhangs for breach of various injunction orders.

2.The Zhangs did not personally file any affirmation in opposition. Instead, a trainee solicitor of Deacons (Zhangs’ solicitors) filed an affirmation, exhibiting a draft affirmation of one Mr Li Xianguo (“Li’s draft affirmation”) and a draft opinion of one Mr Yao Fuming, a PRC lawyer (“Yao’s report”).  Both Li’s draft affirmation and Yao’s report were subsequently filed beyond the deadline imposed by an unless order (“the deadline”). 

3.By this summons, the Plaintiffs seek to strike out Li's draft affirmation and Yao’s report.  The Zhangs oppose the application, claiming that the 2 documents are relevant to the contempt proceedings.

LEGAL PRINCIPLES

4.Order 41, rule 5(1) provides that an affidavit may contain only such facts as the deponent is able of his own knowledge to prove.  Under rule 5(2), an affidavit sworn for the purpose of being used in interlocutory proceedings may contain statements of information or belief with the sources and grounds thereof.

5.Order 41, rule 6 provides that the court may order to be struck out of any affidavit any matter which is scandalous, irrelevant or otherwise oppressive.

6.The general principles on which the court can exercise its power under Order 41, rule 6 have been summarized in Re Linea Trading Co Ltd, HCCW 350/2004, 11 July 2005, Barma J (as he then was), at §4:

“(1) Scandalous has the same meaning in Order 41 rule 6 as it does in Order 18 rule 19 dealing with the striking out of pleadings. Thus, degrading, indecent and offensive charges made in an affidavit will be regarded as scandalous if they are irrelevant or inadmissible in evidence to prove any material allegation in the petition.

(2) Matters which are material will not generally be struck out even if they are offensive, although where unnecessary detail is given, that may be susceptible to being struck out.

(3) Irrelevant matter may be struck out even if not scandalous.

(4) It is wrong to include argumentative material in affidavits and such material may be struck out.

(5) The court may take one of three approaches to an affidavit in which there is scandalous, irrelevant or oppressive matter:-

(a) It may decline to strike the matter out, on the basis that it is capable of excluding such material from its mind when deciding the issues which arise for decision; or

(b) It may think it appropriate to strike out some or all of the material complained of; or

(c) It may, in an extreme case, order the entire affidavit to be taken off the court file.

Which of these courses is adopted will depend on the circumstances of the case, regard being had to the nature and extent of the objectionable material.”

7.It is of course only in plain and obvious cases that the court will exercise its powers to strike out.

APPLICATION OF THE LEGAL PRINCIPLES

Li's draft affirmation

8.The issues turn on whether of Li’s draft affirmation is relevant to the contempt proceedings and the effect of the unless order.

9.The orders that the Zhangs have allegedly breached can be categorized into: (1) those restraining them from disposing of the Plaintiffs’ assets, and delivery up of the Plaintiffs’ Records; and (2) those restraining them from exercising their powers under amended Articles of Association of Shanshui Cement (“the Articles”) and requiring them to execute corrective Articles.

10.In respect of category (1) orders, Li explained that the Plaintiffs’ Records were always centralized in the Shanshui Group’s Finance Department in the Jinan Headquarters (Jinan HQ”).  Since they left the 1^st Plaintiff, the Zhangs have not had possession of or access to computer containing the Plaintiffs’ Records.  Some documents might have been lost when a mob broke into the Jinan HQ.  The Zhangs have been advised to follow orders for disclosure of the Plaintiffs’ Records and assets.  Li tendered an apology on behalf of the Zhangs, claiming that the Zhangs thought that the Plaintiffs had already gained control of Jinan HQ and recovered all their property.  The Zhangs allegedly regretted for not having consulted Hong Kong lawyers as they were preoccupied with counselling ousted employees.  Documents were handed over to the Plaintiffs’ representatives and the Plaintiffs have recovered most of the Plaintiffs’ Records. The Plaintiffs ought to have brought these facts to the attention of the court when they applied for leave to commit the Zhangs for contempt.

11.In respect of category (2) orders, Li stated that he has been advised by Zhangs’ lawyers that the PRC Court in Jinan was the more appropriate forum to determine “the instant disputes”.  He referred to Yao's report.  The Zhangs are PRC nationals ordinarily residing in the PRC.  Shanshui Cement is a PRC company.  Li was advised by Yao and believed that the proper law to determine the dispute over category (2) orders should be PRC law.  The Plaintiffs failed to inform the Hong Kong court that they have commenced parallel proceedings in the PRC against the Jinan Bureau and the Plaintiffs have submitted to the jurisdiction of the Shandong court.  Li was advised by Zhangs’ Hong Kong lawyers (not informed by the Zhangs) that the Zhangs were entitled to and do dispute the jurisdiction of the Hong Kong court.

12.On the face of it, Li’s draft affirmation in respect of category (1) orders may be relevant.  However, much of it was based on hearsay evidence from Li Hengwen and Yao Tianjun.  The apologies of the Zhangs was not something Li could have tendered on their behalf.  Li’s draft affirmation did not comply with Order 41, rule 5(1).  Contempt proceedings are not interlocutory in nature and so Order 41, rule 5(2) does not apply to affirmations used in those proceedings.

13.Li’s evidence in relation to category (2) orders only showed the advice Li had received.  It did not even aver that the Zhangs’ conduct was based on their belief that they could challenge jurisdiction of the Hong Kong court.  I find Li's draft affirmation to be irrelevant to the contempt proceedings. 

14.Further, the unless order has taken effect on 18 October 2016.  The sanction applied barring the Zhangs from filing any affirmation, regardless of the relevance of the affirmation.  There has been no application taken out under Order 2, rule 5 of the Rules of the High Court for relief against sanction.  Accordingly, Li’s affirmation should be expunged from the court file.  The Zhangs cannot, by contesting this strike out application, adduce the draft Li’s affirmation through the backdoor.  There is not a different set of principles on unless orders that applies to contempt proceedings.

15.Lack of prejudice to the plaintiffs is no answer for failure to comply with an unless order.  In any case, it cannot be said that there was no prejudice to the Plaintiffs.  As stated in §12 of Yen’s supporting affidavit, the Zhangs had previously relied on draft affirmations which have been exhibited to affirmations of personnel from Deacons, without later filing and serving any affirmed version.  If the Plaintiffs are to reply to Li’s draft affirmation in the present proceedings, costs may be wasted if the Zhangs similarly do not file and serve Li’s affirmed version.

16.Even if I am wrong, and if the court were to exercise its discretion to grant relief from the unless order, there is no proper application before the court supported by evidence: Order 2, rule 5.  The Zhangs have been given 70 days (up to the deadline) to file and serve affirmations in opposition.  There has been a series of non-compliance by them with court orders.  They have not started to explain why it has taken them another 21 days to have Li’s draft affirmation notarized. 

17.Insofar as Mr Wou, counsel for the Zhangs suggests that there is a practice to file a draft affirmation first, followed by a duly notarized one, that, with respect, is misconceived.  Contempt proceedings are unlike ex parte injunctions where there is an element of urgency and an affidavit cannot practically be filed before the hearing. 

18.Yen’s affidavit asserted that Li’s draft affirmation was mostly untrue, was an affront to the dignity of the court and itself aggravated the Zhangs’ acts in contempt of court.  I place no weight on these assertions.  They are matters to be dealt with in the substantive contempt proceedings, if Li’s draft affirmation is admitted.

19.Having regard to the matters analyzed above, I strike-out Li’s draft affirmation.

Yao’s report

20.Similarly, Yao’s report was filed in breach of the unless order and should be expunged.

21.Again, if I am wrong, I have considered its relevance.  Yao’s report purported to state Mainland Chinese law on 5 matters:

(a)   The amendments to the Articles became effective upon approval by the Jinan Bureau of Commerce pursuant to PRC legislation.

(b)   China Pioneer commenced an administrative action in Jinan against the Jinan Bureau of Commerce, seeking to cancel an “Official Response to the matters relating to change of the funding deadline of Shandong Shanshui Cement Group Ltd”.  The Jinan Bureau was duly authorized by PRC legislation to issue that Official Response and the Official Response was legal and valid.

(c)   A Working Group was set up by the government of Jinan to investigate requests from various parties, to assist the enterprise to maintain normal operation and to safeguard legitimate rights of the workers. Each of Shandong Shanshui’s subsidiaries must strictly comply with requests from the Working Group.

(d)   Shandong Shanshui changed its directors in December 2015, but before amendments to the Articles were approved by the Jinan Bureau of Commerce, the original directors remained as lawful directors under PRC law.  The purported change in directorship was inconsistent with the approved version of the Articles filed at the Jinan Bureau of Commerce and the change was not legally effective.

(e)   Lawful directors, legal representatives have responsibilities under various legislative provisions in PRC.

22.For the following reasons, I do not find Yao’s report relevant.

23.Firstly, it is not the job of a legal expert to present facts, especially since much of the primary factual background set out in that report formed the bases for asserting breach of court orders. 

24.Secondly, Yao is not “independent”.  He has been a lawyer acting for the Zhangs in the Mainland.

25.Thirdly, Mr Wou has correctly identified the task of the court in contempt proceedings as follows:

(i) Construe the court orders allegedly breached to ascertain their meaning and effect;

(ii) Determine whether the defendants have in fact complied with the orders;

(iii) Consider whether any failure to comply was accompanied with the state of mind necessary to establish punishable contempt.

See Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 830, Sir Gerard Brennan NPJ, at §21.  None of the 5 matters in Yao’s report touch on any of those tasks.

26.Fourthly, there was nothing in the affirmations filed on behalf of the Zhangs to assert the relevance of the Yao’s report.  In Li’s draft affirmation, it is not even averred eg that the Zhangs had relied on legal advice and honestly acted in the way they did, not knowing that it was in breach of any of the subject orders.  To the contrary, Li asserted that the Zhangs had been advised to follow the orders for disclosure of assets and the Plaintiffs’ Records strictly.

27.Fifthly, Mr Wou submits that a defendant is entitled to challenge the jurisdiction of the court that made the original order even on appeal against a further order committing him for contempt: Hong Kong Civil Procedure 2017, Vol 1, §52/0/14.  If the challenge is successful, the Zhangs will have a complete defence to the alleged breaches.  The closest evidence in support of this submission is the advice that Li allegedly received concerning category (2) (paragraph 11 above).

28.With respect, the time for challenge to jurisdiction under Order 12, rule 8 has long expired.  Moreover, upon striking out of Li’s draft affirmation, there is no basis in support of Mr Wou’s submission.  The other affirmations filed on behalf of the Zhangs have not asserted eg that the Zhangs did not comply with the category (2) orders in the belief that those orders were made beyond the jurisdiction of the Hong Kong courts.  In any case, the orders were not made against Shandong Cement but the Zhangs personally.

29.Without disrespect, I find Yao’s report to be wholly irrelevant to the contempt proceedings. 

30.There are other points taken by the Plaintiffs, such as whether Li could be compelled to attend for cross-examination, that Yao’s report was not translated into English, and that Yao’s declaration as an expert was unreliable.  These do not affect the substance of the strike out application. They can be dealt with by appropriate directions and conditions should the court give leave to adduce Yao’s report.

Conclusion

31.It is plain and obvious that Li’s draft affirmation did not comply with Order 41, rule 5(1).  Li’s draft affirmation and Yao’s report are irrelevant to the contempt proceedings and were filed in breach of the unless order.  I exercise my discretion to strike them out. 

32.On a nisi basis, I order the Zhangs to bear costs of the Plaintiffs. I disallowed costs for cross-examination of Li Xianguo, which have not been incurred.  I allow costs of only one fee earner as the application is not so difficult as to justify two. Costs are summarily assessed and allowed, on a nisi basis, in the sum of $500,000.

33.I thank counsel for their assistance.

Mr Barrie Barlow SC, instructed by Wilkinson & Grist, for the 1^st, 2^nd and 3^rd plaintiffs

Mr Jean-Paul Wou, instructed by Deacons, for the 1^st and 2^nd defendants