IP PUI LAM ARTHURIP PUI SUM(JOINT AND SEVERAL TRUSTEESIN BANKRUPTCY) v ALAN CHUNG WAH TANG ANDALISON WONG LEE FUNG YING

CACV 214/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 214 OF 2016

(ON APPEAL FROM HCMP NO. 450 OF 2016)

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BETWEEN

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J U D G M E N T

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Hon Cheung JA :

I. The appeal

1.  To J found the defendants to be in contempt of court by not complying with paragraph 3 of his order of 18 March 2015 (‘the March 2015 Order’).  He further made an order for committal against the defendants.  The defendants appeal.  Sentencing of the defendants has been adjourned pending the determination of this appeal.

II.   Background

2.1   The background of this case is set out in the judgment of To J of 18 October 2016 which I will respectfully adopt and supplement with materials set out in his earlier judgment dated 18 March 2015. 

2.2   The plaintiffs are the joint and several trustees in bankruptcy of the bankrupt, Ho Yuk Wah David (the ‘Bankrupt’). 

2.3   The defendants were partners of an accounting firm known as JBPB & Co (‘JBPB’).  JBPB was formerly known as Grant Thornton.  On 30 September 2011, the defendants were appointed as the joint and several liquidators of CWT Textile Supplies Company Limited (in creditors’ voluntary liquidation) (‘CWT’).

2.4  ; Shortly after that, JBPB collapsed.  The partnership was divided into two camps consisting of the defendants as the minority partners and Paul Chow in one camp and the other nine partners as the majority partners in another.  The defendants and the majority partners became engaged in partnership dispute litigation in HCA 1691/2011.

2.5   CWT had been in litigation with its former auditors.  The dispute was eventually settled, resulting in a substantial settlement payment to the joint and several liquidators of CWT.  A significant part of the settlement sum was then paid to Topmark Asia Ltd (‘Topmark Asia’) and Sun Ascent International Ltd (‘Sun Ascent’), pursuant to a consultancy agreement and funding agreement. 

2.6   The plaintiffs investigated the financial affairs of the Bankrupt.  As a result of their investigation, they formed the belief that the Bankrupt had been operating a complex scheme using nominees of about 30 offshore companies, including Topmark Asia and Sun Ascent, to conceal his assets and to divert significant amount of funds out of the reach of his creditors. 

2.7   By an inter partes summons dated 27 June 2013, the plaintiffs in Bankruptcy Proceedings No. 3819 of 2011 (‘HCB 3819/2011’) sought third party disclosure of documents against CWT and JBPB, pursuant to section 29 of the Bankruptcy Ordinance (Cap. 6). 

2.8   On 5 November 2013, Deputy High Court Judge Le Pichon made an order (‘R1’s Order’) upon the joint application and by consent of the plaintiffs and the defendants in their capacity as liquidators of CWT.  The defendants were described as the 1^st respondent in that proceedings.  Under paragraph 1 of the R1’s Order, the defendantswere required to produce certain documents set out in a schedule attached to the order, or if those documents are no longer in their custody and/or power, to make an affirmation under paragraph 2 of the order.  At the time, the defendants were represented by Messrs Cheng Yeung & Co (‘CY’). 

2.9   Similarly, on 5 November 2013, Deputy Judge Le Pichon made another order upon the joint application and by consent of the plaintiffs and the majority shareholders of JBPB, who were then represented by Messrs Chiu, Szeto & Cheng (‘CSC’).  JBPB (being described as the 2^nd respondent in that proceedings) was required under paragraph 1 of the order to produce certain other documents set out in the schedule attached to that order or under paragraph 2 to make an affirmation if those documents are no longer in their custody and/or power (the ‘R2’s Order’). 

2.10   On 2 December 2013, in purported compliance with the R1’s Order, the defendants served a copy of a consultancy agreement between the defendants and Topmark Asia and a funding agreement between the defendants and Sun Ascent International (collectively, the ‘CWT Agreements’). Thereafter, they refused the plaintiffs’ request for production of all other documents required to be produced under the R1’s Order.  

2.11   The defendants disputed that they were bound by the R2’s Order which was made by the consent, and on the instructions, of the majority partners of JBPB.  The defendants also denied that CSC had authority to represent them in that application.

2.12   Pursuant to the R2’s Order, the majority partners of JBPB produced some documents and filed an affirmation saying that they did not have any other documents specified in that order and that those documents, if they existed, were in the custody and control of the defendants who were the partners responsible for handling the matters to which those documents related.  

2.13   On 7 February 2014 the plaintiffs took out a summons seeking, amongst other things :

   1) an order pursuant to Order 45, rule 7 of the Rules of High Court that the defendants, in their capacity as the joint and several liquidators of CWT, to comply with paragraphs 1 and 2 of the R1’s Order within 14 days (the ‘R1’s Enforcement Order’); and

   2) an order pursuant to section 29 of the Bankruptcy Ordinance that the defendants, in their capacity as partners of JBPB, to produce certain documents set out in the schedule (which is the same schedule as the one in the R2’s Order) or to make an affirmation if those documents are no longer in their custody and/or power (‘R2’s Fresh Order’).

2.14   The application was heard by the To J.  Thedefendants resisted the application.  They appeared in two different capacities, namely, as the joint and several liquidators of CWT and as minority partners of JBPB respectively.

2.15   To J on 18 March 2015 granted the order.  Paragraphs 1 and 2 of the March 2015 Order required the defendants to comply with the R1’s Order of Deputy Judge Le Pichon.  Paragraphs 1 and 2 are no longer in issue as the defendants had complied with them.  Paragraphs 3 and 4 of the March 2015 Order which apply to the defendants in their capacity as minority partners of JBPB provide that :

‘ 3. [The Defendants] as partners of [JBPB] do within 21 days from the date hereof produce the documents set out in the Schedule to the Inter-partes Summons dated 27 June 2013 in respect of [JBPB] (“2nd Schedule”);

4. if any of the documents set out in the 2^nd Schedule had never been or is no longer in his/her custody and/or power, [The Defendants] as partners of [JBPB] do within 21 days from the date hereof file an affidavit/affirmation stating in respect of each document whether it had been in his/her custody and/or power, and if it had been, when it was last in his/her custody and/or power and the reason it is now no longer in his/her custody and/or power.’

2.16   The 2^nd Schedule was not actually attached to the March 2015 Order itself.  Paragraph 2 of that Schedule specified four categories of supporting documents relating to twelve payments.  It reads:

‘ In respect of [the minority partners of JBPB], copies of the supporting documents of the following payments made to [JBPB], including but not limited to, agreement(s) pursuant to which the following payments were made, correspondence(s) in relation to the following payments, minutes of meeting(s)/written resolution(s) of creditors/committee of inspection/court order(s) approving the following payments, invoice(s) and receipt(s) for the following payments:-

[List of eleven payments from the Bankrupt’s nominee companies from 2006 to 2011, and a cashier order of Standard Chartered Bank (HK) Ltd) dated 23 December 2004]’

2.17   The time for providing disclosure expired on 8 April 2015.  The defendants did not produce any of the documents set out in the 2^nd Schedule to the plaintiffs.  On that day, they sent a letter to the plaintiffs’ solicitors attaching correspondences between them and CSC.  Five months later, Alan Chung Wah Tang (‘Tang’) on behalf of the defendants filed his 4^th Affirmation in purported compliance with paragraph 4 of the March 2015 Order.

2.18   Pursuant to leave, the plaintiffs on 26 February 2016 commenced contempt proceedings against the defendants for breach of paragraph 3 of the March 2015 Order.  To J heard the application on 10 August 2016 and on 18 October 2016 found the defendants to be in contempt of court and made an order for committal against them.

III.  Objections and grounds of appeal

1)  Grounds of appeal

3.1  The Judge gave a long judgment of 66 pages which no doubt was in response to the way of how the defence was run before him (not by Ms Audrey Eu SC who only appeared in this appeal and the first sentencing hearing for the defendants).  Virtually every aspect of the application was challenged.

3.2   The notice of appeal sets out eight grounds of appeal which can be summarised as follows :

 1) The factual findings were not supported by evidence.  This is a reference to To J relying on the findings of Chow J and the affirmation of Jonathan Leung who did not give evidence in the contempt proceedings.

 2) To J erred on the burden of proof.

 3) The March 2015 Order was not clear in terms of what documents were required to be produced and the capacity of the defendants.

 4) There was no sufficient proof of the existence of the documents.

 5) There was no sufficient proof of the defendants having possession, custody and power of the documents.

 6) There was no sufficient proof of the state of mind of the defendants.

 7) There was procedural defect in that the order was ambiguous in respect of the documents required to be produced by the defendants under the 2^nd Schedule and the statement in support of the committal application was defective.  There was also a defect in the service of the 2^nd Schedule.

 8) The Judge erred in not holding there were alternative remedies available to the plaintiffs by way of section 29(2) of the Bankruptcy Ordinance.

2)  Discussion of some grounds

3.3   In my view it is not necessary to address every ground of appeal in detail, because, for example, like the first ground of appeal, the plaintiffs had conceded the question of evidence relied upon by the Judge. The evidence in this case is contained in the following affirmations :

1) 14^th and 24^th Affirmations of Lam Siu Sun Dennis (‘Lam’) for the plaintiffs dated 7 February 2014 and 29 January 2016.  3^rd and 4^th Affirmations of Tang on behalf of the defendants dated 26 March 2014 and 2 September 2015 filed in HCB 3819/2011.

2) Affirmation of Tang dated 14 June 2016.  Affirmation of Lam dated 12 July 2016 filed in these proceedings.

3.4   To J in his judgment of 18 October 2016 referred to the judgment of Chow J in HCA 1691/2011 dated 19 January 2016 which dealt with the partnership disputes between the defendants and the majority partners.  This judgment was referred to To J by Mr David Chen when he appeared on his own in the Court below for the plaintiffs. 

3.5  The majority partners were not parties to the present contempt proceedings.  Mr Douglas Lam SC (together with Mr Chen) for the plaintiffs conceded that To J was wrong to rely on the findings of Chow J in support of his finding of contempt on the part of the defendants.

3.6   To J also referred to the affirmation of Jonathan Leung filed in HCA 1691/2011.  It was not referred to him by the parties.  Mr Lam stated that he would not rely on this affirmation. In my view, To J should not rely on this affirmation and Chow J’s judgment to make findings against the defendants. 

3.7   Another matter is the complaint about the lack of clarity of the order and the 2^nd Schedule not being attached to the March 2015 Order.  This clearly is without merits.  The starting point is that the ambit of the order is to be found within the four corners of the order.  But it does not mean that the order itself cannot make reference to or incorporate other orders.  The reference in paragraph 3 of the March 2015 Order to the 2^nd Schedule serves that function and there is nothing ambiguous about that.

3.8   I agree with the Judge’s reliance of Crystalmews Ltd (In liquidation) v Metterick and others [2006] EWHC 2653 (Ch); All England Official Transcripts (1997-2008) where Collins J said :

‘ [46] I was referred to authorities (especially Attorney-General v Harris [2001] 3 FCR 193, [2001] 2 FLR 895, paras 288-295; Rudkin-Jones v Trustee of the Property of the Bankrupt (1965) 109 Sol Jo 334; Ellerman Lines Ltd v Read [1928] 2 KB 144, 157-158, 97 LJKB 366, 17 Asp MLC 421) which criticise the practice of making orders by reference to earlier orders. I rejected this argument at the outset of this hearing because the effect of the two orders was that the order of the court as varied on 6 March 2006, continued in full force and there was nothing relevant in the point that (as often happens) a fresh freezing order was not made on 6 March 2006, in circumstances where Mr Metterick was represented at the hearing and either consented, or at any rate did not object. The cases cited were cases where it would have been difficult for the person affected by the order to have known what the effect of the orders would have been. This is not such a case.’

3.9   In the present case, there is nothing difficult about the defendants knowing what are the 2^nd Schedule documents.  Tang was able to respond without difficulties in his correspondence and affirmations.

3.10   Some of the grounds of appeal also overlapped with each other.  For example, clarity of the order and procedural defect.  In any event the ground of procedural defect is not one of substance.  To J had addressed this point in paragraphs 51 to 57 of his judgment and I agree with him.  I will address the other grounds when I deal with the following topics.

IV.  Overview

1)  The approach

  4.1  ; In order to determine whether the defendants are in contempt, I will consider :

   1) The ambit of paragraph 3 of the March 2015 Order;

   2) Whether the defendants had breached paragraph 3; and

   3) If so, the state of mind of the defendants when they breached paragraph 3.

2)  Burden of proof

4.2   It is important to address at the outset the issue of burden of proof.  Because of the penal consequence of not complying with paragraph 3 of the March 2015 Order, in order to prove that the defendants are in contempt, the burden on the plaintiffs is to show, on the criminal standard of beyond reasonable doubt, that the documents are in existence and that they are within the custody or power of the defendants to produce them and the defendants intended not to produce them.  This burden which is described as the persuasive burden rests on the plaintiffs and the plaintiffs will fulfill this persuasive burden by calling evidence to prove their case.  In other words, they carry the evidential burden as well.  In a criminal case, a defendant does not carry any burden to prove that he is not guilty of the offence.  The burden rests throughout on the prosecution or, like the present case, on the party who is pressing for committal for contempt and there is no burden on the party being cited for contempt to show that it is not in contempt.  This is a recognition of the presumption of innocence provided by Article 11(1) of the Bill of Rights as entrenched by Article 39 of the Basic Law.

4.3   The only exception is where the law imposes a reverse burden on the defendant to show a defence or prove an ultimate fact which is necessary to the determination of his guilt or innocence. Where such a reverse onus is imposed, the defendant is required to satisfy that burden on the balance of probabilities.  But in order to give effect to the presumption of innocence, the Court has construed such a burden on the defendant as an evidential burden only.  It does not require the defendant to establish anything as a matter of proof.  An evidential burden arises where the defendant wishes to put in issue some matter that is potentially exculpatory while the prosecution continues to bear the persuasive burden throughout.  In such cases, there must be evidence supporting such exculpatory matter which is sufficiently substantial that it raises a reasonable doubt as to the defendant’s guilt.  Unless such a reasonable doubt is removed, the prosecution fails to prove its case.  If, on the other hand, the defendant fails to adduce or points to any evidence on the relevant issue or if the evidence adduced is rejected or is not sufficiently substantial to raise a reasonable doubt, the potentially exculpatory matter places no obstacle in the way of the prosecution proving its case beyond reasonable doubt : see the judgment of Ribeiro PJ in HKSAR v Ng Po On and Another (2008) 11 HKCFAR 91 at paragraph 27.  In that case, section 14 of the Prevention of Bribery Ordinance (Cap. 201) gives the Court power to authorise the Independent Commission Against Corruption (‘ICAC’) to serve a notice requiring the person served to furnish information relating to assets and liabilities relevant to an investigation or proceedings being conducted pursuant to that ordinance.  Section 14(4) makes it an offence punishable by a fine of $20,000 and imprisonment for one year if that person to neglect or fail to comply with such a notice without reasonable excuse.  Section 24 further provides ‘that the burden of proving a defence ... reasonable excuse shall lie upon the accused.’

4.4   Likewise, depending on a proper construction of the relevant provision, a reverse burden on the defendant may be created in certain statutory offences which involve a qualification, exception, proviso or some limitation on the extent of the conduct which is made criminal.  A similar construction on the burden of proof will be in place in such offences in order to be in compliance with the presumption of innocence.

4.5   In my view, paragraph 3 of the March 2015 Order does not impose any reverse burden on the defendants to show a defence at all.  Words like ‘reasonable excuse’ or words that have the effect of creating a qualification or proviso are simply not there.  Nor should words of having such a meaning be crafted into paragraph 3 when considering the penal nature of the contempt proceedings.  Further in my view, one cannot rely on paragraph 4 to argue for the imposition of obligation on the defendants to show a defence or reasonable excuse as an element of paragraph 3. The only relevance of paragraph 4 to paragraph 3 is to qualify the production of documents to those documents that are under the custody or power of the defendants.  Beyond that, the meaning of paragraph 4 is clear : in the event the defendants are unable to comply with paragraph 3, then they have to file an affirmation in the manner as prescribed by it.  Put in another way, the only burden in this case is the one imposed on the plaintiffs to prove, beyond reasonable doubt, that the defendants are in contempt.  With respect to To J, he was wrong when he said that paragraph 3 imposes an evidential burden on the defendants.  This is what the Judge said :

‘ 29. The burden of proof operates in this way. Once the Trustees [i.e. the plaintiff] proved that the Defendants have not produced the documents, if the Defendants want to excuse themselves from production under paragraph 3 of the Order, they have to show prima facie that the documents do not exist or had never been or are no longer in their possession custody or power. As the legal burden is always on the prosecution, i.e. the Trustees, the Defendants only have to bear the evidential burden of proof. If they cannot even discharge the evidential burden, they are in breach of paragraph 3.’

4.6   To J also discussed how the defendants’ evidential burden is to be discharged.  Since the defendants do not carry any evidential burden, it is not necessary to discuss this aspect.  I would only say that it is dangerous to use words such as corroboration to describe how the defendants’ evidential burden is to be discharged.  The words ‘sufficiently substantial’ as stated by Riberio PJ are clear enough.

V. Ambit of paragraph 3 of the Order

1)   Documents within the defendants’ custody or power

5.1  The 2^nd Schedule requires the defendants to produce the following 12 payments :

5.2   There are four categories of documents relating to these 12 payments (11 of which were made to JBPB) :

1) agreements;

2) correspondence;

3) minutes of meeting(s)/written resolution(s) of creditors/committee of inspection/court order(s) approving the payment; and

4) invoice(s) and receipt(s).

5.3   The first three categories of documents are non‑accounting documents.  The 4^thcategory, i.e. invoices and receipts consists of accounting documents.

5.4  ; To J construed the ambit of the March 2015 Order by reference to the law on discovery based on, on the one hand, section 29(1) of the Bankruptcy Ordinance (which in turn is based on the principles under section 332 of the Companies Ordinance (Cap. 32) in respect of discovery against a company under liquidation), and, on the other hand, Order 24 of the Rules of the High Court in respect of discovery of documents in the course of civil proceedings. 

5.5   In my view, such a comparison is not necessary. To J had already undertaken this task when he gave his judgment on 18 March 2015 ordering the defendants to produce documents.  The March 2015 Order in this case was made under the Bankruptcy Ordinance and this, of course, provides the contextual basis for the construction.  But ultimately the ambit of the March 2015 Order is to be construed within the four corners of the order itself. Paragraph 3 does not impose any qualification on the obligation of the defendants to produce documents.  Because of this order, one proceeds on the basis that such documents are, on the face of it, already in existence.  But the existence of the documents does not mean that the defendants are in a position to produce them.  To do that, one has to look at the terms of paragraph 4 of the March 2015 Order as well because it is related to paragraph 3.  Paragraph 4 deals with the situation where the defendants do not have the documents, in the sense that the documents are not in their custody or power to be produced.  Properly construed, the ambit of paragraph 3 means that the defendants are required to produce the documents listed in the 2^nd Schedule if these documents are within their custody or power.

5.6   In construing the ambit of the order, To J considered that the defendants are required to produce documents in their possession as well.  The word ‘possession’ does not appear in paragraph 3 of the March 2015 Order.  Nor can it be incorporated into paragraph 3 by reference to paragraph 4 of the March 2015 Order which also does not have the word ‘possession’.  Both the R1 and R2 Orders simply refer to documents in the ‘custody and power’ of the defendants without any reference to ‘possession’.  According to To J’s judgment of 18 March 2015, the application before him was an application for enforcement of the R1 Order and for a fresh discovery order based on the R2 Order, pursuant respectively to Order 45, rule 7 and section 29 of the Bankruptcy Ordinance. 

5.7   The enforcement order cannot expand on the scope of the R1 Order.  In respect of the ‘fresh discovery order’ it was made to address the issue of the capacity of the defendants and clearly was not intended to expand on the scope of the R2 Order, so the discussion on ‘possession’ was not necessary at all.  The Court is concerned only with the question of whether the documents were in the defendants’ custody or power.

2)  Capacity of the defendants

5.8   Much has been said about the respective capacity of the defendants as, on the one hand, joint liquidators and, on the other hand, partners of JBPB.  Paragraph 3 imposes the defendants with obligation to produce ‘in their capacity of partners of  JBPB’.  In my view, Mr Douglas Lam SC is correct when he submitted that the words in parenthesis are intended to impose a similar obligation on the defendants as the earlier R2’s Order of 5 November 2013 which already imposed the obligation on all the partners of JBPB (which must have already included the defendants) because of the defendants’ contention that the majority partners did not have the right to consent, on the defendants’ behalf, to the making of the R2’s Order.

VI.  Breach of paragraph 3

1)  Existence of documents

6.1   Ms Eu argued that the Judge erred by elevating the prima facie existence of these documents to a finding of their actual existence when there was no evidence to support such a finding.  There is an issue raised by Mr Lam whether new evidence should be admitted to demonstrate the falsity of this point. 

 2)  The evidence before the Judge

6.2   In my view the finding that the documents actually existed must be examined by reference to the evidence before the Judge.  I will address the issue of new evidence later.

6.3   The　Judge　relied　on　the　following　to　find the existence of the documents :

 1) At the hearing leading to the R1 Order, the defendants did not dispute the existence of these documents.

 2) Paragraph 15 of Tang’s 3^rd Affirmation filed in opposition to the summons of 7 February 2014 stated that the 2^nd Schedule documents existed and were in the possession and custody of the majority partners :

‘The Trustees, via the 2013 Summons, sought from [JBPB] documents in support of 12 payments made to [JBPB]. These payments were made between March 2006 and November 2010. All supporting documents (e.g. accounting vouchers, bank pay-in slips etc.) for these receipts of [JBPB] were kept and maintained by the Administration Department of [JBPB] at the time. [Wong] and I never had and do not have supporting documents of [JBPB] in relation to these payments.’

(Emphasis added)

 3) Tang’s 4th Affirmation filed in purported compliance with the Order did not dispute the existence of those documents.  He only repeated his assertion that they were kept by the majority partners to which he had no access.  He knew what were the documents in the 2^nd Schedule and what documents were required to be produced.

 4) At the hearing (before To J leading to the making of the March 2015 Order) Tang did not dispute the existence of these documents.  He only asserted that they were kept by the majority partners and the defendants did not have possession, custody and control.

 5) After the making of the Order, Tang corresponded with the majority partners on the basis that these documents did exist.  In Tang’s email dated 28 March 2015 to Jonathan Leung, ten days after the date of the Order, he asserted that the Administrative and Finance Departments (‘AFD’) under Jonathan Leung’s control had kept the ledgers and vouchers of JBPB.  This is another confirmation from Tang that the documents existed.

6.4  Bearing in mind the high burden imposed on the plaintiffs in establishing contempt beyond reasonable doubt, I am, with respect, unable to agree, by reference to the five matters identified by To J, that the plaintiffs had proved beyond reasonable doubt the actual existence of the four categories of documents listed in the 2^nd Schedule other than the 4^th category of documents, namely, ‘invoice(s) and receipt(s)’ which Tang said were kept by JBPB and can be found in its accounting ledgers and vouchers.

6.5   I do not dispute, as a matter of reasonable reference, that, on the face of it, such documents are the type of documents that one may expect to exist in a commercial setting when payments were made by the nominee companies to JBPB or when JBPB issued the cashier order.  That was the position when To J made the March 2015 Order.  However, the position must be different when the plaintiffs applied to commit the defendants for contempt for breach of that order.  The inference to be drawn in a criminal context, of which contempt proceedings is one, must not only be a reasonable inference but must also be the only inference that one may draw in the circumstances.  This is, in my view, where To J erred when, on the evidence before him, he held that all the four categories of documents existed when one just cannot draw such an inference, other than the 4^th category of documents.  Tang’s 3^rd Affirmation does not support To J’s view that he had admitted, beyond all reasonable doubt, that all four categories of documents existed, other than the 4^th category.  On a fair reading of the evidence before To J, including, the letter dated 28 March 2015, where the defendants had as much admitted that the 4^th category of document existed, the defendants had never made any concession to the other three categories of documents.  The following is an extract from Tang’s letter of 28 March 2015 :

‘ It is an undeniable fact that the Admin. and Accounting Department headed by Franky Wong was under your direct control and supervision and it was these Admin./Accounting staff who kept the ledgers and vouchers of GTHK at the relevant time. The Trustees asked for vouchers etc. of GTHK pertaining to various payments (by various companies and via cashier’s orders) made to GTHK. All these cashier’s orders were made payable to GTHK and upon receipt by us, all were passed to the Administration and Accounting Department for bank-in etc.−just like any and all other receipts we collected in the name of GTHK. Once these cashiers’ orders were handed over, we would never know when they were banked‑in, how they would be recorded in the ledgers of GTHK and how and who would then keep the relevant accounting vouchers etc. insofar as GTHK is concerned.

 It is therefore misleading for you to say to the Court we have all the documents of GTHK.  We only have papers in our case files, which would NOT contain accounting ledgers and vouchers of GTHK for these receipts.

 In order for us to comply with the Order of Judge To, we ask that you produce to me from the warehouse of GTHK (‘JBPB’), or otherwise, all of these accounting ledger and vouchers of GTHK pertaining to these receipts in the next 7 days.’

6.6   I think the cause of To J’s erroneous finding that all the four categories of documents existed was due to his view on the evidential burden placed on the defendants to show that these documents did not exist when, as pointed out earlier, paragraph 3 does not indicate that there is any burden placed on the defendants at all.

3)  Application to adduce new evidence

6.7   On 28 October 2016 when To J was about to consider the sentence, the defendants produced documents which Ms Eu submitted were for the purpose of purging the defendants’ contempt.  Ms Eu submitted that the defendants did not think the documents were covered by paragraph 3 because they did not receive them as minority partners of the firm.  They received them in their capacity as joint liquidators.

6.8   The matter was adjourned for the defendants to file affirmation on what steps they had taken to comply with the order and produce whatever they had obtained up to that stage.

6.9   Further documents were supplied by the defendants to the plaintiffs on 1 and 2 November 2016.  The nature of these documents (comprising of 83 documents) was summarised in the schedule attached to Mr Lam’s written submission dated 10 January 2017.  These documents were said to be found in the defendants’ ‘litigation bundles’ in their office and also in the defendants’ godown.  Their contents are described as correspondence, receipts, invoice, supporting documents and agreement.

6.10   The plaintiffs applied to adduce these documents as new evidence and to strike out part of the notice of appeal pertaining to documents, the latter application was not pursued upon by Mr Lam.

6.11   Mr Lam submitted that these documents were covered by the paragraph 3.  He submitted that, irrespective of the alleged capacity in which these documents were ‘received’, there is no dispute that such documents existed at the time of the March 2015 Order.  In the circumstances, any argument that To J erred in his finding that such documents did exist or that the plaintiffs had not sufficiently demonstrated their existence is utterly academic and divorced from reality.

6.12   He further submitted that the argument that these documents had not been ‘received’ or were not now being disclosed in the defendants’ capacity as ‘partners of JBPB’, but rather ‘in their capacity as liquidators of CWT or trustees of another estate’ is not only misconceived but wholly disingenuous because, among other things, the argument is plainly an afterthought conceived after the judgment in an attempt to justify the late disclosure.  There had never been any prior suggestion by the defendants, whether in correspondence, evidence or submissions, that there had been any confusion as to their capacity or that they may have had documents falling within the 2^nd Schedule, but that such documents were not held in their capacity as partners of JBPB.

6.13   Mr Lam submitted that the new evidence is admissible either under Order 59, rule 10(2) of the High Court Rules or under section 83V of the Criminal Procedure Ordinance (Cap. 221) because it is ‘necessary or expedient in the interest of justice’ to receive the new evidence as was done in Kao Lee Yip at paragraph 20.

6.14   I agree with Mr Lam that the defendants’ excuse that they were concerned with the capacity in which they held the documents was very much an afterthought.  If this is a genuine concern, I see no reason why it cannot be addressed earlier, particularly, in the correspondence where Tang had already put forward his views on the dispute.  But notwithstanding this, in my view, the new evidence should not be admitted as a matter of principle. Bearing in mind the penal consequence of the contempt proceedings, the party pressing for committal must adduce all the evidence at the time of the application so that the party being cited for contempt will be in a position to respond to them.  The new evidence admitted in Kao Lee & Yip was those relied upon by the party being cited for contempt.  I would be surprised if the same latitude is accorded to the party pressing for contempt.  After all, the plaintiffs must prove all the elements of the charge of contempt which must include the existence of the documents when they appeared before To J.  They should not be allowed to fill in gaps of the evidence on appeal with a view to supporting To J’s finding that the defendants are in contempt.

4)  Custody or power

6.15   If the plaintiffs were unable to show beyond reasonable doubt that the first three categories of documents existed, then it is futile to discuss whether the defendants had custody or power of these documents.  Further To J was wrong to rely on the finding of Chow J or the evidence of Jonathan Leung to find that the defendants had custody or power of the first three categories of documents.  He was also wrong, for the reasons that I have given, to hold that the defendants had failed to discharge the evidential burden that they did not have the custody or power of the four categories of documents.

6.16   In my view, what the plaintiffs were able to prove beyond reasonable doubt is that the defendants had the power over the 4^th category of documents (i.e. invoices, receipts) even if they did not have custody of them.  In the letter of 28 March 2015, Tang asked Jonathan Leung to ‘produce’ to him from the warehouse of JBPB, the accounting ledger and vouchers of the partnership pertaining to the receipts.  In the letter dated 11 September 2015 CSC (on behalf of the majority partners) informed Tang that it is possible that the cashier orders, invoices and remittance if they were not taken away by the defendants, may be found in the 130 boxes of documents, content of which the defendants knew because they had the Document Management List (‘DML’).  The letter said these boxes were available for the defendants to inspect at a charge (to cover the costs of the godown and a staff of the majority partners to be present during the inspection).

6.17   By letter dated 29 January 2016, Tang refused to pay for the charge.  The letter stated, amongst other things :

‘.... Please do not pretend to think I am an “outsider” to the JBPB records. As a partner of JBPB, I am entitled to review all of its records at no extra cost and at my leisure (not under direct surveillance by some stranger). ....’ (emphasis added)

6.18   The defendants, as partners of JBPB, clearly had power over the documents and this letter confirmed this.  But they chose not to carry out the inspection and obtain the documents because they considered that they did not need to pay for the costs of inspection and that the process of retrieving the documents was too onerous.  As a result they did not comply with paragraph 3 of the March 2015 Order in respect of the 4^th category of documents.

5)  Paragraph 3 breached

6.19   It is trite that a Court order must be complied with strictly with its terms : Kao Lee & Yip v. Koo Hoi Yan (2009) 12 HKCFAR 830 at paragraph 26, citing with approval the following statement of Romer LJ in Hadkinson v Hadkinson [1952] P 285, 288 which was approved by the Privy Council in Isaacs v Robertson [1985] AC 97, 101-102 :

‘ It is the plain and unqualified obligation of every person against, or in respect of whom, an order is made by a court of competent jurisdiction, to obey it unless and until that order is discharged.’

6.20   In my view the defendants had plainly breached paragraph 3 in respect of the 4^th category of documents.

VII.  State of mind of the defendants

7.1   Then one comes to the issue of intention.  Liability for civil contempt does not depend on a contumacious intent.  To establish a contempt of court, it is sufficient to prove that the party’s conduct was intentional and that he knew of all the facts which made it a breach of the order.  It is not necessary to prove that he appreciated that it did breach the order.  Contempt conduct was described as ‘neither casual nor accidental and unintentional’ : see Sir Gerard Brennan NPJ in Kao Lee & Yip at paragraph 45.

7.2   In this case the breach of paragraph 3 is not casual or accidental.  The defendants clearly knew that they had to comply with it but chose not to do so because they chose not to carry out the inspection of documents due to their own view (and I think, rather stubbornly) on the payment of charges and the efforts involved in such an exercise.   They had ignored the bigger picture of their obligation to comply with paragraph 3.

7.3   In my view on the evidence before To J, the defendants were in contempt of paragraph 3.

 VIII.  Respondent’s Notice and Paragraph 4

8.1   To J held that paragraph 4 was not triggered.  But he also went on to find that paragraph 4 was also not complied with by the defendants.  The defendants did not appeal against this finding. 

8.2   The plaintiffs lodged an amended respondent’s notice supporting the finding on paragraph 4 by relying on the new evidence which they seek to adduce in this appeal.  Since I have rejected the plaintiffs’ application to adduce new evidence, it is not necessary to address this point

IX.  Alternative remedy

9.1   Ms Eu referred to G v S (2001) 4 HKCFAR 419 where at paragraph 21, Nazareth NPJ stated that committal orders should be the last resort.  In that case the husband breached a consent order to pay maintenance to the wife and child.  He was held to be in contempt of court and was ordered, among other things, to be committed to prison for six months suspended on condition of payment.  The Court of Final Appeal discharged the committal order.  In Re Wing Fai Construction Co. Ltd [2004] 3 HKLRD Kwan J (as she then was) at paragraph 103 adopted the same approach and stated that contempt proceedings should only be brought as a last resort when no alternative powers of the court could be invoked.

9.2   Ms Eu argued that To J erred in ruling that there is no hard and fast rule that a party may only resort to committal proceedings after he had exhausted all possible avenues.

9.3   In my view whether a party should resort to contempt proceedings for breach of a court order must be considered in the context of a case.  For example, application to strike out a claim or defence may be resorted to in certain situations of non-compliance of orders instead of bringing contempt proceedings.  Here there is nothing for the plaintiffs to strike out in the event of the defendants’ breach of the March 2015 Order.  The only concern is whether the plaintiffs should resort, first, to require the majority partners to produce the documents and, second, to pursue under section 29(2) of the Bankruptcy Ordinance to require the defendants to attend court to be examined.

9.4   To J had considered both alternatives and rejected them.  In my view he was correct.  The defendants as the joint liquidators of CWT had direct dealings with the Bankrupt and his nominee companies.  They must have personal knowledge of how the transactions and documentations leading to the 12 payments were carried out.  The majority partners had nothing to do with the affairs of the Bankrupt and his nominees and they had already filed an affirmation and produced some documents.  I see no point to require the plaintiffs to pursue further remedies against the majority partners.

9.5   To J said it would be a waste of time to require the defendants to be examined.  While he might have wrongly taken into consideration the conduct of the defendants based on evidence that should not be placed before him, in my view, To J must be right when he said the defendants ‘demonstrated a determined and obstinate refusal to comply.’  This view is amply justified by the way the defendants responded to the March 2015 Order.  The defendants did not produce any of the documents in the 2^nd Schedule when the time for providing disclosure expired on 8 April 2015.  Instead, they sent a letter that day to the plaintiffs’ solicitors attaching correspondences between them and CSC.  Five months later, they filed Tang’s 4^th Affirmation in purported compliance with paragraph 4 of the March 2015 Order.  The defendants’ abstinence is also fully demonstrated in Tang’s correspondence with the majority partners leading to the breach by the defendants of the March 2015 Order.  In my view the contempt proceedings were properly brought.

9.6   However, the order for committal poses a different consideration.  I would point out that, while as a matter of practice, an application under Order 52 for contempt is in the form of an application for committal, Order 52, rule 9 enables the Court to impose other forms of punishment other than to commit the defendants to prison.  Had the plaintiffs been able to show at the hearing before To J that the defendants were in contempt by refusing to produce all four categories of documents, then, in my view, the order for committal is amply justified.  But as the matter now stands, the defendants are in contempt for breach to produce only one category of documents.  In the circumstances, even taken into account the conduct of the defendants, an order for committal will be too harsh a punishment.  Accordingly that order will be set aside.  What should be the appropriate punishment will have to be decided by the sentencing judge.

X.  Obligation to comply

10.  The defendants have a continuing obligation to comply with the March 2015 Order which stands. 　The disclosure they made in October and November 2016 from their litigation bundles demonstrated that the other categories of documents within the ambit of the order do exist and are within their custody or power. 　Their argument regarding the capacity in which they received these documents has been rejected.　　They must comply with their obligation to give disclosure under paragraphs 3 and 4 of the March 2015 Order without any further delay.

XI.  Conclusion

11.  The appeal is allowed to the extent that the order for committal is set aside.

XII.  Costs

12.  It is due to the defendants’ unreasonable conduct that these proceedings were brought.  Had some common sense prevailed on the defendants earlier, the costs and expenses leading to these proceedings could well have been avoided.  The position now is that the defendants are still held to be in contempt of Court, although with a modification of the order. There will be an order nisi that the defendants are to pay the plaintiffs 80% of the costs of the appeal and below to be taxed on an indemnity basis.

Hon Kwan JA :

13.  I agree with the judgment of Cheung JA.

Hon Poon JA :

14.  I agree with the judgment of Cheung JA.

Mr Douglas Lam SC and Mr David Chen, instructed by Li, Wong, Lam & W.I. Cheung, for the plaintiffs

Ms Andrey Eu SC, instructed by ONC Lawyers, for the defendants