China Metal Recycling (Holdings) Ltd (in Compulsory Liquidation) and Another v. Chun Hei Man and Others

CACV 238/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 238 OF 2016

(ON APPEAL FROM HCMP NO 3396 of 2015)

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BETWEEN

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Before:  Hon Lam VP, Cheung and Kwan JJA in Court

Date of Hearing:  5 December 2017

Date of Judgment:  22 December 2017

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.In this appeal, the Plaintiffs appealed against the decision of B Chu J of 18 November 2016 dismissing their applications to commit the 1^st and 2^nd Defendants for contempt of court. The acts of contempt which the Plaintiffs relied upon were breach of the undertaking given by these Defendants in HCA 1412 of 2013 on 12 June 2015 [“the Undertaking”] and the failure to comply with the Disclosure Order made by the court on 17 August 2015 [“the Disclosure Order”].

2.The Undertaking was given and the Disclosure Order was made in the context of the exercise of what can conveniently be described as the Chabra jurisdiction[1] by the court.  The judge summarized the background and history of the proceedings in HCA 1412 of 2013 at some length at [2] to [30] of the judgment of 18 November 2016.  For present purposes, it suffices for us to identify the 1^st and 2^nd Defendants as the daughters of Mr and Mrs Chun, the Defendants in HCA 1412 of 2013.  In that action, Mr Chun, as former chairman, CEO and majority shareholder of the Plaintiff companies were alleged to have committed fraud against the Plaintiffs.  Mareva injunctions (regarding assets up to $1.68 billion) were obtained against Mr Chun and Mrs Chun.  The injunction against Mrs Chun had been discharged.  The Plaintiffs were wound up on public interest ground in HCCW 210 of 2013.  HCA 1412 of 2013 is being pursued by liquidators of the companies.  Mr Chun had absconded from the jurisdiction and Mrs Chun is subject to criminal prosecution.

3.The 1^st to 3^rd Defendants became involved in these proceedings because Mr Chun had caused shares in a Belize company, Chung Shing Finance Holdings Ltd [“the Belize Company”] to be given to them. It was said to be a secret gift and the Defendants were not aware of the same until the applications by the Plaintiffs for orders against them by way of Chabra relief in 2015.  The Defendants (and in this appeal we are only concerned with the 1^st and 2^nd Defendants[2]) were students pursuing their tertiary education in England.  Judy, the 1^st Defendant, was 19 and Kristy, the 2^nd Defendant, was 18 years old when the Undertaking was given.  

4.The Belize Company was at the top of a web of corporate structure.  At the bottom of that web were two PRC companies Zhongjin Goldman (Tianjin) Financing Lease Co Ltd [“the Tianjin Company”] and Zhongjin Goldman (Jiangsu) Investment Co Ltd [“the Jiangsu Company”].  Between June 2011 and March 2012, Wellrun Ltd, a BVI company solely owned by Mr Chun had transferred US$82 million to Chung Shing Finance (Holdings) Ltd [“ the Hong Kong Company”], which since 29 August 2012 became a sub-subsidiary of the Belize Company.  That company in turn injected US$52 million into the Jiangsu Company and US$30 million into the Tianjin Company. 

5.The Hong Kong Company used to be a subsidiary of Wellrun Ltd. The transfer of the shares from Wellrun Ltd to Chung Shing Investment Pte Ltd (a Singaporean company wholly owned by the Belize Company) [“the Singapore Company”] took place in August 2012 shortly after Mr Chun was served with a notice by the Securities and Futures Commission of investigation on him regarding the affairs of the Plaintiffs. 

6.For reasons which shall become apparent later, it is important to have regard to the management of the various companies mentioned above.  Prior to the transfer of shares of the Hong Kong Company on 29 August 2012 by a Deed of Gift, the businesses of the companies were controlled by Mr Chun.  He set up and exercised management and control over the Tianjin Company and the Jiangsu Company which were the only companies in this web of companies which actually had business operations, see [201] of the judgment below.

7.The judge set out at some length the evidence on the management of these companies at [197] to [209] of her judgment. For our purposes, the following matters are significant:

(a) Though the Defendants (including the 3^rd Defendant) were the sole shareholders of the Belize Company, none of them was appointed as director of any of these companies;

(b) When they learnt of the “gift” from their father regarding the shares in the Belize Company, they were told that the Belize Company, the Tianjin Company and the Jiangsu Company were managed by Mr Li Jinquan [“Mr Li”];

(c) Under the terms of the Deed of Gift by which the shares of the Hong Kong Company were transferred from Wellrun Ltd to the Singapore Company (thereby giving substance to the Defendants’ shareholding of the Belize Company, as the sole shareholder of the Singapore Company), the then board of the Singapore Company would only be obliged to surrender its control and management power to nominees of the Defendants when they reach 25 years old on average;

(d) Notwithstanding that transfer, Mr Chun had remained on record as the Chairman, legal representative and director of the Tianjin Company and the Jiangsu Company until around July 2013;

(e) The Plaintiffs’ case as set out in Mr Borrelli’s evidence was that the gift was a sham by Mr Chun to conceal his assets and he remained in control and Mr Li followed his instructions.  The judge found on the evidence that Mr Chun remained the ultimate beneficial owner of the Hong Kong Company and its subsidiaries, see [203] to [207] of the judgment;

(f) The judge also found at [208]:

“ In any event, in my view, without the cooperation of those in control of the Tianjin Company and the Jiangsu Company, the Daughters or Mr Fung would not be able to obtain any of the Required Information or Evidencing Documents, or the business licences or company chops of the PRC companies. Without the business licences or company chops, it would take time to change the legal representative. I note from the companies chart submitted by Ms Sit that Mr Li was appointed as sole director of the Tianjin Company on 23 December 2015 in place of the previous 3 directors but this was registered with AIC only on 8 March 2016. This would seem to indicate that Mr Li would have the business licences and company chops to effect the change. However, so far, these had not been produced and the Receivers’ attempt to change the management of PRC companies had not been successful.”

8.The Plaintiffs have been taking steps to trace and preserve the US$82 million and other assets of Mr Chun.  Various orders were obtained from the court for that purpose, including orders made under the Chabra jurisdiction.  The Undertaking was given and the Disclosure Order was made in these circumstances set out by the judge at [16] to [20] of the judgment below:

“ 16. On 2 June 2015, Ps issued a summons, based on the Chabra principles, seeking a further Mareva injunction freezing Ds’ shareholdings in Chung Shing Belize and assets of 8 companies set out in Schedule 1 of their summons (“8 Companies”) and an ancillary disclosure order in relation to the above mentioned two specific sums injected into the Tianjin Company and the Jiangsu Company respectively (“P’s Summons”).

17. P’s Summons came before Ng J on 12 June 2015 who adjourned the summons to be argued at a substantive hearing (“Ng Order”), upon Ds undertaking to the effect that they would not in any way, until judgment or further order, dispose of, deal with or diminish the value of their shareholdings in Chung Shing Belize, or the direct or indirect assets of the 8 Companies, whether held in their names or nor and whether solely or jointly owned (“Undertaking”).  

18. Thereafter, on 31 July 2015, Ds issued a summons seeking leave to transfer the legal title of their shares in Chung Shing Belize to a professional accountant, Mr Fung Kwok Leung/Andy Fung (“Mr Fung”), and for Mr Fung to be joined in the Main Action either in replacement of Ds or as a 4^th respondent (“Ds’ Summons”).

19. Both P’s Summons and Ds’ Summons came before this court for argument on 17 August 2015.  Ds’ Summons was dismissed by this court.

20. An order was further made the same day by this court against Ds to disclose, among other things, as to what had become of the two sums injected into the Jiangsu Company and the Tianjin Company, and the current value and all assets of the 8 Companies (“17.08.15 Order”).  The Undertaking was repeated and recorded in the 17.08.15 Order.  This court later handed down written reasons on 21 August 2015 for dismissing Ds’ Summons.”

9.The Undertaking was given in these terms:

“ AND UPON the undertaking of the 1^st, 2^nd and 3^rd Respondents (and each of them) to the Court that they shall not in any way, until judgment or further order, dispose of, deal with or diminish the value of their shareholdings in Chung Shing Finance Holding Limited (incorporated in Belize) or the direct or indirect assets of the companies set out in Schedule 1 annexed hereto, whether held in their names or not and whether solely or jointly owned.”

10.Schedule 1 comprised of these 8 companies: the Belize Company, the Singapore Company, the Hong Kong Company, the Tianjin Company, the Jiangsu Company, Zhongjin Goldman (Tianjin) Equity Investment Management Co Ltd, Chung Shing Finance Corporation Ltd, Chung Shing Development Pte Ltd.

11.The case of the Plaintiffs in the committal proceedings against the Defendants, as set out in the Amended Statement filed pursuant to Order 52 was summarized by the judge at [75] as follows:

“ In the Amended Statement, Ds were alleged to be in breach of the Undertaking in that each of them had:

(i) Dealt with, or diminished the value of, or permitted or suffered the dealing with or diminishing the value of, their shareholdings in Chung Shing Belize;

(ii) Dealt with, or diminished the value of, or permitted or suffered the dealing with or diminishing the value of, their indirect shareholding in the Jiangsu Company; and

(iii) Disposed of, dealt with, or diminished the value of, or permitted or suffered the disposing of, dealing with or diminishing the value of, the direct or indirect assets of the Jiangsu Company by permitting or failing to prevent the liquidation of the Jiangsu Company and the dissipation of the Jiangsu Company’s assets.”

12.The Disclosure Order provided that the Defendants must each inform the Plaintiffs in writing by 5:00 pm on 31 August 2015 of:

“ (i) What had become of:

(a) US$30m received by [the Tianjin Company] to form its registered capital; and

(b) US$52m received by [the Jiangsu Company] to form its registered capital.

and in the event that any part of those monies had been used, spent or disposed of, providing full particulars of the circumstances including a full explanation as to what had become of the monies and their current whereabouts and value; and

(ii) The current value and assets including full details of the location of any and all assets of each of the companies [in Schedule 1], whether held in their names or not and whether solely or jointly owned.”

13.It further required the information to be confirmed in an affidavit exhibiting all documents which evidence the matters set out above.

14.The Defendants, through their mother, entrusted the task of compliance with the Disclosure Order to a professional accountant Mr Fung Kwok Leung.  On 10 September 2015, Mr Fung produced a report [“the Fung Report”] which was exhibited in a second affirmation of 16 September 2015 made by Judy, the 1^st Defendant, on behalf of all three daughters by way of compliance with the Disclosure Order. 

15.The Plaintiffs regarded the disclosure as seriously deficient in terms of compliance with the Disclosure Order.  By a letter of 14 October 2015 to the solicitors for the Defendants, solicitors for the Plaintiffs set out the deficiencies in full details and intimated that in view of the obvious and substantial nature of the deficiencies, the failure to comply with the Disclosure Order can only be considered as contumacious and contumelious.  The Plaintiffs indicated that they would proceed with committal proceedings.

16.Apart from indicating that they have instructions to accept service in respect of the committal proceedings, solicitors for the Defendants further wrote to the solicitors for the Plaintiffs on 26 October 2015 with a substantive reply to the letter of 14 October 2015. They denied that the Defendants had failed to comply with the Disclosure Order.  They said the Defendants have tried their best endeavour to comply by seeking assistance from the accountant and the accountant had contacted Mr Li, the director of “the relevant company” for discovery of accounting documents. They further said the Defendants did not have actual experience in business nor possession of the documents required to be produced in the Disclosure Order. It was intimated that the Defendants would instruct the accountant to contact Mr Li again to request for additional documents.  It ended with a request to withhold further actions pending reply from the accountant.

17.On the same date, Mr Fung wrote to Mr Li asking for an appointment to meet up to discuss the allegations of the Plaintiffs on deficiencies in disclosure. A copy of the letter of 14 October 2015 was enclosed though no translation was provided.  It was not very helpful as Mr Fung should be aware that Mr Li did not read English.

18.On 9 November 2015, Mr Fung sent another letter by email to Mr Li.  This time, Mr Fung set out the deficiencies in Chinese and requested for additional documents from Mr Li.

19.There was no further communication between the solicitors.  Solicitors for the Defendants did not inform solicitors for the Plaintiffs of Mr Li’s progress in procuring further information.  At the same time, solicitors for the Plaintiffs did not impose any fresh deadline for the Defendants to make good the deficiencies.  

20.Without further warning to the Defendants, on 4 December 2015 solicitors for the Plaintiffs lodged papers with the court to apply for ex parte leave to commence committal proceedings. The papers included the Order 52 Rule 2(2) statement and the 18^th Affidavit of Borrelli of 1 December 2015.  There was no reference in those papers to the position of the Defendants set out in their solicitors’ letter of 26 October 2015.  On the contrary, there were repeated assertions that no attempt had been made by the Defendants to address the deficiencies set out in the letter of 14 October 2015, see paragraphs 29 and 34 of the Order 52 Statement and paragraphs 33 and 38 of the Affidavit of Borrelli.  The Plaintiffs alleged that the breaches of the Defendants were contumacious and contumelious by reason of their personal knowledge of the Disclosure Order and have at all times been legally represented and assisted by Mr Fung and the deficiencies were serious and substantial, see paragraph 39 of the Order 52 Statement.

21.Leave to commence the committal proceedings was granted by B Chu J on papers on the basis of such information (and the 3^rd Affidavit of Mr Dobby regarding service) on 18 December 2015.

22.The originating summons for the committal proceedings was issued on 22 December 2015.  It was subsequently amended with the leave of the court on 15 February 2016.  The amendment added the allegations relating to the breach of the Undertaking.  The Order 52 Statement was also amended accordingly.  Leave to amend was granted after inter partes hearings on 4 and 15 February 2016.  The Defendants appeared at those hearings by leading counsel (on 4 February) and junior counsel (on 15 February) who had put forward the defence case on their efforts in complying with the Disclosure Order and objected to the new allegations on the ground that the new allegations were oppressive as the liquidation process of the Jiangsu Company had commenced prior to the giving of the Undertaking and the Defendants had no part to play in the instigation of the liquidation.  In respect of the non-compliance with the Disclosure Order, the then counsel for the Defendants said they had made efforts in complying with the order but such efforts were frustrated as Mr Li had become unco-operative.  He also informed the court that the Defendants had replaced Mr Li with Mr Fung as director of the Belize Company and continuous efforts were being made to comply with the order.  He pleaded for time to enable the Defendants to comply with the order and to purge the alleged contempt.  B Chu J granted leave to amend after considering those submissions.

23.The trial took place before the judge on 9-11 August and 9 September 2016.  Before that, on the ex-parte application of the Plaintiffs, Deputy High Court Judge Yee appointed interim receivers over the assets of Mr Chun and Wellrun, including their interests in the Belize Company, the Singapore Company, the Hong Kong Company, the Tianjin Company.  That order was continued on 3 March 2016 after an inter partes hearing. 

24.At the trial, the judge had to adjourn the committal proceedings regarding the 3^rd Defendant, who was a minor when the Undertaking was given, for the reasons set out at [33] to [43] of the judgment.  After hearing evidence and submissions, the judge dismissed the application for committal on 18 November 2016.  In respect of committal based on the breach of the Undertaking, the judge held at [117] to [119]:

“ 117.  Mr Li was a director of Chung Shing Belize, Chung Shing Singapore and Chung Shing HK, but he was not employed directly by the Daughters and not their “servant”.  There was no sufficient evidence that he was an “agent” of the Daughters.  Even if he were regarded to be an agent of the Daughters by being a director or his agreeing to assist the Daughters and to co-operate in providing the Requested Information, there was no sufficient evidence that the Daughters knew of the liquidation and the deregistration of the Jiangsu Company or could it be said that they had authorized the acts of Mr Li, Mr Chen Xingchen, or the Liquidation Committee or others involved in the liquidation or deregistration. 

118.  There was simply no sufficient evidence that the Daughters could reasonably have foreseen the possibility of the acts of Mr Li and the others and/or the liquidation of the Jiangsu Company and failed to take reasonable steps to prevent them.  There was also no sufficient evidence that Mr Li in signing the 1^st and the 2^nd Shareholders’ Resolution, the Liquidation Committee and Jiangsu Company’s attorney Mr Chen Xingchen and others carrying out the various acts in filing for liquidation and deregistration of Jiangsu Company were acting on the Daughters’ behalf or on their instructions or with their encouragement.

119.  The burden is on Ps to prove beyond reasonable doubt that the Daughters had failed to comply with the Undertaking intentionally or that they had the requisite mens rea in failing to comply with the Undertaking.  Having considered all the circumstances of this case, I find that Ps have not discharged their burden.”

25.In respect of committal based on the non-compliance with the Disclosure Order, she held at [210], [219]-[220]:

“ 210.  In the above circumstances, Ps had not been able to establish beyond reasonable doubt that it was within the Daughters’ “power” to comply with the Disclosure Obligations.

…

219.  In the present case, there was no sufficient evidence that the Daughters had authorised or could reasonably have foreseen the possibility of the Fung Report being non-compliant with the 17.08.15 Order.  Nor was there sufficient evidence that they could have taken reasonable steps to prevent such non-compliance.  In fact on the contrary, the evidence showed that Mr Li had agreed to co-operate with Mr Fung.  There was no sufficient evidence to contradict what Judy said, that it was only in December 2015 that she realized that Mr Li was not co-operative, and that the Daughters then signed shareholders’ resolutions to remove Mr Li as director.  In fact, even after Mr Li was replaced by Mr Fung, Mr Fung had not been able to obtain all the remaining or outstanding Required Information or the Evidencing Documents.  There was no sufficient evidence that the Daughters could have foreseen such circumstances.

220.  Having considered the above, I am not satisfied that the Daughters’ non-compliance with Paragraph 1 and Paragraph 2 of the 17.08.15 Order was anything other than unintentional, or that they had the requisite mens rea, in that the Daughters believed that Mr Fung was to be trusted to deal with the Disclosure Obligations in the 17.08.15 Order properly and competently and they were mistaken.”

26.The judge also found that there was an alternative way for the Plaintiffs to procure the necessary information through the appointment of receiver and given that committal should be a last resort the Plaintiffs should not apply for committal: see [221] to [235]:

The alleged contempt regarding the breach of the Undertaking

27.The case of the Plaintiffs in respect of the committal for breach of the Undertaking was founded upon the liquidation of the Jiangsu Company.  The relevant chronology in that regard was set out by the judge at [77] of the judgment:

“ (i) 22 March 2015 – Shareholder resolution passed and signed by Mr Li on behalf of Chung Shing HK, sole shareholder of the Jiangsu Company (“1^st Shareholder Resolution”), to cancel the registration of the Jiangsu Company and to form a liquidation committee (“Liquidation Committee”);

(ii) 12 June 2015 – The Undertaking was provided by Ds;

(iii) 29 June 2015 – Approval issued by Jiangsu Province Commercial Administration Bureau for the Jiangsu Company to form the Liquidation Committee and to carry out liquidation in accordance with law within 15 days;

(iv) 15 July 2015 – the Liquidation Committee published a public notice in the People’s Daily Newspaper regarding the liquidation of the Jiangsu Company and notifying the creditors of Jiangsu Company to report claims;

(v) 21 July 2015 – a letter was sent to Mr Li signed by Judy and Carmen on behalf of Ds to explain to Mr Li the disclosure orders sought in Ps’ Summons and the transfer of legal title to a trustee, namely Mr Fung sought in Ds’ Summons, and further to request Mr Li if D’s Summons was allowed, to assist Mr Fung including to respond expeditiously with any request from Mr Fung for disclosure (“21.07.15 Letter”);

(vi) 24 July 2015 – a letter was sent by Mr Li to Ds acknowledging receipt of their 21.07.15 Letter and indicating that he would assist and co-operate with Mr Fung (“24.07.15 Letter”);

(vii) 28 July 2015 – the Jiangsu Company appointed a Mr Chen Xingchen as its attorney to handle filing of document for preparation of the case by a power of attorney, validity date 28 July 2015 to 28 August 2015; on the same day, Mr Chen Xingchen filed on behalf of the Jiangsu Company its liquidation and the names of the members of the Liquidation Committee with the Jiangsu Administration for Industry and Commerce (“AIC”);

(viii) 31 July 2015 – Ds’ Summons was issued and supported by Judy’s 1^st affirmation in the Main Action;

(ix) 1 August 2015 – Jiangsu Company appointed Mr Chen Xingchen as its attorney to handle deregistration of Jiangsu Company by another power of attorney, validity date 1 August 2015 to 31 December 2015;

(x) 17 August 2015 – 17.08.15 Order made, with the Undertaking repeated, and Mr Fung instructed to assist Ds to comply with the Disclosure Obligations immediately afterwards;

(xi) 18 August 2015 – Mr Fung sent a letter to Mr Li to request for information (“18.08.15 Letter”);

(xii) 28 September 2015 – Jiangsu Company deregistration application filed with Jiangsu AIC by the Liquidation Committee, the reason given for the deregistration being “shareholder(s) decision, resolution for dissolution passed at the shareholder(s)meeting or general meeting of shareholders”;

(xiii) 15 October 2015 – a liquidation report of Jiangsu Company (“Liquidation Report”) was prepared which indicated that, as at 31 August 2015:

• The total assets of the Jiangsu Company were RMB 216,230.350.02 with no liabilities;

• Out of the total assets, the claimable assets were RMB215,852,651.10, which included an amount of prepayment of RMB139,530,781.10 (USD21,838,195.28 @6.3893) from Wellrun;

• The total assets of RMB216,230,350.02 were wholly distributed to the sole shareholder Chung Shing HK, including cash of RMB366,819.24 directly distributed to Chung Shing HK, claimable assets of RMB215,852.651.10 received by Chung Shing HK who should be responsible for the corresponding recovery, and a small amount of electronic equipment with a net value of RMB 10,879.68 distributed to Chung Shing HK for self disposal;

• All claimable assets and debts of the Jiangsu Company had been settled and all residual properties had been distributed as of 31 August 2015.

(xiv) 23 October 2015 – Shareholder resolution passed and signed by Mr Li on behalf of Chung Shing HK, sole shareholder of the Jiangsu Company (“2^nd Shareholder Resolution”), confirming the decision to deregister the Jiangsu Company and approving the Liquidation Report;

(xv) 6 November 2015 – Notification issued by Jiangsu AIC for deregistration of the Jiangsu Company;

(xvi) 13 November 2015 – Notification of deregistration collected by Mr Chen Xingchen.”

28.The following matters are important in the context of this aspect in the appeal:

(a) The Defendants did not hold any position in the Jiangsu Company, whether as directors or shareholders.  Its shareholder was the Hong Kong Company and its directors were Li Liu Xian, Xie Hao Liang and Qin Jin Xin.  There is no evidence to suggest that the Defendants had in any way been involved in the management or the operation of the Jiangsu Company;

(b) Nor did they hold any position in the Hong Kong Company.  Its shareholder was the Singapore Company and Mr Li was its sole director.  Again there is no evidence to suggest that the Defendants had in any way been involved in the management or the operation of the Hong Kong Company;

(c) Neither did they hold any position in the Singapore Company.  Its shareholder was the Belize Company and its directors were Mr Li and Chen Song Lin Michael.  Again there is no evidence to suggest that the Defendants had in any way been involved in the management or the operation of the Singapore Company;  

(d) Though the Defendants were the only shareholders of the Belize Company, they were not its directors.  Mr Li was the sole director of this company.  Again there is no evidence to suggest that the Defendants had in any way been involved in the management or the operation of the Belize Company.  To the contrary, as found by the judge, the management of this company had been in the hand of Mr Li and that, according to the Deed of Gift, he would only be obliged to surrender the management and control to the nominees of the daughters when they reach the average age of 25;

(e) The liquidation process had been commenced by the resolution of 22 March 2015 without any involvement on the part of the Defendants (before the Undertaking was given) though distribution of its assets did not take place until 31 August 2015;

(f) As found by the judge, the Defendants did not have knowledge about the liquidation process.  They did not learn of their shareholdings in the Belize Company until June 2015 after the process had begun.  The judge further found that Mr Li was not their servant or agent.  Rather, the judge accepted the Plaintiffs’ contention that Mr Li probably followed the instructions of Mr Chun in the liquidation of the Jiangsu Company;

(g) The judge had this to say at [104] and [105] of the judgment regarding the Defendants enquiring with Mr Chun about the affairs of the Belize Company and the companies in the group and taking matters into their own hands:

“ 104.  I accept that the Daughters could have sought advice or information from their father after they learnt of the Gift and about the court proceedings against them.  I further accept that the Daughters could have asked their father about the assets of the 8 Companies at the time of providing the Undertaking or thereafter.  Having said this, however, it was Judy’s evidence that their father had told them there was nothing he could do and redirected them to Mr Li, and there was no sufficient evidence that even had the Daughters tried to seek advice or more information from their father or Mr Li, they would have obtained more information than Mr Fung whom they instructed later.

105.  Although the Daughters had clearly been explained the penal notice by about 27 August 2015, Judy’s evidence was that she was confused and did not really understand what was going on, and she had to go back to university.  Judy’s evidence showed that the Daughters did nothing apart from simply entrusting all matters to their mother.  However, the Daughters were very young at that time, and I find Judy’s evidence that the Daughters not doing anything but trusting their mother to take care of all matters cannot be said to be unreasonable or unbelievable or inherently improbable.  Judy’s evidence showed that the Daughters had led a very protected life and her evidence that she did not understand what was in the Fung Report was not unbelievable.  In any event, there was no sufficient evidence to show that the Daughters were in a position to take matters into their own hands and to bypass their father and their mother and to make independent decisions of their own.”

(h) The Defendants wrote to Mr Li on 21 July 2015 to seek his co-operation with their appointed accountant Mr Fung.  Mr Fung also wrote to Mr Li on 18 August 2015 seeking his assistance in procuring the information required for compliance with the Disclosure Order.  In the letters, the Defendants and Mr Fung specifically mentioned information regarding the current position of the Jiangsu Company.  Notwithstanding that, Mr Li did not inform them of the liquidation of the Jiangsu Company.  They only learnt of the liquidation when solicitors for the Plaintiffs informed the solicitors of the Defendant of the same on 25 January 2016;

(i) Limited information was given to Mr Fung and based on such information he prepared the Fung Report.  Subsequently, when the deficiencies were pointed out to him, Mr Fung made attempts to procure further information from Mr Li without success. In the end, acting on Mr Fung’s advice, the Defendants as shareholders of the Belize Company passed a resolution on 4 January 2016 to remove Mr Li as director of this company and appointed Mr Fung as director. 

29.There is a dispute on the effect of the Undertaking.  The relevant arguments before the judge were summarized by Her Ladyship at [72] to [73] and [80] to [81] of the judgment:

“ 72. Mr Mok argued that the Undertaking was a negative undertaking, and that for there to be a dealing with the asset by the Daughters, there must be some positive act by them.

73. Ms Sit did not dispute that the Undertaking was a negative undertaking.  She however relied on the passage quoted by Brennan NPJ in paragraph 23 of the Kao Lee & Yip case from Wilcox J in Concrete Constructions Pty Ltd v Plumbers and Gasfitters Employees’ Union of Australia (1987) 72 ALR 415 in which it was said  that provided that the order specified with certainty the result to be achieved it was not normally for the applicant to suggest or for the court to prescribe, a particular method of complying with the order and that it was the duty of the defendants to find out the proper means of obeying the order.

…

80. The “specified result” of the Undertaking was not to dispose/deal with/diminish the value of the Daughters’ shareholdings in Chung Shing Belize and/or the assets of the 8 Companies, and the specified result of the Undertaking had not been achieved.  Ms Sit submitted that it was the Daughters’ duty to take proper steps or to find out the proper means to achieve the “specified result” and that they had failed to do so and were in breach of the Undertaking.

81. Mr Mok submitted that there was no evidence that those who liquidated the Jiangsu Company were acting on behalf of the Daughters and further there was no evidence that the Daughters were even aware of the liquidation.”

30.It is not very clear whether the judge accepted the submission on behalf of the Plaintiffs fully.  On the one hand, she indicated that she accepted the Plaintiffs’ contention that permitting or failing to prevent the liquidation of the Jiangsu Company and the dissipation of the Jiangsu Company’s assets could constitute particulars of the breach of the Undertaking (see [76] of the judgment).  On the other hand, she seemed to take the view that the Plaintiffs had to prove beyond reasonable doubt that the Defendants had by the acts of themselves or their agents dispose, deal with or diminish the assets, hence dismissing the committal on the basis that the Plaintiffs failed to discharge such burden at [117] to [119]. 

31.The effect of the Undertaking is an issue before us as it was raised in paragraph 1 of the Respondents’ Notice.

32.In our judgment, the true effects of the Undertaking have to be analysed in light of some basic principles of law.  As agreed by the parties, the Undertaking operates only as a negative undertaking, restraining the Defendants from doing some acts.  Moreover, the Undertaking was given by the Defendants, not the Belize Company.  The Undertaking was not framed in terms of the Defendants undertaking to take steps to procure the Belize Company or its officers to refrain from the specified conducts.  Hence, the Defendants were only responsible for their personal acts or those of their servants or agents.  The acts of Mr Li could not be attributable to them unless Mr Li acted as their servant and agent in so doing.  These principles do not apply with lesser force when the Undertaking was given in the context of the exercise of Chabra jurisdiction by the court.

33.In our judgment, there is no question of holding the Defendants vicariously liable for the acts of some officers of the Belize Company or those of the companies in Schedule 1 unless such officers could properly be regarded as the agents of the Defendants.  Hone v Page [1980] FSR 500, a case on which the Plaintiffs placed much reliance, was one in which the acts in question were undertaken by the defendant’s servants or agents.  With respect, Ms Chan SC’s attempt to draw an analogy on the relationship between the defendant and the self-employed drivers in Hone v Page and the relationship between these Defendants and Mr Li is unrealistic having regards to the matters set out at [28] above.  

34.The mere fact that the Defendants did not exercise their power as shareholders to remove Mr Li as the director of the Belize Company does not make Mr Li their agent.  It is trite that the mere relationship of director and shareholder does not make the former an agent for the latter.  A director owes fiduciary duty to the company, not the company’s shareholders.  Given the finding that the Defendants were ignorant of the liquidation process of the Jiangsu Company, there is simply no basis for holding the Defendants acquiesced in that process.  Nor can it be contended on that basis that Mr Li or other officers in the Jiangsu Company were their agents for such process.  Thus, Ms Chan’s reference to the standard form of a Mareva injunction concerning acts of a defendant’s servants or agents is of no assistance.

35.In this connection, the judge clearly found that Mr Li and those involved in the liquidation process of the Jiangsu Company were not the servants or agents of the Defendants.  Ms Chan sought to challenge such findings and contended that the Plaintiffs had established a prima facie case and adverse inference could be drawn against the Defendants.  With respect, we have no hesitation in rejecting this submission.  We cannot see any basis for suggesting that there is a prima facie case that Mr Li acted as the agent of the Defendants.  Even on the Plaintiffs’ own case, Mr Li was the agent of Mr Chun.  The evidence clearly bore out the conclusion of the judge that Mr Li had concealed from the Defendants and their agent Mr Fung the liquidation process.

36.We also agree with Mr Mok SC that no adverse inference could be drawn in these circumstances on the basis that Mr Fung did not conduct investigation as to the assets of the companies.  Mr Mok rightly reminded us that in the contempt proceedings, the Defendants were protected by the right against self-incrimination, see YBL v LWC [2017] 1 HKLRD 823.  Mr Mok also drew our attention to the implication of the right of silence on the drawing of adverse inference in the context of a criminal jury trial as discussed by the Court of Final Appeal in HKSAR v Lee Fuk Hing (2004) 7 HKCFAR 600.  Though contempt proceedings are not tried before jury, it is highly arguable that the rationale in Lee Fuk Hing is equally applicable.  In this connection, it should be noted that in England the law on the right of silence has been subject to statutory changes in the form of Section 34 of the Criminal Justice and Public Order Act 1994.  We have no statutory equivalent of the same.  Thus, whilst it is permissible to draw adverse inference even in the context of contempt proceedings in England, see Arlidge, Eady & Smith on Contempt 5^th Edn paragraph 12-72; Inplayer Ltd v Thorogood [2014] EWCA Civ 1511 at [40]; NFU v Tiernan [2015] EWCA Civ 1419 at [70]), the position is not the same in Hong Kong. 

37.At the hearing, Ms Chan very properly accepted that in terms of Hong Kong law, there is no scope for adverse inference to be drawn in the context of contempt proceedings. 

38.Ms Chan however contended that the evidential burden was on the Defendants and such evidential burden had not been discharged as they did not call Mrs Chun to give evidence.  With respect, we fail to see why the evidential burden cannot be discharged by Judy and Mr Fung giving evidence (and their evidence as to the lack of knowledge of the liquidation process was accepted by the judge).  We do not accept any inference could be drawn in the present circumstances that Mrs Chun had deliberately instructed Mr Fung in such a way to steer him away from finding out anything about the liquidation or to delay the compliance with the Disclosure Order. Bearing in mind the high standard of proof required in contempt proceedings (as distinct from ordinary civil proceedings), there is no scope for drawing such inference when, on the existing materials before the court, two possibilities are equally likely.  As held by Lord Denning MR in In re Bramblevale Ltd [1970] 1 Ch 128 at 137D:

“ Those two possibilities are equally likely. It is not possible to say which of them is correct. The court cannot be satisfied beyond reasonable doubt … That would be conjecture rather than inference --- surmise rather than proof. Where there are two equally consistent possibilities open to the court, it is not right to hold that the offence is proved beyond reasonable doubt.”

39.On the evidence, we are of the view that the matters relied upon by Ms Chan (as set out at paragraph 15.4(3) of her written submissions: Mr Li acknowledged the Defendants’ status as shareholders; the disposal of the assets by the Jiangsu Company after the Undertaking was given and the Defendants took no step to ascertain the assets and their whereabout other than instructing Mr Fung) could not set up a prima facie case that they were in breach of the Undertaking or that Mr Li was the servant or agent of the Defendants. Considering such matters against the evidence on behalf of the defence as to the Defendants’ background and the role they played in the companies (which the judge accepted and we see no basis for intervention), the steps taken by Mr Fung to obtain information from Mr Li about the companies, there is simply no basis for holding that the Defendants should have pursued the matter more vigorously with Mr Li through Mr Fung.  The judge’s findings in these regards were correct.

40.Further, one must have regard to three elementary precepts of company law: (1) the shareholders are separate entity from the company; (2) the management of a company is in the hands of the directors, not the shareholders; and (3) it follows from (1) and (2) that the management of a subsidiary company with a separate board is in the hands of that board, not in the hands of the board of the parent company.

41.In some cases, the operation of these precepts in the context of injunction (and committal proceedings) might be affected by different considerations when the company or group of companies are actually the alter ego of a shareholder who used the corporate vehicle to evade an existing legal obligation or liability.  But there is no basis for these considerations in the present appeal.

42.In the present context, applying these precepts, the Defendants could not be held responsible for the management of the Belize Company as they were not its directors.  Also neither they nor the Belize Company could be responsible for the management of the Jiangsu Company.  In addition, there cannot be any imputation of acts or knowledge of the management of the Jiangsu Company to the Defendants unless there is sufficient evidence to establish agency between those responsible for such management and the Defendants.

43.The Undertaking restrained the Defendants from doing things that would (1) dispose of, deal with or diminish the value of their shareholdings in the Belize Company; or (2) dispose of, deal with or diminish the value of the direct or indirect assets of the companies set out in Schedule 1.  With respect, we do not agree with the judge that such restraints extended to impose a duty on the Defendants to take steps to prevent the Jiangsu Company from depleting its assets in the process of liquidation when they had no knowledge or means to do so. 

44.We do not find the citation of Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 830 at [23] to be germane.  The Court of Final Appeal was concerned with a mandatory order requiring the defendant to maintain an account and the observations of Brennan NPJ at [23] on specified act were made in such context.  The dictum cited in that paragraph from Concrete Constructions Pty Ltd v Plumbers and Gasfitters Employees’ Union of Australia (1987) 72 ALR 415 at p.423-4 was also made in the context of a mandatory order requiring the defendants to inform certain persons of the lifting of a ban on provision of goods and services imposed by the defendant unions.

45.Further, the observations were made to address the issue of ambiguity in an order.  They should not be read as endorsement for widening the scope of a negative injunction to cover vicarious liability for acts by third parties (who are not servants or agents of the defendant) when the order merely restrains a defendant and his servants or agents from doing specific acts. 

46.In the premises, the observations of Brennan NPJ cannot assist the Plaintiffs in the present case regarding the scope of obligations undertaken by the Defendants pursuant to the Undertaking.

47.The restraints in the Undertaking should be confined to the personal acts of the Defendants or acts of their servants or agents.  The Undertaking was not a guarantee by the Defendants that the assets of these companies would not be depleted by acts or events occasioned by some third parties.  Bearing in mind the elementary precepts of company law discussed above, it is difficult to envisage how the Defendants (and those advising them) could have contemplated that they would in effect be held liable for acts of some third parties over whom they could not exercise effective control or in respect of dealings of which they had no knowledge. 

48.The judge has made clear findings on the futility of the Defendants approaching Mr Chun to obtain information regarding the affairs of the Jiangsu Company.  Despite the efforts of Ms Chan, we are not persuaded that there is any palpable error in those regards which warrant this Court reversing the findings by the judge.

49.In our judgment, there was no breach of the Undertaking by these Defendants.

50.Hence, the judge must be correct in rejecting the application for committal in respect of the alleged breach of Undertaking.   

The alleged contempt regarding the non-compliance with the Disclosure Order

51.Turning now to the non-compliance with the Disclosure Order, we must say, with respect to the learned judge, we have some difficulties with the basis on which the order was made in the first place.  It would appear from the Reasons for Decision of 21 August 2015 of the judge in HCA 1412 of 2013 that there was no real opposition to the Disclosure Order by counsel for the Defendants at the hearing on 17 August 2015: see [4] of the Reasons for Decision. 

52.Further, from the Reasons for Decision, the judge seemed to labour under the impression that the Defendants could comply with the Disclosure Order by instructing a professional accountant to obtain the requisite information from Mr Li and if Mr Li refused to comply, they could just remove him as director: see [26] to [29], as such there would not be any hardship on the Defendants.  Though, as pointed out by the judge, these were reasons given for dismissing the Defendants’ summons as opposed to the making of the Disclosure Order, they also reflected the judge’s line of thoughts as to how she anticipated the Disclosure Order could have been complied with by these Defendants given their personal situations.

53.In our judgment, in light of the elementary precepts discussed at [40] above, it is unusual for the court to make an order of this nature against a shareholder of a company when there is nothing to suggest that he is in control of the management of the company or that the company is his alter ego.  A shareholder has no ready access to the books and accounts of the company.  It is all the more so in respect of a sub-sub-subsidiary of a company in which he is neither a shareholder or director or otherwise involved in its management.  Thus, bearing in mind that a court should not make an order against a party requiring him to do something which he has no means to comply, there must be a cogent basis for believing that the shareholders could have obtained access to the relevant documents before a disclosure order could be made against such shareholders regarding corporate documents and information.  In principle, this analysis applies with equal force even though the Disclosure Order was made in the context of the exercise of Chabra jurisdiction.

54.The judge apparently made the Disclosure Order on the assumption that with the assistance of professional accountant, the Defendants could have the full and frank co-operation of Mr Li in obtaining the requisite information and documents.  As it transpired, that assumption is wrong and it took some time before the Defendants realized the same. 

55.The judge did not take account of the inevitable time lapse for the lack of full and frank co-operation on the part of Mr Li to be detected when the Disclosure Order only gave a very short time-frame for the information to be produced by the Defendants.  The Disclosure Order was made on 17 August 2015 and disclosure had to be made by 31 August 2015.  After an extension by consent, the Fung Report was produced on 10 September 2015 and the affirmation of Judy was made on 16 September 2015. 

56.In the meantime, the Defendants had been doing what the judge expected them to have done, viz instructing a professional accountant to obtain the information from Mr Li and engaging solicitors to prepare for the compliance with the Disclosure Order.  It is regrettable that the Fung Report was deficient (and we have no doubt that it was deficient) and that the solicitors for the Defendants failed to note the deficiencies until the letter from the Plaintiffs’ solicitors of 14 October 2015.  But there was no evidence suggesting that the Defendants had any part to play in terms of such deficiencies or in failing to note the deficiencies other than that the professional advisers engaged by them failed to provide proper services to them.  On the contrary, it would appear that soon after the deficiencies were pointed out, they instructed their solicitors to intimate to the Plaintiffs that they would seek further information from Mr Li as per the letter of 26 October 2015. 

57.Subsequent developments bore out the Defendants’ continued efforts in complying with the Disclosure Order: the further attempts by Mr Fung to obtain the relevant information after 14 October 2015 and the removal of Mr Li as director by the Defendants on 4 January 2016 (before they learnt of the liquidation of the Jiangsu Company) were steps in such direction though not completely fruitful.

58.We are aware that there has not been any appeal against the Disclosure Order and it is therefore not for this Court to reverse that order.  However, the inherent problems in the order are something that the court should take account in considering whether the failure on the part of the Defendants to comply with the Disclosure Order should be visited by an order for committal. 

59.Ms Chan submitted that the personal difficulties encountered by the Defendants are only relevant to mitigation and sanction but have no bearing on a finding of contempt.  With respect, we cannot accept this submission.

60.As has often been said, contempt proceedings should only be pursued as a last resort: see G v S (2001) 4 HKCFAR 419 at [21]; CYM v YML [2013] 1 HKLRD 701 at [51]; YBL v LWC [2017] 1 HKLRD 823 at [26]; In re Mahesh Roy CACV 226 of 2015, 10 November 2017 at [34].  We wish to emphasize this approach is equally applicable in cases other than family cases.  In cases of civil contempt, the prime consideration must be the enforcement of the court order in question.  Whilst there are cases where it is necessary (and indeed imperative) that the court should exercise its power in the punishment of contempt to achieve compliance with its order, there are other cases where lesser options should be explored before one is to resort to the draconian power of committal.  In cases where it can be demonstrated that an alleged contemnor has been making genuine and serious efforts in complying with the order and non-compliance by a certain deadline is due to circumstances beyond his control, it would be rare that the court will deem it appropriate to consider the option of committal.  Thus, in CYM v YML [2013] 1 HKLRD 701 at [51], it was held as follows:

“ … In my view, like committal proceedings in other types of civil litigation, judgment summons should be a last resort. In cases where the parties have a genuine bona fide disagreement on the interpretation of an order instead of a recalcitrant judgment debtor, or where the parties have a bona fide dispute about the quantum of an item under an order for payment, such disputes should be resolved by a summons taken out under O.45 r.6 instead of a judgment summons …”

61.The court went on to comment about dispute on a debtor’s ability to pay when he is faced with an order for payment and observed that:

“ Given the penal consequence, like a committal for civil contempt, the judgment creditor has to satisfy the court beyond reasonable doubt that the judgment debtor has the means to pay the judgment debt, see Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 830 . If a judgment creditor has no firm and cogent evidential basis to discharge such onus, it would not be appropriate to proceed by way of judgment summons.”

62.There is no reason in principle why the same cannot be said in respect of contempt proceedings in commercial litigation like the present case.  Order 45 Rule 6 is equally applicable in this type of litigation as in family proceedings.  Thus, Ms Chan was not correct when she said that apart from contempt proceedings there was nothing else the Plaintiffs could have done when they found the disclosure in the Fung Report to be seriously defective.  The Plaintiffs could have applied under Order 45 Rule 6 to set a new time limit for the compliance with the Disclosure Order in light of the difficulties encountered by the Defendants.

63.It is quite plain that there was a bona fide dispute on the Defendants’ ability to obtain the information and documents which should be disclosed under the Disclosure Order.  Like the position of a creditor in a judgment summons facing a dispute on the ability to pay, in our judgment in light of the response from the solicitors for the Defendants on 26 October 2015, the Plaintiffs should have reflected on the evidence as to the means available to the Defendants to comply with the Disclosure Order before they went ahead to apply for leave to commence contempt proceedings.

64.As held by the Court of Final Appeal in Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 830 at [56],

“ There can be no penal liability for a failure to perform an impossible task.”

65.In the present case, the judge was not satisfied that the Defendants had the means to comply with the Disclosure Order before the deadline imposed in the order as extended by the Plaintiffs. Ms Chan submitted that the judge erred in coming to such finding because the judge applied the wrong test of “unfettered control” in deciding that issue. Counsel submitted that the correct test should be whether there was some sufficient control by the Defendants over the company and in the present case such control stemmed from the fact that the Defendants were the only shareholders of the Belize Company and had the ability to procure Mr Li to comply with their directions.  She also submitted that the matters pinpointed by the judge at [194] to [196], [198] to [199] and [200] to [208] were not relevant to this issue.

66.We are unable to accept these submissions.  The authorities relied upon by Ms Chan[3] are cases on discovery.  We derive more assistance from authorities on contempt.  In Re L-W (Enforcement and Committal: Contact) [2010] EWCA Civ 1253, a case referred to by the judge at [172] of the judgment, Munby LJ summarized the law at [34] in these terms:

“ What I derive from these authorities are the following further propositions: (1) The first task for the judge hearing an application for committal for alleged breach of a mandatory (positive) order is to identify, by reference to the express language of the order, precisely what it is that the order required the defendant to do.  That is a question of construction and, thus, a question of law.  (2) The next task for the judge is to determine whether the defendant has done what he was required to do and, if he has not, whether it was within his power to do it.  To adopt Hughes LJ's language, Could he do it? Was he able to do it? These are questions of fact.  (3) The burden of proof lies throughout on the applicant: it is for the applicant to establish that it was within the power of the defendant to do what the order required, not for the defendant to establish that it was not within his power to do it.  (4) The standard of proof is the criminal standard, so that before finding the defendant guilty of contempt the judge must be sure (a) that the defendant has not done what he was required to do and (b) that it was within the power of the defendant to do it.  (5) If the judge finds the defendant guilty the judgment must set out plainly and clearly (a) the judge's finding of what it is that the defendant has failed to do and (b) the judge's finding that he had the ability to do it.”

67.That was a case concerning alleged breach on the part of a father in respect of an order requiring him to allow a child to have contact with his mother and make him available for contact.  The child was unwilling to see the mother.  The findings of breach at the court below were overturned by the English Court of Appeal.  For present purposes, [81] and [82] of Munby LJ’s judgment are relevant:

“ … As we have seen, Judge Caddick repeatedly said that it was for the father to do whatever needed to be done in order to ensure that contact took place, but he did not identify what, specifically, the father could or should have done.  As he said …, "It is not for me to advise him as to how to do it." Without going so far as to say that such an omission is fatal, one can see certain difficulties in the necessary finding that it was within the power of the defendant to do what the order required him to do – and such a finding, it must be remembered, has to be made to the criminal standard of proof – if the judge does not identify what had to be done. 

I do not overlook the fact that Judge Caddick thought …that “M would co-operate with anything that the father really suggested and encouraged” and … that "the father has it in his power to persuade M to … have contact with the mother." But that is not an adequate foundation for findings of breach to the criminal standard of proof … I repeat that if breach is to be established what has to be demonstrated is that: (a) that the defendant has not done what he was required to do and (b) that it was within the power of the defendant to do it ...”

68.For present purposes, four important principles can be derived from this authority:

(a) To establish a case on contempt, the applicant has to show not only non-compliance with an order, but also that it was within the power of the alleged contemnor to comply with it;

(b) whether it is within the power of the alleged contemnor to comply with the order is a question of fact;

(c) the judge has to be satisfied on a specific omission on the part of the alleged contemnor which is within the latter’s power to do;

(d) the burden rests with the applicant to prove beyond reasonable doubt such specific omission as being within the power of the alleged contemnor. 

69.In respect of Ms Chan’s submission on the relevant test, the judge apparently took the expression “unfettered control” from the judgment of Dillon LJ in Re Tecnion Investments Ltd [1985] BCLC 434.  The judge also referred to other authorities in which the test for discovery was discussed in terms of some sufficient control.  At [191] the judge formulated the issue as follows:

“ In my view, when considering whether a company is under the “unfettered control” of a shareholder, one does not simply look at the registered shareholding in that one is entitled to look behind the registered shareholding to see whether the company is in fact the alter ego of the shareholder, as was agreed in Tecnion.  The question in the present case is whether it can be said that the 8 Companies were/are under the unfettered control of the Daughters so that the 8 Companies can be said to be their alter egos.”

70.Then at [193] to [210], she explained the reasons for coming to the conclusion that she was not satisfied beyond reasonable doubt that it was within the Defendants’ power to comply with the Disclosure Order.  In gist, the judge did not accept that one could conclude that it was within the Defendants’ power to give the requisite disclosure merely because they were the sole shareholders of the Belize Company, much depended on the degree of co-operation from Mr Li.  On the evidence before the judge in the committal proceedings, Mr Li had become un-cooperative and there were difficulties for Mr Fung to obtain the information even after he replaced Mr Li as director.  She was not satisfied that the Defendants or Mr Fung had the company chops and business licences of the Jiangsu Company and the Tianjin Company which were essential to the exercise of real control over the companies.  On the evidence, Mr Chun remained the ultimate beneficial owner of the Hong Kong Company and its subsidiaries. Without the co-operation of those in real control, the Defendants would not be able to obtain the requisite information and documents. 

71.In our judgment, it is not profitable to engage in the debate as to whether the test should be unfettered control or some sufficient control.  As we observed earlier, those tests were discussed in the context in a discovery application.  The mere fact that an order is made (based on whatever test which is appropriate for the purpose of that application) would not pre-empt an alleged contemnor from showing in a contempt application based on non-compliance with such order that it was not within his power to comply.  In the context of contempt application, one should have regard to the relevant factual matrix of the case to determine if compliance was within the power of the alleged contemnor.  In this connection, we agree with the analysis of the judge at [172] to [178] of the judgment and the judgments of Munby LJ in Re L-W, supra, and Re Jones [2013] EWHC 2730.  It should also be mentioned that the standard of proof is different at the different stages: in an application for discovery, the standard is ordinary civil standard of balance of probabilities whilst the standard in an application for committal is the criminal standard of beyond reasonable doubt.

72.In our judgment, the judge was correct in holding that in the present case one cannot confine oneself to the fact that these Defendants were the only shareholders of the Belize Company without paying regard to the other relevant factual circumstances.  We are also of the view that the matters considered by the judge at [193] to [210] are relevant matters and the judge was right to take them into account.

73.We could not pinpoint any personal omission on the part of these Defendants in terms of the non-compliance of the Disclosure Order.  Ms Chan’s submission was that since the Defendants relied on Mr Fung to comply with the order, they should bear responsibility for the failures of Mr Fung and the solicitors for the Defendants in appreciating that the Fung Report was seriously deficient and there was insufficient effort to identify the assets of these companies.  With respect, such contention did not address the problems associated with Mr Li as the source of information and the late discovery of his un-cooperativeness.  The judge rightly focused on these problems and, in our judgment, came to the right conclusion.

74.The other argument of Ms Chan on this part of the appeal relates to the drawing of adverse inference regarding Mrs Chun.  We have already explained in the above discussion why this argument has no merit.

75.We revert back to the proposition that contempt should be a last resort.  Ms Chan asked us to bear in mind that the liquidators had not been successful in their other attempts to trace the assets of Mr Chun.  Given the relationship between the Defendants and Mr Chun and Mr Li (who, we were told, is also a relative of the Defendants), it was believed that the application for contempt against the Defendants might yield some results.  As it happened, the application did not lead to any fruitful outcome in respect of the tracing of the assets.  In our judgment, the sole consideration in a contempt application should focus on the position of the Defendants.  If there is no reasonable prospect of establishing a case that it was within the power of the Defendants to do the acts which they were required to do, contempt is not an option. 

76.Ms Chan further submitted that according to Kao Lee & Yip v Koo Hoi Yan, supra, at [21] there was a three-stage test in an application for committal:

(a) What were the alleged contemnor required to do under the order;

(b) Did the alleged contemnor do what were required;

(c) Was the failure (if any) accompanied by the necessary state of mind.

Counsel said there was no scope of a further defence of impossibility.

77.With respect, we cannot accept this submission.  At [21] of the judgment in Kao Lee & Yip v Koo Hoi Yan, supra, the Court of Final Appeal only summarized the issues in that appeal.  It is a misreading of that paragraph to take it as setting out all the matters that an applicant has to prove to establish a case for contempt.  As discussed above with reference to the judgment of Munby LJ and [56] in Kao Lee & Yip v Koo Hoi Yan, supra, the applicant also has to establish beyond reasonable doubt that it is within the power of the alleged contemnor to do what the order required him to do. 

78.Further, by reason of the principle that contempt should be the last resort, it is wrong to bring contempt proceedings without regard to the efforts and continued efforts by the alleged contemnor in complying with the order even though he has failed to completely fulfil its requirement completely within the time prescribed.  Ms Chan submitted that the burden should be on the alleged contemnor to apply for extension of time or to vary the order.  That would be akin to the situation in family cases where judgment summons application usually brings about an application for variation of the order by the non-paying party, and there were discussions on how the two applications should inter-act in YBL v LWC, supra. 

79.By reason of the penal consequence, we are of the view that even if the alleged contemnor does not take out any application for variation of the order or for extension of time, before it grants leave for committal proceedings the court should take into account the efforts which the alleged contemnor has made and is continuing to make to comply with the order insofar as it is known to the applicant.  This flows from the principles concerning the exercise of the power of contempt discussed above.  

80.For all the above reasons, we dismiss the appeal concerning the breach regarding the Disclosure Order.  Though we would not rely on the following as part of the reason for dismissing the appeal, in light of what had happened in this case, it is opportune to remind practitioners on the duty of a party seeking leave to apply for committal and state our views on the processing of an application for leave.  A party seeking leave, as with every party making an ex parte application, has a duty to give full and frank disclosure, see Secretary for Justice v Choy Bing Wing CACV 11 of 2004, 3 December 2004, at [46] to [48]; Hong Kong Civil Procedure 2017 paragraph 52/2/4; Tiong King Sing v Sam Boon Peng Yee [2015] 1 HKLRD 981 at [35]; Pat Chung Pat Wo Tong (Hong Kong) Ltd v Law Yan Wai HCA 1719 of 2010, 5 May 2017. 

81.The leave application is a filtering process to screen out oppressive applications and those which obviously have no chance of success, see Tiong King Sing v Sam Boon Peng Yee [2015] 3 HKLRD 99 at [6].  In order to satisfy the duty of full and frank disclosure, an applicant must give to the court the relevant information which is material to the consideration as to whether an application for committal should be filtered out, including information material to suspicion of oppression in proceeding by way of committal.  Materiality is to be determined by the court, not the applicant or his legal advisers, see Tiong King Sing v Sam Boon Peng Yee HCMP 1129 of 2015, 21 July 2015, at [13].

82.As set out above, in the Order 52 Statement and the affidavit in support of the application for committal, the Plaintiffs did not disclose the letter of 26 October 2015 from the solicitors for the Defendants where the Defendants indicated that they were going to get more information from Mr Li.  Instead, they alleged that the Defendants made no attempt to address the deficiencies set out in the letter of 14 October 2015.

83.Given the unusual nature of the Disclosure Order as explained at [53] above and the fact that the Defendants had apparently been doing what the judge had expected them to do to comply with the order at the time when she made the order (see [52] to [55] above), in our judgment the continued willingness on the part of the Defendants to seek information from Mr Li must be a very material consideration in assessing whether it was oppressive to proceed by way of an application for committal against the Defendants.

84.Viewed thus, the letter of 26 October 2015 is material and the non-disclosure of the same is a breach of the duty of full and frank disclosure.  The bald statements on behalf of the Plaintiffs that the Defendants made no attempt to address the deficiencies are, in our judgment, misleading.

85.Though Order 52 Rule 2 (2) provides that application for leave is to be made ex parte and Rule 2(4) provides for the processing of such application without a hearing, and such procedures would normally be adequate, there is nothing to stop a judge from listing the matter for a hearing if there are matters which the judge requires further information or assistance by way of submission.  Drawing an analogy with the application for leave to apply for judicial review (which also serves a filtering function) and given that it is open to an alleged contemnor to apply to set aside leave (as in Tiong King Sing v Sam Boon Peng Yee [2015] 1 HKLRD 981 and Pat Chung Pat Wo Tong (Hong Kong) Ltd v Law Yan Wai, supra), in our judgment it is also open to a judge to hold a hearing inviting written or oral submissions from the alleged contemnor as putative respondent. It is of course a matter of case management and the judge should bear in mind that the leave application is only a filtering process, and as such if a hearing is to be held it should not be an elaborate process in any event. 

Disposition

86.In the circumstances, we dismiss the appeal and make a costs order nisi that the Plaintiffs shall pay the costs of the Defendants in this appeal, including the costs of the Respondents’ Notice, with certificate for 2 counsel.  Such costs are to be taxed if not agreed. 

Ms Linda Chan SC and Ms Eva Sit, instructed by Hogan Lovells, for the 1^st and 2^nd plaintiffs

Mr Johnny Mok SC and Mr Alexander Tang, instructed by Chong & Partners LLP, for the 1^st and 2^nd defendants