Mathnasium Center Licensing, Llc v. Chang Chi Hung (also known as Alex Chang)

HCMP 1550/2017

[2019] HKCFI 664

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1550 OF 2017

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J U D G M E N T

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A. INTRODUCTION

1.By the Plaintiff’s Originating Summons herein, the Plaintiff seeks to commit the Defendant, Alex Chang (“Chang”), for contempt of court. 

2.Briefly, the Plaintiff’s case is that: –

(1)  On 8 May 2015, the Plaintiff commenced HCA 1012/2015 (the “Action”) against Mathnasium Hong Kong Ltd (“Mathnasium HK”).  The claim related to a Regional Franchise Agreement dated 20 November 2009 (“RFA”).  Under the RFA and the Plaintiff’s claims in the Action, the scope or performance of some of Mathnasium HK’s obligations depended on the number of centres it operated.

(2)  In its Defence and Amended Defence, Mathnasium HK admitted that it opened and operated 12 learning centres (“HK Centres”).  The admission was verified by two statements of truth made by Chang, the sole shareholder and then director of Mathnasium HK.

(3)  The Plaintiff then sought summary judgment on 27 May 2016, and Mathnasium HK practically consented to the Plaintiff’s application when the application was heard on 20 June 2016. Eventually, the Plaintiff, relying on the admission, entered into a Tomlin order (the “Tomlin Order”) with Mathnasium HK on 22 June 2016. 

(4)  The Plaintiff then sought to enforce the schedule to the Tomin Order (the “Tomlin Schedule”), which refers to inter alia “all the learning centres operated by [Mathnasium HK] in Hong Kong from May 2012 to-date”, but was unsuccessful.  The Plaintiff therefore took out a summons to enforce the Tomlin Schedule (the “Enforcement Summons”) on 15 July 2016. 

(5)  The application was initially granted by Master K Lo on 18 July 2016, but her decision was by consent overturned on appeal by this court on 10 November 2016.  Importantly, it transpired from Mathnasium HK’s opposition to the Enforcement Summons that the admission was false, and the Plaintiff has been gravely prejudiced as the Tomlin Schedule cannot be satisfactorily enforced.  The administration of justice has been materially interfered with. 

(6)  The Plaintiff’s case is that Chang had no honest belief in the admission or his statements of truth, and knew of the likelihood of them interfering with the administration of justice. 

(7)  Accordingly, the Plaintiff applied for leave in January 2017 pursuant to Order 41A, rule 9 and Order 52, rule 2 of the Rules of the High Court.  Leave was granted by this court on 22 June 2017.  This court observed that: –

“I am satisfied that the punishment for contempt of court is proportionate and appropriate in relation to the false statements alleged to have been made by Chang Chi Hung (張志洪) (also known as Alex Chang), having regard to (i) the strength of the case against the alleged contemnor; and (ii) the significance of the alleged false statements in the proceedings in which the alleged false statements were made.”

3.The Plaintiff bears the burden to prove the following matters beyond reasonable doubt (Numeric City Ltd v Lau Chi Wing [2016] 4 HKLRD 812, at paragraph 35): –

(1)  The falsity of the statement in question (section B below);

(2)  The statement has or would have interfered with the course of justice in some material respects (section C below); and

(3)  At the time it was made the maker of the statement had no honest belief in the truth of the statement and knew of its likelihood to interfere with the course of justice (section D below).

B.     FALSITY OF THE STATEMENTS

B1.    The making of the statements

4.On 8 May 2015, the Plaintiff issued a Writ of Summons in the Action against Mathnasium HK endorsed with a Statement of Claim claiming against Mathnasium HK, inter alia: –

(1)  The outstanding royalty payments due and payable to the Plaintiff (the “Royalty Payments”) pursuant to the RFA. 

(2)  The Statement of Claim stated that, pursuant to the RFA, the exact amount of the Royalty Payments is (subject to a minimum monthly payable amount) dependent on the number of students attending the learning centres operated by Mathnasium HK (at paragraph 3(c)). 

(3)  Further, as stated in the Statement of Claim, pursuant to the RFA, Mathnasium HK owed a number of post-termination obligations in respect of the learning centres operated by Mathnasium HK (at paragraph 3(i)-(j)).  The Statement of Claim sought an order that Mathnasium HK do comply with these post-termination obligations (prayer at paragraph (b)).

5.To this end, paragraph 5 of the Statement of Claim stated that, to the best of the Plaintiff’s knowledge or information, Mathnasium HK “opened and operated” 12 centres in Hong Kong (ie the HK Centres).

6.On 4 September 2015, Chang, the sole shareholder and the then sole director of Mathnasium HK, caused a Defence and Counterclaim to be filed in the Action. 

7.Paragraph 7 of the Defence pleaded that “Paragraph 5 is admitted”. 

8.The Defence and Counterclaim dated 4 September 2015 was verified by a Statement of Truth dated 4 September 2015, signed by Chang as the director of Mathnasium HK.

9.On 5 November 2015, Chang caused an Amended Defence and Counterclaim to be filed in the Action.  Paragraph 7 of the Amended Defence again pleaded that “Paragraph 5 is admitted”.  The Amended Defence and Counterclaim was also verified by Chang’s Statement of Truth.

10.In the premises, Chang caused Mathnasium HK to admit its opening and operation of the HK Centres (the “Subject Admission”).  The Subject Admission was verified by the Statements of Truth, both signed by Chang (the “Statements of Truth”).

11.The Plaintiff’s case is that Chang and Mathnasium HK have repeatedly accepted or affirmed the truth of the Subject Admission: –

(1)  On 27 May 2016, the Plaintiff took out a summons for summary judgment and/or interim payment (the “O.14 Summons”).  In support, the Plaintiff filed, inter alia, an Affidavit of Ms Whitney Novak dated 23 May 2016 in the Action (“Novak’s Affidavit”): – 

(a)  Paragraph 10 of Novak’s Affidavit referred to a letter from the Plaintiff’s solicitors, Robertsons, to Mathnasium HK.  The 12 HK Centres were listed in Schedule 1 to the letter.

(b)  Paragraph 11 of Novak’s Affidavit went on to state that “instead, [Mathnasium HK] defiantly continues to use the Plaintiff’s proprietary system and operate 13 “Mathnasium Centre” in Hong Kong, albeit trading under an alternative name”.  Paragraph 35 of Novak’s Affidavit further stated that “[Mathnasium HK] continues to fail and/or refuse to account to the Plaintiff for the minimum royalties due and to use the Plaintiff’s marks and proprietary system without a valid license in its 13 Centers around Hong Kong”.

(2)  Mathnasium HK did not file any evidence in opposition to the O.14 Summons.  Mathnasium HK did not seek to contradict Ms Novak’s suggestion that Mathnasium HK operated the 13 centres (including the 12 HK Centres), which was consistent with the Subject Admission.

(3)  When the O.14 Summons was heard on 20 June 2016, Mathnasium HK practically consented to the Plaintiff’s application.  Mathnasium HK’s solicitor informed the court that “the Defendant is trying to surrender his hand”.  He did not dispute the suggestion that “the Defendant doesn’t want to file evidence in opposition and they accept that judgment be entered by consent”.

(4)  Eventually, the Plaintiff relied on the Subject Admission, and entered into a Tomlin Order with Mathnasium HK on 22 June 2016, which schedule refers to inter alia “all the learning centres operated by the Defendant in Hong Kong from May 2012 to-date”.  The Plaintiff issued the Enforcement Summons on 15 July 2016 to enforce the Tomlin Schedule. 

(5)  When the Enforcement Summons was heard before Master K Lo on 18 July 2016, Mathnasium HK’s solicitor initially informed the court that the HK Centres “are not operated by the Defendant’s company or owned by the Defendant of the Action” (page 15, line T of the transcript).  After an adjournment, the Plaintiff’s solicitor confirmed (to which the Defendant of the Action’s solicitor did not object) that “1 to 13 [ie the HK Centres and one other centre] is not disputed” (page 20, line M of the transcript). 

(6)  In the same hearing on 18 July 2016, Mathnasium HK’s solicitor did not object to the suggestion that the operation of the HK Centres was “not disputed” (page 20I-O), and positively suggested that “reasonable access” to those HK Centres could be ordered (page 22L-Q).  Further, the (then valid) order of Master K Lo dated 18 July 2016 provides that the Plaintiff had access to “all the learning centers operated by [Mathnasium HK] in Hong Kong from May 2012 to-date, limited to those listed from 1-13 in Annexure 1 hereto”. 

12.Thus, the Plaintiff’s case is that Chang and Mathnasium HK had repeatedly accepted or affirmed the truth of the Subject Admission.

B2.    The falsity of the statements

13.It transpires that the Subject Admission, verified by the Statements of Truth, is false: –

(1)  As stated above, the Plaintiff took out the Enforcement Summons on 15 July 2016, and the application was initially granted by Master K Lo on 18 July 2016.  However, Mathnasium HK appealed her decision.

(2)  In so doing, Chang made 2 affirmations on oath on respectively 24 October 2016 and 9 November 2016 (“Chang’s 1^st Affirmation” and “Chang’s 2^nd Affirmation”), stating that the HK Centres were not opened, owned or operated by Mathnasium HK.

(3)  Eventually, Master K Lo’s order was overturned by consent when the appeal was heard by this court on 10 November 2016.

14.In particular, in Chang’s 1^st Affirmation, Chang unequivocally admitted that “the Defendant’s admission in paragraph 7 of its Amended Defence and Counterclaim is not entirely accurate.  I can confirm to the Court on oath that the said 12 learning centres are neither owned nor operated by the Defendant.  They were also not opened by the Defendant” (at paragraph 31).

15.Chang further set out the 12 companies operating the 12 HK Centres, and “confirm to the Court that the Defendant has no ownership interest in the said 12 learning centres, despite I personally own shareholdings therein (except centre no. 11) ranging from 1% to 28%” (at paragraph 32). 

16.In Chang’s 2^nd Affirmation, he unequivocally accepted that “there was a mistake regarding the admission in paragraph 7 of the Amended Defence and Counterclaim as to the opening and operating of the learning centres by the Defendant” (at paragraph 2). 

17.Therefore, even on Chang’s own case, the Subject Admission was false.

18.The falsity of the Subject Admission is also confirmed by the evidence of Mathnasium HK.  In Law Kai Yan’s (the sole director of Mathnasium HK) 4^th Affirmation sought to be adduced (although leave was refused on 29 March 2017), Law unequivocally confirmed and reiterated that: –

“The Defendant only owned and operated the first centre in Annexure 1 to the Enforcement Summons but it had already sold the centre to a third party in February 2012 ... in relation to the other learning centres, the Defendant simply did not own them nor operate them” (at §8(a)-(b)).

“The purported admission in paragraph 7 of the Amended Defence and Counterclaim was a genuine mistake” (at §8(c)).

19.Mathnasium HK unequivocally told the court that it “did not have any connection, be it financial or operational, with the other learning centres”: Mathnasium HK’s skeleton submissions dated 28 March 2017, at paragraph 27(b). 

20.In other words, Mathnasium HK’s case was that it had no connection whatsoever with the HK Centres: in the same submissions, it maintained that “P has nothing to contradict D’s version of facts and to show that D itself as a corporate entity has any connection with any of the learning centres” (paragraph 21, original emphasis).

B3.    No doubt that the admission was false

21.In the circumstances, I agree there can be no doubt that the Subject Admission was false: the falsity was confirmed by Chang’s own evidence herein and in the Action.  Chang has no choice but to “apologise to the Court without reservation [for the mistake contained in paragraph 7 of the (Amended) Defence]” (Chang’s Affirmation filed herein on 15 September 2017, paragraph 39).

B4.    The alleged inconsistency/lack of clarity of the Statement of Claim (“SOC”) a non-issue

22.In the premises, I agree with the Plaintiff that the inconsistency or lack of clarity of the SOC alleged by Chang is simply a non-issue, because: –

(1)  Chang had no difficulty understanding paragraph 5(b) of the SOC before he signed the Statement of Truth: in his own words, paragraph 5(b) states “with unflinching certainty that the Defendant “opened and operated” the twelve HK Centres, with the implication that they were all Regional Franchisor Centres run directly by [Mathnasium HK]” (Chang’s Affirmation, paragraph 20).

(2)  This is particularly so when Chang was acutely aware of the distinction between Regional Franchisor Centres operated by Mathnasium HK (“RFC”) and Franchisees Centres (“FC”), so much so that he claimed to have given specific instructions to his lawyers in July 2015 to the effect that the HK Centres were merely FC run by sub-franchisees.

(3)  In fact, Chang himself correctly recognises that the false admission is “an unqualified admission” (Chang’s Affirmation, paragraph 50).

(4)  In any event, despite the alleged inconsistency or lack of clarity of the SOC, Chang admits that the admission is false.

(5)  Given that Chang correctly understood paragraph 5 of the SOC, the unqualified admission in the Defence, and the falsity of the admission, I agree that the alleged inconsistency or lack of clarity of the SOC is simply a non-issue.

B5.    Effect of an admission

23.Chang asserts that a false admission, as opposed to a false averment, cannot give rise to contempt.  I agree with the Plaintiff’s submission that there is simply no legal basis for such an artificial distinction.

24.I agree that Chang’s analysis flies in the face of Order 27, rule 1, which provides that “without prejudice to Order 18, rule 13, a party to a cause or matter may give notice, by his pleading or otherwise in writing, that he admits the truth of the whole or any part of the case of any other party” (emphasis added).

25.Accordingly, by making an admission, Mathnasium HK positively admits and accepts that a particular averment is true, even though the parties would not be put to proof in relation to the admitted facts.  As correctly submitted by the Plaintiff, this is demonstrated by Bayerische Landesbank Anstalt Des Offentlichen Rechts v Constantin Medien AG [2017] EWHC 131 (Comm) in which Popplewell J observes (at paragraph 22) that: –

“When considering withdrawal of a plea, different considerations arise depending on whether what is to be withdrawn is an admission or an averment. In relation to an averment which a party wishes to pursue, the party is concerned not merely with whether the averment is true, but also whether and how it can be proved. On the other hand, in relation to an admission in response to an averment by the opposite party, what the party is concerned with is simply whether what is alleged against it is true. No question arises of it being able to prove or disprove the allegation evidentially distinct from the question as to whether the allegation is or is not true.” (emphasis added)

Thus, it is clear that a party making an admission is concerned with “whether what is alleged against it is true”.  This reveals the invalidity of Chang’s argument that an admission is simply a statement of position that the party would not take issue with the truth of the allegation of fact.

26.Indeed, it is only most natural and commonsensical to recognize that an admission of fact necessarily carries with it the implication that the fact being admitted is true.  In fact, it is precisely because the fact being admitted is taken to be true by the parties and the court that there can be no further dispute between the parties on that fact (and as a result the issues for dispute are narrowed down).

27.Therefore, whilst there is a difference in terms of the necessity of proof between an admission in response to an averment and an averment itself, as far as the alleged veracity of the fact being admitted or averred is concerned, there is no difference between the two.  In both cases, the party making the admission or averment is positively affirming that the fact being admitted or averred is true.

28.Chang essentially argues that a statement of truth does not verify an admission.  To this end, the Plaintiff has referred to the following decisions: –

(1)  In Co-Operative Group Limited v Carillion JM Limited (Formerly John Mowlem & Company Limited) v Pennine Vibropiling Limited [2014] EWHC 837 (TCC), the court refused an application to withdraw an admission in the pleadings on the ground that, inter alia, “they were considered admissions supported by a statement of truth” (at §16).

(2)  Likewise, in Avrahami v Biran [2013] EWHC 330 (Ch), the court disallowed an application to amend pleadings, on the ground that, inter alia, “the fact that there has been an admission in a Statement of Case, backed by a statement of truth, is part of the relevant evidence on the question whether a proposed amendment discloses more than a fanciful prospect of success since in the absence of a credible explanation for the admission, and if the admission is fatal to the claim, the contrary evidence now advanced may be gravely undermined” (at §9).

(3)  In the same vein, in The Governing Body of Charterhouse School v Hannaford Upright [2007] EWHC 2718 (TCC), an application to withdraw an admission was refused on the ground that, inter alia, “there is no adequate explanation why Mr Grant, having signed the statement of truth, in December 2006, now wishes to depart from the admissions previously made” (at §49(b)).

29.I agree that Chang’s assertion that a statement of truth does not verify an admission is simply inconsistent with the above decisions.  If Chang were right, then the courts would have disregarded the statement of truth when considering whether to allow an admission to be withdrawn.

30.Furthermore, as stated at Practice Note 18/20A/4 of the Hong Kong Civil Procedures 2019, “all and each and every paragraph and allegation…in a pleadings or particulars of a pleading must be verified by one or more statement(s) of truth. … Pleaders must be careful to ensure that every paragraph and allegation can be genuinely and honestly verified…”.  No distinction is drawn here between an admission and an averment, and it follows that both have to be verified. Indeed, I agree it would be wrong in principle and contrary to policy and common sense to say that while a pleader is obliged to ensure the truthfulness of averments of fact in pleadings, he is somehow not obliged to do the same when it comes to admissions of fact in the same pleadings.

31.The decisions cited by Chang simply do not assist his argument on this point: –

(1)  The decision of Pioneer Plastic Containers Ltd v Commissioner of Customs and Excise [1967] Ch 597only supports the proposition that admission would become non-issue such that no evidence is required to be adduced on it.  It, however, does not support a proposition that the fact so admitted is not a statement of fact, let alone that a party can admit a fact which is known to him to be false.

(2)  I agree the decision of Chan Chun Chuen v Kao, Lee & Yip, HCA 597/2015, 12 October 2017 (unrep) is a completely different case.  The issue in that case is whether a party is guilty of abuse of process by making inconsistent averments in separate proceedings involving different parties.  The passages at pages 11 and 12 cited by Chang’s counsel are to deal with an argument raised in such context.  It does not support a proposition that the fact so admitted is not a statement of fact, or that a party can admit a fact with knowledge that it is false.

C.     INTERFERENCE WITH THE COURSE OF JUSTICE

C1.    Actual reliance and reasonableness thereof were non-issues

32.It is important to note that actual interference with the course of justice is not required, provided that the making of the false statement was likely to cause such interference: Neil v Henderson [2018] EWHC 90 (Ch), at §§72, 75.  As Zacaroli J observed (at §75):–

“… in relation to each of the acts of contempt relied on in this case, it is not necessary to show that either the court or another party was actually misled by the deployment of false or forged evidence. Nor is it necessary to show that either the court or another party took action in reliance on the false or forged evidence. It is sufficient to show that the deployment of the false or forged evidence was likely to have one, other or both of these effects. The fact that an attempt to intimidate a witness, or the making of a false statement, can amount to an act of contempt, notwithstanding that the witness is not in fact intimidated or the matter does not proceed to trial, demonstrates that an act of contempt can be completed without the evidence being actually deployed in court.” (emphasis added)

33.As Zacaroli J explained, it is not necessary to show that either the court or another party was actually misled by the false evidence.  Nor is it necessary to show that either the court or another party relied on the false evidence.  It is sufficient to show that the deployment of the false or evidence was likely to have one of these effects.

34.In the premises, I agree Chang’s arguments that (a) the Plaintiff did not actually rely on the admission, and (b) it was unreasonable for the Plaintiff to do so, simply miss the point.

C2.    Inevitability or likelihood of interference

35.As submitted by the Plaintiff, the deployment of the false admission was likely to have one of these effects, particularly when (as Chang clearly knew) the number of centres operated by Mathnasium HK was an important piece of information in the litigation, and when (as Chang and Mr Arthur Yip (“Yip”), Mathnasium HK’s counsel clearly knew) the distinction between RFC and FC was an important one with legal implications (so much so that Chang, on his own case, expressly made clear to the lawyers that the HK Centres were merely franchisees’): –

(1)  It would be difficult to enforce any judgment or order made on the basis of the admission, particularly when the performance of the judgment/order depends on Mathnasium HK’s operation of the HK Centres.

(2)  In any event, the number of centres operated by Mathnasium HK is self-evidently an important piece of information, which would affect the litigation strategies of the parties, and the decision-making process of the court.

36.This submission is supported by the submissions of Mathnasium HK (7 November 2016 skeleton, paragraph 34) in the following terms: –

“The truth regarding ownership of the learning centres and the cessation date of 1st September 2014 are significant because that would further substantially reduce the amount of royalties allegedly owed by the Defendant to the Plaintiff. Also, the terms under Master Lo’s Order regarding the access to and inspection of the documents of the learning centres simply cannot be achieved as they are neither owned nor operated by the Defendant.”

37.Further still, Chang himself saw the need to amend the pleadings (Chang’s 1^st Affirmation in the Action, paragraph 29): –

“In order to assist the Court in the future conduct of these proceedings and to fully plead the Defendant’s case to paragraph 5 in the SOC, the Defendant will instruct its solicitors to seek leave to amend the existing paragraph 7 in the Amended Defence and Counterclaim accordingly at the appropriate time.”

38.Indeed, Yip himself agrees that “this information was relevant and important” (Yip’s affirmation filed herein on 21 March 2018, paragraph 13).

39.Accordingly, I accept that the false admission was inherently likely to interfere with the administration of justice.  

C3.    Actual interference in any event

40.In any event, the Plaintiff has actually relied on the false admission and proceeded on the basis that Mathnasium HK owned and operated the HK Centres: –

(1)  The Plaintiff continued the Action against Mathnasium HK, which turned out to be an insolvent company with no operation (and did not commence action against the true operators of the 12 HK Centres, which were companies with operating business and revenue).

(2)  The Plaintiff entered into the Tomlin Order and the Tomlin Schedule on the assumption that it could gain access to the HK Centres and their financial/royalty reports, on the basis that they were opened and operated by Mathnasium HK.  The Plaintiff would not have agreed to the terms of the Tomlin Order if it had known of the falsity of the admission.

(3)  As a result of the Plaintiff entering into the Tomlin Order and the Tomlin Schedule on the basis of the admission, the Plaintiff was willing to (a) stay all further proceedings in the Action (including the Plaintiff’s claim under the RFA); (b) not to pursue its application for summary judgment under the O.14 Summons; and (c) not to pursue its application for interim payment under the O.14 Summons.

41.Chang’s assertion that the Plaintiff did not rely on the admission simply cannot bear scrutiny: –

(1)  During the cross-examination of Mr Kleczka, it was suggested that the Plaintiff did not rely on the admission in its O.14 application.  This is simply incorrect: in the supporting affidavit, the Plaintiff stated that Mathnasium HK “operate 13 Mathnasium Centres in Hong Kong” (at paragraph 11).  In any event, nothing in the O.14 summons positively suggests that the Plaintiff was proceeding on the basis that the HK Centres were FC rather than RFC.

(2)  It was also suggested that the Plaintiff did not rely on the admission when entering into the Tomlin Schedule.  I agree with the Plaintiff that this is clearly incorrect: paragraph (1) of the Tomlin Schedule obliges Mathnasium HK to disclose to the Plaintiff “all financial reports and royalty reports of all the learning centres operated by the Defendant in Hong Kong from May 2012 to-date, pursuant to the Defendant’s obligations under Clause 11.2 of the [RFA]”.  The phrase “all the learning centres” reflects the Plaintiff’s understanding that, as per the Subject Admission, Mathnasium HK operated the HK Centres.

C4.    Whether it was “reasonable” for the Plaintiff to rely on the admission

42.In any event, I accept it was reasonable for the Plaintiff to rely on the Subject Admission: as Mr Kleczka pointed out, the admission was a statement verified in solemn form.

43.In another attempt to divert attention from the undisputed falsity of the admission, Chang asserts that the other parts of the Defence reflect that the 12 HK Centres were (contrary to the admission) FC rather than RFC.  Even assuming (but without accepting) that there is any inconsistency within the Defence, I agree that this argument (as set out in paragraph 7 of Chang’s Closing Submissions) should nonetheless be rejected: –

(1)  To begin with, the admission is a clear and unequivocal admission that the HK Centres were opened and operated by Mathnasium HK.  It was eminently reasonable for the Plaintiff to rely on such clear and (as Chang recognizes) unqualified admission.

(2)  The admission that the 12 HK Centres were RFC is further buttressed by Mathnasium HK’s positive plea at paragraph 5b of the Defence that “it is accordingly denied that Clause 7.1 requires [Mathnasium HK] to use all “Regional Franchisor Centers” solely for the operation of Mathnasium franchise business”.  This positive plea indicated Mathnasium HK’s assumption that it was necessary to consider the rights and obligations relating to RFC, which is consistent with the admission that the 12 HK Centres were RFC.

(3)  Even if there was any inconsistency in the Defence/Amended Defence, such alleged inconsistency in no way qualified or affected the clear admission in paragraph 7 of the Defence/Amended Defence.  

(4)  Even if there was any inconsistency, it was perfectly reasonable for the Plaintiff to give more weight to the admission at paragraph 7, which is ostensibly an admission against the interest of Mathnasium HK (as Chang has been keen to point out).

44.In a similar vein, Chang argues at paragraph 26 of his Closing Submissions that the Plaintiff was not entitled to rely on the false admission, because Chang had previously informed the Plaintiff that the HK Centres were FC rather than RFC.  I agree that this argument must also be rejected for the reasons put forward by the Plaintiff: –

(1)  Whether a false statement can interfere with the administration of justice has to be seen from two perspectives: the court and the parties.

(2)  As far as the court is concerned, if a false statement is one which the court relies or is likely to place weight on, it interferes or is likely to interfere with the administration of justice.  In this regard, the court will simply act on the unqualified admission made by Mathnasium HK in its pleadings without regard to any evidence.  Thus, what Chang had previously asserted in his previous correspondence with the Plaintiff is simply irrelevant to the issue of interference with administration of justice.

(3)  Even from the Plaintiff’s perspective, the Plaintiff was plainly entitled and it was also reasonable for the Plaintiff to place reliance on the unqualified admission: –

(a)  The Plaintiff has every reason to be skeptical of Chang’s pre-action assertion that some of the 12 HK Centres were FC since not a single “Exhibit D agreement” has been produced even though, pursuant to Clause 3.3.2 of the RFA, such agreement should have been signed before the opening of a FC.

(b)  Further and in any event, the emails and royalty reports produced by Chang are self-serving and they only concerned (at most) 8 out of the 12 HK Centres.

(c)  In this regard, on 14 June 2014, Ms Novak of the Plaintiff actually wrote an email to Chang, indicating that the Plaintiff doubted Mathnasium HK’s assertion that the centres were FC: –

“You have said that your franchisees pay 15% of revenues as a monthly royalty to you, and your Regional Franchise Agreement currently requires you to pay Mathnasium 30% of the monthly royalties and other payments you receive. Plus, you have elected to pay us a royalty amount on the existing centers based on the royalty amount applicable to a “Franchised Center,” although you are an owner in each of the centers. Mathnasium centers in which you are an owner are considered “Regional Franchisor Centers” and subject to the royalty rate of 11% of revenues.”

(d)  In the circumstances, and where there is an unqualified admission made in court documents verified in solemn form, the Plaintiff was entitled and it was indeed reasonable for the Plaintiff to rely on such admission, rather than unverified bare assertions made by Chang in his previous correspondence.

D.     CHANG’S STATE OF MIND

D1.    No dispute that, when the admission was made, Chang knew that Mathnasium HK did not open and operate the HK Centres

45.Even on Chang’s own case, it is not disputed that Chang has always known (both before and after the commencement of the Action) that Mathnasium HK did not open and operate the HK Centres.

46.Indeed, Chang’s knowledge of the fact that the 12 HK Centres were not opened and operated by Mathnasium HK was confirmed by his own evidence that “on 13 July 2015 ... I inform the legal team that the HK Centres enumerated in paragraph 5b of the SOC were all sub-franchisees of MHKL.  In other words, they were not opened or operated by MHKL” (Chang’s affirmation, paragraph 27).

D2.    Real issue is whether Chang had an honest belief in the truth of what was pleaded in the Defence and the Amended Defence

47.Accordingly, the remaining issue is whether Chang had an honest belief in the truth of what was pleaded in the Defence and the Amended Defence.

48.Chang’s own case in a nutshell is that he gave “instructions which failed to be expressed correctly, through no fault of his own, so it cannot be said that Chang acted knowingly or recklessly regardless of the true position”: see paragraph 60 of Chang’s Closing Submissions.

49.It is the Plaintiff’s position that Chang’s case based on mistake cannot stand up to scrutiny and must be rejected in its entirety.

The Meeting on 13 July 2015

50.In relation to the 13 July 2015 meeting, the Plaintiff’s case is that Chang did not inform the lawyers that all 12 HK Centres were FC, but not RFC: –

(1)  Chang’s assertion that he told his lawyers at that meeting that all 12 HK Centres are FC, but not RFC, is clearly contradicted by Yip’s evidence.  Yip said in his affirmation that “Alex Chang had informed me at the conference that the majority of the twelve “Mathnasium Centers” were not directly opened and operated by MHKL, but were rather run by companies which were MHKL’s franchisees under the RFA.  In other words, only a few were directly opened and operated by MHKL” (paragraph 12) (emphasis supplied).  I agree that such affidavit evidence of Yip is reliable, given that it is consistent with his draft defence.

(2)  In any event, Yip’s oral evidence made it absolutely clear that Chang never told him that all 12 HK Centres were FC, but not RFC.  Yip only emphasised that he had a distinct recollection about his discussion with Chang in relation to the centre opened at Olympian City.

51.In this regard, Yip’s draft defence supports the evidence in his affirmation that Chang had positively told him at the meeting on 13 July 2015 that some of the HK Centres were RFC (ie operated by Mathnasium HK): –

(1)  The draft defence prepared by Yip includes the averment at paragraph 8 that: “Only the centers mentioned in Paragraphs [5(?), (?), …], are opened and operated by [Mathnasium HK], the rest of said “Mathnasium Centers” in Hong Kong, as stated in Paragraph 5, were franchisees under the RFA”.

(2)  I agree that this paragraph, on a fair and objective reading, reveals the assumption that at least some of the HK Centres were opened and operated by Mathnasium HK, which is consistent with what Yip said in his affirmation at paragraph 12.

52.Further, the fact that Chang had told his lawyers at the meeting on 13 July 2015 that some of the HK Centres were RFC is also consistent with Chang’s own conduct when he received the draft defence from his solicitor, Mr Ben Chan (“Chan”):

(1)  Chang confirmed in his oral evidence that when he received the draft defence, he read it line-by-line. Even though he was careful enough to correct some minor typological errors, he did not make any amendment or any note in relation to paragraph 8 of the draft defence.  This is highly inexplicable given that this was the only paragraph in respect of which his instruction was required.

(2)  His failure to correct this paragraph is all the more inexplicable in view of his oral evidence that he was a little bit surprised by what he recognized as “not a small problem”.

(3)  Given that Chang was clearly a shrewd and prudent person (who was prudent enough to make a copy of the draft defence before meeting Chan on the following day to discuss the draft defence), there was no credible reason why Chang did not at least make a note to indicate that paragraph 8 of the draft defence did not at all correctly reflect his instruction previously given at the meeting on 13 July 2015.

53.By reason of the above matters, I agree with the Plaintiff that it is clearly beyond reasonable doubt that contrary to his assertion, Chang did not tell his lawyers at the meeting on 13 July 2015 that all the 12 HK Centres were FC.

54.I further agree that this is a matter of great significance because: –

(1)  Chang was fully aware of the difference between FC and RFC, and that he knew that all the 12 HK Centres were FC in that they were not operated by Mathnasium HK.

(2)  Unquestionably, Chang did not tell his lawyers the whole truth at the meeting on 13 July 2015.

(3)  This court does not need to speculate as to the reason why Chang deliberately chose not to tell his lawyers the whole truth about the 12 HK Centres at the meeting.

(4)  However, the fact that Chang at the first meeting with his lawyers did not come clean with his own lawyers about the operation of the 12 HK Centres militates against his own case that the false admission was made by mistake.

The Meeting on 4 September 2015

55.As to the 4 September 2015 meeting, I agree that Chang’s oral evidence at trial that he told Chan that all the 12 HK Centres were FC, and that he signed the Statement of Truth without reading the finalised version of the draft defence is plainly unbelievable.

56.First, it is important to note that there has been a sea change in Chang’s evidence given on this matter and, in the circumstances, his oral evidence given at the trial is plainly unbelievable.

(1)  Version 1 – Affirmation dated 24 October 2016 filed in the Action: –

(a)  In Chang’s 1^st Affirmation filed in the Action (paragraph 29), Chang said that the Subject Admission was “largely caused by the unclear wordings pleaded in paragraph 5 of the Statement of Claim”.  Not a single word was said about his lawyers misunderstanding his instructions, or that the finalised version of the draft Defence was filed without Chang having had the chance to read the same.

(b)  In this regard, Counsel for Chang sought to salvage Chang’s evidence by suggesting to him during re-examination that it was the then counsel for Mathnasium HK who decided what was “necessary” to be included in his affirmation.

(c)  I agree that this answer cannot explain why Chang was prepared to say something in his affirmation which does not reflect the truth.  According to the case now run by Chang, he understood what was asserted in paragraph 5 of the SOC and that the false admission was made for two reasons: (a) his solicitor, Chan, misunderstood his instructions; and (b) the amendment made by Chan based on such mistake was not detected because Chang did not have the chance to read the finalised version before filing.  What is stated in Chang’s 1^st Affirmation filed in the Action clearly contradicts his evidence given in this trial.

(2)  Version 2 – Affirmation dated 14 September 2017 filed in these contempt proceedings: –

(a)  In his Affirmation filed in these proceedings (paragraph 33), Chang for the first time stated that Chan misunderstood his instructions.  He, however, added that “due to the pressure of time, I did not spot the mistake before signing off the final version of the pleading …”.

(b)  Obviously, the plain meaning of these words is that Chang indeed had read the finalised version of the Defence, but did not “spot the mistake” due to time pressure.  This, as fairly accepted by his counsel during re-examination, is different from his oral evidence that he signed the Statement of Truth without even being given a copy of the finalised version of the Defence.

(c)  Indeed, during re-examination, Chang was specifically asked when he told his current legal team that he did not have the finalised version of the Defence before signing.  Initially, Chang said he did not remember.  On the following day, he corrected himself and said that he told his current legal team about it at a meeting held on 9 November 2018, shortly before the trial.

(d)  Thus, Chang, on his own admission, accepts that his oral evidence that he did not have the finalised version of the Defence before signing is a new case, which is inconsistent with what he said in his Affirmation filed in these contempt proceedings.

(3)  Version 3 – Oral evidence at trial: –

(a)  During his examination-in-chief, Chang for the first time told the court that after telling Chan that the 12 HK Centres were not operated by Mathnasium HK, he signed the Statement of Truth without having any opportunity to read the finalised version of the Defence.

(b)  If the mistake was really one made as a result of Chang not having read the finalised version of the Defence, Chang should have no difficulty in setting this version out in his previous affirmations.

(c)  The lateness of this new allegation and the inconsistencies between this new allegation and Chang’s evidence in his previous affirmation show that such new allegation is utterly incredible.

57.Second, Chang’s case entails the suggestion that his lawyers (including Yip and Chan) made multiple mistakes in handling this simple issue despite his clear instructions given on two occasions.  I agree with the Plaintiff’s submission that this is plainly inherently improbable and, therefore, strongly militates against Chang’s case that the false admission was a mistake.

(1)  If there is any truth in Chang’s assertion that he told Yip and Chan at the meeting on 13 July 2015 that all the 12 HK Centres were not operated by Mathnasium HK, it would be inherently improbable for Yip to make a mistake and prepare a draft Defence which, by its wording, suggests that at least some centres were operated by Mathnasium HK.

(2)  Even assuming that Yip made an error, it is doubly inherently improbable for Chan to make the error again despite Chang’s instructions given on 4 September 2015, shortly before the filing of the Defence.

(3)  Further, it is triply inherently improbable for Chan to ask Chang to sign the Statement of Truth without giving him a copy of the finalised version and asking him to confirm the same.

58.Third, it is also extremely improbable for Chang to allow himself to sign the Statement of Truth without asking for and reading the finalised version of the Defence: –

(1)  Chang’s own evidence clearly demonstrates that he is a shrewd and prudent person.  He told the court that it was his practice to make copies of legal documents he signed.  He also told the court that he read the draft Defence line-by-line and made handwritten amendments on it.

(2)  Not only is Chang a prudent person, he also confirmed to the court that he was aware of his duty to ensure that the facts stated in legal documents verified by him have to be true and accurate.

(3)  Thus, it is totally out of character and utterly improbable for Chang to sign the Statement of Truth without reading the finalised version of the Defence and confirming its content.

(4)  In this regard, it is pertinent to note that in Exhibit “D1” (which was a document sent by Chan to Chang, together with a copy of the draft Defence with manuscripts), it is stated that the Defence was “amended and confirmed”.  This is a piece of hearsay evidence, which on its face can be admissible in these contempt proceedings (see Numeric City Ltd v. Lau Chi Wing, Supra, §§27-33) to show that Chang did confirm the Defence before filing.  However, this was not disclosed until Chang gave oral evidence.

59.Fourth, it is plain from Chang’s own evidence that his new case must be rejected as utterly unreliable as he had previously accepted to have no independent recollection of what happened on 4 September 2015: –

(1)  In his Affirmation dated 14 September 2017 filed in these proceedings, Chang unequivocally accepted that he “[does] not have any independent recollection of what I told Mr. Chan on that occasion” and then went on to say what he thought to have “probably happened” at the meeting on 4 September 2015.

(2)  In other words, Chang accepted that he had no independent recollection of what he said at the meeting on 4 September 2015.  If that is the case, how can he give such a detailed account of the sequence of events and how he signed the Statement of Truth without reading the finalised version of the Defence.

60.Fifth, Chang’s case based on mistake is further rebutted by his subsequent conduct in the Action: –

(1)  Upon cross-examination, Chang accepted that he knew the conduct of the Action and gave instructions on behalf of Mathnasium HK in the Action.

(2)  Indeed, bearing in mind that Chang was the sole shareholder of Mathnasium HK, it is plainly inconceivable that steps could have been taken by Mathnasium HK in the Action without Chang’s knowledge and approval, in particular important steps such as signing of the Tomlin Order.

(3)  It is plain from paragraph 1 of the Tomlin Schedule that the parties had been proceeding on the basis that the Subject Admission was true, ie the 12 HK Centres were operated by Mathnasium HK.  Thus, the false admission could not have been a mistake.  Had it been a mistake, Chang would have taken step to correct the same before instructing Chan to sign the Tomlin Order on behalf of Mathnasium HK.

(4)  Insofar as Chang’s evidence that he was not provided with a copy of the Tomlin Order before it was signed, I agree that such evidence must be rejected as plainly incredible.  It is utterly inconceivable for Chan, or any lawyer, to sign a settlement on behalf of his client without giving a copy of the written settlement to him for his approval.  I further agree that Chang’s evidence that he was “orally informed” by Chan of the terms of the Tomlin Order was a desperate attempt on his part to distance himself from the Tomlin Order.

(5)  However, even on Chang’s own case, he was made aware of the terms of the Tomlin Order orally.  Thus, Chang must also be aware of the fact that the settlement was done on the basis of the Subject Admission.  His failure to correct such a “mistake” rebuts the case now run by him.

61.Sixth, in considering whether Chang’s case based on mistake is to be accepted, the court has to assess the general credibility of Chang.  In this regard, I take into account the following: –

(1)  When asked whether there would be a difference between the Plaintiff suing Mathnasium HK and the operators of the 12 HK Centres, Chang initially said that there was no difference because they were all limited companies.  Clearly, his answer was to avoid the point that the false admission worked to his advantage by misleading the Plaintiff to go after an empty shell, rather than cash cow controlled and partially owned by him.

(2)  Chang’s evidence in relation to his control of the 11 operators of the HK Centres is extremely contrived.  Initially, he gave the disingenuous evidence that he did not know whether the operators would comply with his request to cease using the Plaintiff’s materials, thereby giving the court the impression that he had no control over those operators.  However, upon cross-examination and questioning by the court, Chang had no choice but to accept that, in truth, he had the power to control the 11 operators, for example, by removing the relevant directors.

62.For the reasons stated above, I reject Chang’s case based on mistake in its entirety, and I hold that Chang did not have an honest belief in the truth of the Subject Admission pleaded in the Defence and the Amended Defence.

D3.    Knowledge of likelihood of interference

63.As submitted by the Plaintiff, I find that Chang knew of the likelihood that the Subject Admission, if false, would interfere with the administration of justice: –

(1)  Chang accepted that he knew the distinction between RFC and FC, and that they had different rights/obligations under the RFA.  He must have known of the likelihood of interference.

(2)  Chang accepted upon cross-examination that he was alive to the risk of the Plaintiff suing the operators of the 12 HK Centres, most of which were controlled and partially owned by him.  He must have known of the false admission leading the Plaintiff to focus on suing Mathnasium HK, rather than the operators of the 12 HK Centres.

(3)  This is particularly so when Chang admitted that it was to his advantage if the Plaintiff sued Mathnasium HK (which had ceased operation and was insolvent), rather than the 11 HK Centres controlled and partially owned by him (which were still in operation and generating revenue).

D4.    Motive and admission “against interest”

64.In yet another attempt to divert the court’s attention from the true issue, Chang asserts that the false admission is made against his interest, in that Mathnasium HK would be required to pay higher royalties under the RFA if the 12 HK Centres were RFC.  On that basis, Chang argues that he would not have the motive to commit the contempt.  I agree with the Plaintiff’s submission that this argument must be rejected: –

(1)  Motive is not an element of the contempt.

(2)  In any event, it is simply impracticable and unnecessary for the court to require an applicant to surmise the contemnor’s underlying subjective motive behind the false statement, or to speculate whether the false statement is in or against the contemnor’s interest.

(3)  It is perfectly possible for Chang to make the Subject Admission because it was perceived by him to be, rightly or wrongly, in his interest.

65.Insofar as Chang seeks to rely on this “motive” argument to buttress his case based on mistake, I agree that for the reasons explained in paragraph 63 above, it was in fact in Chang’s interest to make the false admission that the 12 HK Centres were RFC.  Even though Mathnasium HK would be liable to higher royalties if the centres were RFC, any judgment obtained would be empty judgment.  On the contrary, by making such false admission, Chang could prevent, discourage or at least delay the Plaintiff from taking actions against the revenue-generating operators, 11 of which were controlled and partially owned by Chang himself.

E.     CONCLUSION

66.For the reasons set out above, I am satisfied that the Plaintiff has proven all the elements of Chang’s contempt beyond reasonable doubt and I find that Chang is guilty of contempt of court.

67.As far as the sentencing of Chang is concerned, I adjourn the same to a date to be fixed so as to afford Chang a chance to advance his mitigation.  Further, for the purpose of his mitigation, I direct that there be leave to Chang to file and serve affidavit evidence within 21 days from the date of this judgment.

68.I order that Chang do pay to the Plaintiff the costs of and incidental to these contempt proceedings (including, but not limited to, the application for leave to commence such proceedings), to be taxed on indemnity basis if not agreed, with a certificate for two counsel.

69.The above order as to costs is nisi and shall become absolute in the absence of any application within 21 days to vary the same.

70.Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.

Mr Anson Wong, SC leading Mr Tom Ng, instructed by Messrs Robertson, for the Plaintiff

Ms Winnie Tam, SC leading Mr C.W. Ling, instructed by Messrs Lee Chan Cheng, for the Defendant