Saif Partners Ii L.P. and Another v. Joe Zhixiong Zhou
Read the full judgment text of HCMP 208/2020 on BabelCite. This High Court CFI judgment was delivered on 29 March 2021.
1. This is the Plaintiffs’ contempt proceedings against the Defendant (“Zhou”) in respect of his disobedience of the Order of DHCJ Field made on 26 June 2018 (“Account Order”) in HCCL 16/2016 (“Action”).
Cited by 2 cases · Cites 14 cases
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HCMP 208/2020 [2021] HKCFI 727 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 208 OF 2020 ________________________
________________________ BETWEEN
________________________ Before: Hon Anthony Chan J in Court Date of Hearing: 10 March 2021 Date of Judgment: 29 March 2021 ________________________ J U D G M E N T ________________________ 1.This is the Plaintiffs’ contempt proceedings against the Defendant (“Zhou”) in respect of his disobedience of the Order of DHCJ Field made on 26 June 2018 (“Account Order”) in HCCL 16/2016 (“Action”). Background 2.The Action was brought by Zhou against the Plaintiffs for outstanding contractual payments. Apart from defending the claim, the Plaintiffs made a Counterclaim against Zhou for breach of fiduciary duty. Both the Action and the Counterclaim were upheld after trial. 3.A very substantial judgment sum (in excess of USD22.4 million) together with interest awarded in Zhou’s favour was duly paid by the Plaintiffs on 6 April 2018. 4.To understand the Counterclaim, I need to provide a little detail which is extracted from the Judgment of DHCJ Field given in the Action on 14 February 2018 (“Judgment”). 5.Zhou was a limited partner of the 1st Plaintiff, which was a limited partnership. The 2nd Plaintiff was the general partner of the 1st Plaintiff. The 1st Plaintiff was the general partner of SAIF II GP LP, which in turn was the general partner of SB Asia Investment Fund II LP (“Fund II”). 6.As a limited partner, Zhou was under a fiduciary duty of loyalty to the Plaintiffs. At the material times, Zhou was managing the portfolio companies of Fund II. 7.It was found by the court that Zhou had breached his fiduciary duty by engaging in serious discussions with one Zhou Yang to invest in a new entity which was to develop a technology known as “Diandao” or “Point Advertising Technology”, such technology being available and appropriate for development by a portfolio company of Fund II controlled by the 1st Plaintiff. 8.In the course of leaving the 1st Plaintiff and joining a rival fund, KPCB China Fund LP (“KPCB”), Zhou caused KPCB to invest in a new entity which would develop the Diandao technology. The investment was governed by an agreement referred to as the Xinrui investment agreement dated 24 August 2007. Disgorgement Order 9.Pursuant to the Counterclaim, the court ordered against Zhou: (a) disgorgement of the profit he made personally as a result of the investment made by KPCB under the Xinrui investment agreement; and (b) all necessary enquiries and accounts be taken to establish the sum due under (a) (“Disgorgement Order”). 10.Appeared on behalf of the Plaintiffs with Mr Tang, Mr Pow SC submitted that there were relevant findings made against Zhou in the Judgment on his credibility and adamant refusal to produce documents which should be borne in mind for the present purpose. 11.At the trial, Zhou refused to request KPCB to provide an executed version of the Xinrui investment agreement (an unsigned copy was available at the trial), even though he remained a limited partner of one of the general partners of KPCB. 12.Zhou’s answers in relation to the details of the Xinrui Investment[1] were found to be untruthful. The learned Deputy Judge took the view that “he was making his evidence up as he went along, which casts doubt over the whole of those parts of his evidence that are disputed by [the Plaintiffs]”[2]. 13.The events which followed the conclusion of the trial are relied upon by the Plaintiffs to prove Zhou’s contempt. I therefore need to recount the course of the litigations after the Judgment. It will also be seen from the events that Zhou could not (and cannot) be under any misunderstanding about what he had (and has) to do to comply with the Account Order. 14.On 12 March 2018, the Plaintiffs applied against Zhou for disclosure in aid of, and directions for, the accounting exercise. Two days later, on 14 March 2018, Zhou filed his Notice of Appeal against the Judgment (the appeal is referred to as “CACV 62/2018”)[3]. Zhou 1st 15.On 26 March 2018, Zhou provided his 1st Affirmation in draft[4] (“Zhou 1st”) purportedly in compliance with his obligation to account. Zhou said that he had made no profit from the Xinrui Investment. According to this affirmation :
16.The Plaintiffs did not accept Zhou’s evidence. There was no explanation why Keytone had paid USD8 million for an investment which had not gone well. Also, Zhou was caught out on his failure to make discovery of documents regarding KPCB’s investment in Keygate/Xinrui when he was specifically asked to do so for the purpose of the trial. 17.The Plaintiffs say that the documents exhibited to Zhou 1st demonstrated that his previous answer that such documents were not in his possession, custody or power was patently untrue, and Zhou had been suppressing disclosure unless he found it useful for his purpose. 18.Further, Zhou 1st was totally silent as to the salaries, fees and bonuses that he ought to have received by virtue of his position as a partner of KPCB and later Keytone. At least part of such income must be attributable to the Xinrui Investment, say the Plaintiffs. Account Order 19.In a Ruling dated 26 June 2018 (“Account Decision”), DHCJ Field did not accept Zhou’s claim that he had fully complied with the Disgorgement Order by way of Zhou’s 1st. The learned Judge held (§9) that :
20.The learned Judge went on to make the Account Order :
21.Zhou filed a Supplementary Notice of Appeal to appeal against, inter alia, the Account Decision on 11 July 2018. On 13 July 2018, he applied to stay the account-taking procedure directed under the Account Decision until the final determination of CACV 62/2018. Zhou 2nd 22.Zhou’s 2nd Affirmation (“Zhou 2nd”) was filed in support of the stay application. It is relied upon by Mr Pow to show that Zhou was perfectly aware of his obligations under the Account Order. Zhou 2nd stated as follows :
23.Mr Pow also relies on the submission of Zhou’s senior counsel for the stay application :
24.Taking stock at this point, it should be noted that Zhou had admitted in para 15 of Zhou 2nd that he had received income from KPCB and/or Keytone, and an example of the income was the management fee. 25.By a Ruling dated 11 January 2019, DHCJ Field dismissed the stay application on the basis, inter alia, that there had been trenchant delay. 26.Mr Pow relies upon some extracts from the transcript of the stay hearing for the present purpose :
Zhou 4th 27.On 18 February 2019, Zhou provided his draft 4th Affirmation[5] (“Zhou 4th”) purportedly in compliance with the Account Order. 28.Mr Pow submitted that Zhou had made a volte face in Zhou 4th. Contrary to the position previously adopted by him, Zhou deliberately and disingenuously narrowed the scope of accounting and disclosure to only what he alleged as profits made from the Xinrui Investment :
29.However, in Zhou 4th, Zhou accepted that :
30.Zhou provided no further information in relation to these 2 types of payments as required by the Account Order, eg, the dates, amounts, entitlements under which the amounts were received, and documentary support. Instead, Zhou simply alleged that he did not and would not receive any amount “in respect of or relating to” the Xinrui Investment (paras 38, 40, 64 and 72). 31.Disagreeing with the purported compliance of the Account Order, on 6 March 2019, the Plaintiffs’ solicitors wrote to those of Zhou :
32.On 25 Mar 2019, the Plaintiffs applied for a further order, to clarify any interpretation differences between the parties and to give Zhou a further chance to comply (“Further Order Application”). 33.Meanwhile, on 28 May 2019, CACV 62/2018 was heard. On 20 June 2019, Zhou made an application to stay the Further Order Application pending determination of CACV 62/2018. The stay was granted by M Chan J on 24 June 2019. 34.On 12 July 2019, judgment was handed down in CACV 62/2018 by which Zhou’s appeal was dismissed, and the stay expired. 35.By a Decision dated 9 September 2019, this court refused the Further Order Application on, inter alia, the basis that such an order would serve no purpose. It was Zhou’s stance that he had fully complied with the Account Order and he “steadfastly declines a second chance”. The court observed that the matters might be further ventilated by way of contempt proceedings or in the taking of the account where the Plaintiffs could falsify the account put forward by Zhou. Judgment in CACV 62/2018 36.In his Supplementary Notice of Appeal, Zhou challenged the Account Order arguing, inter alia, that :
37.Such arguments were rejected by the Court of Appeal. In particular, Kwan VP (whose judgment was agreed by Barma and Au JJA) held as follows :
38.The Plaintiffs submitted that the above dicta puts beyond doubt that the true scope of the Account Order is wider than that contended for by Zhou and he well knew that is the case. Zhou has no basis to insist on his narrow interpretation and to purport to comply on the basis of the same. Yet, to date, Zhou has not sought to correct his position and provide a proper account with the requisite disclosure. The Account Proceedings, which are ongoing[6], are being seriously prejudiced. 39.On 9 August 2019, Zhou filed an application for leave to appeal to the Court of Final Appeal. Subsequently, leave was granted by the CFA on an issue of law. Zhou’s appeal was finally dismissed on 1 December 2020. Zhou 6th and 7th 40.Two further affirmations which are relevant for the present purpose had been filed by Zhou on 29 August 2019 and 24 September 2019, namely, his 6th Affirmation (“Zhou 6th”) and 7th Affirmation (“Zhou 7th”). 41.By Zhou 6th, Zhou repeated his allegation that he did not have in his possession, custody or power any partnership, consulting or employment agreements between himself and KPCB. However, he had made enquiries with KPCB regarding such documents, and elaborated on his attempts to obtain the same. Up to the date of Zhou 6th, no document had been supplied by KPCB. 42.Zhou 7th provided a follow-up on the documents sought from KPCB. A total of 11 documents were disclosed in that affirmation, and Zhou alleged that he had taken all reasonable steps and effort to fully account to the 1st Plaintiff for any profit he made from Xinrui Investment, and to disclose all “responsive documents”. Contempt Proceedings 43.On 8 October 2019, the Plaintiffs applied ex parte for leave to issue contempt proceedings against Zhou. The application was supported by a Statement made pursuant to O 52, r 2 (“Statement”) and Ho-Ping Lin’s 4th Affirmation. 44.On 5 February 2020, DHCJ Field granted leave to commence contempt proceedings on the basis that “it is distinctly arguable that [Zhou] is in breach of the Account Order” (see the Decision dated 11 March 2020, §11). 45.The Originating Summons for the contempt proceedings was issued on 10 March 2020. However, the hearing of the Summons had to be adjourned due to the decline by Zhou’s solicitors to accept service. A substituted service order was granted by this court on 4 June 2020. 46.On 9 June 2020, Zhou applied to set aside the leave order. On 22 June 2020, he applied to set aside the substituted service order. On 24 July 2020, this court gave directions whereby, inter alia, (a) Zhou’s applications were to be heard together; and (b) Zhou was required to file any evidence in opposition to the Originating Summons by 8 September 2020. 47.By a Decision dated 17 September 2020, Zhou’s applications were dismissed. 48.On 5 October 2020, Zhou applied for leave to appeal against such dismissal. On 20 Nov 2020, this court (a) allowed Zhou’s leave application only in relation to the substituted service challenge; and (b) dismissed Zhou’s application for stay of these Contempt Proceedings pending appeal. 49.On 4 Dec 2020, Zhou renewed his leave and stay applications before the Court of Appeal. No decision has yet been made by the CA in respect of these applications. Applicable principles 50.The following principles are not contentious. For civil contempt, what is required to be proved is that the court order in question has been breached (the actus reus). Mens rea is established when the act or omission in breach of the order is done or made consciously, voluntarily and unaffected by any mistake. It is immaterial that the breach was committed in reliance on a third party’s advice, even legal advice. There is no additional need to prove mens rea in the sense of an intention to interfere with or impede the due administration of justice: Kao, Lee & Yip v Donald Koo (2009) 12 HKCFAR 830 at §§40-53. 51.The principles concerning the burden and evidential requirements for a finding of contempt had been helpfully set out by G Lam J in the recent judgment of Jeanny Helena Franslay v Fung Ariel Mei Shan [2021] HKCFI 258 at §37 :
52.In light of the fact that one of the alleged breaches of the Account Order by Zhou is his failure to disclose specific documents, the following dicta in Re Bramblevale Ltd [1970] Ch 128, per Denning LJ at 137A-E, are relevant :
53.Re Bramblebvale was applied in Hong Kong in Bruno Arboit v Koo Siu Ying, unrep, HCMP 2749/2012, 8 March 2016, where Au-Yeung J held as follows :
Zhou’s contentions 54.Zhou has not filed any evidence in opposition. 55.Apart from maintaining that he had complied with the Account Order, Zhou contends that: (i) there are irrelevant documents in the Hearing Bundles; (ii) he has a right to cross-examine the Plaintiffs’ witness; (iii) there is ambiguity in the Account Order; (iv) there is lack of clarity in the charge against him; and (v) the contempt proceedings are not the last resort. 56.The issue whether Zhou has disobeyed the Account Order will be analysed below. The alleged lack of clarity in the charge will also be addressed. The remainder of the contentions can be disposed of quickly. 57.There was no application to cross-examine the Plaintiffs’ witness, Mr Lin. The Plaintiffs are entitled to rely upon Mr Lin’s affirmation evidence in these proceedings: see Numeric City Ltd v Lau Chi Wing [2016] 4 HKLRD 812, §23. 58.There is nothing in contention (i). In these proceedings, the Plaintiffs are relying on, firstly, the materials which had been generated in the course of the long and contentious litigation between the parties. Most, if not all, of these materials are in the court files. Indeed, Mr Lin’s affirmation was basically a collation exercise, putting together those materials which are relied upon by the Plaintiffs for the contempt proceedings[7]. Secondly, the Plaintiffs are relying upon the Account Order and Zhou’s own evidence. 59.Contentions (iii) and (v) are regurgitation of submissions previously advanced by Zhou and rejected by the court. The issue of ambiguity was raised in CACV 62/2018[8] and was not accepted by the Court of Appeal. I am unable to see why Zhou is entitled to have the matter re-opened. Mr Barlow, who appeared with Mr Chan for Zhou, did not try to justify the re-opening. 60.As for the not the last resort argument, it was dealt with by this court in the Decision dated 17 September 2020, §§41-48. Analysis 61.The procedural history of these matters has been set out above in some detail because, apart from its relevance, the case against Zhou may be said to be self-evident from what had gone on in these matters. It should be noted that Zhou has all along been represented by an experienced team of lawyers led by senior counsel. 62.I agree with Mr Pow that there is no question of Zhou having unintentionally breached the Account Order. Indeed, no such suggestion was made on his behalf. Therefore, mens rea is not an issue. The focus of the court’s inquiry is whether the Account Order has been breached by Zhou (the actus reus). Ambit of the Account Order 63.The relevant part of the Order has been set out in para 20 above. 64.In my view, the terms of the Order are abundantly clear. They were detailed because of the need to ensure that Zhou would not try to wriggle out of it in light of his disinclination to comply with his disclosure obligation. 65.I agree with the Plaintiffs that, in simple terms, the Order imposed 2 obligations on Zhou: (i) provide an account of all income; and (ii) make disclosure of specific documents. An account of ALL income 66.Under the Order, Zhou has to identify all items of income down to 31 December 2012 received by him and/or entities owned and/or controlled by him from (i) KPCB and its related entities and (ii) Keytone Ventures LP and its related entities. 67.For each item of income, Zhou has to identify the entitlement under which it was received, eg, the income was salary. Further, Zhou has to disclose all documents within his power and/or control in support of the account. 68.I agree with Mr Pow that the account may be provided by drawing up a table of all items of income which Zhou and his related entities had received from KPCB and Keystone (and their related entities), and attaching the supporting documents. The fact that such a simple exercise has not been carried out, despite the resources available to Zhou, speaks volumes. 69.The charge against Zhou here is that he had unilaterally read down the scope of the Account Order, namely, his obligation was limited to income from the investment of KPCB and/or Keystone (and their related entities) into Xinrui (see, as an example, para 28 above). Consequently, Zhou has failed to account for all his income as ordered by the court. 70.The charge is sufficiently clear from paras 28 and 29 of the Statement which is relied upon in the Originating Summons (pp 2-3) for these contempt proceedings. I am in no doubt that Zhou was and is fully aware that he has to account for all his income, and the reading down was deliberate and done with the purpose of evading his obligations under the Account Order. I disagree with the submission that the charge against Zhou for his failure to account is unclear. 71.Plainly, Zhou has not fulfilled his obligations. He has never tried to identify all the income which fit the prescriptions in the Account Order. 72.Even according to Zhou 4th (see also para 24 above), Zhou has not account for the following income:
73.For completeness, I do not believe that Zhou was in any way misled by his lawyers. There is no suggestion to that effect, and even if that were the case, the erroneous advice would have been corrected in light of the Plaintiffs’ strong and continuing objection, as well as the views expressed by the Court, over the purported compliance of the Account Order by Zhou. 74.In the premises, I find it proved beyond all reasonable doubt that Zhou is in breach of the Account Order by failing to account for all his income. Disclosure of specific documents 75.The charge here concerns Zhou’s alleged failure to disclose the specific documents which are within his power and/or control and fall under the classes defined in sub-paras (1)(b)-(d) of the Account Order :
(b) and (c) 76.The Plaintiffs are no longer pursuing the alleged breach in relation to the documents of KPCB in relation to (b) and (c). 77.The evidence is that Zhou is the founder of Keytone and has at least substantial control over it and its related entities: see Zhou 4th, paras 11, 41, 42, 43, 69 and 71. There is considerable force in Mr Pow’s submission that, applying Bruno Arboit, it can be inferred that Zhou has power over Keytone’s documents. Such inference is supported by the fact that Zhou has in fact exhibited a number of Keytone’s documents in his evidence. 78.The Plaintiffs say that Zhou has failed to disclosed the documents required under (b) simply by stating in Zhou 4th, para 71 :
79.Zhou’s obligation under (b) requires disclosure of agreement(s) between him and Keystone (defined as “Keytone Ventures LP and its subsidiaries, affiliates and related entities”), not simply Keytone Management which is only one of the entities. 80.Whilst there is merit in the Plaintiffs’ contention, and it is unfortunate that it was not made clear in Zhou 4th (or any of his other affirmations) whether there was any consulting or employment agreement between him and the other Keytone entities, I am not satisfied that it can be inferred to the requisite standard that there is any such document(s). The court must bear in mind that (a) the structure and operations of Keystone were explained in Zhou 4th; and (b) it might be the case that Keytone Management was the only entity providing service to the other Keytone entities. Hence, there was no other agreement which answers to the obligation under (b). 81.In respect of category (c) documents, para 63 of Zhou 4th stated :
82.Two related distribution notices were exhibited to the affirmation. 83.The same arguments arose from the disclosure. The Plaintiffs say that under the Account Order disclosure has to be made in respect of all distribution letters and notices from all the Keytone entities, and not confined to Keytone GP. 84.Again, whilst the complaint is not without merits and it is lamentable that Zhou has not made the position clear, I cannot be satisfied beyond all reasonable doubt that there was in fact any other distribution (and hence the existence of other letter(s) or notice(s)). In particular, the Statement — “During the Relevant Period, there was only one distribution made by Keytone GP …” — may mean that there was no other distribution by any other Keytone entities. The court must give the benefit of any doubt to Zhou. (d) 85.The Plaintiffs here rely heavily on, firstly, Zhou’s previous failure to make discovery of relevant documents. In Zhou 1st, Zhou produced some documents in relation to the sale at USD8 million and asserted that those were “the only relevant documentation that [he possesses]”. However, in Zhou 4th, he produced 2 additional documents without any explanation why they had not been produced previously. 86.Secondly, the Plaintiffs had challenged the adequacy of Zhou’s disclosure and contended that he should “confirm on oath that he has disclosed the whole package of sale and purchase agreements relating to the alleged transfer from KPCB to KV at US$8 million”[10]. However, Zhou had not made any attempt to do so despite the filing of Zhou 7th subsequently. 87.Based on these facts, the Plaintiffs contend that the irresistible inference is that there exist documents within category (d) which Zhou has failed to disclose. 88.There is some force in the Plaintiffs’ submission. However, there is stringent standard of proof to be discharged. There is no suggestion that the documents disclosed by Zhou indicated that there existed other relevant document(s) which has not been disclosed. It is not uncommon that the terms of the commercial documents of a complex transaction would give rise to such indication. 89.In the absence of any indication of undisclosed document(s), I am reluctant to draw the requisite inference. Again, the court must resolve any reasonable doubt in favour of Zhou. 90.For these reasons, the charge in respect the disclosure of specific documents is not made out. Sentence 91.There is no room for doubt that Zhou is a litigious and recalcitrant party. He came to this court and obtained justice by way of very substantial payment to him by the Plaintiffs. Yet, when it comes to meeting his obligations to the Plaintiffs, he resorted to playing litigation games to deny justice to them. His actions fly in the face of the court. 92.Zhou is clearly in contempt of this court in respect of his refusal to disclose all his relevant income. Such refusal has prejudice the Plaintiffs in their rightful quest for remedies under the Counterclaim. 93.The normal practice is for the court to adjourn these matters for sentencing and request Zhou to attend in person: see Jeanny Helena Franslay v Fung Ariel Mei Shan [2021] HKCFI 258, §65. 94.As submitted by Mr Pow, should Zhou fail to attend :
95.In the present circumstances, it is appropriate to adjourn the sentencing, and I adopt the order set out in Jeanny Franslay, §65, mutatis mudantis, save that para (1) of the order be replaced as follows :
96.In addition, all necessary draft orders and directives should be lodged and served by the Plaintiffs in conjunction with their skeleton submissions. 97.I am grateful to counsel for their assistance.
Mr Jason Pow SC and Mr Alexander Tang, instructed by Fangda Partners, for the 1st and 2nd Plaintiffs Mr Barrie Barlow SC and Mr Chan Pat Lun, instructed by MinterEllison LLP, for the Defendant [1] Also referred to as the Keygate Investment. [2] Judgment, para 113. [3] There was also a cross-appeal by the Plaintiffs. [4] It was filed on 18 September 2018. [5] Filed later on 22 March 2019. [6] The latest order was dated 13 November 2020 by which Master J Wong gave directions for expert evidence. [7] It is therefore unsurprising that there was no application to cross-examination him. [8] See Zhou’s Supplementary Notice of Appeal filed on 11 July 2018, §15(1). [9] Including their related entities. [10] See Plaintiffs’ skeleton arguments, §35, for the Further Order Application. |
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