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

CACV 271/2018

[2021] HKCA 1139

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 271 OF 2018

(ON APPEAL FROM HCMP NO. 1574 OF 2016)

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Before : Hon Cheung, Chu and Barma JJA in Court

Date of Hearing : 6 July 2021

Date of Judgment : 4 August 2021

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J U D G M E N T

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Hon Cheung JA (giving the Judgment of the Court) :

I. Committal for Contempt

1.1In HCA 2880/2015 Lok J on 24 December 2015 pursuant to the plaintiffs’ application granted an injunction (‘the December Injunction Order’) against, amongst other defendants, the 1^st defendant (‘Zhang Senior’) and the 2^nd defendant (‘Zhang Junior’) (collectively ‘the Zhangs’).  The terms of the injunction relevant to this appeal are

1)  the Zhangs were restrained from concealing from the plaintiffs, destroying or tampering with the plaintiffs’ records (‘Preservation Order’);

2)  The Zhangs were required to forthwith deliver to the plaintiffs’ solicitors any of the plaintiffs’ records or copies thereof that were in their possession, custody or control (‘Delivery Over Order’); and

3)  The Zhangs were required to answer in writing five questions concerning the whereabouts of the plaintiffs’ records within seven days of service (‘Plaintiffs’ Records Disclosure Order’), and within seven days thereafter, to provide an affirmation confirming the answers (‘Plaintiffs’ Records Confirmation Order’).  The deadlines for compliance with these two orders were 22 February 2016 and 29 February 2016 respectively.

1.2On 8 January 2016 Au‑Yeung J made the following further orders against the Zhangs (‘the January Injunction Order’) :

1)  Continuation of the December Injunction Order (‘Continuation Order’);

2)  Additional disclosure of information concerning the plaintiffs’ records and a confirmatory affirmation [the deadline was 22 January 2016] and to forthwith deliver‑up of the plaintiffs’ record (‘Plaintiffs’ Records Further Order’);

3)  A prohibitory injunction to restrain the Zhangs from ‘acting upon or exercising any power or entitlement’ pursuant to the unlawfully altered Articles of Association of Shandong Cement (‘the unlawfully altered articles’) and from misapplying any assets of Shandong Cement or any of its subsidiaries (‘Shandong Cement Injunction’); and

4)  A mandatory injunction to compel the Zhangs to execute corrective amendments to the Articles of Association of Shandong Cement, failing which the Registrar of the High Court shall do so on their behalf (‘Corrective Amendments Injunction’).  The deadline was 7 March 2016.

1.3On 15 January 2016 Au‑Yeung J approved the content of the corrective amendments.

1.4The Zhangs failed to comply with the December Injunction Order and the January Injunction Order.  The plaintiffs, pursuant to leave, sought to commit the Zhangsfor contempt for failing to obey the December Injunction Order and the January Injunction Order in respect of the preservation, delivery over, and disclosure of the plaintiffs’ records, and orders relating to the Articles of Association of Shandong Cement (HCMP 1574/2016).  The plaintiffs did not seek committal for breach by the Zhangs of any order concerning the plaintiffs’ property.

1.5Au‑Yeung J found Zhang Senior to be in contempt on Charges 1 to 4, 6 (first limb) and 7.  She found Zhang Junior to be in contempt on Charges 1 to 3.  Charges 4 to 7 were dismissed against Zhang Junior on the procedural ground that the plaintiffs had failed to issue an inter‑partes summons against Zhang Junior.  A summary of the charges that the Zhangs had been found guilty is as Annex I.

1.6On 31 May 2018 Au‑Yeung J imposed a term of imprisonment of three months for each of the charges that the Zhangs were convicted of.  She held Charges 1 to 3 (and 4 for Zhang Senior only) formed one group whilst, as against Zhang Senior, Charges 6 (1^st limb) and 7 formed another.  Taking into account the principle of totality, she ordered a total sentence of four months’ imprisonment for Zhang Senior and three months for Zhang Junior.  The Zhangs now appeal.

II.     Background

2.1The background of the case is summarised by Au‑Yeung J in her Reasons for Decision on the contempt proceedings of 15 January 2016 which I am happy to adopt.

2.2The 1^st plaintiff (‘GroupCo’) was incorporated in the Cayman Islands with its shares listed on the Stock Exchange of Hong Kong (‘SEHK’).  It is the holding company for the Shanshui Cement group of companies (‘the Group’) through three immediate subsidiaries :

1)  HK Cement (the 2^nd plaintiff) : wholly-owned by GroupCo and incorporated in Hong Kong;

2)  Pioneer (the 3^rd plaintiff) : wholly-owned by HK Cement (the 2^nd plaintiff); and incorporated in Hong Kong;

3)  Shandong Shanshui Cement Group Co Ltd (‘Shandong Cement’) is a wholly‑owned subsidiary of Pioneeer (the 3^rd plaintiff), incorporated in the Mainland and operating out of the Group’s industrial plant at Jinan, Shandong.

2.3Shandong Cement holds the Group’s subsidiaries that own the vast majority of the Group’s fixed assets, employ most of the Group’s staff and responsible for about 99% of the Group’s revenue.  As of 30 June 2015, Shandong Cement’s consolidated balance sheet showed total assets of RMB 34.8 billion, with net assets of RMB 15.13 billion.

2.4Since 21 July 2015, the shareholders of GroupCo have been Tianrui (International) Holdings Co Ltd (‘Tianrui’, 28.16%), China Shanshui Investment Co Ltd (‘CSI’, 25.09%), Asia Cement Corporation and associates (‘ACC’, 25.18%), China National Building Materials Co Ltd (‘CNBM’, 16.67%) and public shareholders 4.9%.

2.5In respect of GroupCo’s board of directors (‘the GroupCo Board’),

1)  At all times up to 13 October 2015, the executive directors were the Zhangs and the 3^rd defendant. The 3^rd defendant routinely voted in accordance with the directions of the Zhangs.

2)  Until mid-October 2015, the Zhangs had been able to control the composition of the GroupCo Board and hence the management of the Group;

3)  From mid-October to 1 December 2015, Zhang Senior was able to control the composition through the Zhangs’ collaboration with CNBM and ACC.  The GroupCo Board included the defendants, except the 3^rd defendant (who was the company secretary and employee accountant).

2.6In respect of HK Cement (the 2^nd plaintiff) and Pioneer (the 3^rd plaintiff), until 2 December 2015, the Zhangs had been the only directors.

2.7In respect of Shandong Cement, until 28 October 2015, its directors were the Zhangs and four Group employees loyal to them, i.e. Chen Xueshi, Huang Kehua, Tian Guang and Zhu Wei.

2.8Zhang Senior had been able to control CSI, until July 2015.

2.9Since March 2015, the Zhangs have been heavily involved in litigation in Hong Kong with multiple interlocutory proceedings.  There were two main sets of proceedings :

1)  Unfair prejudice proceedings by the minority shareholders in CSI on behalf of all shareholders in CSI and/or GroupCo against GroupCo, the Zhangs and CNBM.  The subject matter was an agreement whereby GroupCo agreed to allot shares to CNBM.  It had the effect of making CNBM a substantial shareholder, but diluting CSI’s shareholding in GroupCo.  Another subject matter was GroupCo’s grant of share options to the Zhangs and the 3^rd defendant which would further dilute the shareholding of CSI and cause CSI to lose its ability to block any shareholders’ special resolutions : see HCMP 360/2015 and HCMP 593/2015.

2)  Breach of trust claims in HCA 1661, 1766, 2191 of 2014, 623, 939 and 1564 of 2015 (‘the Trust Actions’).  These are claims made by the contributing employees who claim to be equitable owners of shares in CSI (which in turn owns about 25.09% of the shares in GroupCo) registered in the name of Zhang Senior.  Zhang Senior denied the claim and asserted that the contributing employees were merely beneficiaries to two BVI discretionary trusts on which the shares were settled.

2.10In the Trust Actions, G Lam J (as he then was) appointed interim receivers (‘the Receivers’) to take possession of the CSI shares claimed upon a finding of clear risk of jeopardy to the trust property.

2.11In July 2015, the Receivers, with approval of the Court, caused the CSI Board to be reconstituted and so Zhang Senior lost control over it.

2.12On 1 December 2015 with the assistance of the Court in the Trust Actions, the board of directors of GroupCo was completely replaced by individuals (‘the new directors’) who are not under the control or influence of the Zhangs.

2.13The new directors discovered that, amongst other things, the Zhangs had breached their fiduciary duties to the plaintiffs.  The plaintiffs, therefore, brought this action.

2.14The plaintiffs based their application for injunctions on four activities of the Zhangs :

1)  Misappropriation of the 1^st plaintiff’s funds;

2)  Bringing of ultra vires proceedings in the Cayman Islands to wind up GroupCo;

3)  Unlawfully altering the articles of Shandong Cement in an attempt to misappropriate the most valuable subsidiary of the Group; and

4)  Theft of the plaintiffs’ records.

2.15Au‑Yeung J summarised the four activities as follows :

1)  The Zhangs’ misappropriation of company funds.  It is the plaintiffs’ case that until 13 October 2015, the Board was dominated by the Zhangs.  Zhang Senior treated CSI as his own property and GroupCo as his to manipulate.  There had been payment of directors’ remuneration to him of about RMB 149 million.  There had been misfeasant loans to companies controlled by the Zhangs. There was evidence of the Zhangs acting in collaboration with ACC and CNBM to enable those two companies to try and obtain control of GroupCo without a general offer.  Such conduct resulted in the unfair prejudice proceedings.  Further, despite having net profit of over RMB 150 million in the preceding year, GroupCo’s public announcement showed unaudited mid‑2015 net trading losses of over RMB 1 billion, with unexplained increases in administrative expenses from RMB 572 million to RMB 851 million.  The Board failed to take action in respect of the prima facie breaches of fiduciary duties by Zhang Senior, committed with the knowing assistance of Zhang Junior and the 3^rd defendant.

2)  The defendants caused ultra vires proceedings to be brought in the Grand Court of the Cayman Islands, attempting to wind up GroupCo pursuant to a purported board resolution on 10 November 2015.  The purported resolution was passed by all the defendants except the 3^rd defendant (company secretary).  It also authorized GroupCo to apply for joint provisional liquidators (‘JPLs’) to be appointed.  The draft order would have ordered the JPLs to develop a compromise with the company’s creditors and authorized JPLs to, without sanction of the Court, deal with all questions affecting the assets or the restructuring of the company.  If JPLs had been appointed, it would have the effect of displacing the management control of the GroupCo Board.  The purported board meeting was to pre-empt another GroupCo EGM which Harris J directed to be held in Hong Kong on 1 December 2015, when it was anticipated that all the members of the GroupCo Board (including the Zhangs) would be replaced.  The winding-up petition in the Grand Court was presented on the ground of alleged inability of GroupCo to repay its debts.  Zhang Junior, as authorized by the purported resolution, filed an affirmation in support of the petition.  If what he had deposed to were true, the Group had a wholly unexplained cash deficiency of about RMB 171 million for which the 1^st to 5^th defendants would have to account.  In addition, the 5^th defendant swore an affidavit inviting the Grand Court to appoint JPLs (‘the JPL application’).  The Grand Court struck out the winding-up petition and dismissed the JPL application on the ground that the GroupCo Board had no authority to present the winding-up petition without authorization from GroupCo’s shareholders, which the GroupCo Board never sought.

3)  The Zhangs (together with the 3^rd defendant) tried to misappropriate the Group’s most valuable subsidiary Shandong Cement (with gross assets of RMB 34.8 billion) through unlawfully alter Articles of Association.  They did so at a time when they were the only directors of Pioneer (the 3^rd defendant).  The unlawfully altered articles were 5.2.2.1, 5.2.2.2, 5.2.4, 5.2.7, 5.3.2 and 15.3.  The effects of the alterations were :

(1)  To reduce the number of permitted directors from five to three;

(2)  To remove the shareholders’ (Pioneer’s) right to replace any director removed and replace it with a provision preventing the shareholders from dismissing any director from office before expiry of a 3-year term;

(3)  To permit directors to receive remuneration (when they were previously not permitted to);

(4)  To permit the Board to decide all matters relating to merger, split up, dissolution or change of corporate form of the company;

(5)  To remove the shareholders’ power to appoint the chairman of the Board and confer it on the Board of directors;

(6)  To reduce the quorum for a Board meeting from 3/4 of the total number of directors to 2/3;

(7)  To remove the shareholders’ right to require commencement of legal proceedings against the company’s directors and confer it on the Board of directors;

(8)  To remove the shareholders’ right to amend the articles and confer it on the Board of directors.

4)  There had been theft of company records.  GroupCo has maintained its principal place of business at Lippo Centre in Hong Kong (‘the GroupCo Premises’).  HK Cement (the 2^nd plaintiff) and Pioneer (the 3^rd plaintiff) also maintained their registered office there.  Since the outgoing directors did not deliver up to the new directors the Group’s properties and records, the new directors went to the GroupCo premises on 2 December 2015.  It was discovered that all the main records had been removed from GroupCo’s premises.  These included accounting records, bank statements, most of the employment records, all of GroupCo’s records of dealings with SEHK and the SFC, all records of litigation to which GroupCo was a party and all the computer data on the only four Group lap-top computers left in the GroupCo office.  Since GroupCo had taken possession of the GroupCo premises, none of the previous staff of GroupCo had returned to the GroupCo premises to work. Under section 377 of the Companies Ordinance, Cap. 622 and section 51C of the Inland Revenue Ordinance (‘IRO’), Cap. 112, each of the plaintiffs was required to keep its books and records.  Anybody who without reasonable excuse failed to comply with section 51C of the IRO commits an offence (section 80). Clearly the directors had to keep the books, accounts and records of a company. There was no reason for the removal of those documents from GroupCo’s premises.  The Zhangs, as outgoing directors, had no reason to keep or refuse to hand over the company records of the plaintiffs to the new directors.  The computer data was clearly deliberately removed and the outgoing directors would have a duty to explain the whereabouts of those data.

III.     Grounds of appeal

1)     Charges 1 and 2 (Breach of Preservation Order and Delivery Over Order) [Items 1 and 2 of [1.1]]           

3.1The grounds of appeal in respect of these two charges consist of two limbs.  First, Au‑Yeung J was wrong to draw adverse inference against the Zhangs for their failure to give evidence. Second, there was no evidence to support her finding that the Zhangs were still in possession, custody or power of the plaintiffs’ records.

3.2Au‑Yeung J held :

‘ 57. The respondent has the right to remain silent and does not have to prove anything: HKCP 2018, §52/1/17. However, adverse inferences may be drawn from his election not to call evidence which could displace the prima facie case against him: Ip Man Shan Henry & anor v Ching Hing Construction [2003] 1 HKC 256 per DHCJ Lam (as he thenwas) at §155; Li Sau Keung v Maxcredit Engineering Ltd [2004] 1 HKC 434, per Le Pichon, JA at §28.

58.  Mohammed Khawaja v Paresh Popat [2016] EWCA Civ 362,per McCombe, LJ at §§26-29 was a case on civil contempt where the trialjudge drew adverse inference against the defendant who filed 2 affidavitsbut declined to undergo cross-examination.

 ....

100.  The Zhangs have purported to file affirmations of witnesseswhich had either been expunged or were not relied on at this trial.  Theirresistible inference was that the Zhangs simply dared not go on oath tostate that they did not have possession, custody or power of any of thePlaintiffs’ Records after 15 February 2016, or explained why they failed tocomply with the Preservation Order or Delivery Over Order.’

3.3Mr. Lam SC (together with Mr Jean-Paul Wou for the Zhangs) referred to Article 11(2)(g) of the Hong Kong Bill of Rights (‘HKBOR’) which enshrines the right of a person not to be compelled to testify against himself or to confess guilt i.e. the right of silence or against self‑incrimination in criminal proceedings. The Court of Final Appeal held in Lee Fuk Hing v HKSAR (2004) 7 HKCFAR 600 at 622, [55]-[56] that :

‘ In the whole of these circumstances, it is inappropriate in Hong Kong to use a person’s silence against him in any way.’

‘A person’s right against self-incrimination (his right of silence) would otherwise become a possible source of entrapment. It is unfair for a person to have the right to remain silent, and usually to have been reminded of this right through the caution, and then for his silence to be put against him at trial.’

3.4Further, the right of silence extends to protect him from inferences of guilt from his failure to make exculpatory statements : HKSAR v Lam Sze Nga [2007] 2 HKLRD 75 at 82, [30].

3.5In England, the law on right of silence has been significantly altered by sections 34 to 37 of the Criminal Justice and Public Order Act 1994 (‘CJPOA’). Section 35(3) provides that, subject to some exceptions :

‘ the court or jury, in determining whether the accused is guilty of the offence charged, may draw such inferences as appear proper from the failure of the accused to give evidence or his refusal, without good cause, to answer any question.’

3.6Mr. Lam submitted that against such materially different legal background, it is understandable why in contempt proceedings in England like Mohammed Khawaja, while the defendant is entitled to remain silent, it is permissible for the Court to draw an adverse inference from his silence.  But even then, there are still essential procedural safeguards.  In particular, it is the duty of the Court to ensure that the accused person is made aware not only of the right to remain silent but also ‘of the risk that adverse inferences may be drawn from his silence’ (Inplayer Ltd and others v Thorogood [2014] EWCA Civ 1511 at [40]; Re L (A Child) [2016] EWCA Civ 173 at [32]; Douherty v The Chief Constable of Essex Police [2019] EWCA Civ 55 at [23]).  In Khawaja, the trial judge had given such a warning (see [18], [28]).  There can be no question of upholding findings of contempt against a person who has been deprived of valuable safeguards (Inplayer Ltd at [45]; Re L (A Child) at [55]); and it does not matter even if the defendant had been properly advised, the outcome would have been no different (Douherty [33]).

3.7Mr. Lam submitted that by reason of the penal consequences of contempt proceedings, the protection granted by Article 11(2)(g) of the HKBOR under criminal proceedings is engaged (Secretary for Justice v Cheung Kai Yin [2016] 4 HKLRD 367 at 377, [34]; YBL v LWC [2017] 1 HKLRD 823 at 837, [22]). Au‑Yeung J’s approach infringed the Zhangs’ constitutional right under the HKBOR.  Hong Kong does not have any equivalent to section 35 of the CJPOA, hence, the English practice should not be followed.  But even if it should be followed, she had failed to warn the Zhangs of the risk that she might draw an adverse inference from their silence.  He submitted that on this ground alone, the conviction of Charges 1 and 2 should be set aside.

3.8The law against self‑incrimination in contempt proceedings (see [3.3] to [3.5] above) is not disputed by Mr. Chen (together with Mr. Lee) for the plaintiffs.  However, what is in dispute is Mr. Lam’s submission that an infringement of Article 11(2)(g) will by itself cause the finding of guilt on respect of Charges 1 and 2 to be set aside.  Mr. Lam submitted that the infringement amounted to an irremediable breach necessitating the appeal to be allowed by reference to Inplayer Ltd; In the matter of Re L (A Child) and Douherty.

3.9I disagree with Mr. Lam that a breach of Article 11(2)(g) of HKBOR will automatically render the judge’s finding of guilt to be unsafe and cause her decision on Charges 1 and 2 to be overturned. The context of the case is important.  In Inplayer Ltd, the judge ordered the contempt application against a defendant to be heard at the same time as the action by, amongst others, a company against him for breach of his duties as a director of that company.  The allegation was that he had set up a business in competition with the company.  The effect of the judge’s order meant that the defendant was effectively compelled to give evidence.  In the matter of L (A Child), evidence extracted from the defendant under compulsion was used against him in the contempt hearing.  In Douherty the appellant appeared in Court for breach of an injunction order.  When the judge explained to him about the issue of legal aid, the appellant said that he wanted to explain himself.  The judge then told the appellant to take the oath and give evidence in the witness box.  The judge then dealt with each of the allegations against the appellant for his breach of the injunction and the appellant responded to the allegations.  The judge did not advise him of his right to remain silent and did not warn him about self‑incrimination.  The judge then sentenced the appellant to 28 days’ imprisonment suspended for a period of 12 months.  One can see immediately how serious irremediable errors had been committed in these three cases in respect of right of silence and self‑incrimination which render the upholding of conviction based on such errors to be impossible.  The three cases relied by Mr. Lam do not support his argument.

3.10In this case it is clear that Au‑Yeung J did not draw adverse inference against the Zhangs solely because they did not give evidence.  Nor was her finding of the charges proved based solely on the drawing of adverse inference.  She discussed the issue of drawing inference against the Zhangs in [83] to [101] of her judgment and it was only in [100] that she made reference to the Zhangs not prepared to give evidence in Court.  In my view the real issue in this appeal is whether there was evidence to support Au‑Yeung J’s finding that Zhangs had the plaintiffs’ record at the material time, which is the second limb of Mr. Lam’s challenge on Charges 1 and 2.   

3.11In civil appeals, the threshold for an appeal against a finding of fact is that the Court of Appeal must be satisfied such finding is plainly wrong before it will intervene and overturn the finding.  Contempt proceedings are quasi criminal in nature and the standard of proof is beyond reasonable doubt, but the same ‘plainly wrong’ threshold applies as well : Mathnasium Center Licensing LLC v. Chang Chi Hung [2021] 1 HKLRD 188 at [55] and Secretary for Justice v. Wong Ho Ming（ 黃 浩 銘 ）, CACV 259/2017 [2018] HKCA 173 at [100] [a case of criminal contempt]. It is of note that in this case Au‑Yeung J had the benefit of dealing with the issue not only on affidavit evidence but also hearing direct evidence from witnesses.

3.12Mr. Lam highlighted Au‑Yeung J’s comment in the January Injunction Order that :

‘ At this stage, it might not be possible to pinpoint the Zhangs as the thieves’

3.13He further submitted that on 30 January 2016, two weeks before the injunction orders were served on the defendants on 15 February 2016, the plaintiffs admitted they had recovered ‘a lot of their records’ after they had regained control of Shandong Cement’s headquarters in Jinan.  Up to the time of the trial, the plaintiffs had not been able to say what documents remained unrecovered.  Most importantly, Mr. Yen of the plaintiffs admitted that it was merely his suspicion that whatever was unrecovered had been taken by the Zhangs.  [85] of the judgment recorded the evidence of Mr. Yen :

‘Q: For the records which you have not recovered, all you can tell the Court is that they are not in the Jinan HQ, and you cannot say what has happened to them but you suspect the defendants.

A:  You may put it that way.’

3.14Mr. Lam submitted that on that basis Au‑Yeung J was wrong to state the Zhangs had removed and had the possession of the records.  He further submitted that the absence of any or any sufficient evidence to support Au‑Yeung J’s finding beyond reasonable doubt is highlighted by the fact that while she held at [48] that ‘there were still lots of records not handed over by the Zhangs’, she was unable to pinpoint what ‘lot of records’ referred to, save that she stated :

‘ [91] However, I do not agree with Mr Hollander [the Zhangs’ former counsel] that the Plaintiffs had obtained most of the documents. On the evidence, after 15 February 2016, at least items (l), (q) and (u) identified from James Li’s handover to Yao, some bank documents, correspondence with lawyers and regulators, the data server and some emails, were not recovered. Without the assistance of the Zhangs’ disclosure, it was simply not possible to identify the volume of missing records.’

‘ [101] It was plainly the case that the Zhangs are still in possession, custody or power of some of the Plaintiffs’ Records; and just the data server alone would have justified a finding of breach of the Preservation Order and Delivery Over Order…’

3.15Items (l), (q) and (u) referred to by Au‑Yeung J are (l) one copy of the legal document concerning the high yield bond of US$500 million at interest rate of 7.5% expiring in 2020, together with a CD; (q) joint possible VGO documents of China National Building Material Co Ltd and Asia Cement Ltd dated July 2015 and (u) one set of copies of the trust transfer documents of 92 beneficiaries under the Zhang Trust and the Li Trust.

3.16Together with the data server, they formed the four missing items referred to in the submission.

3.17Mr. Lam then submitted that the new evidence admitted by this Court shows that the four missing items had, in fact, been recovered and kept at the Jinan HQ.  The further new evidence (which is admitted by this Court on a provisional basis) will show further that, after January 2016, it was wrong for the plaintiffs to maintain the allegation that the defendants had removed all accounting records of the plaintiffs because they knew that all of them (dating back to 14/15 years ago) had been maintained in the financial module of the Enterprise Resource Planning System in Jinan HQ.

3.18In my view, it is important to identify the proper context of Au‑Yeung J’s finding that the Zhangs were in breach.  Au‑Yeung J had found that the Zhangs were the highest officials of the plaintiffs.  Before the new Board of the plaintiffs took over in early December 2015, the records in the plaintiffs’ office were stolen.  The computer data was erased.  At that time James Li was the person in Hong Kong in charge of the plaintiffs’ records.  As Au‑Yeung J commented that was how the December Injunction Order came about.  She did not accept James Li to be a credible witness in respect of his evidence that he had returned the documents in his control to Li and Yao of the 1^st plaintiff when he left the plaintiffs’ employment in November 2015.  She found that it was only after a series of questions by her that James Li admitted that :

‘ the Zhangs, being the “biggest” officials in the Group of companies, had the authority and ability to access the data server (containing, amongst others, documents from the Hong Kong Office), documents in the Jinan HQ and even the most confidential information of the Plaintiffs in Hong Kong or Jinan.’

3.19The response of Mr. Yen in his cross‑examination was considered by Au‑Yeung J who rightly held that his evidence together with the other evidence relied upon by the Zhangs in support of their innocence must be considered in their proper context.  She accepted that the plaintiffs had recovered a lot of documents in and after the ‘1/16 Seizure’.  But she held at [91] that after 15 February 2016 some important records remained missing, including the four missing records, and that without the assistance of the Zhangs’ disclosure, it was simply not possible for the plaintiffs to identify the volume of missing records.  She held :

‘ 94. The December Injunction Order specifically required the Zhangs to deliver over, amongst others, computer data and hard drives and to state their current whereabouts. The Zhangs could not have overlooked the importance of the data server. No one would have possession or better knowledge of its whereabouts but the Zhangs.’

3.20Au‑Yeung J had further considered the argument that following the 1/16 Seizure, the Zhangs had lost their access to or power to retrieve documents in the Jinan HQ and on the plaintiffs’ own evidence, the Zhangs and their agents were evicted from there on 30 January 2016.  She held :

‘ 96. With respect, this was an assumption that the Zhangs could only have kept the Plaintiffs’ Records at the Jinan HQ. It overlooked the fact that the Zhangs (being the highest officials) had, in the first place, removed or caused to be removed the Plaintiffs’ records from the HK Office to places only known to themselves, Jinan HQ or otherwise.’

3.21Au-Yeung J referred to the plaintiffs assisted by the Jinan Police being able to recover the Jinan Plant.  She held :

‘ 97. ...On 30 January 2016, the protesting workers, with the assistance of the police in Jinan, managed to enter the Jinan Plant. In the process of recovering the Plaintiffs’ property kept at the Jinan Plant, the documents were scattered in different places when the Jinan police got into the Jinan Plant. In my view, all of these (though happening before service of the 2 Orders) could not have happened without approval or knowledge of the Zhangs. Mr Yen’s inference that the Zhangs’ henchmen were trying to destroy or conceal evidence, including some of the Plaintiffs’ Records, was a reasonable one.

98.  The further inference was that after service of the 2 Orders, the Zhangs continued to have possession of the unrecovered records and the data server, but not at the Jinan HQ.  They persisted in not handing over to the Plaintiffs.

99.  Further, there would have been records not necessarily in Jinan before or after service of the 2 Orders, eg the correspondence with lawyers and regulators.  The Zhangs did nothing to deliver over (even copies) to the Plaintiffs or disclose their whereabouts and the Plaintiffs had to obtain them from the lawyers or (by court order) from the regulators.  In this respect, it was an understatement for Mr Hollander to say that the Plaintiffs were but investment holding companies and that they had all the records to operate.  [The 1^st plaintiff] was a listed company and needed to deal with regulators and lawyers and debt issues regarding US$ bonds.

100.  The Zhangs have purported to file affirmations of witnesses which had either been expunged or were not relied on at this trial. The irresistible inference was that the Zhangs simply dared not go on oath to state that they did not have possession, custody or power of any of the Plaintiffs’ Records after 15 February 2016, or explained why they failed to comply with the Preservation Order or Delivery Over Order.

101.  It was plainly the case that the Zhangs are still in possession, custody or power of some of the Plaintiffs’ Records; and just the data server alone would have justified a finding of breach of the Preservation Order and Delivery Over Order.  I find it proved beyond reasonable doubt that the Zhangs are guilty of Charges 1 and 2.  Their disobedience simply defeated the purpose of the Preservation Order and Delivery Over Order.’

3.22In my view, in the light of the evidence, Au‑Yeung J was clearly entitled to draw adverse inference against the Zhangs and find Charges 1 and 2 proved beyond reasonable doubt.  The new evidence and the provisional new evidence do not affect the soundness of Au‑Yeung J’s finding.  The new evidence, namely, Shandong Cement’s letter dated 2 May 2019 confirmed that after its reconstitution on 26 July 2018, the Board had taken stock of their books and records and were able to locate the four missing items, which were said to have been ‘brought back’ by Zhang Junior (or others).  But as Mr. Chen submitted the operative time for the compliance by the Zhangs was 15 February 2016.  Shandong Cement, however, did not specify when the four items were returned or found. Au‑Yeung J tried the case in September 2017.  Mr. Yen’s evidence was that in September 2017, the plaintiffs had still not found the four missing items.  The letter is, therefore, consistent with Au‑Yeung J’s conclusion that the Zhangs remained in possession, custody or control of, at the very least, the four items after 15 February 2016, and that the four items were only returned to Shandong Cement sometime between 16 February 2016 and 26 July 2018.

3.23The provisional new evidence only shows that the plaintiffs’ accounting records had all along been maintained in the financial module of the Enterprise Resource Planning System in the Jinan HQ.  It does not undermine Au‑Yeung J’s finding that, at the very least, the four missing items (which were not accounting records) had been retained by the Zhangs after 15 February 2016.

3.24In conclusion, even accepting the criticisms made against Au-Yeung J’s reference to the Zhangs not deciding to go on oath in [100] of the judgment, there is ample evidence and proper basis for finding the Zhangs guilty of Charges 1 and 2.  In my view, the Zhangs failed in their challenge on Charges 1 and 2.

IV.     Charge 3 (Breach of Plaintiffs’ Records Disclosure and Confirmation Orders) [Item 3 of [1.1]]            

4.1The ground contained in the re-amended supplemental notice of appeal on Charge 3 is that Au‑Yeung J erred in finding that on the proper construction of paragraphs (15) and (16) of the December Injunction Order, the defendants were required to file and affirm a nil return.  This ground was not pursued by Mr. Lam.

4.2We allowed Mr. Lam to amend the Notice of Appeal to reflect the new ground which he had made in his written submission.  Mr. Chan did not object to the amendment and, in fact, had already responded to it in his written submission.  Mr. Lam’s new ground is that Au‑Yeung J had wrongly excluded the two affirmations of the Zhangs.  A few days before the trial, on 22 September 2017, in HCA2880/2015, Zhang Senior filed his 4^th affirmation and Zhang Junior filed his 2^nd affirmation to verify the answers given by their solicitors on 21 September 2017 to the questions posed under this order.  Those affirmations were produced before the Judge but she decided to exclude them.  Mr. Lam argued that although the affirmations were filed late they were relevant to, inter alia, whether the Zhangs should be committed for contempt.  Committal orders are ‘remedies of last resort’ (G v S (2001) 4 HKCFAR 419 at [21]), ‘the Court’s ultimate weapon in securing compliance with its orders’; and their use ‘should not be invoked unless they are truly needed’ (Arlidge, Eady & Smith on Contempt (5^th ed., 2017, [12‑20] to [12‑24] at pp 1036-1038). In Allason v Random House (UK) Ltd (No 2) [2002] EWHC 1030 (Ch), the defendant’s attempt to comply with a disclosure order was late and incomplete but Neuberger J (as he then was) at [37] gave him a last chance and held that no order would be made against him other than paying costs on an indemnity basis if he complied with it.  Neuberger J stressed that the purpose of the contempt jurisdiction is to make it clear to a party who fails to comply with a court order that he should have complied, and where he has still not complied, that he should comply; there is an element of punishment but an even more important element of coercion ([35]), the most important consideration from the point of view of the Court is that the court order should be obeyed ([39]).  Mr. Lam submitted that, a fortiori, as the order had been complied though out of time by the time of the trial, it was wrong in principle and harsh in practice to commit them for contempt.

4.3Mr. Chen submitted that the effect of late compliance with a court order varies from case to case.  In Oystertec v Davidson [2004] EWHC 2563 (Ch) the defendant only complied with an order to provide information after six months.  David Richards J committed the respondent to prison for three months, but suspending it for 12 months.  He referred to Neuberger J’s judgment in Allason and held :

‘ [21] …… [It] does not follow from that passage and the course adopted by the judge in that case that in every case where, however late in the day, the order has been complied with, the Respondent will escape committal to prison. But compliance with the order is nonetheless, on any footing, a very weighty factor to take into account when deciding the appropriate course to take.’

4.4In the present case, the deadline for compliance with the orders under Charge 3 was February 2016.  It was only in September 2017 which was over 18 months after the deadline and less than one week before trial that the Zhangs filed their affirmations.  The Zhangs did not previously apply for any extension of time to comply with the orders.  As the purpose of the orders was to enable the plaintiffs to locate and recover their records urgently, I agree with Mr. Chen that given the substantial lapse of time, their affirmations served no meaningful purpose.

4.5It is important to point out that Au‑Yeung J excluded the affirmations on the basis that the Zhangs were not prepared to testify in Court.  They, of course, were entitled to their right of silence but if they chose to waive that right by serving their affirmations in response, Au‑Yeung J was clearly entitled to exclude their affirmations because they were not prepared to testify and be cross‑examined, particularly when they had said in their affirmations that they did not have possession and control of the documents.  Instead of excluding the affirmations, Au‑Yeung J could have held that she attached no weight to them.  Either way it did not affect the outcome of the case.  There is no merit in this challenge.

V.     Charge 4 Breach of (Continuation Order) [Item 1 of [1.2]]                                                                         

5.1Mr. Lam submitted that as Charge 4 covers Charges 1 to 3, the conviction on Charge 4 must go if the convictions on Charges 1 to 3 are to be set aside.  In the light of my conclusion on Charges 1 to 3, this point is no longer valid.  In addition Mr. Lam relied on the ground that Zhang Senior was out of the jurisdiction and had not been properly served with an inter‑partes summons dated 28 December 2015 for the injunction hearing on 8 January 2016 which led to the January Injunction Order.  Under the December Injunction Order, the plaintiffs undertook to serve an inter‑partes summons on Zhang Senior. On 24 December 2015, Lok J made an order to amend the December Injunction Order by allowing service out of jurisdiction of the concurrent writ of summons on Zhang Senior and also (by way of substituted service) on Deacons, the Zhangs’ solicitors in Hong Kong.  Lok J’s order did not cover the inter‑partes summons, hence, Au‑Yeung J erred in holding that the purported service of the inter‑partes summons on Deacons on 30 December 2015 (which had been returned) was a valid and effective service.  Accordingly, the plaintiffs had breached their undertaking.  It was only after the January Injunction Order, on 12 February 2017, that the plaintiffs obtained another order from DHCJ Marlene Ng (as she then was) for leave to serve on Zhang Senior ‘any document by service upon Deacons’.  Hence, Au‑Yeung J was wrong to hold that the January Injunction Order was made at a hearing on an inter‑partes basis as against Zhang Senior.  In fact, he did not appear at the hearing.  The procedural defect caused by the plaintiffs’ breach of undertaking constitutes a sufficient reason to acquit Zhang Senior of Charge 4, and also Charges 6 and 7, which are all based on the January Injunction Order.

5.2I will not allow Mr. Lam to raise this point now.  As is apparent from the judgment below, the Zhangs’ procedural complaint (other than the penal notice issue) was limited to the plaintiffs’ failure to issue an inter‑partes summons against Zhang Junior in breach of their undertaking in the January Injunction Order.  Zhang Senior did not raise the current complaint before Au‑Yeung J and is barred from doing so on appeal by reason of the Flywin principle.

5.3In any event, this point is without merits.  It is clear from a reading Au‑Yeung J’s Reasons for Decision for the January Injunction Order in its proper context, she accepted that Zhang Senior had knowledge of the injunction hearing by reason of the fact that the inter‑partes summons was served on Deacons, his Hong Kong solicitors notwithstanding that Deacons later returned the papers to the plaintiffs’ solicitors.  She took into account the fact that Deacons represented Zhang Senior in the trust action before Chow J (as he then was) on 12 January 2016 but chose to ignore the injunction application hearing before her on 8 and 13 January 2016.

5.4Zhang Senior was represented by very experienced counsel in the contempt proceedings who obviously was of the view that any argument on the lack of service on Zhang Senior was without merits.  Mr. Chen referred to Order 45, rule 7 of the Rules of the High Court which expressly permits an injunction order to be enforced even where the order has not been served on the subject defendant, so long as the Court is satisfied that the defendant has had notice of the terms of the order: AXA China Region Insurance Co. Ltd v Li Yu Ping Ellen [2002] 3 HKC 339 at [31‑34], [45] per Stock JA; Questnet Ltd v Kurt Georg Rocco Rinck (Unrep., HCA 1475/2006, 23 June 2008) at [34‑38], [55-56] per Chu J (as she then was); Citybase Property Management Ltd v Kam Kyun Tak (No. 1) [2003] 2 HKC 98 at 104B-D per Ma J (as he then was).  These decisions were not challenged by Mr. Lam.  The situation here is, of course, different, it is not the lack of service of the order but of the summons itself.  However, if this point had been raised by Zhang Senior, Au‑Yeung J could well have adjourned the application against him for the slip to be remedied, bearing in mind that, first, the plaintiffs had actually complied with the undertakings given in the December Injunction Order by serving the inter-partes summons on Deacons and, second, Lok J had already granted orders for service out of jurisdiction and substituted service of the writ against Zhang Senior.  As Mr. Chen submitted there was no conceivable reason why he would not have granted a similar order in respect of the inter-partes summons.  The plaintiffs are now prejudiced by Zhang Senior taking this point which he could have taken before Au‑Yeung J.  In any event, the plaintiffs had, indeed after the January Injunction Order, issued an inter-partes summons and obtained an order from DHCJ Marlene Ng that :

‘ Until the 1^st defendant files an acknowledgement of service herein, leave be granted to the plaintiffs to effect service on the 1st defendant of any document by service upon Deacons, and for the avoidance of doubt, service of any document(s) in accordance with this paragraph constitutes effective personal or ordinary service of such document(s) (as the case may be) on the 1^st defendant.’

5.5As the purpose of the plaintiffs’ application before DHCJ Marlene Ng was said to ‘plug gaps concerning service’ on Zhang Senior, her order must have been intended to uphold the service on Deacons of the inter-partes summons for the January Injunction Order to be proper service.

VI.     Charge 6 (Breach of Shandong Cement Injunction) [Item 3 of [1.2]]                   

6.1In respect of the first limb of Charge 6, Mr. Lam relied on the additional argument he had advanced on Charge 4.  For the reasons I had given in relation to Charge 4, the additional argument is likewise rejected.

6.2In addition, the Zhangs relied on the following grounds in their challenge under Charge 6.  The first limb of Shandong Cement Injunction prohibited the Zhangs from ‘acting upon or exercising any power or entitlement’ pursuant to the unlawfully amended Articles of Association.  The first limb of Charge 6, however, is that Zhang Senior has continued to hold himself out as being entitled to exercise the powers and entitlements of a director of Shandong Cement and he has purported to exercise the same and to manage the assets of Shandong Cement and its subsidiaries. 

6.3Au‑Yeung J convicted Zhang Senior of the first limb of Charge 6 by reason of his conduct in respect of the 12 public announcements made by Shandong Cement and the Zhangs’ relocation of the Shandong Cement business after the 1/16 Seizure to the premises of Shanshui Heavy.

6.4Mr. Lam submitted that, first, Au‑Yeung J erred in holding that ‘any holding out as director’ of Shandong Cement constituted a breach of paragraph 3(a) of the January Injunction Order by implication.  Second, she erred in finding that Zhang Senior was involved.   He submitted that Au‑Yeung J had wrongly concluded beyond reasonable doubt that Zhang Senior had breached the injunction.

6.5On the first point, Mr. Lam submitted Au‑Yeung J had acted contrary to the principles of construction of a court order, particularly those with a penal consequence.  He submitted that :

1)  the starting point is the natural and ordinary meaning of the words used in the light of the syntax, context and background in which those words were used (Essilor Manufacturing (Thailand) Co Ltd v Wong Kam Wai and others [2020] HKCA 351 at [25]).  Construction of a judicial order depends on what the language of the order would convey, in the circumstances in which the Court made it, so far as these circumstances were before the Court and patent to the parties; but there is a world of difference between using a Court’s reasons to interpret the language of its order, and using it to contradict that language (Sans Souci Ltd v VRL Services Ltd [2012] UKPC 6 at [13], [16]).

2)  because of the penal consequences of breaching an injunction order and the need of the defendant to know where he, she or it stands, such order should be clear and unequivocal and should be strictly construed (JSC BTA Bank v Ablyazov (No 10) [2015] 1 WLR 4754 at 4763 [17]-[19]; Sino Wood Investment Ltd v Wong Kam Yin (2005) 8 HKCFAR 715, [20]‑[23]).  The rule is analogous to that which governs the interpretation of penal statutes; it is to the terms of the order itself that one must look in order to define the obligations imposed; a defendant cannot be committed for contempt on the ground that upon one of the two possible constructions he has broken it; and there is clearly no scope for reading implied terms into an injunction (Arlidge, Eady & Smith on Contempt (5^th ed.), 2017, [12‑55] to 12-62, pp 1048-1051).

6.6These principles are not in dispute, but I disagree with Mr. Lam’s submission that Au‑Yeung J’s construction of the order was to rewrite the injunction.  It is necessary to refer to Au‑Yeung J’s judgment on this issue :

‘ 116 Mr Hollander submitted that there was no breach of the Shandong Cement Injunction.

117  In my view, in construing the Shandong Cement Injunction, it is important not to lose sight of its purpose. The Zhangs had been removed as directors back on 3 December 2015.  They would not accept it.  They unlawfully amended the AA to give themselves directorship, under clause 5.2.2.1, without any restrictions in the three years following the amendment.  To be precise, the shareholders had no power to remove them from office.  The Corrective Amendments were to halt the Zhangs’ attempted misappropriation of Shandong Cement or its subsidiaries and have them reverted to the plaintiffs as true owners.

118  Accordingly, any act that the Zhangs carried out or any holding out as director would have been pursuant to the unlawful AA instead of a particular article.

119  The Zhangs have allegedly continued, to the present date, to rely upon the unlawful AA as their stated justification for continuing : (a) to hold themselves out as being current directors of Shandong Cement; and (b)     to disregard the new Shandong Cement board that was installed by the plaintiffs.  The relevant conduct, after 15 February 2016, that the plaintiffs relied on included issuing of public announcements which include, (i) the Zhangs’ relocation of the Shandong Cement business after the 1/16 Seizure to the premises of Shanshui Heavy..... 

131  The substance of the public announcements and relocation displayed the Zhangs’ continuous denial of the plaintiffs’ installation of a new board and the Zhangs’ holding out as directors and management of the business of Shandong Cement pursuant to the directorship under the unlawful AA.’

6.7The Zhangs’ conduct falls exactly within what the Shandong Cement Injunction seeks to prevent.  As Au-Yeung J rightly pointed out (at [118J]), the Zhangs’ act of holding out as director was pursuant to the unlawfully altered articles.  The express words of the injunction are wide enough to include holding out by the Zhangs as director.  Au‑Yeung J was not contradicting the language of the order that she made.  The following passages from the Privy Council judgment of Sans Souci Ltd v VRL Services Ltd at [13] and [16] are relevant :

‘ 13. ......the construction of a judicial order, like that of any other legal instrument, is a single coherent process. It depends on what the language of the order would convey, in the circumstances in which the Court made it, so far as these circumstances were before the Court and patent to the parties. The reasons for making the order which are given by the Court in its judgment are an overt and authoritative statement of the circumstances which it regarded as relevant. They are therefore always admissible to construe the order. In particular, the interpretation of an order may be critically affected by knowing what the Court considered to be the issue which its order was supposed to resolve.

...

16.  Of course, it does not follow from the fact that a judgment is admissible to construe an order, that it will necessarily be of much assistance.  There is a world of difference between using a Court’s reasons to interpret the language of its order, and using it to contradict that language.  The point may be illustrated by the decision of the Court of Appeal in England in Gordon v. Gonda [1955] 1 WLR 885, where an attempt was made to contradict what the Court regarded as the inescapable meaning of an order, by arguing that the circumstances described in the judgment could not have justified an order which meant what it clearly said.  Therefore, it was said, the judge must have meant something else.  The answer to this was that any inconsistency between the circumstances of the case or the reasoning of the Court and the resultant order was properly a matter for appeal.  A very similar argument was rejected by the Board for the same reason in Winston Gibson v Public Service Commission [2011] UKPC 24. Decisions such as these (and there are others) are not authority for the proposition that a Court’s reasons are inadmissible to construe its order. They only show that the answer depends on the construction of the order and that the reasons given in the Judgment may or may not make any difference to that.’

6.8Astothesecondpoint, Mr. LamsubmittedAu‑Yeung J was wrong to hold that the issue of 12 public announcements between 16 February and May 2016 and the purported relocation of Shandong Cement’s premises to that of Shanshui Heavy did not constitute holding out as director and management of Shandong Cement on the part of Zhang Senior.  There was no evidence of his involvement in either of these acts or events.  Further, the Judge’s conclusion that Zhang Senior had held himself out to be a director or senior manager of Shandong Cement was inconsistent with her acceptance of the evidence that it was Zhang Junior who had been claiming to be the legal representative of Shandong Cement; in the normal course of events, Zhang Junior and not Zhang Senior would have had custody of the seal and chop of Shandong Cement; and Zhang Junior and not Zhang Senior would have been responsible for authenticating the public announcements by affixing the seal and chop thereto.  She failed to take any or sufficient account of the fact that there was no reference to Zhang Senior in any of the 12 public announcements.  She erred in finding that the Zhangs and their agents continued to control most of the affairs of Shandong Cement after January 2016 by which time the plaintiffs had assumed control of the company and the Jinan Municipal Government had put in place a Government Working group to supervise Shandong Cement’s affairs since at least December 2015.

6.9Mr. Lam further referred to Au‑Yeung J’s holding that the issuance of public announcements and relocation of Shandong Cement to the premises of Shanshui Heavy ‘could not be something done without knowledge of the Zhangs’ as they were two of the three‑self claimed directors’.  He submitted that it is a quantum leap to infer from such ‘knowledge’ that Zhang Senior himself had caused or contributed in any way to those matters.  He pointed to the evidence that Zhang Junior was the one claiming to be the legal representative of Shandong Cement; that in the normal course of events, he but not Zhang Senior would have been the person in custody of the seal and chop; the announcements all bore chops of Shandong Cement and did not mention Zhang Senior at all; Mr. Liu admitted that he did not see who used the seal on those occasions and only Zhang Junior, as the legal representative, could use the company seal.

6.10I disagree with Mr. Lam.  As Mr. Chen submitted, the 12 announcements concerned Shandong Cement’s operations and affairs, including its relocation to the premises of Shanshui Heavy, legal proceedings, loan notes, the continued use of its company seal, and the delay in issuing its 2015 annual report and 2016 1^st Quarter report.  Au‑Yeung J was entitled to make the finding based on the following evidence : 1) The Zhangs were two of the three directors of Shandong Cement at the time; 2) They were the highest ranking officials within the Shanshui Group; 3) Mr. Yen’s uncontradicted evidence that the Zhangs had continued to hold themselves out as being directors of Shandong Cement and as persons who are entitled to manage Shandong Cement and its subsidiaries; 4) Mr. Liu’s uncontradicted evidence that the Zhangs had continued to retain and misuse Shandong Cement’s company seal for various purposes, including to issue the said 12 announcements; and 5) Mr. Yen’s uncontradicted evidence that the Zhangs and their agents had continued to control most of the affairs of Shandong Cement.

6.11As to the argument that Zhang Junior was the legal representative and the person who would have custody of the seal, Mr. Chen referred to the fact that the announcements were purportedly made by Shandong Cement’s Board of directors, and Au‑Yeung J had noted in her Reasons for Sentence that in one of the announcements this Board had refuted an announcement made by the 1^st plaintiff (being its listed parent entity), and it had by issuing the announcements held itself out as having the authority to manage Shandong Cement’s affairs and business.  She also held that there being no evidence or explanation to distinguish the Zhangs’ respective culpabilities, the act of one would be attributable to that of the other.  There is no appeal from this part of the judgment.

6.12In my view, Zhang Senior has failed to show that Au‑Yeung J’s finding is plainly wrong.

VII.   Charge 7 (Breach of Corrective Amendments Injunction) [Item 4 of [1.2]] 

7.1Mr. Lam first relied on the same procedural challenge raised in respect of Charge 4.  I have already dismissed that ground.  In addition Mr. Lam submitted that :

1)  There was no finding that the Amended Articles of Association were invalid as a matter of Mainland law despite the plaintiffs’ allegation that they were unlawfully altered on 14 October 2015 (‘Mainland Law point’). 

2)  If they were invalid, the Corrective Amendments would be unnecessary (‘Unnecessary to comply point’).  

3)  Under article 15.3, any alteration of the Amended Articles of Association must be first passed by a resolution of the Board of directors.  To execute any document to amend the Articles of Association yet again by Zhang Senior must necessarily involve the exercise of the director’s power under the Amended Articles of Association.  It was impossible for Zhang Senior to comply with this because in so doing, he would have necessarily acted upon or exercised his power pursuant to the Amended Articles of Association of Shandong Cement which would, in turn, have constituted a direct breach of the Shandong Cement Injunction Order.  Further, since 7 December 2015, the Jinan Government had already imposed a working group on the company, and major decisions would need its approval; and any person who violated such requirement would be held strictly liable (‘Impossibility to comply point’). 

4)    At the time of the trial, the Registrar had already executed the Corrective Amendments on 22 April 2015.  It was unnecessary to resort to committal proceedings for contempt, which should only be used as a last resort when they are truly needed (‘Last resort point’). 

7.2The Mainland law point was not raised below.  I will disallow this point to be raised by reason of the Flywin principle.  As to the ‘Unnecessary to comply point’, the fact remains that a court order is made to be complied with unless the Court decides otherwise.  As to the ‘Impossibility to comply point’, clearly they are afterthoughts.  If the Zhangs were genuinely concerned, they could have sought clarification from Au‑Yeung J.  As to the ‘Last resort point’, the purpose of the contempt proceedings is not limited to securing compliance of the court order but also to punishing misconduct by failing to comply with it in the first place.  There is no merit in this ground. 

VIII.  Sentence

8.1Mr. Lam asked this Court to consider imposing a non‑custodial sentence.  He submitted that in respect of Charge 3, the Zhangs had confirmed in their affirmations filed in mitigation that they had purged the contempt before the trial.  As the injunction orders were only served on 15 February 2016, one is concerned with whether any damage has been caused by the breach of the orders after that day.  As to Charges 1 to 2 (and Charge 4), the evidence now is that the plaintiffs had, in fact, recovered all of their records by February 2016 and there was no evidence that the plaintiffs had been adversely affected because of the breach.  As to Charges 6 to 7, there was also no evidence that any real harm had been done, bearing in mind that the plaintiffs regained control of the Jinan HQ on 30 January 2016.  Further the Registrar had already executed the Corrective Amendments in respect of Charge 7.

8.2In my view, Au‑Yeung J had correctly summarised the principles on sentencing in contempt cases.  The starting point is that court orders are made to be obeyed.  The object of the sentence is both to punish conduct in defiance of the Court’s order and to serve a coercive function by holding out the threat of future punishment as a means of securing the protection which the order was primarily there to do.  The Court has to balance these two objects.  Imprisonment should be regarded as a sanction of the last resort.  Any custodial sentence should be as short as possible consistent with the circumstances of the case. 

8.3Ultimately the sentence imposed by the Court is an exercise of judicial discretion : SJ v Yuen Oi Yee Lisa [2011] 1 HKC 346 at [9] per Chu J (as she then was). Accordingly, the principles governing an appeal from the Court’s exercise of discretion applies and the Court of Appeal will not interfere unless the judge’s exercise of discretion is flawed under the established principles.

8.4As is apparent from the Reasons for Sentence, the Zhangs had attempted to use their affirmations which were already excluded :

‘ 10.  ......the Zhangs had not presented themselves for cross-examination at the trial, their affirmations (items 16, 31 and 34 in the defendants’ hearing bundle) were excluded from the evidence (‘the excluded affirmations’).  However, at this hearing, the Zhangs relied on the excluded affirmations to ‘explain’ (not to ‘excuse’) their conduct or as acts of purging the contempt.  This attempt to adduce the excluded affirmations through the backdoor should not be allowed.’

8.5The Zhangs had further filed affirmation for the purpose of mitigation in which they attempted to explain the charges that were laid against them.  Au‑Yeung J considered their affirmations but held :

‘ 25 Such explanations have been considered in the judgment when the Zhangs put the plaintiffs to strict proof. It is not open to Zhang Senior now to argue against finding of fact when he could have done so at the trial. The plaintiffs did suffer prejudice in having to issue counter‑announcements to clarify to shareholders, and suffered the risk of losing control of its most valuable subsidiary.

26 In summary, none of the explanations bore scrutiny.’

8.6In resepct of the purging of the contempt, Au‑Yeung J held :

‘ 27 Charges 1, 2 and 3 [and 4] could be purged even after the handing down of the judgment. The Zhangs have not done anything towards purging. In particular, the important data server has not been recovered.

28 Charges 6 (1^st limb) and 7 could not be purged.  What was done under Charge 6 could not be undone.  The Corrective Amendments were executed by the High Court Registrar.  Zhang Senior purported to execute the corrective amendments only on 25 April 2018, which served no useful purpose.

29 Each of the Zhangs has made an ‘unreserved apology’ to this Court and the plaintiffs.  Having regard to the context of the contempt proceedings, and their failure to purge the contempt, such apologies rang hollow.’

8.7She held that the Zhangs’ non‑compliance under the respective charge was wholesale, deliberate and obstructive to the plaintiffs’ recovery of their own records.

8.8In my view, Au‑Yeung J had painstakingly addressed all the relevant considerations in her 13‑page Reasons for Sentence and the sentences she imposed either singly or in total are appropriate to the culpability of the Zhangs.  They are not manifestly excessive nor wrong in principle.

IX.     Conclusion

9.1Accordingly the appeal is dismissed.

9.2Mr. Lam had submitted that we should defer dealing with the issue of costs which may depend on the outcome of the appeal covering seven charges.  Since the Zhangs have now failed totally in their appeal, there will be an order nisi that the costs of the appeal be paid by the Zhangs to the plaintiffs to be taxed on indemnity basis.  Certificate for two counsel is granted.

Mr David Chen and Mr Jonathan Lee, instructed by Haldanes, for the Plaintiffs

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

Annex I: Summary of charges found proved by the judge