High Fashion New Media Corporation Ltd v. Leong Ma Li

HCMP 932/2020

[2022] HKCFI 2234

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 932 OF 2020

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BETWEEN

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Before:  Deputy High Court Judge H. Au-Yeung in Court

Dates of Hearing:  16 – 20 May and 28 June 2022

Date of Judgment:  26 July 2022

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J U D G M E N T

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A. INTRODUCTION

1.This is the substantive hearing of the Amended Originating Summons filed on 15 October 2020[1] by which the plaintiff seeks a committal order against the defendant (“Leong”)  for her contempt of court in failing to comply with an order in HCA 1953/2014 of Chow J (as his Lordship then was)  (“the Injunction Order”)  made by virtue of his Decision dated 5 December 2014 (“the Decision”).

B.     BACKGROUND

2.The general background to the parties’ disputes has been summarised in the Decision which I would respectfully adopt as follows:

“3.    […] [High Fashion New Media Corporation Limited (“New Media”)] is a joint venture company set up by High Fashion Apparel Limited (“HFA”)  and Hansen International Limited (“Hansen”).

4.     HFA and Hansen are the only two shareholders of New Media, holding 65% and 35% respectively of the entire issued share capital of New Media.

5.  HFA is controlled and ultimately owned by Lam Foo Wah (“Lam Senior”), Lam Gee Yu, Will (“Will Lam”), and Lam Din Yu, Well (“Well Lam”).  Lam Senior is the father of Will Lam and Well Lam.  The three of them will hereinafter collectively be referred to as “the Lams”.

6.  Hansen is indirectly wholly owned by Leong.

7.  [Longford Information and Technology Co Limited (“Longford”)] is a PRC corporation and a wholly owned subsidiary of New Media.  It has four directors, namely, Lam Senior, Will Lam, Well Lam and Leong.  Apparently, Leong is also the legal representative and chairman of the board of directors of Longford.

8.  According to the Lams:

(1)  On 23 April 2014, a protocol (“the Longford Account Protocol”)  was agreed in the course of a telephone conversation between Will Lam and Leong in relation to the operation of (inter alia)  [Longford’s bank account with ICBC Shanghai, numbered 1001xxxxxxxxxxxx908 (“the Capital Account”)], on terms that:

(a)  all transactions in that account for less than RMB1 million would require (i) the joint signatures of Leong and Angela Yau and (ii) Longford’s finance chop; and

(b)  all transactions in that account exceeding RMB1 million would require (i) the joint signatures of Leong and Will Lam and (ii) Longford’s finance chop.

(2)  Subsequently, Lam Senior and Well Lam also agreed to the Longford Account Protocol.

(3)  However, on or about 28 April 2014, Leong made herself the sole signatory of the Longford ICBC Capital Account without the consent of or authorization by the other directors of Longford or New Media.

(4)  On or about 25 and 26 August 2014, Leong attempted to withdraw the sums of RMB300,000 and RMB10 million respectively from the Longford ICBC Capital Account without the consent of or authorization by the other directors of Longford or New Media.

(5)  The acts of Leong mentioned in (3)  and (4)  above were committed in breach of her fiduciary duties owed to Longford and New Media and contrary to their interests, and show that Leong intended to steal or misappropriate the funds in the Longford ICBC Capital Account.

9.  Pausing here, it would appear that when the parties referred to a signature of a person being required in the context of operating a bank account in the PRC, it was understood to mean the application of the personal seal of that person.

10.   On the other hand, Leong’s case, in summary, is that:

(1)  She was in principle agreeable to an arrangement whereby the Longford ICBC Capital Account could only be operated by two groups of signature (which was different from the Longford Account Protocol as alleged by the Lams).  However, on 23 April 2014 when Angela Yau and two other staff from the accounts department of Longford attended the Xintiandi branch of ICBC in Shanghai for the purpose of setting up a bank mandate for the Longford ICBC Capital Account, the proposed form of bank mandate was rejected by the bank because (inter alia)  it was considered to be too complicated.

(2)  Subsequently, in view of the refusal of Will Lam and Angela Yau to leave behind their personal seals in Shanghai with Leong to enable her to set up the bank mandate, it was agreed by Angela Yau that Leong should handle the bank mandate in respect of the Longford ICBC Capital Account herself, which she did on or about 25 April 2014.

(3)  The eventual form of the bank mandate for operating the Longford ICBC Capital Account, as approved by the bank and evidenced by a seal specimen card dated 28 April 2014, required only “Longford’s Dedicated Finance Chop” and Leong’s personal seal.

(4)  It was known to the Lams, from the very start since April 2014, that the Longford ICBC Capital Account could be operated by her personal seal and Longford’s Dedicated Finance Chop only, and neither Will Lam nor Angela Yau was ever a signatory to the Longford ICBC Capital Account.

(5)  There was a transfer of RMB300,000 from the Longford ICBC Capital Account on 26 August 2014 for normal operational needs of Longford, but there was no attempt whatsoever to withdraw RMB10 million from the Longford ICBC Capital Account as alleged by the Lams.

11.   The above disputes of fact cannot be resolved in the current interlocutory application on affidavit evidence alone.  Neither do I consider it necessary to do so for the purpose of disposing of the present summons.

12.   On 18 September 2014, HFA commenced proceedings, HCMP 2336/2014, under sections 732 and 733 of the Companies Ordinance (Cap 622)  for leave to bring a derivative action on behalf of New Media (suing in its personal capacity or, in the alternative, suing on behalf of itself as the sole shareholder of Longford)  against Leong to seek an injunction to restrain her from operating or dealing with the Longford ICBC Capital Account except in accordance with the Longford Account Protocol.

13.    On the same date, ie 18 September 2014, HFA made an urgent application, ex parte with notice to Leong/Hansen, in HCMP 2336/2014 seeking an interim injunction against Leong to restrain her from operating or dealing with the Longford ICBC Capital Account except in accordance with the Longford Account Protocol.  That matter eventually came before me on 26 September 2014.

14.   After hearing submissions from counsel for the parties, I made an order restraining Leong from operating or dealing with the Longford ICBC Capital Account except in accordance with the Longford Account Protocol “or any further arrangement as subsequently determined by a resolution of the board of directors of [New Media]” upon the undertaking of HFA to “pay all legitimate business expenses in the ordinary course of business as they fell due of [New Media] and its subsidiaries (on behalf of [New Media])  upon presentation of invoices or relevant documents”.

15.  At that time, I was informed that the purpose of the interim injunction sought in the proceedings in HCMP 2336/2014 was essentially to hold the ring until New Media could pass and implement a board resolution to confirm the Longford Account Protocol and authorize the commencement of proceedings on its behalf.

16.  Eventually, a board resolution of Longford (ie the Resolution)  was passed on 26 September 2014 resolving, inter alia, that:

(1)  Longford shall adopt the Longford Account Protocol;

(2)  Will Lam and Well Lam shall execute and arrange all relevant procedures on behalf of Longford in relation to the implementation of the Resolution; and

(3)  Leong, as the legal representative of Longford, must strictly comply with the Resolution, and execute and change all documents in relation to the list and rules of signatories of Longford’s bank accounts.

17.    As can be seen from the minutes of the board meeting held on 26 September 2014, that meeting was attended by all four directors of Longford, with Lam Senior and Will Lam attending in person and Well Lam and Leong attending by telephone.  It is also recorded in the minutes of the board meeting that the Lams all agreed with the Resolution, and Leong “expressed no opinion” on the Resolution.

18.   By letter dated 2 October 2014 from Leong’s solicitors (Winston & Strawn)  to New Media’s solicitors (Oldham, Li & Nie), Leong made it clear that she considered the calling of the board meeting held on 26 September 2014 was unlawful and therefore the Resolution passed at that meeting was null and void.  In that letter, Winston & Strawn referred to an earlier letter dated 16 September 2014 sent by Leong’s lawyers, Zoomlaw Attorneys-At-Law, to Lam Senior, which I shall return to later in this decision.

19.   On 3 October 2014, New Media commenced the present action (suing on behalf of itself and also in its capacity as the sole shareholder of Longford)  to seek an order that Leong do act in accordance with the Resolution and an injunction to restrain her from operating or dealing with the Longford ICBC Capital Account except in accordance with the Resolution.”

3.Having considered parties’ respective submissions, Chow J considered it just and appropriate to grant the Injunction Order against Leong.  Such an order provided, inter alia, that:

“[Leong] be restrained by herself, her servants, her agents or on her own behalf or on the behalf of any other person, firm or company, whether as employee, officer, agent or otherwise howsoever dealing with the capital bank account which Longford maintained with ICBC Shanghai (account no […]), except in accordance with the following arrangement […]:

(i)  For transactions involving less than RMB1,000,000, the signatures of [Leong] and [Angela Yau] must be obtained, in addition to the application of the Finance Chop of Longford; and

(ii)   For transactions involving RMB1,000,000 or above, the signatures of [Leong] and [Will Lam] must be obtained, in addition to the application of the Finance Chop of Longford.”

4.The Injunction Order was granted upon, inter alia, HFA’s undertaking to pay all legitimate business expenses in the ordinary course of business as they fall due of the plaintiff and its subsidiaries (on behalf of the plaintiff)  upon presentation of invoices or relevant documents (“the HFA Undertaking”).

5.After the Injunction Order was granted on 5 December 2014, New Media discovered that Leong had breached the Injunction Order by dealing with the Capital Account without following the Longford Account Protocol.  New Media therefore commenced two sets of committal proceedings against Leong, namely, HCMP 108/2016 and HCMP 1707/2016 (“the Previous Contempt Proceedings”). 

6.Pursuant to the Judgment of Chow J dated 8 August 2017 (“the Previous Contempt Judgment”), Leong was found to have deliberately, intentionally and voluntarily acted in breach of the Injunction Order in relation to some of the transfers out of the Capital Account, and therefore committed a contempt of court.

C.     LEONG’S ALLEGED BREACH OF THE INJUNCTION ORDER

7.In the present proceedings, New Media alleged that Leong, as the sole signatory of the Capital Account, had operated either by herself or through her agent(s)/employee(s)  the said account in breach of the Injunction Order during the period between 29 April 2016 and 23 July 2020.  It was said that the breaches may be classified into the following 4 categories:

(1)  Category A comprises 30 transactions in the total sum of RMB7,492,916 which involve transfers under the description “備用金” from the Capital Account to Longford’s bank account with ICBC Shanghai, numbered 1001xxxxxxxxxxxx618 (“the Current Account”).  It was said that the funds transferred were used to pay certain alleged expenses of Longford or to third parties;

(2)  Category B includes 7 transactions in the total sum of RMB 56 million, comprising transfers without any description.  It was alleged that the monies concerned were transferred to Longford’s fixed deposit account (“the Fixed Deposit Account”).  It was further alleged that some of the fixed deposits were not renewed upon maturity and had been released to the Current Account for other unauthorised use;

(3)  Category C covers 7 transactions in the total sum of RMB 484,007, comprising transfers from the Capital Account to third parties which are said to be complete strangers to New Media;

(4)  Category D comprises 7 transactions in the total sum of RMB 731,972.34 which were alleged to have been transferred from the Capital Account to other accounts of Longford.

D.    LEONG’S DEFENCE

8.There is no dispute on the part of Leong that the 51 transactions which were relied on by the plaintiff herein had indeed taken place as shown by the relevant bank statements and other documents placed before the court.

9.Neither is it disputed by Leong that the Longford Account Protocol was not followed in respect of those transactions.

10.Leong’s case was summarised by her counsel in their opening submissions as follows:

“2. Leong opposes the Amended OS. In summary, it is Leong’s case that:

(1)  After the Previous Contempt Judgment, in order not to breach the Injunction Order again, Leong ceased to participate in the daily operation of Longford. Instead, she gave clear instructions to [唐魯華(“Tong”)], an employee of Longford, to apply to the two shareholders for approval of Longford’s business expenses before she operates the Capital Account. Tong was not Leong’s servant or agent, but Longford’s employee. Even if Tong failed or neglected to obtain Yau or Will Lam’s signature before she operated the Capital Account, this was not intentionally caused or authorised by Leong, who could in the circumstances have had no intention to breach the Injunction Order again.

(2)  HFA has breached the HFA Undertaking and had no genuine intention to comply with it.

(3)  New Media has unreasonably delayed in applying for committal, and Leong suffers real prejudice as a result of the delay in that she cannot have a fair trial without the evidence of Tong.

(4)  These proceedings are an abuse of process as New Media (under the control of the Lams)  failed to proceed promptly with the Underlying Action and is only seeking to harass and exert pressure on Leong by the threat of imprisonment.

(5)  In any event, committal should be a weapon of last resort, and the circumstances do not warrant it.  Even if Leong is found to be in contempt of court (which is denied), committal to prison is neither appropriate nor necessary in this case.”

3.   […] an amount of RMB10,940,000 remaining in the Capital Account has since 24 February 2021 been withdrawn by Wong, the purported legal representative of Longford whom the Lams caused to replace Leong.  The Capital Account has therefore already been substantially emptied by the Lams, such that imprisoning Leong does not, in any event, serve any purpose to ensure her compliance with the Injunction Order.”

11.It was further contended that:

(1)  Since Angela Yau (“Yau”)  (whose signature was required to endorse transactions involving less than RMB1,000,000 pursuant to the Injunction Order)  had ceased to be the Chief Financial Officer of High Fashion Garment Management Limited after 24 May 2019, New Media has failed to prove beyond reasonable doubt that Leong could have complied with the Injunction Order since 24 May 2019;

(2)  There had been material non-disclosure of facts in the ex parte application before Deputy High Court Judge To on 5 June 2020 when leave to commence committal proceedings was sought.

E.     LEGAL PRINCIPLES

12.The following legal principles are undisputed:

(1)  The approach to committal for civil contempt by reason of a breach of a court order is a three-stage process, namely:

(i)  To construe the relevant court order to ascertain its meaning and operation;

(ii)  To determine whether the defendant has in fact complied with the orders as so construed;

(iii)  To consider whether any failure to comply was accompanied by the state of mind necessary to establish punishable contempt.[2]

(2)  The burden is on the plaintiff to prove a defendant’s contempt beyond reasonable doubt.[3]

(3)  An order should be construed strictly because the court is concerned with an order which has a potentially draconian effect on the commercial and economic freedom of an individual.  What must be ascertained is the meaning which the document would convey to a reasonable person having all the background which would reasonably have been available at the time the order was made.  This includes the purpose for which the order was made.[4]

(4)  Once a failure to comply with an order is found, there is prima facie contempt.  It is for the defendant to show that it has always been impossible of carrying out the terms of the order.  Even in those circumstances, the contemnor should have applied to the court for further time at the first practicable opportunity.[5]

(5)  It is normally not sufficient, by way of answer to an allegation that a court order has not been complied with, for the person concerned to say that he “did his best”.  The only exception to that proposition is whether the court order itself only orders the person concerned to “do his best”.[6]

(6)  In relation to the mental element, it is not necessary to prove that the defendant’s conduct was contumacious, i.e. he/she deliberately intended to disobey the order.  It is sufficient to prove that he/she knew the facts which are said to make his act or omission a contempt and that such act or omission was not accidental.[7]

(7)  To the extent a defendant has appointed an agent to comply with the court order, the agent’s actions and knowledge may be attributed to the defendant, and the defendant may be found to be in civil contempt on the basis of vicarious liability.  The principal is guilty of contempt if (a)  the person who did the acts which constituted the contempt was her servant or agent; (b)  the acts were done in the course of that person’s employment or agency; and (c)  she either authorised the acts or could reasonably have foreseen the possibility of such acts and failed to take all reasonable steps to prevent the acts; in particular, it does not suffice for the principal to merely give orders and then wash her hands of the matter and disclaim any further responsibility.  The principal must take all reasonable steps to see that her orders are obeyed.[8]

13.While Leong’s counsel had made no argument against the above general principles, they emphasised that the following principles are particularly relevant in this case:

(1)  Contempt proceedings should only be pursued as a matter of last resort.  This approach is equally applicable in cases other than family cases.  In cases of civil contempt, the prime consideration must be the enforcement of the court order in question.  Whilst there are cases where it is necessary (and indeed imperative)  that the court should exercise its power in the punishment of contempt to achieve compliance with its order, there are other cases where lesser options should be explored before one is to resort to the draconian power of committal.[9] 

(2)  Whenever there is a reasonable alternative available instead of committal to prison, that alternative must be taken.[10]

(3)  Where the defendant wishes to put in issue a matter which is potentially exculpatory, an evidential burden arises, but the plaintiff continues to bear the persuasive burden to prove his case.  In such cases, there must be evidence supporting such exculpatory matter which is sufficiently substantial that it raises a reasonable doubt as to the defendant’s guilt.  Unless such a reasonable doubt is removed, the plaintiff fails to prove his case.[11] If there is a hypothesis which might reasonably be consistent with the defendant’s innocence, then he is also entitled to be acquitted.[12]

(4)  Impossibility is a defence, and the burden lies on the plaintiff to prove beyond reasonable doubt that the defendant has the ability to comply.[13]

(5)  No adverse inference against the defendant may be drawn from his failure to call one or more witnesses or adduce certain evidence.[14]

(6)  An alleged contemnor can only be found guilty of contempt on a charge that is properly particularized in the originating summons and the accompanying statement.[15]

F.     CREDIBILITY OF WITNESSES

14.When I consider the credibility of various witnesses who had given evidence in court, I shall take the following matters into account[16]:

(1)  Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

(2)  Importance should be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3)  The court will also attach importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement;

(4)  The court should consider a witness’ motive for deliberately not giving truthful testimony.  For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest;

(5)  It is essential to have regard to the entirety of a witness’ evidence. A witness can make mistakes, but the mistakes do not necessarily affect other parts of his evidence. Likewise, a witness may lie. However, lies themselves do not mean necessarily that the entirety of that witness’ evidence is to be rejected.  A witness may lie in a stupid attempt to bolster his case, but the actual case nevertheless remains good irrespective of the lie;

(6)  On the other hand, where it is shown that a witness has been discredited over one or more matters to which he has testified, this fact is relevant to the assessment of his overall credibility; 

(7)  While the court is entitled to take demeanour into account when assessing testimony, it should be borne in mind that demeanour can be deceptive and is therefore to be approached with care.

G.    DISCUSSION

G1.   The purposes of the transfers

15.As aforesaid, the subject bank transactions have been classified by the plaintiff into 4 categories.  The common feature of these transactions is that they all involved the transfers of monies away from the Capital Account.  The only differences are the destinations and purposes of such transfers:

(1)  Category A comprises 30 transfers of monies described as “備用金” from the Capital Account to the Current Account;

(2)  Category B includes 7 transactions which are admittedly transfers from the Capital Account to the Fixed Deposit Account;

(3)  Category C covers 7 transfers from the Capital Account to third parties;

(4)  Category D comprises 7 transactions which were admittedly transfers from the Capital Account to other accounts of Longford.

16.It was submitted on Leong’s behalf that the respective ultimate destinations and purposes of these transfers are only relevant to the seriousness of the alleged breaches, but they have no bearing on the issue of liability for contempt, and hence irrelevant for present purposes.  Ms Lam accepted that this assertion is basically correct, but Leong’s knowledge about how Longford’s bank accounts were operated would be relevant to the Court’s consideration of her state of mind at the material time.  I agree.  I will come back this point later.

17.In the light of the above, I will not go into the details of the usages of the funds transferred from the Capital Account at this stage, save that I think I should say a few words on the Category B transactions in respect of which Leong submitted that they were only technical breaches of the Injunction Order. 

18.In the following sections, I will firstly deal with the Category B transactions, and then I will consider the different lines of defence put forward by Leong.

G2.   Category B transactions

19.Relying on paragraph 34 of the Previous Contempt Judgment, Mr Nip submitted that the Category B transactions were, at most, technical breaches, and that they do not add anything to the seriousness of any other breaches of the Injunction Order (if any)  or lead to any increase in the sanction to be imposed.  The said paragraph of the Previous Contempt Judgment reads:

“In respect of the 6 remaining payments from the Capital Account to the 5784 Fixed Deposit Account for placing new fixed deposits, I consider that they constitute technical breaches of the Injunction. The breaches were technical because it was anticipated that the relevant funds would go back to the Capital Account upon maturity of the fixed deposits. In the context of the present case, I do not consider that those transactions would add anything to the seriousness of the breaches of the Injunction in respect of the Part A and Part D transactions, or lead to any increase in the sanction to be awarded.”

20.I can totally understand why Chow J would adopt such a view back in August 2017.  I agree with his Lordship that the matter could be looked at in such a way back then.

21.However, I do not think this Court should look at similar transactions which took place after the handing down of the Previous Contempt Judgment in the same way. 

22.Although Category B transactions were described in the Previous Contempt Judgment as “technical breaches”, it cannot be denied that they were still breaches, and there is no doubt that Leong knew and understood this ruling of the Court.  In these circumstances, any further similar transfers to the Fixed Deposit Account which were done with such clear knowledge of the ruling in the Previous Contempt Judgment must be treated more seriously, because it would be a blatant disregard of the Injunction Order and of the ruling in the Previous Contempt Judgment.  This would be so even if the placing of any monies on fixed deposit would not cause any financial loss to Longford by reason of the fact that the relevant funds would go back to the Capital Account upon maturity of the fixed deposits.

23.I therefore reject Leong’s argument that in the event she is held guilty of having committed a contempt of court in respect of the Category B transactions, such breaches should not lead to any increase in the sanction to be imposed.

24.On the other hand, I should also make it clear that I do not accept New Media’s argument that the breaches in relation to the Category B transactions should be treated more seriously on the basis that the amount placed on fixed deposit had been progressively reduced, such that Leong was able to release part of the funds and transfer the same to the Current Account.  This is because there is no dispute that upon the maturity of the fixed deposit, the monies must be transferred back to the Capital Account by the bank, and they could not be transferred elsewhere directly from the Fixed Deposit Account.  That is why New Media accepted that “the Category B and Category A breaches overlapped”[17]. Hence, New Media’s suggested approach would amount to considering the same matter twice, which is unfair to Leong. 

G3.   The “no dealing” defence (the agency issue)

25.The first line of defence which I will consider is the “agency issue” raised by Leong.  In a gist, Leong’s case in this regard is that:

(1)  Tong had been employed by Longford as its financial controller since 20 February 2017;

(2)  In view of the Previous Contempt Judgment, “and the ongoing disputes between the two camps of shareholders which rendered it impossible for her to properly and meaningfully carry out [her] then role and duties”[18], Leong had informed Tong by virtue of an email dated 23 October 2017 (“the 23 October 2017 Email”)  that she (Leong)  would not participate in the daily operation of Longford, and that she had also instructed Tong to apply to the two shareholders for approval of Longford’s business expenses;

(3)  She had explained the gist of the Injunction Order to Tong in a telephone conversation, and therefore Tong had been given clear instructions that she was to seek the approval of Yau for transactions below RMB1 million and of Will Lam for transactions of RMB1 million or above;

(4)  Since then, Tong had faithfully discharged her duties and complied with Leong’s instructions in that she had persistently tried to seek Yau’s approval for Longford’s expenses;

(5)  Tong had dealt with the Capital Account in the course of her employment with Longford;

(6)  New Media could not prove beyond reasonable doubt that Tong had dealt with the Capital Account in the course of her employment or agency with Leong.

26.In China Metal Recycling (Holdings)  Limited (in compulsory liquidation)  & Another v Chun Hei Man & Others (HCMP 3396/2015, unreported, 18 November 2016), B Chu J had the following to say at paragraph 57(7):

“To the extent a defendant has appointed an agent to comply with the court order, the agent’s actions and knowledge may be attributed to the defendant, and the defendant may be found to be in civil contempt on the basis of vicarious liability. The principal is guilty of contempt if (a)  the person who did the acts which constituted the contempt was her servant or agent; (b)  the acts were done in the course of that person’s employment or agency; and (c)  she either authorised the acts or could reasonably have foreseen the possibility of such acts and failed to take all reasonable steps to prevent the acts; in particular, it does not suffice for the principal to merely give orders and then wash her hands of the matter and disclaim any further responsibility. The principal must take all reasonable steps to see that her orders are obeyed.”

27.I will consider Leong’s case by following the above guidance.

G3.1  Tong’s employment

28.The first matter which I should decide is whether New Media had proved beyond reasonable doubt that Tong was an employee of Longford at the material time.

29.Leong relies on various contemporaneous documents (including the employment contract (返聘協議)  (“the Employment Contract”)  entered into between Longford and Tong under which Tong was employed as the financial controller (財務總監)  of Longford since 20 February 2017 and the 23 October 2017 Email)  to show that Tong was Longford’s employee.  It was argued that if Tong was Longford’s employer, that would be a very strong indicator that she was not Leong’s agent.

30.While Ms Lam accepted in her oral closing submissions that Tong’s alleged employment with Longford might not necessarily be a sham, she had drawn this Court’s attention to a number of features of this alleged employment relationship.  For example:

(1)  The Employment Contract was “incomplete” in the sense that it was partially redacted and was not signed;

(2)  The Employment Contract only covered the period between 20 February 2017 and 19 February 2018;

(3)  Tong had been using an email account provided by Besthope International Limited (百合國際有限公司)  (“Besthope”);

(4)  Yau, being the Head of Finance who was responsible for the financial matters of New Media and Longford, was never informed of the recruitment of Tong;

(5)  Neither were the Lams nor HFA informed about Tong’s recruitment.

31.I hold the view that New Media did not prove beyond reasonable doubt that Tong was not Longford’s employee, because:    

(1)  As pointed out by Mr Nip who acted for Leong, during cross-examination, there was no suggestion made to Leong that the Employment Contract was a sham document;

(2)  While the Employment Contract was not signed and the address of Tong thereon was redacted, there is no evidence to show that these features would invalidate the contract under PRC law;

(3)  Although the Employment Contract shows that Tong’s employment would only last for one year (up to 19 February 2018), it is undisputed that Tong had continued to deal with the Capital Account after 19 February 2018.  Further, New Media did not adduce any expert evidence on PRC law to the effect that the employment relationship could not be validly extended by conduct and in the absence of a written agreement;

(4)  It was not suggested by New Media that Leong, as Longford’s legal representative, had no authority to employ any staff for and on behalf of Longford;

(5)  While Yau gave evidence that the employment of any finance/account staff would have to be approved by her, she could not recall if there was any company policy as such;

(6)  Although Tong was using Besthope’s email domain while she was allegedly working for Longford, it is the unchallenged evidence of Leong that Longford had never provided any email account for use of its staff.

32.I will therefore proceed with my analysis herein on the basis that Tong was an employee of Longford at all material times.

G3.2  Leong’s instructions to Tong

33.Leong relied heavily on the 23 October 2017 Email and alleged that instructions had been given to Tong that she had to seek approval from both shareholders for approval of Longford’s business expenses.

34.The said email reads:

“至上海梁富財務總監唐魯華

由於梁富的母公司香港達利新媒體股東雙方在經營權層面存在極大的分歧 ，我們雙方在香港高等法院進行了一系列的維權訴訟，最終結果還未揭曉。因梁富是一間在中國內地的獨立法人企業，為保全公司財產，維護公司權益及我個人的聲譽，我個人不再參與梁富的日常營運，但仍是公司的法人及股東，會合理合法的繼續維護公司權益。關於梁富公司營運日常支出，請按時與雙方股東申請。

梁馬利”

35.It can be seen that the 23 October 2017 Email did not mention about the Injunction Order at all.  However, Leong alleged during cross-examination that she had explained the terms of the Injunction Order to Tong in a telephone conversation, and therefore Tong had been given clear instructions that she was to seek the approval of Yau for transactions below RMB1 million and Will Lam for transactions of RMB1 million or above.

36.I should say right away that I do not accept Leong’s evidence that she had informed Tong in a telephone conversation about the Longford Account Protocol (which was incorporated as the terms of the Injunction Order)  at all.  Given Leong’s defence that she had entrusted Tong to act in accordance with the Injunction Order when she dealt with the Capital Account, it is of utmost importance that Leong would explain to the Court when and by what means that she informed Tong of the requirements laid down by the Injunction Order.  However, Leong did not mention about the alleged telephone conversation in any of her affirmation filed herein at all.  In my view, this is because the alleged telephone conversation never took place.  Leong just conveniently made it up when she was cross-examined on the matter.

37.Leong further explained that she did not attach the Injunction Order to the 23 October 2017 Email because Tong did not know English at all and therefore she could not understand the terms of the Injunction Order anyway.  While this may well be a good reason as to why Leong did not show Tong the actual terms of the Injunction Order in their original form, there was nothing which stopped her from setting out such terms (i.e. the Longford Account Protocol)  in Chinese in her email to Tong.

G3.3  Agency relationship between Leong and Tong

38.Recognising that there is no single test for determining whether a relationship of agency exists, Mr Nip submitted that the Court has to consider whether the usual characteristics of agency relationship are present in this case.  He referred to Lam VP (as his Lordship then was)’s Judgment in Bright Gold Ltd v Mega Well Development Ltd [2020] 4 HKLRD 26 as follows in this regard:

“94. In our judgment, as reiterated in the recent English Court of Appeal decisions in Haringey LBC v Ahmed and UBS AG (London Branch)  v Kommunale Wasserwerke Leipzig GmbH [2017] EWCA Civ 1567, [82]–[91], in the assessment of whether a relationship constituted agency in the legal sense, it would be useful to start from some basic propositions concerning agency. In this connection, the definition of agency in Bowstead and Reynolds on Agency (21^st ed.)  at para.1-001 provides a good starting point:

(1)  Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly manifests assent that the other should act on his behalf so as to affect his legal relations with third parties, and the other of whom similarly manifests assent so to act or so acts pursuant to the manifestation…

(2)  In respect of the acts to which the principal so assents, the agent is said to have authority to act; and this authority constitutes a power to affect the principal’s legal relations with third parties.

(3)  …

(4)  …

95. In Haringey LBC v Ahmed at [28], Hamblen LJ (as he then was)  had this to say after quoting this passage:

The usual characteristics of an agency relationship may be said to be authority for the agent to affect the principal’s relationship with third parties, a fiduciary duty owed by the agent to the principal, and an ability on the part of the principal to exercise a degree of control over the agent. As this court observed in UBS AG (London Branch)  v Kommunale Wasserwerke Leipzig GmbH [2017] EWCA Civ 1567 at [91]: ‘the absence of any of these main characteristics must … be a significant pointer away from the characterisation of a particular relationship as one of agency, even though there may be rare exceptions.’”

39.Before I discuss whether Tong was Leong’s agent when Tong dealt with the Capital Account, I should first of all refer to a few important matters which are undisputed:

(1)  Leong was the legal representative of Longford up to 28 May 2020 (when she was replaced by Wong Siu Mui Julisa (“Wong”));

(2)  In order to withdraw money from the Capital Account, two chops had to be used, namely, the Finance Chop of Longford (“the Finance Chop”)  and another chop which bears the Chinese name of Leong (梁馬利)  (“Leong’s Chop”);

(3)  Leong handed over both the Finance Chop and Leong’s Chop to Tong so that the latter could operate Longford;

(4)  Although Leong had ceased to be the legal representative of Longford since 28 May 2020, there is no evidence which shows that the bank mandate given by Longford to ICBC Bank had been changed right away;

(5)  Although Wong had replaced Leong as the legal representative of Longford since 28 May 2020, she only took over the control of Longford’s account on 23 July 2020.

40.With the above in mind, I have come to the conclusion that Tong was acting as Leong’s agent when she dealt with the Capital Account, for the following reasons.

41.Firstly, as accepted by Mr Nip, even if Tong was an employee of Longford, it would not make it impossible for her to be Leong’s agent at the same time.

42.Secondly, it is noted that any withdrawal from the Capital Account must be done with the affixing of Leong’s Chop, which Leong had handed over to Tong.  When Tong used that chop for the purpose of dealing with the Capital Account, she must be doing that in her capacity as Leong’s agent, because she was doing it for Leong, who was the sole signatory of the Capital Account.  It is also apparent that Tong was using Leong’s Chop with Leong’s authority and under her instructions. The fact that Tong was also the Financial Controller employed by Longford at the material time would not have any impact on such an agency relationship between Leong and Tong.

43.Thirdly, in fact, the same conclusion had been reached by Chow J in the Previous Contempt Judgment.  In paragraph 16 thereof, his Lordship had the following to say:

“Leong was at all material times the legal representative and chairman of the board of Longford, as well as the sole signatory of Longford’s bank accounts with ICBC Shanghai, including the Capital Account.  As mentioned in paragraph 9 of the HCA 1953 Decision, it is common ground that when the parties refer to the signature of a person being required in the context of operating a bank account in the PRC, it is understood to mean the application of the personal seal of that person.   Although it would appear, on the evidence, that it was Longford’s staff, instead of Leong, who applied Leong’s seal (ie the legal representative chop)  to the relevant bank instructions authorising the transfers of funds from the Capital Account, there is no dispute that Longford’s staff worked under Leong’s instruction or direction generally, and that the relevant transfers could not have taken place without Leong’s approval and consent.  Further, the Injunction restrained Leong, whether “by herself, her servants or agents”, from dealing with the Capital Account except in accordance with the signing arrangement as specified in the Injunction.  Leong could and should have taken possession of her personal seal, or put in place an effective system to ensure that there was no dealing with the Capital Account except in accordance with the specified signing arrangement.  In the circumstances, Leong must be regarded as being legally responsible for the Part A and Part D transactions.  This is not, I understand, seriously disputed by her.”

44.I have not lost sight of Leong’s evidence given in the present proceedings that a legal representative chop is the property of the company but not the legal representative’s personal asset that could or should be carried around rather than being kept in the company’s premises.  However, I do not think this evidence can assist her because:

(1)  Leong’s assertion that the “legal representative chop” was not the legal representative’s personal asset is neither here nor there.  The indisputable nature of such a chop is that the affixation of which is an indication that the transaction concerned is authorised by the legal representative;

(2)  In other words, there cannot be any dispute that the legal representative’s chop must not be affixed without the authorisation of the legal representative;

(3)  Hence, there is nothing wrong for Chow J to describe Leong’s Chop as a “personal seal”, and such a description would not affect the soundness of Chow J’s analysis.

45.Fourthly, I do not accept Leong’s argument that the usual characteristics of agency are lacking:

(1)  Leong had apparently authorised Tong to affix her legal representative chop on the withdrawal slips of the Capital Account on her (Leong’s)  behalf that affected Leong’s relationship with third parties (i.e. ICBC Bank)  in that the bank accepted the withdrawal requests on the basis that the transactions were authorized by Leong as legal representative;

(2)  Tong owed fiduciary duties to Leong when she used the legal representative chop;

(3)  There is no doubt that Leong had the ability to exercise control over Tong as to the usage of Leong’s Chop.

G3.4  Culpable state of mind

G3.4.1  Category A transactions

46.Leong alleged that, to avoid breaching the Injunction Order again, she had notified Tong by virtue of the 23 October 2017 Email that she would cease to participate in the daily operations of Longford, and thereby also instructed Tong to seek the approval of both shareholders for all of Longford’s expenses.  It was submitted that:

“32. […] Whilst Leong can be taken to know, after the Previous Contempt Judgment, that she would be in contempt of court if she continued to direct Longford’s employees to operate the Capital Account, she cannot without more be taken to know that her ceasing to participate in the daily operations of Longford and instructing of an employee of Longford to seek the approval of both shareholders for all Longford’s expenses would be a contempt if the employee, for some reason, did not comply with her instruction.

[…]

35. There is ultimately no objective evidence or circumstances from which it can be proved, or inferred, that Leong knew that it would be a contempt even if she instructed Longford’s accountant to seek both shareholders’ approval for all of Longford’s expenses. At the very least, the circumstances give rise to a reasonable doubt as to whether she so knew”[19]

47.On the basis of my finding that Leong had not informed Tong about the terms of the Injunction Order by telephone conversation as alleged, there was no evidence that Tong had any knowledge about the requirements imposed by the Injunction Order at all. 

48.I also reject Leong’s evidence which was given during her cross-examination that she had persistently reminded Tong to ask for Yau’s approval.  I hold that she had just made this evidence up during the trial, for she had never mentioned about this in her Affirmations.

49.In such circumstances, there is no doubt that Leong could reasonably have foreseen the possibility of Tong failing to comply with the Injunction Order, and Leong had plainly failed to take all reasonable steps to prevent such acts on the part of Tong.  How could Tong be expected to comply with the terms of the Injunction Order when she did not even know what they were?

50.Furthermore, in relation to Category A transactions, it is important to bear in mind the modus operandi adopted by Leong and Tong at the material time.  As reflected by Longford’s bank statements, whenever the balance in the Current Account was running low, funds would be transferred from the Capital Account to the Current Account, usually in the sum of RMB300,000 under the description of “備用金”.  The funds would then be used to pay for the alleged expenses of Longford.  In other words, under this modus operandi, the transfers from the Capital Account were to be used to pay off expenses yet to be claimed. According to Leong, she was well aware of this modus operandi at the material time.

51.However, in the 23 October 2017 Email, what Leong instructed Tong to do was: “關於梁富公司營運日常支出，請按時與雙方股東申請”.  It is evident and undisputed that a large number of those daily operating expenses were paid by the “備用金” in the Current Account.  In other words, before Tong sought approval from Yau as instructed by Leong, Tong had already transferred funds from the Capital Account to the Current Account in anticipation of future expenses. 

52.Leong did not instruct Tong specifically in the 23 October 2017 Email not to transfer monies away from the Capital Account to the Current Account as “備用金” unless Yau or Will Lam (as the case may be)  had signed. 

53.Given Leong’s admission of her knowledge about this mode of operation at the material time, she must be taken to have authorised Tong to deal with the Capital Account in the absence of Yau’s or Will Lam’s signature (as the case may be).  Leong must also have foreseen that “備用金” would be transferred from the Capital Account in the absence of the required signature of Yau/Will Lam. 

54.In other words, the Injunction Order would be breached even if Tong had acted in full compliance with Leong’s instructions given by virtue of the 23 October 2017 Email.

55.In these circumstances, Leong must be held responsible for Tong’s act.

56.Moreover, based on the following analysis, I am of the view that even if the Category A transactions involved withdrawals of monies from the Capital Account directly for settlement of Longford’s alleged operating expenses, New Media has proved beyond reasonable doubt that Leong had not taken all reasonable steps to prevent Tong from acting in breach of the Injunction Order. 

57.It is evident that:

(1)  Leong was copied with Yau’s email dated 27 October 2017 in which Yau reminded Tong that:

(a)  Tong did not provide any invoice or document in support of her previous applications for expenses;

(b)  The Excel tables attached to Tong’s previous emails could not be regarded as documents in support of the applications for payment of Longford’s expenses;

(2)  Leong was copied with Tong’s email dated 27 October 2017 in which Tong, in her document “關於上海梁富資金申請的答疑”, told Yau, among other things, that no invoice could be produced before expenses were incurred;

(3)  Leong was copied with Yau’s email to Tong dated 6 November 2017 in which Yau reiterated, among other things, that while HFA was minded to comply with the HFA Undertaking, it would only do so if Tong could provide documents in support;

(4)  Leong was copied with Tong’s email to Yau dated 7 November 2017 by which Tong applied for Longford’s expenses.  One of the items asked for was the salaries payments for staff for the month of October 2017.  In this email, again, only an Excel table was attached, without any other documents in support; 

(5)  Leong was copied with Yau’s email to Tong dated 8 November 2017.  The content of this email was nearly identical to that contained in Yau’s email dated 6 November 2017.

58.In the light of Leong’s knowledge[20] of:

(1)  Yau’s repeated requests for the production of supporting documents;

(2)  Tong’s argument that no invoice could be produced;

(3)  Tong’s reply which showed that Tong was not prepared to produce any document in support,

in my view, Leong must be reasonably expected to remind Tong that she must not withdraw any money for any sum of less than RMB 1 million from the Capital Account unless Yau had agreed and signed to indicate her endorsement with such withdrawal.  However, Leong had failed to take such reasonable steps.

59.Hence, since:

(1)  Leong was well aware that it was all along the practice that “備用金” (usually in the sum of RMB300,000)  would be transferred from the Capital Account before any approval was sought from Yau/Will Lam in respect of any specific items of expenses;

(2)  Leong must have been fully aware of the terms of the Injunction Order;

(3)  Leong admitted that she had knowledge and understood the Previous Contempt Judgment;

(4)  Leong only instructed Tong to seek approval from Yau in respect of expenses which incurred subsequently,

Leong must be taken to know that it would be a contempt even if Tong had followed her instructions closely.

60.In the course of parties’ argument, much time had been spent on whether Leong had as a matter of fact ceased to participate in the daily operation of Longford since 23 October 2017.  New Media relied heavily on Leong’s express approval (by emails)  of a large number of alleged expenses of Longford and submitted that her assertions that she would cease to operate Longford was self-serving and was just a window-dressing exercise.  This Court was asked to find that Leong in truth had not handed Longford over to Tong.

61.I agree that Leong’s conduct was indeed highly suspicious.  However, on the other hand, since her signature was required to be obtained before the Capital Account could be properly dealt with pursuant to the terms of the Injunction Order, it was natural for Tong (and various other staff)  to request for her approval before Longford’s ICBC Accounts were dealt with. In my view, New Media could not prove beyond reasonable doubt that Leong was still participating in the daily operation of Longford.  Having said that, I do not think this is a matter which would affect the outcome on the question of whether Leong was in breach of the Injunction Order.

G3.4.2  Category B transactions

62.There is undisputed evidence that Leong and Tong had never asked for Will Lam’s approval or signature in relation to the Category B transactions (which were all over RMB 1 million).

63.In the 23 October 2017 Email, Leong did not give any instruction to Tong that she had to obtain Will Lam’s signature before she transferred any money of more than RMB 1 million from the Capital Account to the Fixed Deposit Account at all.

64.It is also undisputed that Leong knew about Longford’s practice of placing its idle cash in the Capital Account on fixed deposit.[21]

65.In these circumstances, New Media has proved beyond reasonable doubt that Leong had authorised Tong’s carrying out of the Category B transactions.  Even if I am wrong on this, there is no doubt that she did not take all reasonable steps to prevent Tong from acting in breach of the Injunction Order as far as the Category B transactions are concerned. There is also no doubt that Leong could have foreseen that Tong would proceed with the Category B transactions even in the absence of Will Lam’s signature.

G3.4.3  Categories C and D transactions

66.The first Category C/D transactions took place on 18 September 2019.  It cannot be disputed that these were done without Yau’s approval or signature.

67.There is also absolutely no evidence that any approval had been sought at all in relation to these transactions.

68.I have held above that even if the Category A transactions involved withdrawals of monies from the Capital Account directly for settlement of Longford’s alleged operating expenses, New Media has proved beyond reasonable doubt that Leong had not taken all reasonable steps to prevent Tong from acting in breach of the Injunction Order.  Those reasonings are equally applicable here.

69.Leong has raised an argument on “impossibility” on the basis that Yau had resigned on 24 May 2019 and as a result it was alleged that it was impossible for the Injunction Order to be complied with.  I reject this argument.  I will deal with this point separately below.

70.To conclude, I reject Leong’s “no dealing” defence altogether.  I hold that the transactions in Categories A to D constituted breaches of the Injunction Order on the part of Leong.

G4.   New Media’s delay in commencing committal proceedings

71.On New Media’s own case, the Lams were already aware since January 2019 of the fact that there were withdrawals from the Capital Account without their consent or approval, which they considered as further breaches of the Injunction Order.  However, the ex parte application for leave to commence committal proceedings was not made until 5 June 2020. 

72.It was therefore submitted on Leong’s behalf that there had been a substantial delay on the part of New Media to commence these proceedings.  It was said that this delay had deprived Leong of a fair trial. In the words of Leong’s counsel:

“55. More importantly, by the time New Media commenced these proceedings, Tong had already resigned. It cannot be disputed that Tong is an important witness, and any statement or account from her would be particularly material to Leong’s defence.

56. It is also undeniable that had New Media commenced these proceedings shortly after January 2019, Tong would still have been employed by Longford, and Leong could have secured her assistance to make a statement or give evidence in court. New Media’s delay has therefore deprived Leong of Tong’s testimony.

57.   As stated above, one of the main issues in these proceedings is whether Tong was Leong’s servant or agent.  Whilst the documentary evidence points towards the conclusion that Tong was Longford’s employee, if the Court considers that the evidence somehow falls short of proving that fact, whether because of the matters raised by New Media or otherwise, then it is unfair to Leong that the delay had deprived her of the chance to obtain Tong’s evidence and/or secure her attendance at the hearing.”

73.The importance of Tong’s evidence was further reiterated in Leong’s reply submissions:

“41. […] As Tong cannot be presumed to be Leong’s servant or agent (but must be proved to be so by way of credible evidence adduced by New Media), it is incumbent upon New Media to at least attempt to call Tong as a witness or otherwise secure some evidence or statement from her.

42. New Media completely neglected to do so because it is acting entirely out of prejudice and distrust. As it had already presumed that Tong was Leong’s servant or agent, it conducted its case so prejudicially that it overlooked its own “blind spot”, viz. the absence of any evidence from the alleged servant or agent.

43. Moreover, the dearth of any evidence or statement from Tong (from which inferences might be drawn even in the absence of viva voce evidence)  was wholly or substantially caused by New Media’s delay in commencing these proceedings and its outright dismissal of the fact that Tong was Longford’s employee. It was New Media’s own stance which caused its representatives (such as Yau and Will Lam)  to have never had any constructive dialogue with Tong from which any proper or compelling inference might be drawn that she was in fact Leong’s employee or agent.

44.   It simply cannot be denied that Tong’s evidence would be relevant and material to the determination of the Agency Issue, particularly if the enquiry must go to the questions as to whether Tong did not do certain things (e.g. attempt to contact Yau after she resigned)  or whether Leong gave her clear enough instructions orally in addition to what is stated in the email of 23 October 2017.  There can be no fair trial on the Agency Issue as such in the absence of any evidence from Tong.”

74.First of all, I do not accept that there was any delay on the part of New Media to commence these proceedings:

(1)  Although New Media had admittedly obtained concrete evidence against Leong back in January 2019, such evidence was incomplete, and it was not until 11 November 2019 that New Media got all the evidence produced in these proceedings after repeated requests made by New Media;

(2)  Given the volume of bank statements and other documents involved, reasonable time ought to be given to New Media for the analysis of the information received;

(3)  The Court has to take into account the General Adjournment Period (“GAP”)  of the Courts in Hong Kong from late January 2020 to 6 May 2020 such that the ex parte application for leave to commence these proceedings could only be filed when the Registry reopened.  In this regard, I reject Leong’s argument that the leave application should have been filed during GAP on the ground of urgency.  By the nature of committal proceedings, I do not think the Registry would have accepted the filing of the application back then;

(4)  As for the alleged delay in the period between May and October 2019, Lam Senior explained that it was caused by the significant changes of key personnel of New Media.  It is undisputed that Yau had resigned on 24 May 2019.  Given the volume of the documents and transactions involved, I accept that it would cause disruption to the on-going investigation.  While it might be said that the disruption caused should not be as long as 6 months, I do not agree that the difference of a few months would make much difference.

75.In any event, I do not think the alleged delay (if any)  had deprived Leong of a fair trial:

(1)  Leong admitted during her oral evidence that she was able to contact Tong by telephone in April 2022 and asked her to give evidence.  Leong said that she was able to find Tong’s contact number from a contact list kept by the company, and as a result she could get in touch with her by WeChat.  Leong did not say in cross-examination that the alleged delay had affected her ability to locate Tong earlier.  Given what Leong told this Court, I hold that she could have got in touch with Tong much earlier if she had tried to look for Tong’s contact number in the company earlier;

(2)  Despite Leong’s invitation, Tong declined to testify in these proceedings because she (Tong)  was worried that she would be sued by Lam Senior.  In other words, Tong’s refusal to testify herein had nothing to do with the alleged delay in the commencement of these proceedings;

(3)  It can be seen in Leong’s evidence as quoted above that the main issue which she would like Tong to give evidence on is the employment relationship between Tong and Longford.  Given my ruling thereon in the earlier part of this Judgment, Tong’s absence in these proceedings has no impact on the result of this case at all.

76.Leong’s argument on delay is therefore rejected.

G5.   Impossibility

77.Regarding the defence of impossibility, it is Leong’s case that New Media has failed to prove beyond reasonable doubt that she could have complied with the Injunction Order since 24 May 2019 after Yau resigned.  It was said that after Yau had resigned, she ceased to be the person assigned to oversee the financial status of Longford, and was in no position to consider or approve anything on behalf of HFA or New Media.  It was thus submitted that it was impossible for the Injunction Order to operate in accordance with its strict meaning and construction.

78.Mr Nip further argued that New Media has not adduced any evidence to prove beyond reasonable doubt that Tong had not attempted to seek Yau’s signature or approval at any time after 24 May 2019.

79.With greatest respect, the above arguments are totally misconceived.  In my view, even if Leong was right in that she could not have obtained Yau’s signature anyway because the latter had resigned, taking Leong’s case to the highest, that only means it was impossible for Leong to withdraw money from the Capital Account in accordance with the mechanism stipulated in the Injunction Order.  However, this is totally different from the concept of being impossible to comply with the Injunction Order.  As Chow J pointed out (while he was dealing with Leong’s argument on “impossibility” in paragraph 19(6)  of the Previous Contempt Judgment):

“The Injunction is negative in nature.  It is difficult to see how it can be said that it was “impossible” for Leong to refrain from doing what she was prohibited from doing under the Injunction (namely, dealing with the Capital Account except in accordance with the specified signing arrangement).”

80.I also totally agree with Chow J when his Lordship stated that:

“On the assumption that (i)  there were legitimate business expenses of Longford to be paid, and (ii)  Will Lam and Angela Yau refused to “co-sign” the relevant payment instructions, it was open to Leong to apply to the court for further directions, including (where necessary)  an appropriate variation of the Injunction. There is no dispute that Leong did not do so.”[22]

81.In my view, this must be equally applicable to the situation where Leong/Tong could not locate Yau who no longer worked for HFA.

82.Mr Nip disagreed with this and submitted that:

“It is no answer to say that Leong should have applied to vary or discharge the Injunction Order. The fact that Yau had resigned was only known to New Media, which in the circumstances ought to have ensured, if it were truly concerned about the enforcement of the Injunction Order at the time, that another person is assigned or designated to replace Yau, and make an application to the Court for variation of the Injunction Order to that effect. New Media should not be entitled to do nothing and then complain that Yau’s signature was not obtained.”[23]

83.With respect, I do not accept such an agreement. 

84.If “the fact that Yau had resigned was only known to New Media”, that actually shows that neither Leong nor Tong had ever attempted to contact Yau for the purpose of obtaining her signature in relation to transactions which were less than RMB 1 million. This demonstrates that Leong was an opportunist to take this point. 

85.I am of the view that this defence of “impossibility” has no merits at all and must be rejected.

G6.   Abuse of process – alleged breaches of the HFA’s Undertaking

86.On behalf of Leong, it was argued that HFA had no genuine intention to comply with the HFA Undertaking.  Mr Nip had referred to a number of matters in support of this proposition.  They include:

(1)  It is the Lams’ case that Longford had no business, and therefore had no legitimate business expenses;

(2)  Yau had set out to play a “cat and mouse” game with Tong by going round in circles with her by making all sorts of excuses, and without, even for once, approving a single expense of Longford;

(3)  It was impossible to get Yau to approve any payment of salaries to Longford’s employees, because Yau’s evidence was that Longford did not have any employee according to her knowledge;

(4)  It was also impossible to get Yau to approve any payment of common expenses (such as rent, social security (五險一金)  and utilities)  in the ordinary course of business, because Yau’s evidence was that all of Longford’s business had already stopped at the time according to her knowledge;

(5)  Will Lam even said during cross-examination that since the business plan of Longford had been suspended, they would not approve Longford’s expenses in these years.

87.It was then submitted that:

“72. In the premises, it is simply inconceivable that HFA would have approved any expenses whether or not they were supported by invoices or relevant documents. […]

73. On that basis, New Media must have known that the Injunction Order would create a catch-22 situation for Leong, i.e. on the one hand, she as the legal representative of Longford had a legal obligation under PRC law to pay its ordinary business expenses, but on the other, HFA could pull out all the stops to delay giving approval and ultimately refuse the same in view of the fundamental dispute as to whether Longford has any expenses to begin with. At the very least, the inoperability was something known to New Media and it exploited the difficulty or impracticability of compliance with the Injunction Order.”[24]

88.With greatest respect, I am of the view that this argument is totally unhelpful to Leong’s defence.  Even if it could be established that HFA had no intention to comply with the HFA Undertaking (which I do not agree – see further below), that would not justify Leong’s breaches of the Injunction Order anyway.  In fact, the situation remains the same even if there had been any actual breach of the HFA Undertaking on the part of HFA[25].

89.Neither do I think it could fairly be said that HFA had no genuine intention to comply with the HFA Undertaking.  It can be seen from the email exchanges between Tong and Yau that, upon her receipt of Tong’s request for payment of various expenses, Yau had requested Tong to provide invoice or documents in support of such expenses.  In particular, in relation to payment of social security expenses in respect of various alleged staff members of Longford, Yau asked Tong to produce their respective employment contracts and the relevant documents issued by the Government in support.  However, Tong had never complied with such requests.  She only kept sending Yau Excel tables (which set out the items of expenses and the amounts thereof)  month after month[26]. In such circumstances, Leong could not even begin to complain that HFA was “playing cat and mouse” game, or that Tong was “going round in circles by making all sorts of excuses”. 

90.Insofar as it is said that the lack of genuine intention on the part of HFA is proved by Will Lam’s evidence that they would not approve Longford’s expenses since the business plan of Longford had been suspended, with respect, I disagree:

(1)  Such an argument has totally disregarded the evidence of Lam Senior who stated in Court, which I accept, that his side would have agreed to pay expenses if such expenses are legitimate and supported by documents, and quoted the expenses of “business licence” as an example. However, he pointed out rightly that no supporting document had ever been received;

(2)  Leong’s argument has also ignored Yau’s evidence.  Yau told this Court, which I accept, that she might approve the expenses applied for if supporting document could be provided;

(3)  While Will Lam did suggest that no expenses should be approved for the last few years because Longford had no business at all, it should be borne in mind that:

(a)  Will Lam was not the person who was responsible to approve expenses of less than RMB1 million;

(b)  There was no evidence at all that Will Lam had ever instructed Yau that no expenses whatsoever should be approved;

(c)  To the contrary, it was Yau’s evidence (which I accept), that she had not been given any criteria of approval by the Lams. 

91.Leong’s counsel had been trying hard to persuade this Court that the point argued herein is different from that taken in the Previous Contempt Proceedings in that the complaint there was that there was actual breach of the Injunction Order and the “absence of genuine intention” point was not run therein.  I do not accept that there is any difference in substance in the arguments as alleged.  The crux of the matter remains the same even though Leong does not label HFA’s conduct as “breach” herein and artificially calls it something else.

92.On the basis of the above reasons, I am of the view that what Chow J said in the Previous Contempt Proceedings as quoted below is equally applicable to the present case:

“19. [… It was submitted on Leong’s behalf that] (i)  the Injunction was premised on the HFA Undertaking which, to the knowledge of the Lams, was essential for Longford to continue its business (because the majority of Longford’s funds were deposited in the Capital Account which was subject to the Injunction), (ii)  HFA had failed to honour the HFA Undertaking (as well as a similar undertaking given by HFA on an interim basis in September 2014), and (iii)  it was unlikely in those circumstances that Will Lam or Angela Yau would agree to co-sign payments out of the Capital Account to settle Longford’s business expenses. Mr Chan further says that Leong, as the CEO of Longford, had the duty to run Longford and its business, and she had no alternative but to do what she did in respect of the Part A and Part D transactions. In my view, this defence of “impossibility” plainly has no substance:-

(1)  […]

(2)  In so far as the HFA Undertaking is concerned, I am by no means satisfied on the evidence that HFA acted in breach of it either.  It is apparent from the exchange of emails between 31 December 2014 and 7 January 2015 that HFA/New Media was seeking relevant and necessary information from Hon to verify the amount of wages properly payable by Longford […]. The explanation, information and documents sought by HFA/New Media were not provided.  Under the HFA Undertaking, HFA was required to pay only the “legitimate business expenses” of New Media and its subsidiaries (including Longford).  It is, in my view, inherent in that undertaking that HFA was entitled to require Leong to provide reasonable proof that the wages which it was called upon to pay were wages properly payable by Longford to its employees.  This, I consider, Leong failed to do.

(3)  In so far as it is alleged that HFA failed to pay other legitimate expenses of Longford in breach of the HFA Undertaking, there is similarly a lack of evidence of such failure on the part of HFA.

(4)  In any event, even if HFA had acted in breach of the HFA Undertaking, that would not have constituted a lawful justification or excuse for Leong to breach the Injunction (see Grasberg Capital Asia Limited v Huchun Joseph Yung, HCMP 727/2014, 8 May 2015, at paragraph 26 per To J).

(5)  On the assumption that (i)  there were legitimate business expenses of Longford to be paid, and (ii)  Will Lam and Angela Yau refused to “co-sign” the relevant payment instructions, it was open to Leong to apply to the court for further directions, including (where necessary)  an appropriate variation of the Injunction.  There is no dispute that Leong did not do so.

(6)  […]”

93.In the present case, Yau’s requests for documents in support of the alleged expenses were totally justified and reasonable. However, no such document had ever been provided by Tong.  Hence, even if HFA’s compliance with the HFA Undertaking is in any way relevant in these committal proceedings, I am satisfied that HFA had not acted in breach of such undertaking.

G7.   Abuse of process – material non-disclosure

94.It was submitted by Leong’s counsel that:

“75. In the ex parte application before DHCJ To made on 5 June 2020, New Media did not disclose the fact that it had already obtained the new business licence of Longford issued by the Statement Administration for Industry and Commerce on 28 May 2020. This fact was only disclosed, for the first time, in LFW 1^st §6 [A2/31/316], which was filed on 4 August 2020.

76. By replacing Wong as the legal representative of Longford, it was expected by the Lams that Leong could no longer deal with the Capital Account: see LGY 4^th §§8-9 [A2/42E/405S]. In other words, there was no longer any concern about any future breaches of the Injunction Order due to New Media’s actions taken in the PRC.

77. This is a material fact relevant to whether the Court ought to have granted leave to commence committal proceedings. New Media ought to have made full and frank disclosure of the fact that it had sought to obtain, and had successfully obtained, the new business licence of Longford with Wong as the new legal representative. The significance of this material fact is that (1)  the purpose of the Injunction Order was spent and it ceased to be necessary going forward, such that future enforcement of the Injunction Order was no longer a concern, and (2)  a range of options became open to New Media as Wong could then commence proceedings on behalf of Longford in Hong Kong and in Mainland China to pursue any wrongful application of Longford’s capital funds.

78.   This matter was therefore wrongfully concealed from the Court, in breach of New Media’s duty of full and frank disclosure.  There is no explanation for such breach.”

95.The reliance by Leong on Will Lam’s evidence that it was expected by the Lams that Leong could no longer deal with the Capital Account is misplaced because:

(1)  It is evident that despite the fact that Leong was replaced by Wong as the legal representative of Longford on 28 May 2020, it was not until 23 July 2020 that Wong could take over the control of Longford’s bank accounts.  Indeed, there were admittedly 3 alleged unauthorised transactions which involved transfers out of the Capital Account on as late as 22 June 2020;

(2)  Leong herself knew that her staff member known as “Joe Yeung” who worked for “Transpac” (匯亞資金管理有限公司)  could still have access to the internet banking facility in relation to the Capital Account such that he could print the bank statements of the account even on as late as 26 March 2021.

96.In other words, the position as at the time when New Media made the ex parte application remained unchanged.  Leong’s arguments herein were made without any valid factual basis and should therefore be rejected.

G8.   Abuse of process – New Media’s secret transfer of money

97.By consent, Leong was granted leave to file the 4^th Affirmation of Yeung Norman Man Kin (her solicitor)  shortly before the trial of the present proceedings for the purpose of exhibiting her own 2^nd Affirmation.  By her 2^nd Affirmation, Leong informed the Court that a sum of RMB10,940,000 was transferred out from the Capital Account on 24 February 2021 to an account of Longford in Standard Chartered Bank (“the SCB Account”).  She also drew the Court’s attention that another sum of RMB4 million had been placed as time deposit on 7 April 2020 for 1 year, but she could not tell whether this sum of money remained in the Capital Account upon the maturity of the time deposit on 7 April 2021.

98.In reply, Will Lam explained in his 4^th Affirmation that the transfer of Longford’s money to the SCB Account (including the RMB4 million upon the maturity of the said time deposit)  was done for the purpose of protecting Longford’s assets, as it was feared that Leong might try to regain access to the Capital Account.

99.On the basis of such transfers, Leong submitted that:

“In view of the fact that in cases of civil contempt, the prime consideration is the enforcement of the court order in question, it is inexcusable for New Media (which was at all material times legally-represented)  not to have promptly informed the Court about (a)  Leong having ceased to be the legal representative of Longford and in control of the Capital Account and (b)  the relocation of the funds into an account beyond Leong’s reach. Such matters mean, at the very least, the (sic)  there is no longer any purpose to be served by maintaining the Injunction Order, which is liable to be discharged. Taking a step further, they also exemplify the fact that New Media should get on with the Underlying Action and pursue any remedies for “past breaches” in the Underlying Action or other civil proceedings. However, New Media is plainly guilty of want of prosecution of the Underlying Action.”[27]

100.In Sino Wood Investment Ltd v Wong Kam Yin (No 2) [2004] 2 HKLRD 324, Deputy High Court Judge Saunders held that:

“49. In relation to Ms Wong, Mr Griffith made the further submission that the jurisdiction in civil contempt was such that the only orders that could be made were orders designed to secure compliance with the order that had been breached. As Ms Wong had not left Hong Kong and was still in Hong Kong he said that therefore no further orders need be made as she was in compliance with the order.

50. There is clearly a duality of purpose in punishing civil contempt. It is right that orders can be made compelling obedience to a court order but there are many examples of the imposition of a penalty for a contempt that has already been committed, even if there is no threat of repetition, in order to uphold the authority of the Court and for the sake of the proper administration of justice. If authority for the proposition is required it may be found in cases such as A-G v Times Newspapers Ltd [1974] AC 273 at pp.307H–308A; Lightfoot v Lightfoot [1989] 1 FLR 414 and Re Grantham Wholesale Fruit, Vegetable & Potato Merchants Ltd [1972] 1 WLR 559 at p.565F.” (Emphasis added)

101.Ms Lam had also drawn my attention to the case of Re Grantham Wholesale Fruit, Vegetable & Potato Merchants Ltd [1972] 1 WLR 559, in which Megarry J held that a motion for committal is not only a means of putting pressure on the contemnor to obey the order, but also a means of imposing any penalty thought proper in respect of the contempt that has already been committed.

102.Indeed, during his oral opening submissions, Mr Nip accepted that it would not be correct to say that the purpose of contempt proceedings is only for the enforcement of court orders.  In my view, that must be correct.

103.I therefore hold that there is no abuse of process for New Media to proceed with these proceedings at all even if no further order is required to be made for the purpose of ensuring compliance of the Injunction Order.

G9.    Abuse of process – want of prosecution of the underlying action

104.Mr Nip then submitted that since there had been serious and inordinate delay on New Media’s part in prosecuting the underlying action of the Injunction Oder (i.e. HCA 1953/2014)  (“the Underlying Action”), New Media’s prosecution of these committal proceedings amounts to an abuse of process, and as a result these proceedings should be struck out.

105.Although it is true that no progress had been made in the Underlying Action for more than 7 years, one needs to appreciate the reason why that was so.  For this purpose, it is only required to make reference to the order of Master M Wong which was made on 23 January 2015.  It provided, among other things, that:

“BY CONSENT, IT IS ORDERED that:

The 1^st Defendant [Leong] be granted a general extension of time for filing and serving her Defence herein terminable upon 14 days’ notice in writing either by the Plaintiff [New Media] to the 1^st Defendant or by the 1^st Defendant to the Plaintiff.”

106.It is apparent that it was Leong who was supposed to take the next step in the Underlying Proceedings.  She had never done so.  I do not understand why Leong’s counsel kept emphasising that New Media could have terminated the extension and that it did not explain why it did not do so all along. 

107.This argument is therefore rejected.

G10. Abuse of process – Ulterior motive

108.It was submitted for Leong that these proceedings were commenced for a collateral or ulterior motive, namely, to exert pressure on Leong to give up her interests in New Media and Longford and for personal vendetta.

109.As Ms Lam pointed out, these allegations had not been put to New Media’s witnesses at all.

110.While Mr Nip seemed to recall that he had cross-examined Will Lam about this, I have confirmed upon listening to the recording that all Mr Nip had put to Will Lam was that “given the dispute between [him] and Leong was just a shareholder dispute, it was an abuse of court process for contempt proceedings to be commenced”.  It was a very general statement and as a matter of fairness, I do not think it should be treated as if Will Lam had been given an opportunity to answer the allegation on ulterior motive.

111.In any event, I am not satisfied that, on the basis of the evidence placed before the court and my ruling on the alleged delay, Leong has established that it was an abuse of the process of the Court for New Media to commence these proceedings.

G11.  Transactions conducted after Leong ceased to be legal representative of Longford (Transaction Nos.49-51)

112.It is undisputed that Wong had replaced Leong as Longford’s legal representative on 28 May 2020.

113.Relying on Will Lam’s evidence in his 4^th Affirmation that the records of ICBC Shanghai would have been duly updated and all devices in Leong’s possession had become inoperative, Leong’s counsel submitted that there is, at least, a reasonable doubt as to whether the transactions which were conducted on 22 June 2020 were operations of the Capital Account by or on behalf of Leong.

114.Such an argument was made in total disregard of the following unchallenged evidence:

(1)  Will Lam stated in paragraph 32 of his 3^rd Affirmation that:

“First, it is indisputable that since or about 28 April 2014, Leong made herself the sole signatory of the Longford ICBC Account. […] Until around 23 July 2020, no one was able to withdraw money from the Longford ICBC Account without the Defendant’s notice or approval. [...]”

(2)  Lam Senior deposed in paragraph 6 of his Affirmation that:

“For the Court’s information, Longford’s new legal representative, Ms. Wong Siu Mui Julisa (王少梅)  (‘Ms Wong’), managed to obtain the new business licence of Longford issued by the State Administration for Industry and Commerce on 28 May 2020. Further, upon liaison with ICBC Shanghai, Ms Wong had access to Longford ICBC Capital Account and Longford ICBC Current Account on or around 23 July 2020, and obtained copies of bank statements of Longford ICBC Capital Account and Longford ICBC Current Account for the period from 1 January 2019 to 23 July 2020 […]”

115.As Mr Nip fairly accepted in Court, there was no evidence that Ms Wong could take over the control of Longford’s accounts with ICBC Bank before 23 July 2020.

116.I am therefore satisfied that New Media has proved beyond reasonable doubt that the transactions conducted on 22 June 2020 were operations of the Capital Account conducted by or on behalf of Leong.

H.   ORDER

117.For the above reasons, I find Leong guilty of having committed a contempt of court. 

118.Parties shall use their best endeavours to agree on the directions to be sought for the purpose of the sentencing of Leong.  If agreement can be reached, they shall file a consent summons within 21 days from the date hereof for the Court’s consideration.  In the event they cannot agree on the directions, they shall lodge and serve their respective proposed directions by letter with reasons in support within 28 days from the date hereof. The Court shall then give directions on paper.

I.   COSTS

119.I make a costs order nisi that Leong shall bear the costs of New Media, to be taxed on indemnity basis if not agreed, with certificate for two counsel. 

120.The above order nisi shall become absolute in the absence of application to vary (which, if any, shall be made by letter, and will be disposed of on paper[28])  within 14 days hereof.

Ms Rachel Lam, SC leading Ms Eva Leung, instructed by Hugill & Ip, for the plaintiff

Mr Norman Nip, SC leading Mr Roger Phang, instructed by Norman M. K. Yeung & Co, for the defendant