Lo Po Wai, Harry v. Wong Yee Chuk

HCMP 1444/2022

[2024] HKCFI 724

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1444 OF 2022

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JUDGMENT

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A.  Introduction

1.This is the hearing of the Originating Summons filed herein on 29 September 2022 (the “OS”) by the plaintiff (“P”) for an order of committal against the defendant (“D”) for civil contempt.  P says that D is in contempt because D has acted in breach of §1 of the Order of Linda Chan J dated 6 January 2022 (the “Inspection Order”) as extended by the further Order made by Her Ladyship dated 27 May 2022 (the “Extension Order”, and collectively the “Subject Orders”) ordering that P as a director of Harsen Industries Limited (凱訊實業有限公司, “HIL”) be allowed under sections 374 and 375 of the Companies Ordinance to inspect the documents set out in the schedule annexed to the Inspection Order (the “Schedule”, and the “Scheduled Documents”).

2.Mr Bernard Lam appeared for P.  Mr Albert Yau together with Ms Man Yin Ting appeared for D.

B  The parties

3.HIL is a Hong Kong company.  It engages in the trading of electrical goods.

4.P and D have been HIL’s only directors.  Cheng Wai King Pat (“Cheng”) is the company secretary.  Cheng is D’s wife.

5.D and Cheng are responsible for HIL’s daily operations and financial affairs, including the keeping of its accounts[1].

6.Chen Jian Yi (“Madam Chen”, also known as Chen Kin Yi) is P’s sister-in-law. 

7.The shareholders of HIL have been P (40%), D (40%), Cheng (10%) and Pan Shi Liang (“Pan”, 10%).

8.Central to the present application are 5 Mainland companies:

(a)  They have collectively been referred to as the PRC Sales Companies;

(b)  The PRC Sales Companies are:

(i)     Dongguan Gaotian Electrical Equipment Co. (東莞市高田機電設備有限公司, “Dongguan Gaotian” or “東莞高田”),

(ii)    Guangzhou Yibao Electrical Equipment Co., Ltd (廣州市宜保機電設備有限公司, “Yibao” or “宜保”),

(iii)   Guangzhou Yibao Electrical Equipment Co., Ltd – Shanghai Branch (廣州市宜保機電設備有限公司 – 上海分公司, “Shanghai Yibao” or “上海宜保”),

(iv)   Guangzhou Donggao Machinery & Equipment Co. Ltd (廣州市東高機械設備有限公司, “Donggao” or “東高”), and

(v)    Dongguan Yangfan Electric Co. (東莞市洋帆機電有限公司, “Dongguan Yangfan” or “東莞洋帆”);

(c)  They were set up between 2003 and 2010.  3 of them have since been deregistered – Dongguan Gaotian on 9 March 2016, Shanghai Yibao on 11 October 2018, and Donggao on 16 November 2016;  

(d)  The PRC Sales Companies were set up by HIL’s employees on behalf of HIL as agents and branch offices of HIL in the Mainland.  They have (or had) been engaging in selling electrical goods as agents and on behalf of HIL in the Mainland;

(e)  According to P “The sales proceeds of the PRC Sales Companies are transferred to HIL, such that the sales and revenue of the PRC Sales Companies are reflected in the accounts of HIL”.  D prefers to say that “The sales proceeds were applied for purpose of meeting the business needs in the Mainland or applied on account of HIL, such that the sales of the PRC Sales Companies are reflected in the accounts of HIL”.  No material issue in my view arises from that difference;

(f)  The identities of the directors, shareholders and relevant current (or last) legal representatives, as well as the addresses of the registered Offices of the PRC Sales Companies are all agreed.  I will refer to them as necessary.

9.Also of relevance (but less so compared with the PRC Sales Companies) are a number of related companies:

(a)  Foshan Nanhai Harsen Electric Co., Ltd (佛山市南海凱訊電器有限公司, “NHEL”), a manufacturing company in the Mainland;

(b)  Harsen (China) Limited (凱訊(中國)有限公司, “HCL”), a Hong Kong company owned by P, D and Pan.  HCL is the holding company of NHEL; and

(c)  Harsen Engineering Limited (凱訊機電有限公司, “HEL”), a Hong Kong company owned also by P, D and Pan.

C  Events leading to the Subject Orders

10.Disputes have arisen between D and Cheng of the one part and P and Pan of the other.  In 2016, D and Cheng took out unfair prejudice petitions against P and Pan (the “Unfair Prejudice Action”).

11.Since mid-2017, P has been making requests for inspection of various documents of HIL.

12.In July 2021, P started HCMP 719/2021 against HIL for inspection (the “Inspection Proceedings”).  D subsequently applied to be joined, and contested the Inspection Proceedings. 

13.On 6 January 2022, Linda Chan J allowed the application and made the Inspection Order.  The Inspection Order is in the following terms:

“[P], a director of [HIL], or his agents be allowed under sections 374 and 375 of the Companies Ordinance (Cap. 622) and in common law to inspect the documents set out in the Schedule annexed hereto and to take copies thereof in hard copy and/or electronic form in the course of inspection without charge within 42 days from the date hereof”.

14.The Schedule sets out the following categories of Scheduled Documents:

“I. [HIL][2]

1. General ledgers of [HIL] from the year ended 31 December 2014 to the date hereof;

2. All bank statements of all bank accounts of [HIL] from the year ended 31 December 2019 to the date hereof;

3. Records of all goods purchased and sold by [HIL] (including but not limited to contracts and invoices) from the year ended 31 December 2014 to the date hereof;

4. List of all inventories of [HIL] from the year ended 31 December 2014 to the date hereof and supporting records;

5. List of all accounts payable of [HIL] from the year ended 31 December 2014 to the date hereof;

6. List of all accounts receivable of [HIL] from the year ended 31 December 2014 to the date hereof;

II. [The PRC Sales Companies][3]

1. All auditor’s reports of the PRC Sales Companies from the year ended 31 December 2014 to the date hereof or date(s) of deregistration;

2. All bank statements of all bank accounts of the PRC Sales Companies from the year ended 31 December 2014 to the date hereof or date(s) of deregistration;

3. List of all accounts payable of the PRC Sales Companies from the year ended 31 December 2014 to the date hereof or date(s) of deregistration;

4. List of all accounts receivable of the PRC Sales Companies from the year ended 31 December 2014 to the date hereof or date(s) of deregistration;

5. List of all inventories of the PRC Sales Companies from the year ended 31 December 2014 to the date hereof or date(s) of deregistration and supporting records;

6. Records of all goods sold by the PRC Sales Companies to customers and list of all customers from the year ended 31 December 2014 to the date hereof or date(s) of deregistration.”

15.On 27 May 2022, upon P’s application, the Extension Order was made, extending the time for HIL’s and D’s compliance of the Inspection Order by 21 days from the date of the Extension Order.

16.On 16 August 2022, P filed a Statement supported by a verifying affirmation pursuant to Order 52 rule 2 (the “Order 52 Statement” and “P/Aff3”). P sought thereby leave to apply for an order of committal against D on the basis that D had acted in breach of the Subject Orders.

17.On 1 September 2022, Linda Chan J granted P the leave sought.

18.On 29 September 2022, P filed the OS herein against D for civil contempt. P seeks thereby an Order that:

(a)  D be fined at an amount to be decided by the Court;

(b)  Further and/or alternatively D be committed to prison under Order 45 rule 5(1) and Order 52 rule 1; and

(c)  D be liable for the costs occasioned on an indemnity basis.

19.On 17 January 2023, D filed his affirmation in opposition (“D/Aff”).

20.On 20 February 2023, P filed his affirmation in reply (“P/Aff4”).

D  The hearing bundles

21.It is convenient to introduce here the hearing bundles and a couple of documents therein.

22.At the commencement of the hearing, this Court directed that the lever arch files be re-marked.  They have become as follows: files [A/B][4], [C1/a][5], [C1/b][6], [C1/c][7], [D/E1][8], [E2][9] and [F].

23.Part [F] originally did not exist.  It came into existence as follows:

(a)  Part C3 of the paper index bears the heading of “Part C3: Documents in HCMP3363, 3365-3366/2016”;

(b)  In Part C3 there was originally inter alia Item 41 (“Item 41”);

(c)  Item 41 bears the description on the paper index of “Copy email from 楊曉賢 to Mrs. Wong titled: Re_广州白云电器询价单-Y2107240广州市轨道交通十一号线、十三号线二期场段低压类设备采购项目（第三次）(1)”:

(i)     It comprises a chain of emails issued between 5 and 12 August 2021;

(ii)    Attached to the email of 12 August 2021 to Cheng were 2 pdf documents bearing the names of “2018年财务审计报告.pdf” and “2019年财务审计报告pdf”;  

(iii)   Amongst Item 41 are 2 hardcopy printouts bearing the titles of “东莞市洋帆机电有限公司2018 年度财务报表审计报告”[10] (the “DY-2018 Report”) and “东莞市洋帆机电有限公司2019 年度财务报表审计报告”[11] (the “DY-2019 Report”).  They were signed by registered accountants (注册會計師), and contained amongst other matters audit opinions (審計意見)[12];

(d)  In the course of his oral opening, Mr Lam clarified that Item 41, though under Part C3, were in fact not documents in HCMP3363, 3365-3366/2016. To correct that mistake, he requested that Item 41 be removed and re-inserted elsewhere;

(e)  Idirected that a new [F] be created so that Item 41 can be re-inserted.  Their original page numbers are retained;

(f)  Mr Yau made no objection to the inclusion of Item 41 in the bundle;

(g)  I record that in the course of Mr Lam’s cross-examination of D, Mr Lam sought clarification from Mr Yau as to whether the production of Item 41 would be objected to.  Mr Yau informed me upon my request for assistance that whilst Item 41 was not referred to or relied upon in the Order 52 Statement, he in principle had no objection to its production and use during cross-examination, but that if cross-examination on the same was to go beyond the extent he regarded as permissible, he would object.  Ultimately, no objection was raised;     

(h)  I will come back to the significance of Item 41.

E  Dispensation of personal service of the Subject Orders

24.I mention first of all one matter to get it out of the way.  In the OS[13], P seeks an Order that personal service of the Subject Orders upon D be dispensed with. 

25.In his written opening[14], as confirmed in the course of opening submissions, Mr Yau states that D does not take any point about personal service of the committal papers.

26.D has been legally represented throughout.  There has been extensive communication between parties’ respective legal advisers on the issues of inspection and contempt.  D is clearly aware of the Subject Orders, the consequences of non-compliance, the nature of the present contempt proceedings, and the charges P is making against him.  It is in my view just to order that personal service of the Subject Orders be dispensed with.  I so order.

F.  The applicable legal principles

27.This Court has been cited a number of authorities.  They include Chan Ka Ho Abraham v Tung Yin Ling Cora [2023] HKCFI 1170 (wherein Deputy Judge H. Au-Yeung at §§32-33, with reference to High Fashion New Media Corporation Limited v Leong Ma Li [2022] HKCFI 2234 and Jeanny Helena Franslay v Fung Ariel Mei Shan [2021] HKCFI 258, set out the legal and evidentiary principles applicable to contempt proceedings), Bruno Arboit v Koo Siu Ying (HCMP 2749/2012, 8 March 2016)[15], Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 830[16], Dr Q v Health Committee of Medical Council of Hong Kong (No 2) [2014] 2 HKLRD 57[17], Alan Chung Wah Tang & anor v Lee Siu Fong & anor [2022] HKCFI 3683 (wherein Cheng J has helpfully summarised in §§21-32 the general principles relating to contempt), and China Metal Recycling (Holdings) Ltd v Chun Hei Man [2018] 1 HKLRD 455.  I have considered them.  I note the applicable principles.  In particular, in the context of contempt proceedings arising out of alleged breach of a court order, and in the context of D’s case:

(a)  I remind myself specifically that the burden of proof is on P, and that the standard is beyond reasonable doubt;

(b)  I remind myself specifically further of those evidentiary principles explained and summarized by G Lam J (as he then was) in Jeanny Helena Franslay in §37;

(c)  The approach to be adopted when deciding contempt is a three-stage one.  As explained by Sir Gerard Brennan NPJ in Kao, Lee & Yip at §21:

“… it is necessary first to construe the several orders so as to ascertain their meaning and operation, then to determine whether [the defendant] has in fact complied with the orders as so construed and finally to consider whether any failure to comply was accompanied by the state of mind necessary to establish punishable contempt”.

(d)  On the requisite mental element:

(i)     The Court of Final Appeal in Kao, Lee & Yip approved and applied the Stancomb principle[18].  Liability on civil contempt does not depend on a contumacious intent;

(ii)    As explained by Warrington J in Stancomb:

“… if a person or a corporation is restrained by injunction from doing a particular act, that person or corporation commits a breach of the injunction, and is liable for process for contempt, if he or it in fact does the act, and it is no answer to say that the act was not contumacious in the sense that, in doing it, there was no direct intention to disobey the order. I think the expression ‘wilfully’ in Order 42, r.31 is intended to exclude only such casual or accidental and unintentional acts as are referred to in Fairclough v Manchester Ship Canal Co [1897] WN 7.”

(iii)   As Lord Russell CJ said in Fairclough (1897) 41 SJ 225[19]:

“We desire to make it clear that in such case no casual or accidental and unintentional disobedience of an order would justify either commitment or sequestration. Where the court is satisfied that the conduct was not intentional or reckless, but merely casual and accidental and committed under circumstances which negative any suggestion of contumacy, while it might visit the offending party with costs and might order an inquiry as to damages, it would not take the extreme course of issuing an order either of commitment or of sequestration.”

(iv)   As explained by Millett J in Spectravest Inc v Aperknit Ltd [1988] FSR 161, 173:

“To establish a contempt of court, it is sufficient to prove that the defendant’s conduct was intentional and that he knew of all the facts which made it a breach of the order. It is not necessary to prove that he appreciated that it did breach the order …”

(v)    Having considered a number of authorities (which included Stancomb and Spectravest Inc.,), Sir Gerard Brennan NPJ observed in Kao, Lee & Yip at §53 that:

“There is no reason, either of policy or authority, for adopting a criterion of liability for civil contempt that is stricter than that defined by the Stancomb principle. The exception for breaches that are not ‘casual or accidental or unintentional’ ensure that no injustice is done when the breach of the court order is occasioned by such a cause. But when an act or omission in breach of a court order is done or made consciously, voluntarily and unaffected by any mistake — that is, not casually, or accidentally or unintentionally — it is immaterial that the breach was committed in reliance on a third party’s advice, even legal advice.”;

(e)  It has to be within the power of the alleged contemnor to comply with the order in question[20]:

(i)     As observed by Sir Gerard Brennan NPJ in Kao, Lee & Yip at §21, the non-compliance has to be accompanied by the state of mind necessary to establish punishable contempt;

(ii)    As also observed by the learned NPJ at §56:

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

(iii)   There was also no contempt if the alleged contemnor did not have the financial means to comply with the court order – Bruno Arboit §116, per Au-Yeung J citing Concorde Construction Co Ltd v Colgan Co Ltd & anor (No.2) [1984] HKC 253);

(iv)   In this regard, it is important to note the following observations by Lam V-P (as the PJ then was) in China Metal Recycling:

(1)  the “three elementary precepts of company laws” at §40, that:

“(1) the shareholders are a separate entity from the company; (2) the management of a company is in the hands of the directors, not the shareholders; and (3) it follows from (1) and (2)that the management of a subsidiary company with a separate board is in the hands of that board, not in the hands of the board of the parent company.”;

(2)  the “four important principles” at §68, which the learned Vice-President derived from the judgment of Munby LJ in Re L-W (Children) (Enforcement and Committal: Contact) [2010] EWCA Civ 1253, that:

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

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

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

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

and

(3) in §77 of the same judgment, that:

“77.  … As discussed above with reference to the judgment of Munby LJ and [56] in Kao Lee & Yip v Koo Hoi Yan, the applicant also has to establish beyond reasonable doubt that it is within the power of the alleged contemnor to do what the order required him to do.”

(v) In the specific context of contempt proceedings arising from non-compliance of a disclosure or production order, it is useful to refer to the observations of Cheng J in Lee Siu Fong at §25, that:

“In the context of an alleged failure to produce documents in compliance with a court order, the burden is on the plaintiff to show, beyond reasonable doubt, that:

25.1 the documents have been identified with sufficient clarity and specificity;

25.2 the documents were in existence at the time of the order;

25.3 they were within the custody or power of the defendants at the time of the order;

25.4 the defendants intended not to produce them.

See Ip Pui Lam Arthur & anor v Alan Chung Wah Tang & anor, unreported, CACV 214/2016, 16th February 2017, at [4.2], [6.4], [6.5], Bruno Arboit v Koo Siu Ying & anor, unreported, HCMP 2749/2012, 8th March 2016, at [114], [130].”

(vi)   In that same context, it is also important to bear in mind the different tests and different standards of proof at play in different stages.  As explained also by the learned V-P’s observations in §71 of China Metal Recyling:

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

(vii)  The other way of looking at the matter is that if the task has been an impossible one, or that the alleged contemnor defendants lacks the financial means to comply, or that it was otherwise not within the alleged contemnor’s power to comply with it, the breach may be excepted as being “unintentional”, such that the alleged contemnor lacks the requisite mens rea.  In Sectorguard Plc v Dienne Plc [2009] EWHC 2693 (Ch), Briggs J observed in §§32-33 that:

“32. By contrast, I accept the thrust of Mr Grant’s second submission that failure to perform an impossible undertaking is not a contempt. The mental element required of a contemnor is not that he either intends to breach or knows that he is breaching the court order or undertaking, but only that he intended the act or omission in question, and knew the facts which made it a breach of the order: see Adam Phones v. Goldschmidt [1999] 4 All ER 486 at 492j to 494j.

33. Nonetheless, even a mental element of that modest quality assumes that the alleged contemnor had some choice whether to commit the relevant act or omission.  An omission to do that which is in truth impossible involves no choice at all.  Failure to comply with an order to do something, where the doing of it is impossible, may therefore be a breach of the order, but not, in my judgment, a contempt of court.”

To the same effect are the observations of Chamberlain J in Perkier Foods Ltd v Halo Foods Ltd [2019] EWHC 3462 (QB) at §14, that:

“… In Sectorguard, Briggs J reasoned that a person who has no choice, because compliance with the order is impossible, does not have even the modest mens rea required for contempt. It is for the applicant to prove to the criminal standard that the respondent had the necessary mens rea. In a case where the respondent says that compliance was impossible, and there is some evidence to that effect, mens rea is in issue and it should be for the applicant to prove to the criminal standard that compliance was possible, in the sense that the respondent had a choice about what to do. That result is consistent with the general rule in criminal law.”

(viii) I note the observation of Au-Yeung J in Dr Q at §68 that once a failure to comply with an order is found, there is prima facie contempt, and it is for the contemnor to show that it has always been impossible to carry out the terms of the order[21].  In my view, that observation should now be read in the light of and subject to the four important principles enunciated by  Lam V-P in China Metal Recycling.  Mr Lam in the course of his oral opening accepted this.

28.But if alleged contemnor has the power to comply, and compliance is otherwise not impossible:

(a)  it is not sufficient for the alleged contemnor to have only used his best endeavours to comply:

(i)     in Kao, Lee & Yip, Sir Gerard Brennan NPJ observed at §26 as follows:

“… As Romer LJ said in Hadkinson v Hadkinson [1952] P 285, 288 in a passage approved by the Privy Council in Isaacs v Robertson [1985] AC 97, 101–102:

It is the plain and unqualified obligation of every person against, or in respect of whom, an order is made by a court of competent jurisdiction, to obey it unless and until that order is discharged.

His Lordship described this as an obligation of ‘uncompromising nature’. In Howitt Transport v Transport and General Workers’ Union [1973] ICR 1, 10, Sir John Donaldson expressed the view that:

… orders of any court must be complied with strictly in accordance with their terms.  It is 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 where the court order itself only orders the person concerned to ‘do his best.’  But if a court order requires a certain state of affairs to be achieved, the only way in which the order can be complied with is by achieving that state of affairs.”

(ii)    in Dr Q, Au-Yeung J summarised the law as follows:

“32(4) Orders of the court must be complied with strictly in accordance with their terms. It is 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 where the court order itself only orders the person concerned to ‘do his best.’ But if a court order requires a certain state of affairs to be achieved, the only way in which the order can be complied with is by achieving that state of affairs …”[22]

(b)  nor does absence of knowledge of existence of the documents ordered to be disclosed per se excuse non-compliance.  As observed by Au-Yeung J in Bruno Arboit at §143:

“… for the company’s documents to be in a person’s control, power or possession, there is no requirement that the person has to know that he has the right to obtain the documents from whoever holds them, or that he knows of the existence of the documents of the company. Were it otherwise, the documents which that person does not have knowledge of would not be in the power of anyone. This would be absurd.”

G  Parties’ stances in summary

29.P has no complaint in respect of Section I Items 1-2, and 4-6.  His stance is respect of the balance is summarised by Mr Lam in his written closing as follows:

“P will make 2 points in these submissions:

(1) The First Point[23]: D is in contempt in respect of Section I para. 3, Section II paras. 1, 2, 4, 6 of the Inspection Order for failing to allow P to inspect documents that are in the actual possession of HIL, thus in the power of D: see Section C. On the First Point alone, D should be liable for contempt.

(2) The Second Point[24]: D is in contempt in respect of Section I para. 3, and all paras. under Section II for failing to allow P to inspect documents that are in the possession of Yibao; since D is the de facto controller of Yibao, it is within D’s power to obtain the said documents from Yibao and to comply with the order: see Section D.” 

30.I highlight this to put those 2 points in their proper context:  the P’s First Point concerns alleged failure on D’s part to allow inspection of certain items of Scheduled Documents that are in HIL’s actual possession; P’s Second Point concerns alleged failure on D’s part to obtain documents not in HIL’s actual possession from the PRC Sales Companies for compliance.

31.I record that in the course of his oral closing submissions, Mr Lam fairly informed this Court that P’s First and Second Points now represent the totality of P case.  He further confirmed that P’s case insofar as P’s First Point is concerned is based on non-provision of those documents proven to have existed but not provided.  P does not rely on any wider inferential case based upon the non-provision of those documents.  For example and specifically, P does not rely on any inference based on the non-provision of the DY-2018 and DY-2019 Reports that HIL or D should have in their possession other auditor’s reports.

32.D accepts that there has not been full compliance in respect of, but in respect only of, Section II Item 1.  Mr Yau summarises D’s position in his written closing as follows:

“2. When we opened the case for the [D] at the oral stage of the Trial, we made a slight alteration of his case. The next paragraph is what was stated in the written opening submissions. The slight alteration we just mentioned appears in paragraph 4 below.

3. [D] did not breach Section I, Item 3 of the [Subject Orders]. As to Section II, apart from Item I, [D] is not in possession of documents in that section … Further, it has become impossible for [D] to comply with the [Subject Orders] by procuring the PRC Sales Companies to turn over to him the Section II documents which are in the possession of these sales companies. [D] is not in contempt in respect of this part of the [Subject Orders] because it was not within his power to do so.

4. The slight alteration of the case relates to Section II, Item 1. One of the PRC Sales Companies, Dongguan Yangfan, commissioned for the making of auditor’s reports on its business performance for the years 2018 and 2019 specially for the purpose of meeting the tender requirements. The reports were emailed to HIL, attentioned to [Cheng]. The reports only came to [D’s] knowledge the day before the trial. They were among the documents freshly included in the trial bundle which was only disclosed to [D] in around mid-January. The failure to disclose these 2 reports earlier is a matter which the Court is entitled to take into account.

5. Perhaps something should be said at the outset in relation to Section II, Items 5 and 6.  Though HIL did not have in its possession these items, [D] pointed out the information from these items could be gleaned from other documents disclosed. As to Item 5, [D] explained that the inventories of HIL are the inventories of the PRC Sales Companies for accounting purpose and that the documents relating to HIL’s stock have already been provided to [P] …  In relation to Item 6, which covers both (i) records of goods sold and (ii) list of customers, [D] said he has already supplied documents under Section I which provide information of such nature to [P] …” 

33.In the course of his oral closing, Mr Yau accepted that D has not only been in breach of the Subject Orders, but that he has been in contempt. Towards the end of his oral closing, Mr Yau stated how D accepted and categorized D’s breaches and responsibilities, namely, lack of care in the following manner (which will be referred to for ease of reference as the “1^st to 4^th Failures”):

(a)  Failing to find out precisely the nature of the Tax Reports (defined below) which were actually tax reports before stating whether HIL had in possession of auditor’s reports[25];

(b)  Failing to check if HIL had the reports of the years requested before stating on record that it had all the requested years’ reports;

(c)  In relation to the DY-2018 and DY-2019 Reports, failing to make enquiry to find out or alternatively make sufficient efforts to look for any reports which fall within definition of “auditor’s report”;

(d)  In relation to the other documents which Mr Lam complains as part of P’s First Point, failing to make sufficient enquiry or sufficient diligent search for emails and their attachments which may lead to discovery of documents which may fall within the definition of the items in Section II.

For those Mr Yau apologised for D, and said that he requested a chance to perch his contempt.

H  Oral examination of witnesses, and their credibility

34.On 17 April 2023, and by consent, Linda Chan J ordered that the affirmants of the affirmations filed do attend the substantive hearing for cross-examination.  Leave was also given to P to cross-examine D including on his affirmation filed in these proceedings.

35.As said above, P has filed P/Aff3 and P/Aff4 specifically for these contempt proceedings.  He has been cross-examined by Mr Yau.

36.As said also above, D has filed D/Aff specifically for these contempt proceedings.  He has been cross-examined by Mr Lam.

37.On the approach to be adopted when considering credibility, Mr Lam has cited to me Lee Fu Wing v Yan Po Ting Paul [2009] 5 HKLRD 513 (per Au J (as His Lordship then was) at 524), which I have read.

38.Mr Yau’s cross-examination of P surrounds the following main areas: the information contained in the 交收號 records, whether in his view D had done his best in his attempt to comply (which P did not accept), why P demanded “proof of monies actually receipt” (with reference to §§21 and 22 of P/Aff4), and the booking of monies received by Cheng and D (with reference to §20.2 of P/Aff3).

39.I have considered P’s evidence.  His evidence is supported by the documents produced, inherently probable, and suffers from no inconsistency.  He also gave evidence in a straightforward and direct way.  His credibility has in fact not been under serious challenge.  I find that he is an honest and reliable witness.  I accept his evidence.

40.On the other hand, D was evasive in answering questions, argumentative and refusing to commit until confronted by documents, and are on many issues contradicted by contemporaneous documents.  I do not find him to be a credible or reliable witness.

41.Despite my view on D’s reliability and credibility, I remind myself that the burden lies on P to prove the alleged contempt beyond reasonable doubt.  I remind myself specifically of G Lam J’s observations in §37(4) of Jeanny Helena Franslay, that:

“If by cross-examination to credit a plaintiff proves that the defendant’s evidence cannot be relied on, and he has testified that he did not do a certain act, the plaintiff does not thereby prove that he did it: Hobbs v Tinling (C T) and Co Ltd [1929] 2 KB 1, 21. The plaintiff has to prove his case affirmatively, though this may be done by inference.”

I.  P’s First Point

42.I consider P’s First Point first.

43.P’s First Point relates to Section I Item 3, and Section II Items 1, 2, 4 and 6.

44.As I have highlighted above, P’s First Point concerns alleged failure on P’s part to allow inspection of documents in HIL’s actual possession.

45.D is a director, and the General Manager of HIL.  I am satisfied on the evidence that it is within D’s power to obtain for compliance of the Subject Orders any Scheduled Documents that were in the actual possession of HIL.

46.I consider each of the related Items in turn.  Because, as explained above, Section 1 Item 3 overlaps with Section 2 Item 6, I will deal with them together last.

I.a.    Section II Item 1

47.I first consider D’s compliance in relation to Section II Item 1.

I.a.i   The core evidence, and main submissions arising

48.I have set out what Section II Item 1 comprises according to the Subject Orders.

49.Cheng in the course of the Inspection Proceedings filed her 2^nd affirmation of 28 July 2021 (“Cheng/Aff2”).  Therein, in §6[26], she says inter alia that (emphasis added):

“… [The PRC Sales Companies] depended on HIL for financial support at times when the revenue they generated was not sufficient to pay the operating expenses. But they were separate entities and neither HIL nor [D] held any shares in these companies. They would let HIL know their sales data and expenses from time to time. But HIL is not in possession of their records sought except copy of their annual audited financial statements which were provided to HIL for record.”

50.The Inspection Proceedings were heard before Linda Chan J on 6 January 2022.

51.3 days beforehand, on 3 January 2022, D’s legal advisers (Messrs Lau, Chan & Ko, “LCK”) wrote to P’s then legal advisers (Messrs Lim & Lok, “L&L”) and said:

“Our client is agreeable to inspection by [P] of the following records of the 5 PRC Sales Companies held in the possession of [HIL]:-

1. Auditor’s report of the PRC Sales Companies from the year ended 31 December 2014 to year ended 31 December 2020 or date of deregistration.”[27]

52.On 6 January 2022, the Inspection Order was made.

53.After the Inspection Order, by letter of 15 February 2022, LCK wrote to L&L and said:

“We wish to let you know in advance that the 2 PRC Sales Companies which are still in existence have written to HIL expressing their objection to provide us with the documents mentioned in Section II of the Schedule to the Order.

As to the other 3 companies which have already been deregistered, the position is this. The last legal representative of [Shanghai Yibao] replied in writing stating that it would not be able to provide the documents. The last legal representative of [Donggao] had orally informed our client that she could not help either. Finally, the last legal representative for [Dongguan Gaotian] was nowhere to be found.

That said, HIL is in possession of the 企業所得税汇算清缴报告 supplied by the 5 PRC Sales Companies. Such report is the equivalent of audited financial statements for foreign owned Mainland enterprise, listed and large corporations. Our client will provide copies of such reports which HIL was in possession of.”[28]

54.On 17 June 2012, LCK further wrote to L&L and said that:

“Documents under Part II

17. 企業所得税汇算清缴报告(the equivalent of audited financial statements). The 5 PRC Sales Companies do not have audited financial statements but have reports entitled ‘企業所得税汇算清缴报告’ instead:- see our letter dated 15 February 2022. We have already supplied copies of the reports which HIL is in physical possession of. We however note that there are other reports that come under the period requested which have not been provided. We do apologise for giving the impression that HIL has all the reports in the entire period requested, of which the misunderstanding was due to miscommunication. [D] has tried to ask the relevant PRC Sales Companies to provide such reports for the entire period requested but to no avail.”[29]

55.In D/Aff, D says, relevantly that:

“4. This affirmation serves to explain in mitigation why I cannot fully comply with the [Subject] Orders. Hopefully I can demonstrate to the Court that I have used my best endeavours to look for the prescribed documents in the possession of [HIL] and seek the cooperation of the 5 PRC Sales Companies, in order to comply with the [Subject] Orders.

…

33. (II.1) Auditor’s report. The 5 PRC Sales Companies do not have reports titled ‘auditor's reports’. Instead, the name of the report, which is similar in nature, prepared for these companies is called ‘企业所得税汇算清缴报告’. It is the type of report for small enterprises. Audited reports are prepared for foreign-owned, listed or large Mainland corporations. I apologise that it was previously indicated on my behalf that [HIL] was in possession of audited reports. It was not quite correct to say that. What was meant was that [HIL] was in possession of documents pertaining to these PRC Sales Companies similar in nature to an audited report. This was explained to [P] by letter dated 15 February 2022.

34. I have apologised to [P] via letter dated 17 June 2022 for giving the impression that [HIL] has all the 企业所得税汇算清缴报告^[30] for the period requested. It is regretted that [HIL’s] collection of these reports is incomplete. Reports of certain years' reports are missing.

…

44. In conclusion, [P] can have reasonable understanding of the performance of [HIL] and the 5 PRC Sales Companies on the information already supplied to him, notwithstanding the non-compliance of the [Subject] Orders.

45.  I have supplied to [P] over 15,000 pages of documents, including General Ledgers, list of inventories, list of account receivables, list of account payables, invoices, purchase orders, bank statements and so on.  I recognise that there are unfortunately areas or instances in which I could not fully comply with the [Subject] Orders.  I regret and apologise for that.  Having regard to the matters explained, I do ask for leniency of the Court in meting out the proper punishment to be imposed to me for the non-compliance.”

56.I record the following matters when Mr Yau opened D’s case:

(a)  At §25 of his written opening, Mr Yau says that (with emphasis added for ease of presentation):

“[P’s] complaint that [D] failed to produce Section II, Item 1 is unjustified with the exception of the reports of the missing years”;

(b)  With reference to the document at [E1/12421]:

(i)     Mr Yau clarified and confirmed during his oral opening (and confirmed in §39 of his written closing) that those “missing years” are:

(1)  In respect of Dongguan Yangfan, Tax Reports for 2016 and 2017.  Mr Yau during his oral opening flagged up the 2 DY-2018 and DY-2019 Reports. He said that they were reports Dongguan Yangfan prepared in 2018 and 2019 for the purpose of bidding for a contract, which existence D had not been aware of until shortly before this hearing;

(2)  In respect of Dongguan Gaotian, the Tax Report for 2015;

(3)  In respect of Donggao, the Tax Report for 2015;

(4)  In respect of Yibao, the Tax Reports for 2017 and 2018;

(5)  None in respect of Shanghai Yibao, as its accounts had been incorporated into the accounts of Yibao;

(ii)    Mr Yau corrected §19 of his written opening, in that only 10 such Tax Reports have been produced, instead of 11 as stated in that paragraph.

57.During cross-examination, D was showed inter alia Cheng/Aff2, LCK’s letter of 3 January 2022, and D/Aff.  D’s answers were, in gist, that he was under quarantine in the Mainland at the material times, that he asked Cheng to prepare the evidence, that they thought the Tax Reports were auditor’s reports, and he only realized that they were strictly not when he came back to Hong Kong, even though they were similar in nature to auditor’s reports and had been audited by professional accountants.  He said in particular:

“答： …當時我喺隔離裡面先至搵我太太嘅話呢去做呢份證供呀，因為嗰時我喺香--喺大陸隔離緊，我返唔到嚟嘅 。咁喺當時嚟講呢，我哋都係認為大陸攞返嚟嗰啲報告就係叫做audited report，我哋係咁認為嘅，但係事實上呢，我哋攞咗啲報告去睇，後來我攞報告去睇呀，先至睇到個報告佢個名稱唔係咁叫法嘅，就係叫匯算清繳報告，所以嘅話你話我哋指示個律師--即係指示個律師嘅話呢提供audited report，呢個唔係事實嘅全部。

…

問：  [D was referred to §33 of D/Aff]

…

問： 你當時呢份--你個意思呢，你個意思就係內地公司冇經--冇一啲係經會計師審計過嘅審計報告，係咪咁意思，即係個名係叫審計報告，係會計師審過，有審計過嗰隻，你公司係冇？

答： 冇「審計報告」呢個名稱，呢個內地公--銷售公司。

問： 亦都係冇--唔單止係個名，亦都唔係凈係嗰個個文件第一行個名，而亦都係冇一啲報告係會經過會計師審計過嘅，即係audit，audit過嘅？

答：  唔同意，因為我睇完呢份報告呢我就問會計師，我話喇「點解嗰份報告唔寫audit report？」，我問過呀，要寫「企業所得稅匯算清繳報告？」佢話畀我聽嘅話呢，其實呢份報告同樣都係交畀稅所--稅局去進行繳稅嘅，亦都清晰顯示裡面--裡面嘅相關個內容其實同個會--審計報告係好類似嘅，所以審計呢份報告呢，我問過啲人呢，問過佢哋啲人喇，佢哋話畀我聽呢份同樣係經過會計師去審計嘅，不過佢報告名稱唔一樣啫。”

58.In Mr Yau’s written closing (part of which I have set out above), Mr Yau submits inter alia (and further) as follows (original underlying):

“34. Section II, Item 1. … [D] accepts that he has not fully complied with the Order in relation to this item.

35. According to [D], HIL was not in possession of any ‘auditor's reports’ as we conventionally understand. (What is just said should be subject to §§4 and 42.) What HIL received over the years from the PRC Sales Companies were reports which were akin to reports containing statement of affairs of the PRC Sales Companies which were subject to inspection by independent body as required by the law.

36. What did [D] do to comply with Item 1 (Auditor’s report). [D] has provided [P] with 10 reports in total …

37. [D] has also apologised for previously indicating that HIL possessed ‘audited financial statements’. Under cross-examination, he said that the staff of the PRC Sales Companies also referred to the documents he disclosed as ‘audited reports’ (審計報告).

38. Further, [D] admitted that he was unable to produce all of the equivalent reports (i.e. 企业所得税汇算清缴报告) for the period requested. He also apologised for giving the impression that HIL possessed the full set of reports. In fact, he has informed [P] about these 2 aspects concerning this item as early as 15 February 2022 … and 17 June 2022 respectively … The reports which were missing were …[31]

…

42. As regards the audited reports of Dongguan Yangfan for 2018 and 2019[32], [D] was himself not aware of their existence until the day before trial, but he acknowledged the executive responsibility for their non-disclosure.

43[33].    Subject to the matters stated above and with the exception of the audited reports mentioned in the paragraph above, we submit that [P]’s complaint that [D] failed to produce Section II, Item 1 is unjustified.”

I have also set out above how Mr Yau put D’s case in the course of his oral closing.

I.a.ii. Discussion

59.I remind myself that a court order for the present purpose should be construed strictly.  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 – Alan Chung §26.

60.On the meaning of the term “auditor’s reports” as it appears in Section II Item 1, I have no doubt that it would convey to that reasonable person the meaning of auditor’s reports as generally understood in Hong Kong – reports that are prepared by professional auditors for audit purposes.

61.Section II Item 1 also clearly and expressly orders disclosure for inspection:

(a)  all auditor’s reports,

(b)  of the PRC Sales Companies,

(c)  from the year ended 31 December 2014 to the date of the order or date(s) of deregistration.

62.None of the 10 Tax Reports disclosed are, using Mr Yau’s own words, auditor’s reports “as we conventionally understand”.

63.In the course of Mr Yau’s oral closing, I raised with Mr Yau the question as to whether in his submissions, the Tax Reports are in the nature of auditor’s reports as generally understood in Hong Kong so that they ought to be provided under Section II Item 1.

64.Mr Yau informed this Court that he did not put it as high, and noted the absence of any evidence suggesting that they were so understood in the Mainland.

65.With respect, D’s case in this regard has not been logically consistent.  If the Tax Reports are within and caught by Section II Item 1, then they ought to have been provided for inspection, and the non-provision of the reports for the missing years would amount to non-compliance.  This appears to be Mr Yau’s stance in both his written opening and closing.

66.But if the Tax Reports are outwith and not caught by Section II Item 1, then there would not have been any requirement to provide them for inspection under that item, and the fact that there have been missing years would not have any non-compliance consequence. 

67.Mr Yau at some stage said that D might not have been a responsible litigant for not having ascertained the nature of the Tax Reports before agreeing to the provision of “auditor’s reports”.

68.D might not have been a responsible litigant.  But that does not by itself make him a contemnor.

69.Mr Lam fairly informed this Court that P’s primary case is that the Tax Reports are outwith Section II Item 1.

70.I have considered the nature of the Tax Reports.  On the evidence before me, giving D the benefit of doubt, and despite certain of Mr Yan’s submissions (which may be regarded as concessions), I agree with Mr Lam’s primary case that the Tax Reports are outwith Section II Item 1.  That being the case, the fact that there have been missing years matters not.

71.The DY-2018 and DY-2019 Reports stand in different light:

(a)  They are by their nature clearly caught by Section II Item 1;

(b)  D has failed to disclose them;

(c)  They were attachments to the email of 12 August 2021 sent  to Cheng in the course of business of HIL and Dongguan Yangfan;

(d)  It is entirely possible for D to gain access to them, and is within his powers to seek copies of the same;

(e)  D claims that he was not aware of their existence until shortly before the present hearing;

(f)  Whilst I have found that D is not a reliable witness, given the number of documents involved, and despite (as Mr Lam puts it) the “recency” of the email attaching the DY-2018 and DY-2019 Reports, I cannot rule out the possibility of D not having actual contemporaneous knowledge of their existence.  His evidence to that effect is also on the facts, though suspicious, not inherently improbable.  I remind myself that the standard of proof is one of beyond reasonable doubt;

(g)  I record that during Mr Yau’s oral closing, I invited his assistance on the contents of the emails attaching the DY-2018 and DY-2019 Reports.  But in the course of Mr Lam’s oral closing, he informed me that he does not seek to rely on the contents of those emails, as they have not been canvassed otherwise.  I take the matter no further;

(h)  But despite the above, absence of contemporaneous knowledge of the existence of the DY-2018 and DY-2019 Reports does not prevent their non-production from being a breach of Section II item 1.  HIL clearly had them.  It is not impossible for D to discover their existence for the purpose of compliance.  It is within D’s power and authority to obtain copies.  I repeat my reference to §143 of Bruno Arboit;

(i)  There is in my view,in relation to the DY-2018and DY-2019 Reports, clear non-compliance of Section II Item 1;

(j)  I have considered the applicable law on the mental element requisite to a finding of contempt.  In the present context, the explanations of Lord Russell CJ in Fairclough and Warrington J in Stancomb cited above are of particular relevance, which I repeat.  D’s conduct is clearly not[34] “not intentional or reckless, but merely casual and accidental and committed under circumstances which negative any suggestion of contumacy”.  As stated by LCK in their letter of 3 January 2022, and as has been pointed out to D during cross-examination, “Communication between [HIL] and PRC Sales Companies … were conducted mainly through email”.  Unless all emails had been properly and diligently checked, documents within the ambit of the Subject Orders would be missed.  That was simply to be expected.  As it turned out, the DY-2018 and DY-2019 Reports were missed.  D failed to carefully and diligently check the emails and the attachments.  In the circumstances known to him, such failure was entirely unreasonable;

(k)  I have recorded above that Mr Yau in the course of his oral closing acknowledged on D’s behalf his failure, in relation to the DY-2018 and DY-2019 Reports, to make enquiry to find out or alternatively make sufficient efforts to look for any reports which fall within definition of “auditor’s report” (i.e. the 3^rd Failure).  On the facts before me, that constitute culpable mental element, well beyond what may otherwise be casual, accidental or unintentional conduct;

(l)  I note Mr Yau’s submission in closing that there is no evidence to indicate that D had intention to willfully disobey or engage in acts or omissions to subvert the effective working of the Subject Orders.  But upon this Court’s request for clarification, Mr Yau confirmed that that only went to mitigation.

I.a.iii. Conclusion in relation to Section II Item 1

72.On the basis of and in relation to D’s non-production of the DY-2018 and DY-2019 Reports, and for the reasons set out above, I find that P has proved beyond reasonable doubt that D has been in contempt.

I.b.    Section II Item 2

73.Section II Item 2 orders production for inspection all bank statements of all bank accounts of the PRC Sales Companies during the stated periods.  Its meaning is clear.

74.In D/Aff at §36, D says:

“(II.2) Bank statements. [HIL] does not have possession of these companies’ bank statements. We in the management were more concerned with the trading performance of the 5 PRC Sales Companies. The cash position of these companies would not be indicative of such performance. In any event, the position changes every day given the many items of expenses incurred in the course of trading. It would be the volume of the sales, the price achieved and the inventory which are key indicators.”

75.P has retrieved 2 emails relevant to this Item:

(a)  The email of 4 June 2018:

(i)     One of the 2 emails is dated 4 June 2018 (the “4/6/2018 Email”). It was sent to Cheng via her mailbox with HIL.  A statement of an account of Shanghai Yibao with “中国银行上海市零陵路支行” for the month of May 2018 was attached[35] (the “4/6/2018 Email attached Bank Statement”;

(ii)    D was shown that email and the statement during cross-examination. Though argumentative, D ultimately accepted that Cheng had via that company email received that document;

(iii)   I have considered the 4/6/2018 Email attached Bank Statement.  It is clearly a bank statement, and is within Section II Item 2;

(iv)  D has not provided the 4/6/2018 Email attached Bank Statement for inspection;

(v)   The non-production of the 4/6/2018 Email attached Bank Statement constitutes a clear breach of Section II Item 2;

(vi)  On the issue of mental element, my discussion above in relation to Section II Item 1 equally applies;

(vii) I find that D is in contempt for the non-production of the 4/6/2018 Email attached Bank Statement; 

(viii)Before reaching the above view, I have considered Mr Yau’s submission[36] that the attachments to emails were “documents in bits and pieces only, sporadically, and it was difficult to categorise these documents, arguably some of them might fall within the description of the Items in Section II”;

(ix)   I do not see how the submissions assist D.  Documents that fit the descriptions of the Scheduled Documents ought to be provided for inspection in compliance.  I note that Mr Yau in fact has not sought to argue that the 4/6/2018 Email attached Bank Statement is outwith Section II Item 2.  I have recorded above the 4^th Failure acknowledged by Mr Yau, which I have also considered;  

(b)  The email of 28 February 2019:

(i)     The other email is dated 28 February 2019.  It was sent from an account @jnhharsen.com[37] to Cheng’s personal email address.  D accepted that Cheng used that personal email also for business purpose.  The email is entitled “2019.02.28宜保现金支出流水和银行流水账”.  Amongst the attachment is a document entitled “广州银行企业账户明细对账单”[38];

(ii)    Mr Lam submits that that attachment is a bank statement.  I have studied it.  Given its format and contents, I cannot be sure that it is indeed a bank statement.  It may also be a document or table created by Yibao for accounting or record purposes;

(iii)   I find that breach is not proved in respect of the document attached to this second email.

76.On the basis of and in relation to D’s non-production of the 4/6/2018 Email attached Bank Statement, and for the reasons set out above, I find that P has proved beyond reasonable doubt that D has been in contempt.

I.c.  Section II Item 4 

77.Section II Item 4 orders production for inspection list of all accounts receivable of the PRC Sales Companies during the specified periods.

78.In D/Aff at §38, D says:

“(II.4) List of accounts receivable. Again, the [HIL] is not in possession of the 5 PRC Sales Companies’ list of accounts receivable. The information concerning most of the accounts receivable (i.e. price payable in respect of sales transactions and their consultancy fees (顧問費)) have already been provided in the 交收號records, sales invoices and the General Ledgers. Other than these, [HIL] does not have record of sums receivable.”

79.Relevant to Section II Item 4 there are 2 emails:

(a)  The 4/6/2018 Email:

(i)     To the same 4/6/2018 Email mentioned above, another document was attached[39]. It is a list of “已开票未收款” and “已开票未收款” of Yibao from a number of entities (單位) up to February 2019, in the total sum of RMB932,676.01 (the “4/6/2018 Email attached List”);

(ii)    When the 4/6/2018 Email attached Listwas shown to D during cross-examination, he claimed that that was a list of bad debts.  His assertion is not borne out by the contents of the list, which I reject;  

(iii)   The 4/6/2018 Email attached List in my view falls within Section II Item 4, which Mr Yau has not argued otherwise.  I have also considered the 4^th Failure which Mr Yau acknowledged;

(iv)   D has not provided the 4/6/2018 Email attached List for inspection;

(b)  The email of 30 October 2017:

(i)     P has produced another email entitled “2017-9月BJ损益表”[40]. It was sent by Cheng to a member of HIL’s staff at an address @jnhharsen.com[41]. Attached to that email was a file entitled “2017北京办损益表.xls”; 

(ii)    According to D’s evidence during cross-examination, the Beijing Office referred business to Yibao which would sign the transactions;

(iii)   Attached to that email produced are hardcopy printout of inter alia 3 tables entitled “2014-12-31前应收未收”, “2015-12-31前应收未收” and “2016-12-31前应收未收” (the “应收未收Lists”);

(iv)   When the 应收未收Lists were shown to D during cross-examination, he claimed that the information had been shown in the ledgers in Hong Kong.  That however does not exempt those Lists from being within Section II Item 4;

(v)    The 应收未收Lists in my view fall within Section II Item 4, which Mr Yau has not argued against.  I have also considered the 4^th Failure which Mr Yau acknowledged;

(vi)   D has not provided the 应收未收Lists for inspection.

80.In my view, the non-production of the 4/6/2018 Email attached List and the 应收未收Lists constitutes a clear breach of Section II Item 4.

81.On the issue of mental element, my discussion above in relation to Section II Item 1 equally applies.

82.On the basis of and in relation to D’s non-production of the 4/6/2018 Email attached List and the 应收未收Lists, and for the reasons set out above, I find that P has proved beyond reasonable doubt that D has been in contempt.

I.d.    Section I Item 3 and Section II Item 6

83.I have set out what those 2 Items are.  As I have recorded and observed above, Section I Item 3 and Section II Item 6 overlap.  I consider them together.

84.In §21 of P/Aff4, P says that “my principal complaint is that [D] failed to provide me with payment records of goods sold by [HIL] since 2014”.

85.In his written closing, Mr Lam makes clear that the focus of P’s case concerns the production of “Records of all goods sold”.  He highlights the express inclusion of “contracts and invoices” in Section I Item 3.

86.In his written reply, as clarified during his oral closing, Mr Lam confirmed that P, having considered the evidence, does not maintain any complaint of breach of Section I Item 3 by reason for D’s alleged failure to disclose payment records or records showing receipt of proceeds of sale.

87.Despite Mr Yau’s submissions of P having substantially scaled down his case, I do not see any material prejudice to D in so far as liability for contempt is concerned.

88.D’s case is that he has complied with Section I Item 3 and Section II Item 6 by provision of copies of records called “交收號”.  His material evidence in D/Aff is as follows (with original emphasis):

“16. The交收號record is usually a 1-page document, marked with a number assigned by Madam Chen after confirming receipt of payment. The record would set out information including name of client, [HIL’s] sales invoice number/ the PRC Sales Companies’ delivery note number, date of payment, status of payment and the name of the relevant PRC Sales Company who sold the goods. The format of these records is not standardised. So, the amount of information provided in one record may vary from another record.

17. Because of the process of squaring these accounts, there was no need for the PRC Sales Companies to provide [HIL] with the documents underlying the relevant transaction such as receipts or vouchers, or at least the bulk of these underlying documents. This system has been in place within the Harsen Group since 1998. It is sufficient to allow the personnel on both sides to note which payments remain outstanding.

18. In response to [P’s] request for payment record for [HIL’s] sales transactions and for further and better compliance of the [Subject Orders], I have provided 交收號documents to [P] in June 2022. They span around 2,000 pages. However, in the Originating Summons, [P] states that I did not provide/ allow him to inspect any payment record of the goods sold which corresponds to the sales invoices. He further denied that the 交收號documents are records of goods sold.

19.  I will demonstrate to the Court that the 交收號records do correspond with the sales invoices ...”

89.However, irrespective of whether the information on the underlying documents has been reflected in the交收號record, if D is in possession of any such underlying documents, and if such underlying documents are within Section I Item 3 or Section II Item 6, D remains obliged to provide them to P for inspection.  It is not for him to say otherwise simply because he says P do not need them (even assuming that to be true). 

90.In support of his case of non-production by D, P has adduced the following documents:

(a)  Related to Yibao, a “广东增值税专用发票” dated 16 November 2018[42] and a “订购合同” dated 16 November 2018[43], both attached to a chain of emails between “茵茵” (of an email address @jnhharsen.com[44]) to Cheng on 16 November 2018 (the “16/11/2018 Email attached Invoice and Contract”);

(b)  Related to Dongguan Yangfan, 3 contracts dated 27 September 2018[45], 26 October 2018[46] and 9 November 2018[47] between Dongguan Yangfan as supplier and “镇江默勒电器有限公司” as purchaser, all attached to an email of 19 December 2018 copied to Cheng at her HIL mailbox (the “19/12/2018 Email attached Contracts”);   

(c)  Related also to Dongguan Yangfan, a “采购订单” dated 6 November 2018 placed by a buyer with Dongguan Yangfan[48], which was attached to a chain of emails between Cheng and a staff member of Dongguan Yangfan exchanged on 1 February 2019[49] (the “1/2/2019 Email attached Purchase Order”).  When the 1/2/2019 Email attached Purchase Order was shown to D during cross-examination, he reacted by saying “我唔識答你呀”.

91.In my view, the 16/11/2018 Email attached Invoice and Contract, the 19/12/2018 Email attached Contracts, and the 1/2/2019 Email attached Purchase Order clearly and expressly fall within Section I Item 3 and Section II Item 6.  Their non-production for inspection constitute a breach of the Subject Orders.

92.On the question of mental element, my discussion above equally applies.

93.On the basis of and in relation to D’s non-production of the 16/11/2018 Email attached Invoice and Contract, the 19/12/2018 Email attached Contracts, and the 1/2/2019 Email attached Purchase Order, and for the reasons set out above, I find that P has proved beyond reasonable doubt that D has been in contempt.

J.  P’s Second Point

94.P’s Second Point as developed concerns only those documents within Section II that are with Yibao.

95.Mr Lam submits[50] that D is the de facto controller of Yibao, such that it was within D’s de facto power to obtain the documents in Section II of the Inspection Order from Yibao.  He sets out a number of matters which he submits support P’s case that D is in de facto support of Yibao.  Those factors include, according to his submissions, Yibao being set up by HIL through HIL’s employee as agent and branch office of HIL in the Mainland, the business and affairs of HIL being subject to the final decision of HIL’s board of directors, D being the general manager of HIL, D having approved the employment of Yibao’s staff[51], D (through Cheng) having given instructions to Yibao’s staff for the appointment of its legal representative[52], D having approved and signed the supplemental commission rules of salespersons of Yibao[53], Yibao’s staff being required to submit “work report” (“工作报告”) to D[54], D (through Cheng) having given instructions to Yibao’s staff and approved Yibao’s business transactions[55], D (through Cheng) having personally paid for salary of Yibao’s staff, including its legal representative[56], and the way in which D conducted the Unfair Prejudice Action.

96.As set out in the Agreed Dramatis Personae, the PRC Sales Companies all have (or had) their own directors, shareholders and legal representatives.  D did not and does not hold any of those positions in any of the PRC Sales Companies.  The PRC Sales Companies hence all appears to be legal entities separate from D.  No expert evidence has been placed before me as to whether there is any concept of “de facto control” in the Mainland in the context of company law, and if so how such “de facto control” is to be demonstrated, and even if proved how it operates.  

97.In the absence of such expert evidence, I cannot decide whether those factors relied upon by Mr Lam can support any irresistible inference of de facto control on D’s part.

98.I repeat my discussion above on China Metal Recyling, and in particular the “three elementary precepts of company law” and the “four important principles” explained by Lam V-P therein.

99.For the above reasons, I am not satisfied that P has proved to the standard of beyond reasonable doubt that it was and is within D’s power to compel or direct the handing over of documents by Yibao for the purpose of compliance.  I find that no contempt is proved under P’s Second Point.

K  Overall conclusion

100.For the reasons set out above, on the basis of and in relation to D’s non-production for inspection of:

(a)  the DY-2018 Report and the DY-2019 Report (under Section II Item 1),

(b)  the 4/6/2018 Email attached Bank Statement (under Section II Item 2),

(c)  the 4/6/2018 Email attached List and the 应收未收Lists (under Section II Item 4), and

(d)  the 16/11/2018 Email attached Invoice and Contract, the 19/12/2018 Email attached Contracts, and the 1/2/2019 Email attached Purchase Order (under Section I Item 3 and Section II Item 6),

I find that P has proved beyond reasonable doubt that D has been in contempt for non-compliance of the Subject Orders.

L  Further directions on mitigation, and costs

101.Mr Lam has placed before this Court a draft order dated 2 February 2024.  Mr Yau informed this Court that he would have no comment on those terms should contempt be found to be proved.  Using that draft order as the template, I order as follows:

(a)  Personal service of the Orders of the Honourable Madam Justice Linda Chan dated 6 January 2022 and 27 May 2022 on D be dispensed with;

(b)  The OS be adjourned to a date to be fixed with 2 hours reserved, for the purpose of mitigation and sentencing;

(c)  D must attend the hearing, failing which a warrant may be issued for his arrest;

(d)  D be at liberty to file and serve an affirmation on matters relevant to mitigation and sentencing at least 14 days before the adjourned hearing;

(e)  D be at liberty to lodge and serve submissions on mitigation and sentencing at least 7 days before the adjourned hearing;

(f)  P be at liberty to lodge and serve submissions on sentencing at least 5 days before the adjourned hearing.

102.On the question of costs of the OS, Mr Lam in the draft order seeks indemnity costs.  But before mitigation and sentencing, the OS is still on foot. I prefer to leave the question of costs till the end, at least till after I have heard mitigation.  In that sense, I reserve costs.

Mr Bernard Lam, instructed by Chan, Wong & Yip, for the Plaintiff

Mr Albert Yau and Ms Man Yin Ting, instructed by Lau, Chan & Ko, for the Defendant