Au Tze Pui v. Chow Wing Man

HCMP 68/2025

[2025] HKCFI 2526

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 68 OF 2025

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BETWEEN

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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 an originating summons (“OS”) taken out by the Plaintiff (“Mr Au”), with leave of this Court, to commit the Defendant (“Mr Chow”) for contempt of Court in breaching an undertaking given by the latter.

2.In the Underlying Action (defined below), Mr Chow obtained a proprietary injunction against Mr Au and his BVI company upon Mr Chow’s undertaking not to dispose of $1.1 million withdrawn from a company’s account (“the Undertaking”). At the hearing of Mr Au’s summons to discharge the injunction, Mr Chow informed DHCJ Yee that he had used the $1.1 million on legal expenses for seeking the injunction. Despite DHCJ Yee’s invitation, Mr Chow had declined to pay paid the $1.1 million into Court. The injunction was discharged on the ground, amongst others, of Mr Chow’s breach of the Undertaking. Mr Au now seeks to commit Mr Chow for contempt arising out of that breach.

3.Mr Chow contests the OS on the grounds that:

(1) Mr Au was fraudulent, including forging Mr Chow’s signature to unlawfully transfer the latter’s shares in the company and to wrongfully remove Mr Chow as a director. The OS is an attempt to divert attention from Mr Au’s own unlawful actions and constituted abuse of court process.

(2) The Undertaking was obtained under the duress and misrepresentation of Mr Au and necessitated by Mr Au’s fraudulent conduct.

(3) All exhibits from Mr Chow’s affirmation are necessary to prove that Mr Chow was helping Mr Au to return to normal living and his marriage. Mr Chow was trying to save Mr Au and the Company.

4.Mr Chow also mentions another ground in §16 and exhibit 4 of his affidavit. However, I have disregarded them as they contain materials subject to without prejudice privilege.

5.Mr Au disputes the grounds put forth by Mr Chow. Amongst the reasons put forth by Mr Au, I have disregarded paragraph 22 of the written opening submission of Ms Yu, his counsel, as it relates to the reasons why Mr Chow removed the $1.1 million from the company in the first place and the effect of the injunction on the company, which are not relevant to the alleged breach of Undertaking.

B. THE UNDERLYING ACTION (HCA 1830/2022)

6.The parties are half-brothers. Innovation Shanghai Holdings Ltd (“ISHL”), a BVI company, is beneficially owned by Mr Au. Mr Chow used to be a director of MBG Limited (“MBG”) and holds 700 MBG shares (“the 700 Shares”).

7.In HCA 1830/2022 (“the Underlying Action”), Mr Chow alleges, amongst others, that Mr Au forged Mr Chow’ signature to transfer the 700 Shares to ISHL, removed Mr Chow as a director without his knowledge and appointed ISHL as a director instead.

8.Mr Au’s defence is that:

(1) He has always been the beneficial owner of all the shares in MBG. From 2006 to 2014, Mr Chow was merely holding 90 shares of MBG on trust for Mr Au.

(2) In 2014, at Mr Au’s request, Mr Chow transferred the 90 shares back to Mr Au without consideration. Mr Au has since remained the sole shareholder of MBG until 2022.

(3) In 2022, upon learning that Mr Au was contemplating divorce, Mr Chow proposed to Mr Au that Mr Au’s shares in MBG should be transferred to Mr Chow in order to dilute Mr Au’s assets. The subsequent allotment of the 700 Shares to Mr Chow was on the understanding that they were held on trust for Mr Au.

(4) When Mr Au discovered that Mr Chow attempted to divert MBG’s business, Mr Au ceased all the trust arrangement with him, transferred all of his shares to ISHL and removed Mr Chow from directorship on 29 September 2022.

9.Mr Chow commenced the Underlying Action on 23 December 2022. The injunction was first granted by DHCJ H Au-Yeung (as he then was), then amended and continued by Queeny Au-Yeung J on 13 January 2023 (“the Injunction”) against Mr Au and ISHL, restraining them from:

(1) Dealing with money in any bank account of MBG Limited, including one maintained with Bank of East Asia in the account number of 015-xxx-xx-xxxxx- 6 (“BEA Account”);

(2) Withdrawing, transferring or otherwise dealing with money in any bank account, including BEA Account;

(3) Selling or otherwise disposing or dealing with the stock of MBG Limited including the stock at MBG’s warehouses;

(4) Taking any payment in any form from MBG’s customers or creditors; and

(5) Allotting new shares in MBG Limited or otherwise diluting or diminishing the value of the current issued shares.

10.The Injunction contains the Undertaking in these terms:

“The Plaintiff undertakes that he will not dispose of, whether by himself or anyone on his behalf, any of the HK$1.1 million that he was withdrawn from the BEA account of MBG Limited, and will hold the money on trust for MBG Limited for safekeeping until trial or further order of the Court.”

11.This Undertaking was extracted from Mr Chow’s affirmation filed on 23 December 2022 in support of his application for the ex parte injunction. In that affirmation, Mr Chow disclosed that he had withdrawn $1.1 million from the BEA account on 7 December 2022 but he was willing to give an undertaking not to spend any of the sum.

12.Mr Au later applied to have the Injunction discharged. At the substantive hearing before DHCJ Yee on 30 September 2024, Mr Chow admitted that he had spent the $1.1 million. He could not pay the money into Court as he had spent it on “protecting the company, on litigation”.

C. LEGAL PRINCIPLES

13.An undertaking given to the court by a party has exactly the same force as an order made by the court against him, and breach thereof amounts to contempt in the same way as a breach of an injunction (see Tiong King Sing v Sam Boon Peng Yee (unreported, HCMP 2206/2014, 13 November 2015, at §23).

14.The relevant principles applicable to civil contempt proceedings have been summarized in Chan Ka Ho Abraham v Tung Yin Ling Cora & Anor [2023] HKCFI 1170. In gist,

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

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

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

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

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

(3) Whilst the defendant may bear an evidential burden in relation to particular matters he has raised to exculpate himself, there is no legal burden on him to prove anything affirmatively.

(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.

(5) 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 a contempt and that such act was not accidental.

15.The person who provided the undertaking must be presumed to have known what it was: Winner Food Products Ltd v Chung Yat-ming [1989] 1 HKLR 371, Godfrey J (as he then was), at 375D-E.

16.When the alleged contemnor was legally represented at the time of offering the relevant undertaking, it was beyond reasonable doubt that he had been properly advised on the applicable law in Hong Kong regarding the giving of such an undertaking and the consequences of its breach: Shen Xing (沈星) v Li Jun (李軍) (unreported, HCMP 362/2014, 17 March 2014, §7).

17.I now turn to the 3-stage approach above and analyze the defences raised by Mr Chow.

D. MEANING OF THE UNDERTAKING

18.The Undertaking was simple and clear. The $1.1 million removed from MBG’s account should be held by Mr Chow on trust for MBG and that he should not use the same.

E. WHETHER MR CHOW HAD FAILED TO COMPLY WITH THE UNDERTAKING

19.Mr Chow has admitted on at least 3 occasions that he had spent the $1.1 million:

(1) At the hearing before DHCJ Yee, that the money was spent on protecting the company, on litigation.

(2) In his own affirmation filed under this OS, that the money was spent on repayment of his loans and credit companies.

(3) Under cross-examination, that he had spent the money on legal expenses (about $900,000) and his own living expenses.

20.Any of the 3 is sufficient to show that he has breached the Undertaking by using the $1.1 million.

F. THE NECESSARY STATE OF MIND TO ESTABLISH CONTEMPT

21.Firstly, the Undertaking was given voluntarily by Mr Chow in his affirmation in support of the ex parte Injunction, when he was legally represented. Mr Chow admits that his legal representative had explained the Undertaking to him. He must have understood the meaning of the Undertaking and the consequences of its breach.

22.Secondly, he testified that placing the $1.1 million “on trust” for MBG was to put the money into an account that he trusted and that was his own account. He was told by his lawyer not to use the $1.1 million, and he “initially” did not do so; but after his solicitor came off the record, Mr Chow used the $1.1 million. He had not explained how his solicitors’ coming off the record could have caused him to think that he was entitled to use the money. If his explanation is accepted, any litigant could have terminated his solicitors’ service and breach a similar undertaking.

23.Mr Chow admitted under cross-examination that no one had forced him to do so, but that it was his own decision to expend the money. He repeatedly testified that he was the major shareholder and director of the company and had the right to use the company’s money. I find that this truly reflected his state of mind in spending the money as his own.

24.Thirdly, Mr Chow’s oral evidence vacillated between a denial that he had used the $1.1 million and admitting using it for the purpose of “protecting the company”, MBG.

25.Insofar as his denial was concerned, he first claimed that he had liquid capital (evidence of which was lacking) at about the time the Injunction Order was obtained, much more in amount than $1.1 million. However, he could not explain why, if that was true, he had to resort to the $1.1 million. His evidence on this aspect was evasive and an afterthought.

26.Insofar as he admitted having used the money,

(1) None of the alleged spending was supported by documentary evidence.

(2) About $900,000 was spent on legal costs. There was no sign that Mr Chow had incurred legal costs after he terminated the retainer of his solicitors. Hence the legal costs must have been those in relation to the obtaining of the Injunction and its discharge. However, the company, MBG, was not a party to the Underlying Action.

(3) Spending the $1.1 million on his own living expenses and repayment of loans to friends and credit companies were for Mr Chow’s own benefit and not “to protect the company”.

27.The grant of the Injunction was already protecting the company. Rather, Mr Chow’s Undertaking was to protect the $1.1 million. He had failed on this.

28.Fourthly, DHCJ Yee had given a chance for Mr Chow to pay the $1.1 million into Court on account of the Underlying Action but Mr Chow refused. He testified that:

(1) He thought that DHCJ Yee was asking him to deposit the money into Court at that point in time. I find this incredible because DHCJ Yee never mentioned the date of payment in. Mr Chow neither told DHCJ Yee that he could not pay in at that point in time nor asked for time to pay in.

(2) The civil procedure has been slow and ineffective in recovering his stolen shares. He had been waiting for the police to take action. He lost confidence in the law. Mr Au was cunning and would have tried to take the money out of the Court. I find this incredible as well because there had not been a prior incident when Mr Au had tried to take money out of the Court.

29.Fifthly, in the witness box, Mr Chow stated that he could (meaning that he had the financial ability) pay the $1.1 million into Court. Ms Yu, counsel for Mr Au, and I have asked Mr Chow whether he was willing to do so, on account of the Underlying Action. Consistent with his affidavit, he replied that he would only do so after the issue of stolen shares was settled or the Company was reinstated to its original position. That was an indirect answer meaning that he was not willing to restore the money by payment into Court.

30.This Court explained further to Mr Chow that he were found to be in contempt of Court, one of the considerations on sentencing was to see whether he had purged the contempt by paying the $1.1 million into Court. He then claimed that he was willing to do so but his funds were not in Hong Kong. He needed 2 weeks to arrange the funds. He still had not affirmatively decided to pay the money into Court. This was despite the fact that, on his own evidence, he had received advice from a lawyer (after the Injunction was discharged) that it was foolish of him and that if he had paid in the $1.1 million, he could have kept the Injunction.

31.The above factors in this Section show clearly that Mr Chow understood the need to hold the money on trust for the company and yet he unilaterally decided to use the money for his own purposes instead of keeping it in an account that he trusted. His refusal to pay the HK$1.1 million into Court further demonstrates that he never intended to hold the funds on trust pursuant to the Undertaking. He plainly knew the facts which are said to make his acts of disposing of the $1.1 million a breach of the Undertaking. His acts were not accidental. I find that he had the requisite mental state to establish contempt.

G. DEFENCES

32.With regard to the first and third defences set out in sub-paragraphs 3(1) and (3) above, Mr Au’s alleged fraud and why there had been transfers and allotment of the MBG shares are issues for trial in the Underlying Action. They are not relevant to the issue of whether Mr Chow had breached the Undertaking.

33.With regard to the second defence set out in paragraph 3(2) above, duress and misrepresentation were not even asserted in Mr Chow’s affirmation. This defence is inconsistent with the fact that the Undertaking was voluntarily given at a time Mr Chow was represented. It has no merits.

H. CONCLUSION

34.For the reasons given, I find it proved beyond reasonable doubt that Mr Chow had the requisite state of mind when he disposed of the $1.1 million for his own benefit. He had breached the Undertaking and hence acted in contempt of Court. None of his defences are viable.

35.This case is adjourned to 9 July 2025 at 10:30 am for mitigation and sentencing. Mr Chow is at liberty to file and serve an affidavit for the purpose of mitigation.

36.In the meantime, if Mr Chow wants to purge his contempt by paying $1.1 million into Court, he is at liberty to do so by paying into Court under HCA 1830/2022 on or before 4:00 pm on 8 July 2025.

37.On a nisi basis, costs should be paid by Mr Chow to Mr Au on an indemnity basis, to be summarily assessed on 9 July 2025.

38.I thank Ms Yu for her assistance.

Ms Teresa Yu, instructed by Jennifer Lee & Co., for the Plaintiff

The Defendant appeared in person