Lau Yee Ching v. Wong Tak Kwong and Others

HCCW 807/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 807 OF 2004

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BETWEEN

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Before: Hon Kwan J in Court

Date of Hearing: 28 September 2005

Date of Judgment: 6 October 2005

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J U D G M E N T

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The notice of motion

1.This is a notice of motion taken out by Lau Yee Ching, the petitioner herein, under Order 52 rule 3 of the Rules of the High Court on 26 May 2005.  The petitioner seeks an order that Wong Tak Kwong and Madam Chan Wai Chun, the 1^st and 2^nd respondents herein, be committed to prison for their breach of or failure to comply with the undertakings (“the Undertakings”) given to the court contained in the order of Reyes J dated 18 August 2004 (“the Order dated 18 August 2004”).

2.Leave was given to the petitioner in an ex parte application to apply for an order of committal on 18 May 2005.  The papers in this application were served on the respondents personally on 10 June 2005.

The affirmations placed before the court

3.At the first hearing of the notice of motion on 8 August 2005, I gave directions for the petitioner to file further evidence in support, for the 1^st and 2^nd respondents to file evidence in answer if they should wish to do so, and for the petitioner to file evidence in reply.

4.The petitioner made five affirmations in this application: his 9^th affirmation (to verify the particulars in the statement made pursuant to Order 52 rule 2(2) and to exhibit documents), his 10^th affirmation (to update the court on what had happened after the notice of motion was served on the respondents), his 11^th affirmation (to explain why the letter of the petitioner’s solicitors to Sun Fook Kong (Civil) Ltd (“SFK”) and its reply in November 2004 were not mentioned or exhibited in his 9^th or 10^th affirmation), his 12^th affirmation (to reply to the 1^st respondent’s 6^th affirmation), and his 13^th affirmation (to update the court on the latest position since the adjournment on 8 August 2005). The petitioner also filed two affirmations made by Lee Yiu Sun (“Mr Lee”), a clerk to the petitioner’s solicitors, on 12 May 2005 and 12 July 2005, setting out the steps taken to serve the Order dated 18 August 2004 endorsed with a penal notice on the respondents and to serve the papers for this application on them.  In addition, the petitioner placed before the court four of his previous affirmations made in other applications: his 4^th, 6^th, 7^th and 8^th affirmations.

5.The respondents only put in one affirmation in this application, this is the 6^th affirmation of the 1^st respondent made on his own behalf and on behalf of the 2^nd respondent.

6.The petitioner and the 1^st respondent were cross-examined on their affirmations.

7.Insofar as primary facts are concerned, in the absence of evidence to the contrary, I see no reason not to accept the primary facts deposed to in the petitioner’s affirmations and the affirmations of Mr Lee.

8.I will first give the background before I go to the grounds relied on by the petitioner to commit the respondents for contempt.

The background

9.The petitioner presented a petition to wind up Wing Fung Construction (H.K.) Limited (“the Company”) on 26 July 2004 on the just and equitable ground, on the basis that the affairs of the Company were conducted in a manner unfairly prejudicial to him as a member of the Company.  The petitioner was a director until he was removed in May 2004.

10.The 1^strespondent is the majority shareholder and a director of the Company. The 2^nd respondent is his wife.  She was appointed a director at the same extraordinary general meeting in May 2004 when the petitioner was removed.

11.The petitioner alleged in the petition there was misuse and diversion of the Company funds by the 1^st and 2^nd respondents, and that he was wrongfully excluded from management.  He sought to wind up the Company, alternatively that his shares be purchased by the respondents or by the Company, under section 168A of the Companies Ordinance, Cap. 32.

12.As the bank accounts of the Company were frozen due to the presentation of the winding-up petition, on 10 August 2004 the respondents applied under section 182 for a validation order, to enable payments to be made out of the Company’s accounts to pay wages of its direct employees, the wages of the workers of its sub-contractors and sums due to its sub-contractors and suppliers.

13.The Order dated 18 August 2004 was made by consent at a hearing, in which counsel appeared for the respondents.  By that order, the payments set out therein were validated upon the Undertakings of the respondents in these terms:

“And upon the 1^st and 2^nd Respondents undertaking to

(a)     pay any future income of and payments made to the Company into either of the following accounts: Shanghai Commercial Bank Ltd. current account no. 333-82-06-338-6 (“the SCB current account”); and savings account no. 333-14-295221 (“the SCB savings account”); Bank of China (Hong Kong) Ltd. account no. 012-898-0-005347-4 (“the BOC account”) (collectively “the Company Bank Accounts”);

(b)     account for and disclose the whereabouts of all the interim payments thus far made by [SFK] to the Company;

(c)     to provide to the Petitioner a complete set of statements of the Company Bank Accounts and the financial accounts of the Company for the months from March 2004 to July 2004 within 7 days from today; and

(d)     that monthly updated financial statements, accounts of the Company and statements of the Company Bank Accounts from July 2004 onwards be provided to the Petitioner by [the 1^st respondent], [the 2^nd respondent] or the Company.”

14.Subsequent to the Order dated 18 August 2004, the parties reached an agreement to settle their disputes.  By a consent order made on 13 September 2004, all further proceedings in the petition are to be stayed upon terms of the settlement agreement in the schedule attached (“the Schedule”), except for the purpose of enforcing and carrying out the said order. It was further provided within the specified period on complete fulfilment and implementation of all the terms in the Schedule, the parties should apply to court for dismissal of the petition.  I understand up to today, the petition has not been dismissed.

15.Among the terms in the Schedule, there is this provision in paragraph 14:

“Until the Petition is dismissed in accordance with paragraph 13 of the Schedule herein, no disposition shall be made of the assets of the Company, including funds in the Company’s accounts being [(i) to (iii) are the Company Bank Accounts]; and (iv) savings account no. 012-898-1-024428-0 with Bank of China (Hong Kong) Ltd, without the prior consent of the Petitioner or of the Court.”

16.Because the petition has not been dismissed pending implementation of terms in the Schedule and because of paragraph 14 therein, the respondents would still need to apply to court from time to time to validate payments made out of the Company Bank Accounts to pay employees, sub-contractors and suppliers, unless they have the consent of the petitioner.  From September 2004 to January 2005, the respondents issued five summonses for validation order dated 25 September 2004, 8 October 2004, 23 October 2004, 9 December 2004 and 25 January 2005.

17.The summons issued on 25 September 2004 was heard by Lam J on 4 October 2004.  At that time, the respondents had not fully complied with the Undertakings in that they failed to:

(1)            disclose the whereabouts of all of the payments from SFK;

(2)            pay all interim payments from SFK into the Company Bank Accounts; and

(3)            provide the bank account statements of the SCB savings account to the petitioner.

18.Lam J ordered that part of the sums which the petitioner did not object to would be validated by consent, whereas the validation of the other sums would be adjourned, pending compliance by the respondents with paragraph (b) of the Undertakings in the Order dated 18 August 2004.

19.By the summons on 8 October 2004, the respondents sought a validation order of the remaining payments in the 25 September 2004 summons.

20.An order was made by consent on this summons by Lam J on 12 October 2004.  What happened was that the solicitors for the respondents had agreed by letter on 12 October 2004 to give an undertaking sought by the petitioner’s solicitors to provide information regarding five cheques drawn on the Company’s account at the Bank of China within the next three days, so the petitioner gave consent to the sums sought to be validated in that summons, although the undertaking by letter dated 12 October 2004 was not recorded in the consent order of 12 October 2004.

21.The summons issued on 23 October 2004 was fixed to be heard by Lam J on 1 November 2004.  By then, the respondents had still not complied fully with the undertaking in the letter dated 12 October 2004.  Furthermore, they were in breach of the Undertakings, in that they had only provided monthly bank account statements of the Company up to July 2004.  More serious still, the petitioner discovered that on 14 October 2004, the 1^st respondent had written to SFK in these terms.  This is an important letter, the certified translation of it reads as follows:

“Re: Arrangements regarding wages under the project

Since July of this year, there was an internal conflict among the shareholders of our Company.  Although our Company had tried its best to negotiate with the relevant shareholder(s), the matter still could not be resolved.  Finally the matter had to be referred to the Court for adjudication.  On 21st September this year, the Court adjudicated on the matter and such matter will be fully disposed of within 8 weeks.  However, within these 8 weeks, the operation of the bank accounts of our Company is still under the supervision of the Court.  Therefore our Company has to apply to the Court before paying its daily expenses for its operation every month.  As such application takes time, in order not to delay the issuance of wages to the employees of the Company and those of the contractors and not to affect the progress of the project, we hope that your Company can pay the wages for the month of September and all other sums due in the past directly to the employees of the Company, the sub-contractors and the suppliers of materials/equipments on behalf of our Company.”

22.In this letter, the 1^st respondent did not tell SFK of the Undertakings by which the 1^st and 2^nd respondents undertook to pay any future income of or payments made to the Company into any of the Company Bank Accounts.

23.The petitioner later obtained confirmation from four individuals responsible for all four sub-contractors of the Company that arrangement was made for SFK to pay their workers directly instead of through the Company.  These individuals are Mr Ng Wah of Wah Kee, Mr Lo Wai Bun of Wing Lee, Mr Yeung Yun Fung of Hing Wing and Mr Yip Ho Yum of Yum Kee.  There was also confirmation to this effect from an employee of the Company, Ng Wai Kuen.  Above all, confirmation to like effect was received from Andy Cheng of SFK.  This arrangement was also apparent from the fact that payments for September 2004 were not included in the summons taken out by the respondents on 23 October 2004.

24.At the hearing of the 23 October 2004 summons on 1 November 2004, Lam J adjourned the summons to a date to be fixed.  He ordered the 1^st and 2^nd respondents to file within seven days an affirmation in reply to the petitioner’s 6^th affirmation, in which it was alleged that the respondents were in breach of the Undertakings in that the 1^st respondent had asked SFK to make direct payments to him and to sub-contractors of the Company.

25.The respondents did not file any affirmation pursuant to Lam J’s order on 1 November 2004, nor did they restore the summons of 23 October 2004.  Instead, they issued the summons dated 9 December 2004 for a fresh validation order.  This was heard by Barma J on 5 January 2005.

26.At the hearing, the letter of 14 October 2004 was placed before the court by the petitioner in his 7^th affirmation.  The petitioner also placed before the court the letter of his solicitors to SFK dated 15 November 2004 and the reply of SFK on 19 November 2004.

27.The letter of the petitioner’s solicitors to SFK is in these terms:

“We are instructed that Mr Wong Tak Kwong, another shareholder and director of Wing Fung has requested your Company to make and your Company has made payments originally payable to Wing Fung directly to, inter alia, Wong Tak Kwong and the subcontractors of Wing Fung.

Please be informed that Mr Wong Tak Kwong has given his undertaking to the Court on 18 August 2004 to, inter alia, pay any further income of and payments made to Wing Fung into Wing Fung’s bank account.  Mr Wong Tak Kwong has therefore procured to breach his said undertaking by requesting your Company to make payments in the said manner.

Please inform us in writing of (i) the procedure followed by your Company in making the said payments; and (ii) the details of the said payments made by your Company.  Please also confirm with us in writing as to whether, when and in what manner Wong Tak Kwong requested your Company to make the payments in the said manner.”

28.In SFK’s reply, it stated that it did not intend to be involved in a quarrel between the shareholders of the Company, nor would it allow the Company’s internal dispute to impede the progress of work in the main contract.  It mentioned its contractual duties to the employer to complete the works under the main contract and its statutory obligation under the Employment Ordinance, Cap. 57, Part IXA as the principal contractor to pay unpaid wages to workers in the project under the direct employment of the Company or under the employment of sub-contractors of the Company.  It did not think it was obliged to answer queries raised by the petitioner, but would inform the petitioner as a matter of courtesy there was an on-account interim payment of HK$1,416,850.39 due to the Company on 21 October 2004, out of which HK$1,077,483.33 was made use to settle unpaid wages due to the Company’s workers in September 2004, and the balance of HK$339,367.06 was paid to the Company.  SFK ended the letter by stating that it “would not discount any possibility to make use of Wing Fung payment to meet with the unpaid wages of those Wing Fung’s worker [sic] working in [its] site”, and should the situation deteriorate, it would not hesitate to terminate the Company’s contract and claim damages.  SFK’s letter was copied to the Company for the attention of the 1^st respondent.

29.Barma J regarded this an unsatisfactory state of affairs, and although he made an order to validate certain payments, it was provided in paragraph 1 that the validation order was “subject to the making and filing of affirmation or affidavit from the 1^st Respondent and the 2^nd Respondent confirming that each of those items remains unpaid and outstanding and setting out what had happened to the payment due to the company from [SFK] in respect of the month of November 2004 just by way of identification that the payments which should ordinarily have been paid in the course of business for the month of December or towards the middle of December 2004.”  Paragraph 2 of the order provided that if it should turn out that there is some direct payment by SFK as a result of which part of the payment is not paid to the Company but is paid in some other manner, “the affirmation should set out in great detail is [sic] to how they were made and to whom has received them and what had happened to the money”.  Barma J also gave liberty to apply.

30.In accordance with his order, on 14 January 2005, the 5^th affirmation of the 1^st respondent and the 3^rd affirmation of the 2^nd respondent were filed.  In his 5^th affirmation, the 1^st respondent deposed that on various dates in December 2004, the site manager of SFK, Lee Yat Wah, made payments to him directly for paying wages of the Company staff and a sub-contractor.  Lee Yat Wah also made payments directly to the staff of the Company’s four sub-contractors.  In paragraph 2(d)(5), he stated as follows:

“The direct payments were made as a result of a request which I made by letter dated 15th December 2004 setting out the arrears of salaries up to the month of November 2004.  The motive was not to impede the construction work and payment to employees.  The ultimate decision is by [SFK].  A true copy of my written request is now produced and shown to me marked “E-1”.  I shall not make any similar request in the future.  I wish to apologise to all concerned.”

31.The request in Chinese exhibited as “E-1” is important, a certified translation of this reads as follows:

“Re:   Arrangements regarding the wages in arrears of the
         employees of the Company for November               

As the legal action involving our Company needs time to resolve, in order to ensure that the progress of your company’s project would not be delayed and to avoid further delay of the payment of wages to the employees, our Company encloses herewith the record of wages in arrears for the month of November so that your company can make appropriate arrangements.”

The record enclosed to this letter was headed “Wages and MPF payments – November” and listed the names of the persons to be paid and the amount due to each.

32.In paragraph 3 of the 1^st respondent’s said affirmation he stated as follows:

“Up to the date hereof, [SFK] has only issued Sub-contractor’s Payment certificate, payment no. 14 for $1,287,842.86.  Payment has not been received. Upon receipt, the cheque will be paid into the Company’s account.”

It is clear from the bank statements of the Company Bank Accounts provided by the respondents to the petitioner that no part of the amount in payment no. 14 being HK$1,287,842.86 has been paid into any of the Company Bank Accounts, contrary to what the 1^st respondent said in his 5^th affirmation.

33.In the 3^rd affirmation of the 2^nd respondent, she confirmed the contents of the 1^st respondent’s 5^th affirmation as correct.  In paragraph 3, she stated as follows:

“I undertake to pay all monies receivable by the Company into the Company’s bank account and refrain from requesting direct payments to be made by any party who needs to pay the Company.”

The 2^nd respondent has not kept the undertaking she gave above insofar as payment no. 14 is concerned.

34.The last application for validation order was issued by a consent summons on 25 January 2005, and an order was made on 1 February 2005.  Apart from the bank statements of the Company Bank Accounts made available to the petitioner, the petitioner adduced other documents showing that payments were still made by SFK directly to sub-contractors and employees of the Company in February 2005, despite the promise and undertaking in the affirmations of the 1^st and 2^nd respondents in January 2005.  There were cheques issued by Fung Gean Lin and Lee Yat Wah on behalf of SFK to sub-contractors and employees of the Company and receipts signed by these sub-contractors and employees.

35.Ms Phoebe Man for the petitioner has prepared a helpful schedule setting out the “amount due” in the monthly payment certificates issued by SFK and the “amount deposited” by SFK into the Company Bank Accounts for each month as ascertained from the bank statements supplied by the respondents to the petitioner.  Except for the month of September 2004, these two amounts for each month from October 2004 to July 2005 do not match, clearly showing that SFK has not paid the whole of the “amount due” to the Company directly into the Company Bank Accounts for this entire period.  There is no application for any validation order since the last application on 25 January 2005 up to the hearing of the committal for contempt before me on 28 September 2005.

Grounds for committing the respondents for contempt

36.On the basis of the above facts, the petitioner seeks to commit the 1^st and 2^nd respondents for contempt for failing to comply with the Undertakings in that:

(1)     they have failed to pay the income of and payments made to the Company into any of the Company Bank Accounts;

(2)     they have procured the breach of the Undertakings by asking SFK to pay the income originally due to the Company directly to sub-contractors and employees, instead of paying such income into the Company Bank Accounts; and

(3)     they have failed to provide certain monthly bank statements to the petitioner.

37.There is no need to deal with the ground in (3) in any detail.  I find the allegation in ground (3) established.  The 1^st and 2^nd respondents have supplied further bank statements to the petitioner on 20 June 2005 and on 2 July 2005.  These missing bank statements were only supplied after the papers to commit for contempt were served on the respondents.

If service of the Order dated 18 August 2004 endorsed with a penal notice should be dispensed with

38.The petitioner has not effected personal service on either the 1^st or 2^ndrespondents of the Order dated 18 August 2004 containing the Undertakings endorsed with a penal notice.  The petitioner seeks leave under Order 45 rule 7(7) of the Rules of the High Court to dispense with this.  Under this provision, the court may dispense with service required under Order 45 rule 7(2) if it thinks it just to do so.

39.Before dispensing with the requirement of service and also the penal notice, the court would have to be satisfied “beyond reasonable doubt” that the alleged contemnor knew the terms of the orders relied on, that he was well aware of the consequences of disobedience, and that he was aware of the grounds relied on as a breach with sufficient particularity to be able to answer the charge (Benson v Richards [2002] EWCA Civ 1402, paragraphs [29] and [41], per Carnwath LJ; see also Citybase Property Management Ltd v Kam Kyun Tak (No. 1) [2003] 2 HKC 98, paragraphs 14(1) and (2), per Ma J; and Hong Kong Civil Procedure 2004, Volume 1, paragraph 52/2/9).

40.In the 1^st affirmation of the clerk of the petitioner’s solicitors, he set out the attempts made in March, April and May 2005 to effect personal service on the 1^st and 2^nd respondents at the office of the Company, at the work site, and at the residential address, a copy of the 18 August 2004 Order endorsed with a penal notice. He notified the solicitors acting for the respondents of his intention to effect service on them of this document.  The solicitors for the respondents declined to arrange for personal service and said that the petitioner’s solicitors should contact the respondents directly.  Later, the respondents’ solicitors gave a telephone number to the petitioner’s solicitors at which the respondents’ residential address could be found out.  Nobody had answered the telephone on all the occasions that the clerk to the petitioner’s solicitors called.  The attempts at personal service were all unsuccessful.

41.I have no difficulty in finding that the 1^st and 2^nd respondents must have knowledge of the terms of the Undertakings, as they themselves had given the Undertakings to the court.  Further, it must have been apparent to them from the various applications for a validation order and the petitioner’s allegation during October 2004 to January 2005 that they were in breach of the Undertakings that the respondents must have knowledge of the terms.  For the purpose of being satisfied that they had knowledge of the terms of the Undertakings, it is not necessary that personal service of the order containing the Undertakings should be effected on them.

42.Next, I consider whether the 1^st and 2^nd respondents had knowledge of the consequence of breach of the Undertakings.  If the court is not satisfied they had such knowledge, as said by Ma J in Citybase, “it would be an extremely rare exercise of discretion under Order 45 rule 7(6) for the court to dispense with this requirement”.  If it is established that the respondents had been warned of the consequence of breach, as in Bell v Tuohy [2002] 1 WLR 2705, it is not necessary that the order endorsed with a penal notice should be served and the court may dispense with service.

43.In the statement served under Order 52 rule 2(2), from paragraph 41 onwards, the petitioner complained of “continual” non-compliance and procurement of breach of the Undertakings.  Paragraph 45 alleged that direct payments are still being made by SFK on a monthly basis and the respondents have failed to comply with and are in breach of the Undertakings.  The papers were served on the respondents personally on 10 June 2005.  By then, they must have knowledge of the consequence of breaching the Undertakings.

44.In the letter of the petitioner’s solicitors to the respondents’ solicitors dated 22 June 2005, the petitioner asked the respondents to confirm if the Company has been incurring usual business expenses since 1 February 2005, as the respondents have not applied for a validation order since then.  In the reply of the respondents’ solicitors dated 2 July 2005, it was stated that the 1^st respondent had not procured breach of the Undertakings by asking SFK to pay the income originally due to the Company directly instead of paying such income into one of the Company Bank Accounts.

45.In the letter of the petitioner’s solicitors to the respondents’ solicitors dated 7 July 2005, the petitioner asked to whom the direct payment was made.  In a further letter of the petitioner’s solicitors to the respondents’ solicitors dated 13 July 2005, it was stated that the petitioner was informed that payment of employees and sub-contractors for May and June 2005 would be effected on 19 July 2005.  The petitioner demanded the respondents to ask SFK immediately to stop direct payment to employees and sub-contractors of the Company.

46.In the petitioner’s affirmation on 2 August 2005, he deposed that payments are still being diverted and paid directly to employees and sub-contractors.  He produced cheques dated 11 May 2005 and 18 July 2005, and the acknowledgement of receipt by respective employees of one of the sub-contractors.  It is quite clear that on the evidence, despite a warning of the consequence of breach of the Undertakings, the acts complained of were still continuing in July 2005.

47.I consider it just in these circumstances to dispense with personal service of the Order dated 18 August 2004 with a penal notice endorsed.

If failure to disclose all material facts in the application for leave to commence contempt proceedings

48.In the petitioner’s application made ex parte for leave to issue proceedings for contempt, the petitioner did not exhibit or mention in his statement under Order 52 rule 2(2) or in the supporting affirmation the letter of his solicitors to SFK dated 15 November 2004 and the latter’s reply dated 19 November 2004.

49.The need to make full and frank disclosure in an ex parte application is not in dispute.  Leave granted may be set aside by the alleged contemnor on the ground of failure to make full and frank disclosure (see Hong Kong Civil Procedure 2004, paragraph 52/2/4).

50.Pursuant to the directions I gave on 8 August 2005, the petitioner made his 11^th affirmation to explain why the said letters were not mentioned or exhibited.  It is pertinent to note that these letters were mentioned and exhibited to the petitioner’s 7^th affirmation, filed in opposition to one of the respondents’ applications for validation order, although this affirmation was not referred to or exhibited in the papers filed in support of the ex parte application.

51.The petitioner gave two reasons why the letters were not mentioned.

52.Firstly, the significance of these letters was not appreciated at the time of the application in May 2005.  The 1^st respondent had accepted and acknowledged in his affirmation in January 2005 that the direct payments made by SFK to the sub-contractors of the Company on 27 December 2004 were “as a result” of the request made by him to SFK by letter dated 15 December 2004.  It was only in the letter of the respondents’ solicitors to the petitioner’s solicitors dated 2 July 2005 that it was contended for the first time the 1^strespondent had not procured a breach of the Undertakings by asking SFK to make direct payments.  Even then, the respondents’ solicitors did not further explain their contention, despite the request of the petitioner’s solicitors for clarification.  It was when the skeleton submission of the respondents’ counsel was served on 6 August 2005 that it became apparent the respondents would dispute the fact that the direct payments made by SFK were caused by them, contrary to the 1^st respondent’s earlier admission.  The petitioner just had no reason to think, at the time of the ex parte application, that it would be a matter in issue that the respondents had caused direct payments to be made by SFK.

53.Secondly, in the light of further evidence and documents that had become available in May 2005, the petitioner took the view that the correspondence in November 2004 was overtaken by subsequent events and had “paled in significance”.  Other evidence became available of the direct payments made since November 2004.  There was a further request by the 1^strespondent to SFK to make “appropriate arrangements” on 15 December 2004.

54.The omission to mention the correspondence in November  2004 must be looked at in context and with regard to what was known to the petitioner and his legal advisers at the time the ex parte application was made in May 2005.  I accept the explanation given by the petitioner on affirmation and in his oral evidence.  I do not think the petitioner had presented his case for committal in an unfair way in the papers filed in the ex parte application, or that the petitioner had omitted to mention to the court, in the light of what was known to him at the time, a line of defence that had been raised by the respondents or could reasonably be anticipated would be raised by them.  I do not think the allegation of failure to disclose material facts in an ex parte application has been made out.

If the grounds of contempt are proved

55.I find the primary facts proved regarding the grounds for contempt in grounds (1) and (2). 

56.This is a civil contempt, the standard of proof is beyond reasonable doubt.  I need to find the act claimed to constitute contempt is established and that disobedience of the Undertakings on the part of each respondent was wilful or deliberate, in the sense that they knew the facts which made their act or omission a contempt and that their act or omission was not accidental.  There is no requirement to show that the alleged contemnor had intended to disobey the order (Citybase, supra, at paragraph 17(2)).

57.I find the respondents knew the terms of the Undertakings.  I find that they knew of the facts which are said to make their acts a contempt, i.e. the direct payments made by SFK to the Company’s sub-contractors and employees.  They have admitted to this in the 5^th affirmation of the 1^st respondent and the 3^rd affirmation of the 2^nd respondent, both filed on 14 January 2005.  There are also the requests in writing made by the 1^st respondent to SFK dated 14 October 2004 and 15 December 2004.  The evidence is compelling.  The acts of the respondents were deliberate and intentional.

58.Whatever motive the petitioner might have in bringing this application, whether to pursue a personal vendetta against the respondents as suggested by their counsel, is not relevant.

59.Two grounds of defence were raised by the respondents.

60.Firstly, it is said that an application to commit for contempt should not be made as this should be a remedy of last resort.  It was suggested that the petitioner should have applied for an injunction against the respondents.  I have set out the history in some detail.  I do not agree with this submission.

61.Secondly, it was submitted that the respondents had not procured a breach of the Undertakings, notwithstanding that requests were made to SFK for direct payment.  It was SFK’s decision whether to comply with the requests.  The respondents claimed they were not in a position to influence the decision making process of SFK.  They pointed to the reply of SFK to the petitioner’s solicitors dated 19 November 2004.  It would appear from SFK’s reply that SFK had reasons for making direct payment, notwithstanding it was told by the petitioner’s solicitors that that would be in breach of the Undertakings.  SFK had mentioned its contractual obligations to the employer and its statutory obligation as principal contractor to discharge unpaid wages of workers working in the project.

62.I also reject this contention.

63.The evidence before me is that before September 2004, SFK had issued cheques to the Company for the amounts certified in the payment certificates and it was for the Company to pay its workers and sub-contractors.  SFK had only changed this practice and made direct payments after a request was made by the 1^st respondent to SFK on 14 October 2004.  That had started it all.

64.As admitted by SFK in its letter to the petitioner’s solicitors dated 19 November 2004, of the interim payment due to the Company on 21 October 2004 of HK$1,416,850.39, HK$1,077,483.33 was used by SFK to pay unpaid wages of the Company’s workers in September 2004.  The balance of HK$339,367.06 was paid into one of the Company Bank Accounts on 6 November 2004.  That had all happened before SFK received the letter of the petitioner’s solicitors dated 15 November 2004 informing it that by making a request for direct payment, the 1^st respondent had procured a breach of the Undertakings.

65.After SFK had received the letter of the petitioner’s solicitors in November 2004, it made the response on 19 November, which was copied to the 1^st respondent, stating that it would not discount the possibility it might make direct payments to workers in future.  This was followed by another request of the Company on 15 December 2004 to make “appropriate arrangements”, with an enclosed record giving particulars of all outstanding wages in November 2004, setting out the names of the individuals, and the amount owing to each.  This could only be done with the purpose to facilitate direct payment by SFK to these individuals, and direct payments were in fact made on 27 December 2004, as admitted in the 5^th affirmation of the 1^st respondent filed in January 2005.  This request by the 1^st respondent for direct payment had clearly played a part in SFK’s decision to do so.  It is not necessary that the request was the sole reason for SFK to act.

66.As admitted by the 1^st respondent in his 5^th affirmation, the direct payments were made “as a result” of his request by letter dated 15 December 2004.  The 2^ndrespondent in her affirmation in January 2005 confirmed the 1^st respondent’s said affirmation, she had knowledge of what he did.

67.Last but not least, there was no attempt on the part of the 1^st or 2^nd respondent to stop SFK from making direct payments, despite what they had said in their affirmations filed in January 2005.  A simple letter to SFK would suffice.  I reject the 1^st respondent’s evidence that the idea of writing such a simple letter to SFK had never occurred to him.  The 1^st respondent is not a satisfactory witness.  I do not think he has told the court the whole truth.

68.There is no evidence if any further requests were made by the respondents to SFK for direct payment after January 2005 or whether they had supplied any wage records to SFK to facilitate direct payment.  But I find they knew SFK had continued to make direct payments from February 2005 onwards up to at least early August 2005, as only part of the amount due to the Company on the payment certificates was paid into the Company Bank Accounts.  The respondents must have known that the shortfall not paid into the Company Bank Accounts had been used by SFK to pay workers of the Company and of the sub-contractors.  I find the 1^st respondent was being evasive when he failed to give a clear answer when he first became aware of this.  The respondents were simply content to let the direct payments continue.

69.The 1^st respondent has explained why he was “pleased” when SFK told him it would make direct payments.  He mentioned there was “lengthy” delay before the bank would release money even after a validation order was made.  Further, costs were incurred by the Company in applying for validation order as the application was always opposed by the petitioner. 

70.I do not think these are valid reasons to excuse the respondents’ behaviour.  The alleged lengthy delay between the date of release of funds by the banks and the date of the validation order was not made out, as in most instances, the time taken was only one to two days after the order was made at a hearing or by consent, the longest instance taken for payment was 7 days for the validation order in January 2005.  If the respondents and their solicitors had acted promptly in applying to court for validation order in each instance, I see no reason to think that the Company would have placed SFK under any liability to discharge the wages of unpaid workers under Cap. 57.  The costs factor in an application for validation order is not a relevant consideration.  The respondents have no right to take matters into their own hands and ignore the Undertakings.

71.I find the contempt proved, to the requisite standard of beyond reasonable doubt, both as to the acts and the requisite mental element, of the grounds for contempt in grounds (1) and (2).

The aftermath

72.To discharge an undertaking to the court given by their counsel on 8 August 2005, the respondents through their solicitors have written to SFK on 18 August 2005.  This letter was received by SFK on 19 August 2005.  There is no reason why it took the solicitors more than a week to write a simple letter.  There is evidence that one direct payment was made by SFK between 8 and 19 August 2005.

73.In the letter of their solicitors, the respondents drew attention to the fact of the proceedings to commit them for contempt on the ground that they have asked SFK to pay income directly to others instead of paying into the Company Bank Accounts.  They made a request to SFK to stop making direct payments to employees of the Company and that all future payments receivable by the Company should be paid by cheque to the Company so that the same would be paid into the Company Bank Accounts.

74.The petitioner has made inquiries with one of the sub-contractors of the Company and learnt that SFK had stopped direct payments after receiving the letter of the respondents’ solicitors dated 18 August 2005.  But the petitioner has not yet received bank statements of the Company for September 2005 and does not know if the whole of the income of the Company has been deposited into any of the Company Bank Accounts.  The 1^st respondent gave evidence that he has no knowledge if SFK has indeed stopped direct payments, as the accounting period is still going on and SFK has not yet worked out the figure for payment.

75.The respondents’ solicitors have written to the petitioner’s solicitors on 29 August 2005 enclosing a bundle of documents asking “which of the several items of liabilities [the petitioner] will agree to be validated”.  The documents sent are 63 pages in all, and they are in an untidy mess.  No explanation was given which of the amounts appearing in the documents are sought to be validated.  The petitioner says he is unable to verify if all the sums are due and payable and is unable to consent to a validation order.  I do not know if any application has been issued by the Company or the respondents as yet.  If the respondents are seeking the petitioner’s consent to payment, it behoves the respondents’ solicitors to make their request in a proper manner.  However, it seems that the respondents have at least made a step in the right direction to comply with their continuing obligation in the Undertakings.

76.I will take the above matters into account in deciding on the appropriate penalty to be imposed on the respondents.  I will now hear counsel on mitigation.

[after hearing submissions on mitigation]

77.I take into account the belated efforts of the respondents to purge their contempt. They have supplied the missing bank statements on 20 June 2005 and 2 July 2005.  They have written to SFK on 18 August 2005 with a request to stop direct payments and to make payments in future by cheques payable to the Company.  They have also instructed their solicitors to write to the petitioner’s solicitors on 29 August 2005 seeking the petitioner’s consent to validate certain payments that should be made by the Company.

78.I also take into account the personal circumstances of the 1^st and 2^nd respondents.  Their sole income is derived from the Company which is in operation and is solvent.  They have no interest in any other company.  Justice will be served in this instance by imposing a fine on them in lieu of committal to prison.

79.The 1^st respondent will be fined HK$10,000.00.  The 2^nd respondent who would appear to have a lesser role will be fined HK$5,000.00.  I order that the payments are to be made within seven days hereof.  I also order the respondents to pay the petitioner’s costs of this application on an indemnity basis, to be taxed if not agreed.

Ms Phoebe Man, instructed by Messrs Tsang, Chan & Wong, for the Petitioner

Mr William Allan, instructed by Messrs Paul Kwong & Co, for the 1^st & 2^nd Respondents