Brilliant Gain International Ltd v. Fu Kee and Another

HCMP 2572/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2572 OF 2009

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BETWEEN

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Before: Deputy High Court Judge L. Chan in Court

Dates of Hearing: 19 October and 22 November 2010

Date of Judgment: 22 November 2010

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J U D G M E N T

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1.These proceedings arose out of a judgment of Chu J given on 18 September 2009. The defendants have served a notice of appeal against the judgment on 5 October 2009 but have not applied to fix a date for the hearing of the appeal. There is no stay of execution of the judgment. The 2nd defendant said on affirmation on 2 February 2010 that the appeal would be withdrawn.

2.The judgment was given pursuant to a subscription agreement dated 5 December 2006 and made between the plaintiff on the one hand and the 1st to 3rd defendants on the other and as amended by a supplemental agreement dated 9 February 2007 made between the plaintiff on the one hand and the 1st to 4th defendants on the other.

3.The 1st and 2nd defendants are the directors and officers in control of the 3rd and 4th defendants.  The 3rd defendant is a manufacturer of household products for wholesale and retail.  It has factories in the Mainland and elsewhere in the world.  The 4th defendant is the holding company of the 3rd defendant and has no other business.

4.The agreements provided for the subscription by the plaintiff of 195 new shares of US$0.10 each in the capital of the 4th defendant on the terms and conditions of the agreements.  Chu J’s judgment required the 1st and 2nd defendants to provide certain accounts and documents to the plaintiff for performance of the agreements and pay damages in addition to performing the agreements.

5.The judgment further declared that certain moneys defined as Assigned Amount and received by the 1st and 2nd defendants or at their order or for their use since 12 February 2007 were held by them in trust for the plaintiff.  These receipts were defined in the judgment as Received Assigned Amount.  The definition of “Assigned Amount” is contained in a deed of assignment made by the 1st and 2nd defendants in favour of the plaintiff and dated 12 February 2007.  It reads:

“2.1 In consideration of the Assignee entering, at the request of the Assignors, into the Agreement, each of the Assignors hereby assigns, as security for the due performance of the Secured Obligations, to the Assignee with effect from the Completion Date absolutely all and every dividends (but excluding any retained earnings distributed by the Company pursuant and in accordance with Clause 2.3 of the Agreement), distributions, divisions and sums of money which the Assignors shall be legally entitled to (in whatever capacity) from time to time from any member of the Group whether in respect of dividends, return or distribution of share or loan capital, earnings or income, repayment of indebtedness or other payments of whatsoever nature (excluding any liabilities and obligations of the Assignor) or as a result of the Security Shares (‘the Assigned Amount’) and all rights and claims of the Assignors to or in respect of all and any Assigned Amount, free from all claims, charges, liens, encumbrances, options, defects and equities of any kind whatsoever to the intent that the Assignee shall, with effect from the date hereof, be the legal and beneficial owner thereof and shall be solely and absolutely entitled thereto, subject to the terms of this deed.”

6.Paragraphs 5 and 6 of Chu J’s judgment dealt with the Received Assigned Amount as follows:

“5. The 1st, 2nd and 4th Defendants do jointly and severally within 14 days or such extended period as may be agreed between the parties, compile and provide to the plaintiff written itemised breakdown (with reasonable details) of the Received Assigned Amount, if any, and further verify the same on oath.

6. The 1st and 2nd defendants do within 7 days from the provision of the breakdown stated in paragraph 5 above or such extended period as may be agreed between the parties, pay the Received Assigned Amount, if any, into a bank account to be designated by the plaintiff (‘the Designated Account’).”

7.The plaintiff brought these proceedings for the defendants’ failure to comply with paragraph 5 of the judgment. 

8.After the judgment was given, the plaintiff was unable to effect personal service of it on the 1st and 2nd defendants. The plaintiff then applied for substituted service on 13 October 2009. Chu J on 21 October 2009 ordered substituted service of the judgment on the 1st and 2nd defendants in their own capacities as defendants as well as being the directors of the 3rd and 4th defendants by serving the same on their solicitors.  The original time of 14 days from the date of judgment for complying with paragraph 5 was also extended to 4 November 2009. 

9.Copies of the judgment endorsed with penal notice were then served pursuant to Chu J’s order on the 1st and 2nd defendants in their capacities as defendants as well as being the directors of the 3rd and 4th defendants on 27 October 2009 at the office of their solicitors, but there was no compliance by 4 November 2009.  There was subsequent correspondence between the solicitors on the engagement of auditors to audit the accounts and the supply of some documents for compliance with parts of the judgment, but nothing was done for compliance with paragraph 5 or to indicate when it would be complied with.  There was also no explanation for the failure to comply.  There was simply no mention of paragraph 5 by the defendants or their solicitors.

10.Since the 1st and 2nd defendants have failed to comply with paragraph 5, they likewise have failed to procure the 4th defendant to comply with the same.  Without compliance with paragraph 5, there was also no designation of bank account by the plaintiff under paragraph 6 for payment by the 1st and 2nd defendants of their Received Assigned Amount. 

11.The plaintiff then filed a statement pursuant to Order 52, rule 2(2) of the Rules of the High Court on 12 November 2009, seeking leave to commence these proceedings.  The statement pinpointed the non‑compliance of paragraph 5 of the judgment by the 1st, 2nd and 4th defendants.  Leave was given by Chu J on 30 November and these proceedings were commenced on 12 December 2009.

12.The 1st and 2nd defendants filed affirmations on 2 February 2010 to oppose the proceedings but said nothing about their failure to comply with paragraph 5. 

13.Directions were given by Chu J on 3 February 2010 which included leave for the defendants to file further affirmations within 21 days.  Their solicitor, Mr Siu, then filed an affirmation on their behalf on 24 February and said that the 1st and 2nd defendants had misinterpreted “Assigned Amount” to mean dividends and distributions of profits which they had never received.  Mr Siu said that it was an unintentional slip and was in no way designed to mislead the plaintiff or the court.

14.If the 1st and 2nd defendants should have so misinterpreted the meaning of “Assigned Amount”, they would have advised the plaintiff that they had received no Assigned Amount and verified the same on affirmation, but they had not even done that.  They were just completely silent on compliance with paragraph 5.  They were legally represented at all times.  The explanation given by Mr Siu on behalf of the 1st and 2nd defendants, but was not given by the defendants themselves on affirmation, is therefore hard to believe.  Furthermore, even if the 1st and 2nd defendants had misinterpreted the meaning of “Assigned Amount”, any misinterpretation would have been dispelled upon their receipt of the plaintiff’s statement made pursuant to Order 52, rule 2(2) on about 12 December 2009.

15.However, the only mention of Assigned Amount after the service of the statement was by the 2nd defendant in her fourth affirmation made on 12 January 2010 in HCA1064 of 2009 that she and the 1st defendant had received no Assigned Amount from the 4th defendant or the group of companies.  However, the definition of Assigned Amount as quoted above referred to “earnings or income” or “other payments of whatever nature.”

16.The plaintiff’s manager, Mr Lam, also filed an affirmation on 30 January 2010, again pointing out the defendants’ failure to comply with paragraph 5.  However, the only response thereafter from the defendants was the affirmation of their solicitor, Mr Siu, filed on 24 February, alleging their misinterpretation of “Assigned Amount”. 

17.There was no attempt to comply with paragraph 5 after the misinterpretation was dispelled and admitted to at the latest on 24 February.  It was only at the last hearing on 19 October that counsel on behalf of the 1st and 2nd defendants admitted that they had failed to comply with paragraph 5 and asked for a further opportunity to comply with the same.  For that purpose, the hearing was adjourned to today.

18.In the light of the foregoing, I find beyond reasonable doubt that the 1st and 2nd defendants had deliberately failed and refused to comply with paragraph 5 of the judgment of Chu J made on 21 October 2009 in HCA1064/2009. 

19.Pursuant to the indulgence granted at the last hearing, the 1st and 2nd defendants then filed their further affirmations on 2 November for compliance with paragraph 5.  They exhibited various schedules of payments.  The schedules exhibited by the 1st defendant show that he had received salaries totalling more than HK$1.18 million.  There are also three schedules of disbursements paid to him totalling HK$975,992.27. 

20.The solicitor for the plaintiff filed an affirmation on 19 November, commenting that there were no particulars as to which company of the group had paid the 1st defendant his salaries and in what capacity did the 1st defendant he receive the salaries.  However, the absence of these particulars causes no prejudice to the plaintiff as such particulars are not required for the enforcement of payment under paragraph 6 of the judgment.

21.There are also criticisms that some receipts appear to be irregular.  However, these are matters that the plaintiff may pursue elsewhere and are not for consideration on compliance with paragraph 5.

22.Regarding the schedules exhibited by the 2nd defendant, they show that she had received salary at HK$1,179,236 and RMB231,030.  There were then sums totalling HK$7,469,603.20 received by her with over HK$6 million described as under investigation.  There were then sums totalling HK$12,490,798.47 allegedly paid by her to the companies.  There were then the same three schedules of disbursements totalling the same sum of HK$975,992.27 as in the case of the 1st defendant.

23.There is not a word of explanation by either the 1st or 2nd defendant on all these schedules and payments or why the 2nd defendant had paid the companies so much more than she had received from them.  The 2nd defendant said the schedules were prepared by the staff of the company.  The lack of explanation on these schedules by either defendant shows that this purported compliance is at best half-hearted.

24.I now come to the question of sentencing. Counsel for the defendants submitted that the non-compliance was not for personal benefit.  I disagree.  I agree with counsel for the plaintiff that the defendants deliberately failed to comply with paragraph 5 so as to make it difficult for the plaintiff to execute paragraph 6 of the judgment and, hence, delayed their payments thereunder.  I understand that bankruptcy proceedings have been brought by the plaintiff against the 1st and 2nd defendants and they are due to be heard on the 24th of this month. The delay in complying with paragraph 5 by the defendants may well have delayed the institution of these proceedings.  Alternatively, such proceedings might not have been necessary if paragraph 5 was complied with last year.

25.I have also been referred to the cases of Winsome Paints v Wong Yin Sun HCMP3185 of 2002 (unreported) by Deputy High Court Judge A Cheung (as he then was), Chan Hung Kau v Texgar Limited & Others HCMP1372 of 2000 (unreported) by Chu J, Abu Dhabi National Tanker Co. v Lam Ming Chi & Another [1998] 4 HKC 320 and AXA China Region Insurance Company Limited & Another v Li Yu Ping Ellen [2002] 3 HKC 339.

26.In the case of Winsome Paints, the respondent failed to comply with an order to provide an affirmation on the delivery‑up of products infringing the applicant’s registered trademark.  He did not just disregard the court order, but also failed to appear in court on the hearing of his contempt.  He was sentenced to prison for 21 days.

27.In Chan Hung Kau,the respondent failed to comply with an order of the court to pay a sum of HK$3.9 million into court and also misled the court on his financial capability.  He was sentenced to prison for 21 days.

28.In the Abu Dhabi National Tanker case, for facts peculiar to the case itself, Stone J only imposed a financial penalty.

29.In AXA China Region Insurance, the respondent was fully aware of the importance of the penal notice.  She flouted the court order which required her to deliver up documents.  She flouted the order for her own benefit.  She contest34edthe committal proceedings. She was sentenced to prison for 2 months.

30.As pointed out by the Court of Appeal in the AXA China case, there is no normal range of sentence for contempt of court because cases of contempt vary enormously in their type and facts.  On the facts of this case, I think it is right that the defendants should be sentenced to imprisonment so as to send out a clear message that court orders are to be complied with. 

31.I sentence each of the 1st and 2nd defendants to a prison as may be designated by the Commissioner of Correctional Service, and I sentence each of them to imprisonment for 21 days.

32.I further order the 1st, 2nd and 4th defendants to pay the plaintiff the costs of these proceedings on indemnity basis.  The plaintiff has produced a bill of costs at $512,075 for summary assessment purpose.  The defendants have made no objection to any item in this bill.  I therefore assess the costs payable to the plaintiff at $512,075.

Mr José-Antonio Maurellet, instructed by Messrs Woo, Kwan, Lee & Lo, for the Plaintiff

Mr Kevin Hon, instructed by Messrs. Robert Siu & Co., for 1st and 2nd Defendants