Hao Xiaoying v. Wong Yiu Lam William and Others
Read the full judgment text of HCMP 1968/2014 on BabelCite. This High Court CFI judgment was delivered on 2 March 2015.
1. This is the plaintiff (“Hao”)’s application for committal of the defendants who, as directors of Green Valley Investment Limited (“Company”), have refused or failed to take reasonable steps to ensure the Company’s compliance with the orders of this Court made in HCMP 837 of 2013. Leave to commence these proceedings was granted on 18 August 2014.
Cited by 24 cases · Cites 10 cases
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HCMP 1968/2014 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 1968 OF 2014 __________________
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_______________ J U D G M E N T _______________ 1.This is the plaintiff (“Hao”)’s application for committal of the defendants who, as directors of Green Valley Investment Limited (“Company”), have refused or failed to take reasonable steps to ensure the Company’s compliance with the orders of this Court made in HCMP 837 of 2013. Leave to commence these proceedings was granted on 18 August 2014. Background 2.The matters set out in this section are not in dispute. 3.The Company was incorporated on 18 July 1991 in Hong Kong. There are 5 shareholders, namely, Hao, the defendants and Lu Jia Don (“Lu”) each holding 20% of the shares in the Company. Its only business was its investment in a joint venture company called Shanghai Green Valley Villas Limited (“JV Company”) which was incorporated for a property development in Shanghai. In 1991, the Company acquired a 55% interest in the JV Company. 4.The Company is now essentially dormant, and has been so since 2004 save for the engagement in a number of disputes which were and are being litigated in the Mainland. In short, these proceedings concern the Company’s claim that its interest in the JV Company had been stolen from it by Hao, his wife, Lu and corporate entities associated with them. It appears that the Compensation (as defined in para 5(2) below) was derived from one of these proceedings. As matters currently stand, the only live proceedings in the Mainland are those mounted by the Company against Hao and his wife. 5.In HCMP 837 of 2013, Hao, as shareholder of the Company, applied by way of Originating Summons dated 22 April 2013 for an order for inspection of the following documents pursuant to s.152FA of the old Companies Ordinance, Cap 32 (“Ordinance”):
6.Hao’s application was made to address his concern as to the whereabouts of the Compensation of which he had an interest as a shareholder of the Company. 7.On the day of the substantive hearing on 26 September 2013, the Company, which was represented by Senior Counsel, capitulated and conceded to Hao’s application. Accordingly, by consent, this court made an Order for Production (“1st Order”) in these terms:
8.However, the Company failed to produce the Documents to Hao. Subsequently, Hao made an application by way of a Summons dated 4 November 2013 to compel the Company to do so. After the Summons was issued, the Company’s solicitors (“FWT”) by a letter dated 11 November 2013 informed Hao’s solicitors (“TK”) that:
9.The 11 November 2013 letter also enclosed 4 bank statements dated 14 May 2009, 29 June 2009, 8 August 2009 and 26 November 2009 issued by the Bank of Shanghai evidencing the receipt of the Compensation by the Shanghai Law Firm in 4 instalments. These appear to be electronic printouts which only showed the relevant entries of the deposits but not, eg, the balances of the account. 10.By a letter on 12 November 2013, TK pointed out that the Company had still failed to provide documents showing the transfers and/or use of the Compensation subsequent to the receipt of the same by the Shanghai Law Firm. FWT replied on the same day and asserted that the Compensation had “remained in full in [Shanghai Law Firm]’s account up to now”and“[n]owhere in our letter was it indicated that the [Compensation] or any part of it has been used or transferred out of the account”. 11.On 14 November 2013, immediately before the hearing of Hao’s application to compel the Company to comply with the 1st Order, FWT confirmed that the Company would provide further documents to him. 12.Accordingly, by consent, this court ordered on 14 November 2013 that the Company was to comply with the 1st Order within 10 days. It was also ordered that penal notice be endorsed on the Order (“2nd Order”). 13.By a letter from FWT to TK on 22 November 2013, Hao was informed that:
14.Various correspondences were thereafter exchanged between TK and FWT from 25 November 2013 to 3 March 2014 by which Hao reiterated his stance that the Company had failed to produce documents showing the transfers and/or use of the Compensation subsequent to the receipt of the same by the Shanghai Law Firm. 15.On 26 June 2014, upon Hao’s application by way of Summons dated 12 June 2014, this court ordered the Company to comply with the 1st Order within 7 days from the service of the order (“3rd Order”). It was specifically ordered that personal service be dispensed with and the previous orders made by this court be served on the directors, ie, the defendants by way of substituted service in the manner stated in the 3rd Order. Penal notice was also endorsed on the 3rd Order. 16.On 11 July 2014, the relevant orders were served on the defendants by way of substituted service. No further document was produced within the 7 days thereafter. 17.There is no dispute (see below) that the defendants, being the only directors of the Company, were therefore in breach of the 3rd Order by 18 July 2014. 18.By a letter from FWT to TK on 29 July 2014, the Company made a turnaround of its case and informed Hao that:
19.The 29 July 2014 letter also enclosed documents, namely, receipts signed by W Wong, banks statements of the Guang Fat Account, bank passbook of the Nanyang Bank Account and a deposit confirmation in respect of the aforesaid transactions. 20.On 18 August 2014, Hao obtained leave to commence these committal proceedings against the defendants. W Wong’s evidence 21.There is only 1 affirmation filed by W Wong (“Affirmation”) on behalf of all the defendants in opposition to this application. It was said that the 2nd and 3rd defendants (“Huang” and “Lau”) are “silent directors” who do not participate in the management of the Company. Huang is in fact the father of W Wong. He is 83 years old and of ill health. It was said that Huang has not been involved in the management of the Company since 2007. However, I note that the Financial Statements of the Company for the years ended 31 March 2011, 2012, 2013 and 2014 were all signed by Huang. 22.Lau is 70 years old and lives in Beijing. It was said that he has never participated in the management of the Company. On the basis of the Affirmation, W Wong is that only effective director of the Company. Indeed, his evidence is that it is up to him to take steps to comply with the 1st Order. 23.According to W Wong, the Mainland proceedings of the Company have been successful so far. However, it must be said that even if the defendants are justified in their belief that they or the Company have been wronged by Hao, it constitutes no reason for them not to comply with the orders of the court. 24.In explaining why the Compensation was paid to him, apart from the fact that the Company had no bank account in the Mainland, W Wong also mentioned the existence of foreign exchange control in the Mainland such that it would be very difficult and time consuming for the Compensation to be repatriated to Hong Kong. 25.Paragraphs 26 to 30 (there is no para 27) of the Affirmation stated as follows:
26.A number of points arise from the evidence concerning the set-off arrangement alleged in para 26 of the Affirmation. First of all, as pointed out by Mr Dawes, who appeared with Mr Man for Hao, this cannot be a true set-off arrangement because there would have been no obligation for repayment after the setting-off of mutual debts. What precisely was the nature of this arrangement has not been made clear in the Affirmation. Possibly, it was an arrangement to side-step the foreign exchange control in the Mainland. On the other hand, under this alleged arrangement, W Wong would effectively be given an interest free loan by the Company until it called for the payment of the equivalent of the Compensation in Hong Kong. 27.This brings me to the second point. Given that W Wong was (and is) the only effective director of the Company, when “it was decided” that a set-off arrangement be used and “when directed by the Company” (see para 26 of the Affirmation), it must mean that it was W Wong and him alone deciding on that arrangement and directing himself to pay back the money. Indeed, Mr Wong, who appeared for the defendants, did not seek to disagree with this analysis. Further, there is not 1 document produced to evidence the decision or the direction. If there is any such document, Mr Wong accepted that they must fall within the 1st Order. With respect, this kind of evidence invites scepticism from any reasonable tribunal. 28.Thirdly, W Wong was and is a fiduciary of the Company. When he was in receipt of the Company’s money, he was plainly acting as a trustee of the Company. Again, Mr Wong did not seek to challenge this proposition. I should add that the suggestion that W Wong might use the Compensation as and when he pleased without accounting to the Company for the profits made (para 28 of the Affirmation) does not sit well with his fiduciary duties to the Company, especially when he was making all the decisions on his own[2]. However, this is not an issue which requires resolution in this application. 29.Fourthly, on W Wong’s own evidence he acknowledged that there are documents of Guang Fat Account relating to the use of the Compensation after it had come into his possession (para 29 of the Affirmation)[3]. It will be seen below that the kernel of the arguments in this application is whether such documents fall within the scope of the 1st Order. 30.Finally, there are no proper particulars concerning the alleged legal advice referred to in para 29 of the Affirmation. Mr Wong submitted that the inference is that the legal advice was obtained after the 29 July 2014 because no further document was supplied after that date. It may be true that W Wong obtained certain legal advice after that date. However, it appears that the real point here is whether he had taken a position on the compliance with the 1st Order based upon legal advice or whether he had been making selective disclosure to serve his own purpose. I believe that the answer is probably the latter because (a) the Company has been legally represented at all material times and (b) as pointed out by Mr Dawes, the further disclosure made on 29 July 2014 via the letter of FWT (see para 18 above) was purportedly “in compliance with” the orders of the court. Hence, it was accepted that documents of Guang Fat Account should be produced. 31.For completeness, Huang and Lau did not appear at the hearing. It was confirmed by Mr Wong that they had been advised to attend the hearing but had chosen not to do so. W Wong did attend the hearing and had chosen not to give any viva voce evidence. 32.Next, I turn to the applicable principles of law, which is again undisputed. Applicable principles of law 33.The proper approach in committal for civil contempt by reason of breach of a court order is a three-stage test, namely:
See: GE Transportation (Shenyang) Co Ltd v Lu Jinxiang, HCMP 1792/2013 (22 January 2014) at §23 per DHCJ Marlene Ng (applying Kao Lee & Yip v Donald Koo Hoi Yan (2009) 12 HKCFAR 830 at §21). 34.No order will be enforced by committal unless it is expressed in clear, certain and unambiguous language: Kao Lee & Yip v Donald Koo Hoi Yan at §23. The burden is on the plaintiff to prove that the defendant’s contempt was beyond reasonable doubt: GE Transportation at §24. 35.In the application for contempt under RHC O 45 r 5(3), no moral blame, knowledge or wilfulness on the part of the director or other officer is necessary. The liability of the director or officer is dependent upon him carrying out his own responsibilities as an officer of the company. It is necessary to show that:
See: GE Transportation at §26; Excel Noble Development Limited & Ors v Wah Nam Group Limited & Ors [2001] 4 HKC 148, CA, at 155I-157G. 36.If the director or officer has “wilfully” refused or failed to take reasonable steps to ensure compliance by the company with the order, he will be punished for contempt. The word “wilful” here is merely to distinguish the situation where the director or officer can reasonably believe some other director or officer is taking those steps. See: Fonfair Company Ltd v Chan Kim Leung & Anor, HCA 2002/2001 (24 November 2006) at §33 per DHCJ Poon (as Poon J then was). 37.To establish a contempt of court for breach of court order(s), it is sufficient to prove that the defendant’s conduct was intentional in the sense that it was conscious and voluntary. It is not necessary to prove a contumacious intent on the part of the defendant. Nor is it necessary to prove that the defendant appreciated that he did breach the order, and it would not be sufficient to negate liability where the defendant did not know or believe that his (deliberate) activities amounted to a breach. See: Kao, Lee & Yipat§§42-55; Contempt of Court by Miller(3rd edn, 2000) at §14.52. The issues 38.The issues here are within a narrow compass. Mr Wong, who has defended these proceedings with considerable skill and fairness, accepted that as of the deadline for the compliance with the 3rd Order, 18 July 2014, there was non-compliance with the same. Hence, the real issue here, according to Mr Wong, is whether the contempt of court due to the non-compliance had been purged by the disclosure made on 29 July 2014 (see paras 18 and 19 above). 39.To determine whether the contempt had been purged, the court is required to determine whether documents belonging to W Wong which evidenced the subsequent transfer or use of the Compensation were required to be produced under the 1st Order. Such documents must include the Guang Fat Account documents referred to in para 29 above. It should not be overlooked that a substantial portion of the Compensation was paid to W Wong in cash. There is no suggestion that those cash have not been used. Indeed, para 28 of the Affirmation and the fact that the Compensation had been transformed into USD 2,617,907.53 suggest otherwise. It is difficult to envisage that there is no document in W Wong’s possession which shows how the cash or part of it had been used. 40.Mr Wong argued that the thrust of Hao’s case, as formulated in para 19 of the Statement made pursuant to O 52, r 2 (“Statement”), is that W Wong’s documents were not produced. He submitted that such documents did not come within the 1st Order. This is the primary argument of the defendants, and it turns upon the proper construction of s 152FA of the Ordinance (“Section”). 41.The Statement is a quasi-Indictment. It sets out the particulars of what it is that the defendants had allegedly done or failed to do in breach of court orders. Such particulars are required so that the defendants can defend this application properly, and if so desired, attempt to purge their contempt: see Cheung Hing v Wong Chor Cheung, HCMP 1828/2011 (7 February 2013), §31. 42.Paragraph 19 of the Statement stated as follows:
For convenience, I shall refer to the documents in question as “W Wong Documents”. 43.According to Mr Wong, in the event that the court finds his primary contention to be an arguable one, then there are 2 further arguments as set out in sections D and E of his skeleton argument, namely, that the present application is precipitous and that there are serious deficiencies in the Statement. Meaning and operation of the 1st Order 44.Before I address the construction of the Section, I should say a few words about the 1st Order. There is no dispute that it was formulated in all embracing terms. I have no doubt that the terms of the order are clear and unambiguous[4]. It requires the Company to produce all documents showing the receipt and the subsequent transfers and/or use of the Compensation. 45.I should also say that the order was couched in such embracing terms because Hao had no knowledge of the whereabouts of the Compensation and, if it had been used, what had become of the same. 46.Further, in respect of the documents which should have been but not produced by the Company in breach of the 3rd Order, Hao is similarly hampered by his lack of knowledge. I agree with Mr Dawes that what was required for compliance very much depends on what had happened to the Compensation[5]. On the evidence before the court, Hao has been kept in the dark until today. 47.As of the date when the 3rd Order was made, there was a gap in the information provided by the Company as to what had happened to the Compensation after it was paid to the Shanghai Law Firm between May and November 2009 and the payment of its equivalent into the Nanyang Bank Account on 20 November 2013, a period of 4 years. 48.However, there is no dispute that the ambit of the 1st Order, which was made in the context of an application under the Section, must be construed in light of the same. Hence, the kernel of Mr Wong’s arguments turns upon whether W Wong’s Documents fall within the scope of the Section. Construction of the Section 49.The Section provided as follows:
50.The focus of the arguments here is whether W Wong’s Documents come within the terms “any records of the [Company]”. 51.The first point to note is the use of inclusive terms in the Section – “any records”. 52.Secondly, the Section had been subjected to judicial examination in a number of cases. However, they were all cases concerning the question whether the documents of a subsidiary fell within the records of the mother company. 53.On his part, Mr Dawes relied upon the judgment of Recorder A Chow SC (as he then was) in Leung Chung Pun v Masterwise International Ltd [2014] 1 HKLRD 1129. Paras 19 to 21 of that judgment stated as follows:
54.I was told by Mr Dawes, who represented 1 of the parties in Leung Chung Pun that the reference to “current records” in para 21 of the judgment was attributable to the fact that some of the documents in question were returned to the subsidiary (see para 22 of the judgment). Mr Wong did not quarrel with the proposition. In any case, a proper reading of the entire para 21 would dispel any suggestion that the learned Recorder took the view that “records” were confined to current records. 55.The ratio of that judgment is clear. Under the Section, “records” include “documents which are currently in the possession of the corporation, or of which the corporation is currently entitled as a matter of legal right to have possession”. 56.Mr Wong disagreed with the correctness of Leung Chung Pun. Relying upon Wu Yang v Dayuan International Development Ltd & Ors, HCMP 2143/2011 (4 June 2013), para 23[6], Mr Wong argued that to fall within “records” under the Section a conjunctive test has to be satisfied, namely, a document becomes a specified corporation’s records (1) when the specified corporation has it in its possession, (2) it forms part of the records of the specified corporation’s affairs, and (3) the specified corporation had a right or power to obtain them. 57.Paragraphs 23 and 24 of Wu Yang (per Harris J) stated as follows:
58.With respect, I am unable to agree with Mr Wong. Whilst I recognise that there is certain tension between Leung Chung Pun and Wu Yang in that the latter suggests that the disputed document must be in the possession of the corporation, I do not believe that this is a general requirement. To use a simple illustration, if the corporation has lost its bank statements but is in a position to obtain copies of the same from its bank, can it be seriously argued that the bank statements are not part of the corporation’s records which may be examined under the Section? I have no doubt that to answer the question in the negative would not be consistent with the language of the Section, and would render it quite pointless. Hence, I agree with the ratio of Leung Chung Pun. 59.With greatest respect, until the point has been ventilated in the higher court[7], perhaps Wu Yang should be understood in the context that the court was dealing with the documents of a subsidiary of the corporation, which were outside the power of the same. Failure to purge the contempt of court 60.Once it is accepted that the Section covers documents which the Company is currently entitled as a matter of legal right to have possession, the issue here allows little room for argument. 61.It is trite that a beneficiary has equitable proprietary rights in all trust assets which extend to trust documents. He is entitled to inspect and make copies of trust documents in relation to the trust property. See: O’Rourke v Darbishire [1920] AC 581 at 626; Re Londonderry’s Settlement [1965] Ch 918 at 937C; Underhill and Hayton: Law relating to Trusts and Trustees (18th edn, 2010) at §56.23. 62.Mr Wong did not quarrel with the foregoing principle of law. Given W Wong’s position as a trustee of the Company in respect of the Compensation (see para 28 above), it must follow that W Wong’s Documents were and are covered under the Section. Accordingly, the selective disclosure by W Wong and/or the Company on 29 July 2014 did not have the effect of purging the contempt of court by reason of the non-compliance with the 3rd Order. Other matters 63.Given the rejection of the defendants’ primary argument, it is unnecessary to deal with the further arguments identified in para 43 above. 64.For completeness, I am satisfied that each of the defendants was fully aware of the terms of the 1st and 3rd Orders at a time when he could use his position as a director to secure compliance with the same. The defendants were made aware of the consequence of non-compliance by reason of the penal notices endorsed on the 3rd Order. 65.There can be no question that W Wong had wilfully (see para 36 above) refused or failed to take reasonable steps to ensure the compliance of the 1st and 3rd Orders by the Company. In respect of Huang and Lau, the assertion that they have not been involved in the management of the Company for many years does not absorb their liability in this application. They are responsible, as directors of the Company, for overseeing its management and affairs. Importantly, there is no evidence from them suggesting that they held the belief that W Wong would take steps to secure compliance with the court orders by the Company. 66.I remind myself that the criminal standard of proof applies to this application. Conclusions 67.For the reasons given above, I am satisfied that the contempt of court by each of the defendants has been established. 68.I agree with Mr Dawes that there has been persistent non-compliance with the 1st Order by the Company and the defendants. Further, the complete turnaround of the story concerning the whereabouts of Compensation constitutes an aggravating feature. But for the fact that this court is prepared to give the defendants the benefit of doubt in respect of their belief over the proper scope of the 1st Order[8], an immediate custodial sentence measured in months would be appropriate in the case of W Wong (see GE Transportation at §§51-56 and AO Smith Holdings (Barbados) SRL v Zhang Dacheng,HCMP 1132/2011 (1 June 2012), §69). 69.Further, Mr Wong has submitted that once the scope of the 1st Order has been clarified the W Wong Documents will be produced. In the premises, I shall allow 1 final opportunity to the defendants to purge their contempt. 70.I shall hear the parties further on the terms of the order which should be made in these circumstances, including whether it would be appropriate to impose a fine on the defendants. 71.Last but not least, I am grateful to counsel for their assistance in these matters.
Mr Victor Dawes and Mr James Man, instructed by Tony Kan & Co, for the plaintiff Mr Jonathan Wong, instructed by Fan Wong & Tso, for the defendants [1] Meaning the 3rd Order. [2] There is no evidence whether W WONG was entitled to act alone in accordance with the constitution of the Company. [3] It appears from the documents of Guang Fat Account disclosed on 29 July 2014 that some of the Compensation instalments left the account within days: B(II), pp 320 and 326. [4] There is no argument over the meaning and operation of the 3rd Order. [5] It should be said that the deposit slip for the payment of USD 2,617,907.53 into the Nanyang Bank Account has not been produced by the Company. However, this application is not going to turn upon this non-compliance. [6] This court was also referred to Veron International Ltd v RCG Holdings Ltd [2013] 3 HKLRD 657, CA, §40 and Wong Kar Gee Mimi v Hung Kin Sang Raymond [2011] 5 HKLRD 241, §46 which were cited in Leung Chung Pun. [7] I do not believe that the point was ventilated in the Court of Appeal in Veron International Ltd. [8] By reason of the analysis in para 30 above, this court is erring on the side of excessive leniency. |
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