LUCKY SUN DEVELOPMENT LTD AND ANOTHER v. GAINSMATE INTERNATIONAL LTD AND OTHERS

HCCT 12/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 12 OF 2007

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D E C I S I O N

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1.  There is a motion for the issue of a writ of sequestration of the properties of the three defendants and one Ms Pan Shu Hui, the company secretary of the 3^rd defendant, for their refusal to comply with an ex parte injunction order granted by Deputy High Court Judge D Pang on 12 February 2007 (hereinafter called “the Injunction Order”).  There is also a motion for an order of committal against Ms Pan for contempt of court on the same ground.  Ex parte leave for the motion for committal was granted by the Hon. Mr Justice Wright on 12 March 2007.  The learned Judge also ordered the dispensation of personal service of the Injunction Order on Ms Pan.  The defendants and Ms Pan contest the two motions.  Ms Pan has also issued a summons on 27 March 2007 to set aside the ex parte order of Mr Justice Wright granting leave and dispensing service.  The parties request me to deal with Ms Pan’s summons first before proceeding with the other matters.  This is my decision on the summons. 

The dispute and the Injunction Order

2.  The Injunction Order required the defendants to do and to refrain from doing a number of things.  The fully fletched application by the defendants to set it aside will take place in mid-June this year.  I call this application a fully fletched one because there was already an application to set aside that was dismissed by Deputy High Court Judge D Pang on 16 February 2007.  However, no evidence had yet been filed by the defendants at that time.

3.  The 1^st and 2^nd defendants are BVI companies.  They are the shareholders and directors of the 3^rd defendant.  Ms Pan is the company secretary of the 3^rd defendant.  The 3^rd defendant owns some shares in a wholly foreign owned enterprise set up in the Mainland called “Shijiazhuang Huigu Kejicheng Co. Ltd (石家庄慧谷科技城開發有限公司)” (hereinafter called “Huigu”). 

4.  The 1^st and 2^nd defendants had entered into certain share transfer agreements with the plaintiffs agreeing to sell the shares of the 3^rd defendant to them.  The 1^st and 2^nd defendants are still the registered shareholders of the 3^rd defendant.  The plaintiffs had paid some money for the purchase of the shares and had taken over the management of Huigu.  However, the performance of the transfer agreements has not been completed.  Various disputes have subsequently arisen out of the agreements.  The disputes have been referred to arbitration in Hong Kong (hereinafter called “the Hong Kong Arbitration”). 

5.  The 3^rd defendant has also commenced legal proceedings in the Intermediate People’s Court of Shijiazhuang City, Hebei Province in the Mainland against Huigu, one Tian Baodong, the former general manager of Huigu, one Jiao Shouheng, the current general management of Huigu and one Hebei Shunchi Property Development Company Limited (河北順馳房地產開發有限公司) (hereinafter called “Hebei Shunchi”) (the proceedings hereinafter called “the Mainland Proceedings”).  Messrs Tian and Jiao were deployed by the plaintiffs to work in Huigu and Hebei Shunchi was related to the plaintiffs.

6.  The 1^st and 2^nd defendants alleged in the Mainland Proceedings that Huigu had transferred more than RMB300 million to Hebei Shunchi.  The 3rd defendant has obtained from the said Intermediate People’s Court a freezing order that has frozen RMB150 million worth of the assets of Hebei Shunchi.  In seeking the freezing order, the 3^rd defendant has tendered its shares in Huigu (hereinafter called “the Huigu shares”) as security.

7.  The Injunction Order required the 1^st to 3^rd defendants to secure the release of the Huigu shares from being used as such security in the Mainland Proceedings within five days from 12 February 2007.  The Order further enjoined the defendants until the conclusion of the Hong Kong Arbitration from continuing to deal with the shares, assets or business of Huigu, exercising voting rights as shareholder of Huigu or of the 3^rd defendant, taking any step to remove the directors of Huigu, intermeddling with the business or management of Huigu, or continuing with the Mainland Proceedings against Huigu, Messrs Tian and Jiao and Hebei Shunchi.

Application for the Injunction Order with notice

8.  Before the plaintiffs had applied for the Injunction Order, they had given notice of the application to the defendants and their then solicitors Messrs Gallant Y T Ho & Co. (hereinafter called “Ho & Co.”).  They supplied Ho & Co. on 9 February 2007 the originating summons, the draft order and the supporting affirmation.  The same set of papers had also been sent to the correspondence address of the 1^st and 2^nd defendants and the registered office of the 3^rd defendant all of which were at the same office unit in Vicwood Plaza in Central (hereinafter called “the Vicwood Office”).  Two partners of Ho & Co. were also present in court and witnessed the making of the Injunction Order by Deputy Judge D Pang though they were there on a watching brief only.

Service of the Injunction Order

9.  After the Injunction Order was made on 12 February 2007, the plaintiffs’ solicitors served a sealed copy of it and other court documents on Ho & Co. on 13 February 2007.  They also tried to serve the same documents on the defendants at the Vicwood Office on the same day but failed because the glass doors of the office were locked.

10.  On 14 February, the process server of the plaintiffs’ solicitors tried to effect service of the sealed copy of the Injunction Order and the court documents on the 3^rd defendant, but the office was still locked.  He then inserted the sealed envelope containing the sealed copy of the Injunction Order and all the court documents for the 3^rd defendant through the crevice of the glass doors.  He also hung on the doorframe of the office two more envelopes each containing a sealed copy of the Injunction Order and the same court documents and addressed to the 1^st and 2^nd defendants respectively.

11.  At about 3:30 p.m. of 15 February, the process server returned to the Vicwood Office with another sealed copy of the Injunction Order endorsed with a penal notice for Ms Pan, the company secretary and also a covering letter addressed to her, but the glass doors were still locked.  However, the documents that he had left there on the previous day had been collected.  He then inserted through the crevice of the glass doors the envelope addressed to Ms Pan that contained the covering letter and the sealed copy of the Injunction Order.  The covering letter for Ms Pan had the words “URGENT” and “PRIVATE & CONFIDENTIAL” chopped on it.  It read:

“We act for Lucky Sun Development Limited and Perfect Vision Management Limited and refer to the captioned action.

According to the company search record of PEP Fund Asia-Pacific District Management Office (Hong Kong) Limited, you are the secretary of the company.

We intend to serve the Order granted by the High Court Deputy Judge D Pang on 12th February 2007 (“the Order”) on you personally.  A sealed copy order with the Penal Notice at the back sheet of the Order is enclosed herewith for your attention.

Kindly contact our Ms Angel Chak at (a telephone number) for an appointment for personal service of the Order before noon on 16th February 2007.  Failing that we shall have no alternative but to apply to court for substituted service of the same on you without further notice.”

12.  On the same day, the plaintiffs’ solicitors wrote to Ho & Co. requesting for the name of a person in the actual management or control of the 1^st and 2^nd defendants and for an appointment within that week to effect personal service of the Injunction Order on such person.  There was however no reply.  Also on 15 February, the three defendants applied for discharge of the Injunction Order.  The application was heard on 16 February and, as I have already pointed out above, was dismissed on that day by Deputy Judge D Pang.

13.  The period of five days from 12 February 2007 for the defendants to secure the release of the Huigu shares as stipulated in the Injunction Order had expired by the end of 21 February which was the 1^st working day after the Chinese New Year holidays.

14.  On 22 February, the process server returned to the Vicwood Office with a view to effect personal service of another sealed copy of the Injunction Order with a panel notice on Ms Pan.  However, the doors were still locked and the attempt failed.  But the envelope containing the covering letter and sealed copy of the Order inserted through the crevice of the door on 15 February had already been collected.

15.  On 26 February 2007, Ho & Co. filed an acknowledgement of service of the Originating Summons for the three defendants.  On 7 March, the plaintiffs’ solicitors wrote to Ho & Co. asking for the contact details of a secretary, director or any other person in the actual management or control of the 1^st to 3^rd defendants for the purpose of personal service of the Injunction Order with penal notice.  There was again no reply.

16.  On 8 March, one Ms Barbara Chiu, a partner of the plaintiffs’ solicitors went with the process server to the Vicwood Office and met Ms Pan.  The sealed order with a penal notice for Ms Pan was handed by server to Ms Pan.  Ms Pan also confirmed to Ms Chiu her receipt of the previous letters addressed to her and the 3^rd defendant which enclosed the sealed copy of the Injunction Order with penal notice requiring her and the 3^rd defendant to perform the acts stated in the Order and that she had passed the documents to her lawyers to handle.

Ex parte application for leave for committal proceedings and dispensation of service of Injunction Order

17.  Despite the Injunction Order, the defendants took no step to secure the release of the Huigu shares from being used as security for the freezing order.  The Mainland Proceedings had also not been withdrawn.

18.  On the basis of the evidence of service of the sealed copy of the Injunction Order as outlined above, Wright J on 12 March granted ex parte leave to the plaintiffs to apply for an order for committal against Ms Pan for her contempt in disobeying the Injunction Order and dispensed with personal service of the Injunction Order on her.  The learned Judge further dispensed with personal service of the Notice of Motion for the application for committal of Ms. Pan.

19.  The Notice of Motion alleged that Ms Pan had refused or neglected to comply with the Injunction Order.  It further alleges that Ms Pan had aided and abetted the 3^rd defendant in disobeying the Injunction Order.  The plaintiffs do not seek to uphold this allegation of aiding and abetting.

Affirmation evidence for setting aside the ex parte order of Wright J

20.  Ms Pan has filed an affirmation in support of her summons to set aside the ex parte order of Wright J.  She said in her affirmation that she had received university education in Taiwan.  She was employed in about November 2004 as a secretary by one Basic Investment Group Limited (hereinafter called “Basic”) which had the same address as the defendants in the Vicwood Office.  Before joining Basic, she had worked as a secretary for various companies for many years.  Since she was a secretary of Basic, she had never taken part in the operational matters or the decision making of the 1^st to 3^rd defendants.  She was also not required to attend the meetings of the 1^st to 3^rd defendants.  She had no knowledge of the business of the 1^st to 3^rd defendants save that she was told something about the business of the 3^rd defendant when she was employed.  She took instructions from one Mr Yan Jianxin (hereinafter called “Yan”).  She was the only employee of Basic and her duties were to answer phone calls, handle administrative matters like paying utility bills and other secretarial duties.  She was also appointed as the company secretary of the 3^rd defendant and had to file the annual returns for the 3^rd defendant at the Companies Registry.  She was not a shareholder or director of the 1^st to 3^rd defendants and had no legal or beneficial interest in these companies. 

21.  She was aware of a dispute on the transfer of the shares of the 3^rd defendant and Ho & Co. was acting for the three defendants in November 2006, but she was not aware of what the dispute was about.  She did not know the contents of the Injunction Order and had not attended any meetings with the lawyers of Ho & Co.  She merely worked as a post-box and passed the documents received at the Vicwood Office to Ho & Co. without reading them.  She did not know who would be handling the Injunction Order but thought that Ho & Co. would be handling it. 

22.  She was occasionally out of the office as she had to attend to other administrative matters.  Whilst she was away, there would be a white board hung at the entrance showing the phone number of Basic which would be diverted to her mobile phone.  The voice mail of her mobile phone had not received any message from the plaintiffs’ process server.  She had picked up the documents left outside the doors of her office.  She had only read the covering page of the documents.  She then phoned Yan.  As she did not understand the contents of the documents, she did not explain them to Yan.  Yan told her to pass the documents to Ho & Co.  She had sent documents to Ho & Co. on 12 and 16 February.  No solicitor of Ho & Co. had explained the contents of the documents or the Injunction Order to her.  She had not done anything regarding the documents as she was only told to pass them to Ho & Co.  She had not evaded service of the sealed copy of the Injunction Order as she did not know about the dispute. 

23.  Regarding the personal service of the sealed copy of the Injunction Order on her on 8 March, she more or less confirmed the evidence of Ms Chiu of the plaintiffs’ solicitors.  However, the parties agree that the motion for committal is not based on the personal service of the Injunction Order on 8 March as that was already after the expiry of the time for securing the release of the Huigu shares.  The motion is based on the service on 15 February of the Injunction Order with a penal notice for Ms Pan.

24.  She also relied on the affidavit evidence of one Chan Heung Wing, a solicitor of Messrs Mallesons Stephen Jaques which had acted for her from about 12 March to 4 April.  Mr Chan said he had been told by Mr Walter Lee of Ho & Co. that the communication between Ho & Co. and Ms Pan started on about 14 February this year, but was it limited to administrative matters of forwarding of documents and payment of fees.  Nobody from Ho & Co. had explained to Ms Pan the contents of the Injunction Order or any other court document or given her any legal advice.  This hearsay evidence was confirmed by a letter of Ho & Co. dated 17 April 2007.

Cross-examination of the Respondent

25.  Ms Pan was cross-examined on her affirmation.  She said she had studied up to Form 6 in a secondary school in Hong Kong.  She then studied international trade for four years in Tung Hai University of Taiwan.  In the course of her studies in the university, she had also learnt some English.  She returned to Hong Kong in 1986 after her graduation and started working as secretary.  Prior to joining Basic, she had been the company secretary of another company for 10 years or more.  Whilst working for Basic, she used to ask for instructions from Yan regarding the matters of Basic and the 3^rd defendant.  This was so even though Yan was only the sole director of the 1^st defendant, one of the 3^rd defendant’s two corporate directors.  She did not take instructions from the directors of the 2^nd defendant which was the other corporate director of the 3^rd defendant. 

26.  She also confirmed receipt of the documents served by the Plaintiff at the Vicwood Office on 14 and 15 February 2007.  For the document with a covering letter addressed to her on 15 February (which has been quoted above), she thought that the letter was for her company and she received it on behalf of the company.  She read the covering letter and flipped through the rest.  She understood the 1^st, 2^nd and 4^th paragraphs of the covering letter but not the 3^rd paragraph.  (The 3^rd paragraph advised her of the Plaintiff’s intention to serve the Injunction Order on her personally and that a sealed copy of the Injunction Order with a penal notice at the back was enclosed for her attention.)  She said she did not understand what was “an order”.  She only knew that the document she got was a legal document.  She did not know whether it was issued by a firm of solicitors or by the court.  She did not know that it had compulsory effect.  She had not come across such thing before.

27.  She knew it was an important document.  She phoned Yan and asked if the document had to be sent to him.  She told Yan that her name was on the covering letter.  Yan told her to pass the document to the solicitor, Mr Lee for him to follow.  She did so accordingly.  She had not asked anyone of Ho & Co why her name was on the covering letter and no one from that firm had told her why.  She was not aware that the three defendants had applied on 15 February for discharge of the Injunction Order or that the application was heard and dismissed on 16 February.  She only received an explanation about the Order in April from her present solicitors.

The legal requirements for dispensation order and the burden of proof

28.  The parties agree that the Order of Wright J dispensing with service of the Injunction Order with penal notice under O.45 r. 7(7) was an extraordinary order.  It should only be made if the Plaintiff can satisfy the court three requirements and the standard of proof is beyond reasonable doubt.  The three requirements are that the respondent (i) knew of the terms of the order; (ii) was well aware of the consequences of disobedience; and (iii) was aware of the grounds relied on as a breach with sufficient particularity to be able to answer the charge.  They are contained in paragraph 39 of the judgment of Madam Justice Kwan in Lau Yee Ching v Wong Tak Kwong & Ors, HCCW 807/2004:

“

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).”

Analysis and findings on the evidence

29.  I have considered the evidence proffered by the Plaintiffs and the evidence of Ms Pan.  I have also considered the evidence of Mr Chan as corroborated by the letter of Ho & Co. dated 17 April 2007.  I have also observed Ms Pan’s demeanour in the course of cross-examination.  She could understand the English questions from counsel and the court and could very often react with body language before the questions were translated.  Her command of the English language was much better than what she would want me to believe.  I also bear in mind her education and working experience.  I thus find it incredible that she would have any problem in understanding the 3^rd paragraph of the covering letter addressed to her and dated 15 February 2007.  That paragraph was couched in simple English.  It was no more difficult than the rest of the letter.  I also do not accept that she did not understand what was “an order”. 

30.  I find that she had properly understood the meaning of the whole of the covering letter and that the Plaintiff was trying to effect personal service of the Injunction Order with penal notice on her.  I also find that she had understood the terms of the Injunction Order as they were not difficult to understand even to someone who is not trained in law.  I am sure she understood the 1^st part of the Injunction Order that required the release of the Huigu shares as security for the freezing order in Mainland Proceedings.

31.  I also find that she wanted to evade personal service of the Injunction Order and thus did not telephone Ms Angel Chak of the plaintiff’s solicitors for such service before noon on 16^th February 2007.  This request was contained in the 4^th paragraph of the covering letter of 15 February and she had no difficulty in understanding it. 

32.  I also find that she was aware of the consequences of disobeying the Order, namely, she would be exposed to committal for contempt of court.  That explains her swift action in ringing up Yan for advice on what to do.  She then followed Yan’s instruction and forwarded the papers to Ho & Co. by courier in the next morning. 

33.  I also find that if she should have any doubt on why the covering letter was addressed to her as the company secretary or on the terms of the Injunction Order or the consequence of disobedience, she would have asked Mr Lee or some other lawyer of Ho & Co. for advice.  She had been communicating with the staff of this firm since 14 February though she personally was not their client.  I am sure she knew that in the capacity of the company secretary of the 3^rd defendant, she could have raised her queries about this matter with Ho & Co. and they would have entertained her.  The fact that when Mallesons Stephen Jaques were appointed to act for the three defendants, they were also engaged to act for her is good evidence of this.  She had not asked Ho & Co. for advice and no advice was given to her because she already knew the terms of the Order and the consequence of disobedience. 

34.  Since she was only the company secretary and not a director and had no interest in the shares or business of the 3^rd defendant, there was a limit of how much she could have done for compliance with the Order.  Her immediate action of informing Yan, the sole director of the 1^st defendant, who also gave her instructions for the 3^rd defendant, was already a prompt act in complying with the Injunction Order.  The despatch of the document by courier to Ho & Co. in the morning of the 16^th and her confirmation with Ho & Co. of the receipt of the document were also acts in complying with the Injunction Order.  The fact that no step had been taken on 16 or 21 February to secure the release of the Huigu shares was not because of her failure to do so, but because it was beyond her power.  The fact that the three defendants had on 15 and 16 February sought the discharge of the Injunction Order is good evidence that the boards of the three defendants would not have agreed to secure the release of the Huigu shares at that stage. 

35.  She also should not be blamed for not informing the board of the 2^nd ddefendant about the Injunction Order as the 2^nd defendant was obviously aware of it and had taken part in the failed attempt to discharge it on 15 and 16 September.

36.  Though she could not have done anything more than reporting the Injunction order to Yan and passing the papers to Ho & Co., she was no doubt concerned about the fate of the attempt to discharge on 16February.  The discharge of the Injunction Order would have relieved her from the obligation to comply with it.  I thus find that she must have enquired someone about the result of the application to discharge and was advised about its failure.  In any case, she was aware that the Injunction Order was still in place but there was no compliance with it by the defendants.  She was thus aware of the Plaintiff’s ground of her breach of the injunction.

37.  I would further find that even on the evidence as before Wright J and without the evidence of Ms Pan and Mr Chan, the Plaintiff has still satisfied the three requirements beyond reasonable doubt.  There was before Wright J, the affidavit of Ms Barbara Chiu that showed that the three defendants were legally represented and had actively engaged in the proceedings.  From the records of the Companies Registry, Ms Pan was the only officer of the 3^rd defendant who is individual.  All other officers were corporations.  Previous attempts to effect personal service on her at the Vicwood Office had all failed.  Ho & Co. had ignored the requests of the Plaintiff’s solicitors for arrangement of personal service of the Injunction Order on the defendants.  The affidavit also revealed Ms Chiu’s conversation with Ms Pan on 8 March 2007 outside the Vicwood Office.  In the course of that conversation, Ms Pan confirmed receipt of the previous letters addressed to her and the 3^rd defendant which enclosed the Injunction Order with penal notice and she had passed them to her lawyers.  With that confirmation and the background outlined above, it can be readily inferred that she was aware of the terms of the Injunction Order, the consequences of her disobedience and the ground the Plaintiff relied on as her breach of the Injunction Order with sufficient particularity that she would be able to answer it.

Ex parte application for the dispensation order

38.  Ms Pan also argued that there was no justification for the application for the order for dispensation of service of the Injunction Order under O.45 r. 7(7) to have been made ex parte.  I have also been reminded of what Rogers VP has said in para. 6 of L v C [2004] 2 HKC 387:

“

6.

In view of the importance of ex parte orders not being granted except in proper circumstances namely where either the delay would cause the applicant injustice or the party who would be the subject of the order would take action which would nullify the effect of the order, it can only be reiterated, yet again, that ex parte orders go against the normal way litigation is conducted.  It is an infringement of the rights of natural justice of a party that he or she should be denied knowledge of a hearing at which an order is sought which would affect him or her.  Those who make such applications have a duty to take heed of that and they cannot pass their responsibility to the court when they make such applications.  Nevertheless the court must also be vigilant whenever any application is made ex parte without notice having been given to the other party that such orders should only be made in very special circumstances, as I have outlined.  …”

39.  I think the dispensation order would not have been necessary if there was an arrangement for personal service on the defendants or Ms Pan was present at the Vicwood Office on any of the three occasions of 13,14 and 15 February when personal service was attempted.  But Ms Pan was evading personal service.  The Injunction Order had also been outstanding for a long time.  In the light of such background and despite the encounter on 8 March outside the Vicwood Office, I am of view that an inter partes application for a dispensation order would have produced delay that would cause the plaintiffs injustice and it was permissible for the application to have been made ex parte.

40.  Leading counsel for Ms Pan also referred me to Chou Yi Feng v Chou Yi Chen & Ors, HCA 4393/2001, a decision of Chung J.  However, there was in that case no direct evidence of service of the order on the defendants or direct evidence of the defendants’ knowledge of the order that decision is distinguishable from the present one.

Order

41.  In the premises, I find that when the Plaintiff applied for the ex parte dispensation order before Wright J, it had satisfied the three requirements beyond reasonable doubt.  There is now further evidence from Ms Pan herself which buttressed the order.  I would not therefore set aside Wright J’s ex parte order.  I would only allow paragraph 2 of Ms Pan’s summons and strike out such parts of the Notice of Motion dated 13 March 2007, which allege that she had aided and abetted the 3rd defendant in wilfully disobeying the Injunction Order.  This relief however has not been really contested by the plaintiffs.  Despite this decision, I must also observe that Ms Pan had done all she could for complying with Injunction Order and had done so expeditiously.