JESSOP & BAIRD (HONG KONG) LTD v. NEO HWEE KHIM AND OTHERS

HCMP 1152/2017

[2019] HKCFI 2583

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1152 OF 2017

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J U D G M E N T

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Introduction

1.  There have been a number of proceedings issued in the High Court including a winding up petition, as a result of disputes between the two equal shareholders of the plaintiff company (“P”), one is said to be controlled by Mr James Harvey Jessop (“Harvey”) and the one is said to be controlled by the 3^rd defendant Robert Ng Man Choong (“Robert”).  The present contempt proceedings arise out of one of those proceedings in the High Court, namely HCA 2100/2016 (“2100 Action”).

2.  P issued the originating summons on 17 May 2017 (“OS”) to commit the 3 defendants herein (collectively “Ds”), namely Robert, Neo Hwee Khim (“Khim”), and Chan Man Ping Anita (“Anita”) to prison for civil contempt. 

3.  The contempt is said to have arisen from the failure and refusal of Ds and a company called Pacific Dunlop Garments Limited (“PDGL”), the 6^th defendant in the 2100 Action, to comply with an undertaking given by each of them through their Senior Counsel at a hearing on 9 September 2016 before Recorder Winnie Tam SC in the 2100 Action (“Undertaking”).

4.  In the 2100 Action (and as I understand also in the other actions), Anita was all along instructing the same firm of solicitors and same counsel as Robert and Khim.  It was only on 4 January 2017 that her present solicitors came on record to represent her in the 2100 Action.

5.  Mr William Wong SC, Mr Toby Brown, Mr Martin Lau appeared for P at the hearing before this Court.  Mr Thomas Wong appeared for Robert and Khim, and Mr Victor Dawes SC and Mr John Hui appeared for Anita.  At the hearing, Mr Thomas Wong has, in addition to his own submissions, also adopted the submissions made by Mr Dawes SC on behalf of Anita, for Robert and Khim.

Background

6.  P was incorporated on 6 August 2004 under the laws of Hong Kong and had its registered office at Star House until 19 July 2016 and thereafter at St George’s Building in Central.  P was set up pursuant to an agreement between Harvey and Robert with the intention to operate P’s business and to hold the company as 50/50 shareholders[1].

7.  P’s business is said to be manufacturing and trading of garments and distribution of women lingerie and brassiere.  P had operated a factory in Zhongshan at two factory premises, the “Main Factory” and the “Jiemin Factory” (collectively “Zhongshan Factory”), for its manufacturing side.

8.  The two equal shareholders of P are two companies incorporated in Hong Kong, Marrakesh Investments Limited (“MIL”) and Tangiers Holdings Limited (“THL”), each holding one of two issued shares:-

(1)  MIL has two equal registered shareholders Alwero Holding (HK) Limited (“Alwero”) and Acorn Apparel (HK) Limited (“Acorn”). Robert is the registered shareholder of 99.999% shares of Alwero.  Anita and her sister-in-law Chan Yuk Kan are the two registered shareholders of Acorn with Anita being the company secretary.  Robert and Anita are the directors of MIL. MIL is said to be under Robert’s control.

(2)  THL is 50% owned by Harvey and the other 50% is owned by Othmane Senoussi and Idiss Senoussi respectively who are said to have fully entrusted Harvey to be the sole director of THL.  THL is said to be under Harvey’s control.

9.  Harvey is the CEO of P.  From 13 September 2004 until 19 July 2016, Harvey was one of P’s two directors and the other director was Robert’s sister-in-law, Khim.  Anita was P’s company secretary from 3 September 2004 to 19 July 2016.

10.  On 19 July 2016, Khim resigned as director of P, and Anita was removed as P’s company secretary.  Harvey has become P’s sole director since then.  Khim’s resignation is a disputed issue in that it is Ds’ case that Khim resigned due to Harvey’s duress and/or coercion.

11.  Robert is said by P to own and control a group of companies known as the PD Group (“PD Group”), which consists of various inter-related Hong Kong and Mainland companies including PD Clothing & Textiles Limited (“PD Clothing”) PD Clothing & Textiles (Zhongshan) Limited (“PD Zhongshan”), PD Garments Limited (“PD Garments”), PD Enterprise Limited, and PDGL, and Robert is also said to own the land and plant of the Zhongshan Factory[2].  As seen later in this judgment, it is now disputed by Robert that he still owns and/or controls PD Zhongshan and/or Zhongshan Factory.

12.  According to P, pursuant to the agreement between Harvey and Robert, P had operated its manufacturing activities in the Mainland from 2004 until 28 September 2016 as follows[3]:

(i)  P paid rent to PD Zhongshan which owned the land and plant of Zhongshan Factory and PD Zhongshan designated a specific area in the Zhongshan Factory (in both the Main Factory and the Jiemin Factory) exclusively for the manufacturing of P’s products.

(ii)  PD Zhongshan employed for P for its manufacturing side approximately 200 workers in the Zhongshan Factory.

(iii)  PD Zhongshan and/or the PD Group occasionally purchased equipment and machineries for P using funds supplied by P.

(iv)  PDGL provided accounting and bookkeeping services to P for a monthly fee of HK$30,000 per month and as a result of such an arrangement, most (if not all) of the accounting documents of P had been kept at the Zhongshan Factory.

13.  PDGL is a limited company incorporated in Hong Kong.  Robert is said by P to be a director and the ultimate 99.999% shareholder of PDGL[4].

14.  The present dispute between the parties started when according to P, on or around 3 May 2016, Robert admitted to Harvey that he had caused Khim to falsify some figures in the books and records of P in order to reduce P’s Hong Kong tax liabilities (“Financial Irregularities”).  According to Harvey, Khim was at that time P’s financial controller and was the one who prepared P’s management accounts[5]. Ds denied what was alleged by P.

15.  Anyway, according to Harvey, upon realising this, and being P’s director, it was both necessary and imperative for him to understand more about P’s accounts.  After a meeting with Robert, he had a meeting with Khim on 15 June 2016[6] which was followed by a letter sent by Harvey to Khim on the same day[7], indicating that he wished to perform a thorough and comprehensive review of P’s documents and accounts particularly in relation to the related party transactions as shown in the relevant management accounts or audited accounts and that Harvey had set out the various documents/information which he sought to review (“Financial Records”).  Harvey further sent a letter to Eric Cheung & Co, P’s auditors (“Auditors”) on 15 June 2016 to seek, amongst other things, documents provided by the management to the Auditors, the requisitions raised by the Auditors, the management’s replies to the Auditors’  requisitions, the audit working paper and bank confirmation for such period[8]. 

16.  Having had no response, P instructed solicitors to write to Khim and the Auditors on 30 June 2016 to again seek the Financial Records set out in P’s previous letters to them.  Khim  eventually responded to Harvey on 13 July 2016 (“13.07.16 Letter”) indicating that, amongst other things,  all P’s Financial Records were located in Zhongshan and had always been available to Harvey at all times[9].

17.  Upon what was said by Khim, Harvey requested an initial “P&L review” which was agreed by Khim to take place on 19 July 2016.  Harvey visited the Zhongshan Factory with two representatives on 19 July 2016 (“19.07.16 Visit”).  According to Harvey, Khim was initially forthcoming but later became uncooperative and refused to provide the Financial Records unless with Robert’s approval[10]. Harvey’s attempts to obtain access to all P’s Financial Records had not been successful.  Further, while Harvey was in Zhongshan during the 19.07.16 Visit, Anita and Elsa (later defined) took possession of the company kit and other corporate documents from P’s Star House Office in Hong Kong.

18.  This led to P issuing the 2100 Action on 12 August 2016 which was followed by a number of proceedings issued respectively by the two sides including the following:

(1)  On 31 August 2016, MIL issued a petition under HCCW 307/2016 (later converted to HCMP action) seeking, amongst other things, an order that Robert be appointed as a director of P and/or that TIL to purchase MIL’s shares in P at a fair value[11] (“307 Petition”).

(2)  On 1 September 2016, P issued HCMP 2296/2016  against HSBC  to seek,  amongst other things,  that P’s bank account be reactivated [12] (“2296 Action”).  MIL and Khim later applied to intervene. 

(3)  On 3 October 2016, MIL issued an unfair prejudice and/or winding up petition under HCCW 352/2016 against TIL and P (“352 Petition”).

(4)  On 5 October 2016, P issued HCA 2572/2016 against the defendants including Ds and P’s claims included conversion of properties belonging to P (“2572 Action”).  On 30 September 2016, P obtained an injunction on ex parte basis which included a mandatory injunction for deliver up of P’s chattels and machineries withheld in the Zhongshan Factory. The ex parte injunction was on 14 October 2016 continued by Queeny Au-Yeung J (“2572 Injunction”) and she had handed down her reasons for her decision the same day (“14.10.16 Decision”).

19.  P has alleged that Ds had been in breach of order/undertaking not only in the 2100 Action but also in the 2296 Action and in the 2572 Action in that:

(i)  In the 2296 Action, according to P, at a hearing on 23 September 2016 before DHCJ R Ismail, Robert (through MIL) and Khim through their Senior Counsel gave an undertaking to the Court to take out a summons within 7 days for the appointment of a receiver for P, or for an injunction. Upon that undertaking, the Deputy Judge then adjourned the matter to be heard on 30 September 2016.   Robert (through MIL) and Khim did not comply with their undertaking.  At the hearing on 30 September 2016, the Deputy Judge allowed a withdrawal by P from its HSBC bank account and according to P, she had made “an express criticization” that there was a breach by Robert (through MIL) and Khim of their undertaking.   

(ii)  The 2572 Injunction was allegedly not complied with and P obtained leave on 13 October 2016 from Au-Yeung J to issue contempt proceedings against Robert for breach of the injunction and later obtained leave on 28 December 2016 from DHCJ Lee (as he then was) to issue contempt proceedings against Anita. On 18 November 2016, P issued the contempt proceedings against Robert under HCMP 3216/2016 (“3216 Action”) , and on 10 January 2017, P issued contempt proceedings against Anita under HCMP 60 of 2017[13]. Robert, Acorn and PD Garments had taken out applications to set aside the leave and to discharge the 2572 Injunction but no decision had yet been handed down at the time of the present hearing.

20.  In the midst of all the proceedings,  on 28 September 2016, P’s operations at the Zhongshan Factory were closed down by PD Zhongshan and P’s workforce was paid off and released by PD Zhongshan[14].

21.  Insofar as the 2100 Action is concerned, this action was commenced by P against 6 defendants, namely Ds (Robert, Khim, and Anita), PD Zhongshan, PDGL and an employee of Acorn called Lee Wai Ling (“Elsa”). As seen in the statement of claim (“SOC”)[15], P is seeking, amongst other things, the following reliefs: (1) against Robert and Khim, damages for tort of conversion of the Financial Records; (2) against Ds, Elsa and PD Zhongshan , damages for tort of conversion of the Corporate Documents (as defined in the SOC); (3) against Robert, Khim, PD Zhongzhan and PDGL damages for conspiracy to defraud by unlawful means; (4) against PD Zhongshan US$950,000 for moneys had and received; (5) against all 6 defendants an order that they are to account for all property and other assets of P wrongfully received by them.

22.  On 1 September 2016, P issued a summons in the 2100 Action against the 6 defendants  including Ds seeking, amongst other things, an interlocutory injunction to deliver up all confidential information, corporate documents and accounting records of P which are in their possession or control[16] (“2100 Summons”).  It was at the 1^st call over hearing of the 2100 Summons on 9 September 2016 before Recorder Winnie Tam SC that Ds gave the Undertaking.  This was recorded in an order of the same date (“Order”)[17].  The 2100 Summons was then adjourned to be heard before the Companies Judge together with the 307 Petition.

23.  The Order endorsed with penal notices was served on Ds through their then solicitors.   Ds did not dispute that they were properly served with the Order.

24.  As said earlier, it is P’s complaint that Ds have been in breach of the terms of the Undertaking.  On 31 March 2017, P applied for leave to apply for an order of committal pursuant to Order 52 Rule 2(2) of the Rules of the High Court (RHC) against Ds.  P’s application was supported by a statement of the same date (“Statement”)[18] together with  Harvey’s 4^th affirmation filed in support of P’s leave application[19] (“Supporting Affirmation”).

25.  Leave was later granted on 5 May 2017 by Au-Yeung J, and as mentioned earlier, the OS was then issued on 17 May 2017. There was no issue in relation to service of the OS and Ds had through their respective acknowledgment of service indicated their intention to defend.

26.  Anita filed her affirmation opposing the OS on 26 July 2017, Robert and Khim filed their respective opposing affirmations on 9 October 2017 (“Opposing Affirmation”). 

27.  Harvey’s reply affirmation was then filed on 28 November 2017 (“Reply Affirmation”).

28.  Although various affirmations filed by the parties under the various actions/proceedings between them were included in the paginated bundles before this Court, the above affirmations were the key ones in the present proceedings.

29.  There was no application by P for an order to cross examine Ds, nor was there any application by Ds to cross examine P.  The parties thus proceeded on the basis of their respective affirmations only with no oral evidence.

The Undertaking

30.  There are two paragraphs in the Undertaking, the 1^st one relating to the delivering up of the company kit of P.  It was not disputed that this had been done.

31.  The 2^nd and the relevant paragraph in so far as the present proceedings  states as follows[20]:

“The 1^st to 4^th and 6^th Defendants[21] further undertake to allow Mr James Harvey Jessop being a director of the Plaintiff to inspect and take copies without charge of the accounting documents of the Plaintiff kept at the factory of the 5^th Defendant in Zhongshan, PRC upon giving not less than 48 hours advance notice to the 1^st, 4^th and 6^th Defendants through their solicitors.”

32.  The Undertaking was drafted by Ds and offered by them and as accepted by Ds was framed in quite general terms and it was permissive. As pointed out by Mr Dawes SC, it was not the usual form of disclosure order in that there was no positive obligation on the part of Ds to deliver up a particular class of documents which had been properly defined. Simply, Ds undertook to allow Harvey to inspect and take copies without charge of the P’s accounting documents kept at the Zhongshan Factory upon the requisite notice being given.

33.  Further, in P’s solicitors’ letter of 9 September 2016 (“09.09.16 Letter”)[22], P purported to give the requisite notice to inspect, and P’s solicitors  had stated that the “accounting documents” referred to in the Undertaking included but were not limited to the management accounts, general ledgers, quotations, invoices, receipts and vouchers since the incorporation of P, and  P’s solicitors had also referred Ds’ solicitors to the definition of “accounting records” in the Hong Kong Accounting Standard (collectively “Accounting Documents”).

34.  In Ds’ solicitors reply of 12 September 2016 (“12.09.16 Letter”)[23], Ds did not dispute what P said the Accounting Documents comprised of, and in their Opposing Affirmations, they only sought to distinguish Accounting Documents from “Corporate Documents” and again there was no dispute as to what P said were included in the Accounting Documents.  

The alleged breaches

35.  The alleged breaches of Ds fall into 3 categories:

(1)  Ds had failed to allow inspection of P’s Accounting Documents despite the requisite 48 hours’ notice was given;

(2)  D2 had taken steps to prevent inspection or make the inspection of the documents as difficult and time consuming as possible against the clear intention of the Undertaking;

(3)  Certain key documents had/have still not be provided for P’s inspection (“Withheld Documents”).

Ds’ defences

36.  Ds denied they had been in breach of the Undertaking, and their defences were:

(1)  No requisite notice was given for P’s 1^st inspection on 13 September 2016; (“Notice Issue”)

(2)  There was no obstruction or delay on their part for the 2^nd inspection on 19 September 2017 and thereafter; (“Obstruction and Delays Issue”)

(3)  The alleged Withheld Documents did not exist and were not held at the Zhongshan Factory; (“Withheld Documents Issue”)

(4)  In the event that this Court finds beyond reasonable doubt that there was a failure to comply with the Undertaking, Ds did not have the requisite mens rea for such failure to comply (“State of Mind Issue”).

The legal principles

37.  There was no dispute on the general legal principles on contempt of court which have been set out in a number of authorities. They can be summarised as follows: (1) the alleged breach must be proved beyond all reasonable doubt; (2) the Court should first construe the relevant order so as to ascertain its meaning and operation; (3) the Court should then determine whether the defendant has in fact complied with the order; (4) finally, the Court should consider whether any failure to comply was accompanied by the state of mind necessary to establish punishable contempt[24].

The Notice Issue

38.  It was on the same day of the Undertaking being provided by Ds, ie 9 September 2016 (Friday) that, as said earlier, P purported to give notice to inspect by way of the 09.09.16 Letter, which was sent by its solicitors at 18:03[25] requesting access to the Zhongshan Factory on 13 September 2016 (Tuesday) for inspection of the Accounting Documents.  It was P’s case as the notice was issued 4 days before the actual date of visit (ie 13 September 2016), P had fully complied with the requisite requirement of 48 hours set out in the Undertaking.  

39.  In the 12.09.16 Letter sent on that day at 22:12[26], Ds requested, amongst other things, that the date of inspection be postponed to 19 September 2016.  According to P, the 12.09.16 Letter was only brought to Harvey’s attention when he arrived in the Zhongshan Factory in the morning of 13 September 2016 with representatives from his solicitors.

40.  According to Harvey, upon arrival at the Zhongshan Factory at 10 am on Tuesday 13 September 2016  after over two hours of commute from Hong Kong, they were led to the conference room of the Zhongshan Factory by Mr SY Lee (“SY Lee”), the Finance Controller of PD Zhongshan[27] and said to be a subordinate of Robert’s.   It was only then that SY Lee produced to Harvey and his team a copy of the 12.09.16 Letter.  It was P’s case that SY Lee denied them inspection, save the audited financial statements of P from 2009 to 2014 which P already had.

41.  It was argued on behalf of Ds that no valid notice was given by P, in that the notice given was short of 48 hours and this was because the notice period should be construed and reckoned as provided by Order 3 rule 2(5) and rule 2(6) of RHC to exclude a Saturday or a Sunday from the notice period.  As P’s 09.09.16 Letter was faxed to Ds’ solicitors at 6:03pm on 9 September 2016 (Friday), the requisite notice period would not be satisfied until 6:03 pm on 13 September 2016 (Tuesday). 

42.  The relevant provisions of Order 3 rule 2 are as follows:

“Reckoning periods of time (O. 3, r. 2)

(1) Any period of time fixed by these rules or by any judgment, order or direction for doing any act shall be reckoned in accordance with the following provisions of this rule.

(2) Where the act is required to be done within a specified period after or from a specified date, the period begins immediately after that date.

(3) Where the act is required to be done within or not less than a specified period before a specified date, the period ends immediately before that date.

(4) Where the act is required to be done a specified number of clear days before or after a specified date, at least that number of days must intervene between the day on which the act is done and that date.

(5) Where, apart from this paragraph, the period in question, being a period of 7 days or less, would include a specified day, that day shall be excluded

(6) In this rule—

specified day (指明日子) means—

(a)  a Saturday;

(b)  a general holiday;

(c)  a gale warning day as defined by section 71(2) of the Interpretation and General Clauses Ordinance (Cap. 1);

(d)  a black rainstorm warning day as defined by that section; or

(e)  (if the act in question is required to be done at an office of the Court) another on which the office is closed.”

43.  On the other hand, Mr Wong SC submitted on behalf of P that the 48 hours in the Undertaking was not fixed by the High Court rules or by any judgment or order or directions as provided in Order 3 rule 2(1) and that Order 3 did not apply because it did not apply to undertakings given voluntarily by a party to the court.  Further Mr Wong SC submitted that “48 hours” simply means 48 hours to any reasonable man, and there was no ambiguity or complication by that.

44.  However, the Undertaking was recorded in the Order with a penal notice and that the Undertaking was being enforced as being part of the Order.  I find, on the proper construction of Order 3 rule 2, the provisions therein should apply to the notice period in the Undertaking.

45.  In light of the above, I am of the view that the notice given by P by way of the 09.09.16 Letter was short of the requisite notice of 48 hours.

The Obstruction and Delay Issue

46.  The evidence showed that there were the following visits by Harvey to the Zhongshan Factory for inspection:

(1)  3 September 2016

(2)  19 September 2016

(3)  According to Ds, some 85 occasions from October 2016 to January 2017

The 1^st visit on 13 September 2016

47.  Harvey complained that Ds’ solicitors only faxed over the 12.09.16 at 22:12 pm that day purposely knowing full well that he and his team would not have the chance to see it before departing from Hong Kong the next day.  Essentially, in the 12.09.16 Letter, Ds requested (i) the inspection be postponed to 19 September 2016 as Mike Chen, the local Chinese accountant, was on compassionate leave; and (ii) P to narrow down the Accounting Documents to be inspected during the 1^st inspection, ie 19 September 2016.

48.  Harvey had said in his Supporting Affirmation that it was impossible that only one staff was in charge of the Accounting Documents and that to his knowledge at least Khim and SY Lee were also well versed of the Accounting Documents and this was because during the 19.07.16 Visit, Khim had showed Jessop a box of P’s Accounting Documents for the year 2015 well segregated in a paper box inside the accounting room of the Zhongshan Factory (“Accounting Room”), and Harvey had taken a photograph of the box and the documents in the Accounting Room[28].

49.  It was also Harvey’s evidence that after being informed by SY Lee of the 12.09.16 Letter, he and his legal representatives had spoken to Ds’ legal representatives on the phone demanding an explanation. According to P, Ds’ solicitors had given various excuses asserting at one point that (i) Harvey could only perform the inspection personally but not his legal representatives to whom he had given a power of attorney and later, (ii) asserting that the Harvey could only authorise one attorney for inspection and that he would lose his own power of inspection if he authorised an attorney.

50.  After the 1^st visit , P’s solicitors had written 3 letters to Ds’ solicitors on 13 September 2016  to complain and their 2^nd letter  that day had set out the details of Harvey’s version of events of the visit on 13 September 2016[29]. Harvey’s version was disputed by Ds in their solicitors’ 2^nd letter of the same date[30].  

51.  In particular, it was alleged by Harvey that during the visit on 13 September 2016 he was denied access to the Accounting Room.  After SY Lee only producing the audited financial statements which P already had, SY Lee was shown a photograph taken by Harvey of the Accounting Room during the 19.07.16 Visit, as earlier mentioned, showing a box of P’s Accounting Documents for 2015[31], SY Lee then said the box had vanished and was no longer available. 

52.  In the reply letter from Ds’ solicitors, Ds denied what was allegedly said by SY Lee about the vanishing of the box. According to Ds, SY Lee had no idea whatsoever of the box and reiterated that Mike Chen was the key personnel-in-charge of all P’s Accounting Documents and that Mike Chen was the person with the requisite knowledge as to where the documents were located and that his assistance would be required to help P inspect the Accounting Documents.

53.  P’s solicitors had on 13 September 2016 given further notice to inspect on 15 September 2016 but this turned out to be a public holiday in Mainland China, being Mid Autumn Festival.   P claimed this notice was ignored or refused but in fact there was a reply from Ds’ solicitors indicating that as it was a public holiday, it was not an appropriate day.  In any event, on 15 September 2016, P’s solicitors gave further notice to inspect on 19 September 2016.

54.  Counsel Mr T Wong for Robert and Khim had attached to his submissions an annex which helpfully summarised P’s complaints and the response from Robert and Khim (“Annex”).  In relation to the 1^st visit on 13 September 2019, as summarised, P’s complaints were:

(1)  SY Lee refused Harvey’s inspection as Mike Chen was on compassionate leave until 19 September2016;

(2)  Ds’ solicitors sent the 12.09.16 Letter purposely late at night knowing full well Harvey and his representatives would not have the chance to see it before departing from the Hong Kong for Zhongshan;

(3)  Ds’ solicitors insisted that Harvey could only perform the inspection personally and he could only authorise one attorney but he would lose his own power of inspection if he did so;

(4)  Ds relied on the voluminous documents to deny Harvey’s request for full scale inspection;

(5)  Harvey’s subsequent notice of inspection was ignored.

The 2^nd visit on 19 September 2019

55.  According to Harvey, the 2^nd visit on 19 September 2016 was the first time he gained access to the Accounting Documents but it was his evidence that even on 19 September 2016, there were “some very unreasonable rules” imposed by Ds before he was allowed to inspect and to take copies of the documents.

56.  On 21 September 2016, P’s solicitors had written to Ds’ solicitors putting on record a number of events[32]. In the Statement and in Harvey’s Supporting Affirmation, he had set out various complaints, and which had also been summarised in the Annex, and included the following:

(1)  No assistance was provided by Ds for the inspection;

(2)  Harvey and his team were prohibited from taking photos, audio and video recording of the Accounting Documents.

(3)  The voluminous piles of documents of P were presented in a disorganized manner, and Harvey was unable to identify whether all of the documents presented to him were important and had no choice but to arrange to photocopy all of the original documents in order to seek professional advice on the financials;

(4)  Due to stringent rules imposed on Harvey and his representatives, the inspection/photocopying progress has been extremely slow.

(5)  only a “disrepair, slow and inefficient” photocopying machine was provided in a separate room in an inconvenient and remote place from where the Accounting Documents were located, and the photocopying was delayed firstly, due to SY Lee’s refusal to accept the power of attorney executed by Harvey for his representatives and secondly, due to the malfunctioning of the photocopying machine.

(6)  4 to 5 employees were instructed by Ds to monitor and keep Harvey and his team under surveillance and the employees were given specific instructions not to assist Harvey and his representatives in the photocopying process;

(7)  during the malfunctioning of the photocopying machine, Lee refused to simply provide copies of the documents using other photocopying machines in the Zhongshan Factory, and it was only after repeated requests, that the malfunctioning machine was replaced by another one.

(8)  PD Zhongshan refused to supply printed copies of the Accounting Documents to Harvey.

(9)  Harvey and/or his representatives were occasionally requested to match the original document with PD Zhongshan’s internal list before they were allowed to resume the photocopying exercise.

(10)  The staff stationed at the Zhongshan Factory refused to convey requests and questions to SY Lee.

(11)  Harvey had also been continuously receiving unwelcome messages from SY Lee which Harvey believed were sent under instructions of Robert, including a letter stating that the wages of the 4 to 5 employees for the monitoring of the inspection/photocopying were to be on P’s payroll.

57.  Some of the above complaints were general in nature and referred to subsequent visits as well as the 2^nd visit on 19 September 2016.  Ds denied the above allegations and had stated, in particular, two photocopying machines were provided by D and that while one of them did malfunction, it was fixed within 30 minutes.

From 19 September 2016 onwards until 16 January 2017

58.  Anita had produced copy of the inspection log at the Zhongshan Factory recording information of the inspection including the dates, the names and ID/Car number, time in/out of Harvey and his representatives (“Visitors Record”)[33].

59.  After 19 September 2016, P had instructed a Mainland law firm called Yang San Law Firm (“Yang San”) to continue the inspection and photocopying.

60.  Insofar as the inspection after 19 September 2016 was concerned, there were no specific complaints set out by P in the Statement or in Harvey’s Supporting Affirmation apart from the general complaints set out earlier in respect of obstruction and/or delay and also about documents being withheld.

61.  There was no affirmation filed by representatives of Yang San as to whether there were any obstructions or delay encountered by them, and if so, the details thereof. 

Whether any obstruction and delay

62.  As said earlier, the Undertaking was permissive in that Ds’ obligation was only to allow Harvey to inspect and take copies P’s Accounting Documents kept at the Zhongshan Factory.

63.  It was open to the parties to make an application to the Court to clarify and/or to seek further directions as to how inspection was to be carried out.  No one did. 

64.  It was argued on behalf of Ds that in the 12.09.16 Letter, they did not refuse any inspection and they only requested P to postpone the inspection to 19 September 2016, the expected date of return of Mike Chen to PD Zhongshan.   It was further argued on behalf of Ds that Harvey and his representatives were not turned away when they turned up on 13 September 2016 nor were they told to come back on a later date.  They were allowed into the Zhongshan Factory and were allowed to inspect P’s audited financial statements from 2009 – 2014.

65.  It was also submitted on behalf of Ds that  since Mike Chen was the person familiar with P’s Accounting Documents, it was only reasonable for Ds to suggest that the inspection be postponed until Mike Chen was back to work, and that given the very bad relationship between Harvey and Robert, and Harvey’s extremely hostile attitude, it was only prudent for Ds to ask the person who was most familiar with the Accounting Documents to assist in P’s inspection, lest Harvey should make any complaint about those documents.

66.  Mike Chen was said to be the local Chinese accountant under the employment of PD Zhongshan for a number of years and that his personal attendance at the time of inspection was said to be crucial as he was the key personnel-in-charge of all P’s Accounting Documents.   

67.  As seen in 13.07.16 Letter, although Mike Chen was said to be the one who prepared P’s financial statements, Khim had said that in light of Harvey’s letter of 15 June 2016, she had conducted a full review of P’s financial records in the interim which had indicated a number of errors and that she had notified the Auditors, and as mentioned earlier, Khim had pointed out to Harvey that “all the financial records of [P] are held in Zhongshan and have always been available to [Harvey] at all times”^[34].

68.  Further, as seen in a letter dated 14 November 2016 sent by PD Zhongshan to P’s solicitors^[35], there were other accounting staff who were part of the accounting team and who were responsible for P’s “accounting records”.  In this letter, P was told that all staff who were dedicated to working on P’s orders had been dismissed save and except for “4 Accounting Staff” “who were and are staff of the accounting team responsible for the accounting records of [P]”, and who were included in the payroll as part of P’s operating costs in Mainland which were reimbursed by P. 

69.  It was not stated in the 12.09.16 Letter that the only Accounting Documents which were kept separate from those of the Zhongshan Factory were P’s audited financial statements from 2009-2014, nor was this Ds’ evidence.  These were however the only documents produced by SY Lee for inspection by Harvey during the 1^st visit on 13 September 2016, and which P already had.

70.  In any event, separating P’s Accounting Documents from the accounting documents of the Zhongshan Factory should not require the personal attendance of Mike Chen.  Since SY Lee was the Financial Controller of PD Zhongshan, he should know full well which were the accounting documents of PD Zhongshan and there were the other accounting staff mentioned earlier to assist SY Lee, as well as Khim since she herself had said she conducted a full review of P’s Financial Records in July 2006.  Further, Harvey had in his Supporting Affirmation referred to soft copies of the general ledgers being stored  in the computer at the Zhongshan Factory[36].   There was no evidence from Khim to contradict what was said by Harvey nor was there any evidence why these could not be made available for inspection on 13 September 2016.

71.  In any event, there was no reason why those Accounting Documents of P (other than the audited financial statements from 2009 to 2014) which were not kept together with PD Zhongshan’s accounting documents could not have been made available for inspection during Harvey’s 1^st visit or 13 September 2016.

72.  The Undertaking was not expressed subject to the availability or presence of Mike Chen or for that matter, any one, nor was there any requirement to “narrow down” any documents for the first visit.  

73.  Having considered the evidence, I do not find that the 12.09.16 Letter was a reasonable response and was issued with the intention to cause obstruction and delay, and I am satisfied beyond reasonable doubt that had there been requisite notice given by P, the provision of only P’s audited financial statements from 2009-2014 for inspection on the 1^st visit on 13 September 2016 would have been a breach of the Undertaking.

74.  So far as the attempted further notice given on 13 September 2016 by P to inspect on 15 September 2016, as mentioned earlier, this was Mid Autumn Festival and a public holiday in Mainland China.  P’s notice was not ignored or refused and I find Ds’ response was not unreasonable or obstructive or with the intent to cause delay.

75.  Insofar as the 2^nd visit on 19 September 2016 was concerned, as these are contempt proceedings, I accept Mr Dawe’s submissions that Ds’ obligations pursuant to the Undertaking had to be strictly construed.  

76.  The Undertaking did not require Ds to allow Harvey to take photographs, audio recording or video recording, nor did it require Ds to arrange staff to assist Harvey or his representatives, nor did it require Ds or PD Zhongshan to supply printed copies of the Accounting Documents, or that the staff at the Zhongshan Factory were to convey requests and questions on behalf of Harvey’s team to SY Lee. 

77.  Ds had denied Harvey’s allegations about only a disrepair, slow and inefficient photocopy machine was provided and said in fact two were provided and while one of them did malfunction, it was fixed within 30 minutes.  In any event, any factual disputes could only be resolved by cross examination of the deponents of which there was none.

78.  As for Harvey’s allegations that he and/or his representatives were occasionally requested to match the original document with PD Zhongshan’s internal list before they were allowed to resume the photocopying exercise, these were in my view vague with no sufficient particulars, and I find no sufficient evidence that such requests were made with the intention to cause obstruction or delay to P’s inspection or to take copies, since Harvey and/or his representatives were allowed to resume the photocopying.

79.  Further, whether SY Lee had imposed upon P that the wages of the 4 to 5 employees who were monitoring the inspection/photocopying were to be paid by P or not was not a relevant issue, nor was there sufficient evidence that this was done with the intention to obstruct and/or to delay the inspection/photocopying.   

80.  As for subsequent inspection after 19 September 2016 until 16 January 2017, the visits were attended by representatives of Yang San, in particular a “Lu Hui Ling”/呂惠玲 (“Ms Lu”).  According to Ds, according to the Visitors Record, there were no fewer than 85 visits of which there was no denial.

81.  As said earlier, there was no affirmation filed by Ms Lu or any representative from Yang San who had attended the inspection after 19 September 2016 as to whether there was any obstruction and/or delay on the part of Ds.

82.  Having considered all the evidence, I do not find that P had proved beyond reasonable doubt that Ds had caused obstruction and delay to P’s inspection and/or photocopying on 19 September 2016 or thereafter as alleged by P.

Withheld Documents Issue 

83.  There were 4 categories of Accounting Documents which were allegedly withheld (“Withheld Documents”) as follows:

(1)  P’s general ledgers for all financial years (“General Ledgers”);

(2)  P’s profit and loss accounts for the financial period from 1 July 2016 onwards;

(3)  P’s balance sheet for the financial period from 1 July 2016 onwards;

(4)  The imbalance worksheet (between P and the PD Group) from 1 July 2016 onwards.

The General Ledgers

84.  In Harvey’s Supporting Affirmation, he had said that in order to resume the proper accounting and book-keeping function of P, he had engaged accountants to review all the Accounting Documents obtained from the inspection to understand the then financial position of P and to conduct forensic accounting to trace all the mysterious entries and re-construct the missing account[37]. It was then brought to his attention by the accountants that the Withheld Documents were missing.

85.  Harvey further added that it was beyond doubt that the General Ledgers were kept at the Zhongshan Factory. He had deposed to what happened during his 19.07.16 Visit for the P&L review.  It was Harvey’s evidence that during that visit, Khim and Mike Chan were initially printing the General Ledgers for Harvey and his representatives but later informed Harvey’s team that the printing system was jammed because of the massive volume of the General Ledgers.  It was then pointed out to Khim and Mike Chen that they could send the soft copies of the General Ledgers to P’s solicitors via electronic means.  It was initially represented by Khim and Mike that it was impossible to generate the soft copies of the General Ledgers, but later it was admitted by them that the General Ledgers could be converted to Microsoft excel format.  Anyway, according to Harvey, Khim and Mike Chen had pledged that they would send the General Ledgers to P’s solicitors by Friday 22 July 2016 but the General Ledgers were never sent[38].

86.  On 1 March 2017, P’s solicitors had written to those acting for Robert and Khim referring to the 19.07.16 Visit and  stating that Khim and Mike Chen had promised to print the Withheld Documents plus all other accounting worksheets to send to Harvey and his representatives and that they had retracted their promise[39].

87.  Having received no response, P’s solicitors wrote again on 20 March 2017 to those acting for Robert and Khim and also those acting for Anita, repeating their request for, amongst other documents, the General Ledgers and stating on record again what had happened during the 19.07.16 Visit, in particular the promise of Khim and Mike Chan to provide P with the General Ledgers[40].

88.  On 23 March 2017,  Anita’s solicitors replied to say that they did not act for PD Zhongshan/the Zhongshan Factory and that the alleged dispute did not concern Anita who denied that she was liable to P, and did not understand why the letter was sent to them by P’s solicitors[41].

89.  Ds had not denied in their respective Opposing Affirmations that the General Ledgers for years up to 30 June 2016 had existed or that they were held at the Zhongshan Factory.  There was also no denial from Ds in relation to what Harvey alleged had happened during the 19.07.16 Visit.  Having considered the evidence, I am satisfied beyond reasonable doubt that the General Ledgers of P did exist at least up to 30 June 2016.

90.  Insofar as the General Ledgers up to 30 June 2016 were concerned, Ds mainly relied on  a confirmation signed by Ms Lu which was produced by Anita (“Confirmation”)[42], that the General Ledgers were believed to have already been provided.  The Confirmation stated that up to 1 November 2016, 13 items of Accounting Documents were photocopied and were taken out of PD Zhongshan and Item 9 in the Confirmation stated “Ledger FY2009 ~ FY2016”.

91.  Harvey had stated in his Reply Affirmation that P’s representatives were required to “sign off” on the documents copied before they were allowed to resume the photocopying exercise and that P’s representatives were only clerks and not accounting staff and would not know whether the description matched the documents copied[43]. 

92.  Anita had produced  a record of P’s photocopying of the Accounting Documents [44] (“Photocopying Record”).  The Photocopying Record appeared to be a contemporaneous record of the date, the time, the name and the ID number of the person who made the photocopies, and also the documents photocopied. Against each of the items in the column of “record of documents photocopied”, someone had written the words that the contents of the photocopied documents had not yet been verified.

93.  It was Anita’s evidence that the Photocopying Record was filled in by Ms Lu[45].  However, this could not have been the case since according to the Visitors Record also produced by Anita, there was no record of Ms Lu attending the Zhongshan Factory on some of those dates in the Photocopying Record, eg between 5 and 16 January 2017.  In fact, according to the Visitors Record, P’s representative who attended the Zhongshan Factory between 5 and 16 January 2017 was one Chen Chui Yi, but according to the Photocopying Record, there were persons carrying out the photocopying who were not Chen Chui Yi.

94.  Anyway, there were no details of the type of Accounting Documents recorded in the Photocopying Record and only the year or period of the documents.  There was no evidence from Ds’ side whether any items in the Photocopying Record in fact referred to the General Ledgers.

95.  The date of the signature of Ms Lu on the Confirmation was left blank.  The opening words in the 1^st sentence were “up to 1 November 2016…” (截止至 2016-11-1). Anita had stated that Ms Lu confirmed  that as at 1 November 2016 a number of key categories of P’s Accounting Documents had been photocopied and taken away by P’s representatives[46].   Thus, the Confirmation must have been prepared or signed by Ms Lu after 1 November 2016.

96.  It was pointed out by Mr Wong SC on behalf of P that the Confirmation was only produced by Anita in her Opposing Affirmation of 26 July 2017, and was never mentioned or produced in any earlier solicitors’ correspondence.  In particular, notwithstanding P’s solicitors’ letters of 1 and 20 March 2017 demanding the 4 categories of Withheld Documents, there was no reply from Ds, or from Anita, to say that the General Ledgers were believed to have already been provided.  There was also no evidence from Anita or Ds that “ledgers” in the Confirmation referred to “General Ledgers”.  All Anita said was that she “believed” that the General Ledgers from 2009 to 2016 had already been photocopied and provided to P during the inspection which took place in September 2016 to January 2017.

97.  In the Reply Affirmation, Harvey said he had engaged representatives to station at the Zhongsan Factory to conduct the photocopying exercise for around 4 months in order to make copies of P’s documents stored in the Zhongshan Factory.  He had said there were only around 25 boxes of the Accounting Documents available for inspection which was far below the “60,000 physical box files” as claimed by Ds in the 12.09.16 Letter.

98.  What was clear was that P seemed to have kept no record or list of its own as to what Accounting Documents were inspected and what photocopies were taken.  Even if those representatives of P were not able to verify the documents photocopied on the spot, there was no reason why after the photocopies were brought back to Yang San’s office, P’s representatives could not have verified them or instructed a Mainland accountant firm to verify them or to prepare a list thereof.  In fact, it was not clear why P did not instruct Yang San to send someone who had knowledge of accounting documents, or why P did not instruct an accountant to attend the inspection.  There was no specific denial by P that there were 90,000 pages of documents photocopied by P’s representatives during the inspection exercise as alleged by Anita.   

99.  As said earlier, it was Harvey’s evidence in the Supporting Affirmation that he had engaged accountants to review all P’s Accounting Documents obtained from the inspection.  There was no evidence as to when Harvey engaged accountants or what documents were provided by P to the accountants.

100.  It was also not clear why it would take P 9 months to complain about the General Ledgers being withheld since Harvey’s evidence was that P had already been promised those in July 2016. 

101.  Notwithstanding that Ds or Anita had not mentioned or produced the Confirmation earlier, it was produced on 26 July 2017, almost two years ago prior to this hearing, and P had had plenty of time to produce evidence to contradict what Anita had said.  Yet, as said earlier, there was no evidence filed by Ms Lu or anyone from Yan San and P had produced no record of its own of what documents were photocopied and obtained by them.  I find that the Confirmation had raised a reasonable doubt that copies of the General Ledgers 2009-2016 could have been included in those photocopies already obtained by P.  The burden was on P to prove beyond reasonable doubt that the General Ledgers up to 30 June 2016 were not provided and/or were intentionally withheld by Ds.  The burden on P to prove its case beyond reasonable doubt in these contempt proceedings is a high one.  On the present evidence, I find P has not been able to discharge this burden.

Withheld Documents from 1 July 2016 onwards

102.  As for those Withheld Documents from 1 July 2016 onwards,  it was Anita’s evidence in her Opposing Affirmation that she had no knowledge as to whether the Withheld Documents existed and if so, whether they were kept at the premises of the Zhongshan Factory [47]. She said her understanding was it was PDGL which provided accounting services to P up to October 2016 and she had produced copies of the Debit Notes from July 2016 to October 2016 issued by PDGL to P for the monthly amount of HK$30,000 for accounting services conducted by PDGL[48] (“Debit Notes”).  Anita said she was/is neither a shareholder nor a director of PDGL.

103.  Anita had also said that the (i) Profit and Loss Account, (ii) the Balance Sheet, and (iii) Imbalance Worksheet  from 1 July 2016 onwards were not in existence as at March 2017 as they would only be prepared at the end of the financial year of P which would be  30 June 2017[49].

104.  Although P’s operations at the Zhongshan Factory had been closed down by PD Zhongshan on 28 September 2016, this would not mean all accounting work would have ceased as at that date.  As at 27 September 2016, there was a balance of about HK21.5m in P’s HSBC integrated account, as seen in an email of that date sent by Khim to Robert [50], and there must have been payables and receivables.  In fact, as seen in the Debit Note dated 30 October 2016 issued by PDGL and provided by Anita, the accounting services for P had continued in October 2016.

105.  In fact,  in her affirmation filed on 16 January 2017 in the 2572 Action to discharge the 2572 Injunction (“16.01.17 Affirmation”),  Anita had said that the expenses incurred by PD Zhongshan for P including, amongst other things, the workers’ wages, meals, insurance fees, medical fees, dormitory rent, and other contractual entitlements “are recorded and set out in accounts sent each month to [Harvey]”[51].  Anita had also said that the rental, operating and maintenance costs for use of equipment used for manufacture of P’s orders  charged by PD Zhongshan to P, and also the payment by PD Zhongshan of raw materials used in the manufacture of P’s orders  “are all  recorded in the monthly accounts”[52].

106.  Further, Anita had said in her 16.01.17 Affirmation that “The accounts of all expenditures incurred in connection with the manufacture of [P’s] orders are kept in the office space designated for [P’s] used at [Zhongsan Factory].  Under PRC law, [PD Zhongshan] is required to keep such records in the country.  The accounts and records are however available at all times for [P’s] staff to access and [P’s] staff make regular and frequent visits to [PD Zhongsan’s] factories for that purpose”[53].

107.  Anita had produced (i) a spreadsheet from July 2016 onwards and (ii) a summary of the position as at as of 21 October 2016 (collectively “Spreadsheet”), and had said the Spreadsheet had not yet been finalised at the date of the 16.01.17 Affirmation and she had referred to “Purchase Orders” to suppliers and “September invoices from suppliers”, and had also expenses PD Zhongshan paid on behalf of P not yet identified[54].

108.  Harvey had produced an email from Khim to him and Robert on 1 July 2016 attaching the P&L Summary as at 30 May 2016 and a further email from Khim to him and Robert on 5 August 2016 attaching the P&L Summary as at 30 June 2016 and also the imbalance sheet[55].  Harvey had further produced a list of the Account Payable” prepared by PDGL and/or the PD Group for P[56].

109.  Having considered all the evidence, and in particular the 16.01.17 Affirmation, I am satisfied beyond reasonable doubt that Accounting Documents of P have continued to be prepared after 1 July 2016 and that they have been kept at the Zhongshan Factory even after P’s operations thereat had ceased and, the Accounting Documents should consist of monthly management accounts, monthly profit and loss summary and monthly imbalance sheet with supporting documents.

110.  However, I find what P alleged to be the Withheld Documents in its solicitors’ letters and in the Statement were ambiguous as he was seeking those documents “for the financial period from 1 July 2016 onwards”.  There was no sufficient evidence to contradict what Anita had said, that the end of the financial period for P is 30 June of each year and that the annual year end financial statements of the Profit & Loss Accounts, the Balance Sheets and/or Imbalance Sheets would only be prepared at end of the financial year and were thus not available until after 30 June 2017. 

111.  Further, even though P’s operations at the Zhongshan Factory had been closed down 28 September 2016, it would appear from the Visitors Record that the last inspection by P took place on 16 January 2017.  There was no evidence that P had given further notice to inspect after 16 January 2017.  There was also no mention of the Withheld Documents in all those letters sent by P’s solicitors after 19 September 2016 until 1 March 2017 even though P’s inspection and photocopying had gone on until 16 January 2017.

112.  Although Harvey had referred in his Supporting Affirmation  to being advised by his accountants of the General Ledgers being very crucial, in his Reply Affirmation, Harvey had also referred to monthly management accounts, and he also referred to other key Accounting Documents missing, namely (i) Hong Kong profits tax returns and calculations for P over the years; (ii) breakdown of the lists of the raw materials; and (iii) the intercompany balance together with the supporting documents and the inventories listing[57].  I thus find it rather confusing as to what exactly Harvey said were withheld.    

113.  Since these are contempt proceedings, what P alleged to be non-compliance of the Undertaking must be unambiguous and as I said earlier, the burden was on P was to prove any non-compliance beyond reasonable doubt.  Having considered the evidence, I find P had not identified in the Statement properly what Accounting Documents were said to be withheld and I am not satisfied that P has proved beyond reasonable doubt that the General Ledgers, Profit & Loss Accounts and the Balance Sheets and Imbalance Sheets for the financial period 01.07.16 to 30.06.17 were in existence as at end of March 2017 when P applied for leave to issue the contempt proceedings.  Although I find that there should have been monthly P&L summary, monthly management accounts, and monthly imbalance sheets and other Accounting Documents available as there was ongoing accounting after 1 July 2016 until at least October 2016, but these were not the Withheld Documents set out by P in paragraph 15 of the Statement.  I have thus come to the conclusion that P failed to discharge the burden on him to prove non-compliance of the Undertakings on the part of Ds in relation to Withheld Documents.  Notwithstanding this conclusion, I will nevertheless continue to consider the State of Mind issue in the event if there had been non-compliance.

State of Mind Issue

Ds’ case

114.  It was submitted on behalf of Robert and Khim that, in the event that if there had been any non-compliance of the Undertaking on their part, they lacked the requisite mens rea in that:-

(1)  Robert and Khim  did not have control over PD Zhongshan, and it was not within their power to allow or prevent Harvey to conduct any inspection at the Zhongshan Factory and that even if the alleged obstructions and delays existed, they did not know about it, and that SY Lee’s email of 8 October 2016[58] indicated that the staff of the Zhongshan Factory were acting independently;

(2)  As for the Withheld Documents, even if they existed and were stored in the Zhongshan Factory and were not provided to Harvey, Robert and Khim did not know about it.  This was because Harvey was all along the CEO of P and has become the sole director and has assumed complete control over P since July 2016, and neither Robert nor Khim had any control over the Zhongshan Factory.

115.  It was Anita’s case that even that if the Court were to find beyond reasonable doubt that the Withheld Documents existed and were kept at the Zhongshan Factory and were not provided to P for inspection, Anita lacked the necessary mens rea of any non-compliance with the Undertaking, as she had no knowledge whether the Withheld Documents existed as she had never been a director or shareholder of PDGL and had no right to direct or control PDGL’s personnel who might have prepared the Withheld Documents.  Further, Anita said she had no knowledge whether the Withheld Documents were kept at the Zhongshan Factory as she is only a 50% shareholder of PD Zhongshan and one of three directors and had no “unfettered control” over PD Zhongshan.  It was thus impossible for her to comply with the Undertaking.

116.  As seen later in this judgment, I agree with Mr Wong SC that whether Ds have the control and/or power over PD Zhongshan and/or the Zhougshan Factory is a “red herring”.  I will however consider Ds’ respective arguments.

Robert’s stance

117.  In his Opposing Affirmation, Robert had  stated that he had no power to either prevent or allow Harvey to inspect the Accounting Documents as he had ceased to have any beneficial ownership of PD Zhongshan since 2009 when he sold his then indirect shareholding in PD Zhongshan to Anita (via  her company Acorn)[59].  According to Robert, prior to the sale, PD Zhongshan was owned by PD Clothing which was carrying on business as PDGL[60]. 

118.  As stated by Robert[61],

(1)  The 3 directors of PD Zhongshan are Anita, Mr Detlev Fehmer and S Y Lee;

(2)  The sole shareholder of PD Zhongshan is PD Garments;

(3)  The legal representative of PD Zhongshan is Mr Detlev Fehmer.

119.  There was no dispute that the above are presently the registered particulars of PD Zhongshan.  However, it had been common ground since the commencement of the litigation that Robert was throughout the real beneficial owner of PD Zhongshan who had control and/or power over it, until the return date hearing on 14 October 2016 of the 2572 Injunction before Queeny Au-Yeung J when Robert’s then Counsel Mr Jonathan Chang suddenly made submissions alleging for the first time that Robert does not now own PD Zhongshan and that Robert has no power to compel PD Zhongshan to deliver up P’s properties, and that Anita and her sister-in-law Chan Yuk Kan are the ultimate beneficial owners of PD Zhongshan.

120.  There was a corporate structure chart annexed to Mr Chang’s then Skeleton Submissions in the 2572 Action[62], which indicated that PD Zhongshan was incorporated under the Mainland laws and is 100% held by PD Garments which in turn is 100% held by Acorn.  As mentioned earlier, Anita and her sister-in-law Chan Yuk Kan are the two registered equal shareholders of Acorn.

121.  Harvey pointed out in the Reply Affirmation that Robert’s new contention was contradicted by his own evidence and/or evidence of his nominees and Harvey had produced a schedule of the contradicting evidence of Ds set out in a schedule attached to P’s Counsel’s then Reply Submissions before Au-Yeung J[63] (“Schedule”).

122.  I will not set out in detail all the allegedly inconsistent evidence of Ds listed in the Schedule save to mention the matters hereinafter.

123.  The Schedule had referred to  a letter dated 23 September 2016 from Ds’ solicitors to P’s solicitors (“23.09.16 Letter”)[64] in which Robert was clearly stated to be the “principal” of MIL and the letter stated that amongst other things  if the two shareholders of P,  MIL and THL, did not enter into a “buyout” agreement within the next few days, then “[Robert] will be forced to close down the Zhongshan Factory …”[65].  It was clear from that letter that Robert was the one who had the power to close down P’s operations at the Zhongshan Factory, which indeed were closed down on 28 September 2016.

124.  It was set out in the Schedule that Robert’s leading Counsel Mr Barrie Barlow SC had in fact at a hearing on 30 September 2016 informed the Court that it was common ground that Robert was/is the beneficial owner of PD Zhongshan.

125.  As further set out in the Schedule, in the 307 Petition, it has been stated that PD Zhongshan is a company in which Robert was at all material times and is indirectly beneficially interested and that it is only in the 352 Petition filed on 3 October 2016 (after the 2572 Injunction) that Robert had a change of stance stating that he was only indirectly beneficially interested in PD Zhongshan until 2009.

126.  Suffice to say, in the 352 Petition presented by MIL on 3 October 2016 and amended on 8 March 2017, MIL was stated to be the corporate vehicle and alter ego of Robert[66]. As mentioned earlier, MIL is equally owned by Alwero and Acorn.  MIL being the alter ego of Robert would mean Alwero and Acorn were both Robert’s alter ego.  There was no mention by MIL that there was any change.  It was also Robert’s case that P was a 50/50 “quasi-partnership” between him and Harvey and it was not Robert’s case that since 2009 P had turned into a quasi-partnership between Harvey (50%), Robert (25%) and Anita (25%)[67].

127.  In addition to the evidence in the Schedule: -

(1)  Khim’s evidence, as seen from the transcript of a conversation between P’s representatives and Khim on 19 July 2016 in which Khim had said Harvey “basically right now I have received instructions from Robert who says if your side need anything, please go to him directly”[68].

(2)  Anita’s evidence, as seen from the transcript of another conversation on 19 July 2016 between Harvey’s son  Benjamin Jessop (“Ben”) on Harvey’s side and Anita on P’s side in relation to P’s request to inspect P’s files, Anita had said it was Robert who had instructed her to withhold the files and that Anita had said to Ben: “We just listen to our boss, Robert is our boss, call him”[69].

(3)  In a letter written by Robert himself to Harvey on 29 July 2016, he had said in order to protect his interests, he required Harvey to appoint him to P’s Board by 9 am on Monday 1 August 2016, failing which he would have no option other than to trigger the winding-up of P and he further informed Harvey that he had received advice from HSBC that P’s bank account had been suspended[70].

128.  Robert has clearly changed his stance in relation to whether he has ownership and/or power and/or control over PD Zhongshan and the Zhongshan Factory and his present evidence is clearly inconsistent with his earlier case.  

129.  I am of the view that the present evidence strongly points to Robert being the one who has continued to control PD Zhongshan since 2009 and/or he has the power over PD Zhongshan to prevent or allow P inspection and taking copies of the Accounting Documents held in the Zhongshan Factory.

Khim’s stance

130.  As for Khim, in her Opposing Affirmation, she said that she had not been involved with the operations of P (in any manner whatsoever) since late August 2016 and accordingly it was impossible for her to either prevent or allow Harvey to inspect the Accounting Documents[71].

131.  However, as seen in the 13.07.16 Letter that Khim’s primary role was Administration Manager of PD.  As mentioned earlier, Khim had told Harvey in that letter that all the financial records of P were held in Zhongshan and have always been available to Harvey at all times[72].

132.  It was during the 19.07.16 Visit that at the request of Harvey and/or his representatives, Khim had signed a resignation letter as director of P that day, which Khim later tried to withdraw, claiming that she signed the letter under duress and coercion from Harvey.   When Robert found out about Khim’s resignation, he had sent a letter to Harvey immediately demanding the withdrawal of Khim’s resignation letter and if it had already been filed with the Companies Registry, demanding Khim be immediately re-appointed, failing which he said he would instruct his solicitors to apply for Khim’s resignation letter to be set aside[73]. As said earlier, there was a transcript of a conversation between Khim and P’s representative on 19 July 2016 and Khim had told P’s representatives that she had instructions from Robert who had said if P needed anything they had to go to Robert directly[74].

133.  Khim was a director of P because she was nominated by Robert to be Robert’s nominated director and representative on P’s board[75]. Having considered the present evidence, I am prepared to accept that the evidence points to Khim merely acting on instructions of Robert and was/is under Robert’s control.

Anita’s stance

134.  Anita is one of the three directors of PD Zhongshan, the sole director of Acorn; and the sole director of PD Garments.

135.  In  her 16.01.17 Affirmation,  Anita stated that she and her sister-in-law had been the ultimate beneficial shareholders of PD Zhongshan since 2009  when they acquired Robert’s shareholding and that PD Zhongshan is not controlled and/or owned, whether beneficially or otherwise by Robert[76].  According to Robert’s Opposing Affirmation, the Zhongshan Factory was sold by PD Clothing to PD Garments and then to Acorn on 15 April 2009[77].  However, Anita’s evidence has also been inconsistent, as seen below:

(1)  In the 16.01.17 Affirmation, Anita had said there was a resolution of  the Board of Directors of PD Zhongshan on 4 November 2016, amongst other things, for PD Zhongshan to  exercise a lien on P’s Properties (as defined in the 2572 Injunction) and Anita had said  that as she was the sole director of Acorn, a director of PD Garments and at the same time a director of PD Zhongshan, she was in a position of conflict and  she accordingly informed the other 2 directors of PD Zhongshan on 5 November 2016 that she would stay away from all matters involving both P and PD  Zhongshan.

(2)  As such, from 5 November 2016, according to Anita, she  did not participate in any decision making concerning P and PD Zhongshan[78].  Thus, her evidence seemed to be prior to 5 November 2016, she had participated in matters involving both P and PD Zhongshan.

(3)  However, in the same affirmation, Anita then said she was informed by PD Zhongshan  of a legal action issued by PD Zhongshan against P in the Mainland on 28 October 2016 and that PD Zhongshan had applied for a “Preservation Order” and Anita then produced copies of the Mainland Judgment dated 8 November 2016 and the Notice of Preservation Order[79].  She then said she verily believed that P’s assets located within the Zhongshan Factory (Jiemin Factory) were all preserved. 

(4)  One would have thought as those legal actions were prior to 5 November 2016, and as Anita is one of the directors and ultimate beneficial owners of PD Zhongshan, she would have participated in the decision making in launching the actions.

(5)  In any event, Anita’s position in the 16.01.17 Affirmation was certainly different from that seen in the conversation on 19 July 2016 between her and Ben mentioned earlier.  Anita had in fact also said to Ben, “NO matter what, we won’t give it to you, that’s our instruction from our boss.”  As said earlier,she had referred to Robert as “our boss”[80].

(6)  In  Anita’s defence filed in the 2100 Action on 8 February 2017 she has not in fact denied  P’s pleaded allegations that Robert owns and/or controls PD Group including PD Zhongshan and that the PD Group owns and controls the premises of the Zhongshan Factory and all Anita has said is that those allegations do not concern her and she has made no admission to what was pleaded by P[81].  

(7)  Then,  in her own solicitors’ letter dated 23 March 2017 sent to P’s solicitors in response to P’s demand for the deliver up of the Withheld Documents[82], Anita’s solicitors responded stating that  they did not act for PD Zhongshan and that the alleged dispute did not concern Anita and that Anita denied she was liable to P[83]. There was no explanation as to why the matter did not concern Anita bearing in mind that 2 months earlier she had filed the 16.01.17 Affirmation to try to discharge the 2572 Injunction.

(8)  In her Opposing Affirmation of 26 July 2017, Anita had then said she believed that the real dispute was between Harvey and Robert and that she was just being dragged into their dispute for no good reason and that she took a passive role in the proceedings and she had said that initially she had retained the same solicitors as Robert and it was only after the 2572 Injunction was granted against Acorn and PD Garments that she was advised to instruct her own lawyers to deal with the proceedings.  It was not clear how Anita could take a passive role as she was one of the persons who provided the Undertaking in relation to the Accounting Documents held by PD Zhongshan.

(9)  Anita’s present evidence is also not consistent with Robert’s evidence prior to 14 October 2016, and prior to 14 October 2016, they were instructing the same firm of solicitors and same Counsel and their stance at that time was Robert was the beneficial owner of PD Zhongshan and/or had control or power over it.

136.  In any event, as Anita now claims to be one of the ultimate beneficial owners of PD Zhongshan and the Zhongshan Factory since 2009 and she has been on the board of PD Zhongshan since 2009, and in light of her own evidence in the 16.01.17 Affirmation of what seemed to be detailed knowledge of the working relationship between P and PD Zhongshan and also accounts[84], I am satisfied that she has knowledge of the existence of P’s Accounting Documents and that they were kept at the Zhongshan Factory.

137.  Anita’s change of stance coincided with Robert’s change of stance which took place after the 2572 Injunction.  In any event, the present evidence of Anita, similar to that of Robert, indicates that she has been inconsistent in her stance.  I am of the view that her present evidence points to her having the necessary control or power over PD Zhongshan and the Zhongshan Factory to allow P inspection and taking copies of the Accounting Documents.

Whether Ds had the necessary state of mind

138.  It is quite clear to this Court that, as submitted on behalf of P, Ds are playing “a game of finger pointing” in saying “It’s not me, it’s him. It’s him, not me”.

139.  In relation to the mental element in civil contempt, Sir Gerard Brennan NPJ in Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 580, had referred to what was said by Warrington J in Stancomb v Trowbridge Urban District Council [1910] 2 Ch 190 and by Lord Russell CJ in Fairclough (1897) 41 SJ 225. 

140.  Having considered the various authorities, Sir Gerard Brennan NPJ  had said in paragraph 45 of his judgment that “it is clear that liability for civil contempt does not depend on a contumacious intent”[85].  Sir Gerard had gone on to say that “a contumacious disobedience to an order negates the possibility that the disobedience is “casual or accidental and unintentional” and is relevant to the penalty to be imposed for a contempt, but it is not an element to be established in cases of civil contempt by a party directly bound by an order.  If the mens rea in a civil contempt were to extend to a contumacious intention to breach the order made by a court, it would go beyond the mens rea applicable to criminal offences[86].”

141.  Thus, sufficient mens rea is  shown if the act of omission in breach of a court order is done or made consciously, voluntarily and unaffected by any mistake – that is, not casually, or accidentally or unintentionally[87] .

142.  In the present case, the mens rea that P had to prove to show Ds’ liability for breach of the Undertaking would be their respective conscious and voluntary decision, unaffected by any mistake, not to allow P to inspect and to take photocopies of the Accounting Documents held at the Zhongshan Factory.

143.  Mr Dawes SC had referred this court to the judgment of Au-Yeung J in Arboit v Koo HCMP 2749/2012, unrep 09.03.16. In the Arboit case, pursuant to the relevant order, the defendants were ordered to produce documents in their custody or power relating to the company in question  to the plaintiff, and the defences included that the defendants did not have possession of those documents and further there was no sufficient evidence that those documents were in existence, and that if the documents were in their possession and/or they were in existence,  they did not know about it or the whereabouts of those documents.  Thus, whether the documents were in the possession, custody or power at the time of the order was an issue in the Arboit case.

144.  Au-Yeung J  had  said[88] :

“In a situation where it said that the contemnor has failed to produce documents as ordered, it is crucial to determine that he did have the document in his possession, custody or power at the time of the order: Re Bramblevale Ltd [1969] 3 All ER 1062B-C, 1063H-I, 1064F-I. A presumption of fact, is that a state of things proved to exist at a certain date must be taken, in the absence of contrary evidence, to have continued to exist, will not be sufficient: Re Bramblevale Ltd, at 1064F-G.”

145.  Mr Dawes SC had also referred to  paragraphs 179-191 of this Court’s judgment in China Metal Recycling (Holdings) Limited (in compulsory liquidation) v Chun Hei Man HCMP 3396/2015, unrep, 18.11.16[89].

146.  In the China Metal case, the plaintiff sought to commit 3 young girls, for contempt of non-compliance of their undertaking and a disclosure order made against them in respect of a sum of USD 82m.  The girls’ father had “gifted” to the girls all the shares in the ultimate holding Belize company at the top of a web of corporate structure of no less than 8 companies and who were studying in England at the time and had no knowledge of the gift.  The sum of USD 82m was transferred out by their father from a Hong Kong subsidiary of the Belize company prior to the girls being gifted their shares, and the sum found its way to two Mainland subsidiaries at the bottom of the web of corporate structure and was eventually dissipated with one of the subsidiaries liquidated.

147.  The girls were not directors of any of the 8 companies in the corporate structure nor were they ever involved in the management of any of the companies (including in particular the two Mainland subsidiaries).  They gave an undertaking to the effect that they would not in any way diminish the value of their shareholding or the assets of the 8 companies and this Court made a disclosure order against them requiring them to disclose what had happened to the USD 82m.

148.  It was in relation to the issue whether it was impossible for the girls to comply with the disclosure order that this Court had said, amongst other things, that in relation to whether a company is under the “unfettered control” of a shareholder, one does not simply look at the registered shareholding in that one is entitled to look behind the registered shareholding to see whether the company is in fact the alter ego of the shareholder, and that the question was whether the 8 companies were/are under the unfettered control of the girls so that the companies could be said to be their alter ego[90].

149.  As seen later in the Court of Appeal judgment in the China Metal case, in respect of the alleged breach of the disclosure order, it was held that the applicant had to show not only the non-compliance with the disclosure order but that it was within the power of the alleged contemnor to comply with it, and this was a question of fact. 

150.  As also said by Lam VP, it was not profitable to engage in the debate as to whether the test should be unfettered control or some sufficient control and that such tests were discussed in the context in a discovery application, and that the mere fact that a discovery order was made would not pre-empt an alleged contemnor from showing in a contempt application based on non-compliance with such order that it was not within his power to comply.  Lam VP also pointed out that the standard of proof in an application of discovery was the ordinary civil standard of balance of probabilities[91].  In fact, the Court of Appeal was of the view that the disclosure order should not have been made against the girls in the first place.

151.  The circumstances in the present case are quite different in that there was no disclosure order made against Ds as in the Arboit case or the China Metal case.  In the present case, Ds were not ordered to produce or to disclose any documents in their possession, custody or power.  The Accounting Documents belong to P.  Ds had offered the Undertaking themselves, the terms of which were drafted by them or their legal representatives.  At the time of offering the Undertaking, ie 9 September 2016, they must have accepted that there were P’s Accounting Documents kept in the Zhongshan Factory and that it was within their possession, custody, control or power to allow P inspection and taking copies.

152.  As seen in the China Metal case, the girls had filed extensive affirmations in support of their defence, and the oldest one had attended the hearing and was cross-examined, so was the independent accountant employed on behalf of the girls in their attempts to comply with the disclosure order.  The oldest girl gave evidence of all her unsuccessful efforts in attempting to seek relevant information pursuant to the disclosure order.  In the end, this Court accepted her evidence.

153.  There was no evidence in Ds’ Opposing Affirmations that they had made any mistake about giving the Undertaking in that it was not within their possession custody, control or power to allow inspection of P’s Accounting Documents, nor was there any sufficient evidence from Ds that at any time after the Undertaking they had parted with the possession, custody control or power of the documents.

154.  Notwithstanding the change of stance on the part of Robert and Anita as to who is the ultimate beneficial owner of PD Zhongshan, according to them, the purported transfer of Robert’s interests to Anita took place in 2009, 7 years prior to Robert and Anita voluntarily giving the Undertaking.  As for Khim, whether she resigned as a director of P on 19 July 2016 under Harvey’s coercion and duress or not is not relevant.  Whether she was acting on instructions of Robert or not is also not relevant as Khim voluntarily gave the Undertaking on 9 September 2016. 

155.  As for the termination of P’s operations at the Zhongshan Factory on 28 September 2016, as found earlier, the accounting services of PDGL for P had continued at least until October 2016 and that there were the Accounting Documents found earlier which were in existence and were held in the Zhongshan Factory.

156.  Mr Wong SC had submitted on behalf of P that whether Robert or Anita or Khim had the power or control of PD Zhongshan was a “red herring”, as the key point was whether Robert and the other Ds were in possession, custody, power or control of P’s Accounting Documents. I accept this.  By voluntarily providing the Undertaking, Ds must have accepted there were the Accounting Documents in their possession, custody, power or control at the Zhongshan Factory.   

157.  Having considered all the present evidence, I am satisfied beyond reasonable doubt that if there had been non-compliance of the Undertaking, then such non-compliance was accompanied by the requisite state of mind on the part of Ds.

Committal as a last resort

158.  As has been said, committal is a last resort. 

159.  In the present case, what took place on 13 September 2016 and on 19 September 2016 had already been overtaken by events, and it was not disputed that P had carried out inspection and photocopying at the Zhongshan Factory during some 85 visits over a period of some 4 months.  As said earlier, the first time P complained about the Withheld Documents was on 1 March 2017. 

160.  The General Ledgers, if they were indeed part of the Withheld Documents, have in fact been withheld since July 2016.  As for the other Withheld Documents after 1 July 2016, as D pointed out, P’s operations at the Zhongshan Factory had ceased on 28 September 2016.  Anyway, 3 years have passed since, and there is no sufficient evidence as to those drastic consequences as alleged by Harvey in paragraph 27 of the Supporting Affirmation had in fact occurred.

161.  Notwithstanding the OS being issued on 17 May 2017, for some reasons, it took P two years to fix a substantive hearing.  P could have issued a summons to seek specifically the Withheld Documents to be produced by Ds, rather than proceeding with the OS.  I am not satisfied that there were/are no alternatives other than proceeding with the OS.

Conclusion

162.  In light of what has been said above, I find P has failed in this contempt application and the OS is thus dismissed.  As for costs, I will direct that this be dealt with on paper.  I further direct the parties to lodge their respective written submissions within 28 days.  Leave to the parties to lodge any reply submissions within 14 days thereafter.