WANG KIENG SEN v. CHAN YUI BIU AND ANOTHER

HCA1954/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1954 OF 2006

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J U D G M E N T

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Background

1. The background of this case has been fully set out in my Reasons for Decisions handed down on 10 September 2007.  I would not repeat the background here.  

2. This is the First Notice of Motion to commit the two defendants for contempt of court in failing to comply with my Order dated 4 May 2007 on or before the last day of compliance on 11 May 2007 which was extended by consent to 15 May 2007.  The failure was in respect of my Order compelling the two defendants to deliver up the Original Subject Documents to Shinewing, the Independent Auditors by 15 May 2007 until 6 June 2007. 

3. There is no dispute between the parties that the Subject Documents were not delivered until the late afternoon and early evening on 6 June 2007.  The plaintiff further alleged that some documents were not delivered even by 6 June 2007.  This is the issue in the Second Notice of Motion which is not the concern of this Judgment.

Legal principles

4. In the recent case of Kao, Lee & Yip v. Koo Hoi Yan & Others [2006] 4 HKLRD 631, it was decided by the Court of Appeal as stated in the Headnote that :

“	(1)	[a]	There was a distinction between civil contempt and criminal contempt in relation to the mental element required.  In civil contempt, liability was strict in the sense that an intention to interfere with or impede the administration of justice was not required.
		[b]	Contempt was conduct which was ‘neither casual nor accidental and unintentional’.
		[c]	Unlike criminal contempt, it was not necessary to prove that the alleged contemnor appreciated that his conduct would constitute a breach of the order.
		[d]	Moreover, the fact that the act or omission was bona fide and based on legal advice was not a defence. …”
	[Sub-paragraphing supplied]

5. The burden of proof is on the applicant, i.e. the plaintiff herein, to prove beyond reasonable doubt that the two defendants were in contempt of court in failing to comply with the order. 

The defence as stated in the affirmation

6. In response to the application, the 2^nd defendant filed his 11^th affirmation only on 17 September 2007, although direction was given as early as the 1^st hearing on 9 July for him to file his affirmation.  This affirmation was confirmed to be true and correct by the 1^st defendant.

7. The two defendants admitted that they had attended the hearing on 4 May 2007 and were aware of the Order.  In fact they were thereafter advised by his counsel, Mr Arthur Wong to comply with the order within the prescribed deadline which was originally prescribed as 11 May 2007.

8. The 2^nd defendant therefore went back to his office and started to work on the execution of the order by compiling the Original Subject Documents to be photocopied and certified by an independent solicitor, Ms Virginia Szeto before they were intended to be delivered to Shinewing.  

9. The certification was done on or about 9 May 2007 and the plaintiff’s solicitors were informed shortly thereafter on 11 May 2007 as follows :

“	In comply with the [said order] the subject documents as defined by the order would be delivered up to [Shinewing].  A copy of the said order is enclosed for your reference…”

10. The defendants were further advised for the second time by Mr Arthur Wong to comply with the Order when he had a conference with them in the morning of 12 May 2007.

11. The defendants were furthermore advised by another counsel who turned out to be Mr Louie Chan in the late evening of 14 May 2007 when they had a conference with him at their then solicitors office, Mr Damien Shea.

12. Then he went on to say the following which I shall set out in full since the exact wordings used by the 2^nd defendant became important, as follows :

“	14.	However there was a drastic change when it came to the afternoon of 15th May 2007.  At around 3p.m. the 1st Defendant and I were at the office of Messrs. Virginia Szeto & Co. and we gave a final check to the Original Documents and the same would be delivered to Shineway afterwards.  The 1st Defendant suddenly received a phone call from one Mr. Raymond Yung of DSC whom I believed to be a legal clerk to DSC.  He was told not to deliver the Original Documents to Shineway.  He further requested us to come up to the office of DSC.  We immediately suspected if it was really unnecessary for us to deliver the Original Documents and the 1st Defendant told Mr. Yung our suspicion.  Mr. Yung replied that the Original Documents should not be delivered according to the ‘highest level of instructions’ he received.  We then left Messrs. Virginia Szeto & Co’s office and came to DSC’s office with doubt and uncomfortable feeling.
	15.	When we arrived at DSC’s office we met Mr. Damien Shea and Mr. Raymond yung.  We were told by Mr. Shea that Mr. Arthur Wong had just sought for further legal advice from Mr. McCoy of Senior Counsel.  It was the advice from Mr. McCoy that we needed not to deliver the Original Document to Shineway.
	16.	The gist of Mr. McCoy’s advice is this.  As the order by Recorder A. Chan was procured by fraud and/or fraudulent misrepresentation the said order should be set aside, and Mr. McCoy also advised us to issue a Writ of Summons to set aside the said Order and therefore not until the disposed of the new case we should not deliver the Original Documents.
	17.	Although we had sought for previous advice which are inconsistent with Mr. McCoy’s advice the 1st Defendant and I verily believed that Mr. McCoy’s advice was a piece of good advice.  We understood that the ‘highest level of instructions’ was meant to be Mr. McCoy’s advice.
	18.	Therefore relying on Mr. McCoy’s advice and pursuant to the ‘highest level of instructions’ we, during the conference, decided to withhold delivery of the Original Documents to Shineway.
	19.	On the same date and pursuant to Mr. McCoy’s advice we also decided to take out a summons to stay the Order (‘Stay Summons’).  The Stay Summons was fixed to be heard on 6th June 2007.  By taking out the Stay Summons it would be apparent for the Plaintiff that for some reasons the Order might not be complied with.  However the Plaintiff made no complaint as to the taking out of the Stay Summons.
	20.	The 1st Defendant and I cannot recall that anyone had advised us the following matters during the conference at DSC’s office on 15th May 2007 :-
		a.	The effect of the Stay Summons to the Order; and
		b.	Possibility of being held contempt where Stay Summons is taken but the Order was not complied with on time.”

Any defence disclosed?

13. Ms Winnie Tam SC appearing with Mr Douglas Lam for the plaintiff expressed serious doubt as to whether Mr McCoy SC would have advised the two defendants that they needed not comply with the Order of delivering the Original Documents to Shinewing and that by issuing the Writ of Summons to set aside the consent order by Recorder A. Chan, they should not deliver the Original Documents until the disposal of the new case.

14. The latest affidavit of the 2^nd defendant should be contrasted with his earlier 4^th affirmation filed on 1 June 2007.  After he explained his discovery of the alleged fraud and/or fraudulent misrepresentation in double accounting and diversion of funds of the plaintiff, he then said in paragraph 13 as follows :

“

13.

In the light of these discoveries, the 1st Defendant and I sought urgent advice on around 15 May 2007 form leading Counsel (Mr Gerard McCoy S.C.).  Following Mr McCoy’s advice, the 1st Defendants and I and New Bright on 17 May 2007 commenced a new action against the present Plaintiff as defendant, in HCA 1027 of 2007, for a declaration to set aside the Consent Order dated 11 September 2006 made in this action. …”

15. The aforesaid 11^th affirmation was drafted carelessly with a number of typos and ungrammatical expressions.  Quite apart from these mistakes, the earlier contention of seeking advice from senior counsel in the 4^th affirmation is somewhat different from the later description.  There was no contention that Senior Counsel had advised the defendants that they needed not comply with the Order of 4 May 2007.

16. Thus, anyone would have reservation as to the accuracy of the 2^nd defendant’s contention that he was informed by Mr Damien Shea of solicitor that Mr Arthur Wong of counsel had told Mr Shea that Mr McCoy SC had given the aforesaid advice.  It is surprising since even junior solicitor would know that an application to stay an order would not have the effect of staying an order at all.  If the defendants wanted to stay the 4 May 2007 Order right away, an application should be made for an interim stay pending the hearing of the actual application to stay the order.  That was not done and that was not even advised by solicitor, junior counsel, or senior counsel.

17. However as stated before, it is quite clear that in Donald Kao’s case, it was decided that even the act or omission was bona fide and based on legal advice was not a defence.  This is only relevant to mitigation when penalty has to be imposed.  Ms Winnie Tam had applied, with no objection from the defendants, for reference to be made to Mr McCoy and Mr Arthur Wong for their responses to the contentions of the defendants.  They would be made known to me only after I have delivered this judgment.  I would say no more on this issue.  

The defence put forward at the hearing

18. Mr Kenneth Chan leading Mr Herbert Leung appeared for the two defendants.  They have submitted their written skeleton submission only by the afternoon on 18 September 2007.  However, when Mr Chan addressed this court he made two new points and did not rely on the original submissions.  They are as follows :

(1)	the plaintiff has not proven beyond reasonable doubt that the two defendants were aware of the consequence of non-compliance of the 4 May Order, and in particular that they would be in contempt of court should they not deliver the Subject Documents on or before the deadline of 15 May 2007;
(2)	by 6 June 2007, the defendants had or at least had substantially complied with the order and in the light of the non-disclosure on the part of the plaintiff of this fact when he applied for the leave of the court herein, this application of the plaintiff should be dismissed

19. In the first point, Mr Chan relied on the fact that the Order was only served on the defendants’ solicitors the next day, i.e. 5 May 2007.  

20. The defendants’ solicitor refused to accept service of the Order (which was endorsed with a penal warning notice) for and on behalf of the defendants.  The defendants were not served personally of the Order.  The Order of substitute service was only made on 6 June 2007 in the morning and the court decided only by then that the service on the defendants’ solicitors would be deemed to be good service on the defendants and the requirement of serving the Order personally on the two defendants could be dispensed with. 

21. Thus, Mr Chan submitted that it had not been proven beyond reasonable doubt that the defendants were aware of the contents of the penal warning notice as endorsed on the Order itself. 

22. Mr Chan for the defendants further relied on the case of Citibase Property Management Limited v. Kam Kyun Tak [2003] 2 HKC 98, at pp. p.102 and 103 Ma J, as he then was, said as follows :

“	14.	Before considering whether a contempt has been committed where the breach of a court order is involved, the court must be satisfied of the following :
		(1)	The relevant order, together with an appropriate penal notice, must generally have been personally served on the alleged contemnor: RHC O 45 r 7(2)(a), (4).  This, however, is the general rule.  Personal service will not necessarily required to be shown in relation to an order requiring a person to abstain from doing something, if the person to be served (the alleged contemnor) was present in court when the order was made or that person was notified of the terms of the order whether by telephone, telegram or otherwise: see O 45 r 7(6); Hong Kong Civil Procedure 2002 at para 52/2/8.  The court however retains a discretion whether or not to enforce an order where it has not been personally served: O 45 r 7(6) is in permissive terms.
		(2)	The relevant order must also contain, as I have said, a penal notice.  Where there has been a failure in this regard, the court nevertheless has the power to enforce the order subject of course to the exercise of its discretion: see O 45 r 7(6); Hong Kong Civil Procedure 2002 at para 45/7/6.  However, it is in my view essential that the alleged contemnor shall have been told, whether by being present in court of by being notified by telephone, telegram or otherwise, that the consequences of breaching any order made is to be held in contempt of court and liable to a process of execution.  This I regard as a natural consequence of O 45 r 7(4) which requires a penal notice to be endorsed on the relevant order.  In my view, whether the penal notice is made in writing or given orally, the alleged contemnor must be made aware of the consequences of a breach of the relevant order.  It would be an extremely rare exercise of discretion under O 45 r 7(6) for the court to dispense with this requirement and in principle, I cannot conceive of any circumstances in which it would be right to dispense with such a requirement: cf Hong Kong Civil Procedure 2002 at para 52/2/9.
			…
	17.	Having said that the standard of proof is the criminal one (ie beyond reasonable doubt), I should however point out what may possibly the regarded as anomalies in this type of proceedings:
		(1)	Affidavit evidence is invariably used in committal proceedings unless otherwise directed by the court: see O 38 r 2(3); Hong Kong Civil Procedure 2002 at para 52/6/3.  Furthermore, hearsay evidence is permissible: see Hong Kong Civil Procedure 2002 at para 52/6/3; Savings & Investment Bank Ltd v Gasco Investments (Netherlands) BV (No 2) [1988] Ch 422.  The court obviously has a discretion whether or not to disregard such evidence and is certainly duty bound to consider carefully the quality of such evidence.  I would, however, make this observation: where contempt proceedings are involved, although affidavit evidence is both admissible and normal, it is important that as much first hand evidence of the actual contempt is adduced or if not, an explanation given as to why such evidence is unavailable.  This is not to fetter a court’s consideration of hearsay evidence where appropriate, but no court would wish to make a finding of contempt unless the evidence to support such a finding was good.  It is to be borne in mind that in contempt proceedings, there is no burden on the respondent to prove his innocence: see Concorde Construction Co Ltd v Colgan Co Ltd (No 2) [1984] HKC 253 at 257.
		(2)	Unlike in criminal proceedings, where mens rea has to be demonstrated, there is no requirement in civil contempt proceedings to show that the alleged contemnor intended to disobey the order (ie his conduct was contumacious).  It is sufficient to proof (a) that he knew the facts which are said to make his act or omission a contempt and (b) that such act or omission was not accidental: see the cases referred to in Hong Kong Civil Procedure 2002 at para 52/1/6.  Of course, the alleged contemnor should be aware of the order and the consequences of breaching it: see paras 14(1) and (2) above.”

23. Thus Mr Chan submitted that even the defendants were aware of the Order, they were not aware of the consequences of breaching it.

24. However after the Order was served on the defendants’ solicitors on 5 May 2007, they, as aforesaid, actually referred to this Order in their letter on 11 May 2007 when they wrote to TCF and said inter alia :

“	In comply with the [said order] the subject documents as defined by the order would be delivered up to [Shinewing].  A copy of the said order is enclosed for your reference …”

25. The defendants were advised on two occasions by Mr Arthur Wong of counsel on 4 and 12 May 2007 when they had conferences with him and once by Mr Louie Chan of counsel on 14 May 2007.  Mr Damien Shea of DSC were also present at those three conferences.  By the time of the 2^nd and 3^rd occasions, the solicitor would have a copy of the Order endorsed with the penal notice when they were advised again by Mr Arthur Wong and Mr Louie Chan to comply with the Order on time.  In fact the 2^nd defendant said that at the end of the conference it was their conclusion that they would comply with the Order on time.  Of course they met Mr Damien Shea of solicitor again on 15 May 2007 as stated hereinbefore.  

26. On these occasions the 2 defendants must be aware of the actual copy of the Order with the penal notice endorsed thereon.  In fact upon reading the 2^nd defendant’s 4^th affirmation of 1 June 2007, I have no doubt that the defendants were aware of the Order from day one when the Order was made in court in the defendants’ presence.  That was the reason why I made the Order of substituted service on 6 June 2007.  It is not open to their counsel to submit that the plaintiff had not proven beyond reasonable doubt that the defendants were not aware of the consequence of not complying with the Order as stated in the penal notice. 

27. The defendants had conveniently said that they could not recall that anyone had advised them during the conference at DSC office on 15 May 2007 :

(a)	the effect of the stay summons to the Order; and
(b)	possibility of being held contempt where stay summons is taken but the Order was not complied with on time.

28. They did not say that there was no such advice but just said they could not recall they had been so advised.  In other words, even if they had been so advised, the fact was only that they could not recall such kind of advice had been given.  By then the Order endorsed with the penal code, which was served on the defendants’ solicitor, must be in the hands of the solicitor and accessible to the two defendants. 

29. In any event it has been decided in Donald Kao’s case that it was not even necessary to prove that the alleged contemnor appreciated that his conduct would constitute a breach of the Order. 

30. In the end I do not accept this first point as submitted for the defendants. 

31. The second point submitted by Mr Chan for the defendants was in respect of the chronology of events in which he set out in detail what had happened on 6 June 2007 and in particular those events which happened since 3:15 p.m. as follows :

“	(i)	At 3:15 p.m. : Cheng Tsz Ying (principal of TCF) made enquiries with Bowie Cheung and/or Richard Wong (accounting managers of Shinewing) who informed Cheng Tsz Ying that Shinewing has not received the subject documents.  [see : SB-20 paragraph 3 of Affirmation of Cheng Tsz Ying]
	(ii)	About 3:30 p.m. : Cheung Man Ching Rachel (a clerk to DSC) telephoned Shinewing to notify the delivery of subject documents and asked to speak to Bowie Cheng who was the person in charge of Shinewing but was told that he was on business trip.  She then asked to speak to Barry Ip (the managing partner of Shinewing) who claimed that Bowie Cheng was not in office and Barry Ip refused to accept the subject documents because he was not in the position to accept them.  He then caused an undertaking letter together with the Court Order dated 4 May 2007 be faxed to Shinewing.  [see : CB-48, paragraph 5 of Affirmation of Cheung Man Ching and exhibit CMC-1 (CB-112)]
	(iii)	Cheung Man Ching Rachel then telephoned Ho Wing Kwong Sam (the plaintiff’s solicitor TCF) to see if he could send in a representative to witness the delivery at Shinewing.  However he was in the conference and until about 4:30 p.m. Cheung Man Ching Rachel was informed that the plaintiff would not send any representative there for such purpose.  [see: CB-48, paragraph 6 of Affirmation of Cheung Man Ching]
	(iv)	4:00 p.m. : Ms Rachel Cheung (a paralegal staff member of DSC) called Shinewing to arrange for delivery of the subject documents.  Mr Barry Ip said he refuses to accept the delivery without explanation.  Nevertheless it was delivered.  [see : CB-42, paragraph 11 of 6th Affirmation of Yiu Hing Wai]
	(v)	4:10 p.m. : Cheng Tsz Ying (principal of TCF) made another enquiry with Bowie Cheng and/or Richard Wong (accounting managers of Shinewing) who informed Cheng Tsz Ying that Shinewing has not received the subject documents.  [see : SB-20, paragraph 3 of Affirmation of Cheng Tsz Ying]
	(vi)	4:30 p.m. : TCF replied that it will not send a representative to witness the deliver.  [see : CB-48, paragraph 6 of 6th Affirmation of Cheung Man Ching]
	(vii)	Between 4:10 p.m. to 5:00 p.m. :
		(1)	Cheng Tsz Ying affirmed to his 3rd Affirmation at M.L. Tam & Co. Solicitors of Unit B, 11th Floor, Two Chinachem Plaza, 135 Des Voeux Road Central, Hong Kong, stating that he had made enquires with Shinewing at 3:15 p.m. and 4:10 p.m. that they had not received subject documents from the defendants.
		(2)	3rd Affirmation of Cheng Tsz Ying and statement pursuant to RHC Order 52 R. 2 filed at 5:00 p.m. in support of plaintiff’s ex parte application for leave to issue contempt proceedings.”

32. It should be noted that Cheng Tsz Ying was probably talking to Richard Wong of Shingwing only over the phone whereas Rachel Cheung talked to Barry Ip of Shinewing when she discovered that Bowie Chan was not in Hong Kong as he was on a business trip.  Then Rachel Cheung talked to Sam Ho of TCF and she did not talk to Cheng Tsz Ying.  I therefore cannot draw the inference that Cheng was aware by 4:10 p.m. that Rachel Cheung was trying to deliver the documents to Shinewing.

33. Thus it cannot be said that Cheng has not fully disclosed in his affidavit that Rachel Cheung of DSC was trying to deliver five boxes of documents to Shinewing as even Rachel Cheung of DSC did not say that Cheng of TCF was aware of the fact that DSC was trying to deliver the documents to Shinewing.  At about 4:10 p.m. Cheng was just informed by Shinewing that they had not received the documents yet.  He therefore proceeded to make his affirmation and had the same filed by 5:00 p.m.

34. In any event the written submission of Mr Douglas Lam filed the next day together with other papers in the ex parte application for leave has clearly stated that the plaintiff by then knew that five boxes of documents had been delivered to Shinewing the night before subject of course to the completeness of the documents delivered (which is the subject matter of the 2^nd notice of motion).  Thus by the time of the application for leave, there was full disclosure of all the relevant facts.

35. Then Mr Chan submitted that if there was substantial or full compliance of the Order they should not proceed on the committal proceedings.  But the fact remained was the defendants were in breach of the Order between 15 May 2007 and 6 June 2007.  They had made a conscious decision not to deliver the documents albeit allegedly on legal advice.  It was neither casual nor accidental and unintentional. 

36. Lastly I must put on record that Ms Tam complained that the defence side had conducted litigation by ambush.  Those points in their belated submissions were not put forward at the hearing.  They were without substance in any event in light of the decision in the aforesaid Donald Kao’s case.  Those two new points were only made by their counsel Mr Chan whilst he was on his feet.  I hope this would not be repeated in future.  

Conclusion

37. In the end I consider that the defendants had intended not to comply with the 4 May 2007 Order on 15 May 2007 until 6 June 2007 and therefore they were in contempt of an order of the court. 

38. I shall hear mitigation from counsel for the defendants.

[Both parties agreed to wait for the reply from Mr McCoy SC and Mr Arthur Wong as to their responses to the defendants’ contentions in their affirmation.   Court adjourned to 26 October 2007.]

26 October 2007

39. I have heard mitigation from defence counsel, in particular, I was given Mr McCoy, SC’s letter dated 25 October 2007, i.e. yesterday.  That was given so late because solicitors for the defendants had delayed for seven days in this urgent matter in informing Mr McCoy that their clients had formally waived their privilege. 

40. I must say I am not happy with the way this matter was handled, but Mr McCoy was given a very short time and in the available time he has kindly attended to this matter on urgent basis.

41. To start with, as I have suspected, Mr McCoy had never advised the defendants that they needed not comply with the Order of 4 May 2007.  In particular, he actually advised that :

“

1.

The Order of 4 May 2007 needed to be complied with, unless it was varied or stayed.  An application for stay or an appeal does not operate as stay, which meant that the Subject Documents should still be provided to Shinewing.  There might well be legal consequences flowing from non-compliance with the Order, such as contempt of court proceedings.”

Further, he said :

“	… there was a risk of non-compliance with the Order of 4 May 2007 by the Defendants.  The learned Judge might see things differently.  Consequences would follow.”

42. That, of course, is quite different from the 11^th Affirmation of the 2^nd defendant in which (in paragraph 20) he said that the two defendants could not recall that anyone had advised them of the following :

“	(a)	The effect of the Stay Summons to the Order; and
	(b)	Possibility of being held contempt where Stay Summons is taken but the Order was not complied with on time.”

43. However, Mr McCoy said earlier in his letter after he had given advice that :

“

2.

…. every Order of any Court is valid unless and until set aside”;

he also advised that :

“	3.	… the Order might be invalid (in the absence of personal service …
	4.	Various strategies were considered including that an urgent stay of the Order be sought.  The lay clients representative was adamant that as a commercial decision
		(a)	they would not give the original copies to Shinewing ….”

44. Mr McCoy did not advise his lay clients directly through interpretation in a conference, he advised his solicitors and junior counsel.  According to the defendants, it was Mr Shea, their previous solicitor, who told them that Mr McCoy had advised Mr Arthur Wong who then advised Mr Shea that the Order needed not be complied with.  

45. Whether their breakdown of communication was a miscommunication through hearsay upon hearsay, I do not know.  Mr Shea did not make any affidavit and the defendants did not require him to make one either.  But in these contempt proceedings I have decided to take a lenient view in favour of the defendants.  Therefore I have come to the conclusion that on one hand, although the defendants were never advised the Order needed not be complied with, on the other hand, they were advised the Order might be “invalid” (to use the word of Mr McCoy which I take it to mean “not effective” or “not yet effective”) in the absence of personal service.  The defendants were taking a commercial decision by taking the risk not to deliver the Original Documents to Shinewing.

46. As I have said before, summons for substituted service was taken out the next day on 17 May 2007 by the plaintiff.  The defendants should have been advised once an order of substituted service was made, it could even take retrospective effect as decided by the Court of Appeal in the case of AXA China Region Insurance Co. Ltd v. Li Yu Ping Ellen [2002] 3 HK 339.  I, again, take the most favourable view in favour of the defendants in that they had never been so advised.  After their decision on 15 May 2007 that they were not going to deliver the Original Documents to Shinewing up to 6 June 2007, they were aware that this summons for substituted service had been taken out and therefore they were taking the risk of being in contempt of court by disobeying an order.

47. Taking all the mitigating factors into consideration and the comparatively short period of time in disobeying a court’s order between 15 May 2007 and 6 June 2007, I would impose a fine of $50,000 on each of the defendants, to be paid within 14 days.  Costs of the contempt proceedings be to the plaintiff, to be taxed on indemnity basis if not agreed.