KIN MING HOLDINGS INTERNATIONAL LTD v. LIN MAN YUAN AND ANOTHER

CACV 216 /2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 216 OF 2012

(ON APPEAL FROM HCMP NO. 2460 OF 2010)

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J U D G M E N T

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Hon Yuen JA:

1. This is an appeal by the plaintiff Kin Ming Holdings International Ltd (“KMH”) from an order of Deputy High Court Judge Sakhrani given on 11 September 2012 refusing its application in HCMP2460/2010 to commit the defendants Lin Man Yuan (“LMY”) and Huang Ruifu (“Huang”) for contempt.

Background  

2. The relevant background can be summarized as follows.

Co-operation agreement between KMH and LMY

3.1 On 16 April 2004 KMH and LMY signed a co-operation agreement to develop residential and commercial units on a piece of land in the PRC (“the Co-operation Agreement”).

3.2 LMY says that she entered into the agreement on behalf of Xiamen Fuman Holdings Ltd (“Fuman”) of which her partner and co-habitee Huang is a director.

4.1 Under the Co-operation Agreement LMY was to pay a substantial sum of money to KMH whose subsidiary had acquired certain rights in the land.

4.2 The parties were however concerned that the land might be converted to public use before development could take place.  Therefore they agreed that if KMH was unable to obtain the local authorities’ demand for the land purchase price by a particular date, KMH would have to effect a refund to LMY. 

4.3 However the parties also agreed that if, within 2 years after the refund, KMH were to obtain the development rights, it would still be obliged to co-operate with LMY should the latter decide to do so.

4.4 LMY paid a total of RMB130m to KMH for the project.

Conversion to public use

5.1 The land was indeed converted to public use before development took place, but KMH acquired another piece of land in exchange.

5.2 KMH offered to refund to LMY the money she paid for the project, but she refused to accept it as she wished to participate in the development of the land acquired by exchange. 

HCA2350/2005

6. KMH instituted proceedings against LMY in Hong Kong and on 27 January 2006, obtained a declaratory judgment - in default - that the Co-operation Agreement had been terminated and that both parties were discharged from further performance “without prejudice to its possible revival” pursuant to the provision referred to in para. 4.3. above.

HCA216/2008 (“the main action”)

7.1        About 2 years later, LMY instituted proceedings in Hong Kong against KMH in HCA216/2008 (“the main action”). 

7.2 In a nutshell, she alleges that pursuant to an oral agreement and/or the Co-operation Agreement, she is entitled to participate in the development of the piece of land acquired by KMH as a result of the exchange.  Apart from declaratory relief and specific performance, she has also claimed that KMH is liable as a constructive trustee for an account of profits and/or damages.

7.3 Huang was made a defendant to KMH’s counterclaim.

8. The matters set out above form the background to the present proceedings.

Intimidation of Kho

9.1 One of KMH’s directors is Jose Kho (“Kho”). Deputy Judge Sakhrani found that Kho was a credible and reliable witness and there is no appeal from this finding. 

9.2 Kho said from July 2010 onwards, he was subjected to intimidation and harassment by persons claiming to act for LMY which persisted until March 2011. 

The Powers of Attorney

10.1 In August 2010 Kho was intimidated by a person called Tsoi Chan Yu (“Tsoi”) who produced a Power of Attorney with his name filled in as donee, signed by Huang and chopped with Fuman’s company chop (“Tsoi’s P/A”).  Kho pointed out to Tsoi that the Power of Attorney was not signed by LMH and he refused to discuss matters with Tsoi.  

10.2 In October 2010 Kho was intimidated by a person called Hung Kwok Wai (“Hung”) who produced a separate Power of Attorney, this time with his name filled in as donee (“Hung’s P/A”).  This time the Power of Attorney was signed by LMH, not Huang, and was also chopped with Fuman’s company chop.

11. Both Powers of Attorney, which were printed in Chinese, were dated 28 July 2010 and were in the same terms (with the exception of the names and identity card numbers of the donees, which were handwritten), as follows:

“ POWER OF ATTORNEY

Our Company signed in the name of Madam [LMY] the Contract with [KMH] on 16^th April 2004 in Hong Kong for the co-operation in the development of Lot A4 project of Xiamen City (Haixia City) (Remarks: that project was subsequently adjusted in respect of its location of land use by Xiamen City Government, hereinafter called Haixia City project).

[Tsoi Chan Yu/Hung Kwok Wai] (Identity Card Nos. [redacted]) is hereby empowered, with the fullest powers to represent our Company (including Madam LMY]) by way of lawful method, to negotiate with [KMH] for the purpose of causing [KMH] to continue performing the aforesaid Contract, so that our Company can continue to develop the Haixia City project.

Period of validity: THREE months from the execution and delivery of this Power of Attorney, that is to terminate on 28^th day of October 2010.

It is especially hereby empowered and authorized”.

(Emphasis added).

Solicitors’ correspondence

12. After the intimidatory acts from Tsoi and Hung, KMH’s solicitors wrote to the solicitors for LMY and Huang, demanding they instruct their agents to desist from further intimidation and harassment. 

LMY’s explanation of Powers of Attorney

13.1 According to LMY’s 4^th affirmation in the main action made on 28 October 2010, she and Huang knew a person called Lin Yu Kun (“Lin”) who offered to “achieve a settlement” with KMH because two of his friends knew a Mr Hsu of KMH.  However at that time LMY and Huang declined the offer.

13.2 Shortly after late July 2010, Lin made the proposal again which LMY and Huang then accepted.  Lin suggested that LMY and Huang each sign a Power of Attorney which LMY drafted.  The names of the donees were left blank as LMY and Huang did not know them personally, and Lin was given the originals of both documents for him to fill in the particulars. 

13.3 According to LMY, when she received KMH’s solicitors 1^st letter (dated 11 October 2010) complaining of intimidation, she contacted Lin.  He confirmed that Tsoi and Hung had been appointed agents under the Powers of Attorney, but he denied that they had intimidated Kho.

LMY’s instructions to Lin

14.1 LMY said she told Lin that Tsoi and Hung must not do the intimidatory acts alleged in KMH’s solicitors’ letter.  Lin confirmed to her in a subsequent conversation that they had not done so. 

14.2 However according to Kho’s evidence Hung continued to harass him.  A 2^nd letter from KMH’s solicitors (dated 15 October 2010) was sent to LMY’s solicitors. 

14.3 LMY said she contacted Lin again on 20 October 2010 and instructed him to “tell his friends to stop approaching [KMH] immediately given [KMH’s] stance”.

Ex parte injunction 

15. On 20-21 October 2010 however Kho continued to be threatened by Hung. 

16.1 On 22 October 2010 KMH applied to court for an ex parte injunction in the main action restraining LMY and Huang by themselves, their servants or agents or otherwise, from intimidating and harassing KMH and its directors and staff. 

16.2 The return date for the ex parte injunction summons was fixed for Friday 29 October 2010.

Consent Order

17. On 28 October 2010 however the parties were able to agree on a Consent Order in which LMY and Huang gave undertakings to the Court in the same terms as the ex parte injunction.  The Consent Order endorsed with a penal notice was served the next day.  

Events after Consent Order

18. Kho said however that he continued to be intimidated and harassed by Hung. 

19.1 On 29 October 2010, Hung went to his office again.  He sat on the floor when initially refused entry and used abusive language. 

19.2 Kho told him the court had granted an injunction, and also pointed out that the Power of Attorney had expired the previous day. 

19.3 Hung however said that it had not expired and also that he had an agreement to the effect that “it could be extended” (Transcript p.49-O). 

The Agency Agreement

20.1 Hung then produced a document printed in Chinese, which has been translated as “agreement for appointment” or “agency agreement” (“agency agreement”) .  The parties were Fuman and one Zhuang JinXiang (“Zhuang”) who, Hung said, had given him the Power of Attorney.

20.2 Under the agency agreement Fuman appointed Zhuang to represent it “by lawful means to negotiate with [KMH] causing [KMH] to continue the performance” of the Co-operation Agreement. 

20.3 The “objectives of appointment” were amongst others, to procure the transfer of the rights in the project for registration in Fuman’s name.

20.4 Clause III provided:

“The term of appointment is up to 28^th day of October 2010. After the expiry, even if the objectives of appointment have not been accomplished, but [Zhuang] has already achieved significant progress, through negotiation and unanimous agreement by both parties, both parties will sign a separate supplemental agreement to confirm the extension of the term”.

20.5 The “service charge” was stated as RMB60m.  Before completion of the objectives of appointment, Fuman would not be required to pay Zhuang any charges.

20.6 Clause VII (1) provided:

“If [Zhuang] fails to accomplish the objectives of appointment within the term stipulated in the Agreement and both parties have not reached supplemental agreement for extension of the term, this Agreement shall cease automatically, either party shall not assert any right against the other and shall not claim against each other”. (Emphasis added).

21.1 Kho showed Hung the court order and told him that he was in breach of the law, but Hung refused to read it.

21.2 Hung told Kho that no one had told him to stop and he did not know Lin.  However this evidence was rejected by the judge in the exercise of his discretion as hearsay evidence.

Contempt proceedings

22.1 On 26 November 2010, KMH started contempt proceedings against LMY and Huang.  Kho said the intimidation and harassment finally ceased in March the following year.

22.2 At the hearing KMH accepted that it needed to strictly prove the following two particulars of breach by LMY and Huang:

“(a) Recklessly appointing agents unknown to them by offering an unusually large reward of RMB60 million, without taking any or any proper precaution to ensure that they can stop or otherwise instruct them to desist from continuing to engage in the activities enjoined in the Undertakings ...;

(b) Failing to stop or otherwise instruct their appointed agent or agents to desist from continuing to engage in the activities enjoined in the Undertakings ...;

The above failure has resulted in the appointed agents of the defendants by Counterclaim, one Hung and another unknown person, continuing to engage in the activities enjoined ...”.

23. Given the criminal nature of contempt proceedings, it is necessary for KMH to prove that LMY and Huang had intended, or had been reckless, that their acts or omissions would result in the continuation of the acts of intimidation or harassment.  

Hearing before the judge

24. Pursuant to directions similar to those in In re B (A Minor) (Contempt of Court: Affidavit Evidence) [1996] 1 WLR 627, affirmation evidence was filed by LMY and Huang but they chose not to deploy it at the hearing.  The only evidence from them was LMY’s 4^th affirmation filed in the main action, which was part of the evidence deployed by KMH to show that LMY only instructed Lin to tell Hung to cease his actions, and had not mentioned Zhuang.  Of course at that stage, Hung had not yet relied on the agency agreement given to Zhuang.

Deputy Judge Sakhrani’s judgment

25. The learned judge accepted Kho as a credible and reliable witness and accepted that he had been intimidated and harassed by Hung even after the Consent Order.  He found particular (a) proved but not (b).  The judge found that Hung was a rogue, and he would not have stopped even if he had been instructed to do so. 

26. Essentially the judge found that what Hung did could not be laid at LMY’s and Huang’s door.  The Power of Attorney had expired.  As for the agency agreement, that had also come to an end on 28 October 2010 and there was no evidence that a supplemental agreement had been signed, nor even that there was an agreement for an extension.

27. The judge was accordingly not satisfied beyond reasonable doubt that on 29 October 2010 and thereafter Hung was an agent for LMY or Huang when he continued to harass Kho.   

Appeal 

28. On appeal the argument boiled down to the issue whether the judge should have inferred from Hung’s continued acts that he was acting as LMY and Huang’s agent.  Leading counsel for KMH argued that even though on the face of the Power of Attorney and the agency agreement, the agency period had expired, the mere fact that the intimidation and harassment continued placed the evidential burden on LMY and Huang to show that Hung was no longer acting on their behalf and they had failed to do that by failing to adduce evidence.

Discussion  

29.1 In my view, it is necessary first to consider the terms of the Power of Attorney and the agency agreement. 

29.2 Whatever Hung said to Kho, it is clear that the Power of Attorney had expired on 28 October 2010. 

29.3 As for the agency agreement, one must read clauses III and VII(1) together.  When read together, it is clear that the agreement terminated automatically by effluxion of time on 28 October 2010 unless a separate supplemental agreement was signed by the parties to extend time, the condition precedent being that significant progress had been achieved in accomplishing the objectives of the appointment. 

29.4 There was no evidence that such a supplemental agreement had been agreed, let alone signed.  It is noteable that at p.49-0 of the Transcript, Hung is quoted by Kho to say that the agency agreement “could be extended”, not that it had been extended.

30. Since both the Power of Attorney and the agency agreement had expired, Hung’s authorization from LMY and Huang had come to an end.  Even if it were arguable that it had not expired, the fact that there is a viable argument that it had expired would be sufficient to plant a reasonable doubt in this type of proceeding.  Further there was no evidence to show that LMY and Huang knew that Hung would, on a frolic of his own, continue to intimidate Kho. 

31. Leading counsel for KMH argued that even if the authorization had expired, LMY and Huang should nevertheless have pro-actively instructed Hung to desist, for instance by telling him that they would not, under any circumstances, sign a supplemental agreement.  In my view, that is setting the bar too high.  There is no evidence that the conditions even existed for the supplemental agreement to be signed.  Not only LMY and Huang, but also Hung would have been aware that no significant progress had been made at all. 

32. It may well be that Hung had continued his actions after 28 October 2010 in an independent attempt to further his own interests, hoping that LMY and Huang may be persuaded to give him a reward should he get some progress, but in the absence of evidence of LMY and Huang’s acquiescence in his acts after that date, suspicion is not enough and I would respectfully agree with the judge that it cannot be said that it has been proved beyond reasonable doubt that LMY and Huang were in breach of their undertakings to the court. 

Order

33. The appeal is therefore dismissed.  The parties having agreed that costs should follow the event, I would order that the appellant pays the costs of the respondents, with certificate for two counsel. 

Hon McWalters J:

34. I agree and have nothing to add.

Hon G Lam J:

35. I agree with the judgment of Yuen JA.