ABU DHABI NATIONAL TANKER CO. v. SOUTH VIEW HOLDINGS LTD.

HCCL135/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.135 OF 1998

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J U D G M E N T

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The Applications for Committal

1. There are before the Court two Notices of Motion, dated 29th June 1998, wherein the Plaintiff herein, Abu Dhabi National Tanker Co., seeks an order for committal to prison against respectively one Chan Hay Muk and one Lam Ming Chi, both Directors of the Defendant, South View Holdings Ltd. The contempt complained of is in like terms, namely, the failure of these gentlemen to cause the Defendant to comply with the Order of Yam, J. dated 16th June 1998 in that, in the words of the Motion, the Defendant Company :-

(A) has failed to furnish bail or other security in substitution for the Letter of Undertaking given by the Plaintiff's P & I Club to secure the release from arrest of the Plaintiff's vessel "DIYYINAH", such arrest having been effected on or about 2nd June 1998 pursuant to an Attachment Order made by the Inchon District Court in an Action known as 98 Kahap 4966 commenced by Ssangyong (Hong Kong) Co. Ltd., and has failed, in the alternative, to furnish counter-security in the sum of US$5,000,000 for the said Letter of Undertaking by way of a first-class London bank guarantee by 4:00 p.m. on 23rd June 1998 or at all; and

(B) has failed to provide to the Plaintiff or its nominated agent the sum of US$50,000 or any part thereof on account of legal fees and disbursements which the Plaintiff is incurring in connection with the said Action before the Inchon District Court, by 4:00 p.m. on 23rd June 1998 or at all.

2. The grounds for these applications are set forth in the Statements in Support of the Applications for Leave to Move for the Order of Committal, which leave was granted by Yam, J. on 26th June 1998.

The Factual Background

3. There is, I think, no dispute about the factual background to the Order of Yam, J. of 16th June 1998, the non-compliance with which is the genesis of the present Motions, and I am grateful to Mr Sussex, who appeared on these Motions on behalf of the Plaintiff Applicant, for the concise background summary he has provided to this Court, which, prior to these applications, had not had the benefit of any exposure to this case.

4. The story effectively begins in January 1998, when, by a Tanker Voyage Charter-party dated 6th January 1998 the Plaintiff chartered to the Defendant the motor tanker "AL DHABBIYAH" to load a cargo of petroleum product at Onsan, South Korea, for carriage to and discharge at Shan Sa and Mawei, Fuzhou, in the People's Republic of China.

5. The Charter-party contained a provision, which Mr Sussex tells me is common in the oil cargo trade, that if bills of lading did not arrive at the discharge port(s) in time, the Plaintiff would release the entire cargo without presentation of bills of lading against a Letter of Indemnity signed by the Defendant.

6. In the event, the cargo of gasoil carried by the "AL DHABBIYAH" was in fact discharged and released without presentation of bills of lading against a Letter of Indemnity dated 17th February 1998 signed by the Defendant. I understand that that Letter of Indemnity represented that the relevant bills of lading had not arrived at the discharge port and that by its express terms, under the Letter of Indemnity, the Defendant undertook :

(1) to indemnify the Plaintiff against any liability which the Plaintiff might incur by reason of complying with the Defendant's request to deliver without presentation of bills of lading;

(2) in the event of proceedings being brought against the Plaintiff in connection with the delivery without presentation of those bills of lading, to provide the Plaintiff from time to time with sufficient funds to defend those proceedings; and

(3) if the "AL DHABBIYAH" or a sister-ship should be arrested in such proceedings, to provide bail or other security to secure the release of the arrested vessel.

7. On 2nd June 1998 the "DIYYINAH", which is a sister-ship of the "AL DHABBIYAH", was apparently arrested in the port of Inchon in connection with an action brought before the Inchon District Court by Ssangyong (Hong Kong) Ltd. ("Ssangyong"), and the claim therein was quantified at US$3.8 million, plus interest and costs.

8. It was alleged in these Korean proceedings that Ssangyong had sold the gasoil to the Defendant, but that the Defendant had paid part only of the price, and had failed to open a letter of credit for the balance. As a consequence, Ssangyong was still holding all the original bills of lading and, notwithstanding that the Defendant had on-sold the cargo to Chinese buyers, it had failed to pay Ssangyong.

9. On 3rd June 1998, the Plaintiff's solicitors, Messrs. Holman, Fenwick & Willan, informed the Defendant of the arrest, and required the Defendant to provide security to obtain the release of the "DIYYINAH". That was not forthcoming, and this situation eventually culminated in the Order of Yam, J. and, as a consequence of the Defendant's non-compliance therewith, in the issuance of the present Notices of Motion.

The Proceedings Leading to the Order of Yam, J. of 16th June 1998

10. The Plaintiff in this case chose not to accept the repudiation of the contract in the Letter of Indemnity, and instead sought compliance with its terms. On 8th June 1998, the Plaintiff issued and served a Writ in which it claimed specific performance of that contract, and on the same day an application was made ex parte on notice before Cheung, J., then the Duty Judge, who granted an interlocutory mandatory injunction requiring the Defendant to provide security in order to achieve the release from arrest of the "DIYYINAH", and to provide US$25,000 on account of legal fees and disbursements which the Plaintiff was incurring in Korea in connection with the arrest of its vessel. I am told that the Defendant was given 48 hours in which to comply.

11. In response to these developments, the Defendant applied to Yam, J. to vary the Order of Cheung, J. and indeed Yam, J. extended the time for compliance therewith until 4 p.m. on 12th June 1998.

12. On that date, the Defendant applied again to vary the Order of Cheung, J., and on this occasion Yam, J. extended the time for compliance until after the hearing of the Defendant's inter partes application to vary or discharge that Order. The learned judge directed that he would hear the inter partes application on 15th June 1998 and the Order of 16th June 1998 was made at the end of thatinter partes hearing. Mr Sussex stresses that it is solely non-compliance with paragraphs 4 and 5 of that Order which forms the subject matter of the present Motions for Committal.

13. It is, of course, somewhat unusual that, within eight days of the issuance of proceedings, the Plaintiff should have achieved, by means of mandatory injunction, what is effectively final relief in the action. No formal judgment of the Court on the substantive issue appears to be available, albeit I understand from Mr Sussex, who appeared before the learned judge below, that the judge rejected the Defendant's arguments at that hearing based upon impossibility and illegality. For present purposes, however, I remind myself formally that the Order of Yam, J. has not been challenged by way of appeal, nor has the Defendant returned to the learned judge to seek a variation of the Order in terms, for example, of any further extension of time in which to comply or to attempt to comply. And in this context, Mr Sussex has been at pains to emphasize that it is not open to this Court, at this stage, to do other than to follow the approach exemplified by the well-known passage in Spokes v. Banbury Board of Health (1865) LR 1 Eq 42, wherein Sir W. Page Wood V.-C. observed (at p.48) :-

"... an order must be obeyed, and ... those who wish to get rid of that order must do so by the proper course, an appeal. So long as it exists, the order must be obeyed, and obeyed to the letter; and any one who does not obey it to the letter is guilty of committing a wilful breach of it, unless there be some misapprehension which all mankind are subject to, and which may mislead him upon the plain reading of the order."

I note also in this connection the observations of Hunter, J.A. in Nicolas Pappadis and Another v. Chan Shing-sheung, Barry and Others [1989] 2 HKLR 511, who noted crisply at 517I :-

"... The principle is that unless the order of the court is bad on its face, it must be enforced, however critical a subsequent court may be of the making of the order."

14. In the circumstances, I accept these strictures; indeed, Mr Acton Bond, who appears for the Respondents on this application, has not contended to the contrary.

The Basis of the Applications to Commit

15. The Plaintiff seeks to enforce the Order of Yam, J. by an application for committal pursuant to Rules of the High Court Order 45 rule 5(1), the relevant terms of which are as follows :-

"Where -

(a) a person required by a judgment or order to do an act within a time specified in the judgment or order refuses or neglects to do it within that time ...

then, subject to the provisions of these rules, the judgment or order may be enforced by one of the following means, that is to say -

(i) ...

(ii) ...

(iii) an order of committal against that person or, where that person is a body corporate, against any such officer."

16. Plainly, submitted Mr Sussex, by the Order of Yam, J. of 16th June 1998, the Defendant was required to do an act within the time specified in the Order (namely, by 4:00 p.m. on 23rd June 1998). Moreover, the technical requirements had been met : the Defendant had been served personally on 16th June 1998 prior to the expiration of the time within which the Defendant was required to do the act, and a copy of the Order had also been served personally on the relevant company officers before the expiration of the time within which the body corporate was required to do that act, namely on Lam Ming Chi on 18th June 1998 and on Chan Muk Hay on 21st June 1998. Accordingly, said Mr Sussex, there was no technical impediment standing in the way of the Plaintiff's application to commit the two directors by reason of their failure to cause the Defendant company to comply with the Order in question.

Applicable Legal Principle

17. In the course of what have been most helpful submissions from Counsel in an area which is less than frequently visited, my attention has been drawn to two differing lines of authority in terms of applicable principle. Whilst the general procedure governing an application in Hong Kong for an order for committal is governed by Rules of the High Court Order 52 rules 2 and 3 (as is the case in England where such applications made to the Divisional Court) there does appear to be a significant difference in the way the law has developed in England and Hong Kong in instances in which it is sought to apply for an order for committal of a director under the provisions of Order 45 rule 5.

18. In Hong Kong, it appears to be established that there are in effect two distinct routes by which a director of a company may be proceeded against for contempt, via what may colloquially be regarded as the "aiding and abetting" route (which is in fact no different from the situation in which any third party could be committed for interfering with or obstructing the course of justice) and the alternative route which imposes a personal duty on a director to ensure compliance once he becomes aware, via service, of the relevant Order which 'bites' on the company; as Sir Alan Huggins, V.-P., put it in Cartier International B.V. and Others v. Kaybee International Ltd. [1988] HKLR 127 at 129I-J :-

"... it must be remembered that O.45 could prima facie be prayed in aid even against a director who has been innocent of any contempt, and that is why this order insists that he shall have been personally served with the order against the company before he can be committed : it would be unjust to commit him for the company's disobedience to an order of which he had no knowledge. No such injustice could result where he has been directly and knowingly responsible for the company's disobedience."

19. A like approach was adopted by Hunter, J.A. in Nicolas Pappadis and Another v. Chan Shing-sheung, Barry and Others, op.cit., who observed (at p.518-519) :-

" It is convenient here to point out, as the judge did with complete accuracy in the court below, that there are two basic routes by which a director of a company may be committed. The first is under Order 45. The second is as a person who, in convenient language, aids and abets; a person who himself is guilty of defying a court order with full knowledge of its terms. In this case the basis of the first finding of contempt against this respondent was aiding and abetting. The basis of the second finding was as a director and under Order 45.

...

So you can enforce orders against directors direct so long as you serve them with a copy of the order at the appropriate time, and I may add with the appropriate penal notice. This is subject to the qualification in sub-rule 7(7) that the court may dispense with service of a copy of an order under this rule if it thinks it just to do so.

...

The second basis upon which a director can be committed for contempt is under this overall description of aiding and abetting as this Court held in the case of Cartier International B.V. and Others v. Kaybee International Ltd. [1985] HKLR 127. There is a very big difference between these two approaches. Under Order 45 no moral blame or necessarily knowledge, need be shown in the director. It is sufficient to show that the order was made against the company and served upon him. Then it is the director's personal obligation to ensure that that order is complied with. When you are dealing with aiding and abetting the situation is quite different. What has to be shown is personal misconduct on the part of the director ..."

20. It was possible, said Mr Sussex, that the position in English Law differed in that it may be necessary to prove that the director 'wilfully' failed to take steps to ensure that the order was obeyed; certainly this might be thought to be the effect of the judgment of Anthony Lincoln J. in Director of Fair Trading v. Buckland [1990] 1 WLR 920, wherein the learned judge concluded (at p.925H) that Order 45 rule 5 :-

"does not render an officer of a company liable in contempt by virtue of his office and his mere knowledge that the order sought to be enforced was made. Resort can be had to rule 5 only if he can otherwise be shown to be in contempt under the general law of contempt. ..."

21. Clearly the reasoning in Buckland does not lie happily with the ratio and approach of the Hong Kong Court of Appeal decisions of Cartier and Pappadis, and it may be that the bold approach of Anthony Lincoln J. has been modified somewhat by the English Court of Appeal in the subsequent case of A.-G. for Tuvalu v. Philatelic Distribution Corp. [1990] 1 WLR 926, wherein, in commenting on the passage in Buckland quoted above, Woolf, L.J. (as he then was) observed (at 938D) :-

"That remark was however made in a case where there was no finding made against the director of culpable conduct and it should not be taken as meaning that it is only where a director has actively participated in the breach of an order or undertaking that Ord. 45, r. 5 can apply. If there has been a failure to supervise or investigate or wilful blindness on the part of a director of a company his conduct can be regarded as being wilful and Ord. 45, r. 5 can apply. ..."

22. Clearly, when taken at face value, the import of 'wilfulness' goes further than the view of the Hong Kong Court of Appeal on the point, although, as Lord Woolf remarked earlier in his judgment in Tuvalu (at p.936F) :-

"... We use the word 'wilful' to distinguish the situation where the director can reasonably believe some other director or officer is taking those steps [to ensure that the Order or Undertaking is obeyed]",

and it may be that, at bottom, the use of the term in the context of Order 45 rule 5 imports or re-emphasizes no more than the personal obligation on the Respondent director to discharge the burden of explaining precisely why there has been non-compliance with the relevant order and what steps he did or did not take to ensure such compliance.

23. Be that as it may. Whether or not the two distinct approaches can be reconciled, for the avoidance of doubt, and notwithstanding Mr Acton Bond's submission that this Court should apply the Buckland approach as considered and explained in Tuvalu, I decline in this instance to impose a requirement of wilfulness, and I intend to proceed in this application along the lines espoused by Hunter J.A. in Pappadis, as I think it incumbent upon this Court, pending any change of view of the Hong Kong Court of Appeal when that Court next has the advantage of considering Buckland and Tuvalu. Moreover, as Mr Sussex pointed out, there is, on the face of Order 45 rule 5, no express requirement of wilfulness, a point made the more forceful by the fact that the pre-1966 version of this rule did apparently impose such a requirement, but that this was dropped when the rule was changed.

24. I would add, solely for the sake of completeness, that in the context of this debate, I do not think, with great respect, that the decision of Waung, J. in Interlego AG v. Lego New Enterprises Ltd. [1995] 3 HKC 186 should deter me from the approach I have adopted. Although in that case the learned judge followed the decision in Buckland, it is notable that he was assisted by Counsel for the applicant only, the respondent appearing in person, and further and more important, that the Hong Kong Court of Appeal decisions of Pappadis and Cartier were not drawn to his attention.

The Argument

25. Against this background, I turn now to comment on the facts of the present dispute -- at least as they are revealed on the evidence before me -- and to consider briefly the submissions made by Counsel on both sides. I remind myself at the outset that, although this is a case of civil contempt, the standard of proof (as I think both Counsel agree) is the criminal standard, so that in arriving at my conclusion as to the contempt alleged by this Applicant, I must be satisfied that the case is proved beyond a reasonable doubt.

26. Mr Sussex accepts that his client bears this ultimate burden, and powerfully submits that his case is made out. What his client has to show, he says, is the fact of the non-compliance by the Defendant company (which as a matter of objective fact is common ground) and the fact of service upon the individual directors (likewise), at which point the evidential burden plainly falls upon the Respondent directors to explain first, what efforts they took to attempt to ensure compliance on the part of the Defendant company with the Order of Yam, J. of 16th June 1998, and second, why the Defendant Company in fact failed so to comply.

27. So far as the first head was concerned (e.g. the convening of Board Meetings and so forth), there was little, if anything, put forward, said Mr Sussex, and in terms of the primary defence of impossibility, on the evidence this was palpably unconvincing and inadequate. At its lowest (which position he did not necessarily accept) it was as plain as a pikestaff, he said, that part at least of the Order of Yam, J. could have been complied with with ease and alacrity; as it was, it was far more convenient for the Defendant not to comply with the Order as made, and it was hard to avoid the conclusion that the Order was simply ignored in favour of subsequent self-serving commercial considerations. He may have put it more elegantly than that, but at any rate that was the thrust.

28. In reply, Mr Acton Bond for the Respondent Directors made it clear from the outset that he was running a defence based on impossibility of compliance, and in earlier response to Mr Sussex's contention that, at the very least, the sum of US$50,000 (vice paragraph 5 of the Order of Yam, J.) should have been made available, he made it clear to the Court on the first day of the hearing that the financial position of the company was so dire that "not one cent" was it possible to find. However by a later stage in the application this position no longer prevailed, at least so far as the sum of US$50,000 and the non-compliance with paragraph 5 of the Order was concerned.

29. Matters developed in this way. Immediately after the break on the morning of the third day of the hearing, Mr Acton Bond told the Court that his clients accepted that within the period of the Order, and thereafter, they did not do what they could to furnish the sum of US$50,000 to the applicant company, and that they "accept that the provision of such a figure was not outwith the bounds of possibility at that stage or thereafter" and that therefore his clients "accepting their responsibilities within the limits of the argument to this extent were not acting properly in accordance with the Order of the Court".

30. Put in criminal parlance, said Mr Acton Bond, this was a plea of Guilty to that allegation. His instructions were that at the time his clients were "mesmerized" by the larger figure of US$5 million, and did not concentrate on the totality of the Order to the extent that they should have done. His instructions therefore were to apologize to the Court for the admitted contempt, and to throw themselves on the mercy of the Court so far as the sum of US$50,000 only was concerned. What his clients were now able to do, Counsel submitted, was to borrow US$50,000 to at least comply, albeit late in the day, with paragraph 5 of the Order; in this context, US$10,000 would be available to be provided to the Plaintiff on Monday 7th September, with the balance of US$40,000 available on 20th September. As to this latter sum, the Court ordered that this was to be paid by cash or bankers draft by 1:00 p.m. on Saturday 19th September to the Plaintiff's solicitors, and that an affidavit confirming that this had been done was to be filed by the Respondent's solicitors by 1:00 p.m. on Monday 21st September, that is today. Accordingly, therefore, the delivery of this judgment was fixed for the afternoon of 21st September, and I have been given to understand at the outset this afternoon that those proposed arrangements have now been complied with in terms of the timetable then put forward by Mr Acton Bond, and I have been invited (and doubtless again will be so invited today) to take this situation into account when considering the penalty falling upon such admitted contempt.

31. This concession as to the US$50,000 sum notwithstanding, Mr Acton Bond made it clear that he wished to maintain his defence to the contempt alleged with regard to non-compliance with paragraph 4 of Yam, J.'s Order, whilst at the same time Mr Sussex also indicated to the Court that, notwithstanding what had just transpired in terms of the sum of US$50,000, it was also his firm intention to persist in his submissions regarding the contempt as to the US$5 million (or part thereof). It was at this stage, however, that Mr Sussex did modify his earlier position. Whilst at the outset of the hearing he had invited the Court to find the contempt proved and to imprison the Respondent directors pending the purging of such contempt, he now accepted that "with creditors looming and the end game approaching" in terms of the continued existence of this Defendant company, which "amazingly" still apparently continued to trade, that in terms of the payment of the sum of US$5 million the contempt "cannot now be purged", and that henceforth the focus should be upon the undoubted commission of the contempt alleged and the sanction therefor. Whatever may be the current position, said Mr Sussex, the fact was that at the time the Order was made the Defendant company clearly had access to significant sums of money -- including, he asserted, some US$2.6 million worth of then unencumbered container feeder vessels -- and the short and inescapable point was that these assets had been alienated elsewhere, and in fact were apparently used by the Defendant to "top up" security held by and in favour of Credit Lyonnais, which institution, I have been informed, has recently brought collateral proceedings in HCCL208 of 1998 against, inter alia, the Defendant company and the present Respondents, and who pursuant thereto has obtained a worldwide Mareva injunction, by the Order of Pang, J. dated 27th August 1998, as to the sum of US$3,417,600.37.

32. In response to the contempt now exclusively focused in terms of paragraph 4 of the Order of Yam, J., Mr Acton Bond, I think, ran two defences : first, what I would venture to call a narrow technical argument, to which I shall shortly advert, and second, what amounted to a full frontal defence of the impossibility of the Defendant company being in the position to raise the very significant sum of money, that is US$5 million, to satisfy the Order of Yam, J.

33. I begin with the technical argument, albeit it seems to me that this line can no longer be a live issue given the admitted contempt in so far as the sum of US$50,000 was concerned. Mr Acton Bond's point was short, and, I think, amounted to the following proposition : a contempt can only occur within the period between the service of the Order of the Court bearing the penal notice and the time stipulated for compliance on the face of the Order. It followed, therefore, that anything that did or did not occur subsequent to the relevant date of 23rd June did and does not constitute a continuing contempt, albeit that whatever the Respondent directors may have done after that date inconsistent with the purpose of the Order may either aggravate or mitigate the contempt. Accordingly, said Mr Acton Bond, his clients were not guilty of any contempt in this case (a submission that was made prior to the concession as to the US$50,000) and the proceedings should be dismissed. And, as a backstop to this 'narrow window' of contempt proposition, a slightly 'wider window', which would nevertheless operate on the same principle, would be period between service of the Order and the date of the Notice of Motion.

34. I hope that I have adequately summarized the point made, for which Mr Acton Bond during argument frankly accepted that he had no authority; indeed, he asserted that it was "a self evident proposition". However, I add at this stage that immediately prior to delivery of this judgment, Mr Acton Bond was kind enough to draw my attention to a case he had discovered but this very day, namely, Kumari v. Jalal [1997] 1 WLR 1997, which he submitted reinforced, at least by necessary inference, what I have called his technical argument. And although I have not had much time to study it, I do not think that it does. I think primarily it is a case where the Court of Appeal was directing their minds to instances of double jeopardy and the avoidance of a situation wherein there is punishment twice for a single established instance of contempt.

35. But to return to the general technical point as made. I will deal with it shortly. I disagree. Indeed, a submission of this nature may perhaps be thought to be a convenient and self serving proposition by putative contemnors, who on the one hand appear to have ignored the Order completely, clearly subjugating its demands to other commercial interests, whilst on the other hand asserting that they were no longer under any obligation to comply with that Order after the date stipulated thereon, namely, 4:00 p.m. on 23rd June 1998, so that (presumably) it behoved the Plaintiff to return to the Court periodically for replacement order(s) to extend the relevant time period by which the mandated act should be performed.

36. In the circumstances I reject Mr Acton Bond's proposition, persuasively though it was advanced, which seems to me to take no account of the concept of, for example, continuing breach. And whilst I accept, as I think does Mr Sussex, that the date of the Notice of Motion -- the so-called 'wide window' -- provides a cut-off date by which the Applicant must specify in the Notice of Motion and in the relevant Statement in support the case of contempt that is alleged against the Respondent, this in my judgment is a significant distance away from the alternative approach urged upon me by Mr Acton Bond.

37. I turn now to the issue of impossibility, which for all practical purposes lies at the heart of the Respondent's case in terms of the Defendant's non-compliance with paragraph 4 of the Order of Yam, J.

38. I am told by Mr Sussex, who is the only person in the Court who was present during the hearing before Yam, J., that this was the primary defence at the substantive argument, and it is one to which the learned judge, at the time of that hearing, evidently did not attribute any great credence, or else presumably he would not have felt able to make the Order that he did. As I understand the position, the evidence then before Yam, J. on the point was primarily contained in the first affidavit of Mr Lam Ming Chi, the narrative of which details the allegedly parlous financial position of the Defendant company, and which states as its main purpose (at paragraph 7 thereof) that "it is simply impossible for the Defendant to pay US$5 million into Court in Korea within the short time that has been given to the Defendant (or at all)". However, exhibited to that affidavit are what appear to be Audited Group Consolidated Accounts as at 31st March 1997, within which the Consolidated Profit and Loss Account indicates, inter alia, that in 1997 this Group had a turnover of some HK$990 million and that the Retained Profits carried forward were some HK$23.8 million. Noteworthy, also, in the Notes detailing the Tangible Fixed Assets, the net book value for motor vessels, at that stage unencumbered, is listed at HK$20.3 million. I note, further, that under Amounts due from Directors, Mr Chan Hay Muk has a figure of HK$3.9 million against his name as outstanding at the end of that financial year, and Mr Lam Ming Chi the sum of HK$13.2 million. That, therefore, was the audited financial information before Yam, J., albeit I have but briefly alluded to its contents.

39. Since that date, however, further unaudited information has been filed in this application on behalf of the Respondents in first, a set of unaudited Management Accounts for the period from 1st April 1997 to 3rd July 1998, which indicates a net loss for the period of HK$352.4 million odd, with therein the somewhat unusual situation in which Sales Revenue is listed at HK$368.125 million whilst Cost of Sales is recorded at HK$703.569 million. Mr Sussex draws my attention, also, to the fact that in Schedule 11 to these unaudited financial statements, there is apparently a sum of HK$287.19 million due to a subsidiary Pentarich International Ltd., which but a relatively short time earlier was no more than a shelf company. Numerous questions arose, said Mr Sussex, and it was surprising that there were no audited accounts for the Defendant company, some five months after the end of the financial year. In this connection Mr Acton Bond tells me from the Bar that his instructions are that his clients have received accountant's advice that such an audit did not need to take place if voluntary liquidation is being considered, as apparently was the case, although I know not whether or not this will be done, and I must proceed on the state of the evidence before me.

40. However, the additional information to which I have referred does not stop there. After the Plaintiff's solicitors had obtained a critique from a leading firm of accountants on the material exhibited in the consolidated accounts for the Group and the unconsolidated unaudited management accounts for the period 1st April 1997 to 3rd July 1998, one Mr Yu Ching Ho, the former in-house accountant of the Defendant during the period March 1997 to August 1998, swore an affidavit exhibiting his 'Comments' on the critique of the accounts presented by Ferrier Hodgson & Marfan. These comments took the form of, in some cases very substantial amendments, which have been the subject of forceful comment by the Plaintiff. Perhaps the prime example of what appeared to be crucial errors in the unaudited accounts exhibited emerges in the following bland statement (at p.4 of Mr Yu's commentary) :-

"Upon closer examination of the accounts by Leung Kok Kung, Deputy General Manager of the company on 31st August 1998, it was discovered that the inter company sales from South View to Pentarich of 285,086,838.60 had not been booked in the accounts of South View and sales of HK$20,496,762.26 have been wrongly treated as bills payable due to clerical error."

41. At one fell swoop, therefore, the Sales Figure in the unaudited Profit and Loss Account for the company for the period from 1st April 1997 to 3rd July 1998 moves from HK$368 million odd to HK$673 million, with a corresponding effect on the state of the Profit and Loss Account. The apparent ability to displace $305 million at the stroke of a pen is both startling and alarming; against this background, it is perhaps unsurprising that Mr Yu also points out that the amount due from another director, Mr Chan Hon Wing, should be some HK$57.2 million and not the figure of HK$14.5 million as indicated in the unaudited management accounts, this "an error discovered in October 1997".

42. At one stage it appeared that Mr Yu would give evidence in an endeavour to amplify and more fully explain his affidavit evidence. Certainly Mr Acton Bond went so far as to apply for leave to call Mr Yu (against, I may say, the opposition of Mr Sussex), and after argument such leave was granted. However, Mr Acton Bond subsequently informed the Court that he did not wish to pursue this course, and so the Court was left, at least in terms of accounting evidence, with what was, by any standards, a highly unsatisfactory situation.

43. Be that as it may. Whatever the precise financial state of play, and indeed however close to compulsory or voluntary liquidation the Defendant company now may or may not be, it seems to me abundantly clear that at the time the Defendant was affixed with the obligations contained in the Order of Yam, J. that there was on any view a significant equity vested in the two container feeder vessels owned by a subsidiary of the Defendant (to which vessels I have earlier referred) which clearly could have been utilised, at least in part, to defray the sum ordered to be paid. In this connection, there is a dispute on the face of the affidavits between the parties as to whether in fact these vessels were actually offered for sale via brokers in the market as the Defendant contended, the Plaintiff going so far as to suggest that on the evidence that they have uncovered there was never any serious attempt launched by the Defendant so to do.

44. Mr Acton Bond was concerned about this aspect of the case, and in my view rightly so. By the conclusion of the application, the contempt argument had really crystallised upon this aspect, and he placed before the Court, without objection from Mr Sussex, collateral documentation, at that stage not formally in evidence, consisting in the main of correspondence of various kinds, including without prejudice correspondence passing between inter alia, the Defendant, the Plaintiff, their solicitors, and Credit Lyonnais, which appears to have been, and to continue to be, a significant creditor of the Defendant. I have not attached a great deal of importance to this material (marked as Exhibits R1-4 and A1 respectively), albeit it does perhaps indicate the Defendant's keen awareness of the significance of the Court Order and the Defendant's desire to negotiate its way out of its financial predicament; indeed, one of the letters from the Defendant's former solicitors, Messrs. Deacons, to the Plaintiff's solicitors Messrs. Holman, Fenwick & Willan proposed the device of transfer of ownership of the two vessels, owned through subsidiaries, to the Plaintiffs in return for the discharge of the Order of Yam, J., thereby demonstrating, submitted Mr Acton Bond, "a more healthy approach to Yam, J.'s Order then was first apparent".

45. The short and inescapable point, however, is that these two vessels (which, apart from a share of a hotel in China, on the Defendant's own case apparently represented the Defendant's sole clean assets) were indisputably mortgaged to Credit Lyonnais (I believe on 23rd July 1998) as security for the sum, I am again told from the Bar, of about US$800,000 for both vessels, and in further security of the amount then outstanding to Credit Lyonnais. Mr Acton Bond characterised this mortgage as an "agony of the moment" response to the commercial pressure then being applied by Credit Lyonnais, and he maintained his submission that as at the date of the Notice of Motion, namely 29th June, his clients "were doing all they could to salvage a difficult situation", and that there was non-compliance with the Order as at that date because of the impossibility of so doing; alternatively, he said, if he was wrong on his submission as to the time-scale and as to the relevant 'window' in which he submitted was necessary to establish contempt, at worst this was "a more understandable" contempt then perhaps was evident on the face of the papers.

Decision

46. After fully reviewing the evidence, and indeed the forceful argument that has taken place on both sides, I have come to the conclusion that contempt has been established by the Plaintiff against the two Respondent directors to the required standard, in terms of the non-compliance by the Defendant company with the Order of Yam, J. In short, one contempt is admitted, and the other established to the requisite degree and, in so finding, I have looked at the totality of conduct up to the hearing of this Motion, that is from the date of the Order of Yam, J. up until the date this Motion was debated. I have no doubt, on the evidence, that it was open to the Defendant, in part at least, to comply with the Order of Yam, J., and the fact that it did not do so -- preferring at bottom simply to ignore the Order -- seems to me to reflect a clinical and calculating approach, preference clearly being accorded to the placation of other commercial interest which were doubtless perceived as being more pressing in the circumstances; possibly the threat of a creditor bank putting a company into liquidation was regarded as a greater and more real problem than taking all available steps to comply substantially or in part with an Order of this Court.

47. In the circumstances, therefore, I find that the contempt alleged is proved against the Respondents to this Motion, and before moving to assess a penalty, I should I think accord Mr Acton Bond a further opportunity to address the Court in mitigation.

[Submissions from Respondents' Counsel]

Order

48. I have had the considerable advantage of a wide-ranging mitigation by Mr Acton Bond on behalf of both of his clients. Mr Acton Bond has not only informed me as to their personal circumstances and background, but has further asked the Court to take "a merciful view" of the facts of this case and, in particular, the fact the mortgage to Credit Lyonnais of the two unencumbered container feeder vessels was not done for a purpose other than as a desperate attempt to keep the company afloat. There is always in matters of this nature a delicate balance to be maintained between the strong public interest in ensuring that the orders of the Hong Kong courts are not flouted and the evaluation of the individual circumstances of each case. I have reflected long and hard about what should be the appropriate penalty to be visited upon Mr Lam and Mr Chan; I have considered in detail the way this unfortunate saga has developed, and I have had an insight into the way the proceedings were conducted and what these gentlemen apparently did and did not do. I will of course never know the full story, and at the end of the day it seems to me that sentencing in a case of civil contempt may be as much a function of stomach as cerebrum.

49. Nevertheless, after considering all that has been placed before me by Counsel, and after weighing the signal importance of demonstrating to litigants that the Orders of these courts are to be obeyed, I have come to the conclusion that such purpose would be achieved in this case by a financial penalty as opposed to any order for imprisonment.

50. With these observations, my Order, therefore, is as follows :

Mr Chan Hay Muk and Mr Lam Ming Chi are to pay a fine for the contempt that I have found to be established against them respectively in the sum of HK$100,000, i.e. for the avoidance of doubt a fine of HK$100,000 each. That sum is to be paid within 14 days of today's date.

I decline Mr Sussex's invitation to declare, at this stage, what alternative penalty may be visited upon these two gentlemen should such fine not be paid. In the circumstances, I give liberty to apply so that I may deal with that situation afresh should it arise. Absent compelling circumstances, I think it unlikely that, to use a phrase of Mr Acton Bond's, I should be inclined to be as merciful next time.

51. So far as costs are concerned, I made it clear to Mr Acton Bond during his mitigation that, in the circumstances of this case, any attempt to convince me to order costs other than on an indemnity basis would be unlikely to succeed and, like any good advocate, he immediately embraced that indication. In my view, the proceedings that have been brought pursuant to these Notices of Motion have been thoroughly justified and there is no reason, in the circumstances, why the Plaintiff should not have its costs of and occasioned by these two applications upon an indemnity basis, to be taxed if not agreed. I so order. In so far as such may be necessary, I also give the Plaintiff liberty to apply should it transpire that any bill of costs, when duly taxed, is not met. I hope that such a situation does not occur.

52. I wish finally to thank both Counsel for the assistance they have rendered to the Court in what I have not found to be an easy application.