HAO XIAOYING v. WONG YIU LAM WILLIAM AND OTHERS

HCMP 1968/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1968 OF 2014

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J U D G M E N T

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1.  This is the plaintiff (“Hao”)’s application for committal of the defendants who, as directors of Green Valley Investment Limited (“Company”), have refused or failed to take reasonable steps to ensure the Company’s compliance with the orders of this Court made in HCMP 837 of 2013. Leave to commence these proceedings was granted on 18 August 2014.  

Background

2.  The matters set out in this section are not in dispute.

3.  The Company was incorporated on 18 July 1991 in Hong Kong.  There are 5 shareholders, namely, Hao, the defendants and Lu Jia Don (“Lu”) each holding 20% of the shares in the Company.  Its only business was its investment in a joint venture company called Shanghai Green Valley Villas Limited (“JV Company”) which was incorporated for a property development in Shanghai.  In 1991, the Company acquired a 55% interest in the JV Company.

4.  The Company is now essentially dormant, and has been so since 2004 save for the engagement in a number of disputes which were and are being litigated in the Mainland.  In short, these proceedings concern the Company’s claim that its interest in the JV Company had been stolen from it by Hao, his wife, Lu and corporate entities associated with them.  It appears that the Compensation (as defined in para 5(2) below) was derived from one of these proceedings.  As matters currently stand, the only live proceedings in the Mainland are those mounted by the Company against Hao and his wife. 

5.  In HCMP 837 of 2013, Hao, as shareholder of the Company, applied by way of Originating Summons dated 22 April 2013 for an order for inspection of the following documents pursuant to s.152FA of the old Companies Ordinance, Cap 32 (“Ordinance”):

(1) all profit and loss account(s), income and expenditure account(s), directors’ report(s) and auditors’ report(s) belonging to the Company for the period from 25 July 2000 to the date of the order;

(2) all bank entry record and any other documents showing receipt of the sum of RMB 16,000,000 being the agreed compensation paid by Shanghai Xin Da Shi Yip Chung Company (上海鑫达实业总公司) (“Shanghai Company”) pursuant to a mediation agreement dated 23 April 2009 (“Compensation”) and the subsequent transfers and/or use thereof (collectively, “Documents”).

6.  Hao’s application was made to address his concern as to the whereabouts of the Compensation of which he had an interest as a shareholder of the Company.

7.  On the day of the substantive hearing on 26 September 2013, the Company, which was represented by Senior Counsel, capitulated and conceded to Hao’s application. Accordingly, by consent, this court made an Order for Production (“1^st Order”) in these terms:

“1. The Defendant do forthwith produce to the Plaintiff his agents or representatives duly appointed by him the following documents:

(i) All bank entry record and any other documents showing receipt of the sum of RMB16,000,000 being the agreed compensation paid by Shanghai Xin Da Shi Yip Chung Company (上海鑫达实业总公司) (“Shanghai Company”) in respect of the legal proceedings in Shanghai City (case no. (2007) 沪一中民五（商）初字第104号) pursuant to the mediation agreement dated 23 April 2009 and the subsequent transfers and/or use thereof;

(collectively “Documents”), whether in printed or documentary form or any other form including computer generated records and information inscribed on, stored in or otherwise fixed in tangible medium or that is stored in an electronic or other medium that is retrievable in a perceivable form in particular computer hard disc drive, floppy disc, compact disc and zip storage device. For the avoidance of doubt, references to documents include, without limitation, correspondence, emails or other electronic communications, internal memoranda, meeting and/or telephone attendance notes, reports, presentations and drafts of the same.”

8.  However, the Company failed to produce the Documents to Hao.  Subsequently, Hao made an application by way of a Summons dated 4 November 2013 to compel the Company to do so.  After the Summons was issued, the Company’s solicitors (“FWT”) by a letter dated 11 November 2013 informed Hao’s solicitors (“TK”) that:

(1) the Compensation was paid by the Shanghai Company and deposited into the bank account of the Company’s legal representatives in Shanghai (“Shanghai Law Firm”);

(2) the Compensation had since been kept by the Shanghai Law Firm on account for legal fees incurred by the Company.

9.  The 11 November 2013 letter also enclosed 4 bank statements dated 14 May 2009, 29 June 2009, 8 August 2009 and 26 November 2009 issued by the Bank of Shanghai evidencing the receipt of the Compensation by the Shanghai Law Firm in 4 instalments.  These appear to be electronic printouts which only showed the relevant entries of the deposits but not, eg, the balances of the account.

10.  By a letter on 12 November 2013, TK pointed out that the Company had still failed to provide documents showing the transfers and/or use of the Compensation subsequent to the receipt of the same by the Shanghai Law Firm.  FWT replied on the same day and asserted that the Compensation had “remained in full in [Shanghai Law Firm]’s account up to now”and“[n]owhere in our letter was it indicated that the [Compensation] or any part of it has been used or transferred out of the account”.

11.  On 14 November 2013, immediately before the hearing of Hao’s application to compel the Company to comply with the 1^st Order, FWT confirmed that the Company would provide further documents to him.

12.  Accordingly, by consent, this court ordered on 14 November 2013 that the Company was to comply with the 1^st Order within 10 days.  It was also ordered that penal notice be endorsed on the Order (“2^nd Order”).

13.  By a letter from FWT to TK on 22 November 2013, Hao was informed that:

(1) contrary to previous representations (see paras 8(2) and 10 above), the Compensation was actually kept in the Company’s bank account with Nanyang Commercial Bank Limited in Hong Kong (“Nanyang Bank Account”) by way of a time deposit of USD 2,617,907.53 (“Time Deposit”);

(2) a deposit confirmation evidencing the Time Deposit was enclosed.  It showed that the Time Deposit was placed on 20 November 2013 for 30 days.

14.  Various correspondences were thereafter exchanged between TK and FWT from 25 November 2013 to 3 March 2014 by which Hao reiterated his stance that the Company had failed to produce documents showing the transfers and/or use of the Compensation subsequent to the receipt of the same by the Shanghai Law Firm.

15.  On 26 June 2014, upon Hao’s application by way of Summons dated 12 June 2014, this court ordered the Company to comply with the 1^st Order within 7 days from the service of the order (“3^rd Order”).  It was specifically ordered that personal service be dispensed with and the previous orders made by this court be served on the directors, ie, the defendants by way of substituted service in the manner stated in the 3^rd Order. Penal notice was also endorsed on the 3^rd Order.

16.  On 11 July 2014, the relevant orders were served on the defendants by way of substituted service.  No further document was produced within the 7 days thereafter.

17.  There is no dispute (see below) that the defendants, being the only directors of the Company, were therefore in breach of the 3^rd Order by 18 July 2014.

18.  By a letter from FWT to TK on 29 July 2014, the Company made a turnaround of its case and informed Hao that:

(1) since the Company did not have any bank account in the Mainland, it was not possible for the Shanghai Law Firm to transfer the Compensation to the Company there after receipt;

(2) the Shanghai Law Firm had kept the Compensation on account for legal fees incurred and to be incurred by the Company in connection with litigations in Shanghai.  In view that the law suits in Shanghai were still on-going, and the amount of legal fees to be incurred could not be ascertained for quite some time, the Company authorised the 1^st defendant (“W Wong”) to receive the Compensation for and on its behalf;

(3) the Compensation was paid to W Wong by the Shanghai Law Firm on 21 May 2009, 30 June 2009, 10 September 2009 and 30 November 2009 by 4 instalments;

(4) out of the Compensation, RMB 11,300,000.00 were paid to W Wong’s bank account with 廣發銀行股份有限公司 (“Guang Fat Account”), and the balance of RMB 4,700,000.00 was paid to W Wong directly in cash; and

(5) the Company subsequently directed W Wong to arrange for the Compensation to be deposited into the Nanyang Bank Account.  W Wong therefore arranged a sum of USD 2,617,907.53 (equivalent to about RMB 16,067,716.41) to be deposited into the Nanyang Bank Account, which then became the Time Deposit.  The Compensation had not been used ever since.

19.  The 29 July 2014 letter also enclosed documents, namely, receipts signed by W Wong, banks statements of the Guang Fat Account, bank passbook of the Nanyang Bank Account and a deposit confirmation in respect of the aforesaid transactions.

20.  On 18 August 2014, Hao obtained leave to commence these committal proceedings against the defendants.

W Wong’s evidence

21.  There is only 1 affirmation filed by W Wong (“Affirmation”) on behalf of all the defendants in opposition to this application.  It was said that the 2^nd and 3^rd defendants (“Huang” and “Lau”) are “silent directors” who do not participate in the management of the Company. Huang is in fact the father of W Wong.  He is 83 years old and of ill health.  It was said that Huang has not been involved in the management of the Company since 2007. However, I note that the Financial Statements of the Company for the years ended 31 March 2011, 2012, 2013 and 2014 were all signed by Huang. 

22.  Lau is 70 years old and lives in Beijing.  It was said that he has never participated in the management of the Company.  On the basis of the Affirmation, W Wong is that only effective director of the Company.  Indeed, his evidence is that it is up to him to take steps to comply with the 1^st Order.

23.  According to W Wong, the Mainland proceedings of the Company have been successful so far.  However, it must be said that even if the defendants are justified in their belief that they or the Company have been wronged by Hao, it constitutes no reason for them not to comply with the orders of the court.

24.  In explaining why the Compensation was paid to him, apart from the fact that the Company had no bank account in the Mainland, W Wong also mentioned the existence of foreign exchange control in the Mainland such that it would be very difficult and time consuming for the Compensation to be repatriated to Hong Kong.

25.  Paragraphs 26 to 30 (there is no para 27) of the Affirmation stated as follows:

“26. In such circumstance, it was decided that a ‘set off’(對 數) arrangement be used, namely I would receive the Settlement Money for and on behalf of the Company in Mainland China; and when directed by the Company, I would pay an equivalent amount to the Company’s bank account in Hong Kong using monies I have in Hong Kong.

28. By reason of the ‘set off’ arrangement, I may use funds in my bank account with the PRC Bank for my personal use after receiving the Agreed Compensation, so long as I recognize that I have to pay an equivalent sum in Hong Kong back to the Company’s bank account when directed to do so. In fact, the Agreed Compensation has been paid to the Company’s Nanyang Bank Account and remains there up to now. …

29. As to documents relating to the use of funds in my said bank account with the PRC Bank after receipt of the Agreed Compensation, I verily believe that these documents are of no concern whatsoever to the Company or the Applicant, and are totally irrelevant. Any such document does not fall within the scope of the Order for Production and/or 2^nd Order for Compliance[1], and need not be produced. … Indeed, I have been advised by my legal adviser and verily that the Order for Production was made pursuant to the now repealed section 152FA of the Companies Ordinance Cap 32, which was a section authorizing members of a specified corporation to inspect records of the specified corporation, and not records of any other entity. …

30. In the premises, the Company has already produced all documents pursuant to the Order for Production and the 2^nd Order for Compliance.  Nothing more can be produced by the Company. …”

26.  A number of points arise from the evidence concerning the set-off arrangement alleged in para 26 of the Affirmation.  First of all, as pointed out by Mr Dawes, who appeared with Mr Man for Hao, this cannot be a true set-off arrangement because there would have been no obligation for repayment after the setting-off of mutual debts.  What precisely was the nature of this arrangement has not been made clear in the Affirmation. Possibly, it was an arrangement to side-step the foreign exchange control in the Mainland.  On the other hand, under this alleged arrangement, W Wong would effectively be given an interest free loan by the Company until it called for the payment of the equivalent of the Compensation in Hong Kong. 

27.  This brings me to the second point.  Given that W Wong was (and is) the only effective director of the Company, when “it was decided” that a set-off arrangement be used and “when directed by the Company” (see para 26 of the Affirmation), it must mean that it was W Wong and him alone deciding on that arrangement and directing himself to pay back the money.  Indeed, Mr Wong, who appeared for the defendants, did not seek to disagree with this analysis. Further, there is not 1 document produced to evidence the decision or the direction.  If there is any such document, Mr Wong accepted that they must fall within the 1^st Order. With respect, this kind of evidence invites scepticism from any reasonable tribunal.

28.  Thirdly, W Wong was and is a fiduciary of the Company.  When he was in receipt of the Company’s money, he was plainly acting as a trustee of the Company.  Again, Mr Wong did not seek to challenge this proposition.  I should add that the suggestion that W Wong might use the Compensation as and when he pleased without accounting to the Company for the profits made (para 28 of the Affirmation) does not sit well with his fiduciary duties to the Company, especially when he was making all the decisions on his own[2].  However, this is not an issue which requires resolution in this application.

29.  Fourthly, on W Wong’s own evidence he acknowledged that there are documents of Guang Fat Account relating to the use of the Compensation after it had come into his possession (para 29 of the Affirmation)[3].  It will be seen below that the kernel of the arguments in this application is whether such documents fall within the scope of the 1^st Order.

30.  Finally, there are no proper particulars concerning the alleged legal advice referred to in para 29 of the Affirmation.  Mr Wong submitted that the inference is that the legal advice was obtained after the 29 July 2014 because no further document was supplied after that date.  It may be true that W Wong obtained certain legal advice after that date.  However, it appears that the real point here is whether he had taken a position on the compliance with the 1^st Order based upon legal advice or whether he had been making selective disclosure to serve his own purpose.  I believe that the answer is probably the latter because (a) the Company has been legally represented at all material times and (b) as pointed out by Mr Dawes, the further disclosure made on 29 July 2014 via the letter of FWT (see para 18 above) was purportedly “in compliance with” the orders of the court.  Hence, it was accepted that documents of Guang Fat Account should be produced.

31.  For completeness, Huang and Lau did not appear at the hearing.  It was confirmed by Mr Wong that they had been advised to attend the hearing but had chosen not to do so. W Wong did attend the hearing and had chosen not to give any viva voce evidence.

32.  Next, I turn to the applicable principles of law, which is again undisputed.

Applicable principles of law

33.  The proper approach in committal for civil contempt by reason of breach of a court order is a three-stage test, namely:

(1) first, the relevant court order must be construed to ascertain its meaning and operation;

(2) second, it must be determined whether the defendant has in fact complied with the order so construed;

(3) thirdly, it must be determined whether any failure to comply was accompanied by the state of mind necessary to establish punishable contempt.

See: GE Transportation (Shenyang) Co Ltd v Lu Jinxiang, HCMP 1792/2013 (22 January 2014) at §23 per DHCJ Marlene Ng (applying Kao Lee & Yip v Donald Koo Hoi Yan (2009) 12 HKCFAR 830 at §21).

34.  No order will be enforced by committal unless it is expressed in clear, certain and unambiguous language: Kao Lee & Yip v Donald Koo Hoi Yan at §23.  The burden is on the plaintiff to prove that the defendant’s contempt was beyond reasonable doubt: GE Transportation at §24.

35.  In the application for contempt under RHC O 45 r 5(3), no moral blame, knowledge or wilfulness on the part of the director or other officer is necessary.  The liability of the director or officer is dependent upon him carrying out his own responsibilities as an officer of the company.  It is necessary to show that:

(1) the director or other officer was fully aware of the terms of the order with which the company must comply;

(2) he had knowledge at a time when he could use his position as a director or other officer to secure compliance;

(3) he was aware that if he did not so use his position, steps could be taken against him personally to enforce compliance.

See: GE Transportation at §26; Excel Noble Development Limited & Ors v Wah Nam Group Limited & Ors [2001] 4 HKC 148, CA, at 155I-157G.

36.  If the director or officer has “wilfully” refused or failed to take reasonable steps to ensure compliance by the company with the order, he will be punished for contempt. The word “wilful” here is merely to distinguish the situation where the director or officer can reasonably believe some other director or officer is taking those steps.

See: Fonfair Company Ltd v Chan Kim Leung & Anor, HCA 2002/2001 (24 November 2006) at §33 per DHCJ Poon (as Poon J then was).

37.  To establish a contempt of court for breach of court order(s), it is sufficient to prove that the defendant’s conduct was intentional in the sense that it was conscious and voluntary.  It is not necessary to prove a contumacious intent on the part of the defendant.  Nor is it necessary to prove that the defendant appreciated that he did breach the order, and it would not be sufficient to negate liability where the defendant did not know or believe that his (deliberate) activities amounted to a breach.

See: Kao, Lee & Yipat§§42-55; Contempt of Court by Miller(3^rd edn, 2000) at §14.52.

The issues

38.  The issues here are within a narrow compass.  Mr Wong, who has defended these proceedings with considerable skill and fairness, accepted that as of the deadline for the compliance with the 3^rd Order, 18 July 2014, there was non-compliance with the same.  Hence, the real issue here, according to Mr Wong, is whether the contempt of court due to the non-compliance had been purged by the disclosure made on 29 July 2014 (see paras 18 and 19 above).

39.  To determine whether the contempt had been purged, the court is required to determine whether documents belonging to W Wong which evidenced the subsequent transfer or use of the Compensation were required to be produced under the 1^st Order. Such documents must include the Guang Fat Account documents referred to in para 29 above.  It should not be overlooked that a substantial portion of the Compensation was paid to W Wong in cash.  There is no suggestion that those cash have not been used.  Indeed, para 28 of the Affirmation and the fact that the Compensation had been transformed into USD 2,617,907.53 suggest otherwise.  It is difficult to envisage that there is no document in W Wong’s possession which shows how the cash or part of it had been used. 

40.  Mr Wong argued that the thrust of Hao’s case, as formulated in para 19 of the Statement made pursuant to O 52, r 2 (“Statement”), is that W Wong’s documents were not produced.  He submitted that such documents did not come within the 1^st Order.  This is the primary argument of the defendants, and it turns upon the proper construction of s 152FA of the Ordinance (“Section”).

41.  The Statement is a quasi-Indictment. It sets out the particulars of what it is that the defendants had allegedly done or failed to do in breach of court orders.  Such particulars are required so that the defendants can defend this application properly, and if so desired, attempt to purge their contempt: see Cheung Hing v Wong Chor Cheung, HCMP 1828/2011 (7 February 2013), §31. 

42.  Paragraph 19 of the Statement stated as follows:

“[The Company] has still failed to remedy its breach, in that it has failed to produce to [Hao] documents showing the transfers and/or use of the [Compensation] subsequent to the receipt of the same by [W Wong] … including but not limited to bank statements detailing the transactions in [Guang Fat Account] after the [Compensation] was deposited into it …”.

For convenience, I shall refer to the documents in question as “W Wong Documents”.

43.  According to Mr Wong, in the event that the court finds his primary contention to be an arguable one, then there are 2 further arguments as set out in sections D and E of his skeleton argument, namely, that the present application is precipitous and that there are serious deficiencies in the Statement.

Meaning and operation of the 1^st Order

44.  Before I address the construction of the Section, I should say a few words about the 1^st Order. There is no dispute that it was formulated in all embracing terms.  I have no doubt that the terms of the order are clear and unambiguous[4].  It requires the Company to produce all documents showing the receipt and the subsequent transfers and/or use of the Compensation.

45.  I should also say that the order was couched in such embracing terms because Hao had no knowledge of the whereabouts of the Compensation and, if it had been used, what had become of the same. 

46.  Further, in respect of the documents which should have been but not produced by the Company in breach of the 3^rd Order, Hao is similarly hampered by his lack of knowledge.  I agree with Mr Dawes that what was required for compliance very much depends on what had happened to the Compensation[5].  On the evidence before the court, Hao has been kept in the dark until today. 

47.  As of the date when the 3^rd Order was made, there was a gap in the information provided by the Company as to what had happened to the Compensation after it was paid to the Shanghai Law Firm between May and November 2009 and the payment of its equivalent into the Nanyang Bank Account on 20 November 2013, a period of 4 years. 

48.  However, there is no dispute that the ambit of the 1^st Order, which was made in the context of an application under the Section, must be construed in light of the same.  Hence, the kernel of Mr Wong’s arguments turns upon whether W Wong’s Documents fall within the scope of the Section. 

Construction of the Section

49.  The Section provided as follows:

“(1) Subject to sections 152FD and 152FE, on application by such number of members of a specified corporation as is specified in subsection (2) (in this section referred to as ‘applicant’), the court may make an order -

(a) authorizing the applicant or any one or more of such members applying as applicant to inspect any records of the specified corporation; or

(b) authorizing a person (whether or not a member of the specified corporation) other than the applicant to inspect any such records on behalf of the applicant.

(2) For the purposes of subsection (1), an application may be made by -

(a) any number of members representing not less than one-fortieth of the total voting rights of all members having at the date of the application a right to vote at a general meeting of the specified corporation;

(b) any number of members holding shares in the specified corporation on which there has been paid up an aggregate sum of not less than $100000; or

(c) not less than 5 members.

(3) The court may only make an order under subsection (1) if it is satisfied that -

(a) the application is made in good faith; and

(b) the inspection applied for is for a proper purpose.

(4) Any person who is authorized by the court to inspect the records of a specified corporation may make copies of the records unless the court orders otherwise.”

50.  The focus of the arguments here is whether W Wong’s Documents come within the terms “any records of the [Company]”.

51.  The first point to note is the use of inclusive terms in the Section – “any records”.

52.  Secondly, the Section had been subjected to judicial examination in a number of cases.  However, they were all cases concerning the question whether the documents of a subsidiary fell within the records of the mother company. 

53.  On his part, Mr Dawes relied upon the judgment of Recorder A Chow SC (as he then was) in Leung Chung Pun v Masterwise International Ltd [2014] 1 HKLRD 1129.  Paras 19 to 21 of that judgment stated as follows:

“19. At the hearing of these applications, the parties differ on an issue of principle, namely, in what circumstances would an applicant be entitled, under s.152FA, to seek inspection of the records of a ‘subsidiary’ of a specified corporation.

20. In Veron International Ltd v RCG Holdings Ltd, Yuen JA (with whom the other members of the Court of Appeal agreed) stated the following at [40] of the judgment: ‘If the company has possession of such documents of its subsidiaries, inspection should be given but not otherwise’.  Her ladyship cited [46] of the judgment of Harris J in Wong Kar Gee Mimi v Hung Kin Sang Raymond (supra), where the learned judge stated as follows:

‘I accept that records emanating from a subsidiary, which become owned by or possessed as of right by the specified corporation come within ‘records of the specified corporation’:Re Tecnion Investments Ltd[1985] BCLC 434 (CA) per Dillon LJ at 437D-439E;Innovisions Ltd v Chan Sing Chuk & others[1992] 1 HKC 348 per Kaplan J at 354C-356D. Accordingly, documents that have been passed by a subsidiary to the Company, whether to enable the Company to comply with its obligations arising under statute, delegated legislation or Stock Exchange Rules (for example, to produce consolidated accounts), or because the Company requires the subsidiary for commercial reasons and by reason of its managerial control over the subsidiary is able to direct its documents are so provided, become the Company’s ‘records’ for the purposes of s.152FA. However, I do not agree that a subsidiary’s documents, copies of which have not been passed to the Company, and which it is not obliged and able at the time any order is made to obtain, come within s.152FA.’

21. It seems to me abundantly clear, from the language of s.152FA(1), that the court’s jurisdiction extends to anything which can properly be regarded as forming part of the ‘records’ of the specified corporation, regardless of the sources from which the documents came to become part of the records of the corporation in the first place.  However, the ‘records’ referred to in that subsection must, it seems to me, be a reference to thecurrentrecords of the corporation.  Accordingly, documents which are currently in the possession of the corporation, or of which the corporation is currently entitled as a matter of legal right to have possession, can, in my view, properly be regarded as forming part of the records of the corporation for the purpose of s.152FA(1).  This having been said, the documents of a subsidiary are, generally speaking, not the documents of its parent company, and they are not within the power of the parent company: seeWong Kar Gee Mimi v Hung Kin Sang Raymond (supra), [47].”

54.  I was told by Mr Dawes, who represented 1 of the parties in Leung Chung Pun that the reference to “current records” in para 21 of the judgment was attributable to the fact that some of the documents in question were returned to the subsidiary (see para 22 of the judgment).  Mr Wong did not quarrel with the proposition.  In any case, a proper reading of the entire para 21 would dispel any suggestion that the learned Recorder took the view that “records” were confined to current records.

55.  The ratio of that judgment is clear.  Under the Section, “records” include “documents which are currently in the possession of the corporation, or of which the corporation is currently entitled as a matter of legal right to have possession”.

56.  Mr Wong disagreed with the correctness of Leung Chung Pun.  Relying upon Wu Yang v Dayuan International Development Ltd & Ors, HCMP 2143/2011 (4 June 2013), para 23[6], Mr Wong argued that to fall within “records” under the Section a conjunctive test has to be satisfied, namely, a document becomes a specified corporation’s records (1) when the specified corporation has it in its possession, (2) it forms part of the records of the specified corporation’s affairs, and (3) the specified corporation had a right or power to obtain them.

57.  Paragraphs 23 and 24 of Wu Yang (per Harris J) stated as follows:

“23. In the present case there is no dispute that subsection (2) is satisfied. There is an issue concerning what constitutes ‘records of the specified corporation’. The issue concerns the extent to which section 152FA applies to the documents of a subsidiary which are in the possession of the ‘specified corporation’. I considered this issue in paragraphs 44 to 49 ofWong Kar Gee Mimi. For the reasons explained in those paragraphs I concluded that ‘records emanating from a subsidiary, which become owned by or possessed as of right by the specified corporation come within ‘records of the specified corporation’. I rejected the argument that it extended to documents of a subsidiary, which did not fall into this category. I was taken by Mr Mok SC on behalf of the Respondents toAreva NC (Australia) Pty Ltd v Summit Resources (Australia) Pty Ltd [No 2] (2008) 26 WASC 10, which it was submitted demonstrated that ‘records of the specified corporation’ had a more restrictive meaning and referred only to documents owned by the specified corporation. The Company argued that in paragraph 46 ofWong Kar Gee MimiI appeared to be suggesting that temporary possession of a subsidiary’s documents by a specified corporation for a particular purpose satisfied this criterion and that this was wrong. This is to misunderstand my judgment. In my view, for the reasons explained in my earlier judgment, the records in question, by which I mean the relevant pieces of paper or electronic records, have to become the specified corporation’s records in the sense that the specified corporation (1) has them in its possession, (2) they form part of the records of the specified corporation’s affairs and (3) the specified corporation had a right or power to obtain them. An obvious example is a copy of an original document owned by a subsidiary which the specified corporation has obtained by virtue of its control of its subsidiary in order for it to have a complete record of the business activities and assets of the members of a group of companies, which it owns. I explain in paragraph 46 ofWong Kar Gee Mimisome other examples of how this might commonly happen. It seems to me that this result is entirely consistent with the purpose of section 152FA.

24. The Applicant argued for a wider interpretation of ‘records of the specified corporation’ citing American authorities, in particularNoel Saito v McKesson HBOC, INC, in support of the proposition that if a proper purpose is demonstrated access should be given to documents in the possession, custody or control of the company.  I do not consider this authority to be of any relevance or assistance.  The shareholder right I am concerned with is derived from statute and the language used is clear and familiar.  As I explain in paragraph 47 ofWong Kar Gee Mimiit is well established in Hong Kong that the documents of a subsidiary are not the documents of its parent company and if the legislature had intended section 152FA to be an exception to this general rule I would have expected clear language to have been used.  I appreciate that this means that there will be cases in which a member is unable to obtain access to the documents most relevant to his concerns because they are the documents of an operating subsidiary and they have not become part of the specified corporation’s records, but this is a consequence of the wording of the section.”

58.  With respect, I am unable to agree with Mr Wong.  Whilst I recognise that there is certain tension between Leung Chung Pun and Wu Yang in that the latter suggests that the disputed document must be in the possession of the corporation, I do not believe that this is a general requirement.  To use a simple illustration, if the corporation has lost its bank statements but is in a position to obtain copies of the same from its bank, can it be seriously argued that the bank statements are not part of the corporation’s records which may be examined under the Section?  I have no doubt that to answer the question in the negative would not be consistent with the language of the Section, and would render it quite pointless.  Hence, I agree with the ratio of Leung Chung Pun. 

59.  With greatest respect, until the point has been ventilated in the higher court[7], perhaps Wu Yang should be understood in the context that the court was dealing with the documents of a subsidiary of the corporation, which were outside the power of the same. 

Failure to purge the contempt of court

60.  Once it is accepted that the Section covers documents which the Company is currently entitled as a matter of legal right to have possession, the issue here allows little room for argument. 

61.  It is trite that a beneficiary has equitable proprietary rights in all trust assets which extend to trust documents.  He is entitled to inspect and make copies of trust documents in relation to the trust property.

See: O’Rourke v Darbishire [1920] AC 581 at 626; Re Londonderry’s Settlement [1965] Ch 918 at 937C; Underhill and Hayton: Law relating to Trusts and Trustees (18^th edn, 2010) at §56.23.

62.  Mr Wong did not quarrel with the foregoing principle of law.  Given W Wong’s position as a trustee of the Company in respect of the Compensation (see para 28 above), it must follow that W Wong’s Documents were and are covered under the Section.  Accordingly, the selective disclosure by W Wong and/or the Company on 29 July 2014 did not have the effect of purging the contempt of court by reason of the non-compliance with the 3^rd Order.

Other matters

63.  Given the rejection of the defendants’ primary argument, it is unnecessary to deal with the further arguments identified in para 43 above.

64.  For completeness, I am satisfied that each of the defendants was fully aware of the terms of the 1^st and 3^rd Orders at a time when he could use his position as a director to secure compliance with the same.  The defendants were made aware of the consequence of non-compliance by reason of the penal notices endorsed on the 3^rd Order.

65.  There can be no question that W Wong had wilfully (see para 36 above) refused or failed to take reasonable steps to ensure the compliance of the 1^st and 3^rd Orders by the Company.  In respect of Huang and Lau, the assertion that they have not been involved in the management of the Company for many years does not absorb their liability in this application.  They are responsible, as directors of the Company, for overseeing its management and affairs.  Importantly, there is no evidence from them suggesting that they held the belief that W Wong would take steps to secure compliance with the court orders by the Company.

66.  I remind myself that the criminal standard of proof applies to this application.

Conclusions

67.  For the reasons given above, I am satisfied that the contempt of court by each of the defendants has been established.

68.  I agree with Mr Dawes that there has been persistent non-compliance with the 1^st Order by the Company and the defendants.  Further, the complete turnaround of the story concerning the whereabouts of Compensation constitutes an aggravating feature.  But for the fact that this court is prepared to give the defendants the benefit of doubt in respect of their belief over the proper scope of the 1^st Order[8], an immediate custodial sentence measured in months would be appropriate in the case of W Wong (see GE Transportation at §§51-56 and AO Smith Holdings (Barbados) SRL v Zhang Dacheng,HCMP 1132/2011 (1 June 2012), §69).

69.  Further, Mr Wong has submitted that once the scope of the 1^st Order has been clarified the W Wong Documents will be produced.  In the premises, I shall allow 1 final opportunity to the defendants to purge their contempt. 

70.  I shall hear the parties further on the terms of the order which should be made in these circumstances, including whether it would be appropriate to impose a fine on the defendants.

71.  Last but not least, I am grateful to counsel for their assistance in these matters.