BRUNO ARBOIT AS SOLE LIQUIDATOR OF HIGHFIT DEVELOPMENT CO LTD v. KOO SIU YING AND ANOTHER

HCMP 2749/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2749 OF 2012

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REASONS FOR DECISION

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Introduction

1. On the first day of trial in committal proceedings for contempt of court (“the CP”), the defendants took out this summons, belatedly seeking to adduce the 5^th affirmation of D2 (“Ling 5^th”).  I dismissed the summons.  Here are my reasons.

Background

2. The 1^st defendant (“Koo”) is the 3^rd wife of one Mr Lim Por Yen (“Lim”). The 2^nd defendant (“Ling”) is their daughter.  Koo and Ling had been directors of the Company of which the Liquidator was appointed.  The Liquidator claimed that Koo and Ling breached 2 court orders made in the liquidation proceedings.  As a result the CP was instituted and due to be tried on 26 May 2015.

3. Separately, in a hotly contested probate action (“the PA”), Koo and Ling disputed the validity of the will of Lim on the ground that Lim did not have testamentary capacity and was under the undue influence of Peter Lam and his mother (“the rival beneficiaries”).  In addition, Koo and Ling had always complained that the executor failed to discharge his duties fairly and independently in the administration of Lim’s estate.

4. Meanwhile, the rival beneficiaries were said to have made settlement offers to Koo and Ling, specifically on 2 occasions in May 2014 and January 2015 respectively as explained in section A2 below.

5. The executor admitted, through a letter of his solicitors (“RSRB”) dated 19 March 2015, that he was funded by the rival beneficiaries to pursue an existing action in HCA 1700 of 2006 against the Company.

6. In March 2015, Koo and Ling first gave notice in the PA of an intention to apply for appointment of administrator pendente lite and to stay the CP.  Upon learning in April 2015 that that application could only be heard in mid-August 2015, they took out this summons, not to seek a stay of the CP but to adduce Ling 5^th.

7. The summons was said to be premised on 2 matters coming to the attention of Koo and Ling’s lawyers in the CP in April 2015:

(A) That the Liquidator had been funded by the rival beneficiaries in the PA, and continued this CP for their private benefit and the collateral purpose of pressurizing the defendants to settle the PA (“Ground A”).

(B) That the Liquidator failed to inform the court that he had recently commenced HCA 494/2015 (“the new action”) against Koo and Ling (“Ground B”).

8. Koo and Ling’s primary position in the CP was that there was no breach or no serious breach of court orders.  However, if there was, they asserted that the 2 matters would be relevant to: (a) whether it was in the public interest for the court to make any finding of contempt or to impose any punitive order on the defendants; (b) whether the CP amounted to abuse of process and oppression, for the purpose of furthering the interests of the rival beneficiaries.

9. Apart from seeking to adduce Ling 5^th, Koo and Ling sought to have their cross-examination “regulated”.

10. The Liquidator opposed the application on grounds that:

(a) This was a late application;

(b) There was nothing unusual in the funding of a liquidator by an interested party;

(c) The evidence on settlement was without prejudice; and

(d) The application was misconceived in law on the question of public interest.

Late application

11. This summons was very late.  Even if one were to take the date in March 2015 as the first notice akin to this summons, it was still too late.  The Liquidator, not being a party to the PA, was not aware of that notice until this summons was served on him in May.  The latest relevant settlement offer was in January 2015.  The defendants could not rely on their failure to get an early hearing date in the PA to justify their 4 months’ delay in taking out this summons in the CP.

12. Lateness, in itself, would have justified dismissal of a summons, for otherwise it would deflect counsel’s attention from preparation for the trial.  There must be exceptional reasons to justify the lateness.

13. Mr Huggins SC, leading Mr Khaw and Mr Cheung, made clear that the summons was not to delay the CP.  Regardless of my ruling, and even if the Liquidator needed to file an affidavit in answer, they would have been content to let the cross-examination of Koo and Ling go on in the CP.

14. With respect, adopting such suggestion would defeat prior efforts in case management.  It might produce the undesirable consequence of eg having to recall Koo and Ling, or their filing further evidence in rebuttal.  In addition, the affidavit of Johnny Wong of LWT (solicitors for Koo and Ling) went to the extent of seeking to cross-examine the Liquidator on the source of his funding.  All of these might cause the trial to go part-heard.  The CP had been refixed 7 months ago because of the alleged indisposition of Koo.  It should not be deferred again.

15. However, in Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 830, at §§6 and 20, the Court of Final Appeal held that on appeal in civil contempt proceedings, the restriction on admission of fresh evidence was relaxed.  It was solely because of the serious consequences that might entail in committal proceedings that I have proceeded to consider the merits of the summons instead of dismissing it outright for lateness.

Ground A

16. I analyzed this allegation under 2 limbs:

(i) That the Liquidators acted as nominee for the rival beneficiaries; and

(ii) That Koo and Ling had been pressurized to settle.

A1.   Liquidator acted as nominee for the rival beneficiaries

17. Koo and Ling suggested that the Liquidator’s actions in respect of the liquidation had been funded and controlled by the rival beneficiaries, with no apparent or proportionate benefit to the estate.  The estate was not acting like an ordinary creditor but had encouraged the Liquidator in relation to the CP and commencement of the new action.  The Liquidator acted for the private interest of the rival beneficiaries, without considering whether it was in the public interest to continue the CP.

18. I agreed with Mr Strachan SC (leading Mr Hew) that it was perfectly normal for a company, which had no assets of its own, to be funded by parties who had an interest in the outcome of the liquidation.  The executor was a substantial creditor of the Company who had filed a proof of debt in the sum of HK$242 million pursuant to a judgment.  There was nothing unusual in the executor funding the CP.

19. The complaint of Mr Huggins SC that the executor had failed to explain the extent to which the rival beneficiaries had provided funds to him as executor for payment to the Liquidator both in relation to the Highfit action and the CP was thus irrelevant.

20. The assertion that the Liquidator had been acting for the private benefit of funders had previously been rejected by Poon J in his decision in the related section 221 application: HCCW 61/2008, 26 August 2011, at §§31 and 32. The same assertion has been made in the CP in Ling’s affirmation dated 5 February 2013 and Koo’s affirmation dated 1 March 2013.  Ling 5^th did no more than make a bare assertion and that had been flatly denied by the Liquidator in his 4^th affidavit in opposition. There was no merit in the assertion.

A2.   Koo and Ling being pressurized to settle

21. Koo and Ling relied on 2 settlement offers and alleged threats from the rival beneficiaries.  Mr Huggins SC frankly conceded that the 1^st settlement offer had limited use but the 2^nd one was “totally unambiguous”.

22. The first settlement offer was made in a letter dated 23 May 2014, a year ago, from RSRB to Koo and Ling in the PA (“the RSRB letter”).  It contained a global settlement offer (in §3) which, if accepted, would involve steps taken by the rival beneficiaries and the executor to “procure” the cessation of various actions against Koo and Ling, the Company and one HHL.

23. Mr Huggins SC submitted that the word “procure” in that context impliedly included cessation of the CP.  It was because the other actions were brought by the executor, so he would not have to procure anyone else to bring about their cessation.

24. The RSRB letter was clearly marked “without prejudice” and “for the purposes of mediation only”.  Its privilege from disclosure extended to proceedings beyond those in which the RSRB letter was generated:

“Communications made between the parties to a dispute that are written or made with the aim of genuinely attempting to settle that dispute cannot usually be admitted in evidence, nor made the subject of a disclosure order, whether In the proceedings (if any) to which the dispute gives rise, or in any other litigation in which similar or related issues arise.” Passmore’s Privilege (3^rd Ed), §10-002

25. Similarly, the RSRB letter was a kind of “mediation communication”: section 2 of the Mediation Ordinance, Cap 620.  It must not be disclosed: section 8(1) of the same Ordinance.

26. Mr Huggins SC had not cited any authority to contradict these principles. Accordingly, it was not up to Koo and Ling to rely on the 2 settlement offers or part of any one of them in this summons.

27. Further, even if they could, paragraph 3 of the RSRB letter made no reference to the CP and it was far-fetched to include the CP. The word “procure” could mean that the executor and the rival beneficiaries would procure one another to cease pursuit of various existing or potential actions.

28. The second settlement offer was made more recently during a meeting between Lester Lam and Ling on 5 January 2015.  Lester Lam allegedly represented the rival beneficiaries.  He emphasized that they did not want the CP to proceed but they had to take a very aggressive approach against Koo and Ling in order to achieve a settlement.  He allegedly said that the beneficiaries could bring the CP to an end.  Such remarks confirmed to Ling that the Company proceedings, the liquidation and the CP were motivated and supported by the rival beneficiaries.  She regarded that as a collateral attack on her and Koo to pressurize them to settle.

29. LWT had, by letter dated 13 May 2015, asked the Liquidator to confirm whether there had in fact been communications between the Liquidator, the executor and the rival beneficiaries as to whether and how the CP would be proceeded with, and whether the Liquidator had received funding from anyone involved in PA.  The Liquidators did not reply.

30. In my view, the same principles in paragraph 24 above applied.  Besides, there was only the word of Ling, which was easy to allege but difficult to prove. Anyhow, the Liquidator was not a party to the discussion between Ling and Lester Lam.  Nor was there anything to show that he had authorized or approved it.  I saw no merit in Ground A.

Ground B

31. The Liquidator commenced the new action on 10 March 2015, 11 weeks before the trial of the CP.  The new action sued Koo and Ling for breach of fiduciary duties and breach of trust in causing the Company to transfer away a substantial asset to HHL.  There was no suggestion that the Liquidator did not have a viable action.  The complaint was just the timing of the issue of the writ.

32. Koo and Ling complained that (a) the facts relied on by the Liquidator duplicated those in HCA 1700/2006; (b) the Liquidator was funded by the rival beneficiaries; (c) that the Liquidator had allowed himself to be used by the rival beneficiaries to pressurize Koo and Ling, otherwise there was no apparent justification for the timing of the new action; (d) the writ was re-served on Ling unnecessarily (after a formal mode of service) in a manner clearly designed to embarrass her publicly; and (e) the Liquidator failed to disclose the existence of the new action to the court.

33. Similarly, LWT’s letter dated 13 May 2015 raising questions, amongst others, on whether funding of the new action had come from the executor and the rival beneficiaries and whether there had been communication between them and the Liquidator was not replied to.

34. Further Mr Huggins SC submitted that if Koo and Ling were successful in the PA, they would be the principal beneficiaries in the estate.  The Highfit actions by the estate, the liquidation and the CP would appear to be pointless or even perverse.

35. In my view, there was nothing unusual in the Liquidator commencing the new action after obtaining information from section 221 proceedings and the subsequent interviews.  The Liquidator did so on the advice of counsel (different to those in the CP).  There was evidence of significant assets of the Company being transferred for inadequate consideration and the defendants appeared to be instrumental in the transfer.

36. With regard to paragraph 32(a), there was no duplication between HCA 1700/2006 and the new action.  The former was an action by the executor against the Company and HHL on the basis of a fraudulent conveyance within the meaning of section 60 of the Conveyance and Property Ordinance, Cap 219. The new action was the Company’s claim (through the Liquidator) against Koo and Ling as directors involved.  Although the underlying facts centred around the same property transaction, the claimants and persons liable under the 2 actions were clearly different.

37. With regard to paragraph 32(b) and (c), the analyses in relation to Ground A apply equally to Ground B.

38. With regard to paragraph 32(d), re-service of the writ might  have been unnecessary and cost wasting.  With regard to paragraph 32(e), the Liquidator did not inform the court of the new action.  However, none of these points could carry Koo and Ling’s case in the CP any further.

PUBLIC INTEREST

39. However, Mr Huggins SC submitted that commencement of the new action indicated that the Liquidator had sufficient information and documentation to make the claim without the need for the section 221 orders for examination and production of documents which led to the CP.  It thus became oppressive and disproportionate for the Liquidator to continue the CP to seek advance discovery for the new action.  The court should ask itself whether it was in the public interest to be persuaded to make a finding of contempt and to make a punitive order against the defendants.

40. It should be noted that the substantive proceedings were not for an order under section 221 but for committal for contempt. It would thus be useful to examine what public interest was involved in the CP.

41. Civil contempt proceedings are not private but public law proceedings.  They are not brought to further private but public interest and are in some respects like criminal proceedings: Malgar Ltd v RE Leach (Engineering) Ltd [2000] FSR 393 at p396.

42. The court has a substantial interest in seeing that its orders are obeyed: Nicholls v Nicholls[1997] 1 WLR 314 at 326, Scott VC; followed in Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 830, at §73, per Sir Gerrard Brennan NPJ.

43. Civil contempt proceedings have a two-fold character:

“…The sentence for such contempt performs a number of functions. First, it upholds the authority of the court by punishing the contemnor and deterring others. Such punishment has nothing to do with the dignity of the court and everything to do with the public interest that court orders should be obeyed. Secondly, in some instances it provides an incentive for belated compliance, because the contemnor may seek a reduction or discharge of sentence if he subsequently purges his contempt by complying with the court order in question.” JSC BTA Bank v Solodchenko and others (No 2) [2012] 1 WLR 350, Jackson LJ, at §45; Dar Al Arkan Real Estate Development Co v Refai [2015] 1 WLR 135, Beatson LJ, at §42.

44. Mr Huggins SC suggested that contempt proceedings must be conducted in accordance with the underlying objectives in the Rules of the High Court (“RHC”); so pursuit of disproportionate or pointless committal proceedings were to be regarded as abusive: Sectorguard Plc v Dienne Plc [2009] EWHC 2693 at paras 44-47.

45. He relied on Sectorguard PLC v Denne PLC [2009] EWHC 2693, §47, Briggs J, for the proposition that committal proceedings were appropriate means of, amongst others, “bringing to the court’s attention serious rather than technical, still less involuntary, breaches of [court orders]”.  Given that there might be potentially serious consequences of a finding of contempt, pointless applications for committal would be struck out:  The Lord Mayor and the Citizens of the City of Westminster v Addbins Ltd [2012] EWHC 3716 at § 49, per Males J.

46. It is of course always true that in the conduct of proceedings, the underlying objectives in the RHC must be observed so that unnecessary procedural applications should be avoided.  However, in the present case, there was public interest in seeing that the subject orders were complied with.  The Liquidator also had an interest in securing belated compliance with them.  Continuation of the CP was justified.

47. Sectorguard and the Addbins case were about striking out committal proceedings for abuse of process.  They were not applicable here as there was no suggestion that the CP ought to be struck out.  Nor could the conduct complained of by the Liquidator, if established, be regarded as pointless, technical, involuntary or oppressive.  There was no abuse of process by the Liquidator.

48. In summary, Grounds A and B were not substantiated and the relevance of Ling 5^th to the CP was not established.

Regulation of the cross-examination of Koo and Ling

49. Mr Huggins SC sought 2 interim orders:

(a) That between now and further order after the handing down of the judgment in the CP, the transcripts of the cross-examination in the CP should not be provided to the executor or the rival beneficiaries and should not be used in the PA or the other Highfit actions without leave of the Court; and

(b) That cross-examination in the CP should not be used as a dress rehearsal of the trial of the new action but should be limited to whether or not Koo and Ling had breached the subject orders.

50. With regard to (a), the application had never been made before the CP were adjourned on the last occasion. I did not see the need for an order anyway, since the CP would be heard in open court.  The executor and rival beneficiaries could come and listen to the cross-examination.  If anyone should need the transcripts, he could make an application to the court.  It was not appropriate to make an order as requested when the PA and other Highfit actions were not before me.

51. With regard to (b), the proposition was correct.  Mr Huggins SC could raise objections should Mr Strachan SC ask questions beyond bounds, but it was not necessary to make an order or use it as a ground for seeking leave to adduce Ling 5^th. 

CONCLUSION

52. The summons was very late.  There was nothing unusual in the Liquidator being funded by the executor/rival beneficiaries.  There was no evidence to show that the Liquidator was acting as nominee for the rival beneficiaries. The settlement offers relied on by Koo and Ling were privileged from disclosure. Any promise to procure cessation of the CP or pressure to settle was not made by the Liquidator with his consent or approval.  The commencement of the new action was done with evidence gained from section 221 proceedings and on legal advice. Continuation of the CP was in the public interest.  There were no merits in Grounds A and B. No interim order needed to be made to regulate the CP.  I thus dismissed the summons.

53. I make an order nisi that costs should be to the Liquidator, to be taxed if not agreed.

54. I thank counsel for their assistance.