CHINA SHANSHUI CEMENT GROUP LTD AND OTHERS v. ZHANG CAIKUI AND ANOTHER

HCMP 1574/2016

[2018] HKCFI 1192

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO1574 OF 2016

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REASONS FOR SENTENCE

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Introduction

1.  This decision should be read with my judgment handed down on 28 February 2018 (“the Judgment”), by which I found the Zhangs guilty of contempt of court.

2.  This was the sentencing hearing.  The Zhangs were absent.  Ms Lam of Deacons filed a summons seeking to adduce a draft affirmation of Zhang senior’s driver and Zhang junior respectively to explain the Zhangs’ absence. I dismissed the summons for reasons orally given.

3.  The Plaintiffs were keen to proceed with sentencing and asked the court to consider a fine or imprisonment.  They did not press for an order to debar the Zhangs from defending the underlying action in HCA 2880/2015.  I thus proceeded to hear the mitigation.

Legal principles on sentencing

4.  The principles have been set out in my decision in Arboit v Koo Siu Ying (No 2) [2016] 3 HKLRD 154 dated 18 May 2016, §§2-10:

(a) The starting-point is to acknowledge that contempt of civil court orders is a serious matter and that court orders are made to be obeyed. A prime consideration of the court in sentencing contempt is to signal importance of demonstrating to litigants that the orders of these courts are to be obeyed. By “litigants”, it is clearly referring to litigants in general and not just the contemnor himself.

(b) The object of the sentence is both to punish conduct in defiance of the court’s order and to serve a coercive function by holding out the threat of future punishment as a means of securing the protection which the order was primarily there to do. The court has to balance the 2 objects.

(c) The sentence for contempt may range from a fine to a term of imprisonment.

(d) Imprisonment should be regarded as a sanction of the last resort. Any custodial sentence should be as short as possible consistent with the circumstances of the case.

(e) The court may suspend a term of imprisonment for such period or on such terms as the court deems fit. This is an “absolute discretion” but it would be difficult to think of circumstances where a suspended order should be made when nothing further remains to be done to comply with the order.

(f) The court will consider if there are aggravating factors, mitigating factors, and acts to purge the contempt.

(g) Relevant factors (which are not exhaustive) include:

(i) The nature of the order and breach in question, and the extent of the breach.

(ii) Whether the contempt was contumacious or unintentional, the reasons, motives and state of mind.

(iii) Whether the claimant has been prejudiced by virtue of the contempt and whether the prejudice is capable of remedy.

(iv) Whether the contemnor appreciates the seriousness of the deliberate breach.

(v) Whether the contemnor has cooperated.

(h) As circumstances of contempt vary greatly, there is little mileage to be gained from the citation of other cases on sentence.

5.  The approach I shall adopt is to ascertain the extent of the breach as found by the court, the context in which the contempt had arisen, effect of the breach on the Plaintiffs, explanations of the Zhangs, the aggravating factors, the mitigating factors, acts to purge the contempt and the personal circumstances of the Zhangs.

The extent of the breach found by the court

6.  By the Judgment, I found Zhang senior guilty of the following charges:

Charge 1: Failure to comply with an order restraining the concealment from the Plaintiffs or destroying or tampering with the Plaintiffs’ records, including those listed in Schedule 2.

Charge 2: Failure to comply with an order to forthwith deliver over to the Plaintiffs’ solicitors any of the Plaintiffs’ records or copies thereof which were in their possession, custody or control.

Charge 3: Failure to comply with an order to answer in writing 5 questions containing the whereabouts of the Plaintiffs’ records and to provide an affirmation confirming those answers.

Charge 4: Failure to comply with an order giving continued effect to the orders forming the subject-matter of Charges 1‑3.

Charge 6 (1^st limb): Failure to comply with an order restraining D1 from acting upon or exercising any power or entitlement pursuant to amendments to the Articles of Association of Shandong Cement.

Charge 7: Failure to comply with an order to execute the court-approved corrective amendments to Shandong Cement’s Articles of Association.

7.  Zhang junior was found guilty of Charges 1-3 only. 

Context in which the contempt has arisen

8.  Firstly, Charges 1-3 (and 4) formed one category.  The acts for which the Zhangs were complained of concerned the Plaintiffs’ documents, not the Zhangs’.  Having been removed from office, the Zhangs simply had no reason to retain the documents.  Charges 6 (1^st limb) and 7 formed another category and were a continuance of Zhang senior’s defiant conduct under Charges 1-3. 

9.  Secondly, the Zhangs did not appear at the trial on liability for contempt. They did not appear at this hearing either, despite my express direction for their personal attendance in the Judgment.  Viewed together with my reasons for rejecting the draft affirmations, the Zhangs simply had no intention to come before this court to face the consequence of their contempt.

10.  Thirdly, because the Zhangs had not presented themselves for cross-examination at the trial, their affirmations (items 16, 31 & 34 in the Defendants’ hearing bundle) were excluded from the evidence (“the excluded affirmations”).  However, at this hearing, the Zhangs relied on the excluded affirmations to “explain” (not to “excuse”) their conduct or as acts of purging the contempt.  This attempt to adduce the excluded affirmations through the backdoor should not be allowed.

11.  Fourthly, the contents of the excluded affirmations, if accepted, could have exempted the Zhangs from liability for contempt for part or all of the Charges. One wonders why they did not attend the trial to try and get the best possible results for themselves?  Even in the affirmations they have filed for the purpose of mitigation, the Zhangs have not explained why they did not attend the trial.

12.  The irresistible inference was that the Zhangs dared not face the cross-examination for fear of the truth being exposed and the truth would be against them.  Accordingly, I place no weight on the excluded affirmations.

13.  Fifthly, Zhang senior joined the Shandong Cement Plant some 50 years ago in 1968 and dedicated his entire career to building the Shanshui Group from a local cement plant to a substantial enterprise listed in Hong Kong.  Zhang junior joined the Shanshui Group in March 2006 and succeeded his father first as General Manager in October 2010 and later as Chairman in March 2013. 

14.  It is true that there was power struggle among different camps of shareholders in the Plaintiffs’ group.  Zhang junior referred to tactics masterminded by Tianrui with the ulterior motive of taking over CSC without having to make a general offer to all CSC’s shareholders as mandated by the Hong Kong Code on Takeovers and Mergers.

15.  The Zhangs naturally would not want to hand over power of an enterprise they built up.  That was understandable but the blatant contempt of court orders was still not excusable.

Effect of breach of court orders on the Plaintiffs

16.  The bulk of the records were in the Jinan headquarter.  Because of the uncooperation of the Zhangs, the Plaintiffs had to incur costs and time to the extent of using a raid to get back their own documents.  Till now, it is not possible for the Plaintiffs, without the assistance of the Zhangs, to say whether or not all the documents had been recovered.  Whilst the Plaintiffs could still prepare financial statements despite documents still being missing, the inference, from the nature of the documents recovered and time spent on recovery, was that the Plaintiffs’ business and regulatory duties had been affected.  There was, however, no positive evidence about how the Plaintiffs were actually affected by the breach after the 1/16 Seizure.

17.  Charges 6-7 concerned a valuable subsidiary of the Plaintiffs.  The Plaintiffs’ financial interests were directly harmed by the breach.

Explanations of the Zhangs

18.  Zhang senior claimed not to have visited the Plaintiffs’ Hong Kong office after March 2013.  He claimed to have retired in October 2015 upon removal from the CSC board.  He had spent most of his time travelling for leisure in the PRC and overseas.  I note that if his retirement and travelling were true, he had simply no excuse in the past for filing un-notarized or notarized affirmations late.

19.  The Zhangs do not understand English.  Zhang senior (but not Zhang junior) does not use computers.  Before Zhang senior’s retirement, he would ask his personal assistant to obtain any information he required from a Mr Li (presumably Mr Li Xianguo) and James Li (D3 in the underlying action) who was in charge of the Hong Kong office.  After his retirement, he had had no need for such records.

20.  Zhang junior admitted that he had authority and ability to access the most confidential information of the Plaintiffs, whether in Hong Kong or in Jinan, up to 30 January 2016 when the Plaintiffs and their associates seized control of the Jinan Headquarter.

21.  Until commencement of these contempt proceedings in 2016, the Zhangs had no idea that a data server was maintained in the Hong Kong Office and they still did not know what information it may contain.  James Li was in charge of the Hong Kong Office.  James Li handed over various items from the Hong Kong Office to Li Hengwen and Yao Tianjun which were passed to Li Xianguo for safekeeping in the Jinan Headquarter.  Until he was evicted from the Jinan Headquarter by the Plaintiffs’ associates in the 1/16 Seizure, Li Xianguo was in charge of safekeeping the Shanshui Group’s records which might include some of the Plaintiffs’ records. 

22.  The Zhangs asked rhetorically: who would have anticipated that the Plaintiffs would engineer the violent seizure of the Jinan Headquarter in January 2016 beforehand and moved the records to somewhere beyond Jinan Headquarter?  They thought that after the 1/16 Seizure, the matter was resolved.  Since they had nothing to deliver up, it would be an academic exercise to inform the Plaintiffs what they already knew. 

23.  The Zhangs plainly knew where the Plaintiffs’ records could be found. However, they made no attempt to ask James Li or Li Xianguo to disclose documents in compliance with the court orders.  It was simply against common sense that, having known of the draconian 1/16 Seizure, the Zhangs would have decided not to consult their lawyers but went about counselling the 200+ employees ousted by the Plaintiffs and their associates.  In the light of such attitude, the Zhangs could not have been serious in even trying to “purge” any contempt.

24.  In respect of Charge 6 (1^st limb), Zhang senior deposed that he took no part in issuing the 12 public announcements and that there was no evidence that the Plaintiffs had suffered any or any material prejudice as a consequence of his non-compliance with court orders.  In respect of Charge 7, he deposed that he lacked capacity to sign the court-approved amendments.  The High Court Registrar had executed the amendments and Zhang senior thought it was no longer necessary for him to sign. 

25.  Such explanations have been considered in the Judgment when the Zhangs put the Plaintiffs to strict proof.  It is not open to Zhang senior now to argue against finding of fact when he could have done so at the trial.  The Plaintiffs did suffer prejudice in having to issue counter-announcements to clarify to shareholders, and suffered the risk of losing control of its most valuable subsidiary.

26.  In summary, none of the explanations bore scrutiny.

Purging of the contempt

27.  Charges 1, 2 and 3 could be purged even after the handing down of the Judgment.  The Zhangs have not done anything towards purging.  In particular, the important data server has not been recovered.

28.  Charges 6 (1^st limb) and 7 could not be purged.  What was done under Charge 6 could not be undone.  The Corrective Amendments were executed by the High Court Registrar.  Zhang senior purported to execute the corrective amendments only on 25 April 2018, which served no useful purpose.

29.  Each of the Zhangs has made an “unreserved apology” to this court and the Plaintiffs.  Having regard to the context of the contempt proceedings, and their failure to purge the contempt, such apologies rang hollow.

Personal circumstances of the Zhangs

30.  Zhang senior is aged 67.  He is a PRC national with Zhang junior as his only son.  His “good character” was attested by testimonials of 3 independent character witnesses.  Zhang junior is aged 40.  He is a PRC national, married with a son and a daughter.

31.  Each of the Zhangs has a clear record and this was the first time he was convicted of civil contempt. Each of them has championed various charitable and aid relief programs. 

32.  These personal circumstances weigh little in mitigation in the context of a civil case.  Not much weight would be put on the fact of their being first offenders.  The public must not be misled to believe that every person has one chance of disobeying a court’s order: Arboit v Koo, §37.

33.  Nor would the medical conditions of Zhang senior in having diabetes and high blood pressure affect the sentence.  His medical needs can be brought to the attention of the Correctional Services Department to ensure that he would be given appropriate treatment: Arboit v Koo, §41.

34.  The Zhangs have to face a multitude of court proceedings and huge legal costs.  They were stressful to Zhang senior and highly disruptive to his retired life.  He had lost his control in shareholding over CSI.  Zhang junior has lost his leadership and otherwise rosy career within the Shanshui Group.  However, these were all risks attendant on litigation and not entirely caused by the contempt proceedings.

Aggravating or mitigating factors

35.  There are no mitigating factors.  I maintain my view in paragraph 143 of the Judgment that the Zhangs’ non-compliance under the respective Charge was wholesale, deliberate and obstructive to the Plaintiff’s recovery of their own records.

Sentence

36.  A fine will give the wrong message to the offender that he could buy non-compliance.  A term of imprisonment of 3 months for each charge is appropriate.  Charges 1-3 (and 4 for Zhang senior only) form one group whilst Charges 6 (1^st limb) and 7 form another.  Taking into account the totality of sentence, I order a total sentence of 4 months for Zhang senior and 3 months for Zhang junior.  There are no reasons to justify suspension of the sentence.

37.  A warrant of arrest will be issued against each of the Zhangs.

38.  Costs are to be borne by the Zhangs on the same basis as in the Judgment, with certificates for 2 counsel.  However, costs of the Plaintiffs’ submission in exceeding the limit imposed by paragraph 147(8) of the Judgment and the unnecessary hearing bundles are not recoverable.

39.  I thank counsel for their assistance.