張月清 v. TSUI YIU HEI

HCMP 875/2018,
HCMP 602/2019 and
HCMP 845/2019
(Heard Together)

[2019] HKCFI 2970

HCMP 875/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 875 OF 2018

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 602 OF 2019

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 845 OF 2019

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(Heard Together)

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JUDGMENT

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1.  The plaintiff commenced these contempt proceedings, pursuant to O 52 of the Rules of the High Court, Cap 4A (“RHC”) against the defendant for alleged breach of the orders of this court made back in 2013 and 2015 in HCMP 40/2013.

The underlying dispute and the injunctions

2.  The underlying dispute between the parties was set out in detail in the judgment of this court in HCMP 40/2013 dated 10 February 2015.  Briefly, the defendant, together with his relatives, approached the plaintiff in 2012 for loan.  This led to two loan agreements in 2012 whereby the plaintiff was the lender.  The first one was for a sum of RMB 28 million and the second one was for a sum of RMB 31 million.  One of the borrowers was Chan Kam Chuen (“Chan”).

3.  The defendant executed an irrevocable guarantee in favour of the plaintiff to secure the repayment of the above loans by pledging his shares in Wise Line Company (“the Company”) in favour of the plaintiff.  The defendant was then the sole shareholder and director of the Company.  A share mortgage deed (“the Share Mortgage”) was entered into, and undated corporate documents in enforcement were pre-signed by the defendant and delivered to the plaintiff.

4.  The Company is an asset holding company having no business operation.  The only known asset of the Company was its wholly owned PRC subsidiary (“the PRC Subsidiary”), which owns lands and buildings in Qingyuan in the Mainland.

5.  The borrowers defaulted in repayment of the loans.  Hence the plaintiff’s exercise of her right to enforce the Share Mortgage.  Making use of the pre-signed corporate documents mentioned above, the plaintiff caused the appointment of her nominee director, Cheung (“Cheung”), and replacement of the company secretary of the Company.  The plaintiff therefore also caused the replacement of the legal representative of the PRC Subsidiary by her nominee, Tam (“Tam”). However, the registration of the change did not go through because of the resistance of the defendant in the Mainland.  Hence the commencement of HCMP 40/2013.

6.  Upon discovering the following conduct of the defendant behind the plaintiff’s back after the commencement of HCMP 40/2013 and between April and June 2013, the plaintiff took out an application for interlocutory injunction against the defendant:

(1)  The defendant purportedly passed a resolution of the Company to remove Cheung as the director.

(2)  The defendant purportedly passed resolutions to appoint himself as the legal representative of the PRC Subsidiary.

(3)  The defendant and Chan executed a share transfer agreement whereby they purported to sell the shares and assets of the PRC Subsidiary to a third party.

(4)  The defendant purportedly passed a resolution to increase the share capital of the Company with a view to diluting and turning the plaintiff’s shareholdings from 100% to 1%.  Corporate documents were also filed with the Companies Registry for the above purpose.

7.  On 7 June 2013, this court granted an interlocutory injunction against the defendant in, amongst others, the following terms (“the Interlocutory Injunction”) in §1:

“The defendant (whether in their own capacity or via their agents, servants, representatives or otherwise) be restrained from howsoever (whether in his own account or on behalf of or in conjunction with any person, firm or company):

(1) holding himself out as or making any representation to the effect that he is a shareholder or director of Wise Line Limited (慧豐有限公司) (the “Company”), including but not limited to reference to or reliance on the record of the Companies Registry;

(2) exercising or purporting to exercise any power as a shareholder or director of the Company, including but not limited to making any reference to or reliance on the notification of increase of capital (ref...); return of allotment of shares (ref...); and special resolution (ref...) filed with the Companies Registry;

(3) managing, controlling, participating or being involved in the affairs of the Company and dealing with the Company’s assets including but not limited to:-

(a) exercising or purporting to exercising any powers on behalf of the Company to cause any change of the legal representative of the Company’s PRC subsidiary (祥豐 (清遠) 實業有限公司) (the “PRC Subsidiary”);

(b) managing, controlling, participating in or dealing with the affairs of the PRC Subsidiary whether through the legal representative of the PRC Subsidiary or otherwise...”

8.  On 19 June 2013, the Interlocutory Injunction with penal notice was served on the defendant through his solicitors.

9.  At the substantive hearing of HCMP 40/2013, the defendant was still represented by solicitors and counsel^[1]. On 10 February 2015, this court handed down judgment finding in favour of the plaintiff.  Amongst other reliefs, this court granted the following declarations:

(1) The plaintiff was entitled to sell the defendant’s shares in the Company and to apply the proceeds of sale to discharge his debt owed to the plaintiff.

(2) Pursuant to the Share Mortgage and the corporate documents in enforcement pre-signed by the defendant, the plaintiff was entitled to and did become a shareholder of the Company and Cheung was duly appointed as the director of the Company.

10.  By the same order, this court granted a final injunction against the defendant in the following terms (“the Final Injunction”):

“5. The defendant (whether in their own capacity or via their agents, servants, representatives or otherwise) be restrained from howsoever (whether in his own account or on behalf of or in conjunction with any person, firm or company):

a. exercising his powers as a purported director of the Company;

b. managing, controlling, participating or being involved in the affairs of the Company and dealing with the Company’s assets including but not limited to:-

i. exercising or purporting to exercising any powers on behalf of the Company to cause any change of the legal representative of the Company’s PRC subsidiary (祥豐 (清遠) 實業有限公司) (the “PRC Subsidiary”);

ii. managing, controlling, participating in or dealing with the affairs of the PRC Subsidiary whether through the legal representatives of the PRC Subsidiary or otherwise...

c. making any further filings with the Companies registry vis-à-vis the Company without the leave of this Court; and

d. holding himself as, and/or making any representation to the effect that he is a shareholder and/or director of the Company;

6. The defendant do forthwith produce or make available to the plaintiff the following:-

a. all the seals and chops of the Company;

b. all the Company’s books of accounts, documents, management accounts, ledgers, audit working papers, statements and all other correspondence or documents relating to all bank accounts solely or jointly held by the Company, cheques stubs, banking facility documents, loan documents, security documents, hire-purchase documents, contracts, leases, tenancy agreements, sale and purchase agreements of tangible or intangible assets, valuation report of tangible or intangible assets, instruments of transfer, invoices, receipts, vouchers, tax returns, tax computation documents, employees’ payrolls, directors’ emoluments and entertainment records, lists of inventories and minutes of board meetings (whether in printed forms or in any other forms)”

11.  The defendant, then acting in person^[2], lodged an appeal against the above judgment and order, but out of time (HCMP 683/2015). By a written judgment handed down on 19 June 2015, the Court of Appeal refused to give the defendant leave to appeal out of time and struck out his notice of appeal.

These proceedings

HCMP 875/2018

12.  In late 2017, the plaintiff applied for leave to commence committal proceedings against the defendant for alleged breach of the Interlocutory Injunction and the Final Injunction (HCMP 875/2018).  The basis of the application was that Tam received a 傳喚証 (or summons) (“the Summons”) and attended the 清遠市公安局清城區分局 (“Qingyuan Police Bureau”) on 30 August 2017 for suspected crime of 職務侵占罪 (or conversion of the corporate assets by abuse of position) (“the Alleged Conversion”).  According to the police, it was the defendant who reported or caused the report to be made on behalf of the Company and the PRC Subsidiary.

13.  Leave was granted to the plaintiff on 2 November 2017.  However, the plaintiff did not commence the committal proceedings against the defendant with such leave, after learning that the defendant suffered a stroke.  However, in March 2018, the plaintiff’s PRC lawyer, Mr Chen Jin Song (陳勁松) (“Chen”), came to learn from Li Wan Law Court of Guangzhou that the police had enquired about the Alleged Conversion and investigated into the court file of the enforcement proceedings in that court.  Chen came to understand that the Alleged Conversion was still being investigated.

14.  On 23 April 2018, the plaintiff applied for leave afresh to commence committal proceedings against the defendant.  This court gave leave on 4 June 2018.  Hence the commencement of proceedings in HCMP 875/2018.

HCMP 602/2019

15.  On 28 September 2018, the defendant, through his solicitors, wrote to the Company, alleging that the Company owes a debt to Defond Holdings Limited (“Defond”) but such debt has been assigned to the defendant on 22 October 2012. A copy of the alleged assignment was enclosed (“the Assignment of Debt”).

16.  In the correspondence between the parties following the above, the plaintiff referred to, amongst other things, the abovementioned background concerning the loans, the Guarantee and the Share Mortgage, as well as complaining about the non-production of the Assignment of Debt in compliance with §6 of the Final Injunction.  Somehow the response of the defendant’s solicitors was to ask for copies of the Guarantee and the Share Mortgage.  There was no response regarding the alleged non-production.

17.  On 25 March 2019, the plaintiff applied for leave to commence committal proceedings against the defendant for the alleged breach of the document production provision of the Final Injunction.  This court gave leave on 15 April 2019.  Hence the commencement of proceedings in HCMP 602/2019.

HCMP 845/2019

18.  On the basis that the defendant has filed further complaint and representation on his own behalf and for the PRC Subsidiary to the Li Wan Law Court in October 2018, the plaintiff applied on 25 March 2019 for further leave to commence committal proceedings against the defendant for alleged breach of the Final Injunction.  The basis was that in referring to his previous complaint and the pending case mentioned above, the defendant, and through his PRC lawyers, represented that he was and still is the ultimate beneficial owner of the PRC Subsidiary, and that the financial interest of the PRC Subsidiary had been damaged by the alleged conduct of, amongst others, the plaintiff.  This court gave leave on 15 April 2019.  Hence the commencement of proceedings in HCMP 845/2019.

19.  HCMP 875/2018, HCMP 602/2019 and HCMP 845/2019 were to be fixed to be heard at the same time. The defendant was represented by counsel in the direction hearings of the last two actions and in the present hearing.

The principles

20.  The principles are not in dispute.  The court shall (i) construe the court order in question to ascertain its meaning and operation; (ii) determine whether the defendant has in fact complied with the order; and (iii) consider whether any failure to comply was accompanied by the state of mind necessary to establish punishable contempt: see Bruno Arboit v Koo Siu Ying & Anor, HCMP 2749/2012 (8 March 2016) at §§108-118; Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 830 at §21.

21.  The burden is on the plaintiff to prove the alleged contempt beyond reasonable doubt.  The defendant does not have to prove anything affirmatively.

22.  Although the criminal standard of proof applies, that does not necessarily require every single aspect of a case to be proved to such standard, but only that the necessary elements of the offence are so established.  Evidence could be circumstantial: see JSC BTA Bank v Ablyazov [2013] 1 WLR 1331 at §§51-52.

23.  It is not necessary to show that the alleged contemnor’s conduct was contumacious, that is, the contemnor directly intended to disobey the order.  It suffices to prove that his conduct was intentional and that he knew of all the facts that made it a breach of the order, that is, the breach was not casual or accidental or unintentional: see Kao, Lee & Yip (above) at §45, where Sir Brennan PJ continued to say:

“46. Of course, a contumacious disobedience to an order negates the possibility that the disobedience is “casual or accidental and unintentional” and is relevant to the penalty to be imposed for a contempt, but it is not an element to be established in cases in civil contempt by a party directly bound by an order.  If the mens rea in civil contempt were to extend to a contumacious intention to breach the order made by a court, it would go beyond the mens rea applicable to criminal offences.

...

53.  ...The exception for breaches that are not “casual or accidental or unintentional” ensure that no injustice is done when the breach of the court order is occasioned by such a cause.  But when an act or omission in breach of a court order is done or made consciously, voluntarily and unaffected by any mistake – it is immaterial that the breach was committed in reliance on a third party’s advice, even legal advice...”

24.  Previous directions have been given enabling the plaintiff’s witnesses and, if he elects to give evidence, the defendant to adopt the content of their affirmations as evidence.  The plaintiff’s witnesses, namely, Cheung, Tam and Chen mentioned above, did so.  So did the defendant when he elected to give evidence after the close of the plaintiff’s evidence at the hearing.

25.  Amongst the plaintiff’s witnesses, Cheung gave evidence in respect of mainly what he learned from Chen and Tam, which he, as the plaintiff’s lawful attorney, also reported to the plaintiff.  It was really Chen and Tam who were in the position to give first hand evidence.

HCMP 602/2019

26.  I propose to consider HCMP 602/2019 first.  The plaintiff alleges that the defendant was in breach of §6b of the Final Injunction by failing to produce the Assignment of Debt to the plaintiff.  As mentioned, this document was first revealed to the plaintiff by the defendant’s solicitors to the Company by letter dated 28 September 2018.

27.  The defendant did not deny in his evidence that he had not revealed this document, albeit allegedly dated 2012, to the plaintiff whether prior to or since the Final Injunction.  The defendant explained that he was so unhealthy that he did not manage to bring himself to enforce it against the Company in all those years, and eventually came to forget about that.

28.  If the Assignment of Debt was dated as it suggests, it came into existence in the same month of his execution of the Guarantee and in any event prior to the commencement of HCMP 40/2013.  As mentioned, the defendant put up substantial dispute in that action with the assistance of a full legal team. The Assignment of Debt on its face suggests a debt of over RMB 200 million owed by the Company to him.  His evidence that he has somehow forgotten about that for all these years is on balance hardly credible.

29.  For the purpose of these proceedings, the plaintiff proceeds on the basis that there exists this document, without prejudice to her right to deny its genuineness.  The plaintiff considers that the Assignment of Debt belongs to the Company’s documents and contracts covered by §6b of the Final Injunction, which compels the defendant to produce it.  The defendant disagrees, claiming that this document is his copy out of the three copies prescribed by the Assignment of Debt to the three parties to it.  According to the Assignment of Debt, this does seem to be the case.

30.  In my judgment, §6b, properly construed, covers those documents that are the properties of the Company, be they so owned by the Company or to which the Company has a right to possess, but are as a matter of fact in the possession or custody of the defendant.  The Assignment of Debt apparently came to exist in three copies with each copy being the property of each of the three parties to the assignment.  It is not suggested that the defendant was or is in fact in possession of the Company’s copy of the deed.  The copy that the defendant revealed, according to his evidence, is his copy and thus his property.

31.  Counsel for the plaintiff accepted during submission that her client is bound by the above state of evidence.  However, she suggested that there was no reason why the defendant could not produce a copy of his copy of the Assignment of Debt, which should presumably be identical to the Company’s copy.  This, in my judgment, is beside the point.  §6b compels the defendant to “produce or make available to the plaintiff” those documents.  It does not provide for the alternative of producing mere copies of the documents as compliance.  That, in my judgment, also accords with the aim of this paragraph.  The production order must be premised on the fact that the defendant ceased to be in a position to retain any of the Company’s documents.  But that should not deprive the defendant of his copy of the Assignment of Debt, which is contractually for him to retain for its enforcement.

32.  I therefore refrain from attributing liability for contempt to the defendant, when the proper construction of the clause does not clearly and unambiguously allow that.  I am not satisfied that the plaintiff has proved beyond reasonable doubt the charge in HCMP 602/2019.

HCMP 875/2018 and HCMP 845/2019

33.  In view of their nature, the charges in these two actions could be considered at the same time.  Further, the alleged conduct of the defendant that is said to have constituted the breach in these actions took place in 2017 onwards.  In the circumstances, whilst reference was also made to the Interlocutory Injunction made in 2013, that interim order was actually spent upon the grant of the Final Injunction in 2015.  It could only be the Final Injunction that the plaintiff says the defendant was in breach of.  In court, counsel for the plaintiff accepted that.

34.  Chen and Tam gave evidence in respect of how they came to learn about the Summons and the report of the Alleged Conversion.  Chen was and still is the lawyer of the PRC firm that has been acting for the plaintiff in the various court enforcement proceedings concerning the PRC Subsidiary since 2013.  As mentioned, Tam was the plaintiff’s nominee appointed to take the position of the legal representative of the PRC Subsidiary.

35.  According to Tam, he received the Summons on 30 August 2017.  To answer that, he was accompanied by Chen to attend the Qingyuan Police Bureau on the following day to meet with a police officer surnamed Liang.  In the course of Chen’s enquiry as to how the Alleged Conversion came to be reported against Tam, the police officer explained to Chen, within the earshot of Tam, that it was the defendant who caused a report to be made in the names of the Company and the PRC Subsidiary.

36.  On the basis of the above events, the plaintiff applied for and was given leave back in 2017 to commence committal proceedings against the defendant.  As mentioned, the plaintiff did not pursue the matter then, considering the defendant’s health condition.  Time passed, and then in March 2018, Chen was informed by Judge Lu of Li Wan Law Court, who was in charge of the enforcement proceedings concerning the PRC Subsidiary, that the Qingyuan Police Bureau had enquired with the Li Wan Law Court about the enforcement proceedings in connection with the Alleged Conversion.  Chen believed that this shows that the investigation of the Alleged Conversion against Tam was still going on.

37.  In his cross examination of Chen and Tam, counsel for the defendant essentially suggested that Chen and Tam simply made up their evidence in respect of the conversation with the Police Officer in 2017 and the information from Judge Lu of Li Wan Law Court out of nothing.  Suffice it to say that neither Chen nor Tam was shaken in the cross examination.  Both impressed me as calm and honest witnesses, who did no more than telling what they gathered on those occasions. Contrary to the defendant’s suggestion, I find nothing sinister about the communication between Chen and the judge in charge of the enforcement proceedings concerning the PRC Subsidiary.  Whether that amounted to ex parte communication between the court and a party to the proceedings in the Mainland, a practice that may not be accepted as proper in the Hong Kong court, is beside the point. The fact, I find, was that this did happen as Chen and Tam said.

38.  More importantly, the evidence of Chen and Tam is not mere assertion, but based on information arising out of the documents apparently from the defendant or on his behalf.  Chen has obtained copies of the documents filed with Li Wan Law Court.  They on their face show the follows:

(1) By a letter of instruction by the defendant to廣東踔厲律師事務所, a PRC law firm, dated 24 April 2017, the defendant appointed two lawyers of this law firm to take part in the enforcement proceedings concerning the PRC Subsidiary on his behalf.

(2) By a notice to act filed by the defendant’s PRC law firm on 28 April 2017, enclosing the letter of instruction mentioned in (1) above, the defendant’s PRC law firm, and the two lawyers mentioned in (1) above, became on record the legal representative of the defendant in the enforcement proceedings concerning the PRC Subsidiary.

(3) The defendant’s PRC law firm filed a written application for 中止執行申請書 (or stay of enforcement proceedings) dated 6 August 2017, with 8 appendices, with Li Wan Law Court on behalf of the defendant (“the 2017 PRC Application”).  It was filed under the name of the defendant, and signed by the two lawyers of the defendant’s PRC law firm appointed by the defendant as mentioned above.

(4) The 2017 Application set out the defendant’s account of the litigation history in Hong Kong between the parties and the defendant’s alleged subsisting interest in the Company and the PRC Subsidiary. Amongst other things, it said:

“ 為了維護本人的合法權益，本人不得已向清遠市公安局清城區分局報案，指控張月清、張英豪、譚秉其和陳鑑全等人非法侵占祥豐公司巨額資產。公安機關經初步偵查，認為張月清等人 “有犯罪事實，需要追究刑事責任，且在管轄範圍”于2017年7月31日正式立案偵查 (詳見附件8) 。

鑒于張月清等人利用控制股權質押臨時控制慧豐公司、祥豐公司之機侵吞祥豐公司价值數億元人民幣的資產，已經涉嫌侵占罪或合同詐騙罪，(2013) 穗荔法執字第1671號案的執行與公安機關正在偵查的刑事案件存在沖突，為了維護本人和祥豐公司的合法權益，為了避免本人和祥豐公司的經濟損失，本人懇請貴院根據《民事訴訟法》第二百五十六條第(五)項規定中止本案的執行，暫時對祥豐公司資產的處置行為。”

(5) Briefly, the above recited that it was the defendant who caused a report to be made to the Qingyuan Police Bureau against the plaintiff, Cheung and Tam for the Alleged Conversion of the assets of the PRC Subsidiary.  A copy of the relevant notification from the Bureau of the setting up of investigation into the Alleged Conversion dated 31 July 2017 was enclosed (Appendix 8). Because of such criminal investigation, the defendant filed the 2017 Application in respect of the enforcement proceedings concerning the PRC Subsidiary.  The application was filed for the express purpose of safeguarding the defendant’s alleged subsisting legal rights in the PRC Subsidiary and, on this basis, himself and the PRC Subsidiary from suffering economic loss.

39.  It was not the report of the Alleged Conversion against the plaintiff and Tam per se that the plaintiff says was breach of the Final Injunction, but the making of such report purportedly in the plaintiff’s position as the subsisting beneficial owner of the PRC Subsidiary and his entitlement to do so for the PRC Subsidiary.  This, the plaintiff says, constituted the charge in HCMP 875/2018.

40.  The alleged further breach is based on information about the defendant’s further involvement in and dealing with the affairs of the PRC Subsidiary in October 2018, which is also verified by documentary evidence.  It was a written application dated 31 October 2018 under the title of 關于整體拍賣祥豐 (清遠) 實業有限公司的房地產的再次請求報告 (or further request concerning the overall auction of the real estate of the PRC Subsidiary) filed with Li Wan Law Court on behalf of the defendant, and signed by one of the two lawyers of the defendant’s PRC law firm mentioned above (“the 2018 PRC Application”).

41.  The gist of the 2018 PRC Application was set out in the following part of the application:

“ 關于貴院(2013)穗荔法執字第1671號執行案，... 本人再次請求貴院盡快整体拍賣祥豐公司的房地產，并將拍賣所得清償欠申請人張月清的債務。

...

綜上所述，執行申請人張月清等人以香港40號判決^[3]、以祥豐公司不同意整体拍賣祥豐公司的房地產為由阻止貴院整體拍賣祥豐公司的房地產，以實現其非法侵占本人徐耀熙在祥豐公司巨額資產的非法目的。根据中國內地法律，本人徐耀熙才是祥豐公司的真正權利人，懇請貴院盡快整体拍賣祥豐公司的房地產，以清償欠張月清的債務的同時維護本人的合法權益。”

42.  Briefly, the 2018 PRC Application was made on the basis that contrary to the judgment in HCMP 40/2013, the defendant still claimed to be the legitimate beneficial owner of the PRC Subsidiary, and was therefore in a position to request Li Wan Law Court to proceed with the overall auction of the real estate of the PRC Subsidiary to pay off the debt owed to the plaintiff and to protect his beneficial interest in the PRC Subsidiary.

43.  As mentioned, the suggestion by counsel for the defendant in cross examination of the plaintiff’s witnesses was essentially that they made up their stories about the information obtained the Qingyuan Police Bureau and the judge in charge of the enforcement proceedings concerning the PRC Subsidiary.  As to the documentary evidence specifically mentioned above, which included the 2017 PRC Application and the 2018 PRC Application, the suggestion was that they were not signed by the defendant.

44.  The defendant elected to give evidence.  Accordingly, his affirmations made in opposition of these various proceedings, which he also confirmed and adopted, would be received and considered by the court against the plaintiff’s evidence.

45.  The defendant, in my judgment, was not able to dispute his written instruction to his PRC lawyers.  It should also be noted that the written instruction was prepared and formally notarized in Hong Kong on 24 April 2017.  Four days later, the defendant’s PRC law firm filed their notice to act for the defendant, together with the defendant’s written instruction to them, in the enforcement proceedings concerning the PRC Subsidiary.  The instruction, as expressly stated, was valid until the conclusion of the proceedings.  These documents also tally with the subsequent 2017 PRC Application in terms of timing.

46.  What was stated in the 2017 PRC Application constituted admission by the defendant or his PRC lawyers that it was the defendant who caused a report to be made that brought about the Alleged Conversion against the plaintiff and her nominees.  As mentioned, the relevant notification of the setting up of investigation was also enclosed to Li Wan Law Court for such purpose.  The documents also show that the defendant claimed to be in a position to cause the report as well as the 2017 PRC Application and the 2018 PRC Application to be made in the interest of the PRC Subsidiary on the basis of his alleged retention of beneficial interest in the PRC Subsidiary, contrary to the judgment and order in HCMP 40/2013.

47.  Both the 2017 PRC Application and the 2018 PRC Application were signed by the lawyers of the defendant’s PRC law firm and filed in the defendant’s name.  That the defendant did not sign them is neither nor there, as the written instruction dated 24 April 2017 expressly provided that the defendant agreed to recognize all the lawful act and signature of his lawyers within their authority.  Such authority, as stated in the instruction, included that to:

“1. 代為變更執行請求；

    2. 代為進行執行和解；

    3. 代為提出執行異議、申訴與控告；

    4. 代為其他訴訟權利。”

48.  When confronted with these contemporaneous documents, the defendant eventually had to resort to denying having ever instructed his PRC lawyers to prepare and to file these documents with Li Wan Law Court.  This is wholly incredible.  The written instruction signed by the defendant to his PRC lawyers came with a copy of his Hong Kong Identity Card, which could only have been provided by him.  As mentioned, the written instruction, together with its enclosures, was notarized before a Hong Kong notary.  It was impossible for the defendant’s PRC lawyers to be able to come up with the 2017 PRC Application and the 2018 PRC Application without the defendant’s instruction and information.  At one point, the defendant in his oral evidence even suggested that he has never paid his PRC lawyers.  The suggestion that somehow the defendant’s PRC lawyers would and could did all those in the absence of instruction and at their own expense, in my judgment, was no more than the most desperate and irresponsible excuse of the defendant.

49.  A common theme in the defendant’s evidence was his reference to his poor health condition and therefore inability to remember things or to have acted in breach of the Final Injunction as the plaintiff complains about.  In my judgment, that could hardly be a complete, if at all credible, answer, in view of what he has actually done to bring about the documents mentioned above that were submitted on his behalf by his PRC lawyers.

Other arguments in opposition

50.  As rehearsed in his counsel’s opening submissions, the defendant takes issue as to (i) the lack of penal notice when the Final Injunction was served; and (ii) the geographical ambit of the Final injunction.  When the case opened, counsel for the defendant confirmed that he would no longer take issue as to (i).  In view of the nature of these proceedings, I should nevertheless consider them all.

Service

51.  Pursuant to O45, r7(2) and (4) of the RHC, an injunction, to be enforced, must be served on the party bound personally together with a penal notice.  The purpose of service of the order is to ensure that notice of the order is given to the party bound.  The purpose of the penal notice is to notify the party the consequence of disobedience.

52.  There is no dispute that the Final Injunction was served on the solicitors acting for the defendant in the substantive hearing of HCMP 40/2013 and without a penal notice.  However, no issue was taken by counsel for the defendant as to service of the order on the defendant in this manner instead of personally, either at the previous direction hearings or the present substantive hearing in these proceedings.

53.  In any event, O45, r7(6) of the RHC provides that an order requiring a person to abstain from doing an act may be enforced notwithstanding that service of a copy of the order has not been effected in accordance with the rule if the court is satisfied that, pending such service, the person against whom it is sought to enforce the order has had notice thereof either (a) by being present when the order was made, or (b) by being notified of the terms of the order, whether by telephone, telegram or otherwise.

54.  When the Interlocutory Injunction was made in 2013, the defendant was present and his solicitors were subsequently served with that order with a penal notice. In 2014, the plaintiff commenced committal proceedings with leave against the defendant for alleged breach of the Interlocutory Injunction (HCMP 2998/2014). The defendant attended the substantive hearing in person.  That the court eventually found that the alleged breach in HCMP 2998/2014 was not proved beyond reasonable doubt did not change the fact that the defendant had knowledge about the terms of that injunction.  The Interlocutory Injunction was in essentially the same terms as the prohibitive part (§5) of the Final Injunction.

55.  O45, r7(6) applies only insofar as the order sought to be enforced is one restraining a person from doing an act, and apparently not if the order compels a person to do an act, such as the part of the Final Injunction (§6) that compels the defendant to produce company documents.  However, O45, r7(7) gives the court unfettered discretion to dispense with service of the order under this rule if the court thinks it just to do so.  In this respect, the Court of Appeal in AXA China Region Insurance Co Ltd v Li Yu Ping Ellen [2002] 3 HKC 339 explained that the court has the power under r7(7), where the circumstances for the application of O45 r7(6) does not exist and where there has been a failure to serve an order which requires a person to do an act, to dispense with service and may do so retrospectively (see §§31-35).  It follows that if the power to dispense with service of an order is properly exercised, the requirement to endorse a copy of the order with a penal notice falls away, even though there is no express power to dispense with a penal notice in the rule (see §§36-37).

56.  In the AXA case, the appellate court considered that that was a case where, in the interests of justice and devoid of any prejudice to the defendant, and therefore the court would exercise the powers to dispense with the service and retrospectively.  The appellate court so concluded because the ex parte order compelling the defendant to deliver up documents by a deadline was served with a penal notice on the defendant personally.  The ex parte order was subsequently varied by consent effectively extending the deadline, but this order was served not personally but on the defendant’s solicitors and thus without a penal notice.  Notwithstanding that, the defendant was considered to have become fully aware of the import of the ex parte order and the penal notice.  The second order was made at the initiative of those acting for her, and with her knowledge and consent.  It was a variation in her favour.  She was aware of the impact of the second order upon the original order.  Her advisers had at all material times been fully alerted to the failure to serve the second order personally on her with a penal notice.  Yet no point had been taken in the court below until on appeal, which was without merit.

57.  In a way, though not identical, the circumstances of the present case afford similar observation as those of the appellate court in the AXA case about the implication of the failure to serve the order personally on the defendant with a penal notice.  The defendant in the present case could not claim ignorance about the import of a penal notice, which he did receive upon service of the Interlocutory Injunction with such notice through his then solicitors.  Unlike the AXA case, the part of the Final Injunction that compels the defendant to produce company documents did not exist in the Interlocutory Injunction.  However, the application for the Final Injunction was substantively contested by the defendant through his then solicitors and counsel.  The order granted in terms were served on the solicitors acting for the defendant in the substantive hearing.  While acting in person then, the defendant took it to appeal, which could not happen without him being aware of its terms personally.

58.  It was against the above history since the Final Injunction then the defendant committed the breaches alleged in these proceedings.  All circumstances considered, I do not find that the defendant was prejudiced in real terms either because of failure of personal service of the Final Injunction or the lack of service with a penal notice.  Insofar as it is necessary, with the dispensation with personal service of the Final Injunction on the defendant, the issue of penal notice would also fall away.

59.  As her fall back, the plaintiff also relies on principle that even where the alleged contemnor is not aware of the consequence of breach of an order, because of the failure to have it served with a penal notice, the court is not disabled from making a finding of contempt as well as appropriate order for enforcement and costs order, so long as the court refrains from imposing punishment: see La Dolce Vita Fine Dining Co Ltd v Zhang Lan, HCMP 585/2017 (14 March 2018) at §35; Hong Kong Civil Procedure 2020 (Vol 1) at §52/2/9.  I agree.

Geographical ambit

60.  It is submitted that the Final Injunction was silent on its geographical scope, and that it should be construed as limited to Hong Kong only.  Reliance is placed on Shell Electric Mfg (Holdings) Co Ltd v Liu Chi Kuen, Tony [2003] HCA 2768/2001 & HCA 2821/2001 (2 July 2003) at §7, where Waung J said:

“...then it seems to me, and common sense dictates that penal orders must be clear in order to attract any legal penal consequences and that it does not say anything about geographical limitation or extension if I may put it that way, then it is presumed and must be held to be limited to Hong Kong because that is what a Hong Kong court is supposed to deal with – Hong Kong acts. If it is intended that the act prohibited is an act done outside Hong Kong, then an order must say it clearly...”

61.  The nature of the injunction and thus the context of the Shell Electric case, which caused the court there to say the above, must be appreciated.  Hon Au Yeung J in Bruno Arboit (above) did that, and explained (at §§274-276) that the Shell Electric case is also authority for the proposition that in the context of contempt proceedings, the relevant order should be able to stand on its own feet and be read by anyone and so understood clearly.  That is how it should be interpreted, and if there is room for ambiguity or doubt, then it must be resolved in favour of the defendants.

62.  The Shell Electric case involved proper construction of a prohibitory order that restrained the defendants from dealing in fans.  The order did not specify the geographical scope of such prohibited conduct.  The court there held that the prohibition was limited to Hong Kong.  In Bruno Arboit, the order compelled the defendant to produce documents concerning a company by its name, which was held to be a BVI company.

63.  In the present case, §5 prohibits the defendant from (under sub-§c in its broadest term) being involved in the affairs of the Company and dealing with the Company’s assets, including (under sub-sub-§ii) dealing with the affairs of the PRC Subsidiary; and from (under sub-§e) holding out as, and/or making any representation to the effect that he is, a shareholder and/or director of the Company.  The Company and the PRC Subsidiary are all defined within and for the purpose of the order.  Unlike the Shell Electric case, there is no ambiguity in the geographical scope of the conduct being restrained.  The submission on behalf of the defendant in this respect, in my judgment, fails to recognize what the court in the Shell Electric case said, namely that common sense dictates in understanding the terms of the order.  §5 of the Final Injunction prohibits the described conduct concerning the affairs and assets of the PRC Subsidiary, which are obviously located in the Mainland.

Finding

64.  All evidence considered, I am satisfied beyond reasonable doubt that the defendant was in breach of §5c(ii) of the Final Injunction in that he caused the report of the Alleged Conversion in 2017 as well as the filing of the 2017 PRC Application and the 2018 PRC Application purporting to act in his position as the subsisting beneficial owner of the PRC Subsidiary and thus being entitled to do so in the name or interest of the PRC Subsidiary.  The charges of contempt on HCMP 875/2018 and HCMP 845/2019 are therefore proved.  For reasons explained above, I acquit the defendant of the charge in HCMP 602/2019 for alleged breach of §6b of the Final Injunction.

Disposition

65.  Upon the finding of contempt on the part of the defendant, I direct that the parties shall attend the next hearing on 30 December 2019 at 10 am for considering mitigation and penalty options.  For such purpose, I give leave to the defendant to file and serve his affirmation, if so advised, not less than two clear days prior to the hearing.

66.  For the avoidance of doubt, and irrespective of the legal representation status of the defendant at the next hearing:

(1)  this court will take that the defendant’s solicitors currently on record have explained this judgment, as this remains their duty to do so, to the defendant; and

(2)  the defendant must attend the hearing or else this court may consider issuing warrant for his arrest.

67.  Question of the costs of these proceedings is also deferred for argument at the next hearing.