PAN CHUNG PAT WO TONG (HONG KONG) LTD V. LAW YAN WAI t/a SINGAPORE MEDICINE CO

HCA 1719/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1719 OF 2010

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JUDGMENT

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INTRODUCTION

1.  This is the application of the Defendant (D) made under O 32 r 6, RHC to set aside the ex parte leave order granted by Au‑Yeung J (the “Leave Order”)[1]permitting the Plaintiff (P) to commence committal proceedings against D.  The grounds of D’s present application are:

(a)  material non‑disclosure;

(b)  misleading information in the supporting affirmation;

(c)  gross defects in the statement filed pursuant to O 52, RHC (“the Statement of Contempt”); [2] and

(d)  inordinate delay.

BACKGROUND

2.  The case arose from the passing off and trademark infringement committed by D regarding P’s Chinese medicinal products (“the underlying action”).  The following background facts, which are not in dispute, are adapted from the written submissions of Mr Poon, counsel for D:

(a)  On 17 October 2013, judgment was entered in P’s favour for the underlying action (“the Judgment”) with a permanent injunction granted against D.[3]  Under paragraph 4 of the Judgment, D was also ordered to make, file and serve affirmation evidence disclosing various areas of information and exhibiting various classes of documents in connection to the infringing products (“the Disclosure Order”).[4]

(b)  By a notice of appeal dated 14 November 2013,[5] D sought to delete certain words from the aforesaid permanent injunction.  On 17 December 2014, the Appeal was dismissed (“the Appeal”).[6]  The details of the Appeal do not concern us.  However, it is pertinent to note at this juncture that D had filed affirmations for the purpose of the Appeal.

(c)  By an ex parte application[7] P applied for and eventually obtained on 18 May 2016 the Leave Order on the strength of (a) the Affirmation of Cheung Kam Min, Mickey (“Cheung 1”)[8]; and (b) the Statement of Contempt.  The grounds upon which the Leave Order was sought, as set out in the Statement of Contempt, are that D:

“was and is in breach of and in not complying with the [Disclosure Order], and subsequent Orders for time extension”.[9]

(d)  On 30 May 2016, P applied for D’s committal by an Originating Summons,[10]  the same was served two months later by way of a letter addressed to D’s solicitors on 29 July 2016[11] and then also personally on D in early August 2016.[12]

(e)  On 7 October 2016, D took out the summons for the present application.[13] Filed in support of the application were the 5^th and subsequently the 6^th Affirmations of Law Yan Wai (“Law 5”[14] and “Law 6”). [15]

(f)  In reply, P filed the Affirmation of Lee Chi Hang Sidney (“Lee”)[16] to oppose this application.

APPLICABLE LEGAL PRINCIPLES

3.  The relevant legal principles are well‑settled and not in dispute.

Material non-disclosure

4.  As regards “material non‑disclosure” by an applicant in an ex parte application, the relevant law can be summarised as follows:

(a)   in an ex parte application, the applicant must proceed with good faith and make full and frank disclosure.  If there is non‑disclosure by the applicant and non‑disclosure is material, then that will give rise to a strong ground for setting aside the ex parte order obtained by him;

(b)   the duty of full and frank disclosure continues while the proceedings remain on an ex parte basis and it also applies to the situation where material information only comes to light after leave has been granted, but before the substantive application for committal is heard: China North Industries Investment Ltd & Anor v Ronald Chum & Ors;[17] and RACP Pharmaceutical Holdings Ltd v Li Xiaobo;[18]

(c)   “materiality” is to be decided by the court and not by the applicant or his legal advisers: Brink’s Mat Ltd v Elcombe.[19]  Whether any non‑disclosure is material is a case‑specific question.  Facts are “material” if they are relevant to the weighing operation which the court has to make in deciding whether or not to grant the order: see generally Hong Kong Civil Procedure 2017 (HKCP), at §52/2/4;

(d)   the duty of disclosure cannot be fulfilled by just exhibiting to the supporting affirmation voluminous documents covering the material facts or points in question (the so‑called “needle in a haystack” situation).  Instead, distinct reference should be made to the material facts in the body of the supporting affirmation itself, in skeleton submissions or when addressing the judge at the often short hearing (if any).  Otherwise, it would impose upon the judge the impossible task of reading and digesting all the materials in the exhibits in the often short time available before the hearing of the application, which impossibility must have been reasonably appreciated or anticipated by the applicant’s legal advisers: see Standard Chartered Securities Ltd. v Lai Arthur & Ors;[20] and Yau Chiu Wah v Gold Chief Investment Ltd & Anor;[21] and

(e)   however, even in case the non‑disclosure is material, the court may still exercise its discretion either not to discharge the ex parte order or to order a re‑grant.  One of the considerations for the exercise of the discretion is whether the non‑disclosure was innocent rather than deliberate: see Yau Chiu Wah v Gold Chief Investment Limited & Anor;[22] and generally HKCP, at §32/6/13.

Statement of Contempt

5.  Order 52 r 2, RHC provides, among other things, that:

(1)   No application for an order of committal against any person may be made unless leave to make such an application has been granted in accordance with this rule.

(2)   An application for such leave must be made ex parte to a judge, and must be supported by a statement setting out the name and description of the applicant, the name, description and address of the person sought to be committed and the grounds on which his committal is sought, and by an affidavit, to be filed before the application is made, verifying the facts relied on.

6.  For the present purpose, the following, which are not in dispute, are the principles governing a statement of contempt:

(a)   the statement is to be treated in a similar manner as an indictment in criminal proceedings having regard to the penal nature of the sanctions for contempt.  Therefore, it should state all factual elements which, if proved, are sufficient to establish the contempt but not the evidence in support: Kao Lee & Yip v Koo Hoi Yan;[23]

(b)   it should, in case of civil contempt, state the personal service of the order in question on the alleged contemnor (if personal service is unnecessary for some reasons, the statement should state why): Chou Yi Feng v Chou Yi Chen & Ors[24];

(c)   it should also set out how and in what manner it is alleged that the order in question has been breached, with sufficient particularity to enable to alleged contemnor to defend himself or to allow him to purge the contempt if possible, by telling him exactly what it is that he has done or failed to do which constitutes the contempt: Churchman v Joint Shop Stewards’ Committee of the Workers of the Port of London;[25]and

(d)   leave granted pursuant to a defective statement of contempt may be set aside: Chou Yi Feng v Chou Yi Chen.[26]

See also generally HKCP at §§52/2/6-7.

NON-DISCLOSURE AND MISLEADING INFORMATION

7.  Although “misleading information” and “material non‑disclosure” are two separate grounds of objection, they are inter‑related in the sense that Cheung 1 is alleged to be “misleading” (partly) because of the alleged material non‑disclosure. Therefore, it is convenient for me to deal with the two grounds together.

Facts alleged not having been disclosed

8.  As pointed out by Mr Poon, the Leave Order was granted on the basis of Cheung 1 and the Statement of Contempt, although the court’s attention had also been drawn to the Judgment/Disclosure Order.  There were no written submissions or oral hearing. 

9.  What D says had not been disclosed to the learned judge in the ex parte leave application are the following:

(a)   the 2^nd and the 3^rd Affirmations of Law (“Law 2”[27] and “Law 3”[28]) filed on D’s behalf;

(b)   the Affirmation of Hung Kam Fat (“Hung”[29]) filed on P’s behalf;

(c)   the 4^th Affirmation of Law (“Law 4”[30]); and

(d)   various correspondence between P’s former solicitors and D’s solicitors.

Contents of the affirmations/ correspondence

10.  In Law 2,[31] which was filed in response to the Disclosure Order, D deposed that he had carried out a diligent search of the premises at which he had been conducting business since April 2011. He produced a number of inventories and invoices.  He confirmed that to the best of his knowledge, all of his buyers should have sold out and/or disposed of the infringing products.  He said that the scale of his business was small and he had limited resources for keeping full records.  He also said that he was old with chronic diseases and most of the works were delegated to his employees.  Lastly, he said that the aforesaid information and documents were what he could locate after the said diligent search.

11.  In Law 3,[32] which was filed for the Appeal, D referred to a complaint letter from P which alleged that D had failed to fully comply with the Disclosure Order and in particular that he had not disclosed any information in relation to his business prior to 2011.  In reply, D deposed that he had conducted a further search of his business premises.  He produced further documents which were contained in a DVD disc.  He confirmed that he had delivered all the relevant documents to his solicitors.  I was informed by counsel (and there is no dispute) that the DVD contained over 2,000 documents.

12.  Cheung 1,[33] which is a relatively short document the main body of which consists only of three and a half pages in double‑line spacing, contained no reference to Law 2 or Law 3 at all.  However, it referred to Hung and said:

“2. I crave leave to refer to the Summons dated 27th July 2015 issued by KMC returnable on 1st September 2015 and the Affirmation of Hung Kam Fat, the director of the Plaintiff together with the exhibits annexed thereto, contents of which are self‑explanatory and had set out the background and circumstances from 17th October 2014 to 27th July 2015 in that the Defendant, LAW YAN WAI does not and did not take his obligation under Disclosure Order seriously despite express warning and complaint.”

13.  In Hung, as regards Law 2, it was said:[34]

“9. Upon considering [Law 2], I have been advised by the Plaintiff’s legal advisors and verily believe that the information disclosed is far from adequate and that there Def is in serious breach of his disclosure obligation under the Disclosure Order.”

The above was immediately followed by a list of five points of alleged inadequacies. However, there was not a summary of what in fact was said in Law 2 or the quantity of documents produced under its cover.

14.  In Hung, as regards Law 3, it was said,[35]

“14. Upon considering the 3rd Affirmation of [Law 3] and the bundles of exhibits attached thereto, I have been advised by the Plaintiff’s legal advisors and verily believe that the Defendant has still failed to fully comply with the Disclosure Order.”

The above was then followed by a number of paragraphs criticising the alleged inadequacies in Law 3.  In particular, emphasis was made that “[D] has only disclosed invoices from 2011 onwards” when it was D’s case in the main action that the infringing products had been available in the market since 1980s.  Again, there was no summary of what was in fact said in Law 3.   Besides, the court’s attention was not drawn to the fact that over 2,000 documents had been scanned and contained in the DVD exhibited to Law 3.

15.  In Law 4,[36] which was made after the Leave Order and wrongly bore the case number of the Appeal, D deposed that he had searched all the premises to which he had accessed but could not find any further documents relevant to the past dealing of the infringing products.  He produced nine invoices between November 1992 and August 2005 which he had disclosed in the underlying action and which he said were inadvertently not exhibited to his former affirmations.  He confirmed that apart from the nine invoices, he was not in possession of any documents or records relevant to the dealing of the infringing products prior to 2011.

16.  Turning to the correspondence between the solicitors, P had referred to some of the letter in Cheung 1[37] and Hung.[38]  However, there were occasions where P only exhibited letters from its former solicitors to D’s solicitors without also exhibiting the reply letters from the latter,[39] giving the reader the impression that D had ignored the request of P.  Secondly, there were letters from D explaining his difficulties or position which were not referred to in P’s affirmations.[40]  Thirdly, P had not revealed in its affirmations that there had been a request from D asking P to draw the court’s attention to Law 4. In fact, it seems that D did not even have the courtesy of a reply from P at all. [41]

Materiality

17.  Mr Ng, counsel for P, does not dispute the materiality of Law 2 and Law 3.  As regards Law 4, Mr Ng does not dispute that the duty of disclosure survives as to materials which only come to light after leave has been granted.  However, he submits that Law 4 is not relevant to the weighing exercise of the court because (i) it was no more than a negative averment on D’s side saying that it could not find any more information; and (ii) there was no additional information or material deposed.  As regards the correspondence, Mr Ng submits that the contents of those are no more than saying that D had filed his various affirmations and about some logistics arrangements.  Mr Ng submits that the correspondence is irrelevant for the court to consider whether there is a prima facie case for the granting of leave for committal.  Reliance is placed on Tiong King Sing v Sam Boon Peng Yee,[42] which is an authority for the propositions that (i) the leave requirement serves to filter out oppressive applications or those which obviously had no chance of success; and (ii) the obligation of disclosure on an applicant for leave to issue committal proceedings is less stringent than upon an applicant seeking a Mareva injunction order.

18.  Having considered the submissions of counsel, I am of the view that the contents of Law 2‑4 and the aforesaid correspondence were material.  My reasons are as follows:

(a)  what was notably absent from P’s affirmations was that D had deposed that (i) he had moved office and occupied his place of business in Tsuen Wan since April 2011; (ii) he had already conducted thorough searches at the aforesaid address which was his only place of business after April 2011; and (iii) he had already disclosed various and voluminous documents in Law 2 and Law 3.  The absence of any reference to the above may have created a one-sided and unbalanced view unfavourable to D in the weighing operation, in particular, as to why, apart from the few documents exhibited to Law 4, he was generally unable to provide documents relating to his dealings in the infringing products prior to 2011;

(b)  I bear in mind that at the leave stage the court is not concerned with the admissibility of evidence or whether the P can successfully prove its allegations against D nor is the court concerned with the possible defence of D or whether such defence will succeed: see Secretary for Justice v Choy Bing Wing.[43] I also bear in mind that liability for civil contempt did not depend on an intention to disobey the order or otherwise interfere with or impede the due administration of justice: see Kao, Lee & Yip v Koo Hoi Yan.[44]  However, with respect, I am unable to agree with Mr Ng that the aforesaid documents could not have been relevant to the filtering process at the leave stage.  As discussed above, the decision as to whether the explanations set out in D’s affirmations were material should be one for the court rather than P’s solicitors.  In fact, I am inclined to the view that it is at least reasonably arguable that the contents of the affirmations under consideration were relevant to the nature and gravity of the alleged contempt as well as whether it would be appropriate for the matter to be pursued by way of committal proceedings: see HKCP, at §§52/2/1, 4 and 12; and

(c)   although it would generally not be necessary to exhibit all correspondence between the parties in an ex parte application, in the present case, however, the explanation given in D’s solicitors’ letters (which were not disclosed by P) was relevant at least for providing a more balanced view of the matter to the court.  This is especially important when P alleges in Cheung 1 that there was “deliberate ignoring/intentional flouting of the Court Order” made by the learned Recorder and when D would not have a chance to reply to that allegation at the ex parte stage.  Even if P was of the view that the explanations given by D in the correspondence were not genuine and not to be believed, he should have left it for the court to decide: cf Tiong King Sing v Sam Boon Peng Yee & Anor (CA).^[45] 

Non-disclosure

19.  Mr Ng’s submission is that P had in Cheung 1 already specifically drew the court’s attention to Hung which fairly set out the contents of Law 2 and Law 3.  Mr Ng also drew my attention to “Practice Direction 10.1 – Affidavit Evidence”, where it is said at §4(c):

“Court documents, such as probates, letters of administration, orders, affidavits or pleadings, should never be exhibited. Office copies of such documents prove themselves.”

20.  With respect, I do not think that the Practice Direction assists P.  This is because:

(a)   the Practice Direction deals with proofing of court documents rather than disclosure.  Therefore, it is provided that office copies of the court documents prove themselves without the need of exhibiting them;

(b)   there is nothing in the Practice Direction which prevents or discourages a deponent from drawing the court’s attention to what was said in another affirmation already filed in the same action or related action should it be necessary to do so; and

(c)   on the other hand, as discussed above even if one exhibits an affirmation of the other side to his own affirmation, that of itself does not necessarily constitute sufficient disclosure of the material facts contained in the affirmation of the other side.

21.  Applying the relevant principles on disclosure to the present case, I am of the view that P had sufficiently disclosed Hung at the leave stage.  This is because there was an express reference to Hung in Cheung 1 which P relied upon for setting out the background and circumstances of the alleged breach by D.

22.  However, in my judgment there was non-disclosure of Law 2 – Law 4 and D’s correspondence referred to in the above.  My reasons are as follows:

(a)   as aforesaid, Hung contained only P’s comments of what he said were the inadequacies of Law 2 and Law 3[46] without giving a summary of what D had said in them and a reference to what documents D had exhibited;

(b)   P should not expect the court dealing with the ex parte leave application to conduct a “paper chase” in order to find out the contents of what D had actually deposed;

(c)   Law 3 was filed not in the underlying action but in the Appeal.  Therefore, even if the court were to check through its file of the underlying action, it would not have found Law 3;

(d)   as regards Law 4, which inadvertently bore the case number of the Appeal and therefore was not filed under the underlying action, although P was specifically asked to draw that affirmation to the court’s attention, it did not accede to the request and did not make any reply; and

(e)   Cheung 1 and Hung did not make any reference at all to D’s letters under consideration.

23.  Based on the above, I find that there was material non‑disclosure by P.  Moreover, because of the non‑disclosure P’s portrayal of D in Cheung 1 was so unbalanced to the extent that it was also capable of being misleading.

Innocence or otherwise

24.  Based on the evidence before me, I am unable to say that the material non-disclosure was innocent, as P was fully aware of the contents of Law 2‑4 and D’s correspondence.  It was P’s conscious decision not to refer to them in Cheung 1.  Whilst I am not implying any bad faith on P’s side, there had been insufficient regard to the strict requirement of full and frank disclosure and a bad judgment as to what matters should be specifically drawn to the court’s attention.

25.  However, as discussed above, “innocence” or otherwise of the material non-disclosure is but one of the factors to be taken into account in deciding whether or not the leave should be set aside and whether there should be a re‑grant.

Defective Statement of Contempt

26.  As already noted, in the Statement of Contempt, after the descriptions of P and D and the relief sought (for committing D to prison), the grounds for relief are said to be the following:

“4. The grounds upon which the relief is sought are [D] was and is in breach of and in not complying with the Paragraph (4) of the Order made by [the Recorder] on 17th October 2013; and subsequent Orders for time extension made … on 28th August 2015 and … on 26th October 2015.”

If one turns to the Order of the learned Recorder, what paragraph (4) says is as follows:

“(4) The Defendant shall, within 21 days from the personal service of this Order upon him, make and file an affidavit/affirmation and serve a copy thereof on the Plaintiff’s solicitors setting forth the names and addresses of all persons, firms or companies: -

(a) to whom the Defendant has sold and/or supplied and/or offered or exposed for sale and/or supply;

(b) from whom the Defendant has ordered, purchased and/or obtained supplies of;

(c) who has offered to sell and/or supply to the Defendant; and

(d) from whom the Defendant has received orders for or enquires relating to;

the Infringing Products, together with full details of such sale, offer and/or supply including the dates, quantities and consideration involved, and further disclose in the said affidavit or affirmation the exact whereabouts of any person, firm or company known or believed by the Defendant to be in possession of the Infringing Products, and further do exhibit to such affidavit or affirmation copies of all documents relevant to the aforesaid, including but not limited to quotations, purchase orders, contracts, correspondence, shipping documents, invoices, receipts and delivery notes.”

27.  Mr Poon raises the following points which he submits justify the setting aside of the Leave:

(a)   the Statement of Contempt fails to include material facts concerning the penal notice, the Disclosure Order and the personal service of the Recorder’s Order on D; and

(b)   the Statement of Contempt does not contain sufficient particulars of the alleged breaches of the Disclosure Order by D, making it difficult for the latter to properly defend himself.

28.  I note that that the Court of Appeal in Re M[47] has left open whether a statement filed pursuant to O 52 r 2(2)[48] RHC must be a separate document or whether the rule can be compiled with if the required information is given in the affidavit and in the notice of motion for committal under r 3(1).  In the present case, however, a separate document (namely, the Statement of Contempt) had indeed been filed by P.  Nevertheless, in my view (i) above is a mere technical defect, as the personal service of the Recorder’s Order endorsed with the penal notice was mentioned in Cheung 1 which was filed in support of the application for leave, so that the attention of the ex parte judge had in fact been drawn to those matters.  On this basis, Chou Yi Feng v Chou Yi Chen & Ors[49] is distinguishable.  Therefore, had D been relying this formal defect alone, I would not have set aside the Leave.

29.  However, in my view (ii) presents a more serious problem because of the very wide and general terms in which the allegation against D is couched in the Statement of Contempt. Whilst I accept that there may be occasions where a mere assertion that a defendant had failed to comply with a court order would be sufficient, eg when the order was couched in relative narrow terms or in case the defendant had simply failed to do anything in compliance of the order.  However, this is not the present situation here: the Recorder’s Order was wide in scope and the Statement of Contempt is so general that it can virtually cover any conceivable breaches of the Disclosure Order.  P’s supporting affirmation, on the other hand, is not helpful in narrowing the allegation against D in any meaningful way in that it only says that D’s alleged breach was that he had “failed to fully comply with” the Recorder’s Order.

30.  Furthermore, the general terms of the Statement of Contempt may allow P to move its goal-post in the committal proceedings so that D would not know what case he is asked to meet.  This was graphically demonstrated by what transpired during the course of the hearing.  In reply to D’s submission that the Statement of Contempt does not have sufficient particulars, Mr Ng said in his written submissions that,

“it has always been known to D that it fails to disclose the information of the transactions concerning the Infringing Products prior to 2011. D knows the exact case to answer.”

In my view, a reasonable reader should be forgiven (after reading Mr Ng’s passage above) for thinking that P’s allegation for contempt against D was limited to the infringing acts prior to 2011.  That was in fact how Mr Poon and this court understood what P’s case against D for contempt was about before the hearing.  It was only upon the enquiry by this court during the hearing that Mr Ng clarified that P’s case against D also covers the post‑2011 transactions.

31.  Based on the above, in my view the Statement of Contempt is unsatisfactory in that it fails to inform D in what aspects and how his purported compliance with the Disclosure Order is said to be inadequate. This is so, especially when one bears in mind that the Statement of Contempt should function as an indictment in criminal proceedings having regard to the penal nature of the sanctions for contempt.

Delay

32.  I note that the Recorder’s Order was made on 17 October 2013.  It required D to file affirmation for disclosure within 21 days.  The application for leave to commence committal proceedings, however, was not taken out until May 2016. On the other hand, I note that there had been the Appeal and that D had twice sought and was granted an extension of time for him to comply with the Recorder’s Order.

33.  There is no time limitation provided for committal proceedings.  Whilst I accept that inordinate delay may in appropriate cases give rise to a ground for setting aside leave, upon being questioned by the court, Mr Poon was unable to spell out any actual prejudice which D may have suffered as a result of P’s delay.  In the circumstance, I do not think that it is appropriate to set aside the leave on this ground: see generally Taylor v Ribby Hall Leisure Ltd[50] which is authority for the inherent discretionary power of the court to strike out contempt of court and supervisory proceedings as an abuse of process.

CONCLUSION

34.  Having looked at the matter in the round, taking account the material non-disclosure by P which was not innocent and the problems with the Statement of Contempt, I come to the conclusion that the Leave Order should be set aside and that it is not appropriate to order a re‑grant. 

35.  It would be a matter entirely for P to decide whether it would, after all these years, start the contempt proceedings all over again by seeking a fresh leave, with full and frank disclosure and a properly draft Statement of Contempt.

36.  As regards costs, following the general rule I make an order nisi that D should have the costs of this application, with certificate of counsel, to be taxed if not agreed.