MANDECLY LTD AND ANOTHER v. HAO WEI AND OTHERS

cacv 65/2008

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 65 of 2008

(on appeal from HCA NO. 1216 of 2002)

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a judgment and order of Yam J given on 22 February 2008 with reasons for judgment given on 3 March 2008.  By the order the judge expressed himself as satisfied that the first defendant was in contempt of court for not complying with the order dated 17 August 2006 and the further order dated 20 December 2007.  The judge ordered that the sentencing be adjourned to 5 March 2008 and that the first defendant should be present and that service of the notice of hearing should be dispensed with.  The judge made the further order:

“IT IS FURTHER ORDERED that the 1^st Defendant to (sic) file and serve a written proposal pursing (sic) his contempt before 4:00 p.m. on the 28^th February 2008 and the Plaintiffs shall file and serve any response thereto before 4:00 p.m. on 3^rd March 2008.”

2.  At the conclusion of the hearing of this appeal judgment was reserved which we now give.

Background

3.  Following the trial of this action, the judge made various orders.  In the first place he gave judgment in favour of the plaintiffs against the first defendant in the sum of RMB 11 million together with interest.  In the second place he ordered what were referred to as the Schedule 1 properties and four vehicles should be transferred by the defendants free from encumbrances to a nominee of the second plaintiff and that the defendants should “perform all necessary procedures in order to effect the aforesaid transfer within 21 days hereof.”  The judge further ordered that there should be a declaration that the plaintiffs were:

“…entitled to a lien on the shares in the 3^rd defendant for the sum of RMB 11 million together with the aforesaid interest and the Schedule 1 Properties and the 4 vehicles.”

4.  The order then continued:

“(4)      The order of injunction granted by Mr Justice Ma (as he then was) on 28 September 2002, restraining the 1^st and 2^nd Defendants, whether by themselves or either one of them, their directors or officers or servants, or agents, or otherwise howsoever from selling, charging, encumbering or otherwise disposing of or dealing with any of the shares in the 3^rd Defendant (“the said shares”), shall continue until the 1^st and 2^nd Defendants have performed the aforesaid orders (1) and (2);

(5)      The Defendants do forthwith deliver up and give possession of the said shares to the Plaintiffs pending full payment by the 1^st and 2^nd Defendants of the aforesaid sum of RMB 11 million and interests and the due transfer of all the Schedule 1 Properties and the 4 vehicles for the Plaintiffs’ exercise and reinforcement of their lien over the said shares;”

5.  Ignoring the fact “the shares” are not precisely identified in the order and the internal discrepancy caused by the reference to the second defendant making full payment, it can be noted that the Schedule 1 properties comprise 48 housing units, 28 car parks and 89 basement rooms.  It can also be noted that the order of Mr Justice Ma of 28 September 2002 restraining the first and second defendants from selling, charging, encumbering or otherwise disposing or dealing with the shares in the third defendant was expressly stated to be “Save and except the Loan Agreement as mentioned in paragraph 4 below…”.  That paragraph 4 reads as follows:

“The 1^st Defendant be at liberty to enter into the Loan Agreement with Huake Industry and Development Co. Ltd (華科實業發展有限公司) as exhibited in HW-29 of the 3^rd Affirmation of Hao Wei affirmed on 26 August 2002 and the loan so raised shall not be used for any purpose other than repayment of the indebtedness owed by Beijing Mandas Real Estate Development Co. Ltd. (北京明達房地產有限公司) to China Xin Xing Construction Development Company Limited (中國新興建設開發總公司).”

6.  The defendants’ appeal to the Court of Appeal was dismissed on 13 November 2007.  Following that, the plaintiffs issued a summons on 17 December 2007.  That summons was heard on 20 December 2007 when the judge made an order that the time fixed for the defendants “to do or perform the act or acts” specified in the order dated 17 August 2006 be extended until within 14 days from the date of service of the order.  The time of full performance of the matters required under paragraph (5) was extended to within 7 days from the date of service of the order.  That order also included an order that service of the order endorsed with a penal notice on the defendants’ solicitors should constitute good service.

7.  Two things are probably noteworthy.  The first is that it is not immediately apparent as to why an order for substituted service was granted at that stage.  The order itself was possibly necessary because without it the time for performance of the mandatory injunctions might be said to have been no longer applicable.  Orders for substituted service of mandatory injunctions are generally speaking only made when there has been some clear difficulty in the service of the order.  In view of the nature of a mandatory injunction it is undesirable that there should not be personal service.  The other matter was that on the day prior to the hearing the defendants had taken out a summons for variation of the order of 17 August 2006.  That summons was directed to limiting the order for transfer of the Schedule 1 properties to those which could be legally and properly transferred and, in addition, to holding an inquiry as to damages in respect of those Schedule 1 properties which could not be transferred.  The defendants’ summons was supported by an affirmation by the defendants’ solicitors stating that the defendants were only able to cause the transfer of 17 of the units but were not able to cause the transfer of 5 of the units because they were affected by litigation.  In respect of 4 of the units the defendants were unable to cause them to be transferred because of the original sale and purchase and cancellation agreements; personal attendance was required to carry out the cancellation procedures.

8.  It would also appear that at the hearing on the 20 December 2007 the judge was made aware of the defendants’ summons to vary the terms of the original order since the summons was handed up to the court at the commencement of the hearing.  The hearing was a 9.30 hearing which took less than half an hour.  The judge simply made an order in terms of the plaintiffs’ summons and, seemingly on the basis that the matters raised by the defendants’ summons were contentious, did not consider that the issues raised should be dealt with expeditiously.

9.  The motion for contempt cited the first defendant for contempt on the basis of his “failure and/or refusal, in his personal capacity and/or in his capacity as director of the third defendant” to obey the order of 17 August 2006 and the further order of 20 December 2007.  The grounds of the application for committal were set out as follows

“AND FURTHER TAKE NOTICE that the grounds of this application as set out in the Affirmation of Siu Yat Fung Anthony filed herein on 21 January 2008 together with the exhibits referred thereto and the Statement filed pursuant to Order 52, r. 2 of RHC dated 18 January 2008, all proving the said Contempt, which are duly served herewith.”

10.  That, in itself, is an unsatisfactory form of a motion to commit for contempt.  Such a notice of motion should specify very clearly what it is that the defendant has either done in breach of the order or has failed to do.  It should not be left to be gleaned either from the statement in support of the application for leave to apply for an order for committal, still less should reference have to be made to a 10 page affidavit.

11.  Mr Chan SC, who appeared in this court but not in the court below, drew this court’s attention to paragraph 14 of the statement in support of the application.  That specifies two separate matters.  First the failure to transfer the part of the “Schedule 1 Properties” set out in the annexure and, secondly, the failure to deliver up and give possession of “the shares in the 3^rd Defendant (“the Shares”) in the Action to the 1^st and 2^nd Applicants within 7 days from the date of the service of the Further Order pending full payment by the Respondent and the 2^nd Defendant in the Action of a sum of RMB 11 million and interests and the due transfer of, inter alia, all the Schedule 1 Properties (as defined in the Original Order) for the 1^st and 2^nd Applicants’ exercise and reinforcement of their lien over the Shares”.

12.  In that document it would appear that the shares were identified as 999,999 out of one million shares in the third defendant.  The remaining share was, according to the statement, held by the second defendant.  Since there does not appear to be any reference to the first defendant failing to transfer that share in respect of any other capacity than his being a director of the third defendant it would appear that that was not the subject complaint.

13.  The application to vary the original order was, originally, due to be heard on 15 January 2008 but it was adjourned by consent to a date to be fixed.  When the motion for contempt was heard on 22 February 2008, counsel for the applicants relied on his written submissions.  Counsel for the defendant however, who was not the counsel who appeared in this court, commenced her submissions by saying:

“I submit that, technically, there may be a contempt indeed, because there is a non-compliance of the costs order.”

14.  Since non-compliance with the costs order does not appear to have been a ground of complaint in the contempt proceedings, the observation can be made that the matter started unsatisfactorily.  The submissions on behalf of the first defendant do not appear to have been other than cursory.  The judge, in effect, stopped counsel from making submissions on anything that was contained in the written skeleton.  In those written submissions it is made clear that a sum of HK$25 million had been paid together with costs of HK$9 million.  Reference was made in this respect to paragraphs 4 and 5 of the affirmation of Edward Tse filed the previous day.  In respect of the Schedule 1 properties it was stated in court that the documents relating to 17 units together with corresponding car parking spaces had been delivered to the plaintiffs in Beijing and that in respect of 27 units legal proceedings were being taken in order for those to be deregistered but that in respect of the remaining 4 units the defendants were unable to secure either deregistration or their transfer because they were subject to litigation.

15.  At the hearing the judge expressed himself as satisfied beyond reasonable doubt that the first defendant was in contempt of court in not complying with “my order, even after certain variations, and the contempt committed by him is conterminous.”  It is not clear whether the judge intended to say “contumacious” or “contumelious”.

16.  In giving his written judgment the judge said in respect of the units which the defendants were seeking deregistration;

“14.      The plaintiffs contended that there is no need for Mr Hao to take the convoluted and time-consuming route of commencing proceedings to effect the de-registration.  Although under the name of Fu Li Company and Yi De Company, Mr Hao said he has no information on the contact persons of the companies to perform the procedure for de-registration.  The plaintiffs do not accept such allegation of Mr Hao since he has never written to the plaintiffs to ask for arrangement with the contact persons of the companies.  Nonetheless, the plaintiffs’ solicitors are prepared to make arrangement for the responsible person of Fu Li Company and Yi De Company to effect the procedure for de-registration with immediate transfer thereupon.

15.       For the remaining 4 units, 2 are under the name of Mr Chan and 2 are under the name of Chan Ka.  Even on Mr Hao’s case, he had already got the sale and purchase agreements and also the cancellation agreements for these 4 units.  Further, Mr Hao cannot say that he has no information of Mr Chan Ka who actually is a director of the 1^st plaintiff.  There was no explanation as to why these 4 units could not be transferred earlier to the two Mr Chan.”

17.  The judge then went on to refer to the fact that there was no explanation in respect of the failure to deliver up the shares in respect of which a lien had been ordered.  The judge then said that he considered that the first defendant had not actively tried to obey the court orders and concluded that:

“In the end I find that Mr Hao’s non-compliance with the orders is clearly contumelious.”

18.  The order made by the judge was, as stated above, simply that the judge was satisfied that the first defendant was in contempt of court in not complying with the two orders.

19.  On this appeal the first defendant sought leave to adduce further evidence.  At the hearing that evidence was considered de bene esse.  One particularly important aspect of that evidence was that the shares have since September 2002 been charged and not in the possession of the defendants.  According to the evidence which has now been filed the defendants have not been in a position to deliver the shares and give possession of them as stipulated in the order.  It is the first defendant’s evidence that he has not been able to repay the loan and obtain the shares.

20.  It is also the first defendant’s evidence that in respect of some of the housing units the defendants have not been in a position to transfer the ownership, although the plaintiffs have been in possession of those units.  It is said that because those units are subject to registered sale and purchase agreements, cancellation and deregistration of the sale and purchase agreements must first be effected before the legal title can be transferred to the plaintiffs.  It would appear from an affirmation of Anthony Siu filed on 7 April 2008 on behalf of the plaintiffs that a deregistration process as envisaged by the defendants might well be necessary.  If that is not the plaintiffs’ position it would seem to be necessary to resolve any conflict of evidence as to the foreign law applicable to the units in question.  Questions might arise as to whether that process of deregistration should have been commenced earlier and whether the defendants have done everything they could in order to pursue that.

21.  The difficulty in this case started, in my view, with the loose way in which the notice of motion was phrased which was followed through into the finding of contempt and in particular into the order holding that there has been contempt.  There is no doubt that the order for committal must be in the form of form 85 in Appendix A of the Rules of the High Court.  That requires the contempt should be fully specified.  As Sir John Donaldson said in the case of Chiltern District Council v Keane [1985] 1 WLR 619 at 623H:

“As I say, the contemnor is entitled to know on how many counts he has been found guilty and to have them specified.  I hope that judges in the future will indicate in clear terms, when giving the reasons for their judgments, what it is that they find proved, and that those who are responsible for drawing up the orders will then record what it was that was found proved.  So here again it seems to me that Mr Munby makes out his case.”

22.  It is no answer, as Mr Chan sought to argue, that the order was not an order for committal but was simply an order finding the first defendant guilty of contempt.  The defendant is entitled to know exactly why it has been held that he has been in contempt, both for the purposes of his being able to rectify the situation and to plead in mitigation.  That is all the more so in this case since the judge ordered that the first defendant should file a written proposal setting out the manner in which he proposed to purge his contempt.  Since it would appear that on the transcript the only admission of contempt was in respect of something in respect of which it is very doubtful that the first defendant was in breach of the orders, but in any event did not constitute a matter of complaint, it was most undesirable that an order was made which gave the impression that the first defendant was required to file any document dealing with what he might suppose was the manner in which the contempt had been found.  That the first defendant might have been given leave to file such a document, if so advised, or have been given leave to file evidence, if so advised, would no doubt be appropriate.  But to make an order requiring a person against whom committal is sought to make a document which is likely to include admissions would, in my view, be wholly wrong.

23.  The judge below was no doubt placed in difficulty because of the manner in which the first defendant’s case had been prepared and presented.  In view of the contents of the transcript and of the further evidence which has now been adduced, criticisms of the competence of the presentation of the first defendant’s case in the court below would appear justified.  Nevertheless, there were a number of questions which arose on the original evidence which were not dealt with and in view of the new evidence which has been filed it appears to me that the order at presently framed cannot be allowed to stand.  It must therefore be set aside and the matter remitted to the Court of First Instance.  I would therefore make such an order with the direction that the matter should be heard before a different judge.

Hon Le Pichon JA:

24.  I agree.

Hon Hartmann J:

25.  I agree.