WONG LUEN HANG AND ANOTHER v. CHAN YUK LUNG AND ANOTHER

HCMP 243 & 244/2021

[2023] HKCFI 304

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 243 OF 2021

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 244 OF 2021

________________________

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J U D G M E N T

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A. OVERVIEW

1.  There are before the court 2 originating summonses dated 25 February 2021 (together “OS”)  issued by the 1^st and 2^nd plaintiffs (together “Ps”)  seeking an order to commit the 1^st defendant (“D1”)  and the 2^nd defendant (“D2”)  for contempt of court.  The proceedings arose out of the orders made by this Court in HCMP 1064/2019 and 1065/2019 (together “Inspection Proceedings”)  in respect of Topmix (International)  Company Limited (“TICL”)  and Topmix Industrial Limited (“TIL”)  respectively.

2.  Ps contend that D1-D2 acted in breach of:

(1)  their undertaking to the court “to forthwith instruct auditors of [TICL] to make all necessary accounting adjustments to reflect the payment made by [Ps] towards [D1-D2’s] legal costs in HCA 2654/2007” (as recorded in the order made on 22 January 2020 in HCMP 1064/2019)  (“Undertaking”);

(2)  the orders made in the Inspection Proceedings on 22 January 2020 requiring D1-D2 to produce the documents specified in the schedules thereto (together “1^st Orders”);

(3)  the orders made in the Inspection Proceedings on 31 March 2020 requiring D1-D2 to comply with the 1^st Orders and the Undertaking within the time limits stated therein (“2^nd Orders”); and

(4)  the further orders made in the Inspection Proceedings on 16 July 2020 (“3^rd Orders”)  requiring D1-D2 to comply with the 2^nd Orders within the time limits stated therein. 

3.  The facts relevant to the applications and the grounds relied upon by Ps are set out in the 4^th Affirmations of Tsui Kwok So dated 5 February 2021 filed in support of the applications for leave to commence contempt proceedings [1]; the 1^st Affidavits of Cheung Hang dated 3 March 2021 (“Cheung 1^st”)  and the 3^rd Affidavits of Cheung Hang dated 10 June 2021 filed in these proceedings.  Their evidence has not been challenged by D1-D2’s counsel.

4.  As the contents of the affirmations / affidavits filed in the Inspection Proceedings and in these contempt proceedings in respect of TICL and TIL are materially the same, unless otherwise stated, all references to the affirmations / affidavits are to those filed in respect of TICL (i.e. HCMP 1064/2019 and HCMP 243/2021). 

5.  At the hearing, Mr Terrence Tai, counsel for Ps, acknowledges that the focus of the applications is on D1-D2’s breach of the 3^rd Orders, given that the purpose of the 3^rd Orders was to give one final chance for D1-D2 to comply with the Undertaking, the 1^st Orders and the 2^nd Orders within the extended time limits stipulated therein.   

6.  Ms Athena Wong, counsel for D1-D2, advances the following grounds in opposition to the applications:

(1)  D1 “was not made aware of the [1^st to 3^rd] Orders and the consequences of a breach of the relevant order” prior to commencement of the contempt proceedings[2] (D1’s Knowledge point); 

(2)  D2 “was not made aware of the severe consequence and the risk that he might be committed to prison”[3] (D2’s Knowledge point);

(3)  The penal notices endorsed on the 3^rd Orders were “defective as they had not been prominently displayed on the Orders served”[4] (Penal Notices point); and

(4)  “After learning the consequence of the gravity of the situation,  [D1-D2] have been making efforts to comply with the [1^st to 3^rd Orders], including making proper enquiries to [sic] law firms representing TIL and TICL”[5] (Belated Compliance point). 

B.  FACTUAL BACKGROUND 

7.  The background leading to the 1^st Orders are set out in the Decision dated 22 January 2020, [2020] HKCFI 245 (“Decision”).

8.  TICL and TIL are Hong Kong companies incorporated in 1993 and 2003 respectively.  Ps and D1-D2 are equal shareholders in TICL and TIL.  Since March 2006, D1-D2 have been the only directors of TICL and TIL[6].

9.  Ps commenced the Inspection Proceedings to seek documents pertaining to the following issues for which D1-D2 had failed to provide any comprehensive or consistent responses[7]:

(1)  The legal expenses incurred or said to have been incurred by TICL and TIL in HCA 2654/2007, HCA 1382/2011, and HCA 1265/2015 (“Legal Expenses Issue”);

(2)  The substantial increase in the amounts stated to have been owed by TICL/TIL to D1-D2 in the audited financial statements (“AFS”)  of TICL and TIL for the years ended 31 March 2015, 2016, 2017 and 2018 (“Directors’ Debts Issue”); and

(3)  The debts and receivables of TICL and TIL due to and from Faithful Rainbow Limited (“FRL”)  (“FRL Debts Issue”).

B1.  1^st Orders and Undertaking

10.  In the Decision, this Court held that Ps had made out a proper case for investigation and made the 1^st Orders requiring D1-D2 to produce all records and breakdowns as described in the Schedules to the 1^st Orders which relate to the Legal Expenses Issue[8], the Directors’ Debts Issue[9] and the FRL Debts Issue[10] within 14 days[11].

11.  In respect of TICL, D1-D2 gave the Undertaking to the court which was recorded in the 1^st Order in HCMP 1064/2019.

12.  D1-D2 did not comply with the Undertaking or produce any documents in compliance with the 1^st Orders by 5 February 2020. 

13.  By letters dated 10 February 2020, 13 February 2020, and 4 March 2020, Messrs. King & Wood Mallesons (“KWM”), Ps’ former solicitors, put on record D1-D2’s non-compliance with the 1^st Orders and the Undertaking.

B2.  2^nd Orders

14.  By summonses dated 20 March 2020, Ps applied for further orders to compel D1-D2 to comply with the 1^st Orders and the Undertaking.

15.  On 31 March 2020, this Court made the 2^nd Orders requiring D1-D2 to produce the documents and comply with the Undertaking within 14 days of the service of the 2^nd Orders. 

16.  The 2^nd Orders were sealed on 13 May 2020 and served on Messrs. Bryan Chan & Co (“BCC”), D1-D2’s former solicitors, on 15 May 2020.  As such, D1-D2 had to comply with the 2^nd Orders and the Undertaking by 29 May 2020.

17.  Ds again failed to comply with the Undertaking or produce any of the documents specified in the 1^st Orders. 

18.  Instead, D1-D2 caused BCC to send a letter dated 21 April 2020 to the auditors of TICL and TIL[12] (“Auditors”)  requesting them (1)  to confirm if the accounting adjustments had been made to TICL’s accounts; (2)  to provide all relevant documents pursuant to the 1^st Orders as soon as possible; and (3)  to confirm if the papers are ready for Ps’ inspection.   

19.  On 5 June 2020, the 3^rd Affirmations of D2 were filed on behalf of D1-D2 (“Chan 3^rd”)  purportedly to explain the whereabouts of the documents they were required to produce.  Specifically, D2 claimed that:

(1)  they were “still in the course of applying for all the bank statements relevant to the [1^st Orders]”[13]; and

(2)  there was an incident of computer hacking on 23 August 2019 such that D1-D2 were unable to retrieve the relevant documents[14]. However, in the police report exhibited, it was stated that the computer of FRL (not TICL/TIL)  had been hacked.

B3.  1^st Disclosure

20.  In purported compliance with the 1^st and 2^nd Orders, D1-D2 produced the following documents as exhibits to Chan 3^rd (“1^st Disclosure”):

(1)  2 letters from the Auditors to TICL and TIL enclosing “the details of the movements in amounts due to directors” for the years ended 31 March 2015 to 2018 (“Movements”).  In the letters, the Auditors stated that “subject to the qualified opinion in the auditor’s report”, (a)  TICL and TIL “did not pay any legal expenses on behalf of the directors”; (b)  TICL had only incurred legal expenses of HK$2,270,452 in the year ended 31 March 2015; and (c)  TIL had incurred legal expenses of HK$600,000 and HK$200,000 in the years ended 31 March 2015 and 2016 respectively;  

(2)  (a)  invoices and receipts issued by Messrs. Wong Poon Chan Law & Co[15] (“WPCL”)  to D1-D2, TICL/TIL from 2006 to 2014 in respect of HCA 2654/2007 and HCA 1660/2006; (b)  bills, invoices, receipts issued by Messrs. Ng, Lie, Lai & Chan[16] (“NLLC”)  to D1-D2, TICL/TIL in 2006; (c)  receipts, invoices and bills issued by Messrs. Cheung & Liu[17] (“C&L”)  in 2016 to TIL/TICL, D1-D2 and FRL in respect of HCA 1265/2015 and HCA 1382/2011; and (d)  engagement letter issued by Billion Consultancy Ltd in June 2015 in relation to HCA 1265/2015 and the amounts paid by D1-D2; and

(3)  letter dated 14 December 2019 from TICL/TIL to C&L requesting them to provide all bills, invoices, the costs paid by Ps, the amounts paid by TICL/TIL and the costs and fees paid by C&L on their behalf; and another letter from C&L to BCC dated 20 December 2019.   

21.  The 1^st Disclosure was clearly not in compliance with the 1^st Orders, the 2^nd Orders and the Undertaking in that:

(1)  For TICL, the only documents produced were (a)  2 receipts issued by WPCL dated 4 May 2012 and 22 January 2014; (b)  receipt issued by C&L dated 15 July 2015 for HK$228,000; an interim bill issued by C&L dated 24 March 2016; and (d)an incomplete breakdown set out in C&L’s letter dated 20 December 2019;

(2)  As for TIL, the only documents produced were (a)  receipt issued by C&L dated 18 February 2016 for HK$200,000; (b)  cheque issued by TIL to C&L dated 18 February 2016 for HK$200,000; (c)  invoice issued by C&L dated 10 May 2016 for HK$30,450; and (d)  - breakdown set out in C&L’s letter dated 20 December 2019;

(3)  Although the Auditors stated that TICL had incurred legal costs of HK$400,000 in HCA 1265/2015 for the year ended 31 March 2015 and TIL had incurred legal costs of HK$600,000 and HK$200,000 for the years ended 31 March 2015 and 31 March 2016 respectively, the documents produced by D1-D2 do not match these amounts and no explanation was given on the discrepancy;

(4)  The Movements confirmed that D1-D2 had not given any instruction to the Auditors to make the accounting adjustment as required by the Undertaking;

(5)  No internal accounting records, be it journals, ledgers and vouchers of TICL/TIL (collectively “Accounting Records”)  in respect of the Legal Expenses Issue, the Directors’ Debts Issue or the FRL Debts Issue were produced;

(6)  The Accounting Records and supporting documents in respect of the 3 issues must have existed as they formed the bases for TICL/TIL to include the relevant amounts in the AFS.  Without the supporting documents, the Auditors would have expressed a qualified opinion on the Directors’ Debts and the FRL Debts stated in the AFS for the years 2015 to 2018 in the same way as they expressed a qualified opinion on the Legal Expenses in the relevant AFS (see §29(3)(c)  below); and

(7)  The fact that the Accounting Records existed is confirmed by the selected bank vouchers and ledgers belatedly producedby D1-D2on 21 October 2021 (see §§33(1)(b), 35 below). 

B4.  3^rd Orders

22.  By letter dated 10 June 2020, KWM put on record D1-D2’s failure to comply with the 1^st and 2^nd Orders and the Undertaking.  This was followed by 2 summonses issued by Ps on 23 June 2020 to seek orders (1)  requiring D1-D2 to comply with the 2^nd Orders; (2)  dispensing with personal service of the 1^st and 2^nd Orders and the orders to be made on the summonses (collectively “Orders”); and (3)  for substituted service of the Orders on D1-D2 by serving the same on BCC.

23.  The summonses were heard on 16 July 2020 at which D1-D2’s solicitors (i.e. BCC)  were present.  D1-D2’s solicitors did not object to the orders sought in the summonses[18].  At the hearing, this Court indicated to BCC that this was the last opportunity given to D1-D2 to comply with the Orders and the Undertaking, and if they act in breach of the Orders and the Undertaking, the court would likely give leave to Ps to commence contempt proceedings against D1-D2 should they decide to bring such proceedings. The 3^rd Orders were made requiring D1-D2 to comply with the 2^nd Orders within 14 days of the service; dispensing with personal service of the Orders, and allowing substituted service of the Orders by serving the same on BCC.

24.  The 3^rd Orders were sealed on 27 July 2020 and served on BCC on the same day.  Due to intervening Summer vacation and by virtue of s.31 of the High Court Ordinance (Cap. 4), D1-D2 were required to comply with the 2^nd Orders by 10 September 2020.

B5.  2^nd Disclosure

25.  On 10 August 2020, BCC served the 4^th Affirmations of D2 made on behalf of D1-D2 (“Chan 4^th”)  in purported compliance with the 3^rd Orders.  In Chan 4^th, the following documents were produced (“2^nd Disclosure”):

(1)  162 pages of bank statements, which consist of (a)  HSBC statements for TIL from 30 April 2014 to March 2018; (b)  NCB statements for TICL from 1 April 2014 to March 2018; and (c)  BOC statements for TICL from 17 April 2014 to 31 November 2016;

(2)  A letter dated 30 July 2020 issued by Alphga (a consultant)  confirming a cyber security intrusion at FRL’s office on 22 August 2019 and FRL’s decision not to pay the ransom, which “led to substantial business losses, in operational data, transactions as well as financial impact”; and

(3)  BCC’s letters dated 7 August 2020 to Messrs. KCL & Partners[19] (“KCL”)  and Messrs. Chan Evans Chung & To[20] requesting for all relevant financial documents and statements in relation to HCA 1265/2015 and HCA 1382/2011.

26.  The 2^nd Disclosure clearly did not comply with the 3^rd Orders in that the bank statements are incomplete as page 2 of each of TICL’s bank statements and page 3 of each of TIL’s bank statements are missing.   Worse still:

(1)  No Accounting Records or supporting documents were produced in relation to the items listed in the Movements or the Directors’ Debts Issue;

(2)  No attempt was made by D1-D2 to identify which items listed in the Movements correspond to the transactions shown in the bank statements;

(3)  No Accounting Records were produced in respect of the Legal Expenses Issue.  The only document produced was the bill dated 24 March 2016 issued by C&L for HK$344,000[21], which fell far short of TICL’s legal expenses in the amount of HK$2,270,452 as stated in its AFS for the year ended 31 March 2015; and

(4)  Nor did D1-D2 produce any documents, be it Accounting Records or supporting documents, in respect of the FRL Debts Issue.

C.  CONTEMPT PROCEEDINGS

27.  Against the above background, Ps applied for and obtained leave to commence contempt proceedings against D1-D2 on 16 February 2021.  The OS were filed on 25 February 2021. 

28.  On 21 May 2021, D2’s affirmation was filed in HCMP 243/2021 (“D2’s 1^st”)  in opposition to the applications.  In this affirmation, D2 claims that:

(1)  He and D1 had asked Mr Lam Chi Man (“Lam”), a legal clerk at BCC, to handle all the court cases concerning TICL/TIL and D1-D2 including compliance with the 1^st Orders, the 2^nd Orders and the Undertaking.  Prior to his employment as a clerk at BCC, Lam was employed as a legal clerk at C&L, KCL, HWY and Messrs. Chan & Associates (“C&A”)[22]. 

(2)  Until the explanation provided by his current legal representatives, Messrs. Cheung & Yeung and Ms Wong, he did not know the severe consequence of a breach of court orders, and Lam never provided the Orders or mentioned the penal notices endorsed thereon to him[23]. 

(3)  He had sent messages via WhatsApp to Lam on 21-22 April 2021 saying that he and D1 were faced with contempt proceedings and were at risk of imprisonment notwithstanding Lam’s claim that all had been dealt with.  As Lam had possession of all the documents, he was asked to provide to D2 all the court documents in the Inspection Proceedings together with all correspondence within 7 days.  He sent another chaser message to Lam on 5 May 2021 . 

(4)  Most of the allegations made by Ps “involve misunderstanding” or are not true[24].  Reliance is placed on Chan 3^rd, Chan 4^th and the documents exhibited thereto. 

C1.  Belated attempt to comply with 3^rd Orders - 3^rd Disclosure

29.  In D2’s 1^st, he exhibited 121 pages of documents, all of which are correspondence from BCC or Messrs. Littlewoods (then solicitors for D1-D2)  (“Littlewoods”)  to the Auditors and former solicitors of D1-D2 and TICL/TIL, requesting them to produce the documents described in the 1^st Orders, and some replies received from them.  Amongst them, the following documents were produced for the first time (“3^rd Disclosure”):

(1)  KCL’s letter dated 30 March 2021 to BCC which contains 2 Tables listing out the costs and disbursements in relation to HCA 1265/2015 and HCA 1382/2011.

(2)  Letter dated 21 April 2021 from Littlewoods to the Auditors requesting them to produce all documents relating to the Directors’ Debt Issue.

(3)  Letter dated 29 April 2021 from the Auditors to Littlewoods enclosing the following appendices:

(a)  Appendix I: Details of movements in and breakdown of the amounts due to directors by TICL from 2015 to 2018 for which they do not retain any notes or other records;

(b)  Appendix II: Details of movements in and breakdown of the amounts due to directors by TIL from 2015 to 2018 for which they do not retain any notes or other records;

(c)  Appendix III: Details of TICL’s legal expenses of HK$2,270,452 for the year ended 31 March 2015 in respect of which they had not been able to obtain any information and explanation and therefore expressed qualified opinion;

(d)  Appendix IV: Details of breakdown of HK$441,468 owed by TICL to FRL as at 31 March 2015 for which they do not retain any internal notes or other records;

(e)  Appendix V: Details of breakdown of legal expenses of HK$600,00 incurred by TIL for the year ended 31 March 2015 for which they had not been able to obtain any information and explanation and therefore expressed qualified opinion;

(f)   Appendix VI: Supporting invoice for legal expense of HK$200,000 incurred by TIL for the year ended 31 March 2016; and

(g)  Appendix VII: Details of breakdown of HK$2,469,148 owed by FRL to TIL for which they do not retain any internal notes or records.

(4)  Letters dated 21 April 2021 from Littlewoods to C&A, C&L, BCC, WPCL, NLLC requesting them to provide “all solicitors’ bills, invoices, receipts, breakdown of work done and payment records of legal expenses” incurred by TICL/TIL from years 2014 to 2019 in HCA 1660/2006, HCA 2654/2007, HCMP 1322/2008, HCA 1382/2011, CACV 112/2012 and HCA 1265/2015 and any other records or documents listed in the schedules to the 1^st Orders. 

(5)  Follow up letters dated 27 April 2021 and 7 May 2021 from Littlewoods to the same firms, identifying the specific proceedings and reference numbers used by those firms, and in the case of WPCL, enclosing complete copies of the 1^st Orders.

(6)  Letter dated 6 May 2021 from C&L to Littlewoods stating that they have no instructions to act for D1-D2 and TICL/TIL as the relevant partner had moved to KCL.

(7)  Letter from WPCL dated 29 April 2021 enclosing a bill dated 28 March 2018 in relation to HCA 1660/2006, and a bill dated 15 March 2018 in relation to HCA 2654/2007 and CACV 112/2012 together with 2 receipts dated 22 January 2014 and 3 July 2015.

C2.  Belated compliance with Undertaking - Auditors’ letters of  June and September 2021

30.  At the call over hearing of the OS on 23 June 2021, D1-D2 produced 2 letters from the Auditors dated 18 and 22 June 2021 wherein the Auditors stated that:

(1)  they had received the documents for the proposed accounting adjustments to TICL’s AFS to reflect the legal costs paid by Ps to D1-D2 in HCA 2654/2007 (HK$980,601.40)  and in CACV 112/2012 (HK$481,199);

(2)  D1-D2 had written to Ps’ solicitors to seek clarification in respect of a discrepancy of HK$10,550 and they would make the accounting adjustments to TICL’s AFS for the years ended 31 March 2015 to 2020 upon receiving such clarification; and

(3)  In light of K&K’s reply dated 18 June 2021 on the discrepancy, the only adjustment made to TICL’s AFS would be the HK$980,601.40 received from Ps in respect of the costs in HCA 2654/2007.  As the legal fee for CACV 112/2012 had not been included in the amount due to directors in TICL’s AFS, no adjustment would be made for the payment made by Ps towards’ D1-D2’s legal costs. 

31.  In their letter dated 1 September 2021 to Messrs. Payne Clermont Velasco (D1-D2’s former solicitors)  (“PCV”), the Auditors stated that the AFS of TICL for 2015 to 2018 had been revised to reflect the HK$980,601 paid by Ps towards the legal costs of HCA 2654/2007.

C3.  Belated attempt to comply with 3^rd Orders - 4^th Disclosure

32.  On 21 October 2021, D1-D2 through PCV produced a Bundle A in respect of TICL (“Bundle A”)  and a Bundle B in respect of TIL (“Bundle B”)  in purported compliance with the 3^rd Orders and the Undertaking.  For the first time, the documents were enumerated in 2 Lists, each with an item number, description, date, reference to the 1^st Orders and page number.  It appears that many of the documents in Bundle A/B had already been produced in the past but no attempt was made to identify which documents were produced for the first time.

33.  Mr Tai submits (and Ms Wong does not dispute)  that in Bundle A/B, the only additional documents relevant to compliance with the 3^rd Orders are (“4^th Disclosure”):

(1)  TICL:

(a)  C&L’s Bill dated 26 July 2015 for HK$228,000 in respect of HCA 1265/2015 (Bundle A, Item #15).

(b)  Various accounting records pertaining to the Directors’ Debts Issue (Bundle A, Items #16-20).

(c)  10 invoices for storage charges issued by FRL to TICL from April 2014 to January 2015 (Bundle A, Item #23).

(2)  TIL:

(1)  Repayment records of HK$250,000 to D1-D2 namely, two cheques issued to D1-D2 and one cheque issued to HWY (Bundle B, Item #13).

(2)  Various invoices, receipts, deposit slips and payment records relevant to the FRL Debts (Bundle B, Items #16-18).

C4.  Belated attempt to comply with 3^rd Orders - 5^th Disclosure

34.  On 8 March 2022, D1-D2 caused Messrs. BEAS Company Secretarial Services Limited, TICL’s company secretary (“BEAS”), to provide further documents on the Legal Expenses Issue namely: (1)  2 invoices from WPCL dated 3 October 2013 and 11 January 2014 in relation to CACV 112/2012 and HCA 2654/2007; (2)  2 receipts from C&L dated 4 and 10 October 2013; and (3)  counsel’s fee notes to C&L dated 17 and 22 October 2013 (“5^th Disclosure”). 

35.  By another letter dated 10 March 2022, BEAS stated that the qualified opinion of the revised AFS was due to WPCL’s inability to provide all the requested documents to D1-D2 and the figures “were based on their best estimation and was not sufficient to meet the requirements of the [Auditors]”; and D1-D2 “searched for records on hand” and “discovered” the documents provided under their letter of 8 March 2022.   

D.  DISCUSSION

D1.  Applicable principles

36.  The principles are not in dispute.  As submitted by Mr Tai, in hearing an application for committal for civil contempt, the court will first construe the orders to ascertain their meaning and operation, then to determine whether the defendant has in fact complied with the orders as so construed, and finally to consider whether any failure to comply was accompanied by the state of mind necessary to establish punishable contempt (Kao, Lee & Yip v Koo Hoi Yan (2009)  12 HKCFAR 830, §21).

37.  As regards mental element in civil contempt:

(1)  It is not necessary to prove that the alleged contemnor’s act was contumacious, i.e. that there was direct intention to disobey the order.  It is sufficient to prove that the defendant’s conduct was intentional (i.e. not casual or accidental and unintentional disobedience of the order)  and that he knew of all the facts which made it a breach of the order.  It is not necessary to prove that the defendant appreciated that he did breach the order (Kao, Lee & Yip, §§43-46). 

(2)  It is immaterial that the breach was committed in reliance on a third party’s advice, even legal advice. Questions as to the bona fides of the persons who are in contempt, and their reasons, motives and understandings in doing the acts which constitute the contempt of court, may be highly relevant in mitigation of the contempt (Kao, Lee & Yip, §53).

(3)  It is not enough for a person who has breached a court order to say he did his best.  The intention and efforts of the contemnor, the delay of his ex-legal advisers and bona fide reliance on legal advice are only relevant to mitigation (Dr Q v Health Committee of Medical Council of Hong Kong (No. 2) [2014] 2 HKLRD 57, §§66-67).

38.  The following principles are also relevant:

(1)  There is an element of public policy in punishing civil contempt since the administration of justice would be undermined if the order of any court of law could be disregarded with impunity (Kao, Lee & Yip, §42).

(2)  Given the seriousness of a finding of contempt, the court must be satisfied beyond reasonable doubt before making such a finding (Kao, Lee & Yip, §30; Citybase Property Management Ltd v Kam Kyun Tak (No 1) [2003] 2 HKC 98, §§13, 16).

(3)  A motion for committal is a means of putting pressure on the contemnor to obey the order, but it is not this alone.  It is also a means of imposing any penalty thought proper in respect of the contempt that has already been committed (Re Grantham Wholesale Fruit, Vegetable and Potato Merchants Ltd [1972] 1 WLR 559, 565F).

D2.  Meaning of 3^rd Orders and Undertaking

39.  There is no dispute on the meaning or operation of the Orders and the Undertaking.  As stated in §§10 and 24 above, under the 3^rd Orders, D1-D2 were required to produce all the documents relating to the Legal Expenses Issue, the Directors’ Debts Issue and the FRL Debts Issue as described in the Schedules to the 1^st Orders by 10 September 2020. 

D3.  Breach of 3^rd Orders and Undertaking

40.  The burden is on Ps to prove beyond reasonable doubt that D1-D2 breached the 3^rd Orders and the Undertaking.   

41.  Ms Wong does not cross-examine Ps’ witnesses.  Nor does she make any submissions to contradict Ps’ contention that D1-D2 acted in breach of the 3^rd Orders and the Undertaking.  Nevertheless, as D1-D2 have in their affirmations filed in the contempt proceedings and under cross-examination denied that they acted in breach of the 3^rd Orders and the Undertaking, it is necessary to consider whether the evidence before the court is sufficient to prove beyond reasonable doubt that D1-D2 acted in breach of the 3^rd Orders and the Undertaking.   

42.  It is not in dispute that D1-D2 made no attempt to comply with the 1^st Orders by 5 February 2020 or to comply with the 2^nd Orders and the Undertaking by 29 May 2020 (see §§12-18 above).

43.  It was only until Chan 3^rd filed on 5 June 2020 that D1-D2 purported to comply with the 1^st and 2^nd Orders by making the 1^st Disclosure and explaining the whereabouts of some of the documents required to be produced (see §§19-20 above).  The 1^st Disclosure was clearly not in compliance with the 1^st and 2^nd Orders and the Undertaking for the reasons stated in §21 above. 

44.  The 2^nd Disclosure (in Chan 4^th)  was made in purported compliance with the 3^rd Orders.  However, for the reasons stated in §26 above, I consider that the 1^st and 2^nd Disclosures taken together were still not in compliance with the 3^rd Orders. 

45.  D1-D2’s failure to comply with the 3^rd Orders is reinforced by the following facts:

(1)  It was only until May 2021, October 2021 and March 2022 that they made the 3^rd Disclosure, the 4^th Disclosure and the 5^th Disclosure respectively (see sections C1, C3-C4 above)  in purported compliance with the 3^rd Orders; and

(2)  Under cross-examination, both D1 and D2 admit that the Accounting Records of TICL/TIL, including the selected journals, vouchers and supporting documents produced under the 4^th Disclosure, have been kept in TICL/TIL’s storage in Kwun Tong and Yuen Long. D2 further confirms that the Accounting Records are physical records (as distinguished from the electronic records kept in FRL’s computer which had been hacked)  and could have been produced to Ps back in 2020. 

46.  As regards the Undertaking, the following undisputed evidence is sufficient to prove beyond reasonable doubt that D1-D2 acted in breach of the Undertaking:

(1)  It was only until 23 June 2021 that D1-D2 produced the Auditors’ letters dealing with the accounting adjustments to TICL’s AFS to reflect the costs paid by Ps in respect of HCA 2654/2007.  I am prepared to assume in favour of D1-D2 that by the time these letters were issued, D1-D2 had given instruction to the Auditors to make the accounting adjustments as required by the Undertaking (see §30 above);

(2)  The actual adjustments to TICL’s AFS were only made by 1 September 2021, which was more than 13 months after the 3^rd Orders extending the time for D1-D2 to comply with the Undertaking had been made (see §31 above); and

(3)  Under cross-examination, D2 accepts that the Undertaking was breached. 

47.  I note that in D2’s 1^st he tries to put the blame on Lam who, he asserts, had been entrusted with the responsibility of complying with the Orders and the Undertaking but failed to do so[25].  The assertion does not assist D1-D2.  As Mr Tai submits, where a defendant appointed an agent to comply with the relevant court order, the actions and knowledge of the agent may be attributed to the defendant.  The principle is stated in China Metal Recycling (Holdings)  Ltd (in liq)  v Chun Hei Man, HCMP 3396/2015, 18 November 2016,§57(7), per B Chu J (citing Hone v Page [1980] FSR 500, per Slade J)  as follows:

“To the extent a defendant has appointed an agent to comply with the relevant court order, the agent’s actions and knowledge may be attributed to the defendant, and the defendant may be found to be in civil contempt on the basis of vicarious liability; the principal is guilty of contempt if (a)  the person who did the acts which constituted the contempt was her servant or agent; (b)  the acts were done in the course of that person’s employment or agency; and (c)  she either authorized the acts or could reasonably have foreseen the possibility of such acts and failed to take all reasonable steps to prevent the acts; in particular, it does not suffice for the principal to merely give orders and then wash her hands of the matter and disclaim any further responsibility; the principal must take all reasonable steps to see that her orders are obeyed”

48.  Applying the above principle, even assuming D2’s assertion were true, it would not change the fact that D1-D2 acted in breach of the 3^rd Orders and the Undertaking, given that on their own case:

(1)  Lam was their agent appointed to comply with the Orders and the Undertaking;

(2)  Lam failed to obtain and provide the relevant documents to Ps as required by the 3^rd Orders, and failed to provide the relevant documents to the Auditors to make the accounting adjustments as required by the Undertaking; and

(3)  D2 did not take any reasonable steps to ensure that the Orders and the Undertaking were complied with, and acted in breach of the Orders, which D2 admits under cross-examination. 

49.  Under cross-examination, D1 claims that he was not aware of and did not authorise his legal representatives to give the Undertaking, nor did he authorise D2 or Lam to handle compliance with the Orders or the Undertaking.  However:

(1)  In §8 of his affirmation filed in opposition to the contempt proceedings, D1 says that D2 once mentioned to him that Ps had requested D1-D2 to produce some documents and D2 asked Lam to handle the same.

(2)  In response to the questions asked by this Court, D1 admits that he had asked D2 to deal with all legal matters on his behalf.  This is a tacit acceptance that D1 appointed D2 as his agent to deal with all matters concerning the Inspection Proceedings including compliance with the 3^rd Orders and the Undertaking.

(3)  Similarly, in response to the questions asked by this Court, D2 confirms that he had been authorised by D1 to handle all matters relating to the litigations on his behalf, and all the  affirmations filed in the Inspection Proceedings (including Chan 3^rd and Chan 4^th)  were made on behalf of himself and D1. 

(4)  During re-examination, D1 says that before the Undertaking was given to the court, his solicitors had mentioned the Undertaking to him or D2, and D2 said that he would handle the matter.  D1 also confirms that he knew about the Undertaking at the early stage when Lam said to him that he would handle the matter.  His evidence reinforces the fact that he appointed D2 and Lam as his agents to comply with the Undertaking.

50.  For the reasons set out in §§41-49 above, I find that Ps have proved beyond reasonable doubt that D1-D2 acted in breach of the 3^rd Orders and the Undertaking. 

D4.  Service of the Orders  

51.  In her written Closing, Ms Wong submits that despite the 3^rd Orders allowing Ps to serve the Orders on D1-D2 by way of substituted service, it is necessary to show that D1-D2 were “actually aware of the orders before they could be found in contempt” (Jeanny Helena Franslay v Fung Ariel Mei Shan [2021] HKCFI 258, §35, per Godfrey Lam J (as he then was)  [26]. 

52.  If Ms Wong’s complaint is that the 1^st and 2^nd Orders were served on  D1-D2 by way of substituted service, it is wholly devoid of merit given that (1)  D1-D2 consented to Ps’ application for leave to serve the Orders on them by way of substituted service (see §23 above); and (2)  the Orders were admittedly provided by BCC to D1-D2 after BCC had received the same from KWM (see §56(5)  below).

D5.  D2’s Knowledge point

53.  Ms Wong (rightly)  does not dispute that D2 was aware of the Orders and the Undertaking.  She contends that D2 was not made aware of the severe consequence of a breach of the Orders/Undertaking and the risk that he might be committed to prison (see §6(2)  above).  It seems to me that the alleged lack of knowledge of the consequence of a breach, even if established (which is not the case), is only relevant to mitigation if D2 is found to be in contempt. 

54.  In any event, as submitted by Mr Tai, a defendant’s lack of knowledge of the consequence of a breach cannot be an answer where a person deliberately chose or was careless in failing to make himself acquainted with the terms of the order.  As stated by Kay J in Re Witten, (an infant) (1887)  4 TLR 36, at 39 (applied in Sino Wood Investment Ltd v Wong Kam Yin (No. 2) [2004] 2 HKLRD 324, §27):

“[I cannot] for one moment accept the excuse the father had made that he had not seen the order, and had therefore disobeyed innocently. If a man did not choose to see the terms of an order which had been made against him, and chose to act without seeing the terms of the order, he must take the consequences. Carelessness in failing to make himself acquainted with the terms of the order was as gross a contempt as if he had disobeyed the order.”

55.  So far as breach of Undertaking is concerned, there is overwhelming evidence to prove that D2’s breach was intentional and that he knew of all the facts which made it a breach of the Undertaking in that:

(1)  The Undertaking was something which D2 said he and D1 would endeavour to do in §14 of his 2^nd affirmation filed in the Inspection Proceedings on 24 December 2019;

(2)  The Undertaking was repeatedly described in D1-D2’s former solicitors’ correspondence as having been given by “their clients” (i.e. D1-D2)  including the letters dated 21 April 2020 and 31 December 2020;

(3)  When asked by this Court during his oral evidence, D2 admits that the Undertaking was given to the court after his solicitors had obtained instructions from him to do so;

(4)  D2 also admits under cross-examination that by January 2020, he knew that accounting adjustments had to be made to TICL’s AFS as required by the Undertaking;

(5)  D2 further admits under cross-examination that he knew that by December 2020, no accounting adjustments had been made to TICL’s AFS to reflect the legal costs paid by Ps, and he did not take any step to ensure that the accounting adjustments would be made other than leaving the entire matter to Lam.  Even after  D1-D2’s former solicitors had made known to him Ps’ repeated complaints on breach of the Undertaking, the only act taken by D2 was to ask Lam to comply with the Undertaking; and

(6)  D2 further admits under cross-examination that he knew that even after commencement of the contempt proceedings, no accounting adjustments as required by the Undertaking had been made to TICL’s AFS.  He accepts that he did not take all reasonable steps to ensure that the Undertaking was complied with and he acted in breach of the Undertaking.

56.  As for breach of the 3^rd Orders, by reason of the facts stated in §45 above and the following facts, I find that Ps have proved beyond reasonable doubt that D2’s breach was intentional and that he knew of all the facts which made it a breach of the 3^rd Orders:

(1)  In Chan 3^rd filed in purported compliance with the 2^nd Orders, D2 himself described the Inspection Proceedings and the 1^st Orders made by the court;

(2)  D2 must have been told by his former solicitors about Ps’ complaints on D1-D2’s breach of the 1^st and 2^nd Orders and their applications for further orders from the court.  In §41 of D2’s 1^st, he said that D1 and he consented to Ps’ application to dispense with personal service of the court documents, which was one of the relief sought in the summonses leading to the 3^rd Orders;

(3)  D2 must also have been told by BCC that if they act in breach of the 3^rd Orders and the Undertaking, the court would likely give leave to Ps to commence contempt proceedings against them as there was no reason for BCC to withhold such important matter from D1-D2 (see §23 above);

(4)  The fact that D1-D2 made the 3^rd, 4^th and 5^th Disclosures in purported compliance with the 3^rd Orders.  In making these belated disclosures, D2 never suggest that he was not aware of the fact that he and D1 had breached the 3^rd Orders or that the breach was unintentional; and

(5)  D2 admits under cross-examination that (a)  BCC did provide the 3^rd Orders to him after the same had been served by KWM on 27 July 2020; (b)  he knew that the 3^rd Orders required him and D1 to produce the documents within 14 days of service of the 3^rd Orders; (c)  he did not use all efforts to try to understand or to comply with the 3^rd Orders; and (d)  the Accounting Records have always been kept in TICL/TIL’s storage in Kwun Tong and Yuen Long and the same could have been disclosed to Ps back in 2020, but he did not take step to ensure that such Records were disclosed to Ps. 

57.  For the same reasons stated in §§53-56 above, there is no merit in D2’s Knowledge point. 

D6.  D1’s Knowledge point

58.  Although in his affirmations filed in opposition to the contempt proceedings and during cross-examination, D1 denies having any knowledge of the Undertaking and the Orders or the breach thereof, as stated in §49 above, in answer to the questions asked by this Court and during his re-examination, D1 admits that (1)  he had authorised D2 to deal with all legal matters on his behalf including compliance with the 3^rd Orders; (2)  the Undertaking and D2’s affirmations were made on behalf of himself and D2; and (3)  he had been told about the Undertaking before the same was given to the court, and he appointed D2 and Lam as his agents to comply with the Undertaking. 

59.  As D1 has appointed D2 as his agent in dealing with all matters concerning the compliance with the 3^rd Orders and the Undertaking, the knowledge of D2 (as described in section D5 above)  should be attributed to D1.  It follows that Ps have discharged the burden of proving that D1 had the necessary mental element for civil contempt, and D1’s Knowledge point must be rejected. 

60.  In any event, it is no answer for D1 to assert that he had no knowledge of the terms of the Orders or of the Undertaking as it was his own decision not to see the terms of the Orders and to ignore them.  Having acted in this way, D1 must take the consequence of the breach. 

D7.  Penal Notices point

61.  Ms Wong submits that the penal notices were defective as they had not been prominently displayed on the Orders.  Reliance is placed on[27]:

(1)  Hong Kong Civil Procedure 2022, §45/7/6 where the learned editor stated that “It is a necessary condition for the enforcement of a judgment or order under r.5 by way of sequestration or committal, that the copy of the judgment or order served under this rule should have the requisite penal notice prominently indorsed thereon.”

(2)  Re DAD [2015] EWHC 2655 (Fam), §§16-17, where the court struck out an application to commit Mr Chaudhry[28] for contempt of court on the ground that the Collection Order alleged to have been breached was defective in that there was no penal notice prominently displayed on the front of the Order, as required by rule 37.9 of the Family Procedure Rules 2010.    

62.  The argument is wholly without merit. 

63.  First, the requirement of penal notice under Order 45 rule 7(4)  of the Rules of the High Court has been complied with as each of the Orders was endorsed with penal notice on the first page, right next to the seal of the court.  In the case of the 3^rd Orders, the penal notice was even more prominent as it contained 3 paragraphs addressed to TICL, TIL and D1-D2. 

64.  Second, Re DAD is a very different case and does not assist D1-D2.  In that case:

(1)  The committal application was brought by the mother of the child under rule 37.4 of the Family Procedure Rules 2010, which provides that “a judgment or order to do or not to do an act may not be enforced under rule 37.4[29] unless there is prominently displayed, on the front of the copy of the judgment order served in accordance with the Chapter, a warning to the person required to do or not do the act in question that disobedience to the order would be a contempt of court punishable by imprisonment, a fine or sequestration of assets”. 

(2)  There was no penal notice at all on the first 4 pages of the Collection Order, and the penal notice only appeared on page 5 paragraph 2 under the heading “Liability to be committed to prison”. 

(3)  It was held that a failure to comply with the express requirements of rule 37.9 means that the court could not enforce the Collection Order by committal unless the court waives such procedural defect upon being satisfied that “no injustice has been caused to the respondent by the defect”[30].

(4)  On the fact, the court held that a great deal of injustice was caused to Mr Chaudhry as the penal notice was neither “prominently displayed” nor “on the front of the copy of the … order”. 

65.  In the present case, there is no requirement for penal notice to be prominently displayed or on the front of the copy of the Orders.  In any event, there were penal notices on the first page of each of the Orders.  If D1-D2 chose not to read or to understand their contents, they must take the consequence of their own decision. 

E.  CONCLUSION

66.  By reason of the foregoing, I find that D1-D2 are guilty of having committed a civil contempt. 

67.  The parties agree that if this Court finds that D1-D2 are guilty of contempt, there will be a further hearing at which submissions on sentencing will be made by the parties.  For this purpose, I give liberty to the parties to fix a hearing on sentencing with 3 hours reserved. 

68.  As for costs, I make a costs order nisi that D1-D2 do pay the costs of and occasioned by the applications for committal and the costs of these contempt proceedings on an indemnity basis, to be taxed if not agreed.  It is appropriate to order indemnity costs to reflect the disapproval by the court of the flouting of its order by the contemnor (Koo Hoi Yan v Kao, Lee & Yip (2009) 12 HKCFAR 904, §12).