LA DOLCE VITA FINE DINING CO LTD v. ZHANG LAN

HCMP 585/2017

[2018] HKCFI 548

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 585 OF 2017

____________

_____________

_____________

AND

HCMP 586/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 586 OF 2017

_____________

_____________

_____________

(Heard Together)

____________________

J U D G M E N T

____________________

Background

1.  There is an underlying dispute between the parties concerning the acquisition by the Plaintiffs of the majority shareholding interests in South Beauty Investment Company Limited (“Company”), which holds the South Beauty chain of restaurants on the Mainland (“South Beauty”), from the founder of the chain, Madam Zhang Lan (“Zhang”) and 2 companies owned and controlled by her, namely, Grand Lan Holdings Group (BVI) Limited (“Founder Holdco”) and South Beauty Development Limited (“Management Holdco”), for the consideration of US$286,815,887 (“Acquisition”).  The Plaintiff in HCMP 474/2015 and corresponding HCMP 585/2017 (La Dolce Vita Fine Dining Company Limited), has been referred to as “Buyer”, and the Plaintiff in HCMP 473/2015 and corresponding HCMP 586/2017 (La Dolce Vita Fine Dining Group Holdings Limited) has been referred to as “Investor” in the Acquisition. The South Beauty chain of restaurants was at one time one of the most renowned high-end Chinese restaurant chains on the Mainland.  Under the Acquisition, as completed in December 2013, the Investor acquired and held 82.7% of the shares in La Dolce Vita Fine Dining Holdings Ltd (“Equityco”), Zhang through Founder Holdco held 13.8% in Equityco, and the remaining 3.5% was held by a nominee (allegedly intended for the management of the South Beauty group of companies).

2.  On 26 February 2015, the Plaintiffs obtained from the Hong Kong Court, on ex parte basis, an injunction against Zhang (“Injunction”), in aid of a CIETAC arbitration to be commenced by the Plaintiffs against Zhang on the Mainland, in respect of the underlying dispute concerning the Acquisition.  The Injunction restrains Zhang from: (1) removing from Hong Kong any assets which are in Hong Kong, whether in her own name or not, and whether solely or jointly owned, up to the value of US$51,784,209; and (2) in any way disposing of or dealing with or diminishing the value of any of her assets, whether within or outside Hong Kong, whether in her own name or not, and whether solely or jointly owned up to the value of US $51,784,209.  The Injunction expressly states that the prohibition includes in particular (but is not limited to) deposits in Zhang’s bank account with Bank J Safra Sarasin Ltd (“Sarasin”) (Hong Kong Branch account number 860-8807), and further states that Zhang’s assets include any assets which she has power, directly or indirectly, to dispose of or deal with as if it were her own. 

3.  The order made by the Court on 26 February 2015 (“Order”) includes an order which requires Zhang to inform the Plaintiffs in writing of all her assets of an individual value of HK$500,000 or more, whether in or outside Hong Kong, whether in her own name or not and whether solely or jointly owned, giving the value, location and details of all such assets. 

4.  The Plaintiffs seek reliance on the paragraph of the Order (under the sub-heading “Service Out of the Jurisdiction and Substituted Service”), which states that the Plaintiffs “may issue the Concurrent Originating Summons and serve it on (Zhang) by courier at the addresses set out in the draft Originating Summons produced to the court together with this Order as soon as practicable”.  The address set out for Zhang in the draft Originating Summons was at 16^th floor, Tower 1 of an address in Chaoyang District in Beijing.  That was the address to which the Order and the Concurrent Originating Summons were sent by courier on 2 March 2015.  A Penal Notice was endorsed on page 1 of the Order so sent.

5.  On 6 March 2015 (“Return Date”), Zhang was represented by Counsel, and the Order including the Injunction was continued by the Court, save that the time for Zhang’s disclosure of assets was extended to 13 March 2016, and the time for her to confirm the information on disclosure by affidavit was ordered to be served no later than 16 March 2015.

6.  On 13 March 2015, Zhang served her affidavit for disclosure of her assets pursuant to the Order (“Zhang 1”).  These disclosed assets included her shareholding in Founder Holdco and other companies, a deposit of US$1,218,000 with Sarasin, 2 motor vehicles, and various properties in Beijing.

7.  On 14 March 2017, the Plaintiffs obtained leave to commence committal proceedings against Zhang, claiming that Zhang:

(1)   was in breach of the Injunction and the Order, in that she had disposed of and dealt with assets which fall within the scope of the Injunction;

(2)   had failed to disclose all the assets owned and controlled by her, which fall within the ambit of the Order;

(3)   knowingly made false statements in her affirmations filed in HCMP 473/2015 and HCMP 474/2015, in that she denied having any interest in Success Elegant Trading Ltd (“SETL”), a corporate vehicle which owned substantial assets, or any of the assets of SETL; and

(4)   knowingly made false statements in her affirmations in attempting (but failing) to discharge the Order, as to the extent of her knowledge of the financing facilities that the Plaintiffs had put in place to fund the Acquisition, and in particular a Share Mortgage over the relevant shares in the Buyer held by Equityco (“Share Mortgage”).

8.  The hearing of the application for committal of Zhang took place on 17 January 2018.  In defence or opposition to the Plaintiffs’ application for committal, Zhang filed her affirmation made on 25 October 2017 (which, chronologically, is referred to as “Zhang 6”).  After Zhang 1, she had made 5 other affirmations in HCMP 473/2015 and 474/2015.

Issues for determination

9.  On the basis of the Statement filed by the Plaintiffs in the committal proceedings, and the affirmation of Cosimo Borrelli (“Borrelli”) filed in support made on 29 March 2017 (“CB2”), the issues in dispute for determination in the committal proceedings have been summarized to be:

(1)   whether the Order had been properly served on Zhang;

(2)   whether Zhang had a beneficial interest in SETL which she failed to disclose under the Order;

(3)   whether Zhang had dissipated assets through accounts held in the name of SETL, after having received notice of the terms of the Injunction;

(4)   whether Zhang had failed to disclose other assets which she owned; and

(5)   whether Zhang had made false statements in her affirmations.

Applicable legal principles

10.  The legal principles applicable to committal for contempt are largely not in dispute.  In hearing a committal for civil contempt, the Court adopts a 3 stage test:

(1)   construe the relevant court order to ascertain its meaning and operation;

(2)   determine whether the respondent has in fact complied with the order as so construed; and

(3)   finally consider whether any failure to comply was accompanied by a state of mind necessary to establish punishable contempt.

See Hong Kong Civil Procedure 2018 para 52/1/16, Kao Lee & Yip v Donald Koo Hoi Yan (2009) 12 HKCFAR 830 at para 21.

11.  Contempt proceedings are quasi-criminal in character because the liberty of the accused contemnor is at stake.  The burden is on the applicant to prove his case beyond reasonable doubt: Kao Lee & Yip v Donald Koo Hoi Yan, at paras 6 and 30.  In order to establish the requisite state of mind, it is not necessary to prove that the alleged contemnor’s conduct was contumacious, ie that he directly intended to disobey the order.  It is sufficient to prove that the act constituting breach was made intentionally, not casually or accidentally (Kao Lee & Yip v Donald Koo Hoi Yan, at paras 45-46).

12.  Contempt proceedings involve “determination of a criminal charge” for the purposes of the Bill of Rights.  However, that does not alter the fact that contempt proceedings, even criminal contempt, are civil in procedural character.  Affidavit evidence and hearsay evidence are admissible (Numeric City Ltd v Lau Chi Wing [2016] 4 HKLRD 812).

13.  The defendant has the right to remain silent and does not have to prove anything.  Strict proof of guilt is required.  There is no persuasive burden on the defendant to prove anything.  If there is a hypothesis which might reasonably be consistent with the defendant’s innocence, then he is entitled to be acquitted.  (Concorde Construction Co Ltd v Colgan Co Ltd (No 2) [1984] HKC 253, Kao Lee & Yip v Donald Koo Hoi Yan).

Service of the Order on Zhang

14.  Under Order 45 rule 7(2) and rule 5 (1) (iii), an order may not be enforced by way of committal unless it has been personally served on the defendant.  As recognized by Order 45 rule 7 (7), rules 5 and 7 are subject to Order 65 rule 4, and the power of the Court to order substituted service in the case of any document which by virtue of any provision of the rules is required to be served personally.

15.  Further, the Court has power under Order 45 rule 7(7) itself to dispense with service of a copy of an order “if it thinks it just to do so”.

16.  On 2 March 2015, the Order was sent by courier to Zhang’s address in Beijing as stated in the Originating Summons.  There is no dispute that the Order was not personally served on Zhang, but the Plaintiffs rely on the fact that they had obtained leave under the Order to effect substituted service of the Order on Zhang.

17.  On behalf of Zhang, Mr Yu SC argued that the Order only allowed substituted service of the Concurrent Originating Summons, which service was ordered to be made together with the Order, since the Originating Summons only refers, by way of the relief sought, to “orders in terms of the order attached to this concurrent originating summons”.  Without service of the Order to be attached to the Concurrent Originating Summons, it would not be apparent to any party served what relief or orders the Plaintiffs seek in the underlying proceedings.  According to Mr Yu, there was no separate order for substituted service of the Order.

18.  An order is to be objectively construed.  On its terms, I am satisfied that objectively considered, the Order provided for service of the Order itself, at the address set out in the draft Originating Summons produced to the Court.

19.  Whether the service, and the Order for substituted service, of the Concurrent Originating Summons can be set aside, for permitting service of the Originating Summons on the Mainland (Deutsche Bank AG Hong Kong Branch v Zhang Hong Li CACV 277/2015), outside Hong Kong, in breach of the provisions of Order 11 rule 5A, is a separate matter which was never pursued by Zhang.  Zhang had chosen instead to appear in Court through her lawyers on the Return Date, consented to the continuation of the Order, filed evidence in HCMP 473 and 474/2015, and later applied to discharge the Order on grounds other than the invalid service of the Concurrent Originating Summons, and then withdrew the application for discharge.  Nor is there any application for setting aside the Plaintiffs’ service of the Order on Zhang in Beijing, by courier, whether for not being in compliance with the law for service on the Mainland, or any other ground.

20.  The issue which is more pertinent to the present committal proceedings is whether the Order including the Injunction can be enforced by an order of committal against Zhang, if she had not been personally served with the copy of the Order, and if the order for substituted service is invalid.  On behalf of the Plaintiffs, Ms Chan SC argued that the Order had been effectively served by substituted service, but that in any event, personal service is not required for the Injunction, which is the prohibitory part of the Order.  She relies on Order 45 rule 7(6), which provides that an order requiring a person to abstain from doing an act may be enforced under rule 5, notwithstanding that service has not been effected in accordance with rule 7, if the Court is satisfied that, pending such service, the person against whom it is sought to enforce the order “has had notice thereof”, by being present when the order was made (which is not applicable on the facts of this case), or “by being notified of the terms of the order, whether by telephone, telegram or otherwise” (rule 7 (6) (b)). 

21.  On the evidence filed in this case, a copy of the Order was couriered by express delivery to Zhang’s office on 2 March 2015, and delivery was acknowledged at 11:42 am by a person whom Zhang claims in her evidence was the receptionist.  The Order contained a penal notice on the 1^st page of the document.  Ms Chan emphasized that the copy of the Order couriered to Zhang bears on its face (apart from and in addition to the back sheet of the Order) a reference to the name and address of the Plaintiffs’ solicitors, with the expressed reference number of “CDH/RCCS/LLX” (“CC Reference”).  On 3 March 2015 (a Tuesday), Zhang had a meeting (“3 March Meeting”) with Roy Kuan (“Kuan”) of CVC Asia Pacific Limited (“CVC”), during which their conversation was recorded.  During the 3 March Meeting, Zhang referred to her global assets having been frozen, and to her instructing international lawyers before the deadline of Friday, (6 March 2015, Friday, being the Return Date specified in the Order).  On 4 March 2015, Messrs Reed Smith Richards Butler (“RB”) wrote to the Plaintiffs’ solicitors in Hong Kong (“CC”), on behalf of Zhang (“RB 4 March Letter”).  In the RB 4 March Letter, RB stated that they acted for Zhang, Founder Holdco and Management Holdco, that they understood CC to act for the Plaintiffs and that the Plaintiffs had obtained ex parte Mareva injunction orders from the Hong Kong Court against Zhang, Founder Holdco and Management Holdco.  RB asked for copies of the injunction orders, the affidavit evidence filed in support and the written submissions to the Court in support of the ex parte application, and reserved their clients’ position.  Ms Chan emphasized that the RB 4 March Letter cited the CC Reference.

22.  RB and Counsel appeared for Zhang at the hearing on the Return Date, when the Order was continued, with an extension of time to comply with the disclosure part of the Order.  Zhang 1 was filed in compliance with the disclosure order on 13 March 2015.  Zhang applied to discharge the Injunction on 20 May 2015.

23.  In Zhang 6, Zhang claimed that the time of acknowledgment of receipt of the Order by the receptionist, after it was sent by courier to the business address of South Beauty, was not the time when the Order came to her knowledge. She claimed that she received many letters every day and could not remember whether she had seen the Order in early March 2015.  She claimed that she did not understand English, and that even if the Order which was in English was received on 2 March 2015, “it was impossible” for her to have paid any attention to it.  According to Zhang, the first time her solicitors explained to her the effect of the Order was on or about 13 March 2015, when she went to Hong Kong to instruct her solicitors to prepare her affirmation to disclose her assets. 

24.  These remain bare, untested, assertions of Zhang, who did not attend court to be cross-examined on her affirmations which she filed and relied upon in opposition to the committal proceedings.  According to the Order made by the Court on 11 October 2017, all deponents of affidavits and affirmations filed (including Zhang, should she elect to rely on any affirmation) are to attend the trial of the committal proceedings for the purpose of being cross-examined, and that failing this, the weight of their affidavit/affirmation will be decided by the Court.  I have taken into account, but bear little weight to her allegations of lack of knowledge, notice or understanding of the Order, unless they are supported by contemporaneous documents or other evidence produced and relied upon for the committal proceedings.

25.  According to the transcript of the recording made at the 3 March Meeting, Kuan had referred at his meeting with Zhang that day to the gist of the complaints made by the Plaintiffs concerning the Acquisition, the negative business performance of South Beauty, some of the facts which had formed the basis of the Plaintiffs’ application for the Injunction and the Order, and the Plaintiffs’ stance that they had overpaid for South Beauty.  In the course of the 3 March Meeting, Zhang referred to the Plaintiffs “freezing” her global assets, to their having frozen her “global assets” of over US$ 10 million, and that “the court has judged”.  She referred on several occasions during the meeting to the Plaintiffs having gone to court and taken legal proceedings, and to her assets having been frozen.  Zhang also referred to her lawyers coming to the office.

26.  After Zhang’s references to her “global assets” having been frozen and the Plaintiffs having gone to court, Kuan then asked Zhang if she had the chance to read the court judgment and the papers, to which Zhang responded:

“Zhang: I do not understand them.

Kuan: Did you give them to your lawyers?

Zhang: No, because I have not officially engaged these international firms. I’m just contacting a few of them, but have not officially.

Kuan: Maybe we should meet again after you read it, and after the lawyer has read it.

Zhang: This time I won’t engage the domestic ones… If, this time, GM Kuan, you take this step, I do not have any opinion.  I feel I will also engage the best international law firm in the world.  I feel I will also accept the lawyers’ suggestions…”

27.  Zhang also referred at the 3 March Meeting to her going to meet a lawyer who had flown to Beijing, that she had to reply “this Friday”, that she had to engage the lawyer, and that the lawyers she had hired were “currently very well-known ones in the world”.  She further corrected her earlier reference to a deadline being 5 March to “Friday” (ie 6 March instead), and in that context, indicated that her lawyers would be flying “here” (to Beijing), saying that they had to start immediately, and when they came, there would be a series of actions.  When Kuan asked Zhang which lawyers she had hired, Zhang said that they were from the US, that they were global, and that she had hired two (lawyers, or firms).

28.  Having considered the transcript of the conversation between Zhang and Kuan on 3 March 2015, there is no reasonable doubt at all that by the time of the 3 March Meeting, Zhang had known that the Court in Hong Kong had made the Order, and that the terms of the Order had the effect of “freezing” her global assets.  The reference to Friday or 6 March can only be the reference made in the Order to the Return Date.

29.  The whole tenor of Zhang’s conversation with Kuan at the 3 March Meeting is that she was clearly aware that the Plaintiffs had started legal proceedings against her in relation to the South Beauty restaurants, and that the Injunction had been made, with the effect that she could not move or deal with her assets globally as they had been “frozen”, ie in layman’s terms, cannot be touched.

30.  Zhang’s statements at the 3 March Meeting, that she had been in contact with international lawyers, and that the lawyers were flying to Beijing to start work immediately, coupled with RB writing to CC on 4 March 2015, citing the CC Reference indicated in the Order, lead me to the inevitable conclusion that Zhang had been in contact with RB by 3 March 2015.  It is true that during the 3 March Meeting, Zhang had stated to Kuan, at one stage, that she had not yet given the court papers to her lawyers, as she had not “officially” engaged them, but she did say that she had contacted a few lawyers already, and subsequently, contradicted her earlier statement by saying that she had hired the “very well-known” international lawyers, and that her lawyers were flying to Beijing as they had to start work immediately, for the “deadline” of the Return Date. 

31.  Having read the entire transcript of the recorded conversation, I consider that Zhang’s initial references to her not having communicated with the lawyers, and not having discussed anything with the lawyers, were in the context of her indicating her willingness to compensate the Plaintiffs for their complaints about the lack of performance of the South Beauty restaurants and the discrepancies in the accounts.  The point she made was that although she had not yet discussed compensation or possible solutions with her lawyers, she was prepared to consider such compensation, as she emphasized that she was prepared to bear responsibility, although she was surprised to hear of Kuan’s complaints that the Plaintiffs considered that they had overpaid for the Acquisition.

32.  On the evidence, I am satisfied beyond reasonable doubt that on 3 March 2015, Zhang had notice that the Injunction had been issued, and that she had notice of the terms of the Order.  Zhang had not, in any of her affirmations, made any mention of how she came to know, on 3 March 2015, that her “global assets” had been frozen, if she had not received the copy of the Order on 2 March 2015, or prior to the meeting with Kuan on 3 March 2015.  It can only be due to the fact that she had in fact received a copy of the Order which was sent by courier to her.

33.  Since I am satisfied that Zhang had knowledge of the making and terms of the Order, and had been in contact with a firm of international lawyers by 3 March 2015 in connection with the Order in the context of what she regarded as a deadline falling on 6 March 2015, it is inconceivable that lawyers would not have explained to Zhang the effect of non-compliance with an injunction which had the effect of “freezing” her assets.  It is clear from the RB 4 March Letter that RB already knew then that the Plaintiffs had obtained injunction orders from the Court against Zhang.  Being experienced litigation lawyers, it is doubtful to the extreme that RB would not have advised Zhang of the effect of a Mareva injunction - that Zhang might be held to be in contempt of court, and liable to imprisonment or be fined, if she disobeyed or should act in breach of the injunction.  I am accordingly satisfied, beyond reasonable doubt, that Zhang had been advised before 10:57 am on 4 March 2015 (the time of dispatch of the RB 4 March Letter) of the consequences of breaching the Injunction.

34.  It follows from my findings above that notwithstanding that the Order had not been personally served on Zhang, the Injunction can be enforced under Order 45 rule 5, by an order of committal.  This is relevant to the 1^st complaint (or charge) against Zhang, that she was in breach of the Injunction in that she had, on 3 and 4 March 2015, disposed of and dealt with assets which fall within the scope of the Injunction.

35.  With regard to the mandatory part of the Order requiring disclosure, although Order 45 rule 7 (6) does not apply, the Court may dispense with service of the Order if it thinks it just to do so under Order 45 rule 7 (7).  Further, the Courts have emphasised in Dr Q v Health Committee of Medical Council of Hong Kong [2014] 2 HKLRD 57 and LPK v HSH [2012] 2 HKLRD that in cases where the order alleged to have been breached is either not endorsed with the penal notice, or the alleged contemnor is not aware of the consequences of a breach of order, the Court can still make a finding of contempt and make appropriate orders in enforcement, as well as to award indemnity costs, refraining only from imposing any punishment.  The distinction was made between the Court’s ability to make a finding of contempt, and its ability to punish so as to enforce the order (see Hong Kong Civil Procedure 2018, para 52/2/9, p1060).  This is relevant to the consideration of the 2^nd complaint (or charge) against Zhang, that she had failed to disclose all the assets owned and controlled by her.

SETL and disposal of assets held in the name of SETL

36.  Whether Zhang can be found to have acted in breach of the Injunction, in dissipating assets held in the name of SETL, after having received notice of the terms of the Injunction, depends on whether it can be established beyond reasonable doubt that Zhang had a beneficial interest in SETL.

37.  The Plaintiffs claim that in breach of the Injunction, Zhang had:

(1)   on 3 March 2015, given instructions to transfer US $15,939,762 from an account held in the name of SETL to pay for insurance policies issued by Manufacturers Life Insurance Company (“Manufacturers Life”), for her son and for herself;

(2)   on 4 March 2015, given instructions to transfer US $14,878,868.40 from an account held in the name of SETL to pay for an insurance policy issued by Transamerica Life (Bermuda) (“Transamerica”), for herself;

(3)   on 4 March 2015, transferred US $3 million from SETL’s bank account to a company named Metro Joy International Limited (“Metro Joy”);

(4)   on 4 March 2015, transferred US $2 million from SETL’s bank account to a company named Joy Grain Group Ltd (“Joy Grain”);

(5)   on 4 March 2015, transferred US $13,958 to Asiaciti Trust Hong Kong Ltd.

38.  SETL is a BVI company incorporated on 2 January 2014 with Zhang as its sole shareholder and director.  At that time, she was the legal and beneficial owner of SETL.

39.  The Plaintiffs rely on the fact that between 13 December 2013 and 12 June 2014, the Plaintiffs themselves had paid a total sum of US $254,419,155.79 to Zhang, into her bank account.  Between 24 December 2013 and 21 July 2014, Zhang transferred US $142 million of this cash,from her own bank account to the bank account of SETL.  Reliance is placed on the fact that the assets of and in particular the money in SETL’s bank account came from Zhang.

40.  However, it is not disputed that on 4 June 2014, as evidenced by an instrument of transfer of that date, Zhang had transferred her sole share in SETL to Asiatrust Ltd (“Asiatrust”).  On Zhang’s evidence, Asiatrust is a professional trust company incorporated in the Cook Islands.  In her 2^nd affirmation made on 6 May 2015 (“Zhang 2”), Zhang claims that she was a shareholder of SETL from March to June 2014, but ceased to be a direct or indirect legal or beneficial owner in June 2014, when her share in SETL was transferred to Asiatrust.  She explained that she transferred this share to Asiatrust “as part of (her) long-term estate planning”, and that long before there was any dispute between the Plaintiffs and herself, she had put in place a trust arrangement “for the benefit of others as part of that estate planning”.  She claims that she is not a beneficiary of the trust, and that any funds held by SETL belong to SETL.

41.  Zhang claims in her affirmation made on 3 August 2015 (“Zhang 4”) that SETL’s bank accounts “belong to a third party trust” of which she is not a beneficiary, and that she does not hold any direct or indirect beneficial interest in SETL.  In the affirmation which Zhang made in March 2016 and which was filed in legal proceedings in Singapore (“Singapore Proceedings”) (where an injunction in similar terms as the Injunction was obtained by the Plaintiffs against her), Zhang claims more specifically that she is neither an intermediate nor ultimate beneficiary of any assets or monies held by SETL, and that since 4 June 2014, when she had transferred her share in SETL to Asiatrust, she has held no beneficial or other ownership in SETL or any of its monies or assets, whether directly or indirectly.

42.  In Zhang 6, she gave further details of the alleged trust arrangement with respect to SETL, by stating:

“ (1) The trust was set up on June 3, 2014 and is irrevocable;

(2) I am the asset grantor of the trust but I am not a beneficiary under the trust. The trustee is Asiatrust Limited (the “Trustee”). As far as I know, I am excluded completely from any direct or indirect interests derived from the properties, assets and revenues generated under the trust. I hold no rights under the trust, including rights to dismiss or appoint the Trustee or increase/decrease beneficiaries.

(3) I engaged and relied on professionals to set up the family trust and to make investments using the trust. I have no expertise whatsoever in this regard. When I talk about the trust now, I feel angry for the fact that I became the signatory in the initial stage. I had intended to set up a family trust all along. The assets and funds I invested as a grantor will have nothing to do with me.

(4) Cornucopiae Asset Management Ltd. (“CAM”) had been retained as the external asset manager to make investments for the trust.

(5) Since June 4, 2014, I no longer held any legal or beneficial rights and interests in SETL and its assets (including the funds in its bank accounts), as I had transferred my only share to the Trustee – Asiatrust Limited. Exhibit CB-2 p. 530 is a copy of the share transfer certificated dated June 4, 2014. Based on the advice given by my financial advisor, this has always been my desire and understanding.

(6) I was the only director of SETL until about March 3, 2015. After June 4, 2014, I remained as the only director of SETL and the authorized signatory of its bank accounts. This was not my decision. However, I have never received any benefits from the trust.

(7) Since I am the only authorized signatory of the bank accounts held by SETL with CS and Deutsche Bank, I indeed signed a number of instructions letters as requested by the Trustee or CAM. ”

43.  Zhang seeks also to rely on the affidavit of Angela Edith Pope (“Pope”), the legal counsel of ATP Directors Ltd (the sole director of SETL since 3 March 2015), which affidavit was filed on behalf of Zhang in the Singapore Proceedings.  In Pope’s affidavit, she claims that the sole shareholder of SETL is Asiatrust, that Zhang does not own or otherwise have any interest in SETL whatsoever, and that Zhang had ceased to have any ownership or other interest in SETL from about 4 June 2016, when she transferred the sole share in SETL to Asiatrust.  Pope also claims on affidavit in the Singapore Proceedings that Asiatrust is a professional trust company, and that it does not hold its sole share in SETL, or any of SETL’s assets, on trust for either Zhang, Founder Holdco or Management Holdco, whether legally or beneficially. 

44.  I bear in mind that, as Ms Chan emphasized on behalf of the Plaintiffs, Pope has never filed any affidavit in these committal proceedings in Hong Kong, to be cross-examined here. 

45.  According to the Plaintiffs, notwithstanding the instrument of transfer which shows the transfer of the one share in SETL from Zhang to Asiatrust, Zhang remained the beneficial owner of SETL.  They rely, firstly, on the documentation produced by Zhang’s bankers, Sarasin (“Sarasin Documents”).

The Sarasin Documents

46.  The Sarasin Documents show that on 21 July 2014, written instructions were given (“Remittance Instruction”), signed by Zhang and issued to Janet Luk of Sarasin (“Janet”), whereby Sarasin was instructed to execute a remittance of US $2,000,000 from Sarasin account number 86088070 (“Account”) to SETL’s bank account with Credit Suisse.  Corresponding to such Remittance Instruction, a standard Remittance Instruction Form (“Remittance Form”) of Sarasin was completed, to record the instructions received for the remittance of US $2 million from the Account.  The name of the “client” was recorded in the Remittance Form as Zhang, with her signed Remittance Instruction attached.  The “purpose of payment” was stated to be “asset consolidation”.  Since the Remittance Instruction was for the remittance to SETL, in the column of the Remittance Form headed “reason for mentioning the name of a 3^rd party in the instruction”, the Sarasin member of staff who completed the Remittance Form stated: “(SETL) is owned by client”.  The Remittance Form also contains Sarasin’s record that one Kitty Lee (“Kitty”) of Sarasin had contacted Zhang, as the “client/person with assets transfer authority”, on 21 July 2014 at Zhang’s telephone contact number, to confirm the instructions for remittance.  The Remittance Form bears the signature of Pansy Ho, signing for Janet as the relationship manager of the Account.

47.  The Remittance Instruction is perhaps the strongest evidence available to the Plaintiffs, to support their claim that SETL is owned by Zhang.  They maintain that these internal records of Sarasin support their case that SETL was at all material times beneficially owned by Zhang and that Zhang remained at all material times the client in respect of SETL’s account with Sarasin.

48.  Zhang denies that she had given any verification to Sarasin of the contents of the Remittance Form.  Her evidence is that after her transfer of the share in SETL on 4 June 2014, neither she nor Asiatrust had promptly informed Sarasin of the fact that she had ceased to own any legal or beneficial interests in SETL after the transfer.  After 4 June 2014, no one from Sarasin had obtained any confirmation from her that she still owned SETL, and Zhang claims that she had not informed any one of Sarasin, at the time of the remittance on 21 July 2014, that SETL was owned by her.

49.  Any instructions given by Zhang, and any representation that may have been made by Zhang to Janet or to Sarasin, as to her ownership of SETL prior to 4 June 2014 cannot be treated as conclusive evidence of Zhang’s ownership of SETL after her transfer of the one share in SETL to Asiatrust in June 2014.  The Remittance Instruction and Remittance Form of 21 July 2014 follow the same format and content of the remittance instructions and remittance instruction forms dated (for example) 13 January 2014 and 13 March 2014, predating the transfer of share on 4 June 2014, with regard to other transfers of money from the Account to SETL.  As Mr Yu pointed out on behalf of Zhang, Janet has not made any affirmation in these proceedings, to clarify the notes made in Sarasin’s internal records.  It is unclear what “confirmation” she, or Kitty, had sought from Zhang on 21 July 2014: whether it was confirmation of SETL being “owned by” Zhang, or if it was confirmation of a remittance of a sum of US $2 million from the Account to SETL’s account, and what explanation or confirmation was given by Zhang.  Mr Yu further submitted that it is entirely possible that Janet, or Kitty, had simply repeated in the 21 July 2014 Remittance Form what Zhang had stated on previous occasions, in relation to the remittance instructions given by her prior to 4 June 2014. 

50.  The standard of proof for contempt is “beyond reasonable doubt”.   As Ma, J (as the Chief Justice then was) observed in Citybase Property Management Ltd v Kam Kyun Tak (No 1) [2003] 2 HKC 93, no court would wish to make a finding of contempt unless the evidence to support such a finding was good. The Court of Appeal also highlighted in Numeric City Ltd the right of a person facing a criminal charge (including contempt) to examine, or have examined, the witnesses against him.

51.  As Lord Denning MR held in In Re Bramblevale Ltd [1970] 1 Ch 128 at 137D, when two possibilities are equally likely on the materials before the court, the high standard of proof is not attained:

“Those two possibilities are equally likely. It is not possible to say which of them is correct. The court cannot be satisfied beyond reasonable doubt … That would be conjecture rather than inference - surmise rather than proof. Where there are 2 equally consistent possibilities open to the court, it is not right to hold that the offence is proved beyond reasonable doubt.”

52.  After careful consideration, I agree with Mr Yu that it is a reasonable hypothesis, that Kitty and/or Janet might simply have sought and obtained from Zhang confirmation that remittance was to be made to SETL, and that the reason stated in the Remittance Form of 21 July 2014, that SETL was owned by Zhang, might have been a repetition and reproduction of what was stated in Sarasin’s internal records as to Zhang’s ownership of SETL prior to 4 June 2014.  Without the direct evidence of Janet and Kitty to explain their notes and records, the Remittance Form and Remittance Instruction of 21 July 2014 cannot be accepted by the Court as conclusive evidence of Zhang’s ownership of SETL after 4 June 2014, particularly when the other available evidence is taken into consideration.

Other contemporaneous documents

53.  The Plaintiffs seek to rely on the correspondence exchanged between those acting on behalf of Zhang and Zhang’s bankers, Credit-Suisse (“CS”), in June and July 2014, to demonstrate that Zhang had made a deliberate decision not to update information on her account with Sarasin after June 2014, as evidence of the fact that Zhang continued to be the owner of SETL notwithstanding the transfer of her share in June 2014.

54.  Ms Chan highlighted the fact that in early 2014, Zhang had declared to SETL’s bankers, CS and Deutsche Bank (“DB”), that she was the sole beneficial owner of SETL and of the funds in SETL’s accounts.  However, after the alleged change of beneficial ownership in June 2014, Zhang and SETL never took any step to change such declaration of beneficial ownership.  Nor was there any change in the sole signatory of SETL’s accounts, as Zhang continued to be the sole signatory.

55.  In June and July 2014, ie after the date of the transfer of share in SETL, there was email correspondence amongst Ricky Cheung of CS, Jessica Tang of Asiaciti Trust Hong Kong Limited (“Asiaciti”) (a company which is connected with Asiatrust) and Rebecca Moore of Cornucopiae Asset Management Limited (“CAM”) (Zhang’s external trust manager), with regard to changing SETL’s account with CS from a corporate account to a trust account, and the documents required for that purpose.  Ms Chan on behalf of the Plaintiffs pointed out that, by way of contrast, there is no evidence that Zhang or anyone on her behalf had taken any action to inform Sarasin of the alleged change of ownership of SETL.  Ms Chan further highlighted the fact that the only changes that were made to the banks’ records were with regard to the shareholder and (subsequently) directorship of SETL.  There was no mention of any change in the beneficial owner of SETL, and SETL never provided CS with any new declaration of beneficial ownership of SETL.

56.  Hence, as the Plaintiffs sought to emphasize, when CS and DB were served with the Injunction, they took the view, on the basis of their internal records, that the SETL bank accounts maintained with them were subject to the scope of the Injunction, as assets of Zhang, or assets which Zhang had power to dispose of or deal with as if they were her own.

57.  In this regard, the view and understanding of CS, DB and Sarasin as to SETL and its ownership remain their opinion and understanding.  In these committal proceedings, it is for the Court to consider and decide, to the standard of beyond reasonable doubt, on the ownership of SETL and its assets, and whether Zhang can be liable for contempt of court by virtue of her dealings in the assets of SETL.

58.  Bearing in mind the fact that Zhang remained a director of SETL until March 2015, and also remained the sole signatory of SETL’s bank accounts at the material time of the remittances in March 2015, the essential question for determination of Zhang’s liability for contempt is whether the Court can be satisfied that Zhang remained, at the material time of the transfers on 3 March 2015 and 4 March 2015, the beneficial owner of the share in SETL and in the assets of SETL.

59.  Zhang admits to being the settlor of the family trust, and that the share in SETL was transferred by her into the trust.  She claims that the family trust was set up as part of her estate planning, and that she was not at any material time the beneficiary under the trust.  It was also emphasized that the setting up of the trust and the transfer of the share in SETL and the funds from Zhang’s personal account into the trust were all made before there was any dispute between Zhang and the Plaintiffs in relation to the Acquisition, or otherwise.  Mr Yu submits that this is supported by contemporaneous documents.

60.  The Plaintiffs sought to rely on an exchange of emails between Janet and her colleague Ken Leung (“Ken”) in March 2014, which show that Zhang had wanted to transfer cash from her account with Sarasin to her SETL account with CS, as advised by her lawyers, in order to ease concerns on a “with-recourse term of her business sold” to the Plaintiffs.  This, it was argued, is consistent with the desire for “asset consolidation” as stated in the Remittance Form.  Janet’s email dated 13 March 2014 to Ken referred to the “with-recourse term”, stating that according to Zhang, the assets transferred from the Sarasin account “would be re-allocated”.

61.  The observations made in paragraph 50 above are also relevant in the consideration of the emails exchanged between Janet and Ken.  Janet has not made any affirmation in these proceedings to elaborate upon and explain her understanding as to the alleged concerns of Zhang, the transfer out of assets, and the alleged “re-allocation”: what exactly she had been told, and by whom she was told.  On Mr Yu’s submissions, these emails are equivocal as to the purpose and reason for the transfer from Zhang’s account to SETL.  Mr Yu further pointed out that the email exchange between Janet and Ken in fact also supports Zhang’s assertion, that the transfer of Zhang’s assets to SETL was also “for tax planning purpose”, as so stated in Janet’s email of 13 March 2014. With this, I agree.

62.  Another email dated 24 March 2014 from Janet to her colleagues at Sarasin reported on her meeting with Zhang on 22 March 2014, at her home in Beijing.  In the email, Janet reported that Zhang required Sarasin to set up a new BVI company for her, and to get an account opened for the BVI company.  Zhang would then transfer back to the BVI company account part of her assets, which would be handled by the asset manager regarding investments.  Instructions were given by Janet to her colleagues, in the same email, to select a BVI company for Zhang, and to provide the same to Zhang to sign with the account opening documents.  Ken had also observed, in his email of 13 March 2014, that “the silver lining” of Zhang transferring her assets out from her account with Sarasin, was that Sarasin’s “trust team” could meet with Zhang to convince Zhang to replicate the BVI setup with Sarasin.  Mr Yu argued that all these support Zhang’s claims of a trust arrangement and setup, for holding the cash and assets transferred out from Zhang’s account to SETL.

63.  Zhang further sought to rely on the correspondence exchanged between CS, CAM and Asiaciti in June 2014, January 2015, February 2015 and March 2015, which show that there was a chain of correspondence for the purpose of changing SETL’s account to a trust account, and to effect changes to SETL’s shareholding and directorship.

64.  Ms Chan disputes Zhang’s claim that there was a continuous chain of correspondence for effecting changes to SETL’s account.  She pointed out that the emails exchanged between CS and Asiaciti on 15 January 2015 and 2 February 2015 were part of CS’ annual “know your client” review (as evidenced by the reference “KYC” in the subject matter of the emails), as distinct from the emails for changing the SETL account from a corporate to a trustee account.

65.  Ms Chan also sought to place emphasis on the fact that some of the emails and documents produced by Zhang were redacted in parts, and some of the attachments referred to in the emails were not in fact produced by Zhang.  However, even on her case, Ms Chan accepts that in respect of the assertions made and relied upon by Zhang, only an evidential burden rests on Zhang, in respect of any hypothesis which she seeks to raise as being reasonably consistent with her innocence (Concorde Construction Co Ltd v Colgan Co Ltd (No 2) [1984] HKC 253).  As Rhind J held in Concorde, there is no persuasive burden on a defendant to prove anything affirmatively, the onus throughout resting on the plaintiff to prove its case at the “beyond a reasonable doubt” level.

66.  Hearsay evidence is admissible even in criminal contempt proceedings, as such proceedings are civil in nature.  As such, the question at the end of the day is the weight, if any, to be attached: to the emails exchanged between the bankers and the trust company or trust managers; the internal records of the banks; and the affirmation of Hope filed in the Singapore Proceedings, and whether Zhang has raised sufficient and credible evidence to raise a hypothesis which is reasonably consistent with her professed innocence of any contempt, such hypothesis being that the share and assets of SETL belong beneficially to the trust, and that Zhang has no beneficial interest in the trust or trust property as a beneficiary.

67.  Irrespective of whether the emails exchanged in January and February 2015 were part of the “know your client” review or the chain relating to the change from corporate account to trustee account, I accept that these emails demonstrate that after the transfer of Zhang’s share to SETL in June 2014, and before the Plaintiffs’ application for the Order on 26 February 2015, some steps were taken (if not completed) by Asiaciti and CS in December 2014, (and later in June and July 2015,) to record the change in the shareholding of SETL and in the nature of the account as a trustee account.

68.  Sarasin’s emails in March 2014, and in particular Sarasin’s stated intention to involve its trust team in servicing Zhang, go to support Zhang’s claim that she had intended all along to set up a tax planning and trust structure.  In addition to the 2014 emails, Sarasin’s internal records dated December 2013, its background information on Zhang, and its Call Report of the meeting/discussion between Zhang and Janet on 4 November 2013 also refer to Zhang’s intentions to set up a trust arrangement, and her interest in “family trust service” in November 2013.  The trust holding arrangement cannot be seen as an invention or excuse put forward in late February or March 2015, to hide her assets or her disposal of assets subject to the Injunction.

69.  Significantly, I accept Mr Yu’s submissions, that what the Plaintiffs are in substance alleging, on the face of the documents produced in evidence, is that Zhang’s evidence on the family trust said to have been created, with Asiatrust as professional trustee, is false, and that the alleged trust is a sham, with Zhang remaining to be beneficially entitled to the assets of SETL after, and despite, her transfer of the share in SETL to the trust.  Of this, I am not satisfied beyond reasonable doubt.

70.  As Mr Yu rightly submitted, for a transaction to be found to be a sham, it must be proved that all the parties to the transaction share the necessary intent (Lewin on Trusts, 19^th edition, para 4-023; Snook v London and Wet Ridings Investments Ltd [1967] 2 QB 786 at 802D-F).  To find that Zhang did have a beneficial interest in SETL and its assets, the Court must be satisfied beyond reasonable doubt, not only that Zhang intended to create a trust relationship with Asiatrust which is a sham, but also that all of the relevant parties including the trustee, intended to create only a sham. The only uncontroverted evidence is that Zhang remained as the sole signing signatory of SETL’s bank accounts, after the date of the transfer on 4 June 2014.  However, it is reasonably possible and plausible that she signed as signatory of the accounts of SETL upon instructions and at the direction of the trustee, as Zhang so claimed in relation to the instructions for transfer made from SETL’s account on 3 March and 4 March 2015.  Hope’s evidence in the Singapore Proceedings did confirm, on behalf of Asiatrust, that Asiatrust is a professional trust company and the sole shareholder of SETL, and that Asiatrust does not hold its share, or any of SETL’s assets, on trust for Zhang, Founder Holdco or Management Holdco.  On the entirety of the evidence, even bearing in mind that Hope has not been called to give evidence in these proceedings, I am not satisfied beyond reasonable doubt that Asiatrust as a professional trustee intended to create the trust of SETL’s assets as a sham, and agreed to ignore the trust in all its dealings with SETL and its assets.

71.  In relation to the Plaintiffs’ reliance on the findings of the Singapore Court, I agree that the Court in Singapore was applying an entirely different standard of proof in reaching its findings.  In Singapore, the Plaintiffs applied for discovery against CS and DB in relation to the SETL bank accounts, and the Registrar allowed such application.  On appeal, and in deciding on the opposition made by SETL and Zhang to the disclosure orders, Ang SJ found that there was “prima facie evidence” that Zhang regarded SETL as her company even after she transferred her share to Asiatrust on 4 June 2014, and considered that it was “arguable” that Zhang owned SETL beneficially.

72.  In these proceedings, this Court has to decide whether Zhang is in contempt of court by disposing of SETL’s assets in breach of the Injunction, and for failing to disclose assets held in the name of SETL.  The Plaintiffs bear the burden of establishing, beyond reasonable doubt, that Zhang was in breach of the Order by disposing of, and not disclosing, SETL’s assets when they beneficially belong to her.  The findings made by the Singapore Court on the questions determined by it cannot mean that the Plaintiffs have discharged their burden to the requisite standard in this case.

73.  Here, we have evidence that even prior to disputes having arisen between the Plaintiffs and Zhang in relation to the Acquisition, Zhang had been contemplating the setting up of a trust.  SETL was incorporated in January 2014, after completion of the Acquisition in December 2013.  The transfer of Zhang’s share in SETL took place on 4 June 2014 which, on Zhang’s evidence, was part of the process of settling the trust for the benefit of her family.  Zhang’s explanations for the transfers to SETL, in July 2014, from the funds she had received from the sale of the South Beauty restaurants were that these were her payments of further contribution to the family trust.  Both Zhang and Hope on behalf of Asiatrust claim that Zhang is not a beneficiary and has no direct or indirect beneficial interest under the trust.  There were payments from the SETL accounts to pay for insurance policies of which Zhang and her son were the insured.  The insurance policies may be assets of the trust, and the payment for a policy under which Zhang is insured does not by itself mean that Zhang is a beneficiary of the trust, or that she owns the policy.  Zhang’s evidence is that SETL is the owner and beneficiary of the policies in which she is named as insured.

74.  There were, however, payments made from SETL’s accounts, to pay for what are said to be Zhang’s expenses, such as a transfer of US $3 million on 22 September 2014 to pay Zhang’s brokers, a transfer of US $100,000 to Zhang on 19 January 2015 which she used to pay Sotheby’s, a transfer of JPY 3 million to Zhang on 10 February 2015, and another transfer of US $114,478.93 to Zhang which she used to pay interior designers.  These were all dated after Zhang’s transfer of her share in SETL to Asiatrust in June 2014, allegedly to set up the family trust under which she has no beneficial interest. 

75.  These are perhaps the suspicious or unusual features, as to why Zhang was able to give instructions for transfers from SETL’s accounts for payments, some of which were related to her, at a time when she had allegedly ceased to have any beneficial interest in SETL or the assets of the trust.  Zhang’s only evidence in this regard is that these transfers were not for her benefit, that the trustee and/or CAM had arranged the transactions, and as she was the only authorized signatory of SETL’s bank account, she was asked to sign on the instructions for the transfers.  She claims that all the transfers were “approved and instigated by CAM or the trustee”, that she had no right to control the accounts, and that no transaction on the accounts was proposed by her.

76.  Some support for Zhang’s evidence concerning payments being arranged by trustees can be found in the invoice from Asiaciti to Zhang dated 5 February 2015, for US $3,487.50, stated to be for acquiring life insurance policies to be held under the trust; and emails exchanged on 23 February 2015 and 3 March 2015, whereby CAM informed Zhang that they would be paying for the balance of the life insurance.

77.  It is not implausible that the trustees permitted Zhang to remain the sole signatory to SETL’s bank accounts, notwithstanding the transfer of Zhang’s share to Asiatrust in June 2014.  Zhang was the settlor, and was the sole signatory since the opening of SETL’s bank accounts after its incorporation.  Commercially, and irrespective of whether it is the best practice, it is conceivable that the trustees may be prepared to permit and agree to Zhang’s continued role as a signatory in the operation of SETL’s bank accounts, in liaison with the trustees.  This is a matter of agreement between Zhang and her trustees.  I cannot conclude from this that Zhang and the trustees are lying, when they claim that Zhang has no beneficial interests in the share of SETL, or the assets of the trust.

78.  It follows from the above that on issue 2, my finding is that it has not been established beyond reasonable doubt that Zhang had a beneficial interest in SETL which she failed to disclose under the Order.  On issue 3, my finding is that it has not been established beyond reasonable doubt that Zhang had dissipated assets through accounts held in the name of SETL, after having received notice of the terms of the Injunction.

Any failure by Zhang to disclose other assets owned

79.  There is no evidence whatsoever that Zhang beneficially owned Metro Joy or Joy Grain, apart from the fact that these companies were incorporated on the same day as SETL, with the same registered agent.  Transfer of funds from SETL to Metro Joy and Joy Grain is not evidence that SETL, Metro Joy and Joy Grain or any of these companies belong to Zhang. 

80.  It has not been established to my satisfaction that the insurance policies with Manufacturers Life and Transamerica were owned by Zhang.  All that has been shown is that she was the insured.  Even if the trustees had issued their invoice to Zhang, as settlor of the trust, for payment of their fees in respect of the policies, I do not accept that this can constitute evidence that Zhang was the owner of the policies.

81.  In respect of the allegations that Zhang had failed to disclose the art collection and jewellery the Plaintiffs claim she owned, most of the evidence relied upon by the Plaintiffs fall short of meeting the requisite standard of proof beyond reasonable doubt.  The Plaintiffs rely upon media articles which referred to Zhang being the owner or having purchased assets such as artwork.  Apart from the article published by Christie’s (to be dealt with below), these articles and reports are not shown to have been based on interviews given by Zhang herself.  The media reports are dated as early as 2006, 2010, and 2014 (apart from the article on Christie’s interview).  Even if Zhang had owned any of the assets at the time of the reports, I am not satisfied beyond reasonable doubt that she continued to own them as at the date of the Order in February 2015. 

82.  The Plaintiffs’ or Borelli’s unsubstantiated belief that Zhang owned houses and other properties not already disclosed (in Zhang 1) require further, substantial evidence in support, other than vague assertions of “her home”, or Zhang’s alleged reference to “her property”, or that the property is owned by Zhang “in practical reality”.  They accept that local estate agents, the property management company and the security guard at the house where Zhang is said to reside or own claimed that the property belongs to Zhang’s son.  Such evidence falls short of the requisite standard of proof beyond reasonable doubt.

83.  The article on Christie’s interview was published in 2015.  This was said to be an interview with Zhang, and questions were allegedly asked of her in relation to her contemporary art collection.  The article reported that Zhang claimed that she had begun collecting contemporary Chinese art “more than 20 years ago”.  In the article, Zhang is reported to have been asked about the painting “Three Gorges” by Liu Xiaodong (“Liu”), which she had reportedly bought in 2006 for approximately US $3.5 million.  She is reported to have stated in response:

“I don’t have any savings in the bank. My savings are my art collection. When I saw this particular painting by Liu at the Poly auction in Hong Kong, I was captivated. I could tell that the artist was incredibly innovative and unique. … I began collecting contemporary Chinese Art more than 20 years ago, but people didn’t know me as an art collector until I bought Liu’s piece. While a lot of works of art have already attained a high value, their monetary value is often underestimated. Art is priceless.” (Emphases added)

84.  When she was asked how many works there were in her collection, and where they were stored, Zhang was reported to have stated:

“My collection consists of 300 to 400 artworks. Most have been bought and are stored abroad. Chinese art accounts for 20% of my collection; the rest is Western art. Most of it was bought at auctions, both commercial and charity auctions, with only a few pieces purchased through galleries. I do not show art at home; I think homes are for living in. I prefer to keep my collection in professional storage facilities to protect it in the long term.” (Emphases added)

85.  Of the assertion made in Christie’s article, that she had a collection of 300 to 400 artwork kept in professional storage facilities abroad, Zhang claimed in paragraph 20 of Zhang 4 that it was due to the “misunderstanding of the reporter”, that the statement had not been verified by her, and was inaccurate.  She claimed that although she had bought artwork over the years, she “never personally owned as many artworks as reported”.  According to Zhang, she merely attended art auctions, rather than participating in the auction herself, and that the media “sometimes counted artworks bought at auctions by those (she) was with”, as having been bought by her.  Zhang also claimed that many artwork auctions she attended were purely charitable, that the artwork she bought had individual values “nowhere than HK $500,000”, and that she “never had a collection as large as that ascribed” to her by the media.  To the extent that she used to own paintings with value of HK $500,000 or more, Zhang claimed that she had ceased to own them “some time ago”, and that she did not own any art that falls within the scope of the Order.  This was all stated in her affirmation made in August 2015 (“Zhang 4”).

86.  In response to the claim made in Christie’s article, that Zhang had bought Liu’s painting in 2006, Zhang first claimed (in paragraph 21 of Zhang 4 made on 3 August 2015) that “for the reasons explained above” (which must be a reference to the matters stated in paragraph 20 of Zhang 4 and summarized in the preceding paragraph of this Judgment), Liu’s painting was “owned by a third party” and she no longer had any legal or beneficial interest in it.  It is entirely unclear what she meant by that, and how, by reason of the matters stated in paragraph 20 of Zhang 4, Liu’s painting can be seen to be owned by a third party.  Her denial of ownership has no substantiated basis.

87.  In contrast, Zhang claimed in paragraph 37 (2) of Zhang 6 (made on 25 October 2017) that she did not know “who owns, or owned” the Liu painting, but that it was not hers.  This assertion, that she did not know who “owned” the painting, totally contradicts what Zhang is reported to have been asked, and what she said, in Christie’s article.  She had only claimed that the reference in the article on Christie’s interview, that she had a collection of 300 to 400 artwork kept in professional storage facilities abroad, was inaccurate.  The assertion is also contradictory to what Zhang stated in paragraph 21 of her earlier Zhang 4.

88.  Christie’s article was published in 2015.  Although Zhang claimed that the statement of her having a collection of 300 to 400 artwork was the reporter’s misunderstanding, and was inaccurate, she refrained from clarifying how it was inaccurate, or why she maintained that it was inaccurate.  It is not even clear whether she meant that the first part of the statement, that she had a collection of 300 to 400 artwork, was incorrect, or if she meant that the latter part of the statement, that she had a collection of artwork “kept in professional storage facilities abroad”, was inaccurate.  She asserted that she never “personally owned as many artwork as reported”, that she never had a collection as large as that ascribed to her, and that she had ceased to own paintings worth HK $500,000 or more “some time ago”, in August 2015.  Read as a whole, what Zhang can be understood to be saying in Zhang 4 is that she did not “personally” own as many as 300 to 400 pieces of artwork in 2015, ie that she did own some, but that by the time of Zhang 4 in August 2015, she had ceased to own paintings of a value of $500,000 or more.

89.  It can be seen from the above that whereas Zhang seeks to rely on her affirmations which have been filed to oppose the committal proceedings, she has only made general and vague denials of ownership of the artwork she is claimed to have owned, and has not attended Court to be cross-examined as to these general denials.  The article on Christie’s interview with Zhang was published in 2015.  I find it incredible that between the time of the publication of the article and the date of service of the Order and Zhang 1 in March 2015, Zhang would have disposed of and ceased to own her entire collection of artwork built up over “more than 20 years”, even if such collection was “not as many” as 300 to 400 pieces, as she claims.  By asserting that she “never had a collection as large as that ascribed to (her)”, Zhang was admitting that she had a collection, and some artwork, only not as large as the 300 to 400 pieces referred to.  It is also incredible that the artwork collection, which Zhang herself claimed in the interview to have been bought at commercial auctions and galleries, as well as charity auctions, would all be worth less than HK $500,000 as Zhang suggests, by the time Zhang 4 was made - particularly in the light of her own comment in 2015, that “a lot of works of art (had attained) a high value”.  Further, in Christie’s article, Zhang was reported to have referred to “her” art collection.  Such collection could not have been meant to include artwork and pieces which she had bid for, or purchased, on behalf of friends or relatives who had attended the auctions with her, at the time when the artwork was bought.  There is some supporting evidence of Zhang’s purchase of and payment for artwork, namely a remittance of US$545,000 in March 2014 from the Sarasin account for purchase of “art collection”.

90.  For all that Zhang had said to explain Christie’s article, and in relation to her family trust when seeking to deny her ownership of SETL, she never said that any artwork had been vested in or belonged to the trust.

91.  In all, I find the denials made by Zhang in relation to her ownership of Liu’s painting, and her artwork collection, to be unbelievable.

92.  I have borne in mind that the persuasive burden remains on the Plaintiffs to prove that Zhang is in breach of the Order. However, as Zhang has failed in her affirmations to point to any evidence which is sufficiently substantial to raise a reasonable doubt as to her guilt, and the evidence she did choose to adduce is rejected as unbelievable, I am satisfied that the Plaintiffs have proved their case beyond reasonable doubt (Ip Pui Lam Arthur and anr v Alan Chung Wah Tang CACV 214/2016, 16 February 2017, para 4.3).

93.  To conclude on issue 4, I am satisfied beyond reasonable doubt that Zhang had failed to disclose assets owned by her, of an individual value of HK $500,000 or more, in breach of her disclosure obligations under the Order.

Whether personal service of the Order should be dispensed with

94.  Whether or not the Order had been personally and effectively served on Zhang on 2 March 2015, by the time of the making and service of Zhang 1 on 13 March 2015, Zhang had without doubt instructed RB to act for her in HCMP 473/2015 and HCMP 474/2015.  RB had by then obtained copies of the Order, which had the penal notice endorsed, and of the Plaintiffs’ affirmations filed in support of the application for the Order.  RB had attended Court on the Return Date, when the Order was continued.  Without doubt, Zhang had been advised by then on the terms and effect of the Order and the consequences of non-compliance with the Order.  She admits that the effect of the Order was explained to her when she went to Hong Kong to instruct her solicitors to prepare Zhang 1. 

95.  In all the circumstances, it is just and appropriate for the Court to exercise its discretion under Order 45 rule 7 (7) to dispense with personal service of the Order on Zhang.  Such dispensation can be made at any stage of the proceedings, even retrospectively, and without any formal summons taken out for that purpose (Kao Lee & Yip, para 69).  As Ms Chan pointed out, the Statement already included (in paragraph 7) an application to the Court to dispense with personal service of the Order pursuant to rule 7 (7).

96.  There is no question that at the time when Zhang made Zhang 1, her conduct of disclosure of the assets referred to in Zhang 1 was intentional, and any omission or failure to include any asset which she owned and had power to dispose of or deal with as if it was her own, was not accidental, or unintentional.  She maintained in her subsequent affirmations that she had made full disclosure of all her assets which fall within the scope of the Order.  There has never been any suggestion that any lack of full disclosure was accidental, or unintentional.  As highlighted by the Court in Kao Lee & Yip (at paras 46 and 53), it is immaterial that the breach was committed in reliance on a third party’s advice, even legal advice.

Whether Zhang had made false statements in her affirmations

97.  According to the Statement, the Plaintiffs complain that Zhang had falsely stated in paragraphs 42 to 59 of Zhang 5 that:

(1)   she was not aware of the loan facilities of US $125 million (“Facilities”) that the Plaintiffs had put in place to fund the Acquisition;

(2)   the financing did not form any part of the Acquisition as finally agreed; and

(3)   details of the Facilities were never discussed at the board meetings attended by Zhang or to which Zhang was invited.

98.  A deponent who knowingly swears a false affidavit or affirmation commits a contempt of court, since the affidavit includes a jurat and is therefore the equivalent of testimony on oath (Hydropool Hot Tubs Ltd v John Roberjot [2011] EWHC 121 (Ch), para 59).  The applicant for contempt committal must prove beyond a reasonable doubt (i) the falsity of the statement in question; (ii) the statement has or would have interfered with the course of justice in some material respect; and (iii) at the time it was made the maker knew that it was false and the false statement was likely to interfere with the course of justice (Hydropool para 58; Numeric City Ltd v Lau Chi Wing [2016] HKLRD 812, para 35). 

99.  It goes without saying that as contempt proceedings may result in the imposition of a penalty for wrongful conduct, and involves the determination of a “criminal charge” within the meaning of articles 10 and 11 of the Hong Kong Bill of Rights Ordinance, a finding of contempt will only be made in a clear case.  In these proceedings, it is alleged that Zhang is in contempt of court because she had knowingly made false statements in her affirmations which were filed in support of her application to discharge the Order.  Before a finding can be made to such effect, the meaning of the statements she made in the affirmations must first be ascertained, before the Court can determine whether the statements complained of were false, and known by Zhang to be false - to the requisite standard of proof beyond reasonable doubt. 

100.  In this case, having reviewed and considered Zhang 5, I am not satisfied that Zhang had stated, as the Plaintiffs claim, that “she was not aware of the Facilities that the Applicants (ie Plaintiffs) had put in place to fund the Acquisition”, or that “the financing did not form any part of the Acquisition as finally agreed”.  I agree with Mr Yu that the Plaintiffs (in paragraph 16 of the Statement) and Borelli (in paragraph 93 of Borelli 2) had wrongly summarized the effect of Zhang’s statements and evidence in paragraphs 42 to 59 of Zhang 5.

101.  It is true that Zhang claimed in paragraphs 42 to 44 of Zhang 5 that the financing documents were “deliberately concealed” from her and that the details and matters outlined in paragraph 44 of Zhang 5 were “uncovered on 23 July 2015” when she received the financing documents from the Plaintiffs.  However, even in these paragraphs, what she was alleging was that the financing documents were allegedly concealed, and that the matters uncovered were details of the financing documents for the financing of the Acquisition.  As Mr Yu sought to highlight and emphasize, Zhang had made it clear in paragraph 41 of Zhang 5 that she was aware that the Plaintiffs had borrowed funds for the Acquisition as stated in the Term Sheet dated 10 May 2013.  She stated at the end of paragraph 41 that neither the Plaintiffs nor the representatives from the banks had provided the financing documents to her, and that she did not have the full knowledge of the financing documents.

102.  The fact that she had not been provided with the financing documents or the Share Mortgage dated 13 December 2013 was repeated in paragraph 46 of Zhang 5, where she stated that she had not been provided with the relevant financing documents, and was not aware that the board of Equityco approved the Share Mortgage and the relevant amended facilities agreement.  What she was not aware of was stated to be (1) the financing documents, and (2) the relevant approval by the board of Equityco.

103.  In paragraph 47 of Zhang 5, the statement made by Zhang was that “the financing documents or their related documents were drafted in a manner that circumvented (her)”.  There is no statement that she was not aware of the facilities that the Plaintiffs had put in place to fund the Acquisition, or that the financing did not form part of the Acquisition.  The complaint remained that she was not provided with the financing documents at the relevant time, such that she was not aware of the details of the financing which included the mortgage on the shares of Buyerco (or Buyer) owned by Equityco - which is the complaint she made in the underlying arbitration proceedings.  Whether her claims, that she was not provided with the relevant financing documents, that the drafting of the documents had circumvented her, and that she was not aware that her shares in Equityco would be subject to the Share Mortgage in favor of the lenders, can ultimately be established and proved to be correct, is not the question for determination by this Court, but in the arbitral proceedings.

104.  Paragraph 54 of Zhang 5 further clarified Zhang’s case and the claim made in her evidence: that she “had not been provided with copies of the Financing Documents and was not aware of the details of the financing arrangements before they were disclosed in the HK proceedings” (emphases added).

105.  As for the Plaintiffs’ allegation, that Zhang had falsely stated at paragraphs 42 to 59 of Zhang 5 that “details of the Facilities were never discussed at the board meetings attended by or to which (Zhang) was invited”, again, that is a misquote and paraphrase of Zhang’s statements.

106.  What Zhang claimed in paragraph 46 of Zhang 5 was that she “was not aware that the board of Equityco approved the Buyerco Share Mortgage and the Amended Offshore Facilities Agreement” (emphasis added).  In paragraph 49, her statement was that she had “never agreed” to the shares in Buyerco owned by Equityco being mortgaged in favor of the lenders.  In paragraph 50, she stated that the blank instrument of transfer in respect of the shares held by Equityco and the Appointment of Proxy were signed by directors who had ceased to be directors of Equityco on 13 December 2013, without her knowledge and approval. In paragraph 52, she stated that the Amended Offshore Facilities Agreement and the Share Mortgage had “never been disclosed, approved or ratified by the board of Equityco since she was appointed as a director” (on 13 December 2013).  The emphasis was on the timing, that the said Agreement and Share Mortgage had not been disclosed or approved on or after 13 December 2013.  On Zhang’s case, the relevant documents were signed by directors of Equityco pursuant to the resolution dated 31 October 2013, when Zhang was not yet a director of Equityco, which resolution authorized any director to execute the documents and to create security within 6 months from the date of the resolution.

107.  On behalf of the Plaintiffs, Ms Chan sought to rely on paragraphs 37 and 41 of Zhang 5, in support of the allegation that Zhang had made false statements of her alleged lack of knowledge of the terms of the financing. 

108.  The Statement in support of an application for leave to apply for committal is treated in the similar manner as an indictment in criminal proceedings, having regard to the penal nature of the sanctions for contempt (para 52/2/6 Hong Kong Civil Procedure 2018, and the cases cited therein).  At the substantive hearing, the applicant for committal cannot rely on any grounds not stated in the originating summons, being grounds in respect of which leave for making the application for an order of committal has been granted, and the Statement should state all the factual elements which, if proved, are sufficient to establish the contempt, but not the evidence in support.

109.  I accept the submissions made by Mr Yu, that paragraphs 37 and 41 are not referred to or relied upon in the Statement at all, and as such does not form part of the Plaintiffs’ case against Zhang for contempt, on the basis of her knowingly making false statements in Zhang 5.  If paragraphs 37 and 41 are sought to be relied upon by the Plaintiffs as particulars of Zhang’s breach, they should be particularized in the Statement in order to give Zhang the necessary information to meet the charge against her (In Re: Mawesh J Roy, CACV 226/2015, 10 November 2017).

110.  In any event, for paragraph 41, the statements made, as to the absence of discussions, were that (1) the occurrence or potential occurrence of events of default under the Offshore Facilities Agreement had never been discussed at the board meetings of Equityco; and (2) there was no discussion on fund raising for the Acquisition during the banks’ visit to the South Beauty group of companies (“Group”), when presentations were made by officers of the Group.  These do not support the Plaintiffs’ complaint in paragraph 16 of the Statement, that Zhang had stated falsely that “details of the Facilities were never discussed at the board meetings attended by or to which (Zhang) was invited”.

111.  To conclude, on issue 5, I am not satisfied at all that Zhang had made statements that she was not aware of the existence of the Facilities put in place to fund the Acquisition, that the financing did not form part of the Acquisition, and that details of the Facilities were never discussed at the board meetings she attended or to which she was invited to attend.

Conclusion and disposition

112.  I am only satisfied that Zhang was in breach of paragraph 2 (1) and (2) of the Order, in failing to disclose all her assets of an individual value of HK $500,000 or more, whether in or outside Hong Kong, whether in her own name or not and whether solely or jointly owned.  I find her to be in contempt of court.

113.  The Plaintiffs wrote to Zhang by their letters of 22 August 2016 and 20 September 2016, asking her to provide proper disclosure and explanation, but Zhang failed so to do.  I accept that the Plaintiffs had taken all other reasonable alternatives open to them before commencing proceedings for contempt.

114.  There should be a hearing for further submissions on the appropriate penalty, and any other necessary and consequential order (including costs), in respect of Zhang’s breach which I have found.  The parties should agree on directions, and in the absence of agreement, a date should be fixed for the Court to make directions on further conduct.