HIGH FASHION NEW MEDIA CORPORATION LTD v. LEONG MA LI

HCMP 108/2016 &
HCMP 1707/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 108 & 1707 OF 2016

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(Heard together)

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J U D G M E M T

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INTRODUCTION

1.  Two principal issues arise for determination in these two actions for contempt of court:

(1)   whether Madam Leong Ma Li (“Leong”) failed to comply with an injunction granted by the court on 5 December 2014 restraining her, whether by herself, her servants, her agents or otherwise howsoever from dealing with the Longford ICBC Capital Account except in accordance with a specified arrangement; and

(2)   whether Leong failed to use her best endeavours to provide the bank statements of all bank accounts held by Longford with ICBC Shanghai to New Media for inspection within 14 days of 18 November 2015, in breach of an undertaking given by her to the court.

BASIC FACTS

(i)   The Injunction and the Leong Undertaking

2.  The relevant backgrounds facts have been set out in two previous decisions of this court, namely:-

(1)   a written decision handed down on 4 December 2014 in HCA 1724/2014 (“the HCA 1724 Decision”); and

(2)   another written decision handed down on 5 December 2014 (“the HCA 1953 Decision”) in HCA 1953/2014 (“the Action”),

and I shall not repeat them in this judgment.  For the purpose of this judgment, I shall, unless otherwise expressly indicated, continue to use the terminologies as defined in those decisions.

3.  In the Action, New Media applied for an interlocutory injunction on 6 October 2014 to (i) compel Leong to act in accordance with a board resolution of Longford dated 26 September 2014 relating to the operation of the Longford ICBC Capital Account (“the Capital Account”), and (ii) restrain her from operating or dealing with the Capital Account except in accordance with the said resolution.

4.  On 5 December 2014, the court granted the following interlocutory injunction (“the Injunction”) against Leong, namely, that:-

“[Leong] be restrained by herself, her servants, her agents … whether as employee, officer, agent or otherwise howsoever [from] dealing with the [Capital Account], except in accordance with the following arrangement …

(i) For transactions involving less than RMB1,000,000, the signatures of [Leong] and [Angela Yau] must be obtained, in addition to the application of the Finance Chop of Longford; and

(ii) For transactions involving RMB1,000,000 or above, the signatures of [Leong] and [Will Lam] must be obtained, in addition to the application of the Finance Chop of Longford.”

5.  The Injunction was granted upon, inter alia, HFA’s undertaking to “pay all legitimate business expenses in the ordinary course of business as they fall due of [New Media] and its subsidiaries … upon presentation of invoices or relevant documents” (“the HFA Undertaking”).

6.  Subsequently, New Media made an application on 13 November 2015 in the Action seeking disclosure of various documents from Leong.  In relation to that application, Leong gave an undertaking (“the Leong Undertaking”) to the court in the following terms:-

“to use her best endeavours to provide all the bank statements … of all bank accounts (including but not limited to the [Capital Account]) held by [Longford] with ICBC Shanghai (“the Longford Accounts”) since the opening of the Longford Accounts up to the latest bank statements … to [New Media] for inspection within 14 days of [18 November 2015]”.

(ii)   The alleged breach of the Leong Undertaking

7.  It is common ground that the time limit specified in the Leong Undertaking expired on 2 December 2015.  It is also common ground that Leong only produced the relevant bank statements of the Longford Accounts to New Media in April 2016 (save that two pages of bank statement were produced on 2 December 2015).

8.  Leong gave a detailed explanation for the delay in the production of the relevant bank statements of the Longford Accounts to New Media in her first affirmation made on 11 April 2016 filed in HCMP 108/2016.  In summary, her explanation is as follows:-

(1)   Due to the disputes and legal actions between the Lams and herself, by 18 November 2015, most of Longford’s staff had left.  Longford had only 2 employees remaining at that time, namely, a driver called 王國棟 (“Wang”) and a receptionist called 孫丹丹 (“Sun”). Neither of them was responsible for keeping or maintaining the financial or accounting records and documents of Longford.  At that time, voluminous documents, not in an orderly manner, had been piled up in Longford’s office in Shanghai.  It was extremely difficult for her to locate the bank statements of the Longford Accounts in Longford’s office given that she had only 14 days to do so.  She believed that the most direct way to obtain the relevant bank statements was to apply to ICBC Shanghai for re-issuing the bank statements.

(2)   The Longford Accounts were opened at the 新天地支行 (“the Xintiandi Branch”), which was under the supervision of the 盧灣支行 (“the Luwan Branch”), of ICBC Shanghai.  金焰 (“Jin”) was the head of the Luwan Branch, whom Leong had known for some years.  She believed that it would be better to contact him directly for assistance in relation to the re-issuance of the bank statements of the Longford Accounts.

(3)   On 19 November 2015, Leong instructed her assistant, Daniel Lee, to send an email (in Leong’s name) to Jin informing him that she was required to produce Longford’s bank statements within 14 days of 18 November 2015.

(4)   In his reply email dated 25 November 2015, Jin stated that if Longford wished to apply to ICBC Shanghai for re-issuing the bank statements, Longford had to present, inter alia, the 金融服務卡or 財智卡.

(5)   At that time, Leong had no idea about the 金融服務卡or 財智卡.  When the previous financial officers of Longford, namely, (i) 孫雪瑾 who worked for Longford from inception to August 2014, and (ii) 韓雷琴 (“Hon”), who worked part-time for Longford between September 2014 and September 2015, left, they did not give Leong any 金融服務卡or 財智卡.

(6)   In November 2015, Longford did not have any financial officer.  Leong therefore instructed Sun, the receptionist, to search for the 金融服務卡or 財智卡at Longford’s office, but Sun told her that she had no knowledge of what or where they were.

(7)   Since Leong was unable to locate the 金融服務卡or 財智卡 or obtain the bank statements of the Longford Accounts from ICBC Shanghai, she instructed her solicitors to send to New Media what she had in her possession at that time, namely, 2 pages of bank statement of (i) the Capital Account and (ii) the “5874 Fixed Deposit Account” (see further below) made up to 31 October 2015, which her solicitors did on 2 December 2015.

(8)   Later, Leong sought the assistance of 陳志萍 (“Chen Zhi Ping”), a financial professional of her husband’s company, who was based in Guangzhou but travelled to other parts of China from time to time, to go to ICBC Shanghai to see if there were any alternative ways to obtain the bank statements of the Longford Accounts.  Chen Zhi Ping visited ICBC Shanghai in mid-December 2015, and was told by a staff of the Xintiandi Branch that the Longford Accounts were under stringent scrutiny of the bank at that time (apparently because of the subsisting disputes between the Lams and Leong), and that ICBC Shanghai would only re-issue the bank statements of the Longford Accounts if Longford could produce, inter alia, the金融服務卡or 財智卡.  Leong then asked Chen Zhi Ping to look for the 金融服務卡or 財智卡 at Longford’s office, but to no avail.

(9)   Leong also asked Chen Zhi Ping to find out whether Longford could apply for a 金融服務卡or 財智卡 from ICBC Shanghai.  Chen Zhi Ping approached ICBC Shanghai again, and was told that:-

(a)   A company could apply for a 金融服務卡 after it had set up a bank account with 6 months of continuous business operation.  Although the Longford Accounts were opened in April 2014, its investors had been engaged in legal disputes since August 2014.  It was therefore unlikely that the bank would approve Longford’s application for a 金融服務卡.

(b)   In so far as the 財智卡 is concerned, the bank had already issued one to Longford previously.  It is not clear on the evidence whether there was any discussion on the possibility of Longford applying for a replacement 財智卡 in circumstances where the original one had been lost.

(10)   Leong then asked Chen Zhi Ping to once again look for the 財智卡 at Longford’s office in Shanghai.  In around the beginning of January 2016, Chen Zhi Ping told Leong that she could not find the 財智卡.

(11)   Pausing here, I should mention that, in her oral evidence, Leong said that she had also asked Chen Zhi Ping to look for the relevant bank statements in Longford’s office, but Chen Zhi Ping told her that it would be difficult to find the bank statements, apparently because of the way in which Longford’s documents were bound up or kept in the office at that time.  I do not accept this part of Leong’s evidence, which does not appear in either her first or second affirmations filed in HCMP 108/2016.  I believe that Leong clearly appreciated that the allegation that she had to answer was that she had failed to use her best endeavours to produce the relevant bank statements to New Media within 14 days of her undertaking to the court and she would have told the court in either of her affirmations that she had asked Chen Zhi Ping to look for the relevant bank statements in Longford’s office in November/December 2015 if that in truth happened.

(12)   Later (after the beginning of January 2016), Leong asked her niece, 陳夢芝 (“Chen Meng Zhi”), a financial professional who was residing in Hunan, to go to Shanghai to look for the 財智卡 and bank statements of the Longford Accounts at Longford’s office.  After Chen Meng Zhi had carried out a search at Longford’s office, she told Leong that she could not find those items.

(13)   In around February 2016, Leong decided to engage a full time employee to go through the files, documents and boxes of miscellaneous items kept in Longford’s office and to put Longford’s books and accounts into order, with the hope that the 財智卡 or the bank statements of the Longford Accounts might surface from where they might have been buried in.  She eventually managed to hire 張紅敏 (“Zhang”), who started to work as Longford’s accountant on 1 March 2016.

(14)   Towards the end of March 2016, Zhang began to locate some bank statements of the Longford Accounts on a piecemeal basis.  They did not, however, comprise the complete set of the bank statements of the Longford Accounts from the date of the opening of the accounts.  Those bank statements found in Longford’s office were disclosed to New Media’s solicitors on 8 and 11 April 2016.

(15)   In the afternoon of 7 April 2016, Zhang informed Leong that she had managed to find the 財智卡 in Longford’s office.  Upon Leong’s instruction, Zhang immediately applied to the Xintiandi Branch for the re-issuance of a full set of the relevant bank statements.  The Xintiandi Branch provided Longford with the bank statements on 8 and 11 April 2016.  They were disclosed to New Media’s solicitors also on 8 and 11 April 2016 (with the exception of a few missing pages which were disclosed later upon request).

9.  I should also mention that Leong has informed the court that she was suffering from some health and medical problems during the period from September 2015 to January 2016 (including two short periods of hospitalisation in September and October 2015 respectively), which she says adversely affected her ability to go to Shanghai to look for the relevant bank statements in Longford’ office.  The details of Leong’s health and medical problems are stated in paragraph 38 of her affirmation dated 11 April 2016 filed in HCMP 108/2016, which I do not propose to set out in this judgment.

(iii)   The alleged breaches of the Injunction

10.  In addition to the Capital Account, Longford held some other bank accounts with ICBC Shanghai, including a current account (“the Current Account”) and a fixed deposit account (“the 5874 Fixed Deposit Account”).

11.  From the bank statements produced by Leong, New Media discovered that Leong had dealt with the funds in the Capital Account otherwise than in accordance with the signing arrangement as specified in the Injunction.  The transactions now complained of by New Media are set out in three tables, namely, “Part A”, “Part B” and “Part D”, prepared by Angela Yau, the chief financial officer of New Media, and exhibited as “YOK-1” to her 2^nd affirmation filed on 6 December 2016 in HCMP 1707/2016:-

(1)   Part A refers to a series of 13 payments from the Capital Account to the Current Account in the total sum of RMB3,704,157.08 during the period from 14 January 2015 to 16 February 2016.

(a)   Items 1-6, 8-11 and 13 in Part A are all described as “備用金” (petty cash), each for the sum of RMB300,000.

(b)   Items 7 and 12 in Part A (for the sums of RMB373,356.56 and RMB30,800.52) relate to “interest” (on the funds remaining in the Capital Account) transferred to the Current Account on 22 May 2015 and 1 February 2016 respectively.

Angela Yau also examined the bank statements in respect of the Current Account and prepared a table, “Part E”, showing how the funds in the Current Account were used during the period from 6 December 2014 to 31 March 2016.  As confirmed by Mr Jonathan Chang on behalf of New Media, these further payments from the Current Account to various parties (including Leong herself) are not relied upon by New Media as instances of breach of the Injunction on the part of Leong.  I shall, however, have to refer to some of the transactions listed in Part E later in this judgment, because they are relevant to Leong’s case that the monies transferred from the Capital Account to the Current Account were used to settle “legitimate business expenses which Longford was forced to settle due to [HFA]’s failure to honour [the HFA Undertaking]” (see paragraph 7 of Leong’s affirmation filed on 12 October 2016 in HCMP 1707/2016).

(2)   Part B refers to a series of 13 payments between the Capital Account and the 5784 Fixed Deposit Account during the period from 30 April 2015 to 1 February 2016.

(a)   Items 1-3, 6 and 10-12 relate to payments from the 5784 Fixed Deposit Account to the Capital Account upon maturity of various fixed deposits.

(b)   Items 4-5, 7-9 and 13 relate to payments from the Capital Account to the 5784 Fixed Deposit Account for placing new fixed deposits.

(3)   Part D refers to a series of 6 payments from the Capital Account to various third parties in the total sum of RMB621,273.00 during the period from 28 January 2015 to 13 February 2015.  They relate, apparently, to payments made by Longford to third party suppliers of goods.  As confirmed by Angela Yau in her oral evidence, item 5 in Part D is no longer relied upon by New Media.

12.  It is not in dispute that Leong did not obtain the signatures of Will Lam or Angela Yau (as appropriate) in respect of the transactions listed in Part A, Part B and Part D now complained of by New Media.  In so far as the transactions listed in Part A and Part D are concerned, Leong’s explanation for not obtaining the signatures of Will Lam or Angela Yau (as appropriate) in respect of the payments from the Capital Account is, essentially, that:-

(1)   in December 2014/January 2015, Hon on behalf of Longford requested HFA to pay the wages due to Longford’s employees for the month of December 2014 pursuant to the HFA Undertaking, but HFA failed or refused to do so by putting forward various excuses; and

(2)   hence, Longford had no choice but to use its own funds to settle its business expenses, which Longford did either by (i) first transferring funds from the Capital Account to the Current Account (giving rise to the transactions listed in Part A) and then making payments from the Current Account to third party creditors (giving rise to the transactions listed in Part E), or (ii) making payments directly from the Capital Account to third party creditors (giving rise to the transactions listed in Part D).

13.  Leong’s explanation for not obtaining the signatures of Will Lam or Angela Yau (as appropriate) in respect of the transactions listed in Part B (ie, payments between the Capital Account and the 5874 Fixed Deposit Account) is that they were not “really transactions because they are normal debit[s]/credit[s] which occur during the largely automatic renewal of sums in the fixed deposit account” (see paragraph 5(d) of Leong’s affirmation filed on 12 October 2016 in HCMP 1707/2016).

LEONG ACTED IN BREACH OF THE INJUNCTION

14.  I shall consider the transactions listed in (i) Part A and Part D, and (ii) Part B, separately.

(i)   The Part A and Part D transactions

15.  Under the Injunction, Leong was prohibited from dealing with the Capital Account except in accordance with the signing arrangement as specified in the Injunction.  The transactions listed in Part A and Part D relate to payments from the Capital Account to the Current Account or to various third parties.  It is not in dispute that the specified signing arrangement was not followed in respect of those transactions.

16.  Leong was at all material times the legal representative and chairman of the board of Longford, as well as the sole signatory of Longford’s bank accounts with ICBC Shanghai, including the Capital Account.  As mentioned in paragraph 9 of the HCA 1953 Decision, it is common ground that when the parties refer to the signature of a person being required in the context of operating a bank account in the PRC, it is understood to mean the application of the personal seal of that person. Although it would appear, on the evidence, that it was Longford’s staff, instead of Leong, who applied Leong’s seal (ie the legal representative chop) to the relevant bank instructions authorising the transfers of funds from the Capital Account, there is no dispute that Longford’s staff worked under Leong’s instruction or direction generally, and that the relevant transfers could not have taken place without Leong’s approval and consent.  Further, the Injunction restrained Leong, whether “by herself, her servants or agents”, from dealing with the Capital Account except in accordance with the signing arrangement as specified in the Injunction.  Leong could and should have taken possession of her personal seal, or put in place an effective system to ensure that there was no dealing with the Capital Account except in accordance with the specified signing arrangement.  In the circumstances, Leong must be regarded as being legally responsible for the Part A and Part D transactions.  This is not, I understand, seriously disputed by her.  There is also no dispute that Leong had knowledge of the existence and the terms of the Injunction.  Prima facie, Leong acted in breach of the Injunction in respect of the Part A and Part D transactions.

17.  On behalf of Leong, Mr Chan argues there was no breach, or alternatively only a trivial or technical breach, in respect of the transactions listed in Part A and Part D.

18.  First, Mr Chan submits that the transactions listed in Part A involved a transfer of funds between two of Longford’s bank accounts (ie, the Capital Account and the Current Account) which did not constitute “dealing” and thus there was no breach of the Injunction.  I do not accept this submission.  The meaning and effect of the Injunction is plain.  Leong is prohibited from “dealing” with the Capital Account except in accordance with the specified signing arrangement.  Moving funds from the Capital Account to the Current Account clearly amounts to a dealing with the Capital Account: see R (on the application of Revenue and Customs Prosecution Office) v R [2007] EWHC 2393, at paragraphs 19 to 21 per McCombe J).

19.  Second, Mr Chan submits that it cannot be established beyond reasonable doubt that it was within Leong’s power to comply with the Injunction, and he relies on the so-called “impossibility” defence.  For this purpose, Mr Chan submits that (i) the Injunction was premised on the HFA Undertaking which, to the knowledge of the Lams, was essential for Longford to continue its business (because the majority of Longford’s funds were deposited in the Capital Account which was subject to the Injunction), (ii) HFA had failed to honour the HFA Undertaking (as well as a similar undertaking given by HFA on an interim basis in September 2014), and (iii) it was unlikely in those circumstances that Will Lam or Angela Yau would agree to co-sign payments out of the Capital Account to settle Longford’s business expenses.  Mr Chan further says that Leong, as the CEO of Longford, had the duty to run Longford and its business, and she had no alternative but to do what she did in respect of the Part A and Part D transactions.  In my view, this defence of “impossibility” plainly has no substance:-

(1)   The allegation that HFA had failed to honour a similar undertaking given in September 2014 was not raised in either of Leong’s two affirmations made on 7 October 2016 and 25 July 2017 respectively filed in HCMP 1707/2016.  Neither did she make any such allegation in her oral evidence.  When the point was raised in the course of his closing submissions, Mr Chan fairly accepted that there was in fact no evidence that HFA had failed to honour the undertaking given in September 2014.

(2)   In so far as the HFA Undertaking is concerned, I am by no means satisfied on the evidence that HFA acted in breach of it either.  It is apparent from the exchange of emails between 31 December 2014 and 7 January 2015 that HFA/New Media was seeking relevant and necessary information from Hon to verify the amount of wages properly payable by Longford.  In particular, in an email dated 4 January 2015, Hon was asked to (i) explain why wages had to be paid to two particular persons for the month of December 2014 when it appeared from the list of wages for the previous month that those 2 persons had already left the employment of Longford, and (ii) provide a list of Longford’s employees and information relating to new employees and their employment contracts.  The explanation, information and documents sought by HFA/New Media were not provided.  Under the HFA Undertaking, HFA was required to pay only the “legitimate business expenses” of New Media and its subsidiaries (including Longford).  It is, in my view, inherent in that undertaking that HFA was entitled to require Leong to provide reasonable proof that the wages which it was called upon to pay were wages properly payable by Longford to its employees.  This, I consider, Leong failed to do.

(3)   In so far as it is alleged that HFA failed to pay other legitimate expenses of Longford in breach of the HFA Undertaking, there is similarly a lack of evidence of such failure on the part of HFA.

(4)   In any event, even if HFA had acted in breach of the HFA Undertaking, that would not have constituted a lawful justification or excuse for Leong to breach the Injunction (see Grasberg Capital Asia Limited v Huchun Joseph Yung, HCMP 727/2014, 8 May 2015, at paragraph 26 per To J).

(5)   On the assumption that (i) there were legitimate business expenses of Longford to be paid, and (ii) Will Lam and Angela Yau refused to “co-sign” the relevant payment instructions, it was open to Leong to apply to the court for further directions, including (where necessary) an appropriate variation of the Injunction.  There is no dispute that Leong did not do so.

(6)   The Injunction is negative in nature.  It is difficult to see how it can be said that it was “impossible” for Leong to refrain from doing what she was prohibited from doing under the Injunction (namely, dealing with the Capital Account except in accordance with the specified signing arrangement).

20.  Third, Mr Chan submits, in paragraph 75 of his closing submissions, that “… even supposing Leong was wrong in that Will Lam and Yau were prepared to co-sign, Leong lacks the necessary mens rea in that she was under a mistake of fact”.  This alleged “mistake of fact” was not mentioned in the evidence filed by Leong.  In any event, this defence is based on the false premise that the refusal or unwillingness of Will Lam or Angela Yau to “co-sign” would justify Leong in acting in breach of the Injunction.   This cannot be correct.  As earlier mentioned, if Leong faced any genuine difficulty in complying with the Injunction, her proper course of action was to apply to the court for further directions, including (where necessary) an appropriate variation of the Injunction, but not to act contrary to the Injunction.

21.  In all, I am satisfied beyond reasonable doubt the Leong deliberately, intentionally and voluntarily acted in breach of the Injunction, and therefore committed a contempt of court, in respect of the Part A and Part D transactions.

(ii)   The breaches in respect of the Part A and Part D transactions cannot be regarded as trivial or technical

22.  Mr Chan submits that the breaches (if any) of the Injunction in respect of the Part A and Part D transactions were trivial and technical.

(1)   In respect of the Part A transactions, it is said that the transfers of funds from one account to another of Longford did not cause any loss to Longford.

(2)   In respect of the Part D transactions, it is said that the payments were for Longford’s legitimate business expenses and Longford did not suffer any loss as a result.

23.  It is not Mr Chan’s submission that a trivial or technical breach of an injunction is the same as “no breach” and can be ignored.  As I understand it, this submission of Mr Chan goes to the issue of the seriousness of the breach (if found).  In considering the question of the seriousness of the breach, it is necessary to look at the picture more broadly.  First, one is not here dealing with an isolated instance of breach of the Injunction, but a series of 13 transfers in respect of the Part A transactions and 5 transfers in respect of the Part D transactions, making a total of 18 separate instances of breach of the Injunction spread over a period of some 13 months.

24.  Second, one should take into account Leong’s explanation for transferring funds from the Capital Account to the Current Account in respect of the Part A transactions, and to the third parties in respect of the Part D transactions.   I refer to the analysis in paragraph 19 above and shall not repeat them here.

25.  Third, one should also take into account how the funds transferred out from the Capital Account were subsequently used.  For the present purpose, I accept that:-

(1)   in respect of the Part A transactions, the monies transferred from the Capital Account to the Current Account were used to pay various parties (including Leong herself) as recorded in the bank statements provided by ICBC Shanghai and as set out in Part E; and

(2)   in respect of the Part D transactions, the monies transferred from the Capital Account were paid to the third parties as recorded in the bank statements provided by ICBC Shanghai and as set out in Part D.

26.  In relation to the use and operation of the Current Account generally, Leong’s evidence is that:-

(1)   Longford’s business expenses have been paid out from the Current Account.

(2)   Whenever the funds in the Current Account are running low, Longford’s cashier or financial staff will apply to ICBC Shanghai for release of funds from the Capital Account.  If ICBC Shanghai grants the application, the funds applied for will be transferred from the Capital Account to the Current Account and will be recorded in the bank statements as備用金 (petty cash).

(3)   Before Longford’s cashier or financial staff make the relevant application, they must produce supporting documents (such as contracts or invoices) to ICBC Shanghai to explain how Longford has spent the petty cash it obtained under the previous application.

(4)   As she understands it, if ICBC Shanghai is satisfied that the supporting documents are in order or proper, it will allow Longford’s cashier or financial staff to apply for a new round of petty cash.  ICBC Shanghai will also enter the relevant information (such as the purpose of each payment out of the Current Account) into the bank statements.

(5)   Longford’s cashier or financial staff will have to use Longford’s company chop, the legal representative chop and the finance chop when applying for petty cash.  These chops belong to Longford and have always been kept in Longford’s office.  Although she is the legal representative of Longford, this does not mean the legal representative chop belongs to her or that she would hold on to it.

27.  From such evidence, it would appear that before ICBC Shanghai releases funds from the Capital Account to the Current Account, ICBC Shanghai would carry out some limited checking on how the funds previously released were used by Longford and make brief records of the same in the bank statements (based on information and supporting documents provided by Longford).  It is obvious, however, that ICBC Shanghai would not be in a position to verify that the payments that were made by Longford would necessarily relate to legitimate expenses of Longford which it was under a legal obligation to discharge.  That this is so is apparent from the fact that, even on Leong’s own evidence, some of the payments listed in Part E were made to discharge debts or demands not properly due or payable by Longford, eg various payments were made to Huijian’s landlord (深圳市木棉股權投資基金) on 13 February 2015 and 6 March 2016, or to Huijian’s employee (張玉琢) on 8 October 2015, 4 November 2015, 8 December 2015 and 7 January 2016, or to persons who had no apparent connection with Longford but are said to be friends or otherwise connected with the Lams, eg 馮军 (“Fung”) and 羅斌 (“Law”) on 29 April 2015, 1 July 2015, 2 July 2015 and 23 October 2015.  A number of points have been raised by Mr Chan to justify those payments:

(1)   Mr Chan says that Longford and Huijian are related companies (both being subsidiaries of New Media), and Longford previously paid rent on behalf of Huijian without objection from New Media/the Lams.  As a matter of fact, Leong did not give any direct evidence, and Angela Yau was not asked any question, on any previous arrangement for the payment of rent by Longford on Huijian’s behalf.  There is also no evidence that the Lams, or New Media, agreed or consented to Leong using Longford’s funds to pay Huijian’s landlord or employee in respect of the relevant transactions listed in Part E.  In any event, when the parties were on good terms, a lot of things might have been done rather informally.  However, once the parties had fallen out, it must, or ought to, have been obvious to Leong that things had to be done strictly according to law, and she could not take it for granted that she could continue to use Longford’s funds to discharge Huijian’s debts. 

(2)   Mr Chan next says that Leong is Huijian’s legal representative and has a legal duty to ensure that Huijian pays its employees.  That may be so, but is again no excuse for Leong using Longford’s funds to discharge Huijian’s debts, in breach of her duties owed to Longford.

(3)   In relation to the three payments to Fung or Law under the description “PPE” on 29 April 2015, 1 July 2015 and 2 July 2015 respectively, Leong accepted in her evidence that they were not for Longford’s business, but said that the Lams also knew Fung.  I am unable to see how that fact can begin to justify Leong using Longford’s funds to pay Fung or Law.

(4)   In relation to the two payments to Fung on 23 October 2015, Leong said that they were for reimbursement of travelling expenses incurred for Longford.  Mr Chan submits that the payments “could have been for ad hoc business trips undertaken by him on Longford’s behalf”.  In the absence of any further proof or particulars, I do not accept Leong’s bare assertion that the two payments to Fung on 23 October 2015 were to reimburse him for travelling expenses incurred on behalf of Longford.

28.  It also appears from Part E that there were many payments from the Current Account to Leong personally as “travelling expenses” or “reimbursements”.  When Leong was asked about those payments, she was unable to provide any further proof or particulars to justify the payments, but said that she need to check and look for the relevant records or supporting documents.  I accept that it was difficult for Leong to instantly recall, in the witness box, the details of each and every payment made to her from the Current Account listed in Part E.  This having been said, Leong ought to have appreciated that she would be asked questions about the transactions in Part E, which was a table specifically compiled by Angela Yau and exhibited as “YOK-1” to her 2^nd affirmation filed on 6 December 2016.  Leong had than more 7 months to consider those transactions and prepare to justify them (if she could).

29.  I am not satisfied, on the evidence before me, that all the payments listed in Part E represent the legitimate expenses of Longford, although I consider it likely that the transactions in Part D and many of the transactions in Part E are related to the business of Longford.   For the purpose of this judgment, it is not necessary for me to make a definitive finding on the propriety of each and every one of those transactions because the question of whether the transactions in Part D and Part E relate to the legitimate expenses of Longford does not go to the question of breach, but only to the seriousness of the breach, of the Injunction.

30.  In all, I do not accept Mr Chan’s submission that the breaches of the Injunction in respect of the Part A and Part D transactions are trivial or technical.

(iii)   The Part B transactions

31.  In so far as the Part B transactions are concerned, as earlier mentioned:-

(1)   7 of them relate to payments from the 5784 Fixed Deposit Account to the Capital Account upon maturity of various fixed deposits (ie, Items 1-3, 6 and 10-12); and

(2)   the remaining 6 transactions relate to payments from the Capital Account to the 5784 Fixed Deposit Account for placing new fixed deposits (ie, Items 4-5, 7-9 and 13).

32.  Leong’s evidence is that it was the practice of Longford, starting from the beginning when the Longford Accounts were opened, to place its idle cash in the Capital Account on fixed deposit to earn interest.  When a fixed deposit matured, the principal and any interest thereon would be paid back into the Capital Account, presumably in accordance with the instruction given to the bank at the time of placing of the fixed deposit.  However, Leong also accepted in her evidence that the placing of a new fixed deposit would not be automatic, in the sense that instructions would have to be given by Longford’s staff to the bank in respect of the amount and the term of the new fixed deposit.

33.  In respect of the 7 payments from the 5784 Fixed Deposit Account to the Capital Account upon maturity of various fixed deposits, there is no evidence that anything was done, or needed to be done, by Leong or Longford’s staff.  Any maturity instruction to the bank to transfer the principal and interest back to the Capital Account for each fixed deposit would likely have been given at the time of placing of the fixed deposit.  Thus, if there was any breach of the Injunction, such breach would have occurred at the time of the placing of the fixed deposit, but not at the time of the maturity of the fixed deposit.  I am not satisfied beyond reasonable doubt that there was any breach of the Injunction in respect of the 7 payments from the 5784 Fixed Deposit Account to the Capital Account.

34.  In respect of the 6 remaining payments from the Capital Account to the 5784 Fixed Deposit Account for placing new fixed deposits, I consider that they constitute technical breaches of the Injunction.  The breaches were technical because it was anticipated that the relevant funds would go back to the Capital Account upon maturity of the fixed deposits.  In the context of the present case, I do not consider that those transactions would add anything to the seriousness of the breaches of the Injunction in respect of the Part A and Part D transactions, or lead to any increase in the sanction to be awarded.

LEONG ACTED IN BREACH OF THE LEONG UNDERTAKING

35.  The Leong Undertaking required Leong to use her “best endeavours” to produce all bank statements of the Longford Accounts since the opening of the accounts up to the latest bank statements to New Media for inspection within 14 days of 18 November 2015. Leong was not under an absolute obligation to produce the bank statements within the stipulated timeframe, but was required to use her best endeavours to achieve that result.

36.  In IBM UK v Rockware Glass [1980] FSR 335, which concerned an agreement by an owner of a property to use his best endeavours to obtain certain planning permission, Buckley LJ formulated the test of best endeavours as being, in that context, what an owner of the property, who was anxious to obtain planning permission, would do to achieve that end.  It was further said that he was bound to take all those steps in his power which were capable of producing the desired results which a prudent, determined and reasonable owner, acting in his own interests and desiring to achieve that result, would take.  This test was referred to with approval by Lloyd LJ in Sandhu v Sidhu [2010] EWCA Civ 531, which concerned an undertaking to use one’s best endeavours to deliver certain share certificates before a specified deadline.  I consider this test to be similarly applicable in the present case.

37.  In my view, it is clear that Leong failed to use her best endeavours to produce all bank statements of the Longford Accounts as required by the Leong Undertaking.  It is not in dispute that, as a matter of fact, a good portion of the relevant bank statements, as well as the 財智卡, could be found in Longford’s office in Shanghai, to which Leong had full access at all material times.  However, the earliest time when Leong asked someone to look for the bank statements in Longford’s office was after the beginning of January 2016 (see paragraphs 8(11) and (12) above), which was more than one month after the expiry of the stipulated timeframe as specified in the Leong Undertaking.

38.  Leong said that she did not ask Sun to look for the bank statements in Longford’s office because Sun, being a receptionist with no knowledge or training in accounts or finance, would not know how to find the bank statements.  I do not accept this explanation, because I do not see that it would require any special knowledge or training for one to look for some bank statements in what was, it would appear, a small office.  Leong said that Longford’s office in Shanghai occupied a duplex unit, with the finance office being situated on the upper floor which had an area of over 100 square feet with 4 desks and some cabinets.  In any event, if Leong genuinely thought that Sun was not up to the task, she could and should have employed some appropriately qualified person(s), either from Hong Kong or China, to carry out a thorough search of Longford’s office to look for the relevant bank statements and the 財智卡.  She did not do so until February 2016, which was too late.

39.  In this connection, it is relevant that it is not Leong’s case that she knew, or believed, that the relevant bank statements (or at least some of them) were not to be found in Longford’s office in Shanghai.  On the contrary, in paragraph 102 of Mr Chan’s closing submissions, he refers to and relies on the fact that on 20 November 2015, Leong did ask Sun about the bank statements at Longford’s office but was told that the documents were in disarray and not organised properly. It is clear that Leung knew or believed that the relevant bank statements, or at least some of them, were in Longford’s office.  With such knowledge or belief, there was stronger reason why she should instruct Sun, or someone whom she considered to be appropriately qualified, to search through Longford’s office to assemble the relevant bank statements if she genuinely wished to comply with her obligation under the Leong Undertaking.

40.  On behalf of Leong, Mr Chan has raised a number of points to argue that there was no breach of the Leong Undertaking.

41.  First, Mr Chan submits that the bank documents concerned Longford’s bank accounts and therefore they were in Longford’s (and not Leong’s) possession.  It is said that since Leong did not have possession, custody or power over the bank documents at the time that the Leong Undertaking was given, she should not be held in contempt of court for failing to comply with the Leong Undertaking.  It is further said that New Media’s application for production of documents should have been made against Longford, not against Leong personally.  I do not accept these submissions, for the following reasons:-

(1)   Leong was the legal representative of Longford.  If the relevant bank statements were available for production, it is not suggested that it was beyond Leong’s power to procure Longford to produce the bank statements.  Any difficulty would be unreal, having regard to the fact that (i) Longford was a wholly owned subsidiary of New Media, and (ii) Longford’s board was constituted by Lam Senior, Will Lam, Well Lam and Leong herself.

(2)   Second, the Leong Undertaking was proffered to the court by her counsel on her behalf, at a hearing when she was present in court.  It lies ill in her mouth to say that she could not be held in contempt of court for failing to comply with her undertaking given to the court.

(3)   The Leong Undertaking required Leong to use her best endeavours to produce the relevant bank statements of the Longford Accounts.  The focus of the inquiry is whether she used her best endeavours, not whether she managed, to produce the relevant bank statements within 14 days.

(4)   As regards the suggestion that New Media ought to have made its application for production of documents against Longford instead of against Leong personally, it remains the fact that Leong proffered the Leong Undertaking to the court in answer to the application.  She must therefore abide by her undertaking.

42.  Second, Mr Chan argues that Leong did use her best endeavours in the circumstances to produce the relevant bank statements within the stipulated timeframe.  It is said that an important factual matter to bear in mind in the present case is that, due to health reasons, Leong was unable to go to Shanghai personally and therefore had to give directions to others and rely on them to carry out the relevant investigations.  I am prepared to give Leong the benefit of doubt and accept that, in view of her medical and health conditions, she could not travel to Shanghai personally during the period from 18 November 2015 to 2 December 2015 to look for the relevant bank statements of the Longford Accounts.  I see no reason, however, why she could not engage some person(s) whom she considered to be appropriately qualified to search for the relevant bank statements or the財智卡 in Longford’s office in Shanghai during that period of time.  For the reasons mentioned in paragraphs 37 to 39 above, I consider that Leong plainly failed to use her best endeavours to produce the relevant bank statements within the stipulated timeframe.

43.  Third, Mr Chan submits that it was “impossible” for Leong to produce the relevant bank statements within 14 days.  This submission misses the point that the complaint of breach of the Leong Undertaking lies in her failure to use her best endeavours to produce the relevant bank statements, not her failure to produce them, within 14 days.  It cannot sensibly be argued that it was impossible for her to use her best endeavours to produce the relevant bank statements within the stipulated timeframe.  In any event, it is factually incorrect to suggest that it was “impossible” for the relevant bank statements to be produced within 14 days.  As a matter of fact, a good portion of the relevant bank statements, as well as the 財智卡, were physically in Longford’s office in Shanghai at all material times.  It took only one day, after Zhang had found the 財智卡 on 7 April 2016, to obtain a complete set of the bank statements from ICBC Shanghai.

44.  Lastly, Mr Chan argues that Leong has purged the breach by April 2016, and it is wholly disproportionate for New Media to continue with the application for contempt which should therefore be dismissed.  I accept that the breach has been purged.  This is a mitigating factor, but is not, in my view, a valid or sufficient reason to dismiss the application.

45.  As in relation to the Injunction, there is no dispute that Leong had knowledge of the existence and the terms of the Undertaking.

46.  In all, I am satisfied beyond reasonable doubt the Leong deliberately, intentionally and voluntarily failed to use her best endeavours to produce all bank statements of the Longford Accounts since the opening of the accounts up to the latest bank statements to New Media for inspection within 14 days of 18 November 2015, and therefore acted in breach of the Undertaking and committed a contempt of court.

DISPOSITION

47.  For the foregoing reasons, I find Leong guilty of having committed a contempt of court in each action.  I shall deal with the question of sanction and costs at a further hearing, which I provisionally fix on 28 August 2017 at 10:00 am.  The hearing date shall be confirmed unless the parties or either of them shall apply for re-fixing the hearing date within 3 days of the date of this judgment, in which event the parties shall inform the court of counsel’s available dates for the next 3 months within 7 days of the date of this judgment.  The court shall take into account counsel’s diaries, but shall not be bound by the same, when fixing the hearing date.  Leong shall attend the further hearing in person.  If Leong wishes to rely on any additional evidence on the question of sanction, she may file and serve a further affirmation or further affirmations within 14 days of the date of this judgment.

48.  Lastly, it remains for me to thank counsel for their assistance rendered to the court.