ZEBRA INDUSTRIES (OROGENESIS NOVA) LTD - [ZION] v. WAH TONG PAPER PRODUCTS GROUP LTD

HCMP 436/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 436 OF 2013

IN THE MATTER OF HCCT 46 of 2011

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D E C I S I O N

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1. This is an application by the plaintiff for leave to commence proceedings for committal of contempt against the defendant (“WTG”) and its solicitors. The application is made by the Statement filed by the plaintiff on 14 February 2014, supported by the affirmation of Mr Saartori made on 14 January 2014.

2. The facts of the dispute between the plaintiff and WTG are outlined in the Judgment of Hon Au J in HCCT 46 of 2001, in other decisions of the Court of Appeal and, most recently, in the Decision of Hon G Lam J in these proceedings handed down on 27 October 2014.  It is not necessary to go into the details of the factual dispute for the purpose of this part of the proceedings.  Suffices it to say that the parties have been embroiled in various legal proceedings as a result of their dispute under a contract made on 31 March 2003 (“Contract”) for WTG’s manufacture and the parties’ development of the Galaxion board game and the Psilink card game (“Products”).

3. The plaintiff relies on the following matters set out in the Statement in support of its application for contempt proceedings:

(1)  the directors of WTG and WTG’s solicitor Mr But Sun-wai (“Solicitor”) had falsely claimed in their affirmations in HCA 1551 of 2004 (“Proceedings”) that Mr Edwin Leung (“Leung”) had not been appointed as an arbitrator of the dispute under the Contract (“Dispute”), and that the Proceedings should be stayed for arbitration, well knowing that the parties had already referred their Dispute to arbitration, and that Leung had in fact been appointed as arbitrator;

(2)  WTG was in contempt of court, by violating the Order of Hon Burrell J made on 17 December 2004 (“Burrell Order”), whereby WTG was ordered to “approach the HKIAC and request the appointment of an independent, qualified arbitrator who is of the Christian faith within 14 days”;

(3)  the director of WTG had falsely denied the existence of an Excel spreadsheet issued by WTG and annexed to the Contract;

(4)  WTG and its Solicitor falsely claimed in the Proceedings that it had not entered into the Contract to manufacture all orders received under the Contract for the lifetime of the Products;

(5)  WTG and its Solicitor  falsely claimed that the use of “total proceeds” in the Contract meant and were intended to mean “profit” from the sale of the first 2000 units of each of the Products under the Contract, when it actually meant the proceeds of sale; and

(6)  WTG had falsely claimed in these proceedings that it had no knowledge of the financial state of the plaintiff, when it actually had such knowledge.

Applicable legal principles

4. Under O52 r2(1) Rules of the High Court, no application for an order of committal against any person may be made unless leave to make such an application has been granted.  Guidance was given by the English Court of Appeal, in the case of KJM Superbikes Ltd v Hinton [2009] 1 WLR 2406, and cited in para 52/2/4 of the HK Civil Procedure, as to how the court should approach an application for leave to cite a person for contempt for giving false evidence:

“16. Whenever the court is asked by a private litigant for permission to bring proceedings for contempt based on false statements allegedly made in a witness statement it should remind itself that the proceedings are public in nature and that ultimately the only question is whether it is in the public interest for such proceedings to be brought. However, when answering that question there are many factors that the court will need to consider. Among the foremost are the strength of the evidence tending to show not only that the statement in question was false but that it was known at the time to be false, the circumstances in which it was made, its significance having regard to the nature of the proceedings in which it was made, such evidence as there may be of the maker’s state of mind, including his understanding of the likely effect of the statement and the use to which it was actually put in the proceedings. Factors such as these are likely to indicate whether the alleged contempt, if proved, is of sufficient gravity for there to be a public interest in taking proceedings in relation to it. In addition, the court will also wish to have regard to whether the proceedings would be likely to justify the resources that would have to be devoted to them.

17. In my view the wider public interest would not be served if courts were to exercise the discretion too freely in favor of allowing proceedings of this kind to be pursued by private persons. There is an obvious need to guard carefully against the risk of allowing vindictive litigants to use such proceedings to harass persons against whom they have a grievance, whether justified or not, and although the rules do not prescribe the class of persons who may bring proceedings of this kind, the court will normally wish to be satisfied that the applicant was liable to be directly affected by the making of the statement in question before granting permission to bring proceedings in respect of it. Usually the applicant will be a party to the proceedings in which the statement was made, but I would not exclude the possibility that permission might be granted to someone other than a party if he was, or was liable to be, directly affected by it. In my view there is also a danger of reducing the usefulness of proceedings for contempt if they are pursued where the case is weak or the contempt, if proved, trivial. I would therefore echo the observation of Pumfrey J in the Kabushiki Kaisha Sony Computer case ([2004] EWHC 1192 (Ch) at [16] that the court should exercise great caution before giving permission to bring proceedings. In my view it should not do so unless there is a strong case that the statement in question was untrue and that the maker knew that it was untrue at the time he made it. All of the relevant factors, including those to which I have referred, will then have to be taken into account in making the final decision.” (Emphasis added)

5. Although there is no time limit for the application for leave to be made for committal proceedings to be brought, application should be sought promptly. In Taylor v Ribby Hall Leisure Ltd [1998] 1 WLR 400, the circumstances giving rise to the breach of an injunction and undertaking to the court were known over 4 years before action was taken in respect of committal for contempt of court, and the court struck out the proceedings for abuse of process and for inordinate and inexcusable delay.  The court observed at p 401 of the judgment:

“We add for future guidance that proceedings of this kind should, in the absence of a good reason, be initiated within a reasonable time of a party obtaining knowledge of a breach of court order or undertaking or other misconduct. In most cases the court is dependent on a party bringing a breach or a case of misconduct to its notice so that appropriate action can be taken. ... In this case it was known as early as March 1990 that circumstances have occurred giving rise to a possible breach. By the end of January 1991 legal aid was available to take action, but no action was taken for over 4 years. No good reason has been advanced for failure to act at a much earlier stage. A deliberate decision had been taken not to proceed earlier, while the (plaintiffs) were attempting to improve their position by other means. To allow the motion now to proceed to a full hearing would serve no useful purpose, as it has no real prospect of success and would inflict serious prejudice on (the defendant) without either serving the aspects of the public interest protected ... or conferring any real benefit on (the plaintiff).”(Emphasis added)

The matters complained of: That there had been an arbitration and an award

6. In respect of the 1^st complaint, the plaintiff relies on the fact that WTG’s directors and the Solicitor had falsely claimed in affirmations filed in court that the parties should refer the Dispute to arbitration, when an arbitrator had already been appointed and an arbitration had taken place.  The plaintiff refers to the exchange of emails between Mr Saartori, Leung, and Yip Ying and Mr Lai Yau-fai (“Lai”) of WTG in May and June 2004, and to the letter of 28 May 2004 from WTG’s Solicitor to the plaintiff, to prove that the statements made in the affidavit of Chan Kin Sang (“Chan”) made on 20 July 2004 and 14 October 2004 were false and known to be false.

7. It is relevant to refer to the Contract provision for the resolution of disputes.  Clause (5) of the Contract states as follows:

“This Agreement will be construed under the Laws Governing Hong Kong SAR. In the unlikely event of any breach or conflict, the Parties hereby agree to use every resource available to reconcile any disputes or breaches, in the spirit of friendship and integrity.

In the unlikely event of inability to resolve or reconcile any issues that may arise from the smooth implementation of this Agreement, the Parties hereby agree to employ the use of a professional, third party Christian Arbiter to resolve the issue, with such decision being final.  If the decision of the Christian Arbiter is ignored, after 30 days, the aggrieved Party may then employ any legal method at their disposal to enforce full compliance, with all costs of enforcement being for the final account of the unsuccessful Party. Any arbitration costs will also be the final responsibility of the unsuccessful Party.”

8. Whilst it may be seen from the documents produced that by early May 2004, the plaintiff and WTG had agreed to refer their Dispute to Leung for resolution and ultimate arbitration, it cannot be established from the documents exhibited to Mr Saartori’s affirmation that the arbitration did proceed after 6 May 2004, and that Leung had indeed made a final decision or award on the Dispute.

9. In his email of 5 May 2004 of 8:10 am, Leung stated:

“Further to your telephone conversations a few days back regarding the invitation for me being the mediator/Arbiter between Zion and WTG, though I do not like this job, I will offer myself out of love and try to follow the basic principles to resolve disputes between brothers amongst ourselves, instead of through the court of the non-believers for the sake of our Lord’s name. I can only do this if both you and WTG appoint me with sincerity to settle. WTG has given their consent for me to act as Arbiter. If you still want me to be the Arbiter, please send me your authorization and your willingness to comply fully whatever the outcome is. I am not an employee of WTG and I know both of you, and your characters, and personalities reasonably well. I can only say I will do my best to be unbiased but I am not going to waste my time to start any discussion/lobbying before commitment from your side.”

10. In its email of 5 May 2004 at 9:42 am, the plaintiff (through Mr Saartori) confirmed its agreement for Leung to mediate and arbitrate to resolve all matters.  Mr Saartori also asked Leung to confirm the best time, date and location “for the central decision making parties to be present”.  He confirmed that he, and another representative of the plaintiff, would attend.

11. The only document produced by the plaintiff as evidence of the final resolution, or decision/award of the arbitrator is the email dated 6 May 2004 from Leung to Mr Saartori.  This referred to Leung having listened to WTG’s grievances and having reviewed the records and correspondence, but in my view, Leung’s email only records the “conclusions” made by the defendant, WTG.

12. Leung’s email states:

“Firstly, I am fear of being an Arbiter between Zion and WTG in this case and I did try my best to resolve this badly situation. Today, I did bring this matter to the top management of WTG and a group of colleagues who have been involving in dealing with you and the projects... By listening their grievances and reviewing the correspondences, and records, the Board of directors of WTG and those colleagues have come to realize the following conclusions.”

Leung then set out WTG’s conclusions and comments on the Dispute, including the following:

“6. In accordance with our MOU dated 1 April 2003 under the clause of Termination of Contract (15) and no finalization of the formal Shareholders’ Agreement is done as of today, WTG can terminate the deal.

7.  WTG will reserve the right to recover all the money with interest in according to the PA and MOU signed.”

13. Leung’s email concludes with the following:

“I am sure you will have a lot of responses to the above.  But I feel WTG’s decision to depart is iron firm and no “face-to-face meeting” is granted, unless you want to take other action, in which case, I will be out of this.  Otherwise, I will try my best to find a proper and compromised ending.”

14. It can hardly be said that the email constitutes Leung’s decision on any issue raised in the Dispute.  It only set out the conclusions and views of WTG as to the allegations and complaints made by the plaintiff, and WTG’s view of its right to terminate the Contract.  Despite the subject of Leung’s email being stated as “Final Decision”, nowhere in the email records the independent decision of Leung or any finding made by him on any issue relating to the Dispute.

15. This question of whether there had been an arbitration was already decided by Burrell J in his decision of 17 December 2004 (“Stay Decision”), when he stayed the proceedings instituted by the plaintiff under HCA 1551/2004 in respect of the Contract, and ordered WTG to request HKIAC’s appointment of an arbitrator.  In his Stay Decision, His Lordship found that there was a valid agreement to arbitrate, but after considering Leung’s email of 6 May 2004 and the letter of 28 May 2004 from WTG’s solicitors to the plaintiff, Burrell J found that “there had not been anything which could be construed as an arbitration or an arbitration award” (paragraph 6 of the Stay Decision).

16. The plaintiff’s application to appeal out of time against the Stay Decision was dismissed by the Court of Appeal.  It is no longer open to the plaintiff to argue otherwise than as found by Burrell J.

17. There being no arbitration and no award, the statement of Chan and the Solicitor in their respective affirmations, that the Dispute should or can be referred to arbitration, is neither false nor can it constitute perjury.  Nor can it be said that the statement made by Chan in his affidavit made on 14 to October 2004, that the arbitration attempts made by the plaintiff were only attempts for a face-to-face settlement discussion with the defendant, is a lie. The email of 6 May 2004 from Leung, and the Stay Decision itself, support Chan’s statement.

The breach of the Burrell Order

18. The plaintiff complains of WTG’s breach of the Burrell Order, that WTG “do approach the HKIAC and request the appointment of an independent, qualified arbitrator who is of the Christian faith within 14 days”.

19. The Burrell Order was made as long ago as in December 2004.  It was only in February 2014, over 9 years later, that the plaintiff sought to take committal proceedings against WTG in respect of its breach of and non-compliance with the Burrell Order.  No explanation has been given for this inordinate delay, nor do I see any justification for the delay.

20. The plaintiff, with full knowledge of WTG’s breach of the Burrell Order, decided for its own reasons not to initiate committal proceedings in 2004 and instead, took steps in January 2009 to refer the Dispute to HKIAC.  Consequently, Mr Timothy Hill (“Arbitrator”) was appointed in August 2009 as the arbitrator to determine the Dispute.  Both the plaintiff and WTG submitted to the arbitration, and agreed that the Arbitrator was to determine the Dispute by written submissions.  In September 2010, an award was handed down by the Arbitrator (“1^st Award”), whereby damages of HK $58,000 were awarded to the plaintiff.  After an appeal to the court, the matter was remitted to the Arbitrator, to reconsider the proper construction of WTG’s obligations under the Contract, and the assessment of damages.  On 7 September 2012, the Arbitrator published an amended award (“Amended Award”), by which he maintained his decision that WTG had no obligation to manufacture any further Products beyond 2000 pieces, but revised the award of damages to HK$268,000. 

21. Since the plaintiff failed to initiate committal proceedings from 2004 to 2009, and instead referred the Dispute to HKIAC for appointment of the Arbitrator, WTG is not able to purge its contempt for breach of the Burrell Order, as it can no longer refer the Dispute to arbitration when it has already taken place, and an award given.  To that extent, WTG has been prejudiced by the delay.  Further, to allow the plaintiff now to initiate contempt proceedings in respect of WTG’s failure to request HKIAC to appoint an arbitrator would confer no real benefit on the plaintiff, when an arbitration has taken place and an award already made in its favour.

22. On the ground of inordinate delay, I would not accede to leave being given to the plaintiff to commence committal proceedings.

The existence of the Excel spreadsheet; whether the Contract was to manufacture all orders for their Products; & the meaning of “total proceeds”

23. The delay also applies to grounds 3 to 5 of the alleged contempt, summarized in paragraph 3 above.

24. Apart from the question of delay, the Arbitrator had made it clear that the Dispute was determined by way of paper submissions, on the documents presented to him by the parties.  In paragraph 17 of the 1^st Award, the Arbitrator states:

“A particular feature of these proceedings is that the Respondent (ie WTG) provided no witness evidence in the form of affirmation or in person. The Respondent’s case is confined to the contemporary documents and the submissions of Counsel.”

25. The plaintiff has not in the Statement, nor in Mr Saartori’s Affirmation in support, identified any affirmation or witness statement made by Chan, the Solicitor or Lai, in which they deposed to the existence of the Excel spreadsheet, and the meaning of the Contract provisions.  There is no evidence of any statement on oath, or verified by a statement of truth, which is shown to be false.

26. As for the submissions that may have been made by the Solicitor or the lawyers acting for WTG, in the Arbitration or in court proceedings, the courts are generally reluctant to punish advocates for contempt due to the significance placed on the need to give advocates - whether counsel, solicitors or litigants in person - latitude in the manner in which they conduct a case (para 110.007, Vol 7(1), Halsbury’s Laws of Hong Kong).  Arguments and submissions made in the course of the arbitration in 2010 and/or 2012 on the meaning, effect, and constituents of the Contract in this case would not form the basis for any contempt of court.

Whether WTG and its representatives had knowledge of the plaintiff’s financial state

27. The issue of the knowledge of WTG (or its officers and representatives) and of the Solicitor was raised in the context of the plaintiff’s claim, made in these proceedings, that the order of the court made in HCCT 46/2011 on 11 December 2012 on a consent summons signed by the parties, was obtained by economic duress, claimed to have been exerted by WTG on the plaintiff in the execution of a Settlement Agreement in November 2012, such that the order of December 2012 should be set aside.  These claims are yet to be tried, when findings will ultimately be made by the court, after trial, as to the financial state of the plaintiff at the material time, and any knowledge which the directors or other representatives of WTG may have had as to such financial state of the plaintiff as is alleged.  There has been no finding of fact by the Arbitrator as to the plaintiff’s financial state or WTG’s knowledge thereof.

28. Matters which are relevant to the court’s determination of whether leave should be granted for contempt proceedings to be brought, namely, whether there is a strong case that the statement in question was untrue and that the maker knew that it was untrue at the time the statement was made, are amongst the matters to be determined at the trial of the issues raised and claims made in these main proceedings.  These include matters such as the strength of the evidence tending to show that the statement in question was false, that it was known at the time to be false, and the actual financial state of the plaintiff. It would not be appropriate, at this stage and before such findings are made by the court, for leave to be given to issue contempt proceedings based on the alleged false statements, when the truth of the primary and underlying facts are to be determined at trial.  I would echo the observations made by the court in KJM Superbikes Ltd v Hinton [2009] 1 WLR 2406, cited in paragraph 4 above, and conclude that this is not a case which warrants leave being given in the public interest to bring proceedings for contempt.

Conclusion

29. For all the above reasons, I refuse leave to the plaintiff.