NICHOLAS PAPPADIS AND ANOTHER v. CHAN SHING SHEUNG BARRY AND OTHERS

M.P. No. 2005 of 1988

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The 3rd respondent, Mr Yip, is a director/shareholder of the H.K. Lotus Scientific Development Limited. The 2nd respondent, Mr Jarrett, is its General Manager and the 1st respondent, Mr Chan, an Assistant General Manager. I shall refer to the company as "HKLSD".

2. On the 8th September 1988, the applicants obtained from de Basto, J. an ex parte injunction against HKLSD. It was a Mareva injunction reinforced by an order for disclosure. The Mareva injunction allowed HKLSD HK$100,000 for monthly expenditure and HK$200,000 for legal fees. It was a Mareva injunction without, what is generally known as a "maximum sum", a ceiling below which assets of HKLSD were not to be further depleted. It was couched in exceedingly wide terms, including a prohibition against any "dealing with" HKLSD's assets within jurisdiction. The Mareva injunction singled out in particular HKLSD's bank accounts at the Nanyang Commercial Bank Limited or at any other bank in Hong Kong and its shareholdings in Everbright Lotus CPT Manufacturing Limited with which HKLSD had a joint venture. It is to be carefully noted that the Mareva injunction did not restrain HKLSD from parting with possession of its assets generally. It is only in respect of monies in its bank accounts in Hong Kong that HKLSD was additionally enjoined from "parting with title to or possession of such assets". (Emphasis mine). This is important when paragraph 2(a) of the applicants' Amended Notice of Motion comes to be considered.

3. The disclosure order in aid of the ex parte Mareva injunction required HKLSD to "forthwith" disclose :

"(a)    the full value of its assets within the jurisdiction identifying with full particularity the nature of all such assets and their whereabouts and ....... and the sums standing in such account; and

(b)    all documents relating to negotiations with China Everbright Holdings Company Limited in connection with a proposed sale of 50% shareholdings (of HKLSD in the said joint venture);

such disclosures to be verified ..... within 2 days of service of this order or notice thereof being given."

4. I shall refer to the order of de Basto J. as "the ex parte order". Pursuant to an undertaking given in the ex parte order, High Court Action No. A6157 of 1988 was instituted. The ex parte order was served on HKLSD on the same day, i.e. 8th September. It was served on the 1st respondent, Mr Chan, on the 17th September and on the 2nd respondent, Mr Jarrett, on the 20th September. The 3rd respondent, Mr Yip, was never served with it.

5. An inter partes summons was filed by HKLSD on the 9th September for an extension of time for the disclosure required by the ex parte order. HKLSD caused to be filed another inter partes summons on the 15th September to discharge the ex parte order altogether. On the 24th September, HKLSD filed yet a further inter partes summons for variation of the ex parte order.

6. No order was made in the interim until HKLSD's summons of the 24th September was entertained by Macdougall J. On the 27th September, the judge heard counsel in chambers, and on th 28th he made an order which was filed on the 30th. I shall call this order of Macdougall J. "the inter partes order". The inter partes order continued the Mareva injunction but with a maximum sum of US$358,763.96. The allowance for company and legal expenses was not repeated. No disclosure had yet been made by HKLSD and disclosure of its assets was called for in the inter partes order with a new deadline which was 2 days of the date of the order, that is up to the 30th September. Instead of requiring a disclosure of documents in the negotiation for the sale of HKLSD's 50% joint venture shares, HKLSD was ordered to "forthwith" deliver to the Registrar of Supreme Court its joint venture share certificates. There was liberty to apply on a 3 days' prior notice. The plaintiff was given costs on a common fund basis.

7. Various complaints are made against HKLSD and the respondents. Pursuant to leave granted, by the instant Notice of Motion this Court is moved for an Order of Committal against each of these respondents for contempt. The Notice of Motion has been amended with leave as was the Statement. No point was taken on the contents of the Statement, but if there should be any deficiency, I would treat the same as if it had been duly put in working order. HKLSD's summons for extension of time was, by consent, stood over to a future date.

8. The standard of proof is one of "beyond reasonable doubt", having regard to all the matters referred to and explanations offered by or on behalf of the respondents. Deborah Building Equipment Ltd. v. Scaffco Ltd., Times 5th November 1986; Dean v. Dean, Times 13th November, 1986; para. 1-39, p.27, The Law of Contempt by Arlidge & Eady; E. Mah Yau-chim v. C. King Lee & Anr., [1969] H.K.L.R. 411 at p. 419. Care must also be taken in considering the complaints against each of the respondents separately.

9. These respondents are sought to be committed on the following complaints :

1.    In respect to the inter partes order

Under paragraph 1 of the Amended Notice of Motion, all three respondents are said to have failed to cause HKLSD to comply with the inter partes order in that :

(a)    there was no full disclosure made by HKLSD; and

(b)    there was no lodging of the certificates for HKLSD's half share in the joint venture.

2.    In respect to the ex parte order

Under paragraph 2(a) of the Amended Notice of Motion, all three respondents are said to have caused HKLSD to deal with, pledge or charge, or otherwise part with possession of its 3-million shares in the joint venture to the Hong Kong Bank on the 19th September 1988. (Underlining is mine).

10. Other than for monies in bank accounts, the Mareva injunction did not seek to prevent any parting with possession of assets by HKLSD or its directors, servants or agents.

3.    In respect to the ex parts order and/or the inter partes order

Under paragraph 2(b) of the Amended Notice of Motion, all 3 respondents are said to have caused HKLSD to deal with, pledge or charge its deposit of US$360,000 to Sin Hua Bank by a Letter of Hypothecation on the 28th September 1988.

11. In the course of this hearing, the applicants abandoned all their allegations against the 2nd respondent, Mr Jarrett, in the preceding two complaints under paragraph 2(a) and (b) of the Amended Notice of Motion. The applicants also did not proceed against the 1st respondent, Mr Chan, in respect to the last-mentioned charge concerning the Sin Hua Bank Letter of Hypothecation under paragraph 2(b) of the Amended Notice of Motion.

4.    In respect to the ex parte order

Under paragraph 3 of the Amended Notice of Motion, the 1st respondent, Mr Chan, and the 3rd respondent, Mr Yip, are said to have personally aided and abetted HKLSD to deal with, pledge or charge or otherwise parting possession of its 3-million shares in the joint venture to the Hong Kong Bank on the 19th September 1988. (Underlining is mine).

12. It should be noted again that except for monies in bank accounts, the Mareva injunction did not enjoin HKLSD or its directors, servants or agents from parting with possession of its assets generally.

5.    In respect to the ex parte order and/or the inter partes order

Under paragraph 3 of the Amended Notice of Motion, the 3rd respondent, Mr Yip is said to have personally aided and abetted HKLSD to deal with, pledge or charge its deposit of US$360,000 to Sin Hua Bank by a Letter of Hypothecation on the 28th December 1988.

13. As for the alleged non-disclosure of HKLSD's assets under paragraph 1 of the Amended Notice of Motion, the complaint is particularised in the first of the two paragraphs 9 of the 1st applicant's affidavit filed herein on the 10th October 1988. HKLSD has since made further disclosures. The 1st applicant was the former General Manager of HKLSD. He expressed dissatisfaction with even the up-to-date disclosure made by HKLSD, but as I shall endeavour to explain, there is now really no evidence of concealment.

14. Further particulars for paragraphs 2 and 3 of the Amended Notice of Motion were furnished by counsel for the applicants as follows :

"Paragraph 2(a) and the corresponding part of paragraph 3 of the Amended Notice of Motion :

(a)    The 1st respondent, Mr Chan, and the 3rd respondent, Mr Yip, were both aware of the ex parte order;

(b)    The 3rd respondent, Mr Yip, agreed to deposit the certificates for the 3-million shares in the joint venture with the Hong Kong Bank in early September;

(c)    The 3rd respondent, Mr Yip, on the basis of a letter of the 13th September 1988 from the Hong Kong Bank decided to place the said 3-million shares in the joint venture on a "simple deposit" which was, so the applicants maintain, more than a mere deposit;

(d)    The 3rd respondent, Mr Yip, gave the said 3-million share certificates to Mr Bussey of the Hong Kong Bank and signed a document indicating that the bank would only make the shares available for sale on a solicitors' undertaking;

(e)    Messrs Johnson, Stokes & Master insisted in the correspondence that the said 3-million share certificates were charged to the Hong Kong Bank under a form of security;

(f)    The 1st respondent, Mr Chan, was present at the meetings with the Hong Kong Bank in August and September 1988 as mentioned in the 3rd respondent's affirmation of the 11th November 1988 : they were meetings of 11th August 1988, a subsequent meeting at or above the end of August 1988, a meeting in early September 1988 and a meeting on the 19th September 1988. That was the meeting when the said share certificates were handed to the Hong Kong Bank;

(g)    The 1st respondent, Mr Chan was personally involved in dealing with the Hong Kong Bank resulting in the Hong Kong Bank calling for the said share certificates as security as shown by the letters of the 5th September 1988 and 9th September 1988 from the Hong Kong Bank. They are in "CCYY-3" to the 3rd respondent, Mr Yip's affirmation of the 11th November 1988;

(h)    On the facts as alleged above, the 1st respondent, Mr Chan, and the 3rd respondent, Mr Yip, joinly deposited, charged or otherwise secured the said 3-million shares with the Hong Kong Bank;

(i)    As an alternative to the above, by his presence and involvement set out in (f) and (g) above, the 1st respondent, Mr Chan, aided and abetted the 3rd respondent, Mr Yip, in his contempt of court."

    "Paragraph 2(b) and the corresponding part of paragraph 3 of the Amended Notice of Motion :

(a)    The 3rd respondent, Mr Yip, signed the Letter of Hypothecation to Sin Hua Bank on the 28th September 1988 and the notice for section 80, Companies Ordinance on the same date;

(b)    The 3rd respondent, Mr Yip, knew of the terms of the ex paste order and the proceedings before Macdougall J."

15. I should summarise the rival contentions for non-disclosure. No sooner had the 3rd respondent, Mr Yip, caused to be filed id the High Court Action on the 1st October his affirmation of the 30th September 1988 in response to the inter partes order than it was challenged by the 1st applicant in the first paragraph 9 of his affidavit filed in these proceedings on the 10th October 1988. Alleged specific non-disclosures were listed. The 3rd respondent dealt with these and other matters in his subsequent affirmation filed herein on the 28th October 1988. In essence, it was explained that most of the alleged non-disclosed properties did not form part of the assets of HKLSD and that a number of such specified items were negative assets with no real or potential value, or were negligible or otherwise inadvertently overlooked.

16. As to HKLSD's failure to lodge forthwith the certificates representing its half share in the joint venture, it was explained that Mr Ming, Chief Accountant of HKLSD in attendance before Macdougall J., supplied casual unverified information to counsel resulting in an erroneous statement made to the judge that these certificates were readily available for immediate delivery to the Registrar.

17. HKLSD's half interest in the joint venture is 5-million shares, 3-million of which were handed over to the Hong Kong Bank on the 19th September 1988 for allegedly a simple deposit. These 3-million shares have since been placed in the custody of the Registrar. They were lodged with the Supreme Court Registry on the 11th November.

18. The balance of 2-million shares were delivered to China Everbright Holdings Company Limited to secure an unpaid loan made in August 1987. In his cross-examination, the 3rd respondent might possibly have been minded to suggest that these 2-million shares were given away on the 17th September 1988. The 3rd respondent tied the date of 17th September to the 3-million shares handed over for "safe-keeping", but it was not until the 19th September that these other 3-million shares were deposited with the Hong Kong Bank. In any case, whether or not it was an August loan and whether or not they left the possession of HKLSD on the 17th September, there is no evidence as to when these shares had themselves become charged or when HKLSD had committed itself to hand them over. Thus, the evidence falls far short of establishing that in the handling of these 2-million shares, HKLSD was ever in breach. There is no legitimate basis for compelling these respondents to redeem the 2-million shares for delivery to the Registrar.

19. The relevant question and answer of the 3rd respondent are set out below :

"Q.    And I suggest to you that you make no serious effort to ensure that the share - by which I mean both those that were delivered to the Hong Kong Bank and those that were pledged to Everbright - were made available to be delivered to the Court.

A.    I disagree and I say that I have already done my best. Well, on 17th September when I delivered the shares to the bank for safe-keeping, the court had not yet made an order that the shares certificate should be delivered up to the court for custody. I also discussed this with Everbright and I expressed my hope that the shares could be released to be kept by the court but that was rejected."

20. An explanation was also given for the charging of the deposite of US$360,000 in favour of Sin Hua Bank by a Letter of Hypothecation on the 28th September 1988, together with a signed notice of charge for registration under section 80 of the Companies Ordinance. As part of a blocked time deposit, the amount had been pledged in December 1987 for a loan. The blocked time deposit was further slightly reduced to US$360,000. Usual, banking practice required similar documents to be re-signed again on any change of the blocked time deposit. Thereupon, the 3rd respondent, at the bank's request, re-signed another set of similar documents sometime before the ex parte order. But on the 28th September, he obligingly signed a replacement set in identical terms merely because the already signed section 80 notice in the earlier set of documents was blurred and rejected by the Companies Registry.

21. Before these specific charges against the respondents are more closely exmained, I should first deal with the threshold argument of Mr Bunting, counsel for these respondents. It was submitted that these contempt proceedings were brought in haste, prematurely with the ulterior motive of harassing these respondents on a comparatively small claim of less than US$400,000. Just the 3-million shares in the joint venture, formerly handed over to the Hong Kong Bank but now lodged with the Registrar, are claimed to be worth at least US$1.67M, being the extent of loan or credit facilities granted to HKLSD. There is little evidence as to precisely how these facilities were secured. Counsel directed my attention to the usual judicial reluctance to set in motion the process of contempt before all other revenues had been explored. In particular, the process should not be called in aid of a civil remedy. See paras. 5-05, 5-02 & 5-38 at p.p. 264, 263 & 277, The Law of Contempt by Arlidge & Eady.

22. Mr Bunting suggested that the applicants should have simply demanded more particulars or a further list from HKLSD and/or the respondents. Counsel further suggested that cross-examination of the respondents could have been pursued before the launching of these proceedings. See marginal references 24/3/5 & 29/1/23, Vol. 1 1988 Annual Practice. In the same direction, it would have been equally open to counsel to be critical of the applicants' failure to make an application under the Liberty to Apply given in the inter partes order.

23. On the other hand, Mr Graham, counsel for the applicants, laid great stress on what would appear to be a stern reception of Macdougall J. as recorded in the notes taken by Mr Stow. I can place little reliance on these notes of proceedings as the respondents had themselves attempted but failed to be speak a copy of the judge's notes of his reasoning. There exists a full text of the judge's decision in the court file for High Court Action No. 6157 of 1983, but it is unsigned. I should refrain from making any reference to the unsigned text or allowing parties access to it without the permission of the judge. It is common ground that before Macdougall J., HKLSD conceded that a Ground Floor flat in Macdonnell Road had not been disclosed. Evidently, whether or not there was any judicial rebuke, Macdougall J. did mark his displeasure by a common fund order for costs against HKLSD. HKLSD could not have failed to appreciate thereafter the importance of a full disclosure. Moreover, HKLSD virtually submitted to a mandatory order to "forthwith" lodge with the Supreme Court Registry certificates of its half share in the joint venture. Not only had the joint venture share certificates failed to reach the Registrar "forthwith", but in the 3rd respondent's affirmation of the 30th September 1988 in response to the inter partes order, Mr Yip simply stated as fait accompli that the 3-million shares were being held by the Hong Kong Bank "as security for loan of credit facilities made by the said bank to (HKLSD) in the amount of about US$1.67M" and that the other 2-million shares were then with China Everbright Holdings Company Limited "pending final settlement". HKLSD's "dilatoriness" had brought upon itself deserving judicial stricture. It had suffered the further indignity of having to bear a penalising order of costs. HKLSD had disobeyed the order, made with at least its acquiescence, requiring the lodging of the shares. Yet, so it must have appeared to the applicants, in its director's affirmation in response to the inter partes order only bald statements were made. There was no prior attempt to return to Macdougall J. for indulgence or other directions under the Liberty to Apply with perhaps a prayer for in abridgment of the 3 days' notice. In the circumstances, it would have been extraordinary if the applicants had not immediately sought to bring the law upon the heads of these respondents as they did.

24. I could not emphasize too strongly the importance of strict adherence to every procedural requirement in contempt proceedings, particularly with respect to all the incidents of personal service. These rules eliminate surprise and ensure fair play. They are designed for the better protection of persons susceptible to enforcement proceedings. HKLSD was served with the ex parte order on the same day, but the 1st respondent was not served with the ex parte order until the 17th September 1988, the 2nd respondent until the 20th September 1988 and the 3rd respondent has never been served with it at all. The 1st and the 2nd respondents, as was HKLSD, were served with the inter partes order on the 30th September 1988. Service of the inter partes order was effected on the 3rd respondent only on the 14th October 1988 when he was served with the instant Notice of Motion. In purported compliance with O.45 r.7(4) of the Rules of the Supreme Court, both the ex parte order and the inter partes order served on these respondents were indorsed with the following penal notice :

"TAKE NOTICE that if H.K LOTUS SCIENTIFIC DEVELOPMENT LIMITED by its officers, servants, agents or otherwise howsoever neglect to obey this Order by the time therein limited, you, (name of the respondent), (description of his post) of H.K. LOTUS SCIENTIFIC DEVELOPMENT LIMITED will be liable to process of execution for the purpose of compelling H.K. LOTUS SCIENTIFIC DEVELOPMENT LIMITED to obey the same."

25. That notice was issued in terms of O.45 r.7(4)(b) (not, be it observed, under O.45 r.7(4)(a) or both) and contained a warning against only part of the possible risks in this case under that sub-sub-paragraph (b).

26. In the penal notice, the 1st respondent, Mr Chan, was described as Senior Finance Manager, the 2nd respondent, Mr Jarrett, as General Manager and the 3rd respondent, Mr Yip, as director.

27. I should set out Order 45 r.7(4) for easy reference :

"O.45 r.7(4) There must be indorsed on the copy of an order served under this rule a notice informing the person on whom the copy is served -

(a)    in the case of service under paragraph (2) that if he neglects TO OBEY the order within the time specified therein, or, if the order is to abstain from doing an act, that if he DISOBEYS the order, he is liable to process of execution to compel him to obey it, and

(b)    in the case of service under paragraph (3) that if the body corporate neglects TO OBEY the order within the time so specified or, if the order is to abstain from doing an act, that if the body corporate DISOBEYS the order, he is liable to process of execution to compel the body to obey it." (Emphases added)

Paragraph (2) prescribes personal service "on the person required to do or abstain from doing the act in" the order, that is to say, on the person named in the order. Paragraph (3) prescribes personal service on a director or other officer of a body corporate before contempt proceedings may be brought against him in his capacity of director or officer for compelling the company's obedience.

28. It is reasonably clear, therefore, that none of the respondents has been served with an indorsed penal notice as a party named in the order under O.45 r.7 (4)(a), that is to say, a notice warning the respondent served that he must not himself neglect to obey what was required of him personally by the order within the specified time. These penal notices did not seek to make any of the respondents liable as a party named for his own disobedience. They were O.45 r.7(4)(b) notices.

29. I said that O.45 r.7(4) was purportedly complied with for the further reason that in every case the penal notice merely informed each respondent apart of the full consequences in this case under O.45 r.7(4)(b). The only message conveyed was that if the body corporate, should neglect to obey the order within the specified time, he, the respondent so served as its director or other officer would be liable to process of execution to compel HKLSD to obey. The penal notices did not inform them of the consequences of disobedience to the negative or prohibitory Mareva injunction.

30. The negative or prohibitory part of the ex parte order and the inter partes order enjoined HKLSD to abstain from doing any act restrained by the Mareva injunction granted in both.

31. Because of the limited scope of the penal notice, these proceedings are confined to the mandatory orders requiring HKLSD (not, be it observed, the respondents) to do (not, be it observed, to abrain from doing) certain acts, viz. disclosure and lodging of shares in the inter partes order. See paragraph 1(a) & (b) of the Amended Notice of Motion. Consequently, no penal notice has been given for the negative or prohibitory Mareva injunction. If that is how these penal notices should be read, bearing in mind the crucial importance of disciplined compliance with the procedural requirements in contempt proceedings, the alleged breaches of the Mareva injunction under paragraphs 2 and 3 of the Amended Notice of Motion do not call for further consideration unless service is dispensed with or unless the respondent in question had been "aiding and abetting".

32. When an order enjoins a company by itself, its directors, officers, servants or agents to do or to refrain from doing any act, the directors, officers, servants or agents themselves may arguably be liable in person as the parties named in the order just as the company itself. See para. 2-51, p.65, The Law of Contempt by Arlidge & Eady. But, in my view, their personal liability would not begin to attach unless the order is served on them as such named parties under O.45 r.7(2). In this case, the respondents were not so served as they were not served with a penal notice in that form. Dispensation of service of an order properly indorsed with such a penal notice on the respondents as named parties was not canvassed before me. The respondents were not, therefore, served as parties named in the orders under O.45 r.7(2). They were only served as a director or officer under O.45 r.7(3) and were so served with an penal notice under O.45 r.7(4)(b) (not, be it noted, under O.45 r.7(4)(a)) to compel the company merely to do (not, be it noted, to abstain from doing) an act.

33. Lord Denning cautioned us to exercise care in framing a Mareva injunction "with as much certainty as possible, what (the defendant) is to do or not to do". See Z Ltd. v. A.-Z. [1982] W.L.R. 288 at p.297, Letters F/G. A fortiori, that is sound advice for the selection of the form of a penal notice.

34. Parties may also be personally held in contempt as aiders and abetters, but there is no substance in the contention that aiding and abetting could arise from mere inertia. A "director or other officer" falls into a class of his own. He is responsible for his company. As I shall try to illustrate later, "responsibility" is a relative word. Provided that he is fixed with such responsibility, playing a passive role in a breach would not excuse him from being accused of having, in effect, procured or at least suffered a breach by his company. Hence, upon being served with an order duly indorsed with an appropriate penal notice, a director or officer who has "no personal knowledge of or involvement in" his company's breach is nevertheless liable to be proceeded against for compelling his company to obey. See para. 5-13, p.269 The Law of Contempt by Arlidge & Eady; sub-sub-paragraph (iii) of O.47 r.5 (1)(a) & (b) R.S.C.; Biba Limited v. Stratford Investments Co. Ltd., [1973] 1 Ch. 281; Cartier International B.V. & Other v. Kaybee International Ltd., [1983] H.K.L.R. 127 at p.p. 130J-131 Letter A & 133 Letters A/B. It would be sufficient to prove merely the breach after service on him and his company of the order. See para. 2-01, p.30, para. 2-86, p.84, para. 5-06 p. 265 and para. 5-09 p. 267 The Law of Contempt by Arlidge & Eady. It is only when the conduct of the company itself falls to be examined as to whether there had been "wilful" disobedience with a measure of contumacy or mere "casual, or accidental and unintentional" disobedience that the absence of neglect or negligence on the part of its directors/officers would become material. See Steiner Products Ltd. v. Willy Steiner Ltd., [1966] 1 W.L.R. 986 at p.p. 991, Letters B-C; p.992 Letters B/C & Letter D; Fairclough v. Manchester Ship Canal Co. [1897] W.N.7, C.A.; Hone v. Page, [1980] F.S.R. 500 at p.509. If all reasonable steps had been taken and due care exercised by the directors/officers, any casual, accidental or unintentional non-compliance of the body corporate would bring about no serious sanction. In that case, once the wrong is removed or the order is performed, the contempt is purged and "the contemnor is entitled to his release ex debito justitiae". See paras. 1-25, 2-26, 2-67 at p.p. 15, 48 & 76 The Law of Contempt by Arlidge & Eady. Therefore, inertia could not by itself constitute aiding and abetting or give rise to liability. The position seems to be that if a company disobeys an order after service on it and its directors/officers with an appropriate penal notice, inactivity of its directors/officers in and their ignorance of the breach would not save them from punishment to compel their company's obedience under sub-sub-paragraph (iii) of O.47 r.5(1)(a) & (b).

35. A director or officer may be involved in different capacities : (1) arguably as an individual party named in the order, (2) as an official responsible for the company's non-performance or disobedience by reason of his corporate control, though without knowledge of or participation in the breach and/or (3) as an aider and abetter.

36. None of the respondents is sought to be punished as a party named in the orders. They were each served as a director or other officer, and as such the respondents must also be served with an appropriate penal notice. All of them were not served with any penal notice for disobedience to the prohibitory Mareva injunction. Aiders and abetters may be punished without service. It would suffice if they had notice of the order. That is, in my view, what was decided by the Court of Appeal in the Cartier case, supra. In that case, counsel argued, inter alia, but without success that a director or other officer of a company being its "directing mind and will" could not aid and abet the company itself. Huggins, V.P. was of the view that such an argument would "necessarily impose a gloss on Salomon v. Salomon & Co. [1897] A.C. 22" which affirmed the concept that "a company is ex hypothesi a distinct legal persona". It is not clear whether the case of R. v. McDonnell, [1966] 1 Q.B. 233 was cited to the Court of Appeal, where the sole responsible director was held to be incapable of conspiring with his own company, admittedly a separate legal entity. See also para. 1-8, Gore-Browne on Companies, 43rd Edn.

37. The real justification for sanction in the case of an aiding and abetting director/officer is to be found in the courts' determination not to allow its process to be set at naught and treated with contempt. The courts seek to hold in contempt, for the public good, persons who have deliberately acted in defiance of judicial instructions. This rationale as stated in Halsbury's Laws of England was approved by Cross J. in Phonographic Performance Ltd. v. Amusement Caterers (Peckham) Ltd. [1964] 1 Ch. 195 at p. 199 :

"(Civil contempt) bears a two-fold character, implying as between the parties to the proceedings merely a right to exercise and a liability to submit to a form of civil execution, but between the party in the default and the state, a penal or disciplinary jurisdiction to be exercised by the court in the public interest."

38. Cross J. also endorsed the views of Rigby L.J. given in Seaward v. Paterson, [1897] 1 Ch. 545, 558 thus :

"That there is a jurisdiction to punish for contempt of court is undoubted. It has been exercised for a very long time - for longer than any of us can remember - and it is a punitive jurisdiction founded upon this, that it is for the good, not of the plantiff or of any party to the action, but of the public, that the orders of the Court should not be disregarded."

39. In Z Ltd. v. A.-Z. [1982] 2 W.L.R. 228 at p. 300, Letters F/G, Lord Denning, M.R. had this to say :

"I .... take first the question of prior notice to the defendant. It was argued that the liability of a third party arose because he was treated as aiding and abetting the defendant (i.e. he was an accessory) and as the defendant could himself not be in breach unless he had notice it followed that there was no offence to which the third party could be an accessory. In my opinion this argument misunderstands the true nature of the liability of the third party. He is liable for contempt of court committed by himself. It is true that his conduct may very often be seen as possessing a due character of contempt of court by himself and aiding and abetting the contempt by another, but the conduct will always amount to contempt of court by himself. It will be conduct which knowingly interferes with the administration of justice by causing the order of the court to be thwarted."

40. Not only need an order be personally served, service must be effected before the expiration of the time within which the mandatory order is to be compiled with. See O.45 r.7(2)(b) & (3)(b). The negative or prohibitory order in the form of a Mareva injunction in both the ex parte order and the inter partes order carried no time limit, but they were not served with an appropriate penal notice for a negative order as required by the latter half of O.45 r.7 (4)(b). However, enforcement of a prohibitory order need not always be supported by service provided that pending service the person against whom it is sought to be punished had notice of it either by being present when the order was made or by being notified of the terms of the order, whether by telephone, telegrame or otherwise. See O.45 r.7(6).

41. The penal notices contained no warning against disobedience to the Mareva injunction in negative or prohibitory form in both the ex parte order and the inter partes order, and the omission would affect the breaches founded on the alleged "dealing with, pledging or charging" of the 3-million joint venture shares and the US$360,000 deposit by a Letter of Hypothecation under paragraphs 2 and 3 of the Amended Notice of Motion. These complaints are not maintainable because there was no appropriate penal notice and therefore no proper notice unless the respondent concerned had notice of the order or orders, as the case may be, for service to be dispensed with under O.45 r.7(6). Of course, these respondents may be held in contempt as "aiders and abetters" even without effective service of an order in any form.

42. Whilst service of a prohibitory order may be dispensed with under O.47 r.7(6), dispensation of service of a mandatory order under O.47 r.7 (7) may only be granted when the person sought to be served had attempted to evade service. See para. 7-45 at p.p. 334 & 335 Law of Contempt by Arlidge & Eady; p.p. 200-201 Oswald on Contempt of Court 3rd Edn.; p.p. 398, 399 & 409 Borrie & Lowe's Law of Contempt, 2nd Edn.

43. A party may be forced to seek a prohibitory or negative order in urgency or emergency on an ex parte application. It stands to reason why it may be necessary to enforce compliance even before service provided the culprits had notice of the order. It is specifically provided in O.45 r.7 (6)(a) that the mere presence of the person sought to be committed at the time of the making of the order is sufficient for service of a prohibitory order to be dispensed with. O.45 r.7 (6)(a) makes no reference to a mandatory order. Indeed, on the contrary it has been decided that a person's presence at the pronouncement of a mandatory order would not by itself justify the lifting of the necessity for effecting personal service on him. See In re. Tuck, Murch v. Loosemore [1906] 1 Ch. 692 at p.696; The Century Insurance Company Ltd. v. Larkin, [1919] I.R. 91 at 94.

44. As for the alleged non-disclosure under paragraph 1(a) of the Amended Notice of Motion, it relates only to the inter partes order which required a full disclosure of assets and verification within two days of the order. The 1st respondent, Mr Chan and the 2nd respondent, Mr Jarrett, were both served on the 30th September. It is complained that the 1st respondent was served late in the afternoon and the 2nd 2nd respondent after 1 or 2 p.m., hence there was not enought time for them, assuming they were "officers" of HKLSD, to see to it that the mandatory order for disclosure in the inter partes order was obeyed. O.45 r.7(3)(b) merely requires personal service to be effected on the officers "before the expiration of the time within which the (company) was required to do the act". In my view, it should not be read into it a proviso for service to be effected within a reasonable time before the expiration of that time. Moreover, an affidavit in response to the inter partes summons was made in time by the 3rd respondent, Mr Yip, on the 30th September 1988, in which nothing was suggested of HKLSD or any of its officer requiring further time to make disclosure. In addition, no attempt was made to return to Macdougall J., with perhaps an abridgement of time, under the Liberty to Apply given in the inter partes order. The 1st respondent and the 2nd respondent were, in my opinion, duly served.

45. The 3rd respondent, Mr Yip, was not served within time as he was served only on the 14th October 1988. He was briefed on the inter partes order by Mr Ming on the 29th September. He must have otherwise become aware of this court order before the making of the 30th September in response to it. Nevertheless, he was not duly served. Up to the deadline for making disclosure set by the inter partes order, Mr Yip had not been shown to be evading service. For the reasons I have given, there can be no questions of dispensing with personal service within time of a mandatory order for disclosure in Mr Yip's case. However, what has still to be considered is whether Mr Yip was "conducting himself so as to obstruct the course of justice", as in the words of Lindley L.J. in Seaward v. Paterson, supra. at p.555. Was he himself in contempt of Court in the loose sense of aiding and abetting?

46. There was non-disclosure in the 3rd respondent's affirmation and the affirmation of Mr Ming Kam Hung, the Chief Accountant of HKLSD both affirmed on the 30th September. What was then disclosed was just the 5-million joint venture shares, the Ground Floor flat in Macdonell Road, three Mercedes Benz, one truck and one goods vehicle. The Macdonell Ground Floor flat was said to be worth approximately $900,000 but mortgaged to secure banking facilities to the extent of US$1.67M. The 3-million shares were said to have been given as "security" to Hong Kong Bank and the 2-million shares was said to be held by China Everbright Holdings Company Limited "pending final settlement". The truck and the goods vehicle were mortgaged to finance companies. Therefore except for the Mercedes, the rest of the then disclosed assets of HKLSD were all said to be either charged, mortgaged or held pending a final settlement.

47. The 1st applicant identified a number of properties as having allegedly been concealed. On the 27th October, HKLSD through the 3rd respondent, Mr Yip, elaborated as follows :

(1)    The three sets of "neck sealers" were expected to be and had been paid by the joint venture. These equipments were purchased by Lotus Engineering International Inc. from a Turkish company on a Letter of Credit obligingly opened by HKLSD. HKLSD's procuring and processing of this Letter of Credit were financial realities as Lotus Engineering International Inc. had not been in a position to make the application. HKLSD paid 10% margin in a sum of US$265,000. The Letter of Credit had expired and the equipments had been paid by the joint venture.

48. Choses in action need also be disclosed. See marginal reference 29/1/23 Vol. 1, 1988 White Book. But the alleged breach must be proved beyond reasonable doubt. With the offered explanations, I cannot feel sure that in this item there was an asset for disclosure. With equipments now paid for and in possession of the joint venture and the Letter of Credit expired, it is only to be expected that HKLSD's drawn drafts under the Letter of Credit must have been fully retired and its liability wholly satisfied. There is no evidence of any outstanding or contingent payment due to HKLSD. Needless to say that the equipments have also not been shown to be part of HKLSD''s assets.

(2)    Two second-hand (approximately 20 years old) black and white screening machines were acquired for about US$13,000. The same had been lying idle on the roof of the joint venture premises. It is virtually just scrap metal today.

49. Again, I am not satisfied beyond reasonable doubt that this is property of HKLSD or that if it is, it is an asset.

(3)    Some office equipments and a microscope : the office equipments were in the premises of Lotus International Marketing Engineering Limited. Whether they were hired or owned by that company, these equipments were invoiced to it by JLW Management Services Limited. The microscope was purchased for US$12,747.65. It was conceded as belonging to HKLSD, but its whereabouts was only recently discovered after the complaint of non-disclosure by the 1st applicant. It was a surplus to HKLSD's needs. The item had been completely forgotten and inadvertently omitted in the disclosure. The item had even been incorrectly entered in the books of the joint venture.

50. The office equipments have not been shown to my satisfaction to be an asset of HKLSD. As for the microscope, it was out of sight, out of mind and in the wrong books. In the circumstances, it could seem quite probable that the microscope might not have been detected for inclusion even if reasonable steps had been taken. Likelihood of prejudice by the non-disclosure of a used microscope cannot be said to be real. I am not completely satisfied that contempt has now been made out for this item. In any case, it is a case of accidental or unintentional disobedience the contempt of which has been now purged by its disclosure.

(4)    Items purchased from Taiwan were purchased by Lotus Engineering International Inc. as in a case of the neck sealers on a Letter of Credit opened by HKLSD. The goods had not arrived and presumably the liability under the said Letter of Credit of HKLSD remained a liability.

51. There is no evidence whether HKLSD had any right to reimbursement and on what terms and, if HKLSD acquired such a claim, whether it had accrued and, if it had accrued, whether it had been discharged. It could be too subtle a legal situation to unravel. Such a right, if subsisting, would probably only set-off HKLSD's liability under the Letter of Credit, and HKLSD's assets would not presumably be materially affected. Likelihood of prejudice by its non-disclosure must necessarily be small. If indeed there had been an outstanding claim for reimbursement against Lotus Engineering International Inc., I would not be prepared to conclude that HKLSD had, in the circumstances, "wilfully" withheld the information.

(5)    The vehicle Registration No BT1802 was sold in July 1988.

(6)    Of the intellectual property rights, licences and trade secrets complained of as not having been disclosed, only the patent rights were owned by HKLSD. They were audited as having no value and were treated as written off in late 1987. The other items had never been entered in the books of HKLSD and for some reasons never treated as part of its assets as they had no "established value" in the absence of any confirmed sales.

52. I am not satisfied beyond reasonable doubt that there was any contempt as there could have been no serious risk of prejudice even if there had been truly non-disclosure. Insofar as it could be taken as a technical contempt, such must have been accidental or unintentional.

(7)    The Miniyoke system was not owned by HKLSD who advanced at one time US$1,080,000. It was property of the joint venture. The right to receive certain technical co-operation as a fringe benefit to the supply of the Miniyoke system still vested in HKLSD, but it was of no value as HKLSD had no practical use for it at the present time.

53. I am not satisfied that non-disclosure was anything but trivial or that the court's powers in contempt should be invoked to punish such an omission with consequences so trifling. See para. 4-06, p.153 The Law of Contempt by Arlidge & Eady. There could not be, in any case, such likelihood of prejudice as would justify a finding of contempt.

(8)    "The right to use tooling for certain manufacturing processes, including colour picture tube components" from General Electric Company was included in the package deal for a "second-hand production line". The production line had been moved to Shanghai with HKLSD acting as a "turn key contractor" responsible merely for its relocation to Shanghai with no interest in it. Nothing further need be said.

(9)    Bank accounts were not disclosed as ordered. The credit balances in various accounts as finally given in the affirmation of the 3rd respondent filed on the 28th October 1988 do not relate to the date of the ex parte order (8th September) or the date of the inter partes order (28th September) or the date of the earliest close of business after service. Only 3 out of 13 accounts gave the credit balances as at the 30th September, the date of filing of the earlier affirmation of the 3rd respondent. The inter partes order must have superceded the ex parte order. The inter partes order required disclosure and verification within 2 days of its date. There is no evidence that HKLSD deliberately selected certain dates rather than disclosing what was at hand. HKLSD was prepared to supply available credit balances in any relevant period, but the applicants had not taken advantage of its offer. The Hong Kong Bank credit balances were charged and some bank balances were in any case insignificant. The former solicitors of HKLSD, Messrs. Siao & Wen did not specifically advise HKLSD on the need to disclose bank accounts.

54. HKLSD through its director, the 3rd respondent, disclosed on the 30th September 1988 mostly charged assets. The inter partes order specifically referred to bank accounts and named in particular the Nanyang Commercial Bank Ltd. Granted that there was no legal advice given on bank accounts and that HKLSD was in turmoil when the 3rd respondent, Mr Yip, made his affirmation on the 30th September in response to the inter partes order, I cannot accept that as a seasoned businessman, Mr Yip could have failed to appreciate bank accounts, with substantial or negligible balances, charged or unincumbranced, as forming an important part of his company's assets. Accounts presently insubstantial or in debit are nevertheless legitimate receptacles of any future payments-in. I am left with no shadow of a doubt that the 3rd respondent deliberately withheld information of these bank accounts. Mr Yip was never served with this disclosure order in the inter partes order until the 14th October. As a mandatory order, in the absence of any attempted evasion, its service cannot be dispensed with. But he had notice of it from the Chief Accountant, Mr Ming, at about 11 a.m. the next day, the 29th September. He must have been aware of that order for disclosure at least prior to the making of his affirmation on the 30th September, which was said to be in response to it. Mr Yip played an active role in procuring the breach in his disclosure of HKLSD's assets without these bank accounts in this affirmation of his. See p.409 Borrie & Lowe's Law of Contempt, 2nd Edn. In my judgment, he was defying the Court; he was obstructing the course of justice as prescribed by the Court granting the disclosure order in aid of the Mareva injunction. Mr Yip was, in that sense, aiding and abetting the breach of HKLSD in not disclosing the bank accounts by his affirmation filed in response to the inter partes order. It would make no difference that the 3rd respondent has not been specifically accused of being an aider and abetter. I shall consider in turn the responsibility of the 1st respondent, Mr Chan, and the 2rd respondent, Mr Jarrett, later.

(10)    HKLSD's joint venture interests merged with and represented by the 5-million shares.

(11)    The whereabouts of some vehicles were not disclosed due to their mobility.

55. This ommission is a breach of the mandatory disclosure order in the inter partes order. HKLSD could and should have given information of the locations where these vehicles were kept when they were not in use. However, it cannot be seriously suggested that HKLSD could hope to gain anything by withholding the whereabouts of these vehicles when the identity of them by their Hong Kong registration had been revealed. The breach is de minimis, to which I should pay no regard. The applicants have not claimed to be, in any way, materially prejudiced by such non-disclosure. I am not satisfied that a contempt has been made out or that it could be more than a technical contempt, now cured.

56. In conclusion, only non-disclosure of HKLSD's bank account's within time was disobedience to the inter partes order. It was a mandatory order. The 3rd respondent was not served and service on him could not be dispensed with without evidence of attempted evasion. Mr Yip could not be proceeded against as a director on account of this procedural impediment. The 3rd respondent had notice of the inter partes order and played an active role in the non-disclosure. He is himself in contempt.

57. As to the lodging of HKLSD's joint venture shares required by the inter partes order, it was a "forthwith" order as opposed to the disclosure order which HKLSD was enjoined to comply with "within 2 days of the date of" the inter pastes order. None of the respondents was served at such point of time as would enable the delivery of these shares to be "forthwith" made. The shares, if available, should have been lodged on the same day. The 1st respondent, Mr Chan, and the 2nd respondent, Mr Jarrett, were served on the 30th September. The 3rd defendant, Mr Yip, was not served until the 14th October. Even HKLSD itself was only served on the 30th September. The respondents had not been served in time for this "forthwith" order, but did any of the respondents have due notice of it? Had any of these respondents deliberately caused the share certificates to be put out of reach after such due notice?

58. According to Mr Yip's vague answer in cross-examination, which I have set out earlier, the 2-million shares held by China Everbright Holdings Company Limited might have been handed over on or about the 17th September 1988 before the making of the inter partes order. In any case, there is no evidence as to when the equity for the retention of these 2-million shares was created or when HKLSD had committed itself in respect to these shares.

59. The 3-million shares formerly in the hands of the Hong Kong Bank in two certificates were given to bank on the 19th September 1988 before the making of the inter partes order on the 28th September.

60. All these 5-million shares were therefore out of reach as at the making of the inter partes order. There is, at least, no evidence of the other 2-million shares being then still available. The worst sin of HKLSD and the respondents was in not exercising close supervision over the furnishing of information to Macdougall J. for his making of an order for an instant delivery of share certificates. They were then not in the possession of HKLSD but in the possession of 3rd parties who might not cooperate. But none of the respondents could have known in advance what Mr Ming would be consulted on and, if he was asked about these shares, what his answer might be. In hind sight, they should perhaps have sent more or more knowledgeable staff to attend on counsel. There is no evidence that they were duly consulted after the event. The 1st and 2nd respondents were served much later than what was expected of HKLSD in the "forthwith" order in the lodging of the shares. The 3rd respondent was served even later, though he was told of the order by Mr Ming at about 11 a.m. on the 29th September.

61. The Hong Kong Bank and China Everbright Holdings Company Ltd. were not willing to part with the certificates in their respective possession although Hong Kong Bank relented subsequently on the 11th November 1988. The respondents had no due service or notice of the inter partes order to enable immediate delivery of the shares to be attempted under the "forthwith" demand. After the inter partes order, none of them made it impossible for or obstructed HKLSD to try to comply with it. The shares were not lodged forthwith simply because they were not available. Time was needed to call or negotiate for their return, and these respondents could never have met the forthwith order even if they had been duly served within time. In these circumstances, I am not satisfied that any of the respondents could be liable as director or officer for the purpose of compelling obedience from HKLSD under O.45 r.5(1)(a)(iii). For one thing, they were not served with the inter partes order within time. Further, apparently none of them had heard of the inter partes order prior to HKLSD's breach of the "forthwith" order which was disobeyed virtually instantaneously upon the making of it on the 28th September. At the time of the inter partes order, HKLSD did not have them and could not even pretend to lodge them forthwith. I am not satisfied that HKLSD's breach of the inter partes order by its failure to surrender these shares had been caused or otherwise in the general sense aided or abetted by these respondents.

62. It is just as convenient at this juncture as any to dispose of the question as to whether the 1st respondent and the 2nd respondent were officers of HKLSD. The 3rd respondent was admittedly a director.

63. Under O.45, r.5(1)(a)(iii), subject to the fulfilment of certain requirements, a mandatory order may be enforced by an Order of Committal against "any director or other officer" of a body corporate.

64. Section 2 of the Companies Ordinance provides that "officer, in relation to a body corporate, includes a director, manager or secretary." It is often said that the word "officer" is thus sought to be defined by section 2, but as Lord Denning M.R. stated the obvious : it is "not really 'defined' : for it only 'includes a director, manager or secretary'. Its meaning may depend on the context in which it is used and in this case on the whole phrase." (Emphasis added). In re A Company, [1980] 1 Ch 138 at p.143 Letters F/G. As a somewhat circuitous definition, section 2 offers no real guidance.

65. In an enquiry into matters interwined with the overall management of the company, the proper "manager" or "officer" to be investigated ought to be a person, in the words of Blackburn J. in Gibson v. Barton, (1875) 10 Q.B.D. 329 at p.336, "entrusted with power to transact the whole of the affairs of the company."

66. Registrar of Restrictive Trading Agreements v. W.H. Smith & Son, Limited & Others, [1969] 1 W.L.R. 1460 is a case where Lord Denning M.R. recognised as the hallmark of a "manager" in the Companies Acts, his de facto or de jure power "to transact the whole affairs of the company". See p.1069 Letter H. As an indicium, it orginated from Blackburn J. in Gibson v. Barton, supra. The learned Master of the Rolls described it as "an accepted meaning of the word 'manager' in the Companies Acts". (Emphasis mine) In his judgment, Lord Denning leaned against casting a wider net by giving the word "manager" an extended meaning in the case of attendance for examination by an officer under a different statute, the Restrictive Trade Practices Act, 1956. The legislative object seemed to be the cause for his selection of a narrower but well accepted sense of the word "manager" under the English Companies Acts. The Master of the Rolls, however, stressed that even under the Companies Acts it was not the exclusive meaning of "manager" but "an accepted" one.

67. Some 11 years later, when Lord Denning presided over the English Court of Appeal in In re A Company, [1980] 1 Ch 138, counsel were of one voice as to the meaning of "manager", that is to say, he must be a person managing the affairs of the company as a whole as explained by Blackburn J. in Gibson v. Barton, supra. The case of W.H. Smith & Son Limited was specifically cited in both submissions, one made in the capacity of an amicus curiae. See p.141 Letters C & D and p.142 Letter B. The point under consideration there stemmed from section 441 of the Companies Act 1948. But in the judgment of Lord Denning, M.R., neither Gibson v. Barton nor W.H. Smith & Son Limited was referred to. Shaw and Templeman L.J.J. also made no mention of these cases. At p.143 Letters G & F, Lord Denning had this to say :

"The officer here referred to is a person in a managerial situation in regard to the company's affairs. I would not restrict these words too closely. The general object of the Act is to enable the important officers of the state to get at the books of the company when there has been a fraud or wrongdoing. It seems to me that whenever anyone in a superior position in a company encourages, directs or acquiesces in defrauding creditors, customers, shareholders or the like, then there is an offence being committed by an officer of the company in connection with the company's affairs."

68. In In re A Company, supra., the misconduct complained of was in respect to "an offence in connection with the management of the company's affairs" allegedly committed by "an officer". What was at issue was not the management of the whole of the company's affairs but an alleged offence in connection with it. Such an offence might be limited to operations involving only a part of the company's entire management. Understandably it was held that a departmental manager said to have caused fraudulent statements to be distributed to customers was such an officer.

69. In Registrar of Restrictive Trading Agreements v. W.H. Smith & Son Limited, supra., branch managers were sought to be made targets of interrogation in respect of a suspected agreement for retrictive trade practices. Any one not "managing in a governing role of the affairs of the company itself" could hardly be expected to have been taken into confidence by parties to such a clandestine bargain. The branch managers did not manage the affairs of the company, and an attempt to have them brought within the description of "any director, manager, secretary or other officer" for interrogation failed.

70. In Gibson v. Barton, supra., the default was failure to furnish a copy list of all the company members as at a particular date. The de facto manager who was clothed with full managerial powers so as to be in a position to collect, collate and compile names for such a list, was held liable.

71. These cases were decided on sections of the Companies Acts and a provision under the Restrictive Trade Practices Act 1956, all for the regulation of corporate activities. The word "manager" has acquired a connotation coloured over the years by legal construction in the context of company law, and special features must exist to justify opting for a meaning different from the generally accepted, though not a fixed one.

72. The scope and extent of the mischief which a law seeks to suppress may warrant a departure from the generally accepted meaning of the word "officer" or "manager". In re A Company, supra. is an example.

73. In contempt proceedings, punitive in nature, there is every good reason to resist any temptation to enlarge the meaning of the word "officer" in terms of a manager. Moreover, it would be harsh in this case to call upon company staff exercising some superior administrative function to make a full disclosure of its assets, to deliver share certificates representing as much as all its 50% in the joint venture or to ensure its assets not being, inter alia, dealt with. It would be unjust to hold them responsible or punish them for default.

74. In my view, the court must have regard to factors such as "the general object" of the legislation, "the context in which (the word 'officer') is used", the perimeter of the acts or omissions under complaint and the personal responsibility of the person sought to he held in contempt in his area of activity. It should constantly be remembered that the word "officer" is susceptible of more meanings than one or, more accurately, that its range varies. In a case like the one before me, the Court need ultimately to investigate as a question of fact how the management of the company has in reality been conducted so as to determine who can truly be said to be the officer responsible.

75. Returning to the alleged non-disclosure in paragraph 1(a) of the Amended Notice of Motion : the 2nd respondent, Mr Jarrett, was at the material time the General Manager of HKLSD. He was the Assistant General Manager when the 1st Applicant was General Manager. He had just taken over. He claimed that his designation and his post as General Manager did not truly reflect what his functions were : he had not been connected with manufacturing; he was principally engaged in the project in China and his responsibility was for seeking out and procuring potential customers; he was unconcerned with the financial management side which was, according to him, in the hands of the 1st respondent and the 3rd respondent; he had no control of assets of HKLSD; he was even unaware of the corporate identity within the group, by whom the 50% joint venture shares had been held. At the time, a large number of writs against HKLSD were pouring in. He was served with the ex parte order, though much later, on the 20th September and the inter partes order on the 30th September. He leaned heavily on the 1st respondent, Mr Chan, Eva Yau and the former solicitors of HKLSD. He had spoken to the former solicitors of HKLSD but did not specifically seek or obtain any legal advice; nor did he follow it up personally. It was not within his area of responsibility to solve any financial problems. Even at that juncture, he concentrated on lining up projects for the future. The 3rd respondent, Mr Yip, recalled that Mr Jarrett had just been appointed General Manager and "did not know much about the company". However, Mr Jarrett agreed that a large portion of the physical assets of HKLSD were under his control as General Manager.

76. There is no reason to doubt that as General Manager he could exert considerable influence over his staff in the general conduct of the company's affairs. He might not have the and probably had little final say, but he was an officer and could have wielded the power he had and gave specific directions to the Accounts Department in giving responsible staff to fully disclose assets as was required of HKLSD by the inter partes order. He should have also taken a personal interest in supervision. Mere giving of instructions or delegation of duties would not be enough. Steiner Products Ltd. v. Willy Steiner Ltd., supra., at p.p. 990 Letter F and 991 Letters B & C. Mr Jarrett had not, in my view, taken all reasonable steps to try to ensure that full disclosure was made. HKLSD cannot excuse itself by his leaving almost everything to the 1st respondent, 3rd respondent, legal advisers and the Accounts Department. His inactivity or inertia, as Mr Graham put it, would not make him guilty of aiding and abetting in the wider sense of interference with the course of justice. What duties Mr Jarrett himself had failed to discharge was not, in isolation, crucial. The central issue is whether those responsible for HKLSD including Mr Jarrett had together taken all reasonable steps to obey the order for disclosure. The answer is clearly in the negative with the 3rd respondent, Mr Yip deliberately withholding information on the bank accounts. HKLSD was in "wilful" breach.

77. Mr Jarrett's shortfall must now be more closely examined in assessing the gravity of his contempt. Mr Jarrett was, in my judgment, in contempt as an officer of HKLSD under 0.47 r.5(1)(a)(iii) R.S.C. As a matter of principle, Mr Jarrett should have been more active. Ignorance of the breach is no defence. Biba Limited v. Stratford Investments Co. Ltd., supra. He was new in the post. HKLSD was in chaos. The company was then served by less than a skeleton staff. He was not conversant with and had no control over the finance management. He could be forgiven for believing that the dispute between HKLSD and its former General Manager was not his real concern. Against the background built up by his other explanations, in reality he could have no moral blame.

78. As for the 1st respondent, Mr Chan, he had been made Assistant General Manager allegedly under a consultancy contract. That would make no difference. He held the post of an Assistant General Manager however he was appointed. Mr Chan claimed that he was not a de jure Assistant General Manager. If he be right, the focal point would be whether or not he was a de facto Assistant General Manager.

79. The 1st respondent explained that his Assistant General Manager position was a device to clothe him with an external image for facilitating his financial management services rendered to HKLSD. His image was said to carry no commensurate authority. His management contract was wide-ranging but he was not called upon to provide management assistance. His prime area of responsibility was exclusively his financial management services in respect to loans from outside sources. He was given the title of Assistant General Manager solely for this purpose. He claimed to have no involvement with business development of HKLSD or with its financial management. According to Mr Chan, HKLSD's finance had throughout been under the control of the Accounts Department and the President's Office. He was served with the ex parte order on the 17th September. Earlier on the 8th September after service or attempted service on him of this order, he covered up his name by "tipp-ex". He was served with the inter partes order on the 30th September. He consulted the Chief Accountant, Mr Ming, on these orders. He was instructed to liaise with legal advisers on behalf of HKLSD. At one time, he equated his role as that of a Financial Controller. He also served in other companies within the HKLSD Group. He had been made a director in the joint venture since early 1988.

80. In his alleged unusual position, the 1st respondent's Assistant General Managership was said to be for the sole purpose of enabling him to work in a special capacity, dealing with external finance sources. His empty rank was said to be necessary for complementing the functions he was to perform. I am left in some doubt as to whether at the material time he was truly an Assistant General Manager, thus an officer of HKLSD. I cannot, therefore, conclude that he was.

81. After the 1st respondent, Mr Chan, had been personally served with the ex parte order as an officer of HKLSD, he spoke to Mr Ming, the Chief Accountant. He instructed his secretary to send it over to HKLSD's former solicitors but did not obtain advice specifically on his personal obligations. He frequently contacted Messrs. Siao & Wen for progress. All he was given were words of comfort to effect that the allegations of the applicants were unreasonable, oppressive and made in bad faith. He was assured that they, the solicitors, could have the order discharged. He was given to understand by HKLSD's Accounts Department that the ex parte order was being processed. He himself did not have access to HKLSD's assets internally. He was served with the inter partes order with a penal notice to the effect that he was served as an officer of HKLSD, but not as a named party, with the description of "Senior Finance Manager". He claimed to have become aware of the 3rd respondent's affirmation made on the 30th September in response to the inter partes summons only at this hearing. For the alleged non-disclosure under paragraph 1(a) of the Amended Notice of Motion, as I am not satisfied that he was an officer of HKLSD, Mr Chan cannot be held liable for contempt as such under O.45 r.5(1)(a)(iii). For such non-disclosure, there is no evidence that Mr Chan had in anyway interfered with the course of justice. In that wider sense, he cannot be said to have been aiding and abetting HKLSD'S breach in withholding its bank accounts. In conclusion, I am not satisfied that the 1st respondent, Mr Chan was in contempt under paragraph 1(a) of the Amended Notice of Motion.

82. Next I turn to paragraphs 2(a) and the relevant part of 3 of the Amended Notice of Motion. It involves the ex parte order made by de Basto J. on the 8th September alone. The ex parte order was served on HKLSD on the same day, on the 1st respondent, Mr Chan, on the 17th September and the 2nd respondent, Mr Jarrett, on the 20th September. The 1st respondent had prior notice of it on the 8th September. The 3rd respondent, Mr Yip, was never served with this ex parte order. The applicants have abondoned their complaints against the 2nd respondent, Mr Jarrett. I have pointed out that the penal notice indorsed on the ex parte order served contained no reference to any negative or prohibitory order. The 1st respondent was simply not warned against any consequences of HKLSD's disobedience to the prohibitory Mareva injunction. The charge under paragraph 2(a) of the Amended Notice of Motion is, as it is now confined to the 1st and the 3rd respondents, that they caused HKLSD "to deal with, pledge or charge or otherwise part with possession of the" 3-million joint venture shares to the Hong Kong Bank on the 19th September 1988. In addition to the difficulties created by the inappropriate penal notice for the 1st respondent and non-service on the 3rd respondent, it must also be noted that the Mareva injunction did not restrain parting with assets generally except in the case of bank accounts.

83. The 1st respondent has not been proved to be an "officer" of HKLSD. For the Mareva injunction, he was served as an officer of HKLSD when he was not one. He was not given an appropriate penal notice and was therefore, in any event, not properly served. It would be futile to consider dispensing with service when he was not even an officer, though having had notice of the ex parte order. The only matter to be resolved is : Did he aid and abet, in the general sense of obstructing the course of justice, the alleged dealing with, pledging or charging of these 3-million shares? Did he "cause HKLSD to deal with, pledge or charge" these shares with respect to the Hong Kong Bank?

84. Mr Chan claimed that he understood them to have been handed over for safe-keeping. His feelings were that the Hong Kong Bank was not keen to see these shares leaving HKLSD. His conclusion was that they were definitely not given to the Hong Kong Bank as security. He gave his reasons : over the telephone, he was assured by the officers of the Hong Kong Bank that the joint venture shares were demanded merely for safe-keeping; he received no contrary message throughout, meaning presumably at all the meetings in August and September and in the correspondence from the bank dated 5th and 9th September respectively; from the former solicitors of HKLSD, he was reassured that the bank's request was proper and he was advised to be content with a usual simple bank receipt; he further called up the Hong Kong Bank to confirm that its demand would constitute no violation.

85. On the 19th September, the 3rd respondent, Mr Yip, went to the Hong Kong Bank with the two certificates for the 3-million joint venture shares in the company of the 1st Respondent, Mr Chan. Upon reading the bank's letter of that date, particularly its penultimate paragraph, he advised Mr Yip not to sign before obtaining a further explanation from Mr Bussey. After Mr Bussey's assurance that despite that penultimate paragraph, only a simple deposit was sought, certificates were then handed over to the bank.

86. The letter of the 19th September was in the form of a written receipt for the 3-million share certificates in these terms :

"Dear Sirs,

    We acknowledge receipt of the following share certificates which will be held in safe custody on your behalf :

Certificate No. 6 for 2,999,999 shares

Certificate No. 1 for 1 share

(Both in the name of Everbright Lotus CPT Manuf. Ltd.)

    We undertake to release the said share certificates to your lawyer on your instructions and against his written undertaking to (a) release them only against full payment and to (b) remit to us on completion of any sale a sum sufficient to fully secure your outstandings in our books as at that date.

    Any such sum received by us will be placed on deposit in our books and will remain under lien to us at all times.

Yours faithfully,

87. The 1st Defendant, Mr Chan, was firm that there was clearly no charge or pledge in the absence of any further loan advance and without the usual documents, such as company resolution, notice of a charge for the Companies Registry and requisite banking documentation. The real test for an incumbrance was said to be the processing of such common legal papers. Absence of written or formal authorization from HKLSD as a limited company was not regarded as of vital importance as the admitted "simple deposit" for safe-keeping was also without such formality.

88. The 1st respondent conceded that he had not consulted and did not later consult the former solicitors of HKLSD on the effect of this ultimate paragraph. Both the 1st respondent and the 3rd respondent were adamant that the share certificates were handed over for a simple deposit, for safe-keeping.

89. I was not impressed by what these two men claimed to be their understanding of liabilities and negative assets, particularly when other charged assets including the Ground Floor Macdonell flat were disclosed in the 3rd respondent's affirmation made on the 30th Setpember in response to the inter parties order. HKLSD did part with possession of the 3-million shares to Hong Kong Bank, but parting with possession generally was not sought to be restrained by the Mareva injunction in the ex parte order, subject-matter of paragraph 2(a) of the Amended Notice of Motion.

90. I am not wholly satisfied that in law or on fact, any pledge or charge had been so created. After all, section 7 of the joint venture agreement would not permit any charging of its interest, and there is evidence that Mr Yip was making an effort not to contravene it. The only outstanding issue is, therefore, whether these shares had been "dealt with" in breach of that Mareva injunction. In Z Ltd. v. A-Z Ltd., supra, at p.293 Letter H, Lord Denning M.R. was of the opinion the words "deal with" should be given a wide meaning. I do not think it can be doubted that these shares were dealt with when their custody was surroundered and surroundered on terms that the bank could at least retain the shares unless certain conditions were met.

91. The 1st respondent, Mr Chan, was not given a proper warning against HKLSD's disobedience to the Mareva injunction granted in the ex parte order. He has also not been proved to be an officer of HKLSD so as to incur any liability as such even in all innocence and without knowledge of the breach. See Biba Ltd. v. Stratford Investment [1972] 3 W.L.R. 902; para. 5-13 p.269 of the Law of Contempt by Arlidge & Eady. He had been taken to and was present at the meeting on the 19th September in the capacity of an advisder. He speaks fluent English and is well versed in commercial terms. Nevertheless he merely advised. He never caused anything to be done; nor could he have done so. The 3rd respondent, Mr Yip, seemed to have all the say. I am not satisfied that he caused HKLSD to deal with these shares on the 19th September.

92. HKLSD and its present solicitors had maintained on affirmation and in correspondence until fairly close to the end that the 3-million joint venture shares were held by the Hong Kong Bank as security. The Hong Kong Bank demanded from HKLSD a "simple deposit" of these shares on the 5th September 1988 on the termination of sale negotiation through Wardley. Earlier at a meeting with Mr T. O'Brien on the 11th August, the suggestion of the handing over of HKLSD's 3-million shares for "safe custody" was made. On the 9th September, the Hong Kong Bank pressed for these certificates unless repayment was made or full cash security given. Later, on the 13th September, 1988, the bank insisted on a "simple deposit" of these shares in the absence of an immediate sale of HKLSD's joint venture interest. In the interim, the 1st respondent obtained confirmation from the Hong Kong Bank that the shares were to be passed over for "safe-keeping". These shares were given against the letter of 19th September in the circumstances I have set out.

93. As an adviser at the meeting, the 1st respondent, Mr Chan, claimed to have exercised due diligence before he advised the 3rd respondent. The aspects of charging and pledging seemed to have enjoyed his undivided attention. If he had ever directed his mind to the words "dealing with" in the ex parte order, it is difficult to visualise how a man of his calibre could have felt safe to advise delivery of these shares to the Hong Kong Bank. Whether or not the 1st respondent had given sound advice, there is no or no sufficient evidence that he consciously advised these shares to be dealt with in breach of the Mareva injunction. It was not impossible that he had overlooked all other aspects than pledging and charging. I am not completely satisfied that he was advising or causing HKLSD to do an act in breach of the ex parte order. Moreover, the 3rd respondent was in full charge, and it was within his power to reject Mr Chan's advice. I am not satisfied beyond reasonable doubt that the 1st respondent aided or abetted the dealing of these shares on the 19th September.

94. Mr Bussey was told of the ex parte order. He was said to have explained that the penultimate paragraph in the Hong Kong Bank letter of the 19th September was not inter-related with the receipt clause. I simply cannot accept the present explanation from Mr Chan or Mr Yip that any of them could have understood a delivery of shares to be retained on those terms as a simple deposit. Both men seemed to be content with the explanation that no pledge or charge was created. Evidently, they must be aware that it was not to be a simple deposit, but neither of them seemed to have reflected on the full ambit of the Mareva injunction, in particular the prohibition against assets being dealt with.

95. Effective pledging or charging has not been proved although at one time everyone concerned seemed to have accepted it. In their letter to the Hong Kong Bank dated the 11th October, the present solicitors of HKLSD referred to these 3-million share certificates as then being held "as security". The Hong Kong Bank replied on the 14th October and categorically stated that the same certificates were deposited with the bank "as security", "the subject of an accrued charge". The Hong Kong Bank then suggested that it was not formally served with the ex parte order, but the bank was in fact served with it on the 17th September, 1988. There was a later lame excuse of lack of coordination between various sections in the Hong Kong Bank. Initially, pending counsel's advice, on the 14th October, the Hong Kong Bank contended that a Mareva injunction did not operate in rem. As early as 1982, Lord Denning M.R. explained in Z Limited v. A-Z, supra. p. 295 Letters D/E that a Mareva injunction "operates in rem just as the arrest of a ship does" and attaches to the assets itself immediately when the order is made. Kerr L.J. suggested that Lord Denning's observations on the doctrine of "Operation in rem" "may well go too far in a number of respects", but a Mareva injunction does have "an in rem effect on third parties". Babanaft International Co. S.A. v. Bahaedine Bassatne and Walid Mohamed Bessatne, [1988]2 Lloyd's Rep. 435 at p.440. Then HKLSD wroted to the bank on the 31st October claiming that the share certificates had in fact been delivered for "safe custody" pursuant to the discussions at a meeting on the 11th August with Mr. T. O'Brien whose signature now appears on the letter by way of confirmation. On the 11th November 1988, solicitors from both HKLSD and the bank reached an understanding, and the certificates were released same day for lodging with the Supreme Court Registry.

96. The 3rd respondent was not served with the ex parte order, but he had notice of it. The 3rd respondent was fully aware that he was not to pledge or mortgage the shares and he informed Mr Bussey of the ex paste order. I would dispense with service of the prohibitory Mareva injunction on him under Oa.45 r.7 (6). Hence, the form of the penal notice would not be material. Did the 3rd respondent cause HKLSD to deal these shares? Did he otherwise cause these shares to be dealt with in the wider sense of aiding and abetting? Counsel for the applicants confirmed that paragraph 3 of the Amended Notice of Motion is an elaboration of its paragraph 2.

97. The 3rd respondent, Mr Yip, maintained that it was a simple deposit. He claimed to have emphasized to Mr O'Brien the prohibition against charging in section 7 of the joint venture agreement. Despite the stance previously taken and whatever had been achieved without the formal sanction of HKLSD as a limited company, for the reasons I have given. I cannot be wholly satisfied in law or on fact that there was any charging or pledging by HKLSD or that whatever he had attempted, the 3rd respondent had created or caused to be created a charge or a pledge. But these share certificates were dealt with in clear breach of the ex parte order by HKLSD through its director, the 3rd respondent, Mr Yip. Did Mr Yip knowingly cause or assist in these shares being so dealt with? He was certainly instrumental to the transaction.

98. The 3rd respondent was responsible for the dealing with the 3-million share certificates by HKLSD, but I am not sure whether he had then addressed himself to the words "dealing with". I am not satisfied that he did so knowingly aid and abet HKLSD in its dealing with these shares.

99. But the 3rd respondent, Mr Yip, should have consulted legal advisers on the penultimate paragraph before he left the shares with the Hong Kong Bank. HKLSD had not, through him or any other officer, taken all reasonable steps to ensure that the Mareva injunction in the ex parte order would not be disobeyed in its handing over of these shares on terms. There is no excuse for HKLSD having so dealt with these shares. The breach was "wilful" in the sense that it was not casual, accidental or unintentional. Bona fides or carelessness are matters for mitigation. See para., 5-10, p.267 The Law of Contempt by Arlidge & Eady. Transaction of these 3-million share certificates was, I hold, a contumacious breach. Having dispensed with service on him of the Mareva injunction in the ex parte order, even in the absence of any finding that he knew or appreciated fully the legal consequences flowing from the words "dealing with", Mr Yip is liable in contempt as a director under O.47 r.5(1)(a)(iii).

100. As for the complaints in respect of the Letter of Hyphothecation in paragraph 2(b) and the relevant portion of paragraph 3 of the Amended Notice of Motion, I have set out the explanations given by the 3rd respondent, Mr Yip. In substance, it was said to be the re-signing of a previous set acceptance . I am not satisfied beyond reasonable doubt that the signing or re-signing on the 28th September 1988 was in any way an act of defiance to the ex parte order or the inter partes order. In conclusion, he 3rd respondent, Mr Yip, has not been shown to my satisfaction to have been in contempt as alleged.

101. Counsel for the respondents claimed that the ex parte order and inter partes order both ambiguous in terms. See Borrie & Lowe's Law of Contempt, 2nd Edn. p.395. He craved in aid no less an authority than Lord Denning M.R. in Z. Ltd. v. A-Z, supra. at p.297 Letters F/G :

"....... other innocent third party, should be told, with as much certainty as possible, what he is to do or not to do."

102. What is being more actutely critized is the disclosure order in both the ex parte order and the inter partes order. The portion under complaint is in these terms :

"(HKLSD) do forthwith disclose the full value of its assets within the jurisdiction identifying with full particularity the nature of such assets and their whereabouts and whether the same be held of its own name or by nominees or otherwise on its behalf and the sums standing in such account."

103. On Counsel's interpretation, what was sought from HKLSD and the respondents was not a list of HKLSD's assets, but their full value. "Value", so Counsel continued, presupposes the exclusion of liability or negative assets. Counsel further complained that the words "such account" had introduced more obsurity. There is evidently room for better draftsmanship, but what stood out so prominently to any reader of this disclosure order in aid of the Mareva injunction is its very requirement for disclosing the whole of the assets of HKLSD. No businessman could reasonably claim to have failed to appreciate that assets of HKLSD must include whatever bank accounts it has.

104. HKLSD neglected to make a full disclosure as regards the bank accounts. The 3rd respondent, Mr Yip, failed to cause HKLSD so to fully disclose its assets. The absence of specific reference to aiding and abetting in paragraph 1(a) of the Amended Notice of Motion is immaterial. The non-disclosure was caused by and it was deliberate on the part of the 3rd respondent, Mr Yip. The 2nd defendant, Mr Jarrett, as General Manager was liable for the neglect of HKLSD to make a full disclosure of its bank accounts. In his case, there was no moral turpitude. HKLSD failed to take proper and sufficient steps to make a full disclosure. Mr Jarrett was in contempt as its General Manager. As to paragraph 2(a) and the first part of paragraph 3 of the Amended Notice of Motion, the 3rd respondent, Mr Yip was in contempt on account of a matter raised therein principally because HKLSD had taken no reasonable steps to consult legal advisers on the penultimate paragraph in the letter from the Hong Kong Bank dated the 19th September.

105. I would now entertain submissions in mitigation and on costs, including costs reserved.