DAC CHINA SOS (BARBADOS) SRL v. PACIFIC HARBOUR ADVISORS PTE LTD AND ANOTHER

HCMP 1022/2020

[2022] HKCFI 969

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1022 OF 2020

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BETWEEN

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J U D G M E N T

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A. INTRODUCTION

1.  This is an application to commit the Respondents for contempt of court in failing to comply with undertakings and to comply with a disclosure order. The underlying proceedings are HCA 1257/2013 and HCCT 52/2019.

2.  In HCA 1257/2013, the 1^st Respondent (“PHA”) and its associate obtained judgment for US$50.7 million (“Judgment Debt”) in respect of loans and costs of maintenance. As the judgment debtors did not pay, the 2^nd Respondent (“Mr Allderige”) was appointed by the Court as a receiver and manager (“Receiver”) over all the shares held by one of the judgment debtors. It gave the Receiver ultimate control over a hotel project in Shenyang (“Shenyang Property”).

3.  The Receivership Order was subsequently varied to include the subject undertakings from the Receiver (“Undertakings”), including an Undertaking to Notify the Applicant (“DAC”) in writing within 3 days of any significant events that may affect recovery of a judgment debt.

4.  DAC and PHA have been engaged in arbitration since 2015. In HCCT 52/2019, on the application of DAC, PHA was restrained from disposing of proceeds derived from sale of the hotel project and proceeds received (“Injunction Order”). In addition, PHA was ordered to inform DAC of, amongst others, all information relating to the sale of the Shenyang Property, how the proceeds of sale were received and their current whereabouts, together with supporting documents (“Disclosure Order”).

5.  Upon voluntary liquidation of PHA, Mr Allderige (who was the managing director), became Liquidator of PHA on 15 August 2019.

6.  DAC claims that Mr Allderige has breached the Undertaking to Notify, in failing to notify DAC of significant events in relation to sale of the Shenyang Property until after completion. Two quarterly Receiver's Reports did not refer to the sale and purchase agreement of the Shenyang Property and parts of the Receiver’s Report were misleading. Moreover, due to the limited disclosure pursuant to the Disclosure Order, the Receiver made no effort to update DAC of the sale of the Shenyang Property, in breach of the Undertakings.

7.  DAC also claims that Mr Allderige is liable for contempt in causing PHA to act in breach of the Disclosure Order, and/or in failing to use his position as an officer of PHA to secure compliance with those obligations. After multiple requests for and grant of extension of time from PHA, the disclosure obligations still have not been fully complied with.

8.  With leave of Mimmie Chan J on 14 July 2020, DAC has issued this originating summons (“OS”) for (i) an order to commit Mr Allderige to prison and/or that a fine be paid by him for contempt in failing to comply with the Undertakings and the Disclosure Order; and (ii) an order for PHA and/or Mr Allderige to provide to DAC information and copies of documents listed in the Schedule to the OS (“Further Disclosure Order”).

9.  The OS is contested by the Respondents who deny breach of the Disclosure Order/Undertakings. They query what practical results the contempt proceedings will bring as the underlying dispute between DAC and PHA has been arbitrated and the parties are awaiting judgment.

10.  In respect of the Disclosure Order, the Respondents submit that:

(1) The terms of the order were ambiguous; the Injunction Order was focused on “Received Proceeds”, ie money received by PHA from the Receiver in equitable execution and interpretation of the Disclosure Order has to be in that light;

(2) DAC conflated the role of Mr Allderige as a court-appointed Receiver and director/Liquidator and proceeded on the wrong assumption that information obtained by Mr Allderige in one capacity could be disclosed in another; and

(3) Even if PHA is found to be in breach of the Disclosure Order, there is no proper basis to commit Mr Allderige, a director, for contempt as it was not shown that his conduct was “wilful”.

11.  In respect of the Undertakings, the Receiver submits that the Undertakings, properly interpreted, in the peculiar circumstances surrounding the sale of the Shenyang Property, do not require him to disclose the sale until completion. Upon completion, the Receiver had forthwith made disclosure, hence there was no breach of the Undertakings.

12.  In respect of the Further Disclosure Order, the Respondents submit that it is not a form of relief available in contempt proceedings. That order sought demonstrates that the Disclosure Order is vague and ambiguous. If the disclosure was considered inadequate, DAC should have sought a further and more particularized order instead of taking out contempt proceedings.

B. BACKGROUND

13.  The facts in this Section are based on documents and largely undisputed, save where otherwise indicated.

B(1). The dispute between DAC and PHA

14.  DAC and PHA entered into a sale and purchase agreement on 23 July 2014 (“SPA”) whereby DAC agreed to sell and PHA agreed to purchase DAC’s interest in a loan which had been made to Ixion Corporation (“Ixion Loan”).

15.  Under the SPA, PHA agreed to assign to DAC (among others) all of PHA’s interests in the loan agreements entered into between Winson Federal Limited and PHA (“Winson Loans”), as collateral to secure PHA’s obligations in the SPA. The security held by PHA in respect of the Winson Loans included share charges over shares held by a Mr Carlos Cho in various companies (“Shares”), including those companies which ultimately held the Shenyang Property.

16.  It is DAC’s case that PHA has breached the SPA and that it has a proprietary interest in the Winson Loans and the security in respect thereof, including ultimate control over the Shenyang Property.

17.  Accordingly, DAC brought arbitration proceedings against PHA in 2015, seeking payment of amount due and interest accrued thereon under the SPA, as well as specific performance of PHA’s obligation to assign the Winson Loans to DAC.

18.  In 2019, DAC amended its case to including proprietary claims over the Winson Loans and the Shenyang Property, which were heavily disputed by PHA in the arbitration. The arbitration proceedings have concluded on 2 July 2021 and the parties are awaiting judgment.

B(2). The Undertakings

19.  In HCA 1257/2013, PHA and its associated company, Pacific Harbor Special Holdings Limited (“PHSHL”), obtained final judgment on the Winson Loans against Winson Federal Ltd and the executor of Mr Carlos Cho (“Executor”) on 1 August 2014. The judgment sums are around US$38 million plus HK$12.7 million: see §4 of the Decision of B Chu J dated 10 May 2016 (“May Decision”). DAC was not a party to those proceedings.

20.  As the judgment debts were not paid, on 3 March 2015, the Court appointed Mr Allderige (managing director of PHA) as the Receiver in aid of execution over the Shares held by the Executor. It thereby gave the Receiver control over the Shenyang Property. The Receivership Order only required the Receiver to file quarterly accounts to the Court and the Executor.

21.  In December 2015, DAC did 2 things: (i) commenced arbitration proceedings against PHA as stated above; and (ii) applied to intervene in HCA 1257/2013, seeking to have Mr Allderige removed and another independent receiver to replace him.

22.  One of DAC’s concerns at that time was:

“… [to ensure that its rights over the Winson Loans are adequately protected pending the determination in the Arbitration Proceedings” (May Decision, §44);

“…[Allderige and/or PHA] might take actions that would be in their best private interest, which might include quickly liquidating the Shenyang Hotel with a view to obtaining a liquidated sum and dissipating such sum in the hope of frustrating any award [DAC] may later obtain against [PHA] in the Arbitration Proceedings.” (May Decision, §76)

23.  B Chu J did not accede to DAC’s applications in part because, as held in the May Decision:

(1) Intervention was not justified as DAC did not have an interest which was directly related to the residual subject matter of that action (§60);

(2) Though Mr Allderige was an interested party, there was no objection to his appointment from the Executor or anyone else. He has been conducting the receivership for no remuneration (§64);

(3) There was no evidence that Mr Allderige was trying to sell the property at an undervalue (§86);

(4) In any event, Mr Allderige was prepared to offer the subject Undertakings: (i) to continue to file quarterly reports; (ii) to supply copies of quarterly reports to DAC; and (iii) to notify DAC in writing within 3 days of any significant events that may affect the recovery of the Judgment Debt (“Undertaking to Notify”) (§90);

(5) Mr Pow SC, then acting for PHA and PHSHL, submitted to the Court that the Undertakings “will be wide enough to cover any sale or potential sale of the Shenyang Property and details in respect thereof” (§91);

(6) The Court accepted that the Undertakings “will mean that DAC will have notice of any material and/or significant events that may affect the recovery of the Judgment Debt and/or the Winson Loans and/or repayment thereunder and this will include any sale or proposed sale of the Shenyang Property and the details thereof” (§118, emphasis added).

24.  Thereafter, DAC (through its solicitors, TDW) repeatedly raised concerns with PHA as to how the Shenyang Property should be dealt with. DAC was repeatedly assured by PHA’s solicitor, OLN, that the Shenyang Property had not been sold, and that Mr Allderige would inform DAC of any significant event within 3 days.

25.  The following series of correspondence is heavily relied on by DAC:

(1) On 6 November 2018, OLN stated “rest assured, your client has been and will continue to be, informed of any significant event in a timely manner”.

(2) On 19 March 2019, TDW wrote to OLN as follows:

“2. Notwithstanding that the 16^th Receivers Report (which was only circulated 5 days ago (on 14 March 2019)) states that the Receiver is still at the stage of identifying possible purchasers, we are instructed that the Shenyang Property has in fact already been sold by the Receiver (or at least is the subject of advanced negotiations). Accordingly, please confirm the following:

(A) has the Shenyang Property been sold?

(B) If not, is the Receiver in advanced negotiations with identified buyers (rather than exploratory discussions with possible purchasers)?

(C) If not, has the Receiver entered into a letter of intent, memorandum of understanding or similar arrangement… with a 3^rd party?

3. If the answer to any of (A) to (C) is “yes”, please provide us with all details (including documentary evidence) in respect of the sale of the Shenyang Property…”

(3) On 25 March 2019, ie after the sale and purchase agreement in respect of the Shenyang Property (“Shenyang SPA”) was signed, OLN expressly stated that Mr Allderige was talking to a number of prospective purchasers but Shenyang Property has not yet been sold.

“… our client doesn’t need to be reminded of his undertaking given pursuant to the Order of Madam Justice B. Chu dated the 10^th May 2016. Our client ... will continue to notify your clients in writing within three days of any significant events that may affect the recovery of any judgment debt.

“You claim at the same time both that the property has been sold or is the subject of advanced negotiations. Please let us know the party who has informed you that it has been sold as such is not the case to the extent that if your client has a ready, able and willing purchaser, our client will entertain any offers in such regard. It is unsubstantiated suggestions of this nature that can jeopardize the work of the Receiver and the fact that your client has quite clearly been interfering in negotiations with would-be purchasers could be extremely prejudicial to any prospective transactions.”

(4) On 9 April 2019, TDW once again requested OLN to confirm whether the Receiver had entered into a letter of intent, memorandum of understanding or similar arrangement with any party in respect of the Shenyang Property. OLN replied 3 days later, again stating that “discussions are underway with regard to prospective purchasers”.

(5) On 24 April 2019, DAC wrote to Mr Allderige asking:

“(i) Have you entered into an agreement, conditional or definitive, to sell the hotel?

(ii) Will you place any funds received directly into escrow for distribution to parties of interest?

(iii) When you sell the hotel do you commit to honouring the SPA Agreement entered into by Pacific Harbor Group?”

(6) On 24 May 2019, in a totally evasive letter, OLN wrote to TDW stating that:

“1) our client has not entered into any binding agreement for the sale of the hotel. 2) our client as Receiver will deal with the funds in the right and proper manner. Our client does not know what your client is referring to when mentioning an “escrow”. 3) the question of whether our client as Receiver will honour the SPA Agreement is not an appropriate question to the Receiver as such. He was not a party to such.”

There was no mention of the sale or the prior Framework Agreement which was in the nature of a “potential” sale or something similar to a letter of intent, memorandum of understanding or similar arrangement with a third party” as TDW had asked about in the letter dated 19 March 2019.

B(3). Discovery of breach of the Undertakings and obtaining the Injunction Order

26.  Consistent with OLN’s letters above, in the 18^th Receiver’s Report dated 6 September 2019, the Receiver stated that he has “continued its efforts to sell the Shenyang property”, including engaging various professional entities to assist in the sale of the property, coordinating with investor network to identify interested buyers of the property, and continuing discussions with several prospective purchasers.

27.  Less than a month later, in his 19^th Report dated 4 October 2019 and under legal advice, the Receiver disclosed for the first time that:

(1) he had finalised the sale of the Shenyang Property at a price of RMB254,000,000 and had received the consideration; and

(2) a sum of US$20,472,726.87 had been returned to judgment creditors (ie PHA and PHSHL) after deduction of sale-related taxes as well as repayment of liabilities and other expenses.

28.  Prompted by the above events, and a concern that the Receiver had acted in breach of the Undertakings and that PHA may take steps to dissipate the proceeds to frustrate any arbitral award which DAC may obtain, DAC made an ex parte application for Mareva and proprietary injunctions in aid of the arbitration proceedings. The Injunction Order was granted by DHCJ William Wong SC on 16 October 2019. The relevant terms were as follows:

“[PHA] must not, whether by itself, its directors, servants, agents or otherwise howsoever, in any way dispose of or deal with or diminish the value of the proceeds derived from the sale of the [Shenyang Property] and received by or paid to it (“Received Proceeds”), whether such proceeds are located within or outside Hong Kong, whether in its own name or not, up to US$44,320,968.57 (“Limit”)”.

29.  Further, an ancillary Disclosure Order was made in §§5-7 of DHCJ William Wong SC’s order, which provided, amongst others, that:

“[PHA] must inform [DAC] in writing within 3 days of service of this Order of all information relating to the sale of the Shenyang Property, and how the proceeds of sale were received and their current whereabouts, including all details of the location(s) and the manner in which the proceeds have been kept, the bank account(s) at which the proceeds have been deposited, the full particulars of the person(s) or entit(ies) receiving or holding the proceeds and, if and to the extent that any part of the proceeds were paid to any other part(ies), the identity of the person(s) and entit(ies) to whom the proceeds were paid, the amount(s) paid and the purpose(s) of the payment(s), together with all supporting documents including all correspondence and communications between the Defendant, its servants or agents with Warren Allderige and any third parties.”

30.  There is no dispute that DHCJ William Wong SC’s order had been served on PHA on 17 October and 12 November 2019; and on Mr Allderige personally on 15 November 2019.

B(4). Disclosure obligations: requests for extension of time and non-compliance to date

31.  After extensive communication between OLN and TDW, and by consent, the Court extended the time for compliance with the disclosure obligations to 1 November 2019.

32.  PHA failed to provide any disclosure to DAC by 1 November 2019. Pursuant to an order on 31 December 2019 to continue the Injunction (“Continuation Order”), Mimmie Chan J ordered PHA to comply with the disclosure obligations on or before 10 January 2020.

33.  At no time had PHA suggested that it was not in possession of the information or documents covered by the Disclosure Order.

34.  On 10 January 2020, PHA filed Allderige 3^rd [1] in purported compliance with the Disclosure Order. It merely reported the information that PHA could gather from the 19^th Receiver’s Report, ie the identity of the buyer and seller, and other matters defined in the Statement as PRC Tax, Net Received Amount, Alleged Expenses (including a sum for settlement with one Three Wells), Net Amount, and Distributed Amount which was subsequently paid by OLN to 6 purported Recipients. The only documents were a receipt whereby PHA allegedly confirming the Distributed Amount, and promissory notes/ confirmations of receipt of the Recipients. It was then about 3 months after the original due date for disclosure.

35.  DAC considers that disclosure to be highly deficient, so TDW pressed for further information and documentation from OLN.

(1) On 21 January 2020, OLN asserted that some of the items that DAC requested were “non-existent, unnecessary, irrelevant and/or did not fall within the scope of the Disclosure Order”. OLN simply confirmed their client’s “understanding” that the Balance Amount was credited to PHSHL and the bank account number. No document was provided. OLN asked TDW to itemize their request for further information and documents.

(2) TDW provided a list of all the information or documents by letter dated 29 January 2020, asking OLN to reply by 31^st.

(3) Eventually, on 10 February 2020, OLN only provided the Shenyang SPA, pre-transaction tax receipts dated 23 October 2018 and 5 November 2019; and acknowledgement of receipt from Three Wells.

36.  Such late disclosure revealed not only failure to comply with the Disclosure Order and Undertaking to Notify but also misleading statements in the Receiver's Report when Mr Allderige asserted that he was still looking for a buyer (even after the Shenyang SPA) and that the dispute with Three Wells was still ongoing.

37.  It is DAC’s case that Mr Allderige has failed to provide 5 Classes of Information/Documents set out in §§34-53 of the Statement and its Schedule:

(1) Documents in relation to the sale of the Shenyang Property, including the Shenyang SPA;

(2) Documents in relation to PRC Tax, the Alleged Expenses and other payments in Allderige 3^rd;

(3) Information and documents as to the current whereabouts of the Distributed Amount;

(4) Information and documents in relation to the Balance Amount (ie the Net Amount less the Distributed Amount) in the sum of US$6,891,703.40 and its current whereabouts; and

(5) Information and documents relating to PHA’s role which formed the bases for distribution to the Recipients.

38.  There was still information relating to the sale of the Shenyang Property in the 20^th Receiver's Report but the Receiver has failed to provide to DAC (§§ 54-57 of the Statement).

39.  Moreover, Mr Allderige deposed that “the remaining amount, being RMB217,193,521.53, was converted into US$31,569,284.66 (defined as the Net Received Amount), and was transferred into the offshore account on 2 July 2019. After deduction of US$80 in charges, US$31,569,204.66 was received in the offshore joint account. This offshore bank account was re-opened with the joint signatories of the receiver and Vanke.” This was never disclosed to DAC prior to the filing Allderige’s affirmation (at §79) filed in opposition to the OS.

B(5). PHA’s voluntary liquidation

40.  After the Injunction Order was granted, on 17 October 2019, OLN informed TDW for the first time that PHA had been put into creditors’ voluntary liquidation, without stating since when. It was through DAC’s own company searches that it discovered that PHA was in fact put into creditors’ voluntary liquidation on 15 August 2019, more than two months prior to OLN’s letter, and that Allderige had appointed himself as liquidator.

41.  On 12 February 2020, without informing DAC, OLN sought to stay the arbitration proceedings pending the appointment of the new liquidator to replace Mr Allderige. The stay application was refused.

42.  Mr Allderige had not given any notice or update to DAC about PHA’s liquidation or the identity of the replacement liquidator, notwithstanding that DAC was at least a contingent creditor of PHA. PHA put forth the reason that DAC had not filed a proof of debt. Meanwhile, Mr Allderige had almost immediately made distribution to alleged creditors of PHA whilst ignoring the position of DAC.

43.  On the above facts, DAC submits that there was breach of the Disclosure Order and Undertakings.

C. THE RESPONDENTS’ CASE

44.  In his affidavit in opposition to the OS, Mr Allderige went at length in trying to show that maintaining and selling the Shenyang Property was a colossal job. The Shenyang Property had multi-problems, including financial liabilities, construction problems, to 17 litigations, limited land use rights only up to the year 2044, overdue charges/taxes with local government authorities, government approvals required, and repatriation of funds offshore in the event of a successful sale.

45.  In 2017, DAC made one visit to the Shenyang Property, after which Mr Allderige was told that DAC had no investors interested in the Shenyang Property and did not believe that it could be sold.

46.  Meanwhile, Mr Allderige expended considerable efforts in trying to sell the Shenyang Property in what he described to be a peculiar legal environment in Shenyang, where regionalism played a huge role, where the importance of personal relationships prevailed over “black letter agreements”, and the lack of bargaining position towards mega-corporations in Mainland China. There was a need for confidentiality as the sale was plagued by the threats of hostile third parties aiming to depress the value of the Shenyang Property and sabotage the sale.

47.  Mr Allderige also went on to describe that it took a long time for him to sell the Shenyang Property, with at least 70 potential purchasers over time. Up to the end when the deal was completed, he was still talking simultaneously to 13 serious potential purchasers. It was not uncommon that even apparently serious potential purchasers may fall out any time.

48.  The ultimate purchaser, Vanke, was introduced in May 2018, but the sale did not go through until October 2019. A Framework Agreement was executed in August 2018, as a basis to seek governmental approval, but the final deal did not go through on those terms. After the tax issues were seemingly resolved, Vanke was in principle willing to offer more money. The Framework Agreement was “restated”, which became the “Restated Agreement”/ Shenyang SPA executed on 22 March 2019.

49.  According to Mr Allderige, neither he nor Vanke treated the Framework Agreements as binding:

(1) Even after signing the Restated Agreement, Mr Allderige continued to negotiate with other potential purchasers.

(2) Vanke threatened to walk away when difficulties surfaced one after another.

50.  Mr Allderige claims to have all along acted on the advice of experienced solicitors from OLN, in particular Mr Oldham since 2011. It was under the above circumstances that both Mr Oldham and Mr Allderige considered that the Framework Agreement and Shenyang SPA did not constitute “significant events that may affect the recovery of the Judgment Debt” that required disclosure under the Undertakings. Mr Oldham has filed an affidavit in support of Mr Allderige’s defence.

51.  The Respondents claim that the documents provided by letter dated 21 January 2020 were without prejudice to their stance of having effected full compliance and to avoid unnecessary arguments. DAC must now have all the relevant information (with documentary proof) it needs to protect its alleged proprietary interest. It is wrong for DAC to treat the “without prejudice disclosure” as admission of non-compliance.

D. LEGAL PRINCIPLES ON CONTEMPT PROCEEDINGS

52.  Contempt proceedings should be a matter of last resort: G v S (2001) 4 HKCFAR 419 at §21. Lesser options should be explored before one is to resort to the draconian power of committal: China Metal Recycling (Holdings) Ltd v Chun Hei Man [2018] 1 HKLRD 455 at §60, Lam VP (as he then was).

53.  The burden is on the applicant to prove the contempt beyond reasonable doubt: Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 830, §30.

54.  Whilst the defendant may bear an evidential burden in relation to particular matters he has raised to exculpate himself, there is no legal burden on him to prove anything affirmatively. If there is a hypothesis which might reasonably be consistent with the defendant’s innocence then he is entitled to be acquitted: Concorde Construction Co Ltd v Colgan Co Ltd (No 2) [1984] HKC 253, 257E, Rhind J; Ip Pui Lam v Alan Tang (unrep., CACV 214/2016, 16 February 2017), §§4.2-4.6.

55.  In hearing a committal for civil contempt, the Court adopts a 3-stage test to:

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

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

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

See Kao Lee & Yip v Koo Hoi Yan, §21; Arlidge, Eady & Smith on Contempt (5^th ed) at §§12-201-202.

56.  Because of the penal consequences of breach of an injunction or undertaking, an order/undertaking should be strictly construed: JSC BTA Bank v Ablyazov (No 10) [2015] 1 WLR 4754, per Lord Clarke JSC at §19. Any ambiguity should be resolved in favour of the respondent: Haddonstone Ltd and Another v Sharp [1996] F.S.R. 767 at 775. A defendant cannot be committed for contempt on the ground that upon one of two constructions of an undertaking being given he has broken that undertaking: Redwing Ltd v Redwing Forest Products Ltd [1947] 64 RPC 67 at 71 line 25.

57.  Similarly, an order should be clear in its terms and should not require the person to whom it is addressed to cross-refer to other materials in order to ascertain his precise obligation.”: Arlidge on Contempt at §12-62.

58.  With regard to the state of mind, it is not necessary to prove that the alleged contemnor’s conduct was contumacious, ie that he deliberately intended to disobey the order. It is sufficient to prove that the act constituting breach was done intentionally, not casually or accidentally, and the defendant knew of the facts which rendered it a breach of the relevant order or undertaking: Kao Lee & Yip v Koo Hoi Yan, at §§45-46, 53.

59.  Reliance on legal advice is no defence if a breach is established, but it may be relied on as a factor of mitigation: Kao Lee & Yip v Koo Hoi Yan at §53.

E. APPROACH TO ANALYSES

60.  In the following analyses, I shall first deal with the procedural issue of cross-examination of the Respondents. In respect of the breach of the Disclosure Order and Undertakings, I shall adopt the 3 stage approach set out in Kao, Lee & Yip and, in the course of it, consider the issues raised by the Respondents in paragraphs 10-11 above.

61.  In respect of paragraph 2 of the OS, committal proceedings should not be heard with other applications. It has been said, eg that an application to vary a maintenance order should be heard before a judgment summons: YBL v LWC [2017] 1 HKLRD 823 at §§26-27.

62.  Mr Yuen SC does not pursue the Further Disclosure Order at this hearing but reserves his right to seek it as relief in sentencing. I therefore defer consideration of this aspect of the OS.

F. LEAVE TO CROSS-EXAMINE THE RESPONDENTS

63.  The Respondents have filed affirmations before the hearing. Very properly, before the hearing, DAC asked, amongst others, whether the Respondents will deploy their affidavits or make a no case submission. The Respondents reserved their right on those 2 matters.

64.  In DAC’s written opening submission, DAC raised, for the first time, the suggestion of cross-examination of the Respondents if they shall elect to deploy and rely on their affidavits. The Respondents have indicated in their opening submission that they would deploy and rely on their affidavits, but oppose cross-examination.

65.  For the following reasons in this Section, I have declined to order cross-examination due to the late application.

66.  Contempt proceedings proceed by way of originating summons and evidence is received in the form of affidavits. Leave of the Court is required to cross-examine a deponent: Order 38, rule 2(3), RHC.

67.  Cross-examination affects the length of hearing. It is no answer to say at the hearing that the cross-examination is going to be short, because witnesses are deprived of the chance to prepare themselves beforehand. In the present case, Mr Oldham was even out of Hong Kong on the day of hearing.

68.  Accordingly, for good case management purpose, an application to cross-examine should be made as early as possible. Whether there is any delay is gauged by reference to the time when the grounds for requests first reasonably arose, ie when the relevant affidavit was filed: Dembele, Salifou v Director of Immigration [2015] 4 HKC 297 at §§36-38. In that case, an application for cross-examination, made 6 months after filing of the relevant affirmation and 2 months prior to the hearing, was refused by Au J (as he then was), in a judicial review.

69.  A proper application to cross-examine can easily be addressed by asking for a direction, before setting down the OS for hearing, that unless a respondent do attend for cross-examination at the substantive hearing, his/her affirmation may not be relied on by the respondent in the determination of the OS. That application was never made in this case.

G. BREACH OF THE DISCLOSURE ORDER

G(1). The parties’ case

70.  DAC asserts that PHA has failed to disclose information and documents. The Respondents say that the terms of the Disclosure Order were ambiguous. Further, the Disclosure Order was against PHA and not the Receiver. To hold Mr Allderige liable as director, it has to be shown that he was “wilful”. DAC has conflated the roles of Mr Allderige’s as a director of PHA and a Receiver, and assumed that information obtained by Mr Allderige in one capacity could or should be disclosed in another.

G(2). Legal principles relating to breach of a disclosure order

71.  It must be proved beyond reasonable doubt that it was within the knowledge and power of the alleged contemnor to comply and there was a specific omission on his part: China Metal v Chun Hei Man at §§68, 71 & 77.

72.  If the court order directs disclosure by a company, it is only necessary for a company to disclose the knowledge of its officers obtained in the performance of the company’s affairs: Welsbach Incandescent Gas Lighting Company v New Sunlight Incandescent Company [1900] 2 Ch 7.

73.  In Welsbach, the plaintiff bought patents from another company, IC, and also took on employees of IC as its officers. The defendant sought to interrogate the plaintiff on questions which toucheD upon the affairs of IC. The issue was whether or not the plaintiff was obliged to inquire with the plaintiff’s officers (who were ex-IC employees) of their knowledge obtained during their employment with IC.

74.  The English Court of Appeal answered the question in the negative. As Rigby LJ said:

“…Could you insist upon an individual defendant going out of his way to collect evidence for the plaintiff? Certainly not. An individual who chose to have his affairs transacted by servants and agents could not himself by reason of his ignorance disclose what he would have been obliged to disclose if he had managed his affairs himself, and therefore it was incumbent upon him to inquire of those who had acted for him what they knew about the matter in the course of their employment by him. But he was not obliged to ask or to answer as to any knowledge which his servants or agents had happened to acquire outside the course of their employment by him… (at p.11)

…

It therefore becomes very important that such an officer should not include in his answer, or be bound to inquire into, matters about which the corporation, if they had been individuals, would not have been bound to trouble themselves – that is, the knowledge of outsiders, or the knowledge even of their own servants, if it were acquired by them otherwise than in the course of their employment by the corporation.” (at p.12) (underline added)

75.  There is good reason behind this. The Court’s power to compel disclosure is a powerful, but intrusive one. There is no good reason why a party seeking disclosure should not seek it from the source, but require a company, which may have many officers and employees who happen to have association with or otherwise worked at the source, to disclose the information. As Mr Pow SC submits, this could work injustice:

(1) It wrongly deprives the source of the right to properly object to such disclosure and protect its privacy; and

(2) It wrongly burdens the company with the need to inquire into and disclose affairs outside of its own.

G(3). Construction of the Disclosure Order

76.  Mr Pow SC submits that it is not easy to know, reading in context, what is being demanded to be provided. The best indication of the imprecise and ambiguous nature of the Disclosure Order was TDW’s itemized request by letter after being served with Allderige 3^rd, which was in line with the Schedule in the OS (“Schedule”).

77.  I do not find the Disclosure Order to have any ambiguity. The party to make the disclosure was PHA and it was in aid of the proprietary injunction. What was to be disclosed was “all information” “relating to” 3 matters: (i) the sale of the Shenyang Property, (ii) how the proceeds of sale were received; and (iii) current whereabouts of the proceeds of sale.

78.  “Information” is a broad term that is not confined to documents. The phrase “relating to” contains words of wide import and has the widest possible meaning of any expression intended to convey some connection between the 2 subject matters to which the words refer: Moody’s Investors Service Hong Kong Limited v SFC (2018) 21 HKCFAR 456, §35 (Lord Neuberger NPJ).

79.  With regard to “proceeds of sale”, Mr Pow SC seeks to read down the phrase as meaning “not all proceeds” but only those received by or paid to PHA, ie the “Received Proceeds”. I am unable to accept this construction as the Disclosure Order was not subject to the Injunction Order. Whilst there was good reason to restrain PHA from disposal of the Received Proceeds up to US$44.32 million, the Disclosure Order need not be limited to that amount. The subject matter of the Disclosure Order was the Shenyang Property itself. A judgment creditor like PHA/DAC may wish to know about matters relating to all proceeds of sale to decide, eg if there had been a sale at undervalue, sale to an entity related to the judgment debtor, or whether part of the proceeds had been wrongly distributed to persons not entitled, all of which affect the recovery of a judgment debt.

80.  The phrase “all supporting documents” must mean all documents supporting the information that needs to be disclosed.

G(4). Purported compliance with the Disclosure Order

81.  It can be seen from paragraphs 34-35 above that the disclosure from Allderige 3^rd and OLN’s letter dated 10 February 2022 that the disclosure was wholly inadequate, with supporting documents woefully lacking.

82.  The wrong interpretation of the phrase “proceeds of sale” must have contributed, in part, to that state of affairs and that was why there was no information eg as regards the current whereabouts of the Balance Amount. Stating an “understanding” that the Balance Amount was credited to PHSHL by OLN’s letter dated 21 January 2020 did not meet the duty to give information and provide supporting documents.

83.  After repeated requests from TDW, OLN provided late and limited further information which revealed that OLN held sale proceeds on behalf of some 7 parties. It raised more questions than they answered as to the whereabouts of the Distributed Amount.

84.  The information and documents set out in paragraphs 37-39 above, in my view, did and do fall within the terms of the Disclosure Order. I find that there was and still is breach of the Disclosure Order.

G(5). Ability of PHA to comply and conflation of Mr Allderige’s dual roles

85.  Applying China Metal, it has to be shown that PHA was in possession of the information that DAC says PHA has failed to disclose.

86.  PHA was not the legal owner of the Shenyang Property. Nor was it in charge of the sale. The Receiver was.

87.  PHA claims that DAC has not shown that it was in possession of the missing information/documents, other than those derived from the Receiver's Report. Mr Pow submits that, in suggesting that the missing information must be within the ownership of PHA, DAC has conflated the roles of Mr Allderige as Liquidator of PHA and the Receiver.

88.  Under Hong Kong law, a liquidator is an agent of the company. With regard to the assets of the company under his administration, the liquidator is also a trustee and therefore stands in a fiduciary position towards the company and its creditors as a whole. As such, a liquidator must act impartially and in good faith and exercise the care and skill expected of a person of his professional standing. See Stefan Lo, Company Law in Hong Kong – Insolvency – 2021, §§2-002 to 21-003. PHA was incorporated in Singapore. In the absence of expert evidence on Singapore law to the contrary, it can and should be presumed that Singapore law in this regard is the same as Hong Kong law.

89.  A receiver is an officer of the Court and not the agent of the company or of the parties procuring their appointment. He/she is responsible for his/her own actions and is subject to supervision of the Court: Lo & Qu, Law of Companies in Hong Kong, 3^rd ed, §18.100; Casey McDonald v Golden Dynasty Enterprises Ltd (HCMP 2388/2007, 7 December 2007) at §12, Kwan J (as she then was); Corporation of Bacup v Smith (1890) Ch D 395, Chitty J.

90.  The court-appointed receivers are fiduciaries with a duty to account, both for the way in which they exercise their powers and for the property which they deal with: Lo & Qu, at §18.103, citing Re Scottish Properties Pty Ltd (1977) 2 ACLR 264, 271.

91.  The receiver also has a duty to provide information to those whose interests he or she is to serve: Cape v Redarb Pty Ltd (Receiver and Manager Appointed) (1992) 107 FLR 362, 374, Higgins J, a case with court-appointed receivers. A court-appointed receiver owes a fiduciary duty to those interested in the property that is to be sold. In carrying out his duties, he is obliged to act in the interests of and be fair to all parties (at p.373).

92.  Mr Yuen SC also relies on the authority of Karaha Bodas v Perusahaan [2005] 1 HKLRD 21 at §20 for the proposition that a receiver owes a duty to the judgment creditor to maximize recovery of the judgment debt and to do all acts necessary for such recovery, which would include obtaining and providing information to the judgment creditor in relation to the same.

93.  In my view, Karaha Bodas has to be read in the light of its special facts. There, the judgment creditor already had a charging order and could already sell the shares for enforcement. However, the judgment creditor wished to apply specifically for receivership so as to obtain more information over the shares in order to arrive at a better valuation (§§9, 11 and 15). It would not be surprising that, when the Court made the receivership order, it would specifically order the provision of such information to the judgment creditor.

94.  Bacup, which Mr Pow SC relies on, does not deal with the duty of a receiver to account or to provide information. Paragraphs 90-91 above apply to the present case.

95.  As regards ownership of documents, it depends on whether the documents were brought into being in discharge of the receiver’s duties to the mortgagor, or the debenture holder or neither. If they were, they would be the property of the receiver: Gomba Holdings U.K. Ltd. v Minories Finance Ltd. [1988] 1 WLR 1231, at p. 1234, CA.

96.  In Gomba Holdings, the receivers were not appointed by the court but by debenture holders as receivers of the Gomba Group of companies, which included the plaintiffs (debtor). The receivers were agent of the mortgagor and appointee of the debenture holder and performed duties on behalf of the debenture holder and the mortgagor (p1233H). Upon discharge of the receivership, the receivers declined to deliver some documents to the plaintiffs. Fox LJ held that:

“The receivers in the present case plainly had a duty to manage the affairs of the companies. All documents which were created or received in pursuance of that duty must be the property of the companies. That would include, for example, the ordinary correspondence sent and received by the companies in the conduct of their affairs. On the other hand (and this is the second group) the receivers had to advise and inform the debenture holders regarding the conduct of the receivership. Documents created for that purpose, while they can certainly be said to relate to the affairs of the companies, cannot be the property of the companies. They were not brought into being for the purpose of the companies’ business or affairs and the fact that they were created by or on behalf of persons who are, technically, the agents of the companies cannot be sufficient to create ownership in the companies. Thirdly, there are documents prepared by, or on behalf of, the receivers not in pursuance of any duty to prepare them but simply to enable the receivers to prepare such documents or perform such duties as they were required to prepare or perform for the purposes of their professional duties to the debenture holders or the companies. Such papers are, I think, the property of the receivers.” (p.1234 D-G)

97.  Mr Pow SC submits that disclosure of information obtained by a court-appointed receiver is subject to regulation by the Court: Casey Mcdonald, at §12.

98.  Whilst I accept Mr Pow SC’s submission, I note that §12 of Casey Mcdonald, Kwan J (as she then was) was about a receiver’s entitlement, if he considered it necessary for the purpose of the receivership, to share information obtained with any party and/or its advisers for the purpose of tracing and/or preserving the defendant’s assets (§§10-13). Kwan J made an order of disclosure that mirrored the BVI Court. That authority did not deal with the obligation of a receiver to give information. In the exercise of its supervisory function over a court-appointed receiver, I do not see why the principles of Gomba Holdings should not apply.

99.  Applying the above principles, insofar as supporting documents are concerned, the documents that Mr Yuen SC submits should have been produced were created in the course of the receivership and were owned by the Receiver and not PHA.

100.  However, PHA was able to produce some documents under cover of a letter of OLN dated 10 February 2020, after DAC’s requests for full disclosure. Those documents were not appended to the 19^th Report. They were clearly documents in PHA’s possession which could have been produced in Allderige 3^rd, as PHA never suggested that it only got them from another source after the time extensions.

101.  It was also clear that PHA has had access to the supporting documents of the sale which they had to “review” (according to OLN’s earlier letter dated 31 January 2020). 　

102.  The irresistible inference is that PHA was in possession of more information than appears on the face of the Receiver’s Reports. The letter of OLN dated 10 February 2020 stated that it was out of a “gesture of good faith and in order to settle this matter without wasting the Court’s time” that they produced some documents. In my view, that was merely to dress up PHA’s non-compliance of the Disclosure Order and is impermissible.

103.  The information and documents in relation to the Distributed Amount was even held in the client account of PHA with OLN, and was allegedly distributed to the Recipients by PHA. As director, Mr Allderige could not escape liability by suggesting that the relevant information was not available to PHA.

104.  Further, even if the supporting documents belonged to the Receiver, there was nothing to preclude Mr Allderige from disclosing information, like what he did in Allderige 3^rd.

105.  I do not think Welsbach assists PHA/Mr Allderige. This is not a case where director A has to ask officer B for information in answering interrogatories and officer B need not disclose information he obtained from his previous employer. Here, there was no officer B. Mr Allderige and the Receiver were one and the same person. Any information would have been acquired in both capacities at the same time.

106.  Further, the Receiver had a duty to account and to provide information to PHA who has asserted proprietary interest in the sale proceeds. On the other hand, as a director for PHA, Mr Allderige had a duty to ensure that such accounts were given, with supporting documents, to ensure that PHA’s rights were protected. There was no conflict in the 2 roles. Mr Allderige could not hide behind his role as a Receiver to say that PHA was not in possession of information that Mr Allderige already had.

107.  The Disclosure Order was served just 13 days after the 19^th Report. There could not have been any difficulty for the Receiver to account and provide information to himself as director. I find that it was within the ability of PHA to comply with the Disclosure Order.

G(7). Personal liability of Mr Allderige as director of PHA

108.  A director or officer of a body corporate can be liable for contempt committed by a body corporate under Order 45 rule 5(1)(b)(iii) of the Rules of the High Court (Cap. 4A).

109.  This liability is not absolute but requires an element of personal culpability on the part of the director. Hence, a director would be guilty of contempt if:

(1) he/she is fully aware of the terms of the order with which the company must comply;

(2) he/she must have that knowledge at a time when he can use his position as an officer to secure compliance; and

(3) he/she is aware that, if he does not so use his position, steps may be taken against him personally to enforce compliance.

See Excel Noble Development Limited v Wah Nam Group Limited [2001] 4 HKC 148 (CA) at 157F-G, Rogers VP; Chow Shing Kee v the Incorporated Owners of Malahon Apartment, HCMP 1729/2011, 27 April 2012, §17, DHCJ Houghton.

110.  Chow Shing Kee, §16, refers to the director being liable if he willfully fails to take reasonable steps to ensure that the order or undertaking is obeyed, following Fonfair Co Ltd v UDL Management Ltd (HCA 2002/2001), §33. The director has a personal duty (a) to find out exactly what have to be done by the company to comply with the order; and (b) to see that such things are done properly and in accordance with the time set out in the order.

111.  Fonfair uses “wilful” to distinguish the situation where the director can reasonably believe that some other director or officer is taking those steps. Mere inactivity is not sufficient. Other examples of willfulness include failure to supervise or investigate, or wilful blindness on the part of a director. See Ipartner PTE Shipping v Panacore Resources DMCC [2014] EWHC 3608 (Comm) at §§24 & 27; Crown Times International Limited v Chan Yim Ping & ors (unrep, HCA 1313/2006, 25 January 2007) at §12 per DHCJ To.

112.  As corroborated by Mr Oldham, Mr Allderige has apprised himself of the terms of the Disclosure Order and sought legal advice before the purported compliance with the Disclosure Order. In a nutshell, Mr Oldham advised PHA to disclose information available to PHA on the sale of the Shenyang Property; how PHA received the Received Proceeds and insofar as the Received Proceeds had been paid out, the entities, amounts and purposes of such payments. Mr Oldham also advised PHA to produce documents in support of the above disclosures.

113.  In view of my construction of the Disclosure Order, such advice was, without disrespect, incorrect as wrongly referring to Received Proceeds than all proceeds of sale of the Shenyang Property. Reliance on wrong advice would not exempt PHA from liability in contempt, which I find to be established.

114.  However, it is different in the case of a director. There is nothing to show that Mr Oldham deliberately gave wrong advice, which Mr Allderige knew to be incorrect. There is reasonable doubt as to whether Mr Allderige had acted wilfully. Personal liability against him is not established.

H. BREACH OF THE UNDERTAKINGS

H(1). The defence

115.  The complaints consist of failure to notify DAC of significant events within the time frame of 3 days of their occurrences and providing misleading Receiver's Report. There is no denial that the Receiver has not disclosed the Shenyang SPA until 6 months later, after the sale was completed. The Receiver’s defence is that he had tried to keep the deal confidential in view of the difficulties in the process of sale; and that he had received legal advice. He said virtually nothing about the Receiver’s Report being misleading.

H(2). Construction of the Undertakings

116.  Mr Pow SC admits having added a gloss to the Undertakings when he submitted before B Chu J, that the Undertaking to Notify included “any sale or potential sale of the Shenyang Property and details in respect thereof”.

117.  He now submits that the Undertakings should be strictly construed without cross-referencing to other materials, including transcript of proceedings. Whilst I agree with him on this submission, I am unable to agree that there was ambiguity in the Undertaking to Notify.

118.  The phrase “significant events” was specially chosen instead of just “sale” or “potential sale”. It was event-based, which could cover a lot of things beyond sale, eg mortgage, agreement to lease, government notice of resumption of land or forfeiture of the property. The whole purpose was to let the person having the benefit of the Undertaking to Notify to assess if recovery of the Judgment Debt would be affected.

119.  The word “significant” required some value judgment, but the test was objective. Once an event was decided to be significant, DAC should be notified; there was no balancing exercise involved.

120.  The parties have had some dispute in correspondence over interpretation but that would not in itself create ambiguity in the terms of the Undertaking to Notify. DAC was plainly giving the Receiver an opportunity to comply with the Undertakings before contempt proceedings were taken out.

121.  The proper interpretation rests with the Court. My construction of the Undertaking to Notify does not require reference to extraneous materials such as transcript of proceedings. Mr Pow SC’s submission in paragraph 116 above plainly demonstrated how any reasonable reader would have read the Undertakings

H(3). Non-compliance with the Undertakings

122.  Apart from the Shenyang SPA, it transpired that there was also failure of the Receiver to notify DAC of the following within the time frame of the Undertaking to Notify:

(1) The payment by the seller of the pre-transaction tax of RMB36,800,000 between 23 October 2018 to 26 March 2019 in tranches, which must be a significant event as no one would have paid such amount of tax without serious intention to buy or sell the Shenyang Property;

(2) The entering into of a Framework Agreement, which was a potential sale;

(3) The settlement with Three Wells; and

(4) The payment by the purchaser of consideration of RMB254,000,000 first into the onshore joint account on 28 June 2019 and then (converted into US dollars) into the offshore account on 2 July 2019. These were not even reported in a Receiver's Report.

123.  Each of those items was, in my view, a “significant event”, by virtue of the amount involved or its removal of an obstacle in the way of a sale. Each of them either reduced or brought in money and thus affected recovery of the Judgment Debt.

124.  Even after the Shenyang SPA was executed on 22 March 2019, OLN had, in a letter 3 days later, resisted TDW’s requests for information and disclosure, denying the sale. See paragraph 25 above.

125.  Mr Pow SC submits that, reading the Statement, the only breach was the failure to notify DAC of the execution of the Shenyang SPA within 3 days of the execution. It was wrong to rely on anything that took place after execution of that SPA as events that the Receiver should have notified DAC. That was simply not the charge in the Statement.

126.  I reject that submission, in view of my interpretation of the word “event”. Failure to notify DAC of the execution of the Shenyang SPA was a breach and a continuing one until notice was given in the 19^th Receiver’s Report. Without knowing that significant event, DAC could hardly be blamed for not raising complaints earlier. The events after 22 March 2019 ought to have been disclosed as plainly falling within the terms of the Undertaking to Notify.

127.  Further, the quarterly Reports contained statements which were contradicted by Mr Allderige’s own disclosures in Allderige 3^rd. For example, an official receipt for the “Three Wells Settlement Amount” in the sum of US$3,800,000 was issued on 8 August 2018. However, the 18^th Report dated 6 September 2019 still stated that the dispute with Three Wells had not been settled, and “the Receiver is now seeking legal advice on the merit of the Three Wells claim and shall proceed to have settlement discussion and/or litigate (if necessary) with Three Wells on the basis of the advice”. Even if the US$3,800,000 were, according to the Receiver, only a partial settlement, there was no reason to hide it from DAC. The statement in the Report was misleading.

128.  Mr Pow SC submits that “significant” is a matter of degree and the Undertaking to Notify very much depends on a judgment call to be made. Any ambiguity should be resolved in favour of the Receiver. Unless his judgment call was irrational or absurd, there is no reason for finding him in breach. Mr Allderige has explained, in full detail, the background matrix as summarized in paragraphs 44-49 above. Mr Allderige also acted on legal advice, as corroborated by Mr Oldham. Mr Pow SC submits that Mr Allderige’s judgment call could not be described as irrational or absurd.

129.  Without disrespect, I reject that submission for these reasons:

130.  Firstly, the fact that one party may not honour his contractual obligations would not undermine the fact that a contract was entered into by objective standard. The fact that the Receiver knew that the buyer may walk out would not undermine the fact that the Shenyang SPA was a binding contract and was, by any standard, a significant event.

131.  Secondly, there was nothing to prevent the Receiver from telling DAC that despite what appeared to be a contract, there was risk of Vanke walking out at any time and the deal may be sabotaged by the special commercial environment in Shenyang. There is no evidence that DAC would not treat the information as confidential.

132.  Thirdly, one could see that the Receiver himself guarded the Framework Agreement and the Shenyang SPA tightly. He told other buyers that he had a potential deal without giving details. (See the Trip Reports.). He kept telling potential buyers to be quick as he was closing a deal soon but he stopped saying so after entering into the Shenyang SPA. Such facts plainly showed that the Framework Agreement and Shenyang SPA were significant events from the perspective of the Receiver.

133.  Fourthly, there was a list of Y and N representing work to be done under the Framework Agreement /Shenyang SPA. The list of Ys got longer as time went by. It was clear that both buyer and seller were working towards a completion. It was wholly wrong for the Receiver to suggest that it was only upon payment/completion by Vanke that a significant event occurred for the Receiver to disclose the Shenyang SPA to DAC.

134.  Fifthly, a potential sale like the Framework Agreement was as significant as a sale itself. This is because, things like an MOU, letter of intent could disclose a potential sale at undervalue. That would entitle DAC to take appropriate action. That was the whole purpose of the Injunction – to protect the subject matter pending arbitration.

135.  Sixthly, the Undertaking to Notify did not exempt the Receiver from disclosing what he considered to be confidential/sensitive events that were significant. As stated in Hadkinson v Hadkinson [1952] 2 All ER 567 (CA) at p569C-F per Romer LJ, it is the plain and unqualified obligation of every person against whom an order is made to obey it unless and until that order is discharged. The uncompromising nature of this obligation is shown by the fact that it extends even to cases where the person affected by an order believes it to be irregular or even void.

136.  If the Receiver was genuinely concerned as to confidentiality, he should have applied to the Court for exemption from disclosure or sought cross-undertakings from DAC as to confidentiality. He did not do so.

137.  Seventhly, whilst delay in disclosure was a breach, it was worse that the Receiver gave misleading or even false information. I have commented on the 18^th Report (paragraph 130 above). There was also OLN’s letters dated 25 March, 12 April and 24 May 2019 (paragraph 25 above), which Mr Allderige never denied were issued with his instructions. The contents and tone of that letter could only mean that there was no sale, which was contrary to the truth.

138.  Eighthly, the Undertaking to Notify was the Receiver’s personal obligation. The principle in Chow Shing Kee concerning a director does not assist the Receiver. The fact remains that the Receiver’s conduct of acting under legal advice would only be a factor in mitigation but would not exempt him from liability.

139.  In any case, the advice was, without disrespect, plainly wrong, even considered in the light of the difficulty of selling distressed assets in Mainland China and the need to proceed in great confidence to avoid the deal being sabotaged. The relevant advice is summarized as follows.

140.  Firstly, in respect of the Framework Agreement, Mr Oldham:

“14. … advised [Allderige] that he could mention this development [ie that Vanke requested to sign the 1^st Framework Agreement, with sig ongoing disputes with, amongst others, Three Wells] in the way that he considered prudent in the 14^th receiver report. [Allderige’s] paramount interest as receiver was to liquidate and provide recovery of funds to the judgment creditors in the action HCA 1257/2013. Hence in providing an update in his Report, [Allderige] needed to balance the need for confidentiality and the fragile status surrounding the potential deal. I felt that [Allderige] struck a suitable balance in the 14^th receiver report by reporting that discussions with a prospective purchaser had become tangible… (underline added)

15. …As for the [Undertakings]…The actual detailed and protracted process between [Allderige] and any potential purchase of the Shenyang Hotel did not in my view affect the recovery of the judgment debt for the judgment creditors… It was my understanding that the signing of the [1^st] Framework Agreement was merely the beginning of the process rather than the conclusion of any deal. Accordingly, I did not consider and did not so advise [Allderige] that it was a significant event that has to be disclosed to DAC pursuant to the aforesaid undertaking.”

141.  As explained above, the Framework Agreement (even if it just began a process) and Three Wells Settlement were significant events. The duty to report did not involve a balancing exercise between disclosure and confidentiality. Anyway, Mr Oldham left Mr Allderige to decide on the way to report, and the latter chose not to mention the Framework Agreement or any Three Wells settlement.

142.  Secondly, as to the Shenyang SPA, Mr Oldham deposed that he was told that, in March 2019, Vanke was in principle willing to offer RMB14 million more. However, he “did not advise [Mr Allderige] that he was obliged to make disclosure to DAC pursuant to the undertaking”. The bases for that advice was that there were still additional government approvals to obtain, documentation needed and obstacles to resolve. The signing of the Shenyang Property provided no ultimate success of the deal but was just another step taken in the arduous process which remained work in progress. The potential deal was still in a fragile state such that utmost confidentiality was still crucial to ensure that the potential deal can proceed towards the goal of completion. (§17 of Mr Oldham’s affidavit)

143.  I find it astonishing that Vanke’s offer of another RMB14 million more was not considered significant by a solicitor. As stated above, as a matter of construction of the Undertaking to Notify, whether to notify or not was not did not involve consideration of confidentiality.

144.  DAC also complains that the 20^th and 21^st Receiver's Reports were late. The Receiver’s explanation was that it was due to closure of the Registry during the General Adjournment Period (“GAP”) in 2020.

145.  I do not accept that explanation. The need to supply copies of quarterly reports to DAC was not tied to filing in Court. In any case, the GAP had only prevented filing but not service of documents.

146.  For the reasons given in this sub-section, I am satisfied beyond reasonable doubt that there was non-compliance by the Receiver of the clear terms of the Undertaking including the Undertaking to Notify.

H(4). The state of mind in the non-compliance of the Undertakings

147.  It cannot be gainsaid that Mr Allderige was at all material times fully aware of all the terms of the Undertakings. As the Receiver, he was personally responsible for arranging and negotiating the sale of the Shenyang Property. He must therefore have been well aware of all “significant events” relating to the sale and potential sale. His failure to comply could not be said to be unintentional, casual or accidental.

148.  While it is not necessary to prove a contumacious state of mind in order to establish contempt, it is clear that the Receiver acted with contumacy. Neither the 17^th nor 18^th Reports, made after the Shenyang SPA, mentioned the Shenyang SPA. The 18^th Report even went so far as give the impression that there was no sale (paragraph 26 above). Even if one accepts that the Receiver had continued with his marketing efforts in case the deal with Vanke would fall through, he should not have made such misleading statements.

149.  The intention to mislead DAC continued in OLN’s letters. See the series of correspondence referred to in paragraph 25 above. TDW posed very specific questions on the status of sale or potential sale of the Shenyang Property, which Mr Allderige and Mr Oldham would have no difficulty understanding. The responses given by OLN, which could only have been made on Mr Allderige’s instructions, were contrary to the truth and were indicative of the Receiver’s effort at pains to conceal the fact of the sale and disobey the Undertakings.

150.  Mr Pow SC criticizes DAC’s formulation of the complaint in using the word “update” when the Undertaking was to “notify”. This criticism is utterly unjustified. Because DAC was never notified about the Shenyang SPA, that was why DAC had to ask specific questions for updates.

151.  For the reasons given in this sub-section, I am of the view that there was breach of the Undertakings with contumacious intent.

I. CONCLUSION

152.  In respect of the Disclosure Order, whilst PHA was in contempt of court, there is reasonable doubt as to whether, as a director and having acted on legal advice, Mr Allderige had acted wilfully. The charge of contempt against him personally is dismissed.

153.  As PHA was in breach of the Disclosure Order and brought suspicion to bear on Mr Allderige, I make an order nisi that there should be no costs as between DAC and PHA/Mr Allderige.

154.  In respect of the Undertakings, DAC has proved the breach against the Receiver beyond reasonable doubt. The breach was committed with contumacy. Contempt is established against the Receiver. On a nisi basis, the Receiver should bear half of DAC’s costs of the OS on indemnity basis, summarily assessed at $650,000.

155.  I direct the parties do fix an appointment within 21 days of the re-opening of the High Court Registry to obtain a date for hearing the mitigation of Mr Allderige, with one hour reserved.

156.  I thank counsel for their assistance.