CHINA SHANSHUI CEMENT GROUP LTD AND OTHERS v. ZHANG CAIKUI AND ANOTHER

CACV 271/2018

[2019] HKCA 1207

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 271 OF 2018

(ON APPEAL FROM HCMP No. 1574 OF 2016)

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J U D G M E N T

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Hon Chu JA (giving the judgment of the Court):

1.  This is the defendants’ application for leave to adduce fresh evidence in their appeal against the judgment of Au Yeung J (“the Judge”) given on 28 February 2018 finding the 1^st and 2^nd defendants guilty of six and three charges of contempt of court on account of their failure to comply with two injunction orders. On 31 May 2018, they were sentenced to four months and three months of imprisonment respectively.

Background

2.  The plaintiffs are companies within a group of companies (“the Group”).  The 1^st plaintiff, a company incorporated in the Cayman Islands and listed on the main board of the Stock Exchange of Hong Kong, is the parent company.  The 2^nd plaintiff, a company incorporated in Hong Kong, is a wholly owned direct subsidiary of the 1^st plaintiff.  The 3^rd plaintiff, also incorporated in Hong Kong, is a wholly owned direct subsidiary of the 2^nd plaintiff. 

3.  The 3^rd plaintiff is the sole shareholder of Shandong Shanshui Cement Group Company Limited (“Shandong Cement”), a PRC company that holds the vast majority of the Group’s assets, employs most of the Group’s staff and is responsible for about 99% of the Group’s revenues.

4.  The 1^st and 2^nd defendants were the former directors of the plaintiffs.

5.  The plaintiffs commenced High Court Action No. 2880 of 2015 (“the Action”) against the 1^st and 2^nd defendants.  On 24 December 2015 and 8 January 2016, the plaintiffs obtained two injunction orders against the defendants in connection with the records of the plaintiffs and the amendment of the Articles and Association of Shandong Cement (respectively “the December Injunction Order” and “the January Injunction Order”).

6.  Under the December Injunction Order, which was granted by Lok J,

(1)  The defendants were restrained from concealing from the plaintiffs, destroying or tampering with, the plaintiffs’ records (“Preservation Order”);

(2)  The defendants were required to forthwith deliver to the plaintiffs’ solicitors any of the plaintiffs’ records or copies thereof that were in their possession, custody or control (“Delivery Over Order”); and

(3)  The defendants were required to answer in writing five questions concerning the whereabouts of the plaintiffs’ records within seven days of service (“Plaintiffs’ Records Disclosure Order”), and within seven days thereafter, to provide an affirmation confirming the answers (“Plaintiffs’ Records Confirmation Order”).

7.  Under the January Injunction Order, which was granted by the Judge,

(1)  The defendants were required to make additional disclosure concerning the plaintiffs’ records and a confirmatory affirmation within 14 days of the order, and to forthwith deliver up the plaintiffs’ records to the plaintiffs’ solicitors (Plaintiffs’ Records Further Order”);

(2)  The defendants were restrained from acting upon or exercising any power or entitlement pursuant to the amendments to the Articles of Association of Shandong Cement made on 14 October 2015, and from misapplying any assets of Shandong Cement or any of its subsidiaries (“Shandong Cement Injunction”); and

(3)  The defendants were required to, within 21 days, execute the corrective amendments to Shandong Cement’s Articles of Association that were approved by the Judge on 13 January 2016 (“Corrective Amendments Injunction”).

8.  The two injunction orders, endorsed with penal notice, were deemed to have been served on the defendants upon their being served on the defendants’ solicitors, Deacons, on 15 February 2016, pursuant to the order of Deputy High Court Judge M Ng (as M Ng J then was) dated 12 February 2016.

Contempt proceedings

9.  On 14 June 2016, leave was granted ex parte (“the Leave Order”) to the plaintiffs to commence contempt proceedings against the defendants.   On 21 June 2016, the plaintiffs issued a notice of motion to commit the defendants for contempt for failing to comply with the two injunction orders.

10.  On 20 December 2016, the defendants applied by summons to set aside the Leave Order or to strike out the contempt proceedings on the ground of misstatement and material non-disclosure.  They had not, in the meantime, filed evidence to contest the committal proceedings. 

11.  The Judge heard the summons and the committal application, and gave her judgment on 28 February 2018.  The Judge found there was misstatement and one set of material non-disclosure on the part of the plaintiffs but accepted they were made innocently.  The Judge held that she would have granted or re-granted leave to commence committal proceedings had she had been told the full picture.  The defendants’ setting aside summons was accordingly dismissed.

12.  The Judge further found the 1^st defendant guilty of six charges of contempt:

(1)  Charge 1: Failure to comply with the Preservation Order.

(2)  Charge 2: Failure to comply with the Delivery Over Order.

(3)  Charge 3: Failure to comply with the Plaintiffs’ Records Disclosure Order and the Plaintiffs’ Records Confirmation Order.

(4)  Charge 4: Failure to comply with the order giving continued effect to the orders that formed the subject matter of Charges (1) to (3).

(5)  Charge 6: Failure to comply with an order restraining the 1^st defendant from acting upon or exercising any power or entitlement pursuant to amendments made to the Articles of Association of Shandong Cement (the first limb of the Shandong Cement Injunction).

(6)  Charge 7: Failure to comply with an order to execute the Corrective Amendments Injunction.

13.  The Judge also found the 2^nd defendant guilty of charges (1) to (3), as set out in [12] above.

14.  At the hearing on 23 May 2018, at which the defendants were absent despite being directed to attend personally, the Judge heard mitigation advanced on their behalf and passed sentences of 4 months and 3 months of imprisonment on the 1^st and 2^nd defendants respectively. 

The defendants’ appeal

15.  On 28 June 2018, the defendants filed a notice of appeal to appeal the Judge’s judgment, which was later substituted by a supplemental notice of appeal filed on 30 May 2019.

16.  The defendants put forward 18 grounds of appeal, of which the following are relevant to the present application:

(1)  The Judge found there was material misstatement and non-disclosure of the plaintiffs’ recovery of the records, but exercised her discretion against setting aside the leave to commence committal proceedings mainly on account of the missing data server. However, the data server and other records alleged to be missing have been in the plaintiffs’ possession and/or power since at least end January 2016 (Ground 0A).

(2)  The Judge’s holding that the irresistible inference was that the defendants simply dared not go on oath to state that they did not have possession, custody or power of any of the plaintiffs’ records after 15 February 2016, or explained why they failed to comply with the Preservation Order or Delivery Over Order was not supported by evidence (Ground 1).

(3)  The Judge erred in holding that the defendants are still in possession, custody or power of the plaintiffs’ records (Ground 2).

(4)  The Judge erred in finding that the defendants and their agents continued to control most of the affairs of Shandong Cement after January 2016, when by that time the plaintiffs had assumed control of the company (Ground 9).

(5)  The Judge exercised her power under mistaken factual findings that the plaintiffs were at risk of losing control over Shandong Cement, when the plaintiffs had in fact gained control over Shandong Cement in January 2016, before the injunction orders took effect (Ground 13(3)).

(6)  The Judge erred in finding that (i) the plaintiffs had to incur costs and time to recover their own documents; (ii) the plaintiffs’ business and regulatory duties had been affected; and (iii) the plaintiffs’ financial interests were directly harmed by the 1^st defendant’s breach (Ground 14).

(7)  The Judge failed to take any or sufficient account of the fact that the plaintiffs had recovered most (if not all) of their records in January 2016 before the injunction orders took effect, as well as the defendants’ explanations (Ground 15(1) & (3)).

Defendants’ application to adduce new evidence

17.  By summons filed on 17 June 2019, the defendants applied for leave to adduce new evidence in the appeal.  The new evidence is contained in the 1^st defendant’s affirmation filed on 17 June 2019 (“Zhang’s 1st Affirmation”).  On 18 July 2019, the defendants filed the 1^st defendant’s second affirmation (“Zhang’s 2^nd Affirmation”) in support of their application.  The defendants’ skeleton submission was lodged on 20 August 2019.

18.  The plaintiffs take a neutral stance on the defendants’ application and have not filed any evidence in opposition.

Relevant legal principles

19.  Order 59 rule 10(2) of the Rules of the High Court, Cap. 4A provides that the Court of Appeal shall have power to receive further evidence on questions of fact but no such further evidence (other than evidence as to matters which have occurred after the date of the trial or hearing) shall be admitted except on special grounds.

20.  In Kao Lee & Yip v Koo (2009) 12 HKCFAR 830 at [20], the Court of Final Appeal held that as proceedings for committal for civil contempt have penal consequences, it was appropriate to apply the criminal rules relating to the admission of fresh evidence rather than the strict civil rule laid down in Ladd v. Marshall [1954] 1 WLR 1489, and proceeded to apply the test in section 83V(1) of the Criminal Procedure Ordinance, Cap. 221, which is whether the admission of new evidence is necessary or expedient in the interests of justice.

21.  Section 83V(1) and (2) provide as follows:

“(1) For the purposes of this Part, the Court of Appeal may, if it thinks it necessary or expedient in the interests of justice—

(a) order the production of any document, exhibit or other thing connected with the proceedings, the production of which appears to it necessary for the determination of the case;

(b) order any witness who would have been a compellable witness in the proceedings from which the appeal lies to attend for examination and be examined before the Court of Appeal whether or not he was called in those proceedings; and

(c) subject to subsection (3), receive the evidence, if tendered, of any witness.

(2) Without prejudice to subsection (1), where evidence is tendered to the Court of Appeal thereunder the Court of Appeal shall, unless it is satisfied that the evidence, if received, would not afford any ground for allowing the appeal, exercise its powers of receiving it if—

(a) it appears to it that the evidence is likely to be credible and would have been admissible in the proceedings from which the appeal lies on an issue which is the subject of the appeal; and

(b)   it is satisfied that it was not adduced in those proceedings but there is a reasonable explanation for the failure to adduce it.”

22.  The Court of Final Appeal confirmed in Mahabobur Rahman v HKSAR (2010) 13 HKCFAR 20 at [13] that section 83V(2) set out the conditions to be satisfied before receiving evidence under section 83V(1), namely, (1) the fresh evidence is likely to be credible; (2) it would have been admissible in the court below; (3) it is relevant to an issue in the appeal; (4) there is a reasonable explanation for the failure to adduce it in the court below; and (5) the court is satisfied that it would afford a ground of appeal.

Discussion

23.  The new evidence that the defendants seek to adduce through Zhang’s 1^st Affirmation addresses two matters: (1) the whereabouts of four items of documents, which according to the plaintiffs’ witness, Mr David Yen, had not been recovered (“the 4 missing documents”), and (2) the question of who had control over the affairs of Shandong Cement.

24.  The first matter is contained in [16] and [17] of Zhang’s 1^st Affirmation, which stated that the 4 missing documents were not in the defendants’ possession, and further exhibited a letter dated 2 May 2019 issued by Shandong Cement (“2 May 2019 Letter”) confirming that the 4 missing items were all along kept in its headquarter in Jinan (“Jinan HQ”, exhibit ZCK-1).  The defendants argue that, contrary to Mr Yen’s evidence that the 4 missing documents had not been handed over, and the 2 May 2019 Letter confirms that they are in Jinan HQ and not in the defendants’ possession.

25.  The new evidence is said to be relevant to the setting aside summons, the conviction on Charges 1 and 2 and the sentence, and support Grounds 0A, 1 and 2 , as well as 14 and 15 of the grounds of appeal[1]. It is further submitted that the new evidence will enable the Court to determine the true state of affairs and conclude the appeal in the defendants’ favour.

26.  It was explained in Zhang’s 2^nd Affirmation that the new evidence was not placed before the Judge because it only came to light in May 2019 (see [6(3)]).  We note that it was only on 9 July 2018 (i.e. sometime after the committal order of 31 May 2018) that Deacons first wrote to the plaintiffs’ then solicitors, Wilkinson & Grist, to ask whether they could locate the 4 missing items in Jinan HQ.  This is understandable given that Mr David Yen, who previously made affidavits stating that the plaintiffs’ records were in the defendants’ custody, possession or control on the Mainland, stepped down from the board of China Shanshui Cement Group Limited in May 2018.  There was no reply to Deacons’ enquiry, and two follow up letters were sent to Wilkinson & Grist on 25 July and 22 October 2018, to which there was no reply.  Eventually on 17 April 2019, Deacons wrote directly to Shandong Cement and got the 2 May 2019 Letter.

27.  It was suggested in the defendants’ submission that the 2 May 2019 Letter came within the exception to the Ladd v Marshall rule, being a matter that has occurred after the committal hearing.[2] We do not agree.  Although the letter only came into existence after the trial, the matter covered in the letter, namely, the 4 missing documents were all along in Jinan HQ, is not a matter that has occurred after the hearing.[3]

28.  In relation to the new evidence concerning the whereabouts of the 4 missing documents, what falls to be considered is whether the defendants have satisfied the conditions for admitting new evidence under section 83V of the Criminal Procedure Ordinance.  We are of the view that the new evidence satisfies the conditions stipulated under section 83V(2), namely, (1) it is likely to be credible; (2) it would have been admissible in the court below; (3) it is relevant to an issue in the appeal; (4) there is a reasonable explanation for the failure to adduce it in the court below; and (5) it would afford a ground of appeal.  We note, too, that the plaintiffs did not file any affirmation to challenge the 2 May 2019 Letter or its content.   

29.  We turn next to consider the new evidence relating to who had control of Shandong Cement.  This is contained in [23] to [34] of Zhang’s 1^st Affirmation and the public announcements made, and litigation brought, by the 1^st plaintiff referred to in those paragraphs. 

30.  This issue relates to [130] and [131] of the judgment.  In [130], the Judge referred to 12 public announcements made by Shandong Cement between February and May 2016 and the relocation of Shandong Cement.  The Judge went on to observe at [131] that they “displayed the [defendants’] continuous denial of the plaintiffs’ installation of a new board and the [defendants’] holding out as directors and management of the business of Shandong Cement pursuant to the directorship under the lawful [Articles and Association of Shandong Cement].” 

31.  The defendants argue that the Judge came to this finding as a result of relying on Mr David Yen’s evidence that as of December 2016, the defendants and their agents continued to control most of the affairs of Shandong Cement.  In Zhang’s 1^st Affirmation at [23] to [34], the 1^st defendant, referring to the public announcements made by the 1^st plaintiff, said that by 30 January 2016 the 1^st plaintiff had already regained control of Jinan HQ, which was the headquarters of Shandong Cement.  It went on to say that the plaintiffs entrusted Jinan HQ and its operation to a new board of nine directors appointed by the 3^rd plaintiff in December 2015.  The new board, however, went rogue.  In April 2017, after unsuccessful attempt to recover control of Jinan HQ from the new board, the plaintiffs obtained an injunction restraining the new board from holding out to be directors or officers of Shandong Cement. 

32.  The defendants contend that these new facts are relevant to the 1^st defendant’s appeal against his conviction of Charges 4 and 6 (1^st limb) and his sentence, and support Grounds 9 and 13(3) of the Grounds of Appeal. 

33.  In Zhang’s 2^nd Affirmation, the 1^st defendant explained that the new evidence were not placed before the Judge because the question of control over Shandong Cement was never in issue.  However, Mr David Yen had asserted in his affidavit that the defendants and their agents “continue to control most of the affairs of Shandong Cement and any legal proceedings brought by Shandong Cement against the [defendants] will not yield any orders that are enforceable in the Mainland”[4].

34.  It is also clear from paragraphs 5, 6(b), 11 and 12(b) of the Originating Summons filed in the contempt proceedings that one of the plaintiffs’ complaints against the defendants is that they continue to hold themselves out as being entitled to exercise the powers and entitlements of a director of Shandong Cement and have purported to exercise those powers and entitlements, and that they continued to purport to be directors of Shandong Cement in defiance of the requirements of the corrective amendments.  These complaints were among the key issues in the contempt proceedings.  Plainly, whether the defendants and their agents continued to manage and exercise control over the affairs of Shandong Cement must be relevant to whether the defendants were in breach of the January Injunction Order, especially the Shandong Cement Order.[5]

35.  It is therefore incorrect to say that the question of control over Shandong Cement was not in issue in the proceedings below.  It follows that the 1^st defendant’s explanation for not putting forward the new evidence in the proceedings below cannot stand.  In the circumstances, the defendants fail to meet the condition under section 83V(2)(b) of Criminal Procedure Ordinance, namely, there is a reasonable explanation for the failure to adduce it in the court below.  The application to adduce this part of Zhang’s 1^st Affirmation (i.e. paragraphs 23 to 34 and the exhibits referred to) as new evidence in the appeal should not be allowed.

Disposition

36.  For the above reasons, we make the following orders:

(1)  Leave to the defendants to adduce as new evidence in the appeal paragraphs 16 and 17 and exhibit ZCK-1 referred thereto in the Affirmation of Zhang Caikui filed on 17 June 2019.

(2)  The costs of the defendants’ application be costs in the cause of the appeal.