KHOO EE LIAM v. CHEN AUN LI, ANDREW

HCMP 3449/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3449 OF 2013

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R E A S O N S   F O R   J U D G M E N T

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1.  This is an application for an order of committal against the respondent. Leave to apply for such committal was granted by M Chan J on 11 December 2013.

2.  In the hearing on 23 May 2014, I ordered the respondent do stand committed to prison to be there imprisoned until further order.  I now give my reasons.

Background

3.  In HCA 4354/2003 (“the Action”), Aachen (Asia Pacific) Consultants Limited (“ACL”) was the plaintiff and claimed against the applicant, Mr Khoo Ee Liam (“Khoo”), for a sum of A$4,322,468.30 alleged to be the outstanding balance of a consultancy fee under the Mandate Agreement dated 5 December 1997.  After a trial of 18 days, M Chan, DHCJ (as she then was) handed down a judgment on 25 September 2012 (“the Judgment”) dismissing ACL’s claim and entering judgment on Khoo’s counterclaim for the sums of US$72,000, A$25,327.52, A$550,000 and HK$530,000 (“the Judgment Sums”) against ACL.

4.  The respondent, Mr Chen Aun-Li, Andrew (“Chen”), was at all material times and is still the sole director of ACL, as well as its controlling shareholder holding all but 2 shares in ACL (or 4,999,998 shares). The other 2 shareholders have been Ms Chen Ying Chi Angelina and Ms Chen Yin Yao Rosalind, the daughters of Chen.

5.  Chen has all along been the controlling force behind ACL and the “real party” to the Action.  Upon Khoo’s application, M Chan J made an order on 20 March 2013 joining Chen as a party to the Action for the purpose of costs only.  By a further order dated 30 April 2013, Chen was ordered to pay costs of the main action and the counterclaim in the Action, jointly and severally with ACL, to Khoo.

6.  The proceedings in the Action have not yet been concluded with the processes of the execution of the Judgment Sums and interests thereon, and the taxation of costs being pending.

The provision of the undertakings

7.  In the course of the proceedings in the Action, Khoo made an application for security for costs against ACL.  The said application for security for costs was dismissed by Master De Souza on 4 September 2007.  Khoo appealed against the Master’s decision and the appeal was heard by Harris, SC, DHCJ (as he then was) on 4 January 2008.  At the said hearing, for the purpose of security for costs, ACL through its counsel gave 2 undertakings to the court which were accepted by the court and were ordered to be recorded in an affirmation to be filed on behalf of ACL.  On 17 January 2008, Chen filed his 8th affirmation recording the said undertakings.

8.  On 7 January 2009, ACL applied to the court for an order that it be released from the said undertakings it gave to the court on 4 January 2008 upon giving another set of undertakings.  In support of the said application, Chen made his 12th affirmation on 6 January 2009.  On 17 March 2009, the application was heard by Poon J who allowed ACL’s application.  The said new undertakings were set out in the judgment given by Poon J.

9.  On 20 February 2011, Khoo made an application, inter alia, seeking a variation to the terms of the said undertakings given by ACL to Poon J.  The said application was heard by Coleman, SC, DHCJ on 2 June 2011.  As contained in Chen’s 13th affirmation filed on 17 March 2011, Chen and ACL offered a set of revised undertakings to meet the said application.  At the hearing, the learned Judge accepted the revised undertakings with 2 additional undertakings  given by Chen and ACL (“the Undertakings”) which were recorded in the order made by the learned Judge on 2 June 2011 (“the Order”).

10.  The Undertakings given by Chen and ACL as recorded in the Order are as follows:

“(1) [ACL] undertakes that it would have a net tangible assets value of not less than HK$5,000,000 excluding any prepayments (the “Net Assets”) until the conclusion of these proceedings.

(2) That [ACL] will not undertake any business until the conclusion of these proceedings apart from investment in listed securities.

(3) If at any time the value of the Net Assets falls below HK$5,000,000 before the conclusion of these proceedings:

  (i) [ACL] will inform [Khoo] in writing within 10 days of such event;

 (ii) [Chen] shall make additional deposit into [ACL’s] bank account within 30 days of such event so that the Net Assets shall exceed HK$5,000,000 Provided always that [ACL] may at any time repay [Chen] any sum in excess of the Net Assets;

(iii) Upon the making of the additional deposit, [ACL] shall provide [Khoo] with the relevant copy of bank statement or records evidencing the said deposit.

(4) [Chen] further undertakes that until the payment of any cost orders in favour of [Khoo] in these proceedings:

(i) all legal costs and expenses of [ACL] incurred or to be incurred by [ACL] in these proceedings shall be funded by him personally; and

(ii) any amount he provided to [ACL] for the above purpose will be subordinated in favour of any cost orders in [Khoo’s] favour.

(5) [ACL] undertakes to provide [Khoo] on a monthly basis until the conclusion of these proceedings a statement of the market value of the investments of [ACL] in listed securities and bonds as at the end of the relevant month, the first statement shall be provided to [Khoo] on or before 7 July 2011 (for the month of June 2011) and subsequent statements shall be provided to [Khoo] within 7 days from the end of the relevant month.

(6) [ACL] undertakes that the Net Assets of [ACL] shall until the conclusion of these proceedings be free from any encumbrances.”

Applicable legal principles

11.  In proceedings for contempt, proof must be beyond reasonable doubt[1]. Liability for civil contempt does not depend on a contumacious intent.  To establish a contempt of court, it is sufficient to prove that the contemnor’s conduct was intentional and that he knew of all the facts which made it a breach of the court order.  It is not necessary to prove that he appreciated that he did breach the order[2].

12.  In Attorney General for Tuvalu v Philatelic Distribution Corp Ltd, Woolf LJ (as he then was) held[3]:

“In our view where a company is ordered not to do certain acts or gives an undertaking to like effect and a director of that company is aware of the order or undertaking he is under a duty to take reasonable steps to ensure that the order or undertaking is obeyed, and if he wilfully fails to take those steps and the order or undertaking is breached he can be punished for contempt. We use the word ‘wilful’ to distinguish the situation where the director can reasonably believe some other director or officer is taking those steps.”

13.  In Re Winner Food Products Ltd’s Application [4], it was held by Godfrey J (as he then was) that the person giving the undertaking must be presumed, whether his undertaking was positive or negative, to have known what it was, and he was not entitled to rely on the non-service of the order or the absence of the penal notice in the court order to oppose on order for committal[5].

14.  Evidence in committal proceedings is by way of affidavit unless the court otherwise directs[6].

Breach of the Undertakings

15.  It is Khoo’s case that ACL and Khoo had breached the Undertakings intentionally.  Khoo, as the controlling director of ACL, has to be responsible for the breach of the Undertakings by ACL. 

16.  After perusing the supporting affirmations, I am satisfied beyond reasonable doubt that ACL and Chen had breached the Undertakings.

17.  Since the giving of the Undertakings, ACL has, through its former solicitors David Lo & Partners, provided Khoo with monthly statements of the market value of its investments in listed securities and bonds (“the Investments”) as at the end of each month in compliance with the Undertakings.  According to the September 2012 statement (given in the form of an email from David Lo & Partners on 6 October 2012), the market value of the Investments as at 30 September 2012 was HK$6,607,761.28.

18.  After the trial of the Action and the delivery of the Judgment, ACL has failed to provide Khoo with the monthly statements of the market value of the Investments for October 2012 and any subsequent months in compliance with the Undertakings.

19.  Further, in a letter dated 14 May 2013 sent by ACL and Chen to the court which was to inform the court that Chen would not be available to attend an oral examination of judgment debtor hearing on 3 June 2013, a document which was stated to be the unaudited balance sheet of ACL as at 31 December 2012 (“the Balance Sheet”) was enclosed with the said letter.  The said letter and the Balance Sheet were not made available to Khoo’s solicitors until 27 May 2013 when copies of the said documents were sent by the court to them.

20.  As one can see from the Balance Sheet, save for an unknown and dubious debt of HK$5,958,807 purportedly owed by a shareholder to ACL, ACL had no other assets, and the Investments which would appear to have been sold or otherwise disposed of by ACL have disappeared.

21.  Moreover, the Judgment Sums and interests thereon which accrued to about HK$8,439,937.34 up to 31 December 2012 being the date of the Balance Sheet (without taking into account the costs of the action) have not been reflected in the Balance Sheet at all.  In the premises, ACL has failed to ensure that the value of the Net Assets of ACL did not fall below HK$5,000,000 until the conclusion of the proceedings in the Action in compliance with paragraph (1) of the Undertakings taking into account the Judgment Sums and interests thereon in the Action.

22.  Furthermore, paragraph (2) of the Undertakings has prohibited ACL from undertaking any business until the conclusion of the proceedings in the Action apart from investing in the listed securities.  No explanation has been put forward by ACL or Chen as to how the said dubious debt of HK$5,958,807 was created and why the Investments which were valued at HK$6,607,761.28 as at 30 September 2012 have disappeared.

23.  In the absence of any explanation from Chen, the court has reason to believe that the creation of the said dubious debt of HK$5,958,807 and the disappearance of the Investments which took place after the delivery of the Judgment were deliberate and calculated manoeuvres on the part of ACL and Chen with a view to defeat Khoo’s rights to enforce the Judgment and the Undertakings.

24.  In addition, paragraph (3) of the Undertakings expressly provides that if at any time the value of ACL’s Net Assets falls below HK$5,000,000, Chen shall inform Khoo in writing within 10 days of such event and shall make additional deposit into ACL’s bank account within 30 days of such event so that ACL’s Net Assets shall exceed HK$5,000,000, and upon making the additional deposit, ACL shall provide Khoo with the relevant copy of the bank statement or records evidencing such deposit.  Notwithstanding that the value of the Net Assets of ACL fell below HK$5,000,000 as mentioned above, ACL and Chen as the sole director of ACL have failed to inform Khoo of such event or make any additional deposit at all in compliance with paragraph (3) of the Undertakings, thereby committing a further breach of the Undertakings.  The fact that ACL has not informed Khoo of Chen making any such additional deposit is per se cogent evidence that Chen has not made any such additional deposit in compliance with paragraph (3)(ii) of the Undertakings.

Contempt of court

25.  By 2 letters dated 22 March 2013, Khoo’s solicitors put ACL and Chen on notice that ACL and Chen, as the sole director of ACL, have been in breach of the Undertakings and in contempt of court in failing to provide the monthly statements of the market value of the Investments as from October 2012.

26.  By letters dated 5 April 2013 and 14 May 2013, Chen alleged that his understanding was that his undertaking to provide the monthly statements had “expired and stopped upon the conclusion of the trial, that is, the judgment date on 25th September 2012”.  By letter dated 9 October 2013, Khoo, through his solicitors, demanded ACL and Chen to rectify the situation and to purge their contempt of court by performing and complying with all the Undertakings.

27.  I do not accept Chen’s explanation.

28.  As mentioned above, before the giving of the Undertakings, ACL and Chen had previously given similar undertakings to the court.  Chen made his 8th affirmation on 17 January 2008 to record the said undertakings given to Harris, SC, DHCJ on 4 January 2008 and made his 12th affirmation in support of the application for varying the said undertakings before Poon J.  He also made his 13th affirmation offering the said revised undertakings to the court for the hearing before Coleman, SC, DHCJ on 2 June 2011.

29.  In paragraphs 11.3 and 11.4 of the said 13th affirmation, Chen stated:

“The Revised Undertakings are structured to ensure that [ACL] maintains a net worth of HK$5 million (now mainly consists of investment securities and cash held by [ACL]) until the conclusion of these proceedings, which I verily believe should be sufficient to cover [Khoo’s] cost position in case he prevails.

The essential feature of the Revised Undertakings is that (i) I will subordinate my advances to [ACL], and (ii) I will be personally responsible for the legal fees incurred or to be incurred by [ACL].  As a result, all the assets of [ACL] are available to pay [Khoo’s] costs and the assets would not be affected by any liability …”

30.  Further in accepting the Undertakings, Coleman, SC, DHCJ said the following in his judgment dated 2 June 2011:

“59. … I do not think that the Revised Undertakings need contain any disclosure obligation much beyond that which is expressed; if the relevant assets fall below the relevant threshold, there is the undertaking to inform [Khoo] or that fact within 10 days coupled with the undertaking that [Chen] will make good any shortfall, following which [ACL] shall provide the relevant evidence.

60. But, as [Chen] and [ACL] must monitor the value of the investments to see whether or not the Net Assets fall in value below the $5 million threshold, I see no difficulty in [Khoo] being provided on a monthly basis with a statement of the market value of the listed share investments and bonds. I raised this point at the hearing, and I understand [ACL] to have offered through Mr Lam this additional undertaking …

…

62. … I accept that [Chen] must have been advised as to the serious consequences of breaching any undertaking given to the court, and that in the absence of credible evidence suggesting the contrary, it is to be assumed that [Chen] has offered the undertaking on the basis that he has the ability to honour it …

…

65. Like Poon J (and I think then Deputy Judge Harris SC), the acceptance of proffered undertakings is tantamount to the provision of security for [Khoo’s] costs because the rationale is to make sure that [ACL] will set aside sufficient funds and preserve those funds in such a way that [ACL] will be able to meet an adverse costs order made in favour of [Khoo] should he succeed after trial.”

31.  It is clear from the said 13th affirmation and the aforesaid judgment, Chen must have at all material times been well aware that the Undertakings were to preserve the funds to meet an adverse costs order made in favour of Khoo should he succeed after trial.  Chen must have realised that the Undertakings should remain effective until the completion of all the processes including the execution of the Judgment and the enforcement of the costs order made in favour of Khoo in the Action, and the phrase “until the conclusion of these proceedings” in the Undertakings should carry such meaning and could not have meant that the Undertakings would come to an end when the Judgment was handed down.

32.  Further, ACL and Chen have at all material times been represented by solicitors and counsel of senior standing and the Undertakings were given by Chen and ACL to the court through their legal team. Chen must have at all material times been made known and advised of his personal obligations and his obligations as the sole director of ACL under the Undertakings and also the serious consequences of breaching the Undertakings given to the court.

33.  Based on the aforesaid, Khoo has proved beyond reasonable doubt that Chen has committed a serious contempt of court in breaching the Undertakings, both in personal capacity as well as in his capacity as the sole director of ACL, in that:

(i) he has wilfully failed as the sole director of ACL to take any or any reasonable step to ensure or cause the statements of the market value of the investments of ACL in the listed securities and bonds as at the end of the relevant month on a monthly basis for October 2012 and the subsequent months until the conclusion of the proceedings in the Action to be provided to Khoo within 7 days from the end of the relevant months in compliance with paragraph (5) of the Undertakings;

(ii) he has wilfully failed as the sole director of ACL to take any or any reasonable step to ensure the value of the Net Assets of ACL not falling below HK$5,000,000 until the conclusion of the proceedings in the Action in compliance with paragraph (1) of the Undertakings;

(iii) he has wilfully failed as the sole director of ACL to take any or any reasonable step to ensure or cause ACL to inform Khoo in writing within 10 days of the value of the Net Assets of ACL falling below HK$5,000,000 in compliance with paragraph (3)(i) of the Undertakings; and

(iv) he has wilfully failed in his personal capacity to make additional deposit into ACL’s bank account within 30 days of the value of the New Assets of ACL falling below HK$5,000,000 so that the Net Assets shall exceed HK$5,000,000 in compliance with paragraph (3)(ii) of the Undertakings.

34.  Khoo’s legal advisors have made various attempts to effect personal service of the contempt papers on Chen but without success. On the basis that there was evidence that Chen was seeking to evade service, I made an order on 9 April 2014 dispensing with personal service of the court documents on Chen pursuant to O 52 r 3(4) of RHC.  Instead, I ordered substituted service of the documents on Chen.

35.  Substituted service of the contempt papers has been effected on Chen, and yet he fails to attend the hearing.

36.  Given Chen’s blatant breach of the Undertakings, I accept that committal to prison is an appropriate remedy.  I therefore sign a warrant for his arrest and committal.

37.  As Chen is absent in the hearing, I do not consider it appropriate to impose a fixed-term of imprisonment at this stage. Chen should be given an opportunity to make representations before the court determines the length of the imprisonment[7]. Furthermore, this being a matter of civil contempt, the duration of Chen’s imprisonment is obviously in his hands.  It is open to him to purge his contempt and to end his confinement by complying with the Undertakings or to pay for the costs of Khoo in the Action[8]. I therefore ordered Chen be committed to prison to be there imprisoned until further order[9].

38.  As Chen has committed a serious contempt of court in breaching the Undertakings, I also ordered Chen to pay the costs of the contempt proceedings on an indemnity basis.

(David Lok) Deputy High Court Judge