KAO, LEE & YIP (a firm) v. DONALD KOO HOI YAN AND OTHERS

cacv 32/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 32 of 2006

(on appeal from HCA NO. 8847 of 1993)

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J U D G M E N T

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Hon Le Pichon JA:

1.  This is an appeal from the order of Reyes J dated 23 December 2005 dismissing the plaintiff’s motion that the 1^st defendant be committed for contempt of court for failure to comply with (a) paragraph 2 of the order of Mayo J dated 21 January 1994; (b) paragraph 1 (2) (b) and (c) of the order of Ma CJHC (sitting as an additional judge of the court of first instance) dated 19 September 2003; and (c) paragraph 1 of the order of Deputy High Court Judge Muttrie dated 21 January 2004 and ordering the plaintiff to bear the costs on an indemnity basis.  At the conclusion of the appeal judgment was reserved which we now give.

Background

2.  To facilitate an understanding of the complaints of the plaintiff grounding the contempt proceedings, it is necessary to set out a chronological account of the salient events which I do below.

3.  The plaintiff, Kao, Lee & Yip is a firm of solicitors.  The 1^st defendant had been a partner of that firm but whilst still a partner had set up his own firm, Koo & Partners (“K & P”).  Litigation ensued.

4.  The plaintiff sought injunctive relief in January 1994.  Mayo J refused to grant an interlocutory injunction and, instead, ordered on 21 January 1994 that 1^st defendant “maintain an account of all work which is undertaken by [K & P] in relation to any former client of the plaintiff until trial or further order” (“the 1994 order”).

5.  The trial of the action was heard by Ma J (as he then was) in 2002.  Judgment was delivered on 2 April 2003.  It was held that 1^st defendant had breached his fiduciary duty and had also diverted legal work involving the Bank of China Group from the plaintiff to K & P.  The relevant part of the order dated 2 April 2003 read:

“3. In respect of Claim 2:

(a)    the 1^st Defendant do account to the Plaintiff for all profits earned by Koo & Partners in relation to legal services provided by Koo & Partners to the Bank of China Group for the 12 months commencing on the 1^st of October 1993 (after making due allowance against the said profits in respect of the expenses and overheads incurred in relation to such profits, including relevant salaries and an assessment, in monetary terms of time spent by solicitors and staff of Koo & Partners (including that of the 1^st Defendant)), and

(b)   an account of such profits be taken and the 1^st Defendant do pay to the Plaintiff the sums (if any) found due on the taking of the said account.”

6.  Some five months later, by an order made by consent dated 19 September 2003, detailed directions for the taking of the account so ordered were given.  For present purposes, the following part is relevant:

“1. For the purposes of taking the account of profits ordered against the 1^st Defendant as aforesaid, it is ordered that:

(1)    The said account be taken by a Judge.

(2)    The 1^st Defendant do within 28 days file and serve an affirmation:

…

(b)    exhibiting and verifying the account made pursuant to the Order of the Honourable Mr. Justice Mayo on the 21^st of January 1994;

(c)    exhibiting and verifying the account ordered to be taken by the Honourable Mr. Justice Ma as aforesaid;

…”

Hereafter, I shall refer to this order as “the 2003 order”.  (Pausing here, it is to be noted that the 2003 order was to facilitate the taking of the account of profits ordered on 2 April 2003.  That account was limited to the 12 month period from 1 October 1993 to 30 September 1994.  So although paragraph 1 (2) (b) did not specify an end date and read literally would extend to the date of the 2003 order, given the purpose of the 2003 order, in my view, it would make little sense to read the order as requiring production of the account ordered by Mayo J beyond the period of the account i.e. 30 September 1994.)

7.  The 28 days available for 1^st defendant to comply with the order of 19 September 2003 (which, it is to be noted, was a consent order) proved inadequate.  Various extensions were agreed or applied for and granted.  On 21 January 2004, Deputy Judge Muttrie granted a final extension to 4 p.m. on the 18 February 2004 for compliance with the 2003 order.  This was an ‘unless’ order, the effect of non-compliance being the grant of leave to the plaintiff to commence committal proceedings.

8.  In the 1^st defendant’s 10^th affirmation dated 20 January 2004 filed in support of his application for an extension of time which led to the making of the 2004 order, a list of files opened by K & P for the Bank of China Group entities for the period of the account (“the BOC list”) was exhibited as DK-8.  A list of files opened for non-Bank of China Group entities for the same period was also exhibited.  These were said to have been prepared in performance of paragraph 1 (2) (c) and (d) of the 2003 order.  The BOC list disclosed that (1) there were some 2000 files, (2) the 1^st defendant’s accounting expert Ian Robinson (“Mr Robinson”) was in the process of analyzing the data and documents, (3) time was needed because certain files remained to be located.  Exhibit DK-14 to the affirmation contained, inter alia, a list showing a total of 36 files with the entry “cannot find file” under the column “Fee Amount Excluding Disbursements”.

9.  On 16 February 2004, shortly before the deadline, Mr Robinson, filed an affidavit in which he stated that he had been instructed by the 1^st defendant to review the files opened by K & P during the period from 1 October 1993 to 30 September 1994 and to estimate the profit earned by K & P in respect of assignments where the Bank of China or its related entities was a client of K & P.  He went on to say that his work was based on documentation made available to him and that:

“7. … I have not conducted an audit or any independent verification of the information provided to me and on which this affidavit is based.  I have relied solely on the information provided to me, on the representations made to me by Donald Koo and accounting staff from Koo and Partners.  I do not express an opinion on the reliability of the information provided to me, upon which this affidavit is based.”

Mr Robinson concluded that for the period of account, the Bank of China work had generated a net loss of $830,777.

10.  It will be seen from Mr Robinson’s first affidavit that he was not in any position to verify the accounts as he had neither conducted an audit nor any independent verification of the information given to him.  As regards the 1^st defendant, his 11^th affirmation filed on 17 February 2004, the day before the deadline, merely exhibited certain working documents prepared by his office.  In pertinent part, this read:

“1. … I make this affirmation to exhibit certain working documents that have been prepared by my solicitors and officers in my performance of the duty to Account pursuant to the Order of Chief Justice Ma dated 19 September 2003.

2. I have read the affirmation of Mr. Ian Grant Robinson made 16 February 2004 and, to the extent that that document refers to me or to documents produced by me, I agree with it and confirm the truth of those documents.”

There was no verification of any account. 

11.  At paragraph 8 of his 11^th affirmation, the 1^st defendant made reference to the matter of the “missing files” first disclosed in his 10^th affirmation referred to earlier (see paragraph 8 above).  In paragraph 19 of his 11^th affirmation, the 1^st defendant exhibited DK-20 said to be the updated position of the missing files as at 16 February 2004.  That exhibit purported to show a list of 68 files for the period of account which could not be found.  The 68 files listed included a number of files in respect of which (1) the fee had been waived; (2) the fee was known but the nature of the work was not known and the files themselves were missing; and (3) there was no information whatsoever concerning the fee amount or the work done and the files themselves could not be found.  40 of the 68 files fell within category (3).

12.  On 24 March 2004, a sealed copy of the 2003 order endorsed with the penal notice was personally served on the 1^st defendant.  Personal service of the 1994 order was also effected on 10 May 2004.

13.  The plaintiff filed its expert’s report and took out a summons on 29 March 2004 seeking, amongst other relief, verification of the account ordered to be taken under paragraph 1 (2) (c) of the 2003 order (“the verification summons”).  As will become apparent this summons was not heard until over a year later (see paragraph 20 below).

14.  In May 2004, the experts for the parties met with a view to narrowing the issues.  This resulted in Mr Robinson filing two further affidavits in July and August of 2004 revising the profit figures upwards turning the loss of $830,777 into a net profit of over $1.3 million.

15.  The plaintiff then applied for and obtained an order from Waung J for interim payment in the sum of over $12 million to be paid on or before 29 September 2004.

16.  In October 2004, the plaintiff, by letter, pressed the 1^st defendant to comply with paragraph 1 (2) (c) of the 2003 order and threatened contempt proceedings.  This was followed in November 2004 by the service of a sealed copy of the 2004 order endorsed with the penal notice on the 1^st defendant.

17.  Then on 16 December 2004, the plaintiff made its application for leave to commence committal proceedings which was granted on 23 December 2004.  This was followed by the notice of motion dated 30 December 2004 for committal.

18.  The next relevant event is the filing, on 4 April 2005, of the sixth affidavit of Mark Lovell Side, the 1^st defendant’s solicitor.  In that affidavit, Mr Side sought to proffer reasons for the missing files:

“12. Because of the length of time since the events in question (more than ten years), office moves, staff turnover and the sheer number of people involved in handling the files over the years, it is inevitable and foreseeable that some of the client files of Koo & Partners have not been located …”

In paragraph 13, Mr Side dealt with the advice he had given the 1^st defendant on the issue of verification and implicitly accepted the absence of any verification by the 1^st defendant at the time Mr Side made his sixth affidavit.

19.  On the same day (4 April 2005) the 1^st defendant filed his 16^th affirmation which stated as follows:

“ 2. I have read the sixth affidavit of my solicitor Mark Lovell Side and adopt and confirm what he has said about my performance of the two court orders that are subject of this contempt application.  I also expressly adopt the concerns expressed in paragraph 13 of that affidavit in which Mark Side sets out the reasons why it would be inappropriate for me to verify every document within the Account.

  3.       … I wish to state that I believe the following classes of documents, which are the documents exhibited to my earlier affirmations made for the purposes of the Account and the affidavits made by the expert instructed by me, Mr. Ian Robinson, are schedules of all of the accounting documents in possession, custody or control of Koo & Partners during the period of the Account and are true and complete copies of the documents.  I verily believe that the contents of the accounting documents mentioned below are true because they are documents produced by my firm, Koo & Partners, though I am not the author of those documents.” 

Paragraph 4 proceeded to set out the 9 classes of documents referred to.

20.  As mentioned above, the verification summons (issued in March 2004) was not heard by Deputy Judge Muttrie until April 2005.  In his ruling of 19 May 2005, the judge came to the conclusion that the 1^st defendant must file an affirmation himself to verify the account in order to comply with paragraph 1 (2) (c) of the 2003 order and ordered that that be done within 28 days from the date of his order.  Deputy Judge Muttrie also ruled on the issue of connected files and ordered that those files must be included in the account although the accountability of the connected files was a matter which could not be resolved until the account was actually taken.  On 3 August 2005, Reyes J extended the deadline to 1 September 2005.

21.  The 1^st defendant engaged another accounting expert, Andy Choi, who filed his 1^st affirmation on 31 August 2005.  Mr Choi incorporated some of the plaintiff’s arguments regarding the accounts and adjusted them accordingly.  This brought the net profit to over $3.8 million subject to the resolution of the connected files issue.

22.  On 5 September 2005, the 1^st defendant filed his 17^th affirmation in which he stated as follows:

“2. … I verify the First Affirmation of Andy Choi Man On dated 31 August 2005 and all the underlying primary documents exhibited to the report and adopt it as my account pursuant to the Order of The Honourable Mr. Justice Ma made on 19 September 2003.”

23.  The contempt proceedings were heard by the judge in December 2005.

The judgment below

24.  The judge dismissed the plaintiff’s application for committal for contempt on the basis that neither the requisite mental element nor the actus reus had been made out.

(1) The 1994 order

The judge held that there was no mens rea in that it was reasonable for the 1^st defendant to decide that it was unnecessary for a separate account to be kept and that the proper and diligent preparation of the books and financial records of K & P would be proper performance.  The judge did not consider that the fact that files and records were missing established actus reus beyond a doubt.  Whilst apparently accepting that there might be “literal” non-compliance with the 1994 order in that the 1^st defendant was unable to give a full account for work done on every single file handled by K & P between 1994 and 2003, he concluded that there was substantial performance notwithstanding the missing files nor the fact that details of some 700 out of 2000 or so of the files were unavailable.

(2) The 2003 order

As regards paragraph 1 (2) (b), the judge considered that the 1^st defendant was not in a position to verify the account taken pursuant to the 1994 order because the method of accounting chosen by him proved to be imperfect.  That outcome was, however, an “unintended result”.  The requisite mens rea was therefore lacking.  Because of his conclusion that there was no contempt of the 1994 order, the judge held that there could be no contempt of the 2003 order in relation to the performance of the 1994 order.

As regards paragraph 1 (2) (c), the judge held that there was compliance with paragraph 1 (2) (c) of the 2003 order by 4 April 2005 with the filing of the 1^st defendant’s 16^th affirmation.  As from that date, the actus reus for contempt was lacking.  As regards the 1^st defendant’s non-compliance prior to April 2005 the judge concluded that there was no mens rea because the 1^st defendant was acting on the advice (albeit flawed) of Mr Side so that his conduct was not deliberate.

(3) The 2004 order

The judge concluded that non-compliance did not provide a free-standing basis on which to hold the 1^st defendant in contempt because the consequences for non-compliance was the grant of leave for these proceedings.  He considered that the real question was compliance or not with the 2003 order.

The applicable legal principles

25.  The mental element required for civil contempt lies at the heart of this appeal.  A convenient starting point for that would be the speech of Lord Oliver in Attorney General v Times Newspaper Ltd [1992] 1 AC 191 at 217-18:

“A distinction (which has been variously described as ‘unhelpful’ or ‘largely meaningless’) is sometimes drawn between what is described as ‘civil contempt,’ that is to say, contempt by a party to proceedings in a matter of procedure, and ‘criminal contempt’.  One particular form of contempt by a party to proceedings is that constituted by an intentional act which is in breach of the order of a competent court.  Where this occurs as a result of the act of a party who is bound by the order or of others acting at his direction or on his instigation, it constituted a civil contempt by him which is punishable by the court at the instance of the party for whose benefit the order was made and which can be waived by him.  The intention with which the act was done will, of course, be of the highest relevance in the determination of the penalty (if any) to be imposed by the court, but the liability here is a strict one in the sense that all that requires to be proved is service of the order and the subsequent doing by the party bound of that which is prohibited.  When, however, the prohibited act is done not by the party bound himself but by a third party, a stranger to the litigation, that person may also be liable for contempt.  There is, however, this essential distinction that his liability is for criminal contempt and arises not because the contemnor is himself affected by the prohibition contained in the order but because his act constitutes a wilful interference with the administration of justice by the court in the proceedings in which the order was made.  Here the liability is not strict in the sense referred to, for there has to be shown not only knowledge of the order but an intention to interfere with or impede the administration of justice—an intention which can of course be inferred from the circumstances.”

That passage highlights the following matters: (1) that there is a distinction to be drawn between civil contempt and criminal contempt in relation to the mental element that is required; and (2) that in civil contempt, liability is strict in the sense that an intention to interfere with or impede the administration of justice is not required.

26.  These were recognized by Ma J (as he then was) in Citybase Property Management Ltd v Kam Kyun Tak [2003] 2 HKC 98 at 103 H which the judge below cited in paragraph 12 of his judgment.  He held that proof of an intention to disobey the order is not required.  All that has to be shown is that the alleged contemnor knew the facts which gave rise to the contempt and that the conduct was not accidental.

27.  What was stated by Lord Oliver in his speech in the Times Newspaper case can be traced back to the principle as enunciated by Warrington J in Stancomb v Trowbridge Urban District Council [1910] 2 Ch 190 at 194:

“In my judgment, if a person or a corporation is restrained by injunction from doing a particular act, that person or corporation commits a breach of the injunction, and is liable for process for contempt, if he or it in fact does the act, and it is no answer to say that the act was not contumacious in the sense that, in doing it, there was no direct intention to disobey the order.”

28.  That principle was approved by the House of Lords in Heaton’s Transport (St Helens) Ltd [1973] AC 15 at 109A-F, in the Times Newspaper case and more recently in Director-General of Fair Trading v Pioneer Concrete (UK) Ltd [1995] 1 AC 456 at 479D-E where Lord Nolan opined (at 479 G-H) that it was also:

“… the reasonable view, because the party in whose favour an order has been made is entitled to have it enforced, and also the effective administration of justice normally requires some penalty for disobedience to an order of a court if the disobedience is more than casual or accidental and unintentional.”

29.  Those authorities establish beyond peradventure that contempt is conduct which was “neither casual nor accidental and unintentional.”  See per Millett J in Spectravest Inc v Apernit Ltd [1988] FSR 161 at 174 where it was also held (at page 173) that it is not necessary to prove that the alleged contemnor appreciated that his conduct would constitute a breach of the order.  Moreover, it is also well settled that the fact that the act or omission is bona fide and based on legal advice is not a defence.  See Re the Mileage Conference Group of the Tyre Manufacturers’ Conference Limited Agreement [1966] 1 WLR 1137 at 1162E-1163A.

30.  Mr Grossman SC who appeared for the 1^st defendant challenged the traditional approach.  He based his challenge on the decision of the English Court of Appeal in Irtelli v Squatriti [1992] QB 83 which he submitted was the other of the two lines of authorities said to exist on this topic.  He relied on Irtelli for the proposition that, in civil contempt, it must also be shown that the alleged contemnor knew that his conduct was in breach of the order.  In other words, that a deliberate intention to breach the order must be shown.

31.  In Irtelli the plaintiff obtained an injunction against the appellants who were the freehold owners of the property in question restraining them from “selling disposing or otherwise dealing with seeking to sell dispose or deal with” that property.  Thereafter the appellants executed a charge over the property in favour of the second defendants.  The appellants did not appear before the judge on the hearing of the motion for committal and no adequate explanation was given for their absence by their solicitor.  The judge committed them to prison.  On appeal, the Court of Appeal allowed fresh evidence to be adduced and in the light of that evidence decided that it was impossible to conclude that the appellants had intentionally breached an injunction.

32.  Irtelli cannot be reconciled with the traditional approach applied in Stancomb, Heaton’s Transport, Spectravest and Attorney General v Times Newspapers Ltd discussed earlier, all of which pre-dated Irtelli.  See Daltel Europe Limited (In Liquidation) & Ors v Harran Ali Makki & Ors [2005] EWHC 749 at para. 42.  I do not consider that they could be distinguished on the basis that they concerned liability of corporations for contempt and the issue of vicarious liability for contempt as Mr Grossman SC sought to suggest.  The statement of principle in Stancomb approved by the House of Lords without qualification in subsequent cases was not restricted to corporations.

33.  For my part, I would consider it right to follow the traditional approach for the following reasons.  First, the facts in Irtelli were somewhat special.  There the appellate court was principally concerned with the question whether fresh evidence should be admitted.  The fresh evidence adduced and accepted by the Court of Appeal in that case was that the appellants had been misled by the solicitor who was acting for them in the court below who assured them that there was no risk of imprisonment and no real need for them to appear before the judge.  Understandably that was a matter of considerable concern to the court.  Although there had been a breach of the court order, there was no practical loss to the plaintiff because by the time of the committal hearing there was no equity left in the property.  Second, the plaintiff was not represented on the appeal and none of the authorities establishing the traditional approach such as Stancomb, Heaton’s Transport and Spectravest was cited to the court.  Third, there is no indication or suggestion in the judgments in Irtelli that the court was there departing from an established line of authorities.  Had that been the case, one would have expected the court to expound on the reasons for so doing.  Fourth, subsequent to Irtelli, the House of Lords in the Pioneer Concrete case has reaffirmed the principle stated in Stancomb, albeit that Irtelli itself does not appear to have been cited.

34.  None of the authorities reviewed above other than Citybase (which reflected the traditional approach) was mentioned, much less considered, by the judge below.  Although the judge professed to follow Citybase, he did so subject to three observations which fundamentally altered and qualified the Citybase principle.  The judge also stated various propositions of law in his judgment, some of which appeared to be contrary to well-established principles.  But as no authorities were cited, it is difficult to discern the legal bases for them.

This appeal

The 1994 order

35.  The circumstances which led to the making of the 1994 order are relevant.  Mayo J refused an injunction which the plaintiff was seeking because of the “far greater risk of injustice being caused” if an injunction were granted than if it were withheld.  He was conscious of the difficulty of quantifying damages if the 1^st defendant were restrained from acting for any of the plaintiff’s clients if, at the end of the day, the plaintiff was not entitled to any injunction at all.  He went on to say this (at p.7 of his judgmeng):

“On the other hand if I order, as I do, that accounts be maintained by the 1^st Defendant of all work which is undertaken by the new firm in relation to the former clients of the Plaintiff it should not prove to be an unduly difficult task to quantify the damages suffered by the Plaintiff should they succeed at the trial of the action.”

The 1994 order was therefore intended for the protection of the plaintiff should it prevail in its action against the 1^st defendant.  The account ordered to be maintained was thus to facilitate the quantification of the plaintiff’s damages in that eventuality.  Being himself a solicitor, the 1^st defendant should not have had any difficulty in understanding what had to be done for that end to be achieved.

36.  In the 17 affirmations filed by the 1^st defendant running to many pages, there is but a single paragraph that deals with the 1994 order and its compliance.  That is to be found in paragraph 4 of his 10^th affirmation dated 20 January 2004:

“4. When I reviewed the Order or (sic) Mayo J with my then solicitors in January 1994, we reached the conclusion that the proper and diligent preparation of the books and financial records of Koo & Partners would be proper performance of the order of 21 January 1994.  I did not prepare a separate document.  Since the date of that order, I have taken care to ensure that the books and financial records of Koo & Partners and supporting vouchers have been maintained and preserved for the purposes of the order of 21 January 1994 and the Account now ordered by Mr. Justice Ma.”

37.  Notwithstanding that statement and assurances, it is recorded in paragraph 45 of the judgment that:

“45. … Mr Koo is unable to provide details of some 700 of about 2,000 BOC files.  It appears that there are also some 70 files (of which 40 have bills and 30 do not) which have gone missing.”

38.  As noted in paragraph 11 above, there were 40 files in the third category about which little is known other than that those files had been opened.  In some of those cases, the date the particular file was closed was also known.  Even where a file description exists, there is simply no way of ascertaining the value of the fees earned because of the absence of particulars of the work done.  In my view, the fact of these missing files, prima facie, must be evidence of non-compliance with the 1994 order.  Whilst I accept that in contempt cases it is for the plaintiff to prove its case beyond reasonable doubt, once it has shown that there had been a breach of the order, it falls to the 1^st defendant to explain why that is not so by showing that their loss was “casual or accidental and unintentional”.  The 1^st defendant failed to do that in the present case.

39.  The judge approached the matter in this way:

“53. However, I do not think that the fact that files or records are missing establishes actus reus beyond a reasonable doubt.

54. Files inevitably go missing over 10 years as they are moved in and out of storage.  Documents, records or other details which may once have been within files can also disappear for any number of innocent reasons (including a client’s instruction that material be returned) which would not be attributable to Mr Koo.”

40.  The evidential basis for paragraph 54 appears to be paragraph 12 of Mr Side’s sixth affidavit quoted in paragraph 18 above.  The first matter to note is that Mr Side had no first-hand knowledge of such matters.  If that evidence were to be adduced, it seems to me it must come from the 1^st defendant.  Moreover, that paragraph is nothing more than general observations based on speculation rather than hard fact.  In any event, Mr Side was not there purporting to relate what he had been told by the persons who had personal knowledge.  In my view, there was no proper evidential basis for paragraph 54 of the judgment and no proper basis for dismissing the missing files as being a ‘de minimis’ matter.  How can it be said with any degree of confidence that none of those files was valuable or significant or that none had generated significant work and thus fees for K & P?

41.  Applying the quasi-strict liability test as explained by Lord Oliver in the Times Newspaper case, I have no doubt whatsoever that non-compliance with the 1994 order had been proved beyond a reasonable doubt.

42.  It should also be mentioned that apart from the missing files, there were also 700 out of the 2000 or so files in question about which the 1^st defendant was unable to provide particulars.  The BOC list (referred to in paragraph 8 above) gave information under the following headings:

“ List of Files Opened by Koo and Partners for Bank of China Group Entities During the Period 1 October 1993 to 30 September 1994

File Number

Open Date

Close Date

Koo and Partners File Description

Client

Bill Number

Fee Amount Excluidng Disbursements (HK$)

Bill Date

Paid Date

”

Under the “file description” column a short description was given of the nature of the file, for example, “Term loan facility up to HK$80M”.  However, for about 700 of the files, the entry read “(No details provided)”.  Whilst in these cases the fee amount was shown under the relevant column, that information might have been derived not from the file itself but from ledger entries.  It is therefore unclear whether or not these files were “missing” or were in fact available.  If the latter, it would seem surprising that the nature of the work carried out by the 1^st defendant, an account of which the 1^st defendant had been required by the 1994 order to maintain, could not be ascertained.

43.  As regards these files, the judge dealt with them as follows:

“56. … But, as I have indicated, the Court must ask whether there has been substantial non-compliance with Mayo J’s order.

57. I doubt that any determination of this latter question of substance can simply hinge on what might be called a “numbers game”.  I do not think (for instance) that one can say that, because 700 out of 2,000 or more than 30% of BOC files are lacking details, it follows that there is substantial non-compliance.

58. Not all files are equal.  Some files involve more work than others.  The 700 files may or may not represent 30% of the work volume or monetary value of the totality of BOC files.  That files lack details or have gone missing is regrettable.  In an ideal world such things should not happen.  But, given the high standard of proof called for, I do not think that the problematic files are any sufficient basis for finding contempt.”

44.  With respect, that approach is unsustainable in view of the terms of the 1994 order and the total absence of any explanation for the “problematic files”.  It is not a case where there had been a flood or a fire damaging or destroying those files.  Whilst the absence of particulars for the 700 files could be said to be of less significance because the amount of the fee was known, it must nonetheless render the task of quantification of profits more difficult and speculative.  Coupled with the missing files discussed earlier, I have no hesitation in concluding that the 1^st defendant had failed to comply with the 1994 order.

The 2003 order

45.  In view of the conclusion that there had been a breach of the 1994 order, it must follow that there had also been a breach of paragraph 1 (2) (b) and (c) of the 2003 order.  This is because approximately 8 out of the 12 months in the period of account under the 2003 order overlapped with the period covered by the 1994 order.  Thus non-compliance with the 1994 order must also necessarily mean non-compliance with the 2003 order.

46.  I would add this.  Even if (contrary to my view) there had been no breach of the 1994 order and, for present purposes, proceeding on the basis that the judge was correct in his view that the 1^st defendant’s 16^th affirmation filed on 4 April 2005 constituted compliance with paragraph 1 (2) (c) of the 2003 order, the 1^st defendant’s non-compliance prior to April 2005 was accompanied by the necessary mental element.  As noted in paragraph 29 above, reliance on legal advice in good faith is no defence.

The 2004 order

47.  What I have said about non-compliance with the 2003 order must also apply to the 2004 order.

48.  In so far as the judge took the view that non-compliance with this order “[did] not provide a free-standing basis” on which to hold the 1^st defendant in contempt, I would disagree.  Under that order, the 1^st defendant was given until 18 February 2004 to comply with the 2003 order.  On any view, leaving aside the question as to compliance with the 1994 order itself, the 1^st defendant did not verify any of the documents produced pursuant to the 2003 order until, at least, 4 April 2005, a delay of some 14 months.  As noted above, whilst the finding of reliance on legal advice which turned out to be wrong would be very relevant to the question of penalty, it does not excuse or provide a defence to contempt proceedings.

Conclusion

49.  Mr Grossman SC submitted that the committal proceedings should never have been brought because in the first place there was no contempt and if there had been any contempt, it was so trivial that it should be disregarded as it did not cause any prejudice to the plaintiff.  It was also said that even on the plaintiff’s case, the 1^st defendant’s 17^th affirmation filed on 5 September 2005 verified the accounts in acceptable form, so by the time of the application came before the judge in December 2005, any contempt would have been purged and there was nothing whatsoever to be gained by the application.  Of course, Mr Grossman’s submissions were premised on there having been compliance with the 1994 order.  But, as I have shown, that premise was false.

50.  For these reasons, I would set aside the judgment below and allow the appeal.  I would also make an order nisi that the costs here and below be borne by the 1^st defendant on an indemnity basis.

51.  That leaves the question of penalty.  Although it is open to this court to decide that question in an appropriate case, in my view, the present case is not such a case.  It is a matter that should be remitted back to the court of first instance for determination.  Ms Eu SC submitted that in the event the plaintiff were successful in the appeal and the matter were to be remitted back for determination, it should not be restored for hearing before the same judge but should go before a different judge.  I agree.

Hon Cheung JA:

52.  I agree with the judgment of Le Pichon J A.  I would add the following observation.

Strength of the authorities

53.  The contempt in this case is breach of a court order.  The strength of authorities for nearly a century from Stancomb v. Frowbridge Urban District Council [1910] 2 Ch. 190 (Warrington J) to Director General of Fair Trading v. Pioneer Concrete (UK) Ltd [1995] 1 AC 456 (House of Lords) showed that

1)     what is required to be proved by the party moving for committal is that the alleged contemnor’s conduct was intentional (in the sense that what he actually did, or omitted to do, was not accidental) and he knew the facts which rendered it a breach of the relevant order or undertaking; and

2)     it is no answer for the alleged contemnor to say that the non-compliance of the order was not contumacious in the sense that, in doing it there was no direct intention to disobey the order,

see Arlidge, Eady & Smith on Contempt 3^rd Ed Para 12–81.

Accidental non-compliance

54.  In terms of ‘accidental’ non-observance of a court order, Lord Wilberforce in Heatons Transport (St Helen’s) Ltd. v. Transport & General Workers’ Union [1973] AC 15 described this as either ‘ casual ’or ‘ accidental and unintentional ’.

55.  I would refrain from putting a further gloss on these words.  They are clear enough.  The 1^st defendant did not say the non-observance of Mayo J’s order was ‘casual’.  He said the omission was ‘accidental’.  What is important for him is to show how the accident occurred.  In this case apart from saying that there were missing files he has not showed why this occurred in the first place.  It is not an answer to say that it was a ‘trivial’ breach because only a small percentage of the files was missing.  He has to show that this happened accidentally.  This he has not done.  The same applies to items in the accounts in which particulars or details could not be provided for and he had to resort to estimations.  Hence he was in breach in not ‘maintaining’ a proper account as required by Mayo J.

Hon Sakhrani J:

56.  I agree with the judgments of Le Pichon JA and Cheung JA.

Hon Le Pichon JA:

57.  Accordingly, there will be an order in terms of paragraphs 50 and 51 above.