HUANG HSIN YANG v. GRAND PALACE LTD AND ANOTHER

HCMP 722/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 722 OF 2005

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D E C I S I O N

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1.  On 14 September 2006, Huang Hsin Yang (“Huang”), the applicant in these proceedings, filed a statement in support of his application for leave to commit Hui Kwok Wah (“Hui”), the 2nd respondent herein, for contempt of court.  It is alleged that Hui has failed to comply with an order I made on 21 June 2005 (“the Order”) to make available for inspection by Huang the books and documents of account of Grand Palace Limited (“the Company”). 

2.  The application for leave was made ex parte pursuant to Order 52 rule 2(2) of the Rules of the High Court.  Under rule 2(4), I may determine the application without a hearing.  On 6 October 2006, I directed that this application should be made in a hearing, notwithstanding that a hearing was not sought by Huang.  I have taken this unusual step to give Huang an opportunity to persuade the court why leave should be granted to issue a notice of motion for contempt.  Huang has appeared by Mr Kelvin Leung of counsel today.  I have considered his written and oral submissions.

3.  In support of his application, Huang filed his fourth affirmation on 14 September 2006 to verify the contents of his statement.  Subsequent to the direction that a hearing be held, two further affirmations were filed in support of this application - the first affirmation of Madam Liu Pui Fan filed on 12 January 2007 and the fifth affirmation of Huang filed on 5 March 2007.  In addition, there is included in the hearing bundle the first affirmation of Huang filed on 11 April 2005 in support of his originating summons in these proceedings.  It would be convenient to deal with the application by looking at the relevant matters in chronological order. 

4.  In 1993, Right Star Limited (“Right Star”; later changed its name to Right Star Investment Company Limited) purchased land at No. 1B, Wing Sing Lane, Yaumatei, Kowloon and built thereon King Star Commercial Centre (“the Building”).  At the relevant time, Huang and Hui were shareholders and directors in Right Star.  In 1996, the Company was set up to invest in hotel business by converting the Building into a guesthouse.  Huang and Hui were two of the shareholders and directors of the Company at that time. 

5.  In 1997, the Company completed conversion of the units to hotel premises and commenced operating Grand Palace Hotel (“the Hotel”).  From 1998 to 2001, Huang took over and operated the Hotel through his company, Kingmark Investments Limited (“Kingmark”).  What happened was that Right Star had let the premises to the Company and the Company sublet it to Kingmark. 

6.  In 2001, Kingmark gave up the operation.  Tenders were invited by the Company to operate the Hotel.  In July 2001, Huang and his wife transferred their shares in Right Star to Maxifast Limited (“Maxifast”; a company controlled by Hui), and resigned as directors in Right Star.

7.  In August 2001, despite the objection of Huang, Hui and another director on behalf of the Company agreed to accept the tender of Grandtime Engineering Limited (“Grandtime”) and sublet the premises to it for the operation of the Hotel.  From October 2001 to June 2003, Grandtime operated the Hotel.  From June 2003, Maxifast took over the operation of the Hotel from Grandtime. 

8.  Since 2001, there has been litigation in these courts between Huang and Hui and various companies controlled by them.  It is alleged by Huang that although the Hotel was operated first by Grandtime and later by Maxifast, these entities are in fact owned and/or controlled by Hui and Hui has diverted business opportunities of the Company for his own benefit and made secret profits in breach of his fiduciary duties to the Company. 

9.  It was against this background that on 11 March 2005, a letter of Huang’s solicitors was sent to the Company for the attention of Hui and another director, demanding the Company to make available for inspection by Huang at the registered office of the Company within three days the books and documents of account of the Company, otherwise proceedings would be commenced without notice. 

10.  On 11 April 2005, Huang issued the originating summons in these proceedings under section 121 of the Companies Ordinance Cap.32 against the Company and Hui, seeking an order that the respondents do, within seven days of the order, make available for inspection by Huang, all the books and documents of account of the Company at the Company’s registered office. 

11.  According to the annual return of the Company made up to 27 April 2003, there were four directors of the Company including Hui and Huang, and Hui was the company secretary.  On 5 January 2004, Hui resigned as a director and as company secretary.  By the annual return made up to 27 April 2005, it could be seen that the company secretary has been replaced by Madam Liu Pui Fan and that Huang and two others, but not Hui, were the directors. 

12.  On 7 June 2005, Hui filed an affirmation in opposition to the originating summons.  This affirmation has not been included in the hearing bundle for today.  It should have been included as it is incumbent on an applicant in an ex parte application to make full and frank disclosure, particularly as Huang’s solicitors have seen fit to include in the hearing bundle Huang’s affirmation in April 2005 made in support of the originating summons.  It is pertinent to note these matters deposed to by Hui in his affirmation in opposition: 

(1) the premises for the Company’s registered office were re-possessed by the mortgagee bank in December 2003 and no arrangement had yet been made on a new registered office.

(2) As mentioned earlier, Hui had ceased to be a director of the Company from January 2004.

(3) After receiving the letter from Huang’s solicitors dated 11 March 2005, the directors of the Company convened an extraordinary general meeting on 29 April 2005 which Huang did not attend.  It would appear from the minutes of that meeting exhibited that Hui asserted Huang had handled the accounts of the Company from 1 January 2000 to 31 July 2001 and that these accounts had not been delivered up by Huang.  Hui stated that the accounts were handled by him for the period from 1 August 2001 to 30 December 2003 and it would appear from the minutes that he then delivered up the accounts allegedly kept by him to his solicitors, Messrs Knight & Ho, and requested Huang to collect the same from his solicitors.

(4) On 13 May 2005, Messrs Knight & Ho wrote to Huang’s solicitors to inform them Hui was no longer a director of the Company and that Hui had placed with his solicitors all the books and accounts awaiting Huang’s collection. 

13.  At the hearing on 21 June 2005, I made the Order.  This provided that the Company and Hui should, within seven days thereof, make available the books and documents of account for inspection by Huang at the registered office of the Company or at any other place as the directors think fit.  I did not give detailed reasons for making the Order.  I should point out that no finding was made by the court as to what documents Hui did or did not have at the time.  Under the Order, Hui was required to make available for inspection such of the books and documents of account of the Company in his possession.  It was alleged by Hui in his opposing affirmation that the accounts from January 2000 to 31 July 2001 were kept by Huang and that he only had books and accounts from August 2001 to December 2003. 

14.  On 6 July 2005, Hui’s solicitors, Messrs Knight & Ho, were served with a sealed copy of the Order.  On 8 July 2005, Hui, through Messrs Knight & Ho, released to Huang’s solicitors certain books and documents of account of the Company.  They were the company kit; three bundles of vouchers for 2001, 2002 and 2003; the Company chop; two savings account passbooks and three cheque books; and a statement of account as of March 2004.  Messrs Knight & Ho stated that they were instructed by Hui he “[does] not retain any other documents relating to [the Company]”. 

15.  It is alleged in paragraph 39 of the statement in this application that the bundles of vouchers provided by Messrs Knight & Ho were incomplete and that Huang was aware Hui had “many more books and documents of account belonging to the Company undisclosed”.  I will later deal with the matters relied on in support of this allegation. 

16.  On 3 October 2005, Huang engaged solicitors on behalf of the Company to write to Hui and Maxifast, alleging that Hui was in breach of fiduciary duties to the Company and that Maxifast’s possession of the Hotel premises is unlawful. 

17.  A demand was made for delivery up of possession of the premises to the Company, an account for profits made by Hui or Grandtime out of subletting units for operating the Hotel from October 2001 to June 2003, an account for profits made by Hui for Maxifast out of subletting units for operating the Hotel from July 2003 to present, and immediate payment to the Company of $3 million as interim payment pending disclosure or assessment of secret profits. 

18.  On 28 November 2005, the Company issued the writ in High Court Action No. 2394 of 2005 against Hui, Maxifast and Grandtime, claiming an account of all profits made by the defendants arising from breach of fiduciary duty, alternatively damages.  These proceedings are ongoing.  Hui countered with a winding-up petition against the Company on 10 December 2005.  This is HCCW No. 908 of 2005 presented by Right Star Investment Company Limited as the petitioning creditor.  Huang and Madam Liu Pui Fan are the opposing contributories.  The petition was part heard by Barma J on 23 November 2006 and was adjourned to 13 March 2007.

19.  To found his case that Hui had breached the Order in failing to provide documents allegedly in his possession, Huang relies heavily on Hui’s third affirmation in the winding-up proceedings filed on 27 March 2006. 

20.  Firstly, in paragraph 7 of that affirmation, it was stated that the directors of the Company had resolved on 15 September 1998 that all the accounts of the Company would be handled by Cheung Ying Kim Frankie who was an employee of one of Hui’s companies.  Frankie Cheung also made an affirmation in the winding-up proceedings filed on 27 March 2006 that he was authorised by the Company to handle its accounts since September 1998 to March 2003.  In my view, this in itself does not carry much weight.  The fact that Hui’s employee or employees were responsible for handling the accounts of the Company from 1998 to 2003 does not necessarily mean that at the time of the Order in June 2005, Hui should still have in his possession other documents of the Company apart from those delivered up by Messrs Knight & Ho in July 2005. 

21.  The next matter relied on by Huang was that in Hui’s third affirmation, he has produced other documents relating to the Company which were not produced in July 2005.  It was submitted on Huang’s behalf that:

(1)   these documents are not complete;

(2)   of the ledgers and balance sheet produced, these accounting documents were prepared on computer so there must be other records kept in that computer; and

(3)   as some of the accounting records were prepared from primary source, there must be in existence primary documents. 

22.  The relevant documents were exhibited as exhibit 48 to the statement and mentioned in paragraph 49 of the statement.  These are exhibits 8, 16 and 17 to Hui’s third affirmation.  Exhibit 8 is an advertisement in a newspaper regarding the invitation to tender for subletting of units in the Hotel in August 2001.  Exhibit 17 is a copy of the minutes of the board meeting of the Company on 30 August 2000.  I think exhibits 8 and 17 could be put to one side for present purpose.  I need only be concerned with exhibit 16.  This comprised some pages of the general ledgers of the Company for 1999/2000, one page of the balance sheet as at 31 March 2000, and a table on the rental payable on accounts payable as at 31 March 2000.  It was contended by Huang that these documents in exhibit 16 are books and documents of account which Hui had failed to produce pursuant to the Order.

23.  On 18 April 2006, Huang’s solicitors wrote to Messrs Knight & Ho pointing out the matters I had set out earlier regarding Hui’s third affirmation in the winding-up proceedings and stating that Hui had failed to release the documents pursuant to the Order.  Huang’s solicitors made a demand to Hui to release within seven days all the books and documents of account including but not limited to the following, failing which contempt proceedings would be brought without further notice: 

(1)   counterfoils of cheques issued since January 1999;

(2)   the Company’s accounts and ledgers from 1998 to 2005;

(3)   the Company’s financial report for the year ended 31 March 1998;

(4)   the Company’s payment vouchers for the years 1999 and 2000; and

(5)   the Company’s room occupation record for the period of August 2001 to 31 September 2001. 

24.  On 26 April 2006, Huang’s solicitors wrote to the solicitors of Right Star in the winding-up proceedings, Messrs C K Mok & Co., demanding Right Star to seek delivery from Hui of the documents set out in the aforesaid letter of 18 April 2006, plus all the tenancy agreements relating to units inside the Building. 

25.  Messrs Knight & Ho replied on 3 May 2006 stating that the documents exhibited to Hui’s third affirmation were copies of the financial documents received from the Company by Right Star and/or by Hui as a shareholder at the material time.  It was asserted that the shareholders of the Company, including Hui and Huang, were supplied with copies of such financial documents for their own record and inspection at various times. 

26.  They reiterated that all the books and documents have been delivered by them to Huang by their letter dated 8 July 2005.  As for the specific documents requested in the letter of 18 April 2006, they made a reply in respect of each of them.  In summary, they stated that these specific documents were not in Hui’s possession.  As for the accounts and ledgers of the Company from 1998 to 2005, the accounts and ledgers for the period from 2001 to 2003 which had been in Hui’s possession had been delivered to Huang in July 2005 and Hui did not possess or control any other accounts or ledgers. 

27.  On 3 May 2006, Messrs C K Mok & Co. replied that they only had instructions to act for Right Star in the winding-up proceedings and not for Hui personally and that Hui had given a reply through Messrs Knight & Ho. 

28.  On 2 June 2006, Huang’s solicitors wrote back to say that Huang was totally dissatisfied with the answers.  The solicitors gave a “final opportunity” to comply with the Order, otherwise proceedings for contempt would be brought.  In addition, they demanded the release of all the bank statements relating to the Company’s bank accounts and all the original tenancy agreements relating to various units in the Building. 

29.  On 6 June 2006, Hui wrote to Huang’s solicitors stating that regarding the inspection of documents in these proceedings, the matter would be handled by him in lieu of his solicitors and that all letters should be directed to him.

30.  On 4 July 2006, Hui was served with a sealed copy of the Order endorsed with a penal notice.  On 5 July 2006, Hui wrote to Huang’s solicitors stating that to make sure he had fully complied with the Order, he would check the godown in which he had stored documents of the Company.  On 7 July 2006, Huang’s solicitors wrote to Hui alleging that Hui still has in his possession “a large quantity of documents of the Company” not yet delivered pursuant to the Order.  They asked for the address of the godown and that an arrangement be made on or before 10 July 2006 for Huang to visit the godown to obtain documents relating to the Company. 

31.  Hui replied on the same day stating that he had fully complied with the Order but to guard against the risk that his former staff might have mixed up the documents kept in the godown, he had checked the documents and he denied the allegation that he is still in possession of Company documents.  He also notified Huang’s solicitors of the address of the godown and made arrangements for a visit by the latter. 

32.  At the appointed time on 10 July 2006, Huang, Madam Liu Pui Fan with a solicitor’s representative and counsel went to the address of the godown.  It is a piece of land with a few cargo containers.  They did not find any documents of the Company and Hui informed them that the place did not contain any documents relating to the Company. 

33.  In paragraph 7 of the statement, it is alleged that Hui had refused or failed to comply with the Order.  In paragraph 8, it was asserted that after Hui was served personally with the Order endorsed with a penal notice, he still failed or refused to fully comply with the Order. 

34.  I have set out the evidence placed before the court in some detail.  What evidence is there to indicate that Hui has in his possession other documents, being books and documents of account of the Company, which he has not provided to Huang?  An explanation was given in the letter of Hui’s solicitors dated 3 May 2006 of the documents produced in his third affirmation in the winding-up proceedings.  The fact that the documents disclosed by Hui in that affirmation were incomplete does not give rise to the reasonable inference that he must have in his possession other documents.  He has explained through his solicitors that at various times, he and Right Star had received documents from the Company.  It would be entirely speculative to infer that Hui must have in his possession the primary documents from which the accounting records exhibited to his third affirmation were prepared.  In my view, a bare assertion of Huang that Hui does have other documents in his possession does not give rise to a prima facie case in this respect.

35.  Other matters were relied on in the statement filed in this application to support Huang’s case that Hui has in his possession other documents.  Firstly, it is alleged that Hui has made an admission to Ng Cheuk Ngon (“Ng”) that he had concealed the documents of the Company.  Ng, through his company, owns two units in the Building which were let to the Company.  On 3 May 2006, Ng wrote to the Hotel for Hui’s attention, giving details of the rent owed to his company from 1997 to May 2005 and making a demand for the arrears of rent.  On 30 May 2006, Hui faxed to Ng the letter of Huang’s solicitors dated 18 April 2006 mentioned above, a copy of the Order, and the letter of Hui’s solicitors dated 8 July 2005. 

36.  On 31 May 2006, Ng wrote to Hui regarding the documents aforesaid faxed by Hui and referred to a telephone conversation he had with Hui on 30 May 2006.

37.  Ng stated in his letter that he was not interested in Hui’s dispute with Huang.  Regarding the details of rent owed by the Company to Ng, Hui allegedly said on the telephone he could not provide to Ng the details of the rent owing as Hui was afraid he might be committed for contempt of court and had faxed some documents to Ng regarding the threat to commit him for contempt.  Ng has not provided any affirmation in support of this application.  Although I can accept hearsay evidence, there is no detailed account given of the telephone conversation with Hui other than what was contained in the letter of Ng dated 31 May 20006. 

38.  Hui’s apprehension that he might be committed for contempt if he were to provide to Ng the details of the rent owing by the Company might be due to a number of reasons, not necessarily because he has in possession documents of the Company he has failed or refused to disclose.  The letter did not elaborate on the reason or reasons for Hui’s apprehension.  There is no express admission on Hui’s part to Ng that he has in his possession other documents of the Company.  I do not think it would be right to give leave to bring contempt proceedings on such a flimsy basis.

39.  The next matter relied on was termed an admission of possession of documents unreleased.  This is in the first affirmation of Chung Yau Wing filed on 15 August 2006 in the winding-up proceedings.  Chung is the accountant of Right Star.  He deposed that it was Frankie Cheung who had handled the accounts of the Company from 1998 to 2003 and Chung reported directly to Frankie Cheung.  In his affirmation, Chung confirmed that the Company owed $7.7 million odd to Right Star.  It was alleged in the statement that in making such an assertion the Company owes a debt to Right Star, there must be a strong inference that Chung has had access to the Company’s books and documents of account.  Hui has not produced the books and documents of account which Chung had access to.  It seems to me entirely possible that Chung made his assertion in his affirmation based on the accounting records kept by Right Star.  It does not appear to me the alleged inference should reasonably be drawn.

40.  Other matters were relied on but not mentioned in the statement.  They are found in the affirmation filed subsequently by Madam Liu Pui Fan.  She alleged that Hui produced documents purporting to be a detailed breakdown of the arrears of rent owed by the Company, the contents of which do not match the vouchers released by Hui pursuant to the Order.  She alleged there is reason to believe that the vouchers released by Hui pursuant to the Order had been altered before their release and the reason for her belief was because the handwriting in some of the vouchers was “distinctly different” from the handwriting on related cheques and other vouchers. 

41.  Again, I am quite unable to draw an inference from these allegations, even if they were established, that Hui must have in his possession other documents of the Company that had not been disclosed.  It would be tantamount to speculation, not reasonable inference. 

42.  Great emphasis was made on Huang’s behalf of the need for books and documents of account of the Company.  It was said that further discovery is needed for the Company to proceed with its claim against Hui and Maxifast in the High Court Action, for Huang and Madam Liu to oppose the winding-up proceedings and rebut the allegation of the debt of Right Star, and for the Company to resist a claim for rent allegedly owed to another owner of premises in the Building. 

43.  It is not the purpose of contempt proceedings to assist Huang in obtaining discovery by bringing pressure on Hui that if he should fail to disclose further documents, he might be penalised by the court for contempt.  The burden on an applicant for leave to bring proceedings for contempt is not an onerous one.  He is required to make out a prima facie case.  On the available evidence, I am not satisfied in this instance there is a prima facie case of breach of the Order in that Hui has in his possession documents he has not made available for inspection.  Even if Hui had not provided everything at one go on 8 July 2005, there is nothing to indicate that further documents exhibited to his affirmation in the winding-up proceedings in March 2006 were in his possession in July 2005 and that he had chosen to withhold these documents. 

44.  Further, even if the documents disclosed in March 2006 were documents in his possession all along, there is no sufficient evidence to support the allegation he must have in his possession yet further documents belonging to the Company. 

45.  For the above reasons, I refuse leave to issue a notice of motion to commit Hui for contempt of court.