Contempt of court — committal for contempt — undertaking given by defendants against diminishing value of their shares in holding company — no breach of undertaking as defendants were ignorant of liquidation of subsidiary — director of subsidiary did not constitute defendants shareholders’ agents — no breach of disclosure order — burden on applicant to show that it was within defendants’ power to comply with order
Contempt of court — committal for contempt — duty of party seeking leave to apply for committal to give full and frank disclosure — materiality to be determined by court — material consideration of defendants’ continued willingness to seek information
D1–3 were the daughters of X, the former chairman, CEO and majority shareholder of the Ps group of companies. Unbeknownst to Ds until June 2015, X caused shares in C1, a Belize company, to be given to Ds. C1 was at the top of a web of corporate structure, the bottom of which were two PRC companies (‘the PRC Companies’), including C2. Between June 2011 and March 2012, X caused USD82 million to be transferred to the PRC Companies. Ds were not involved in the management or operation of C1 and did not hold any position in C2. In related proceedings, Ps alleged fraud against X. In June 2015, Ds gave an undertaking to the Court that they “shall not … deal with or diminish the value of their shareholdings in [C1] or the direct or indirect assets of [various companies including C1 and C2] …” (‘the Undertaking’). In August 2015, the Court ordered Ds to disclose, among other things, what had become of USD82 million injected into the PRC Companies (‘the Disclosure Order’). Ds, through their mother, entrusted the task of compliance with the Disclosure Order to a professional accountant (F). While information was sought from C2’s director (L), Ds and F were not informed of C2’s liquidation which had commenced in March 2015. A report was duly produced by F, but Ps considered the disclosure to be deficient. Ps obtained leave to commit D1–2 for contempt of court, contending that D1–2 were in breach of the Undertaking and the Disclosure Order. In particular, Ps contended that D1–2 permitted or failed to prevent C2’s liquidation. The Judge dismissed Ps’ application to commit D1–2 for contempt.
Held, dismissing the appeal, that:
Alleged breach of Undertaking
- The Undertaking operated only as a negative undertaking restraining Ds from doing certain acts. It was not a guarantee by Ds that the assets of the relevant companies would not be depleted by acts or events occasioned by third parties. Further, the Undertaking was given by Ds, not C1. Ds were only responsible for their personal acts or those of their servants or agents. The mere relationship of director and shareholder did not make the former an agent for the latter. L and those involved in the liquidation process of C2 were not Ds’ servants or agents. Given the finding that Ds were ignorant of the liquidation process of C2, there was no basis for holding that Ds acquiesced in that process. There was no breach of the Undertaking by Ds (Hone v. Page  FSR 500, Concrete Constructions Pty Ltd v. Plumbers and Gasfitters Employees’ Union of Australia (1987) 72 ALR 415, Kao, Lee & Yip v. Koo Hoi Yan (2009) 12 HKCFAR 830 distinguished). (See paras. 32–35, 40–49.)
- As Ds were protected by the right against self-incrimination, no adverse inference could be drawn on the basis that F did not conduct any investigation into the assets of the companies covered by the Undertaking. Further, considering matters relied on by Ps such as Ds not taking steps to ascertain C2’s assets against Ds’ background and the role they played in the companies, the steps taken by F to obtain information from L about the companies, there was no basis for holding that Ds should have pursued the matter more vigorously (HKSAR v. Lee Fuk Hing (2004) 7 HKCFAR 600, YBL v. LWC  1 HKLRD 823 applied; Inplayer Ltd v. Thorogood  EWCA Civ 1511, NFU v. Tiernan  EWCA Civ 1419 distinguished). (See paras. 36–39.)
Alleged non-compliance with Disclosure Order
- To establish a case of contempt, the applicant had to show not only non-compliance with an order, but also that it was within the power of the alleged contemnor to comply with it. This was a question of fact. The judge had to be satisfied that there was a specific omission on the part of the alleged contemnor which was within the latter’s power to do. The burden was on the applicant to prove beyond reasonable doubt such specific omission was within the power of the alleged contemnor. The mere fact that an order was made would not pre-empt an alleged contemnor from showing in a contempt application based on non-compliance with such order that it was not within his power to comply (Kao, Lee & Yip v. Koo Hoi Yan (2009) 12 HKCFAR 830, Re L-W (Enforcement and Committal: Contact)  EWCA Civ 1253, Re Jones  EWHC 2730 (Fam) applied). (See paras. 64, 66–68, 71, 77.)
- By reason of the principle that contempt should be a last resort, it was wrong to bring contempt proceedings without regard to the efforts and continued efforts by the alleged contemnor to comply with the order even though he had failed to completely fulfil its requirement within the time prescribed. The Judge was correct in holding that one could not consider the fact that Ds were C1’s only shareholders without regard to the other relevant factual circumstances, including the uncooperativeness of L and the difficulties F faced in obtaining information. (See paras. 72–73, 75, 78–79.)
- The leave application was a filtering process to screen out oppressive applications and those which obviously had no chance of success. In order to satisfy the duty of full and frank disclosure, an applicant must give to the court the relevant information which was material to the consideration of whether an application for committal should be filtered out, including information material to suspicions of oppression in proceeding by way of committal. Materiality was to be determined by the court, not the applicant or his legal advisers (Secretary for Justice v. Choy Bing Wing (unrep., CACV 11/2004,  HKEC 1481), Tiong King Sing v. Sam Boon Peng Yee  1 HKLRD 981, Pat Chung Pat Wo Tong (Hong Kong) Ltd v. Law Yan Wai (unrep., HCA 17109/2010,  HKEC 890) considered). (See paras. 80–81.)
- Given the unusual nature of the Disclosure Order and the fact that Ds had apparently been doing what the Judge had expected them to do to comply with the order at the time when she made the order, the continued willingness on Ds’ part to seek information from L must be a very material consideration in assessing whether it was oppressive to proceed by applying for committal against Ds. The non-disclosure of a letter from Ds’ solicitors in which Ds indicated that they were going to seek information from L was material, and non-disclosure was a breach of the duty of full and frank disclosure. (See paras. 83–84.)
- Though the rules provide that an application for leave was to be made ex parte, it was open to a judge to seek further information or hold a hearing inviting submissions from putative respondents. However, as the leave application was only a filtering process, even if a hearing was to be held it should not be an elaborate process in any event. (See para. 85.)
This was an appeal by the plaintiffs against the decision of Bebe Chu J dismissing the applications to commit the first and second defendants for contempt of court. The facts are set out in the judgment.