KIM SIE JOONG AND ANOTHER v. NG CHEUK NGON AND OTHERS

HCA552/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.552 OF 2002

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R U L I N G

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1. The defendants apply for an order that paragraphs 44 to 46 of the Statement of Claim and paragraphs (b) to (d) of the prayer for relief be struck out. Their grounds are primarily that these paragraphs disclose no reasonable cause of action and alternatively that they are frivolous and vexatious.

2. In an application under Order 18, rule 19(1)(a) (no reasonable cause of action), evidence is inadmissible. One must have regard only to the pleadings. There is in fact little in the way of evidence to support the application on the alternative ground under sub-paragraph (2). The only affirmation filed is that of the defendants' solicitor who simply exhibits the Articles of Association of the 4th defendant.

3. This is a derivative action. The plaintiffs plead that they bring it for the benefit of the 4th defendant ("Billion Market") against the 1st defendant who is in de facto control of the company, and claims to be the majority shareholder therein. The plaintiffs plead various acts on the part of the 1st defendant and others which inter alia amount to schematic fraud on the minority which cannot be ratified, and in respect of which they reserve their right to bring an action in their personal capacity. They also plead that the acts complained of fall within the definition of "unfairly prejudicial acts" under section 168A of the Companies Ordinance, Cap.32.

4. The plaintiffs are shareholders in Billion Market, each holding 10% of the shareholding which consists of issued capital of 1,000,000 $1 shares. The 2nd and the 3rd defendants are husband and wife, Mr and Mrs Tsou. Prior to 12 November 2001 the 1st and the 2nd plaintiffs, the 1st defendant and the 7th defendant each held 10% of the shareholding. The 3rd defendant held 30% ("the 3rd defendant's shareholding"). The remaining shareholders need not concern us here. The directors were one Kelly Ng, the 1st plaintiff, the 1st and the 2nd defendants. At a shareholders' meeting on 12 November 2001 two more directors were appointed but the plaintiffs do not accept the legality of these appointments.

5. The principal object of Billion Market is to develop an industrial site in Chang Sha, Hunan Province, into a residential and commercial complex. To this end, it entered into a joint venture with an organisation in Hunan Province. A corporate vehicle named Hunan Rich City Real Estate Development Co. Ltd ("Rich City") was formed to carry out the project. Subsequently the Hunan Organisation caused a Hong Kong company controlled by it called Goldco Holdings Ltd to enter into a new joint venture with Billion Market to continue the project. Billion Market holds 77% of Rich City's registered capital of RMB10 million and Goldco the other 23%.

6. Rich City had seven directors, four appointed by Billion Market, and three by Goldco. The four appointed by the Company were its own directors, namely Kelly Ng, the 1st plaintiff, the 1st and the 2nd defendants. There was a change in the directors after 20 November 2001, but the 1st defendant remained.

7. The plaintiffs aver that as at 16 August 2001 Rich City's estimated shortfall of income against expenditure was RMB26,486,517.77, and that it owed RMB59,340,824.03 to associated individuals who had made loans to it. In particular it owed the 2nd defendant $16,187,167.46 and the 1st defendant RMB35,983,264.61, and smaller amounts to other lenders. It is averred that in April 2001, unknown to shareholders or the Legal Person of Rich City, the 2nd defendant purported to agree on behalf of Rich City to transfer all its properties which were yet to be sold to the 1st defendant for RMB33,000,000.00, payment whereof was discharged by the 1st defendant treating his loans as discharged.

8. It is not in dispute that in September 2001, the 2nd and 3rd defendants entered into an agreement with the 1st defendant whereby they effectively sold Mrs Tsou's shareholding and Rich City's debt of RMB16,187,167.46 to the 1st defendant for RMB2,000,000.00.

9. The averments to which the defendants object relate to this transaction and are as follows :

"44. Kim and Lau contend that the benefit of satisfying the Company's debt, in the case owed to the Tsous, at such significant discount, should be enjoyed commonly by all shareholders of the company. Likewise, Mrs. Tsou's shareholding should be taken up by the remaining shareholders pro-rata to their existing holding. Alternatively, Ng Cheuk Ngon should have in exercise of his duty as a director, revealed the full terms of his agreement with the Tsous so that the Company's board and the shareholders could reach a well-informed decision as to whether they should approve or otherwise intervene in the transaction.

45. The primary position of Kim and Lau is that instead of seeking to set aside the transaction in the name and for the benefit of the Company, Ng Cheuk Ngon should be held as the constructive trustee of the benefit he obtained out of the transaction for the benefit of the Company and where appropriate the general body of creditors as well.

46. To this end, Kin and Lau are prepared to pay their share (pro-rata to their shareholding of the Company) of contribution in substitution of Ng Cheuk Ngon to obtain 30% shareholding of the Tsous and their loan interest in the Company."

10. Obviously paragraph 44 needs amendment in any event. So will paragraph 46. There seems to be a blurring of the identities of Billion Market and Rich City, as well as of Mr and Mrs Tsou. It is averred that the 2nd defendant lent the money to Rich City rather than Billion Market, referred to in the Statement of Claim as "the Company". I understand that the contention is in fact that the benefit of the assignment at a substantial discount of Rich City's debt (owed originally to Mr Tsou rather than "the Tsous") should be enjoyed by Billion Market and/or commonly by its shareholders. It was agreed that I deal with the summons on that basis.

11. Under the rule in Foss v. Harbottle (1843) 2 Hare 461, the proper plaintiff is the party injured, in whom the cause of action is vested. The rule and its exceptions are set out in Prudential Assurance Co. Ltd v. Newman Industries Ltd (No.2) 1982 Ch 204 at 210 :

"The classic definition of the rule in Foss v. Harbottle is stated in the judgment of Jenkins L.J. in Edwards v. Halliwell [1950] 2 All E.R. 1064 as follows. (1) The proper plaintiff in an action in respect of a wrong alleged to be done to a corporation is, prima facie, the corporation. (2) Where the alleged wrong is a transaction which might be made binding on the corporation and on all its members by a simple majority of the members, no individual member of the corporation is allowed to maintain an action in respect of that matter because, if the majority confirms the transaction, cadit quaestio; or, if the majority challenges the transaction, there is no valid reason why the company should not sue. (3) There is no room for the operation of the rule if the alleged wrong is ultra vires the corporation, because the majority of members cannot confirm the transaction. (4) There is also no room for the operation of the rule if the transaction complained of could be validly done or sanctioned only by a special resolution or the like, because a simple majority cannot confirm a transaction which requires the concurrence of a greater majority. (5) There is an exception to the rule where what has been done amounts to fraud and the wrongdoers are themselves in control of the company. In this case the rule is relaxed in favour of the aggrieved minority, who are allowed to bring a minority shareholders' action on behalf of themselves and all others. The reason for this is that, if they were denied that right, their grievance could never reach the court because the wrongdoers themselves, being in control, would not allow the company to sue."

12. The plaintiffs are relying on the 5th exception. They plead fraud on the minority. In the words of Joffe on Minority Shareholders : Law, Practice and Procedure, 2000 edn at page 10, a member of a company "may bring a derivative claim under this exception where he can establish two things, namely (a) that the transaction in question constitutes a fraud on the minority and (b) that the wrongdoers are in control of the company."

13. Fraud does not simply mean deceit but also embraces breach of the director's fiduciary position. The minority shareholder who has no other remedy may sue "where directors use their powers intentionally or unintentionally, fraudulently or negligently in a manner which benefits themselves at the expense of the company" - per Templeman J in Daniels v. Daniels, 1978 Ch 406 at 414.

14. The defendants argue that the pleadings show that the plaintiffs are not bringing this action on behalf of Billion Market but on behalf of themselves. I think this can be dealt with quite simply; the exception provides that the minority may bring the action on behalf of themselves and all others.

15. As to the assignment of the debt the defendants argue that Billion Market would have no right of action in any event. The debt is not an asset of the company. Any creditor can assign to whom he chooses a debt which is owed to him. There is no need to give notice to the debtor. The assignment had nothing to do with Billion Market and it has no locus to intervene. Further it makes no difference that the 1st and the 2nd defendants were directors of Billion Market; they were not appropriating an asset, or taking to themselves an opportunity which Billion Market should have had.

16. The plaintiffs argue that the 1st defendant as director owed a fiduciary duty to the Billion Market. That would include the duty to act in good faith and not to put himself in a position where his interest will conflict with that of Billion Market. A person would not lightly buy the book debt of a company unless he is an insider and privy to the condition of the company. In fact, the 1st defendant was a director of Rich City. Any opportunity for Rich City to benefit by increasing its assets or reducing its liability as also an opportunity accruing to the benefit of Billion Market. So the information that the 2nd defendant was prepared to sell the debt owed to him at what appears to be a huge discount must be a corporate opportunity and asset properly belonging to Billion Market. It was his duty to disclose this to Billion Market and in failing to do so he was in breach of fiduciary duty.

17. On the pleadings the 1st defendant paid out RMB2,000,000.00. That bought him two things. The first was a debt of RMB16,187,167.46 which Rich City owed to the 2nd defendant. At the time, the 1st and the 2nd defendants were directors of the Billion Market and of Rich City and the 1st defendant was a shareholder of the Company. Billion Market was the majority partner and shareholder in Rich City.

18. The second thing which the 1st defendant bought was the 3rd defendant's shareholding of 40% in Billion Market. We do not know what the shares were worth, nor indeed what where the chances of the debt being paid by Rich City. Given that Billion Market only existed to hold shares in Rich City, and the latter was heavily in debt, it seems likely that they were not worth much, but on any reckoning the price paid for Rich City's debt represents a large discount.

19. A director is under a duty to account to the company for all profits which he acquires by reason and in the course of acting as director, or by the use of opportunities or knowledge gained by him while acting as such. See Regal (Hastings) Ltd v. Gulliver (Note) [1967] 2 AC 134 H.L. (E.) per Viscount Sankey at 137 :

"The general rule of equity is that no one who has duties of a fiduciary nature to perform is allowed to enter into engagements in which he has or can have a personal interest conflicting with the interests of those whom he is bound to protect."

20. Lord Macmillan at page 153 usefully encapsulated what the plaintiff would have to establish as a matter of fact :

"The plaintiff company has to establish two things: (i) that what the directors did was so related to the affairs of the company that it can properly be said to have been done in the course of their management and in utilisation of their opportunities and special knowledge as directors; and (ii) that what they did resulted in a profit to themselves".

21. In this case there the most likely inference is that the 1st defendant utilised his opportunities and special knowledge as a director in the purchase of the debt. As a director of Billion Market and Rich City he would be in a good position to know the value of what he was buying. So would the other director, from whom he bought it. It is also most likely that he made a profit or at any rate a potential profit on the purchase at such a great discount. In any event, Rich City now owes him over RMB16,000,000.00.

22. However, I think what is more important is that if Billion Market, instead of the 1st defendant, had bought the debt, although that debt is not an asset in the hands of Rich City, it would have become one in the hands of Billion Market, in that Rich City would have owed the debt to Billion Market. Billion Market would have a right to repayment of the debt as a creditor in priority to its right to receive a dividend. If Rich City had to go into liquidation, again Billion Market could rank as a creditor. Either way it would be better off.

23. Looked at in this light is seems to me that the 1st defendant had a fiduciary duty at least to apprise Billion Market and/or the other shareholders of this commercial opportunity, rather than buying it for himself. That Billion Market might not have wanted to buy the debt, or could not have raised the money, makes no difference, on the various authorities referred to in Regal (Hastings) Ltd.

24. The question of the 3rd defendant's shareholding is more difficult. A shareholder prima facie has the right to deal freely with his property and transfer it to whom he pleases; Re Smith v. Fawcett Ltd [1942] Ch. 304. That right can be restricted by the Articles of Association but such restriction must be clear. Re Swaledale Cleaners Ltd [1968] 1 WLR 1710. There is no such restriction in the Articles of Billion Market. The only restriction lies in the right of the directors in their absolute discretion to decline to register any transfer of any share; that appears in Part II of Table A in the First Schedule to the Ordinance, and is applied to Billion Market by its own Articles.

25. There has been some argument about Billion Market's power to purchase its own shares and the effect of changes to Table A made after Billion Market was registered. I do not think this makes any difference. Billion Market had such power under section 49I of the Ordinance. I do not think that the shares would normally be seen as an asset, which the fiduciary duty of a director/shareholder would compel him to procure for the company rather than himself.

26. However, the plaintiff avers that Billion Market is a quasi-partnership founded on mutual trust and confidence, and that the 1st defendant owes the other shareholders a duty to act in good faith as if they were his partners. Alternatively, he owes them a duty to act openly and fairly in relation to the business affairs he had with Billion Market in his private capacity. This the defendants deny but if it is ultimately found to be correct it would follow that the 1st defendant should have disclosed his purchase of the shares to the other shareholders, particularly where it was linked with his purchase of Rich City's debt at a discount, which raises the question of whether there was also some element of discount in the sale of the shares.

27. It is only in plain and obvious cases that the court should exercise its discretion to strike out pleadings; see the Hong Kong Civil Procedure 2002 at paragraph 18/19/4. In my view it is by no means obvious that the plaintiff has no reasonable cause of action in respect of the 1st defendant's purchase of Rich City's debt; rather the reverse. The position is less clear regarding the purchase of the shares, particularly having regard to the plaintiff's pleading of quasi-partnership, but I do not think it is plain and obvious that there is no case. In any event, the two sales cannot be seen in isolation. They were linked. It is difficult to see that if there was a duty to reveal the one, there would not be a duty to reveal the other.

28. I conclude that, although the paragraphs which the defendants seek to have struck out need to be amended to make it clear that the debt was that of Rich City and not that of Billion Market, the application must be refused. I think those necessary amendments should be the subject of a separate application; it is not for me to draft them.

29. The summons is accordingly dismissed with costs (nisi) to the plaintiff in any event.

Representation:

Mr A. Yau & Mr G. Lam, instructed by Messrs Lau, Lee & Tang,for the Plaintiffs

Mr A. Mak & Mr S. Ho, instructed by Messrs Louis Chan & Co.,for the Defendants

HCA 552/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 552 OF 2002

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R U L I N G

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1. The Plaintiffs applied to vary the costs order nisi made by me on 30 June 2003.

2. It is clear from the submissions of counsel both at the original hearing and on this occasion that there are fundamental issues of factual dispute and serious allegations regarding credibility in relation to matters both before and after the commencement of the action. Although some activities appear on their face to be questionable, I remind himself that I cannot and should not make any assessment upon affidavit evidence.

3. The original hearing covered a period of 3 days and arose out of 2 summonses which over-lapped to a substantial degree in both subject-matter and content.

4. I ordered that the costs be reserved to the trial judge on the basis that it could only be after hearing all the evidence that a full assessment could be made of the validity of the applications under the 2 summonses. The Plaintiffs now argue that the trial judge would not be in a position to appreciate the full extent of the argument before me.

5. Upon further reflection and having had the benefit of hearing from both counsel, I accept that I may have more insight into the background and arguments leading to the order under the 2 summonses. In the circumstances I am prepared to vary the costs order nisi made by me on the last occasion.

6. Each side urges upon me that costs should be in their favour. The applications were essentially for discovery and preservation of assets pending trial. In the course of submissions most of the issues were resolved by consent, there being a fair degree of give and take on each side involved in reaching that consensus. The only matters not agreed upon involved areas where I am satisfied each side had cause to argue as they did having regard to their respective cases. As it so happens, those arguments occupied the major part of the hearing dates.

7. I remain of the view that it not appropriate to delve behind the affidavits to draw inferences based upon conflicting affidavit evidence. In as much as these 2 summonses are an integral part of the matters in dispute, I do not think that they should be treated differently from the main action.

8. I therefore vary the order on costs to the extent that the costs of the 1st and 2nd summonses are to be costs in the cause. The costs of and occasioned by the adjournment on 30 December 2002 shall be to the Plaintiffs in any event to be taxed and paid forthwith. The costs of this application shall be costs in the cause.

Representation:

Albert Yan, instructed by Messrs. Lau, Lee & Tang, for the Plaintiffs

Andrew Mak, leading Mr. Simon Ho, instructed by Messrs. Louis Chan & Co., for the Defendants

HCA 552/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 552 OF 2002

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J U D G M E N T

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1. This is an application by the 1st plaintiff, Kim Sie Joong, for an order that the 1st defendant, Ng Cheuk Ngon, be committed for contempt of court for breach of an undertaking he gave to the court as part of a consent order on 22 February 2002.

2. The background to this dispute is that the 1st and 2nd plaintiffs are minority shareholders of the 4th defendant, Billion Market Ltd, each holding 10% of the shares. Until 12 November 2001, the 1st defendant, and the respondent herein, Ng Cheuk Ngon, also held 10% of the shares, but on that date a meeting of directors purported to approve the transfer to him of a further 30%. That decision is in dispute. Also in dispute is a purported appointment of two further directors by a shareholders' meeting on the same date, in addition to the former four which included Mr Kim and Mr Ng. The plaintiffs claim that Mr Ng is in de facto control of the company.

3. The only purpose of the company is to redevelop an old industrial site in the city of Chang Sha, Hunan Province, for which they formed a joint venture with a PRC company, the joint venture company being Hunan Rich City Real Estate Development Company Ltd (Rich City), which was incorporated in the PRC on 5 June 1993. Billion Market Ltd owns 77% of Rich City and the PRC partner 23%. Initially the project was successful, but in recent years appears to have run into problems which caused financial difficulties. At the same time there also appears to have arisen differences between the parties who were instrumental in setting up the business. I do not need to concern myself here with the nature of the problems nor the differences except to refer to the principal complaint of the plaintiffs in these proceedings, which is as to an agreement apparently entered into on 21 April 2001 between Rich City and the 1st defendant, Mr Ng. Under this agreement, Rich City effectively sold to Mr Ng its remaining assets, being the unsold properties in the development, for RMB33 million, payment being by way of discharge of Mr Ng's loans to Rich City of a similar amount. There were also other provisions by way of Mr Ng discharging a loan to the bank secured by mortgage and outstanding charges payable to local government entities, which had been reduced from some RMB20 million to RMB7,150,000, through some arrangement which is not entirely clear.

4. In this action, the plaintiffs seek, inter alia, to have that agreement declared null and void, and, fearing that the properties the subject of the agreement may be disposed of, and the proceeds dissipated, before this matter could come to trial, sought an injunction to prevent any sales taking place. At the hearing of that application, on 22 February 2002, the parties agreed on a consent order to adjourn the application upon a number of undertakings being given by Mr Ng with the intention of preserving the status quo. These included filing an affidavit as to any transactions relating to the properties since April 2001, causing any proceeds of such sales, or any further sales to be paid into a separate bank account, to be opened within 14 days of the order, and not to deal with, or withdraw any money from, that account, except for the purpose of discharging existing mortgage debts, construction charges and reasonable business expenses, and to supply by fax copies of statements of that account within 7 days of receipt thereof. There followed the undertaking, breach of which is alleged here, in the following terms:

"(f) to afford upon 7 days' notice the Plaintiffs access to inspect the original of the banking records of the said separate bank account and the original documentation in respect of the said mortgage debt and construction charges."

5. In the Statement filed herein pursuant to Order 52, Rule 2, the applicant sets out the breaches which are claimed of that undertaking. These are that, following notice being given in accordance with it, he went to Chang Sha and visited the offices of Rich City on 24 April 2002, but no documents were shown to him at all. He again visited the offices on 29 April, and was told by a Mr Yang that he had spoken to the respondent on the telephone who had told him not to allow Mr Kim to inspect any documents, and nothing was shown again.

6. The evidence here shows that, on 12 April 2002, the plaintiffs' solicitors wrote to the 1st defendant's solicitors, referring to the undertakings, asking for copies of the of the records of opening the separate bank account and relevant statements, and giving notice that their clients will visit the office of Rich City in the week commencing 22 April "to inspect the documents and records". On 24 April the 1st defendant's solicitors wrote to say that their client had made the arrangements for the plaintiffs to inspect the documents. Meanwhile Mr Kim had already travelled to Chang Sha and visited the office of Rich City on the same day, 24 April, having made an appointment the previous day. What happened there is disputed by the parties. Mr Kim met Mr Yang, who appears to be a manager, although he did not appear to be absolutely clear as to his position himself, and says that he told Mr Yang that he had come to find out the financial situation of the company, and information as to how many properties were sold and how many not sold. He admits that he did not ask for any particular documents. He says that he was taken to a room where there were financial documents on a table and a member of the staff working, but was told by Mr Yang that he needed time to prepare the documents and would inform him when they were ready. He left without being shown any documents at all.

7. Mr Kim went on to say that the next visit was on 29 April, having arranged it over the telephone the previous day, and on this occasion he was accompanied by two auditors. He again said the purpose of his visit was to investigate the trading and financial situation of the company and to see how many units remained unsold. They had a discussion about the company and then went to lunch together. This appears to have been a very social affair, with Mr Kim and Mr Yang sharing a bottle of wine, after which Mr Kim returned to his hotel for a rest. Later he again returned to the offices but was not shown any documents as Mr Yang said that Liu Fei, a Chinese director, would not allow it. He admitted in evidence that Mr Yang had not been able to contact the respondent, and that the Order 52 statement in that respect was wrong.

8. The evidence of Mr Yang was that he had spoken to the respondent on 16 April and had been told to show Mr Kim the bank account, documents relating to the construction costs and the mortgage with the China Construction Bank, and explain the charges payable to government departments. He located these prior to his visit and had them ready to show him. He says that he did show him the documents that he had, but Mr Kim flipped through them very quickly and seemed to show little interest in them. On 29 April he agrees that Mr Kim asked for documents as to the general trading and financial situation of the company and to investigate how much it had in the way of assets. He felt that this was outside the scope of what he had been asked to give him by the respondent, which had already been provided on 24 April, and in any event such financial materials were kept by Liu Fei and he had to liaise with him. He tried to do so but was unable to, so they went off for lunch together. Afterwards he says he spoke to both Liu and a Mr Zeng, who also had some records, who declined to cooperate. Mr Kim and the two auditors left without seeing the documents they had asked for.

9. The questions before me here now are: were the documents requested those covered by the undertaking?; and were they disclosed to Mr Kim in accordance with that undertaking?

10. I have to start with the wording of the undertaking itself. I have to say immediately that it might have been more happily worded. While the reference to the original of the banking records of the separate bank account is clear enough, what the parties intended by "the original documentation in respect of the said mortgage debt and construction charges" is far from clear. It is now claimed by the applicant that this meant documentary evidence of the present balance outstanding on each, and documents showing payments made in reduction of them. If that is right, why did it not say so? It would not have needed a lengthy and difficult drafting exercise to have done this. As it is, I find the scope of the undertaking in this clause to be vague in the extreme.

11. I then look at what Mr Kim requested, to see if that comes within it. On his own admission he says he had come to find out the financial situation of the company and to see what properties had been sold. This cannot by any stretch of the imagination be covered by the undertaking, particularly as he admits that he did not even ask for any particular documents. It is clear from this that he wanted an overall survey of the financial position of the company, and to see evidence of any sales since the disputed agreement in April 2001. He also admitted that he believed the order of the court including the undertaking entitled him to ask for these, including the accounts, permits to sell the properties and sale and purchase agreements. This was not then a visit entirely within the scope of the undertaking. If it was, it would have been very easy to ask to see the documents only in relation to the mortgage and construction costs, but instead, he clearly intended to demand a wide ranging overview of the company's financial situation. This is not what the undertaking intended.

12. That this was his intention is even more clear from the undisputed evidence of his visit on 29 April. Not only does he admit that he again asked for evidence of the financial situation of the company, but brought with him two accountants/auditors to help. They also agree, in a statement I have some reservations about in view of the fact that it is not under oath and they were not, in spite of a request, produced for cross-examination, that what was requested was accounts, although they also said they asked for proof of loans.

13. The situation therefore was that, far from asking for those documents covered by the undertaking, Mr Kim set out to try to see as much as he could of the company records and accounts, and, while those might have included documents he was entitled to, went far beyond what was envisaged. I can imagine therefore Mr Yang, a manager who had been given instructions as to what should be produced, and faced with a prohibition from the local director against revealing more, being placed in a very difficult position. In spite of this, he says that he did produce a large number of documents on the first visit, and that these covered what he was told to show Mr Kim.

14. I have to say that, as to the events on the 24 April, I prefer the evidence of Mr Yang to that of Mr Kim. Mr Kim admits that there were documents on the table on that visit, and does not say that he was prevented from examining them, had he wished to then. Further, it is clear that a number of those Mr Yang says he showed dated from a time when Mr Kim himself was involved in running Rich City, and would have been familiar with. This lends credence to Mr Yang's account of him showing little interest in them. I do not, however, have to go that far. This is an application for committal, and I am accordingly obliged to apply the criminal standard of proof, namely beyond reasonable doubt. On this basis, I cannot be sure that it is Mr Kim who is telling the truth as to these events, in the light of all the evidence. I am satisfied therefore that some documents were shown to him, albeit less than he requested, but, as I have already observed, he was asking for more than he was entitled to.

15. The next question then is whether those documents did fall within the scope of the undertaking. The first, and most easily dealt with, is that relating to the bank account. It was clearly envisaged by the consent order that a new bank account would be opened after the date of the hearing on 22 February 2002. The account opening document exhibited by Mr Yang, and which he says he showed to Mr Kim, is in respect of an account opened on 19 February, three days earlier. Mr Yang's explanation for this is that, when told a separate account had to be set up, he pointed out that they already had one, just opened and not used, which had actually been opened for other reasons, and it seemed sensible to use this. After all, the intention was to have a separate account, the date of opening it could not have been critical. I can see the sense of this. However, Mr Yau for the applicant says, why are there no statements? Again, the explanation given is that this is a savings account, that there have been no transactions and no deposits, and there have therefore been no statements or deposit records. However odd this appears to those used to the banking procedures in Hong Kong, I am unable to say that it is so unlikely that it must be untrue, and, in the absence of any other evidence, have to accept it. The evidence before me certainly is that there have been no sales of any of the properties, and therefore nothing to deposit.

16. As to the mortgage debt and construction charges, Mr Yang again produces copies of the documents he says he showed to Mr Kim. These are principally the original mortgage agreements, with which Mr Kim would be familiar as they were entered into during his time, a statement dated 1 January 2002 from the bank as to the mortgage, showing a loan balance of RMB6,900,000.00 and interest of RMB367,953.42, and a table of local government charges to a total of RMB20,660,383.65 with an endorsement approving a reduction to 35%, or RMB7,150,000.00. The respondent has given evidence that he had been paying RMB100,000.00 a month to the bank in respect of the mortgage, and had paid RMB5,000,000.00 towards the construction charges. Mr Yau points out that it would be reasonable to expect some documentary evidence of these payments, even if only to reflect a reduction in the mortgage loan, which still showed the original sum borrowed. The respondent, Mr Ng, had explanations for both matters. As to the mortgage, he said that his payments had only gone towards interest and had not reduced the principal. That may be so, but I would nevertheless expect there to be an account from the bank showing such payments, and how they had been applied. As to the construction charges, he said that he had paid the RMB 5 million to an agent who handled it on his behalf, and he had no documentary record of it. Again, even if this were true, there must be evidence of the remittance to the agent.

17. As to these last matters, there are many questions left unanswered by Mr Ng, and I have no doubt that they need to be investigated thoroughly in the course of these proceedings. It also follows that there are indeed documents connected with the mortgages and the construction costs, at least as to any payments made, which have not been disclosed. But does this mean that the respondent is in breach of the undertaking? I return to what I have said above about the wording of this undertaking. It refers to original documentation in respect of the mortgage debt and construction charges, and, on one interpretation, this is what Mr Kim got. He had the original mortgage documents and the original list of construction costs. The undertaking said nothing about current liabilities nor about payments made by the respondent.

18. I am well aware that this is an application for committal. To found such an application, which is a very serious matter for the respondent, involving as it does a threat of imprisonment, not only must the undertaking, breach of which is alleged, be absolutely clear, but it must also be clear beyond doubt that he has been in breach of it. While there are many unsatisfactory aspects of the way the respondent has approached his obligations, I find that I am unable to say that there has been such a clear breach of the undertaking, as claimed in the statement, by which I must be bound, to say that he is guilty of contempt of court at all, and certainly not to the extent that he should be liable to committal.

19. For these reasons I find that there is no merit in this application which will accordingly be dismissed. There will also be an order nisi that the applicant pays the costs of this application to the respondent, to be taxed.

Representation:

Mr Albert Yau, instructed by Messrs Wong Poon Chan Law & Co., for the 1st Plaintiff/Applicant

Mr Louis K Y Chan, instructed by Messrs Louis Chan & Co., for the 1st Defendant/Respondent