RE WING FUNG CONSTRUCTION (HK) LTD

HCCW 807/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 807 OF 2004

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Before: Hon Kwan J in Chambers

HCCW 807/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 807 OF 2004

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D E C I S I O N

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1.  On 13 September 2004, I made an order by consent to stay a petition presented by Lau Yee Ching to wind up Wing Fung Construction (HK) Limited (“the Company”) on the just and equitable ground, alternatively, for relief under section 168A of the Companies Ordinance, Cap. 32.

3.  By paragraph 2 of the consent order, it was provided that the parties are to perform and abide by the terms set out in the schedule.  In the schedule, clause 1 provided that the petitioner is to sell his 30% shares in the Company at a price to be determined by an independent accountant acting as an expert.  Clause 8 provided that before making his reasoned determination, the independent accountant will invite the petitioner and the 1^st and 2^nd respondents to make such written representations to him as to the value of the shares as they may consider appropriate.  The independent accountant will have regard to such written representations as shall be made, but he is not bound to give effect to those representations.

4.  By clause 9, it was provided that the reasoned determination made by the independent accountant shall be completed and made known to the parties within 8 weeks from the date of his appointment.  Further, the reasoned determination will be “final and binding” upon the petitioner and the 1^st and 2^nd respondents.

5.  By clause 10, payment for the petitioner’s shares as valued by the independent accountant and of the costs will be made by means of a local bank’s cashier order caused to be issued by the Company.  If there is insufficient fund, payment shall be made by the 1^st and 2^nd respondents through their solicitors, payable to the petitioner on the date of completion, which is 7 days from the date when the valuation is made known by letters to the parties.

6.  By the letter dated 3 November 2004, a certified public accountant, Yiu Cho Yan, was jointly appointed by the petitioner and the 1^st and 2^nd respondents pursuant to the terms of settlement to carry out the valuation of the petitioner’s shares as at 26 July 2004.

7.  The petitioner and the 1^st and 2^nd respondents have made their respective representations to Mr Yiu.

8.  On 12 March 2005, Mr Yiu issued his 1^st report and expressed his opinion that the current fair market value of the petitioner’s shares is in the range of $2.52 million to $2.82 million as at the relevant date.

9.  As Mr Yiu had affixed the chop of the word “draft” on each page of the report, this led to a dispute of the parties whether his report is meant to be final and binding.

10.  The respondents took the opportunity to make further submissions to Mr Yiu on his 1^st report.  This was objected to by the petitioner. 

11.  On 16 February 2006, Mr Yiu issued another valuation report, this time not in “draft” form.  In the 2^nd report he expressed his opinion that the current fair market value of the petitioner’s shares is in the range of $2,276,900.00 to $2,302,200.00.  Taking the average between the two figures, Mr Yiu determined that the petitioner’s shares should be in the value of $2,289,500.00.  After the 2^nd report was issued, the petitioner requested the 1^st and 2^nd respondents to make payment of the value determined for his shares being $2,289,500.00 in accordance with the terms of settlement.

12.  The 1^st and 2^nd respondents did not pay.  Through their solicitors, they wrote to Mr Yiu on 21 February 2006, complaining about the “inordinate delay” of Mr Yiu in giving his valuation on 16 February 2006.  They also reserved their right to challenge the contents of the 2^nd report.

13.  On 16 March 2006, the petitioner issued a summons seeking an order there should be specific performance of the terms of settlement in the consent order made on 13 September 2004 and requiring the 1^st and 2^nd respondents to forthwith complete the sale and purchase of the petitioner’s shares at the price as determined by Mr Yiu.

14.  On 17 March 2006, the Director of Legal Aid issued a notice that the 1^st respondent had applied for legal aid.  On 6 April 2006, the Director of Legal Aid gave notice that the 1^st respondent’s application has been refused.  Accordingly, I made an order on the 12 April 2006 that the stay on account of the application for legal aid be lifted.

15.  On 13 April 2006, the solicitors for the 1^st and 2^nd respondents filed a notice of change of their address for service.  The solicitors remained the solicitors on record for the 1^st and 2^nd respondents until the respondents filed a notice to act in person, shortly before 5:00 p.m. on 24 April 2006, the day before the hearing of this summons.  The 1^st and 2^nd respondents appear in person today and I have heard submissions from them.

16.  A notice was issued by the Director of Legal Aid on 19 April 2006 that the 1^st respondent has made another application for legal aid.  According to a letter of the Director of Legal Aid, he was asked to attend the Legal Aid Department for an appointment on 27 April 2006.  The 1^st respondent sought an adjournment of the hearing today until his legal aid application has been processed.  I decline to grant an adjournment for this purpose.  In fact I had made an order on 21 April 2006 to lift the stay of proceedings due to the 2^nd application for legal aid.  The present proceedings are simply not within the scope of legal aid.  They are excepted proceedings as provided in Part II of Schedule 2 to the Legal Aid Ordinance, Cap. 91.  The relevant item in Part II of that schedule reads:

“Proceedings … involving disputes between limited companies or their shareholders regarding the respective rights of the company and the shareholders”.

This is clearly applicable to the present proceedings so I cannot see any basis on which legal aid may be granted to the 1^st respondent in these proceedings.

17.  The 1^st and 2^nd respondents inform the court that they disagree with the valuation of Mr Yiu.  They allege that the basis of the valuation is erroneous.  They seek an adjournment of the petitioner’s summons for 3 months to give them an opportunity to overturn Mr Yiu’s valuation in his 2^nd report.  I reject this application.  There is no power vested in this court to grant an adjournment for this purpose, as it is clearly provided in the terms of settlement that the determination made by the independent accountant acting as an expert will be final and binding on the petitioner and the 1^st and 2^nd respondents.  I see no ground at all and no legal basis for overturning the valuation of Mr Yiu.

18.  The respondents have also complained of the delay of Mr Yiu in rendering the 2^nd report.  It is not necessary for me to dwell on this or to ascertain whose fault it was that led to the delay, as delay is simply irrelevant to the obligation of the 1^st and 2^nd respondents to comply with the mechanism laid down in the terms of settlement for the purchase of the petitioner’s shares, once the independent accountant has made his determination.

19.  The 2^nd respondent has informed the court that she and the 1^st respondent will not make payment for the petitioner’s shares, instead she and the 1^st respondent will agree to wind up the Company.  That however is not the agreement reached between the parties as embodied in the terms of settlement in the consent order.  Their obligation as clearly stated in the terms of settlement is to buy out the petitioner’s shares at the value determined by the independent accountant within 7 days from the date when the valuation is made known to them by letters.

20.  I have invited the respondents to make submissions if they wish as to the time within which they should comply with their obligations to purchase the petitioner’s shares, in case they need further time.  The 1^st respondent has indicated to the court that he would need 8 months to come up with the funds to purchase the petitioner’s shares.  This is rejected by the petitioner.  The petitioner’s counsel informed the court that the petitioner would only accommodate the respondents by giving them 1 month.

21.  Under the consent order, I have given liberty to the parties to apply for the purpose of enforcing and carrying out the consent order and the terms of settlement in the schedule.

22.  The alleged inability of the respondents to come up with the necessary funds is not a reason for not making an order to enforce the terms of settlement.  How the petitioner may wish to enforce the order in view of the inability of the respondents to comply with it is a matter for the petitioner.  I make the following orders on the petitioner’s summons.

(1)     there be specific performance of the terms of settlement in the schedule to the consent order dated 13 September 2004;

(2)     the 1^st and 2^nd respondents do forthwith complete the sale and purchase of the petitioner’s 30% shares in the Company at the price of $2,289,500.00, in accordance with the terms of settlement;

(3)     the 1^st and 2^nd respondents shall within 28 days of this order pay the petitioner $2,289,500.00 by cashier order, whereupon the petitioner is to execute the instrument of transfer and the bought and sold note and shall resign from the Company as a director; and

(4)     the 1^st and 2^nd respondents are to pay the petitioner’s costs of this application.

Miss Pheobe Man instructed by Messrs Tsang, Chan & Wong, for the Petitioner

The 1^st Respondent, Wong Tak Kwong, present

The 2^nd Respondent, Madam Chan Wai Chun, present

HCCW 807/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 807 OF 2004

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D E C I S I O N

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1.  This is the adjourned hearing of an application for a validation order made by the 1^st and 2^nd respondents, Wong Tak Kwong and Madam Chan Wai Chun.  They are the directors of Wing Fung Construction (H.K.) Limited (“the Company”).  The summons was issued on 30 December 2005.  The petitioner, Lau Yee Ching, has set out in his 16^th affirmation which of the items sought to be validated are opposed by him and the reasons for his opposition.  He has raised two general objections.  I have considered the general objections in paragraphs 6 to 14 of his affirmation and I have sought explanation from the 1^st respondent regarding the alleged double payments he received in respect of his salary and subsidy for the month of December 2004. 

2.  The 1^st respondent provided the explanation through an employee of the Company Mr Lau Kwong Chi.  It would appear from the explanation given that the salary and subsidy for December 2004 was in fact not paid to the 1^st respondent out of the funds covered by payment certificate No. 15 but the money was used to pay some other employees.  I accept this explanation given on behalf of the 1^st respondent.  I do not consider the general objections raised by the petitioner to be of substance.  I turn to the individual objections raised by the petitioner to each of the items sought to be validated in this application.

3.  There are 8 items in all.  I will go through them one by one.  The 1^st item relates to materials and machineries.  The amount sought to be validated is HK$105,942.82.  The petitioner will consent to HK$70,509.82.  The sums of HK$13,400.00 and HK$22,033.00 are objected to, on the basis that these expenses were incurred in relation to a car for the sole use of the 2^nd respondent and not for the business of the Company.

4.  This objection has been raised in relation to similar expenses sought for this car in earlier applications and I have upheld the petitioner’s objections.  I see no reason to take a different view on this occasion.  So I will disallow these sums relating to the car and the amount I propose to validate under item 1 is only the sum of HK$70,509.82.

5.  Item 2 relates to arrears of salaries from July 2005 to December 2005 in the sum of HK$397,216.80.  The petitioner will consent to HK$251,716.80.  The items objected to by the petitioner relate to the subsidies of the 1^st respondent at HK$10,000.00 a month for six months and the salaries of the 2^nd respondent at HK$14,250.00 a month for six months.

6.  I am unable to conclude on the available evidence that these expenses relating to the 1^st respondent’s subsidies and the 2^nd respondent’s salaries are not genuine business expenses.  I therefore propose to validate these payments as well.  So the entire amount sought under item 2 is to be validated.

7.  Item 3 is the advance on salaries to employees in the sum of HK$216,500.00.  The Company seeks to make payment of salaries to employees for January 2006 and February 2006 in view of the forthcoming Chinese New Year.  I see no reason to disallow the advance of salaries in this situation, so I will validate the entire amount sought.

8.  Item 4 is payment to sub-contractors of HK$104,802.80.  The petitioner says he will consent to this item upon a personal undertaking of the 1^st respondent to pay back any outstanding amount into the Company’s bank account, as there would appear to be a difference of HK$35,780.00 between the amounts validated on previous occasions and the amounts actually paid to the sub-contractors so far.  I do not think it is necessary to require the respondents to give this undertaking again.  I should mention that they have given an undertaking of this kind when I made a validation order on 2 December 2005.  I would validate the amount sought in item 4 in its entirety.

9.  Item 5 is MPF contribution from October 2005 to December 2005 of HK$30,871.68.  Item 6 relates to hire purchase payments for machinery in the sum of HK$143,580.32.  Item 7 relates to electricity, telecom and water charges, management fees and court fines in the sum of HK$15,230.40.  The petitioner consents to all three items in the entirety so the amounts sought will all be validated.

10.  Item 8 relates to reimbursement of cash payments to Wong Ming Wah, Lau Kwong Chi and the 1^st respondent in the sum of HK$20,331.69.  I understand that the reimbursements sought for October 2005 have been considered and dealt with in the last application for a validation order.  So these amounts are disallowed: they are HK$6,082.40, HK$5,243.00 and HK$2,929.01.  For the reimbursement sought for November 2005, the petitioner will consent to the reimbursement to Lau Kwong Chi of HK$3,230.28.  As for the reimbursement to Wong Ming Wah for November 2005, an objection was raised to HK$500.00.  I have looked at the invoice in question.  I propose to allow the HK$500.00 objected to as well.  There will be a validation order in respect of all the reimbursement sought for Wong Ming Wah and Lau Kwong Chi in November 2005.

11.  I make a validation order upon the 1^st and 2^nd respondents providing a similar undertaking to the court as before.  This undertaking is to provide to the petitioner proof of such payments actually made to the relevant individuals and/or companies in a form as agreed by the parties and set out in a letter of the petitioner’s solicitors to the respondents’ solicitors dated 17 October 2005, within 7 days of the payments being validated by the order to be made herein, and surplus funds not utilised for the payment of the amounts validated are to be paid back into the bank accounts of the Company.

12.  On the basis of the above undertakings, I order as follows:

(1)     The payment of the sums set out in items 1 to 8 in exhibit “C” to the 11^th  affirmation of the 1^st respondent be validated, with the exception of these items: the sums of HK$13,400.00 and HK$22,033.00 in item 1 and the amounts of HK$6,082.40, HK$5,243.00 and HK$2,929.01 in item 8.

(2)     Messrs Paul Kwong & Company, solicitors be authorised to pay out the amounts aforesaid to the recipients as listed in exhibit “C” to the 11^th affirmation of the 1^st respondent.

(3)     The Bank of China (Hong Kong) Limited be authorised to debit the Company’s accounts the aforesaid sums or part thereof and transfer the proceeds to Messrs Paul Kwong and Company to enable them to pay out to the recipients as mentioned.

(4)     The Shanghai Commercial Bank be authorised to debit the Company’s accounts the sums aforesaid or part thereof and transfer the proceeds to Messrs Paul Kwong & Company to enable them to pay out to the respective recipients aforesaid.

(5)     There be no order as to the costs of this application. 

Miss Pheobe Man, instructed by Messrs Tsang, Chan & Wong, for the Petitioner

Mr Wong Tak Kwong, the 1^st Respondent, present

Madam Chan Wai Chun, the 2^nd Respondent, present

HCCW 807/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 807 OF 2004

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Before: Hon Kwan J in Chambers

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D E C I S I O N

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1.  This is the adjourned hearing of part of a summons not disposed of under section 182 of the Companies Ordinance, Cap. 32.  The application was taken out by the directors of Wing Fung Construction (H.K.) Limited (“the Company”) to validate payments made in the ordinary course of business notwithstanding the presentation of the winding-up petition.

2.  I refer to my decision on 2 December 2005 on the background of the application.

3.  The hearing today relates to items I and J in the schedule to the summons.  The total amount sought to be validated in the summons is HK$715,910.20, the respondents now seek to validate only an amount of HK$616,511.44.

4.  The petitioner’s counsel has criticised the respondents for not preparing the evidence in support of their applications in a proper manner, the difference of nearly HK$100,000.00 in the amount initially sought to be validated and the revised amount is an illustration of the lack of care on their part.  I agree.  This is of no help to anyone, least of all to the respondents themselves, as much time and effort would have to be spent to ensure that there are no double payments, and that the items claimed have not been paid out previously in an earlier validation order.  The fact that this kind of close scrutiny is required would only lead to a delay in processing the application of the respondents.

5.  The petitioner’s main ground for objecting to the application is that the respondents have not given a clear explanation of an amount of HK$244,691.31, being the remaining sum that should have been paid to the Company by Sun Fook Kong (Civil) Limited (“Sun Fook Kong”) under payment certificate No. 14 in November 2004 after having paid the employees and sub-contractors of the Company directly.  The petitioner says no validation order should be made until the respondents have provided a satisfactory explanation of the whereabouts of the said sum.  According to the documents adduced by the respondents, the cheque for the said sum issued on 23 December 2004 was lost, and the Company had written to Sun Fook Kong on 6 July 2005 informing the latter about this and asking Sun Fook Kong to issue a replacement cheque.

6.  I have clarified with the 1^st respondent today that the additional sum in respect of the lost cheque was accounted for by Sun Fook Kong and paid to the Company under payment certificate No. 19.  So it seems to me that the respondents have now given a sufficient explanation for the said sum.

7.  The petitioner has set out in his 15^th affirmation which of the items in the application for validation would be consented to, which ones would be the subject of objection and his reasons therefor.

8.  The total amount he consents to be validated is HK$397,123.23, out of a total of HK$616,511.44.  They have been set out in detail in his 15^th affirmation.  I do not propose to repeat them here.

9.  To the amount consented to by the petitioner, I would add the following to be validated:

(1)     an amount of HK$15,060.00, supported by document B45 exhibited to the 10^th affirmation of the 1^st respondent, being the payments of lai see to the Company’s employees in Chinese New Year; and

(2)     an amount of HK$500.00, being a payment for a wreath of flowers supported by document B46 exhibited to the 1^st respondent’s 10^th affirmation.

10.  I am satisfied that the two items mentioned above could properly be regarded as expenses in the ordinary course of business of the Company.

11.  I would disallow all the other items sought to be validated as I am not satisfied that the expenses were incurred in the ordinary course of business of the Company or that the documents produced by the respondents in support of these items are adequate.

12.  I make a validation order in respect of the amount of HK$397,123.23 for the reimbursement to various individuals of the payments made for the Company as set out in the schedule exhibited as exhibit 115 to the 15^th affirmation of the petitioner, and of the amounts of HK$15,060.00 and HK$500.00 for reimbursement to the 1^st respondent of the said sums for the purposes that I have mentioned.  The validation order is made on the undertaking as before, and that is to provide to the petitioner proof of such payments actually made to the relevant individuals and/or companies in a form as agreed by the parties and set out in the letter of the petitioner’s solicitors to the respondents’ solicitors dated 17 October 2005, within 7 days of the payments being validated by the order made herein, and that the surplus funds not utilised for the payment of the amounts validated are to be paid back into the bank accounts of the Company.

13.  I further order that Messrs Paul Kwong & Company, solicitors, are to be authorised to pay out the sums validated to the recipients as stated above and that the Bank of China (Hong Kong) Limited be authorised to debit the Company’s account in the sums I have mentioned and transfer the said sums to Messrs Paul Kwong & Company to enable the solicitors to pay out to the recipients described. 

14.  Regarding the costs of this application which I have reserved on the last occasion and of today, I see no reason at all the petitioner’s costs should not be borne by the 1^st and 2^nd respondents and I so order.

HCCW 807/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 807 OF 2004

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Before: Hon Kwan J in Court

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J U D G M E N T

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The notice of motion

1.  This is a notice of motion taken out by Lau Yee Ching, the petitioner herein, under Order 52 rule 3 of the Rules of the High Court on 26 May 2005.  The petitioner seeks an order that Wong Tak Kwong and Madam Chan Wai Chun, the 1^st and 2^nd respondents herein, be committed to prison for their breach of or failure to comply with the undertakings (“the Undertakings”) given to the court contained in the order of Reyes J dated 18 August 2004 (“the Order dated 18 August 2004”).

2.  Leave was given to the petitioner in an ex parte application to apply for an order of committal on 18 May 2005.  The papers in this application were served on the respondents personally on 10 June 2005.

The affirmations placed before the court

3.  At the first hearing of the notice of motion on 8 August 2005, I gave directions for the petitioner to file further evidence in support, for the 1^st and 2^nd respondents to file evidence in answer if they should wish to do so, and for the petitioner to file evidence in reply.

4.  The petitioner made five affirmations in this application: his 9^th affirmation (to verify the particulars in the statement made pursuant to Order 52 rule 2(2) and to exhibit documents), his 10^th affirmation (to update the court on what had happened after the notice of motion was served on the respondents), his 11^th affirmation (to explain why the letter of the petitioner’s solicitors to Sun Fook Kong (Civil) Ltd (“SFK”) and its reply in November 2004 were not mentioned or exhibited in his 9^th or 10^th affirmation), his 12^th affirmation (to reply to the 1^st respondent’s 6^th affirmation), and his 13^th affirmation (to update the court on the latest position since the adjournment on 8 August 2005). The petitioner also filed two affirmations made by Lee Yiu Sun (“Mr Lee”), a clerk to the petitioner’s solicitors, on 12 May 2005 and 12 July 2005, setting out the steps taken to serve the Order dated 18 August 2004 endorsed with a penal notice on the respondents and to serve the papers for this application on them.  In addition, the petitioner placed before the court four of his previous affirmations made in other applications: his 4^th, 6^th, 7^th and 8^th affirmations.

5.  The respondents only put in one affirmation in this application, this is the 6^th affirmation of the 1^st respondent made on his own behalf and on behalf of the 2^nd respondent.

6.  The petitioner and the 1^st respondent were cross-examined on their affirmations.

7.  Insofar as primary facts are concerned, in the absence of evidence to the contrary, I see no reason not to accept the primary facts deposed to in the petitioner’s affirmations and the affirmations of Mr Lee.

8.  I will first give the background before I go to the grounds relied on by the petitioner to commit the respondents for contempt.

The background

9.  The petitioner presented a petition to wind up Wing Fung Construction (H.K.) Limited (“the Company”) on 26 July 2004 on the just and equitable ground, on the basis that the affairs of the Company were conducted in a manner unfairly prejudicial to him as a member of the Company.  The petitioner was a director until he was removed in May 2004.

10.  The 1^strespondent is the majority shareholder and a director of the Company. The 2^nd respondent is his wife.  She was appointed a director at the same extraordinary general meeting in May 2004 when the petitioner was removed.

11.  The petitioner alleged in the petition there was misuse and diversion of the Company funds by the 1^st and 2^nd respondents, and that he was wrongfully excluded from management.  He sought to wind up the Company, alternatively that his shares be purchased by the respondents or by the Company, under section 168A of the Companies Ordinance, Cap. 32.

12.  As the bank accounts of the Company were frozen due to the presentation of the winding-up petition, on 10 August 2004 the respondents applied under section 182 for a validation order, to enable payments to be made out of the Company’s accounts to pay wages of its direct employees, the wages of the workers of its sub-contractors and sums due to its sub-contractors and suppliers.

13.  The Order dated 18 August 2004 was made by consent at a hearing, in which counsel appeared for the respondents.  By that order, the payments set out therein were validated upon the Undertakings of the respondents in these terms:

“And upon the 1^st and 2^nd Respondents undertaking to

  (a)     pay any future income of and payments made to the Company into either of the following accounts: Shanghai Commercial Bank Ltd. current account no. 333-82-06-338-6 (“the SCB current account”); and savings account no. 333-14-295221 (“the SCB savings account”); Bank of China (Hong Kong) Ltd. account no. 012-898-0-005347-4 (“the BOC account”) (collectively “the Company Bank Accounts”);

  (b)     account for and disclose the whereabouts of all the interim payments thus far made by [SFK] to the Company;

  (c)     to provide to the Petitioner a complete set of statements of the Company Bank Accounts and the financial accounts of the Company for the months from March 2004 to July 2004 within 7 days from today; and

  (d)     that monthly updated financial statements, accounts of the Company and statements of the Company Bank Accounts from July 2004 onwards be provided to the Petitioner by [the 1^st respondent], [the 2^nd respondent] or the Company.”

14.  Subsequent to the Order dated 18 August 2004, the parties reached an agreement to settle their disputes.  By a consent order made on 13 September 2004, all further proceedings in the petition are to be stayed upon terms of the settlement agreement in the schedule attached (“the Schedule”), except for the purpose of enforcing and carrying out the said order. It was further provided within the specified period on complete fulfilment and implementation of all the terms in the Schedule, the parties should apply to court for dismissal of the petition.  I understand up to today, the petition has not been dismissed.

15.  Among the terms in the Schedule, there is this provision in paragraph 14:

“Until the Petition is dismissed in accordance with paragraph 13 of the Schedule herein, no disposition shall be made of the assets of the Company, including funds in the Company’s accounts being [(i) to (iii) are the Company Bank Accounts]; and (iv) savings account no. 012-898-1-024428-0 with Bank of China (Hong Kong) Ltd, without the prior consent of the Petitioner or of the Court.”

16.  Because the petition has not been dismissed pending implementation of terms in the Schedule and because of paragraph 14 therein, the respondents would still need to apply to court from time to time to validate payments made out of the Company Bank Accounts to pay employees, sub-contractors and suppliers, unless they have the consent of the petitioner.  From September 2004 to January 2005, the respondents issued five summonses for validation order dated 25 September 2004, 8 October 2004, 23 October 2004, 9 December 2004 and 25 January 2005.

17.  The summons issued on 25 September 2004 was heard by Lam J on 4 October 2004.  At that time, the respondents had not fully complied with the Undertakings in that they failed to:

(1)            disclose the whereabouts of all of the payments from SFK;

(2)            pay all interim payments from SFK into the Company Bank Accounts; and

(3)            provide the bank account statements of the SCB savings account to the petitioner.

18.  Lam J ordered that part of the sums which the petitioner did not object to would be validated by consent, whereas the validation of the other sums would be adjourned, pending compliance by the respondents with paragraph (b) of the Undertakings in the Order dated 18 August 2004.

19.  By the summons on 8 October 2004, the respondents sought a validation order of the remaining payments in the 25 September 2004 summons.

20.  An order was made by consent on this summons by Lam J on 12 October 2004.  What happened was that the solicitors for the respondents had agreed by letter on 12 October 2004 to give an undertaking sought by the petitioner’s solicitors to provide information regarding five cheques drawn on the Company’s account at the Bank of China within the next three days, so the petitioner gave consent to the sums sought to be validated in that summons, although the undertaking by letter dated 12 October 2004 was not recorded in the consent order of 12 October 2004.

21.  The summons issued on 23 October 2004 was fixed to be heard by Lam J on 1 November 2004.  By then, the respondents had still not complied fully with the undertaking in the letter dated 12 October 2004.  Furthermore, they were in breach of the Undertakings, in that they had only provided monthly bank account statements of the Company up to July 2004.  More serious still, the petitioner discovered that on 14 October 2004, the 1^st respondent had written to SFK in these terms.  This is an important letter, the certified translation of it reads as follows:

“Re: Arrangements regarding wages under the project

         Since July of this year, there was an internal conflict among the shareholders of our Company.  Although our Company had tried its best to negotiate with the relevant shareholder(s), the matter still could not be resolved.  Finally the matter had to be referred to the Court for adjudication.  On 21st September this year, the Court adjudicated on the matter and such matter will be fully disposed of within 8 weeks.  However, within these 8 weeks, the operation of the bank accounts of our Company is still under the supervision of the Court.  Therefore our Company has to apply to the Court before paying its daily expenses for its operation every month.  As such application takes time, in order not to delay the issuance of wages to the employees of the Company and those of the contractors and not to affect the progress of the project, we hope that your Company can pay the wages for the month of September and all other sums due in the past directly to the employees of the Company, the sub-contractors and the suppliers of materials/equipments on behalf of our Company.”

22.  In this letter, the 1^st respondent did not tell SFK of the Undertakings by which the 1^st and 2^nd respondents undertook to pay any future income of or payments made to the Company into any of the Company Bank Accounts.

23.  The petitioner later obtained confirmation from four individuals responsible for all four sub-contractors of the Company that arrangement was made for SFK to pay their workers directly instead of through the Company.  These individuals are Mr Ng Wah of Wah Kee, Mr Lo Wai Bun of Wing Lee, Mr Yeung Yun Fung of Hing Wing and Mr Yip Ho Yum of Yum Kee.  There was also confirmation to this effect from an employee of the Company, Ng Wai Kuen.  Above all, confirmation to like effect was received from Andy Cheng of SFK.  This arrangement was also apparent from the fact that payments for September 2004 were not included in the summons taken out by the respondents on 23 October 2004.

24.  At the hearing of the 23 October 2004 summons on 1 November 2004, Lam J adjourned the summons to a date to be fixed.  He ordered the 1^st and 2^nd respondents to file within seven days an affirmation in reply to the petitioner’s 6^th affirmation, in which it was alleged that the respondents were in breach of the Undertakings in that the 1^st respondent had asked SFK to make direct payments to him and to sub-contractors of the Company.

25.  The respondents did not file any affirmation pursuant to Lam J’s order on 1 November 2004, nor did they restore the summons of 23 October 2004.  Instead, they issued the summons dated 9 December 2004 for a fresh validation order.  This was heard by Barma J on 5 January 2005.

26.  At the hearing, the letter of 14 October 2004 was placed before the court by the petitioner in his 7^th affirmation.  The petitioner also placed before the court the letter of his solicitors to SFK dated 15 November 2004 and the reply of SFK on 19 November 2004.

27.  The letter of the petitioner’s solicitors to SFK is in these terms:

         “We are instructed that Mr Wong Tak Kwong, another shareholder and director of Wing Fung has requested your Company to make and your Company has made payments originally payable to Wing Fung directly to, inter alia, Wong Tak Kwong and the subcontractors of Wing Fung.

         Please be informed that Mr Wong Tak Kwong has given his undertaking to the Court on 18 August 2004 to, inter alia, pay any further income of and payments made to Wing Fung into Wing Fung’s bank account.  Mr Wong Tak Kwong has therefore procured to breach his said undertaking by requesting your Company to make payments in the said manner.

         Please inform us in writing of (i) the procedure followed by your Company in making the said payments; and (ii) the details of the said payments made by your Company.  Please also confirm with us in writing as to whether, when and in what manner Wong Tak Kwong requested your Company to make the payments in the said manner.”

28.  In SFK’s reply, it stated that it did not intend to be involved in a quarrel between the shareholders of the Company, nor would it allow the Company’s internal dispute to impede the progress of work in the main contract.  It mentioned its contractual duties to the employer to complete the works under the main contract and its statutory obligation under the Employment Ordinance, Cap. 57, Part IXA as the principal contractor to pay unpaid wages to workers in the project under the direct employment of the Company or under the employment of sub-contractors of the Company.  It did not think it was obliged to answer queries raised by the petitioner, but would inform the petitioner as a matter of courtesy there was an on-account interim payment of HK$1,416,850.39 due to the Company on 21 October 2004, out of which HK$1,077,483.33 was made use to settle unpaid wages due to the Company’s workers in September 2004, and the balance of HK$339,367.06 was paid to the Company.  SFK ended the letter by stating that it “would not discount any possibility to make use of Wing Fung payment to meet with the unpaid wages of those Wing Fung’s worker [sic] working in [its] site”, and should the situation deteriorate, it would not hesitate to terminate the Company’s contract and claim damages.  SFK’s letter was copied to the Company for the attention of the 1^st respondent.

29.  Barma J regarded this an unsatisfactory state of affairs, and although he made an order to validate certain payments, it was provided in paragraph 1 that the validation order was “subject to the making and filing of affirmation or affidavit from the 1^st Respondent and the 2^nd Respondent confirming that each of those items remains unpaid and outstanding and setting out what had happened to the payment due to the company from [SFK] in respect of the month of November 2004 just by way of identification that the payments which should ordinarily have been paid in the course of business for the month of December or towards the middle of December 2004.”  Paragraph 2 of the order provided that if it should turn out that there is some direct payment by SFK as a result of which part of the payment is not paid to the Company but is paid in some other manner, “the affirmation should set out in great detail is [sic] to how they were made and to whom has received them and what had happened to the money”.  Barma J also gave liberty to apply.

30.  In accordance with his order, on 14 January 2005, the 5^th affirmation of the 1^st respondent and the 3^rd affirmation of the 2^nd respondent were filed.  In his 5^th affirmation, the 1^st respondent deposed that on various dates in December 2004, the site manager of SFK, Lee Yat Wah, made payments to him directly for paying wages of the Company staff and a sub-contractor.  Lee Yat Wah also made payments directly to the staff of the Company’s four sub-contractors.  In paragraph 2(d)(5), he stated as follows:

“The direct payments were made as a result of a request which I made by letter dated 15th December 2004 setting out the arrears of salaries up to the month of November 2004.  The motive was not to impede the construction work and payment to employees.  The ultimate decision is by [SFK].  A true copy of my written request is now produced and shown to me marked “E-1”.  I shall not make any similar request in the future.  I wish to apologise to all concerned.”

31.  The request in Chinese exhibited as “E-1” is important, a certified translation of this reads as follows:

“Re:   Arrangements regarding the wages in arrears of the
         employees of the Company for November               

         As the legal action involving our Company needs time to resolve, in order to ensure that the progress of your company’s project would not be delayed and to avoid further delay of the payment of wages to the employees, our Company encloses herewith the record of wages in arrears for the month of November so that your company can make appropriate arrangements.”

The record enclosed to this letter was headed “Wages and MPF payments – November” and listed the names of the persons to be paid and the amount due to each.

32.  In paragraph 3 of the 1^st respondent’s said affirmation he stated as follows:

“Up to the date hereof, [SFK] has only issued Sub-contractor’s Payment certificate, payment no. 14 for $1,287,842.86.  Payment has not been received. Upon receipt, the cheque will be paid into the Company’s account.”

It is clear from the bank statements of the Company Bank Accounts provided by the respondents to the petitioner that no part of the amount in payment no. 14 being HK$1,287,842.86 has been paid into any of the Company Bank Accounts, contrary to what the 1^st respondent said in his 5^th affirmation.

33.  In the 3^rd affirmation of the 2^nd respondent, she confirmed the contents of the 1^st respondent’s 5^th affirmation as correct.  In paragraph 3, she stated as follows:

“I undertake to pay all monies receivable by the Company into the Company’s bank account and refrain from requesting direct payments to be made by any party who needs to pay the Company.”

The 2^nd respondent has not kept the undertaking she gave above insofar as payment no. 14 is concerned.

34.  The last application for validation order was issued by a consent summons on 25 January 2005, and an order was made on 1 February 2005.  Apart from the bank statements of the Company Bank Accounts made available to the petitioner, the petitioner adduced other documents showing that payments were still made by SFK directly to sub-contractors and employees of the Company in February 2005, despite the promise and undertaking in the affirmations of the 1^st and 2^nd respondents in January 2005.  There were cheques issued by Fung Gean Lin and Lee Yat Wah on behalf of SFK to sub-contractors and employees of the Company and receipts signed by these sub-contractors and employees.

35.  Ms Phoebe Man for the petitioner has prepared a helpful schedule setting out the “amount due” in the monthly payment certificates issued by SFK and the “amount deposited” by SFK into the Company Bank Accounts for each month as ascertained from the bank statements supplied by the respondents to the petitioner.  Except for the month of September 2004, these two amounts for each month from October 2004 to July 2005 do not match, clearly showing that SFK has not paid the whole of the “amount due” to the Company directly into the Company Bank Accounts for this entire period.  There is no application for any validation order since the last application on 25 January 2005 up to the hearing of the committal for contempt before me on 28 September 2005.

Grounds for committing the respondents for contempt

36.  On the basis of the above facts, the petitioner seeks to commit the 1^st and 2^nd respondents for contempt for failing to comply with the Undertakings in that:

(1)     they have failed to pay the income of and payments made to the Company into any of the Company Bank Accounts;

(2)     they have procured the breach of the Undertakings by asking SFK to pay the income originally due to the Company directly to sub-contractors and employees, instead of paying such income into the Company Bank Accounts; and

(3)     they have failed to provide certain monthly bank statements to the petitioner.

37.  There is no need to deal with the ground in (3) in any detail.  I find the allegation in ground (3) established.  The 1^st and 2^nd respondents have supplied further bank statements to the petitioner on 20 June 2005 and on 2 July 2005.  These missing bank statements were only supplied after the papers to commit for contempt were served on the respondents.

If service of the Order dated 18 August 2004 endorsed with a penal notice should be dispensed with

38.  The petitioner has not effected personal service on either the 1^st or 2^ndrespondents of the Order dated 18 August 2004 containing the Undertakings endorsed with a penal notice.  The petitioner seeks leave under Order 45 rule 7(7) of the Rules of the High Court to dispense with this.  Under this provision, the court may dispense with service required under Order 45 rule 7(2) if it thinks it just to do so.

39.  Before dispensing with the requirement of service and also the penal notice, the court would have to be satisfied “beyond reasonable doubt” that the alleged contemnor knew the terms of the orders relied on, that he was well aware of the consequences of disobedience, and that he was aware of the grounds relied on as a breach with sufficient particularity to be able to answer the charge (Benson v Richards [2002] EWCA Civ 1402, paragraphs [29] and [41], per Carnwath LJ; see also Citybase Property Management Ltd v Kam Kyun Tak (No. 1) [2003] 2 HKC 98, paragraphs 14(1) and (2), per Ma J; and Hong Kong Civil Procedure 2004, Volume 1, paragraph 52/2/9).

40.  In the 1^st affirmation of the clerk of the petitioner’s solicitors, he set out the attempts made in March, April and May 2005 to effect personal service on the 1^st and 2^nd respondents at the office of the Company, at the work site, and at the residential address, a copy of the 18 August 2004 Order endorsed with a penal notice. He notified the solicitors acting for the respondents of his intention to effect service on them of this document.  The solicitors for the respondents declined to arrange for personal service and said that the petitioner’s solicitors should contact the respondents directly.  Later, the respondents’ solicitors gave a telephone number to the petitioner’s solicitors at which the respondents’ residential address could be found out.  Nobody had answered the telephone on all the occasions that the clerk to the petitioner’s solicitors called.  The attempts at personal service were all unsuccessful.

41.  I have no difficulty in finding that the 1^st and 2^nd respondents must have knowledge of the terms of the Undertakings, as they themselves had given the Undertakings to the court.  Further, it must have been apparent to them from the various applications for a validation order and the petitioner’s allegation during October 2004 to January 2005 that they were in breach of the Undertakings that the respondents must have knowledge of the terms.  For the purpose of being satisfied that they had knowledge of the terms of the Undertakings, it is not necessary that personal service of the order containing the Undertakings should be effected on them.

42.  Next, I consider whether the 1^st and 2^nd respondents had knowledge of the consequence of breach of the Undertakings.  If the court is not satisfied they had such knowledge, as said by Ma J in Citybase, “it would be an extremely rare exercise of discretion under Order 45 rule 7(6) for the court to dispense with this requirement”.  If it is established that the respondents had been warned of the consequence of breach, as in Bell v Tuohy [2002] 1 WLR 2705, it is not necessary that the order endorsed with a penal notice should be served and the court may dispense with service.

43.  In the statement served under Order 52 rule 2(2), from paragraph 41 onwards, the petitioner complained of “continual” non-compliance and procurement of breach of the Undertakings.  Paragraph 45 alleged that direct payments are still being made by SFK on a monthly basis and the respondents have failed to comply with and are in breach of the Undertakings.  The papers were served on the respondents personally on 10 June 2005.  By then, they must have knowledge of the consequence of breaching the Undertakings.

44.  In the letter of the petitioner’s solicitors to the respondents’ solicitors dated 22 June 2005, the petitioner asked the respondents to confirm if the Company has been incurring usual business expenses since 1 February 2005, as the respondents have not applied for a validation order since then.  In the reply of the respondents’ solicitors dated 2 July 2005, it was stated that the 1^st respondent had not procured breach of the Undertakings by asking SFK to pay the income originally due to the Company directly instead of paying such income into one of the Company Bank Accounts.

45.  In the letter of the petitioner’s solicitors to the respondents’ solicitors dated 7 July 2005, the petitioner asked to whom the direct payment was made.  In a further letter of the petitioner’s solicitors to the respondents’ solicitors dated 13 July 2005, it was stated that the petitioner was informed that payment of employees and sub-contractors for May and June 2005 would be effected on 19 July 2005.  The petitioner demanded the respondents to ask SFK immediately to stop direct payment to employees and sub-contractors of the Company.

46.  In the petitioner’s affirmation on 2 August 2005, he deposed that payments are still being diverted and paid directly to employees and sub-contractors.  He produced cheques dated 11 May 2005 and 18 July 2005, and the acknowledgement of receipt by respective employees of one of the sub-contractors.  It is quite clear that on the evidence, despite a warning of the consequence of breach of the Undertakings, the acts complained of were still continuing in July 2005.

47.  I consider it just in these circumstances to dispense with personal service of the Order dated 18 August 2004 with a penal notice endorsed.

If failure to disclose all material facts in the application for leave to commence contempt proceedings

48.  In the petitioner’s application made ex parte for leave to issue proceedings for contempt, the petitioner did not exhibit or mention in his statement under Order 52 rule 2(2) or in the supporting affirmation the letter of his solicitors to SFK dated 15 November 2004 and the latter’s reply dated 19 November 2004.

49.  The need to make full and frank disclosure in an ex parte application is not in dispute.  Leave granted may be set aside by the alleged contemnor on the ground of failure to make full and frank disclosure (see Hong Kong Civil Procedure 2004, paragraph 52/2/4).

50.  Pursuant to the directions I gave on 8 August 2005, the petitioner made his 11^th affirmation to explain why the said letters were not mentioned or exhibited.  It is pertinent to note that these letters were mentioned and exhibited to the petitioner’s 7^th affirmation, filed in opposition to one of the respondents’ applications for validation order, although this affirmation was not referred to or exhibited in the papers filed in support of the ex parte application.

51.  The petitioner gave two reasons why the letters were not mentioned.

52.  Firstly, the significance of these letters was not appreciated at the time of the application in May 2005.  The 1^st respondent had accepted and acknowledged in his affirmation in January 2005 that the direct payments made by SFK to the sub-contractors of the Company on 27 December 2004 were “as a result” of the request made by him to SFK by letter dated 15 December 2004.  It was only in the letter of the respondents’ solicitors to the petitioner’s solicitors dated 2 July 2005 that it was contended for the first time the 1^strespondent had not procured a breach of the Undertakings by asking SFK to make direct payments.  Even then, the respondents’ solicitors did not further explain their contention, despite the request of the petitioner’s solicitors for clarification.  It was when the skeleton submission of the respondents’ counsel was served on 6 August 2005 that it became apparent the respondents would dispute the fact that the direct payments made by SFK were caused by them, contrary to the 1^st respondent’s earlier admission.  The petitioner just had no reason to think, at the time of the ex parte application, that it would be a matter in issue that the respondents had caused direct payments to be made by SFK.

53.  Secondly, in the light of further evidence and documents that had become available in May 2005, the petitioner took the view that the correspondence in November 2004 was overtaken by subsequent events and had “paled in significance”.  Other evidence became available of the direct payments made since November 2004.  There was a further request by the 1^strespondent to SFK to make “appropriate arrangements” on 15 December 2004.

54.  The omission to mention the correspondence in November  2004 must be looked at in context and with regard to what was known to the petitioner and his legal advisers at the time the ex parte application was made in May 2005.  I accept the explanation given by the petitioner on affirmation and in his oral evidence.  I do not think the petitioner had presented his case for committal in an unfair way in the papers filed in the ex parte application, or that the petitioner had omitted to mention to the court, in the light of what was known to him at the time, a line of defence that had been raised by the respondents or could reasonably be anticipated would be raised by them.  I do not think the allegation of failure to disclose material facts in an ex parte application has been made out.

If the grounds of contempt are proved

55.  I find the primary facts proved regarding the grounds for contempt in grounds (1) and (2). 

56.  This is a civil contempt, the standard of proof is beyond reasonable doubt.  I need to find the act claimed to constitute contempt is established and that disobedience of the Undertakings on the part of each respondent was wilful or deliberate, in the sense that they knew the facts which made their act or omission a contempt and that their act or omission was not accidental.  There is no requirement to show that the alleged contemnor had intended to disobey the order (Citybase, supra, at paragraph 17(2)).

57.  I find the respondents knew the terms of the Undertakings.  I find that they knew of the facts which are said to make their acts a contempt, i.e. the direct payments made by SFK to the Company’s sub-contractors and employees.  They have admitted to this in the 5^th affirmation of the 1^st respondent and the 3^rd affirmation of the 2^nd respondent, both filed on 14 January 2005.  There are also the requests in writing made by the 1^st respondent to SFK dated 14 October 2004 and 15 December 2004.  The evidence is compelling.  The acts of the respondents were deliberate and intentional.

58.  Whatever motive the petitioner might have in bringing this application, whether to pursue a personal vendetta against the respondents as suggested by their counsel, is not relevant.

59.  Two grounds of defence were raised by the respondents.

60.  Firstly, it is said that an application to commit for contempt should not be made as this should be a remedy of last resort.  It was suggested that the petitioner should have applied for an injunction against the respondents.  I have set out the history in some detail.  I do not agree with this submission.

61.  Secondly, it was submitted that the respondents had not procured a breach of the Undertakings, notwithstanding that requests were made to SFK for direct payment.  It was SFK’s decision whether to comply with the requests.  The respondents claimed they were not in a position to influence the decision making process of SFK.  They pointed to the reply of SFK to the petitioner’s solicitors dated 19 November 2004.  It would appear from SFK’s reply that SFK had reasons for making direct payment, notwithstanding it was told by the petitioner’s solicitors that that would be in breach of the Undertakings.  SFK had mentioned its contractual obligations to the employer and its statutory obligation as principal contractor to discharge unpaid wages of workers working in the project.

62.  I also reject this contention.

63.  The evidence before me is that before September 2004, SFK had issued cheques to the Company for the amounts certified in the payment certificates and it was for the Company to pay its workers and sub-contractors.  SFK had only changed this practice and made direct payments after a request was made by the 1^st respondent to SFK on 14 October 2004.  That had started it all.

64.  As admitted by SFK in its letter to the petitioner’s solicitors dated 19 November 2004, of the interim payment due to the Company on 21 October 2004 of HK$1,416,850.39, HK$1,077,483.33 was used by SFK to pay unpaid wages of the Company’s workers in September 2004.  The balance of HK$339,367.06 was paid into one of the Company Bank Accounts on 6 November 2004.  That had all happened before SFK received the letter of the petitioner’s solicitors dated 15 November 2004 informing it that by making a request for direct payment, the 1^st respondent had procured a breach of the Undertakings.

65.  After SFK had received the letter of the petitioner’s solicitors in November 2004, it made the response on 19 November, which was copied to the 1^st respondent, stating that it would not discount the possibility it might make direct payments to workers in future.  This was followed by another request of the Company on 15 December 2004 to make “appropriate arrangements”, with an enclosed record giving particulars of all outstanding wages in November 2004, setting out the names of the individuals, and the amount owing to each.  This could only be done with the purpose to facilitate direct payment by SFK to these individuals, and direct payments were in fact made on 27 December 2004, as admitted in the 5^th affirmation of the 1^st respondent filed in January 2005.  This request by the 1^st respondent for direct payment had clearly played a part in SFK’s decision to do so.  It is not necessary that the request was the sole reason for SFK to act.

66.  As admitted by the 1^st respondent in his 5^th affirmation, the direct payments were made “as a result” of his request by letter dated 15 December 2004.  The 2^ndrespondent in her affirmation in January 2005 confirmed the 1^st respondent’s said affirmation, she had knowledge of what he did.

67.  Last but not least, there was no attempt on the part of the 1^st or 2^nd respondent to stop SFK from making direct payments, despite what they had said in their affirmations filed in January 2005.  A simple letter to SFK would suffice.  I reject the 1^st respondent’s evidence that the idea of writing such a simple letter to SFK had never occurred to him.  The 1^st respondent is not a satisfactory witness.  I do not think he has told the court the whole truth.

68.  There is no evidence if any further requests were made by the respondents to SFK for direct payment after January 2005 or whether they had supplied any wage records to SFK to facilitate direct payment.  But I find they knew SFK had continued to make direct payments from February 2005 onwards up to at least early August 2005, as only part of the amount due to the Company on the payment certificates was paid into the Company Bank Accounts.  The respondents must have known that the shortfall not paid into the Company Bank Accounts had been used by SFK to pay workers of the Company and of the sub-contractors.  I find the 1^st respondent was being evasive when he failed to give a clear answer when he first became aware of this.  The respondents were simply content to let the direct payments continue.

69.  The 1^st respondent has explained why he was “pleased” when SFK told him it would make direct payments.  He mentioned there was “lengthy” delay before the bank would release money even after a validation order was made.  Further, costs were incurred by the Company in applying for validation order as the application was always opposed by the petitioner. 

70.  I do not think these are valid reasons to excuse the respondents’ behaviour.  The alleged lengthy delay between the date of release of funds by the banks and the date of the validation order was not made out, as in most instances, the time taken was only one to two days after the order was made at a hearing or by consent, the longest instance taken for payment was 7 days for the validation order in January 2005.  If the respondents and their solicitors had acted promptly in applying to court for validation order in each instance, I see no reason to think that the Company would have placed SFK under any liability to discharge the wages of unpaid workers under Cap. 57.  The costs factor in an application for validation order is not a relevant consideration.  The respondents have no right to take matters into their own hands and ignore the Undertakings.

71.  I find the contempt proved, to the requisite standard of beyond reasonable doubt, both as to the acts and the requisite mental element, of the grounds for contempt in grounds (1) and (2).

The aftermath

72.  To discharge an undertaking to the court given by their counsel on 8 August 2005, the respondents through their solicitors have written to SFK on 18 August 2005.  This letter was received by SFK on 19 August 2005.  There is no reason why it took the solicitors more than a week to write a simple letter.  There is evidence that one direct payment was made by SFK between 8 and 19 August 2005.

73.  In the letter of their solicitors, the respondents drew attention to the fact of the proceedings to commit them for contempt on the ground that they have asked SFK to pay income directly to others instead of paying into the Company Bank Accounts.  They made a request to SFK to stop making direct payments to employees of the Company and that all future payments receivable by the Company should be paid by cheque to the Company so that the same would be paid into the Company Bank Accounts.

74.  The petitioner has made inquiries with one of the sub-contractors of the Company and learnt that SFK had stopped direct payments after receiving the letter of the respondents’ solicitors dated 18 August 2005.  But the petitioner has not yet received bank statements of the Company for September 2005 and does not know if the whole of the income of the Company has been deposited into any of the Company Bank Accounts.  The 1^st respondent gave evidence that he has no knowledge if SFK has indeed stopped direct payments, as the accounting period is still going on and SFK has not yet worked out the figure for payment.

75.  The respondents’ solicitors have written to the petitioner’s solicitors on 29 August 2005 enclosing a bundle of documents asking “which of the several items of liabilities [the petitioner] will agree to be validated”.  The documents sent are 63 pages in all, and they are in an untidy mess.  No explanation was given which of the amounts appearing in the documents are sought to be validated.  The petitioner says he is unable to verify if all the sums are due and payable and is unable to consent to a validation order.  I do not know if any application has been issued by the Company or the respondents as yet.  If the respondents are seeking the petitioner’s consent to payment, it behoves the respondents’ solicitors to make their request in a proper manner.  However, it seems that the respondents have at least made a step in the right direction to comply with their continuing obligation in the Undertakings.

76.  I will take the above matters into account in deciding on the appropriate penalty to be imposed on the respondents.  I will now hear counsel on mitigation.

[after hearing submissions on mitigation]

77.  I take into account the belated efforts of the respondents to purge their contempt. They have supplied the missing bank statements on 20 June 2005 and 2 July 2005.  They have written to SFK on 18 August 2005 with a request to stop direct payments and to make payments in future by cheques payable to the Company.  They have also instructed their solicitors to write to the petitioner’s solicitors on 29 August 2005 seeking the petitioner’s consent to validate certain payments that should be made by the Company.

78.  I also take into account the personal circumstances of the 1^st and 2^nd respondents.  Their sole income is derived from the Company which is in operation and is solvent.  They have no interest in any other company.  Justice will be served in this instance by imposing a fine on them in lieu of committal to prison.

79.  The 1^st respondent will be fined HK$10,000.00.  The 2^nd respondent who would appear to have a lesser role will be fined HK$5,000.00.  I order that the payments are to be made within seven days hereof.  I also order the respondents to pay the petitioner’s costs of this application on an indemnity basis, to be taxed if not agreed.