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A A

B HCMP 1574/2016 B
[2018] HKCFI 444
C C
IN THE HIGH COURT OF THE
D HONG KONG SPECIAL ADMINISTRATIVE REGION D

COURT OF FIRST INSTANCE


E E
MISCELLANEOUS PROCEEDINGS NO 1574 OF 2016
F ____________ F

G BETWEEN G

CHINA SHANSHUI CEMENT GROUP


H H
LIMITED (中國山水水泥集團有限公司) 1st Plaintiff
I CHINA SHANSHUI CEMENT GROUP I
(HONG KONG) COMPANY LIMITED
J
(中國山水水泥集團(香港)有限公司) 2nd Plaintiff J
CHINA PIONEER CEMENT (HONG KONG)
K COMPANY LIMITED 3rd Plaintiff K

L
and L

ZHANG CAIKUI (張才奎) 1st Defendant


M M
nd
ZHANG BIN (張斌) 2 Defendant
N ____________ N

O O
Before: Hon Au-Yeung J in Court
P Dates of Hearing: 28-29 September and 15 November 2017 P

Date of Judgment: 28 February 2018 Q


Q

R _______________ R

JUDGMENT
S S
_______________
T T

U U

V V
-2-
A A

B A. INTRODUCTION B

1. This is the trial of:


C C

(a) The Originating Summons taken out by the Plaintiffs seeking


D D
to commit the Defendants (“the Zhangs”) for contempt for
E failing to obey court orders for delivery over and disclosure E

of the Plaintiffs’ Records, and orders relating to a subsidiary


F F
called Shandong Cement; and
G G
(b) A summons issued by the Zhangs to set aside the order

H granting leave to issue committal proceedings or to strike-out H


these contempt proceedings on the ground of material non-
I I
disclosure (“the Set-Aside Summons”).
J J

2. The Set-Aside Summons was heard but dismissed on the first


K K
day of trial with reasons reserved.
L L

B. THE FACTS
M M

3. The underlying action is HCA 2880/2015 (“the Action”) The


N N
Plaintiffs are the plaintiffs in the Action, wherein the Zhangs are also the
O 1st and 2nd Defendants. O

P P
4. The Plaintiffs are companies within a group of companies (the
Q “Group”) wherein: Q

(1) P1 is the parent company, whose shares are listed for trading
R R
on the Stock Exchange of Hong Kong Limited (“SEHK”);
S S
(2) P2 is a wholly owned direct subsidiary of P1;
T T
(3) P3 is a wholly owned direct subsidiary of P2; and

U U

V V
-3-
A A

B (4) P3 is the sole shareholder of Shandong Shanshui Cement B

Group Company Limited (“Shandong Cement”), a PRC


C C
company which holds the vast majority of the Group’s assets,
D employs most of the Group’s staff and is responsible for about D

99% of the Group’s revenues.


E E

F 5. Two court orders were said to have been breached, one made F

by Lok J on 24 December 2015 (“the December Injunction Order”) and


G G
another by Au-Yeung J on 8 January 2016 (“the January Injunction
H Order”) (collectively, “the 2 Orders”). H

I I
6. Each of the 2 Orders was endorsed with a penal notice and
J was indisputably served on the Zhangs by service upon Deacons, on J

K
15 February 2016, pursuant to DHCJ M Ng’s order dated 12 February K
2016.
L L

M
7. The relevant terms of the 2 Orders all concerned the Plaintiffs’ M
Records and Articles of Association of Shandong Cement (“the AA”).
N N
Those terms and the deadlines for compliance are summarized as follows:

O Table A O

P Deadline for P
compliance
December Injunction Order counting from
Q Q
Item [relevant paragraph in the order] 15.2.2016
1. Each of the Zhangs was restrained from concealing
R R
from Ps or destroying or tampering with Ps’ Records,
including those listed in Schedule 2 [§A(2)(a) and
S S
Schedule 2] (“Preservation Order”)

T T

U U

V V
-4-
A A

B 2. Each of the Zhangs was to forthwith deliver over to Forthwith B


Ps’ solicitors any of Ps’ Records or copies thereof
C which were in their possession, custody or control C
[§A(2)(b)] (“Delivery Over Order”)

D 3. Each of the Zhangs must: D


(a) within 7 days of service, answer in writing the (a) 22 February
E 5 questions concerning the whereabouts of Ps’ 2016 E
Records [§H(15)] (“Plaintiffs’ Records
Disclosure Order”); and
F F
(b) within 7 days thereafter, provide an affirmation (b) 29 February
confirming those answers [§H(16)] (“Plaintiffs’ 2016
G G
Records Confirmation Order”)

H January Injunction Order of Au-Yeung J Deadline for H


dated 8 January 2016 Compliance
I 4. Relevant portions of the December Injunction Order I
quoted above shall be continued until trial or further
J order [§1] J

5. Each of the Zhangs must within 14 days of this Order 22 January 2016
K K
make additional disclosure concerning Ps’ Records
and to provide a confirmatory affirmation, plus
L forthwith to deliver over Ps’ Records to Ps’ solicitors Forthwith L
[A/6/70:§2] (“Plaintiffs’ Records Further Order”)
M M
6. Each of the Zhangs was restrained from acting upon Forthwith
or exercising any power or entitlement pursuant to
N their 14 October 2015 amendments to the Articles of N

Association of Shandong Cement (“unlawful AA")


O and from misapplying any assets of Shandong O
Cement or any of its subsidiaries [§3a] (“Shandong
P Cement Injunction”) P

7. Each of the Zhangs must, within 21 days of service, 7 March 2016


Q execute the court-approved corrective amendments to Q
Shandong Cement’s Articles of Association (the
R “Corrective Amendments”) [§3b]. Au-Yeung J R
approved the Corrective Amendments on 13 January
S 2016 (“Corrective Amendments Injunction”) S

T T

U U

V V
-5-
A A

B 8. None of these orders in Table A have been complied with by B

the deadlines, so the Plaintiffs sought to commit the Zhangs for contempt.
C C
I shall refer to each item as a Charge.
D D

9. On 14 June 2016, this court granted leave on paper on ex parte


E E
basis to the Plaintiffs to commence committal proceedings (“the Leave
F Order”). On 21 June 2016, the Plaintiffs issued the Originating F

Summons for committal for contempt.


G G

H 10. The Zhangs issued the Set-Aside Summons on 20 December H

2016 to set aside the Leave Order. The grounds could be summarized as
I I
(i) misstatement in Mr Yen’s affidavit; (ii) non-disclosure of recovery of
J most of the Plaintiffs’ Records before service of the 2 Orders on the Zhangs; J

K
and (iii) non-disclosure of the fact that documents were not in the Zhangs’ K
possession but that of the Mayor and Deputy Mayor of Jinan.
L L

M
11. Mr Hollander submitted that those were material non- M
disclosures in relation to an Interlocutory Proprietary Injunction and orders
N N
giving rise to Charges 1-5, all concerning the Plaintiffs’ Records (“the PR

O Orders”)1. There were other allegations in relation to Charges 6 and 7 O


which the Zhangs had eventually not pursued.
P P

Q 12. I will first give reasons for dismissal of the Set-Aside Q

Summons in Sections C-H and then deal with the Originating Summons
R R
from Section I onwards.
S S

T 1
These orders that the Zhangs referred to also concerned assets of the Plaintiffs, the Charges for which T
were subsequently dropped by the Plaintiffs. That did not affect my decision on the Set-Aside
Summons.
U U

V V
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A A

B C. LEGAL PRINCIPLES FOR SETTING ASIDE AN EX PARTE ORDER B

13. When applying for an ex parte order, the duty is on the


C C
applicant to make full and frank disclosure to the court of all relevant facts
D D
which he knows. Failure to do so may in itself be a ground for setting aside

E
such an order. Hong Kong Civil Procedure 2018, §§32/6/13 and 52/2/4. E

F F
14. The duty to make full and frank disclosure continues where

G
material information only comes to light after leave was granted but before G
hearing of the substantive proceedings: Hong Kong Civil Procedure 2018,
H H
§52/2/4 and RACP Pharmaceutical Holdings Ltd v Li Xiaobo anor,

I HCA 490/07, 14 April 2008, at §5. I

J J
15. In deciding whether to set aside an ex parte order on the
K ground of material non-disclosure, the court adopts a four-limb test: K

L (a) Was there non-disclosure of facts? L

(b) Were the facts not disclosed material?


M M

(c) Was the non-disclosure innocent?


N N
(d) If there was material non-disclosure, should the court
O O
nevertheless exercise its discretion not to discharge the

P
ex parte order? P

Hong Kong Civil Procedure 2018, §32/6/13.


Q Q

R 16. In the context of contempt proceedings, unless the alleged R

contemnor can point to any prejudice suffered, the court will not set aside
S S
leave already granted on mere technicalities if that course might be
T contrary to the interest of justice. Kao, Lee & Yip, at §§71-73. T

U U

V V
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A A

B 17. The question to be asked is not whether there was material B

non-disclosure per se but, rather, whether the plaintiff’s statement provided


C C
sufficient information to enable the defendant to understand and to meet
D the charge and whether the defendant was left in doubt as to the contempt D

charge that he was facing: Secretary for Justice v Choy Bing Wing,
E E
CACV 11/2004, 3 December 2004, Yeung JA, at §65.
F F

18. Facts are material if they are relevant to the weighing


G G
operation which the court has to make in deciding whether or not to grant
H leave: Secretary for Justice v Choy Bing Wing, §48. H

I I
19. In the case of deliberate misstatement or non-disclosure, the
J discretion not to set aside the ex parte order should rarely be exercised. J

K
Even for non-deliberate non-disclosure, the discretion should be exercised K
with great caution. Hong Kong Civil Procedure 2018, §32/6/13; Kan Hung
L L
Cheung v The Director of Immigration, HCAL 74/2007, 13 February 2008,

M
§18, A Cheung J (as he then was). M

N N
D. WAS THERE NON-DISCLOSURE OF FACTS RELATING TO THE
O
PR ORDERS? O

20. Back in 2015 when the Plaintiffs sought the injunction orders,
P P
they were most concerned with the loss of their accounting records and
Q suggested that it was difficult for the Plaintiffs to continue to carry on Q

business without the accounting records.


R R

S S

T T

U U

V V
-8-
A A

B 21. In §8 of Yen-5th 2 filed on 31 May 2016 in the Action (“§8 of B

Yen-5th”) in support of the leave application, Mr Yen deposed to this,


C C

“Thus, it seems clear that since late November 2015, the


D Plaintiffs’ Records have all been under the custody, possession D
or control of the 1st and 2nd Defendants on the Mainland.”
(emphasis added)
E E

F 22. Both Mr Yen and Mr Liu (who have filed affirmations on F

behalf of the Plaintiffs) confirmed that none of the Zhangs had returned
G G
any of the property or the Plaintiffs’ Records to the Plaintiffs.
H H

23. In fact, things had moved on since November 2015. On


I I
30 January 2016, two weeks before the PR Orders were deemed to have
J been served on the Zhangs, the Plaintiffs had recovered a lot of their J

records after they had regained control of Shandong Cement’s


K K
headquarters in Jinan (“Jinan HQ” and the event “1/16 Seizure”). On
L a literal interpretation, §8 of Yen-5th was a misstatement. L

M M
24. Although there was disclosure of the 1/16 Seizure, only chops
N (except the Shandong Cement chop) and licenses were mentioned. There N

was non-disclosure to the court of recovery of the Plaintiffs’ Records.


O O

P 25. According to P1’s own Announcement dated 31/1/16, P1 was P

“taking stock of the books, other important documents and fixed assets of
Q Q
Shandong Shanshui in its headquarters. The Company will make further
R announcement(s) with updates on the progress of the takeover when R

appropriate”. To date, no such update has been published.


S S

T T
2
This is to denote the deponent and the rank of his affidavit.
U U

V V
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A A

B 26. The Plaintiffs’ Records were broadly of 5 categories – B

C
a. Accounting records; C
b. Corporate records;
D D
c. Bank records;

E d. Employment records; and E

e. Correspondence with lawyers and regulators.


F F

G 27. In respect of accounting records, Mr Yen did not dispute that: G

(1) the Group’s accounting function has always been centralized in the
H H
Group’s Finance Department based in the Jinan HQ; (2) the Plaintiffs were
I investment holding companies with no day-to-day business or operations; I

(3) their accounting records were minimal and maintained on the Group’s
J J
computerized accounting system; and (4) there were 2 handover lists dated
K 2/2/16 evidencing the return of numerous accounting and banking K

documents by Mr James Li of the Group Finance Department to 2 persons


L L
called Li Hengwen and Mr Yao Tianjun (“Li & Yao”).
M M

28. Mr Hollander pointed out that tellingly, 2 months after the


N N
1/16 Seizure, the Plaintiffs were able to present the Group’s (including the
O Plaintiffs’) consolidated financial statements for the year ending 31 March O

2016. The limited qualification was that the New Board was unable to
P P
provide written representations that the Group’s accounts records were
Q properly maintained, not that any significant part of these records were Q

missing. See p65 of P1’s 2015 Annual Report prepared by KPMG (the
R R
independent auditor).
S S

29. As for corporate records, those for P2 and P3’s were kept by
T T
Prominent in Hong Kong whilst those for P1 was kept by Maples in the
U U

V V
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A A

B Cayman Islands and Prominent in Hong Kong. Further, other records like B

Plaintiffs’ directors’ meetings information, annual returns, tax returns were


C C
recovered following the 1/16 Seizure. Mr Yen tacitly admitted to these,
D save that the contents of the 2 handover lists were disorganised (Yen-1st). D

E E
30. As for bank records, Yen-1st admitted that they were kept in
F the Jinan HQ but only part was recovered. F

G G
31. As for employment records, Yen-1st admitted that the
H Plaintiffs had recovered the service contracts between P1, but not P2 and/or H

P3 and its directors. However, P2 and P3 were paper companies.


I I

J 32. As for correspondence with lawyers and regulators, it was J

James Li’s evidence that those documents were kept in Jinan HQ with
K K
copies kept by the Plaintiffs’ lawyers in Hong Kong. Yen did not challenge
L L
such evidence.

M M
33. Yen took only limited issue with the details in James Li’s
N N
affirmation.

O O
34. The fact that the Plaintiffs had recovered a lot of their records
P P
covered by the PR Orders after the 1/16 Seizure was borne out by the

Q Plaintiffs’ own list of documents dated 20/1/17 in the Action. Q

R R
35. Further, in HCA 562/2016 commenced in March 2016, P3 and
S Shandong Cement sued the Mayors and Deputy Majors of Jinan for S

conspiracy with the Zhangs in forming a government working group “in


T T
order to take control of the [Group’s] property, assets, businesses and staff
U U

V V
- 11 -
A A

B held through Shandong Cement”. They sought a mandatory injunction to B

require the 2 Mayors to deliver up “[P3’s] property, including but not


C C
limited to the company chops, books and records to [P3] in Hong Kong”.
D D

36. Hence, Mr Hollander submitted that there was non-disclosure


E E
of P3’s own pleaded case that its property, including its records, were in
F the possession, custody or control of the 2 Mayors, not the Zhangs. F

G G

E. WAS THE NON-DISCLOSURE MATERIAL?


H H
37. Mr Barlow SC submitted that the grounds of the Zhangs’
I application consisted of vague allegations of material non-disclosure. The I

Zhangs had not identified what, if any, prejudice they had suffered as
J J
a result of the alleged material non-disclosure. Nor had they demonstrated
K that they misunderstood or were not provided with sufficient information K

as to the charges they had to face.


L L

M 38. I disagree. The analyses of Mr Hollander were succinct and M

supported by reasons. The need to recover the Plaintiffs’ Records was at


N N
the core of the Plaintiffs’ application for injunction and disclosure. If the
O O
Plaintiffs had recovered all or virtually all of the Plaintiffs’ Records, the

P
Plaintiffs might not be able to prove that the Zhangs were in possession, P
custody or power of the Plaintiffs’ Records and hence contempt
Q Q
proceedings might be unnecessary. Insistence on its pursuit when it was

R
not essential to do so was itself a prejudice. The fact that the Charges were R
properly framed on their face and the Zhangs understood them would not
S S
undermine that prejudice.

T T

U U

V V
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A A

B 39. In my view, the misstatement and the non-disclosure of B

recovery were material to the court’s weighing exercise as to whether or


C C
not to grant leave: Secretary for Justice v. Choy Bing Wing, above; and
D China Shanshui Cement Group Ltd & ors v Zhang Caikui & ors, D

HCA 2880/2015, 18 July 2017, at §§33-39, 47(2) and 53(1). The Plaintiffs
E E
should have at least informed the court of the volume of documents
F recovered, however incomplete it appeared to them. If they were unable F

to say that it was complete or not, say so, with reasons.


G G

H 40. As to non-disclosure of the Plaintiffs’ own pleaded case in H

HCA 562/2016, the endorsement of claim alleged conspiracy with the


I I
th
Zhangs. Yen-5 deposed to the fact that the Plaintiffs bitterly fought the
J Plaintiffs, along the way recruiting the assistance of a diverse range of J

K
supporters, including the Mayor and Deputy Mayor of Jinan, various triads K
or street thugs and (at times) confused employees of the Group.
L L
Throughout that time, each of the Zhangs has held himself out as being

M
a director of Shandong Cement and as the persons who were entitled to M
manage Shandong Cement and its subsidiaries. If conspiracy was
N N
established, the Zhangs could hardly deny that the Mayors’ possession of

O the Plaintiffs’ Records was not also the Zhangs’. In any case, that action O
was discontinued on 25 July 2016. I do not find this head of non-disclosure
P P
to be material.
Q Q

F. WAS THE MISSTATEMENT OR NON-DISCLOSURES INNOCENT?


R R
th
41. With regard to the misstatement, §8 of Yen-5 must be read
S S
in context. The PR Orders were against D1-D5 in the Action. In §§6 and
T 7 of Yen-5th, Mr Yen was explaining that James Li (D3 in the Action) had T

handed over the Plaintiffs’ Records to the agents of the Zhangs; D4 and D5
U U

V V
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A A

B deposed to having no control over the Plaintiffs’ Records that were in the B

Hong Kong Office. In that context, §8 was really saying that since late
C C
November 2015 (just before the New Board took over), the Plaintiffs’
D Records have all been under the custody, possession or control of the D

Zhangs (D1 and D2), ie not in that of D3-D5. I do not regard that as
E E
a deliberate attempt to mislead the court in any way.
F F

42. The subject matter of the first set of non-disclosure was within
G G
the knowledge of the Plaintiffs. At the time the receivers took over, the
H Hong Kong Office was stripped of records including a data server. Till H

now the data server has not been recovered. As §12(b) of Yen-3rd stated,
I I
it was impossible for the Plaintiffs to make any quantitative assessment of
J just how much or how little of the Plaintiffs’ Records had been recovered J

K
without the assistance of the Zhangs. K

L L
43. Mr Yen’s affidavits were to demonstrate that the Zhangs all

M
along resisted rather than assisted recovery. It was through a convoluted M
channel that the Plaintiffs were able to recover their own records.
N N

O 44. The Plaintiffs did not hide the 1/16 Seizure from the public O
shareholders. I do not think they wanted to gain anything from hiding the
P P
recovery of records from the court.
Q Q

45. In my view, the non-disclosure was innocent rather than


R R
deliberate.
S S

T T

U U

V V
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A A

B G. SHOULD THE COURT NEVERTHELESS EXERCISE ITS B


DISCRETION NOT TO DISCHARGE THE EX PARTE ORDER?
C C
46. Even if there was any material non-disclosure, the court may
D still re-grant leave: Pacific Electric Wire & Cable Co Ltd v Texan D

Management Ltd [2007] 4 HKC 372, Rogers VP, at §§16-18.


E E

F 47. If this court had been informed of the misstatement and non- F

disclosure, it would still have granted the Leave Order for the reasons given
G G
in Section F above.
H H

48. Specifically, Mr Yen testified that the data server could have
I I
contained material information as to the running of the Plaintiffs. That was
J credible in these days when commerce relied on electronic data. Even just J

for the data server, it was still worth granting or re-granting the Leave
K K
Order in this case. As will be seen in the analyses below, there were still
L lots of records not handed over by the Zhangs. L

M M

H. CONCLUSION ON THE SET-ASIDE SUMMONS


N N
49. I find that there was misstatement and one set of material non-
O disclosure on the part of the Plaintiffs but those were innocent. I would O

still have granted or re-granted the Leave Order if I had been told the full
P P
picture. The Set-Aside Summons was therefore dismissed.
Q Q

R I. THE COMMITTAL PROCEEDINGS R

50. At the trial, I gave leave to the Plaintiffs to amend the


S S
Originating Summons. Despite the amendments, Mr Barlow SC confirmed
T T

U U

V V
- 15 -
A A

B that the Plaintiffs no longer sought committal for breach of any order B

concerning the Plaintiffs’ property.


C C

D 51. The Plaintiffs relied on the evidence of 4 witnesses (including D

James Li). The Zhangs elected not to adduce any evidence. Their defences
E E
raised procedural and substantive issues.
F F

52. On procedural issues, Mr Hollander submitted that:


G G

(a) The Plaintiffs were in breach of their undertaking to the court


H H
in failing to take out an inter parte summons pursuant to the
I January Injunction Order; and I

(b) The penal notice was not placed on the front of the court
J J
orders.
K K

L
53. On substantive issues, Mr Hollander queried if it had been L
proved beyond reasonable doubt that the Zhangs were in possession,
M M
custody or control of the Plaintiffs’ Records, whether a “nil return” was

N
required if it was not shown that the Zhangs had anything to disclose, N
whether the Zhangs had acted in contravention of the AA and whether they
O O
could have executed the Corrective Amendments pursuant to one order

P without breaching the other. P

Q Q
J. LEGAL PRINCIPLES ON COMMITTING FOR CONTEMPT
R R
54. In hearing a committal for civil contempt, the Court adopts

S a three stage test: S

(1) Construe the relevant court order to ascertain their meaning


T T
and operation;
U U

V V
- 16 -
A A

B (2) Determine whether the respondent has in fact complied with B

the order as so construed; and


C C
(3) Finally consider whether any failure to comply was
D D
accompanied by a state of mind necessary to establish

E punishable contempt. E

F See Hong Kong Civil Procedure 2018, §52/1/16, Kao Lee & Yip v Donald F

Koo Hoi Yan (2009) 12 HKCFAR 830 per Brennan NPJ at §21.
G G

H 55. Contempt proceedings are quasi criminal in character because H

the liberty of the accused contemnor is at stake. The burden is on the


I I
applicant to prove his case beyond reasonable doubt: Kao Lee & Yip, per
J Brennan NPJ at §§6, 30. J

K K
56. In order to establish the necessary state of mind, it is not
L necessary to prove that the alleged contemnor’s conduct was contumacious, L

ie that he directly intended to disobey the order. It is sufficient to prove


M M
that the act constituting breach was made intentionally, not casually or
N accidentally: Kao Lee & Yip, at §§45-46. N

O O
57. The respondent has the right to remain silent and does not
P have to prove anything: HKCP 2018, §52/1/17. However, adverse P

inferences may be drawn from his election not to call evidence which could
Q Q
displace the prima facie case against him: Ip Man Shan Henry & anor v
R Ching Hing Construction [2003] 1 HKC 256 per DHCJ Lam (as he then R

was) at §155; Li Sau Keung v Maxcredit Engineering Ltd [2004] 1 HKC


S S
434, per Le Pichon, JA at §28.
T T

U U

V V
- 17 -
A A

B 58. Mohammed Khawaja v Paresh Popat [2016] EWCA Civ 362, B

per McCombe, LJ at §§26-29 was a case on civil contempt where the trial
C C
judge drew adverse inference against the defendant who filed 2 affidavits
D but declined to undergo cross-examination. D

E E
K. PROCEDURAL DEFENCES
F F
K1. Plaintiffs’ breach of the Undertaking
G 59. The January Injunction Order was given upon the Plaintiffs’ G

H
undertaking to the court to issue an inter parte summons against Zhang H
junior within 14 days of the service of the Amended Writ of Summons for
I I
continuation of the January Injunction Order (“the Undertaking”). The

J
14 days expired on 29 February 2016. J

K K
60. Mr Keith Ho, solicitor of Wilkinson & Grist (“WG”) acting

L for the Plaintiffs, testified that he did not know when the inter parte L
summons was issued. Counsel agreed that the matter could be dealt with
M M
in correspondence. Mr Barlow SC said that it was something that Deacons
N would know because the summons was served on them. N

O O
61. After completion of oral evidence, on 4 October 2017,
P pursuant to the request of Deacons, WG enclosed a copy of the purported P

inter-parte summons filed on 28 December 2015 (“the December


Q Q
summons”) returnable on 8 January 2016. As the Undertaking was given
R on 8 January 2016, that summons had nothing to do with the Undertaking. R

S S
62. Deacons immediately wrote again to press WG on the point.
T On 6 October 2017, Deacons received the following response: T

U U

V V
- 18 -
A A

B “We refer to your letter of 4 October. Please do not waste any B


more time with any more pointless letter – to which we will not
reply.”
C C

D
63. I was quite clear that the Plaintiffs had not issued the inter D
parte summons and brushed off proper enquiries from Deacons. In fact,
E E
the question of whether the Undertaking should be varied or the Plaintiffs

F should be released from it is the subject matter of an unresolved summons F


issued by them whilst this judgment was being written.
G G

H 64. Breach of an undertaking to the court is a serious matter that H

can amount to contempt of court: Arlidge, Eady and Smith on Contempt,


I I
5th ed, §12.201.
J J

65. Mr Hollander submitted that, the Plaintiffs themselves being


K K
in contempt of court, it would be quite wrong for them to proceed with the
L present contempt proceedings against the Zhangs. L

M M
66. In my view, that was not necessarily the case. Much depends
N on the nature of the Undertaking and the breach. N

O O
67. As a starting point, with or without the Undertaking, if this
P court had been informed of the failure to issue the inter parte summons, P

this court would have directed the Plaintiffs to serve it first and have it
Q Q
heard before considering making the Leave Order. That would be in line
R with the practice of first giving an ex parte order to minimize the damage R

to the Plaintiffs’ interest, followed by a chance to the respondent to oppose


S S
the continuation of the ex parte order and finally using contempt
T proceedings as the last resort. T

U U

V V
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A A

B 68. Mr Barlow SC submits that although procedural safeguards to B

the liberty of an alleged contemnor will be strictly enforced, in the absence


C C
of prejudice to him, the court has discretionary power to dispense with
D procedural requirements in appropriate cases: Kao, Lee & Yip, at §73, D

applying Nicholls v Nicholls:


E E
“… Like any other discretion, the discretion provided by the
F statutory provisions must be exercised in a way which in all the F
circumstances best reflects the requirements of justice. In
determining this the court must not only take into account the
G interests of the contemnor but also the interests of the other G
parties and the interests of upholding the reputation of civil
justice in general. Today it is no longer appropriate to regard an
H H
order for committal as being no more than a form of execution
available to another party against an alleged contemnor. The
I court itself has a very substantial interest in seeing that its orders I
are upheld. If committal orders are to be set aside on purely
technical grounds which have nothing to do with the justice of
J J
the case, then this has the effect of undermining the system of
justice and the credibility of the court orders. While the
K procedural requirements in relation to applications to commit K
and committal orders are there to be obeyed and to protect the
contemnor, if there is non-compliance with the requirements
L which does not prejudice the contemnor, to set aside the order L
purely on the grounds of technicality is contrary to the interests
M of justice …” (underline added) M

N 69. In my view, whilst the court has an interest in seeing that its N

orders are obeyed, it equally has an interest in seeing that a person whose
O O
liberty is at stake has been given a fair opportunity to make representation.
P P

70. In the present case, the January Injunction Order involved


Q Q
continuation of a draconian injunction, disclosure obligations and orders
R affecting Shandong Cement and powers of its directors. Failure to issue an R

inter parte summons was not a technical omission that could be overlooked.
S S
It prejudiced the entitlement of a party to the due process of the law. It was
T T

U U

V V
- 20 -
A A

B of no use to say, with hindsight, that since he did not obey the ex parte B

order, he would have disobeyed an order made inter parte anyway.


C C

D 71. Worse still, D

E (a) §2 of the January Injunction Order was not even covered by E


the December summons, so the disclosure obligation was
F F
made without any prior notice to the Zhangs; and
G (b) §2 required the Zhangs to give the disclosure within 14 days G

of the January Injunction Order, ie the deadline was past by


H H
the time of service on the Zhangs.
I I

72. The January Injunction Order expressly stated that it was


J J
ex parte as against Zhang junior. Accordingly, Charges 4-7 in Table A
K K
against him must be dismissed on this procedural defence alone.

L L
73. Charges 1-3 are still valid as against Zhang junior. The
M M
deadlines for compliance with the December Injunction Order were on or

N
before the time for issuing the inter parte summons. N

O O
74. As for Zhang senior, this procedural defence was plainly

P available to him in respect of Charge 5 (which relied on §2 of the January P


Injunction Order). Charge 5 has since been dropped upon amendment to
Q Q
the Originating Summons.
R R

75. As for Charges 6 and 7, Lok J gave a substituted service order


S S
in respect of Zhang senior on 24 December 2015. Zhang senior was
T accordingly served through Deacons on 30 December 2015 with a copy of T

the Concurrent Amended Writ of Summons in the Action and the


U U

V V
- 21 -
A A

B December summons. See §3 of the Reasons for Decision of this court on B

15 January 2016 and §2 of the affirmation of service of Chan Hoi Tao.


C C
Although Deacons returned the papers to WG, that did not undermine the
D effective service. This procedural defence would not apply to Zhang senior D

as the hearing against him proceeded on inter parte basis.


E E

F F
K2. Penal notice not on the front of the order
G 76. It is a requirement that an injunction order is served with G

a penal notice prominently placed on the order itself. This is not a service
H H
requirement but a notice requirement. The purpose is not to effect service
I but to make sure that the defendant is aware of the potentially serious I

consequences of breach of the order. In fact, it is a condition precedent to


J J
any enforcement proceedings by order of committal and it would be an
K extremely rare exercise of discretion under O45 r7(6) for the court to K

dispense with this requirement. See Hong Kong Civil Procedure 2018,
L L
§§45/7/1, 45/7/6, and 52/2/9; Citybase Property Management Ltd v Kam
M Kyun Tak (No.1) [2003] 2 HKC 98, Ma J (as he then was) at §14(2). M

N N
77. Mr Hollander submitted that the penal notice for each of the
O O
2 Orders was deficient in that it was placed on the back sheet, which could

P
not be described as part of the order. If the back sheet was omitted, the P
order would still have been regarded as served. Moreover, the notice was
Q Q
not placed prominently. He submitted that the court would not normally

R
proceed with a contempt application in the absence of an effective penal R
notice because it was a fundamental requirement: Leicester County
S S
Council v Saracen Dyers, (2002) EWHC 2068 (QB).
T T

U U

V V
- 22 -
A A

B 78. Rightly or wrongly, endorsing a penal notice on the back sheet B

has been a long-time practice. The practice ought to be corrected as soon


C C
as possible to place the penal notice in the body of the order itself.
D D

79. Mr Hollander has rightly described the purpose of a penal


E E
notice. However, the Zhangs are represented by an experienced firm of
F litigation solicitors. It could hardly be imagined that the penal notice F

endorsed on the back sheet would have escaped the attention of Deacons
G G
or that they have not explained the effect of the penal notice on the Zhangs.
H H

80. The case of Leicester County Council relied on by


I I
Mr Hollander was distinguishable because in the UK, there is an express
J rule in the Civil Procedure Rules for the penal notice to be endorsed on the J

K
front of an order, which does not exist in Hong Kong. K

L L
81. I hold that this procedural defence would not assist the Zhangs.

M M

L. SUBSTANTIVE DEFENCES
N N
82. The Zhangs have not complied with any of the orders in
O Table A. Their failure to adduce evidence meant that there was nothing to O

P
contradict the Plaintiffs’ evidence or to enable this court to consider if the P
culpability of one Zhang differed from the other. However, the court must
Q Q
still be satisfied that the relevant Charges are individually proved beyond

R
reasonable doubt against each of the Zhangs. R

S S

T T

U U

V V
- 23 -
A A

B Charges 1 and 2 in Table A: Breach of Preservation Order and Delivery B


Over Order (cf Statement §§13(1) and 14(1))
C C
83. The core issue was whether or not the Zhangs were in
D possession, custody or control of the Plaintiffs’ Records. D

E E
84. Mr Hollander has summarized the evidence neatly:
F (a) P1 and P2 were investment holding companies and P3 was F

a company that did some limited business as a sales agent;


G G

(b) Each of Plaintiffs was a HK company;


H H
(c) The substantial business was operated by or through
I I
Shandong Cement which was a PRC company, not the

J
Plaintiffs; J

(d) The HK records and the Cayman records were records to


K K
which the Plaintiffs had access at all times after the critical
L date of 15 February 2016; L

M (e) To the extent that the Plaintiffs records were kept at the Jinan M

HQ, the Plaintiffs had recovered them in the 1/16 Seizure;


N N
(f) The key date was the date of service, 15 February 2016. There
O could be no allegation of breach before then; O

P (g) James Li had returned the documents in his control to Li & P

Yao when he left the Plaintiffs’ employment in November


Q Q
2015;
R (h) Mr Yen was aware (notwithstanding §8 of Yen-5th) that many R

S
of the documents referred to in James Li’s affirmation had S
been returned to the Plaintiffs prior to 16 February 2016;
T T

U U

V V
- 24 -
A A

B (i) Although Mr Yen knew about the 1/16 Seizure and the B

Plaintiffs had made a public announcement about it the


C C
following day, he did not make any effort to obtain those
D Plaintiffs’ documents that had been recovered in Jinan HQ D

until mid-April 2016. This stood in stark contrast to the


E E
submissions and evidence (Yen’s affidavit filed on 27/5/2016)
F put before the court at the time the Plaintiffs sought the F

December Injunction Order, suggesting that the Plaintiffs


G G
were in difficulty in conducting their business and at risk of
H incurring criminal liability through lack of books and records. H

Mr Hollander submitted that this reflected adversely on


I I
Mr Yen’s credibility and significantly overstated the
J Plaintiffs concerns about their books and records at the time J

K
they applied for the December Injunction Order; and K

(j) Mr Yen identified items (l), (q), (u)3 and the data server as
L L
the unrecovered items that formed the subject matter of James
M Li’s handover to Yao. M

N N
85. Mr Hollander submitted that there was simply no evidence
O that either of the Zhangs has been in possession of any of Plaintiffs’ O

Records since 16 February 2016. The last question Mr Yen was asked in
P P
cross examination was this:
Q Q
“Q: For the records which you have not recovered, all you can
tell the Court is that they are not in the Jinan HQ, and you
R cannot say what has happened to them but you suspect the R
defendants.
S S

3
(l) One copy of the legal document concerning the high yield bond of US$500 million at interest rate
T of 7.5% expiring in 2020, together with a CD; (q) joint possible VGO documents of China National T
Building Material Co Ltd and Asia Cement Ltd dated July 2015; (u) one set of copies of the trust
transfer documents of 92 beneficiaries under the Zhang Trust and the Li Trust.
U U

V V
- 25 -
A A

B A: You may put it that way.” B

C Mr Barlow did not re-examine on that answer. C

D D
86. Again, the summary of evidence had to be looked at in context.
E Before the new board of the Plaintiffs took over in early December 2015, E

the records in the Plaintiff’s Office were stolen. The computer data was
F F
erased. At that time James Li was the person in Hong Kong in charge of
G the Plaintiffs’ Records. That was how the December Injunction Order came G

about.
H H

I 87. The Plaintiffs of course could not contend that their own I

witness, James Li, was giving untrue evidence: The Filiatra Legacy [1991]
J J
2 Lloyds Rep 337, 361. However, there was nothing to prevent the court
K from assessing his credibility as in any case and placing the appropriate K

weight on his evidence.


L L

M 88. James Li was D3 in the Action. He was, in my view, a cunning M

witness who would give long speeches to qualify many of his answers to
N N
sidetrack issues. By way of example, it took the court a series of questions
O (as quoted in Mr Barlow SC’s closing submission) before he would admit O

that the Zhangs, being the “biggest” officials in the Group of companies,
P P
had the authority and ability to access the data server (containing, amongst
Q others, documents from the Hong Kong Office), documents in the Jinan Q

HQ and even the most confidential information of the Plaintiffs in Hong


R R
Kong or Jinan.
S S

T
89. James Li claimed that the handovers were to Li and Yao “of T
st
the 1 Plaintiff”. I am unable to agree. Li and Yao were sent by the Zhangs
U U

V V
- 26 -
A A

B as their agents at a time when Zhang junior was P1’s chairman. Li had B

never been an employee of the Plaintiffs and had never worked in the
C C
Plaintiffs’ HK Office.
D D

90. The Plaintiffs had of course recovered a lot of documents in


E E
the 1/16 Seizure. Even after the 1/16 Seizure, without the assistance of the
F Zhangs: F

G (a) In early February 2016, Mr Yen had asked the new senior G

management of Shandong Cement to see whether they could


H H
recover any of the Plaintiffs’ Records that had been taken by
I Li and Yao to the Jinan HQ; I

(b) In about March 2016 (after the service on the Zhangs), Mr Yen
J J
received confirmation that some Group company seals or
K K
chops had been found in the Jinan HQ; and

L (c) In about April 2016 (again after the service on the Zhangs), L

some documents that had come from the Plaintiffs’ Office


M M
were discovered.
N N

91. However, I do not agree with Mr Hollander that the Plaintiffs


O O
had obtained most of the documents. On the evidence, after 15 February
P 2016, at least items (l), (q) and (u) identified from James Li’s handover to P

Yao, some bank documents, correspondence with lawyers and regulators,


Q Q
the data server and some emails, were not recovered. Without the
R assistance of the Zhangs’ disclosure, it was simply not possible to identify R

the volume of missing records.


S S

T T

U U

V V
- 27 -
A A

B 92. Mr Hollander rightly conceded that the data server was B

a significant item. In fact, Mr Yen believed that many emails could be read
C C
from them and one could see from them how the previous management
D handled the Plaintiffs’ business. D

E E
93. In answer to the court’s series of questions, Mr James Li had
F to admit that the data server contained documents from the Hong Kong F

Office. The Zhangs had authority and ability to access the most
G G
confidential information of the Plaintiffs, whether in Hong Kong or in
H Jinan and that must have included, in my view, the data server. H

I I
94. The December Injunction Order specifically required the
J Zhangs to deliver over, amongst others, computer data and hard drives and J

K
to state their current whereabouts. The Zhangs could not have overlooked K
the importance of the data server. No one would have possession or better
L L
knowledge of its whereabouts but the Zhangs.

M M
95. Mr Hollander said that following the 1/16 Seizure, the Zhangs
N N
had lost their access to or power to retrieve documents in the Jinan HQ.

O On the Plaintiffs’ own evidence, Zhangs and their agents were evicted from O
there on 30 January 2016.
P P

Q 96. With respect, this was an assumption that the Zhangs could Q

only have kept the Plaintiffs’ Records at the Jinan HQ. It overlooked the
R R
fact that the Zhangs (being the highest officials) had, in the first place,
S removed or caused to be removed the Plaintiffs’ Records from the HK S

Office to places only known to themselves, Jinan HQ or otherwise.


T T

U U

V V
- 28 -
A A

B 97. According to Yen-1st, for 4 days up to the 1/16 Seizure, B

thousands of workers were in peaceful protest near the Jinan Plant but the
C C
former directors brought with them an armed mob to resist the protest. On
D 30 January 2016, the protesting workers, with the assistance of the police D

in Jinan, managed to enter the Jinan Plant. In the process of recovering the
E E
Plaintiffs’ property kept at the Jinan Plant, the documents were scattered
F in different places when the Jinan police got into the Jinan Plant. In my F

view, all of these (though happening before service of the 2 Orders) could
G G
not have happened without approval or knowledge of the Zhangs.
H Mr Yen’s inference that the Zhangs’ henchmen were trying to destroy or H

conceal evidence, including some of the Plaintiffs’ Records, was


I I
a reasonable one.
J J

K
98. The further inference was that after service of the 2 Orders, K
the Zhangs continued to have possession of the unrecovered records and
L L
the data server, but not at the Jinan HQ. They persisted in not handing over

M
to the Plaintiffs. M

N N
99. Further, there would have been records not necessarily in

O Jinan before or after service of the 2 Orders, eg the correspondence with O


lawyers and regulators. The Zhangs did nothing to deliver over (even
P P
copies) to the Plaintiffs or disclose their whereabouts and the Plaintiffs had
Q to obtain them from the lawyers or (by court order) from the regulators. In Q

this respect, it was an understatement for Mr Hollander to say that the


R R
Plaintiffs were but investment holding companies and that they had all the
S records to operate. P1 was a listed company and needed to deal with S

regulators and lawyers and debt issues regarding US$ bonds.


T T

U U

V V
- 29 -
A A

B 100. The Zhangs have purported to file affirmations of witnesses B

which had either been expunged or were not relied on at this trial. The
C C
irresistible inference was that the Zhangs simply dared not go on oath to
D state that they did not have possession, custody or power of any of the D

Plaintiffs’ Records after 15 February 2016, or explained why they failed to


E E
comply with the Preservation Order or Delivery Over Order.
F F

101. It was plainly the case that the Zhangs are still in possession,
G G
custody or power of some of the Plaintiffs’ Records; and just the data server
H alone would have justified a finding of breach of the Preservation Order H

and Delivery Over Order. I find it proved beyond reasonable doubt that
I I
the Zhangs are guilty of Charges 1 and 2. Their disobedience simply
J defeated the purpose of the Preservation Order and Delivery Over Order. J

K K

Charge 3 in Table A – Plaintiffs’ Records Disclosure Order and Plaintiffs’


L Records Confirmation Order (cf Statement §§13(2) and 14(2); 13(3) and L
14(3) )
M M
102. It is common ground that the Zhangs have not provided any
N disclosure or affirmation as required. They were plainly in breach of the N

Plaintiffs’ Records Disclosure Order and Plaintiffs’ Records Confirmation


O O
Order.
P P

103. However, Mr Hollander submitted that if the court was not


Q Q
satisfied that the Zhangs were in custody, possession or control of the
R Plaintiffs’ Records, it should consider whether a “nil return” was required R

under the terms of the order. In other words, could there be a breach merely
S S
because there had been no disclosure where it had not been shown that the
T Zhangs had anything to disclose? T

U U

V V
- 30 -
A A

B 104. In my view, this was a hypothetical issue for it has never been B

the Zhangs’ case that they did not have anything to disclose.
C C

D 105. In any case, a distinction should be drawn between an order to D

produce and one to disclose. The former requires the applicant to show
E E
that the alleged contemnor was in possession, custody or control of an item
F sought. The latter is for the alleged contemnor to deny that he had the F

information sought (if that be the case) after the applicant has shown that
G G
the alleged contemnor disclosed nothing.
H H

106. Question (a) of the 5 questions asked each of the Zhangs if he


I I
had been responsible for or had assisted in the removal of the Listed Items
J from the Plaintiffs’ Hong Kong Office. Mr Hollander very fairly accepted J

K
that it would have required a nil return in any event. K

L L
107. Questions (b) to (e) asked each of the Zhangs to provide full

M
details of his involvement or assistance, knowledge as to who removed the M
Listed Items from the Plaintiffs’ Office, the locations to which they were
N N
transferred and their current whereabouts and information as to the

O existence, current form and whereabouts of any copies of the Listed Items. O

P P
108. Questions (b) to (e) were intended to assist the Plaintiffs in
Q locating their own records and identify the culprits who unlawfully dealt Q

with them – all to aid the Preservation Order. I fail to see why a nil return
R R
(if that be the case) was not required.
S S

T T

U U

V V
- 31 -
A A

B 109. I find Charge 3 proved beyond reasonable doubt against the B

Zhangs. This will hold true even if they are no longer in possession,
C C
custody or control of any of the Plaintiffs’ Records.
D D

E Charge 4 in Table A – Continuation of orders E

110. This is a charge that covers Charges 1-3. It was proved


F F
beyond reasonable doubt as against Zhang senior but dismissed as against
G Zhang junior for the first procedural defence (paragraph 72 above). G

H H
Charge 5 in Table A – Plaintiffs’ Records Further Order (cf Statement
I §§13(4) and 14(4)) I

111. Charge 5 has been withdrawn upon amendment of the


J J
Originating Summons.
K K

L Charge 6 – Shandong Cement Injunction (cf Statement §§13(5) and 14(5)) L

112. Allegedly, the Zhangs:


M M

(a) Continued to hold themselves out as being entitled to exercise


N N
the powers and entitlements of directors of Shandong Cement;
O (b) Purported to exercise the same; and O

P (c) Managed the assets of Shandong Cement. P

Q Q
113. §3(a) of the January Injunction Order provided as follows:
R “Restrain them and/or any employees, agents or parties assisting R
each or both of them from acting upon or exercising any power
S or entitlement pursuant to the amended Articles of Association S
of [Shandong Cement] alleged to have been unlawfully altered
on 14 October 2015 and/or from misapplying any assets of
T Shandong Cement or of any of its subsidiaries.” (underline T
added)
U U

V V
- 32 -
A A

B 114. On the face of it, Charge 6 did not show breach of the express B

wording of the Shandong Cement Injunction. “Holding out” or


C C
“purporting to exercise” were different from “acting upon or exercising”.
D “Managing” the assets of Shandong Cement” was not the same as D

“misapplying” and was not in itself culpable.


E E

F 115. Mr Liu was specifically asked in cross examination which F

article of the unlawful AA was relied upon but he could not point to one.
G G
When questions were asked about the amended AA by reference to the
H Schedule attached to the January Injunction Order, Mr Barlow objected to H

the questioning on the basis that the amended AA were not before the Court
I I
and thus it was inappropriate for questions to be asked about them.
J J

K
116. Mr Hollander submitted that there was no breach of the K
Shandong Cement Injunction.
L L

M
117. In my view, in construing the Shandong Cement Injunction, it M
is important not to lose sight of its purpose. The Zhangs had been removed
N N
as directors back in 3 December 2015. They would not accept it. They

O unlawfully amended the AA to give themselves directorship, under clause O


5.2.2.1, without any restrictions in the 3 years following the amendment.
P P
To be precise, the shareholders had no power to remove them from office.
Q The Corrective Amendments were to halt the Zhangs’ attempted Q

misappropriation of Shandong Cement or its subsidiaries and have them


R R
reverted to the Plaintiffs as true owners.
S S

T T

U U

V V
- 33 -
A A

B 118. Accordingly, any act that the Zhangs carried out or any B

holding out as director would have been pursuant to the unlawful AA


C C
instead of a particular article.
D D

119. The Zhangs have allegedly continued, to the present date, to


E E
rely upon the unlawful AA as their stated justification for continuing: (a) to
F hold themselves out as being current directors of Shandong Cement; and F

(b) to disregard the new Shandong Cement board that was installed by the
G G
Plaintiffs. The relevant conduct, after 15 February 2016, that the Plaintiffs
H relied on included (i) issuing of public announcements, (ii) engaging in H

litigation in the Mainland Courts, (iii) misapplications of the Shandong


I I
Cement company seal, and (iv) conduct in relation to Shandong Cement’s
J other assets. J

K K
120. I am afraid that the alleged conduct required some distillation
L L
as it contained some misdescription or irrelevant matters.

M M
121. The public announcements allegedly concerned evidence of:
N N
(a) The Zhangs’ relocation of the Shandong Cement business
O (including 200 employees expelled from the Jinan Plant) after O

the 1/16 Seizure to the premises of Shanshui Heavy;


P P
(b) The Zhangs’ initiation of proceedings in Mainland China in
Q Q
the name of Shandong Cement;
R (c) The Zhangs’ denial that Shandong Cement’s company seal R

(which they wrongfully retained) was wrongfully used in


S S
initiating litigation in the name of Shandong Cement and the
T T

U U

V V
- 34 -
A A

B confirmation that they continued to operate from Shanshui B

Heavy.
C C
(d) The Zhangs’ claim as to who the lawful current legal
D D
representative of Shandong Cement was based on recent

E enquiries. E

F P1 was obliged to issue public announcements through SEHK to counter F

the Zhangs’ illegitimate public announcements in the Mainland.


G G

H 122. There was some misdescription in the Plaintiffs’ case H

concerning public announcements, eg there was no mention of relocation


I I
of 200 employees in item (a). To the extent, item (b) meant institution of
J proceedings, this was not true as Shandong Cement was the defendants. J

K K
123. Regarding Mainland litigation, the Plaintiffs alleged that the
L Zhangs had unlawfully applied the seal of Shandong Cement to cause it to L

engage in litigation in the Mainland. To the extent this meant Shandong


M M
Cement defended the litigation, it was not clear how the seal had been
N applied or how the Zhangs participated. As recently as September 2017, N

the Zhangs had allegedly utilised Shandong Cement’s seal in order to


O O
commence new litigation in the Jinan Courts in which they asserted that
P they were the legal directors of Shandong Cement. This was a new P

allegation not in the Plaintiffs’ affidavits and should be disregarded.


Q Q

R 124. Regarding misapplications of the Shandong Cement company R

seal, Yen-8th stated that because the Zhangs still hold the company seal and
S S
chop for Shandong Cement (and also those of its key subsidiaries), the
T Plaintiffs have not been able to secure recognition on the Mainland (either T

U U

V V
- 35 -
A A

B through the Mainland Courts or through the Jinan Companies Registry) of B

the status of the new board or the Corrective Amendments. Consequently,


C C
as matters presently stand, the Zhangs and their agents continue to control
D most of the affairs of Shandong Cement. Any legal proceedings brought by D

Shandong Cement against the Zhangs would not yield any orders that are
E E
enforceable in the Mainland where Shandong Cement does business.
F F

125. However, the evidence showed that it was Zhang junior who
G G
has been claiming to be the legal representative of Shandong Cement. In
H the normal course of events, he but not Zhang senior would have been the H

person in custody of the seal and chop. He but not Zhang senior would
I I
have been responsible for alleged misapplications of the seal or chop
J (including authenticating the public announcements or documents in J

K
Mainland proceedings). K

L L
126. Regarding conduct in relation to Shandong Cement’s other

M
assets, Yen-8th stated that there were at least 2 instances where the Zhangs M
have misappropriated substantial assets of Shandong Cement that are
N N
unlikely to be recoverable: (i) acquisition of a “subsidiary” called Qilu

O Property Company Limited (“Qilu”); and (ii) control of 44.99% of O


Shanshui Heavy pursuant to the unlawful AA after sale of 55.05%.
P P

Q 127. The matters in the preceding paragraph were, as Mr Hollander Q

pointed out, made in support of the Plaintiffs’ ex parte application for


R R
worldwide Mareva injunction which was later discharged by G Lam J on
S the ground of material non-disclosure: China Shanshi Cement v Zhang Cai S

Kui & ors, HCA 2880/15, 18 July 2017, §36-39. Amongst others, it was
T T
held to be material non-disclosure not to inform the court that the proper
U U

V V
- 36 -
A A

B plaintiff for claims relating to Qilu and Shandong Heavy was Shandong B

Cement and not the Plaintiffs.


C C

D 128. In any case, the alleged misappropriation of proceeds or assets D

of Qilu and Shandong Heavy happened before 15 February 2016 and are
E E
irrelevant to these contempt proceedings.
F F

129. Having distilled the evidence regarding paragraph 119 above,


G G
it was not proved beyond reasonable doubt how Zhang senior was guilty
H in respect of the Mainland proceedings and misapplication of the seal or H

chop, or conduct after 15 February 2016 in relation of Shandong Cement’s


I I
other assets. Nor was there evidence of his “misapplying” assets of
J Shandong Cement or its subsidiaries. J

K K
130. However, the issue of 12 public announcements of Shandong
L L
Cement between 16 February 2016 and May 2016, and the relocation of

M
Shandong Cement to the premises of Shanshui Heavy could not be M
something done without knowledge of the Zhangs. The Zhangs were 2 of
N N
the 3 self-claimed directors.

O O
131. The substance of the public announcements and relocation
P P
displayed the Zhangs’ continuous denial of the Plaintiffs’ installation of
Q a new board and the Zhangs’ holding out as directors and management of Q

the business of Shandong Cement pursuant to the directorship under the


R R
unlawful AA.
S S

132. There being no explanation and no evidence to distinguish


T T
their culpability, and based on the fact that the Zhangs were the most senior
U U

V V
- 37 -
A A

B persons in control of Shandong Cement, the act of one would be B

attributable to that of the other.


C C

D 133. I find the first limb of Charge 6 (acting upon or exercising D

power or entitlement pursuant to the unlawful AA) proved beyond


E E
reasonable doubt against Zhang senior.
F F

G Charge 7 in Table A – Corrective Amendments Injunction (cf Statement G


§§13(6) and 14(6))
H H
134. The Zhangs disobeyed the Corrective Amendments Injunction

I
Order, making it necessary for the Registrar to execute the Corrective I
Amendments on their behalf. To this charge, Mr Hollander contended that:
J J
(a) There had to be a single order identifying what the Zhangs
K must do; but in fact the January Injunction Order ordered the K

Zhangs to execute corrective amendments to the AA without


L L
approving any corrective amendments; when the court
M approved the Corrective Amendments on 13 January 2016, M

there was no injunction on that day requiring the Zhangs to do


N N
anything.
O O
(b) The Zhangs had been removed as directors and were not in
P a position to execute the Corrective Amendments. P

Q Q
135. With regard to contention (a), injunctive commands need not
R be within a single order: AXA China Region Insurance Co Ltd v Li Yu Ping R

Ellen [2002] 3 HKC 339 (where the 2nd order varied the 1st).
S S

T T

U U

V V
- 38 -
A A

B 136. A reasonable reader, having been served with the January B

Injunction Order and the 13 January 2016 order would not be left in any
C C
doubt as to the Corrective Amendments that the Zhangs had to execute.
D D

137. With regard to contention (b), according to Mr Hollander,


E E
pursuant to article 15.3 of the amended AA, the Corrective Amendments
F could only be effected following approval by the Shandong Cement board, F

the Shandong Cement shareholder (ie P3) and the Jinan authorities.
G G
According to the Plaintiffs, the Zhangs had been removed as directors of
H Shandong Cement as early as 3 December 2015. After 15 February 2016, H

the Plaintiffs have insisted that the Zhangs were no longer officers of
I I
Shandong Cement. Moreover, the Zhangs alone were in no position to
J execute the Corrective Amendments since approval of the Jinan authorities J

K
would have been required. In the past, the Jinan authorities had interfered K
with Shandong Cement’s business according to P1’s public announcement.
L L
Mr Hollander submitted that the Shandong Cement Injunction and the

M
Corrective Amendments Injunction were inconsistent and it would be M
impossible to perform one without breaching the other.
N N

O 138. The short answer to contention (b) was that the authority of O
the Zhangs to execute the Corrective Amendments was conferred by the
P P
court and not the AA. The Corrective Amendments Injunction was
Q directed at the Zhangs personally and not at their capacity as directors. Q

R R
139. Contention (b) was plainly an afterthought because up until
S the High Court Registrar executed the corrective amendments on behalf of S

the Zhangs on 20 April 2016, the Zhangs had still regarded themselves as
T T
directors and Zhang junior the legal representative of Shandong Cement.
U U

V V
- 39 -
A A

B There was no evidence that any of them addressed his mind to his legal B

capacity before deciding not to execute the Corrective Amendments. Nor


C C
had the Zhangs adduced evidence to show that the Jinan authorities would
D have hindered the execution. D

E E
140. The defence to Charge 7 has no merits. I find Charge 7 proved
F beyond reasonable doubt against Zhang senior. F

G G

M. FINDINGS
H H
141. In respect of Zhang senior, I find Charges 1-4, 6 (first limb)
I and 7 proved beyond reasonable doubt. I

J J
142. In respect of Zhang junior, Charges 1-3 are proved beyond
K reasonable doubt. Charges 4-7 are dismissed on the procedural ground that K

the Plaintiffs have failed to take out an inter parte summons.


L L

M 143. All of the Zhangs’ non-compliance under the respective M

Charge was wholesale, deliberate and obstructive to the Plaintiffs’


N N
recovery of their own records. The Zhangs’ failure to comply with the
O disclosure orders reinforced the court’s belief that they were in possession, O

P
custody or control of part of the Plaintiffs’ Records and data server. P

Q Q
144. If the Plaintiffs were found to have breached the Undertaking,

R
the court may punish them. However, it would be an affront to the dignity R
of the court and disproportionate to the gross non-compliance to dismiss
S S
the Charges for which the Zhangs are now found guilty of due to breach of

T the Undertaking. T

U U

V V
- 40 -
A A

B 145. The case is adjourned for sentence to a date not more than B

4 months from the date of this judgment, with 3 hours reserved.


C C

D 146. The Plaintiffs succeeded in the bulk of the Charges against D

Zhang senior and hence should have costs on the usual indemnity basis.
E E
Zhang junior should bear half of the costs of the Plaintiffs jointly and
F severally with Zhang senior. F

G G
147. I make an order nisi that:
H H
(1) The Zhangs shall bear the costs of the Set-Aside Summons;
I (2) Zhang senior shall bear the costs of the Originating Summons I

including the leave application on indemnity basis;


J J

(3) Zhang junior should bear half of the costs in point (2) jointly
K K
and severally with Zhang senior.
L L
(4) All costs shall be with certificates for 2 counsel, to be taxed if

M
not agreed; M

I also order that:


N N
(5) The Zhangs are each at liberty to file and serve affirmations
O O
on matters relevant to sentencing within 28 days from the date

P of handing down of this judgment; P

(6) No further affirmations shall be filed without leave of the


Q Q
court;
R R
(7) The Zhangs are at liberty to lodge and serve written
S submission 14 days before the date of sentence; S

(8) The Plaintiffs are at liberty to reply within 3 days thereafter,


T T
limited to answering points of law; and
U U

V V
- 41 -
A A

B (9) Personal attendance of the Zhangs at the hearing is required. B

C C
148. I thank counsel for their assistance.
D D

E E

F F

G G

H (Queeny Au-Yeung) H
Judge of the Court of First Instance
I High Court I

J J

Mr Barrie Barlow SC and Ms Rachel Lam instructed by Wilkinson & Grist,


K K
for the 1st, 2nd and 3rd plaintiffs
L L
Mr Charles Hollander and Mr Jean-Paul Wou, instructed by Deacons, for
the 1st and 2nd defendants
M M

N N

O O

P P

Q Q

R R

S S

T T

U U

V V