LIAOYANG SHUNFENG IRON AND STEEL CO LTD AND ANOTHER v. SUNNY GROWTH ENTERPRISES GROUP LTD AND ANOTHER

HCMP 667/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 667 OF 2013

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R E A S O N S   F O R   J U D G M E N T

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1. This is the first hearing of the plaintiffs’ application to commit the defendants for contempt of court for breaching an anti-suit injunction (“the Injunction Order”) granted by the Court of Appeal in CACV 234/2011 on 14 June 2012.

2. Counsel for the plaintiffs on instructions confirmed to this court at the hearing that the notice of appointment to hear the Originating Summons (“OS”) dated 5 April 2013, together with the OS (and the supporting affirmation and exhibits) were served on the defendants by way of substituted service pursuant to the court’s order dated 25 March 2013.

3. The defendants have acknowledged service of the OS.  However, they did not turn up at the hearing.  No reasons have been provided to explain their absence.

4. In light of the fact that the notice of appointment to hear the OS was served on the defendants, I was satisfied that the defendants should be aware of the hearing.  I therefore proceeded to hear the application in the defendants’ absence.

5. After hearing the plaintiffs, I made an order committing the defendants to contempt, imposing a fine of HK$350,000 on the 1^st defendant, and issuing a warrant of arrest against the 2^nd defendant.  I further ordered costs against the defendants on an indemnity basis, to be taxed if not agreed with certificate for two counsel.

6. I now give my reasons for the decision.

Background

7. The evidence filed so far shows the following.

8. The 1^st plaintiff is a sino-foreign joint venture company incorporated in the Liaoning Province, the Mainland, and holds a licence with the right to extract iron ore in five mines in the Dengta Municipality.  The 2^nd plaintiff is a Hong Kong company holding 80% of the shares in the 1^st plaintiff.

9. The 1^st defendant is a BVI company. The 2^nd defendant is the sole director of the 1^st defendant; and claims to be the legal representative thereof.  He is also the legal representative of a Mainland company called Liaoning Shengyuan Investment Co Ltd (“Liaoning Shengyuan”).  Liaoning Shengyuan has purportedly become the 95% shareholder of the 1^st defendant since 2 August 2012.

10. On 11 August 2010, the 1^st defendant commenced a legal action against the 1^st plaintiff in the Higher People’s Court of the Liaoning Province, Mainland (“the PRC Litigation”).  The 1^st defendant sought, inter alia, a declaration that the 1^st defendant (instead of the 2^nd plaintiff) is the owner of 80% shareholding in the 1^st plaintiff.  In short, the 1^st defendant claims that it has taken over the 2^nd plaintiff’s 80% interest in the 1^st plaintiff.

11. The plaintiffs sought an anti-suit injunction in HCA 1415/2010.  The application failed at the first instance.  On appeal, the Court of Appeal in CACV 234/2011 allowed the appeal and granted the Injunction Order.

12. Paragraph 4 of the Injunction Order provides that:

“An injunction be granted restraining [Sunny Growth (ie the 1^st defendant)], whether by itself or its directors or officers or its servants or agents or otherwise howsoever, from continuing the prosecution of the PRC Litigation or commencing any other litigation in the PRC Court which cover the same or substantially the same subject matters as the PRC Litigation.” (emphasis added)

13. The PRC Litigation is defined in paragraph 3 of the Injunction Order, and refers to the PRC Litigation mentioned above.

14. Thus, under the Injunction Order, the 1^st defendant, and its directors or officers are restrained from, among others, commencing any other litigation in the Mainland which covers the same or substantially the same subject matters as the PRC Litigation.

15. Notwithstanding the Injunction Order, the evidence now before the court shows clearly that:

(1)  On about 13 November 2012, by a writ dated 25 October 2012, the 1^st defendant commenced an action against the plaintiffs in the Higher People’s Court of the Liaoning Province asking the PRC Court to (a) confirm that the 1^st defendant has 80% shareholdings of the 1^st plaintiff, and (b) order the plaintiffs to transfer those shares to it (“the 2^nd PRC Litigation”).

(2)  The 2^nd defendant has become the sole director of the 1^st defendant on 2 August 2012 before the commencement of the 2^nd PRC Litigation.  He is the person who (a) instructed PRC lawyers to commence that action and (b) signed on the writ on behalf of the 1^st defendant.

(3)  The 2^nd PRC Litigation clearly covers “the same or substantially the same subject matters as the PRC Litigation”.  In both actions, the 1^st defendant asked the PRC Court to confirm that it is the owner of 80 % of the shares in the 1^st plaintiff. The plaintiff’s PRC lawyers have also confirmed that the remedies sought in the two PRC actions are basically the same.

(4)  The plaintiffs’ PRC lawyers stated that the 2^nd PRC Action was still subsisting by the time of his report dated 23 January 2013.  There is no evidence that it has been discontinued.

The application to commit the defendants for contempt

16. The burden is on the plaintiffs to prove the defendants’ contempt beyond reasonable doubt.  It is necessary to (a) construe the court’s orders to ascertain their meaning and operation; (b) determine whether the defendants have in fact complied with the orders, and (c) finally consider whether any failure to comply was accompanied with the state of mind necessary to establish punishable contempt.  The plaintiffs must prove that the breach was made intentionally, not casually, accidentally or unintentionally; but it is not necessary to prove a deliberate intention to breach[1]. 

17. In my view, in light of the above unchallenged evidence and the circumstances of this application, it is beyond reasonable doubt that:

(1)  The defendants have breached the Injunction Order by instituting the 2^nd PRC Action.

(2)  The breach was intentional as the defendants were clearly aware of the Injunction Order, and the terms of which are clear.  The 1^st defendant was a party in CACV 234/2011 when the Court of Appeal granted the Injunction Order.  It therefore must be fully aware of the Injunction Order.  The 2^nd defendant subsequently became a director of the 1^st defendant.  Unless contrary evidence is shown, it is reasonable to assume that he was also aware of the Injunction Order.  Further, notwithstanding that the OS having been served on him seeking to commit him for contempt in breach of the Injunction Order, and that he has acknowledged service, the 2^nd defendant chose not to appear at this hearing or file any evidence to oppose the application say on the basis that he was not aware of the Injunction Order.  When these circumstances are taken as a whole, it is clear to me that the 2^nd defendant must also be aware of the Injunction Order when he gave instructions for the 1^st defendant to bring the 2^nd PRC Litigation. 

18. I am therefore satisfied that the defendants have committed contempt in breaching the Injunction Order.

Penalty

1^st defendant

19. The plaintiffs seek in the OS a fine to be imposed on the 1^st defendant for the contempt.

20. The fines to be imposed depends on the facts of the individual case, the nature of the breach involved, the seriousness of the breach, the culpability of the defendant’s conduct and all the circumstances: Aqua‑Leisure Industries Inc & another v Aqua Splash Ltd (No 2) [2002] 1 HKLRD 241 at 264C per Deputy Judge To (as he then was).  Thus, as further observed by judge at p 264A, precedents may not be helpful to guide what the penalty should be in a particular case.

21. Notwithstanding this, purely cited as examples for a rough reference, Mr Lam referred me to two cases as to the level of fine that had been imposed for contempt.

22. First, in Aqua-Leisure Industries Inc, supra, after looking at the nature and conducts of the defendant’s breach of delivery up order in that case, the court held that the breach was “serious and substantial”.  The judge imposed a fine was HK$300,000.  It must be noted that in doing that, the court also took into account the plaintiffs’ own delay in applying for contempt.  However, Mr Lam has fairly drawn my attention to the fact that the order for contempt was subsequently set aside on appeal on the ground that the defendants were not guilty of contempt[2].  This case as an example must therefore be viewed at with some caution. 

23. Second, in Effiscient Ltd v Edward Eugene Lehman, (unrep, CACV 177/2012, 3 April 2013, Yeung VP, Fok JA and McWalters J) at paragraph 9, the Court of Appeal referred to an order made by To J in another related case on 19 April 2011 in which a fine of HK$200,000 was imposed for breaching an injunction (where the defendant admitted contempt and apologized unreservedly).  It is however unclear in this judgment as to what was the precise order that was breached and the conducts and nature of the breach committed by the defendant in that other case.

24. On the other hand, I also note that in Abu Dhabi National Tanker Co v Lam Ming Chi [1998] 4 HKC 320, a case referred to in Aqua-Leisure Industries Inc at p264A, Stone J fined the defendant in that case HK$100,000 for failing to comply with an interlocutory mandatory order for payment of a certain sum.

25. Coming back to the present case, I agree with Mr Lam’s submissions that the present breach is a serious and substantial one, as underlined by (a) the defendant’s clear knowledge of the Injunction Order, the terms of which are clear, coupled with (b) the defendants’ unexplained absence at this hearing (which relates to their breach of the Injunction Order) notwithstanding that they have acknowledged service of the OS.  These further show the defendant’s blatant disregard of court proceedings, sanctity of a court order and the importance of compliance thereof.

26. Having a general reference to the other cases mentioned above, but focusing principally on the circumstances of the present case, in particular my observation at paragraph 25 above, I would impose a fine of HK$350,000.00 on the 1^st defendant for the contempt committed.

2^nd defendant

27. The normal penalty for breaches of injunction orders is imprisonment measured in months.  See A O Smith Holdings (Barbados) SPL, supra, at paragraph 61.

28. However, given that the 2^nd defendant is absent today, Mr Lam submits fairly (and I accept) that the proper course would be for the court to issue a warrant for committal in the form as adopted in Secretary for Justice v Choy Bing Wing [2005] 4 HKC 416 at 442E‑443I, to arrest the 2^nd defendant, and to bring him before court as soon as practicable so that he could be heard on the question of penalty.

29. I therefore so ordered and issued a warrant of arrest to that effect.