BRUNO ARBOIT as Sole Liquidator of Highfit Development Co Ltd v. KOO SIU YING

HCMP 2749/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO2749 OF 2012

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SENTENCE FOR CONTEMPT

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Introduction

1.  On 8 March 2016, I found Koo and Ling guilty of contempt of court in breaching court orders for disclosure of documents (“the Decision”). This is the occasion for sentence. The abbreviations in the Decision are adopted here.

Legal principles for sentencing for contempt of court

2.  The starting-point is to acknowledge that contempt of civil court orders is a serious matter and that court orders are made to be obeyed.  A prime consideration of the court in sentencing contempt is to “signal importance of demonstrating to litigants that the orders of these courts are to be obeyed”.  By “litigants”, it is clearly referring to litigants in general and not just the contemnor himself.  See Questnet Limited v Wilfred Royce Lane, HCA 1475/2006, Chu J (as she then was), 23 June 2008 (on sentence).

3.  The object of the sentence is both to punish conduct in defiance of the court’s order and to serve a coercive function by holding out the threat of future punishment as a means of securing the protection which the order was primarily there to do: Crystal Mews Ltd v Metterick & ors [2006] EWHC 3087, §8, Collins J; re Barrell Enterprises [1973] 1 WLR 19, at 27C-D, English CA.  The court has to balance the 2 objects. 

4.  The sentence for contempt may range from a fine to a term of imprisonment.  The UK Contempt of Court Act 1981 imposes a maximum term of 2 years’ imprisonment but Hong Kong does not have that statutory limit.

5.  Imprisonment should be regarded as a sanction of the last resort.  Any custodial sentence should be as short as possible consistent with the circumstances of the case.  Willwin Development (Asia) Co Ltd v Wei Xing, HCMP 2946/2014 (unreported, 16 November 2015), B Chu J, §4(f); CMA CGM v Ng Chip Choi Maurice, HCMP 2988/2014, 12 March 2015, Au-Yeung J,§24(1).

6.  The court may suspend a term of imprisonment for such period or on such terms as the court deems fit: CMA CGM v Ng Chip Choi Maurice, §24(2); Order 52, rule 7.  This is an “absolute discretion” but it would be difficult to think of circumstances where a suspended order should be made when nothing further remains to be done to comply with the order: Hong Kong Civil Procedure 2016, Vol 1, §52/7/2.

7.  The court will consider if there are:

(a)  Aggravating factors:  Hao Xiaoying v Wong Yiu Lam William & Ors, HCMP 1968/2014, 2 March 2015, Anthony Chan J;

(b)  Mitigating factors: Ge Transportation (Shenyang) Co Ltd v Lu Jinxiang, HCMP 1792/2013 (unreported, 22 January 2014) (DHCJ Marlene Ng);  and

(c)  Acts to purge the contempt, ie acts to atone for a contempt, eradicate it or cleanse it of its previous ill-effect which, in the case of a mandatory order, may be fulfilled if the contemnor thereupon does the act or causes it to be done: CJ v Flintshire BC [2010] EWCA Civ 393, at §6.

8.  Relevant factors (which are not exhaustive) include:

(a)  The nature of the order and breach in question, and the extent of the breach: Questnet Limited v Wilfred Royce Lane.

(b)  Whether the contempt was contumacious or unintentional, the reasons, motives and state of mind: Hong Kong Civil Procedure 2016, Vol 1, §52/9/2.

(c)  Whether the claimant has been prejudiced by virtue of the contempt and whether the prejudice is capable of remedy: Crystal Mews Ltd v Metterick, §13.

(d)  Whether the contemnor appreciates the seriousness of the deliberate breach: Crystal Mews Ltd v Metterick, §13.

(e)  Whether the contemnor has cooperated: Crystal Mews Ltd v Metterick, §13.

9.  Counsel for Koo and Ling have helpfully compiled a schedule showing the sentences for contempt in Hong Kong in the last 15 years.  Cases which Mr Hew, counsel for the Liquidator, has referred me to on matters of principle also contained sentences in the UK.

10.  As circumstances of contempt vary greatly, there is little mileage to be gained from the citation of other cases: AXA China Region Insurance Co Ltd & anor v Li Yu Ping Ellen [2002] 3 HKC 339, 362 H-I, Stock JA.

11.  The approach I shall adopt is to ascertain the extent of the breach as found by the court, the context in which the contempt had arisen, effect of the breach on the Liquidator, the aggravating factors, the mitigating factors and the personal circumstances of Koo and Ling.

The extent of the breach as found by the court

12.  A contemnor should be punished for the substance of his/her contempt and not for what he/she had originally been charged with.

13.  There was a wholesale failure to comply with one order, namely, “to produce all books, correspondence and documents in their custody or power relating to the business and affairs of the Company”.  There were 25 individual classes of documents formulated under that order but, after trial, the Liquidator was only able to establish 7 of them (Table 2 in §316 of the Decision). 

14.  In substance, Koo and Ling’s breach was failure to produce the Post-Deadline Documents before the Deadline and to produce Class 5(v) (bank statements of the Company).  At the beginning of the hearing, I have clarified with defence counsel that though contempt was established for the “whole class” in respect of Class 2, in fact the failure to produce was similarly limited to the Post-Deadline Documents.

15.  In the Decision (§§315 and 320), I held that there was no evidence that there were other documents that had been held back from the Liquidator.

16.  As to the state of mind, I found that Koo and Ling’s conduct was contumacious and intentional, not casual or accidental (§321).

Context in which the contempt has arisen

17.  Ling perceived the Liquidator’s action as part of a far bigger picture – an inheritance dispute with Lim’s other family members which led to a string of court cases.  She took the view that any settlement of the inheritance dispute would necessarily involve settlement of all other actions. She also took the view, based on legal advice and medical evidence, that her challenge to the latest will of her father (Lim) was likely to be upheld.

18.  I am not surprised by Ling’s perception.  Koo and Ling had cause to feel aggrieved since Lim apparently resiled from his promise made years ago to make a gift of the Property to them.  The family battles had commenced by way of litigation as early as 2002. 

19.  That perception was not, of course, an excuse for their contempt, and defence counsel do not for one moment suggest that was so.  Koo and Ling could not be in doubt that the acrimonious family battle had gone on and no settlement was in sight.  After the 2011 Order, there was the 2012 Order. However, I do consider that the family battle had temporarily blinded their views.

Effect of the breach on the Liquidator

20.  The 2011 Order was made under section 221 of the Companies Ordinance, Cap 32. It is tempting to conclude that the contempt prevented fulfillment of the purposes of section 221.  The Liquidator was unable to understand the affairs of the Company and the reason for its failure, to ascertain the Company’s assets, to decide what potential claims the Company had or what report to make to the authorities to enable them to take appropriate action against those guilty of misconduct in relation to the Company’s affairs.  See Joint and Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd [2007] 1 HKLRD 116, at §§25-26.

21.  However, it has to be remembered that the Company was wound up on 10 September 2008.  It took the Liquidator some time before the 2011 Order was obtained.  Some of the Documents sought dated as far back as 1995.  The suspected misappropriation of assets by Koo and Ling occurred in 2000 (which triggered the application for the 2011 Order) about 11 years before. 

22.  The substantial “delay” which might have prevented the Liquidator from proving the existence of many Classes of Documents occurred before the 2011 Order. Their lack of cooperation with the Liquidator might have exacerbated the situation, but that would be of a relatively limited scale.

23.  It has to be borne in mind that the Post-Deadline Documents were produced by Koo and Ling, however late.  Those Documents were not helpful to the Liquidator but that was because of the nature of those Documents, not because of selective disclosure by Koo and Ling.

24.  Specifically in respect of Class 5(v) (bank statements), Mr Huggins SC and Mr Duncan SC very fairly accept the finding on liability, but submit that the fact that the Liquidator was able to obtain the bank statements from the banks is relevant to sentence.  

25.  I agree.  The Liquidator had managed to obtain bank statements from Hang Seng Bank and probably HSBC. That the Liquidator had also got the bank statements of Bank of East Asia was not brought to the attention of the court at the trial.  In summary, the prejudice to the Liquidator under Class 5(v) was limited. 

26.  I find that the effect of the breach on the Liquidator was not substantial.

Aggravating factors

27.  As disclosed from section C4 of the Decision, Ling gave inconsistent evidence in her affirmations.  Before application for leave to commit for contempt was made, Koo and Ling had been steadfastly uncooperative. Koo and Ling have been dragging their feet since the making of the 2011 Order. They agreed to attend informal interviews only after the Liquidator intimated the intention to fix a date of oral examination on oath.  They failed to respond to matters raised at the interviews.  They failed to file affirmations confirming the contents of their interviews until compelled by order to do so. They led the Liquidator to believe that there were more documents than had been eventually disclosed.  These were aggravating factors.

28.  I do not regard the adjournment of the trial in 2014 as a delaying tactic as there was no evidence that Koo’s then illness was contrived.  Mr Strachan SC then acting for the Liquidator also very fairly did not cross-examine Koo to the contrary.

Mitigating factors and purging of contempt

29.  Each of Koo and Ling has apologized to the court unreservedly. Those apologies have been backed up by acts to purge the contempt.

30.  In the 2 months since the Decision, instead of distancing herself from knowledge of the Company’s affairs, hiding behind her passion for art and busy travel schedule, Ling took time off from her busy schedule to personally, and leading a team, do a thorough search at all possible places and made enquiries of all possible persons who might have knowledge as to the existence of further Documents (“the post-judgment search”). In fact, under the mistaken belief that the contempt under Class 2 covered more than the Post-Deadline Documents, Ling had done a more extensive search than she needed to. See Ling-5^th.

31.  In addition, LWT (acting on behalf of Koo and Ling) have written to 7 banks at which the Company might have accounts.  When Shanghai Commercial Bank disclosed 17 years of bank record, LWT immediately passed them on to the Liquidator. 

32.  In paragraph 75 of the Decision, I reminded myself that Koo and Ling would not want to risk the loss of their liberty by not producing documents which they really knew existed and where to obtain unless those documents contained materials against their interests and did not exist.  Subsequent to that Decision, properly advised, Koo and Ling could not have overlooked the point that the risk might well become reality. 

33.  I do not expect Koo to have joined in the post-judgment search, given her age, health condition, inability to read English or understand accounts.  She could not have done better than Ling anyway.  However, she should share the benefit of that search.

34.  I have found that production of the Documents had changed from nil before the committal proceedings to “woefully inadequate” by July 2013 (§72 of the Decision).  The post-judgment search demonstrated that what appeared to be “woefully inadequate” was in fact all that Koo and Ling could have produced, save for the bank statements.

35.  I am satisfied that there had been genuine efforts to purge the contempt and that was the strongest mitigating factor.  I maintain my view that there was nothing to show that Documents had been withheld from the Liquidator, at the trial and now.

Personal circumstances of Koo

36.  Koo is almost 80.  She has an unblemished character.  She has character references.

37.  However, in the context of civil contempt, I would not place much weight on the fact of a contemnor being a first offender.  The public must not be misled to believe that every person has one chance of disobeying a court’s order.

38.  As to medical evidence, according to Professor Bernard Cheung, Koo has high blood cholesterol, coronary artery disease, osteoporosis, dizziness and paraesthesia in the legs.  He is of the view that she requires substantial medical care that cannot be offered in a standard prison.  She is at risk of sudden loss of consciousness, falls and bone fractures, heart attack or stroke.  She would require medical care and follow-up to minimize her risk of a cardiovascular death, which can be sudden and unheralded.

39.  According to Professor Raymond Cheung, she had stroke from diseases affecting the blood vessel of the brain, degenerative changes of cervical spine and lumbar spine, and narrowing of spinal canal.  She will be at risk of major stroke, heart attack and worsening in her dizziness and numbness if she fails to be under constant medical attention and monitoring.  There will be risks to Koo’s medical conditions if she is subject to custodial sentence, albeit for a short period.  This is because as a result of her spinal claudication, she will experience numbness and even weakness upon sitting, standing or walking for a relatively short period of time such as an hour.  Medication may cause sleepiness and risk of serious bleeding especially following trauma such as head injury. 

40.  To minimize the risk of injury, both doctors consider that an accompanying person is advisable.  This is also supported by the observation of Mrs Annie Fung who has been a family friend of Koo for over 50 years.

41.  In my view, if a custodial sentence is justified, medical condition weighs little.  A copy of Koo’s medical report can be given to the Correctional Services Department to ensure that she would be given appropriate medical treatment: AXA China Region Insurance Company Limited & Another v Li Yu Ping Ellen [2002] 3 HKC 339, §63.

Personal circumstances of Ling

42.  Ling is now aged 58.  She has unblemished character, backed up by substantial character references.  She has impressive achievements in the art world.  In her generosity, she has turned her passion into a scheme that nurtures rising Chinese artists and bridges the gap between the western world and Chinese contemporary art.  However, all of these count little in the context of this contempt of court and I repeat paragraph 37.

The appropriate sentence

43.  At first blush, contempt with the aggravating factors identified would have justified an immediate custodial sentence of 3 months for Koo and Ling.

44.  However, even with aggravating factors, it is still open to the court to suspend a term of imprisonment pending purging of the contempt within a specified period.  For example, in Hao Xiaoying v Wong Yiu Lam William,Anthony Chan J imposed a sentence of imprisonment for 4 months on a defendant who had persistently failed to comply and made a complete turnaround in his story.  He ordered that the sentence need not be served if he purges the contempt.  In relation to each director, a fine in the sum of HK$150,000 was imposed.

45.  Applying Crystal Mews v Metterick and Re Barrell Enterprises Ltd, the coercive function in the sentence was spent since there is no basis to expect any further Documents to be produced. It is really the function of punishment of the disobedience that the court needs to address.  If a term of imprisonment is deemed appropriate, it would clearly not be suitable to suspend it: Hong Kong Civil Procedure 2016, Vol 1, §52/7/2.

46.  Both Mr Huggins SC and Mr Duncan SC persuade me to consider a substantial fine which I am sure Koo and Ling will have no difficulty in paying.

47.  Litigants in general will immediately query whether it is correct to let wealthy persons buy their way out of prison. 

48.  Let me make this absolutely clear.  There is no room for thinking that the court will permit such abuse by wealthy persons.  This is not such a case. The contempt proceedings created a sensational picture of 2 wealthy ladies in a well-known family in Hong Kong wriggling their way out of an extensive breach of court orders when in fact the Liquidator’s “success” was less than 30%, represented by 2 box files of Post-Deadline Documents.  No doubt Koo and Ling brought suspicion to bear upon themselves but the actual impact of their breaches of court orders on the Liquidator was not substantial.

49.  Purging of the contempt at an exceptional speed even before sentence was a strong mitigating factor.  The post-judgment search was one that a person, if arrogant and bent on hindering the administration of justice despite a finding of contempt, would not have spent the time, energy and costs to carry out.  The loss of reputation arising from a finding of guilt already represented a huge punishment on them.  There is no suggestion that Koo and Ling will repeat the contempt.

50.  Koo is aged about 80 and in ailing person.  She had always needed assistance to comply with court orders and purge the contempt.  Ling was a 5% shareholder of the Company keen to help her mother.  There is no point in sending 2 truly remorseful persons to prison and I decline to do so. Instead, I order that each of Koo and Ling be fined in the sum of $200,000, to be paid within 14 days.

51.  I thank counsel for their assistance.