JRB v. KLWW

CACV 28/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 28 OF 2011

(ON APPEAL FROM HCMC 8 OF 2010)

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BETWEEN

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Hon Cheung JA :

1.  This is an appeal by the 1^st respondent against the refusal by Deputy Judge Carlson to grant her leave to issue contempt proceedings against the petitioner. For the purpose of this judgment, I would refer the 1^st respondent as the wife and the petitioner as the husband.

Background

2.  The parties were married in 1989 and divorced on 30 April 2010.  The wife is a successful financial advisor and has by her efforts accumulated huge wealth. The husband is a barrister.  His former occupation was a chartered secretary but changed to the present profession in 2002.  They have two children, a son aged 21, living in Toronto and a daughter aged 18, studying in England.

Application for injunction

3.  The husband applied for ancillary relief for himself and the children.  Based on the documents disclosed by the wife, the husband discovered that the wife had transferred large sums of money to her mother (the 2^nd respondent) in Vancouver, Canada.

4.  The husband by an ‘Ex-parte Summons on Notice’ dated 29 July 2010 applied for an injunction to restrain the wife from dealing with assets identified in thirteen named bank accounts.  He was represented by counsel and solicitor.  The husband in his 4^th Affidavit filed in support of the application stated that,

‘ I will agree to provide undertakings with regard to timely service on appropriate individuals, banks etc, and whatever further undertakings the court so requires in terms of undertakings as to damages.’

5.  The application was heard by Saw J on 30 July 2010.  The Judge adjourned the application to the return date of the inter partes summons which was to be issued by the husband upon the wife’s undertaking not to transfer funds in excess of HK$400,000 per month from ten named accounts without providing notice to the husband of her request to do so and the purpose of such transfer.  The wife was represented by her current solicitors at the hearing.

6.  The order of Saw J recited the following undertaking by the husband,

(a)  to issue an inter-partes summons within the next 48 hours, or as soon as practicably possible, returnable within one month of the date hereof and dealing with all the matters raised in his ex-parte on notice application;

(b)  to cause his solicitors to serve all the documents in support of his ex-parte on notice summons together with a copy of the sealed order on the 1^st respondent as soon as practicably possible.

7.  The husband by a summons dated 9 August 2010 applied to set aside the disposition made by the wife in favour of her mother.

8.  The husband also issued the inter partes summons for injunction returnable on 13 August 2010.  Before the hearing of the summons, the parties filed a consent summons dated 12 August 2010 to vacate the hearing date and adjourn the husband’s application to a new date.  The wife continued to give her undertaking as stated earlier.  Yam J made an order in terms of the consent summons on 12 August 2010.

9.  The application for injunction came before Judge Carlson on 11 November 2010.  The husband also applied to join the wife’s mother as a party in his application to set aside the disposition.  This application was also heard on 11 November 2010.  Judge Carlson joined the mother as a party and granted an injunction in the following terms :

‘Injunction

7. (1)   Save for the total maximum sum of HK$205,000 per month comprising (but need not be spent in the proportion specified below in paragraphs 7(a) and (b)):-

(a)   HK$90,000 per month for the Respondent’s personal expenses and HK$75,000 per month for the children’s expenses from account no. XXX with Hang Seng Bank Limited referred to below at paragraph 7.3.1;

(b)   HK$30,000 per month for regular business expenses of Hertford Capital Limited and HK$10,000 per month for business entertainment expenses from account no. XXX with HSBC referred to below at paragraph 7.3.8; and

(2)  Save for her reasonable legal expenses, salaries tax and profits tax payable,

(3)  the Respondent whether by herself, her servants, agents or otherwise, until further order be restrained from disposing of, selling or otherwise dealing with assets and/or any and all monies in the following bank accounts held in the Respondent’s name or in the name of the 2 companies she owns 100% including the below:-

[15 bank accounts were identified.]’

10.  The injunction was a mareva injunction. One glaring omission of the injunction order is that there was no undertaking as to damages by the husband to the wife and third parties who may be affected by the granting of the injunction.

Service on banks

11.  On 31 December 2010 the husband’s solicitors, Ip & Heathfield, served the injunction on the banks named in the order which proceeded to freeze the accounts of the wife.  Amongst the banks were the Hang Seng Bank and HSBC.  Both the Hang Seng Bank and HSBC did not give effect to the exceptions provided for in the order which allowed the wife to withdraw $165,000 per month from the Hang Seng Bank account and $40,000 per month from the HSBC account. 

12.  The wife’s accounts in Hong Kong were for her personal and business use and the account in the Vancouver branch of HSBC funded the son’s maintenance in Canada.

13.  In the letter dated 31 December 2010 from Ip & Heathfield which accompanied the service of the injunction, the exceptions referred to in the order were expressly stated.

Hang Seng Bank

‘ We draw your attention to the exceptions to the order in relation to the Prestige account number XXX which allows withdrawals by the wife of up to the sum of HK$165,000 per month for her personal and her children’s expenses.’

HSBC

‘ We draw your attention to the exceptions to the order in relation to the Business Vantage account number XXX which allows withdrawals by the wife of up to the sum of HK$40,000 per month for regular business expenses and business entertainment expenses.’

The correspondence

14.  The freeze by these two banks of the wife’s accounts which included the use of her credit cards naturally caused huge problems for the wife.  By a letter dated 6 January 2011, the wife’s solicitors Peter K S Chan & Co (‘Chan & Co’) wrote to Ip & Heathfield stating that the action by the husband damaged the wife’s personal and commercial reputation and requested the husband, among other things, to take steps to eradicate the effects of the conduct complained of.

15.  By a letter dated 7 January 2011, the Ip & Heathfield replied that,

‘ We intended no embarrassment to your client in relation to her banking with any of the banks. Had she taken the precaution of explaining the situation to her bankers in regard to the restraint on her use of the accounts in the period of time from when the order was made she would have avoided this embarrassment.

Rather than copy this letter to the Hang Seng Bank and the Hong Kong and Shanghai Bank, we invite you to explain to them that the purpose of the injunction is not to prevent your client operating her accounts at all but to limit the operation of the accounts within the terms of the order.’

16.  The husband by an email dated 10 January 2011 wrote to the wife stating that,

‘ Finally, I’m truly sorry to hear about how some of the banks have reacted on your accounts. This came as a total shock to me - and it must have been nothing less than devastating for you - because my experience in a case where I got the court to set aside an ex parte injunction obtained by Ermanno’s firm against one of my clients was quite different - in fact I recall the bank invited my client to discuss how he would propose to operate within the business expense limit. I’ve asked my lawyers to give whatever further explanation your banks might need in order to resolve the problem and hope that it can be sorted soonest.’

17.  Chan & Co. wrote again to Ip & Heathfield on 14 January 2011 stating that,

‘ By reason of the fact the said drastic actions of the banks are prompted by your failure and/or negligence as aforesaid, we do not think that your said invitation and offer are realistic in the resolution of the matters herein without your client taking the lead by taking proactive actions including, inter alia, offering the appropriate indemnities to the banks as aforesaid.’

18.  Ip & Heathfield replied on 17 January 2011, stating that,

‘ Cancellation of your client’s and Hertford’s banking facilities and credit cards has plainly not resulted from service per se of the Order on the banks concerned. Cancellation is a result of the reaction of certain of the banks on whom the Order was served. Our client cannot be held responsible for your client’s bankers reaction or (if it be the case) misunderstanding - particularly since your client appears not to have approached her bankers in the 6 weeks following issue of the Order. Nevertheless, our 7^th January 20l1 letter has already indicated that we are prepared to offer whatever necessary further explanation her bankers may require so that operation of the accounts may be limited within the terms of the Order rather than suspended.’

19.  Ip & Heathfield further explained in a letter dated 19 January 2011 the reason for the delay in the service of the order :

‘ (a) instructions for service of the Order were confirmed by our client in conference with counsel on the afternoon of l2^th November 2010, well before the order was sealed. We have said already, we consider service on the relevant banks as normal and proper practice;

(b)   there was delay in obtaining sufficient copies of the sealed Order until early December;

(c)   thereafter we gave consideration to the letters to two of the banks needing to contain a paragraph drawing attention to the specific exceptions provided in the Order for your client’s expenses;

(d)   thereafter, further delay in service was entirely occasioned by the handling solicitor being out of Hong Kong from before the Christmas period;

(e)   it was only upon return from Christmas leave that a complete review of the file was performed, and it was a result of this review that the banks were then served with the Order.  Indeed, your records will identify that on the same day (31^st December 2010) you received various letters from us dealing with a number of other outstanding matters.  You will have noticed also that in the rush to get all of the correspondence out and get this file up to date there was an error made in the dates of the Order within the service letters, requiring the letters to be amended and re-sent;

(f)   it was only when we copied to our client your 1^st letter of 6^th January 2011 that he became aware that the Order had been not been served on your client’s bankers until 31^st December 2010.’

Present proceedings

20.  On 28 January 2011 the wife issued the proceedings for contempt against the husband. The statement in support of the application stated, among other things, that

‘ 14. Furthermore, in serving the Order on the Banks, the Petitioner failed to (a) give clear directions as to permissible operation of accounts, (b) offer undertakings to indemnify any costs incurred by third parties and/or (c) state the right of parties to vary the Order as is required. Such failures led to drastic action taken by the Banks as aforesaid.’

21.  On 14 February 2011 Judge Carlson refused to grant leave to the wife to commence contempt proceedings against the husband.

Variation of the injunction

22.  On 19 April 2011 Judge Carlson, pursuant to a summons issued by the husband, varied the order of 11 November 2010 to allow the wife to open a new bank account to be funded with money from the Hang Seng Bank account in the sum of $175,000 per month starting from 2 May 2011 and from one of the HSBC accounts in the sum of $30,000 per month.  The new account was also allowed to be funded with a ‘one-off lump sum’ of $550,000 from the Hang Seng Bank account.  The wife was further allowed to withdraw reasonable sums for payment of legal fees and tax. The following terms and undertakings which were the standard terms and undertaking in a mareva injunction were also for the first time incorporated into the order.

‘7B. THIRD PARTIES

(1)  Effect of this Order.  It is a contempt of court for any person notified of this Order knowingly to assist in or permit a breach of this Order.  Any person doing so may be imprisoned, fined, or have his assets seized.

(2) Set off by banks.  This injunction does not prevent any bank from exercising any right of set-off it may have in respect of any facility which it gave to the 1^st Respondent before it was notified of this Order.

(3) Withdrawals by the 1^st Respondent.  No bank need inquire as to the application or proposed application of any money withdrawn by the 1^st Respondent if the withdrawal appears to be permitted by this Order.’

‘ SCHEDULE

   Undertakings given to the court by the Petitioner

(1)   Anyone notified of this Order will be given a copy of it by the Petitioner’s solicitors.

(2)   The Petitioner will pay the reasonable costs of the banks as referred to in paragraphs 7A.3.1 to 7A.3.3 and paragraphs 7A.3.8 to 7A.3.l2 which have been incurred as a result of this Order including the costs of ascertaining whether such banks hold any of the 1st Respondent’s assets and if the court later finds that this Order has caused such banks loss, and decides that such banks should be compensated for that loss, the Petitioner will comply with any order the court may make.

(3)   The Petitioner will not without the leave of the Court seek to enforce this Order outside Hong Kong or seek an order of a similar nature including orders conferring a charge or other security against the 1st Respondent or the 1st Respondent’s assets.

(4)   If for any reason this Order ceases to have effect, the Petitioner will forthwith take all reasonable steps to inform, in writing, any person or company to whom has given notice of this Order, or who he has reasonable grounds for supposing may act upon this Order, that it has cease to have effect.’

Mareva injunction

23.  Mareva injunction has been introduced into our civil jurisdiction regime since the 1970’s.  It is an extremely drastic remedy and has been described as an atomic bomb in view of the serious effect on a party whose assets are restrained by the order.  It is precisely because of the dire consequence on a receiving party that the Court demands the strictest compliance from lawyers of established principles in applying for this remedy.  Full and frank disclosure and adherence to the specified form of the order are required.  Practice Direction 11.2 expressly stated that the standard form of order for mareva injunction should be followed in the absence of good reason to the contrary. Further, where the order sought deviates in a material respect from the standard form, this should be drawn to the attention of the judge hearing the application.  Practitioners are advised that they should familiarise themselves with this Practice Direction which was first issued in as early as 1998 and draw it to the attention of the judge before whom they are appearing. 

24.  The order of 11 November 2010 contained glaring and serious omissions.  Despite the husband’s statement in his affidavit that he would provide undertakings as to timely service on banks and undertakings as to damage, none was provided for in that order until the variation on 19 April 2011.  This is regrettable.  While the wife’s lawyers (not Mr. Ronny Wong SC who only appeared in this appeal nor Ms Po Wing Kay and Ms Doris Li who only appeared in the contempt application) were equally at fault in not noticing the omission, the starting point must be that it was the duty of the husband who is a practising barrister and his legal advisers to include the undertakings in the draft order.  They should further take the initiative of correcting the omission, particularly in a matter as important as the undertaking as soon as they realised it.

25.  Further the intended service on the banks should be expressly stated both in the supporting affidavit and in the order which was not done in the present case. As Kerr LJ observed in Z Limited v. A-Z and AA-LL [1982] 1 QB 558 at 588 that,

‘ the plaintiff should consider on what third parties it is meanwhile intended—and reasonably necessary—to serve a copy of the injunction. (vi) All the foregoing matters should be fully and frankly dealt with in an affidavit supporting the ex parte application.’

26.  As Hunter J observed in In re application by Liu Lee Yuk Ching [1982] HKLR 399 at 410, the breadth of intended service should be known to and controlled by the court by the undertakings in its order.

27.  Further as the present order is a worldwide injunction which covered worldwide assets, the prescribed form in the Practice Direction requires this important provision to be included :

‘THIRD PARTIES

(1)  --

(2)  Effect of this Order outside Hong Kong.  The terms of this Order do not affect or concern anyone outside Hong Kong until it is declared enforceable or is enforced by a court in another jurisdiction and then they are to affect him only to the extent they have been declared enforceable or have been enforced UNLESS such person is:

(a)    a person to whom this Order is addressed or an officer or an agent appointed by power of attorney of such a person; or

(b)   a person who is subject to the jurisdiction of this court and (i) has been given written notice of this Order at his residence or place of business within the jurisdiction of this court and (ii) is able to prevent acts or omissions outside the jurisdiction of this court which are a breach or assist in a breach of this Order.’

28.  This provision was omitted in the order and the order was served on a bank outside Hong Kong without there being any evidence that compliance with the requirement had been met.

29.  We are of course not sitting in an appellate capacity on an appeal from the granting of the injunction.  However, I consider strict compliance to the established principles and requirements to be of such a fundamental importance to the injunction regime that I need to restate them clearly to ensure that they will be properly observed in the future.

Contempt of Court

30.  However, the core issue to be resolved in this appeal is whether the omission of the husband in the injunction application and his subsequent conduct after the wife notified him of the freezing of her bank accounts constituted prima facie evidence of contempt for which this Court should now allow the wife to commence contempt proceedings in order to have the issue fully explored. 

31.  It is worth repeating the principles regarding the contempt jurisdiction stated by Hunter J in In re application by Liu Lee Yuk-ching at 408-409 :

‘(1) “Any act done or writing published, calculated to obstruct or interfere with the due course of justice or the lawful process of the courts is a contempt of court” per Lord Russell of Killowen, C.J. in Reg v. Gray [1900] 2 Q.B. 36 at page 40.

(2)    “The jurisdiction (contempt) must surely be limited to wilful and malicious publications going beyond the necessity ... When a court has to decide either that there shall be no justice available for people suffering under wrong, or that malicious publication should be prevented, I believe that the second is the right alternative”.  Per Earl Loreburn in Scott v. Scott [1913] A.C. 417 at pages 448-9.

(3)    “One of the safeguards of legal procedure in this country, is the prescriptive authority of courts of record to visit with summary punishment persons who purposely obstruct or divert the cause of justice”: per Lord Merrivale P. in Apted v. Apted [1930] P. 246 at p. 263.

(4)    “The jurisdiction sought to be invoked in this case is the jurisdiction which it is very necessary that the court should possess both for the vindication of its own authority and for the protection of the litigants who may come before it.  On the other hand it is a jurisdiction the exercise of which may deprive the subject of his liberty without the intervention of a jury—it is therefore a jurisdiction to be used with circumspection and only to be invoked for grave and serious reasons and on real and substantial grounds.  It certainly ought not to be invoked merely for the purpose of getting costs which I do not suggest is the purpose in this case.  It ought not to be invoked merely for the purpose of satisfying a feeling of vengeance against the person who may have done something which the opposite side of the litigation does not like”: per Goddard, J. (as he then was) in Gaskell v. Chambers Ltd. [1936] 2 K.B. 595 at p. 603.  

(5)  The court should consider whether powers are available to it other than to punish for contempt.

(6)  It is no defence, though it may be a factor in mitigation of penalty, that as in the present case, the acts or omissions complained of resulted from advice given by counsel or solicitors: Re Mileage Conference Group [1966] 1 W.L.R. 1137 at p. 1161-2.’

32.  The leave requirement is to filter out obviously unfounded or oppressive applications for committal (Fabrique Ebel SA v MBO Far East [1985] 1 HKC 166 and Anthony Eric Ryan Hotung v Ho Yuen Ki, unreported, CACV 178/2006, 25 September 2009).

Deliberate obstruction or interference with course of justice?

33.  While there were serious omissions, I do not regard the obtaining of the injunction and the service thereof by the husband were done purposely to obstruct or interfere with the cause of justice.  In the first place there appeared to be a legitimate basis to apply for the injunction in the light of the evidence of disposal of assets by the wife which may affect the ancillary relief sought by the husband.  Since the mareva injunction was for the purpose of safeguarding the assets, it would have to be served on the banks.  As the husband had already stated in his affidavit that he would give the necessary undertaking on service on the banks, I just cannot discern any possible advantage to be gained by him if he deliberately chose to withhold giving such undertaking as to compensate the banks in the order itself.  The omission must in all likely events be a careless omission rather than a deliberate or reckless decision.  As to the failure to specify the undertaking as to loss and damages to the wife in the order, this again must likely to be another careless omission rather than a deliberate or reckless decision to withhold giving the undertaking.  Any attempt to do so runs the real risk of having the injunction being discharged, apart from the risk of being committed for contempt.

34.  Further the husband could not possibly have intended to freeze all the wife’s accounts without recognising the need for her to have money to pay for her living or legal expenses.  As pointed out earlier, when the banks were served, Ip & Heathfield had actually drawn their attention to the exemption provided for in the order.  It was unfortunate that the two banks had not paid attention to the terms of the order.  To argue that the banks took this step because of the absence of provision in the order of the right of set off by the banks or of an undertaking by the husband to be responsible for their loss is stretching the argument too far.  Certainly the banks had not indicated that that were the reasons for their decision.

Subsequent conduct

35.  Mr. Ronny Wong SC, who advanced the wife’s application most persuasively, argued that when the wife issued the contempt application, she did not do so in order to seek revenge on the husband who obviously had caused her great distress and inconvenience when she was unable to operate the accounts, but only to ensure that the husband would take steps to eradicate the consequence of her assets being frozen completely.

Last resort

36.  I have to disagree with this approach.  As repeatedly said by the Courts, committal for contempt is the last resort.  This procedure takes time to be activated.  It first requires the Court to consider an application to grant leave to institute the proceedings.  If the wife wished to eradicate the consequence immediately when her accounts were frozen, the proper step to be taken was to make an urgent appointment with Judge Carlson (or a Duty Judge if he was not available) and seek further directions on the terms of the order.  However, I do wish to say that, in the light of the glaring omissions in the present case, the husband and his lawyers should take a proactive approach in addressing the problem rather than simply saying to the wife that they would render the assistance when the banks approached them.  Nonetheless I do not find that the husband had purposely obstructed or interfered with the cause of justice which requires this Court to allow the wife to invoke the contempt jurisdiction.

37.  In any event, although this is not a factor I would rely upon in my decision, the wife had, since April 2011, been able to operate a new account with funds of a specified limit coming from the two Hong Kong bank accounts.

38.  Any damages sustained by the wife’s would have to be pursued by way of the husband’s undertaking as to damages.

Two other matters

39.  There remain two other matters that I should briefly address.

40.  First, Ip & Heathfield stated in correspondence that the wife was in contempt in not complying with the order in terms of the spending limit and requested the wife to disclose this matter to the Court.  Mr. Ronny Wong SC has properly referred us to the letter.  The so-called overspending occurred when the daughter was stranded at the London airport because of the snow storm in December 2010 and the wife had to purchase new air ticket for her to return to Hong Kong.  I do not see the relevance of this matter in the present appeal.

41.  Second, counsel for the husband wrote to Mr. Ronny Wong SC setting out his comments on matters raised in the wife’s appeal documents which Chan & Co. had served on Ip & Heathfield.  Counsel stated he made the comments without instruction from the husband but ‘out of concern’.  He wished Mr. Wong to put all relevant matters fairly before the Court.  Mr. Wong again properly drew our attention to this letter.  We declined to consider the letter as it was written by counsel who was not appearing before us and who said that the letter was written without instruction from his client.  This being an ex parte appeal, if the husband or his lawyers wish the Court to be aware of matters relevant to the appeal, the proper approach is for Ip & Heathfield who is the solicitor on record to ask Chan & Co to draw these matters to the attention of the Court as it had done in the earlier letter.

Conclusion

42.  Accordingly the appeal is dismissed with no order as to costs.

Hon Suffiad J :

43.  I agree with the judgment given by Cheung JA and have nothing to add.