ALAN CHUNG WAH TANG AND ANOTHER v. LEE SIU FONG AND ANOTHER

HCMP 1106/2021

[2023] HKCFI 366

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1106 OF 2021

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BETWEEN

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REASONS FOR JUDGMENT

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A. INTRODUCTION

1.  In my judgment of 21st December 2022 (“the Judgment”),^[1] I found the Defendants – Fong and Wanee – guilty of contempt of court in breaching the s.29 Order for production of documents. The sentencing hearing took place on 3rd February 2023, at which I ordered that each of the Defendants pay a fine of $200,000 within 14 days, and also ordered that the Defendants should pay to the Trustees the costs of and occasioned by the OS. I now give my reasons for my judgment on sentence and costs.

B. THE PRINCIPLES

2.  There is no dispute as to the applicable principles set out in Arboit v Koo Siu Ying (No 2) [2016] 3 HKLRD 154 at [2] to [8] (Au-Yeung J):

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.

3.  Mr Siu submitted that, notwithstanding the general principle that imprisonment should be regarded as a sanction of the last resort, the starting and primary penalty for contempt in breaching an order in the nature of an injunction is imprisonment measured in months, and that this should apply equally in relation to a breach of an order for disclosure of documents.

4.  Mr Man SC submitted, and I agree, that there is a distinction between a breach of an order in the nature of an injunction – or at least those in the nature of a Mareva injunction – and a breach of an order for disclosure of documents. Mareva injunctions are made to prevent the dissipation or spiriting away of assets; they protect the integrity of the court’s processes, and flagrant breaches should be met with an immediate term of imprisonment: AO Smith Holdings (Barbados) SRL v Zhang Dacheng, unreported, HCMP 1132/2011, 1st June 2012, at [58] to [59] (Au J). Mr Man submitted that a breach of such orders may not be capable of being remedied or purged and could result in irremediable prejudice to the plaintiff. The time frame for compliance with such orders is usually an urgent one and any non-compliance may render the orders ineffective. None of this is to say that a breach of an order for disclosure of documents is not serious, but the context and consequences of the breach may well be different.

5.  Whether or not the contempt has been purged is also a weighty factor to take into account on the question of sentencing. In Arboit, which concerned the breach of an order for the production of documents in relation to the business and affairs of a company, made on the application of its liquidators under (the then) s.221 Companies Ordinance (Cap.32), the defendants were “steadfastly uncooperative” for some four years between the deadline for compliance with the order and the finding of contempt.^[2] The defendants’ purging of their contempt at exceptional speed upon the finding of contempt, prior to sentencing, was a strong mitigating factor: Arboit at [49]. In the end, each of the defendants was fined $200,000.

6.  Similarly, in Ip Pui Kam Arthur and anor v Alan Chung Wah Tang and anor, unreported, HCMP 450/2016, 11th October 2017, which concerned the breach of an order under s.29 BO, DHCJ To described the breach as “a very bad case of contempt”, an aggravating factor being that the contemnor, an experienced accountant and liquidator who knew the purpose of disclosure and that time is of the essence in any investigation into the affairs of a bankrupt suspected of having defrauded his creditors, was determined to obstruct the investigation of the trustees in bankruptcy. Nevertheless, the contemnor had purged his contempt (albeit with some unexplained delay of two and a half months). DHCJ To ultimately imposed a fine of $300,000. See [11], [38] to [39].

7.  In Koo Ming Kown v Chan Chi Mong, Hopkins [2020] HKCFI 3128, a term of imprisonment was imposed in respect of a failure to produce a PhD certificate (in the context of proceedings where the respondent’s claim to hold a doctorate degree was in issue), and a failure to provide further and better particulars. The latter had been purged by the time of sentencing, but the former had not. Au-Yeung J observed that the respondent had had many chances before and after the commencement of the contempt proceedings to comply with the order; he understood the order, but had a “cavalier and unnecessarily contentious” attitude towards production.

8.  In Saif Partners II LP v Zhou Zhixiong Joe [2021] 5 HKLRD 130, a term of imprisonment was imposed in respect of a failure to account for certain sums and produce relevant documents. The court found that compliance could have been carried out easily and there was no attempt to purge the contempt. The contempt was “contumacious and cynical” and was continuing at the time of sentencing.

9.  Counsel cited a large number of cases in relation to sentencing. I bear in mind that cases of contempt will vary enormously in their type and facts, so that little mileage may be gained from such citation (AXA China Region Insurance Co Ltd v Li Yu Ping Ellen [2002] 3 HKC 339 at [58] (Stock JA)). Insofar as these authorities are to be considered (if at all), it is therefore important to be mindful of such variations, as illustrated by the distinction between breaches of Mareva injunctions and orders to produce documents referred to above. Nevertheless, as DHCJ To observed in Ip Pui Lam Arthur at [11], a degree of reference may be drawn from sentences passed in similar cases. I agree with Mr Man that of the cases cited, Arboit and Ip Pui Lam Arthur are the closest to the present situation, having regard to the nature of the order breached and the fact that the contempt was purged before sentencing.

C. THE EXTENT OF THE BREACH

10.  In the OS, the Trustees advanced four grounds for complaining of breach of the s.29 Order.

11.  On the first ground, I accepted the Defendants’ construction of paragraph 2 of the s.29 Order. This meant that the breach under the first ground was limited to a failure to produce certain corporate documents within 21 days as required by paragraph 2 of the s.29 Order; these documents were produced only in Defendants 1st of 7th January 2022 or Defendants 2nd of 8th June 2022: Judgment [49], [54], [55].

12.  On the second ground, the Defendants were in breach of the s.29 Order in failing to provide any documents required by the s.29 Order, or filing an affirmation in respect of the same, within 21 days. They did not remedy this until the 2020 Affirmations (three years late but prior to the commencement of the contempt proceedings) and subsequently Defendants 1st and Defendants 2nd (before the hearing of the contempt proceedings). See Judgment [58], [59], [64], [65].

13.  On the third ground, the Defendants were in breach of paragraph 4 of the s.29 Order in failing to address certain items of Schedules 1 and 2 (the Missing Items) in the 2020 Affirmations, which was not remedied until Defendants 1st and Defendants 2nd: Judgment [67], [69], [70], [73].

14.  On the fourth ground, the Defendants were in breach of paragraph 4 of the s.29 Order in failing to state (in their 2020 Affirmations), for each of the documents which could not be produced, whether they have ever been in the possession, custody or control of the Defendants, and when and under what circumstances they became unavailable to be produced. They only did so in Defendants 1st and Defendants 2nd. See Judgment [83], [85].

D. THE BACKGROUND TO, AND CONTEXT OF, THE CONTEMPT

15.  The Trustees had applied for the s.29 Order to examine the Defendants and to obtain documents and information, as part of their investigation into the affairs of the Bankrupt. There were grounds for considering that the Defendants could provide relevant information regarding the Bankrupt, his dealings or property, and indeed grounds for suspecting that the Defendants might have had some involvement in those dealings.

16.  The s.29 Order is wide in scope, covering transactions extending back over ten years, and involving a multitude of companies, some of which had ceased operations or been inactive for some years prior to the making of the s.29 Order.

17.  The examination of the Defendants is part-heard, pending restoration by the Trustees upon their being satisfied that paragraph 2 of the s.29 Order has been fully complied with.

18.  The most contentious issue between the parties at the substantive hearing of the contempt proceedings was whether paragraph 2 of the s.29 Order required the Defendants to produce all corporate documents of the companies listed in Schedule 3 to the s.29 Summons. On this issue, I held that on its proper construction, paragraph 2 did not require such production.

19.  As regards the balance of the s.29 Order, the Defendants have ultimately complied with it, albeit with substantial delay. They have therefore purged their contempt, part of this being before the issue of the OS, and the rest by the time of the substantive hearing of the contempt proceedings.

E. DELAY; WHETHER CONTEMPT CONTUMACIOUS AND INTENTIONAL

20.  The s.29 Order was made on 21st September 2017. The 2020 Affirmations were filed only on 4th September 2020. After the OS was issued on 6th August 2021, Defendants 1st were filed on 7th January 2022 and Defendants 2nd were filed on 8th June 2022. On any view, the delay is substantial.

21.  The Defendants say that they did not comply with the s.29 Order prior to the filing of the 2020 Affirmations because they held an honest belief, based on legal advice from Messrs Liu, Chan and Lam (“LCL”), that the time taken to appeal against the s.29 Judgment and seek a stay of execution of the s.29 Order justified the delay. They further say that they were advised that the 2020 Affirmations amounted to compliance with the s.29 Order, and it was only when they instructed their current solicitors, after the commencement of the contempt proceedings, that they were advised to file Defendants 1st, and subsequently Defendants 2nd.

22.  The Trustees say that these are bare assertions which should be rejected, no disclosure of the legal advice having been given, under a convenient excuse (recently put forward in correspondence in response to a request for disclosure of the advice) that the advice was given orally. They say that where a contemnor says that his breach was attributable to wrong legal advice, he should disclose the advice which could have led him to misunderstand the order, citing Saif Partners II LP at [11]. Of course, disclosure of the legal advice said to have been received may well bolster a contemnor’s claim to have relied on it. However, I do not understand Saif Partners II LP to be laying down a requirement for a contemnor to disclose the advice before he can say that he relied on it. Rather, Anthony Chan J was saying that on the facts of that case, there was nothing in the defendant’s evidence as to what the lawyers had said which could have led to the misunderstanding alleged.

23.  In the present case, the Defendants’ evidence as to the legal advice received is thin, to say the least. It is said that they could not have produced anything further, as they were orally advised, but they do not say (for example) that efforts were made to ask the solicitors to confirm the advice given. Furthermore, the advice that the delay in compliance was justified would not entirely account for the period of inaction between 15th June 2020 (when the Court of Appeal dismissed the Defendants’ (a) renewed application for a stay and (b) appeal) and 4th September 2020 when they filed the 2020 Affirmations, and the period between 6th August 2021 (when the OS was issued) and 7th January 2022 (when Defendants 1st were filed) – although the Defendants say that they took steps to comply with the s.29 Order after the Court of Appeal’s decision, and that they produced voluminous documents in response to the s.29 Order, which would have taken time.

24.  Nevertheless, despite the unsatisfactory nature of the evidence, it seems to me that I cannot go so far as to disbelieve the Defendants’ affirmations, given that the Defendants have not been cross-examined. In this regard, I note that in a letter of 19th February 2020, LCL expressed the view – to the Trustees’ solicitors at least – that compliance with the s.29 Order as demanded would render the Defendants’ appeal nugatory. I cannot say that it is incredible that the Defendants were advised as they have claimed.

25.  I therefore do not accede to the Trustees’ invitation to find that the Defendants’ non-compliance with the s.29 Order was a “calculated move proactively done in bad faith to frustrate the investigative efforts of the Trustees”.

F. THE EFFECT OF THE BREACH

26.  The Defendants’ delay in producing documents pursuant to the s.29 Order has caused delay in the Trustees’ investigations, as the examination of Fong was adjourned on 29th December 2020 by Master Lai with liberty to restore after the Trustees were satisfied that paragraph 2 of the s.29 Order had been fully complied with in respect of Fong; and the examination of Wanee scheduled for 8th January 2021 was adjourned on 6th January 2021 by Master Lai on the same basis (mutatis mutandis).

27.  However, this delay should be viewed in context.

27.1 Given my findings regarding the proper construction of the s.29 Order, many of the documents which the Defendants were said to have failed to have produced in breach of the order were not, in fact, required to be disclosed. The attendant delay cannot be attributed to the Defendants.

27.2 Whilst the passage of time will make the Trustees’ efforts to track down the Bankrupt’s assets more difficult, it should be borne in mind that the s.29 Summons was only taken out on 15th May 2017, which was some sixteen years after the Bankrupt was adjudicated bankrupt (on 8th May 2001), and some twelve years after he was discharged from bankruptcy (in May 2005).

27.3 The Trustees have not said that any of the documents which were eventually disclosed has revealed new areas for investigation or otherwise been of material value.

28.  Mr Man made the further submission that most of the corporate documents which the Defendants failed initially to produce, thus putting them in contempt of court, were publicly available, and indeed were eventually so retrieved by the Defendants from public registers for production. However, this cannot absolve the Defendants from their obligation to have produced the documents as required by the s.29 Order. The Trustees suffered the prejudice of having to devote time and resources into pursuing the Defendants for production of these (and other documents). On the other hand, it is not being said that ultimately, any of the documents produced are of particular materiality. Furthermore, the fact that most of the corporate documents, the non-disclosure of which the Trustees complained about, were publicly available, also serves to show that what was sought was not some secret smoking gun that had been withheld from the Trustees for years.

G. THE DEFENDANTS’ PERSONAL CIRCUMSTANCES

29.  The Defendants are in their sixties. This is the first time they have been found guilty of contempt of court. They have mentioned various medical conditions. They say that their work has advanced the development of medicines for rare diseases and that they have engaged in community and social work. They say that they have suffered stress and incurred costs as a result of being caught up in the hostile litigation between the Trustees and the Bankrupt. I do not consider that any of these matters constitute mitigating factors (cf. Arboit at [37], [42]). They have only themselves (or their lawyers, insofar as they relied on wrong legal advice) to blame for having to bear the consequences of their lack of cooperation in the litigation. Indeed, if anything, their lack of cooperation is an aggravating factor.

H. SENTENCE; COSTS

30.  The object of the sentence is both to punish the 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: Ip Pui Lam Arthur at [10(2)] (DHCJ To). The two most important factors to consider are whether the contemnor has purged the contempt and whether the plaintiff has suffered any prejudice which is irremediable. If the contempt has been purged, the coercive function of the sentence is spent. What remains to be addressed is punishment for the disobedience: Ip Pui Lam Arthur at [11].

31.  The present case is not one of a breach of a Mareva injunction or an order akin to such an injunction. I agree with Mr Man that the sentences imposed in such cases are of little reference value.

32.  The Defendants have purged their contempt. They gave some disclosure in their 2020 Affirmations, even before the contempt proceedings were commenced in August 2021, and then, upon advice from their new solicitors, they provided additional disclosure in Defendants 1st and Defendants 2nd in 2022, prior to the substantive hearing of the contempt proceedings.

33.  The delay in doing so was substantial, but on the other hand, the Defendants’ evidence is that they acted on legal advice. They also purged some of the contempt even before contempt proceedings were commenced. Whilst the examination of the Defendants has been delayed, this was partly due to the parties’ dispute as to the construction of the s.29 Order, in respect of which the Defendants have now been held to be correct.

34.  Insofar as the delay has caused prejudice, when viewed in context, no real substantial item of prejudice has been identified.

35.  In the circumstances, I considered that a fine rather than a custodial sentence was appropriate, and ordered that each of the Defendants be fined in the sum of $200,000, to be paid within 14 days.

36.  The Defendants accept that they should pay the Trustees’ costs of and occasioned by the OS. Normally, such costs would be ordered to be on an indemnity basis. Mr Man submitted that costs should not be ordered to be paid on an indemnity basis having regard to the fact that the Defendants prevailed on the important issue of construction of the s.29 Order, the result of which significantly reduced the extent of the contempt found against the Defendants, and which meant that insofar as the Defendants were in contempt, this had already been purged by the time of the substantive hearing of the contempt proceedings.

37.  Accordingly, I ordered that the Defendants should pay to the Trustees the costs of and occasioned by the OS on a party and party basis. The costs are to be taxed, if not agreed.

38.  The Trustees sought an order that the costs of and occasioned by the OS, as incurred by the Trustees themselves, in their capacity as trustees (as opposed to their legal costs), be paid by the Defendants on an indemnity basis as well (rather than being paid out of the Bankrupt’s estate). The Trustees submitted that since they are professional trustees with the requisite experience and expertise, they have saved substantial legal costs by carrying out analysis and drafting work themselves which would otherwise have been incurred by their lawyers, and that as between the Bankrupt’s creditors and the Defendants, it should be the latter who bear the costs of the Trustees. I declined to grant this order. As Mr Man pointed out, the Trustees have not cited any authority where the trustees’ own costs in pursuing committal proceedings were ordered to be borne by the contemnors. A losing party is not normally ordered to pay, over and above the winning party’s legal costs, the additional costs of the winning party itself. There is also no reason why such costs should be payable simply because the winning party happens to be a professional with the knowledge and experience to carry out some of the work which otherwise would have been done by lawyers.