QUESTNET LTD v. WILFRED ROYCE LANE

HCA 1475/2006

IN THE HIGH COURT OF THE

HONG KONG ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1475 OF 2006

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SENTENCE FOR COMMITTAL

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1.  The matter now before the court is the sentence to be imposed on Mr Lane, the 2nd defendant in these proceedings, with regard to two convictions for contempt of civil court orders. 

2.  In terms of time, the first is an order to make disclosure in relation to the whereabouts of and his dealings with funds derived from or placed with him by the 1st defendant.  The order was made on 17 August 2006 and required compliance within 24 hours.  In convicting the 2nd defendant on 15 June 2007, I had found him to be aware of the order latest by 16 February 2007 when he conducted a search of the court file and, in any event, by 25 April 2007 when his then solicitors received the papers from the plaintiff's solicitors.  The 2nd defendant only filed his affidavit of compliance on 13 June 2007.  I had indicated in my Judgment that this affidavit might prove to be inadequate.  Nevertheless, this aspect has not been pressed by the plaintiff and, in sentencing, I will proceed on the basis that the affidavit filed on 13 June 2007 is a compliance of the disclosure order.

3. The second conviction relates to the Mareva injunction that was granted at the same time as the disclosure order.  The injunction restrains the 2nd defendant from dealing with, or disposing of, or diminishing the value of any funds derived from, or placed with him by the 1st defendant, up to the limit of EUR 582,806.44.  The 2nd defendant had, on his admission, received US$737,600.31 from the 1st defendant and when the Mareva injunction was in place, paid out to Alpha Omega Group of Austria and the 1st defendant's wife on 21 and 28 August 2006, the respective sums of US$100,000 and US$535,477.50.  In my Judgment delivered earlier today, I found the 2nd defendant was aware and had notice of the prohibition imposed by the injunction when he paid out the funds. 

4. As a matter of principle, I accept that the sentence for contempt of civil court orders may range from a fine to a term of imprisonment.  The starting-point, however, is to acknowledge that contempt of civil court orders is a serious matter and that court orders are made to be obeyed.  As Stone J pointed out in the case of Abu Dhabi National Tanker Company v Lam Ming Chi [1998] 4 HKC 320 at page 336E, a prime consideration of the court in sentencing contempt is the “signal importance of demonstrating to litigants that the orders of these courts are to be obeyed."  By "litigants", Stone J is clearly referring to litigants in general and not just the contemnor himself.  At the same time, the nature of the order and breach in question, as well as the extent of the breach, are also highly relevant considerations. 

5. In the present case, the Mareva injunction and the disclosure order against the 2nd defendant have to be viewed against the backdrop that the plaintiff was claiming against the 1st defendant for the recovery of funds held by him on trust and had been misappropriated and converted by him.  The 1st defendant was formerly a director and employee of the plaintiff.  The 2nd defendant was also previously the chief legal adviser of the plaintiff and worked for the plaintiff's group of companies.  The 2nd defendant was aware of the nature of the plaintiff's claim against the 1st defendant and that Mareva injunction and disclosure order had been made against the 1st defendant.

6.  Further, one of the clear effects of the 2nd defendant's breaches is that the plaintiff had been delayed, if not frustrated, in taking actions, whether timely or at all, to trace and recover the funds to which it belonged. This is not to mention the unnecessary costs involved because of the breaches.  Despite judgments had been entered against the 1st and 2nd defendants, the plaintiff has yet to recover the trust funds.  In addition, the 2nd defendant had, as I have found, acted to avoid the service of the process.  This has added to the delay and costs as well as inconvenience of the plaintiff. 

7.  Seen in these context, there can be no doubt that the breaches committed by the 2nd defendant are very serious and should, as a matter of principle, attract a term of imprisonment. 

8. In this connection, the authorities cited by Mr Leung in which fines were given, stand in very different category from the present.  For instance, the contemnor in Sino Wood Investment Limited v Wong Kam Yin HCA307 of 2002 (unreported) was not successful in her attempt to leave the jurisdiction in disregard of the prohibition order. Saunders J also found that the contempt “was not a contempt that related to the administration of justice in the sense that it was not the disregard of an order that was designed to the immediate benefit of the plaintiff in the proceedings, such as an order in the nature of discovery or the like.” (at para.13).  And in the case of Kao Lee & Yip v Donald Koo Hoi Yan & Others HCA8847 of 1993 (unreported), there was an episode of very bitter litigation between the plaintiff and the contemnor.  The 2nd defendant in our case was, as a matter of fact and law, a “stranger” to the trust held by the 1st defendant.  Yet, he had voluntarily undertaken to assist the 1st defendant in dissipating the trust funds, albeit under payment. 

9. I now deal with the length of the sentence to be imposed.  In this regard, I acknowledge the very thorough and eloquent submissions that Mr Leung had advanced on behalf of the 2nd defendant on the general mitigating factors and, in particular, his personal and family background. In a case like this, and given the findings of the court on the circumstances of the contempt, there is, in fact, very little that counsel could advance in relation to the circumstances surrounding the commission of the contempt. 

10. I accept that the 2nd defendant is a family man and has commitments to his family.  It has been an unpleasant experience both for him and his family in the period since August 2006 during which he cannot leave Hong Kong due to the existence of the prohibition orders.  I also accept that he has a good working and employment record and he was on good relationship with the plaintiff when he retired, as well as the fact that the 2nd defendant is a reputed sportsman.  No doubt, the convictions for contempt would have tarnished his hitherto good reputation. 

11. I note too that the 2nd defendant does not appear to enjoy a very sound health.  He has been certified by doctor to require regular and long-term medication for his asthma and chronic bronchitis problem. 

12. The 2nd defendant had filed two affidavits offering apologies to the court for the two contempt.  They were, however, brief and, in the case of the affidavit made this morning for the second contempt, it is cursory and bears little sign of great or sincere remorse. 

13. I do not accept that the first contempt is a technical breach.  It was a substantial breach, even on the basis of my finding in that set of contempt proceedings.  Further, in light of the findings in the second set of contempt proceedings when more evidence has come to light, the breach was much more serious and long.  It simply cannot be said that there was no real consequences flowing from the much-delayed disclosure. 

14. I consider that, in the circumstances, and having regard to the personal background and health of the 2nd defendant, a sentence of 1 month is warranted for the 1^st contempt. 

15.  In the case of the second contempt, it is a flagrant breach of the Mareva injunction.  The consequences to the plaintiff are far-reaching and damaging.  Effectively, the plaintiff has been deprived of the opportunity to trace and recover part of the trust money.  I consider that a sentence of 3 months is called for, notwithstanding the mitigating factors that have been advanced. 

16.  The sentences are to be served concurrently. 

17.  As to costs, it is not contested that they should be borne by the 2nd defendant.  There is also no dispute that the costs should be awarded on indemnity basis.  What is in issue is that a gross sum costs order should not be made because some of the items on the plaintiff's skeleton bills were being disputed.

18.  However, having heard Mr Leung, I am not persuaded that the disputes he had outlined could not be resolved or are unsuitable for resolution under a gross sum costs order.  I agree with Mr Maurellet’s submissions that much costs and time would be saved by a gross sum costs order.  This is particularly so for the costs of the sentence in the first set of contempt proceedings, since the costs of the hearing on liability had already been dealt with by a gross sum costs order in the amount of $133,161.00, which was on indemnity basis. I am of the view that the costs should be dealt with by way of gross sum assessments. 

19. In respect of the costs for the sentence in the first contempt proceeding, I note that the number of documents and work additional to those in connection with the liability hearing are not that many; they consist primarily of the Second Affidavit of the 2nd defendant and a couple of further attendances before the court.  I would award a gross sum costs in the amount of $200,000.00.

20. As to the costs of the second contempt proceedings, as it is awarded on indemnity basis, all costs should be allowed save those which the paying party can demonstrate are unreasonably or improperly incurred. I do not agree it is unreasonable for the plaintiff to be represented by both senior and junior counsel, having regard to the gravity of the matter and the number of issues raised by way of defence to the contempt proceedings.

21. I do, however, note that quite a number of the documentation in support of the second contempt proceedings would have featured in the other proceedings or applications in this action, for instance, the applications by the plaintiff for summary judgment against the 1^st defendant and for grant and/or continuations of prohibition orders against the 2^nd defendant, the applications by the 2^nd defendant to set aside the default judgment and for discharge of prohibition orders, and so on.  Further, as these various proceedings have been going on in parallel, there is bound to be overlapping in the work done and. Hence, even though the costs are on indemnity basis, there should be adjustments on the skeleton bill to reflect this. And the margin of reduction or adjustment would be wider than what may otherwise have been on indemnity basis assessments. 

22. On the second set of contempt proceedings, the costs are allowed at $600,000.00. 

23. The assessments that I have made are on a global basis and I have not dealt with the two skeleton bills on an item-by-item basis because I do not consider this to be justifiable or appropriate. It would not be in line with the spirit of gross sum costs assessment and the objectives of minimising the costs and time involved in a taxation exercise.