NAVIG8 CHEMICAL POOLS INC v. INDER SHARMA

HCMP 2885/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2885 OF 2016

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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 was the first hearing of the Originating Summons filed on 27 October 2016 seeking an order that the Defendant be committed to prison for his contempt of court. A Concurrent Originating Summons filed on 10 November 2016 had been served on Defendant. No Acknowledgment of Service had been received, and the Defendant did not appear before the court.

2.  At the hearing, I was satisfied that the Defendant was aware of the hearing, and I proceeded to deal with the application in his absence.  After hearing the Plaintiff, I ordered the issuance of a warrant for committal against the Defendant, awarded costs of these proceedings against him on indemnity basis and provided for the service on the Defendant of the order made by me.

3.  These are my reasons.

4.  The circumstances giving rise to this application were set out in the Statement Pursuant to O 52, r 2(2) and the supporting affirmation of Jeremy Lee, both of which were dated 13 October 2016. 

Background

5.  In summary, the Defendant was the sole director of Nu Tek HK Pvt Ltd (Nu Tek).  On 4 June 2015, the Plaintiff obtained a final arbitration award (Award) against Nu Tek.  On 17 June 2015, Madam Justice Mimmie Chan granted an order that the Award be enforced in Hong Kong in the same manner as a Hong Kong judgment.

6.  On 16 October 2015, Master Lai granted an order that the Defendant, as Nu Tek’s sole director, do attend court on 4 January 2016 for an examination pursuant to O 48, r 1 (Examination), and that he do produce any books or documents relating to Nu Tek’s assets and liabilities.  That order was endorsed with a penal notice.  The Plaintiff was given leave by another order of the same date to serve the Examination Order on the Defendant out of the jurisdiction at his home address in India or elsewhere in that country.

7.  By an order dated 30 December 2015, the Examination was adjourned to a date to be fixed.  The hearing was subsequently fixed to take place on 21 March 2016.

8.  At the hearing on 21 March 2016, the Defendant failed to appear.  Consequently, Master Lo ordered, inter alia, that the Examination be adjourned to a date to be fixed with an estimate of 3½ hours, and that the Defendant should as far as possible supply Nu Tek’s books and records identified in Schedule B of the order not less than 21 days prior to the Examination.  Leave was granted for the order to be served on the Defendant in India.  That order was also endorsed with a penal notice.

9.  The Examination was later fixed for hearing at 9:30am on 27 September 2016.  The Defendant again failed to attend the Examination.  He also failed to produce any of Nu Tek’s books or records.  The Examination was adjourned sine die.

Service

10.  In respect of the service of relevant documents on the Defendant, on 19 January 2016 the Defendant was personally served with the Examination Order dated 16 October 2015, the order for service out of the jurisdiction dated 16 October 2015, the order adjourning the Examination set down for 4 January 2016 to a date to be fixed and a cover letter informing the Defendant that he was required to attend Court at 10:30am on Monday 21 March 2016.  The Defendant signed a copy of the cover letter indicating his receipt of these documents.

11.  On 31 May 2016, the Defendant was personally served with the order dated 21 March 2016 and a cover letter informing him that he was required to attend court at 9:30am on Tuesday 27 September 2016.  The Defendant signed a copy of the cover letter indicating his receipt of the documents.

12.  As regards the service of the contempt proceedings, on 5 December 2016 the Defendant was served with the Statement Pursuant to O 52, r 2(2), the supporting affirmation of Jeremy Lee, the Concurrent Originating Summons and a Notice of Appointment filed on 28 October 2016 for the hearing on 17 January 2017.  Unlike the previous occasions, the Defendant refused to accept these documents.  The process server then threw the documents on the ground before the Defendant.

13.  I was satisfied that the Defendant had proper notice of the hearing and that he had chosen not to appear.  For completeness, I should mention that the skeleton arguments and chronology used at the hearing by the Plaintiff were served on the Defendant by way of email on 12 January 2017. 

Proceeding in the Defendant’s absence

14.  The first hearing of an originating summons is typically for directions as to the further conduct of the proceedings (see Practice Directions 5.8).  However, the court’s power under O 28, r 4(1), which allows the court to make an order in favour of a plaintiff as the nature of the case may require, is preserved under PD 5.8, para 2(a).   

15.  The power under O 28, r 4(1) allows the court to dispose of the originating summons if there is no triable issue: see Hong Kong Civil Procedure 2017, rubric 28/4/1.  Such power of summary disposal can be exercised against an absent defendant and at the first hearing of the originating summon: Mesirow Financial Administrative Corp v Best Link Industrial Co Ltd, unrep., HCMP 1846/2015, 10 September 2015, at §31.

16.  The court is also empowered by O 32, r 5(1), made applicable to the hearing of an originating summons by O 28, r 1, to proceed with a summons at its first or any resumed hearing in the absence of a party if, having regard to the nature of the application, the court thinks it expedient to do so: Mesirow, §13.

17.  Under O 35, r 5(2), the court may require to be satisfied that the summons or, as the case may be, notice of the time appointed for the adjourned hearing was duly served on a party before proceeding in his absence.  This means that r 5(1) may only be invoked if a party fails to attend the hearing after having being validly served with the summons or notice of the hearing: Mesirow, §14. 

18.  In similar terms, O 28, r 6 provides that where the court is asked to proceed in the absence of a party who has failed to acknowledge service, it may require to be satisfied that the party has so failed. 

19.  I was satisfied that the Defendant had been properly served with all the relevant papers.  As noted above, he was aware of the hearing and had chosen not to appear.  This court was asked to note the difficulty and costs in effecting service on the Defendant in India.  These matters were reflected in the affirmations of service before the court.  It followed that should these matters be adjourned, the Plaintiff would be put to considerable further expense in serving the Defendant again.

20.  In contempt proceedings, once the court is satisfied as to the service of all necessary documents, it may proceed with the hearing despite the absence of the defendant, as the court’s process should not be frustrated by the recalcitrance of the same: Hong Kong Civil Procedure 2017, rubric 52/6/4.

21.  I was in no doubt that the Defendant was indeed a recalcitrant party.  He would not hesitate in taking actions to evade the long arms of the law.  There was an order of the English court dated 4 July 2016 committing the Defendant to 18 months of imprisonment for his contempt in failing to comply with the assets disclosure order embodied in a Worldwide Freezing Order dated 25 September 2015.  I was told that the Order also arose from the enforcement of the Award. 

22.  I had no reason not to deal with these matters at the hearing.  Adjourning the hearing was likely to be a waste of time and costs. 

23.  However, in the Defendant’s absence, the Plaintiff had a duty to bring all relevant matters to the court’s attention, including those in the Defendant’s favour: Hong Kong Civil Procedure 2017, rubric 52/6/4.

Contempt

24.  The particulars of the contempt were set out in paras 1(a) to (d) of the Originating Summons.

25.  The proper approach in committal for civil contempt by reason of a breach of a court order is a three-stage test, namely:

(a) the relevant court order must be construed to ascertain its meaning and operation;

(b) it must be determined whether the defendant has in fact complied with the order so construed;

(c) it must be determined whether any failure to comply was accompanied by the state of mind necessary to establish punishable contempt.

See Hao Xiaoying v Wong Yiu Lam William & Ors, unrep., HCMP 1968/2014, 2 March 2015, at §35.

26.  The burden was on the Plaintiff to prove that the Defendant’s contempt was beyond reasonable doubt: GE Transportation (Shenyang) Co Ltd v Lu Jinxiang, unrep., HCMP 1792/2013, 22 January 2014, at §24.

27.  To establish a contempt of court for breach of a court order, it is sufficient to prove that the defendant’s conduct was intentional in the sense that it was conscious and voluntary.  It is not necessary to prove a contumacious intent on the part of the defendant.  Nor is it necessary to prove that the defendant appreciated that he did breach the order.  It would not be sufficient to negate liability where the defendant did not know or believe that his (deliberate) activities amounted to a breach: Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 830, at §§42-55; Contempt of Court by Miller, 3^rd edn (2000), at §14.52.

28.  Mr Brown, who appeared for the Plaintiff, submitted that the Plaintiff’s burden here was easily discharged to the requisite standard.  I agreed with Mr Brown insofar as the Defendant’s failure to comply with the Examination Order was concerned. 

29.  The Examination Order, and the orders made after the 16 October 2015 to adjourn the Examination to the 27 September 2016, were straight forward and self-explanatory, ie, there could be no doubt as to what the Defendant was required to do in order to comply with the orders.  In particular, he was required to attend court for examination. 

30.  It was likewise clear that by his non-attendance at the Examination on 27 September 2016 (the Plaintiff did not rely, for the present purpose, on the non-attendance on 21 March 2016), the Defendant had not complied with the Examination Order.

31.  There could be no doubt that the Defendant’s failure to comply with the Examination Order was intentional.

32.  In respect of the production of documents, the relevant parts of the orders dated 16 October 2015 and 21 March 2016 were respectively as follows :

“… and … [the Defendant] do produce any books or documents in the possession or power relating to [Nu Tek’s] assets and liabilities at the time of the examination …” [emphasis added]

“The [Defendant] shall as far as possible, supply copies of or make available originals for copying the documents set out in Schedule B hereto not later than 21 days before the adjourned hearing and shall also produce the same at that hearing.” [emphasis added]

33.  With respect, the October order was poorly drafted.  It was not altogether clear whose books or documents were to be produced, or who was supposed to have possession or power over the books required to be produced.  The ambiguity was fatal to any allegation of contempt based on the Defendant’s failure to produce Nu Tek’s documents. 

34.  As for the March order, it did not impose an absolute obligation.  The Defendant was required to supply Nu Tek’s documents “as far as possible”.  There was no clear evidence before the court whether it was indeed possible for him to supply any such document.  The Defendant had ceased to be a director of Nu Tek at the time of the March order.  The benefit of doubt must be resolved in favour of the Defendant, and therefore this part of the Plaintiff’s application also failed. 

35.  Before I deal with the appropriate penalty for the contempt on the part of the Defendant for failing to comply with the Examination Order, I shall deal with the issue whether the Defendant was the sole director of Nu Tek at the material times.  The Plaintiff relied upon the 2015 Annual Return of Nu Tek made up to August 2015 (filed with the Companies Registry (CR) on 10 September 2015) to prove that the Defendant was its sole director.  In the Annual Return of the following year made up to August 2016, it appeared that the Defendant had been replaced by one Murugaiyan as the sole director. 

36.  However, there was a Notice of Change of Director received by the CR on 19 October 2015 which stated that the Defendant had ceased to be a director of Nu Tek on 1 June 2015, and he was replaced by Murugaiyan on the same day.  There was also an Amended Annual Return for 2015 received by the CR on 20 October 2015, which purported to amend the identity of the sole director to Murugaiyan. 

37.  I agreed with the Plaintiff that the weight of the evidence suggested that the resignation by the Defendant was backdated, and it was probably done as an attempt to insulate the Defendant from enforcement proceedings arising from the Award.  I did not believe that the Defendant had resigned from the sole directorship in Nu Tek before the 19 October 2015.  There had been no attempt by the Defendant to assert to the Plaintiff or the court that he was not at the material times the sole director of that company. 

Penalty

38.  In civil contempt, the primary concern of the court is to ensure that its orders are obeyed.  In passing sentencing on a contemnor, the court takes into account the strong public interest in the administration of justice and the need to bring home to the contemnor and litigants in general that court orders are not to be flouted.  Disobedience of court orders, albeit in civil proceedings, has serious consequences, including imprisonment in cases of wilful breaches: Abu Dhabi National Tanker Co v Lam Ming Chi [1998] 4 HKC 320, at 336B-E.

39.  Whilst imprisonment in civil contempt is a remedy of last resort, if the breach of the court order is wilful, it is often appropriate: Excel Noble Development Ltd v Wah Nam Group Ltd [2001] 4 HKC 148, at 162E-F.

40.  In this case, the evidence demonstrated that the Defendant had little respect for the law.  His attempt to backdate the resignation from the sole directorship of Nu Tek reflected poorly on him as a person of low commercial morality.

41.  I was informed by Mr Brown that a fine imposed on the Defendant would be very difficult to enforce abroad, because it would be a penalty imposed by the court as opposed to a judgment.  There was thus little option available in terms of an appropriate penalty for the contempt in question.  

42.  In all the circumstances, an immediate custodial sentence measured in months would be appropriate: GE Transportation, supra, at §§51-56 and AO Smith Holdings (Barbados) SRL v Zhang Dacheng, unrep., HCMP 1132/2011, 1 June 2012, at §69.

43.  However, in the absence of the Defendant, the appropriate course was for the court to issue a warrant for committal to have him arrested and brought before it as soon as possible so that he may make submissions on the penalty: Secretary for Justice v Choy Bing Wing [2005] 4 HKC 416 at 442E‑443I; Liaoyang Shunfeng Iron and Steel Co Ltd v Sunny Growth Enterprise Group Ltd, unrep., HCMP 667/2013, 15 May 2013, at §28.

44.  I therefore ordered that a warrant for committal be issued against the Defendant.  I asked for a draft order to be provided by the Plaintiff for the approval of the court.

Costs

45.  Firstly, I saw no reason why the costs should not follow the event.  Secondly, I agreed with Mr Brown that whilst contempt proceedings did not automatically attract indemnity costs, indemnity costs was the usual order where contempt had been found: Secretary for Justice v Ocean Technology Ltd, unrep., HCMP 71/2008, 23 November 2009, at §30.

46.  The Defendant was clearly in contempt, and he had shown no desire to own up to his responsibilities.  I ordered that the costs of and occasioned by these proceedings be paid by the Defendant on indemnity basis, to be taxed if not agreed.

Service of this order

47.  I gave leave to the Plaintiff to serve this order on the Defendant out of the jurisdiction by way of registered post to his home address and office address in India, and by way of email.

48.  Last but not least, I am grateful to Mr Brown for his able and comprehensive assistance.