Courts In England And Hong Kong Order Immediate Prison Sentence And Restate Serious Consequences Of Disobeying Disclosure Orders.
Legal News & Analysis - Asia Pacific - Hong Kong - Dispute Resolution
14 May, 2019
In recent weeks, courts in England and Hong Kong have taken the opportunity to set out the serious consequences that follow from deliberately breaching disclosure orders made in the context of freezing orders. The courts in both jurisdictions have emphasised the importance of upholding the authority of the Court, whilst highlighting that, whilst imprisonment remains a sanction of last resort, it is nonetheless appropriate in the case of serious non-compliance.
In Podstreshnyy v Pericles Properties Ltd  EWHC 469 (Ch), Mrs Justice Falk considered the appropriate sentence for a contemnor for breaches of two freezing orders granted in aid of a proprietary claim against S, the second defendant and director of the first defendant, an estate agency. The plaintiff claimed against the defendants for rent received and said to be held on trust for the claimant, who had used the agency as its letting agent.
On 7 February 2018, freezing injunctions were granted requiring the defendants to disclose to the claimant's solicitors details of all their assets in England and Wales and not to dispose of, deal with or diminish the value of any of their assets to the value of £100,000. Judgment was entered against S on 25 July 2018 in the sum of £112,452.40.
S failed to provide the information ordered and committal applications for contempt followed. The applications cited failure to provide immediate disclosure of information, in breach of the Court orders, and failure to disclose three properties. The application alleged that S had breached the orders by failing to sell, or marketing two of the properties without notifying the claimant of the existence of the properties or of attempts to sell them. The applicant also relied on a failure to pay an interim payment of costs of £5,000 and a withdrawal in excess of £60,000 from the accounts of S during the period of the freezing orders.
Contempt or not contempt?
Falk J said there had been a clear failure on the part of S to make disclosure of properties, sources of income, properties and bank accounts. The Court was unconvinced, however, that steps taken to market properties amounted to dealing within the terms of the freezing order. These steps had clearly fallen short of formal acts, such as appointing solicitors and sending out contracts. Failure to make the interim payment of costs was not obviously contempt and imprisonment for such a breach was not possible under statute. The withdrawal of £60,000 was significant in the context of the scale of the plaintiff's claim.
The Court outlined the principles for imposing a custodial sentence. The imposition of such a sentence upholds the authority of the court and underlines the significant public interest in ensuring that court orders are obeyed. Of the sanctions available, imprisonment was always the last resort and should be reserved for a case where it is necessary.
S's breaches had been serious and deliberate, with the intention of depriving the claimant of the money to which he was entitled. Taking account of mitigating factors (which had included increased disclosure, an admission, apology, a willingness to co-operate, and the care of a dependent child), Falk J concluded that the appropriate sentence was nine months in prison.
Madam Justice Mimmie Chan outlined the Hong Kong position in La Dolce Vita Fine Dining Co Ltd v Zhang Lan  HKCFI 618. The defendant had been found to be in contempt of Court for breach of a disclosure order made in aid of a Mareva injunction, granted in relation to the plaintiffs' claim to recover more than US$286 million from the defendant.
Citing previous authority, Mimmie Chan J described contempt of civil court orders as a serious matter and that a prime consideration in sentencing contempt was to "signal the importance of demonstrating to litigants that orders of the court are to be obeyed."
Mimmie Chan J emphasised the strong public interest in ensuring that orders of the court are not flouted, while evaluating the individual circumstances of each case. Whilst describing imprisonment as a sanction of last resort, the starting and primary penalty for contempt of court in breaching an injunction order was imprisonment, with the normal penalty measured in months. The fact that the defendant may not be in Hong Kong was not a reason to refrain from imposing a custodial sentence.
The Court ordered an immediate custodial sentence of 12 months.
Taken together, the two judgments are a reminder that substantial and deliberate breaches of freezing orders usually result in an immediate custodial sentence. Strong public policy reasons are observed by the courts to ensure that the administration of justice is respected and those attempting to disregard orders of the Court are duly punished.