30 August, 2016
In Tiong King Sing v Sam Boon Peng Yee (CACV 268/2015), the Court of Appeal ("CoA") overturned a decision of the Court of First Instance ("CFI") that had found the Defendant to be in contempt of Court for breaches of two Court undertakings. The CoA rejected the strict interpretation taken by the CFI to the alleged breaches, instead preferring a "contextual interpretation" of both the undertakings and the alleged breaches. In finding that there had been no contempt of Court, the CoA emphasised that due "to the penal nature of contempt proceedings this will require strict proof of guilt beyond reasonable doubt of the person cited for contempt". The decision demonstrates the high threshold that the Hong Kong courts will apply when assessing whether a breach of a Court undertaking should also be considered contempt of Court.
Facts
The Defendant entered into an agreement in 2009 to purchase from the Plaintiff all of the shares in a company that owns a major property development in Ba Nan District in Chongqing (the "Ba Nan Project"). The Defendant defaulted in paying instalments of the purchase price such that there was an outstanding balance of the purchase price. Accordingly, the Plaintiff commenced proceedings in Hong Kong against the Defendant in September 2011. As part of these proceedings, an interim injunction order was made, by which the Defendant was required to pay a sum of RMB45 million into a designated account. This injunction order was subsequently dismissed, with the parties' interests instead being protected through a set of cross-undertakings that were included in a Court Order of February 2013. In August 2014, the Plaintiff commenced proceedings to commit the Defendant for contempt of Court for his breach of two undertakings (that were given as part of the cross-undertakings):
To maintain the sum of RMB45 million at a bank in Chongqing as agreed by the parties (the "First Undertaking")
To provide the Plaintiff with weekly reports of the sale or creation of encumbrances on the properties at the Ba Nan Project (the "Second Undertaking")
The CFI found that the Defendant was in breach of both undertakings and was also in contempt of Court. In its judgment, the CFI characterised the Defendant's conduct as "deliberate and contumacious". The Defendant applied to the CoA to appeal these findings.
Judgment
The First Undertaking
The CoA was critical of the approach taken by the CFI in interpreting the First Undertaking. Hon Cheung JA commented that the CFI had adopted a "flawed approach" in deciding that the purpose of the First Undertaking was to provide security for the Plaintiff's claim. Instead, the CoA focused on the context in which the undertaking was given and accordingly held that it had not been demonstrated that the purpose of the First Undertaking was to provide security for the Plaintiff's claim. On this basis, the First Undertaking was stated to be not clear and certain enough so as to be enforceable.
The Second Undertaking
As for the Second Undertaking, the CFI had allowed the Plaintiff to amend the summons following the hearing of the matter so as to include further alleged breaches of the Second Undertaking. The CoA described this approach as "faulted" and stated that, given the penal nature of contempt proceedings, fairness required the Defendant to be informed from the outset as to what they are being accused of. Accordingly, the CoA held that the decision to allow amendment of the summons after the hearing was wrong and that, if the further alleged breaches were disallowed, then there was only one alleged breach of the Second Undertaking. In respect of this one alleged breach, the CoA interestingly took a generous approach in characterising the breach as an "unintentional slip". The test was stated not to be a strict one of breach, but rather a question of whether the Defendant intended to not comply with the Second Undertaking. The CoA held that on a standard of proof of beyond reasonable doubt that could not be shown and therefore the Defendant could not be said to be in contempt of Court.
Implications
This decision provides some reassurance that the Court will take a practical view in determining whether breach of a Court undertaking constitutes contempt of Court. Breach of a Court undertaking will not strictly be considered contempt of Court. Rather, the Court will take into account the purpose of the undertaking and also the nature of the breach in assessing whether there has been any contempt of Court. Given the penal nature of the sanctions for contempt of Court, this decision provides some comfort that there is a high burden to demonstrating that breach of a Court undertaking is also an act in contempt of Court.
For further information, please contact:
Gareth Thomas, Partner, Herbert Smith Freehills
gareth.thomas@hsf.com
