On the application of the Plaintiff shareholder for a committal order against the Defendant director for her contempt of Court, judgment was handed down on 26 July 2022 whereby the Defendant director was adjudged guilty of having committed contempt of Court for having deliberately, intentionally and voluntarily acted in breach of an injunction order (to be elaborated further below) (“Judgment”). The Plaintiff was awarded costs on an indemnity basis.
The legal principles of committal for civil contempt were undisputed and were duly summarised in the Judgment. Although the burden is on the plaintiff to prove a defendant’s contempt is beyond reasonable doubt, once a failure to comply with an order is found, there is prima facie contempt. Then the defendant has to show that it has always been impossible of carrying out the terms of the order. We analyse below the Court’s treatment on the two defence put forward by the Defendant which were not taken on by the Court.
The Plaintiff, High Fashion New Media Corporation Ltd (“New Media”), is a joint venture company established by two shareholders (one of which is the Defendant, Leong Ma Li (“Leong”), through her corporate vehicle) and wholly-owned a subsidiary in Shanghai, PRC (“PRC Subsidiary”). Leong is and was one of the directors of New Media. At all material times, Leong was also the registered PRC legal representative of the PRC Subsidiary and the sole signatory of the bank accounts which the PRC Subsidiary maintains with ICBC Shanghai (“Bank Accounts”).
Followed by disputes arisen between the two camps of shareholders of New Media since in or about 2014, there was a protocol agreed on the operations of the Bank Accounts (“Protocol”). However, Leong refused to act in accordance with the Protocol and continued to transfer substantial sums from the Bank Accounts. It was against such background that the Hon. Chow J (as he then was) granted an Injunction Order on 5 December 2014 to restrain Leong, either by herself or vicariously, from operating the Bank Accounts save and except for in compliance with the Protocol.
Previous Contempt Proceedings
Since the Injunction Order, in or around 2016, New Media had discovered that Leong had breached the same by dealing with the Bank Accounts without complying with the Protocol. Therefore, New Media commenced committal proceedings against Leong and Leong was found to have deliberately, intentionally and voluntarily acted in breach of the Injunction Order, and thereby committed a contempt of Court. Leong was sentenced to a fine of HK$400,000 for her breaches concerning the Injunction Order and was ordered to pay a sum of RMB728,469.39 into Court (“Previous Contempt Proceedings”).
Present Committal Proceedings
Despite the Previous Contempt Proceedings, Leong, as the sole signatory of the Bank Accounts, aggravated her breach of the Injunction Order and operated the Bank Accounts either by herself or through her agent(s)/employees. Therefore, New Media commenced the present committal proceedings.
It is noteworthy to explore two of the different lines of defence put forward by Leong:-
- “No Dealing” Defence (“Agency Issue”)
The Court emphasised that to the extent a defendant has appointed an agent to comply with the court order, the agent’s actions and knowledge may be attributed to the defendant, and the defendant may be found to be in civil contempt on the basis of vicarious liability. The principal is guilty of contempt if:- (1) the person who did the acts which constituted the contempt was her servant or agent; (2) the acts were done in the course of that person’s employment or agency; and (3) she either authorised the acts or could reasonably have foreseen the possibility of such acts and failed to take all reasonable steps to prevent the acts. In particular, it does not suffice for the principal to merely give orders and then wash her hands of the matter and disclaim any further responsibility; the principal must take all reasonable steps to see that her orders are obeyed.
- “Impossibility” to Carry Out the Terms of the Order
Leong alleged that the resignation of the PRC Subsidiary’s former financial controller had rendered the Injunction Order impossible to carry out (the financial controller was one of the key personnel to approve of transactions under the Protocol and Injunction Order). This argument was rejected. The Court echoed the Hon. Chow J’s judgment in the Previous Contempt Proceedings that the Injunction Order is negative in nature. It is difficult to see how it can be said that it was “impossible” for Leong to refrain from what she was prohibited from doing under the Injunction (namely, dealing with the Bank Accounts except in accordance with the specified signing arrangement.
The biggest takeaway of this case is that a principal’s delegation of powers of any sort to his agents/employees by no means enable him to disclaim any responsibilities in complying with the court orders. The principal must be cautious in ensuring that not only his own conduct but also the conduct of those with whom he work with must fully comply with court orders. It does not suffice for the principal to only give orders; rather he should at all times keep under supervision for any agents/employees who are designated with the tasks and take all reasonable steps to see that his orders are obeyed.
The article was originally published on Hong Kong Lawyer