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Yu & Another v. Suen [2023] HKCFI 109: A Case on Contempt
In this article, we discuss the recent decision of the Court of First Instance of the High Court of Hong Kong in Yu & Another v. Suen [2023] HKCFI 109, which is a landmark case on the legal principles and sanctions for civil contempt of court, especially concerning breaches of freezing injunctions.
Background of the Case
The plaintiffs, Mr. and Mrs. Yu, were the former shareholders of an online music company called Music Zone. They alleged that they were induced by fraud to sell their shares in Music Zone to the defendant, Mr. Suen, at an undervalued price. They commenced arbitration proceedings against Mr. Suen and others under the auspices of the China International Economic and Trade Arbitration Commission (CIETAC).
The arbitral tribunal found in favour of the plaintiffs and ordered Mr. Suen to pay them RMB 660 million (approximately US$93 million) as damages. The tribunal also granted a worldwide freezing injunction against Mr. Suen, restraining him from disposing of or dealing with his assets up to the value of RMB 660 million. The injunction also required Mr. Suen to disclose his assets of HK$50,000 or above within 14 days.
The plaintiffs applied to enforce the arbitral award and the freezing injunction in Hong Kong. Mr. Suen opposed the enforcement on various grounds, including that he was unable to present his case on the calculation of damages and that the award went beyond the scope of the submission to arbitration.
Meanwhile, Mr. Suen also applied to set aside the arbitral award in Mainland China, where the seat of arbitration was located. The Mainland court issued a notice directing CIETAC to conduct a re-arbitration on a limited evidential issue, namely, the examination by the parties of two pieces of quantum-related evidence that the tribunal had collected on its own without putting them to the parties.
A new tribunal was appointed and conducted the re-arbitration. The new tribunal upheld the findings and conclusions of the original tribunal and confirmed that Mr. Suen was liable to pay RMB 660 million to the plaintiffs. The new tribunal also stated that the original award had not been set aside by the Mainland court and still had the force of res judicata.
Decision of the Court
The Court of First Instance dismissed Mr. Suen's objections to enforcement and enforced both the arbitral award and the freezing injunction in Hong Kong.
The court also found Mr. Suen guilty of contempt of court on two counts:
He breached the freezing injunction by disposing of his interests in a property in London to a BVI company owned by him without obtaining prior consent from the plaintiffs or the court.
He failed to comply with the disclosure order in the injunction by not disclosing his assets of HK$50,000 or above within 14 days or at all.
The court sentenced Mr. Suen to two concurrent terms of six months imprisonment for each count of contempt.
The court summarized the legal principles that apply when deciding the appropriate sanction for civil contempt, as follows:
The court must make it clear to the parties and litigants in general that court orders must be obeyed and disobedience could be met with sanctions.
The court must consider the nature of the order and the nature and extent of the breach, as well as any mitigating or aggravating factors.
The court must impose a sanction that is proportionate to the gravity of the contempt and serves as a deterrent to future breaches.
In respect of a freezing injunction, deliberate and serious breaches of either the restraint or disclosure provisions would usually be met with an immediate term of imprisonment measured in months rather than weeks.
The court held that Mr. Suen's breaches were deliberate and serious, as they showed his disregard for the authority of the court and undermined the effectiveness of the freezing injunction. The court also noted that Mr. Suen had not purged his contempt by making amends or apologizing for his conduct. The court rejected Mr Suen's arguments that he had acted under duress or pressure from third parties or that he had misunderstood or forgotten about his obligations under
the injunction.
The court also rejected Mr. Suen's argument that he should not be punished for contempt because he had challenged the validity and enforceability of the arbitral award and the freezing injunction in both Mainland China and Hong Kong.
The court emphasized that the arbitral award and the freezing injunction were valid and binding until they were set aside or discharged by a competent court, and that Mr. Suen was obliged to comply with them unless he obtained a stay of execution.
Significance of the Case
This case is significant for several reasons:
It demonstrates the robust approach of the Hong Kong court to enforcing arbitral awards and ancillary orders, such as freezing injunctions, in support of arbitration.
It illustrates the cooperation and communication between the Mainland and Hong Kong courts in dealing with cross-border arbitration matters, especially concerning the re-arbitration or remission of issues to the tribunal.
It reaffirms the importance of complying with court orders and the severe consequences of contempt of court, particularly for breaches of freezing injunctions that are intended to preserve the status quo and prevent the dissipation of assets.
This case also serves as a reminder to parties who are subject to freezing injunctions to be careful and diligent in fulfilling their obligations under the injunction and to seek legal advice and guidance if they are unsure or unclear about their rights and duties.
References
Appropriate contempt sentence for deliberate disobedience of injunction (lexicology) https://www.lexology.com/library/detail.aspx?g=5c5f9e90-2e80-4035-b4cf-28237da24a4f
HONG KONG COURT REJECTS AWARD CHALLENGE AFTER RE-ARBITRATION OF DISCRETE EVIDENTIAL ISSUE | Arbitration notes https://hsfnotes.com/arbitration/2024/01/12/hong-kong-court-rejects-award-challenge-after-re-arbitration-of-discrete-evidential-issue/
Hong Kong Judiciary: Judgments https://www.judiciary.hk/en/judgments_legal_reference/judgments.html
- The article explains the legal principles and precedents that govern the offence of contempt of court, and how they apply to the facts of the case.
- The article analyzes the arguments and evidence presented by both sides, and evaluates the strengths and weaknesses of their positions.
- The article discusses the implications and consequences of the judgment, which found the defendant guilty of contempt and sentenced him to six months' imprisonment.
