Consequences of Disobeying Court Orders?
Parties often take for granted that once a court order is made, all parties involved will obediently follow the terms of the order. After all, no one would actually dare to disobey a court order, would they? What happens when they do?
What is Contempt of Court?
Generally speaking, contempt refers to behaviour that obstructs the administration of justice. Whether contempt is of a civil or criminal nature depends on the nature of the conduct. The classic example is that a party may be liable for civil contempt by breaching a court order (e.g. a freezing or disclosure order) but a third party aiding or abetting the breach might be liable for criminal contempt.
Whether civil or criminal, contempt of court is a serious matter. Those who wilfully disregard court orders sometimes risk facing imprisonment.
Lim v Ong – 22 Months of Imprisonment for Contempt
In the recent UK case of Lim v Ong [2024] EWHC 373 Ch, the Defendant received a sentence of 22 months imprisonment for contempt. How did this happen?
The Claimant accused the Defendant of property investment fraud and sought court orders preventing the Defendant from selling, moving or otherwise dealing with all of his worldwide assets. This is commonly known as a worldwide freezing order (the “Freezing Order”). The Defendant was also required to give disclosure of all of his assets, including providing bank statements (the “Disclosure Order”).
The Defendant then proceeded to breach the Freezing Order by selling his wine investment portfolio at undervalue to a “friend”. The Defendant and his wife also granted charges over their family home as security for borrowings from companies controlled by the Defendant. The Defendant also sold his interest in 5 racehorses.
The Defendant also misled the court and filed false affidavits:
- He informed the court that proceeds of sale were used to pay his solicitors. Bank statements later revealed monies were in fact transferred to the Defendant’s wife and the rest of it used to pay for other company expenses.
- He claimed not to have opened any bank accounts since July 2022 when in fact he opened an undisclosed bank account, transferred monies into it and started spending that money to fund his lifestyle.
- He inflated his asset position by including properties he never held, gemstones and vehicles which had been gifted to his wife, and purportedly well-endowed bank accounts which turned out to have been significantly overdrawn accounts.
Ultimately, the Defendant admitted to breaching the Freezing and Disclosure Orders. The court considered various mitigating factors including:
- Pressures of litigation and commercial collapse
- Age and personal health issues
- No prior convictions
- Late admission of breaches leading to reduction in trial days
The factors put forward by the Defendant were largely rejected by the court. It was considered significant that the Defendant had repeatedly denied most of the allegations prior to his eventual admission and had never made any attempt to rectify the continuing breaches of his disclosure obligations.
Contempt in Hong Kong?
It is not uncommon in Hong Kong civil litigation for parties to bring committal proceedings against each other for contempt.
In the recent landmark case of Yu & Anor v Suen [2024] HKCFI 109, the court found the defendant guilty of contempt on two counts which bear remarkable similarities to the Ong case where:
- In breach of the injunction, the defendant transferred his interests in a London property to a BVI company owned by him without informing the court or the plaintiffs.
- In breach of disclosure order, the defendant failed to provide any details of the whereabouts of his assets.
In sentencing the defendant to two concurrent terms of 6 months imprisonment for each count of contempt, the court found that the defendant’s breaches were serious and deliberate and the defendant did not attempt to remedy or purge his contempt.
The main applicable principles can be summarized as follows:
- The general rule is that court orders are to be obeyed and disobedience may be met with sanctions;
- The court will take into account the nature and extent of the breach including any mitigating or aggravating factors;
- The sanction must be proportionate to the gravity of the contempt and serve as a deterrent for future breaches;
- For breach of freezing orders, deliberate and serious breaches are usually met with an immediate term of imprisonment, the duration to be determined in months rather than weeks.
The court rejected arguments against contempt from the defendant that there had been a challenge to the validity and enforceability of the arbitral award in both China and Hong Kong. The usual rule is that unless there is a stay execution, an arbitral award and freezing order is valid and binding.
Until the relatively recent decision of the Hong Kong Court of Final Appeal in Chu Kong v Sun Min & Ors [2022] HKCFA 24 in December 2022, it was unclear whether the consent of the Secretary for Justice (SJ) in Hong Kong (being the equivalent of the Attorney General in the UK) was required to bring criminal contempt proceedings.
After Chu Kong, the position in Hong Kong is that no consent from the SJ is required to bring criminal contempt proceedings which lowers the barrier for litigants to commence contempt proceedings. However, permission from the court to bring such application is still required pursuant to Order 52 of the Rules of the High Court (Cap. 4A). This is in stark contrast to the UK position where the court’s permission is generally not required for civil or criminal contempt in relation to existing proceedings.
Final Remarks
Both the UK and Hong Kong courts take very seriously the matter of deliberate breaches of court orders, particularly freezing and disclosure orders.
Civil and commercial cases can still land litigants in prison if parties subject to such orders are not careful in fulfilling their obligations. Parties subject to such orders also have the right to access funds for reasonable personal and/or business expenses and to set aside or discharge any orders which have been wrongfully granted.
