Mathnasium Center Licensing, LLC v Chang Chi Hung
Court of First Instance
Miscellaneous Proceedings No 1550 of 2017
Wilson Chan J
20–23 November, 17 December 2018, 18 March 2019

Contempt of court — civil contempt — false admission in pleadings verified by signed statements of truth — whether constituted contempt — whether distinction between false admission and false averment for such purpose — Rules of the High Court (Cap. 4A, Sub.Leg.) O. 41A r. 9, O. 52 r. 3

P brought an action (the “Action”) against M for outstanding royalty payments relating to the operation of learning centres pursuant to a Regional Franchise Agreement. P’s statement of claim (“SOC”) stated that the amount of royalty payments owed depended on the number of students attending the learning centres operated by M, and that M owed post-termination obligations in respect of these centres. The SOC also stated that to the best of P’s knowledge or information, M opened and operated 12 centres (“HK Centres”) in Hong Kong (“SOC Statement”). D, the sole shareholder and then sole director of M, caused a defence and counterclaim and an amended defence and counterclaim to be filed in the Action which admitted the SOC Statement (“Subject Admission”) and were verified by Statements of Truth signed by D. P claimed that it relied on the Subject Admission in settlement and enforcement proceedings in the Action, but that it transpired during M’s appeal in the enforcement proceedings that the Subject Admission was false and P was prejudiced as the settlement could not be satisfactorily enforced. P now sought to commit D for contempt of court pursuant to O. 52 r. 3 (Cap. 4A, Sub.Leg.) Rules of the High Court (“RHC”) after obtaining leave under O. 41A r. 9 and O. 52 r. 2. P claimed inter alia that D and M had repeatedly accepted or affirmed the truth of the Subject Admission when D had no honest belief in the same or his Statements of Truth.

Held, finding D guilty of contempt of court, that:

Elements of contempt of court under O. 41A r. 9 RHC

1) For P to establish that D was guilty of contempt of court under O. 41A r. 9 of the RHC, it had to prove beyond reasonable doubt the falsity of the statement in question; the statement had or would have interfered with the course of justice in some material respects; and at the time it was made the defendant had no honest belief in the truth of the statement and knew of its likelihood of interference with the course of justice (Numeric City Ltd v Lau Chi Wing [2016] 4 HKLRD 812 applied). (See para. 3.)

Falsity of the statements

2) Even on D’s own case, as set out in his affirmations in the Action, the Subject Admission was false, which was also confirmed by M’s evidence sought to be adduced in the current proceedings. D’s allegation that the SOC was inconsistent or lacked clarity was a non-issue. D had no difficulty understanding the SOC Statement before he signed the Statements of Truth. On his own case, the Subject Admission carried the implication that the HK Centres were Regional Franchisor Centres operated by M (“RFCs”). He was acutely aware of the distinction between RFCs operated by M and Franchisees Centres (“FCs”) run by sub-franchisees, so much so that he claimed to have given instructions to his lawyers that the HK Centres were merely FCs. (See paras. 13–22.)

3) There was no legal basis to D’s argument that a false admission, as opposed to a false averment, could not give rise to contempt. This argument flew in the face of O. 27 r. 1 of the RHC. In both cases, the party making the admission or averment was positively affirming that the fact being admitted or averred was true. Further, on the authorities, the courts regarded the Statement of Truth as important when considering whether to allow an admission to be withdrawn, and the relevant Practice Direction required both an admission and an averment to be verified by a Statement of Truth. It would be wrong in principle and contrary to policy and common sense to say that while a pleader was obliged to ensure the truthfulness of averments of facts in pleadings, he was not obliged to do the same when it came to admissions of fact in the same pleadings (Bayerische Landesbank Anstalt Des Offentlichen Rechts v Constantin Medien AG [2017] EWHC 131 (Comm) applied; The Governing Body of Charterhouse School v Hannaford Upright [2007] EWHC 2718 (TCC), Avrahami v Biran [2013] EWHC 330 (Ch), Co-Operative Group Ltd v Carillion JM Ltd (Formerly John Mowlem & Co Ltd) v Pennine Vibropiling Ltd [2014] EWHC 837 (TCC) considered). (See paras. 23–31.)

Interference with the course of justice

4) Actual interference with the course of justice was not required. Nor was it necessary to show that the court or another party was actually misled by, or relied on, the false statement. It was sufficient to show that the deployment of the false statement was likely to have one of these effects (Neil v Henderson [2018] EWHC 90 (Ch) applied). (See paras. 32–33.)

5) Thus, D’s arguments that P did not actually rely on the Subject Admission, or that it was unreasonable for P to do so, missed the point. The Subject Admission was likely to have the effect of misleading the Court or P or causing them to rely on it because the number of centres operated by M was an important piece of information in the litigation and the distinction between RFCs and FCs had legal implications. In any event, P had actually relied on the Subject Admission and proceeded on such basis and it was reasonable for P to do so. (See paras. 34–44.)

D’s state of mind

6) D did not dispute that when the Subject Admission was made, he knew that M did not open and operate the HK Centres. His case that he gave correct instructions to his lawyers who then drafted the Subject Admission by mistake was unbelievable. His version of events, that before he had signed the Statement of Truth he had informed his lawyers that the HK Centres were all FCs rather than RFCs, and that he had not read the finalised version of the defence before signing the Statement of Truth, was contradicted by his own evidence and subsequent conduct. (See paras. 45–62.)

7) D knew of the likelihood that the Subject Admission would interfere with the administration of justice. He knew that the distinction between RFCs and FCs was an important one with legal implications. He must also have known that the Subject Admission would cause P to focus on suing M, which had ceased operation and was insolvent, rather than the revenue-generating operators of the HK Centres which were controlled and partially owned by him. (See para. 63.)

8) D’s argument that he lacked a motive to commit the contempt because it was not in his interest to make the Subject Admission was rejected. Motive was not an element of contempt and it was impracticable and unnecessary for the Court to speculate on these matters. In any case, it was in fact in D’s interest to make the Subject Admission because it could prevent, discourage or at least delay P from taking action against the revenue-generating operators of the HK Centres. (See paras. 64–65.)

Application

This was an application for an order for committal for contempt of court by the plaintiff against the defendant arising from an action for outstanding royalty payments. The facts are set out in the judgment.

Jurisdictions: 

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