by Thomas Feld, Associate Solicitor

Suppose you enter into a contract with a Hong Kong based or registered company for the construction and delivery of a pleasure yacht that will be manufactured in China.

The construction takes much longer than anticipated and ends up costing much more than contractually agreed. The yacht is eventually completed and you rightfully ask for its delivery to Hong Kong with the ownership document, and shipbuilder’s certificate to be issued to you, as per the terms of your contract.

The building company refuses. What can you do?

Mandatory Injunction - A last Resort

Litigation usually is a matter of last resort.

When gentle reminders and formal letters have brought no results and your yacht remains in China at the hands of a local entity of the Hong Kong company, the only sensible avenue to get the builder to perform his part of the contract is to apply to the High Court for an interlocutory mandatory injunction. This takes the form of an Order from the Court enjoining one party to do some act or to perform his obligations under a contract.

High Court judges have wide powers and discretion to grant mandatory injunctions and do what is just and equitable in all circumstances, subject to established principles which have been developed by precedent. For a mandatory injunction to be granted at an interlocutory stage, the Court needs a high degree of assurance that it will appear at trial and that the injunction is rightly granted.

In considering whether to grant an interlocutory injunction the Court is primarily concerned with whether the injustice suffered by the defendant if the injunction is granted and the plaintiff later fails at trial is greater than the injustice to the plaintiff if the injunction is not granted and he later succeeds at trial.¹ It is a balancing exercise and all relevant factors such as urgency and justice and convenience will be considered.

There are now well established principles applied for an interlocutory mandatory injunction to be granted:² -

• The overriding consideration is which course is likely to involve the least risk of injustice if it turns out to be ‘wrong’ (i.e. if the injunction is granted and the Defendant later succeeds at trial, or it is not granted and the Plaintiff later succeeds).
  
• Secondly, the Court must keep in mind that an order which requires a party to take some positive steps at an interlocutory stage, may well carry a greater risk of injustice if it turns out to have been wrongly made than an order which merely prohibits action, thereby preserving the status quo.
  
• Thirdly, it is legitimate to consider whether the Court feels a high degree of assurance that the Plaintiff will be able to establish this right at the trial. That is because the greater the degree of assurance that the Plaintiff will ultimately establish his right, the less risk of injustice that will be caused if the injunction is granted.
  
• Finally, even where the Court is unable to establish high degree of assurance that the Plaintiff will establish his right, there may still be circumstances in which it is appropriate to grant a mandatory injunction at an interlocutory stage. Those circumstances will exist where the risk of injustice if this injunction is refused sufficiently outweighs the risk of injustice if it is granted.

  In practical terms, an Order for specific performance will depend on the following considerations³:

  (a) Is there a sufficient definition in the contract in question of what has to be done in order to comply with the Order of the Court or should this be supplied by the terms of the Order?
  

  (b) Will enforcing compliance involve superintendence by the Court to an exact degree?
  

  (c) What are the respective prejudices or hardships that will be suffered by the parties if the Order is made or not made?
  

You applied for mandatory injunction and the Court, having decided that the balance of justice weighs in your favour has granted you the interlocutory mandatory injunction. The Court Order sets out a timetable for the yacht building company to comply with the Order.

However, at the expiry of the time given for that company to deliver the yacht to Hong Kong and to issue the shipbuilder’s certificate, you have been given a useless piece of paper and there is no trace of your yacht in Hong Kong.

What can you do?

Court Powers of enforcement - Contempt Proceedings

Orders of the Court must be observed and complied with. The purpose of contempt proceedings, which can either be of a civil or of a criminal nature, is to maintain the supremacy of the law and the due and unobstructed administration of justice⁴. It must be shown not only that the Defendant did not comply with the terms of the Order, but also that he had no intention of doing so and the Court must be satisfied that contempt has been proved “beyond reasonable doubt”.

The intention behind the disobedience does not need to amount to wilful disobedience. It is sufficient to prove that the alleged ‘Contemnor’ knew the facts which are said to make his act or omission a contempt and that such omission was not casual, or accidental and unintentional.⁵

When the Court makes an Order for disclosure of information and/or documents or to deliver up listed items, it requires not only an honest but also an accurate response from the Defendant. If an Affidavit is filed by the Defendant to verify compliance of the Court’s order, it must be made in good faith and true to the best of the deponent’s knowledge. Thus, if the response given is inaccurate, there is prima facie a contempt which may only be rebutted or excused if it can be shown that the inaccurate response was given in good faith and after all reasonable steps have been taken by the deponent to ascertain the true position.⁶

The question is to what extent can a director of a company be held liable for contempt committed by the company? Order 45 rule 5 of the Rules of the High Court expressly provides that where a body corporate disobeys a judgment or order to do an act within a specified time, then the Judgment or Order may be enforced by an Order of committal against an officer of the body corporate.

The only condition precedent to the enforcement of an Order is that the said Order shall be served on the company and on his officers personally together with the penal notice.⁷

The Hong Kong Court of Appeal held that there are two routes by which a director may be committed for contempt. The first one is under Order 45. The second one is by aiding and abetting the company in defying the Court Order. A director may be committed for contempt under Order 45 even though he acted innocently; no moral blame or guilty knowledge is necessary.

There is a very big difference between these two approaches. Under Order 45, no moral blame or quilty knowledge need be shown in the director. It is sufficient to show that the Order was made against the company and served upon him. Then it is the director’s personal obligation to ensure that that Order is complied with. When you are dealing with a situation of aiding and abetting, the test is quite different. What has to be shown is personal misconduct on the part of the director. The two routes for committing a director for contempt are aimed at serving different purposes: one is for punishment and the other is for enforcement of the Court Order.

In our situation, the building company was required to deliver a shipbuilder’s certificate and the yacht. Playing on the terms of the Order, the Defendants alleged compliance by issuing a piece of paper that was clearly worthless.

On this particular occasion, the Court decided to take a practical approach: the yacht was in China and considering the difficulties that the Plaintiff would encounter in attempting to recover his yacht by other means than through the Hong Kong legal system, the priority was to have the yacht brought into the Hong Kong waters so that it would be within the jurisdiction of Hong Kong. A ruling as to whether there had been contempt would be the subject of a further hearing.

The Judge therefore decided to vary the terms of the Order and enjoin the Defendants to deliver the yacht and certificate under the name of the Chief Bailiff of the High Court and gave the Defendants another 28 days to comply with the varied Order.

It subsequently took another hearing and a clear and express indication from the Judge that there would be no further tolerance for failure to comply with the Order, i.e for, the yacht to be brought to Hong Kong. As to the outcome of the contempt proceedings, the case is still pending...

The penalty to be imposed by the Court for contempt, usually in the form of committal to prison for a term or a fine, depends on the facts of the individual case, the nature of the breach involved, the seriousness of the breach, the culpability of the Defendant’s conduct and all the circumstances.⁸

One of the circumstances to be taken into account is whether the Plaintiff has or has had to incur substantial costs in enforcing the injunction. This will be a significant factor that the Court will take into account in deciding the appropriate penalty. A Defendant should be deterred from taking advantage of the fact that the breach of the Order is difficult to detect or costly to enforce. The penalty, if it is a fine, goes to the public revenue and not to the Plaintiff. The costs of the proceedings are usually awarded on an indemnity basis if the Court finds the Defendant guilty of contempt.

The purpose of the committal proceedings is clearly punitive, to punish the Defendant and its directors for breach of the Order. As such, the proceedings must be final and not interlocutory. “An order of the court must be and will be maintained and treated with seriousness. This forms the basis of our system of administration of justice. If people are free to ignore court orders at will, anarchy cannot be far behind.”⁹

1. House of Lords decision in Co-operative Insurance Limited v. Argyll Stores Limited [1998] AC 1
   
2. Chadwick J in Nottingham Building Society v Eurodynamics Systems [1993] FSR 468 at 474
3. Mervyn Davies J in Posner & Ors v Scott-Lewis & Ors [1987] 1 Ch.25 at pp.34-35
   
4. Ruby Moy & Ors v. Chan Luen Ying & Another [1964] HKLR 579 at 587-588
   
5. Director General of Fair Trading v. Pioneer Concrete (UK) Ltd [1995] 1 AC 456 at 478-481
   
6. Ebewe Arnznemittal Ges.m.b.H & Another v. Lai Shu Lam trading as Forest Offset Printing Company HCA No. 16387 of 1998 (unreported)
   
7. Cartier International BV & Ors v. Kaybee International Ltd [1985] HKLR 127, Huggins VP at 129 followed
   in Nicolas Pappadiis and Another v. Chan Shing-sheung, Barry and Others [1989] 2 HKLR 511 at 519
8. In Abu Dhabi National Tanker Co v Lam Ming Chi & Anor [1998] 4 HKC 320, Stone J fined the defendant $100,000 for failing to comply with an interlocutory mandatory order providing for payment of a certain sum of money
   
9. Axa China Region Insurance Company Ltd and Ors v Li Yu Ping, Helen [2002] CACV217/2002