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Court of Appeal Sets Aside Contempt Regarding Statement of Truth
  • May 20, 2021
  • Latest Journal

Introduction
In Mathnasium Center Licensing, LLC v Chang,(1) the Court of Appeal allowed thedefendant's appeal against a lower court's finding that he had made a false statement of truth with respect to an admission in a defence filed on behalf of a company. As is normal in such appeals, the Court of Appeal was reluctant to disturb a lower court's primary finding. However, in this case, the Court of Appeal considered that the lower court had been plainly wrong to make an order for committal for contempt of court. The Court of Appeal agreed with the lower court that, in principle, a person who makes a statement of truth in a pleading that verifies a false admission of fact can be committed for contempt of court. However, the admission must be clear and unqualified and this is where the Court of Appeal disagreed with the lower court. In this case, the defendant appears to have made a mistake, possibly as a result of an unfortunate miscommunication with the company's lawyers while under pressure to meet a final deadline for the filing of the defence

Background
Since April 2009, when Hong Kong adopted its civil justice reforms, statements of truth for pleadings, witness statements and expert reports have become an important part of the local litigation landscape. Statements of truth force those who sign them to focus their minds on their belief as to the accuracy of matters referred to in (for example) a pleading or witness statement.

In Mathnasium Center Licensing, the plaintiff sued a company in respect of which the defendant was a shareholder and director. The plaintiff's claim was for certain royalty payments alleged to be owed by the company, pursuant to a franchise agreement relating to several learning centres. Crucial to the determination of the amount of royalties was the operation of the learning centres. The plaintiff claimed (among other things) that the centres were opened and operated by the company and the company appears to have admitted this in its defence, which was verified by a statement of truth signed by the defendant. The defence was filed just before the deadline on 4 September 2015 (the date of the statement of truth).

As it transpired, some of the learning centres were operated by certain third-party entities, in which the defendant allegedly had an interest. The admission in the defence led the plaintiff to continue enforcement proceedings against the company which, in turn, appears to have eventually ceased operations. The defendant explained the admission as being the result of (among other things) a miscommunication with the company's lawyers regarding his instructions.

At first instance, the defendant was found to have committed contempt of court. The lower court considered that it had been beyond reasonable doubt that the statement of truth was false, the defendant did not have an honest belief as to the admission and the admission had been material. It made no difference that the falsity was in respect of an admission, as opposed to a false averment in a pleading.

As for sentencing, the court sentenced the defendant to three months' imprisonment – which was stayed pending his appeal.

Three principal issues required determination:
l Could an admission in a pleading constitute a statement of fact for the purpose of verifying a pleading (a legal issue)?

l If so, was the admission clear and unqualified (a factual issue)?

l Had the lower court been plainly wrong in its assessment of the facts?

Appeal
In a detailed judgment, the Court of Appeal allowed the defendant's appeal.

As for the first issue, the Court of Appeal agreed with the lower court:(2)

There is no reason in principle why a person who made a statement of truth to verify a false admission of a fact stated in a pleading may not be committed for contempt, provided that his admission as to the fact is clear and unqualified.(3)

As for the second issue, the Court of Appeal strongly disagreed with the lower court. Taking a holistic approach to the company's defence, the Court of Appeal did not consider that the admission was unqualified. Whether the admission was 'unqualified' did not depend (for example) on how the defendant had characterised it, but rather on a fair and proper reading of the averments in the plaintiff's claim and the totality of the defendant's defence. The Court of Appeal appears to have considered that while the company had admitted a part of the plaintiff's claim – namely, that the learning centres were "opened and operated" by the company – in other parts of its claim the plaintiff had pleaded that the learning centres had been "opened by [the company], or caused or permitted to be opened or operated or franchised by [the company]", a distinction which was important as to the nature of the company's admission and whether it was unqualified. In the circumstances, the admission should not be read in isolation.(4) The Court of Appeal stated that:

When the relevant averments in the statement of claim are read properly with the relevant responses in the defence, what would seem to be an unqualified admission in §7 of the defence is clearly shown not to be the case. In the absence of an unqualified admission in the defence, the application to commit the defendant for making the statements of truth to verify false admissions of fact in the defence falls at the first hurdle.(5)

This appears to have been enough for the plaintiff's application to commit the defendant for contempt to fail. However, as regards the third issue, the Court of Appeal considered that the lower court had misdirected itself as regards certain important evidence that raised a reasonable doubt in favour of the defendant. For example, the Court of Appeal did not think that the defendant's case of mistake or miscommunication with his lawyers was implausible.(6)

The Court of Appeal set aside the lower court's order of committal and the sentence.

Comment
The Court of Appeal's judgment is notable for its detail, especially given that an appeal court is generally reluctant to disturb a lower court's findings of primary fact as to the credibility of a party's evidence – unless (for example) the lower court reached a plainly wrong conclusion on the facts.

Several practical points, perhaps, come to mind.

Applications for contempt of court are serious and should not be commenced, unless there are convincing grounds.

Drafting pleadings is often complex and the aim is usually for as much particularity as is feasible. In this context, the Court of Appeal's analysis of the plaintiff's statement of claim is revealing.

Further, the circumstances in which the defendant signed the statement of truth suggest a possible lack of attention and reliance on an earlier draft - perhaps, under the pressure of an urgent deadline.(7) As a general point, pleadings and witness statements are too important to be rushed, even when working against a final deadline, and statements of truth can have consequences. In particular, a defendant should be careful when responding to a plaintiff's averment (allegation) with a general admission.

A person who deliberately makes a false statement of truth in court proceedings in Hong Kong can expect to be found in contempt of court and to receive a custodial sentence of (at least) several months - for           example, more than a fine and an order for legal costs against them. An honest mistake by (or on behalf of) a party does not amount to contempt, although it could adversely affect their case.

About the authors
For further information on this topic please contact Antony Sassi, Rebecca Wong or David Smyth at RPC by telephone (+852 2216 7000) or email (antony.sassi@rpc.com.hk, rebecca.wong@rpc.com.hk or david.smyth@rpc.com.hk).
The RPC website can be accessed at www.rpc.co.uk.

This article was originally edited by, and first published on, www.internationallawoffice.com

Endnotes
(1) [2020] HKCA 1016 and [2021] HKCA 112.
(2) [2020] HKCA 1016, at paras 30-31.
(3) Supra note 2, at para 32.
(4) Supra note 2, at para 44.
(5) Supra note 2, at para 46
(6) Supra note 2, at para 58.
(7) Supra note 2, at paras 7 and 53. It appears that the company's defence was filed between 2:00pm and 3:00pm, just before the 4:00pm deadline for filing on 4 September 2015, pursuant to a final court order (an 'unless order').