Bunge SA v Huaya Maritime Corporation of the Marshall Islands & Anor

On 16 December 2016 the claimant, Bunge S.A. (“Bunge”) made an application for an order against the first respondent, Huaya Maritime Corporation (“Huaya”), declaring that it is in contempt of court, and an order for committal for contempt against the second respondent, Zhu Guo Hua (“Mr Hua”), for his role in that contempt as a director, officer or individual in actual control of Huaya. This application flowed from Huaya’s failure to comply with disclosure orders of Flaux J dated 19 April 2016 and HHJ Waksman QC dated 3 May 2016, following its failure to comply with an award against it in a London arbitration.

The application notice for the committal application served on Mr Hua did not contain the penalty notice required, informing him of the court’s power to send him to prison and seize his assets. I refused to waive this requirement at the first hearing and adjourned it so that he could be informed of these consequences. The adjournment would also provide Mr Hua a further opportunity to consider his position.

At the resumed hearing on 22 December 2016, again Mr Hua did not appear. Nor was there any response from him. Bunge provided the court with emails containing the penalty notice and notifying him of the date of the resumed hearing.

This judgment contains the background to my findings and incorporates my rulings at the hearings.

Huaya Shipping operates from offices at an address in the Shinan District, Qingdao, Shandong Province, China. Mr Hua is the 100 percent shareholder, its representative and sole director. From the evidence Bunge has produced Huaya Shipping is the business organisation handling operational and administrative matters on behalf of various chartering vehicles.

Huaya Maritime Corporation was one of these. It was incorporated in Panama on 23 July 2010 but was dissolved a year later on 12 May 2011. Mr Hua was one of its directors and its secretary. The company chartered ships for Huaya Shipping.

On 30 November 2011, Huaya was incorporated in the Marshall Islands. It appears to have traded as the chartering arm of Huaya Shipping, the latter being identified as the manager of Huaya. The manager’s address for Huaya in the charterparty which was the subject of the award, which led to this application, is the same Qingdao address from which Huaya Shipping operates.

Huaya Maritime Corporation was registered as a private limited company in the Seychelles on 3 April 2014. As at mid-2016 it was an active charterer and operated from the same address as Huaya Shipping’s Qingdao offices, which is also its registered trading address. Because of the restrictions on the information available about Seychelles private companies, its directors and shareholders are not known.

Because Huaya is a Marshall Islands company, there is no publicly available information about its directors, its other office holders or its shareholders. However, I am satisfied from the information Bunge has produced that Mr Hua is in actual control of Huaya. He is likely also to be or have been at the relevant time a director or officer of Huaya.

Bunge entered a charterparty with Huaya. It was subject to London arbitration, as was an earlier charterparty between Huaya and a London ship broker and agent, Victoria Steamship Co. Ltd. On 5 January 2016 Bunge obtained an arbitral award from a London LMAA Tribunal against Huaya in the sum of US$61,239.10 together with interest and legal costs. That award went unsatisfied.

As a result on 19 April 2016 Flaux J heard Bunge’s ex-parte application and made a freezing injunction and ancillary disclosure order against Huaya. Those orders were successfully sent by email to the Huaya Shipping email address on 20 April and hard copy versions were successfully delivered by courier to the Qingdao office of Huaya Shipping on 21 April. There was no response and no disclosure given of its assets. In late April 2015 a member of Clarksons, the shipping brokers, reported that in a conversation with Mr Hua “it seems that the guy has consulted with his lawyers and he seems to have gotten advice that as long as he doesn’t travel to UK there’s not much we/court could do to him personally”.

Huaya did not attend the hearing on the return date of 3 May 2016. HHJ Waksman QC continued the freezing injunction and repeated the ancillary disclosure order. Those orders were also successfully emailed and couriered to Huaya. Again there was no response from Huaya and no disclosure of its assets.

Huaya was obliged by these orders to provide disclosure of its worldwide assets in excess of US$10,000 within 24 hours of the orders being served on it and to produce an affidavit verifying that information within 48 hours.

On 15 June 2016 Bunge sent an email and couriered a letter to Mr Hua to bring to his attention the seriousness of the breach of the freezing and disclosure orders. These highlighted the penal notice. The email and letter asked for Mr Hua’s proposals on how he intended to comply with the orders. When the courier company telephoned Huaya Shipping in advance of attempting to deliver the 15 June letter to Huaya Shipping’s Qingdao office, they were advised that Mr Hua was currently out of the country and the letter was not of any use to him. In the letter, Mr Hua was informed that the solicitors were preparing an application for a committal order and its consequences were explained to him.

The email of 15 June from Bunge’s solicitors was also sent to the shipping brokers, Clarksons, to pass on to Mr Hua. Bunge were informed by a message dated 16 June 2016 from Clarksons that this message had been passed on to Huaya.

Bunge made the application for the contempt order against Huaya and the order for committal against Mr Hua as its director, officer or the individual in actual control for Huaya’s failure to comply with the disclosure orders.

On 15 September 2016, Bunge’s solicitors served the application. It stated that Mr Hua had to file and serve evidence in response by 2 October 2016. On 6 October Bunge’s solicitors wrote again stating that Mr Hua had filed no evidence, and giving him a further 48 hours to do so before it took steps to fix a hearing. On 14 October 2016 the solicitors wrote to Mr Hua explaining that the hearing of the committal application had been fixed for 16 December 2016 and highlighted that it may result in the court committing him to prison for contempt.

On 14 and 15 December further emails from Bunge to Huaya attached the bundles for the hearing and Bunge’s skeleton respectively.

The application notice for the committal served on Mr Hua did not contain a penal notice. That notice is in the form of Annex 3 to the Practice Direction to Part 81.

At the hearing Bunge submitted that I should waive the requirement that the application contain the penal notice. The omission to include it had not caused any injustice to Mr Hua, Bunge contended, because he had been given every opportunity to respond to the application. He had also been informed of its potential consequences and the date of the committal hearing. Bunge’s solicitors in their emails of 15 June 2016 and 15 September 2016 had quoted the penal notices in the disclosure orders, pointed out the seriousness of his failure to comply, informed him of the consequences of a committal order and of the need to produce evidence. Mr Hua’s response was to ignore the situation. If the application notice had contained the required wording, Bunge concluded, it would almost certainly have made no difference.

Paragraph 13.2(4) of the Practice Direction to Part 81 of the Civil Procedure Rules (“the CPR”) provides that

“the application notice must contain a prominent notice stating the possible consequences of the court making a committal order and of the respondent not attending the hearing. A form of notice which may be used is annexed to this Practice Direction at Annex 3”.

Paragraph 16.2 of the PD provides that:

“The court may waive any procedural defect in the commencement or conduct of a committal application if satisfied that no injustice has been caused to the respondent by the defect”.

This is the same wording as paragraph 10 of the previous Practice Direction to RSC, Order 52.

In Nicolls v. Nicholls [1997] 1 WLR 314 Lord Woolf MR gave guidance on the approach to be taken by the court where there were procedural defects in a committal application under the RSC provision. At p.326-327 he said:

“1.

As committal orders involve the liberty of the subject it is particularly important that the relevant rules are duly complied with…

2.

As long as the contemnor had a fair trial and the order has been made on valid grounds the existence of a defect either in the application to commit or in the committal order served will not result in the order being set aside except insofar as the interests of justice require this to be done.

3.

Interests of justice will not require an order to be set aside where there is no prejudice caused as a result of errors in the application to commit or in the order to commit. When necessary the order can be amended…”

At the hearing I formed the view that, notwithstanding that Mr Hua was aware of the general nature of the disclosure orders and of the committal application, it would not be right to waive immediately the failure of the application notice to contain the penal notice. At that hearing I was not persuaded that there was no prejudice when there was no evidence as to Mr Hua’s facility in the English language and his access to advice on English law.

Moreover, I wanted to give Mr Hua a final opportunity to take steps to meet the requirements of the orders with the knowledge that the court was actively considering his case. Consequently, I ordered that he be warned expressly along the lines of the penal notice. As I have said that was done over the weekend before the resumed hearing. At that point I was prepared to order that the requirement be waived. All that could be done had been done to warn Mr Hua of the serious consequences of non-compliance.

In this case the disclosure orders were not served on Mr Hua personally because he was not a party to the arbitration claim and because Bunge did not envisage that Huaya would ignore the court’s orders. Bunge applied for dispensation with personal service on Mr Hua of the disclosure orders in relation to its contempt applications.

Part 81 of the CPR deals with applications and proceedings in relation to contempt of court. If a court order is to be enforced by the contempt power, CPR 81.5 requires that it be served personally on the respondent before the end of the time fixed for compliance unless the court dispenses with service under CPR 81.8. CPR 81.8(1)(b) and 81.8(2) allow the court to dispense with service if satisfied respectively that the person has had notice of the orderorif the court thinks it just to do so. The courts have taken the view that where a party knows, and persistently fails to respond, it is just to dispense with personal service. Otherwise there would be an encouragement to persistent offenders to use a technicality to defeat the purpose of the order: see White Book, paragraph 81.8.2; Alridge on Contempt, paragraphs 12-37 to 12-44.

In this case I am satisfied that Mr Hua, as the person in charge of Huaya Shipping, was notified of the terms of the disclosure orders by email and courier, thereby satisfying CPR81.8(1)(b). He seemed to have acknowledged that in his conversation with the brokers, Clarksons, when he said that he was told by lawyers that so long as he kept away from the UK there was nothing that could touch him. Of course Mr Hua has made no attempt to comply with the disclosure orders. In light of this my conclusion is also that CPR81.8(2) is satisfied because it is just that personal service of the disclosure orders on Mr Hua be dispensed with.

The respondents did not attend either hearing before me and it was necessary to consider whether to proceed in their absence. Applying the checklist of factors set out by Cobb J in Sanchez v. Oboz [2015] EWHC 235 (Admin), and by Flaux J in Navig8 Chemical Pools Inc v. Nu Tek (HK) Pvt Ltd, Sharma, Karthikeyan [2016] EWHC 1790 (Comm), I had no difficulty in concluding that the case could be heard in the respondents’ absence. As I have said both had been served with the relevant documents, including the notice of the hearing, and they had sufficient notice to enable them to prepare for the hearing.By reference to the nature and circumstances of their behaviour it was clear that they had waived their rights to be present, taking the view that the court’s orders could have no effect in Qingdao.

Just as Flaux J observed in the Navig8 Chemical Pools case, it was reasonable for me to conclude that these respondents knew of and were indifferent to the consequences of the case proceeding in their absence, and had clearly taken a deliberate decision to absent themselves from the hearing. I gave a short adjournment but that did not secure any response. It seemed clear to me that a longer adjournment would not have resulted in their attendance or facilitated their representation. There was the disadvantage to them in not being able to present their accounts of events, but they had had ample opportunity and time in which to put in evidence challenging Bunge’s evidence. They have not sought to do so. Moreover, there would have been undue prejudice to Bunge in further delay. As Flaux J noted in Navig8 Chemical Pools:

“34 In circumstances where what is at issue is the efficacy of a worldwide freezing order and, in particular, its efficacy as a means of enforcing the arbitration award, the disclosure of assets by the respondent in such a case is a critical element in ensuring the efficacy of the court's order. Any delay in the order for committal of the respondents for contempt, and therefore any delay in bringing home to the respondents the importance of complying with a court order, is obviously a matter which could cause considerable prejudice to the claimant in its attempts to enforce the award generally.”

There was in my view no damage caused to the forensic process by proceeding to hear the application. Finally, to proceed with the hearing complied with the Overriding Objective in the CPR when I had reached the conclusion I did, explained in the next section of the judgment. The Overriding Objective of speedy justice and rationing judicial resources clearly pointed towards dealing with the matter in the absence of the respondents.

The principles which apply to an application for contempt in CPR 81.4 were outlined by Rose J in JSC Mezhdunarodniy Promyshlenniy Bank v. Sergei Viktorovich Pugachev [2016] EWHC 192 (Ch) (drawing on JSC BTA Bank v. Ereshchenko [2013] EWCA Civ 829). These are that the burden of proving the contempt lies on the applicant; as regards the necessary elements of the offence the criminal standard of proof applies so that the applicant’s case must be proved beyond reasonable doubt; and the court needs to exercise care when it is asked to draw inferences in order to prove contempt. As Teare J has cautioned, where conclusions of guilt are to be drawn on the basis of secondary evidence it must be possible to draw a single inference of guilt and only that inference: JSC BTA Bank v. Ablyazov [2012] EWHC 237 (Comm), [8].

With a company it is necessary to show that the order was served on the company and it was breached. With a third party like Mr Hua, who cannot be proved to be a director or officer of this Marshall Islands company, Lord Hope said in Attorney General v. Punch Ltd [2003] 1 AC 1046:

“[87] The power to commit for contempt ensures that acts and words tending to obstruct the administration of justice are prohibited. So a stranger is liable for contempt if his act constitutes a wilful interference with the administration of justice by the court in the proceedings in which the order was made. It has also to be shown there was an intention on his part to interfere with or impede the administration of justice. This is an essential ingredient, and it has to be established to the criminal standard of proof. But the intent need not be stated expressly or admitted by the defendant. As is the case where the question of intention, or mens rea, arises in criminal cases, it can be inferred from all the circumstances including the foreseeability of the consequences of the defendant’s conduct: Attorney General v Newspaper Publishing Plc [1988] Ch 333, 374-375, per Sir John Donaldson M.R.”

In my view Mr Hua is clearly in contempt. He has been notified of the disclosure orders. Bunge has sent a variety of communications, in addition to the orders, attempting to persuade the company and Mr Hua to comply with them. They could have fallen into a void. No excuse, indeed no response, has been forthcoming. Mr Hua appears to have taken the view that he is immune from any consequences so long as he stays away from England and Wales. That contrasts with his earlier taking advantage of London arbitration, dispute resolution which is supported by this court. That his act constituted a wilful interference with the administration of justice can clearly be inferred from all the circumstances. There is no excuse and no excuse has been offered.

In my view imprisonment of Mr Hua for contempt was the appropriate remedy. Drawing on various decisions (including the decision of Phillips J in ADM Rice Inc v. Corporacion Comercializadora De Granos Basicos [2015] EWHC 2448), Popplewell J in Asia Islamic Trade Finance Fund v. Drum Risk Management [2015] EWHC 3748 (Comm) helpfully set out the relevant principles:

"[7]…(1) In contempt cases the object of the penalty is to punish conduct in defiance of the court's order as well as serving a coercive function by holding out the threat of future punishment as a means of securing the protection which the injunction is primarily there to achieve. (2) In all cases it is necessary to consider (a) whether committal to prison is necessary; (b) what is the shortest time necessary for such imprisonment; (c) whether a sentence of imprisonment can be suspended; and (d) that the maximum sentence which can be imposed on any one occasion is two years. (3) A breach of a freezing order, and of the disclosure provisions which attach to a freezing order is an attack on the administration of justice which usually merits an immediate sentence of imprisonment of a not insubstantial amount. (4) Where there is a continuing breach the court should consider imposing a long sentence, possibly even a maximum of two years, in order to encourage future cooperation by the contemnors. (5) In the case of a continuing breach, the court may see fit to indicate (a) what portion of the sentence should be served in any event as punishment for past breaches; and (b) what portion of a sentence the court might consider remitting in the event of prompt and full compliance thereafter. Any such indication would be persuasive but not binding upon a future court. If it does so, the court will keep in mind that the shorter the punitive element of the sentence, the greater the incentive for the contemnor to comply by disclosing the information required. On the other hand, there is also a public interest in requiring contemnors to serve a proper sentence for past non-compliance with court orders, even if those contemnors are in continuing breach. The punitive element of the sentence both punishes the contemnors and deters others from disregarding court orders. (6) The factors which may make the contempt more or less serious include those identified by Lawrence Collins J as he then was, at para.13 of the Crystal Mews case, namely: (a) whether the claimant has been prejudiced by virtue of the contempt and whether the prejudice is capable of remedy; (b) the extent to which the contemnor has acted under pressure; (c) whether the breach of the order was deliberate or unintentional; (d) the degree of culpability; (e) whether the contemnor has been placed in breach of the order by reason of the conduct of others; (f) whether the contemnor appreciates the seriousness of the deliberate breach; (g) whether the contemnor has co-operated; to which I would add: (h) whether there has been any acceptance of responsibility, any apology, any remorse or any reasonable excuse put forward."

In this case Mr Hua has deliberately defied the court's authority by refusing to comply with the disclosure provisions. Failure to comply is an attack on the administration of justice. Especially after Clarksons’s intervention, there can be no doubt that Mr Hua has been aware and understood the seriousness of the matter. His breaches have been deliberate. After the adjournment of the hearing, he was warned again of the consequences. He had a further opportunity to recant but failed to respond. Given his position in the company he could ensure that it disclosed the details of its assets. As I said earlier Bunge has been prejudiced by his contempt of court in being able to enforce an arbitration award in its favour. Huaya and Mr Hua have avoided the freezing order and been able to conceal their assets. There seems to be no mitigation.

The maximum sentence that the Court can impose for contempt of court on a single occasion is two years: section 14(1) of the Contempt of Court Act 1981. There have been sentences of up to 24 months for failure to comply with disclosure orders: see JSC BTA Bank v. Solodchenko [2011] EWHC 2908 (Ch) per Briggs J (18 months); JSC BTA Bank v. Solodchenko [2011] EWCA Civ 1241 per Jackson LJ (21 months); JSC BTA Bank v. Stepanov [2010] EWHC 794 (Ch) (24 months). In light of these authorities, having considered Rose J’s judgment in JSC Mezhdunarodniy Promyshlenniy Bank v. Sergei Pugachev [2016] EWHC 258 (Ch), and in all the circumstances of this case I concluded that a sentence of 18 months’ imprisonment was appropriate in Mr Hua’s case. Were he to comply now there would be a substantial remission.

I make the order as sought and impose the sentence I have indicated.