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12 November 2019
Mathnasium Center Licensing, LLC v Chang(1) is another recent example of the courts sentencing makers of false statements of truth to a period of imprisonment for contempt of court. In this case, the defendant signed a false statement of truth in a defence filed on behalf of a company which he controlled and which was being sued by the plaintiff. The company's defence contained a material admission that was later relied on by the plaintiff to its significant detriment in trying to enforce a settlement agreement. The court found that it was beyond a reasonable doubt that the defendant must have known about the falsity of the admission and, therefore, that the statement of truth was false. Having found the defendant to be in contempt of court, on sentencing the court handed down an immediate custodial sentence of three months.
Statements of truth for pleadings, witness statements and expert reports were introduced in Hong Kong as part of the civil procedure reforms adopted in April 2009.(2) They have since become an important feature of the local litigation landscape. Those who sign statements of truth have been forced to focus on their belief that the matters referred to in (for example) a pleading or witness statement are accurate.
The first custodial sentence handed down by a court in Hong Kong for contempt of court for making a deliberately false statement of truth was in 2011.(3)
In Mathnasium Center Licensing, the plaintiff sued a company in respect of which the defendant was the sole shareholder and director. The plaintiff's claim was for certain royalty payments alleged to be owed pursuant to a franchise agreement relating to a number of learning centres. Crucial to the determination of the amount of the royalty was the ownership of the centres – the plaintiff alleged that the centres were operated by the company and the company admitted this in its defence. The statement of truth in the defence was signed by the defendant.
As it transpired, some of the learning centres appear to have been partially owned or controlled by the defendant. The false admission led the plaintiff to continue the proceedings against the company, which later appears to have ceased operation and become insolvent, whereas the learning centres partially owned or controlled by the defendant continued to operate and, apparently, generated revenue.
The plaintiff obtained a judgment against the company (together with a settlement agreement) which it could not successfully enforce, with all the attendant wasted time and costs.
The defendant explained the false admission and the false statement of truth as (among other things) an innocent mix up with his lawyers regarding his instructions.
The plaintiff applied for an order for committal for contempt of court against the defendant.
The court found the defendant guilty of contempt of court. The court considered that it was beyond a reasonable doubt that the statement of truth was false and that it had or was likely to have interfered with the administration of justice.(4) The court found that the defendant could not have had an honest belief in the admission in the company's pleading. The falsity of the admission was material and it made no difference that it was an admission in response to the plaintiff's claim, as opposed to a false averment on behalf of the company.
The court also considered that the defendant had known that the admission would cause the plaintiff to focus on suing the company which had ceased operation, as opposed to suing the revenue-generating learning centres which were partially controlled by him. Motive was an irrelevant element in contempt but, in any event, the admission in the company's defence had been in the defendant's interests.
The court referred to relevant Hong Kong and English judgments that decided that a person who deliberately signs a false statement of truth (or an equivalent) should expect to go to prison as punishment for contempt of court.(5)
As for sentencing, the court adopted a starting point of four months' imprisonment. This was reduced to three months in light of the defendant's age (middle aged), previous good character, family circumstances (a spouse, a young child and a recently deceased mother) and the fact that the false admission had been made on behalf of the company as opposed to in his own pleading.
The court specifically declined to fine the defendant, or to suspend the sentence, because it considered that these punishments were not sufficient in light of his conduct and the need for a general deterrence.
The judgment and sentence are another example of the tough consequences for signing false statements of truth in civil proceedings in Hong Kong. The judgment contains a detailed summary of the relevant legal principles.
The finding of contempt is a civil one but according to a standard of proof of beyond a reasonable doubt – that finding arises in the context of a false admission and it will be interesting to see if this gives rise to a possible appeal point (with bail in the meantime).
In sentencing contemnors for false statements of truth the courts can have regard to cases of perjury – namely, deliberately making a false oath in court or for the purpose of court proceedings.
By contrast, in cases of contempt for wilful disregard of a court order, it is not unusual for the courts to hand down a fine or a custodial sentence of weeks rather than months. Therefore, the sentence in this case is notable and may have been longer but for some strong mitigation by the defendant's lawyers. A defendant without a previous good character or who has attempted to coerce another into signing a false statement of truth (which was not the case here) could expect a longer sentence.
The defendant was also left with a significant liability for costs – both his own costs and those of the plaintiff.(6)
Statements of truth are serious matters and should be signed only after careful consideration of the pleading or witness statement in question. Parties that make admissions in their pleadings should do so with an honest belief. Admissions that are not routine require careful consideration. If a genuine mistake is made, the sooner it is corrected the better.
For further information on this topic please contact David Smyth or Antony Sassi at RPC by telephone (+852 2216 7000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
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