BCEG International (Australia) Pty Ltd v Xiao

Supreme Court of NSW|2023-05-19|Before: Darke J, Mr J

Introduction

On 8 February 2023, I delivered a judgment on the plaintiff's motion for contempt in which I found that the respondents to the motion, being the first, second, fourth and fifth defendants, were guilty of various contempts of court (see BCEG International (Australia) Pty Ltd v Xiao [2023] NSWSC 57 - hereafter referred to as "the contempt judgment").
The contempts were described in the contempt judgment at [63]. In short, the contempts involved the breaches of freezing orders and undertakings to the Court, primarily by: 1. engaging in a "security swap transaction" that entailed the mortgaging of a previously unencumbered property, and then failing to reverse the transaction; 2. disbursing monies from a bank account; and 3. failing to provide certain information concerning the financial positions of the defendants.
The findings of contempt had the consequence that it was necessary to conduct a further hearing on the question of penalty. The contempt motion had proceeded on the orthodox basis that the Court would first determine the question of guilt and then, if necessary, conduct a separate hearing on penalty (see the contempt judgment at [4]). Accordingly, directions were made on 10 February 2023 for the purpose of facilitating the penalty hearing. The hearing was listed for 30 March 2023.
However, that hearing date was adjourned to 12 April 2023 by reason of a matter personal to one of the counsel engaged for the hearing. The hearing on 12 April 2023 was itself adjourned, on the application of the respondents, in circumstances where there was evidence that steps were being taken to purge the contempts and satisfy the various judgments the plaintiff had obtained in the proceedings. The penalty hearing was adjourned to 15 May 2023 to enable those steps to be taken.

The contempts found

The essence of the conduct of the defendants that was found to be in contempt is reflected in the orders made on 8 February 2023. The detail of the conduct found to be in contempt, and the findings of the Court in that regard, is otherwise found in the contempt judgment. It is not necessary to repeat that detail here. The orders made on 8 February 2023 were: 1. in respect of Charge 7 of the Amended Statement of Charge, the fifth defendant (West Wyalong Marketplace Pty Ltd) is guilty of contempt of court by granting mortgage AS181896 in respect of the land the subject of Folio References 30/SP93076 and 31/SP93076 (the Flinders Street properties) without giving notice to the plaintiff in breach of its undertaking to the Court given on 28 April 2022 to comply with the terms of a freezing order and in particular paragraph 6(a) thereof; 2. in respect of Charge 1(a) of the Amended Statement of Charge, the first defendant (Mr Xiao), as a director of West Wyalong Marketplace Pty Ltd, is guilty of contempt of court by failing to take reasonable steps to ensure that West Wyalong Marketplace Pty Ltd did not so breach its undertaking to the Court, and in actively taking steps to cause West Wyalong Marketplace Pty Ltd to grant the said mortgage AS181896 without it having given notice to the plaintiff; 3. in respect of Charge 2B of the Amended Statement of Charge, the first defendant (Mr Xiao) is guilty of contempt of court by causing or permitting transfers of money out of Westpac Banking Corporation account 732-XXXXX-7567 and Commonwealth Bank of Australia account 062-XXX-XXXX 0057 otherwise than by payment into court and without giving notice to the plaintiff, in breach of his undertaking to the court given on 28 April 2022 concerning the transferring or dealing with certain monies; 4. in respect of Charge 4A of the Amended Statement of Charge, the second defendant (Ms Chen) is guilty of contempt of court by causing or permitting transfers of money out of the Westpac Banking Corporation account 732-XXXXX-7567 and Commonwealth Bank of Australia account 062-XXX-XXXX 0057 otherwise than by payment into court and without giving notice to the plaintiff, in breach of her undertaking to the court given on 28 April 2022 concerning the transferring or dealing with certain monies; 5. in respect of Charge 2 of the Amended Statement of Charge, the first defendant (Mr Xiao) is guilty of contempt of court by failing to provide information as required by orders of the Court made on 8 June 2022 and in particular paragraph 4(a)i, vi and xi of the Penal Order attached to such orders; 6. in respect of Charge 4 of the Amended Statement of Charge, the second defendant (Ms Chen) is guilty of contempt of court by failing to provide information as required by orders of the Court made on 8 June 2022 and in particular paragraph 4(a)i, vi and xi of the Penal Order attached to such orders; 7. in respect of Charge 6 of the Amended Statement of Charge, the fourth defendant (Interlink Wagga Central Pty Ltd) is guilty of contempt of court by failing to provide information as required by orders of the Court made on 8 June 2022 and in particular paragraph 4(a)vi of the Penal Order attached to such orders; 8. in respect of Charge 8 of the Amended Statement of Charge, the fifth defendant (West Wyalong Marketplace Pty Ltd) is guilty of contempt of court by failing to provide information as required by orders of the Court made on 8 June 2022 and in particular paragraph 4(a)vi of the Penal Order attached to such orders; and 9. in respect of Charge 2A of the Amended Statement of Charge the first defendant (Mr Xiao) is guilty of contempt of Court by failing to cause the Flinders Street properties to be released by 30 September 2022 from the security of mortgage AS181896, and thereby failing to comply with the undertaking he gave to the Court in the terms of paragraph 54 of his affidavit affirmed on 10 June 2022.
It can be seen from the above that: 1. Mr Xiao was found guilty of four charges. Two of those charges concern the "security swap transaction" that entailed the mortgaging by WWMP to the CBA of the previously unencumbered Flinders Street properties. First, Mr Xiao, as the sole director of WWMP, was found to have wilfully failed to take reasonable steps to ensure that WWMP obeyed an undertaking the company had given to the Court, and indeed actively took steps to cause the company to enter into the transaction without having first given notice to the plaintiff (see the contempt judgment at [37] and [43]). Secondly, Mr Xiao was found to have failed to comply with his own undertaking to the Court to cause the release of the Flinders Street properties from the CBA mortgage by 30 September 2022 (see the contempt judgment at [61]). The third charge found against Mr Xiao was that, in breach of an undertaking he gave to the Court, he caused or permitted various transfers of money out of two bank accounts he held jointly with Ms Chen (see the contempt judgment at [52]). The fourth charge found against Mr Xiao was that, in breach of orders of the Court, he omitted to provide certain financial information (see the contempt judgment at [57] and [59]). 2. Ms Chen was found guilty of two charges. First, it was found that, in breach of an undertaking she gave to the Court, she caused or permitted various transfers of money out of two bank accounts she held jointly with Mr Xiao (see the contempt judgment at [52]). Secondly, it was found that, in breach of orders of the Court, she omitted to provide certain financial information (see the contempt judgment at [57] and [59]). 3. WWMP was found guilty of two charges. First, it was found that the grant of the CBA mortgage over the Flinders Street properties was a breach of an undertaking the company had given to the Court (see the contempt judgment at [31]-[33]). Secondly, it was found that WWMP, in breach of an order of the Court, omitted to provide certain financial information (see the contempt judgment at [57] and [59]). 4. IWC was found guilty of one charge. It was found that, in breach of an order of the Court, it omitted to provide certain financial information (see the contempt judgment at [57] and [59]).
It seems to be accepted by the plaintiff that the contempts consisting of omissions to provide financial information have now been purged, albeit recently. The plaintiff maintains, correctly, that the other contempts remain unpurged. In that regard, the plaintiff emphasised that the contempts have remained unpurged for a very lengthy period. It was pointed out that the "security swap transaction" occurred on about 1 June 2022, and that the disbursement of monies from the joint accounts held by Mr Xiao and Ms Chen commenced on about 8 June 2022, in each case more than 11 months ago.

Relevant principles

The applicable power of the Court to punish the contempts is contained in Part 55 Rule 13 of the Supreme Court Rules 1970 (NSW) ("SCR"). The rule is in the following terms: (1) Where the contemnor is not a corporation, the Court may punish contempt by committal to a correctional centre or fine or both. (2) Where the contemnor is a corporation, the Court may punish contempt by sequestration or fine or both. (3) The Court may make an order for punishment on terms, including a suspension of punishment or a suspension of punishment in case the contemnor gives security in such manner and in such sum as the Court may approve for good behaviour and performs the terms of the security.
As far as imprisonment is concerned, the punishment is described as committal to a correctional centre. That language differs from the language of "sentence" as found in the criminal law (see Dowling v Prothonotary of the Supreme Court of New South Wales (2018) 99 NSWLR 229; [2018] NSWCA 340 at [38] and [50] per Basten JA with whom Meagher JA agreed). It has been held that the statutes that apply to criminal sentencing procedure in New South Wales do not apply to contempt proceedings, such as this, in the civil jurisdiction of the Court (see Dowling v Prothonotary of the Supreme Court of New South Wales (supra) at [46] and [49] per Basten JA). Further, as stated by Basten JA in that case at [40]-[41] (footnotes omitted): 40. More generally, the criminal process operates with respect to past conduct and punishment for past conduct. A committal for contempt may constitute punishment for past conduct, but that is not necessarily the case. As explained in Miller on Contempt of Court: "Historically, civil contempt through non-compliance with a court order could be dealt with by committal for a fixed or for an indefinite term. The form of the committal order and the duration of the term of imprisonment depended upon the purpose for which committal was being employed. Committal for a fixed term was appropriate where the objective was punishment for past disobedience. However, where committal was being employed for a remedial or coercive purpose an indefinite term might be preferable as carrying the maximum incentive to comply with the original order." 41. The authors of Miller referred to the statement by Lord Denning MR in Danchevsky v Danchevsky: "When it is a matter of getting a person to do something in the future - and there is a reasonable prospect of him doing it - then it may be quite appropriate to have an indefinite order against him and to commit him until he does do it."
In Australasian Meat Industry Employees' Union v Mudginberri Station Pty Ltd ("Mudginberri") (1986) 161 CLR 98, the majority of the High Court stated at 114-5 (footnotes omitted): There will often be elements of futurity in orders of a court which are designed to bring a contempt of court to an end. At stake is the public interest in vindicating the authority of the court and maintaining respect for the law. In principle, there is no good reason in appropriate circumstances for denying a court access to such a means of bringing a contempt to an end. There are ample precedents where courts have taken strong measures in order to coerce compliance with an order of the court. In the case of an individual contemnor, he may be imprisoned until the contempt is purged. The committal to prison is of a conditional nature, remaining in force until the contempt comes to an end or further order is made. As soon as the contempt is purged, the offender is entitled to release ex debito justitiae (In re Freston (1883) 11 QBD 545, at pp 554-555, 557). In the case of a corporation, its assets may be seized and remain seized until the contempt ceases. Such an order again exhibits a conditional character. There is much to be said for securing to a superior court a wide range of remedies so that it will be better able to meet the exigencies of particular circumstances. In the United States the suspended fine is well known (Miller, Contempt of Court (1976), at p 12). In Doyle v. London Guarantee Co., a case of continuing civil contempt, the Supreme Court offered no criticism of a conditional order imposing a fine of $250 if certain books and papers were not produced by a certain date. Again, in United States v. United Mine Workers of America the Supreme Court imposed a fine of $2,800,000 conditioned on the failure of the union to comply with a labour injunction within five days. It was considered that such an order would effectively coerce the union into a future compliance with the Court's order. Another example of the flexibility of the orders available to the court may be seen in Con-Mech (Engineers) Ltd v. Amalgamated Union of Engineering Workers (Engineering Section), where the National Industrial Relations Court ordered sequestration of assets to the value of £100,000, but postponed a final decision on the amount of the fine which would become payable so as to give the union time for further reflection. On continued disobedience, a fine of £75,000 was imposed. These are considerable powers, resort to which imposes a heavy responsibility upon a court confronted with a determined challenge to its authority. The propriety of their exercise cannot be measured solely by reference to the established procedures attending the prosecution of ordinary breaches of the law. Contempt of court is a distinctive offence attracting remedies which are sui generis (Morris v. Crown Office. It is required of the chosen remedy that it be effective, no more but no less. For, if it is not effective, serious and lasting damage to the fabric of the law may result.
I note in passing that the plaintiff seeks the imposition of penalties of indefinite imprisonment upon both Mr Xiao and Ms Chen. The defendants accepted in submissions that indefinite imprisonment was in principle available, but contended that such penalties were problematic, and inappropriate in the circumstances of this case. In particular, it was submitted that such a penalty is inappropriate where the contemnor is seeking to purge the contempts and achieving that outcome is not solely within the control of the contemnor.
I have already noted that the defendants, in submissions, emphasised that the conduct found to be contemptuous was not stated in the Statement of Charge to be contumacious, and was not found to be such. It was submitted that in those circumstances it would rarely be appropriate to impose a term of imprisonment as a disciplinary sanction (see Vaysman v Deckers Outdoor Corporation Inc (2011) 276 ALR 596; [2011] FCAFC 17 at [178]). Moreover, it was submitted that it was now too late for the plaintiff to contend that the defendants acted contumaciously. Nonetheless, I did not understand it to be submitted that, in the absence of such a finding, it was not open to the Court to punish a contemnor (not being a corporation) by a term of imprisonment.
It seems to me that that is so, having regard to the clear language of SCR Pt 55 r 13 and the statements made in Dowling v Prothonotary of the Supreme Court of New South Wales (supra). It is particularly the case where, as in the present case, contempts remain unpurged, such that punishment by imprisonment may serve a remedial or coercive purpose beyond punishment for past disobedience (see Construction, Forestry, Mining and Energy Union v Grocon Constructors (Victoria) Pty Ltd (2014) 47 VR 527; [2014] VSCA 261 at [170]-[171]).
It is thus not strictly necessary to proceed, as I was invited by the plaintiff to do, to make findings at the penalty hearing stage that the conduct of Mr Xiao and Ms Chen was contumacious. I accept, however, that it is open to the Court to do so. There is authority that contumacious conduct is not an element of an offence of contempt by breach of a court order, but is a matter that may arise, following a finding of guilt, at the penalty hearing as a circumstance of aggravation (see Construction, Forestry, Mining and Energy Union v Grocon Constructors (Victoria) Pty Ltd (supra) at [299]).
Of course, it remains the case that imprisonment is to be regarded as a punishment of last resort (see He v Sun (2021) 104 NSWLR 518; [2021] NSWCA 95 at [68] per McCallum JA; see also NHB Enterprises Pty Ltd v Corry (No 8) [2022] NSWSC 97 at [30] per Bell P, as the Chief Justice then was).
In approaching the question of an appropriate penalty, there are a number of factors that are generally required to be taken into consideration by the Court. In Matthews v Australian Securities and Investments Commission [2009] NSWCA 155, Tobias JA (with whom Basten and Campbell JJA agreed) cited with approval the following list of relevant factors (at [129]): 1. The seriousness of the contempt proved. 2. The contemnor's culpability. 3. The reason or motive for the contempt. 4. Whether the contemnor has received, or sought to receive, a benefit or gain from the contempt. 5. Whether there has been any expression of genuine contrition by the contemnor. 6. The character and antecedents of the contemnor. 7. The contemnor's personal circumstances. 8. The need for deterrence of the contemnor and others of like mind from similar disobedience. 9. The need for denunciation of contemptuous conduct.
The underlying rationale for every exercise of the contempt power is that it is necessary to uphold and protect the effective administration of justice (see Mudginberri (supra) at 107; see also He v Sun (supra) at [10] per Bell P, as the Chief Justice then was).

Summary of submissions as to penalty

In brief, Senior Counsel for the plaintiff submitted that the appropriate penalty for both Mr Xiao and Ms Chen was imprisonment. It was accepted that it may be appropriate to suspend the terms of imprisonment for a short period, on conditions. The conditions suggested for any suspension included that the unpurged contempts be purged, and that the plaintiff's costs of the contempt proceedings and its costs of related Federal Court proceedings (for the appointment of an interim trustee in bankruptcy in respect of the property of Mr Xiao and Ms Chen) be paid on an indemnity basis. The plaintiff did not suggest that any particular term of imprisonment would be appropriate or that a term within a particular range would be appropriate. It was contended that an indefinite term, to continue until the unpurged contempts were purged, would be appropriate in the circumstances.
The plaintiff submitted that an order for sequestration should be made on similar terms in respect of WWMP, together with an order for costs on an indemnity basis. No sequestration order was ultimately sought against IWC, whose contempt had been purged by the time of the penalty hearing, although an order for costs on an indemnity basis was pressed against IWC.
The plaintiff did not submit that any fines should be imposed in addition to the above, and expressed a concern that fines could operate to prejudice the plaintiff in its quest to have its judgments against the defendants satisfied. The plaintiff made it clear that its primary concern is that penalties be imposed that are likely to achieve the purposes the breached orders and undertakings were originally intended to achieve. Nevertheless, the plaintiff accepted that it may be appropriate for the Court to impose such fines to better serve the purposes of specific or general deterrence.
The plaintiff submitted that the contempts, being breaches of freezing orders and undertakings designed to protect the interests of a plaintiff seeking remedies against a defendant, were inherently of a most serious and egregious kind. It was put that the particular breaches have caused significant prejudice to the plaintiff, which has spent large sums of money on the contempt proceedings, yet many months later has still not seen the contempts purged.
The plaintiff submitted that Mr Xiao's role in the breaches was central and of the most serious kind. It was put that the evidence (including evidence given by Mr Xiao in cross-examination) showed that the "security swap transaction", which encumbered WWMP's only asset with a mortgage, was entered into with knowledge that what was being done was wrong, and with the aim of enabling money to be borrowed that could then be used by Mr Xiao and Ms Chen for their own business and personal purposes. It was put that the aim was achieved, and was carried out by the disbursement of monies that were also found to be contempts. It was pointed out that some of those disbursements continued even after the plaintiff had made complaint about such conduct. It was submitted that not only did Mr Xiao fail to honour his undertaking to reverse the "security swap transaction" by 30 September 2022, he made no real effort to do so.
The plaintiff pointed out that neither Mr Xiao nor Ms Chen have offered any explanations in their affidavits of how the contemptuous conduct occurred. It was further submitted that whilst the affidavits contained apologies, it was apparent from answers given in cross-examination that insofar as Mr Xiao showed any contrition for his contempts, none was shown in relation to their effect upon the plaintiff, and Ms Chen seemed not to show any contrition for her own conduct at all, her apology merely being given for what Mr Xiao had done wrong.
Senior Counsel for Mr Xiao and the two corporate defendants accepted that there was no doubt that all of the contempts found are objectively serious, including the failures to provide information which might be considered the least serious of them. It was also accepted that the full range of penalties, including imprisonment, is available for these civil contempts. However, it was put that, at the penalty hearing stage, the Court could not or should not proceed to make any findings that any of the conduct was contumacious.
It was further put that the contempts, including those consisting of the disbursement of monies, were not directed towards the dissipation of the overall value of assets that would be available to a judgment creditor. Reference was also made to an answer Mr Xiao gave in cross-examination to the effect that he understood he could deal with the monies in the joint accounts as they were "over threshold". Senior Counsel conceded, however, that any such understanding of the undertaking breached was incorrect.
It was submitted that, in imposing penalties for civil contempt, the focus is primarily upon questions of specific and general deterrence, although there was also the element of encouraging or procuring compliance with orders or undertakings where compliance has not occurred. It was submitted that where the defendants have made and are continuing to make honest efforts to purge the contempts, and those efforts are likely to succeed, the appropriate penalty in relation to Mr Xiao and WWMP was a fine (i.e. not imprisonment or sequestration, respectively). It was submitted that in the case of IWC, a liability for costs ought to be a sufficient penalty.
It was submitted that if imprisonment was nonetheless imposed upon Mr Xiao, given the attempts to purge, it ought to be suspended for a period to provide one last chance. It was also put that any imprisonment should be for a fixed, not indefinite, term. It was put that whilst an indefinite term was in principle available, it would not be appropriate because the evidence concerning the attempts to purge showed that there have been difficulties in obtaining the required finance, and purging the contempts is not a matter solely within the power of Mr Xiao. It was put that any fixed term imposed would be for "not many months".
As far as specific deterrence is concerned, it was submitted that the four contempts committed by Mr Xiao should be seen as a related series. It was put that there was no real likelihood of any repetition of the conduct, bearing in mind that there were no antecedents and the occasion for the conduct (i.e. the litigation brought by the plaintiff) has now concluded. It was submitted that Mr Xiao's apology to the Court should be treated as sincerely made. In relation to general deterrence, it was submitted that a substantial fine (of tens of thousands of dollars) coupled with a costs order would be sufficient.
As to costs, it was submitted that an order for indemnity costs is not automatic in cases where contempts have been established. It was submitted that the order should reflect the fact that the plaintiff had only partial success, as a number of the charges of contempt were not made out. Further, it was submitted that the actual payment of costs should not be made a condition of any suspension of a term of imprisonment. It was put that to do so would be akin to imposing prison as a penalty for a failure to pay a judgment debt. Moreover, it was submitted that the amount of any costs has not been assessed, and the evidence before the Court did not enable any gross sum order to be made. It was submitted that it would not be appropriate to impose any condition in relation to the costs of the Federal Court proceedings, as those costs remain a matter to be determined in that Court.
Senior Counsel for Ms Chen adopted the above submissions, but made some further submissions specifically directed to Ms Chen's position. It was submitted that none of the conduct alleged against her was stated to be contumacious, and in those circumstances it would rarely be appropriate to impose a term of imprisonment as a disciplinary sanction. It was put that Ms Chen acted responsibly and sensibly in relation to the liability hearing by not contesting the charges. It was submitted that the object of obtaining compliance with the Court's orders will likely be met without the need for a term of imprisonment, due to the efforts being made to purge the contempts. It was suggested that she did not have the ability to purge the contempts herself, and that this was a matter outside her control.
It was submitted that the evidence showed that Ms Chen acted on the instructions of Mr Xiao, so her conduct can be seen as quite removed from the centre of the wrongdoing. It was submitted that whilst Ms Chen lacked an understanding of the detail of what occurred, she at least appreciated that what Mr Xiao had done was wrong and has offered an apology accordingly. It was submitted that there were no antecedents for her conduct, and that there was no real prospect of any further contempts being committed by her. It was put that in all the circumstances Ms Chen did not deserve to go to gaol.

Determination

Having considered all the circumstances, and in accordance with the principles referred to earlier, I have come to the conclusion that, despite the submissions made on his behalf, the appropriate penalty to impose upon Mr Xiao is committal to a correctional centre, and a fine of $125,000. Further, an indefinite term of imprisonment, terminable upon the purging of the contempts committed by Mr Xiao, is appropriate in the circumstances of the case, although I think that the commencement of the term should be suspended for a period of 21 days to allow the contempts to be purged within that period and thereby avoid committal. I regard each of the four contempts committed by Mr Xiao to be objectively very serious. That is particularly so in respect of the two charges that concern the "security swap transaction" and the charge concerning the transfers of money out of the two bank accounts he held jointly with Ms Chen. Each of those contempts remain unpurged.
Whilst it is not necessary, in order to justify a penalty of imprisonment, that a civil contempt by breach of a Court order or undertaking to the Court be found to be contumacious, it is my opinion that Mr Xiao's conduct in respect of at least the charge that concerns entry into the "security swap transaction" was indeed contumacious.
Mr Xiao was the sole director of WWMP. The Flinders Street properties were the only substantial asset of the company. The properties were unencumbered by any mortgage. On 28 April 2022, each of the defendants had undertaken to the Court to comply with certain freezing orders, including an order that WWMP not deal with or diminish the value of any of its assets in Australia up to the unencumbered value of $3,155,033.18 without first giving the plaintiff 7 days written notice. A statement contained in a Commercial Discharge form signed by Mr Xiao on 27 May 2022 indicated that, to the understanding of Mr Xiao, the Flinders Street properties had a value of about $2.1 million. That understanding was confirmed by the terms of an affidavit Mr Xiao affirmed on 10 June 2022. In circumstances where Mr Xiao can be taken to have been aware of the terms of the undertakings given and orders made on 28 April 2022, it must have been obvious to him that the grant of a mortgage by WWMP over the Flinders Street properties would be a breach of the undertakings and orders unless the requisite notice had first been given to the plaintiff. Nevertheless, Mr Xiao not only wilfully failed to take reasonable steps to ensure that the undertaking was obeyed by WWMP, he actively took steps to cause the company to enter into the transaction (that involved the grant of the CBA mortgage over the Flinders Street properties) without having first given the requisite notice to the plaintiff. To my mind, the conduct of Mr Xiao in this regard may fairly be described as contumacious.
There is no doubt that Mr Xiao is culpable in respect of each of the four contempts. Indeed, his level of culpability is increased when regard is had to his evidence that the conduct of Ms Chen in relation to those contempts (such as the signing of documents to enable the "security swap transaction" to proceed) was carried out under his instructions.
Further, it seems clear, including from evidence given by Mr Xiao in cross-examination, that the contempts (other than the contempt concerning the failure to provide financial information) were carried out to serve the overall commercial interests of Mr Xiao, Ms Chen and the companies. The "security swap transaction" enabled funds to be borrowed, $2.1 million of which was then advanced by the trustee of the Xiao and Chen Family Trust to Mr Xiao and Ms Chen. Those funds, which were paid into accounts held by Mr Xiao and Ms Chen jointly, were then disbursed for business and personal purposes in breach of an undertaking Mr Xiao gave to the Court.
It is also clear that the grant of the CBA mortgage, which was given in support of a loan with a facility limit of $5,517,500, effected a substantial diminution in the value of WWMP's assets, to the obvious prejudice of the plaintiff.
I accept that Mr Xiao has made a sincere apology to the Court for his conduct. However, despite the terms of his affidavit, he offers no apology to the plaintiff even though it must be plain that his conduct has prejudiced the plaintiff, including by causing it to incur great expense (likely in excess of $250,000) in pursuing these contempt proceedings. I note that Mr Xiao even resists the making of a costs order against him on an indemnity basis.
In considering specific deterrence, I accept that the conduct involved in the three contempts, other than the contempt concerning financial information, can be regarded as related, and I further accept that there is no real likelihood of any repetition by Mr Xiao of contemptuous conduct.
However, it is my opinion that the nature and seriousness of the contempts that have been found warrants the imposition of a penalty of imprisonment upon Mr Xiao. That is so, it seems to me, even though Mr Xiao has made and is continuing to make efforts to purge the outstanding contempts. It was put by the defendants that those efforts are likely to succeed. I agree that the evidence before the Court suggests that Mr Xiao and the other defendants have the ability to purge the outstanding contempts. Nevertheless, the Court cannot act with complete confidence in circumstances where the defendants have previously made statements to the Court to the effect that a purging of the contempts would likely occur soon, and such predictions have not come to pass. Also, as the defendants themselves submitted, purging the outstanding contempts, at least by means of borrowing money, is not a matter solely within their control.
In my opinion, this is a case where imprisonment for an indefinite term is apt to serve the remedial and coercive purpose of finally securing compliance with orders and undertakings that were breached more than 11 months ago. The incentive towards compliance that is inherent in an indefinite term that is terminable upon the purging of the outstanding contempts renders such a term, rather than a fixed term, appropriate in the case of Mr Xiao. Of course, if it became apparent, for example, that (contrary to the evidence presently before the Court) the defendants lacked the ability to purge the outstanding contempts, such that there was no longer any purpose in keeping Mr Xiao in prison, it would be open to him to seek to have the order for committal discharged pursuant to SCR Pt 55 r 14.
In recognition of the principle that imprisonment is a punishment of last resort, I think that the commencement of the term should be suspended for a period of 21 days to allow a further opportunity for the contempts be purged within that period and thereby avoid imprisonment. That is to say, I am prepared to give Mr Xiao one last chance. The effect of that suspension is that he will have had a period of about 4 months since he was found guilty of contempt to purge the contempts before being imprisoned.
I do not propose to impose a condition to the effect that the plaintiff's costs of the proceedings (or the costs of the related Federal Court proceedings) be paid within the 21 day period. I generally accept the submissions of the defendants on this point, although I do think (for reasons that I will come to) that an order for costs of the contempt proceedings should be made in favour of the plaintiff on an indemnity basis.
The making of an order for indemnity costs will serve to compensate the plaintiff for the reasonable expenditure it has incurred consequent upon the contempts committed by the defendants. The amount of the costs liability is likely to be very substantial. That liability, and the defendants' liability for their own costs, is relevant to be taken into account on the question of penalty.
Nevertheless, it seems to me that in the interests of general deterrence, a monetary penalty should be borne by Mr Xiao in addition to the penalty of imprisonment. This is a case where serious breaches of orders and undertakings have occurred, evidently in the commercial interests of Mr Xiao, Ms Chen and the companies. The breaches have remained unremedied for a lengthy period, including for more than 3 months after the contempts were found. In my opinion, general deterrence requires that a significant monetary sanction be imposed. If, as seems likely, the contempts are purged, either within the 21 day period or within a reasonably short period thereafter, Mr Xiao will serve little or no time in prison. I do not think that his contempts would be seen to be adequately punished were he to be merely left to bear the burden of the costs of the contempt proceedings. In all the circumstances, including the apparent wealth that Mr Xiao has disclosed in an asset and liability statement he recently signed, I consider that a fine of $125,000 would be appropriate.
The punishment of Mr Xiao, as set out above, is in my opinion necessary to uphold and protect the effective administration of justice. I do not think that anything less would adequately vindicate the due administration of justice.
As far as Ms Chen is concerned, I have come to the conclusion that the appropriate penalty to impose upon her is a fine of $75,000.
The two contempts committed by her are objectively very serious, particularly in respect of the charge concerning the transfers of money out of the joint accounts. Nonetheless, I consider that her level of culpability is lessened to a degree by the circumstance that, as the evidence suggests, she was acting on the instructions of Mr Xiao in effecting the various transfers out of the accounts. Further, it appears that her culpability in respect of the failure to provide financial information is lessened to a degree in circumstances where she gave authority to Mr Xiao to liaise with the solicitors, and give and receive instructions on her behalf, throughout the proceedings. Of course, her level of culpability must still be regarded as substantial, as a party to proceedings with capacity has a responsibility to remain informed about the proceedings, including by acquainting themselves with any orders or undertakings that affect them, and seeking to understand the terms of any such orders or undertakings. Moreover, it should not be overlooked that the contempt involving the disbursement of monies was in fact carried out to serve the overall commercial interests of Mr Xiao, Ms Chen and the companies.
Also, despite the terms of her affidavit, it is difficult to conclude that Ms Chen has expressed genuine contrition for her conduct that was found to be in contempt. The answers she gave in cross-examination revealed a lack of understanding of her own wrongdoing, and the effects of it, and her apology seemed to be confined to one for something Mr Xiao did wrong. I do accept, however, that there is no real likelihood of any repetition by Ms Chen of contemptuous conduct.
I have carefully considered the submissions made by the plaintiff to the effect that a penalty of imprisonment is appropriate. Ultimately, I have decided that such a penalty is not required in Ms Chen's case, mainly because her culpability for the contempts she committed, whilst substantial, is appreciably less than Mr Xiao's culpability for the contempts he committed. Moreover, it seems likely (although by no means certain) that her outstanding contempt will be purged as a result of the efforts currently being made by Mr Xiao.
Viewing the matter overall, I think that a fine rather than imprisonment is sufficient in Ms Chen's case.
As with Mr Xiao, I have taken into account that Ms Chen will incur a substantial liability for the plaintiff's costs of the contempt proceedings, as well as a liability for the defendants' costs. However, taking all the circumstances into account, including the need to generally deter conduct of the kind engaged in by Ms Chen, I think it is necessary in order to uphold and protect the effective administration of justice that Ms Chen also bear a significant monetary sanction.
In all the circumstances, including the apparent wealth that Ms Chen has disclosed in an asset and liability statement she recently signed, I consider that a fine of $75,000 would be appropriate. In my view, anything less would not adequately vindicate the due administration of justice.
I turn now to consider the question of penalty in relation to WWMP. As this contemnor is a corporation, the Court has power under SCR Pt 55 r 13 to punish it by sequestration or fine, or both.
It may be recalled that WWMP was found guilty of two contempts - the first concerning its grant of the CBA mortgage over the Flinders Street properties, and the second concerning its failure to provide financial information. The first of the contempts remains unpurged.
In my opinion, the appropriate penalty to impose upon WWMP is sequestration until such time as its outstanding contempt is purged, with the order suspended for a period of 21 days to allow that contempt to be purged within that period and thereby avoid sequestration. I do not think it is appropriate to impose a fine in addition to the order for sequestration.
It will be apparent from what I have already said (at [39] above) about the grant of the CBA mortgage that I regard that conduct as a contempt of a most serious kind. WWMP, through its sole director, must be taken to have been aware that the grant of a mortgage over its only substantial asset without having first given the requisite notice to the plaintiff would constitute a breach of the undertakings and orders of 28 April 2022. Further, it would have been plain to WWMP that the grant of the mortgage, which was given in support of a loan with a facility limit of $5,517,500, effected a substantial diminution in the value of the company's assets (see at [42] above). The contemptuous conduct directly undermined the purpose of the relevant undertaking and orders of 28 April 2022.
Moreover, it is clear from the evidence given by Mr Xiao in cross-examination that the "security swap transaction" was entered into "for company reasons". Further, whilst Mr Xiao has sincerely apologised to the Court for his conduct, he offers no apology to the plaintiff who has been prejudiced by WWMP's contempt and has incurred great expense in pursuing these proceedings. Against that, I accept that there is no real likelihood of any repetition by WWMP of contemptuous conduct.
Viewing the circumstances overall, including in particular the seriousness of the conduct for which WWMP is culpable through its sole director, I cannot accept the submission that only a fine of WWMP would be sufficient. In my opinion, an order for sequestration, until such time as the outstanding contempt is purged, is apt to serve the remedial and coercive purpose of finally securing compliance with the undertaking WWMP breached more than 11 months ago. The incentive towards compliance that is inherent in such an order is not necessarily present with a fine. Moreover, the payment of a fine by WWMP would have the effect of reducing the value of its assets available to satisfy the judgment against it. However, as with Mr Xiao, I think that the order for sequestration should be suspended for a period of 21 days to allow WWMP's outstanding contempt to be purged within that period and thereby avoid sequestration. I note that it will be necessary for the plaintiff to engage with the Court registry in relation to the issue of a writ of sequestration and the appointment of appropriate sequestrators.
I do not think that any fine should be imposed upon the company. I have reached that view largely because the effect of a fine would be to reduce the value of its assets available to satisfy the judgment against it. Also, given that I propose to make an order for indemnity costs against WWMP, I do not think that the imposition of a fine is necessary in the interests of general deterrence.
In my opinion, the punishment of WWMP, as set out above, is necessary to uphold and protect the effective administration of justice. Anything less would in my view not adequately vindicate the administration of justice.
I turn now to consider the question of penalty against IWC. The contempt committed by IWC, which concerned a failure to provide information, has now been purged. This occurred only recently, through Mr Xiao's affidavit of 12 May 2023. The plaintiff did not seek the imposition of either sequestration or a fine as a penalty. The plaintiff is seemingly content with an order for indemnity costs against IWC.
I think that such an order should be made. IWC will thereby incur a very substantial liability. In all the circumstances, I do not consider that the imposition of any penalty by way of either fine or sequestration is necessary to adequately vindicate the administration of justice.
As I have stated, the Court proposes to make an order that each of the contemnors pay the plaintiff's costs of these contempt proceedings on an indemnity basis. In essence, I regard that order as the appropriate order to make in exercising the discretion of the Court pursuant to s 98 of the Civil Procedure Act 2005 (NSW), where serious contempts have been committed by each of the defendants, and the plaintiff has been significantly prejudiced by at least the contempts concerning the "security swap transaction" and the disbursement of monies by Mr Xiao and Ms Chen. The plaintiff has acted entirely reasonably in bringing and pursuing the contempt motion, and it is fair that it be compensated for the expenditure it has reasonably incurred in that process.
I am not persuaded that something less than a full indemnity costs order is warranted on account of the fact that the plaintiff failed to make out some of the charges of contempt contained in the Statement of Charge (as amended). Despite those failures, it is clear that the plaintiff was successful in establishing a number of serious contempts of Court. Moreover, in pursuing the contempt motion, the plaintiff served not only its own private interest but also an important public interest in bringing the contemptuous conduct of the defendants to the attention of the Court, thereby enabling the Court to deal with that conduct in the interests of the effective administration of justice. The plaintiff ought not be left out of pocket for taking that course.
I am also not persuaded that no costs order should be made against IWC as it committed "only" the contempt concerning the omission to provide financial information. As was accepted, that contempt was itself serious, and it was not purged until very recently. The provision of financial information by IWC, which was required by Court order to be given together with the other defendants, was particularly important where dealings were apparently occurring involving many of those parties. Whilst I do not intend to impose upon IWC any penalty of sequestration or fine, I regard it as fair that, along with the other contemnors, it be liable to compensate the plaintiff for the expenditure it has reasonably occurred in the contempt proceedings.
The Court will make the following orders: 1. Orders pursuant to SCR Pt 55 r 13, that in respect of the four contempts committed by him, the first defendant (Mr Xiao): 1. be committed to a correctional centre until such time as the contempts the subject of Charges 1(a), 2A and 2B are purged, including by causing registered mortgage AS181896 to be discharged from the titles to the land the subject of folio references 30/SP93076 and 31/SP93076, and by causing the sum of $2,180,000 to be paid into Court; and 2. pay a fine of $125,000; 1. Orders that the order for committal to a correctional centre be suspended for a period of 21 days from the date of these orders; 2. Orders that the order for committal to a correctional centre may be discharged if, within the period of 21 days from the date of these orders, Mr Xiao satisfies the Court that the contempts the subject of Charges 1(a), 2A and 2B have been purged, including by causing registered mortgage AS181896 to be discharged from the titles to the land the subject of folio references 30/SP93076 and 31/SP93076, and by causing the sum of $2,180,000 to be paid into Court; 3. Orders that a warrant for the committal of Mr Xiao to a correctional centre be issued forthwith, such warrant not to be executed until the expiry of the period of 21 days from the date of these orders; 4. Orders pursuant to SCR Pt 55 r 13, that in respect of the two contempts committed by her, the second defendant (Ms Chen) pay a fine of $75,000; 5. Orders pursuant to SCR Pt 55 r 13, that in respect of the two contempts committed by the fifth defendant (WWMP), the property of WWMP be sequestrated until such time as the contempt the subject of Charge 7 is purged, including by causing registered mortgage AS181896 to be discharged from the titles to the land the subject of folio references 30/SP93076 and 31/SP93076; 6. Orders that the order for sequestration be suspended for a period of 21 days from the date of these orders; 7. Orders that the order for sequestration may be discharged if, within the period of 21 days from the date of these orders, WWMP satisfies the Court that the contempt the subject of Charge 7 has been purged, including by causing registered mortgage AS181896 to be discharged from the titles to the land the subject of folio references 30/SP93076 and 31/SP93076; 8. Orders that leave be granted for the issue forthwith of a writ of sequestration of the property of WWMP, such writ not be executed prior to the expiry of the period of 21 days from the date of these orders; 9. Orders that the first, second, fourth and fifth defendants pay the plaintiff's costs of the proceedings on the contempt motion on an indemnity basis; 10. Grants liberty to the parties to apply in respect of the execution of the above orders.

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(2021) 104 NSWLR 518

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