England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		27 June 2018

Mr Justice Zacaroli :

1. In a judgment delivered on 19 June 2018, I found the defendant, Mr Ke Xu, guilty on seven counts of contempt. Although split into a number of separate counts, the essence of each count is the same, namely that Mr Xu had failed to disclose what he did with copies of the claimant's confidential information which he took in August 2014, in breach of an order of this court dated 29 January 2018 (the "January Order").
2. Mr Xu maintains that he took no copies, but I have found, to the requisite standard of proof, that he did. Accordingly, his continued denial necessarily means that he has failed to comply with the January Order.
3. The legal principles applicable to sanction for contempt arising from breach of a court order were drawn together by the Court of Appeal in JSC BTA Bank v Solodchenko (No.2) [2011] EWCA Civ 1241, per Jackson LJ at [45] to [57].
4. In summary:

(1) The proceedings for contempt, in cases of breach of an order, fulfil the purpose, specifically, of upholding the authority of the court by punishing the contemnor and deterring others, and of providing an incentive for compliance.

(2) Freezing Orders (and I would add, orders such as the January Order) are made for good reason and any substantial breach is a serious matter which merits an appropriate sentence.

(3) An appropriate sentence for such contempt normally means a prison sentence (unless the circumstances – such as where the contempt has been purged and relevant assets recovered – justify a fine instead).

(4) Where there is a continuing failure to disclose relevant information, the court should consider imposing a long sentence, possibly even the maximum of two years, in order to encourage future co-operation by the contemnor.

(5) The court has the power (and 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 the court might consider remitting in the event of prompt and full compliance thereafter.

5. I would add the following points of general application in cases of committal for contempt.
6. Section 14(1) of the Contempt of Court Act 1981 provides for a maximum sentence of two years imprisonment, which applies to a sentence given on any one occasion regardless of how many counts of contempt are in issue. A person is entitled to unconditional release, however, after serving half the sentence: see s. 258 of the Criminal Justice Act 2003.
7. In all cases the court should consider whether a prison sentence is necessary or whether as a sanction of last resort it can be avoided. If the court is to impose a custodial sentence then it must consider two further points. The term of imprisonment should be as short as possible commensurate with the gravity of the contempt and the need to deter the contemnor. It also must consider whether any term of imprisonment ought to be suspended and if so the terms of that suspension. Suspension of sentence serves a particular purpose where thecontempt is capable of being purged, by encouraging that to take place.
8. The list of factors which the court should take into account in considering sentence is not closed, but includes the following (set out in the guidelines attached as appendix 1 to the Judgment of Eder J in Otkritie International Investment Management Ltd v Gersamia [2015] EWHC 821 (Comm)):

(1) In relation to non-compliance with disclosure orders:

(a) The extent of the failure to disclose;

(b) How long it has lasted;

(c) How far it has caused or might have caused harm;

(d) Whether it was deliberate, and the reasons for it;

(e) Whether it has been accompanied by positively misleading disclosure (e.g. pretence that disclosure has been given);

(2) In all cases, relevant mitigating factors include:

(a) Whether, and if so when, the defendant has admitted the contempt;

(b) Whether the defendant has expressed remorse;

(c) Whether the defendant has, so far as he is able to, complied belatedly with the order or otherwise made amends for the wrong;

(d) The defendant's character and antecedents.

9. If these contempt proceedings stood alone then, taking into account all of these factors, I would have no doubt that a prison sentence was the only appropriate sanction, that there would be no sufficient reason to consider suspending it, and that the sentence would be towards the upper limit of the range. There has been a wholesale failure by Mr Xu to comply with the order for disclosure. Five months have passed since the making of the order but (as I will explain further) this is compounded by the fact that he has failed to comply with a Serious Crime Prevention Order ("SCPO"), made in related criminal proceedings, for essentially the same disclosure on 3 July 2015. The failure in this case is aggravated by the fact that the information Mr Xu did provide (namely that he did not take any copies of the confidential information) was false, as I have found in the main judgment finding him guilty of contempt, and as had been found by the jury in the criminal proceedings for breach of the SCPO.
10. As against this, there are no mitigating factors. Mr Xu has neither admitted his contempt nor expressed remorse. He has made no attempt belatedly to comply with the order. As to his antecedents, in July 2015 he was sentenced to four years imprisonment upon pleading guilty to fraud offences. Moreover, in sentencing the judge remarked (on the back of Mr Xu's written basis of plea) that it was not a case of copying and carrying away. That basis has, however, been proved false in light of the subsequent criminal conviction for breach of the SCPO, and my earlier judgment finding Mr Xu guilty of contempt.
11. There is, in this case, however, the important additional factor that essentially the same facts have given rise both (1) to the breach of the January Order and (2) to the breach of the SCPO, for which Mr Xu received a prison sentence of 18 months on 20 January 2017.
12. The SCPO, granted on 3 July 2015, required (by paragraph 11) that the defendant, within 28 days of the coming into force of the SCPO, disclose in writing to the Metropolitan Police Service Lifetime Offender Management Service:

"11.1 Details of all third parties to whom [the defendant] has at any time allowed possession of or access to the Intellectual Property; and 11.2 Details of all locations of all copies of the Intellectual Property."

13. Mr Richard Spearman QC, sitting as a deputy High Court judge, in determining the claimants' application for summary judgment, concluded that "Intellectual Property", as used in the SCPO, included the confidential information which is the subject matter of these proceedings. Despite the difference in wording, the disclosure sought by paragraph 11 of the SCPO was essentially the same as the disclosure sought by paragraph 1 of, and Schedule C to, the January Order.
14. The first point to make is that contempt proceedings and criminal proceedings have different purposes: see DPP v Tweddell [2002] 2 FLR 400, per Latham LJ at [14] – [16]:

"14. … As far as the proceedings for contempt are concerned, as Lady Justice Hale said in Hale v Tanner … there are two objectives. First, the court has to mark the court's disapproval of disobedience to its order; secondly, it has to consider how best to secure future compliance with the order. Those are two considerations which are quite different and separate from the considerations which are raised by a criminal charge. Unlike contempt proceedings, which are essentially proceedings between the court seeking to enforce its order and the contemnor, criminal proceedings are between the public and are concerned with different considerations.

15. The essential feature of a criminal charge is the attempt to protect public order; the necessity to punish offenders and in so doing both deter the offender and others from committing offences and therefore provide protection for the public. Incidentally, of course in relation to the sentencing process, there will be considerations relating to the rehabilitation of the offender. But the important feature of a criminal charge is the fact that it is seeking to ensure that there is proper sanction for those who break the law. Not a court's order, but the law."

15. In light of those differences, Latham LJ concluded that the fact that a person had been found guilty of contempt of court was no bar to prosecuting authorities pursuing criminal proceedings based on the same underlying facts.
16. Nevertheless, a court sentencing for contempt, where the defendant has already been punished by a criminal court for the same acts or omissions, must be careful not to punish the defendant twice for the same conduct: see Slade v Slade [2010] 1 WLR 1262. The following principles are derived from that case:

(1) The court must have regard to the sentence passed by the criminal court.

(2) Given that the functions of the criminal proceedings and the civil proceedings are different, that does not require the civil court to decline to sentence at all, because of a prior criminal sentence arising out of the same conduct.

(3) It does mean, however, that the civil court cannot punish the defendant again for the same conduct.

(4) The sentence, therefore, must be only for such conduct as was not the subject of the criminal proceedings.

(5) As Wilson LJ put it succinctly (at [23]): "…even when the breach is serious, the civil court must rigorously remind itself that, however problematical, its function is to sentence only for the fact of a serious contempt and not for the content of the serious contempt."

17. That case concerned, however, acts done in breach of a negative injunction, as opposed to a failure to comply with a positive injunction. The latter (which is this case) raises an additional consideration, namely whether a defendant who has been punished by imprisonment for failing to comply with a positive injunction to provide information, can be punished again where that failure continues.
18. This was considered by the Court of Appeal in Re W (A Child) [2011] EWCA Civ 1196. In that case, a father had been ordered in 2010 to return the child to England. He had been punished for contempt in failing to comply with that order. In 2011 he was ordered to give information as to the whereabouts of the child. The question was whether he could be punished for contempt of that second order. At [33], however, MacFarlane LJ approached the case by questioning the position were it the case that precisely the same breaches were alleged, namely a failure to disclose information. He concluded (at [37], with the agreement of the remainder of the Court) that it is permissible for the court to make successive mandatory injunctions requiring positive action, such as the disclosure of information, notwithstanding a past failure to comply with an identical request. A failure to comply with any fresh order would properly expose the defaulter to fresh contempt proceedings and the possibility of a further term of imprisonment.
19. That was not, however, a license to subvert the 1981 Act by blindly making successive committal orders for the remainder of the contemnor's natural life. Instead, what is required is a "proportionate, stage-by-stage, hearing-by-hearing approach". It is for the court on each occasion to determine whether a further term of imprisonment is both necessary and proportionate. Part of the court's proportionate evaluation will be to look back at past orders and at the cumulative total of any time already spent in prison and to bear those factors in mind when determining what order is to be made on each occasion.
20. It is important to bear in mind the two elements of a sentence for a contempt consisting of breach of the court's order: punishment for the contempt itself and its coercive effect.
21. In the case of successive punishments for a continuing failure to comply with essentially the same obligation, the first element may well have been satisfied by the first punishment, so that all that remains is the coercive effect. In those circumstances, the question for the court is whether the coercive element has run its course: see Enfield London Borough Council v Mahoney [1983] 1 WLR 749, cited with approval by the Court of Appeal in the Re W case at [42]-[43]. In the Enfield case, a precious cross had been stolen and hidden by the defendant, who had been sent to prison for two years as a result of failing to deliver it up. The official solicitor applied to have him released from prison. The judge refused that application, but the Court of Appeal allowed the appeal. Watkins LJ having noted that the punitive element of the order had now been served, continued (at p.755): "All that remains now of the order, so it is asserted, is that part of the period of two years which can only be said to relate to the coercive effect which it was hoped by the judge the sentence would impose on him. It being obvious to everyone now that no form of coercion, including no matter how long a stay in prison, is going to cause this man to change his mind, it is pointless to keep him where he is."
22. In this case I am concerned, not with successive breaches of a mandatory order in the same civil proceedings, but with a prior breach of an order made in criminal proceedings.
23. As to this, I accept the submission of Mr Lewis QC (appearing alongside Mr Peto QC for the claimants, having appeared for the prosecution in the SCPO proceedings) that the SCPO had a broader purpose than the January Order, being concerned with the protection of the public. In essence, to make an SCPO the court must be satisfied that there is a substantial risk of further crime in the UK. That part of the SCPO requiring delivery up of the computers to which the confidential information was copied would have prevented crime in the UK. The orders for disclosure were in aid of delivery up, and thus assisted with that purpose.
24. Nevertheless, I do not regard that difference as requiring a materially different approach on the facts of this case, given the general approach dictated by, for example, Slade v Slade (above) that the civil court, in sentencing for contempt, must not punish the contemnor twice for the same misconduct.
25. Mr Cragg QC, for Mr Xu, submits, first, that so far as the punitive purpose of an order for committal is concerned, that has been wholly satisfied by the 18-month prison sentence imposed for breach of the SCPO. Second, he submits that the coercive element has also been exhausted. On that basis, he submits I should impose no prison sentence at all.
26. I accept that, to the extent that the vice in breaching the January Order was the failure to disclose the information sought, then Mr Xu has already been punished for that by the 18-month prison sentence in the SCPO proceedings. While the criminal and civil proceedings serve different ends, one public and one private, the broad similarity in the nature of the information sought by the SCPO and the January Order means that it is appropriate to have regard to punishment imposed in relation to breach of the former, in considering punishment for the latter. While I disagree that this has wholly exhausted any punitive element of sanction for breach of the January Order (because breaching an order of this court is, in itself, deserving of punishment) I accept that the remaining punitive element is small, taking account of the sentence already served.
27. Mr Cragg QC submits that there is no continuing coercive purpose in sentencing for contempt, because:

(1) Mr Xu has doggedly refused, since August 2014, to admit that he took copies of the confidential information away with him.

(2) He refused to do so notwithstanding the making of the SCPO, the criminal charge for breaching that order, and his conviction.

(3) Even if (as the claimants contend) Mr Xu had been taking his chances with the jury in the SCPO trial, it would nevertheless have been open to him to mitigate the likely sentence by making the disclosure in the period of a few days between conviction and sentencing.

(4) Accordingly, it is clear that no further coercive measures will cause Mr Xu to do what he has so far failed to do.

28. I do not accept that, on this basis, the coercive element has been exhausted. As Mr Lewis QC submitted, while an admission after conviction might have had some effect on sentence, that effect would have been very limited. It would have required a change of plea to guilty after conviction, and such a change of plea would be too late to have a significant mitigating effect.
29. This is, on the other hand, the first time that the possible coercive effect of committal for contempt of court has arisen. This is qualitatively different from a sentence in criminal proceedings. As the Court of Appeal in the Solodchencko case pointed out, the civil court can maximise the coercive prospects of a sentence for contempt of court, by indicating that part of it which might be remitted on further application of the defendant following purging of the contempt, and by increasing the incentive for compliance by shortening the punitive element as compared to the coercive element.
30. Mr Cragg QC also places heavy reliance on the lack of evidence as to the quantification of either the damage to the claimants or the profit to Mr Xu (which the claimants have retained the right to recover in the action).
31. He relies on, and adopts, the following paragraphs of the supplemental skeleton filed by the Secretary of State in the pending appeal in the judicial review proceedings:

"6. The essence of the Appellants' case on risk of harm has been the suggestion that if another trader, such as Mr Xu, carries out a particular trade, before or at the same time as the Appellants, this "can undermine" the profitability of the strategies deployed by the Appellants. It is important to remember that Mr Xu has not deprived the Appellants of their strategies; he took copies, and the Appellants have continued to possess, use, adapt and modify those strategies in the ordinary course of their business since Mr Xu's

offences. The strategies are valuable because they can be profitably used by the Appellants; since Mr Xu's offences, they have continued to use them profitably. They have explained that the strategies are profitable because they exploit market inefficiencies which would disappear if there were widespread use of the strategies by others. The Appellants are not inevitably harmed merely because someone else misuses a copy of one of the strategies or even profits from that misuse, because the profitability of the Appellants' trading may not be adversely affected. The Appellants have never satisfactorily evidenced the level of risk posed to that profitability if copies of the strategies were to be misused by one person, namely Mr Xu, or a few people in concert with him, particularly if on a small scale. It would clearly be contrary to Mr Xu's financial interests for him to publish the strategies widely because they would then become financially worthless to him as well as to everyone else.

7. In any event, there are simply too many imponderables for any risk posed by Mr Xu to be quantified in a meaningful way. For example, the nature of any risk must depend on the likelihood of Mr Xu in China: (i) being reunited with the strategies; (ii) having access to sufficient capital in order to trade on any meaningful scale; (iii) being able to trade before the Appellants; (iv) being able to trade using the same strategies as those currently used by the Appellants (which may have been modified since Mr Xu's original offences); and (v) being able to trade using combinations of strategies in the pool of strategies being used by the Appellants in 2018. Furthermore, the risk of harm must depend on the nature of the particular opportunity or inefficiency that is being targeted. In short, therefore, the evidence as to risk of harm was entirely speculative, and the SSHD and the Judge were correct to so conclude."

32. Submissions along those lines were made by the Secretary of State at the hearing in the judicial review proceedings before Supperstone J in December 2017. Mr Cragg relies on paragraph 72 of the judge's judgment dated 20 December 2017, in which he concluded as follows:

"What, in my view, is clear from all the evidence is that whilst there is a potential risk that the Claimants could suffer significant harm to their commercial interests, any financial loss that they are likely to sustain remains unquantifiable and very uncertain."

33. I accept, as a matter of principle, that the likely damage to the claimants (whether expressed as actual damage caused by Mr Xu's actions, or the inability to recover profits from Mr Xu which he would be able to make if reunited with the software and devices in China) is a relevant consideration in considering the coercive effect of a sentence for contempt. If, for example, it was clear that even if Mr Xu were able to make use of the confidential information, it has by now lost all value, so that the claimants could not conceivably be damaged, then the lack of any purpose in coercing him to provide the information sought would be a factor pointing strongly against any further prison sentence.
34. On the basis of the evidence before me, however, I do not think that point has been reached.
35. First, the thrust of the submissions made by the Secretary of State and adopted by Mr Xu, is that there is enormous difficulty in quantifying any damage that might be suffered by the claimants. In the context of interim relief in cases of misappropriation of confidential information, the inherent difficulties in quantifying the damage caused by the misuse of the information is frequently offered, and accepted by the court, as a justification for imposing an injunction preventing that misuse. I consider that, by analogy, a similar point arises here. The very fact that there would be difficulty in quantifying the damage to the claimants is a reason for requiring compliance with the order for disclosure in order that the claimants can take steps to prevent the misuse occurring in the first place.
36. Second, as Mr Cragg QC accepts, the confidential information had enormous potential value at the time that it was misappropriated by Mr Xu. Indeed, the lengths Mr Xu went to in order to obtain it, and ensure that the devices on which it was contained were removed to China and out of the reach of the claimants (as described in my judgment finding the contempt proved) suggest that is so.
37. Thirdly, and in similar vein, the very fact that Mr Xu is refusing to disclose what he has done with the information, even after four years, gives rise to the reasonable inference that there remains something of value in it to him.
38. Fourth, as Mr Cragg QC again accepts, insofar as the coercive element of any sanction is concerned, it lies in Mr Xu's hands to stop the claimants in their tracks, by complying with the January Order.
39. Mr Cragg QC points to the financial penalties that have already been imposed on Mr Xu, including the confiscation order which, although small in amount, was sufficient to "clean him out", the damages award and existing costs orders. None of these, however, constitute punishment for the failure to disclose information or carry any coercive effect. They have all been separately justified on other grounds.
40. He also relies on what he calls the relentless pursuit of Mr Xu by the claimants, including by challenging his deportation, challenging his application for bail for release from immigration detention, and keeping him under constant surveillance. This is a highly unusual case, however, where his deportation was likely to lead to the very thing the claimants are trying to prevent via their civil claim, in that he would be reunited with the confidential information and beyond the practical reach of this court. Whether or not the claimants are legally justified in challenging the deportation decision of the Secretary of State is a matter shortly to be decided by the Court of Appeal. Their attempt to do so, however, is understandable given what is at stake and is not in my judgment a factor which goes towards mitigation of sentence.
41. Finally, Mr Cragg points to the fact that a further period in prison would delay the deportation that the Secretary of State has determined is in the public interest. Whether that is correct or not (and Mr Cragg was unsure in fact what effect any further sentence imposed by this court would have on the powers of the Secretary of State), I need to consider the appropriate sanction within the parameters of these proceedings.
42. Accordingly, for these reasons I conclude that – taking full account of the prior criminal convictions and sentence – there remains both a punitive and coercive purpose to a sanction for the contempt of court in this case.
43. I turn then to consider the appropriate sanction.
44. For the reasons I have already set out above, I conclude that a prison sentence is unavoidable.
45. I need to consider whether any sentence should be suspended, but I do not believe that suspension would carry sufficient coercive effect in this case. There is no hint, in the week since I gave judgment finding him guilty of contempt, of any attempt by Mr Xu to purge his contempt.
46. The claimants submit that I should, recognising the need for maximum coercive effect, impose the maximum sentence available, that is a further two years in prison.
47. The requirement laid down by case law, as I have already noted however, is that once the court is satisfied that a prison sentence is appropriate, it must be for as short as possible commensurate with the gravity of the contempt and the need to deter the contemnor. I am also required to disregard the fact that (given the right to be released after serving half the sentence) the court is passing a nominal sentence.
48. Every case turns on its own facts, and there are no sentencing guidelines such as exist in the criminal sphere. Nevertheless, it is at least instructive to have regard to sentences imposed in other cases to identify the general approach taken by other courts.
49. In Re W itself – which involved extremely serious misconduct, namely abduction of a child and a breach of a second order, requiring disclosure of the whereabouts of the child – the court imposed a further sentence of 12 months. That was in circumstances where the original contempt had been met with the maximum two-year sentence.
50. In JSC BTA Bank v Ablyazov (No.8) [2013] 1 WLR 1331, which involved three counts of contempt, including failure to disclose beneficial ownership of an asset; lying on oath; and dealing with an asset in breach of a freezing order, the Judge imposed a sentence of 22 months, which was upheld by the Court of Appeal. At paragraph 104 of the judgment of Rix LJ, the sentences handed down in a number of previous cases, involving breaches of freezing orders, were referred to. In two cases, the maximum of two years was ordered. In another the maximum was also ordered, but only on the basis of post-judgment aggravating factors, In one, the sentence was 18 months, and in two others it was 12 months. One of those cases – IFC v DNSL Offshore [2005] EWHC 534 – involved a wholesale failure to disclose information that was held to be vital for the purposes of policing the freezing order involving a considerable sum of money.
51. As I say, there is only limited assistance to be gained from reviewing sentences in other cases. What they indicate, at a broad level, is that (in what might be described as first-time offence cases) courts have regularly imposed sentences between one and two years for serious breaches of freezing orders, including continuing failures to disclose information. As I have indicated, but for the fact of the prior conviction, the breaches in this case warrant a sentence towards the upper limit.
52. In my judgment, the added factor of prior punishment is one which exerts a downward, not an upward, pressure on the length of sentence. It is appropriate, when considering the requirement to impose the shortest sentence commensurate with its purpose, to have regard to the overall time that will have been served in the event of total failure to comply. I also give some weight to the points made as to the diminishing prospect of harm to the claimants over time; that it is already four years since Mr Xu misappropriated the confidential information; and that it is far from a foregone conclusion that if and when reunited with the confidential information Mr Xu would have access to the necessary capital to exploit it.
53. Taking these, and all other factors I have mentioned in this judgment into account, I have concluded that the appropriate sentence in this case is 13 months, on the basis that the punitive element is limited to one month only. I regard the fact that it lies in Mr Xu's hands to avoid a sentence of a full year (and spend just one further month in jail) as a significant incentive to compliance, and a sufficient one having regard to the need to ensure the sentence is as short as needed.
54. I therefore indicate, for the benefit of any future court requested to vary the sentence if Mr Xu purges his contempt, that the punitive element is limited to one month, and that the extent of the sentence which is capable of being remitted is twelve months.
55. Finally, I impose the same sentence in relation to each of the seven grounds of contempt, as listed in paragraphs (2) to (8) of the Application Notice – but each is to run concurrently with the other.