Palmer & Anor v Tsai  EWHC 1860 (Ch)
Walker Morris recently obtained a judgment from the High Court on behalf of liquidators Nick Reed and Julie Palmer of Begbies Traynor (Central) LLP, sentencing the former director of an IT distribution business which was implicated in a large scale VAT fraud, to 18 months in prison for contempt of court.
Mr Tsai is the founder and former managing director of Changtel Solutions UK Limited (in liquidation) (the Company), which went into liquidation following its implication in a VAT fraud.
The liquidators have issued claims with an aggregate value of £38 million against Mr Tsai, including allegations that he knowingly used the Company as a vehicle for fraud and dissipated the Company’s assets for the benefit of himself and parties to whom he is connected, to the detriment of the Company’s creditors.
On 15 February 2017, the liquidators obtained a worldwide freezing order against Mr Tsai’s assets in the maximum sum of £24.7 million. The freezing order contained ancillary orders requiring Mr Tsai to deliver up his passports and, in the usual form, to disclose all of his assets worldwide in which he held a direct or indirect interest. Mr Tsai subsequently failed to surrender his Taiwanese passport; temporarily absconded to Taiwan to arrange for significant funds to be moved from bank accounts in which he held an interest (as found by the Court); and breached his asset disclosure obligations by submitting various affirmations which were contradictory and contributed to the Court’s finding that he was a dishonest witness.
In view of Mr Tsai’s ongoing breaches of the freezing order, on 23 February 2017, the liquidators issued a committal application against Mr Tsai on the basis that he had breached the terms of the freezing order and was in contempt of Court. As ancillary relief, the liquidators also sought an order debarring Mr Tsai from defending the substantive claims unless he made full disclosure of his assets. During the course of the hearing in June 2017 before Mrs Justice Rose, Mr Tsai was cross-examined in relation to his assets and his compliance or otherwise with the freezing order.
Following various adjournments of the hearing of the application requested by the respondent, on 21 July 2017, Mrs Justice Rose sentenced Mr Tsai to an immediate custodial sentence of 18 months’ imprisonment for contempt of court.
Delivery up of passports
Although Mr Tsai delivered up his British passport promptly, he retained his Taiwanese passport and travelled to Taiwan in breach of the freezing order, only returning once the Liquidators had commenced committal proceedings.
Although Mr Tsai claimed that his wife was desperately ill at the time of his absconsion, the Court found that Mr Tsai had in fact visited Taiwan in order to arrange for funds to be moved from bank accounts in which he held an interest.
Mr Tsai produced a number of affirmations which gave contradictory evidence as to the extent of his assets. In one instance, Mr Tsai denied holding an interest in assets in which he had previously admitted holding an interest and blamed his earlier admissions on the advice and conduct of his former solicitors.
Following lengthy examination in chief and cross examination, Mr Tsai apologised during re-examination for having made errors and mistakes during his cross-examination and stated that he wished to make full disclosure of his assets. Mr Tsai then made various admissions in re-examination of breaches of the freezing order.
In her judgment, Rose J found that Mr Tsai was “a dishonest and manipulative person who has no qualms about fabricating important documents, lying to the court and expecting his work colleagues and family members to act dishonestly to assist him.”
The Court made a number of findings as to the true extent of Mr Tsai’s assets and found that Mr Tsai had committed a number of serious breaches of the freezing order, including in relation to assets which were registered in the names of Mr Tsai’s family members in order to disguise Mr Tsai’s beneficial interest.
Mr Tsai was sentenced to 15 months’ imprisonment for his breach of the passport order. Although the breach was mitigated by the fact that Mr Tsai had returned to jurisdiction, it was aggravated by the fact that Mr Tsai had lied about the reason for the trip to conceal the fact that the purpose of the trip was to move money which was subject to the freezing order.
Mr Tsai was given a range of sentences for the various breaches of the asset disclosure order, with the most serious breaches resulting in a sentence of 18 months’ imprisonment, incorporating some credit for certain of Mr Tsai’s late admissions.
The various sentences were ordered to run concurrently, so that Mr Tsai was sentenced to a total of 18 months’ imprisonment. The Court stated that 12 months of this sentence was punitive and recommended that no more than 6 months should be deducted from the sentence if Mr Tsai chose to belatedly make full disclosure of his assets.
The liquidators also applied for an order debarring Mr Tsai from defending the underlying substantive claims unless he complied fully with the asset disclosure order by a given date.
The Court refused to grant such an order and found that there would be practical difficulties in requiring a respondent to give full disclosure of his assets when he was remanded in custody. The Court also stated that the purpose of a debarring order is to encourage compliance and this purpose was already served by the prospect of Mr Tsai’s sentence being reduced if he did comply fully with the order.
Although a debarring order was not granted at this stage, the Court noted that its approach to granting such an order may change if it transpires that Mr Tsai has further undisclosed assets.
In reaching its decision, the Court emphasised its willingness to hear from alleged contemnors at any stage to correct untruthful evidence, make admissions or express remorse. However, the Court found in this case that the respondent’s various admissions, retractions and changes of position adversely affected his credibility.
Whereas there were various attempts by the respondent to justify his conduct, including by reference to negligent legal advice; medical ailments and misunderstandings, the liquidators were able to provide overwhelming evidence of Mr Tsai’s previous and continuing dishonest conduct.
The decision is a helpful reminder of the extent of the Court’s powers when policing orders generally and, in particular, when compelling compliance with freezing orders. The decision also explores the circumstances in which various potentially competing relief is available when a respondent is in contempt and provides a helpful overview of the considerations of the Court when deciding on the appropriate sanctions for non-compliance with its orders.