A A

HCCL 3/2011
B B
IN THE HIGH COURT OF THE
C C
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
D D
COMMERCIAL ACTION NO 3 OF 2011
E E
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F F
BETWEEN

G RBA FAR EAST LIMITED Plaintiff G

H and H

I
YUEN CHAK HANG EDWARD 1st Defendant I

CHAN GUAY LEE ALICE 2nd Defendant

J J

JUNE MAX LIMITED 3rd Defendant

K K
PETITE SOPHISTICATE LIMITED 4th Defendant
L L
YUEN MAN SIU VINCENT 5 Defendant
th

M M
YUEN MAN HON NICHOLAS 6th Defendant
N N
YUEN MAN HAY JONATHAN 7th Defendant

O YENHEN LIMITED 8th Defendant O

P ------------------------- P

Q Before: Hon Bharwaney J in Chambers Q

Date of Hearing: 9 April 2013
R Dates of Further Written Submissions: 13 & 19 April 2013 R

Date of Decision: 1 August 2013

S S

T T

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A A

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B B
DECISION
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C C

1. These applications before me come at the tail end of very

D D
substantial proceedings, in which large sums of money were claimed, and
E which were brought to an end by the acceptance of a sanctioned offer E

made by the plaintiff to receive a very substantially smaller sum in order to

F F
bring the proceedings to a close.
G G

2. The two summonses before me are :

H H
(1) The defendants’ summons dated 26 November 2012 under O
1

I 22 r 21, O 62, r 5 of the Rules of the High Court (“RHC”), I

and the inherent jurisdiction of the court for orders that :

J J

(a) defendants’ costs upon plaintiff’s withdrawal of the

K K
bribery and secret commission claims be paid by the
L plaintiff on an indemnity basis; L

M
(b) defendants’ costs thrown away by variation of the M
injunction be paid by the plaintiff on an indemnity basis;
N N
and

O (c) there be no order as to such part of the plaintiff’s costs of O

and incidental to the bribery and secret commission

P P
claims.
Q Q

(2) The plaintiff’s summons dated 4 December 2012 under O 22

R R
r 21, O 62 r 5 of the RHC, and the inherent jurisdiction of the
S court for orders that : S

1
T The references herein to the defendants are references to the 1 st, 2nd, 3rd, 5th, 6th, and T
8th defendants.
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A A

(a) the costs of the action up to 14 November 2012 be to the

B B
plaintiff, save as provided by the order of Reyes J dated
C C
20 July 2012;

D (b) defendants’ costs upon the plaintiff’s withdrawal of the D

bribery and secret commissions claims be paid by the

E E
plaintiff, be taxed if not agreed; and
F F
(c) defendants’ costs thrown away by variation of injunction,

G
be paid by the plaintiff, be taxed if not agreed. G

H The brief history of the proceedings H

I 3. These proceedings were brought by the plaintiff, the buying I

agent of the RBA Inc., the well-known garment company retailing clothes
J J
under the brand “Brooks Brothers”. The 1 defendant worked for the
st

K plaintiff for more than 18 years in the course of which he became an K

executive director and chief financial officer of the plaintiff with control
L L
over its financial matters. On 9 March 2010, a senior executive of RBA
M Inc., Mr. Edward Dixon, received an anonymous e-mail making M

allegations against the 1st defendant and two other senior executives of the
N N
plaintiff alleging that the 1 st
defendant received kick-backs and side
O payments amounting to 3% of the FOB price for each purchase order O

placed by the plaintiff. A request for identification by Mr. Dixon

P P
prompted an e-mail from the whistle blower refusing to reveal the name of
Q his factory out of fear that the plaintiff might take action that would Q

jeopardize his relationship with other clients and ruin his business. These
R R
allegations prompted RBA Inc. to commence extensive investigations in
S Hong Kong and in the Mainland for which purpose they engaged Deloitte S

T T

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A A

Financial Advisory Services LLP (“Deloitte”) to provide forensic

B B
accounting support. These investigations revealed that:
C C
(a) the defendants had a control of 68 bank accounts in Hong
D Kong, Singapore and the UK and several safe deposit boxes. D

These accounts had seen enormous fund flows to the tune of

E E
HK$ 80 million and carried substantial balances to the tune of
F HK$ 32 million. The 1st defendant also has 16 insurance F

policies with insured amounts in excess of US$ 16 million.

G G
These amounts were substantially more than his earnings over
H the past 18 years with the plaintiff during which the 1 st H

defendant earned no more than HK$ 35 million.

I I
(b) The 1 defendant had also set up the 3 and 4 defendants,
st rd th

J J
two BVI companies whose names were either deceivingly

K similar or outright identical to names and marks previously K

used by RBA Inc..
L L
(c) The investigation also reviewed that the 1 st defendant had
M misappropriated money from the plaintiff under the pretence M

of expenses reimbursement in a total amount of USD567,867.

N N
The 1 defendant had confessed to this wrong doing and had
st

O signed, and paid up on, a promissory note in the sum of O

USD150,000.
P P

Q 4. Following upon those investigations, the present action was Q

commenced on 2 March 2011 against the 1 st defendant claiming repayment

R R
of bribes, secret commissions, and expense frauds, and against his family
S and children, and 3 nominee companies, as constructive trustees receiving S

funds from the bribes, secret commissions and expense frauds. At the
T T

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same time, the plaintiff obtained ex parte mareva injunctions against the
B B
defendants. The defendants had initially sought to discharge the mareva
C C
injunctions, the 1st defendant asserting, in his 4th affirmation dated 29 April

D
2011, that the wealth discovered by the plaintiff to be under his control D
largely came from his wealthy sister. However, the defendants did not
E E
pursue their applications to discharge the mareva injunctions, and

F
consented to the continuation of the mareva injunctions and that all costs in F
connection therewith be in the cause.
G G

5. On 23 April 2012, ICAC informed the 1st defendant that their

H H
investigations were complete and that, on the basis of the facts then
I known, no further investigative action of the complaint against him I

alleging corrupt practices would be pursued. Given the decision of the

J J
ICAC to close their file and absent evidence from suppliers of actual bribes
K K
being paid which, understandably, was unlikely to be readily forthcoming,

L
the plaintiff decided to withdraw the bribery and kick-back claims. The L
plaintiff applied to do so by summons dated 3 July 2012, which was heard
M M
by Reyes J, the judge then in charge of the commercial list, who granted

N
leave to the plaintiff to withdraw the bribery and secret commission claims N
and to amend the statement of claim accordingly. He also varied the
O O
injunction orders, adjusting the scope of those orders. He ordered that the

P
costs of and occasioned by the applications to withdraw and to amend the P
statement of claim be to the defendants, in any event, to be taxed if not
Q Q
agreed, on a basis to be determined by the trial judge; and he ordered the

R
costs of and thrown away by the plaintiff’s variation to the injunctions be R
to the defendants, in any event, to be taxed if not agreed, again, on a basis
S S
to be determined by the trial judge. It appears from the transcript of that

T T

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hearing that he was not prepared to make an order that the costs to the
B B
defendants be taxed forthwith and on an indemnity basis. He said:
C C
“I think … the actual basis of the order, whether party and party
or indemnity basis, should really be a decision of the trial judge,
D D
once [he has] seen the entire picture.”

E E
6. Negotiations taking place between the parties eventually
F resulted in the entire proceedings coming to an end when the defendants, F

on 14 November 2012, accepted the plaintiff’s sanctioned offer of 18

G G
October 2012 to be paid USD450,000 (inclusive of USD150,000
H previously paid). H

I I
7. However, costs remained in dispute and resulted in the two

J summonses before me, the defendants, by their summons, claiming that the J
cost awarded by Reyes J should be taxed an indemnity basis, and the
K K
plaintiff by its cross-summons seeking a taxation of those costs on the

L usual party and party basis. L

M M
8. As regards the costs of this action, the defendants seek an

N
order that there be no order as to such part of the plaintiff’s costs of and N
incidental to the bribery and secret commission claims; and that the costs
O O
of the action be provided for; whilst, by its cross-summons, the plaintiff

P
asks for the usual order of costs, up to acceptance of the sanctioned offer, P
save for those orders as to costs made by Reyes J in favour of the
Q Q
defendants.

R R
The costs awarded by Reyes J: to be taxed on party and party or indemnity
S S
basis?

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A A

9. Consequent upon the retirement of Reyes J, I was appointed

B B
the judge in charge of the commercial list and the determination of the
C C
basis of taxation of the costs awarded rightly falls upon me. Reyes J

D
deferred making any determination of the basis of taxation, for the reason, D
with which I agree, that the determination should be made by the trial
E E
judge after trial when he would have seen the entire picture and, I would

F
act, when he has made his findings of fact after hearing the witnesses F
giving evidence before him. However, there has been no trial, and there
G G
are no findings of fact in this case, and I have to do the best I can, upon my

H
review of the affidavit evidence filed in this case and the submissions H
made on behalf of the parties. Having regard to the objectives of the civil
I I
justice reform, I refrain from conducting a mini trial of the matters in

J
contention. I also refrain from conducting a prolonged investigation into J
the allegations and cross-allegations made by the parties. Instead, I shall
K K
attempt to look at the entire case in the round in order to decide whether or

L not the defendants have discharged the burden, which they acknowledge L
rest on them, to show that special or unusual features exist in the present
M M
case to warrant the imposition of indemnity costs.

N N
10. The parties are agreed that the principles to be applied in the
O O
exercise of the court’s discretion, whether or not to make an order for

P
indemnity costs, appear in §§13-20 of the decision of the Court of Final P
Appeal in Town Planning Board v Society for Protection of the Harbour
Q Q
Ltd (No 2) (2004) 7 HKCFAR 114. The discretion to order indemnity cost

R
is not to be fettered, or circumscribed, beyond the requirement that R
taxation on an indemnity basis must be “appropriate”. The power to order
S S
taxation on an indemnity basis is not confined to cases which have been

T
brought with an ulterior motive or for an improper purpose, or where there T

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A A

was some deception or underhand conduct on the part of the losing party.
B B
Litigants who conduct their cases in bad faith, or as a personal vendetta, or
C C
in an improper or oppressive manner, or whose conduct results in costs

D
being incurred irrationally, or out of all proportion, to what is at stake, may D
also expect to be ordered to pay costs on an indemnity basis if they lose,
E E
and have their costs, or part of their costs, disallowed if they win.

F
However, the grounds upon which costs are awarded must be connected F
with the case. This may extend to any matter relating to the litigation and
G G
the parties’ conduct in it, and also to the circumstances leading to the

H
litigation, but no further. H

I 11. The main ground relied upon by the defendants for their I

contention that costs should be awarded on an indemnity basis is that the

J J
plaintiff brought these very serious charges, which impinge the moral
K K
character of the 1st defendant, solely based on a complaint of an

L
unidentifiable whistle blower who asserted that he had been a supplier of L
the plaintiff. Instead of making an investigation with suppliers and
M M
adducing evidence of actual bribes and kick-backs, the plaintiff had chosen

N
to take issue with the 1st defendant’s wealth and to suggest that this was N
disproportionate to his income.
O O

12. In answer to these contentions, the plaintiff asserted that the

P P
1 defendant, a high ranking and trusted employee of 18 years, was caught,
st

Q and admitted to, defrauding the plaintiff under the pretence of expenses Q

reimbursement. The plaintiff pointed to the huge, and disproportionate,

R R
amounts of money flowing from and standing in an alarmingly large
S number of bank accounts of the 1st defendant, and of his nominees, and S

T T

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relied upon the fact that the evidence it had presented satisfied the judge
B B
that he ought to grant ex parte mareva injunctions against the defendants.
C C

13. In this connection, there is a clear conflict of fact, which I am

D D
unable to resolve on the affidavit evidence. The plaintiff has asserted that
E the 1st defendant’s explanation, that his seemingly disproportionate wealth E

was in fact mostly his sister’s hard-earned money, was not put forward
F F
until some 9 months later. As against that, the 1 defendant asserted that
st

G he did disclose the sources of wealth before the action, during his meetings G

with personnel of RBA Inc. and Deloitte. However, whether or not the
H H
explanation was provided earlier, or later, the plaintiff pointed to the fact
I that, the explanation notwithstanding, the defendant chose to consent to a I

continuation of the mareva injunctions to their full extent and, further, that
J J
the defendants did not seek any variation of the terms of mareva
K K
injunctions during the 16 months’ period of their subsistence in full force,

L
during which time the defendants were legally represented and, L
presumably, properly advised.
M M

14. The point was also taken that the plaintiff was merely a
N N
buying office and the 1 defendant’s role, as chief financial officer, would
st

O not enable him to choose suppliers and to extort bribes. To counter this, O

the plaintiff pointed to the fact that the 1st defendant, as chief financial
P P
officer, controlled payments to suppliers and, as such, was in a position to
Q extort bribes. Q

R R
15. The defendants complained about the delay in the withdrawal
S of the bribery and secret commission claims, which, they asserted, S

amounted to over 99% of the plaintiff’s claim against the defendants.

T T

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A A

Notwithstanding the defendants’ request for the plaintiff to clarify its case
B B
in January 2012, the withdrawal was only made apparent from the
C C
plaintiff’s further answer to the request that was only filed on 26 April

D
2012. In answer, the plaintiff asserted that it withdrew the bribery and D
kick-back claims, and applied to vary the mareva injunctions, soon after
E E
the plaintiff’s internal investigations were completed and after the ICAC

F
had indicated, on 23 April 2012, that they would take no further action in F
the matter. The decision to withdraw was made on the plaintiff’s
G G
realisation that there was little or no prospect that any of the suppliers

H
would openly, and voluntarily, admit to bribing the 1st defendant. H

I 16. The defendants complained of the oppressive nature of the I

proceedings brought against them which caused to havoc to them. They

J J
did not attempt to vary the injunction orders because they were in financial
K K
difficulties and were not be able to incur the legal costs involved in such an

L
exercise. Their hardships were well known to the plaintiff who refused L
their requests to increase the limit for legal costs contained in the mareva
M M
injunctions. To counter these assertions, the plaintiff pointed to the fact

N
that the defendants enjoyed full legal representation and had exchanged N
two rounds of affirmations, involving a total of 12 affirmations, and that
O O
they could have sought to discharge, or vary the injunction orders, rather

P
than consenting to their continuance. The evidence of the 1 st defendant’s P
wealth, and of his sister’s financial status and support, contradicted the
Q Q
assertion by the defendants of financial difficulties on their part.

R R
17. The defendants also complained that a personal vendetta was
S being conducted against the 1st defendant, driven by Mr. Joe Dixon who S

had animosity against him, and which was made all the more clear by the
T T

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A A

fact that other implicated staff had not been sued. The proceedings were
B B
oppressive and caused hardship by tarnishing the 1 st
defendant’s
C C
representation and by rendering him unemployable. In answer, the

D
plaintiff asserted that it was a part of a large global operation and that there D
was no basis to suggest that such an extensive investigation and litigation
E E
was the result of one staff member’s personal animosity against the other.

F
The plaintiff’s reaction to and the pursuit of this matter by litigation was F
entirely reasonable and justified, given the fact that a long time top
G G
executive had been found to be stealing from it, and appeared to be

H
inexplicably rich. Complaints of damaged reputations did not hold water H
and, to the extent that the 1 st
defendant had confessed to his own
I I
wrongdoing, he certainly did not do his reputation any good.

J J
18. To pursue the defendants to the extent and in the manner that
K K
the plaintiff did, simply on the unsupported assertions of an anonymous

L
whistle blower, would constitute strong grounds, in my judgment, to order L
cost to be taxed on an indemnity basis upon the withdrawal of the
M M
unfounded bribery and secret commission claims which must, of necessity,

N
have caused substantial hardship to the defendants and, in particular, to the N
1 defendant, and must have severely tarnished his reputation. But there is
st

O O
much more to this case than just that. Balancing the evidence filed by the

P
parties in support of their rival contentions, and having closely reviewed P
and weighed those contentions, I conclude that I am not persuaded that I
Q Q
should depart from the usual order for costs to be taxed on a party and

R
party basis. However, my decision is not to be construed as containing R
adverse findings against the defendants. There has been no trial and just as
S S
Reyes J did not see, neither have I seen the entire picture. What I have

T
done is to weigh the various matters advanced before me and determine T

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A A

that they do not lead me to depart from the normal order and make orders
B B
for costs to be taxed on an indemnity basis.
C C

The proviso to O 22, r 21 of the RHC

D D

E 19. I agree with the recent of observations of Poon J on the proper E

approach to follow when faced with an application to apply the “Otherwise

F F
Proviso” contained in O 22, r 20(1) and O 22, r 21(1) of the RHC. Under r
G 20(1), where a defendant’s sanctioned offer or sanctioned payment to settle G

the whole claim is accepted without requiring the leave of the Court, the
H H
plaintiff is entitled to his costs of the proceedings up to the date of service
I notice of acceptance. Under r 21(1), where a plaintiff’s sanctioned offer to I

settle the whole claim as accepted without requiring the leave of the Court,
J J
the plaintiff is entitled to his costs of the proceedings up to the date on
K which the defendant served notice of acceptance. These prima facie costs K

consequences follow upon the stated event “unless the court otherwise
L L
orders” (“the Otherwise Proviso”). In his judgment in Etratech Asia-
M Pacific Ltd v Leader Printed Circuit Boards Ltd, Poon J analysed the legal M

position and concluded that the prima facie rule in O 22 r 20(1) should
N N
apply unless (1) the defendant discharges the burden of showing
O exceptional circumstances that justify a departure; and (2) he has given a O

prior warning to the plaintiff that he will apply to invoke the Otherwise
P P
Proviso upon acceptance of the sanctioned payment or sanctioned offer . 2

Q In my judgment, the same applies with regard to r 21(1) under which the Q

defendant has to give a prior warning to the plaintiff that he would apply to
R R
invoke the Otherwise Proviso when he serves his notice of acceptance of
S the plaintiff’s sanctioned offer. S

T T
2
See §§14-26 of the said judgment
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A A

20. It is common ground that prior notice has been given in this
B B
case. If allowed, the effect of defendants’ applications before me to apply
C C
the Otherwise Proviso, would be to deny the plaintiff its cost of the action

D
which were not already denied by the orders of Reyes J who ordered that D
the costs of and occasioned by the applications to withdraw the bribery and
E E
secret commission claims and to amend the statement of claim accordingly

F
be to the defendants, in any event, and who also ordered that the costs of F
and thrown away by the plaintiff’s variation to the injunctions be to the
G G
defendants in any event. The effect of these cost orders is that the costs

H
incurred by the defendants in defending the bribery and secret commission H
claims, and in resisting the mareva injunctions, is so far as those orders
I I
sought to preserve assets to satisfy the bribery and secret commission

J
claims, are to be paid by the plaintiff to the defendant. As was conceded J
by the plaintiff, the effect of these costs orders is to deny the plaintiff any
K K
right to claim its costs incurred in the pursuit of bribery and secret

L commission claims in this action which, and I quote from the submission L
of counsel for the plaintiff, constitute “the lion’s share” of the plaintiff’s
M M
costs of the action.

N N
21. Viewed in this context, the application before me must fail as
O O
the defendants have not demonstrated any exceptional circumstances to

P
deny the plaintiff its costs of recovering the sum of US$567,867, being P
sums that were wrongly claimed, and paid, as expenses reimbursements,
Q Q
and in respect of which claim the defendant accepted the plaintiff’s

R
sanctioned offer of 18 October 2012 to be paid US$450,000. I do not see R
any basis for depriving the plaintiff its costs of recovering these sums, a
S S
substantial amount of which was successfully recovered by the defendant’s

T
acceptance of the plaintiff’s sanctioned offer. No exceptional T

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A A

circumstances have been shown to me to exist as would enable me to deny

B B
the plaintiff its rightful costs in this matter.
C C

22. However, if I am wrong in my construction of the effect of the

D D
costs orders made by Reyes J., and if the plaintiff was wrong to make the
E concession that it did, then I would conclude that exceptional E

circumstances existed in the present such as would enable me to order that

F F
the plaintiff is entitled to recover its costs of the proceedings up to the date
G of service of notice of acceptance, save for the plaintiff’s costs incurred in G

the pursuit of the bribery and secret commission claims in this action and
H H
save for the plaintiff’s costs incurred in obtaining the mareva injunctions,
I in so far as those orders sought to preserve assets to satisfy the bribery and I

secret commission claims.

J J

K Costs K

L 23. I make a costs order nisi that the defendants pay the cost of L

the applications to the plaintiffs, to be taxed on a party and party basis, if

M M
not agreed.
N N

O O

P P

Q Q

R R
(Mohan Bharwaney)
Judge of the Court of First Instance
S High Court S

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A A

Mr Martin W H Wong, instructed by Winston & Strawn, for the plaintiff

B B

Ms Abigail Wong, instructed by Chong & Partners, for the 1st to 3rd, 5th to
C C
6th and 8th defendants

D D

E E

F F

G G

H H

I I

J J

K K

L L

M M

N N

O O

P P

Q Q

R R

S S

T T

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