WONG TO YICK WOOD LOCK OINTMENT LTD v. SUN ASCENT DEVELOPMENT LTD AND ANOTHER

HCIP 58/2022

[2026] HKCFI 4112

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INTELLECTUAL PROPERTY PROCEEDINGS NO. 58 OF 2022

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D E C I S I O N

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1.  In the Judgment (“Judgment”)  handed down on 18 May 2026 ([2026] HKCFI 2741), I dismissed the Plaintiff’s Originating Summons to hold the Defendants liable for contempt of court, and made a cost order nisi that the costs of these proceedings (including all reserved costs)  are to be paid by the Plaintiff to the Defendants, to be taxed if not agreed (“Costs Order Nisi”).

2.  The Plaintiff and the Defendants have each made an application to vary the Costs Order Nisi.

(1)  By their application dated 22 May 2026, the Defendants seek an order that the costs of the proceedings are to be paid by the Plaintiff to the Defendants (a)  on a party and party basis up to 22 May 2023, (b)  on an indemnity basis from 23 May 2023 to the conclusion of the trial, (c)  together with interest on the said costs at a rate of 10% above judgment rate from 23 May 2023 until payment, to be taxed if not agreed.

(2)  By its application dated 1 June 2026, the Plaintiff seeks an order that (a)  there be no order as to the costs of these proceedings (including all reserved costs), or (b)  alternatively that the costs of these proceedings (including all reserved costs), save the costs of and incidental to preparing, filing and serving the 2^nd Defendant’s affirmations be paid by the Plaintiff to the Defendants, to be taxed if not agreed.

3.  It is convenient to deal with the Plaintiff’s application first.

A.  PLAINITFF’S VARIATION APPLICATION

4.  The Plaintiff submits that the Defendants brought the litigation upon themselves and should therefore be deprived of their costs even though they are the successful parties.

5.  In determining this application, I have borne in mind the following rules and principles.

(1)  RHC O.62 r.3(2)  relevantly provides that “the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.”

(2)  There is a discretion in the court to deprive a successful party of the whole or part of his costs because he had caused significant increase in the length or costs of the proceedings by raising issues on which he did not succeed.  Whether or not it should be done depends on all the circumstances.  This discretion exists for the purpose of avoiding the rigour of too inflexible an application of the rule that costs generally follow the event.  It is to be approached with due circumspection so as not to undermine the utility of that general rule.  Too ready a departure from the general rule encourages unnecessary arguments.  See Commissioner of Inland Revenue v HIT Finance Ltd (No 2) [2014] 4 HKLRD 412 at [7] (Bokhary PJ); Pony HK World Ltd v Vand Petro-Chemicals (BVI)  Co Ltd (unreported, FACV 4/2013, 18 March 2014)  at [4]; Kam Leung Sui Kwan, Personal Representative of the Estate of Kam Kwan Sing, deceased v Kam Kwan Lai (unreported, FACV 4/2015, 3 February 2016)  at [8].

(3)  RHC O.62, r.5 provides:

“(1)  The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account—

(aa)  the underlying objectives set out in Order 1A, rule 1;

…

(e)  the conduct of all the parties;

(f)  whether a party has succeeded on part of his case, even if he has not been wholly successful;

…

(2)  For the purpose of paragraph (1)(e), the conduct of the parties includes—

(a)  whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b)  the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c)  whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d)    conduct before, as well as during, the proceedings.”

(4)  The burden rests with the losing party to demonstrate the circumstances which justify the exceptional course of displacing the general rule that costs should follow the event: Mariner International Hotels Ltd v Atlas Ltd (No 2) (2007)  10 HKCFAR 246 at [18] (Bokhary PJ).

(5)  Where the successful party raises issues or makes allegations improperly or unnecessarily, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs.  See Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 at 1214B–C (Nourse LJ), applied with modification by Yuen JA in Wang Din Shin v Nina Kung (unreported, CACV 460/2002, 19 April 2005)  at [3].

6.  The Plaintiff submits that it was the Defendants who brought the contempt proceedings upon themselves by creating the apparent inconsistency between the matters stated in the Defendants’ pleadings in the earlier proceedings and those in the Disclosure Affirmation, and by failing to explain such alleged inconsistency before the commencement of proceedings.  I have no reservation to reject these unrealistic submissions.

7.  First, the Plaintiff’s entire case of contempt against the Defendants was built on the premise that the Defendants’ position in the Disclosure Affirmation was diametrically opposite to their previous statements made in the pleadings filed in the earlier proceedings: Judgment [35].  The court has found that the Plaintiff failed to prove that the 1^st Defendant had made the admissions that it sold the Infringing Goods from its pleadings: Judgment [40]-[59]. Therefore, the court found that there was no failure on the part of the 1^st Defendant to make disclosure of its dealings with the Infringing Goods in the Disclosure Affirmation: Judgment [60]-[68].  In these circumstances, there is no basis for the Plaintiff to argue that the Defendants “created the apparent inconsistency which founded these proceedings”. 

8.  Further, it is important to highlight the context of the present contempt proceedings.  Committal orders are remedies of last resort: G v S (2001)  4 HKCFAR 419 at [21] (Nazareth NPJ).  The Plaintiff commenced the contempt proceedings against the Defendants on 1 August 2022 after the Consent Judgment was entered in May 2020 and after the Disclosure Affirmation was filed in September 2020: Judgment [30]-[32].  Despite the fact that the Consent Judgment was entered in the earlier proceedings in favour of the Plaintiff against, amongst others, the Defendants for infringement of trade marks and passing off, the Plaintiff decided to take the extra step to commence fresh proceedings to hold the Defendants liable for contempt of court.  

9.  In these circumstances, I consider it is verging on the perverse to suggest that the Defendants brought the present proceedings upon themselves.

10.  Insofar as the Plaintiff relies on what Lok J said in his Reasons for Decision to support its contention that the so-called “apparent inconsistency” of the Defendants was of their own making, such reliance is entirely misplaced.  At [24] of his Reasons for Decision, his Lordship’s reference to “[calling] for an explanation” by the Defendants was made in the context of his observation in [23] that “one cannot assume that whatever disclosed in the Disclosed Affirmation and the statutory declarations and affirmations filed earlier in the proceedings were all the dealings that were required to be disclosed under the Disclosure Order”.  His Lordship held that the Plaintiff had established a prima facie case of contempt and that the court should not conduct an investigation at that stage of the proceedings into the merits of the case by weighing the evidence (Reasons for Decision [29]).  Lok J’s observations cannot be used to justify the Plaintiff’s decision to commence contempt proceedings against the Defendants.

11.  There is also no merit in the Plaintiff’s alternative submission that the costs of and incidental to the preparation, filing and service of the 2^nd Defendant’s affirmations should be excluded from the Defendants’ costs.  The Plaintiff argues that such affirmations played no part in the trial because the 2^nd Defendant did not give live evidence and the court placed no weight on them.  However, when leave was granted to the Defendants to file affidavit evidence, the court expressly directed that “the filing and service of the affidavit by the 1^st and 2^nd Defendants is without prejudice to their right to silence, and their respective affidavit shall be admitted only upon the 1^st and 2^nd Defendants’ election to do so at the substantive hearing”.  There is nothing to suggest that it was always the 2^nd Defendant’s intention to file affirmations but not to subsequently attend the trial to give evidence.  Further, there could have been different reasons as to why the 2^nd Defendant ultimately decided not to go into the witness box to give evidence at the trial.  In these circumstances, I see no justification to deprive the Defendants of their costs in the preparation, filing and service of the 2^nd Defendant’s affirmations.

12.  For all the above reasons, I remain to be of the view that the Plaintiff should be responsible for the Defendants’ costs in these proceedings (including all reserved costs), subject to the Defendants’ variation application to which I now turn.

B.  DEFENDANTS’ VARIATION APPLICATION

13.  The Defendants seek costs on an indemnity basis with enhanced interest after 23 May 2023 because it made a sanctioned offer (“Sanctioned Offer”)  to the Plaintiff, the terms of which were (1)  the Plaintiff’s Originating Summons be dismissed and (2)  the Defendant would pay the Plaintiff’s costs of the proceedings on an indemnity basis to be taxed if not agreed.  The latest date on which the Plaintiff could have accepted the Sanctioned Offer was 22 May 2023, but it was not accepted by the Plaintiff.   

14.  The Plaintiff does not dispute that the Sanctioned Offer made by Defendants was a sanctioned offer within the meaning of RHC O.22 r.1(1).

15.  Where a plaintiff fails to obtain a judgment that is more advantageous than a defendant’s sanctioned offer, the costs consequences are set out in O.22 r.23.

(1)  O.22 r.23(4)  provides that “the Court may also order that the defendant is entitled to (a)  his costs on the indemnity basis after the latest date on which the plaintiff could have accepted the payment or offer without requiring the leave of the Court; and (b)  interest on the costs referred to in paragraph (3)  or sub-paragraph (a)  at a rate not exceeding 10% above judgment rate”.

(2)  O.22 r.23(5)  provides that where “this rule applies, the Court shall make the orders referred to in paragraphs (2), (3)  and (4)  unless it considers it unjust to do so”.

(3)  O.22 r.23(6)  provides:

“In considering whether it would be unjust to make the orders referred to in paragraphs (2), (3)  and (4), the Court shall take into account all the circumstances of the case including—

(a)  the terms of any sanctioned payment or sanctioned offer;

(b)  the stage in the proceedings at which any sanctioned payment or sanctioned offer was made;

(c)  the information available to the parties at the time when the sanctioned payment or sanctioned offer was made; and

(d)     the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the payment or offer to be made or evaluated.”

16.  I note that the provisions in O.22 rr.23(4)-(6)  mirror those in O.22 rr.24(3)-(5), which are concerned with the costs and other consequences where a plaintiff does better than he proposed in his sanctioned offer.  The powers conferred by O.22 r.24 to order indemnity costs and a higher rate of interest are intended to provide a means of achieving a fairer result for a plaintiff, and to redress the perceived unfairness from the fact that damages, costs (even costs on an indemnity basis)  and statutory interest will not compensate the successful plaintiff for the inconvenience, anxiety and distress of having to resort to and pursue proceedings which he had sought to avoid by an offer to settle on terms which (as events turned out)  were less advantageous to him than the judgment which he achieved: McPhilemy v Times Newspapers Ltd (No 2) [2002] 1 WLR 934 at [19] and [21] (Chadwick LJ); Golden Eagle International (Group)  Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 at [10] (J Lam J).  It seems to me that the same rationale (with the necessary changes having been made)  should be applicable to the O.22 r.23 regime which concerns the costs consequences where a plaintiff fails to do better than a sanctioned offer or sanctioned payment.

17.  In CEP Ltd v Wuxi Jiacheng Solar Energy Technology Co Ltd [2016] 1 HKLRD 960, Kwan JA at [31] said:

“the question ... is whether it is unjust to make an enhanced costs order, taking into account all relevant circumstances of the case, including the matters set out in O.22 r.23(6). The Judge has discretion to decline to apply the default rule in O.22 r.23(5), where he considers it unjust to do so. It is not in dispute that the plaintiff here has the burden of showing why it would be unjust to make an enhanced costs order. And it is pertinent to bear in mind that the powers under the regime in O.22 are not meant to be penal in nature, but the aim is to achieve a fairer result for the winning party, and to redress the perceived unfairness from the fact that costs, statutory interest and damages will not fully compensate a successful party in litigation (Golden Eagle International (Group)  Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 at [10]).”

18.  Accordingly, the burden is on the Plaintiff to show why it would be unjust, on the facts and circumstances of the present case, to make an enhanced costs order against it.

19.  The Plaintiff advances two grounds to contend that it would be unjust to order enhanced costs against it.

20.  First, the Plaintiff repeats its submissions that these proceedings arise from an apparent inconsistency between the Defendants’ earlier pleadings and the Disclosure Affirmation which concerned matters peculiarly within the Defendants’ knowledge, and it therefore acted reasonably in rejecting the Sanctioned Offer on the basis of the information then available to it.  As explained above, the court has found against the Plaintiff on the question of the so-called “apparent inconsistency”.  The Plaintiff cannot point to its belief on the merits (which turned out to be incorrect as found in the Judgment)  as the basis for saying that it acted reasonably in declining to accept the Sanctioned Offer.  I reject the Plaintiff’s first ground.

21.  Further, the Plaintiff seeks to justify its refusal to accept the Sanctioned Offer on the basis that the Plaintiff was asked to abandon the very object of the contempt proceedings in return for nothing of substance.  This submission entirely misses the point of the sanctioned offer/payment regime, which is aimed to encourage the parties to take possible settlement seriously and to avoid unproductive prolongation of the litigation: Civil Justice Reform Final Report §292.  As Sir Geoffrey Vos C observed in OMV Petrom SA v Glencore International AG [2017] 1 WLR 3465 at [39]:

“Parties are no longer entitled to litigate forever simply because they can afford to do so. The rights of other court users must be taken into account. The parties are obliged to make reasonable efforts to settle, and to respond properly to Part 36 offers made by the other side. The regime of sanctions and rewards has been introduced to incentivise parties to behave reasonably, and if they do not, the court’s powers can be expected to be used to their disadvantage. The parties are obliged to conduct litigation collaboratively and to engage constructively in a settlement process.”

In any event, I disagree with the Plaintiff’s submission that the acceptance of the Sanctioned Offer would mean that the Plaintiff would get nothing of substance: the Sanctioned Offer included an offer for the Defendants to pay to the Plaintiff all the costs incurred in the proceedings on an indemnity basis.

22.  Having considered the Plaintiff’s submissions and all the circumstances of the case, I consider that the Plaintiff has not sufficiently demonstrated why it would be unjust to grant the Defendants indemnity costs and enhanced interest on costs from 23 May 2023.  It seems to me that an order for indemnity costs and a higher rate of interest on costs will achieve a fairer result for the Defendants. Such an order will also redress the unfairness on the part of the Defendants from the fact that costs (even costs on an indemnity basis)  will not compensate them for the inconvenience, anxiety and distress of having to defend proceedings which they had sought to avoid by an offer to settle on terms which (as events turned out)  were less advantageous to them than the judgment which they achieved.

23.  Turning to the rate of the enhanced interest on costs, I agree with the Plaintiff’s submission that the maximum of 10% above judgment rate should be reserved for the worst kind of cases and that the present case is not one of them: cf Qvist Henrik v Clatronic Far East Ltd [2020] 1 HKLRD 703 at [29] (Recorder S Wong SC).  The level of enhanced interest awarded must be proportionate to the circumstances of the case: OMV Petrom SA (above)  at [38] (Sir Geoffrey Vos C).

24.  The Plaintiff submits that if the court is minded to make an order for enhanced interest, the appropriate rate is 4.5% (being the rate used in Golden Eagle International (Group)  Ltd (above)  at [19]).  I am content to apply that percentage in the present case as suggested by the Plaintiff.

C.  DISPOSITION

25.  I dismiss the Plaintiff’s summons dated 1 June 2026. 

26.  I vary the Costs Order Nisi so that the costs of the proceedings (including all reserved costs)  are to be paid by the Plaintiff to the Defendants (1)  on a party and party basis up to 22 May 2023, (2)  on an indemnity basis from 23 May 2023 to the conclusion of the trial, (3) together with interest on the said costs at a rate of 4.5% above judgment rate from 23 May 2023 until payment, to be taxed if not agreed.

27.  I also make an order nisi that the costs of and occasioned by (1)  the Plaintiff’s summons dated 1 June 2026 and (2)  the Defendants’ application to vary the Costs Order Nisi, are to be paid by Plaintiff to the Defendants, on an indemnity basis, to be taxed if not agreed.  The basis for ordering such costs to be taxed on an indemnity basis flows from the Plaintiff’s refusal to accept the Sanctioned Offer.  All costs incurred after 23 May 2023, including the costs arising out of the present applications for costs variation, would have been obviated if the Plaintiff had accepted the Sanctioned Offer.