UBS AG v. STAND FORD INTERNATIONAL ENTERPRISES LTD. AND OTHERS

HCCL 45/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 45 OF 2000

NO. 45 OF 2000

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J U D G M E N T

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Introduction

1. On 28 June 2002 judgment was handed down in this action between the plaintiff, a Swiss bank, and the 3rd defendant, Mr Wong Chee King. This judgment, which speaks for itself, held that the 3rd defendant was liable to the plaintiff for knowing assistance in the disposal of monies belonging to the plaintiff, such monies having been impressed with a constructive trust.

2. At the conclusion of submissions by counsel at the trial, it became clear, in terms of quantum of damage, that there was a dispute between the parties as to whether the full amount of a prior settlement and monetary recovery from the 2nd and 4th defendants in these proceedings should be taken into account in the assessment of the damages due to the plaintiff by the 3rd defendant.

3. This settlement by the plaintiff with the 2nd and 4th defendants had resulted in recovery of a substantial sum, albeit the settlement had been effected on the basis of discontinuation of the action with no order as to costs, the plaintiff's costs of US$115,000 having been included, without differentiation, in the global sum thus recovered. In terms of the damages to be paid by the 3rd defendant to the plaintiff, the question therefore arose as to whether the 3rd defendant was entitled to the full benefit of the sums of money otherwise recovered, as was claimed on his behalf, or whether such figure to be set-off against the sum for which now he was liable should take into account the costs element, and if so by how much.

4. It was therefore suggested by counsel that argument as to quantum be temporarily stood down in order for the point as raised to be considered and, perhaps, agreed between the parties, and that in the interim the court would proceed to hand down judgment upon the issue of liability only. With the consent of both parties this is what occurred, the conclusion of that initial judgment noting that, absent agreement thereon, the court awaited further submissions by the parties on the issues of quantum of damage, interest and costs.

5. This judgment, therefore, is concerned with these three issues, and these issues only. I take them briefly in turn.

Quantum

6. During the course of an extended argument this issue effectively has been resolved in principle, albeit matters of detail remain to be decided.

7. The broad position is thus. The plaintiff bank claims the sum of US$1,958,622.66 in damages for knowing/dishonest assistance. Against this, in total there has been recovery of the following sums:

(i) US$34,532.20 from the 1st defendant;

(ii) US$1,302,413.61 from the 2nd and 4th defendants;

(iii) US$62,500.29 from ABC Promotion Establishment, Liechtenstein.

The cumulative sum otherwise recovered therefore stands at US$1,399,446.10.

Not all amounts were recovered at the same time. The first and third recoveries itemized above, for example, were effected on 20 July 2000 and 28 February 2001 respectively, whilst the amount recovered from the 2nd and 4th defendants, pursuant to a Settlement Agreement dated 5 January 2001, was effected in five tranches commencing on 11 January 2001 (US$140,000) and concluding on 7 April 2001 (US$223,000). For ease of reference, the precise details are contained in the Second Schedule to the 2nd Affirmation of Mr Patrick Cho dated 25 July 2002 filed on behalf of the plaintiff.

8. On the basis of the face-value of these recoveries, therefore, it follows from the foregoing that the principal sum due to the plaintiff from the 3rd defendant is US$559,176.56 (US$1,958,622.66 minus $1,399,446.10), and that this is the sum that must be repaid, together with interest thereon. The latter element, however, is not entirely straightforward.

Interest

9. There are two main disputes under this head, namely rate and method of calculation. I have declined to order compound interest, and accordingly on behalf of the plaintiff Mr Lamplough asks the court to order simple interest at the rate of 1% over US dollar prime, and that in the calculation of such interest each of the seven principal sums individually recovered (in total amounting to US$1,399,446.10) be first appropriated to interest accruing as from 3 February 2000 upon the principal sum due before being applied in dimunition of principal. This, said Mr Lamplough, was the methodology employed in the calculations of outstanding interest in the Second Schedule to Mr Patrick Cho's affirmation.

10. To the contrary, Mr Pow for the 3rd defendant submitted that each of the capital recoveries should be first appropriated to the principal from time to time outstanding, and that so far as the interest rate was concerned that which was claimed by the plaintiff was too high. He referred to the calculations contained in the Fourth Schedule to the 2nd Affirmation of Mr Cho, wherein the plaintiff's interbank borrowing rate had been adopted on a simple interest basis. He would, he said, accept the interest position in the Fourth Schedule subject to the qualification that sums recovered should first be appropriated to principal and not to such interest as then had accrued.

11. I agree with Mr Pow with regard to each limb of this argument. It seems to me that appropriation to accrued interest before principal introduces an undesirable element of compounding, whilst in the circumstances I see no good reason why the applicable rate should not be the UBS US dollar borrowing rate from time to time prevailing, thereby placing the plaintiff in the position in which it would have been had it had occasion to borrow funds to replace those that it is now engaged in recovering, in substantial part at least.

12. Accordingly, I order that interest be computed and paid at this rate and on this basis on the principal sum from time to time outstanding to the date of this judgment, which sum, when added to the principal sum due, will constitute the sum for which judgment against the 3rd defendant is to be entered. Thereafter, interest upon such principal sum is to accrue at the judgment rate from time to time prevailing until payment.

Costs

13. I turn now to that element of the case responsible for the delayed nature of these submissions. What in effect has happened is that the 3rd defendant has been accorded the full benefit, exclusive of costs, of all such recoveries as have been made, in particular in terms of the large sum of money recovered from the 2nd and 4th defendants consequent upon the Settlement Agreement with the plaintiff. As a quid pro quo Mr Pow has accepted on behalf of the 3rd defendant that the plaintiff is to have the costs of this action to be taxed if not agreed, and that such costs are to include not only the costs of this action against the 3rd defendant, but also the plaintiff's taxed costs of these proceedings against the 2nd and 4th defendants, Messrs Vyplel and Kriz, such taxed costs also to include the plaintiff's costs of the Settlement Agreement entered into with these defendants. In this manner, therefore, the potential difficulty created by the failure to specify within the global settlement figure the sum to be arrogated to the plaintiff's costs is sidestepped.

14. Notwithstanding this accepted formulation, the scale of such costs provides a further area for dispute. Mr Lamplough says that both sets of costs should be on an indemnity basis, whilst Mr Pow argues that the scale should be on the normal party and party basis. With regard to the costs of the proceedings against the 2nd and 4th defendants he makes the point that the Settlement Agreement appears to have been concluded on the basis of a denial of liability of Messrs Vyplel and Kriz (see paragraphs B and C of the Preamble), and thus argues that it would be unsatisfactory were there to be costs orders made on apparently different bases against the 3rd defendant on the one hand and the 2nd and 4th defendants on the other.

15. The position is not easy fairly to adjudicate, not least because the 2nd and 4th defendants departed this action at an early state consequent upon their settlement with the plaintiff, and also because I have not been made aware of the composition/basis of the costs figure of US$115,000 which formed part of the global settlement entered into with Messrs Vyplel and Kriz. After some reflection, I have come to the conclusion in the particular circumstances that theses costs to be paid to the plaintiff by the 3rd defendant are to be taxed and paid on a common fund basis.

16. I am also minded to order, and so do, that in addition the costs to be paid by the 3rd defendant to the plaintiff are also to include the costs of the proceedings against Stand Ford, the 1st defendant, of which company Mr Wong was the sole director. Mr Pow strenuously objected to this, but on the evidence in my view this is not unjust. Since default judgment was entered against Stand Ford, such costs as were incurred are likely primarily to be those of the garnishee proceedings which resulted in recovery of the sum itemized in paragraph 7 above. Once again, such costs are to be taxed and paid on a common fund basis.

17. Notwithstanding the breadth of Mr Lamplough's costs submissions, I decline to visit upon the 3rd defendant any other legal costs. In my judgment the orders as now made reflect a measure of substantial justice in the context of a case which has caused me some concern.

The Order

18. In circumstances wherein interest calculations require to be made for the pre-judgment period, I order that the draft Order reflecting the judgments handed down is to be drawn by those advising the plaintiff and submitted for engrossment after notification of such draft Order to the solicitors for the 3rd defendant. If and in so far as difficulties arise in agreeing the terms of the Order, there is to be liberty to apply.