BCEG Australia v Yu Xiao & Ors

The plaintiff, BCEG International (Australia) Pty Ltd, sues its former director, Mr Yu Xiao, Mr Xiao’s wife Ms Yan Ying Chen (who BCEG alleges was a de facto director) and three associated companies.

BCEG makes very serious allegations against Mr Xiao and Ms Chen, which it summarised in its Commercial List Statement as follows:

BCEG alleges that Mr Xiao and Ms Chen engaged in deliberate and systemic fraud and in conduct which is criminal in nature.

By notice of motion filed on 18 February 2020, as amended on 26 June 2020, BCEG sought an order that the defendants’ List Response be struck out and that the defendants not be permitted to raise any new defence not already raised on the pleadings, without leave.

BCEG’s complaint about the Response was, in substance, that the defendants sought to invoke the privilege against exposure to civil penalties and self-incrimination on a global basis, rather than doing so on a contention by contention basis and in a manner that identified the particular ground relied on in relation to each contention.

The manner in which the defendants sought to invoke the privilege was set out in paragraphs 5 and 6 of the Response:

A difficulty with this pleading device was that it was unclear, on many occasions, whether the defendants were merely “not admitting” an allegation [1] or actually denying an allegation, as opposed to invoking the privilege.

I heard BCEG’s motion of 6 August 2020. On that occasion I raised with Mr Withers, who appeared for the defendants, the difficulties I saw with the Response. Those difficulties were, in effect, those complained of by BCEG in their submissions and in solicitors’ correspondence.

By and large, Mr Withers accepted that the Response required amendment.

The result was that the only order I made on 6 August 2020 was to direct the defendants to circulate a proposed Amended Response.

The defendants did so by circulating a proposed Amended Response which did not have the shortcomings of the existing Response. The proposed Amended Response invoked the privilege on a contention by contention basis and identified the criminal and civil penalties to which the defendants apprehended exposure.

I granted the defendants leave to file that Amended Response and the matter is now moving forward.

I am now dealing with the costs of BCEG’s motion.

The defendants accept that they must pay BCEG’s costs thrown away by the amendment to the Response.

Otherwise each party seeks an order that the other pay their costs of the motion.

It is true that BCEG did not obtain the orders sought in the motion. I did not strike out the original Response. I have not ordered that the defendants not be permitted to raise any new defences without leave. Nor has BCEG achieved the result, agitated in its submissions, that the defendants “plead their defence in the usual way.”

BCEG has, however, achieved the result that the defendants have now delivered a Response which does not have the vices of the original and which incorporates, in one document, the various bases on which the defendants seek to invoke the privilege.

I am satisfied that BCEG’s motion was necessary. Although the defendants had, by their solicitors, explained in correspondence and otherwise how it was said that the privilege was invoked, it was necessary in the context of this case that this explanation appear in one document: the Response.

On the other hand, BCEG ultimately conceded that the defendants had sustained their onus of showing a real and appreciable risk of prosecution or exposure to civil penalty, were they to answer the List Statement in “the usual way.”

Thus each side has achieved some measure of success although, as I have said, in substance BCEG has achieved what it sought to achieve by filing its notice of motion.

In all the circumstances, in my opinion, the appropriate order to make is that the costs of the plaintiff’s notice of motion of 18 February 2020 be its costs in the cause.

I make the following orders: