CHOW HOW YEEN MARGARET AND OTHERS v. WEX PHARMACEUTICALS INC. AND ANOTHER

HCA 537/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 537 OF 2013

____________

____________

___________________

D E C I S I O N

___________________

INTRODUCTION

1.  The Plaintiffs sued the Defendants for fraudulent misrepresentation, which induced the Plaintiffs to enter into the Share Agreement. 

2.  The Plaintiffs made a sanctioned offer on 7 October 2014, offering to settle the whole claim by both Defendants paying the Plaintiffs CAD$1,900,000. The last day for acceptance without leave was 4 November 2014.  The Defendants never responded to the offer.

3.  Trial commenced on 27 September 2016.  By a judgment dated 13 January 2017 (“the Judgment”), this court awarded damages to the Plaintiffs in the total sum of about CAD$1,300,000.  It was also ordered, on a nisi basis, that:

(1) There be interest to the Plaintiffs on the judgment sums at judgment rate from the date of the respective purchase of the shares to the date of payment;

(2) Costs of this action be paid by the Defendants to the Plaintiffs with certificates for 2 counsel;

(3) The Plaintiffs do pay to the Defendants’ costs of the Plaintiffs’ summons for striking out assessed at $30,000.  There be no order as to costs of the Plaintiffs’ summonses for discovery and amendment to the statement of claim.  The amount of $30,000 was to be set off against the costs of the action awarded to the Plaintiffs.

4.  The applications now before the court are for variation of the orders nisi:

A. By the Defendants, to vary the award of interest for the pre-judgment period from judgment rate to Canadian prime rate plus 1%;

B. By the Defendants, to reduce the certificates for counsel from 2 to 1;

C. By the Defendants, to have costs awarded to it on the striking out summons to be taxed instead of summarily assessed;

D. By the Plaintiffs, for an order for indemnity costs because the Defendants did not beat the sanctioned offer;

E. By the Plaintiffs, for an order of enhanced interest on damages and costs;

F. By the Plaintiffs, for an order of indemnity costs and enhanced interest for this application.

5.  The abbreviations in the Judgment will be adopted.

A.  VARIATION OF PRE-JUDGMENT INTEREST RATE

A1.  Legal principles

6.  Under section 48 of the High Court Ordinance (“HCO”), pre-judgment interest on damages is in the discretion of the Court.  There is no dispute that the norm is prime + 1% : Polyset Ltd v Panhandat Ltd, FACV No 28/2000, 25 April 2002.  Riberio PJ opined at §13:

“The trial judge has a discretion to determine the rate of interest. To compensate a successful plaintiff for being kept out of his money, the general practice in Hong Kong has, at least since 1984, been to award interest reflecting the theoretical cost to the plaintiff of borrowing the sums withheld. This is a rate taken to be prime plus 1% unless the evidence in a particular case makes adoption of another rate appropriate: see Komala Deccof & Co SA v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219.” (emphasis added)

7.  Subsequent authorities referred to HIBOR and other rates.  However, the Court of Appeal decided that the starting point in Polyset should be maintained and it should only be changed if there is evidence in support: Tadjudin Sunny v Bank of America, National Association, CACV 12/2015, 20 May 2016at §§179 &184.

8.  The overriding principle is that interest should be awarded to the plaintiff not as compensation for the damage done but for being kept out of money which ought to have been paid to him: Hong Kong Civil Procedure 2017, Vol 1, §6/L/10, p 93.  Interest cannot be awarded on the same sum in respect of the same period under both ss 48 and 49 HCO.  Interest on damages may be awarded under s 48(1)(b) until the date of judgment, while under s 49, interest runs from “the time of entering up judgment”: §6/L/21, p 96.

9.  Higher rates have been awarded:

(a) In the case of fraudulent misrepresentation: in Aktieselskabet Dansk Skibsfinansiering (Body Corporate) v Wheelock Marden & Co Ltd & ors, HCA 1670/1989, 25 March 1997, at §9.7, Barnett J awarded interest on pre-judgment sums,

“…not simply the 7½% payable by ADS on its bonds but the rate given by these courts on awards of debt or damages. That rate fluctuates according to circumstances. I am of the view that 13% is a proper rate in this case having regard to rates which have prevailed in these courts, the rate provided for in relation to the deferred instalments and commercial rates then prevailing in Denmark. That rate is to run from 22^nd November 1991 in relation to Sealock and 25^th November 1992 in relation to Annalock, in each case until judgment. Thereafter, interest will be at the rate prescribed by the Chief Justice in accordance with the Rules of the Supreme Court.” (underline added)

(b) In the case of misrepresentation which induced the plaintiff to enter into an agreement: in Wong Fuk Wah, George and Another v Chu Fung Chee, George, Watcom System ServicesLimited, HCA 3181/1992, 12 March 1996, Le Pichon J (as she then was) pre-judgment interest at 11% per annum from the date of the agreement until the date of judgment.

These 2 cases were decided after Komala Deccof referred to in Polyset, although the principles in Komala Deccof were not mentioned in them.

A2.  The Defendants’ case

10.  The Defendants do not dispute the award of interest in the pre-judgment period counting from the respective dates of purchase of shares.  That makes a total of 12-14 years up to 13 January 2017.  The computation of interest is as follows:

Plaintiff	Shares purchased	Judgment sum (CAD$)	Interest at judgment rate up to 4.11.2014 (CAD$)	Interest at judgment rate up to judgment date 13.1.2017 (CAD$)
P1	5,000 on 10.12.2002 & 200,000 on 27.10.2004	452,055.07	400,039.12	500,288.43
P2	217,928 on 6.11.2003 & 217,928 on 29.10.2004	653,951.76	593,385.68	776,163.83
P3	200,000 on 12.1.2004	194,400.00	181,812.01	215,902.00
		1,300,406.83	1,175,236.81	1,492,354.26

11.  According to Mr Carolan, these computations by the Plaintiffs are not entirely correct as the dates of the 2^nd purchase by P1 and 1^st purchase by P2 [B332-333] are misstated as 7 weeks earlier than the actual dates claimed of 27 October 2004 and 1 month earlier than 6 November 2003 (Re-Re-amended Statement of Claim §51).  Further, the period taken for interest up to 17 January 2017 when judgment was in fact entered on 13^th.  Notwithstanding such complaints, the difference from the correct computation will be small and will have no impact on this decision.

12.  The Defendants ask that pre-judgment interest be reduced to 2.85%, 5% or 6% p.a. or at such other rate with reference to HIBOR, Hong Kong prime or Canadian prime.  Mr Carolan’s arguments are threefold:

(a) That the Judgment should have made awards for separate periods under each of section 48 (pre-judgment) and 49 (post-judgment) of the HCO, rather than a composite award purporting to straddle both;

(b) That the appropriate rate should be prime + 1%; and

(c) That the Canadian prime rate should be applied.

A3.  Composite award in the Judgment erroneous

13.  This argument has no merits.  As the court’s intention was to award judgment rate for both the pre- and post-judgment periods, and at the same rate, there was no need to split the interest provision into two.  In any case, if this was the true complaint, all that was needed was a letter to the court to clarify it, instead of issuing this summons.

A4.  Prime plus 1% or other rates?

14.  Mr Carolan’s submissions are as follows:

(i) The Plaintiffs were likely to have been able to borrow more cheaply.

(ii) The fact that the sums invested by Ms Chow in Wex shares were insignificant to her suggested that the losses incurred did not merit substantial additional compensation for being “kept out of money” especially when it could be inferred that if she had such money available it would not have been used to generate much return.

(iii) Although the cause of action accrued when the shares were purchased, before the shares the sold, the Plaintiffs would not have “felt” any loss.  Sales in batches occurred in between 2005 and 2011.  Ms Chow was overall able to recover about 23% of the purchase amount (based on the figures in §51 of the Re-Re-amended Statement of Claim).  It was artificial to imagine, as the nisi order did, that the Plaintiffs were kept out of the money from as early as the dates of purchase.  Given the partial recovery of 23%, to award interest from the purchase dates confers a windfall.  It is not proposed that the periods should be moved forward from that of purchase to sale but it is a factor relevant to the exercise of discretion in fixing the rate that the Plaintiffs are benefiting in this way.

(iv) No claim could have been quantified before sale of the shares and so judgment rate cannot stand. Where interlocutory judgment for damages to be assessed is entered no judgment interest can run until the later date when these are finally assessed or agreed and judgment is entered for that sum: Hong Kong Civil Procedure 2017, Vol 1, §6/L/21.

15.  With regard to reason (i), there is no evidence to show that Ms Chow could have borrowed at a lower rate.  The starting point remains prime + 1%.

16.  With regard to reasons (ii) to (iv), Mr Carolan avoided the rationale behind Ms Chow’s investment.  She regarded CAD$2 million investment in the shares to be insignificant having regard to 6 years’ exclusive distribution rights in Peru with 100% profit margin (§94, Judgment).  Mr Shum never disputed those potential returns. 

17.  This was a thoroughly bad case of fraudulent misrepresentation and concealment.  The Plaintiffs were kept out of their money, being made to wait for a real opportunity for profits for 8.5 years until the Acro Pharm Agreement was terminated with nil return.  Having considered the legal principles set out above, I am not minded to exercise my discretion to vary the pre-judgment rate of interest.

A5.  Canadian rate or Hong Kong rate?

18.  Mr Carolan submits that since the damages are awarded in Canadian dollars, the rate of interest under section 48 HCO is usually taken at the rate at which that currency could be borrowed in the country in which the debt should have been paid: Hong Kong Civil Procedure 2017, Vol 1, §6/L/15, p 94.

19.  The Canadian prime rates produced by the Defendants cover the period from 2002 and only up to the end of 2015.  Rates for 2016 and 2017 do not form part of the evidence.  The rates varied from 6.25% high to 2.25% low.  Since November 2014, the rates have been between 3% and 2.7%, lower than the Hong Kong dollar prime rate.  Mr Carolan submits that there is no reason why the Plaintiffs should be over compensated by higher rates but he accepts that 1% should be added to the Canadian rates, in line with Polyset. 

20.  On the basis of Canadian prime rate + 1%, pre-judgment interest would be CAD$759,593.94.  It would represent 58% of the damages awarded or 65% of the interest based on Hong Kong judgment rates.  The Defendants would have to pay CAD$640,406 less.

21.  With respect to Mr Carolan, applying paragraph 18 above,the place where the debt should have been paid is Hong Kong.  This is because the share price was received by WEX HK in Hong Kong (§28 of the Judgment).  This litigation also took place in Hong Kong.

22.  Moreover, according to section 6 of Practice Direction 16.2, a judgment entered in foreign currency will carry the statutory rate of interest on the amount of the judgment in foreign currency.  The statutory rate must be a reference to Hong Kong rate. 

23.  There is no room for introducing the Canadian rate in this case.  I hold that pre-judgment interest should be at Hong Kong judgment rate until the date of judgment.

B.  VARIATION OF CERTIFICATES FOR 2 COUNSEL TO 1

24.  Mr Carolan challenges certificates for 2 counsel as both sides already had very experienced junior counsel.

25.  This contention has no merits. The history of intricate facts spanned over 15 years.  The Defendants fought bitterly on points of pleading, law and facts.  They should count themselves lucky that the Plaintiffs did not engage senior counsel.  The order nisi for certificates for 2 counsel is made absolute.

C.  VARIATION OF COSTS TO THE DEFENDANTS ON THE STRIKING OUT SUMMONS FROM BEING SUMMARILY ASSESSED TO BEING TAXED

26.  On the first day of trial, there were 3 applications by the Plaintiffs: to strike out a paragraph in Mr Shum’s witness statement, to amend the quantum of damages in the statement of claim and for discovery of the Withdrawal Agreements.  The 3 applications were disposed of before the morning break.  The Plaintiffs only won on the discovery summons, which was the most substantial of the 3 applications.  On a broad brush approach, I ordered the Plaintiffs to bear costs of the striking out summarily assessed at $30,000, but I made no order as to costs of the other 2 applications, the costs of which would have cancelled each other out.

27.  On the first day of trial, counsel ought to have been familiar with the whole case.  Little extra work was required to deal with the summonses except perusal of the supporting documents.

28.  Summary assessment is the norm for interlocutory applications and the power can be exercised even at a trial.  It was true that the Defendants did not provide a costs statement at that hearing but this court relied on experience in similar types of cases.  The Defendants have not provided a costs statement at this hearing either, to challenge the reasonableness of this court’s assessment.  It has not been shown where I had gone wrong on a matter of principle.

29.  To a large extent, the summary assessment was to the advantage of the Defendants. If I had ordered taxation, that should apply to all 3 summonses.  The Defendants would only get party and party costs on one summons but (as shall be seen below) they would need to bear indemnity costs and enhanced rate of interest on the other 2. 

30.  I see no reason for varying the interlocutory costs orders and they are made absolute.

D.  VARIATION OF COSTS TO INDEMNITY BASIS

31.  Under Order 22, rules 24(3) and (4), unless the court considers it unjust to do so, it shall order:

(i) Costs on indemnity basis; and

(ii) enhanced interest on the whole or part of the sum awarded up to 10% above judgment rate, for some or all of the period,

after the latest date on which the sanctioned offer could have been accepted without leave.

32.  In considering whether it would be unjust to make those orders, the Court is required under rule 24(5) to take into account all the circumstances of the case including:

(a) The terms of the sanctioned offer;

(b) The stage in the proceedings at which the sanctioned offer was made;

(c) The information available to the parties at the time when the 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 offer to be made or evaluated.

33.  This provision is not compensatory: Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd[2010] 3 HKLRD 273, §10, Lam J (as he then was) following McPhilemy v Times Newspapers Ltd (No 2) [2002] 1 WLR 934, §21:

“… the power to award interest… at an enhanced rate… is conferred in order to enable the court, in a case to which r.36.21 applies, to redress the element of perceived unfairness, otherwise inherent in the legal process, which arises from the fact that damages, costs (even on an indemnity basis) and statutory interest will not compensate the successful claimant for the inconvenience, anxiety and distress of having 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.”

34.  If it was entirely compensatory, the 10% cap would be rarely engaged and then probably only in unusual cases where, for example, the period of enhanced interest award was very short: OMV Petrom SA v Glencore International AG [2017] EWCA Civ 195, at §36.

35.  The Plaintiffs’ sanctioned offer was made approximately 2 years before trial, in full and final settlement of the claim.  It was made after discovery and mediation.  Most of the evidence was documentary in nature, of which authenticity was never disputed.  The Defendants were in a position to ascertain the issues and assess the merits of the case.

36.  In the end, whether one applies the Hong Kong or Canadian prime rate, the Plaintiffs had plainly done better than the sanctioned offer by 23%, ie CAD$575,643.65 (or HK$3,450,000).  See paragraph 10 above.

37.  Mr Carolan puts forward the following arguments:

(a) The Defendants had not acted unreasonably in rejecting the sanctioned offer;

(b) The sanctioned offer was not made in good faith, being based on the Plaintiffs’ own calculations and was very close to the amount claimed plus interest;

(c) Using the Canadian prime rate +1% as pre-judgment interest, the total judgment sum plus interest would just marginally exceed the sanctioned offer;

(d) The Defendants did not have the benefit of help from Mr Shum, which made it impossible for them to fully assess the merits of the Plaintiffs’ claim. 

38.  Reason (a) is untenable, given that the Defendants had not responded at all to the sanctioned offer.  Instead, they defended the 7-day trial “up hill and down dale”: OMV v Glencore, §1.

39.  Reason (b) is untenable.  At the time the sanctioned offer was made, the Plaintiffs’ claim together with interest stood at CAD$2.69 million (Chow-9^th, §12)[1]. The sanctioned offer was at a substantial discount of CAD$790,000 (HK$4,700,000).  In Wong Tang Keung v Lee Wai Engineering Co Ltd (No 2) [2014] 1 HKLRD 409, §12, a difference of only HK$21,973.66 was not regarded as insignificant for the purpose of Order 22, rule 23(6) (a rule similar to rule 24(6)). 

40.  Even if the sanctioned offer was close to the amount claimed with interest, that was not a reason to reject it.  It might be a reflection of the offeror’s confidence in the strength of her case.  CEP Ltd v Wuxi Jiacheng Solar Energy Technology Co Ltd[2016] 2 HKC 264, §41.

41.  In Antwerp Diamond Bank N.V. v Brink’s Incorporated (No 2) [2015] 4 HKLRD 628, Barma JA said at §21:

“There is no reason why a recipient of a sanctioned offer of a relatively small discount to the claim should not give it serious consideration. Such consideration may lead the recipient to respond with (from his point of view) a more realistic sanctioned offer or sanctioned payment…the process would have driven the parties (together with their lawyers) to give serious and realistic consideration to the possible options of settlement as opposed to the ordinary adversarial mindsets which unfortunately have a tendency to dominate the thinking of those involved in litigation. To that end, the whole process initiated by the original sanctioned offer can achieve what the sanctioned offer and sanctioned payment regimes are designed to achieve.”

42.  Reason (c) is untenable.  I repeat paragraph 36 above. A difference of 23% was not a small margin.

43.  Reason (d) was premised on the evidence of Mr Benjamin Lau of Baker & McKenzie (“B&M”) that at the time the sanctioned offer was made, the Defendants were unable to serve Mr Shum with a third party notice or contact him until 10 March 2016. 

44.  The half-truth in Mr Lau’s evidence was exposed in Chow-9^th, §§18-32. The fact was that by about November 2013 (almost a year before the sanctioned offer), the Defendants (and Ms Tennant of B&M) already knew that Mr Shum did not reside in his Hong Kong address but at his Zhuhai address.  They had the email address, fax number, telephone number and possibly Mr Shum’s working address in Zhuhai.  Nevertheless, B&M applied for issue of a third party notice to Mr Shum at his Hong Kong address.  They did not amend it to the Zhuhai address until 10 months later on 23 September 2014, and applied to serve him out of jurisdiction.  The service was not successful.  They then applied, 15 months later, for a substituted service order on 4 January 2016 and was able to serve Mr Shum by courier on 10 March 2016.  A draft witness statement was prepared by 18 March 2016, 17 months after the sanctioned offer was made. 

45.  Having been caught out by the Plaintiffs’ side, Mr Lau virtually accepted Ms Chow’s evidence with some supplements in his 3^rd affirmation. He claimed that his errors arose from not having sufficiently reviewed the details in Ms Tennant’s previous affirmations. He maintained that the Plaintiffs’ complaints were “a red herring intended to detract from the relevant issues.”

46.  In the light of such evidence (and without missing Chow-9^th), Mr Carolan still stated in his written submission that “Ds did not have the benefit of any help from the main protagonist on their side at the time and were therefore unable to fully assess the merits of Ds’ case.  It is unfair to blame Ds for lack of effort in this regard when it is clear that Shum only came forward in response to service which had been delayed by an inter jurisdictional situation beyond Ds’ control.”

47.  With respect to Mr Lau, the Plaintiffs’ complaints were directly relevant to show how, after liability of the clients was established for fraudulent misrepresentation, the Defendants’ lawyers presented half-truths to the court to try and reduce the Defendants’ liability.

48.  Difficulty in service in Zhuhai by Chinese judicial channel was beyond the Defendants’ control.  However, for 2 years and 4 months since November 2013, there was nothing to show that the Defendants had tried to contact Mr Shum by phone, email or address or sought him out at the Zhuhai address (which has never changed since November 2013).  The Defendants had not used their best endeavours to seek out their crucial witness.  Who else could they blame but themselves?

49.  The unavailability of Shum was all the more reason for the Defendants to consider settlement.  In any case, even after they got hold of Mr Shum, the Defendants had not responded to the sanctioned offer. 

50.  The documentary evidence against the Defendants was overwhelming (§§62-71 of the Judgment) and this court relied on it to reject the alleged honest belief of Mr Shum.  Part of the re-amended defence was misleading (§63 of the Judgment).  The defence was hopelessly pursued in the light of a reasonable sanctioned offer.

51.  None of the reasons hold water.  It is not unjust to award indemnity costs and I so order.  Costs up to and including 4 November 2014 shall be on party and party basis and thereafter on indemnity basis.

E.  ENHANCED INTEREST ON JUDGMENT SUMS

52.  The start date for computation of interest on damages and costs shall be 5 November 2014 when the sanctioned offer lapsed.

53.  As for the end date, there are conflicting authorities set out in Hong Kong Civil Procedure 2017, Vol 1,§22/24/2 where the courts have awarded interest up to the date of judgment or the date of payment. 

54.  Under section 49 HCO, judgment rate applies only if the court does not order other rates.  Thus, the court has discretion to decide other rates and award interest up to the date of satisfaction: Union Glory Finance Inc & ors v Merrill Lynch International Bank Limited & anor, HCA 2494/2013, 13 December 2016, at §§36-40, DHCJ Cooney SC. 

55.  For reasons given in section D above, it is not unjust to allow enhanced interest of the judgment sum at 10% above judgment rate (“the enhanced rate”) up to the date of satisfaction.

56.  I have additionally considered the overall position having regard to the pre-judgment interest to see if the Plaintiffs are over compensated or the Defendants over penalized.  Pre-action, the fraudulent misrepresentation and concealment was bad enough in itself. Pre-trial, the Defendants failed to discuss the sanctioned offer.  Post-trial, the Defendants presented half-truth to the court under reason (d) in paragraph 37.  Post-variation summonses, the Defendants have made no offers to settle.  Apart from an arguable case for prime + 1% for pre-judgment interest, the stance of the Defendants in these variation summonses is unmeritorious.  I find no reason to reduce the enhanced rate.

F.  COSTS OF THESE APPLICATIONS TO VARY

57.  The Defendants have failed on each application.  Costs should follow the event and be to the Plaintiffs on indemnity basis at the enhanced interest.  I would add that even if I had decided any or part of the applications in the Defendants’ favour, I would have awarded costs and interests to the Plaintiffs on the same bases.  This is because the applications could have been spared if the sanctioned offer had been accepted. 

CONCLUSION

58.  I order as follows:

(1) The Defendants’ summons for variation of the judgment rate of interest for the pre-judgment period, for certificate for one counsel and for costs on the strike out summons to be taxed, is dismissed;

(2) The order nisi on interest is maintained at judgment rate on the judgment sums from the date of the respective purchase of shares until 4 November 2014; but varied to the enhanced rate from 5 November 2014 to the date of judgment and thereafter at the enhanced rate until satisfaction;

(3) The order nisi on costs of the action is maintained to the extent that the Plaintiffs shall have costs on party and party basis up to 4 November 2014; but varied to the extent that the Plaintiffs shall have costs on indemnity basis and interest at the enhanced rate from 5 November 2014 to the date of judgment and thereafter at the enhanced rate until satisfaction;

(4) Costs of all the summonses taken out by both parties for variation, with certificates for 2 counsel, shall be to the Plaintiffs on indemnity basis and at the enhanced rate from the date of the respective summons to the date of this decision and thereafter at the enhanced rate until satisfaction.

59.  I thank counsel for their assistance.