ENHANCED SECURITIES LTD v. TAM SIU HANG

HCA 826/2022

[2025] HKCFI 1351

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 826 OF 2022

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D E C I S I O N

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Background

1.  This is an appeal against a Master’s decision ordering, on his own volition, that the case be transferred to the District Court (“DC”). The core issue turns on the interpretation of sections 32 and 49(7) of the District Court Ordinance, Cap 336 (“DCO”).

2.  The Plaintiff is a securities trading company and the Defendant is and was its client who opened a margin account with the Plaintiff. As the price of shares in the margin account plummeted in 2022, the Plaintiff liquidated the shares and applied the proceeds in repaying part of the indebtedness of the Defendant. The Plaintiff instituted the present action to demand for payment of the outstanding indebtedness plus interest under the Client’s Agreement.

3.  The writ was issued on 15 July 2022. It claims HK$2,958,523.94 (“principal”) together with accrued interest of HK$44,662.67 (“accrued interest”), making a total of $3,003,186.61 as at 4 July 2022. The Plaintiff further claims interest at the rate of 18% per annum compounded monthly on the principal pursuant to sections 48 and 49 of the High Court Ordinance, Cap 4.

4.  The Defendant denies the claim. Amongst others, he pleads that the Client Agreement did not contain any clause stipulating interest.

5.  At the case management conference, on 19 August 2024, on his own volition and in the absence of the Defendant, a Master ordered that the case be transferred to the DC on the ground that in ascertaining whether the claim was within section 32 of DCO, the interest element should be excluded pursuant to section 49(7) of DCO. The present claim was only for HK$2.95 million putting aside all the interest.

6.  This is an appeal by the Plaintiff against the learned Master’s decision by way of a rehearing. The judge treats the matter as though it came before her for the first time. The appeal concerns a pure point of law.

7.  The Defendant was absent both before the learned Master and at this appeal. I am satisfied that he has been served with notice of this appeal and hence proceed in his absence.

Legal principles

8.  Under section 43 of DCO, the Court of First Instance (“CFI”) can, of its own motion, order the transfer to the DC of all or part of any action, which appears to the CFI likely to be within the jurisdiction of the DC. Under section 43(3), the CFI is required to make an order under this section unless it is of the opinion that, by reason of the importance or complexity of any issue arising in the action or proceedings, or for any other reason, the action or proceedings ought to remain in the CFI.

9.  In deciding whether to transfer a case from CFI to DC:

(1)  In the absence of abuse, a plaintiff should be entitled to frame his case in the manner that he wishes.

(2)  At an interlocutory stage, it would not be proper for the court or a master to view the plaintiff’s claim in the same way as it would be viewed at trial by weighing the different evidence or by believing or disbelieving some or all of the evidence. That exercise can only be carried out when all the evidence, cross-examination and submission has been heard, particularly where there are factual and or other disputes between the parties, as for instance disputed expert opinion.

(3)  Accordingly, the plaintiff’s case on quantum as framed by him ought to be viewed at its highest when determining the proper jurisdiction where the case should be brought.

Wong Miu Kwan v FPD Savills Property Management Ltd [2006] 1 HKC 575, §21, Suffiad J; applied in A v B [2021] 1 HKC 658 at §35, Au-Yeung J.

10.  The proper starting point is to look at the pleaded issues and the reliefs to see if they fall within the jurisdiction of the DC and then ask if there are reasons of complexity or otherwise that the case should remain in the CFI: A v B, at §40.

11.  The monetary jurisdiction of the DC on “any action founded on contract, quasi-contract or tort” is HK$3,000,000: section 32 of DCO.

12.  Section 49 of DCO provides that:

“49. Interest on claims for debt and damages

(1) The Court may include simple interest, at the rate the Court thinks fit in a judgment for a debt or damages, on the debt or damages or on a payment made before judgment, for the period between the date when the cause of action arose and—

(a) for a sum paid before judgment, the date of the payment; and

(b) for the sum for which judgment is given, the date of the judgment.

(2) Rules of court may provide for the rate of interest and the method of calculation.

(5) Interest in respect of a debt shall not be awarded under this section for a period during which, for whatever reason, interest on the debt already runs.

(6) Interest under this section may be calculated at different rates for different periods.

(7) In determining, for the purposes of section 32, 33, 36 or 37, whether an amount exceeds or is less than the amount specified in those sections, the Court shall not take account of any interest that may be ordered under this section or of any order for interest made under this section.

…”

(underlines added)

13.  There are 2 categories of pre-judgment interest:

(1)  Category (1) interest is determined by agreement between the parties to the litigation. No matter how high the interest rate is or whether it is compounded, as long as it does not violate sections 24 and 25 of the Money Lenders Ordinance, Cap 163, the Court is generally required to award interest under the agreement. Since such interest is “founded on contract”, it should be included in the claim to determine whether a claim falls within the jurisdiction of the Small Claims Tribunal (“SCT”), DC or CFI.

(2)  Category (2) interest is discretionary interest to be awarded under statute for a pre-judgment period. Such interest is not included in the amount claimed in determining the jurisdiction of the SCT, DC or CFI.

See曾韻如 v 柯金牌 [2022] HKCFI 890, §§18-24, Au-Yeung J, a case on appeal from the SCT. The case was overturned by the Court of Appeal on a limitation point but not on the interpretation of section 33 of SCTO on interest: [2022] HKCA 1216.[1]

Application of the legal principles

14.  According to Clauses 14.6 and 18 of the Client’s Agreement and Clause (e) of the Margin Facility and Margin Requirements, the Plaintiff is entitled to charge interest on any amount outstanding under the Margin Facility provided to the Defendant. The interest is at such rate as the Plaintiff may from time to time determine and notify the Defendant and shall accrue from day to day on the daily amounts outstanding.

15.  As pleaded in paragraph 5 of the SOC, the Plaintiff had purportedly exercised its discretion on interest rates and notified the Defendant of various rates applicable on different dates in May 2022 and they were agreed to be compounded monthly.

16.  Applying Wong Miu Kwan, it is not for the Court, at this stage, to examine if the Plaintiff’s exercise of discretion was proper or whether notice had actually been given to the Defendant. The claim is founded on contract, with indebtedness accrued as at 4 July 2022. The accrued interest falls within Category (1) of 曾韻如, and not the discretionary interest to be awarded under section 49(1) of DCO.

17.  By the time the writ was issued, the principal plus accrued interest was HK$3,186.61 over HK$3 million. The claim is thus within the jurisdiction of the CFI instead of the DC. Interest accruing on the principal after 4 July 2022 until judgment would fall within section 49(1) of DCO.

Conclusion

18.  I allow the appeal and set aside the transfer order.

19.  The Defendant has done nothing that led to this appeal and has not contested it. This simple point of law has taken so long to resolve because (i) at the first hearing, the Plaintiff’s solicitor failed to provide evidence of service of the notice of appeal on the Defendant; and (ii) at the second hearing, it was first disclosed to the Court that the Amended SOC in the hearing bundle was not the version on which leave was granted, when I raised query about the computation of accrued interest. The second hearing was adjourned. It then took the Plaintiff another 2 months until 5 March 2025 to refile the correct amendments as the Re-Amended SOC and another 9 days to provide a copy to me upon my chaser. There then followed requisitions which were answered by 26 March 2025. There should be no order as to costs. I make an order nisi on costs accordingly.

20.  For an extra $3,000 odd in a claim that has no complexity, the Plaintiff has insisted on its right to litigate in the CFI. Would the Plaintiff itself reap any substantive benefit? A litigant should be well advised to consider the overall cost-benefit position and proportionality to decide whether it is worth litigating at CFI at a scale of costs 1/3 higher than at the DC.

21.  I thank Ms Liu for her assistance.