JOYTEX DEVELOPMENT LTD v. SUPER HOMES LTD

HCA 18/2012

[2018] HKCFI 2686

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 18 OF 2012
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DECISION  ON  COSTS  AND  INTEREST

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1.  This is my decision in respect of a summons dated 30 October 2018 (“the Variation Summons”) taken out by the Defendant (“SHL”). The Variation Summons seeks to vary orders nisi as to costs and interest, contained in my substantive Judgment herein dated 10 October 2018 (the “Judgment”). I adopt the terminology used in the Judgment.

2.  The background facts, issues, findings and relief granted are set out in the Judgment.  The relevant orders nisi are specified at §§168 to 170, 171(7) and (8) of the Judgment.

3.  SHL seeks to vary those orders nisi to provide as follows: 

(1)  SHL shall pay to the Plaintiff (“Joytex”) its costs of these proceedings (with apportionment) up to 8 February 2016 on a party and party basis;

(2)  Joytex shall pay to SHL its costs of these proceedings from 9 February 2016 onwards on an indemnity basis with enhanced interest on costs at a rate not exceeding 10% above judgment rate up to the date of payment; and

(3)  there be an order for interest on the sum at §171(4) of the Judgment at 1% over HSBC prime from 17 December 2010 to 8 February 2016 and no order for interest on the sum at §171(2) of the Judgment.

4.  I directed that the Variation Summons be disposed of by written submissions without oral hearing.  I have now received and considered the parties’ written submissions on that summons.

5.  Below, I deal in turn with each of SHL’s four arguments in support of the Variation Summons.

SHL’s First Argument: Sanctioned Offer

6.  SHL relies on a Sanctioned Offer dated 11 January 2016 by which SHL offered to settle the proceedings on the basis that: (i) SHL shall pay HK$1,500,000 (inclusive of all interest) to Joytex in settlement of all of Joytex’s damages in the action including Joytex’s claims for damages and interest specified at paragraphs (3) to (6) of the Amended Statement of Claim filed on 30 April 2015; and (ii) SHL shall pay to Joytex the costs of the action, to be taxed if not agreed[1].

7.  SHL argues that Joytex failed to obtain a judgment more advantageous than the terms in the Sanctioned Offer. Accordingly, Joytex should be visited with adverse costs consequences and/or elevated interest on costs from 8 February 2016, pursuant to Order 22, rule 23 of the Rules of the High Court.

8.  I am not persuaded by this argument.

9.  By the Judgment, I ordered (inter alia) that: it be declared that Joytex is entitled to rescind and has rescinded the PSPA and the SPA; SHL do pay to Joytex HK$9,669,000 (the “Rescission Sum”); SHL do pay to Joytex damages in respect of legal costs, stamp duty and management fees for Flat 25A (collectively, the “Damages”); interest be payable on the Rescission Sum and the Damages from 17 December 2010 to judgment at 1% over HSBC prime.

10.  For the reasons set out below (in response to SHL’s fourth argument), I will not vary the order nisi on interest to exclude pre-judgment interest on the Rescission Sum.  Accordingly, the pre-judgment interest on the Rescission Sum alone should stand in the region of HK$3 million at the time of the Sanctioned Offer[2].

11.  As to the Damages, SHL estimates in its written submissions that these should stand around HK$516,919 at the time of Sanctioned Offer (though I note that this figure does not include interest on the Damages). 

12.  On the basis of the figures at §§10 and 11 above, even if one disregards the Rescission Sum itself, the interest on the Rescission Sum plus the Damages (with interest) incurred by the time of the Sanctioned Offer, substantially exceed the HK$1,500,000 which was offered by SHL in the Sanctioned Offer. Hence, the judgment obtained is more favourable to Joytex than the Sanctioned Offer.

13.  SHL argues at length that the value of Flat 25A has always exceeded the purchase price paid by Joytex[3], and that its value as at 1 June 2018 was at least HK$10,750,000.  The argument seems to be that in considering whether Joytex has “beaten” the Sanctioned Offer, regard must be had to the fact that Joytex had use of Flat 25A and could or should have sold it in the market at a profit rather than continuing to pursue rescission.  

14.  I reject this argument.  First, I have found that Joytex purchasedFlat 25A under the influence of actionable misrepresentations attributable toSHL.  Joytex was entitled to elect whether to rescind or affirm its purchase, and it chose the former.  I do not see why Joytex should be required to elect to affirm the transaction and sell Flat 25A in the market; nor was Mr Cheung cross-examined to the effect that he ought to have done so. Second, even if one were to accept SHL’s argument and give it credit for the difference between HK$10,750,000 and the purchase price of Flat 25A, the amount of damages and interest due to Joytex at the time of the Sanctioned Offer would still exceed HK$1,500,000: see figures at §§10 and 11 above[4].

15.  I therefore conclude, on this first point, that Joytex obtained a judgment more advantageous to it than SHL’s Sanctioned Offer, such that Order 22, rule 23(2) to (7) are not engaged[5].

SHL’s Second Argument: Loss of Profits Claim

16.  SHL’s second argument relates to Joytex’s damages claim in excess of HK$5 million for lost profits from an alternative investment property. On this head of claim, Joytex failed: see Judgment §§146 to 161.

17.  SHL argues that Joytex’s failure on this item warrants departurefrom the principle that costs follow the event, and justifies costs consequencesadverse to Joytex.  The costs consequences sought are that Joytex be deprivedof the costs of its valuation expert and 40% of the costs of trial; and that SHLbe awarded the costs of responding to the lost profits claim including its own valuation expert.

18.  In response, Joytex submits that its mere failure on this head of claim is insufficient to deprive it of costs or render it liable to pay part of SHL’s costs; and that the lost profits claim was not frivolous or wholly without merit.  Further, Joytex prays in aid various allegations that SHL conducted its defence in a cavalier and unhelpful manner.

19.  I have considered the parties’ arguments and the well-known principles summarised in Hong Kong Civil Procedure 2019 at §62/5/7 [6].

20.  In my view, the loss of profits claim is a discrete claim which did result in significant additional costs being incurred, and added length to the trial.  It is accordingly fair to make some provision in the final costs order for Joytex’s failure on this head of claim.

21.  However, the amount of additional time and costs caused should not be overstated.  A perusal of the parties’ written closing submissions for the trial (or of the Judgment) confirms that numerous other points were in issue upon which SHL failed.  The lost profits claim represented a modest proportion of the written and oral arguments.  That said, the evidence of two out of the three expert witnesses (ie the valuation experts) was directed mainly, though not entirely, at the lost profits claim.  A little over one day of the trial was spent on the oral evidence of the two valuation experts.

22.  I do not think that Joytex acted unreasonably or improperly in pursuing the lost profits claim.  Rather, Joytex raised a head of claim which was reasonably arguable, but which turned out following detailed evidence and argument to be unsuccessful.  Further, I do not accept SHL’s argument that that the lost profits claim was the central feature of the litigation, nor that if Joytex had only sought rescission (and not loss of profits) this would necessarily have been accepted by SHL.

23.  There is no formula which determines the correct approach to a costs issue of this nature or the appropriate amount of costs provision to be made.  In the exercise of my discretion—taking into account the matters set out above and other features of this case referred to in the Judgment—‌I consider it fair to deprive Joytex of 20% of its costs of these proceedings to reflect its failure on the lost profits claim.

SHL’s Third Argument: Alleged Dilatory Conduct by Joytex

24.  SHL argues that Joytex’s conduct of the proceedings caused substantial delay to their resolution.  SHL cites the total time taken for this matter to come to trial, certain periods of alleged inaction by Joytex, and other assorted complaints as to Joytex’s conduct at the interlocutory stages.  SHL argues that Joytex should be deprived of a portion of its costs to reflect the court’s disapproval of the manner in which Joytex conducted the proceedings.  

25.  In response, Joytex denies dilatory conduct and counters with examples of unsuccessful positions adopted by SHL at the pre-trial stages.  

26.  I will not recite the detail of the procedural complaints relied on in the parties’ submissions on this point.  I am not persuaded that there is anything out of the ordinary in the manner in which Joytex conductedthis litigation, which would warrant depriving Joytex of a portion of its costs on this basis.  I also note the modern approach that the obligation to ensure the expeditious progress of civil proceedings lies on all parties and not only the plaintiff[7].  

SHL’s Fourth Argument: Pre-Judgment Interest on the Rescission Sum

27.  SHL argues that the order nisi in respect of interest should be varied such that no pre-judgment interest is awarded on the Rescission Sum of HK$9,669,000.

28.  First, SHL asserts that the Rescission Sum is not a “debt or damages” within section 48 of the High Court Ordinance.  I do not accept this argument.  As submitted by Joytex, in BP Exploration vHunt (No 2) [1983] 2 AC 352 the House of Lords considered the meaning ofsection 3(1) of the Law Reform (Miscellaneous Provisions) Act 1934, which is similarly worded to section 48(1) of the High Court Ordinance.  Lord Brandon (with whom the other learned judges agreed) reasoned at 373F that the words “any debt or damages” therein were very wide, so that they cover any sum of money which is recoverable by one party from another, either at common law or in equity or under a statue of the kind considered in that case.  

29.  Indeed, it is established that the court has equitable jurisdiction to order interest as relief ancillary to rescission of a contract, and this is commonly ordered[8].

30.  Next, SHL argues that prior to the declaratory relief granted in the Judgment, no amount was owed to Joytex in respect of the Rescission Sum, such that pre-judgment interest should not be awarded.  However, the right to rescind a transaction for misrepresentation is that of the representee not the court, and the declaratory relief granted merely confirms and gives effect to Joytex’s earlier election to rescind the transactions by which it purchased Flat 25A [9].

31.  Finally here, SHL argues strenuously against pre-judgment interest on the Rescission Sum on the basis that: the value of Flat 25A has always exceeded the purchase price paid; Joytex was free to do as it wished with Flat 25A, notably by selling it in the market; Joytex has accordingly not been deprived of the value of the Rescission Sum since it received and had use of Flat 25A which it could do with as it pleased.

32.  I reject this argument: see §14 above.  I do not see any reason why Joytex should be obliged to elect to affirm the contracts and sell Flat 25A in the market; yet that is the effect of SHL’s argument.  Joytex alleged misrepresentation and sought rescission from an early stage; but SHL did not agree.  The result is that Joytex has been kept out of the Rescission Sum for a lengthy period, and I consider it fair that it should have pre-judgment interest on that sum.

33.  In addition, SHL’s argument here bears some similarity to its complaint that Joytex failed to mitigate losses, considered and rejected at Judgment §§166 – 167; though it is now said that Joytex ought to have sold, as opposed to leased, Flat 25A.  No such criticism of Joytex was pleaded, nor was Mr Cheung questioned to the effect that he acted unreasonably by failing to sell Flat 25A in the market.

Conclusion and Disposition

34.  I accept SHL’s argument that the costs order nisi should be varied to make provision for Joytex’s failure on its loss of profits claim, and on this basis will vary that costs order such that Joytex be deprived of 20% of its costs of the proceedings.  I reject SHL’s other arguments and make no variation to the order nisi as to interest.

35.  As to the costs of the Variation Summons, SHL has partially succeeded on one point, but failed on several others.  Taking a broad brush approach, I will order that SHL pay Joytex 50% of its costs of the Variation Summons[10].

36.  My orders are therefore as follows:

(1)  the order nisi at paragraph 171(8) of the Judgment be varied toprovide that SHL pay Joytex 80% of its costs of these proceedings, to be taxed if not agreed; and

(2)  SHL pay Joytex 50% of its costs of the Variation Summons, to be taxed if not agreed.