AIR CHARTER SERVICE (HK) LTD v. 美拓国际物流(上海)有限公司(also known as MEGA-TRANSPORTER SHANGHAI CO., LTD.)

HCA 974/2018

[2021] HKCFI 56

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 974 OF 2018

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JUDGMENT

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Introduction

1.  This is the trial of an action brought by the Plaintiff (“P”) against the Defendant (“D”), in which P claims various sums allegedly due under an Aircraft Charter Contract dated 23 Feb 2018 (the “Contract”) and/or damages for breach of the Contract.

2.  D was originally represented by Messrs. Christine M Koo & Ip (“CKI”). Shortly before trial, CKI applied for and was granted leave to cease to act for D upon compliance with the requirements of O. 67 r. 6(1) of the Rules of the High Court (“RHC”) by an Order of Master Dick Ho dated 13 May 2020.

3.  As it happened, CKI encountered difficulties serving its Notice of Cessation to Act on D in the Mainland as a result of the COVID-19 pandemic. Nonetheless, it was clear from the correspondence that they no longer had authority to act on D’s behalf and that D was at all times aware of CKI’s cessation to act. As such, CKI was excused from attendance at the trial shortly prior to its commencement.

4.  D did not appear at the trial. As D was undoubtedly aware of the trial dates (having previously applied unsuccessfully to adjourn the trial for three months by letter dated 22 September 2020), I directed that the trial proceed in its absence pursuant to O. 35 r. 1 RHC.

5.  P called one witness at the trial, namely its cargo director, Mr Tam Kwai Kuen. D had filed and served a witness statement of Weiting Shen dated 3 January 2019, but as it did not call Mr Shen as a witness at the trial, Mr Shen’s witness statement is not to be regarded as evidence at this trial by virtue of O. 38 r. 2A(6) RHC.

The facts

6.  The factual background of the action is relatively straightforward and largely undisputed.

7.  P is a company incorporated in Hong Kong carrying on an aircraft chartering business.

8.  In or around late March 2018, P and D entered into the Contract pursuant to which D agreed to charter a total of 107 flights between Zhengzhou Xinzheng International Airport and Chicago O’Hare International Airport between 1 May 2018 and 4 February 2019 (the “Flights”)for a total price of US$49,336,000.

9.  The Contract included, inter alia, a Schedule (the “Schedule”)and a set of General Conditions (the “General Conditions”).

10.  The Schedule set out the times and dates of each of the Flights, the first of which (the “1^st Flight”) was scheduled to depart from Chicago O’Hare International Airport on 1 May 2018 at 00:30 UTC. The Schedule provided that the Charter Price for each Flight was US$458,000 per flight, except for the flights on 2, 7 and 9 May, 4, 6, 11 and 13 June, 2, 4, 9 and 11 July 2018 for which the Charter Price was US$488,000 per flight.

11.  The Schedule also contained, inter alia, the following terms:

(1)  Payment Terms: Payment to be made […] to the appropriate currency account below […] and received in such account not later than: 100% payment per flight of the agreed charter price is due in full to ACS before 5 working days on schedule departing time of each flight […] (the “Payment Clause”);

(2)  Cancellation: If the Charterer wishes to cancel any Flight or Flights the subject of this Agreement the following rates will be paid forthwith by the Charterer to ACS as agreed compensation:

20% of the Charter Price if cancelled after execution of this Agreement;

50% of the Charter Price if cancelled between 8 to 15 days prior to STD;

90% of the Charter Price if cancelled 7 days or less prior to STD.

The Charterer accepts the above cancellation charges to be a reasonable pre-estimate of the losses that ACS shall sustain in the event of any cancellation of any Flight. (the “Cancellation Clause”);

(3)  The Charterer will be allowed to cancel eight (8) Flights during the duration of this Agreement, free of charge, provided the Charterer gives ACS fourteen fifteen [signed] (15) days prior written notice. Free of charge cancellations are limited to two (2) cancellations per calendar month. Additional cancellations and cancellations within less than 15 days’ notice are subject to review on a case-by-case basis in the first instance. If agreement cannot be reached, the cancellation terms will be as per the above table. (the “Free Cancellation Clause”);

(4)  If for any reason payment of the Charter Price or any installment thereof shall not be made on the due date then the Charterer shall pay to ACS interest on the amount unpaid at the rate of 10% per annum above the base rate for the time being of Barclays Bank plc calculated on a daily basis from the due date until the date of payment (both before and after judgment) compounded monthly (the “Default Interest Clause”).

12.  The General Conditions provided, inter alia, that:

(1)  cl. 2.3: Time of payment of the Charter Price shall be of the essence of this Agreement.

(2)  cl. 9: This Agreement may be terminated immediately upon notice from ACS to the Charterer upon the occurrence of any of the events specified below:

9.1 the Charterer defaults in the payment of any amount payable hereunder on due date; or

9.2 the Charterer is in breach of any of its other obligations hereunder which if capable of remedy has not been remedied within 7 days of receipt of written notice from ACS requiring remedy of such breach; or

9.3 the Charterer admits in writing its inability to pay or becomes unable to pay its debt; […]

(3)  cl. 10: If this Agreement is terminated under Clause 9, then the Charterer shall (without prejudice to any other rights and remedies which ACS might have) pay immediately to ACS all amounts then due and unpaid to ACS hereunder, together with interest thereon (if any) at the rate specified in the Schedule and the Charterer shall defend and indemnify and keep ACS indemnified against all loss, damage, costs, expense, claim or liability incurred or sustained by ACS as a result of such termination (including in particular but not limited to any and all cancellation charges payable by ACS to the Carrier) [...] For the avoidance of doubt, any proposed postponement of a flight by the Charterer shall be considered a cancellation for the purpose of this clause or otherwise.

(4)  cl. 19: This Agreement and any disputes or claims arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed by and interpreted in accordance with Hong Kong law and the parties hereby agree and submit to the jurisdiction of the Hong Kong courts.

13.  On 24 March 2020, P entered into a Charter Agreement dated 14 March 2018 with Kalitta Air LLC (“Kalitta”) (the “Kalitta Contract”) pursuant to which P arranged for Kalitta to operate the Flights. The Kalitta Contract provided that the rate payable by P for each Flight was US$450,000, except for the flights on 2, 7 and 9 May, 4, 6, 11 and 13 June, 2, 4, 9 and 11 July 2018 for which the rate was US$480,000 per flight.

14.  The only relevant provision of the Kalitta Contract for present purposes is cl. 5.3 of the Terms and Conditions, which is as follows:

“The parties recognise that it is impracticable now to fix the actual damages that KALITTA would sustain in the event of cancellation. The parties agree that damages resulting from cancellation by CHARTERER would increase substantially as the scheduled date of departure draws near. Accordingly the parties agree that the following amount, which each consider fair and reasonable, shall be received and retained by KALITTA as liquidated damages (hereinafter referred to as cancellation charges), in the event a charter flight is cancelled prior to the dates for scheduled operation either at the request of CHARTERER, for any reason, by written notice to KALITTA, […]: 20% of the charter price if a charter flight is cancelled sixteen (16) or more days prior to scheduled operation; 50% of the charter price if the operation of a charter flight is cancelled between eight (8) and fifteen (15) days prior to the scheduled operation of a charter flight; and 90% if cancelled seven (7) days or less prior to the scheduled operation of a charter flight. ”

15.  On 4 April 2018, P issued Invoice No. 6452 to D (the “Invoice”) for the sum of US$488,000, being the Charter Price for the 1^st Flight (the “1^st Charter Price”). The Invoice stated that the 1^st Charter Price was “Due By 24/4/2018”.

16.  Towards the end of April, D indicated on several occasions that it had doubts about proceeding with the Flights as scheduled and was considering postponing the contract. P thus sent multiple chaser emails to D reminding them to pay the 1^st Charter Price in the days leading up to 24 April.

17.  D did not pay the 1^st Charter Price on 24 April 2018. Instead, by an email sent at 12:44 on 25 April 2018, Mr Shen made a request on D’s behalf to cancel the 1^st Flight and postpone the Contract by two months.

18.  In a reply email sent at 13:04 on 25 April 2018, Mr Stephen Fernandez of P indicated that P would be willing to ignore D’s late payment of the 1^st Charter Price if it paid the cancellation fee for the 1^st Flight that day, failing which P would terminate the Contract:

“[…] The applicable contractual cancellation fees to any flight cancelled 7 days or less prior to the scheduled time of departure is 90% of the Charter Price (488,000 USD) which is equal to $439,200 USD.

If you had paid for the first flight on the due date (yesterday the 24th Apr) then there would be no problem for us to accept your request to cancel.

However, as per my first email to you this morning you are in breach of contract due failure to pay. The options available right now to you are;

1) Pay us the cancellation fee, $439,200 USD such that the money lands in our account today and we will accept your cancellation and move forward.

2) Do not pay us the cancellation fee today and we will enact our right to terminate the whole agreement under clause 9. and we will instruct our lawyers to take appropriate action based upon your breach of agreement. […]”

19.  Despite Mr Fernandez’s email, D did not make any payment on that day. As a result, P purported to terminate the Contract by a letter dated 25 April 2018, which Mr Fernandez sent to Mr Shen in an email at 01:43 on 26 April 2018 (the “Termination Letter”). The Termination Letter provided that:

“[…] By virtue of this letter, ACS is formally terminating the contact by written notice in accordance with clause 9 of the Agreement as, despite assurances that you would meet your obligations it has now become clear that you are unable to do so. It is clear that Invoice number 6452 has not been paid, and you have stated on several occasions that you are unable to make payment and that you would like to cancel.

I would like to draw your attention to clause 2.3 of the Agreement which makes it clear that payment is of the essence of th Agreement.

In addition, ACS would like to make it clear that we reserve the right to recover our losses arising out of your actions from you, including but not limited to the rights available under the Agreement. More specifically, we reserve all rights in relation to applicable cancellation fees which are now due. […]”

20.  P terminated the Kalitta Contract on the same day.

21.  By an email sent at 14:57 on 28 April 2018 on D’s behalf, Mr Shen also purported to terminate the Contract.

22.  P’s two pleaded claims in this action are as follows:

(1)  A claim that D do pay the 1^st Charter Price, or alternatively, the cancellation fee for the 1^st Flight (being 90% of the 1^st Charter Price) (the “1^st Cancellation Charge”);

(2)  A claim that D do pay P liquidated damages in the sum of US$10,062,400 (being the cancellation charges applicable to the remaining 106 flights) (the “Liquidated Sum”), or alternatively damages for breach of contract.

The 1^st Charter Price

23.  P’s case in this regard is straightforward: it says that D became obliged to pay the full amount of the 1^st Charter Price 5 working days before the scheduled time of departure, ie. 24 April 2018. As D has failed to pay any part of the 1^st Charter Price to date, P is entitled in this action to payment thereof.

24.  D accepts that the Contract obliged it to pay the 1^st Charter Price by 24 April 2018.[1] D also does not dispute that it has so far failed to pay the 1^st Charter Price, the 1^st Cancellation Charge or any portion thereof. It contends, however, that on a true construction of the Contract (in particular the Payment Clause and the Cancellation Clause) it was entitled to cancel a Flight at any time before its scheduled time of departure subject to the payment of a cancellation charge, and that once it had cancelled the Flight, it was only required to pay the relevant cancellation charge instead of the Charter Price. As D cancelled the 1^st Flight by its email sent at 12:44 on 25 April 2018, it was no longer obliged to pay the 1^st Charter Price but only obliged to pay the 1^st Cancellation Charge.

25.  Mr Ng, who appeared on behalf of P, argued that the Cancellation Clause should not be read as qualifying or varying D’s obligation under the Payment Clause to pay 100% of the 1^st Charter Price by 24 April 2018. He submitted as follows:

(1)  It defied commercial sense to interpret the Cancellation Clause as permitting D to absolve itself from the full consequence of its own breach at its sole discretion. It defeated the contractual allocation of risks agreed between the parties, ie. that P would be fully secured 5 working days before the scheduled departure time.

(2)  There is a presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law, and clear words are necessary to rebut this presumption: Stocznia Gdanska v Latvian Shipping Co [1998] 1 WLR 574, 585C (Lord Goff). There is nothing in the Cancellation Clause which is inconsistent with P’s entitlement to enforce his accrued right to recover the unpaid 1^st Charter Price as a debt under common law.

(3)  D’s proposed interpretation meant that it would practically never be liable for the full amount of the Charter Price prior to the scheduled departure time, provided that it cancelled the flight. This effectively removes the express requirement for payments to be made “before 5 working days” (which was made of the essence by cl. 2.3 of the General Conditions) of all content. Counsel relied on the principle that the Court should strive to give effect to all parts of a contract and not treat any part of it as inoperative or surplusage: see Lewison, The Interpretation of Contracts (6^th ed) §7-03.

26.  I accept Mr Ng’s submissions. In my view, there is a further reason why D’s interpretation is to be rejected. The Cancellation Clause obliges D to “pay” 90% of the Charter Price “forthwith” if it cancelled a Flight within 7 days of the scheduled departure time. This language of “payment forthwith” only makes sense if the Cancellation Clause is understood as applying only to the period before D became obliged to pay the Charter Price in full.

27.  In the circumstances, I find that P is entitled to the sum of US$488,000, being the 1^st Charter Price.

The Liquidated Sum

28.  Mr Ng submitted that P’s entitlement to the Liquidated Sum arose in the following manner:

(1)  The parties agreed in the Cancellation Clause that the cancellation charges were a reasonable pre-estimate of P’s losses in the event of “any cancellation of any Flight”, regardless of whether those cancellations were effected by P or D.

(2)  Pursuant to cl. 10 of the General Conditions, D was obliged to, inter alia, “defend and indemnify and keep [P] indemnified against all loss … incurred or sustained by [P]” in the event that P terminates the Contract under cl. 9.

(3)  P validly terminated the Contract under cl. 9, thereby cancelling all 107 Flights.

(4)  The cancellation charges are thus “losses” for which D must indemnify P pursuant to cl. 10.

29.  D, on the other hand, contended that:[2]

(1)  P was not entitled to terminate the Contract as it purported to do by its letter dated 25 April 2018;

(2)  The Cancellation Clause is not a liquidated damages clause stipulating the amount of damages payable in the event that P terminates the contract on account of D’s breach, but rather only sets out the sums payable in the event that D decides to cancel any Flight(s) during the course of the Contract;

(3)  In any event, the Cancellation Clause is an unenforceable penalty;

(4)  Further or alternatively, the quantum of the Liquidated Sum is incorrect and excessive as D had the right to cancel 8 flights free of charge during the duration of the Contract pursuant to the Free Cancellation Clause.

30.  At the outset, I agree with Mr Ng that P was entitled to, and did in fact terminate the Contract pursuant to cl. 9 of the General Conditions. As mentioned above, there is no dispute that D became obliged to pay the 1^st Charter Price by 24 April 2018 and that this sum was outstanding as at that date. As such, D had “default[ed] in the payment of [an] amount payable [under the Contract] on due date” within the meaning of cl. 9.1, entitling P to terminate the Contract immediately upon notice to D. As P’s letter dated 25 April 2018 makes clear, P then terminated the Contract “in accordance with cl. 9”.

31.  However, I am unable to agree with Mr Ng’s contention that the Cancellation Clause and cl. 10 read together entitle it to liquidated damages in the amounts specified in the Cancellation Clause upon termination of the contract pursuant to cl. 9. In my judgment, his proposed interpretation misreads the two clauses in several respects.

(1)  Firstly, the words “in the event of any cancellation of any Flight” must be read in the context of the Cancellation Clause as a whole. The first sentence makes clear that the clause is concerned with the situation where “[D] wishes to cancel any Flight or Flights”. As such, the last sentence of the Cancellation Clause should be understood as only applying to “any cancellation of any Flight” by D. For completeness, I note that P never argued that the Flights were in fact cancelled by D; its claim to the Liquidated Sum was only ever presented on the basis that it cancelled the Flights.

(2)  Secondly, and more importantly, the parties’ agreement that the cancellation charges are a “reasonable pre-estimate of the losses that [P] shall sustain in the event of any cancellation of any Flight” does not deem ACS to have suffered those losses for purposes of cl. 10. All it purports to do is preempt the argument that the cancellation charges, if and when payable, are penal in nature.

(3)  Thirdly, P’s interpretation distorts the language of cl. 10. On a plain reading of cl. 10, it only renders D liable for losses which P actually suffered: after all this what the words “indemnify” and “incurred or sustained” typically mean. However, P would interpret this clause as obliging D to compensate P for a loss which it did not in fact sustain.

32.  All in all, the two clauses properly understood operate in separate spheres. The Cancellation Clause provides for payment of cancellation charges in the event that “[D] wishes to cancel any Flight or Flights”, and cl. 10 provides that P is to be indemnified for its actual losses in the event that it terminates the contract under cl. 9. There is nothing in cl. 10 which requires payment of the cancellation charges listed in the Cancellation Clause upon termination, nor is there anything in the Cancellation Clause which states that it applies to a termination pursuant to cl. 9.

33.  At the hearing, Mr Ng sought to defend P’s interpretation of the Cancellation Clause on the basis that they were intended as a mirror of the cancellation provisions in the Kalitta Contract. Essentially, his argument was that the parties did not intend for P to be left out of pocket in the event that P terminated the Kalitta Contract following its termination of the Contract and became liable to pay cancellation charges to Kalitta. 

34.  I accept, of course, that one must construe the Cancellation Clause and cl. 10 in context. I also accept that the cancellation terms of the Kalitta Contract were within the contemplation of both parties at the time of contract and as such form part of the relevant background. However, I do not see how P’s potential liability to pay cancellation charges to Kalitta militates in favour of P’s proposed construction of the Contract which entitles it to the Liquidated Sum. That is because P is fully protected even in the absence of such a right. Having validly terminated the Contract under cl. 9, P is straightforwardly entitled to an indemnity under cl. 10 for any cancellation charges which it is thereby obliged to pay Kalitta under the Kalitta Contract.[3] In fact, cl. 10 specifically provides that the losses, damages, costs, expenses, claims or liabilities for which D must indemnify “includ[es] in particular but [is] not limited to any and all cancellation charges payable by [P] to [Kalitta]”.

35.  For these reasons, I reject P’s claim to the Liquidated Sum. In these circumstances, it is unnecessary for me to deal with D’s subsidiary contentions that the Liquidated Sum was a penalty and/or incorrect and excessive.

Damages for loss of bargain

36.  As an alternative to its claim for liquidated damages, P claimed damages for loss of bargain resulting from D’s repudiatory breach of contract.

37.  As noted above, cl. 2.3 of the General Conditions expressly makes time of payment of the Charter Price of the essence of the Contract. As such, the Payment Clause was a condition which D breached by failing to pay the 1^st Charter Price. D thus committed a repudiatory breach of the contract which entitled P to terminate the Contract at common law.

38.  However, an innocent party is only entitled to damages for loss of bargain for repudiatory breach if it in fact terminated for this reason: Phones 4U Ltd v EE Ltd [2018] EWHC 49 (Comm) [2018] 2 All ER (Comm) 315, §128 (Andrew Baker J). On the face of things, this presents an obstacle for P, as its letter dated 25 April 2018 only referred to cl. 9 of the General Conditions as the basis for termination of the contract. As Christopher Clarke J explained in Dalkia Utilities Services Plc v Celtech International Ltd [2006] EWHC 63 [2006] 1 Lloyd’s Rep 599 at §§143-144, the exercise of a contractual termination right may in certain circumstances show that the innocent party did not intend accept the contract breaker’s repudiatory breach:[4]

“143. The same conduct may be such as to give rise to a contractual right to terminate and a common law entitlement to accept a repudiatory breach. […] In such a case the innocent party can exercise either his contractual or his common law right of termination. Prima facie he can rely on both. He is not disentitled to rely on the latter on the ground that recourse to the former constitutes an affirmation of the contract since in both cases he is electing to terminate the contract for the future (ie to bring to an end the primary obligations of the parties remaining unperformed) in accordance with rights that are either given to him expressly by contract or arise in his favour by implication of law. If he can rely on both there is no reason in principle why, if he terminates the contract without stating the basis on which he does so, he cannot be treated as doing so under any clause which entitles him to do so and in accordance with his rights at common law. […] Even if he refers to a particular clause upon which he relies, that would not inevitably mean that he was only relying on that clause. If that were so an innocent party who, in the face of a repudiatory breach, terminated the contract by reference to a clause which was in fact inapplicable, might, on that account, find himself disentitled to terminate at all.

144. The fact that service of a contractual notice of termination is not inconsistent with the acceptance of a repudiation does not, however, mean that in all cases such a notice amounts to such an acceptance. If the notice makes explicit reference to a particular contractual clause, and nothing else, that may, in context, show that the giver of the notice was not intending to accept the repudiation and was only relying on the contractual clause; for instance if the claim made under the notice of termination is inconsistent with, and not simply less than, that which arises on acceptance of a repudiation: […]”

39.  However, on the facts of the present case, I am satisfied that P did exercise both its contractual right to terminate the Contract and its common law right to accept a repudiatory breach. The remedies available to P following a termination under cl. 9 are not inconsistent with those available following a termination for repudiatory breach. It is true that cl. 10 only entitles P to an indemnity for losses suffered and not damages for loss of profits upon termination in accordance with cl. 9, but importantly, it does not exclude a claim for the latter.

40.  The facts of this case are distinguishable from those in Dalkia, where Christopher Clarke J reached the opposite conclusion. The contract concerned the provision of energy and steam to a paper mill by way of an energy plant. Dalkia served a notice terminating the contract under cl. 14.4, and an issue arose as to whether it had also terminated for Celtech’s repudiatory breach. The judge held that there was no repudiatory breach, but in any event, the service of the contractual termination notice did not amount to an acceptance of repudiatory breach at common law. This was because had Dalkia validly terminated the contract at common law, it would have been entitled to, inter alia, keep the energy plant. On the other hand, the contract provided that upon a termination pursuant to cl. 14.4, Celtech would have been entitled to keep the plant and obliged to pay a termination sum. Those two sets of consequences were simply impossible to reconcile.

41.  I also note that in its termination letter dated 25 April 2018, P referred to “clause 2.3 of the [Contract] which makes it clear that payment is of the essence of the [Contract]”, and reserved its right to recover its losses arising out of D’s actions from D,“including but not limited to the rights available under the [Contract]”.This suggests that P did have its common law right to terminate in mind, and did not intend to rely only on cl. 9 of the General Conditions when terminating the Contract.

42.  P is thus entitled to damages for loss of bargain. P claims two heads of damages:

(1)  Loss of profit in the sum of US$8,000 per flight (being the difference between the charter prices in the Contract and the Kalitta Contract); or US$848,000 for a total of 106 flights; and

(2)  Legal costs of US$1,732.50 incurred by P in handling P’s termination of the Kalitta Contract.

43.  I do not think there can be any objection to P’s claim for its legal costs. In relation to the claim for loss of profits, however, I note that the Free Cancellation Clause in the Schedule (set out in §11(3) above) entitles D to cancel up to 8 flights over the duration of the contract (with a maximum of 2 flights per month) free of charge provided that it provides 15 days’ notice. In light of the well-established principle that damages for breach of contract are assessed on the basis that the contract-breaker would have performed the contract in the way which minimizes the cost to itself (sometimes referred to as the minimum performance rule),[5] it seems to me that P is only entitled to loss of profits for 98 flights.

44.  When I raised this point at the hearing, Mr Ng submitted that I should disregard the Free Cancellation Clause for the reason that D never exercised this right during the (brief) lifetime of the contract. However, I do not think that is quite right. The minimum performance rule does not require proof that the defendant did or would have exercised the option; it deems that he would have done so: see Maredelanto Compania Naviera v Bergbau-Handel (The Mihalis Angelos) [1971] 1 QB 164, 196H (Lord Denning MR).

45.  For the reasons above, I am of the view that P is entitled to damages in the sum of US$8,000 x 98 flights + US$1,732.50 = US$785,732.50.

Interest

46.  Relying on the Default Interest Clause in the Schedule, P claims both pre-judgment and post-judgment interest on the 1^st Charter Price at the rate of 10%p.a above the base rate of Barclays Bank plc calculated on a daily basis, compounded monthly.

47.  I am satisfied that the Default Interest Clause (set out at paragraph 11(4) above) entitles P to pre-judgment interest at the rate above: see Chitty §26-289. As for post-judgment interest, the proper analysis is that set out by Lord Bingham in Director General of Fair Trading v First National Bank plc [2002] 1 AC 481 at §3:[6]

“[…] once a judgment is obtained under a loan agreement for a principal sum and judgment is entered, the contract merges in the judgment and the principal becomes owed under the judgment and not under the contract. If under the contract interest on the principal sum is due, absent special provisions the contract is considered ancillary to the covenant to pay the principal, with the result that if judgment is obtained for the principal, the covenant to pay interest merges into the judgment. Parties to a contract may agree that a covenant to pay interest will not merge into any judgment for the principal sum due, and in any event interest may be charged under the contract on the principal sum due even after judgment for that sum.”

48.  In the present case, I consider that the Default Interest Clause (insofar as it provides for post-judgment interest) is a freestanding covenant which is not merged into the judgment for the 1^st Charter Price and interest: after all, its express stipulation of post-judgment interest would be rendered nugatory otherwise. As such, P is entitled to charge post-judgment interest on the 1^st Charter Price at the contractual rate: see Freeway Finance v Tam Chuen On [2010] 4 HKC 448 §§16-21 (DHCJ L Chan), Honip Credit §§21-22; Top Winton Ltd v Lam Chun Man [2018] HKDC 864 [2018] 3 HKLRD 636 at §§12–19 (Deputy Judge Alfred Cheng).

49.  P also claims interest on the amount of damages awarded above pursuant to sections 48 and 49 of the High Court Ordinance (Cap. 4). I award interest at the conventional rate of prime plus 1% from 26 April 2018 (being the date the Contract was terminated) until judgment, and interest at the judgment rate from the date of this judgment until payment: see Kyocera Corporation v W Haking Enterprises Co Ltd [2020] HKCA 817 CACV 554/2019 (unrep, 9 Oct 2020) at §58 (Yuen JA), Chow How Yeen Margaret v Wex Pharmaceuticals Inc [2018] HKCA 344 [2018] 3 HKLRD 163 §§45-59 (Lam VP).

Conclusion

50.  For the above reasons, I grant judgment to P in the sum of US$1,273,732.50 and interest at the rates set out in §§47–49 above.

51.  Costs should follow the event.

52.  Mr Ng asked for costs to be assessed on an indemnity basis in light of cl. 10 of the General Conditions.

53.  The relevant principles are well-established. Where a contract provides for costs to be payable on an indemnity basis, it provides the starting point for the court’s discretionary exercise and the court should be slow to disturb the parties’ agreement: Bank of China (Hong Kong) Ltd v Twin Profit Ltd (2012) 15 HKCFAR 560 at §21 (Ribeiro PJ). The question is whether cl. 10 so provides.

54.  I note that cl. 10 does not use the words “indemnity basis” and instead simply provides for D to indemnify P for “all […] costs”. However, the weight of authority suggests that the phrase “all costs” is to be read as importing taxation on an indemnity basis: see Tele-Art Inc v Bank of China (Hong Kong) Ltd [2012] 1 HKLRD 484 at §§51-53 (Barma J).[7] In any event, I agree with Barma J (as he then was) that this is the appropriate construction to be placed on the phrase “all costs” as a matter of ordinary language.

55.  Accordingly, I make an order nisi that D pay P’s costs of this action on a party and party basis, to be taxed if not agreed.