ZIEF INCORPORATED v. TEKCHANDANI AJAI MOHAN (trading as D’ZINER COLLECTIONS (HONG KONG)) AND OTHERS

HCA 2459/2017

[2021] HKCFI 730

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2459 OF 2017

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REASONS FOR DECISION

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1.  In a judgment handed down on 7 January 2021 (“the Judgment”), I gave judgment to the plaintiff (“P”) against the 4^th defendant (“D4”) in respect of the sum of HK$3,120,000 on the basis that D4 had been unjustly enriched at P’s expense to that extent.  I indicated in the Judgment that P would be entitled to interest on HK$3,120,000, and directed the parties to submit an order for the Court’s approval on the applicable pre-judgment interest rate and the date on which pre-judgment interest is to run.  I also made an order nisi that P’s costs in these proceedings (including any reserved costs) are to be paid by D4 to be taxed if not agreed (without a certificate for two counsel).

2.  After the handing down of the Judgment, the following applications were made:

(1)  P’s application for enhanced interest.

(2)  P’s application to vary my costs order nisi.

(3)  D4’s application for stay of execution pending appeal.

(4)  P’s application for payment out.

3.  I made various orders in relation to the above applications at the substantive hearing, and indicated that I would give my reasons later, which are set out below.

A.  EVENTS THAT TOOK PLACE AFTER THE HANDING DOWN OF JUDGMENT

4.  After the Judgment was handed down on 7 January 2021, P’s solicitors wrote to D4’s solicitors on 15 January 2021 seeking D4’s agreement to P’s proposed judgment ordering D4 to pay (1) interest on HK$3,120,000 from 3 February 2016 to 14 May 2020 at the rate of 6% per annum and thereafter at the rate of 10% above the judgment until payment and (2) P’s costs in the proceedings (including any reserved costs) on a party-to-party basis without certificate for two counsel up to 13 May 2020, and on an indemnity basis with certificate for two counsel from 14 May 2020, to be taxed if not agreed, and interest on such costs at the rate of 10% above judgment rate from 7 January 2021 until payment.

5.  By a letter dated 18 January 2021, D4’s solicitors referred to P’s solicitors’ letter dated 15 January 2021, and stated that they had ceased to act for, and had no instructions from, D4. 

6.  By a letter dated 19 January 2021 to P’s solicitors, D4 confirmed that Messrs Choy Yung & Co were no longer its solicitors, and made certain comments on P’s proposed orders on costs and interest.

7.  On 21 January 2021, P took out a summons to seek enhanced interest on the principal sum of HK$3,120,000 and costs, as well as costs on an indemnity basis.  The summons was supported by an affirmation referring to a sanctioned offer previously made by P to D4.

8.  On the same day (21 January 2021), P’s solicitors wrote to the Court enclosing P’s summons and asked the Court to deal with the P’s summons on paper.

9.  By a letter dated 26 January 2021, D4’s solicitors referred to P’s solicitors’ letters dated 21 January 2021, and informed the Court that Messrs Choy Yung & Co no longer had authority to act for D4 and that D4 would be applying to court for leave to represent itself through its director.

10.  I was not given the letter from P’s solicitors dated 21 January 2021 and D4’s solicitor’s letters dated 26 January 2021 until 3 February 2021.  Having considered the documents, I asked my clerk to liaise with the parties to fix a hearing for the determination of P’s summons.

11.  On 3 February 2021, Messrs Choy Yung & Co filed a Notice of Appeal on behalf of D4 against the Judgment.

12.  On 8 February 2021, the Court issued a notice of hearing for P’s summons to be returnable before me on 17 March 2021.

13.  By a letter dated 10 February 2021, P’s solicitors sought directions from the Court because D4 had (without P’s knowledge) obtained a sealed Judgment on 9 February 2021 (“Sealed Judgment”) from the Court stating (amongst other things):

“IT IS ADJUDICATED that the 4th Defendant do pay the Plaintiff a sum of HK$3,120,000.

IT IS FURTHER ADJUDICATED that there be an order nisi that the costs of Plaintiff in these proceedings (including any reserved costs) be paid by the 4^th Defendant, without a certificate for two counsel, to be taxed if not agreed and the above costs order nisi shall be made absolute 14 days from the date of this judgment.”

14.  I was not aware of the fact that D4 had obtained the Sealed Judgment until I was given a copy of P’s solicitors’ letter on 10 February 2021.  At the hearing, I asked Ms Dorothy Cheung, counsel for D4, to explain the circumstances under which the Sealed Judgment was obtained without P’s knowledge.  Ms Cheung stated that those instructing her wanted to comply with the requirement of lodging with the Registrar a copy of the sealed judgment within 7 days after the service of the notice of appeal (pursuant to RHC Order 59, rule 5(1)).  However, this desire to comply with the rule provided no justification for D4’s solicitors to unilaterally communicate with the Court’s clerk by telephone to have the judgment sealed on the basis of certain orders which they knew P was at the time trying to vary and supplement.  The Court takes a very dim view of the conduct of D4’s solicitors in obtaining the Sealed Judgment.

15.  On 11 February 2021, I asked my clerk to issue a letter to the parties to (1) inform them that the Sealed Judgment was issued without my knowledge, and (2) direct them to make submissions on the effect of the Sealed Judgment at the hearing on 17 March 2021.  This letter was issued on 19 February 2021.

16.  On 24 February 2021, P took out a summons to ask for an order that the sums of HK$450,000 and HK$400,000 that were respectively paid into court on 11 April 2018 and 3 May 2019 to be paid out of court to P’s solicitors.

17.  On 10 March 2021, D4 issued a summons for a stay of execution of the Judgment pending appeal.

B.  ENHANCED INTEREST

B1.  Can the Court Deal with Issue of Interest Now?

18.  In §53 of the Judgment, I said:

“P is entitled to interest on HK$3,120,000. I direct the parties to submit an agreed order for the court’s approval within 14 days on the applicable pre-judgment interest rate and the date on which pre-judgment interest is to run, and give liberty to apply in the event the parties are unable to agree.”

19.  The Sealed Judgment does not deal with interest on HK$3,120,000.  Once a court order has been drawn up or perfected, the general position is that the court would be functus officio and cannot reconsider any further issues in the case: Andayani v Chan Oi Ling [2000] 4 HKC 233 at 237D-G (Keith JA).  There are, however, some exceptions to the general position.

20.  RHC Order 20, rule 11 provides that “[c]lerical mistakes in judgments or orders, or errors arising therein from any accidental slip or omission, may at any time be corrected by the Court on summons without an appeal”.  This is generally known as the “slip rule”.  It is well-settled that the “slip rule” can operate “at any time”, even after the sealing of the relevant order: Winston Camera & Radio Co Ltd v Combi (Singapore) Pte Ltd [1988] HKC 156 at 157E (Kempster JA); Man Ping Nam v Man Fong Hang (No 2) (2007) 10 HKCFAR 140 at §20 (Ribeiro PJ).  

21.  In order for the “slip rule” to be engaged, it is necessary to identify a clerical mistake, or an error arising from any accidental slip or omission, in a judgment or order.  One instance where such a mistake or error may be identified if the judgment or order does not reflect or encapsulate the true and objective intention of the Court: eg Adam & Harvey Ltd v International Maritime Supplies Co Ltd [1967] 1 WLR 445 at 448E-H (Harman LJ); Wing Wo Engineering Ltd v Tyco Engineering & Construction (Hong Kong) Ltd (unreported, CACV 1120/2000, 28 October 2002) §4.

22.  Similarly, it is well-settled that the court has an inherent or implied discretionary power to clarify the original order if the court’s intention appearing from the body of the judgment is manifest: Man Ping Nam v Man Fong Hang (No 2) (2007) 10 HKCFAR 140 at §10 (Ribeiro PJ).

23.  It is readily apparent from §53 of the Judgment that it was my intention to award interest to P on the sum of HK$3,120,000. Accordingly, it seems to me that the Court is not functus officio, and does have the power to deal with the question of interest now even after the sealing of the judgment.

B2.  Interest on HK$3,120,000 from 3 February 2016 to 13 May 2020

24.  As mentioned in §§5 and 6 of the Judgment, D4 received the sum of HK$3,120,000 from P on 3 February 2016.

25.  By a letter dated 15 April 2020, P made a sanctioned offer (“Sanctioned Offer”) to D4 to settle all of P’s claims against D4 for HK$2,500,000 (inclusive of interest) with no order as to costs in the action.  The Sanctioned Offer was stated to be open for acceptance without leave from the court within 28 days from 15 April 2020.  It was also stated in the letter that upon the expiry of the 28 days, D4 could only accept the Sanctioned Offer if (1) the parties agree on the liability for costs or (2) the court grants leave to accept it.  D4 does not appear to dispute that P had made a proper Sanctioned Offer on 15 April 2020.  The last day on which D4 could have accepted the Sanctioned Offer was 13 May 2020.

26.  P submitted that it should be entitled to pre-judgment interest from 3 February 2016 to 13 May 2020 at the rate of 6% per annum.  This was calculated by P on the basis of the well-established practice in Hong Kong of using 1% above prime rate as the appropriate pre-judgment interest rate (Polyset Limited v Panhandat Limited (unreported, FACV 28/2000, 25 April 2002) §13).  P has adduced evidence to show that the prime rates of HSBC and Hang Seng Bank were both 5% as at 21 January 2021.  However, this approach is wrong, because the prime rate in Hong Kong fluctuates from time to time and P has not used the prime rate(s) that were prevailing during the period from 3 February 2016 to 13 May 2020.

27.  The only point made by D4 to resist P’s claim for pre-judgment and pre-Sanctioned Offer interest was that the date should run from the date of the writ herein (25 October 2017), and not from the date of D4’s receipt of HK$3,120,000.  This submission has no substance.  It is well-established that pre-judgment interest is awarded not to punish a defendant, but to compensate a plaintiff for the return which he could have expected had he invested the amount in question, or to deprive a defendant of the profit which he wrongfully made out of the money he withheld: Tate & Lyle Distribution v Greater London Council [1982] 1 WLR 149 at 154B-F (Forbes J); Komala Deccof & Co SA v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219 at 223D-G (Cons JA).  Given that P was deprived of the use of HK$3,120,000 from 3 February 2016, there is no reason why pre-judgment interest should not run from that date.

28.  Accordingly, I ordered that P is entitled to interest on the sum of HK$3,120,000 from 3 February 2016 to 13 May 2020 at the rate of 1% over HSBC’s best lending rates that were prevailing at the material times.

B3.  Interest on HK$3,120,000 from 14 May 2020 to Date of Judgment

29.  P submitted that it has now obtained a more advantageous order than the Sanctioned Offer, and sought interest on HK$3,120,000 from 14 May 2020 at 5% above judgment rate until payment.  In this section, I will consider P’s entitlement to enhanced interest from 14 May 2020 until the date of the Judgment (7 January 2021).  The question of whether P is entitled to post-judgment enhanced interest will be dealt with in Section B4.

30.  There is no dispute that P has obtained a judgment that is more advantageous than the Sanctioned Offer.  RHC Order 22, rule 24 provides as follows:

“(1)  This rule applies where—

(a)  a defendant is held liable for more than the proposals contained in a plaintiff’s sanctioned offer; or

(b)  the judgment against a defendant is more advantageous to the plaintiff than the proposals contained in a plaintiff’s sanctioned offer.

(2)  The Court may order interest on the whole or part of any sum of money (excluding interest) awarded to the plaintiff at a rate not exceeding 10% above judgment rate for some or all of the period after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court.

(3)  The Court may also order that the plaintiff is entitled to—

(a)  his costs on the indemnity basis after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court; and

(b)  interest on those costs at a rate not exceeding 10% above judgment rate.

(4)  Where this rule applies, the Court shall make the orders referred to in paragraphs (2)  and (3) unless it considers it unjust to do so.

(5)  In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3), the Court shall take into account all the circumstances of the case including—

(a)  the terms of any sanctioned offer;

(b)  the stage in the proceedings at which any 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.

(6)  The power of the Court under this rule is in addition to any other power it may have to award interest.”

31.  RHC Order 22, rule 24 was introduced in Hong Kong (amongst other rules) as a result of the Civil Justice Reform and is closely modelled on the English Civil Procedure Rules 36.21.  The rules relating to sanctioned offers and payments aim to encourage the parties to take possible settlement seriously and to avoid unproductive prolongation of the litigation: Civil Justice Reform Final Report §292.

32.  The powers conferred by Order 22 rule 24 to order indemnity costs and a higher rate of interest are intended to provide a means of achieving a fairer result for the plaintiff, and to redress the perceived unfairness from the fact that damages, costs (even costs on an indemnity basis) and statutory interest will not compensate the successful plaintiff for the inconvenience, anxiety and distress of having to 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: McPhilemy v Times Newspapers Ltd (No 2) [2002] 1 WLR 934 at §§19 & 21 (Chadwick LJ); Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 at §10 (Lam J); Grupo Pacifica Incorporada v Worldwide Marine Product Ltd [2018] HKCFI 2584 at §17 (Au-Yeung J).

33.  Under the Order 22 rule 24 regime, where the plaintiff has “beaten” his own sanctioned offer, the court should consider ordering the defendant to pay additional interest at up to 10% above judgment rate, and indemnity costs, unless it considers it unjust to do so.

34.  D4 relied on 2 matters to contend that it would be unjust to pay enhanced interest, namely that it used its best endeavours to conduct the trial and that it did not incur additional time at the trial.  But these are plainly not reasons as to why the Sanctioned Offer was not accepted by D4 before the commencement of the trial.  No submissions were advanced by D4 by reference to any of the factors set out in Order 22 rule 24(5).  In my view, D4 has completely failed to demonstrate why it would be unjust to order against it interest at a higher rate under Order 22 rule 24(2).

35.  D4 further submitted that if the Court were minded to order a higher rate of interest, a rate of 2% above judgment rate should be used because the amount of the claim is a small amount.  I disagree. The amount sought by P is HK$3,120,000 and cannot on any view be described as a small amount for the purpose of Order 22, rule 24.

36.  The level of enhanced interest awarded must be proportionate to the circumstances of the case: OMV Petrom SA v Glencore International AG (No 2) [2017] 1 WLR 3465 at §38 (Sir Geoffrey Vos C).

37.  Given that (1) there was a reasonable discount in the sum offered by P in the Sanctioned Offer, (2) the Sanctioned Offer was made at an advanced stage of the proceedings (around 2 months before the PTR), and (3) D4 failed to respond to the Sanctioned Offer, I consider 5% above judgment rate to be an appropriate enhanced rate of interest.  Accordingly, I ordered D4 to pay to P interest on HK$3,120,000 from 14 May 2020 to the date of judgment (7 January 2021) at the rate of 5% above judgment rate.

B4.  Interest on HK$3,120,000 from Date of Judgment to Date of Payment

38.  P also sought interest at 5% above judgment rate on HK$3,120,000 from the date of Judgment to the date of payment.

39.  Section 49(1) of the High Court Ordinance (Cap 4) provides:

“Judgment debts shall carry simple interest—

(a)  at such rate as the Court of First Instance may order; or

(b)  in the absence of such order, at such rate as may be determined from time to time by the Chief Justice by order,

on the aggregate amount thereof, or on such part thereof as for the time being remains unsatisfied from the date of the judgment until satisfaction.”

40.  Post-judgment interest is a rate imposed where a judgment for a quantified sum has not been paid.  It is conventionally charged at a rate determined periodically by the Chief Justice by order, at a rate significantly higher than commercial rates of interest, designed to encourage and provide an incentive for prompt satisfaction of judgment debts: Man Ping Nam v Man Fong Hang (No 2) (2007) 10 HKCFAR 140 at §23 (Ribeiro PJ); Ming An Insurance Co (HK) Ltd v Ritz-Carlton Ltd (No 2) (2009) 12 HKCFAR 158 at §65 (Ribeiro PJ).  The current interest rate on judgment debts is 8% per annum.

41.  Although section 49(1)(a) of the High Court Ordinance confers power on the Court of First Instance to decide what rate to be applied to judgment debts, it seems to me that there must be good reasons for the court to depart from the convention of ordering post-judgment interest to be charged at judgment rate (ie the rate as determined from time to time by the Chief Justice).  

42.  P asked the Court to order a rate of 5% above judgment rate for post-judgment interest on HK$3,120,000 on the basis that D4 failed to accept the Sanctioned Offer.  However, I am not persuaded that the failure to accept a sanctioned offer provides sufficient reasons for the Court to order post-judgment interest at a rate higher than the judgment rate. 

43.  As explained earlier, the powers to award enhanced interest under Order 22 rule 24 are to redress the perceived unfairness from the fact that the successful plaintiff will not be sufficiently compensated for the inconvenience, anxiety and distress of having to resort to and pursue proceedings.  Such inconvenience, anxiety and distress (insofar as they exist) would ordinarily end when the successful plaintiff obtains the judgment. Moreover, as mentioned earlier, the purpose of post-judgment interest is not to compensate the successful plaintiff for such inconvenience, anxiety and distress, but to provide incentive to the losing defendant to promptly settle the judgment debt.  See McPhilemy v Times Newspapers Ltd (above) at §24 (Chadwick LJ); Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2017] 2 HKLRD 477 at §§57-59[1] (P Ng J).

44.  In the end, I ordered D4 to pay to P interest on HK$3,120,000 from the date of judgment to the date of full payment at judgment rate.

C.  COSTS

45.  P has sought to vary the costs order nisi that I made in the Judgment by asking for an order that P’s costs in these proceedings (including any reserved costs) are to be paid by D4 to be taxed if not agreed (1) on a party-to-party basis with a certificate for one counsel up to 13 May 2020 and (2) on an indemnity basis with a certificate for two counsel from 14 May 2020.  P also sought from D4 interest on the costs incurred by P from 14 May 2020 at the rate of 5% above judgment.

46.  D4 accepted that it is open to P to seek to vary the costs order nisi, but submitted that it would be unjust to order indemnity costs and a certificate for two counsel in relation to the costs incurred by P from 14 May 2020. 

47.  D4 relied on the same grounds as those set out in paragraph 34 above to resist an order for indemnity costs and enhanced interest on costs.  For the reasons given above, I reject those grounds.  I consider that D4 has failed to demonstrate why it would be unjust to order against it indemnity costs under Order 22 rule 24(3)(a) and enhanced interest on costs under Order 22 rule 24(3)(b).

48.  However, given the nature of and the issues involved in the case, I do not think this is a case that merits the instruction of two counsel from 13 May 2020, or for the trial. 

49.  Accordingly, I varied my costs order nisi by ordering D4 to pay (1) P’s costs in these proceedings (including any reserved costs) (a) on a party-to-party basis with a certificate for one counsel up to 13 May 2020 and (b) on an indemnity basis with a certificate for one counsel from 14 May 2020, to be taxed if not agreed; and (2) interest on the costs incurred by P from 14 May 2020 to the date of judgment at the rate of 5% above judgment rate.

D.  STAY PENDING APPEAL

50.  In its Notice of Appeal, D4 puts forward 3 grounds to contend that the Court was wrong in the Judgment:

(1)  “The Recorder erred in law in holding that D4 was not a bona fide purchaser for value that D4 had not given valuable consideration for the HK$3,120,000 that it “purchased” because there was no promise to deliver the Diamonds to Plaintiff (at paragraph 32(3) of the Judgment).”

(2)  “The Recorder erred in law in holding (at paragraph 36 of the Judgment) that D4’s position cannot be said to have changed as D4 did not deliver the Diamonds to Plaintiff.”

(3)  “The Recorder erred in finding (at paragraph 38(10)) that D4 did not give any of the diamonds mentioned in the Aura and Amigo Invoices to Mr. Leo.”

51.  All D4 has done is to assert that what the Court said in paragraphs 32(3), 36 and 38(10) are in error.  Ms Cheung has not made any serious attempt to explain why each of the grounds has any reasonable prospects of success in the intended appeal.  I am not satisfied that the grounds of appeal put forward by D4 are arguable.  Accordingly, I dismissed D4’s application for stay of execution pending appeal.

E.  PAYMENT OUT

52.  P had previously paid into court two sums of money (HK$450,000 and HK$400,000) as security for D4’s costs and wished to have both sums paid out to its solicitors.  Both parties agreed that this application would stand or fall with D4’s application for stay of execution. Given that D4’s application for stay was dismissed, I ordered the sums of HK$450,000 and HK$400,000 paid into Court on 11 April 2018 and 3 May 2019 respectively, together with the interest accrued thereon, to be paid out of court to P’s solicitors.

F.  DISPOSITION

53.  I made a summary assessment of P’s costs at the hearing of the hearing.

54.  Given the circumstances under which the Sealed Judgment was obtained (as set out in Section A above), the Sealed Judgment would need to be amended to reflect the orders made in paragraphs 28, 37, 44 and 49 above.  As P has the carriage of proceedings, I give leave to P to amend the Sealed Judgment and to file an amended sealed judgment in due course.