CHRISTIAN EMIL TOGGENBURGER AND OTHERS v. LUU, HUNG VIET DERRICK AND OTHERS

CACV 218/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 218 OF 2012

(ON APPEAL FROM HCA NO. 815 OF 2009)

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Hon Barma JA (giving the Decision of the Court):

Introduction

1.  By our judgment dated 6 September 2013, we allowed in part the appeal by Mr Christian Emil Toggenburger against the judgment of Chung J dated 31 July 2012, by which Chung J dismissed all of Mr Toggenburger’s claims against Mr Luu Hung Viet Derrick, Zhong Yi (Hong Kong) CPA Company Limited and Mr Tang Ka Siu, Johnny.  Chung J made no order as to costs as between Mr Toggenburger and Mr Luu, but ordered that Mr Toggenburger should pay Zhong Yi and Mr Tang’s costs of the claims against them (to be taxed on the party and party basis if not agreed), and that Mr Luu should pay Zhong Yi the costs of indemnity/contribution proceedings brought by Zhong Yi against Mr Luu. 

2.  Mr Toggenburger’s claims arose out of a number of unsuccessful investments that he had made with or through Mr Luu.  There were, in summary, five main matters in respect of which claims were made, these being:-

(1) An investment in a company called Warderly Limited;

(2) An investment in a car racing project known as the Champ Car Racing Project;

(3) A project involving the intended acquisition of a Hong Kong publicly listed company into which various investments made by Mr Toggenburger could be injected;

(4) The acquisition by Mr Toggenburger of shares in a United States listed company called China Oil and Methanol Group, Inc.

(5) An alleged overall settlement agreement by which, according to Mr Toggenburger, Mr Luu agreed to pay him some HK$120 million odd to compensate him for the unsuccessful investments set out in sub-paragraphs (1) to (4).

3.  The main basis of Mr Toggenburger’s claims against Mr Luu in respect of each of the matters mentioned in paragraphs 2(1) to (4) above was that Mr Luu had made misrepresentations to induce him to make the investments in question. There was also, in respect of the Champ Car Racing Project, an alternative claim based on total failure of consideration, it being alleged that Mr Luu had failed to secure for Mr Toggenburger a valid interest in that project despite having received full payment (of slightly over HK$38 million) for the interest that was to have been acquired. The claim based on the settlement agreement was free-standing, and based on a settlement agreement having allegedly been concluded between Mr Toggenburger and Mr Luu.

4.  The claims against Mr Tang were based on alleged misrepresentations by Mr Tang in respect of the investments identified above, and the claims against Zhong Yi (a company operated by Mr Tang) were based on alleged breaches by Zhong Yi of duties it was said to have owed to Mr Toggenburger in respect of its role as a stakeholder for some of the funds paid by Mr Toggenburger to Mr Luu through it.

5.  On appeal, Mr Toggenburger did not pursue all of the claims which he had made in the court below.  He restricted his appeal to two matters as between himself and Mr Luu, namely:-

(1) An appeal against Chung J’s rejection of his claim in respect of the Champ Car Racing Project insofar as it was based on total failure of consideration; and

(2) An appeal against Chung J’s rejection of his claim on the basis of the settlement agreement which Mr Toggenburger said had been reached between himself and Mr Luu.

6.  There was no appeal against the dismissal of the claims against Mr Tang and Zhong Yi, or the costs order made in respect of those claims.

7.  By our judgment, we allowed the appeal in respect of the total failure of consideration claim arising out of the Champ Car Racing Project, and entered judgment in Mr Toggenburger’s favour against Mr Luu in the sum of HK$38,702,670.40 (being the amount of the payments made to Mr Luu for the acquisition of an interest in that project).  However, we dismissed the appeal insofar as it concerned the alleged settlement agreement, holding that Mr Toggenburger had not established that any such agreement had in fact been made.  As we had not had the benefit of any submissions on questions of interest and costs, we directed (by paragraph 35 of our judgment) that these matters should be dealt with on paper, by way of written submissions.  In accordance with our directions, Mr Lee and Ms Leung lodged written submissions on these matters on behalf of Mr Toggenburger.  However, so far as Mr Luu was concerned, he having been made bankrupt after the conclusion of the trial, the appeal was dealt with by his trustees in bankruptcy, who took a neutral stance both at the hearing of the appeal proper, and in relation to all questions of interest and costs, making no submissions to us in that regard as they felt that they were not in a position to do so.

Interest

8.  Mr Lee submitted that so far as interest was concerned, given that it was undisputed that the sum of HK$38,702,670.40 had in fact been transferred by Mr Toggenburger to Mr Luu (or in accordance with his directions) by 21 May 2007, and given that we had found that Mr Luu had failed to secure for Mr Toggenburger any valid and effective interest in the Champ Car Racing Project, thus giving rise to a total failure of consideration, it would be appropriate for interest to be payable on the sum paid as from 21 May 2007, since Mr Toggenburger had lost the use of his monies from that date, obtaining nothing in return.  This appears to us to be correct.

9.  Mr Lee also submitted that such interest should accrue at judgment rate from 21 May 2007 until payment, relying on the decision of Deputy Judge M. Ng in Valley Community Bank v Kaitong Investment (Group) Ltd (unreported, HCMP 2800/2012, 23 January 2013).  Although it appears that it was indeed the case that an order for interest to be paid at judgment rate from the date on which funds had been transferred for no consideration (and not as would normally be the case from the later date of judgment), no reasons for adopting this course are discernible from the judgment.

10.  The judgment rate is generally fixed at a level that is higher than the commercial rate (generally 1% over prime) that is usually awarded for loss of use of money in commercial litigation, in part in order to encourage prompt settlement of judgment debts.  On the other hand, it is generally accepted that an award of interest at a commercial rate will represent reasonable compensation to a plaintiff for having been kept out of his money.  We can see no reason to depart from the usual approach in this case.

11.  We therefore order that interest should accrue on the sum of HK$38,702,670.40 at the rate of 1% over the HSBC prime lending rate from 21 May 2007 until the date of our judgment, and thereafter at the judgment rate until payment.

Costs

12.  So far as costs are concerned, Mr Lee accepted that Mr Toggenburger had not been wholly successful, either on appeal, or at trial.  However, he submitted that taking a broad brush view of things, it would be appropriate to award Mr Toggenburger 75% of the costs of the appeal, and 50% of the costs of the trial, against Mr Luu.

13.  In relation to the appeal, Mr Lee submitted that although the appeal concerned two aspects of Mr Toggenburger’s claims, on one of which he had succeeded, and the other of which he had failed, it was relevant to bear in mind that the hearing of the appeal had occupied the whole of the morning and an hour of the afternoon, and that almost the whole of the morning had been taken up dealing with the aspect of the appeal that had been successful.  He also pointed out that most of the documents lodged for the appeal related to the successful claim (some 129 pages, as opposed to some 24 pages relating to the unsuccessful claim on the alleged settlement agreement.  He further stressed that while the amount recovered was less than the claim on the settlement agreement (HK$38 million odd against HK$120 million odd) it nonetheless represented a substantial recovery for Mr Toggenburger.

14.  While we would agree that a simple division of the costs of the appeal equally between the two claims would not necessarily be a fair reflection of the extent of Mr Toggenburger’s success before us, it does seem to us that to award 75% of the costs of the appeal to Mr Toggenburger would be too generous. Bearing in mind the relative time spent at the hearing, the extent of the documentation and the preparation that would have been required, and taking account of the fact that Mr Toggenburger succeeded on one claim and failed on the other, we are of the view that a fair result would be to award Mr Toggenburger 60% of his costs of the appeal, to be taxed on the party and party basis, if not agreed.

15.  So far as the costs of the trial are concerned, Mr Lee sought to justify an award of 50% of Mr Toggenburger’s costs of the trial on the basis that although ultimately Mr Toggenburger prevailed on only one of five broad heads of claim, considerable time would have been spent on setting out the background and exploring it in the evidence and in dealing with character and credibility issues of general application.  It was also suggested that as part of the money recovered under the successful claim for total failure of consideration had initially been paid in respect of the Warderly investment, it was necessary for the background to that agreement to be dealt with as well.

16.  Again, it seems to us that to award Mr Toggenburger 50% of his costs below against Mr Luu would be to go too far in his favour so far as the costs of the trial are concerned.  We have limited information available to us as to how the 28 days of the trial were spent, and how much time was spent on the various issues.  However, we can see that there were five main factual areas in respect of which claims were made, on only one of which Mr Toggenburger was ultimately successful.  While some time would undoubtedly have been spent on general background matters, it must also be noted that even in respect of the ultimately successful claim, this was run on two bases at trial (misrepresentation and total failure of consideration), and there was no appeal against the rejection of the claim based on misrepresentation.  Further, the background to the Warderly investment would seem to be of very limited relevance, given that there was no dispute that the sums in question had been paid over and treated as being part of Mr Toggenburger’s investment in the car racing project.  Finally, it must be borne in mind that at the trial below, there were also unsuccessful claims made against Mr Tang and Zhong Yi, which would have taken up time and represented part of Mr Toggenburger’s costs of the trial.

17.  Taking a very broad brush approach to the matter, and doing the best that we can, we think that Mr Toggenburger should recover 35% of his costs of the trial from Mr Luu, again to be taxed on the party and party basis if not agreed.