WADDINGTON LTD v. CHAN CHUN HOO THOMAS AND OTHERS

HCA 3291/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3291 OF 2003

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BETWEEN

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RULING ON INTEREST AND COSTS

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INTRODUCTION

1.  On 18 December 2013, I handed down my Judgment in this matter.  This Ruling should be read in the light of my Judgment.

2.  At the end of my Judgment, I directed Waddington and Thomas to file written submissions on the following outstanding matters: -

(a) the basis of interest on the judgment sum;

(b) the date from which interest should be payable;

(c) the party/parties in favour of which costs should be payable;

(d) the basis for taxation of costs and

(e) certificate for Counsel.

3.  In addition, I gave the parties liberty to apply for directions, if necessary.

4.  Waddington and Thomas have now filed very detailed submissions on the abovementioned matters.  As I had indicated, I would decide the matters on paper without hearing oral submissions.  I do so now.

WADDINGTON’S SUBMISSIONS

5.  By the Submissions by its Counsel, Mr Benjamin Yu SC, Ms Eva Sit, Mr Elliot Fung and Mr Justin Lam, dated 3 January 2014, Waddington asks for the following orders : -

(i) interest on the judgment sum should be compounded with monthly rests at the rate of prime plus 1%;

(ii) interest should be payable from 28 September 2000, i.e., the date on which Thomas obtained the benefit of the sale proceeds from the Yugang Transaction;

(iii) costs should be paid by Thomas to Waddington with an indemnity from Profit Point in favour of Waddington;

(iv) costs should be assessed on an indemnity basis;

(v) there should be a certificate for four Counsel in favour of Waddington.

6.  Waddington also asks that the judgment sum together with interest thereon should be paid into Court to be retained until further order of the court.

THOMAS’ SUBMISSIONS

7.  By the Submissions of his Counsel, Mr Martin Lee SC, Mr Hectar Pun and Mr Richard Yip, dated 30 January 2014, Thomas submits that the following orders should be made : -

(i) interest on the judgment sum should be simple interest based on the Hong Kong Dollar Interest Settlement Rates published by the Hong Kong Monetary Authority (“HIBOR”) + 1% and the court should give further directions on expert evidence and submissions on what is the commercial lending interest rate in Hong Kong if necessary;

(ii) interest be payable from the date of the breach but excluding periods of delay attributable to Waddington and the period during which Profit Point was not a party to the action;

(iii) costs be paid by Thomas to Waddington;

(iv) costs be assessed on a party and party basis;

(v) there be a certificate for two Counsel.

8.  Thomas is agreeable to the judgment sum being paid into court pending further direction by the court.

9.  I take it that Thomas is agreeable to the interest on the judgment sum also being paid into court on the same basis.  Whether that is in fact agreeable to him, I take the view that that is the only logical course to follow.

INTEREST RATE ON JUDGMENT SUM

10.  I deal first with the question of the appropriate interest rate on the judgment sum.

11.  Counsel for Waddington rely on the line of cases in Hong Kong beginning with Komala Deccof v Perusahaan Pertambangon Minyak dan Gas Bumi Negara (Pertamina) [1984] HKLR 219 and ending with Tam Po Kei v Tam Bo Kin (No. 2) [2011] 2 HKLRD 272 in which the courts in Hong Kong have adopted the conventional formula of prime plus 1% for pre-judgment interest on judgment sums.

12.  On the other hand, Counsel for Thomas have drawn my attention to the recent decision of the Court of Final Appeal in the case of Libertarian Investments Ltd. v Thomas Alexej Hall (FACV Nos. 14 and 16 of 2012) (Unreported, judgment handed down on 6 November 2013).  In that case, the Court of Final Appeal awarded equitable compensation to the Plaintiff for the breach of fiduciary duties by the Defendant in pound sterling and ordered that pre-judgment interest on the judgment sum be paid at the rate of 2% over the Bank of England base rate.

13.  Counsel for Thomas have also drawn my attention to the personal injuries cases recently decided by Bharwaney J. in Chan Pak Ting v Chan Chi Kuen [2013] 1 HKLRD 634 and Chan Pak Ting v Chan Chi Kuen (No. 2) [2013] 2 HKLRD 1.  In those two cases, broadly speaking, the learned Judge considered the substantial downturn in the economic landscape in Hong Kong since 1996 which resulted in a constant state of low interest rates and came to the conclusion that, in personal injuries cases in Hong Kong, the assumption of a net rate of return of 4.5% per annum which had been adopted since the case of Cookson v Knowles in 1996 was no longer valid.  He then worked out a series of new discount rates on a much lower scale.

14.  Counsel for Thomas have further drawn my attention to the Report by the Law Commission in the United Kingdom on “Pre-Judgment Interest on Debts and Damages” published in 2004 in which the Law Commission recommended that the interest rate on pre-judgment interest should be set at the Bank of England base rate plus 1% but that the court should have a discretion to depart from such rate for good reasons.

15.  On the basis of the abovementioned authorities, Counsel for Thomas submit that I should no longer adopt the conventional rate of prime plus 1% in the present case.

16.  I agree with Counsel for Thomas. The current UK base rate is 0.5%, the current 12-month HIBOR is 0.87% and the current prime rate in Hong Kong is 5%.  I believe that interest rates in Hong Kong have steadily been at the sort of low level set out above for the past decade or more.  In my judgment, there is no longer justification for adopting the conventional figure of prime plus 1% for pre-judgment interest on judgment sums.

17.  I do not think that it is necessary in the present case for any further evidence or submissions to be received on this aspect.  I have come to the conclusion that adopting a figure of 2.5% per annum will do justice between the parties and I adopt this figure for awarding pre-judgment interest on the judgment sum.

PERIOD DURING WHICH PRE-JUDGMENT INTEREST IS PAYABLE

18.  I take the view that interest should start to be payable as from 28 September 2000, i.e., the date of completion of the Yugang Transaction.  That would have been the day on which Waddington would reap the benefit of a sale of the Sale Shares at the higher price.

19.  I do not agree with Counsel for Thomas that there should be exclusion of certain periods.

20.  So far as the period during which Profit Point was not a party to the action is concerned, it has been obvious from the start that one of the main complaints of Waddington was in relation to Profit Point and the Sale Shares and that the substance of the relevant claim was for the benefit of Profit Point.

21.  As regards the periods between 28 September 2000 and 2 September 2003 and between 8 September 2008 and 3 August 2010 when, it is said, Waddington had been guilty of unexplained and inordinate delays, such alleged delays had, as far as I am aware, never been investigated into during the trial or on other occasions.  There was no application by Thomas to strike out for want of prosecution in relation to such alleged delays.  Judging from the complexity of the matter, I would not be surprised if Waddington had sometimes taken a longer time than usual to consider matters of pleadings, discovery, tactics and other relevant matters in the course of the litigation.

COMPOUND OR SIMPLE INTEREST

22.  I agree with Counsel for Thomas that in the circumstances of this case, an order that simple as opposed to compound interest on the judgment sum is appropriate.

23.  It is clear that in cases such as Tam Po Kei (supra), China Everbright-IHD Pacific Ltd v Ching Poh (2002) 5 HKCFAR 630 and Wallersteiner v Moir (No. 2) [1975] QB 373 in which compound interest was awarded, the defendant directors in those cases had misappropriated company funds and used the same for their own profit.  The present is not such a case.  It is on a less serious level.

24.  Furthermore, in the Libertarian case (supra), the Court of Final Appeal ordered the defendant to pay equitable compensation together with only simple interest thereon.  At paragraph 142 of the report, Riberio PJ makes the following point : -

“142. Thus, compound interest may be appropriate where the trustee or fiduciary has misappropriated funds which the Court assumes would have been used by him to earn profits and, instead of ordering an account of those profits, orders him to pay compound interest on the sum extracted. Where the fiduciary is ordered to pay equitable compensation on the basis of gains which the Court finds would have accrued to the trust estate if he had duly performed his fiduciary duty, it would be double-counting and punitive to order the amount of equitable compensation to carry compound interest.”

BASIS OF TAXATION

25.  Thomas has argued points which he probably should not have argued.  He was not amenable to any mediation exercise.  The main part of his evidence was not accepted by the court. Nevertheless, he is a defendant in these proceedings.

26.  Taking everything into account and bearing in mind the fact that his conduct is not as serious as the defendants in the cases cited in paragraph 23 above, I have come to the conclusion that justice will be done by ordering that he should pay the costs of this action to Waddington to be taxed on the common fund basis.

CERTIFICATE FOR COUNSEL

27.  This case is complicated in some respects.  Nevertheless, the trial did not last very long, only 11½ days.  It is only in very exceptional circumstances that there should be a certificate for four Counsel as requested by Waddington.

28.  Taking everything into account, I have decided to certify the case fit for three Counsel.

INDEMNITY BY PROFIT POINT IN FAVOUR OF WADDDINGTON

29.  This action was instituted by Waddington for the benefit of Profit Point and a judgment for a sum of over $33,000,000.00 has been obtained on its behalf.

30.  In Wallersteiner v Moir (No. 2) 407B-D, Scarman LJ said : -

“The indemnity is a right distinct from the right of a successful litigant to his costs at the discretion of the trial judge; it is a right which springs from a combination of factors – the interest of the company and its shareholders, the relationship between the shareholder and the company, and the court’s sanction (a better word would be “permission”) for the action to be brought at the company’s expense.  It is a full indemnity such as an agent has who incurs expense in the authorised business of his principal. As a general rule, I would expect application for leave to bring proceedings at the expense of the company to be made at the commencement of the action: but, as Lindley LJ in In re Beddoe at p.557 recognised in relation to a trustee’s action on behalf of the trust estate, if at the end of the case the judge should come to the conclusion that he would have authorised the action had he been applied to, he can even then allow the plaintiff his costs on a full indemnity basis against the company …”

Further, Lord Denning MR said at 391 G-392B: -

“The first is that the minority shareholder, being an agent acting on behalf of the company, is entitled to be indemnified by the company against all costs and expenses reasonable incurred by him in the course of the agency. This indemnity does not arise out of a contract express or implied, but it arises on the plainest principles of equity. It is analogous to the indemnity to which a trustee is entitled from his cestui que trust who is sui juris: see Hardoon v Belilios [1901] AC 118 and In re Richardson, Ex parte Governors of St. Thomas’s Hospital [1911] 2 KB 705. Seeing that, if the action succeeds, the whole benefit will go to the company, it is only just that the minority shareholder should be indemnified against the costs he incurs on its behalf. If the action succeeds, the wrongdoing director will be ordered to pay the costs: but if they are not recovered from him, they should be paid by the company, and all the additional costs (over and above party and party costs) should be taxed on a common fund basis and paid by the company: see Simpson and Miller v British Industries Trust Ltd (1923) 39 TLR 286.”

31.  According to Counsel for Waddington, their Submissions have been served on Profit Point so as to give the latter notice of such an application.  Profit Point has not responded by lodging any objection with the court or otherwise.

32.  In all the circumstances, I am prepared to order that, in respect of that part Waddington’s costs in this action which will not have been recovered from Thomas, Waddington should be indemnified by Profit Point.

CONCLUSION

32.   In the result, I make the following order : -

(i) Thomas do pay to Profit Point simple interest at 2.5% per annum on the judgment sum of $33,511,220.32 from 28   September 2000 until the date of judgment;

(ii) Thomas do pay into court the judgment sum of $33,511,220.32 together with interest thereon as aforesaid within 21 days from the date of this Ruling pending further directions by the court;

(iii) Thomas do pay to Waddington the costs of this action to be taxed on the common fund basis, if not agreed.

(iv) there be a certificate for three Counsel;

(v) Profit Point do indemnify Waddington in respect of any costs incurred by Waddington which it will not have been able to       recover from Thomas.

(vi) the parties have liberty to apply to a Judge of the Court of First Instance for further directions in respect of the working out of this order, if necessary.