GHAZI FAIDI v. QANTEX CAPITAL MARKETS LTD AND OTHERS

HCA 272/2018 & HCA 486/2018
(Consolidated)

[2023] HKCFI 3196

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 272 OF 2018

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 486 OF 2018

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(Consolidated by Order of Master Queenie Lau dated 2 October 2018)

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D E C I S I O N

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A.  INTRODUCTION

1.  On 25 August 2023, this Court handed down a decision (“August 2023 Decision”)[1] making the following orders:

(1)  Final judgment be entered against the Defendants for the sum of US$750,000;

(2)  There be an order nisi that the Defendants do pay to the Plaintiff pre-judgment interest at prime rate plus 1% from 10 May 2017 until the date of judgement, and at judgment rate thereafter until payment (“Order on Interest”);

(3)  Upon the Defendants paying to the Plaintiff the sum of US$750,000 plus interest in compliance with paragraphs (1) and (2) above, the Plaintiff do forthwith procure the transfer of the Shares to the Defendants;

(4)  The 1^st Defendant’s counterclaim for the sum of US$250,000 be struck out on the grounds that (i) it is scandalous, frivolous and vexatious; and (ii) may prejudice, embarrass or delay the fair trial of the action; and/or (iii) is otherwise an abuse of process of the Court;

(5)  Cost of and incidental to the Plaintiff’s summons filed on 14 December 2022 (“P’s Summons”) be paid by the Defendants to the Plaintiff, summarily assessed at HK$261,498.10;

(6)  Costs of this action relating to the Bonus Claim be paid by the Defendants to the Plaintiff, to be taxed if not agreed (“Costs Order on Bonus Claim”); and

(7)  Costs of this action relating to the Bonus Counterclaim be paid by the 1^st Defendant to the Plaintiff, to be taxed if not agreed (“Costs Order on Bonus Counterclaim”).

2.  By summons filed on 11 September 2023 (“Variation Summons”), the Plaintiff applies to vary the Order on Interest, the Costs Order on Bonus Claim and the Costs Order on Bonus Counterclaim as follows:-

(1)  The Defendants do pay to the Plaintiff interest on the sum of US$750,000 (i) at prime rate plus 1% from 10 May 2017 to 18 December 2020 and (ii) thereafter at 5% above judgment rate until payment.

(2)  Costs of this action relating to the Bonus Claim be paid by the Defendants to the Plaintiff, to be taxed if not agreed.  Such costs, incurred up to and including 18 December 2020, are to be taxed on a party-to-party basis, and from 19 December 2020 on an indemnity basis. The Defendants shall pay interest on costs incurred as from and including 19 December 2020 (including the costs of and incidental to P’s Summons as summarily assessed at HK$261,498.10) at 2.5% above judgment rate calculated as from 19 December 2020.

(3)  Costs of this action relating to the Bonus Counterclaim be paid by the 1^st Defendant to the Plaintiff, to be taxed if not agreed.  Such costs, incurred up to and including 18 December 2020, are to be taxed on a party-to-party basis, and from 19 December 2020 on an indemnity basis. The Defendants shall pay interest on costs incurred as from and including 19 December 2020 at 2.5% above judgment rate calculated as from 19 December 2020.

3.  In support of the Variation Summons, the Plaintiff relies on a sanctioned offer made on 20 November 2020 (“Sanctioned Offer”), and Order 22, rule 24 of the Rules of the High Court (Cap. 4A) (“RHC”) which provides as follows:-

“24. Costs and other consequences where plaintiff does better than he proposed in his sanctioned offer

(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.”

4.  Order 22, rule 24(4) RHC provides that where a plaintiff does better than its proposed sanctioned offer, the Court shall grant it costs on indemnity basis and enhanced interest rate on the judgment sum after the latest date on which the sanctioned offer could have been accepted without leave of the Court, unless it considers unjust to do so.

5.  The losing party who fails to beat the sanctioned offer bears the burden of proof in showing why it would be unjust to make the orders prescribed in Order 22 rules 24(2), (3) RHC: see Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd [2017] 2 HKLRD 477, per Ng J at paragraph 25(c).

6.  In deciding whether it would be unjust to impose the costs and interest sanctions of Order 22 RHC, the Court would consider all the circumstances of the case, including those set out in Order 22, rule 24(5), as well as the factors in Order 62, rule 5(1): see Grupo Pacifica Incorporada v Worldwide Marine Product Ltd [2018] HKCFI 2584, per Au-Yeung J at paragraphs 8-9.

7.  The Court has a discretion under Order 22, rule 24 to include a non-compensatory element to the award, provided that the level of interest awarded is proportionate to the circumstances of the case: see OMV Petrom SA v Glencore International AG[2017] 1 WLR 3465, per Sir Geoffrey Vos at paragraph 38.

8.  Under the Sanctioned Offer, the Plaintiff offered to accept US$750,000 from the Defendants (payable within 14 days from the acceptance of the Sanctioned Offer), in full and final settlement of the two consolidated actions.

9.  There is no dispute that the last date on which the Sanctioned Offer could have been accepted without leave was 18 December 2020 (“Cut-Off Date”), according to Order 22, rule 16(1) RHC.  The Defendants did not accept the Sanctioned Offer by the Cut-Off Date or otherwise.

10.  The Plaintiff’s case is that he has done better than the Sanctioned Offer, in that:

(1)  Under the Sanctioned Offer, the Plaintiff would only have received US$750,000 (or HK$5,878,125[2]).

(2)  Under the August 2023 Decision, the Defendants were ordered to pay the sum of US$750,000 plus interest. It is not disputed that the interest amount comes up to at least HK$2,261,185.85 (being the amount of pre-judgment interest payable up to the date of the August 2023 Decision).  Hence, the Plaintiff has been awarded at least HK$8,139,310.85 (i.e. HK$5,878,125 plus HK$2,261,185.85 in interest).

(3)  According to the Plaintiff’s calculations (which the Defendants have not disputed), even if the 1^st Defendant succeeds in all its remaining counterclaims, it would only be awarded HK$754,608.01 (inclusive of interest).

(4)  Hence, the net effect of the above is that under the August 2023 Decision, the Defendants are liable to pay at least HKD7,384,702.84 to the Plaintiff (i.e. HK$8,139,310.85 minus HK$754,608.01).

11.  The Defendants oppose the Variation Summons on two grounds:

(1)  First, the Sanctioned Offer did not address the issue of the Shares, and it was only in the August 2023 Decision that the Court ordered the Plaintiff to return the Shares to the Defendants after the monetary orders are complied with by the Defendants.  On such basis, the Defendants argue that the Plaintiff has not shown that that he has done better than the Sanctioned Offer, especially as the Plaintiff has not submitted any evidence as to the actual value of the Shares.

(2)  Second, in any event, even if the Court considers that the Plaintiff has done better than the Sanctioned Offer, it is unjust to grant the orders sought in the Variation Summons, particularly in relation to the period to which the enhanced interests and costs is to apply, as well as the level of enhanced interest rate sought by the Plaintiff.

B.  WHETHER THE PLAINTIFF HAS DONE BETTER THAN THE SANCTIONED OFFER

12.  I am of the view that the Plaintiff has done better than the Sanctioned Offer and the requirement under Order 22, rule 24(1) RHC has been met:

(1)  The Defendants’ argument that the Plaintiff failed to beat the Sanctioned Offer is premised on the assumption that the Shares are worth around HK$1.5 million (i.e. the difference between HK$7,384,702.84 and HK$5,878,125).  However, there is no evidence before the Court to suggest that the Shares could be worth around HK$1.5 million.

(2)  The Plaintiff has adduced evidence, in the form of a letter from the Official Receivers’ Office, that a winding up petition was presented against the 1^st Defendant on 31 July 2023. 

(3)  On the other hand, the Defendants have not adduced any evidence as to the value of the Shares, despite that they would possess such information and are much better placed than the Plaintiff (who has ceased working for the 1^st Defendant since October 2017) to speak to the value of the Shares.

(4)  Indeed, if there is evidence to the effect that the Shares are valuable, no doubt the Defendants would have adduced the same in their affirmation filed in opposition to the Variation Summons.  They did not do so.   

C.  ENHANCED INTEREST AND COSTS UNDER ORDER 22, RULE 24(3)-(4) RHC

13.  As mentioned above, according to Order 22, rule 24(4) RHC, if a plaintiff does better than its proposed sanctioned offer, then the Court shall make the orders referred to in rules 24(2) and (3) unless it considers it unjust to do so. 

14.  The Defendants contend that even if the Court takes the view that the requirement of Order 22, rule 24(1) RHC has been met, it would be unjust to grant the orders sought in the Variation Summons particularly in relation to the period to which the enhanced interest and costs apply, given the manner in which the Plaintiff pursued his case, including the fact that he pursued his O14A Application which was defeated by a technicality and led to a lapse of time of almost 2 years, and he then took another half a year after the handing down of the O14A Decision to issue P’s Summons.  

15.  The Defendants further contend that the level of enhanced interest rate sought by the Plaintiff is too high, and submit that if the Court is minded to grant enhanced interest, having regard to comparable case law, the starting point of enhanced interest rate should be 2.5% above judgment rate, but such rate should be further reduced to 2% above judgment rate given the Plaintiff’s conduct in these proceedings.

16.  Having considered the parties’ submissions, I do not consider there to be circumstances in this case rendering it unjust to make the orders under rule 24(2) and (3) RHC.

17.  As regards the period for which the enhanced interest and costs should apply, I am of the view that the Plaintiff should not be held responsible for the period of delay between 16 July 2020 (when the O14A Application was issued) and 15 June 2022 (when the O14A Decision was handed down), or between 15 June 2022 and the issuance of P’s Summons on 14 December 2022.

(1)  First, the Plaintiff is not seeking any enhanced interest and costs for the period from 16 July 2020 to 18 December 2020.

(2)  Second, the Defendants ought to be responsible for the time and costs incurred on or after 19 December 2020 by reason that had they accepted the Sanctioned Offer by the Cut-Off Date, all such time and costs would have been saved.

(3)  Third, the Plaintiff had already been ordered to pay the costs of the O14A Application, although it was defeated by a mere technicality. There is no reason why the outcome of the O14A Application should deprive the Plaintiff of the entitlement to enhanced interest and costs under Order 22, rule 24 RHC.

(4)  Hence, I do not consider that there is any good reason to limit the period to which the enhanced interest and costs should apply to after the issuance of P’s Summons, as suggested by the Defendants.

18.  As regards the rate of enhanced interest, after reviewing the relevant authorities cited by the parties and considering the factual circumstance of the present case, I am of the view that the enhanced interest rate of 5% above judgment rate is proportionate and appropriate.

(1)  Whilst the Defendants contend that the cases cited by the Plaintiff, including Angbuhhang Netra Jang v Laing O’Rourke Construction Hong Kong Ltd [2021] HKCFI 232, Wong Giles v Donowho Simon Christopher [2020] HKCFI 1053, Yeung Ho Man v Shum Kin Leung [2020] HKCFI 2781, OMV Petrom SA v Glencore International AG[2017] 1 WLR 3465 and Grupo Pacifica Incorporada v Worldwide Marine Product Ltd [2018] HKCFI 2584 can be distinguished on their facts, the enhanced interest rates sought by the Plaintiff in the present case are much lower than those imposed in those cases.  

(2)  The Plaintiff also referred to the case of Maysun Engineering Co Ltd v International Education & Academic Exchanges Foundation Co Ltd [2011] 2 HKLRD 844, where the Court awarded enhanced interest on the judgment sum at  5% above judgment rate (see paragraph 18). The Court relied on the fact that the defendant had, by the time the sanctioned offer was made, adequate information to assess the plaintiff’s claim and yet it persisted in maintaining its unmeritorious defence (see paragraphs 12-13, 17), which bears similarity to the situation in the present case. In particular, in this case:

(i)  The Sanctioned Offer was made long after the close of pleadings (the Reply and Defence to Counterclaim was filed on 12 March 2019) and also after the filing of the O14A Application and the Plaintiff’s supporting affirmation dated 15 July 2020 in which he disclosed all the key documentary evidence he relied on in support of the Bonus Claim. 

(ii)  Although the Defendants had adequate information to assess the Plaintiff’s claim, they did not respond at all to the Sanctioned Offer.   

(iii)  Even after the O14A Decision was handed down (in which the Judge rejected all of the Defendants’ pleaded defences), the Defendants continued to resist the Bonus Claim and to pursue the Bonus Counterclaim.

(3)  The rate of enhanced interest sought by P (i.e. 5% above judgment rate) is well below the maximum amount (i.e. 10% above judgment rate) stipulated under Order 22, rule 24(2), which I consider to be proportionate and appropriate taking into account all the circumstances of this case.

(4)  As regards interest rate on costs, as submitted by the Plaintiff, a simplified approach towards the calculation of interest on costs under Order 22 RHC has been adopted in Hong Kong. By this approach, once the rate of interest has been fixed, it will be halved and then applied to all items of costs, regardless of when incurred, and will run from the last date on which the sanctioned offer could have been accepted without leave: see Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273, per Lam J (as he then was) at paragraphs16-19. Hence, adopting the simplified approach in Golden Eagle and in view of the matters set out in sub-paragraphs (1)-(3) above, I consider it appropriate to order the Defendants to pay interest on costs at half of the rate of 5% above judgment rate.  I note that the Plaintiff is seeking 2.5% above the judgment rate, which does not entirely accord with the simplified approach advocated in Golden Eagle.

(5)  For completeness, insofar as the Defendants contended for a reduction on the interest rate on costs to 2% above judgment rate to “reflect the circumstances of this case particularly given the Plaintiff’s conduct in these proceedings”, they have not explained what kind of “circumstances” and which part of “the Plaintiff’s conduct” justify such reduction.  If the Defendants are referring the matters set out in paragraph 14 above and/or that the O14 Application was unsuccessful, I do not consider those to be valid reasons to justify the reduction sought for the reasons set out in paragraph 17 above.

19.  Lastly, the Plaintiff contends that enhanced interest rate should also apply to the period from the date of judgment to the date of payment.  However, I am of the view that judgment rate should apply from the date of judgment to the date of payment, both in respect of the judgment sum and costs.  As the Court held in Zief Incorporated v Tekchandani Ajai Mohan (trading as D’Ziner Collections (Hong Kong)) & Ors [2021] HKCFI 730 (per Recorder Eugene Fung SC at paragraphs 38-44), to which I agree, 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, and there must be good reasons for the court to depart from the convention of ordering post-judgment interest to be charged at judgment rate.

20.  In the present case, I do not consider that the failure to accept a sanctioned offer provides sufficient reasons for this Court to order post-judgment interest at a rate higher than the judgment rate.  As the learned Recorder stated at paragraph 43 of Zief:

“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 (P Ng J).”

E.  DISPOSITION

21.  For the reasons set out above, I make an order that the Order on Interest, the Costs Order on Bonus Claim and the Costs Order on Bonus Counterclaim be varied as follows:

(1)  The Defendants shall pay to the Plaintiff interest on the sum of US$750,000 at prime rate plus 1% per annum from 10 May 2017 to 18 December 2020, and thereafter at the rate of 5% above judgment rate to the date of the judgment on 25 August 2023 (“Judgment”);

(2)  From the date of the Judgment to the date of payment, the Defendant shall pay interest on the sum of US$750,000 (including interest accrued up to the date of the Judgment) at judgment rate;

(3)  Costs of this action relating to the Bonus Claim be paid by the Defendants to the Plaintiff, to be taxed if not agreed.  Such costs, incurred up to and including 18 December 2020, are to be taxed on a party-to-party basis, and from 19 December 2020 on an indemnity basis.

(4)  Costs of this action relating to the Bonus Counterclaim be paid by the 1^st Defendant to the Plaintiff, to be taxed if not agreed.  Such costs, incurred up to and including 18 December 2020, are to be taxed on a party-to-party basis, and from 19 December 2020 on an indemnity basis.

(5)  For the period from 19 December 2020 to the date of the Judgment, the Defendants shall pay interest on costs relating to the Bonus Claim and Bonus Counterclaim at half of the rate of 5% above judgment rate, calculated as from 19 December 2020.

22.  The Plaintiff submitted that the Order 22 r.24 RHC sanctions (including costs on an indemnity basis and enhanced interest) should also apply to the costs of the Variation Summons.  In the exercise of my discretion, and taking into account all the circumstances of this case including that the Plaintiff’s costs of the Variation Summons were incurred only after Judgment, I consider that the appropriate order would be that the costs of and occasioned by the Variation Summons be paid by the Defendants to the Plaintiff, to be taxed on indemnity basis if not agreed.