FOREVER INTERNATIONAL CAPITAL LTD v. Ng Chun Sing AND ANOTHER

HCA 138/2017

[2019] HKCFI 2796

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 138 OF 2017

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JUDGMENT

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Procedural background

1.  On 27 May 2019, Master K W Wong entered summary judgment in favour of the creditor ie the plaintiff (“P”) against the debtor ie the 1^st defendant (“D1”) in the following terms:

  (1)  D1 to pay the principal of the loans under the various loan agreements to P;

  (2)  P to be entitled to the contractual interest rate of 40% from the day of the loan to the date of judgment;

  (3)  P to be entitled to interest at the judgment rate (8.125%) from the date of judgment till the date of full payment; and

  (4)  D1 to pay P’s costs with a certificate for counsel such costs to be summarily assessed on an indemnity basis.

2.  At the initial hearing, after Master K W Wong gave judgment in favour of P, its counsel argued that post-judgment interest should be at the contractual rate of 40% instead of the judgment rate of 8.125%.  After hearing argument Master K W Wong ordered post-judgment interest at the judgment rate.

3.  D1 initially appealed this judgment but subsequently by way of summons dated 29 October 2019 applied to withdraw its appeal.

4.  P gave notice to D1 of a cross-appeal on the rate of post-‌judgment interest.

5.  The matter came before me on 4 November in the three- minute list on D1’s application by summons dated 29 October to vacate the hearing on the following day on the basis that it wished to withdraw itsappeal (with the costs of the application being awarded to P on an indemnity basis), this offer, in material terms at least it was said, having first been intimated in its solicitors’ letter of 24 October.  At the 4 November hearingD1 submitted that since D1 had indicated its position clearly by 24 October letter the costs of the summons to vacate were unnecessarily incurred since the matter could have been dealt with by consent and in addition the preparation costs for the substantive appeal the following day were also accordingly unnecessary.

6.  I would note in parentheses that there was in any event an extant issue on the extent of the costs which should be ordered at the time of D1’s solicitors’ letter of 24 October and indeed at the hearing but in the event I did not vacate the hearing listed for the following day and I reserved the costs of that summons to the substantive hearing.

7.  I did not vacate the hearing since there remained a substantive issue between the parties namely the resolution of the issue raised by P’s cross-appeal.  In a nutshell D1’s case is that P’s cross-appeal automatically falls away if the appeal itself is withdrawn because it subsists only as an adjunct to that primary appeal whereas P says that D1 having had notice ofthe cross-appeal it continues to subsist as a separate appeal notwithstanding the dismissal of D1’s appeal.

The issues before the court

8.  There were thus three issues before the court on 5 November:

(1)  D1’s application to withdraw its appeal on the basis it pay P’s costs thrown away in connection therewith.

(2)  Did P’s cross-appeal survive the dismissal of D1’s appeal?

(3)  If so what, on the facts of this case, is the correct rate of post- judgment interest?

9.  I will deal with each of these issues in turn.

Issue 1

10.  There was no issue between the parties as to the first issue and accordingly I make an order that pursuant to its application by summons dated 29 October D1’s appeal be withdrawn and the case against P be accordingly dismissed with an order that D1 pay the costs ofP thrown away, such costs to be taxed if not agreed.

11.  I would only add that it is perhaps unfortunate that the parties had to incur the costs of this hearing at all since, as became apparent from the submissions they made they were very close to an agreement, which would have disposed of all matters by consent.  On 24 October D1 proposed the vacation of this summons on terms set out in its letter and accompanying draft consent summons.  Mr Yip for D1 emphasised to me that there was no open response to this before 29 October but I infer from this that there was considerable without prejudice discussion between the parties during this period and indeed when P responded in open correspondence on 29 October it made a proposal, which Mr So for Pconfirmed was intended to dispose of the cross-appeal as well even thoughit was not specifically referred to.  This was received by D1 at 19:17 hours on 29 October and D1 replied the following day in essence accepting the proposal and making appropriate consequential amendments to the draft consent summons then in circulation to reflect the now seemingly agreed position.  This letter was received by P at 15:48 hours on 30 October by which time pursuant to the court rules bundles and skeletons had been filed at court for the upcoming hearing.

12.  Mr So accepted that there was no unreasonable delay in D1 responding but nonetheless P seems to have had a change of heart in the less than 24 hours it took D1 to respond and, having filed its court documents, by its letter of 31 October, somewhat disingenuously in my view given Mr So’s admission that the intention of the letter of 29 October was that the cross-appeal would fall away, sought to take the point that the draft consent summons, the first draft terms of which they themselves had proposed, made no specific reference to the cross-appeal and furthermore they sought to rely on what was said in the documents by then recently filed at court to say that it had always been clear to D1 that P would press on with its cross-appeal notwithstanding D1’s indication that it wished to withdraw its appeal.  Accordingly, P proposed by letter of 31 October a new proposal for withdrawal which included for the first time an order that D1 submit toP’s cross-appeal.  Perhaps unsurprisingly the matter then ended up in court.

13.  In relation to this correspondence Mr Yip submitted that having made clear that it was willing to forego itscross-appeal by its letter of 29 October, it reflected badly on P’s conduct of the litigation that it then resiled from that position.  He did not however put his case on the basis that this conduct on the part of P gave rise to an estoppel.

Issue 2

14.  I turn then to the second issue which requires reference to the rules applicable to appeals from a Master’s decision and specifically Order 58 of the Rules of the High Court.  There is no dispute about the rules applicable to an appeal.  The dispute is over the impact of the withdrawal of an appeal on a pending cross-appeal which has been notifiedto the court and the other party by correspondence, but which is not formally itself an appeal.

15.  It is P’s case that such a cross-appeal should be treated as an appeal in its own right so that it survives the withdrawal of the primary appeal whereas D1’s case is that the cross-appeal is tethered, so to speak, to its appeal and must therefore fall with the primary appeal if that is withdrawn.

16.  As a matter of principle, it would seem wrong to conclude thata party prosecuting a cross-appeal should be potentially at the tactical whimof an appellant such that he could have the ground swept from under his feet if the appellant fearing an adverse finding on a cross-appeal, for instance, simply withdrew its appeal.

17.  Mr Yip’s case was however that Order 58, rule 1(2) provided the mechanism for appeal of a Master’s decision and whilst he accepted that the notes at 58/1/4 acknowledged the court’s discretion in recognising a cross-appeal intimated in correspondence his submission was that this latter procedure afforded the party no protection if the primary appeal itself was withdrawn.  He submitted that there was no prejudice to a party in such circumstances as it had been open to it to have availed itself of the procedure under Order 58, rule 1(2).

18.  Mr So the other hand founded his argument on principle but also on the judgment of Kaplan J in Chinakong Manufactory Ltd v Uniden Hong Kong Ltd [1993] 1 HKLR 28.  He submitted that in the case of an appeal from a Master there was no provision in Order 58 for a formal notice of cross-appeal and Kaplan J in giving judgment in Chinakong had observed that whilst that might be the technical position “... it seems to me to be sensible and courteous for a party in this position to inform the other side and the court that they will in fact be seeking an order different to that made by the Master and different to that being sought by the appealing party.  Such a notice, whilst not strictly required by the rules, would be of assistance to the opposing advocate and to the court and would reduce the risk of anyone being taken by surprise or being embarrassed.  Good practice requires that such notice should be given.”  It is Mr So’s submission that this is exactly what happened in this case and accordingly the issue raised by the cross-appeal was properly before the court independently of D1’s appeal.

19.  Mr So referred the court to the differences in the nature of an appeal in the strict sense, an appeal by way of rehearing and an appeal by way of hearing de novo. This case fell into the last category whereby what happened below, so to speak, has no relevance.  Thus, for example 58/1/5 of Hong Kong Civil Procedure makes clear that fresh points may be raised before the judge which were not raised or taken before the Master.  Similarly, it was submitted P was perfectly capable of arguing any point it wishes provided it had given appropriate notice of it.

20.  Mr So also pointed out that this jurisdiction point in relation to the lapse of the cross-appeal was never sought to be canvassed with P prior to its sight of D1’s skeleton argument on 1 November.

21.  I am satisfied that given that an appeal from a Master to a Judge is by way of a de novo hearing sufficient notice was given by P to D1 of their intentions so far as the subject matter of its cross-appeal is concerned.  P’s position was set out clearly in its solicitor’s letter of 14 October 2019 and accordingly this court is entitled to decide that issue independently of the fate of D1’s appeal.

Issue 3

22.  I turn then to the substantive issue raised by the cross-appeal namely whether following judgment P should be entitled to the judgment rate of interest or the contractual rate of interest.

23.  This is in many ways a short point depending on the construction of the terms of the contract.  The authorities are clear that at judgment there isa merger of interest in the judgment, and that thereafter the judgment rate shall be applied until payment, save in those circumstances where by plain wording it is clearly the intention and covenant of the parties that the contractual rate shall apply post-judgment until actual payment.

24.  Mr Yip based his submission that interest at judgment rate should apply post-judgment on the authority of Re Sneyd, ex parte Fewings (1883) 25 Ch D 338 where on the construction of the mortgage deed in question it was held that the covenant to pay interest merged in the judgment.

25.  Mr So on the other hand sought to distinguish Fewings and drew the court’s attention to the decision in Popple v Sylvester (1882) 22 Ch D 98 which had been distinguished in Fewings where the covenant was to pay interest at 7% so long as the principal sum, or any part thereof, should remain due on the security.

26.  Mr So pointed to a number of other authorities where it was held that the covenant survived the judgment so that the contractual rate of interest applied post-judgment including Honip Credit Ltd v Asia China Tea Export Co Ltd & Anor (HCMP 399/2016, unreported, 2 June 2016) where the clause in question (in translation) read “until full payment of the debt” [1], Freeway Finance Co Ltd v Tam Chuen On Raymond [2010] 4 HKC 448 where the clause in question read “until it is paid in full”, Konew Capital International Ltd v Wong Mei Ling & Anor [2018] HKDC 801 (DCMP 816/2017, unreported, 10 July 2018), where the clause read (again in translation) “until the payment of all unpaid moneys is received” [2], Top Winton Ltd v Lam Chun Man [2018] 3 HKLRD 636 where the words used were “until the day on which the full amount of the loan is repaid” [3] and in particular he relied on the decision of Templeman LJ in London Borough of Ealing v El Isaac & Anor [1980] 2 All ER 548 where Fewings was discussed in the following terms:

“      The argument as to merger is derived from the decision of this court in Re Sneyd, ex parte Fewings (1883) 25 Ch D 338. In that case there was a covenant in a mortgage deed to pay interest on the principal sum, or so much thereof as should, for the time being, remain unpaid, at 5%. The mortgagee recovered judgment on the covenant for the principal sum and interest in arrear and it was held that, the covenant being merged in the judgment, the mortgagee was, as from the date of the judgment,entitled only to interest on the judgment debt at the rate of 4% and was not entitled on the covenant to interest at the rate of 5% on the principal sum, which the mortgagor had covenanted to pay in the mortgage deed...

      ...I do not for myself understand how a debt payable with interest until actual repayment can be merged in a judgment without interest or with a different rate of interest payable thereafter. The merger doctrine, which was upheld by this court in Re Sneyd, may be due to the fact that, in former ages,high rates of interest marked the progress of the individual on the path to perdition; whereas, in this day and age, high interest rates mark the road towards national prosperity.

      Merger does not apply where there is an independent covenant, nor does it apply to a security as distinct from a contract. That appears from Economic Life Assurance Societyv Usborne [1902] AC 147. There again there was a mortgage with a covenant to pay interest half-yearly on so much of the principal as should remain unpaid. The mortgagors defaulted and the mortgagees recovered judgment against them for principal and interest. It was held (at 147)—

      ‘that though the personal remedy on a covenant to pay a debt merges in a judgment and a judgment carries only 4 per cent interest, yet upon the true construction of this mortgage deed the mortgagees were entitled to retain theirsecurity until they were paid the principal sum and interest at 5 per cent.’

      Lord Davey (at 152), referring to preceding authorities, said that the question to be considered is ‘whether the covenant for the payment of the interest was an independent covenant or a covenant which was merely ancillary to the payment of principalmoney;’ and the conclusion is that is ‘an independent covenantwhich is not merged in or extinguished by the judgment obtained upon the principal covenant’.

      It appears, therefore, that merger has a very restricted operation.  It does not, as appears from the Usborne case which I have just cited, apply to a security.  It does not apply to what is said to be an independent covenant and in most mortgages anddeeds of borrowing these days care is taken to make the covenant an independent covenant.  So that, in practice, the number of times on which interest ceases to run from a date of judgment isvery small.  But on principle and on the authorities, it seems tome, the merger doctrine only applies to contracts and covenants.”

27.  He also referred me to the decision of Deputy Judge Alfred Cheng in the District Court in Top Winton Ltd v Lam Chun Man [2018] 3 HKLRD 636 where after reviewing the authorities he concluded:

“In short, the Court of Appeal endorsed the approach in FreewayFinance that if, on interpretation of the contract term, there was an independent covenant to pay post-judgment interest at the contractual rate, the contractual rate would apply instead of the judgment rate.”

28.  Fry LJ in Fewings put it like this:

“The ... question is simply one of construction. Where there is a covenant for the payment of a principal sum, and a judgment has been obtained upon the covenant for that sum, it is plain that the covenant is merged in the judgment, and, if there is a covenant to pay interest which is merely incidental to the covenant to pay the principal debt, that covenant also is merged in a judgment on the covenant to pay the principal debt. Of course a covenant to pay interest may be so expressed as not to merge in a judgment for the principal; for instance if it was a covenant to pay interest so long as any part of the principal should remain due either on the covenant or on a judgment.”

29.  Thus, on the basis of these authorities the question for the court is whether there was a separate covenant to pay interest at the contractual rate post judgment.

30.  The relevant clause (in translation) states that the debtor: “... promises and guarantees to pay ... the principal sum of HK$50,000 (the ‘principal’) together with interest from today at the rate of 40% per annum (the ‘interest’), until repaid in full.” [4]

31.  If one looks at the various clauses which have been interpreted in the previous cases one sees that inevitably some are more fully and more clearly drafted than others which is of course not surprising but in my judgment the clause in this particular case makes it sufficiently clear that there is an obligation to pay contractual interest up until the date when the principal is repaid in full.  It seems to me that people should be free to contract on such terms as they agree and not feel that the court will interfere too readily to frustrate what was their clear intention.  In my judgment therefore post-judgment interest should continue to accrue at the contractual rate.

32.  I turn then to the issue of costs having heard the helpful submissions from counsel on this subject:

(1)  In relation to D1’s application to withdraw its appeal I make an order for D1 to pay P’s costs thrown away such costs to include the hearing on 4 November and to be taxed if not agreed.

(2)  In relation to P’s cross-appeal I make an order that D1 pay P’s costs such costs to be taxed if not agreed.

33.  I make these orders because in my judgment D1’s late application to vacate on 4 November could not adequately have disposed of the issues between the parties and was therefore unsuccessful and in the case of the substantive hearing on 5 November because costs should in the ordinary course follow the event.