Tse Kwong-lam v. Wong Chit-sen and Others
Read the full judgment text of on BabelCite. was delivered on 26 November 1980.
1. McMullin, J.A. is unable to be present today but he has authorised me to say that he agrees with the judgment which I am about to deliver.
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CACV000034A/1979 Mortgage - sale by mortgagee pursuant to contractual right of sale - sale to company of which mortgagee a director and shareholder - auction - advertisement and conduct of auction "unimpeachable" - successful bid made by wife of mortgagee, who also a director and shareholder of company - company not alter ego of mortgagee and sale not a sham - reserve price announced at beginning of auction but company aware of it some days before - that knowledge no advantage to company and no disadvantage to mortgagor - successful bid strong evidence of true value of security - security consisting of part of building - no obligation to sell flat by flat unless that manifestly more beneficial - no evidence of bad faith - delay by mortgagor after action brought sufficient reason for refusing rescission.
----------------- Coram: Huggins and McMullin, JJ.A. and Garcia, J. Date of judgment: 26 November 1980 ----------------- JUDGMENT ----------------- Huggins, J.A.: 1. McMullin, J.A. is unable to be present today but he has authorised me to say that he agrees with the judgment which I am about to deliver. 2. The 1st Respondent was a mortgagee with a right of sale. He chose to exercise that right on 24th June 1966. There was an auction and the 1st Respondent set a reserve price of $1,200,000. There was only one bid and the property was knocked down at the reserve price. The purchaser was a company (the 3rd Respondent) in which the mortgagee, his wife (the 2nd Respondent) and one of their sons were directors and the principal shareholders. Three other sons had a shareholding. The mortgagor sought to set aside the sale or alternatively to obtain damages for a wrongful sale. The trial judge found that the sale was not made bona fide and awarded damages, he refusing to order rescission on the ground that there had been unreasonable delay in the proceedings to set aside the sale. He assessed the damages by deducting the price obtained from what he found to be the true market value of the property. Relationship between the mortgagee and the purchaser. 3. Initially the attack upon the sale was founded upon the relationship between the mortgagee and the purchaser. It is not in dispute that the relationship was such as to put a burden on the purchaser to show that the sale was bona fide. The judge having held that it was not bona fide, the mortgagee seeks to persuade us that the judge's reasons for so finding are insupportable. However, it had been pleaded by the mortgagor that the sale to the company was void on the ground that the 3rd Respondent purchased as his agent, so that the purported sale was a sale by the 1st Respondent to himself. At the trial agreed issues were put before the judge and that allegation finds no place therein: the only issue raised was whether the sale was voidable on the ground of bad faith. The judge dealt with the matter wholly on the basis of a claim in equity for rescission. Before us the mortgagor has sought to revive the original allegation and has argued that upon the evidence the judge ought to have held that the sale was not merely voidable but void. That, of course, is a matter different from the allegation of fraud which the mortgagor sought unsuccessfully to raise by applying to amend his notice of appeal. The point has been argued and I will deal with it. 4. Put shortly it is this: Mr. Bernacchi contends that the 3rd Respondent was the alter ego of the 1st Respondent. He submits that the 1st Respondent had complete control of the company - although he was a minority shareholder and one of three directors - by reason of the facts that he was Chinese and the other shareholders and directors were his wife and children and that the company was substantially financed by the 1st Respondent. In effect Mr. Bernacchi invites us to take judicial notice of the alleged fact that a Chinese paterfamilias is a despot whose word is law to his immediate family, for there is no evidence whatever that this particular family was subservient to the will of the 1st Respondent. Reliance was placed upon Gilford Motor Co. Ltd. v Horne 1933 Ch. 935, Jones v Lipman 1962 1 W.L.R. 832 and Rex. v Grubb 1915 2 K.B. 683, but I think they are clearly distinguishable: they concerned fraudulent attempts by the defendants to escape a personal liability by the legal device of interposing a company over which they had absolute control and which they acquired or created specifically for the purpose of the frauds. The present case is very different. The 3rd Respondent was created some time before the sale and its accounts show that it carried on the business for which it was created. In the end one has to look at the practicalities of the matter, while recognizing that a person may have control of a company although he is only a nominal shareholder and that the legal insignia may be consistent with his having no control. At the same time one must remember that what has to be shown is not merely control but such control and other factors as demonstrate that the company is a sham - a mere mask to cover acts which, if done by the person himself, would have been improper. I do not accept that the company here was a mere sham and that, whatever the apparent legal position, the 1st Respondent was using it to mask a purchase by himself. Indeed, the judge does not appear to have been so satisfied. In the light of the agreed issues he may well have thought that it was not necessary for him to decide the point. The nearest he came to it was to say "this is a typical picture of a family company completely under the control of a rich father", but his decision was not that the sale was void, only that it was voidable and should be avoided on the ground that good faith had not been established. 5. Much play has been made upon the description of the company by the 2nd Respondent as her husband's company. I attach no weight at all to the use of a figure of speech no doubt commonly used to describe a company with which a person is associated - possibly as a humble employee - and which may not be used to indicate a proprietary or controlling interest. The allegations of bad faith. 6. The evidence that the 1st Respondent wanted the property at $1.2 million for his company in no way indicates that the 1st Respondent was acting otherwise than bona fide in the exercise of his power of sale: provided that his actions were proper his motives were immaterial: Belton v Bass, Ratcliffe & Gretton Ltd. 1922 2 Ch. 449. 7. The matters relied upon by the judge as establishing bad faith were:
The fixing of the reserve price. 8. For the purpose of this part of the argument I will initially assume that the reserve price was greatly below the price which ought to have been obtained, which I will call the day's market price. It was contended that by fixing the reserve price at such a low figure the mortgagee prevented the bids from reaching the level which they would have reached had the reserve price been fixed nearer to the day's market price. I confess that I have not been able to see how such a result would have been brought about. It is conceded that, although a reserve price is commonly fixed, there is no obligation upon the mortgagee to fix a reserve price at all. As I understand it, the sole object of fixing a reserve price at an auction is to protect the vendor against the possibility that the property may be sold at a price lower than he, in his own interests, is prepared to accept. When he is selling his own property he may, for example, prefer to keep it, or to give it away to a relative, rather than to sell it to a stranger at a very low price. When he is selling under a power of sale in a mortgage he may prefer to retain his security rather than to let it go at a low price and risk not being able to recover the balance of the mortgage debt from the mortgagor. The fallacy in the judge's assertion that, where the reserve price is fixed below the mortgage debt, more care ought to be taken over it, as the mortgagor has no say in the fixing, is that the reserve price has nothing whatever to do with the mortgagor, who is concerned only with the price received. The mere fact that a low reserve price is fixed cannot inhibit a would-be purchaser from bidding such higher price as he may think reasonable and be prepared to pay. Indeed, the only effect upon the auction of fixing an unduly low reserve price may be to prolong the sale by inducing the first bidder to start lower than he might otherwise have done, and that, of course, will only be in a case where the reserve price is disclosed. There is no reason to expect that the final bid will be any different from that which it would otherwise have been, save in the unlikely event that no one else will take the property at a price which is above the reserve price but which, ex hypothesi, is still well below the true value. Accordingly I cannot accept the judge's view that the reserve price must "bear some relationship with" (by which I understand him to mean "to approximate to") "the property's true value": what is material is that the successful bid must approximate to the day's market price. Mr. Bernacchi submits that the judge's view is supported by Barns v Queensland National Bank Ltd. (1906) 3 C.L.R. 925, but it is not. The sale there took place at a time when "the divulging of the reserve price was an unusual circumstance" which was not explained by the evidence, and the court was impressed by what Malins, V.C. indicated in Delves v Delves (1875) 20 Eq. 82 to be very plainly an impropriety. No criticism was made in Barns's Case of the figure at which the reserve price was fixed. In our case it has never been suggested that the mere divulging of the reserve price was improper or even unusual. Here we are assuming that the price obtained was not a proper price and I shall have to consider later whether that assumption is justified. If no reserve price had been fixed here, even a lower bid than $1.2 million might have been the top bid. If there were a duty to fix a reserve price in the interests of the mortgagor it might be said that the fixing of an absurdly low price was some indication that the mortgagee was not seriously endeavouring to obtain a proper price (and, in turn, the court might the more readily find that the price in fact obtained was not a proper one), but there is no such duty. Where the sale is by auction the only duty is to take reasonable steps to advertise the sale in a manner likely to attract prospective purchasers and to do nothing to damp the bidding. The disclosure of the reserve price. 9. Under the old practice of the Court of Chancery, upon a sale by the court the court fixed a reserve price and this was not disclosed until after the hammer had fallen. Premature disclosure was a ground for avoiding a sale, because such disclosure might have the effect of damping the bidding. It is notorious that in our day a reserve price is commonly disclosed in the form of an "upset price". Here the existence of a reserve price was advertised in the printed Conditions of Sale and the auctioneer announced at the beginning of the auction that the reserve price was $1.2 million. The fact that an announcement was made is not the basis of any complaint. What is complained of is that the company had knowledge of the amount of the reserve price four days before any other prospective bidder. The judge regarded this as unfair and declared that "in the commercial world advance knowledge is knowledge indeed". While it is true that advance knowledge may be extremely valuable, Mr. Bernacchi has been unable to explain to us what advantage of substance the company could have gained from advance knowledge of the reserve price. He suggested that if the mortgagor had similar advance knowledge he might have arranged finance to enable him to bid more than $1.2 million. He could have done that without advance knowledge. Indeed, there is evidence that at one stage he had previously arranged finance to the extent of $1.5 million. If he were able to obtain backing to that amount he could have bid more than $1.2 million and, as we now know if he had done so he would have been the purchaser, for the 2nd Respondent was not authorised to go beyond that figure on behalf of the company. 10. This whole argument seems to me to be an extension of the argument that the mortgagee was selling to himself. No one could fix the reserve price except the 1st Respondent and, as soon as the 1st Respondent decided what it was to be, the company ipso facto had knowledge, because the 1st Respondent was a director of the company. In truth there was no "disclosure" at all to the company. It is possible that different considerations might have applied if the reserve price had not been disclosed by the auctioneer to the others present, but we need not spend time on a case which does not arise here. The proper price. 11. Some of the dicta in the decided cases can be misleading as to the duty of a mortgagee in exercising his power of sale. References to his having to obtain the "best" price or the "proper" price must be read in their context and I respectfully adopt what was said by Tysoe, J.A. in J. & W. Investments Ltd. v Black (1963) 41 W.W.R. 577 at p.602:
On the other hand I cannot accept the suggestion of Griffith, C.J. in Pendlebury v Colonial Mutual Life Assurance Society, Ltd. (1912) 13 C.L.R. 676 at p.683 that "if a mortgagee sells by private contract he is bound to take reasonable means to ascertain the value before selling, and the same rule applies ... to a sale by auction". We have been shown no other authority for this proposition and I believe the only duty is to take the "reasonable steps and precautions" mentioned by Tysoe, J.A. That can be done without quantifying the value. 12. It is contended on behalf of the mortgagor that the true market price of the property on the day in question was $2,150,000, in spite of the fact that no one bid more than $1.200.000 at the auction. There is a danger here of a circular argument, for in the first place it is said that what is alleged to be a very low price is evidence of bad faith (and, indeed, of fraud) and then it is said that because there was bad faith that very low price cannot be evidence of what was the true market price. A mortgagee is not obliged to sell by auction, but he is often well advised to do so for the very reason that, if the sale is properly conducted, it is difficult for the sale to be impugned on the ground that a better price could, and should, have been obtained. In the present case the judge found that the decision to sell by auction with a reserve price and the subsequent advertisement of the sale were unimpeachable. Unless, therefore, the claimant can support one of his complaints that the price was artificially depressed, it seems to me that the mortgagee has taken all reasonable precautions to obtain a proper price and that the price obtained at the auction is prima facie a proper price. The judge relied upon Hodson v Deans 1903 2 Ch. 647 as authority to the contrary, but, with respect, I do not think it does support the contrary view. There, although he did say that the property was sold at a slight undervalue, Joyce, J. found that the sale was not bona fide. It was a case where an ample security was sold by a friendly society to one of the members of the society's committee, a member who was obviously known to be such by those present at the auction and who had prior knowledge of the reserve price fixed by the society. The only other bidder was the mortgagor's agent, who did not know the reserve price. It is therefore not surprising that the judge was led to think that the mortgagor had not been fairly and honestly dealt with. For reasons which I shall give I am satisfied that the judge's findings of bad faith in our case cannot be supported. 13. The inevitable result of a conclusion that the price obtained at the auction was prima facie a proper price is that any opinion evidence which suggests an appreciably higher value for the property must be viewed with considerable circumspection, even if based on apparently sound principles. Before looking at the opinion evidence in the present case I must deal with some other complaints about the auction. Sale flat by flat. 14. The subject matter of the mortgage was originally an entire building. The mortgagor was permitted to sell off a number of the flats and at the time of the sale the security consisted of thirty-six residential flats and two floors of shops and offices. These were all offered as one lot. The mortgagor contends that, if each unit had been offered separately, a higher price could have been obtained. 15. As it seems to me a mortgagee exercising his power of sale is prima facie entitled to sell his security in the form in which it is given to him. Only if it is manifest that a better price could be obtained by selling it piecemeal is he obliged to depart from this normal procedure. In particular, where there is a risk that upon a sale piecemeal part of the security may not be sold at all, this is an important factor to be taken into account. 16. The judge appears to have been of opinion that a sale flat by flat would have produced a higher price and that the 1st Respondent should "at least have taken professional advice to see in the circumstances then prevailing whether a better price was obtainable by auctioning of unit by unit as against what was in fact the sale of an odd lot of a building wholesale". Rather was it for the mortgagor to show that a better price would have been so obtained and that it would manifestly have been so obtained. As it was, the matter was first raised by the judge. What was the evidence? Mr. Raymond said that in general a sale flat by flat "would probably get a larger sum total ..., but it might take a long time". Mr. Bernacchi seemed to take that to mean that the auction would take longer, but that is not my reading. In the first instance I think the witness was saying that if one were prepared to sell by private treaty and to delay sales until beneficial offers were received, a larger sum total would probably be obtained. In that connection it must be remembered that a mortgagee is entitled to choose a date for the sale which serves his own interests and is not obliged to postpone sale where that would be in the interests of the mortgagor: Cuckmere Brick Co. Ltd. v Mutual Finance Ltd. 1971 Ch. 949. It was then suggested to Mr. Raymond that to put up the flats one by one would "stimulate more bidders", and it is by no means clear that he was directing his mind to a sale by auction when he replied "Probably, yes". Mr. Liu said that in general "A sale of shop by shop, storey by storey, unit by unit [would], at the end of the day, fetch a better price than an odd lot wholesale job". Mr. Watson, on the other hand, was not prepared to agree with that and thought there was a risk that some of the units would not be sold at all, with the result that the total sum actually received might not have reached $1.2 million, and that the mortgagee would have been left with a part of his security. In view of the difficulty that the mortgagor had had previously in selling individual units, it is impossible to say that such a risk did not exist, nor do I think it was manifest that a better price would have been obtained by a sale flat by flat. Bidding by the 2nd Respondent. 17. It is contended that the fact that the 2nd Respondent made a bid at the auction on behalf of the 3rd Respondent damped the sale, so that the price obtained was lower than might otherwise have been obtained. There was certainly no evidence that her part in the auction did have a damping effect and clearly it could not have done so unless those present knew (1) that she was the wife of the 1st Respondent, (2) that the 1st Respondent was the mortgagee, and (3) that the 2nd Respondent was connected with the purchaser. On behalf of the mortgagee it is submitted that there was no evidence from which it could be inferred that those present at the auction knew the 2nd Respondent was his wife or that he was the mortgagee who was advertised as authorising the sale of the property. Mr. Bernacchi contends that they must have known, because the 1st Respondent had been in the property business since the 1930s and because the 1st and 2nd Respondents had gone into the auctioneer's room with a solicitor shortly before the auction began. The name of the mortgagee was not advertised and there was no evidence that any of those present at the auction saw, or could have seen, the 1st and 2nd Respondents go into the auctioneer's room; nor does it necessarily follow that anyone who did see this would have deduced that the 2nd Respondent was related to the 1st Respondent or that the 1st Respondent was the mortgagee. The learned judge appears to have thought otherwise, for he said "the sight of a wife bidding at an auction sale ordered by the husband mortgagee might well deter others from entering". As a statement of fact that is unexceptionable, but in the context it suggests a state of facts which was not shown to have been apparent in this case. Mr. Bernacchi contends that it was not for him to show knowledge but for the mortgagee to negative knowledge, since, by reason of the 1st Respondent's connection with the company, it was for the mortgagee to establish good faith: Farrar v Farrars Ltd. (1889) 40 Ch. D. 395. I agree that it was for the mortgagee to establish good faith, but that does not mean that he had to negative possible additional suspicious circumstances which had not been pleaded. It was not pleaded that the knowledge of those present at the auction concerning the relationship between the 2nd Respondent and the other Respondents was indicative of bad faith. Opinion evidence as to value. 18. The judge based his conclusion of a sale at a gross undervalue upon the evidence of Mr. Hsu and upon a letter sent to the mortgagor by the Wing On Life Assurance Co. Ltd. Being of opinion that the sale was not bona fide, he attached no weight to the price obtained at the auction. 19. Mr. Hsu was not a professionally qualified valuer but had considerable experience in this field. He made his valuation four years after the sale and admitted that there were very few records of sales in 1966. He based himself on such incomplete information as he had about sales of individual flats and upon the list of prices at which the mortgagor was originally offering units before the 1st Respondent exercised his power of sale. He was not told that some of the list prices had been considerably reduced nor was he aware of some of the sales which had in fact been made or of the difficulty which the mortgagor had experienced in finding purchasers for the remaining units. He was not asked to advise what price the security should have fetched, but was specifically asked to value individual flats. In particular he was not told to have regard to the fact that his valuation was intended to indicate what price might have been recovered upon a forced sale. As a theoretical valuation his resulting figure of $2.2 million was accepted as basically fair for what it was by Mr. Raymond, a professionally qualified valuer, but it was not sufficient to sustain an allegation of a sale at a gross undervalue. 20. The letter from Wing On Life Assurance Co. Ltd. was sent on 26th April 1966, just two months before the sale, and agreed in principle that Wing On would take a mortgage of the property for a sum of $1.5 million. Mr. Bernacchi argues that, because there was evidence that Wing On would normally not advance more than 70 per cent of the value of a security, this was evidence that the property was worth over $2 million. The witness who spoke to this setter wrote it on the directions of someone else and we do not know on what basis any valuation was made. Moreover, the two months which passed after the letter was written were critical, because during that period that the real property market continued to fall. Again, I do not think this evidence was sufficient to sustain an allegation of a sale at a gross undervalue. 21. On the other side it is fairly stressed that the mortgagor himself at the time clearly thought the value of the property was substantially less than $2 million. He admitted telling Mr. Liu "that if the property was to be auctioned [he] would be suffering a lot and there would be nothing for [him]. He wrote a letter to His Excellency the Governor in which he said that he had had difficulty in finding buyers for the flats and another letter to the 1st and 2nd Respondents, dated before the sale, in which he said "the flats are not saleable". In an affidavit he asserted that five months before the sale he had accepted an offer by the mortgagee "to pay $150,000 ... to pay off all debts incurred in construction of the building and other expenses thereof in consideration of extinguishing [the] right of redemption", but that the mortgagee had repudiated the agreement. We have not been shown how much was owed at that date for principal and interest on the mortgage nor how much the mortgagee would have to pay to other creditors, but Mr. Bernacchi suggested that, with the $150,000 to be paid in cash for the equity of redemption, the mortgagor would be valuing the property at around $1.8 million. Accepting that figure for the purpose of the argument and making allowance for the further drop in values during the ensuing five months, it does not appear to me that the mortgagor has made good his assertion that the price obtained at the end of June was at a gross undervalue. In so saying I appreciate that the opinion of the mortgagor as to the value may not carry any great weight in itself, but it is at least some indication that the price in fact obtained was not so low as to be indicative of bad faith on the part of the mortgagee vendor. The excessive demand. 22. The strongest criticism that can fairly be brought against the 1st Respondent is that he demanded from the mortgagor a total sum larger than that which was outstanding under the mortgage. Had the correct sum been demanded the mortgagor would have been able to pay off the mortgage, because he had the offer of finance from the Wing On Life Insurance Co. Ltd., and no sale would have been necessary. However much the 1st Respondent may have been at fault the fact remains that the mortgagor never tendered the amount which was in truth due. Nothing short of such tender could deprive the 1st Respondent of his right to sell his security, and, if he sold, the excessive demand could not turn what was otherwise a valid sale into a sale voidable on the ground of bad faith. The mortgagor has only himself to blame if he failed to keep proper accounts in order that he might know how much was outstanding, and he can hardly impugn the sale on the ground that the 1st Respondent had not kept proper accounts. As the judge said, the 1st Respondent was under no duty to the mortgagor to keep proper accounts. Conclusion as to good faith. 23. The judge having negatived good faith, this court will naturally be slow to come to a different conclusion, but the fact remains that each of the grounds upon which bad faith was alleged is seen, on analysis, to have no substance. It is to be noted that some of the particulars relied upon as indicating bad faith were never pleaded, a fact which cannot be altogether overlooked when one considers the significance of the evidence adduced. The mortgagee has not only refuted all the allegations of bad faith but has shown that the sale was properly advertised and properly conducted. It is not disputed that he was lawfully entitled to exercise the power of sale. In my view nothing more can reasonably be required of him. To say, as the judge did, that "he intentionally sacrifriced the interests of the claimant for his own gain" is certainly not a justifiable inferences from the primary facts found. This was a very different case from Forsyth v Blundell (1973) 129 C.L.R. 477, where the security was sold by private treaty at a price lower than that which a company had previously indicated that it was willing to pay at an auction. In our case it was the purchaser whose conduct was possibly open to question, but I think that on a fair view of the evidence it has been shown that the company did not gain any unfair advantage. What more could it do to establish good faith? The answer must be "Nothing". It has been suggested that the company should have called witnesses to prove affirmatively that those present at the auction did not know the relationship between the 2nd Respondent and the 1st Respondent or know that the Respondent was bidding on behalf of a company in which the 1st Respondent had an interest. There was evidence that one broker present did not know who the 2nd Respondent was and at the trial it was conceded by counsel for the mortgagor that no one would know the identity of the vendor. Rescission or damages? 24. Lest the matter should go further I will deal with the other matters raised on the mortgagor's appeal, and the first of these relates to the relief granted. 25. The judge refused rescission solely on the ground of the mortgagor's delay and the question which arises is whether delay after action brought is material. The prayer for rescission was contained in the counterclaim filed on 16th December 1966, so that there could be no suggestion that the mortgagor waited an unconscionable time before making his claim. The delay occurred thereafter and as a result of it the mortgagee applied on 30th November 1978 to strike out the counterclaim, judgment on the claim having been given in November 1968. Cons, J. dismissed the application to strike out and the counterclaim came on for trial on 21st November 1978, it having then been amended three times and the mortgagor having changed his solicitors no less than ten times. 26. Laches were not pleaded as an equitable defence to the claim for rescission, but the judge clearly thought that, as the mortgagor was himself seeking an equitable remedy, there was nevertheless power in the court to refuse that remedy if the conduct of the mortgagor had been such as to make it unjust that he should have it. He thought it would be unjust. Mr. Bernacchi submits that delay is immaterial unless it has the effect of lulling the opposite party into a false sense of security and that, once action has been brought, the apposite party cannot be lulled into a false sense of security so long as the proceedings subsist. From the fact that he was unable to find any case where an equitable remedy had been refused on the ground of delay after action brought he argued that such delay must be irrelevant and he pointed out that the refusal of Cons, J. to strike out the counterclaim proves that the mortgagee had suffered no prejudice from the delay in prosecuting the action. The argument based on the absence of any case where delay in prosecuting a claim after it had been brought had been relied upon would not have been a strong one in any event, but Mr. Wilmers has drawn our attention to In re Sharpe 1892 1 Ch. 154, where the judge clearly took such delay into consideration but, on the facts, considered that it was not so long as to bar the plaintiff from his remedy. For my part I do not see why delay after action brought should not be considered, although it may not be so weighty a factor as delay before any claim is made. Mr. Bernacchi submits that Du Sautoy v Symes 1967 Ch. 1146, which had also been cited by Mr. Wilmers, was in his favour. I agree that it does not support the opposite argument. Cross, J. said at p.1168:
Mr. Bernacchi submits that, because in the present case the claim for damages was not lodged until "very late", the Respondents had no reason to think that the mortgagor was going to ask for damages only and not specific performance. In fact the claim to damages was lodged at the beginning of April 1970. I think the judge had a discretion to refuse specific performance and that there was ample ground upon which he could exercise it as he did. Interest. 27. The conclusion that the price obtained was a proper price necessarily destroys the basis for an award of damages and, consequently, of the order for payment of interest. The judge fixed the interest at 1.2 per cent a month from 1st July 1966 until judgment. That rate was the lower of the two rates of interest which the mortgagor had been required to pay on the sums advanced under the mortgage. 28. There are two elements in an order for interest, the period over which the interest is to be paid and the rate. Mr. Wilmers submits that, assuming a sum on which interest should be paid, the judge was wrong both as to the period and the rate. He does not attack the commencement date, but says that where the judgment creditor has been guilty of unreasonable delay he should not receive interest for the whole of the period during which he has been kept out of his money, since he has brought his loss of the use of the money upon his own head. Mr. Bernacchi replies, first, that interest is at the discretion of the judge, and so it is, but it must be awarded in accordance with the principle that it is compensation for loss caused by the wrongful deprivation of his money: interest based upon any other principle is punitive and should not be allowed to stand. In favour of the judge's order it is said, secondly, that the mortgagee, on his side, was awarded the other contractual rate of interest of 1.4 per cent a month upon his judgment in respect of the mortgage debt and that, if the mortgagor were entitled to damages exceeding the amount of the mortgage debt for selling at an undervalue, then, although the mortgage debt could not be set off against the damages, it was fair that the mortgagee should have to pay an equally high rate of interest. Mr. Bernacchi points out that this view is supported by the fact that a stay of execution was placed upon the mortgagee's judgment. There is a measure of rough justice in this submission, but the delay, for which the mortgagor alone is responsible, would bear heavily upon the larger sum payable by the mortgagee. I think the fairest course would have been to order the payment of interest at the rate of 1.2 per cent a month up to the date at which the mortgagor would have obtained judgment had he prosecuted his claim with reasonable diligence - and 24th December 1970 would probably be fair, that being the last day of the Michaelmas term four years after the action commenced, in spite of the fact that the claim to damages was not added until April 1970 - and thereafter at the average of the Hong Kong prime lending rate plus 1 per cent over the whole period. If I had come to a different conclusion upon the rest of the appeal I would have allowed the mortgagee's appeal to the extent of altering the order for interest accordingly. Costs. 29. The last matter argued related to the order for costs made in favour of the mortgagor. The learned judge took the view that many irrelevant issues had been raised and awarded only 50 per cent of the costs of the trial. Mr. Bernacchi submits that such an order was totally unjustified. It is not disputed that costs were in the discretion of the judge. He considered nothing which was not relevant and no one was better placed to decide to what extent, if any, the trial had been unnecessarily prolonged. I would not have been prepared to interfere with the order he made. Perhaps it is right that I should add that, if the mortgagor had succeeded in this court, I think we would have had to consider very seriously whether he should be given all the costs of the appeals. 30. As it is, I would allow the mortgagee's appeal and set aside the judgment against him with costs here and below. I would dismiss the mortgagor's cross-appeal with costs. Garcia, J.: 31. I have had the advantage of reading in draft the judgment delivered by the learned President and I fully agree with what has been said. 32. I have nothing to add and would also allow the mortgagee's appeal and dismiss the cross-appeal of the mortgagor. 26th November 1980. |