China Agri-products Exchange Ltd v. Wang Xiu Qun and Another

HCA 1807/2011

[2022] HKCFI 1533

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1807 OF 2011

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BETWEEN

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DECISION ON INTEREST

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1.On 18 January 2021, I handed down the judgment of the trial of this action (“the Judgment”). This is the Decision on Interest in respect of the awards made in the Judgment.

2.The background of this action and the reasons for my judgment have been fully set out in the Judgment itself and I do not want to repeat the same here. In this Decision on Interest, I will adopt the same abbreviations that I used in the Judgment.

3.After trial, I granted judgment in favour of the Plaintiff against the Defendants in the sums of RMB 510 million for the Overpayment Claim, HK$54,211,000 for the Profit Guarantee Claim and HK$1 for the Land Indemnity Claim.

4.In the Judgment, I granted liberty to the parties to come back to the court to argue on the question of interest.

5.The parties had engaged in correspondence but failed to reach an agreement. The difference between them boils down to the following issues:

(i) When should the pre-judgment interest payable by the Defendants start to run in respect of the Overpayment Claim, the Profit Guarantee Claim and the Land Indemnity Claim (“Issue 1”);

(ii) Whether there should be a 50% discount to the pre-judgment interest payable by the Defendants by reason of the alleged delay on the part of the Plaintiff in bringing the matter to trial (“Issue 2”); and

(iii) Whether the interest payable under the Instruments is simple interest or compound interest (“Issue 3”).

Issues 1 & 2: Starting time for the computation of the pre-judgment interest and the question of delay

6.Issues 1 and 2 are related and so I will deal with them together.

7.S 48(1)(b) of the High Court Ordinance (Cap 4) (“HCO”) provides that the court may award simple interest on any claims for damages for all or part of the period between the date when the cause of action arose and the date of judgment.

8.An award of interest is to compensate the claimant for being deprived of the money during the relevant period. In commercial cases, such compensation is reflected in interest at a rate at which a person in similar position as the claimant generally would have had to pay to borrow money.[1] For such cases, prime plus 1% should be the starting point and interest would be awarded at such rate unless there is evidence to persuade the court that time has come to move away from such rate.[2]

9.Delay may be a factor taken into account by the court in considering the question of interest. In Remedy Asia Ltd v Patrick Tong Hing Chi[3], Coleman J summarised a number of principles for the exercise of jurisdiction under s 48 of the HCO, in particular:

(i) The court may take into account delay on the part of the claimant and reduce the award of interest accordingly. The rationale is that it would be wrong in principle that interest should accrue during a time when the claimant has been guilty of unreasonable delay, thereby keeping them out of the sum awarded by their own fault.[4]

(ii) A broad-brush approach to questions of delay is appropriate. That requires being realistic, and considering the character of the delay making due allowance for the circumstances. Essentially, the court is concerned to see whether the claimant has neglected or declined to pursue or prosecute their claim for a significant period. If so, the logic of disallowing or reducing an award of interest for that period comes into play.[5]

10.In commercial disputes, the following principles adopted by DHCJ Eugene Fung SC in Wan Chi Hing v Lau Wai Fan are also relevant:[6]

(i) Where a claimant has delayed unreasonably in commencing or prosecuting proceedings, the court may exercise its discretion either to disallow interest for a period or to reduce the rate of interest.

(ii) In exercising that discretion the court must take a realistic view of delay. In the case of business disputes, litigation is for all parties an unwelcome distraction from their proper business. It is not reasonable to expect any party to take every litigious step at the first possible moment, or to concentrate on litigation to the exclusion of all else. Delay should only be characterised as unreasonable for such purposes when, after making due allowance for the circumstances, it can be seen that the claimant has neglected or declined to pursue their claim for a significant period.

(iii) When determining what disallowance or reduction of interest should be made to mark a period of unreasonable delay, the court should bear in mind that the defendant has had the use of the money during that period of delay (though it may not always excuse the fault of the claimant^[7]).

11.In the present case, the Plaintiff’s position is that pre-judgment interest should run from the date of the accrual of the cause of action of the respective claims:

(i) The cause of action for the Overpayment Claim arose on 5 December 2007 when the Plaintiff completed the acquisition of 90% interest in BSZ.[8]

(ii) The cause of action for the Profit Guarantee Claim arose on 1 January 2008 when the Profit Guarantee Period came to an end.[9]

(iii) The cause of action for the Land Indemnity Claim arose on 5 December 2007 when the transaction was completed as the 1^st Defendant was in breach of her “best endeavours” obligations under Clause 8.3.[10]

12.On the other hand, the Defendants’ position is that pre-judgment interest should only run from the date these claims were “properly introduced and particularised” by the Plaintiff, namely either the date of the writ of summons (i.e. 24 October 2011) or alternatively the date of the Re-Re-Amended Statement of Claim (“SOC”) (i.e. 7 May 2015). The Defendants also allege that there was “substantial unjustifiable delay” on the Plaintiff’s part.

13.I agree with Mr Ho SC, counsel for the Plaintiff, that there was no unreasonable delay on the part of the Plaintiff in prosecuting its claim before the date of the writ. In anything, the lapse of time was caused by the Defendants’ own wrongful conduct.

14.It cannot be disputed that the Plaintiff encountered considerable difficulties in obtaining control of BSZ and access to BSZ’s financial information and documents from completion on 5 December 2007 to November 2010. In the Judgment, I found that:

(i) the Plaintiff “encountered tremendous difficulties and resistance in seeking to gain control over the operation and management of BSZ and access to BSZ’s financial information and documents”[11];

(ii) the Defendants “were still in control of BSZ until at least November 2010”[12] and the Plaintiff was “shut out from its use of the Market after completion and only managed to take physical control of the Market in November 2010”[13].

15.With these findings that the Defendants were responsible for the delay in the handover of BSZ to the Plaintiff, it would be quite impossible for the Defendants to argue that the Plaintiff was responsible for any delay in bringing the present proceedings against them. After all, the Plaintiff had had more urgent matter to attend to, i.e. in trying to gain control of BSZ, at least before November 2010 and it should not be criticized for not immediately taking legal actions against the Defendants.

16.I also agree with Mr Ho that the less than 1-year gap between November 2010 and 24 October 2011 (i.e. the date of the writ) should be viewed realistically. Time must be allowed for the Plaintiff to conduct proper investigation and analysis of the Electronics Ledgers of BSZ after the handover. The voluminous documents in this case[14] and the “great difficulty in quantifying the extent of inflation” of the Management Accounts[15] must also be taken into account in assessing the time taken by the Plaintiff to commence this action. Further, the Plaintiff is a commercial party (a listed company that needs to account to public shareholders for the use of its coffers) and it would be unreasonable to expect it to resort to litigation at the first possible moment in November 2010.

17.The Defendants seek to rely on the dicta made by the courts in Cyberworks Audio Video Technology Ltd v Mei Ah (HK) Co Ltd^[16] and 廣東省廣業環保集團有限公司 v Po On Construction Engineering Ltd^[17] to argue that there should be no award for pre-judgment interest for the period prior to the issue of the writ. For the present purposes, it suffices for me to say that such dicta would have to be understood in the context of the facts of those cases. In light of the findings of this court as mentioned in §§13 and 14 above, there is simply no justification to deny the Plaintiff’s request for pre-judgment interest for the period from the dates of accrual of the respective causes of action of the claims to the date of issue of the writ.

18.On Issue 2, the Defendants contend that there should be at least 50% discount on the interest payable by the Defendants to the Plaintiff. The Defendants rely on a number of matters relating to the Plaintiff’s alleged “delay in prosecuting the present action”. Issue 2 is therefore directed at the period of time from commencement of the action on 24 October 2011 to trial starting on 19 February 2019.

19.There is again no substance in the Defendants’ criticisms.

20.The Defendants complain that it took the Plaintiff some 8.5 years to bring the present action to trial. However, both parties may be responsible for the time taken for the legal proceedings, and so the Defendants would have to identify the periods under which they complain that the Plaintiff had been dragging on its feet or had been acting unreasonably which prolonged the litigation. Sweeping allegation without specifics like the one made by the Defendant is not enough.

21.It is quite clear that in the early stage of the proceedings, the Plaintiff had to make considerable effort to effect service of the writ outside jurisdiction. As expected, there were challenges on service and jurisdiction grounds, and the matters took some time to resolve. By reason of these challenges, the Defence was only filed in January 2014 after the making of an unless order. After that, the Plaintiff applied to strike out certain parts of the Defence. After the hearing and the appeal, one paragraph of the Defence was eventually struck out. With such result, there is at least some justification for the Plaintiff’s striking out application. Unless there is anything to suggest that the Plaintiff had been dragging on its feet or had been acting unreasonably in this period of time, which there is none, I do not accept that the Plaintiff should be held accountable for such delay.

22.Furthermore, the progress of this case has to be judged realistically given: (i) the complexity of this case; (ii) the need to adduce expert evidence from multiple disciplines; (iii) the existence of parallel Mainland proceedings; and (iv) the Defendants’ own conduct of the litigation. In fact, the Plaintiff was placed in a very difficult position in investigating and pursuing the claim in view of the hostile and uncooperative attitude of the Defendants and their reluctance in handing over the control and financial documents of BSZ to the Plaintiff.

23.As I understand it, the main complaint of the Defendants is that the Plaintiff had made a few attempts to amend the SOC: the first amendment on 17 July 2012, the second amendment on 11 October 2012, the third amendment on 7 May 2015, the fourth amendment on 23 November 2018 (with the addition of the Dishonest Assistance Claim) and the fifth amendment with leave granted on the second day of the trial.

24.According to Mr Lin, counsel for the Defendants, the Plaintiff’s Overpayment Claim, Profit Guarantee Claim and Land Indemnity Claim did not begin to take shape or were not properly formulated in the pleadings until 7 May 2015 when leave to amend its Re-Amended SOC was granted. By such amendment, the length of the SOC was doubled from 28 pages containing 73 paragraphs to 69 pages containing 86 paragraphs. Mr Lin submits that interest should only run from 7 May 2015 when the 6 heads of claim were formulated for the first time. As the Plaintiff was responsible for the proper formulation of its claim, the Defendants should not be asked to pay for the interest resulting from the delay in such formulation.

25.Despite the able submissions of Mr Lin, I do not agree with his argument. The bases of the Overpayment Claim, the Profit Guarantee Claim and the Land Indemnity Claim were already pleaded in the original SOC on 24 October 2011.[18] Hence, these three claims were not new claims in 2015 but have always been part of the Plaintiff’s pleaded case right from the beginning of this action. Furthermore, as the determination of all these claims requires expert evidence from multiple disciplines, I agree with Mr Ho that it is completely unrealistic to expect the Plaintiff to be in a position to plead all the particulars and the exact figures of the respective claims at the earlier rounds of pleadings.

26.There is also no justification to deny interest to the Plaintiff by reason of the subsequent amendments:

(i) The amendment in November 2018 for the addition of the Dishonest Assistance Claim had little impact on the progress of the case. In any event, any prejudice suffered by the Defendants had been compensated by the adverse costs order made against the Plaintiff on an indemnity basis.

(ii) The amendment made on the second day of the trial had no real impact on the progress of the case.

27.I also agree with Mr Ho that the time span of this litigation has to be considered against the overall complexity of the case and the vast amount of factual and expert evidence adduced at the trial, which are to a great extent reflected in the length of the trial (lasted for 23 days) and the length of the Judgment (consisted of 212 pages). In a case of this magnitude, the length of time taken from the commencement of the action to the conclusion of the trial cannot be said to be extraordinary, and the Plaintiff should not be held accountable or penalised for the same.

28.Mr Lin also submits that the accrual of the cause of action for the Land Indemnity Claim could not have arisen as early as 5 December 2007 (i.e. the time when the Plaintiff completed the acquisition of the 90% interest in BSZ) when the 1^st Defendant’s “best endeavours” obligations under Clause 8.3 was to be discharged only after completion.

29.As I had only awarded nominal damages to the Plaintiff for the Land Indemnity Claim, the dispute between the parties in respect of the interest for the award under such claim is academic. In any event, since it is very difficult to assess as to when the Defendants should have done certain things to discharge the “best endeavours” obligation or when the Plaintiff had started to suffer actual damages, I agree that, in principle, the interest for the award of such claim should only start to run from the date of the writ.

30.For the above reasons, I hold that:

(i) the interest for the award under the Overpayment Claim should start to run from 5 December 2007 to the date of judgment at the rate of prime plus 1%;

(ii) the interest for the award under the Profit Guarantee Claim should start to run from 1 January 2008 to the date of judgment at the rate of prime plus 1%; and

(iii) the interest for the award of the Land Indemnity Claim should start to run from 24 October 2011 to the date of judgment at the rate of prime plus 1%.

Issue 3: Interest payable under the Instruments

31.As pointed out in §566 of the Judgment, the Plaintiff still owes the amounts due under the two respective Instruments plus any interest stipulated therein to the Defendants. There is now dispute between the parties as to whether such interest should be simple interest or compound interest.

32.Clause 2 of the Instruments provides an undertaking to pay “適用于每天結餘的年利率為5%的利息(利息以一年365天為基準)”.

33.According to the Defendants, the definition of compound interest as commonly understood is that interest is to be calculated on the principal amount and also on the accumulated interest of previous periods (be it on daily, monthly or quarterly intervals), thus being regarded as “interest on interest already accrued”, whereas the definition of simple interest is that interest is merely to be calculated upon the principal (i.e. the original amount of the loan). It then follows from the words “每天結餘” in Clause 2 that interest is to be accrued at an annual interest rate of 5% compounded on a daily interval.

34.In support of such contention, Mr Lin relies on:

(i) the dicta of Mr Recorder Edward Chan SC in Hang Seng Bank Ltd v Highfit Development Co Ltd[19], which suggests that a similar worded clause should carry the meaning of the interest to be calculated on compound basis; and

(ii) the figures in the annual and interim reports of the Plaintiff, in which the sums for the amounts due under the Instruments were not calculated by way of simple interest.

35.In case of any ambiguity in the meaning of Clause 2, Mr Lin also rely on the contra proferentem rule to argue that the clause should be construed against the interest of the Plaintiff as it was party who drafted the terms of the Instruments.

36.Again I have to reject Mr Lin’s argument on such issue.

37.An express contract for payment of interest will normally specify the interest rate, and it may further specify the method of computing interest and whether interest is to be compounded. I agree with Mr Ho that computing of interest must be distinguished from compounding. The latter is the capitalisation of interest so that interest itself yields interest.[20]

38.As pointed out by Mr Ho, the courts have emphasised that a construction for charging compound interest should be supported by the wording of the relevant clause.[21] The party claiming for compound interest has the burden to prove the contractual terms for charging compound interest and the rate thereof.[22] In Brice v Chambers[23], it was held that the fact that interest was stated in the relevant clause to accrue from day to day is “neutral”. The court also held that if it were the intention of the parties that the interest accruing daily be capitalised, it would be surprising that there was no reference to compound interest or capitalisation of interest in the relevant clause.

39.In the present context, had it been the intention of the parties that the interest under the Instruments is to be compounded daily, they could have easily provided for it by stipulating, for example, the payment of “複利息” or “複利率” (i.e. the Chinese term for compound interest). Yet there are no such words in Clause 2.

40.I therefore agree with Mr Ho that the combined effect of the words “每天結餘” and the subsequent phrase “利息以一年365天為基準” is that the annual interest rate of 5% would be divided by 365 to produce a daily interest factor, which can then be multiplied by the number of days for which the loan is outstanding.[24] The words “每天結餘” themselves are neutral as to whether the interest charged is simple or compounded in nature. They do not, without more, support a construction that interest is to be compounded or capitalised daily.

41.The decision in Hang Seng Bank Ltd v Highfit Development Co Ltd[25] is of limited assistance in this case. Quite apart from the fact that there seemed to be no arguments on the proper construction of the interest-charging clause in that case, the undertaking itself provided that “interest was to be debited to the account on a monthly basis”. That may provide some justification for the capitalisation of interest at a regular interval. In contrast, the language in Clause 2 of the Instruments is quite different as there is nothing in support of the debiting or capitalisation of the daily interest in the clause itself.

42.I also agree with Mr Ho that the calculations in the Plaintiff’s interim and annual reports in 2018 to 2020 do not assist the Defendants’ case either. First, post-agreement conduct and statements of the parties are not generally relevant in construing the terms of an agreement made earlier.[26] Second, even if the calculations in the Plaintiff’s interim and annual reports can be used as an aid in the construction exercise, the figures extracted from these reports do not tally with either the calculation of simple interest or compound interest. If anything, the amounts adopted in these reports are substantially less than the amounts derived from the Defendants’ calculation based on daily compounded interest. I therefore agree with Mr Ho that, in the absence of any opportunity for the Plaintiff to file evidence to explain the basis of the accounting approach adopted in the various reports, the Defendants are not entitled to rely on the figures in such reports to support their claim for compound interest.

43.Finally, there is no room for the application of the contra proferentem rule in the present case:

(i) As analysed above, the meaning of Clause 2 is clear. Since the rule is only confined to cases of genuine ambiguity[27], there is no justification to resort to such rule in the present construction exercise.

(ii) The modern view is to recognise that commercial parties are entitled to make their own bargains and that the task of the court is to interpret fairly the words they have used.[28] In relation to commercial contracts negotiated between parties of equal bargaining power, the contra proferentem rule has a very limited role.[29] The evidence of this case shows that the SPAs were commercial contracts negotiated between parties of equal bargaining power, and so the rule has no role to play in resolving the issue of construction.

44.For these reasons, the interest payable under the Instruments is only simple interest.

Conclusions

45.I will therefore leave it to the parties to work out the exact quantum of the interest and the set-off in accordance with the rulings in this Decision on Interest. I imagine this only involves arithmetic calculation and I do not anticipate that the parties will have to trouble the court again on the question of interest.

46.Since the Plaintiff can be regarded as the successful party in these arguments on costs, I make a costs order nisi that the costs associated with the argument on interest be to the Plaintiff with certificate for 2 counsel which shall be made absolute 14 days after the date of the handing down of this Decision on Interest. For only argument on interest, I have reservation as to whether the Plaintiff need to engage senior counsel to deal with the matter. But since it is a taxation issue, I leave it to the taxing master to decide.

Mr Ambrose Ho, SC, Ms Bonnie YK Cheng and Mr Jeff Chan, instructed by DLA Piper Hong Kong, for the Plaintiff

Mr Kenny C P Lin and Ms Sabrina Leung, instructed by David Lo & Partners, for the 1^st and 2^nd Defendants