Choy Yuen on David v. Soka Gakkai International of Hong Kong Ltd

HCA 2804/2018

[2024] HKCFI 138

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2804 OF 2018

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BETWEEN

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DECISION ON INTEREST

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1.I will continue to adopt the nomenclatures used in the Judgment herein dated 12 December 2023.

2.By that Judgment, I upheld Choy’s claim based on a Quistclose trust and ordered HKSGI to return the HK$2,000,000 Choy paid to it on 20 July 1999 (which, I am informed, HKSGI did within 3 days of the Judgment).  I also awarded on nisi basis pre-judgment interest on the sum at the prime rate per annum from 20 July 1999 to the date of the Judgment.

3.The parties have since lodged their respective written submissions.  Choy seeks to vary such that pre-judgment interest be awarded at prime rate plus 1% and/or it be compounded on yearly rest.  HKSGI does not seriously resist the variation of the rate of interest to prime plus 1% but contends that interest should only be awarded from the date of the commencement of this action.  HKSGI also opposes any award for compound interest.

4.It is not disputed by the parties, as is trite, that the award of pre-judgment interest is a matter of discretion of the court. 

5.Since HKSGI does not contend against Choy’s submission that despite HKSGI being a charity the usual broad-brush rate of prime plus 1% to compensate a successful plaintiff for being kept out of the money should be adopted, I will vary the rate of pre-judgment interest accordingly.

6.I turn next to consider HKSGI’s contention that interest should only be awarded from the commencement of this action.

7.Mr Yin submitted, as a matter of principle, which I accept, that on the basis of a Quistclose trust the sum was returnable only when the purpose has failed.  On the evidence, initially there seemed to be some steps taken shortly after payment with a view to attempting to apply the sum for the stated purpose (for instance, the discussion in the Meeting), but then at some point in time later, the sum was put in a fixed deposit bank account and left sitting there for years, and the purpose was never carried out.  As HKSGI did not call any witness, it is not known what transpired and there is thus no direct evidence as to when the purpose has failed.  The only piece of evidence is what Kajiura explained in the 2014 Conversation that HKSGI did not operate, nor wanted to operate, “private” education fund.  On such scanty evidence, I would hold that HKSGI ought reasonably to have returned the sum to Choy 3 months after, ie. on 20 October 1999.

8.Moreover, HKSGI has been receiving interest on the sum by way of putting it in a fixed deposit. If the interest award only covers the period after the commencement of this action, HKSGI would in effect be allowed to retain as against Choy, the beneficial owner, such interest earned from 20 October 1999 to 2018.   As a matter of principle, HKSGI, as a trustee under a resulting trust who has failed to return the sum, should not be allowed to be put in a position to make such a personal gain.

9.Therefore, I am unable to accept HKSGI’s such contention, and would vary the date when the interest began to accrue to 20 October 1999.

10.On the question of compound interest, Mr Chong cited quite a number of authorities supporting the propositions that compound interest is appropriate (a)  where a fiduciary has wrongfully withheld or misapplied trust fund, (b)  where the fiduciary has improperly profited though he has not applied the trust fund in his own trade or business, and (c)  where trust money was misused by a fiduciary, equity would presume that the delinquent fiduciary has made that amount of profit which persons ordinarily do make in trade, and thus would direct rests to be made. 

11.Without disrespect to the detail research and submissions of Mr Chong, I do not find it necessary to refer to the authorities or discuss them.

12.I do not find it necessary because the established facts before me are very clear and they do not place HKSGI within any of the said propositions.  The following are indeed common grounds or are matters not disputed by the parties: (a)  HKSGI at all material times has been a charity and has not been engaging in any profit earning activities, (b)  the money has always been sitting in a fixed deposit account together with other “education funds”, (c)  (for whatever reason)  in all the years there was no demand from Choy for the return of the sum, and (d)  there is no allegation from Choy of any wilful default or other wrongful conduct on the part of HKSGI (save the failure to return the sum).  Thus, it is indisputable that HKSGI in fact has not profited from its retention of the money (save earning the interest under the fixed deposit).  And the fact that no income or profit was earned on the sum by HKSGI (other than the interest earned by fixed deposit)  was not due to any adverse conduct on the part of HKSGI; and as said, indeed there was no such complaint from Choy whatsoever.

13.Mr Chong said that in all likelihood HKSGI have received “compound interest” on the fixed deposit by way of yearly (or shorter)  rests as the interest earned would roll on to form part of the principal in the next term deposit.  Mr Yin reminded that the interest rate of a fixed deposit would be lower (if not much lower)  than the lending rates, which is not disputed.  Thus, there is no evidence that if compound interest were not awarded and only prime plus 1% simple interest is awarded, HKSGI would be making a gain.  In any event, as Mr Yin emphasized, Choy has not sought the alternative remedy of an account to gouge the interest actually earned by the fixed deposit.

14.In my view, having chosen not to pursue an account and in light of the facts of the case I mentioned above that do not justify an award of compound interest, Choy cannot simply rely on the sole fact that HKSGI might have been receiving “compound interest” by way of fixed deposit in the manner set out above to spring-board the interest award to that of compound interest at prime rate plus 1%.

15.In the premises, I would not award compound interest with yearly rest as now sought by Choy.

16.For the above reasons, I vary the award of pre-judgment interest to this: HKSGI do pay Choy interest on the sum of HK$2,000,000 at the prime lending rate plus 1% per annum from 20 October 1999 to the date of the Judgment.

17.On costs, both parties succeed in varying part of the award, though evidently Choy achieves more than HKSGI by way of monetary result.  Moreover, as the parties at trial have not had the opportunity to address the court on the issue of interest, this round of written submission could properly be regarded as part of the trial.  I thus would order that the costs of this round of written submissions form part of the trial costs.

18.I thank all counsel for their assistance.

Mr KM Chong, Ms Yvonne Yip and Mr Alvin Chong, instructed by TK Tsui & Co, for the Plaintiff

Mr Michael Yin, instructed by Yu, Tsang & Loong, for the Defendant