Polyset Ltd. v. Panhandat Ltd.

FACV000028A/2000

FACV No. 28 of 2000

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 28 OF 2000 (CIVIL)

(ON APPEAL FROM CACV NO. 70 OF 2000)

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Court: Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ, Mr Justice Litton NPJ and Lord Millett NPJ

Date of Determination: 25 April 2002

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D E T E R M I N A T I O N

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Mr Justice Bokhary PJ:

1.The determination of the Court on interest and costs will be given by Mr Justice Ribeiro PJ.

Mr Justice Ribeiro PJ:

2.Two questions were raised in the appeal. The first was as to whether the appellant, a purchaser under a contract for the sale and purchase of land, was entitled to rescind the agreement. The second was whether, if not, the respondent vendor was entitled to forfeit sums paid by way of deposit and part payment equivalent to 35% of the purchase price. The courts below had answered the first question negatively and the second affirmatively. This Court, with one member dissenting, allowed the appeal to the extent of holding that the answer to the second question should also have been "No".

3.The respondent was accordingly entitled to damages for breach of the contract (assessed by the trial judge at $33 million) but ordered to return the excess received by way of deposit and part payment. At the hearing of the appeal, the excess amount was taken to be $7.25 million. The parties now agree that this involved an arithmetical error and that the correct sum is $6.55 million.

4.This Court made an order nisi that each party should bear its own costs here and in the Court of Appeal. The parties were also directed to consult together with a view to agreeing the period and rate of interest payable on the amount ordered to be repaid with liberty to file written submissions for the Court's determination in the event of disagreement.

5.Such written submissions have now been received regarding the period and rate of interest payable and also as to whether the trial judge's award of 80% of the costs of the action in favour of the respondent should be varied in the light of the conclusions reached by this Court.

6.The appellant contends that it should be awarded interest at prime rate plus 1% on the $6.55 million sum as from 29 April 1998, the date when it started proceedings to recover the deposits. It also argues that the trial judge's award of 80% of the costs of the action, upheld by the Court of Appeal, was wrong in principle and that it should have 50% of those costs or, failing that, that each party should bear its own costs of the action or, in the further alternative, that it should not have to pay as much as 80% of the respondent's costs.

7.The respondent invites the Court to order interest on the $6.55 million to run only from the date of Deputy Judge Li's judgment published on 23 November 1999 at the rate that he adopted in respect of the $11.5 million awarded to the appellant at trial (ie, at the Bank of East Asia's 7 day deposit rate). It submits that the trial judge's award of 80% of the costs in its favour should be upheld.

Period and rate of interest

8.Until the trial, the respondent had refused to refund any part of the sums it had received by way of deposit and part payment. At the trial, it conceded that the $11.5 million paid under a supplemental agreement (as described in paragraph 4 of the Judgment) should be returned. However, it refused to repay any further part of the sums received under the agreement.

9.The sole basis for withholding the relevant sums was that they constituted deposits validly forfeited. This Court has declared that position to be wrong and that the sums taken were not true deposits and so were not liable to forfeiture. However, this Court also held that the appellant's liability in damages for breach of contract could be set off against its claims for a return of the purported deposits.

10.It follows, as the respondent argues, that until the purchaser's liability in damages was quantified at the trial, no one knew for sure whether there would be any excess "deposit" left after setting off the damages. The respondent therefore contends that until the damages and the excess were quantified in the judgment after trial, the purchaser could not be said to have been unlawfully kept out of any sum of money, so that interest should only accrue as from the date of that judgment.

11.Assuming it to be true to state that, given the respondent's power of set off, the appellant was not being unlawfully kept out of his money pending quantification of the set-off amount, the fact remains that throughout the relevant period, the respondent had the use of all the sums paid under the contract. It could have earned interest on it, including interest on any portion subsequently found to constitute the excess after setting off the damages. There would be no justification for the respondent keeping the interest earned on that portion while denying the appellant any entitlement to interest during that period.

12.It is therefore our view that interest on the $6.55 million amount should be ordered to accrue as from the date when proceedings were commenced, ie, as from 29 April 1998.

13.The trial judge has a discretion to determine the rate of interest. To compensate a successful plaintiff for being kept out of his money, the general practice in Hong Kong has, at least since 1984, been to award interest reflecting the theoretical cost to the plaintiff of borrowing the sums withheld. This is a rate taken to be prime plus 1% unless the evidence in a particular case makes adoption of another rate appropriate: see Komala Deccof & Co SA v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219.

14.In the present case, in relation to the sum of $11.5 million ordered to be repaid, the trial judge adopted a rate representing what would be "payable on money in court placed on short term investment account taken as an average over the period for which it was awarded". For convenience, he deemed the Bank of East Asia's 7 day deposit rate to be such a rate. In so doing, he was awarding interest which a customer might earn from his deposit with a bank rather than the commercial interest he would have to pay to borrow from a bank.

15.That award of interest was not subject to appeal and, as the appellant accepts, no material distinction can be drawn between the return of the respective sums of $11.5 million and $6.55 million. In the present circumstances, particularly given the uncertainty as to whether the plaintiff was being kept out of any funds pending quantification of the set-off, use of the interest rate adopted by the trial judge instead of the more usual prime plus 1% rate is appropriate.

16.We therefore order interest on the sum of $6.55 million to run from the commencement of proceedings on 29 April 1998 until the handing down of judgment by this Court on 25 February 2002, at the Bank of East Asia's 7 day deposit rate averaged over that period, and thereafter at the judgment rate.

Costs

17.As indicated above, the trial judge ordered the appellant to pay 80% of the respondent's costs of the action. He therefore appears to have regarded the defendant as the winner of the action. No doubt this was because he had held that the purchaser was not entitled either to rescind the contract or to recover the $6.55 million representing the amount by which the purported deposit exceeded the damages assessed to be recoverable (as well as the conceded sum of $11.5 million). He was evidently prepared to acknowledge that the purchaser had in fact recovered $11.5 million as a result of the concession obtained at the trial, but only to the extent of reducing the purchaser's liability to pay the vendor's costs by 20%. His order was upheld by the Court of Appeal.

18.The reasoning which underlies the trial judge's costs order has been overturned by the majority decision in this Court. It has been declared that the purported deposit of 35% (or, if one takes the $11.5 million into account, of 45%) in the present case was excessive and could not be justified as a true deposit. It was therefore not susceptible to forfeiture and the purchaser ought to have been held entitled to a return of all sums paid over by way of purported deposit to the extent that they exceeded the amount of damages assessed.

19.The trial judge's costs order was therefore wrong in principle. The proceedings which the purchaser was compelled to bring have ultimately established that it was entitled to recover some $18 million of the $51.75 million it had paid over. This entitles it to be treated as a successful plaintiff although its success was partial, its object at the trial having been to recover the entire sum of $51.75 million. The purchaser is nonetheless entitled to have the costs of the action, but reduced to reflect the partial nature of its success.

20.We accordingly set aside the trial judge's order as to the costs of the action and substitute an order that half of such costs be paid by the respondent to the appellant to be taxed if not agreed.

21.As both parties have indicated that they do not seek to disturb the order nisi whereby each is to bear its own costs on appeal, that order is now made absolute. The respondent must also pay the costs of and occasioned by the submissions lodged in connection with this Determination.

Representation:

Mr Michael Thomas SC and Mr Godfrey Lam (instructed by Messrs Kok & Ha) for the appellant

Mr Denis Chang SC and Mr Andrew Mak (instructed by Messrs Gallant Y T Ho & Co) for the respondent