The Hongkong Electric Co Ltd v. Commissioner of Rating and Valuation

FACV No. 12 of 2010

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 12 OF 2010 (CIVIL)

(ON APPEAL FROM CACV NO. 27 OF 2010)

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Between:

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JUDGMENT ON INTEREST

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Chief Justice Ma :

1.A short point in relation to interest arises before this Court.  On 21 June 2011, Judgment was handed down in the appeal whereby the decision of the Lands Tribunal was restored and the decision of the Court of Appeal set aside.  This had financial consequences for the parties.  The relevant facts and chronology are contained in the Judgment of Mr Justice Ribeiro PJ.  For the purposes of the question before us on interest, the disputed period is between 10 November 2010 (when, as a result of the decision of the Court of Appeal, the Company repaid the amounts it had previously received as overpayments following the Lands Tribunal’s decision) and 21 June 2011 when the Judgment of this Court was handed down (which restored the decision of the Lands Tribunal).  The result of the Company’s successful appeal to this Court was that monies became due to the Company from the Commissioner. 

2.The question before us is this: for the disputed period, should interest be payable on the sums payable to the Company by the Commissioner at the judgment rate or only at a lower rate to match the Company’s cost of borrowing (I will refer to this latter rate of interest as the normal rate)?

3.For the reasons contained in the Judgment of Mr Justice Ribeiro PJ, I agree that in the present case, the proper order to be made is that the appropriate rate of interest to be paid by the Commissioner to the Company in respect of the disputed period, ought to be the rate matching the Company’s actual cost of borrowing and not the judgment rate of interest.

4.The Company’s argument is a simple one.  Since the Court of Final Appeal has restored the decision of the Lands Tribunal and since the Lands Tribunal had in effect adjudged sums due to the Company (by way of the repayment of sums overpaid by the Company to the Commissioner), interest should, as a matter of principle, accrue at the judgment rate on this sum from the date of the Lands Tribunal’s decision.  However, by reason of the various payments made by the Commissioner following the Lands Tribunal’s decision and the repayments made by the Company following the Court of Appeal’s decision (see paras 11 to 12 below), the only period with which we are concerned is the disputed period.

5.It is clear that the Court has a discretion to determine the appropriate and just rate of interest (there being no requirement, statutory or otherwise, to award interest at the judgment rate in the present circumstances).  In order then to determine whether or not the appropriate rate of interest should be the judgment rate (which is usually a much higher rate than the normal rate), it is important first to understand the rationale for imposing the judgment rate.  Usually, the judgment rate applies automatically by reason of statutory provisions (see, for example, s.12C of the Lands Tribunal Ordinance Cap 17 or s. 49 of the High Court Ordinance Cap 4).  It is clear that this rate of interest is imposed not so much to compensate a successful party, but to encourage the paying party to honour any money judgment as quickly as possible.  This has been the rationale as stated by this Court:- see Man Ping Nam v Man Fong Hang (No. 2) (2007) 10 HKCFAR 140, at 146J to 147A (para. 23).

6.Implicit in the judgment rate being imposed must also be the existence of a judgment awarding an amount of money that is due in the first place.  Where for any reason there is no judgment, it must follow that the applicable interest cannot be the judgment rate as such.

7.In the present case, during the disputed period, there was no judgment awarding any amount of money to the Company.  By reason of the Court of Appeal having allowed the appeal from the Lands Tribunal, there was accordingly no judgment which could possibly attract interest rate at the judgment rate.  True it is that the Court of Final Appeal eventually restored the Lands Tribunal’s judgment, but I simply cannot see how it could be said that at the relevant time (that is, during the disputed period), when one is talking in real time terms, that the Commissioner should have been encouraged to pay a judgment award that was non-existent.  Such a conclusion would be illogical and would not accord with common sense.

8.So what should be the appropriate rate of interest, because it is right to say that the Company has been kept out of its money during the disputed period?  I agree that the appropriate rate should be the rate reflecting the Company’s cost of borrowing.  This will compensate the Company for being deprived of the relevant funds during the disputed period. An award based on the judgment rate does not represent compensation; it is more than that.  As stated above, the rationale for the judgment rate is inappropriate in the present case.  There is no injustice in this result either: the Company is still compensated for the loss of the use of its money in interest terms.

Mr Justice Bokhary PJ :

9.I agree with the judgment of Lord Millett NPJ.

Mr Justice Ribeiro PJ :

A.  The issue

10.On 21 June 2011, the Court handed down judgment setting aside the order of the Court of Appeal and restoring the decision of the Lands Tribunal.  The parties were directed to draw up an order reflecting the Court’s decision.[1] They now ask the Court to resolve one issue upon which they have been unable to agree.  That issue concerns the rate of interest payable over a particular period.

11.The relevant chronology is as follows:

(a) The Commissioner originally assessed the tenement’s rateable value for the year 2004/05 at $6,294,000,000, later adjusting this down to $5,684,000,000.

(b) On 30 November 2009, the Lands Tribunal allowed the Company’s appeal and assessed the rateable value for rates and for Government Rent for that year to be $3,945,000,000 and $1,586,000,000 respectively. 

(c) On 12 April 2010, the Tribunal ordered the Commissioner to refund to the Company the amounts which it had overpaid in the sums of $86.97 million and $20.388 million respectively, with interest.  The Government made the refunds on the following day, 13 April 2010.  On 31 May 2010, the Government also paid the interest awarded.

(d) Then on 14 September 2010, the Court of Appeal allowed the Commissioner’s appeal and restored the Commissioner’s adjusted assessment.  Accordingly, on 3 November 2010, the Commissioner demanded the return of the sums which had been refunded to the Company after the Lands Tribunal’s decision.

(e) On 10 November 2010, the Company duly repaid the amounts it had previously received back as overpayments pursuant to the Lands Tribunal’s judgment.  And on 4 April 2011, it paid interest on the amounts it had received and had since repaid.

(f) Then on 21 June 2011, this Court reversed the Court of Appeal and restored the judgment of the Lands Tribunal.

(g) On 19 and 27 July 2011, the Government paid back the sums reclaimed consequent on the Court of Appeal’s judgment and paid agreed interest thereon for the period following this Court’s judgment.

12.There is disagreement only with regard to the rate of interest payable over the period between 10 November 2010 (when the Company repaid the previously refunded sums to the Government) and 21 June 2011 (when the Company’s appeal was allowed by this Court).  I shall refer to that period as “the disputed period”.

13.The Company claims interest over the disputed period at the prescribed judgment rate on the sums it had repaid.  The Commissioner accepts liability to pay interest on the relevant amount over that period, but submits that this should only be at a lower rate matching the Company’s then actual cost of borrowing (as to which there was evidence).  The Court is asked to decide upon the rate of interest to be awarded.

B. The Company’s argument

14.The Company’s argument begins with section 12C of the Lands Tribunal Ordinance[2] which provides:

“(1) Subject to any other Ordinance, judgment debts carry simple interest on the aggregate amount of the debts, or on such part of the debts as for the time being remains unsatisfied, from the date of the judgment until satisfaction.

(2) Interest under this section is—

(a) at such rate as the Tribunal may order; or

(b) in the absence of such order, at such rate as may be determined from time to time by the Chief Justice by order.

(3) Interest under this section may be calculated at different rates in respect of different periods.”

15.The Company’s reasoning proceeds as follows:

(a) When it obtained the Lands Tribunal’s decision, it obtained a judgment debt in its favour, attracting an entitlement to interest from the date of the judgment until satisfaction under section 12C(1).

(b) The effect of this Court’s decision was to reinstate the judgment of the Lands Tribunal as from the date when it was given, as established by decisions in the House of Lords[3] and the High Court of Australia[4] discussed below.

(c) The consequence, so the Company’s submits, is that it is entitled to interest at the judgment rate under section 12C of the Lands Tribunal Ordinance from the date of the Tribunal’s decision and so covering the disputed period. 

(d) Relying on a Court of Appeal decision,[5] it submits that where section 12C applies, it “is mandatory and does not confer a discretion on the court to order interest to run on any other basis.”

16.In my view, the Company’s case is not made out.

C. The statutory provisions

17.Exercising its power under section 12C, the Tribunal ordered the Commissioner to pay interest at the judgment rate on the overpaid amounts.  Those amounts and interest thereon were duly paid on 12 April and 31 May  2010 respectively, as noted above.  Thereafter, section 12C was no longer directly applicable since, until this Court handed down its judgment on 21 June 2011, there was no unsatisfied judgment debt owing to the Company upon which interest might have been ordered to accrue pursuant to the section.  That was the position during the disputed period.  The Company’s argument therefore cannot simply be based on section 12C, as it implicitly accepts.

18.The proper starting point for the present discussion is section 17 of this Court’s statute[6] which confers wide discretionary powers on the Court when determining an appeal :

“(1) The Court may confirm, reverse or vary the decision of the court from which the appeal lies or may remit the matter with its opinion thereon to that court, or may make such other order in the matter, including any order as to costs, as it thinks fit.

(2) For the purpose of disposing of an appeal, the Court may exercise any powers of the court from which the appeal lies (including the power to order a retrial), or may remit the case to that court. ...”

19.This Court can therefore exercise any powers of the Court of Appeal from which the present appeal lay.  By section 13(4) of the High Court Ordinance,[7] that Court in turn had “all the authority and jurisdiction of the court or tribunal from which the appeal was brought”.  It therefore had the Lands Tribunal’s power under section 12C to decide the rate of post-judgment interest.  It follows that this Court has the same power.

20.It is therefore clear that there is no rule automatically requiring interest at the judgment rate to be awarded relating back to the date of the Tribunal’s restored decision.  The statutory scheme clearly gives this Court a discretion as to the rate to award upon determining the appeal.

D. The authorities

21.The Company seeks to rely on cases regarding the restoration of first instance decisions by judgments of the final court in support of its claim for interest at the judgment rate.  Properly understood, those authorities do not assist the Company.

22.The liability of the Commissioner to refund the sums overpaid arose out of this Court’s judgment dated 21 June 2011.  In the ordinary course, such a judgment takes effect from its date unless the judgment expressly directs otherwise.  This is reflected in Order 42 r 3 of the Rules of the High Court.[8] It is also the position at common law.  As Collins MR stated in Borthwick v Elderslie Steamship Co Ltd (No 2),[9] “The judgment is not ipso facto antedated by reason that it is substituted for the judgment in the court below”.  The House of Lords held likewise in Nitrate Producers Steamship Company Limited v Short Brothers Limited[10] where Lord Buckmaster stated:

“If at that time when the matter originally came before your Lordships’ House on the 1^st July 1921, it had been desired that the order then made should speak as from a different date than the date on which it was pronounced, it was incumbent upon counsel to ask that this should be done. In the absence of any such direction, where judgment is, for the first time, directed to be entered in favour of any litigant party by this House, the date which that judgment will bear must be the date when the order is made.”

23.However, the Company relies heavily on the dictum of Lord Buckmaster which came immediately after the passage cited above.  His Lordship stated:

“It is, of course, a totally different proposition where the effect of an order in this House is to restore a judgment of the court of first instance which has been reversed by an order of the Court of Appeal. In that case the judgment of the court of first instance is expressly restored and remains standing as from the date when it was given.”[11]

24.The proposition stated is uncontroversial. Indeed, when this Court set aside the Court of Appeal’s judgment, it expressly restored the decision of the Lands Tribunal.  However, it is erroneous to think that every consequence which might flow from the first instance decision (such as the award of post-judgment interest) somehow automatically flows “as from the date when it was given” in consequence of the final court’s decision. Quite apart from the statutory discretion already discussed, that was never the position at common law.  In the Nitrate Producers case itself, Lord Sumner cautioned against making such an error, stressing the discretion of the final court:

“To say that the effect of allowing an appeal in your Lordships’ House is to direct that the High Court should do now what it should have done at the trial, is a rough, but a not ineffective way of describing the result of a successful appeal. But it is obviously a different thing to go on to say that the High Court should do so now in such a fashion as to produce all the results that would have followed, if it had done so at the trial. It may or may not be right to make such a further order.”[12]

25.As the Australian cases discussed below illustrate, the discretion embraces the rate of interest for the period between the first instance judgment and the final court’s decision.  In exercising that discretion, the fact that the Court of Appeal’s decision reversing the first instance judgment has intervened is in my view a highly material factor to be taken into account. 

26.The approach of the Australian High Court is illustrated by Nicol v Allyacht Spars Pty Ltd[13]. That was a case involving section 73 of the Common Law Practice Act 1867 (Qld) which provided for the award of post-judgment interest.  The appellant had failed both at first instance and before the Full Court but had succeeded in the High Court.  There was therefore no first instance decision in his favour to restore.  However, the appellant contended that interest should nevertheless be awarded to run from the date of the first instance judgment.

27.He argued that section 73 had to be read in conjunction with section 37 of the Judiciary Act 1903 (Cth) which materially provided that the High Court “may affirm reverse or modify the judgment appealed from, and may give such judgment as ought to have been given in the first instance”.  Relying on the words I have italicised, he submitted “that the order made by this court became the judgment of the Supreme Court of Queensland”, resulting in an entitlement to interest from the date of the judgment of the court of first instance.  It was therefore an argument broadly similar to that being urged by the Company in the present case.

28.It was rejected by the High Court which held:

“... to empower an appellate court, in the exercise of its appellate jurisdiction, to ‘give such judgment as ought to have been given in the first instance’ does not, as Romer LJ pointed out in Borthwick, at 521, mean that the judgment of the appellate court ‘must be regarded for all purposes as if it had been the judgment given by the judge in the court below’.”[14]

In particular, section 37 of the Judiciary Act:

“... does not operate so that an order of this Court made on 6 November 1987 produces a judgment in favour of the appeal dated 3 April 1986.”[15]

29.Post-judgment interest dating from the date of the first instance judgment was therefore refused.  However, the High Court exercised its discretion by awarding pre-judgment interest under section 72 of the 1867 Act from the accrual of the cause of action to the date of the High Court’s order. 

30.The Company also cites Gould v Vaggelas[16], another case involving section 73 of the Common Law Practice Act 1867 (Qld). But it is difficult to see what assistance the Company derives from that decision which merely provides another illustration of the exercise of discretion by the High Court.

31.Under the 1867 Act, interest on a judgment debt was payable at 8% per annum unless the court otherwise ordered.  Interest at 12% had been awarded in the lower courts, but by an oversight, the High Court had not been asked to make an order for interest to be paid at that higher rate.  The Court, however, awarded the appellants 12% under the slip rule on the basis that such rate “accords more with ordinary commercial rates and with the rate of interest contemplated in the contract of sale than does the prescribed rate or rates”.  The Court added: “Furthermore, it appears to be fair and just”.  The High Court was therefore simply deciding as a matter of its own discretion what the rate of interest ought to be as part of its own judgment.

32.The Company’s reliance on Grandyield Knitters Ltd v MBE Engineering Ltd,[17] for the proposition that post-judgment interest “is mandatory and does not confer a discretion on the court to order interest to run on any other basis” is unsound. 

33.Grandyield Knitters was concerned with a pleading point.  It was sought to be argued that Order 18 r 8(4) of the District Court Rules required a claim for post-judgment interest to be pleaded before it could be ordered by the court. Unsurprisingly, the point was effectively abandoned on appeal.[18]  It was in that context that Le Pichon JA stated:

“Post-judgment interest is mandatory in that it does not require the exercise of any discretion on the part of the judge. Such interest does not arise unless the plaintiff first obtains a judgment in his favour. It is a relief subsequent to judgment whereas pleadings are concerned with the plaintiff’s claim to judgment. In my judgment, Ord 18 r 8(4) of the Rules of the District Court is not concerned with post-judgment interest. Such interest is not within the purview of the words ‘or otherwise’ in that rule.”[19]

34.Her Ladyship was therefore simply holding that no pleading was needed to claim post-judgment interest.  Her judgment has nothing to do with the issues presently under discussion.

E. The proper order

35.It follows from the foregoing discussion that the rate of interest which should be awarded for the disputed period is a matter for the discretion of this Court.

36.I can see no basis for ordering such interest to run at the judgment rate (which stood at 8% per annum over the disputed period).  As was stated in this Court in Man Ping Nam v Man Fong Hang (No 2),[20] the prescribed judgment rate is generally “charged at a significantly higher rate than applies to commercial borrowings to give the judgment debtor an incentive promptly to satisfy the judgment debt”.  However, in the present case, there was no unsatisfied judgment debt in existence during the disputed period. There is no reason to penalise the Commissioner by awarding a higher rate of interest.

37.I therefore agree with the Commissioner’s submission that interest over that period should be charged at a rate matching the Company’s actual cost of borrowing, reflecting the general principle that interest is awarded to compensate the claimant for being kept out of his money.  I would so order and would also make an order nisi that the costs of this application be paid by the Company to the Commissioner to be taxed if not agreed.  Any representations as to such costs should be lodged in writing within 14 days from the date of this judgment and any representations in reply within 14 days thereafter.  In default of such representations, I would direct the order nisi is to stand as an order absolute without further direction.

Mr Justice Litton NPJ :

38.I agree entirely with Mr Justice Ribeiro PJ’s judgment. The logic seems to me obvious. The sum which HEC paid to the Commissioner, and was subsequently repaid pursuant to our judgment, was in no way a “judgment debt” upon which the judgment rate of interest could hang.  HEC was quite simply kept out of its money during the relevant period, and should be compensated for that – by an award of interest reflecting the cost of borrowing.

Lord Millett NPJ :

39.I have the misfortune to have come to a different conclusion. The only question we have to decide is the rate of interest payable during the disputed period, that is to say between the 10November 2010 (being the date on which the Company repaid the amount of the judgment debt created by the order of the Lands Tribunal which had been set aside by the Court of Appeal) and the 21June 2011 (being the date of the judgment of the CFA restoring the judgment of the Lands Tribunal). The majority hold that the rate of interest should reflect the rate at which the Company could borrow in the market. I consider that it should reflect the higher rate of interest on judgment debts.

40.As I understand it, there is no dispute that interest is payable at the judgment rate during the periods before and after the disputed period; that is to say (i) during the period between the date of the judgment of the Lands Tribunal and payment and (ii) during the period between the date of the judgment of the CFA and payment. I think that the majority would say that interest during the first period is payable on the judgment debt created by the order of the Lands Tribunal and during the second on the judgment debt created by the order of the CFA. As will appear, I consider that, in the events which have happened, interest in both cases is payable in respect of the judgment debt created by the order of the Lands Tribunal.

41.In my opinion (i) the effect of the judgment of the CFA is that the original judgment of the Lands Tribunal was retrospectively restored as if it had never been overturned; (ii) this does not automatically dictate the rate of interest, which is in the Court’s discretion, though it is obviously a most significant consideration; and (iii) the award of interest should be compensatory. The question is: for what should the Company as the ultimately successful party be compensated?

42.The majority’s opinion is based on two propositions: (i) that during the disputed period there was no judgment debt in existence on which interest at the judgment rate could be ordered; and (ii) that the purpose of fixing a rate of interest on judgment debts above that prevailing in the market place is to encourage judgment debtors to pay their debts quickly. I do not accept the first proposition  or the second without qualification.

43.The first overlooks the fact that the effect of the judgment of the CFA was retrospectively to restore the judgment of the Lands Tribunal as if it had never been overturned, so that it is not true to say as a matter of law that there was no judgment debt in existence on which interest at the judgment rate could be ordered. The judgment of the Lands Tribunal had been set aside, but only defeasibly; and the order of the Court of Appeal setting it aside was itself liable to be set aside, as in the event it was. The apparent non-existence of the judgment debt during the disputed period was due to a mistake of law which has since been retrospectively corrected. But in any case the argument proves too much. Unless there was a debt in existence during the disputed period there is no basis in which interest could now be ordered at all. But if there was a debt, it must be a judgment debt, and it must have arisen retrospectively, for until the order of the Court of Appeal was set aside there appeared to be none.

44.The second proposition is correct as far as it goes, but encouraging the speedy payment of a judgment debt is not the only object in view; it is also desirable to discourage the repayment of a judgment debt in circumstances such as the present when the case is likely to go to appeal and the decision of the intermediate court is liable to be overturned. Why should the party which has been successful in the Court of Appeal demand repayment in advance of the decision of the CFA? It is fully protected. Payment of a judgment debt stops interest running and protects the paying party against the possibility that the original judgment may be restored; while should the decision of the Court of Appeal setting the original judgment aside be upheld on appeal the CFA can decide the rate at which interest should be payable on the money finally and indefeasibly reclaimed by the appellant.

45.It is said that the money which the Company paid to the Commissioner and which the Commissioner was later required to repay was not in respect of a judgment debt. I do not agree. The Court of Appeal’s judgment entitled the Commissioner, if it chose, to recover the judgment debt which it had paid. The character of a payment does not change depending on whether it is a payment or the repayment of an earlier payment wrongly made. I do not accept the idea that the payment which the Commissioner made to the Company and the payment which the Company made to the Commissioner were in respect of different debts. They were both made in respect of the same debt, as was the final and indefeasible payment made by the Commissioner to the Company after the CFA had given judgment. There has never been more than one debt, being the judgment debt created by the order of the Lands Tribunal. Its judgment was set aside and then restored; and the judgment debt was paid, repaid, and then paid again. While the Company was in receipt of the judgment debt interest stopped running; but whenever it was not in receipt of the judgment debt it should in my opinion carry interest at the judgment rate.

46.In retrospect it can be seen that the judgment debt did not cease to exist during the disputed period but was merely in abeyance and liable to be restored; and when the Commissioner demanded repayment of the judgment debt it was in the knowledge that the judgment of the Lands Tribunal might be restored on appeal and the judgment debt reinstated. While I agree that the award of interest should be compensatory, in the circumstances of the present case it should compensate the Company for having been wrongly deprived of a judgment debt which it had rightly received and then wrongly been required to disgorge.

47.I think that the answer to the present problem can be found if one asks three questions. When did the judgment debt arise? Answer: on the date the Lands Tribunal gave judgment. When was it finally paid? Answer: following the judgment of the CFA. Is there any reason why the Appellant should not have interest at the judgment rate for the whole period between those dates? Answer: yes, because for some of the time it was in receipt of the judgment debt. In my view, interest on the judgment debt should run at the judgment rate throughout the period from the date of the Lands Tribunal’s judgment to the date of final payment, credit being given for the period between the 10November 2010 and the 19November 2011, being the period when the Company was in receipt of the judgment debt and interest was no longer running. 

Chief Justice Ma :

48.Accordingly, by a majority of three to two, it is ordered that the applicable rate of interest to be applied the sums overpaid by the Company to the Commissioner over what has been termed the relevant period, should be the Company’s actual cost of borrowing over that period.  The parties will have liberty to apply in the event the applicable rate or rates are not agreed.  As to costs, the Court makes an order in terms of paragraph 37 above.

Written submissions by Mr Godfrey Lam SC (instructed by Messrs Mayer Brown JSM) for the appellant

Written submissions by Mr Benjamin Yu SC and Mr Bernard Man (instructed by the Department of Justice) for the respondent