Komala Deccof & Co S.A. and Others v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina)

CACV000153/1982

HEADNOTE

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Coram: Hon. Cons, J.A., O'Connor & Power, JJ.

Date of Hearing: 21 February 1984

Date of Delivery of Judgment: 24 February 1984

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JUDGMENT

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Cons, J.A. :

1. This appeal is concerned solely with the question of interest. We are asked to vary the period for which it was awarded by the Judge below and the rate at which it was awarded. A third request, which turns on the fact that the claim and the judgment were expressed in U.S. dollars, has not been pursued.

2. The amounts at stake are by no means insubstantial. The basic amount of the judgment is U.S. $1,164,225. It was given under Order 14 and represents just over half of the total amount claimed. Unconditional leave was given to defend as to the balance.

3. The claims are all of a commercial nature. Those disposed of by the judgment relate to goods sold and delivered, insurance premia and disbursements made on the defendant's account. Some of the items go back further, but all arose at least prior to April 1975. However the plaintiffs were willing to accept that it would have been reasonable for them not to have been paid until the 1st of July of that year.

4. Of course no payment was in fact made, otherwise there would have been no need to come to court. The plaintiffs sent several letters requesting payment, to which no answers were received. The last of these letters was sent in August 1976. After that date the plaintiffs did nothing at all for three years. We do not know why. Then in October 1979 they sent the customary letter before action This too elicited no response, and the writ followed in February of the succeeding year.

5. The Judge below found the three years between 1976 and 1979 “an extraordinarily long period of delay before taking proceedings". For that reason, although he thought it right that he should award some interest in respect of that period, he considered "the fairest approach" would be to award it for only half i.e. for 18 months. Such a period, he said, "would not have been completely unreasonable in the circumstances of the case". He therefore made the order-run from the 1st January 1977.

6. The learned judge gave no further reason and it seems to me probable that he was influenced to his decision by the following passage from the judgment of Watkins L.J. in Birkett v. Hayes^(l), to which he had just been referred:-

"Usually this period (for which interest should t awarded) will run from the date of the writ to the date of trial, but the court may in its discretion abridge this period when it thinks it is just so to do. Far too often there is unjustifiable delay in bringing an action to trial. It is, in my view, wrong that interest should run during a time which can properly be called unjustifiable delay after the date of the writ. During that time the plaintiff will have been kept out of the sum awarded to him by his own fault. The fact that the defendants have had the use of the sum during that time is no good reason for excusing that fault and allowing interest to run during that time."

7. With every respect that passage could have been of no assistance to the judge for it was dealing with a personal injury case.  The Court had just laid down a guideline for the rate of interest to be awarded on general damages for pain suffering and loss of amenities. Generally it should be 2%. That could hardly be a rate of interest appropriate to a claim for a fixed money debt, which, as Eveleigh L.J. had observed on the preceding page, is something different. In my view, so far as an award of interest is concerned personal injury cases fall into a class of their own.

8. The principle in other cases seems to me to be well established. Lord Willerforce in General Tyre Company v. Firestone Tyre Co. Ltd.⁽²⁾ put it thus :-

"Where a wrong doer has failed to pay money which he should have paid, justice, in principle, requires that he should pay interest over the period for which he has withheld the money. But other considerations may enter into it. In a commercial setting, it would be proper to take account of the manner in which and the time at which persons acting-honestly and reasonably would pay."

9. In Tate & Lyle Distribution v. G.L.C.⁽³⁾ Forbes J. acknowledged the position : -

"I do not think the modern law is that interest is awarded against the defendant as a punitive measure for having kept the plaintiff out of his money: I think the principle now recognised is that it is all part of the attempt to achieve restitutio in integrum.”

Donaldson J., as he then was, extended the principle to cases in arbitration⁽⁴⁾ : -

"All matters of costs in .the arbitration and interest upon any monies due are for the arbitrators or umpire. However, it may assist if I express my views upon the principles which are applicable. It is of paramount importance to the speedly settlement of disputes that a respondent who is found to be under a liability to a claimant should gain no advantage and that the claimant should suffer no corresponding detriment as the result of delay in reaching a decision. Accordingly, awards should in general include an order that the respondent pay interest on the sum due from the date when the money should have been paid..."

10. That passage was quoted by Kerr, J., as he then was, in Panchaud v. Pagnan⁽⁵⁾, together with a much earlier quotation from Devlin J., as he then was,⁽⁶⁾ : -

"I do not think that I should award interest on the basis of anybody's fault. I should award it on the simple commercial basis that if the money had been paid at the appropriate commercial time, the other side would have had the use of it."

11. Kerr, J. was dealing with a special case from arbitration where the tribunal had decided not to Award interest because "the disputes took so long to come before us for review". His conclusion leaves no room for doubt : -

"But in my view it is clear that the appeal tribunal has, on the face of the award, erred in the judicial exercise of its discretion in relation to interest. First, it has evidently overlooked or at any rate failed to apply, the well-recognized rule of practice illustrated by the foregoing passages, viz., that prima facie the losing party should be ordered to pay interest at a reasonable rate running from the date when the amount or amounts due should reasonably have been paid. Further, if and in so far as delay on the part of the winning party might in an exceptional case require a modification of this exercise of the discretion, then the tribunal must for this purpose at least have before it some material indicating that the winning party has been to blame for the delay or has gained something by the delay, so that it would be right to deprive it, either wholly or more usually partly, of the interest which the losing party should prima facie be ordered to pay. But the arbitration tribunal had no such material before it in the present case. An unexplained delay cannot be any basis for a refusal to award interest. The onus must rest on the losing party to show some sufficient reason why the usual practice should not apply in a particular case. An unexplained delay may be the joint responsibility of both parties or one for which the losing party must take the main blame. It follows that the tribunal's discretion relating to interest was exercised unjudicially in the present case even if its discretion could properly be affected by the question of delay. As to this I would however repeat, in line with what was said by Mr. Justice Devlin and Mr. Justice Donaldson, that at any rate in commercial cases the prima facie rule of practice should generally be followed and that mere delay should generally not be regarded as a ground for modifying this rule."

12. His decision was unanimously approved in the Court of Appeal where Lord Denning expressed himself to be entirely in agreement with all that Kerr, J. had said.

13. What is perhaps a possibly alternative approach was suggested by Staughton, J. in La Pintada⁽⁷⁾, a case which also arose from arbitration proceedings : -

"What then should a court do if the proceedings have been delayed by the conduct of the plaintiff? There are three possible solutions. One is to award no interest at all during the period of the plaintiff's delay. This has been adopted or approved by many judges, including Mr. Justice Goff in the BP Exploration case at p 847."

14. However it does not seem to me that there is in reality any substantial difference. A little further on the learned judge speaks of it as "culpable delay"; in the comments of Goff, J. referred to, it is put as "unreasonable delay", while at the same time that learned judge makes it very clear that such a refusal of interest would be a deliberate choice in departing from the fundamental principle, which is as I have already indicated. It seems to me that by these qualifications their Lordships were in fact adopting the same standard as Kerr, J., that is, that there must be something exceptional to warrant a modification of the basic principle. The onus of showing what is exceptional rests on the losing party. That appears from the passage in Panchaud that I have already quoted. In my view all that was shown in the present case was mere delay.

15. I appreciate that the award of interest is a matter of discretion and that this Court will not, as a general rule, substitute its own discretion for that of the trial judge. But it will do so where for example, as I think with respect has happened in the present case, the trial judge has been led to overlook a basic principle.

16. I trun then to the rate of interest. The Judge set it at "the weighted average of the Hongkong & Shanghai Banking Corporation prime rate". His notes indicate no reason for the choice, but it looks to me, on reading them through, as though he assumed that this was standard practice. This view is confirmed by the impression of Counsel who was then present.

17. Speaking for myself I am not aware that in Hong Kong there is as yet any established practice, and I understand that the other two members of this Court feel the same. Despite the considerable sums that are frequently involved the question of interest seems too often to appear in litigation only as an ill-considered afterthought. There is authority in 1970⁽⁸⁾ when the Full Court adopted the principle, from the "Mecca"⁽⁹⁾ that the court should "arrive at a rate which is appropriate having regard to commercial lending and borrowing rates during that period". However in that part of the judgment which dealt with actual rates the emphasis was very much on lending rates. The only borrowing rate referred to was with regard to hire-purchase.

18. The Ocean Tramp was followed nine years later in Fargo Shipping Co. S.A. v. Hawa Haur Trading H.K. Company⁽¹⁰⁾, which was a case more directly concerned with the question of interest on a foreign currency judgment. "Commercial rates of interest" were referred to generally, without any distinction's being made between lending and borrowing rates. The evidence led by the plaintiffs there related in fact only to lending rates.

19. The rate of interest-is also a matter within the discretion of the trial judge, but it is clearly undesirable that there should be arbitrary s between similar cases and in my view it is desirable that this Court should give some general guidance on the question, so that reasonable consistency may be promoted. Whatever may have been the position in the past we should take notice that now it is normally not possible to borrow at bare prime rate.

20. The practice in the Commercial Court of England seems to be a rule of thumb at to 1% above that, with a possible increase to 2% or even 3% in the case of smaller or less well established concerns. Forbes J. sets it out fully in the Tate & Lyle⁽³⁾ case, immediately after the passage which I have already set out : -

"One looks, therefore, not at the profit which the defendant wrongfully made out of the money he withheld - this would indeed involve a scrutiny of the defendant's financial position,:-.but at the cost to the plaintiff of being deprived of the money which he should have had. I feel satisfied that in commercial cases the interest is intended to reflect the rate at which the plaintiff would have had to borrow money to supply the place of that which was withheld. I am also satisfied that one should not look at any special position in which the plaintiff may have been; one should disregard, for instance, the fact that a particular plaintiff, because of his personal situation, could only borrow money at a very high rate or, on the other hand, was able to borrow at specially favourable rates. The correct thing to do is to take the rate at which plaintiffs in general could borrow money.  This does not, however, to my mind, mean that you exclude entirely all attributes of the plaintiff other than that he is a plaintiff.  There is evidence here that large public companies of the size and prestige of these plaintiffs could expect to borrow at 1 per cent over the minimum lending rate, while for smaller and less prestigious concerns the rate might be as high as 3 per cent over the minimum lending rate. I think it would always be right to look at the rate at which plaintiffs with the general attributes of the actual plaintiff in the case (though not, of course, with any special or peculiar attribute) could borrow money as a guide to the appropriate, interest rate. If commercial rates are appropriate I would take 1 per cent over the minimum lending rate as the proper figure for interest in this case."

21. I would venture to suggest that a similar approach should be adopted here. Although the practical circumstances of the two jurisdictions may differ in some ways, I do not think there is any significant distinction between our basic mercantile principles.  It may be that on the local financial scene 1% above prime is not a realistic rate, but time will tell and if necessary the guideline can be adjusted accordingly. For the time being however I would suggest the use of that rate, unless in any particular case there is evidence which shows some other rate to be more appropriate.

22. In the present case all that the Judge had to assist him in this respect was a schedule of the changes in prime rate since July 1964 and a schedule of interest rates actually charged since May 1979 by Wing Lung Bank to a company associated with the plaintiffs, We have no indication as to the size of the company, its financial standing, or even what kind of business it carries on. If the Judge had had the benefit of the guideline now proposed that evidence would still have been clearly insufficient to warrant any variation and most certainly he would have made his award at the rate of 1% above prime.

23. For these reasons L would allow the appeal and vary the order of interest as to time and as to rate accordingly.

(1) [1982] 1 WLR 816 at 825

(2) [1975] 1 WLR 819 at 836

(3) [1982] 1 WLR 149 at 154

(4) The Myron [1970] 1 Q.B. 527 at 536

(5) [1974] 1 LL.R. 394 at 408

(6) Kemp v. Tolland [1956] 2 LL.R. 681 at 691

(7) [1982] CLR 250 at 252

(8) "Ocean Tramp" v. "Illinois" [1970] HKLR 52

(9) [1968] 2 ALL E.R. 726 at 731

(10) [1979] HKLR 327

O'Connor, J. :

24. I agree.

Power, J. :

25. I am in agreement with all that has fallen from my Brother Cons. I would like to refer only to the argument that the plaintiff should recover interest at a lesser rate than would otherwise have been proper to order because he has, by his delay in commencing proceedings, in effect made the defendent his banker. This line of argument sought support from an observation of staughton j. in La Pintada Compania Navegasion S.A. v. The president of India ⁽⁷⁾ I am quite satisfied that such an argument can be given no weight in the present circumstances where the claim is for an ordinary commercial debt. The plaintiff demanded payment in 1975 and 1976. The defendant ignored those demands. The situation whereby the defendant became in effect the plaintiff's banker was therefore created by the defendant. The defendant could in 1975 or 1976 or at any time thereafter have brought that situation to an end. He was content not to do so and, indeed, allowed the situation to continue until he was required by an order of the court to make payment. There may have been some delay by the plaintiff in bringing his action but it would be wholly wrong, in my view, to allow the defendant to retain any benefit as regards interest from a situation which he both created and perpetuated.

Representation:

Nicholas Lyell, Q.C. & Warren Chan (Messrs. Yung, Yu, Yuen & Co.) for Appellants/Plaintiffs

R. Reid, Q.C. & Andrew Li (Messrs. Denton, Hall & Burgin) for Respondent/Defendant