Chow How Yeen Margaret v Wex Pharmaceuticals Inc

[2018] 3 HKLRD 163
Court of Appeal
Civil Appeal No 33 of 2017
Lam V-P, Poon JA and Louis Chan J
12 June 2018

Contract law - misrepresentation - fraudulent misrepresentation - misrepresentation made to induce plaintiffs to acquire distributorship and to purchase shares - whether defendants' intention to induce and reliance adequately pleaded - whether established on evidence

Civil procedure - judgment - interest - pre-judgment interest - whether error in principle in using judgment rate rather than prime plus 1% - judgment sum awarded in foreign currency - interest usually taken at rate at which that currency could be borrowed in country in which debt should have been paid - whether interest rate to be rate for Hong Kong dollars or for Canadian dollars, given judgment sum awarded in Canadian dollars

Civil procedure - costs - sanctioned offer or payment - sanction of indemnity costs and enhanced interest imposed after defendants failed to do better than plaintiffs' sanctioned offer - limited scope for intervention by Court of Appeal

In 2001, Ds represented to Ps that a subsidiary of D1 (X) owned a Chinese patent relating to the use of a substance for the treatment 164 of drug withdrawal of opiate addicts (the Representation). After negotiations, P1 agreed (the Share Agreement) to purchase and procure her companies (P2-3) to purchase shares in D1 (the Shares) in exchange for another company of P1 (C) to acquire the right to sell the patent products in Peru for free. Distributorship agreements were made between C and a purported subsidiary of D1. The Shares were acquired between November 2001 and October 2004. Although the investments into D1 were by way of acquisition of the shares in Canadian dollars, pursuant to Ds' instructions, Ps actually paid by way of Hong Kong and US dollars into D2's bank accounts in Hong Kong. However, Ds did not inform Ps that X had been engaged in litigation concerning the ownership of the patent since 1995; that a PRC Court had held in March 2000 that X was not a qualified applicant for the patent and an appeal against the judgment was dismissed; the ownership of the patent was changed to another person in November 2002; and that X was unsuccessful in its challenge against the change in 2004. It was further discovered that the distributorship agreements could not have conferred any right to use the patent in C. Ps claimed damages from Ds for fraudulent misrepresentation inducing them to purchase the Shares. The Judge allowed Ps' claim and awarded damages in Canadian dollars. Subsequently, the Judge awarded interest at judgment rates in Hong Kong dollars both for pre- and post-judgment periods, having found inter alia that Hong Kong was the place where the debt should have been paid. Ds were also ordered to pay indemnity costs and enhanced interest pursuant to O.22 r.24 of the Rules of the High Court (Cap.4A, Sub.Leg.) (RHC) as Ps had made a sanctioned offer and achieved a better outcome after trial. Ds appealed against the judgment and the decisions on interest and costs.

Held, dismissing the appeal save as to the awards of pre-judgment interest, that:

Appeal against main judgment

• Ps' case on Ds' intention to induce and reliance had been adequately pleaded and was established on the evidence. The Representation was made not only to induce Ps to acquire the distributorship but also to induce Ps to purchase the Shares. Although a term of the Share Agreement only obliged P1 to procure a minimum of 50,000 shares annually, there was no restriction on the quantity of shares to be acquired. There was nothing in the pleadings or in the evidence to suggest that Ds had confined the effect of the representations to the minimum quantity of shares. Further, as Ds never corrected the Representation at any stage prior to the relevant purchases, Ds were maintaining the façade that X had the exclusive right under the patent when requests were made on their behalf to Ps to inject funds into D1 by way of share acquisitions. (See paras.25-38.)

Appeal against pre-judgment interest rate

(2) The Judge erred in principle in departing from the conventional rate of 1% above prime as the appropriate rate for pre-judgment interest and giving pre-judgment interest at judgment rate. An award of interest was to compensate Ps for being deprived of the money during the relevant period, and in commercial cases such compensation was reflected in interest at a rate at which a person in a similar position as Ps generally would have had to pay to borrow money. Ps' investment target could not form the basis for the theoretical cost of borrowing. The unsavoury nature of the misrepresentation was also irrelevant, as pre-judgment interest was not an alternative to aggravated damages. In principle, there should not be a separate rule for pre-judgment interest rate in claims based on fraudulent misrepresentation (Tate & Lyle Food and Distribution v GLC [1982] 1 WLR 149, Komala Deccof v Perusahann Pertambagan Minyak Dan Gas Bumi Negara [1984] HKLR 219, Polyset Ltd v Panhandat Ltd (FACV 28/2000, [2002] HKEC 512), Waddington Ltd v Chan Chun Hoo Thomas (CACV 10/2014, [2016] HKEC 1127), Tadjudin Sunny v Bank of America (CACV 12/2015, [2016] HKEC 1128) applied). (See paras.49-50, 56-59.)

Whether interest rate Hong Kong or Canadian rate

(3) If the judgment sum was given in a foreign currency, interest would usually be taken at the rate at which that currency could be borrowed in the country in which the debt should have been paid. The court may adopt other interest rates to avoid injustice. Given the special circumstances under which the Shares were acquired and the manner in which the money was paid, it was reasonable and open to the Judge to exercise her discretion in awarding pre-judgment interest by reference to a reasonable notional borrowing to make good for the deprivation of the judgment sum by Ps by way of borrowing rates available in Hong Kong. Further, on the basis that Ps would not be able to borrow Canadian dollars in Hong Kong at the rates published in Canada, the Court would adopt the notion that Ps would have to borrow Hong Kong dollars equivalent of the judgment sum at Hong Kong dollar borrowing rates for the purpose of interest calculation (Helmsing Schiffahrts GmbH v Malta Drydocks Corp [1977] 2 Lloyd's Rep 444, Fargo Shipping v Hwa Haur Trading [1979] HKLR 327 considered). (See paras.68-74.)

(4) Accordingly, the relevant interest rates should be the Hong Kong dollar borrowing rates, viz prime rates plus 1%. (See paras.75, 79.)

Appeal against decision on costs

(5) The examination of the question whether the imposition of the sanctions of indemnity costs and enhanced interest would be just was a multi-faceted assessment with reference to the facts and circumstances of the case including matters set out in O.22 r.24(5) of the RHC. A trial judge, being most familiar with the trial and the conduct of the parties, was in an advantageous position when performing such assessment. The scope for intervention by the Court of Appeal in the decision of a judge to impose these sanctions was very limited. Here, the Judge was right in holding that Ds had not made out a case of injustice and there was no basis for suggesting that the sanctioned offer was not made in good faith (Re A [2018] 2 HKLRD 1245 applied). (See paras.82-89.)

Appeal

This was an appeal by the defendants against the judgment of Queeny Au-Yeung J allowing the plaintiffs' claim in misrepresentation and against her decisions on interest and costs. The facts are set out in the judgment.

Jurisdictions: 

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