In a series of recent judgments handed down by the Court of Appeal in Hong Kong, an issue arose as to the rate of pre-judgment interest awarded on damages for non-personal injury civil claims, in the absence of any agreement between the parties.
The judgments are – Waddington Ltd v Chan Chun Hoo Thomas & Ors  HKEC 1127, Tadjudin Sunny v Bank of America  HKEC 1128 and Li Xiao Yun v China Gas Holdings Ltd  HKEC 1178. The statutory basis for awarding interest on claims for debts and damages is, of course, s. 48 of the High Court Ordinance (and the District Court equivalent)*.
Waddington and Tadjudin are substantial judgments that are likely to be reported and they deal with appeal points other than pre-judgment interest. They are both judgments handed down by similarly composed divisions of the court and the fact of the appeal in Waddington is referred to in Tadjudin. The Court of Appeal’s decision on the issue of pre-judgment interest in Li Xiao Yun was reserved pending the handing down of the two other judgments.
All three judgments confirm that the starting point for awarding pre-judgment interest on damages is prime rate (“best lending rate”) plus 1 percent, in contrast to the practice of some first instance judges in adopting a lower starting point of (for example) HIBOR or base rate plus a percentage point. As readers will appreciate the difference is significant.
The judgments of the Court of Appeal appear to leave open the possibility of a party seeking to advance statistical evidence (in contrast to legal submissions) that prime rate plus 1 percent should no longer be used as a starting point; for example, “banking evidence as to the manner in which rates for unsecured lending are fixed” (Tadjudin, para. 183).
Given that pre-judgment interest is awarded primarily to compensate a successful claimant for being denied its money and that a claimant is taken to have borrowed at commercial rates to fund any shortfall pending judgment, it is presumably open for a party in a specific case to lead with evidence that the actual cost of borrowing for a successful claimant is below prime rate.
For now, the Court of Appeal’s recent judgments should lead to more consistency in the lower courts’ approach to awarding pre-judgment interest. The conventional starting point is prime plus 1 percent. For those old enough to remember, or interested enough to care, the Law Reform Commission of Hong Kong reported on “Interest on Debt and Damages” as far back as July 1990.
* Not to be confused with judgment rate interest, as varied from time to time by order of the Chief Justice, pursuant to s. 49 of the High Court Ordinance (and the District Court equivalent). Also consider the interest consequences that may follow pursuant to the regime for sanctioned offers and sanctioned payments in RHC/RDC O. 22.