FULL YING HOLDINGS LTD v. ACTIVE ACCESS HOLDINGS LTD AND OTHERS

HCA 2122/2020

[2025] HKCFI 1018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2122 OF 2020

_________________________

_________________________

_______________

J U D G M E N T

_______________

INTRODUCTION

1.  This is an assessment of damages (“AoD”) for the titled action, in relation to the plaintiff’s claim for damages against the 3^rd and 4^th defendants, summary judgment having been granted against them (and also granted against the 1^st and 2^nd defendants for specific performance) by Hon Cheng J on 6 April 2022 in [2022] HKCFI 911 (“the Liability Judgment”).  I will use the terms and abbreviations set out in the Liability Judgment unless otherwise indicated. 

2.  The hearing of the AoD was initially scheduled to take place and conclude on 19 July 2024 (“the 19 July Hearing”), but it was adjourned to and took place on 2 September 2024 (“the 2 September Hearing”) for reasons which I will explain in more detail below. 

BACKGROUND

3.  For present purposes, and without repeating all of the matters set out in the Liability Judgment, I set out the following. 

4.  This case arose from the intention of parties to an agreement dated 28 April 2017 (“the Agreement” as defined in the Liability Judgment) that WFH Group Limited, a Cayman Islands company, was to be the listing vehicle of the group of companies comprising Leading Talents Holdings Limited (“the Company” as defined in the Liability Judgment) and its subsidiaries. As mentioned in the Liability Judgment, a share swap was contemplated in relation thereto.

5.  As also set out in the Liability Judgment, the 3^rd and 4^th defendants, together with the 1^st and 2^nd defendants, were named as “Guarantors” within the Agreement, and Clause 5.02 of the Agreement contained an undertaking by the Guarantors that if the Listing (as defined in the Liability Judgment, and pursuant to Recital (E) of the Agreement) failed to be completed on or before 31 May 2018, the 1^st and 2^nd Defendants were to repurchase certain Shares at the original consideration, together with interest (defined in the Liability Judgment as “the Repurchase Obligations”).

6.  The Shares in question were and are comprised of 2,725 shares in the Company which had been sold by the 1^st Defendant to the Purchaser (“the Active Access Sales Shares”), and 2,725 shares in the Company which had been sold by the 2^nd Defendant to the Purchaser (“Tian-Yu Sale Shares”). These totalled 5.45% of the issued share capital of the Company. The original consideration was HK$6,250,000 for the Active Access Sales Shares, and HK$6,250,000 for the Tian-Yu Sale Shares.

7.  Hon Cheng J also held at paragraphs 9 to 20 of the Liability Judgment that the 1^st to 4^th defendants had not put forward any bona fide defence to the plaintiff’s claim and granted, inter alia, orders that:

a.  Clause 5.02 of the Agreement for the sale and purchase of the Shares be specifically performed by the 1^st and 2^nd defendants, respectively, with credits given to the Defendants’ payments in the amount of HK$4,600,000 (which are the “Defendants’ Payments”, as defined and explained below);

b.  In respect of the repurchase of the Active Access Sale Shares by the 1^st defendant from the plaintiff, the 1^st defendant shall, within 7 days from the date 6 April 2022, pay to the plaintiff the sum of HK$6,250,000 together with interest accruing at 6% thereon from 28 April 2017 until the date of payment by way of a cashier’s order drawn in favour of the plaintiff’s solicitors, and within 7 days of receipt of the HK$6,250,000 and interest, the plaintiff would deliver relevant corporate documents to the 1^st defendant’s solicitors, and thereafter the 1^st defendant would take steps to complete the repurchase;

c.  In respect of the repurchase of the Tian-Yu Sale Shares by the 2^nd defendant from the plaintiff, the 2^nd defendant shall, within 7 days from the date 6 April 2022, pay to the plaintiff the sum of HK$6,250,000 together with interest accruing at 6% thereon from 28 April 2017 until the date of payment by way of a cashier’s order drawn in favour of the plaintiff’s solicitors, and within 7 days of receipt of the HK$6,250,000 and interest, the plaintiff would deliver relevant corporate documents to the 2^nd defendant’s solicitors, and thereafter the 2^nd defendant would take steps to complete the repurchase; and

d.  Each of the 3^rd and 4^th defendants pay the plaintiff damages for breach of Clause 5.02 of the Agreement, to be assessed.  

8.  The plaintiff’s solicitors had issued a letter dated 12 April 2022 to the 1^st to 4^th defendants’ then-solicitors (“DSol”) demanding compliance with the order for specific performance and that hence, as per the order of Hon Cheng J and RHC O. 3, r. 2, a total sum of HK$11,619,178.08 be paid by the 1^st and 2^nd defendants in favour of the plaintiff’s solicitors by 19 April 2022. 

9.  The plaintiff’s solicitors demanded that sum, as it was and is not disputed that the defendants had paid to the plaintiff a total of HK$4,600,000 on 11 occasions between 24 January to 20 November 2020 (“the Defendants’ Payments”), and pursuant to the plaintiff’s understanding of how credit was to be given in the amount of the Defendants’ Payments.

10.  There is no dispute that Defendants’ Payments were made as per the following table.

Date of payment by Defendants	Amount paid
24 January 2020	HK$1,000,000
27 February 2020	HK$400,000
16 March 2020	HK$200,000
8 April 2020	HK$400,000
3 August 2020	HK$500,000
14 August 2020	HK$500,000
8 September 2020	HK$100,000
18 September 2020	HK$300,000
5 October 2020	HK$500,000
8 October 2020	HK$500,000
20 November 2020	HK$200,000

11.  I will address below the question of how credit should be given for the Defendants’ Payments given the nature of the current exercise and the evidence before me. However, what is clear is that after the making of the Defendants’ Payments none of the 1^st and 2^nd defendants (and for that matter none of the defendants) have made any further payment to the plaintiff as regards the Agreement, the order of Hon Cheng J, or at all.  I hence find that, in any event, the 1^st and 2^nd defendants failed to comply with Hon Cheng J’s order. 

PROCEDURAL BACKGROUND TO THE HEARING OF AoD

12.  Witness statements of Liu Lai Ying (“Ms Liu”) (the sole director of the plaintiff), and of the 3^rd defendant, were both filed with the court on 20 March 2024.  On 24 April 2024, Master S P Yip ordered inter alia that such stand as evidence-in-chief of the respective witnesses at the AoD, set down the latter for 1 day, and granted orders as to the lodging and service (including timing thereof) of the hearing bundle, of the Opening Submissions and lists of authorities of the plaintiff on one hand, and of all of the defendants on the other. 

13.  The AoD was then fixed before me for a 1-day hearing on 19 July 2024 viz., the 19 July Hearing.

14.  On 28 June 2024, the DSol applied to come off the record for the 1^st to 4^th defendants.  On 5 July 2024, and in compliance with the order of Master S P Yip, the plaintiff lodged and served the hearing bundles and Opening Submissions on DSol.  On the same date, DSol informed the plaintiff’s solicitors by way of letter that DSol:

“… have ceased to act for the 1^st to 4^th Defendants in the captioned action and that an application for coming off the record is underway… Nevertheless, we will forward your hearing bundle, skeleton submissions and authorities to the Defendants for their further handling.”

15.  The defendants did not comply with Master S P Yip’s order that the defendants lodge and serve their Opening Submissions no less than 7 days prior to the 19 July Hearing.  A “cease to act” order was granted on 11 July 2024, and the defendant’s solicitors formally came off-record on 18 July 2024 upon the filing of a Certificate of Service, pursuant to RHC O 67 r 6(1). 

16.  At the 19 July Hearing the 3^rd and 4^th defendants appeared in-person.  No-one appeared for the 1^st and 2^nd defendants, and in any event Mr Yau made it clear that the plaintiff did not seek any orders against either them. The 3^rd and 4^th defendants told me inter alia that they only became aware after June that DSol would apply to come off the record, and that they had been alerted to the service of the plaintiff’s submissions and the upcoming hearing, but that DSol had not provided or explained the plaintiff’s submissions or the hearing bundles to them.  They applied for an adjournment of the AoD hearing on the basis inter alia that they intended and needed time to try and instruct lawyers to represent them.  This application was strenuously opposed by the plaintiff.

17.  After hearing submissions from the parties, I granted the 3^rd and 4^th defendant’s application and adjourned the AoD to be heard at the 2 September Hearing.  I also gave consequential directions that inter alia the plaintiff was to lodge and serve revised further supplemental and/or amended submissions, the defendants to lodge and serve Opening Submissions and authorities, and that costs of and occasioned by the adjournment, the 3^rd and 4^th defendant’s application, and of that hearing would be reserved to and dealt with in the course of the adjourned hearing of the AoD. 

18.  The plaintiff, prior to the 2 September Hearing, lodged and served Revised Opening Submissions and some further authorities in advance of the deadline that I had specified in my directions.  However, the defendants failed to lodge any Opening Submissions or authorities by the deadline that I had specified. 

19.  At the 2 September Hearing, the 3^rd and 4^th defendants again appeared in-person, and no-one appeared for the 1^st and 2^nd defendants. The 3^rd and 4^th defendants explained that they had both received the plaintiff’s Revised Opening Submissions and authorities, were ready to proceed with the hearing of AoD that day, and that they had no application to make. 

20.  In view of this, the plaintiff then proceeded with its oral opening.  After the lunch break, and as per the procedure agreed to by the 3^rd and 4^th defendants, the plaintiff proceeded to give evidence, the 3^rd and 4^th defendants delivered their oral opening, and the 3^rd defendant gave his evidence-in-chief and in cross-examination.  I then directed that the parties lodge and exchange written closing submissions and replies thereto, all of which should address the costs of these proceedings (in relation to which I indicated that I would likely make an order nisi).  I also gave liberty to apply. 

21.  The plaintiff lodged and served its written closing submissions – which included its submissions on costs – on the 3^rd and 4^th defendants on 16 September 2024.  The 3^rd and 4^th defendant’s closing submissions were received by the court on 17 September 2024.  They did not cite or include any authorities and did not address any issues as to costs.  The parties did not avail themselves of the opportunity to lodge written submissions in reply, nor make any further applications.  I have hence considered both closing submissions below in relation to AoD and costs. 

THE EVIDENCE BEFORE THE COURT

22.  Clause 5.02 of the Agreement reads as follows:

“The Guarantors undertake to the Purchaser that if [the Listing] fails to be completed on or before 31 May 2018 (or on such later date as the Vendors and the Purchaser may otherwise agree in writing), [the 1^st defendant] and [the 2^nd defendant] shall repurchase the Active Access Sale Shares and the Tian-Yu Sale Shares from the Purchaser at the consideration of HK$6,250,000 and HK$6,250,000, respectively, together with interest thereon at a rate of 6% per annum accruing from the date of receipt of the Consideration by the Company[1] (or at such consideration as the Vendors and the Purchaser may otherwise agree in writing).” (emphasis provided for in the Agreement)

23.  The plaintiff called one witness at the 2 September Hearing, namely Ms Liu.  Ms Liu adopted her witness statement as part of her evidence-in-chief.  Before she gave evidence, the 3^rd and 4^th defendants indicated that they did not intend to ask her any questions, and indeed there was no cross-examination of Ms Liu.  I will deal with the material portions of her evidence below. 

24.  The 3^rd defendant’s witness statement said that its contents were said to be made on his and the 4^th defendant’s behalf.  The 4^th defendant did not file any witness statement. At the 2 September Hearing he confirmed that he was content for the 3^rd defendant to give evidence on behalf of both the 3^rd defendant and himself.  Accordingly, the 3^rd defendant adopted his witness statement as his evidence-in-chief.  He was then cross-examined on it for just over an hour.  I will also deal with the material portions of such evidence below. 

THE PARTIES’ CASES

25.  Mr Yau’s main submissions may be summarised as follows:

a.  The plaintiff should be awarded common law damages to protect its expectation interest under Clause 5.02, namely what it would have received had the 3^rd and 4^th defendants fully performed their obligations pursuant to Clause 5.02;

b.  Those damages are in the sum of HK$12,500,000 with interest accruing thereon at 6%, minus HK$4,600,000 in Defendants’ Repayments that had been paid to the plaintiff.  That is the sum that the plaintiff would have received under Clause 5.02 from the 1^st and 2^nd defendants had that Clause been performed by the 3^rd and 4^th defendants, who had breached their independent and cumulative obligations as guarantors under Clause 5.02;  

c.  The 3^rd and 4^th defendants had to state in their witness statement(s) grounds on which they intended to contest the amount of damages, by giving particulars of facts relied on to support such ground and to prove such (Galaxy China Opportunities Fund v Tang Jun (unrep, HCA 1629/2011, 22 May 2015 at §§68-69), but they had not done so;

d.  The plaintiff had no duty to mitigate in relation to damages, and the date on which I should assess the plaintiff’s damages should either be the date of the 2 September Hearing, alternatively 19 April 2022, on the basis either that there was no market for the Shares, or that it was reasonable for the plaintiff to seek specific performance until the 2 September Hearing. I discuss these bases in more detail below.  

26.  The 3^rd and 4^th defendant’s case was as follows:

a.  The 3^rd defendant’s witness statement (and hence oral evidence) repeated inter alia the same phrases that had been put in evidence by the defendants as set out at paragraph 12(1) of the Liability Judgment, and claimed that the defendants “have already implemented the necessary steps to repurchase the [Shares] from the [plaintiff] by making [the Defendants’ Payments] before the commencement of this action pursuant to the Agreement”.  It then went on to say that as the plaintiff had successfully acquired the Sale Shares and had then been “refunded” the Defendants’ Payments, the 3^rd and 4^th defendants believed that the plaintiff had suffered no loss;

b.  In their oral opening, it was claimed that the matter arose from a “loan” that given the failure of the Listing, it was accepted that the 1^st and 2^nd defendants had to “repay” the plaintiff, and that if this was not possible then the 3^rd and 4^th defendants (as guarantors) had to shoulder such responsibility.  It was also agreed that the interest rate was fixed at 6%, but said that they had “tried their best to make repayment” and that it was not clearly stated how to allocate the Defendants’ Payments between principal and interest – which calculations they would deal with in their written closing submissions;  

c.  In their written closing submissions, they said that the Court had previously not decided the matter of the calculations reflecting the Defendants’ Payments, and that such calculations would be very different if (since the current case concerned shares sold and repurchased) such calculation were based on a successful listing, as opposed to where the company had been closed down – but that it was for the court to decide the method of calculation.  

d.  The suggestion was also made in the written closing submissions that the Agreement was not necessarily fair or legal, apparently on the basis that the requirement that the guarantor (i.e. the 3^rd and 4^th defendants) pay a certain percentage of annual interest was effectively money-lending in circumstances where the plaintiff did not have a money-lending license.  It was also said that even if there were a money-lending license, the Defendants’ Payments should not be put toward interest only, but rather toward both interest and principal as the Agreement specified annual interest and not simple interest; and 

e.  The 3^rd and 4^th defendants stated in their written closing submissions that from the beginning till the end, the Company had no physical properties, deposits, or shares and objects that could be pawned, and that the ultimate responsibility lay on the 3^rd and 4^th defendants to personally guarantee it[2]. 

BASIS OF ASSESSING DAMAGES

The nature of the 3^rd and 4^th defendants’ obligations

27.  I find that:

a.  The Repurchase Obligations of the 3^rd and 4^th defendants are a “see to it” obligation, whereby both of them undertook as guarantors that Active Access would repurchase the Active Access Sale Shares, and Tian-Yu would repurchase the Tian-Yu Sale Shares, from the plaintiff, breach of which sounded in unliquidated damages (Joyful Delight Ltd v Active Access Holdings Ltd [2022] 5 HKLRD 1 at paragraphs 32-35);

b.  As such was a single joint promise by the 3^rd and 4^th defendants, they are both hence jointly liable in relation to such (Chitty on Contracts (35^th Ed) at §20-002); and

c.  Where the 1^st and 2^nd defendants (as principal) have breached their Repurchase Obligations, the 3^rd and 4^th defendants (as surety) are liable to pay damages for breach of their “see to it” obligations– these would be in the same amount of the damages that would be payable by the 1^st and 2^nd defendants in respect of their breach (Law of Guarantees (7^th Ed) §6-030; Barnicoat v Knight [2004] 2 BCLC 464 at §§19, 23-26). 

28.  I reject the submission by the 3^rd and 4^th defendants that the relevant underlying transaction is a “loan”, or that there is any issue of de facto and/or unlicensed money-lending.  I also reject the 3^rd and 4^th defendant’s arguments as advanced in their written closing submissions that the calculations of principal and interest under Clause 5.02 should consider the situation if premised on a successful listing, and that such calculations and Clause 5.02 raise issues with the fairness or legality of the Agreement. 

29.  As I have explained above, under Clause 5.02 of the Agreement, the 1^st and 2^nd defendants had valid repurchase obligations, and the 3^rd and 4^th defendants had agreed and were subject to a legitimate joint “see to it” obligation as guarantors.  The plaintiff is to be paid damages for the 3^rd and 4^th defendants’ breach of such obligation, which amount and basis I need to and will assess below.  The 3^rd and 4^th defendants advanced before me no basis or supporting authorities to establish that the case concerns (or should be treated as) a “loan”, and/or that it raises any question of de facto and/or unlicensed money lending given the interest and/or amounts owed by the 3^rd and 4^th defendants.  In any event the plaintiff’s calculations only use simple interest of 6% per annum.  Finally, I can see no legal basis (and none was identified by the 3^rd and 4^th defendants) for the suggestion that calculations of interest and/or assessment of damages should take into account what would have happened if the Listing had been successful. 

30.  I will address below the 3^rd and 4^th defendant’s submissions which relate to the effect of the Defendants’ Payments, including as to whether they should be allocated between principal and interest. 

The approach in assessing damages for such breach

31.  The starting point for the plaintiff is the submission that the relevant breach in relation to which I am to assess damages is that of the failure of the 3^rd and 4^th defendants to “see to it” that the Repurchase Obligations were discharged by the 1^st and 2^nd defendants either forthwith upon the failure to (on or before 31 May 2018) carry out the Listing, or within a reasonable time thereafter (see Clause 5.02 of the Agreement and Liability Judgment paragraphs 5 to 10 and 13-14) , and that regardless of the exact contents of the implied term[3], such breach had occurred by the time of the Liability Judgment – hence her Ladyship’s order. 

32.  In relation to such, the general principle for assessing damages is compensatory (namely that the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed).  It has been said that where the contract is one of sale, that “usually leads to assessing damages as at the date of the breach”, but that this is not an absolute rule as if to follow it would give rise to injustice the court has power to fix such other date as may be appropriate in the circumstances (Johnson v Agnew [1980] 1 AC 467 at 400H-401A).  The same case gives, at 401B-D, examples of certain situations where a later date may be appropriate, including where an innocent party reasonably continues to try to have the contract completed. 

33.  Over the last ten years or so, there has been further detailed analysis of the numerous authorities, including Johnson v Agnew and the authorities cited within, to the effect that assessing damages on the date of breach is more the result of a presumption applicable in certain circumstances, rather than a rule.  See for example Dyson and Kramer, 'There is No “Breach Date Rule”: Mitigation, Difference in Value and Date of Assessment' (2014) 130 LQR 259[4], and The Law of Contract Damages, 3^rd Ed (2022) §§17-10, 17-11, 17-16 (by A Kramer K C[5]).

34.  I consider that on the facts of this particular case, it would not be appropriate to assess the damages payable by the 3^rd and 4^th defendants (who I find were, respectively and at all material times, the director of the 1^st defendant and the director of the 2^nd defendant) as at that earlier date of breach – that is, before the Liability Judgment.  This is because, here, the plaintiff did not and could not have been expected to have recourse to the market at such earlier date by way of mitigation to replace the performance that was not provided by the defendants (The Law of Contract Damages, supra, §§17-10 to 17-11).  There are two reasons for this. 

35.  The first reason is that I conclude that there was on balance, by the time of such breaches and thereafter, no immediately available market for the resale of the Shares (Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 at §190 per Leggatt J (as Lord Legatt was then), Dyson and Kramer, supra, at pp276-277, 280-281, Law of Contract Damages, supra, §17-45).  I base this finding on the following matters. 

36.  Firstly, it is inherently improbable that there was any available market to which the plaintiff could have resorted given that:

a.  The Shares represented only a small minority stake (5.45% total) of shares in a private Company, which had been incorporated solely for the purposes of the Listing, and an anticipated (but apparently unperformed) share swap to facilitate the Listing;

b.  After the failure of the Listing, and hence by the time of the breaches, the Company served no purpose.  Indeed, the 3^rd defendant’s evidence was that the Company had no business from January 2018 up until the 2 September hearing, that its only purpose was in relation to “the investment” (that is, the purchase of the Shares, which must be seen and assessed in the context of the Listing), and that the Company served no purpose after the failure of the Listing; and 

c.  The 3^rd and 4^th defendants acknowledged in their written closing submissions that from the beginning, the Company had no physical assets, deposits, or any shares and objects that could be pawned.

37.  There were no submissions made by the 3^rd and 4^th defendants (and no facts advanced by them to support the submission) that there was an immediately market (or indeed any market) for the Shares at which they could have been sold.  I also do not see any evidence of sufficient strength to displace the aforesaid inherent improbabilities, or which justifies my legitimately inferring (as opposed to impermissibly speculating) that such a market existed.

38.  Indeed, no evidence, or credible evidence, was adduced by the 3^rd and 4^th defendants about the operations and the actual value (if any) of the Company’s subsidiaries Wing Lap Construction Company Ltd (“WLC”) or Wing Lap Engineering Co Ltd (“WLE”) at any point after 31 May 2018, whether prior to or after their being transferred away from the Company from 2021 onwards[6], and subsequent to which WLC was wound up on 26 April 2023[7].  There is hence insufficient legitimate basis on which I can draw any inferences or make findings as to their actual value (as opposed to nominal value) and operations. There is hence in turn no basis for any submission or finding that such establish that the Shares were worth more than their nominal value, or that there was a market for them, after 31 May 2018. 

39.  Further, on the evidence before me (including WeChat and WhatsApp messages dated from 24 January to 20 November 2020 to which I was referred), the defendants had agreed to make, and made, the Defendants’ Payments in 2020.  This was, as the 3^rd and 4^th defendants said before me, pursuant to all of the defendants’ apparent obligations under Clause 5.02 of the Agreement.  Viewed in context, such behaviour seems to me to be inconsistent with the notion that there was, at least from January to late November 2020, any such market to which the plaintiff could and should have resorted. 

40.  Absent such a market for the Shares, there is no reason to apply the date of breach as a presumption.  Rather, the proper approach is to adopt the date of trial as the correct date for assessment of loss (The Law of Contract Damages, supra, §17-45 citing Gestmin, supra, at §190). 

41.  The 3^rd and 4^th defendants are hence liable for the amount that is outstanding from the 1^st and 2^nd defendants as at the 2 September Hearing, being the date of trial.  On the face of it, their damages would hence be HK$12,457,490[8] since, given the above, the Shares only held their nominal value of US$5,450, for which I consider credit should be given in the amount of HK$42,510 (being US$5,450 x 7.8). However, the final figure for damages is different to that since, as explained below, some credit has to be given for some of the Defendants’ Payments.

42.  Even if I am wrong to conclude that there was no market for the Shares at the time of the breaches after the failure of the Listing, there is a second reason for my conclusion, namely that it was reasonable for the plaintiff to insist on specific performance – which it did here as against the 1^st and 2^nd defendants – and to refrain from going into the market (insofar as one existed) after the initial breaches.  In that case, the market price will be taken only at the date at which the plaintiff could be reasonably expected to give up on the defendant, which could be as late as trial (Dyson and Kramer, supra, pp278-281; The Law of Contract Damages, supra, §17-16). 

43.  I find that it was reasonable, at least up until 19 April 2022, for the plaintiff to insist on specific performance, rather than to go into any potential market.  This is due to, firstly, the matters in paragraphs 36a to c above.  Secondly, the 1^st and 2^nd defendants had in 2017 May been paid the full consideration for the Shares.  Thirdly, it was clearly reasonable for them to do so from January to late December 2020, given the evidence of and in relation to the Defendants’ Payments throughout that year.  Finally, the plaintiff had good grounds for seeking specific performance, as obtained against the 1^st and 2^nd defendants by way of the Liability Judgment.  Indeed, the fact that such was awarded indicates that the court took the view that it was reasonable for the plaintiff to seek specific performance (see Galaxy at paragraph 43).

44.  Further, and pursuant to the matters that I have outlined in paragraphs 36a to c above and 38 above, I find that the Shares would have been worth only their nominal value as of 19 April 2022 and thereafter.  Hence, and for the purposes of assessing damages, it does not matter whether I conclude that the plaintiff was reasonably expected to give up on the defendants by 19 April 2022, or at some time thereafter including as at the 2 September Hearing. While on the face of it the damages would hence be HK$12,457,490, again for reasons explained below the final figure for damages is somewhat different as credit has to be given for some of the Defendants’ Payments.

45.  Further or in the alternative to the two reasons above, I also consider that the order of Hon Cheng J (properly construed) also entitles me to assess damages payable to the plaintiff, insofar as such would have resulted from the 3^rd and 4^th defendants’ breaches of their obligation to “see to it” that (as ordered by her Ladyship) the 1^st and 2^nd defendants repurchase the Shares by 19 April 2022.  This alternative approach is valid in light of the context and circumstances of the action, in particular that such order meant that the plaintiffs had put into the hands of the court how the Agreement was to be carried out (see Galaxy at §44).   Such an approach is also consistent with the analysis below given my conclusions above that the 1^st and 2^nd defendants have breached the order, and on the value of the Shares on and after 19 April 2022.

Allocation of the Defendants’ Payments between damages and interest

46.  The plaintiff’s primary submission and calculations were that damages and interest should be quantified by starting with the full consideration paid for the Shares (HK$12,500,000), applying 6% interest on such from 28 May 2017[9] thereafter (which as at the 2 September Hearing the plaintiff had calculated up to the 2 September Hearing), and then only applying the Defendants’ Payments in reduction of the final amount.  These calculations were based on the submission that I should award damages in line with the plaintiff’s construction of the order of Hon Cheng J. The calculations also assumed that the Shares were of absolutely no value, rather than merely nominal value (although Mr. Yau’s submissions fairly pointed out the possibility that they held nominal value of US$5,450).  The interest calculations based on such up to the 2 September Hearing were contained in a table attached to the plaintiff’s Revised Opening Submissions, which I will refer to as “Table 1”, which I have also attached to this judgment. 

47.  At the 2 September Hearing, I drew the parties’ attention to §§15-16 of Bank of China (Hong Kong) Ltd v Eddy Technology Ltd [2019] 2 HKLRD 493 (CA)) which concerned principles regarding how to apportion repayment of a loan between principal and interest.  Mr Yau then submitted to the Court and to the 3^rd and 4^th defendants, but before the hearing of any evidence, a document which I shall refer to as “Table 2”, which he said reflected an alternative position of the plaintiff. I have attached “Table 2” to this judgment.  

48.  “Table 2” was calculated using a total consideration of HK$12,500,000 and with reference to the law set out in the last sentence of §16 of BOC, supra, namely that where there is no appropriation by either debtor or creditor, the law (unless a contrary intention appears) applies the payment to discharge any interest due before applying it to the earliest items of principal.  As it was the plaintiff’s alternative case that there was no contrary intention, “Table 2” hence applied each of the Defendants’ Payments to discharge interest due, before being applied to discharge the principal amounts of HK$6,250,000 in relation to each of the 1^st and 2^nd defendants.  

49.  After consideration by the 3^rd and 4^th defendants, they both indicated that they were prepared to proceed, that day, with the evidence of the witnesses and their oral opening, and that they would address issues relating to principal and interest in their closing submissions.

50.  In the plaintiff’s written closings, Mr Yau maintained the plaintiff’s primary and alternative positions as I have set out above, with reference to BOC, supra, and “Table 2”. He did not otherwise submit that the principles set out within were otherwise inapplicable to the Defendants’ Payments.  The plaintiff has accepted that the principles in BOC, supra, would apply in the event I reject its primary position on the construction of the order of Cheng J.

51.  As I have mentioned, the 3^rd and 4^th defendants made submissions in their written closing that I should decide how to allocate the Defendants’ Payments, apparently toward both principal and interest. I will hence analyse such issue below and also deal with the apparent claim in their evidence that the Defendants’ Payments meant no loss had been suffered by the plaintiff.

52.  Having considered the matter and all of the evidence before me, I do not accept the plaintiff’s primary or secondary cases and calculations in relation to allocation of principal and interest.  I find that the principles in §§15 to 16 of BOC, supra, apply so that there should be some allocation of the Defendants’ Repayments to the principal amount that was to be paid in relation to the repurchase of the Shares (and hence to damages owed to the plaintiff in such sum, on which interest should be calculated).  This is for the following reasons.

53.  Firstly, I do not see from the evidence before me that the defendants had effectively directed[10] that the first four of the Defendants’ Repayments (totalling HK$2,000,000) be allocated to either the principal, or interest thereon.  However, the evidence to which I was referred by the plaintiff includes two letters from the plaintiff’s former solicitors to all of the defendants.  On a reasonable reading of those letters, the plaintiff had chosen to appropriate each of those first four payments (and each at the time they were made to the plaintiff), toward discharging the principal.  Those four payments must hence be allocated toward repayment of the principal, and not to interest: see BOC, supra, at §16 citing Chitty, which portions can now be found at Chitty on Contracts (35^th Ed) §25-058 to 25-060, and 25-060 (see also 25-038). 

54.  Secondly, there was also insufficient evidence to establish that the defendants had, at the time of any or each of the remaining Defendants’ Repayments (totalling HK$2,600,000), effectively directed that such be applied to either the principal, or interest thereon.  However, and applying the principles in BOC, supra, and Chitty §§25-060 and 25-066, supra, to the evidence before me, I consider that by operation of law, those should be allocated toward interest. This is primarily on the basis that (as Mr Yau submitted in handing up “Table 2”) there was no appropriation by either party.  Alternatively, they would still be allocated toward interest even if I were to find that the plaintiff had, by producing “Table 2” as part of its alternative case at the 2 September Hearing, sufficiently accepted and indicated that those payments should be so allocated to interest. 

55.  Thirdly, and further to the above, I do not agree with the plaintiff’s submission that Hon Cheng J’s order allocated the Defendants’ Repayments to principal or interest in line with “Table 1”, as opposed to the common law approach set out above.  The said order does not explicitly set out the manner in which credit should be given for the Defendant’s Repayments in relation to specific performance, and must be viewed and construed in light of the law which I have set out above.  Moreover, I am here assessing the damages payable by the 3^rd and 4^th defendants, which are (as the plaintiff submitted) remedies cumulative to and independent from the orders for specific performance granted against the 1^st and 2^nd defendants – in relation to which the plaintiffs do not appear to have taken any further steps since their solicitor’s letter of 12 April 2022.  There is hence no issue of inconsistency with her Ladyship’s order. 

56.  Fourthly, I also do not see that the letter from the plaintiff’s solicitors dated 12 April 2022 can be a legitimate allocation of the Defendants’ Repayments in terms of “Table 1”. After all, such is based on an erroneous interpretation of Hon Cheng J’s order. It might at best be seen as an allocation by the plaintiff of the remaining seven payments toward interest. However, that would not affect the ultimate result.

57.  Finally, I see no basis for the proposition, and I reject the apparent claim by the 3^rd and 4^th defendants, that the Defendants’ Payments meant no loss had been suffered by the plaintiff. I have set out the correct analysis above, and now turn to the calculation of damages and interest.

CALCULATING THE DAMAGES PAYABLE BY THE 3^rd AND 4^th DEFENDANTS, AND INTEREST THEREON

58.  I understood the plaintiff’s claim for pre-judgment interest to be for the contractual rate of 6% per annum on the total amount due since 28 May 2017, as provided for within Clause 5.02.  However, given the matters above, neither “Table 1” nor “Table 2” apply. The amount of damages to be awarded, and the amount of pre-judgment interest thereon have to be recalculated.

59.  I have hence calculated the damages and pre-judgment interest thereon in accordance with the following principles, using a starting figure of HK$12,457,490 to reflect the nominal value of the Shares (i) the first to the fourth of the Defendants’ Payments are applied, at the time each of them was made, toward reducing the sum of HK$12,457,490 (ii) 6% interest per annum shall be applied to the relevant principal at each point in time (iii) the fifth to the last of the Defendants’ Payments should be applied toward reducing such interest due before applying it to the principal. I have annexed my calculations to this decision as “Table 3”.

Damages payable

60.  Based on the above, including the calculations in “Table 3”, I accordingly assess the amount of damages for which the 3^rd and 4^th defendants are liable to the plaintiff at HK$10,432,085.28. 

Pre-judgment interest

61.  Based on the above, including the calculations in “Table 3”, I accordingly assess pre-judgment interest on such damages, up to the date of this judgment, at HK$2,704,147.38.

Post-judgment Interest

62.  The plaintiff in its written closing submissions has sought post-judgment interest on the judgment sum at judgment rate. It submits that the judgment sum includes pre-judgment interest (Waddington Ltd v Chan Chun Hoo Thomas and Ors (unrep., HCA 3291/2003, 6 December 2016 at §18).  No submissions on the topic were made by the 3^rd and 4^th defendants.

63.  Given the contents and effect of Clause 5.02 of the Agreement, I accept in the circumstances that the plaintiff is entitled to post-judgment interest, at judgment rate, which interest is to be calculated on the total of both the award of damages and pre-judgment interest. I will so order below.

COSTS

64.  At the hearing, I indicated and the parties before me understood that their closing submissions should address costs, but that I would most likely deal with the issue of costs on a nisi basis. 

65.  The plaintiff in its closing submissions asked that it be awarded, as against the 3^rd and 4^th defendants costs of and occasioned by the assessment of damages, which it asked to be summarily assessed as per an attached statement of costs.  For reasons within the plaintiff also sought an order that the 3^rd and 4^th defendants pay the plaintiff costs thrown away as a result of the application for the adjournment of the 19 July Hearing, which costs the plaintiff also asked to be summarily assessed as per a separate attached statement of costs. 

66.  The 3^rd and 4^th defendants did not address any issue of costs in their written closing submissions, and as I have mentioned above there was no reply to the plaintiff’s written closing submissions. 

67.  Given the outcome above, and the sums and amounts involved, I accept the plaintiff’s submissions that it is entitled to both sets of costs, and that I should summarily assess both sets of costs. 

68.  The 19 July Hearing was a milestone date, and costs thrown away by the adjournment of such will generally be paid by the party who brings about the adjournment.  Here, the adjournment of the 19 July Hearing was granted mainly due to the application made only on that day by the 3^rd and 4^th defendants.  Their conduct in relation to the 19 July Hearing was, at best, unhelpful.  In taking this view, I bear in mind that the 19 July Hearing was not the first occasion when they were in court, and that they had previously been represented by DSol in relation to the matter. With that said, I do not consider that I should find (as suggested by the plaintiff) that in the circumstances the 3^rd and 4^th defendants had deliberately attempted to delay matters.  On the whole, I also do not see that this is a case where it is appropriate for such costs to be assessed on an indemnity basis.  Applying the party and party basis, I summarily assess the plaintiff’s costs thrown away by the adjournment of the 19 July Hearing at HK$63,000. 

69.  I can see no reason to deprive the plaintiff of its costs of the assessment of damages, as it has substantially prevailed even if the sum I have awarded is lower than that sought in Tables 1 and 2.  I summarily assess such at HK$258,000, which includes HK$68,000 in respect of Section C, HK$60,000 in respect of Section E, and HK$115,00 in respect of Section D. The last of those sums takes into account the assistance of counsel in relation to Section E.

70.  The above costs orders are made nisi and will become absolute if no application is made to vary such within 14 days hereof. 

ORDER

71.  I hence order as follows:

a.  The 3^rd and 4^th defendants are liable to and do pay the plaintiff damages in the amount of HK$10,432,085.28;

b.  The 3^rd and 4^th defendants are liable to and do pay the plaintiff pre-judgment interest up to 17 March 2025, in the sum of HK$2,704,147.38;

c.  Interest from the date of judgment shall run on the judgment sum of $13,136,232.66, at judgment rate until payment;

d.  Nisi that the 3^rd and 4^th defendants do pay the plaintiff its costs thrown away by the adjournment of the hearing on 19 July 2024, which are summarily assessed in the amount of HK$63,000; and

e.  Nisi that the 3^rd and 4^th defendants do pay the plaintiff its costs of and occasioned by the assessment of damages, which are summarily assessed in the amount of HK$258,000.

72.  Either of the 3^rd and 4^th defendants may make an appointment with my clerk for this decision to be interpreted to them in Chinese, if either or both of them so wish.

73.  I thank Mr Yau, and the 3^rd and 4^th Defendants, for their assistance. 

Table 1

Table 2

Table 3