CHOW TIMOTHY WAI KOON v. LAM YING KUEN

DCCJ 1669/2023

[2024] HKDC 1835

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1669 OF 2023

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ASSESSMENT OF DAMAGES

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Introduction

1.  This is the hearing for assessment of damages of the claim of the Plaintiff for equitable compensation against the Defendant based on breach of trust and fiduciary duties.

2.  The Plaintiff entrusted the Defendant with HK$950,000 (“the Funds”) for investment. The Defendant was supposed to act in accordance with the Plaintiff’s instructions by using the Funds to buy and sell shares of China Pipe Group Limited (“China Pipe”) in the Plaintiff’s account maintained with Philip Securities (HK) Limited (“the Account”).

3.  The Plaintiff claims against the Defendant for (i) HK$317,533.78 as the remaining balance of the Funds which should have been left in the Account and (ii) HK$103,068.80 as the loss suffered due to the willful failure to carry out fiduciary duty and specific instructions.

4.  The Plaintiff commenced these proceedings on 26 April 2023. The Defendant had given no notice of intention to defend. Having abandoned his claim for declarations and orders to give full account, the Plaintiff entered Interlocutory Judgment against the Defendant on 20 June 2023.

5.  The Defendant first appeared at the hearing on 24 October 2024. He filed a written “statement” in English purportedly setting out the history and dealings between parties, a copy of which was not even served onto the Plaintiff. This Court took time to explain to him that in the absence of any documentary evidence and witness statement properly filed with the Court, the factual matters raised in the said “statement” could not be admitted as evidence, nor could the Defendant raise a “counterclaim” in place of proper pleadings like this. The Defendant said he understood.

The Plaintiff’s case

6.  The Plaintiff’s case is that, pursuant to an agreement reached orally, he would entrust the Defendant with the Funds for the purpose of trading shares of China Pipe. At the discretion of the Plaintiff, he may distribute 10-15% of profits earned from the trade to the Defendant. In the event of loss, he would fully bear the same and not be obliged to pay the Defendant service fee.

7.  The Plaintiff gave the Funds to the Defendant in cash in 14 installments during the period from 31 January 2018 to 21 March 2018. The Defendant then transferred the Funds to the Account.

8.  Between 6 February 2018 and 10 July 2018, the Defendant acted in accordance with the Plaintiff’s instructions on trading of the shares of China Pipe and managing the Funds. The Plaintiff kept a record himself, which tallies with the statements of the Account provided by the Defendant in late February 2018.

9.  On 10 July 2018, the Plaintiff instructed the Defendant to withdraw HK$250,000 from the Account for the Plaintiff’s own use. As of this moment, the Account was supposed to contain the balance of HK$317,533.78 (see paragraphs 21-22 below).

10.  Regarding the trade of shares, the Plaintiff gave his last instructions on 29 June 2018, the remaining number of shares should be 496,000, according to the Plaintiff’s own records and calculations (ie 1,416,000 shares purchased in total minus 920,000 shares sold) (see paragraph 21 below).

11.  Seizing the opportunity, on 30 August 2022, the Plaintiff specifically told the Defendant to sell all of the remaining 496,000 shares in the Account. However, it transpired that the Defendant did not act accordingly. The Defendant subsequently told the Plaintiff that there was in fact nothing left in the Account.

12.  The Plaintiff’s case is that the Defendant misappropriated the balance of the Funds and the shares, in breach of trust and fiduciary duties owed to the Plaintiff.

The Defendant’s position

13.  The Defendant alleged, as per the agreement reached by parties, that he is entitled to 10-20% of the profits by operating the Account for the Plaintiff; if no profits is made, he would still be compensated with a sum of HK$357,000 (being 50% of his estimated profits[1]) for his participation and the risk involved.

14.  In addition, the Defendant claimed that he is now prepared to pay for the sums sought by the Plaintiff on the condition that such sums should be set off against the Plaintiff’s promise to pay him HK$357,000.

15.  The Defendant’s position is neither supported by pleadings, nor could he rest his assertions on any documents and/or witness evidence.

The Evidence

16.  In the present hearing, the Plaintiff called 1 witness, namely the Plaintiff Mr. Chow himself. The Defendant, having adduced no documentary evidence and witness evidence to challenge the Plaintiff evidence, elected to cross-examine the Plaintiff by pointing out the Defendant’s own case.

Balance of the Funds

17.  The Plaintiff submits, for the breach of fiduciary duty, the Defendant should be ordered to make restitution, or to compensate the Plaintiff by putting the Plaintiff in as good as position pecuniarily as that in which he was before the injury, by citing Nocton v Lord Ashburton [1914] AC 932, at page 952.

18.  To begin, the provision of HK$950,000 from the Plaintiff to the Defendant corroborates with the documentary proof (such as customer advice and bank statements relied on by the Plaintiff). Such provision is not disputed by the Defendant who just took issues only with (i) the location at which the cash was given to him and (ii) the manner in which the cash was being deposited, which are irrelevant.

19.  The Plaintiff testified that, in late February 2018, the Defendant passed him copy of extracts of statements of the Account showing the purchase of the shares operated by the Defendant on 6, 8, and 9 February 2018 as per the Plaintiff’s instructions. For the rest of the transactions, despite repeated requests, the Defendant failed to provide the Plaintiff with the relevant statements.

20.  On 26 March 2018, the Defendant gave a statement prepared by him summarizing the changes and balances of the Funds and the shares as of 26 March 2018, which was consistent with the Plaintiff’s own records.

21.  The Plaintiff prepared a detailed summary of his instructions given to the Defendant in 2018. The calculation as to the balance of the Funds is not in substance being challenged by the Defendant:

(a)  purchasing shares

Date	Number of shares	Unit price (HK$)	Fees (HK$)	Total Sum (HK$)[2]
6 February	200,000	0.54	904.83	338,904.84
	200,000	0.57
	200,000	0.58
8 February	100,000	0.54	291.79	109,291.80
	100,000	0.55
9 February	100,000	0.52	139.20	52,139.21
14 February	40,000	0.47	51.65	18,851.66
16 March	80,000	0.79	516.33	193,316.34
	160,000	0.81
20 March	40,000	0.71	76.79	28,476.80
23 March	104,000	0.70	272.38	101,872.39
	40,000	0.72
26 March	52,000	0.70	98.04	36,498.05
Total	1,416,000			879,351.09

(b)  selling shares

Date	Number of shares	Unit price (HK$)	Fees (HK$)	Total Sum (HK$)
11 May	120,000	0.56	701.24	261,218.76
	116,000	0.57
	120,000	0.58
	100,000	0.59
17 May	160,000	0.53	227.21	84,572.79
24 May	200,000	0.55	294.47	109,705.53
26 June	100,000	0.40	147.08	39,852.92
29 June	4,000	0.41	105.13	1,534.87
Total	920,000			496,884.87

(c)  withdrawing from the Funds

Date	Number of shares	Unit price (HK$)	Fees (HK$)	Total Sum (HK$)
10 July				250,000

22.  Following from the above, had the Defendant acted on the Plaintiff’s instructions, the Account should have contained, after the withdrawal on 10 July 2018, the balance of HK$317,533.78:

(i)	the Funds	HK$950,000.00
(ii)	part of the Funds used to purchase shares	- HK$879,351.09
(iii)	money realized from the sales of shares	HK$496,884.87
(iv)	withdrawal	- HK$250,000.00
Balance		HK$317,533.78

23.  The accuracy of the aforesaid calculations is not doubted by the Defendant. Notwithstanding the repeated explanations given by this Court, the Defendant mounted his attack on issues of liability which can be boiled down to: (i) the Plaintiff engaged the Defendant in illegal dealings which are also against China Pipe’s regulations; (ii) the Plaintiff delayed his recovery action against the Defendant; (iii) the Plaintiff promised the Defendant that he could freely dispose of the monies in the Account as compensation and (iv) the Defendant is entitled to half of the estimated profits at HK$357,000.

24.  For the present purpose of assessment of damages, none of the bare assertions put forward by the Defendant could be substantiated in the absence of pleadings and/or any evidence, nor did the purported challenges cast any doubt onto the Plaintiff’s claim for damages under this head. While Mr Chow was testifying, he denied the accusations from the Defendant and gave elaborations on his case. I find the evidence of Mr Chow credible and reliable. I allow the Plaintiff’s claim under this head in full.

Loss from the Defendant’s willful failure to act on instructions on 30 August 2022

25.  The Plaintiff seeks equitable damages for a sum which could essentially put him back to what he would have been in, had the Defendant acted on his instructions on 30 August 2022 to sell all China Pipe shares.

26.  The Plaintiff relies on Mr Justice Ribeiro PJ’s summary in Libertarian Investments Ltd v Thomas Alexej Hall (06/11/2013, FACV14/2012) (2013) 16 HKCFAR 681 at paragraphs 87-93, and 123:

87. Equitable compensation rests on the premise that the basic duty of a trustee or fiduciary who has misappropriated assets or otherwise caused loss or damage to the trust estate in breach of his duty is to restore the lost property to the trust (together with an account of profits if applicable). Where restoration in specie is not possible, the Court may order equitable compensation in place of restoration. As Lord Browne-Wilkinson stated:

“If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed...”

88. Thus, where a company was entitled to have certain shares restored to it by a director who had received the shares in breach of fiduciary duty, the Court did not consider restoration of the shares in specie an adequate or just remedy where their value, previously £80 per share, had dropped to £1 per share. The director was ordered instead to pay the company £80 per share with interest from the time he received them.

89. Where the breach consists of a wilful failure by the fiduciary to carry out his fiduciary duty, his omission causing loss to the trust estate, he is liable to account on a wilful default basis. This is explained by the editors of Snell’s Equity as follows:

“The trustee is required to restore the financial position of the trust fund to what it would have been if the trustee had not been guilty of wilful default. The effect is that the trustee must pay fresh money into the account. The trustee’s liability is essentially to compensate the trust for the consequential losses that follow from the trustee’s breach.”

90. As we have seen, in pursuing the restorative objective of equitable compensation, the common law rules requiring the loss to be foreseeable and not too remote do not apply. The Court is therefore entitled to assess compensation “with the full benefit of hindsight”.

91. Consequently, the loss is assessed at the time of judgment and the Court is entitled to take into account any post-breach changes affecting the value of the lost trust property. McLachlin J, following Wilson J, cited with approval the following passage from the judgment of Street J in Re Dawson; Union Fidelity Trustee Co v Perpetual Trustee Co:

“... in a claim against a defaulting trustee ... his obligation has always been regarded as tantamount to an obligation to effect restitution in specie; such an obligation must necessarily be measured in the light of market fluctuations since the breach of trust; and in my view it must also necessarily be affected, where relevant, by currency fluctuations since the breach.”

92. It must however be kept in mind, as McLachlin J pointed out:

“While foreseeability of loss does not enter into the calculation of compensation for breach of fiduciary duty, liability is not unlimited. Just as restitution in specie is limited to the property under the trustee's control, so equitable compensation must be limited to loss flowing from the trustee's acts in relation to the interest he undertook to protect. Thus Davidson states ‘it is imperative to ascertain the loss resulting from breach of the relevant equitable duty’....”

93. Where the plaintiff provides evidence of loss flowing from the relevant breach of duty, the onus lies on a defaulting fiduciary to disprove the apparent causal connection between the breach of duty and the loss (or particular aspects of the loss) apparently flowing therefrom.

[…]

123. The exercise of quantifying loss on a wilful default basis necessarily hypothetical. In undertaking that exercise, the Court is assisted by techniques developed by the courts of equity, reflecting the stern view taken of defaulting fiduciaries. Thus, as Lord Millett writing extra-judicially points out, a fiduciary is precluded from setting up a case inconsistent with the obligations of his fiduciary position. His Lordship was dealing with fiduciaries who had taken bribes and gave the example of Fawcett v Whitehouse in which a defendant, negotiating a lease for an intended partnership, received £12,000 as a bribe from the intending lessors. Sir John Leach V-C stated of that defendant:

“... he was bound to obtain the best terms possible for the intended partnership ... and all he did obtain will be considered as if he had done his duty and had actually received the £12,000 for the new partnership, as upon every equitable principle he was bound to.”

27.  In light of the aforesaid principles, the Plaintiff suggested the average unit price of China Pipe shares as of the date of instructions, ie 30^th August 2022 to be HK$0.2078 (by dividing the turnover 41.41 million by the volume 199.28 million).

28.  The price of China Pipe kept falling after the date of instructions. The Plaintiff submits that it is appropriate and conscionable to quantify the equitable damages on a willful default basis by multiplying the number of shares (which should have been in the Account) with the said unit price: 496,000 shares x HK$0.2078 = HK$103,068.80.

29.  In this regard, Mr Chow supplemented his written statement by explaining he trusted and relied on the Defendant to operate the Account. As he travelled frequently, he placed confidence in the Defendant who was a licensed agent and was supposed to monitor the fluctuation of shares price closely, advise him, and promptly carry out his instructions. He also said, on 30 August 2022, he gave specific instructions to the Defendant over the phone to sell all the shares of China Pipe which were supposed to be in the Account.

30.  In response to the above, the Defendant, again, seeking to take issues on liability, alleged that the Plaintiff, in April or May 2021, had told him as compensation he could freely dispose of the shares and balance of the Funds in the Account; and the Defendant, therefore, had sold all shares in May and June 2021.

31.  I find the approach proposed by the Plaintiff sound and logical, which is not in substance disputed by the Defendant, who just repeated his misconceived position of having his alleged entitlement set off against any award granted to the Plaintiff. The Defendant’s propositions are rejected for lacking any proper basis.

32.  It is fair and conscionable to put the Plaintiff back to what he would have been, had the Defendant acted upon the instructions and not committed the breach. Hence, I allow the Plaintiff’s claim under this head in full.

Conclusion

33.  The Plaintiff is entitled to recover from the Defendant the following:

(1)	Balance of the Funds:	HK$317,533.78
(2)	Loss from the willful default of instructions:	HK$103,068.80
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	TOTAL:	HK$420,602.58

34.  I order that the Defendant do pay the sum of HK$420,602.58 to the Plaintiff with interest on the said sum at the best lending rate of HSBC plus 1% from the date of Writ, ie 26 April 2023 to the date of the Interlocutory Judgment and thereafter at judgment rate to the date of full payment.

35.  Costs should follow the event in the present case. I directed parties to file and serve updated statement of costs and list of objection on costs[3]. Having considered the breakdowns, I order the Defendant to pay the Plaintiffs’ costs, summarily assessed at HK$55,000.

36.  A Chinese translation of this Assessment of Damages will be supplied to the Defendant at his request.