LAM ROGERIO SOU FUNG v. TAN SOON GIN GEORGE

CACV 85/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 85 OF 2011

(ON APPEAL FROM HCA NO. 2576 OF 2005)

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BETWEEN

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(By Counterclaim)

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JUDGMENT

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Hon Yuen JA:

1.  I agree with the judgment of Kwan JA and the orders she has set out.

Hon Kwan JA:

2.  This is the hearing of the cross-appeal of the respondent, Lam Rogerio Sou Fung (“Lam”) against the judgment of Chu J (as she then was) on 5 May 2011. The appellant, Tan Soon Gin George (“Tan”), has withdrawn his appeal in December last year and does not take part in this hearing.

Background

3.  I will first relate the relevant background matters.

4.  The trial before the judge was the trial of Lam’s counterclaim in HCA 2576/2005 in respect of five items of Chinese antiques (“the Disputed Antiques”). They were described in the judgment as “the Guyuexuan Vase”, “the Deep Dish”, “the Quail Dishes”, “the Stemcup” and “the Double Gourd”.

5.  The Guyuexuan Vase, the Stemcup and the Double Gourd were consigned by Tan’s nominee company Ironwood Overseas Limited (“Ironwood”) to Sotheby’s Hong Kong Limited (“Sotheby’s Hong Kong”) and sold at a public auction on 23 October 2005. After deducting the expenses, the net proceeds of sale for these three items are HK$103 million, HK$2.8 million and HK$5 million respectively. The net proceeds of the Guyuexuan Vase of HK$103 million have been paid into court pursuant to a court order.

6.  The Deep Dish and the Quail Dishes were consigned by Ironwood to Christie’s Hong Kong Limited (“Christie’s Hong Kong”). They were put up for auction in November 2005 but were not sold and have been kept in the custody of Christie’s Hong Kong.

7.  Lam brought this counterclaim against Tan on 8 February 2006. It is his case that in about May 1982, at the request of Tan, he lent the Disputed Antiques to Tan for display at the latter’s office at Carrian Centre to impress his clients and customers and Tan had failed to return them despite his demand for their return in about 1987. By the sale by auction on 23 October 2005, Tan through Ironwood had wrongfully converted the Guyuexuan Vase, the Stemcup and the Double Gourd. As for the Deep Dish and the Quail Dishes, they were wrongfully retained by Tan. Lam also claims that the Stemcup and the Double Gourd were damaged while they were in Tan’s possession. He seeks declarations that he is entitled to the proceeds of sale of the items that were sold and that the unsold items are his properties, an order for delivery up of the unsold items, damages for conversion and wrongful detention, and damages for diminution in value of the Stemcup and the Double Gourd.

8.  Tan denies that Lam had lent the Disputed Antiques to him. He alleges he had bought the Guyuexuan Vase, the Deep Dish and the Quail Dishes from Lam in about late 1981 for US$5 million. As for the Stemcup and the Double Gourd, he claimed that he had purchased them from a private collector in Hong Kong in about 1982. He denies that the Stemcup and the Double Gourd were damaged while in his possession. He alleges that he had purchased the Stemcup and the Double Gourd from the private collector at HK$300,000 to HK$400,000 as substandard or defective items, because the Stemcup has a chip at the rim of the mouth and the Double Gourd has an uneven surface which is something like a “birthmark”.

9.  The core issue at trial is the dispute of fact as to whether the Disputed Antiques were lent by Lam to Tan in 1982 or whether they were purchased by Tan from Lam and a private collector.

10.  The judge determined this issue against Tan. She came to the view that the account of events given by Lam is to be preferred to that of Tan and rejected Tan’s evidence and account that he had acquired them by purchasing from Lam and a private collector. She found as a fact that the Disputed Antiques were lent by Lam to Tan in 1982 and that when they were delivered to Tan, they were in good condition. She gave judgment to Lam on the counterclaim.

The judgment below

11.  In respect of the Guyuexuan, the judge made a declaration that Lam is entitled to the sale proceeds and Tan is to pay damages to Lam for conversion assessed at HK$103 million. For the Deep Dish and the Quail Dishes, she made a declaration that they are the properties of Lam, and ordered Tan and/or Christie’s Hong Kong to forthwith release the same to Lam or his authorised representative, and that Tan is to pay Lam nominal damages for their wrongful detention assessed at HK$100. As for the Stemcup and the Double Gourd, she made a declaration that Lam is entitled to the sale proceeds and Tan is to pay Lam damages for conversion assessed at HK$2.8 million for the Stemcup and at HK$5 million for the Double Gourd.

12.  The judge declined to award damages for diminution in value of the Stemcup and the Double Gourd. In respect of the Double Gourd, the judge did not think Lam has discharged the burden of proving on the available evidence that this was damaged while in Tan’s possession. Although she had found that the Stemcup was damaged when it was kept by Tan, she did not consider Lam has proved to the required standard the market value of this item when in fine and undamaged condition, so no award can be made in the absence of evidence to prove the actual loss suffered.

13.  The reasoned judgment did not deal with the question of interest on damages and no award of interest was made.

The issues on cross-appeal

14.  Two matters are raised in the cross-appeal.

15.  Firstly, it is contended that interest should be awarded on all sums of damages awarded by the judge.

16.  Secondly, it is contended that an award should be made for the claim of damages for the diminution in value of the Stemcup and the Double Gourd.

17.  Mr Jonathan Wong, who appeared for Lam in this hearing, emphasised that there is no appeal against the judge’s findings of primary facts. This is relevant to the determination of the second issue as it is his contention that the grounds of appeal are directed to the inferences which the judge ought to, but did not draw, in the light of the evidence before her and the findings of primary facts she had made.

The question of interest

18.  Mr Wong submitted that the judge had apparently overlooked the question of interest in the judgment. Interest was claimed in paragraph 17 and paragraph (10) of the prayer for relief in the re-amended defence and counterclaim. If there was an accidental omission to award interest, Lam could have made an application to the judge to correct the error by the slip rule under the inherent power of the court (Tak Ming Co Ltd v. Yee Sang Metal Supplies Co [1973] 1 WLR 300).

19.  Be that as it may, there is no reason why interest should not be awarded here. The overriding principle for awarding interest to the plaintiff is not as compensation for the damage done but for being kept out of money which should have been paid to him (London, Chatham and Dover Ry Co v. South Eastern Ry Co [1893] AC 429 at 437).

20.  Mr Wong seeks an order that interest be paid from the date of the sale by auction for the damages awarded for conversion of the three items sold (23 October 2005) and from the date of the counterclaim (8 February 2006) for the nominal damages awarded for the two items unsold. He pointed out that as found by the judge, Lam had made a demand two days after the sale by auction and there was no delay on his part. On the rate of interest, Mr Wong asks for the commercial rate of 1% over the prime rate, on the basis that although Lam is a retired merchant, it would not be unfair to assume that his investment activities in retirement would have yielded returns.

21.  I would accept the above submissions except that I do not think it appropriate to order interest on the nominal damages of HK$100. The basis of an award for nominal damages is that no substantive loss has been proved, there is no substantive sum of money that Lam has been kept out of for which he ought to be compensated in interest. 

22.  I would make these orders on interest as sought by counsel:

(1)     on the damages for conversion of the Guyuexuan Vase assessed at HK$103 million, interest be awarded at 1% above the prime rate from 23 October 2005 until the date of judgment, and thereafter at judgment rate until payment;

(2)     on the damages for conversion of the Stemcup assessed at HK$2.8 million, interest be awarded at 1% above the prime rate from 23 October 2005 until the date of judgment, and thereafter at judgment rate until payment; and

(3)     on the damages for conversion of the Double Gourd assessed at HK$5 million, interest be awarded at 1% above the prime rate from 23 October 2005 until the date of judgment, and thereafter at judgment rate until payment.

23.  Credit would be given for the interest that has accrued on the entire net proceeds of sale of the Guyuexuan Vase paid into court.

Damages for diminution in value

24.  Mr Wong accepted that the judge had correctly identified the two issues required to be resolved on this head of claim, and that the burden of proof on both would rest with Lam. These issues are: firstly, whether it is proved that the Stemcup and the Double Gourd were damaged while in Tan’s possession; and secondly, what is the difference in the market value of the two items in fine condition and in damaged condition.

25.  On the first issue, the judge found that both items were in fine condition in 1981 when they were lent by Lam to the Art Museum of the Chinese University of Hong Kong and when they were returned by the Museum. The judge also drew the reasonable inference that these items remained to be in fine condition when Lam delivered them to Tan on loan in 1982(paragraphs 80 and 64 of the judgment).

26.  Tan accepted in his evidence that the Stemcup has a chip in its rim and the email dated 26 July 2005 from Christie’s Hong Kong to Tan’s daughter also referred to a stemcup in Tan’s cupboard that has a chip in its mouth-rim (paragraph 81 of the judgment).

27.  From the above, the judge drew the only inference and conclusion that the Stemcup was damaged when it was kept by Tan.

28.  For the Double Gourd, on Tan’s evidence, he accepted that it has an uneven surface. He claimed that this is in the nature of a “birthmark” and was a defect he knew of at the time he allegedly purchased it from the private collector. The judge rejected his evidence of the uneven surface being a “birthmark” for the reasons she gave in the earlier part of her judgment (paragraph 82 of the judgment).

29.  The judge found it inherently incredible that the private collector would have offered defective or substandard antiques to Tan or that Tan would have purchased antiques with such apparent defects (paragraph 43 of the judgment). Furthermore, the Double Gourd was retrieved from the strong room in Tan’s office for the viewing by the important guests in May 1982 of “fine items of antique”. As the defects in question are not latent but are apparent upon viewing, the Double Gourd could hardly fit the description of a “fine” item of antique. The judge queried why Tan would include the Double Gourd for viewing by the important guests when he had over a hundred items in his collection (paragraph 44 of the judgment). She also queried why Tan would have chosen to display a defective item like the Double Gourd in the study of his residence according to a photograph he produced, when he had no special liking or preference for it (paragraph 44 of the judgment).

30.  The judge said in paragraph 82 that in respect of the Double Gourd, there is no evidence of its condition subsequent to it being delivered to Tan in 1982. I find this difficult to accept. The judge had found that the Double Gourd was in fine condition when Lam delivered it to Tan on loan in 1982. Further, it was included with other “fine items of antique” for the viewing by Tan’s important guests in May 1982. There is evidence on the subsequent condition of the Double Gourd as, according to Tan’s evidence, it has an uneven surface. This defect, as the judge had remarked, is not latent, but is apparent upon viewing.

31.  Furthermore, the Double Gourd was valued by Sotheby’s Hong Kong based on a photograph only on 10 August 2005 at HK$20 to 30 million but was revised to an agreed reserve price of HK$3 million on 22 August 2005 after a physical inspection. The judge took the view that the revised valuation by itself, without more, does not support an inference that the Double Gourd is in a damaged condition as there are a variety of possible reasons for a downward adjustment and the physical condition is but one of them (paragraph 82 of the judgment).

32.  There may well be a number of reasons for the downward adjustment, but given the substantial adjustment of over 85% and the fact that the uneven surface is not a latent defect but is apparent on viewing, it appears to me there would be sufficient grounds to infer that the physical condition must be a significant reason for the substantial downward adjustment in the estimated price. I would agree with Mr Wong that the judge should also have inferred that the Double Gourd was damaged when it was kept by Tan.

33.  I turn to the second issue whether there is evidence to show the actual loss suffered on account of the damaged condition of the Stemcup and the Double Gourd.

34.  The only evidence before the judge is the revision of the valuation by Sotheby’s Hong Kong as mentioned earlier. In the case of the Stemcup, the earlier valuation based on a photograph on 10 August 2005 was HK$8 to 12 million and after physical inspection on 22 August 2005, the agreed reserve price was revised to HK$2 million. The downward adjustment here is over 75%.

35.  We have been shown the photographs of the Stemcup and the Double Gourd in the trial bundles and were given to understand that they were from the catalogue of Sotheby’s Hong Kong. The defects in these items are not apparent from the photographs. However, Mr Wong is not able to tell us if the earlier valuation was based on these same photographs. In any event, as noted by the judge in paragraph 83, the earlier valuation of the Stemcup was made on the assumption that it was in fine and undamaged condition. Mr Wong asked us to draw the same inference that the earlier valuation of the Double Gourd was likewise made on the assumption that it was in fine and undamaged condition. I would not have any problem with that.

36.  The hammer price at the auction sale was HK$2.8 million for the Stemcup and HK$5 million for the Double Gourd.

37.  Mr Wong submitted it is clear in this instance that some substantial loss has been incurred and it is wrong for the judge to decline to award damages or make a nominal award merely because the assessment is difficult. He asked this court to do the best it can on the available evidence and to adopt a broad-brush approach in assessing damages where necessary. He seeks an award based on the difference between the hammer price and the lower end of the valuations, so in the case of the Stemcup there would be an award of HK$5.2 million for damages for diminution in value and for the Double Gourd there would be an award of HK$15 million for damages under this head. He also asks for interest on such awards from the date of the conversion.

38.  The judge declined to award damages under this head taking the view there is no evidence on the basis for the two valuations of Sotheby’s Hong Kong in August 2005 and the reason for the downward revision. For the reasons I have mentioned earlier, I would respectfully differ from the judge in that I am inclined to think that the defects of the two items which are apparent on physical inspection must have accounted significantly for the downward adjustment of 85% in the case of the Double Gourd and 75% for the Stemcup. I am also inclined to agree with counsel there must be a considerable difference in price between these items in fine condition and in the present damaged condition. The question is whether the lower end of the valuations on 10 August 2005 should be taken as the minimum price these items could be expected to fetch if they were in good condition. I have reservations in accepting this.

39.  The estimates given on 10 August 2005 were of a preliminary nature, based only on the photographs shown to Sotheby’s Hong Kong. The range given for the valuations was considerable; it was HK$8 to 12 million for the Stemcup and HK$20 to 30 million for the Double Gourd. Further, even if the physical condition may be a significant reason for the substantial downward adjustment, there was no evidence to establish that there was no other reason for it. First, Mr Wong acknowledged it is unclear if the valuation given for these two items would have included the commission payable by the buyer on the hammer price. Secondly, I note also Lam had accepted in his evidence that the valuation of the Double Gourd at HK$20 to 30 million was “on the high side” (transcript page 456 lines Q to R). For these reasons, I think it would be appropriate to give a further discount to the lower end of the valuations on 10 August 2005 in assessing damages.

40.  Approaching this on a conservative basis and doing the best I can on the available evidence, I would discount the lower end valuations by 30% on a broad-brush approach. So the amount I arrive at for the items in good condition is HK$5.6 million for the Stemcup and HK$14 million for the Double Gourd and the award of damages for their diminution in value is HK$2.8 for the Stemcup and HK$9 million for the Double Gourd.  I would award interest on such damages at 1% above the prime rate from 23 October 2005 until the date of judgment, and thereafter at judgment rate until payment.

41.  I would like to emphasise that the course I propose to adopt must be understood in the particular circumstances of this case, and should not be regarded as encouraging a lax attitude on the part of litigants in adducing sufficient and proper evidence to prove their claim for damages. As Bowen LJ had said in Ratcliffe v Evans [1892] 2 QB 524 at 532 to 533:

“In all actions accordingly on the case where the damage actually done is the gist of the action, the character of the acts themselves which produce the damage, and the circumstances under which these acts are done, must regulate the degree of certainty and particularity with which the damage done ought to be stated and proved. As much certainty and particularity must be insisted on, both in pleading and proof of damage, as is reasonable, having regard to the circumstances and to the nature of the acts themselves by which the damage is done. To insist upon less would be to relax old and intelligible principles. To insist upon more would be the vainest pedantry.”

42.  The Stemcup and the Double Gourd have been sold by the time the counterclaim was brought. It is not known if these items could be inspected by an independent expert valuer not connected with the process of selling the items. At the very least, evidence could have been sought from Sotheby’s Hong Kong to explain the substantial difference in the two valuations given. As the evidence adduced to support this head of damages is only just sufficient, and the amount claimed is considerable, the court would be driven to take a most conservative approach and give a significant discount to avoid over compensation.

43.  I would order the costs of this cross-appeal to be borne by Tan, to be taxed if not agreed on a gross sum basis. Lam’s solicitors are to serve a skeleton bill within seven days of this judgment for that purpose.

Hon Fok JA:

44.  I agree with the judgment of Kwan JA.