HONG JING CO LTD v. ZHUHAI KWOK YUEN INVESTMENT CO LTD

HCA 156/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 156 OF 2006

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REASONS FOR JUDGMENT NO.2

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1.  (1) On 20 December 2010, I gave judgment on liability for the plaintiff against the defendant.

(2) On 25 January 2011, the order of my judgment on liability and the judgment thereof were sealed. 

(3) Thereafter on 10 March 2011, I handed down my Reasons for Judgment on liability “Judgment No. 1”.

2.  By a summons dated 9 May 2011, the plaintiff applied for various directions and/or orders.  They are mainly concerned with three items of clarification on my findings of liability, namely :

(I) the legal basis on which damages are to be assessed, and in particular, whether the defendant is also accountable to the plaintiff as a constructive trustee for all unauthorized profits /commissions received including the “introduction fee” of $171.99 million;

(II) whether damages should be assessed on the basis of “loss of a chance” and if so, the percentage of chance lost by the plaintiff to acquire the Debts and the Properties in relation to the plaintiff’s contractual claim; and

(III) the date of valuation of the Properties for the purpose of assessing the quantum on the basis of “loss of a chance”. 

(I) The Plaintiff’s Relief for the Defendant’s Breach of Fiduciary Duties

3.  In this respect, in my Judgment No. 1, I have made the following findings :

“16. P alleges that D owes a contractual, as well as a fiduciary duty towards P because P had to rely on D in the negotiation with BOCGI. D denies any fiduciary duty owed, because both parties were dealing at arms’ length.

76. However I accept the plaintiff’s submission that whether the MOU is governed by PRC law or Hong Kong law would not have affected the plaintiff’s substantive causes of action nor would it have any effect on the construction of the MOU. Hong Kong court can hold the defendant liable as a constructive trustee. It was stated in Dicey, Morris & Collins, at para. 34‑049 that :

‘Similarly, if it is argued that a defendant, who in a domestic case would be required to hold property on constructive trust, is nevertheless not liable, on the ground that the law of the place of the enrichment, or other lex causae, does not recognize the principles of constructive trusteeship, the argument is misconceived. The appropriate analysis is to ask whether, under the lex causae, the defendant owes obligation which would impose on him under that law a liability to disgorge a benefit. If so, an English court may hold him liable as constructive trustee when giving remedial effect to the substantive right arising under the lex causae.’

77. Further it was held in Kuwait Oil Tanker SAK v Al Bader [2000] 2 All ER (Comm) 271 (CA) that :

‘190. The judge held that the claimants’ alternative claim was made out. Although his consideration of the question proceeded mainly on the footing that the defendants were liable as constructive trustees, he concluded by holding that they were also liable by reason of breaches of their fiduciary duties to the claimants. On the basis of his previous findings, that conclusion was both justified on the facts and correct in law. However, because the rule of English private international law is that the obligation to restore the benefit of an enrichment such as was obtained by the defendants in this case is governed by the law of the country where the enrichment occurred (see Dicey & Morris : The Conflict of Laws (13th ed.) Rule 200(2)(c)), it was necessary for the judge’s decision to be based, in the first instance, on the law of Kuwait.

191. Although the concept of trust is unknown to Kuwaiti law, both Dr Hoyle and Professor Ballantyne agreed that Articles 264 and 267 of the Civil Code (see above) imposed on each of the defendants an obligation to make restitution to the claimants in respect of the funds misapplied by him. On that footing the judge followed the decision of Chadwick J in Arab Monetary Fund v. Hashim (15th June 1994 ‑ unreported), which has since itself been followed by Mance J in Gruppo Torras S.A. v. Al Sabah (24th June 1999 – unreported), and held that the restitutionary obligation under Kuwaiti law could be characterized as fiduciary in character by English law and thus capable of supporting the equitable remedies in personam which would be available to the claimants in an English court.’

This case was cited in Dicey & Morris with other authorities for the aforesaid proposition.

78. Under Hong Kong law, a fiduciary certainly owes an obligation to disgorge any secret or unauthorised profits.  Therefore, even if the MOU is governed by the PRC law, the obligation owed to the plaintiff by the defendant under PRC law are capable of supporting the court in Hong Kong in holding that the defendant is liable as a constructive trustee.  The defendant fails to refer to para. 34‑049 of Dicey & Morris in his closing submission.”

4.  It is therefore quite explicit that I had found for the plaintiff that the defendant was liable as a constructive trustee.  Therefore, it is accountable for all unauthorize profits /commissions received including any “introduction fee” of whatever amount or alternatively such other sum to be determined at the quantum part of the trial.

(II) The Plaintiff’s Loss of Chance

5.  In this respect, I stated one of those issues to be tried on liability in paragraph 12 (3) of Judgment No. 1 :

“12.(3) What caused the defendant to fail in its negotiation with BOCGI during the exclusivity period?

(i) When did D start its negotiation with Sei Pou and its predecessor See Good?

(ii) Did D intend to further P’s MOU by D’s solicitors’ letter to BOCGI dated 26.11.2005?

(iii) Did BOCGI change its stance by “raising the price” during the exclusivity period?”

6.  From the evidence it was accepted by the court that had the defendant duly performed the plaintiff’s MOU and /or had it not negotiated with SEE GOOD /SEI POU people in breach of the exclusivity provision, the defendant would have been able to secure the deal with BOCGI in furtherance of the plaintiff’s MOU before or by the date of expiry of the exclusivity period.

7.  However, the defendant contended that even if the defendant had been in breach of duty of contract, the deal with BOCGI could not have been finalized within the exclusively period due to BOCGI’s change of stance on 28 November 2005, and thus had not led to the loss of any chance. There was no other alternative case advanced by the defendant in the event the alleged change of stance was not established.

8.  In my Judgment No. 1, at paragraph 33, the parties’ respective cases were stated as follows:

“33. Apparently, D failed to secure the deal between BOCGI and P during the exclusivity period. P alleged that D failed because it wanted to bring in another investor (See Good /Sei Pou) and deliberately delayed the negotiation. D alleged that it was because BOCGI suddenly changed its stance and decreased the debt discharged by payment of HK$700 million. In other words the payment of HK$700 million would not be sufficient to discharge the Debt completely.”

9.  In this respect, I found that the defendant had contacted and negotiated with See Good /Sei Pou within the exclusivity period, and PH’s letter dated 26 November 2008 was used to further SGMOU‑1 and not the MOU of the plaintiff.  I found in paragraph 38‑42 of my Judgment No. 1 as follows :‑

“38. In my judgment, this is very unlikely.  There is no reason why See Good would want to add a clause that says it had been advised when in fact it had not been so advised.  The effect would put itself in a more disadvantaged position for no good reason.  When analysed this clause (which says See Good had been advised) logically, one would immediately ask : who would have advised See Good?  It could not be its own solicitors, as no solicitor would advise his client to add a clause to its detriment on its own initiative.  Thus probably, See Good had been “advised” by PH already, at least in a draft given by PH.  Accordingly there is a strong inference that the defendant (apart from itself but, also through PH), had contacted See Good within the exclusivity period. 

39. The second factor is supported by Mr Quan of the defendant, who described the signing of the final version of the MOU with Sei Pou (See Good’s successor) happened very fast (negotiation started on 1 December 2005 and concluded next day) that even surprised him.  Indeed, relative to the length of discussion between the plaintiff and the defendant before the signing of the plaintiff’s MOU (several weeks), the negotiation between Sei Pou and the defendant was unusually fast (less than 48 hours).  I think it is more likely than not that the defendant negotiated with Sei Pou (through its predecessor See Good) before 1 December 2005. 

Issue 3.2 ‑Did the defendant intend to further the plaintiff’s MOU by the defendant’s solicitors’ letter dated 26.11.2005?

40. Mr Chang also submitted that the letter sent by the defendant to BOCGI on 26 November 2005 was in fact used to further SGMOU‑1.  He pointed out that this letter envisaged that the “buyer”, whoever the defendant intended to be, would buy the Debt and the underlying securities directly from BOCGI.  This is the same mechanism envisaged in SGMOU‑1, but different from the one envisaged in the plaintiff’s MOU (Clause 5) as aforesaid. 

41. I accept this submission.  The proper inference is that immediately after receiving SGMOU‑1 on 25 November 2005, the defendant contacted BOCGI on 26 November 2005 to further SGMOU‑1. 

42. From the findings above, the defendant breached the plaintiff’s MOU by negotiating and aiding a third party (See Good) in purchasing the Debt and underlying securities during the exclusivity period.”

10.  Thus, I concluded at paragraph 80 of Judgment No. 1 that :

“80. BOCGI never took a change of stance and it could not be the cause for the defendant’s failure to secure a deal with BOCGI. The cause was the defendant’s delay in performing the MOU and its negotiation with See Good/Sei Pou during the exclusivity period…”

11.  It is therefore very clear that this court had rejected the defendant’s case as to why it had failed to secure the deal between BOCGI and the plaintiff during the exclusivity period.  Had the defendant duly perform the plaintiff’s POU, the deal would have been secured for the plaintiff’s MOU before or by the date of expiry of the exclusivity period.  Instead, the defendant delayed the matter and negotiated with See Good /Sei Pou, during the exclusivity period which caused the performance of the plaintiff’s MOU failed.  It was not because of any change of stance on the part of BOCGI. 

12.  For the aforesaid reason, the plaintiff’s loss of a chance must be 100 percent.  Thus the plaintiff’s damages on his contractual claim should be assessed on a 100 percent loss of chance basis.

(III) Reference Date for Valuation Evidence

13.  Before the trial on liability, the plaintiff had filed the valuation report by Savills (Macau) Limited dated 2 September 2010.  The valuation of the Macau Property was assessed at the following dates, namely :

(1) 11 November 2005‑date of P’s MOU;

(2) 11 November 2006‑one year after the P’s MOU;

(3) 1 October 2009‑a few days after the completion of the restructuring of the ZK Group on 25 September 2009;

(4) 30 June 2010‑date of the report.

14.  It is the plaintiff’s pleaded case that it intended to resell the Properties for profits at the earliest opportunity.  This could only be possible after the completion of the restructuring of ZK Group on or shortly after 25 September 2009. 

15.  D did not plead any other date to be the earliest opportunity that the plaintiff could sell the Properties.  The defendant did not lead any evidence on any other date at all, nor argue that the relevant date for the valuation of the Properties for the purpose of the assessing the plaintiff’s damages should be a date other than 25 September 2009.

16.  I consider that the date 1 October 2009, being a few days after the competion of the restructuring of the ZK Group is a reasonable one.  The plaintiff could not have sold the Properties before the completion of the restructuring of the ZK Group.

Jurisdiction

17.  After the judgment on liability on 20 December and the order dated 20 December 2010 had been sealed on 25 January 2011, I then handed down the Reasons for Judgment No. 1.  The defendant submitted that I have no jurisdiction in this application for clarification of my Judgment No. 1.

18.  However I accepted the submissions of counsel for the plaintiff that the authorities supported the contention that this court has ample jurisdiction to clarify any points of finding which had already been made in my Judgment No. 1. 

19.  Two authorities were cited in support, namely :

(1) In Roche v Chief Constable of Greater Manchester Police

[2005] EWCA Civ 1454 (see, in particular, §§20‑28, per Buxton LJ) :

“27. Thirdly, if the case had come before us without the benefit of Judge Tetlow’s second judgment, this court would have had jurisdiction under English v Emery Reimbold to send the matter back to the judge for him to make findings upon matters on which it was alleged he had not made findings. That would, prima facie, be a sensible step as against the cost of the potential unfairness to one side or another of starting the whole matter over again. If it was the case that the court considering the original grounds of appeal might have so ordered, why should the court not take advantage of already having the fruits of that inquiry without having to order it? We have heard no detailed argument on this point. But in my view it would be wholly artificial and wrong if the court did not take account of what Judge Tetlow found on 10 June. If we do that, paragraph 9 of the judgment already cited is conclusive that Mr Roche did not commit a reckless assault, and paragraph 12 is conclusive that Sergeant McDermott had no reasonable grounds for suspecting him of that assault. That is effectively the end of this appeal, because the matters allegedly not considered by the judge were considered by him on 10 June and were determined against the appellants in the way that I have described.” (emphasis added)

(2) In Hicks v Russell Jones & Walker [2009] 1 WLR 487,

Lloyd LJ (with whom Toulson LJ agreed) at §10(p 491) and held that (p 492):

“13. The court considered contentions as to whether it was unreliable or undesirable for a judge, having reached a provisional conclusion, to hear further argument on it having already given judgment. Of course the court was well aware that the judge had given judgment and his order had been drawn up, and indeed it was against that that the appeal was launched. Buxton LJ asked himself whether in those circumstances not only the order but also the reasoning of the judge could only be corrected by the decision of the Court of Appeal and not by the judge himself. He said that he considered that the general provisions about finality of judgment did not preclude the court considering the second judgment. He said it did not in any way alter the judge’s order, it simply gave further reasons why that order was valid, rejecting the relevance of contentions that were not before the judge when he made that order. He refers at paragraph 27 at the English v Emery Reimbold case and to the fact that the court would have been able, if it thought it relevant, to send the matter back to the judge for him to make findings but on which findings were necessary. …

So that [Roche] is a case a good deal closer to the present than the English case, which seems to me to justify the course which is proposed and, indeed, gives a degree of approval for the trial judge, no doubt on application from the parties, to make further findings even without the blessing of the Court of Appeal.” (emphasis added)

20.  A fortiori, I have the necessary jurisdiction to clarify any finding of facts as sought by the plaintiff.  If I had not given judgment on liability for the plaintiff on 20 December 2010, but reserved my Judgment, and thereafter handed down a full Judgment in writing at a later date, the plaintiff could have applied for clarification before the judgment was sealed.

21.  I also consider the speedy resolution of these matters at this stage to be fair and beneficial to both parties.

Conclusion

22.  For the aforesaid reasons, I have given the further direction and orders dated 27 October 2011 as follows :

“IT IS HEREBY DECLARED and ORDERED that :

(1) The defendant be liable to the plaintiff as a constructive trustee for all unauthorized profits /commissions received the amount of which to be assessed at the quantum part of the Trial.

(2) Damages suffered by the plaintiff in respect of the defendant’s breach of the Memorandum of Understanding dated 11 November 2005 (“P’s MOU”) to be assessed on the basis that the plaintiff had lost the chance of acquiring the Properties (“the Properties”) as defined in P’s MOU and the chance lost is 100%.

(3)   The date by reference to which valuation evidence is to be prepared shall be 1 October 2009.”

23.  The plaintiffs shall have the costs of this application with certificate for three counsel.