MENLORD LTD v. CHAN SAI MUI

HCA 820/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 820 OF 2014

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ASSESSMENT OF DAMAGES

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APPLICATION

1.  The plaintiff commenced this action against the defendant for breach of trust in respect of a residential property in Shenzhen, PRC ("Shenzhen Property").  As the defendant failed to give notice of intention to defend, interlocutory judgment was entered on 4 December 2014 against the defendant with damages to be assessed.

2.  By the order dated 17 April 2015, leave was granted to adduce the valuation report dated 18 November 2014 prepared by the valuers who are residing in the Mainland China.  As they had difficulties and hesitation to come to Hong Kong, the plaintiff then took out a summons on 14 September 2016, just about 19 days before this hearing, for leave to adduce another valuation report dated 28 December 2015 prepared by Ms Jessie X Chen and for leave to allow her to give expert evidence for the plaintiff at the hearing of assessment of damages.

3.  As the defendant did not appear, I granted leave as per the plaintiff’s summons dated 14 September 2016 and further ordered, inter alia, that the service of the valuation report dated 28 December 2015 be dispensed with.  For the question of costs, I consider that costs of this application be costs in the cause of assessment of damages save no order as to costs of and occasioned by the preparation of the valuation report dated 18 November 2014 since such costs are totally wasted due to this late application.

BACKGROUND

4.  This is the hearing of assessment of damages suffered by the plaintiff against the defendant for breach of trust.

5.  The defendant was the registered owner of the Shenzhen Property as from 5 November 2003.

6.  By a written declaration of trust in Chinese dated 13 March 28 ("Declaration of Trust"), the defendant acknowledged that:

i. In 2004, the defendant acquired the Shenzhen Property on behalf of the plaintiff for the consideration of RMB550,000;

ii. The defendant held the Shenzhen Property on trust for the plaintiff; and

iii. Upon the plaintiff's full repayment of the loan for RMB550,000 and interest as agreed, the defendant shall transfer the ownership of the Shenzhen Property to the plaintiff.

7.  The Declaration of Trust also sets out the repayment terms as follows:

i. Repayment shall be made by monthly instalment of HK$8,500 until the principle and agreed interest are paid in full

ii. Interest shall be calculated at the equivalent of the deposit interest rate by HSBC in 2004 for 5‑year fixed deposit, which is approximately HK$12,375 per annum (or equivalent to HK$1,031.25 per month);

iii. Should there be any default in the monthly payments, the remaining sum that is still owing shall be calculated at the same interest rate as aforesaid pending full payment; and

iv. If full payment is not made after the fixed 5‑year term, the sum shall be calculated on the annual fixed deposit rate.

8.  On 14 April 2014, the defendant sold and transferred the Shenzhen Property to one Wu Jun Yu for RMB1,100,000 without the authority of the plaintiff.

9.  According to the valuation report dated 28 December 2015, the market value of the Shenzhen Property was RMB3,500,000 as at 11 November 2015.  Ms Jessie X Chen gave expert evidence on behalf of the plaintiff at the hearing that the updated current market value of the Shenzhen Property was RMB3,675,000.

10.  Apart from adopting his witness statement filed 23 January 215, Mr Lam Ying Bon Laurence also gave oral evidence on behalf of the plaintiff.  In brief, his evidence is that the plaintiff originally borrowed RMB550,000 from the defendant and had repaid the total sum of HK$40,600 in 2003 and 2004.  He agreed and accepted that the plaintiff has to pay interest accrued up to the date of this hearing for sum of HK$105,909 and that the plaintiff is still owing HK$708,809 (ie RMB550,000 X 1.17 (being the exchange rate of HK$ to RMB at the hearing) + 105,909 – 40,600) to the defendant pursuant to the Declaration of Trust.

DISCUSSION

11.  Since the defendant was absent at the hearing, I therefore accept the evidence given by the plaintiff's factual and expert witnesses.

12.  The main legal issue is that in a breach of trust case, whether the court shall assess the damages suffered by the plaintiff as at the date of judgment or any other date.

13.  Ms Li, Counsel for the plaintiff, relies on Libertarian Investments Ltd v Hall[1]. In that case, the defendant committed gross breach of trust and misappropriated the trust money to his own use.  The Court of Final Appeal awarded equitable compensation in favour of the plaintiff assessed as at the date of the judgment.  Ribeiro PJ said in the judgment that:

“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......

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....

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........

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.”

14.  Based on the aforesaid legal principles, I accept Ms Li's submission that I shall award equitable compensation to the plaintiff as the defendant had sold the Shenzhen Property without the authority of the plaintiff in wilful breach of the Declaration of Trust and I shall assess the loss and damages of the plaintiff as at the date of this hearing.

15.  I further agree with Ms Li that the plaintiff is entitled to claim the market value of the Shenzhen Property as at the date of this hearing less the amount due and owing to the defendant by the plaintiff under the terms of the Declaration of Trust.  The current market price of the Shenzhen Property represents the compensation to the plaintiff for buying back or restoring the property lost from the market. According to the oral evidence given by Ms Chen and Mr Lam at the hearing, the current market value of the Shenzhen Property is RMB3,675,000 with the exchange rate as at the hearing ie 1.17 equivalent to HK$4,299,750.

16.  As to the total amount due and owing to the defendant by the plaintiff under the terms of the Declaration of Trust, Ms Li for the plaintiff rightly conceded at the hearing that the outstanding principal due shall be RMB550,000 with the exchange rate as at the hearing ie 1.17 equivalent to HK$643,500 instead of HK$540,000 as pleaded in the statement of claim and then less the plaintiff's partial repayment of HK$40,600.  Ms Li further conceded that the plaintiff is liable to pay the defendant interest on the outstanding principal for 12 months and 21 days, namely from the date of the Declaration of Trust ie 13 March 2008 up to this hearing instead of up to the date of issuance of the writ, in the sum of HK$105,909.

CONCLUSION

17.  In the circumstances, I assess the damages suffered by the plaintiff in the sum of HK$3,590,941, breakdown of which is as follows:

The current market value of the Shenzhen Property	HK$4,299,750
Less:  the sum due to the defendant by the plaintiff    (ie HK$643,500 - $40,600 + $105,909)	HK$708,809
	HK$3,590,941

INTEREST AND COSTS

18.  The plaintiff claims interest in the statement of claim pursuant to sections 48 and 49 of the High Court Ordinance.  However, Ms Li for the plaintiff did not make any submission on this issue.  In Libertarian Investments Ltd's case, the Court of Final Appeal awarded simple interest at the rate of 2% over the Bank of England base rate from the date of Writ until date of the judgment and thereafter at the Hong Kong judgment rate.  As the court has very wide discretion in respect of awarding interest and different cases must have their own backgrounds, I exercise my discretion to allow the aforesaid damages to carry interest at the rate of 2% per annum from the date of Writ to the date hereof and thereafter at judgment rate until payment.

19.  I also make an order nisi that the defendant do pay costs of the assessment to the plaintiff, to be taxed if not agreed. Such order nisi shall be absolute unless any parties make application to vary the same by summons within 14 days.