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HCA 97/2019
[2022] HKCFI 3621
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 97 OF 2019
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BETWEEN
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CS ASIA OPPORTUNITIES MASTER FUND |
Plaintiff |
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and |
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YAM KA HO LO (任家豪) |
Defendant |
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Before: Master David Chan in Court
Dates of Hearing: 7 November 2022
Date of Handing Down Assessment of Damages: 22 December 2022
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ASSESSMENT OF DAMAGES
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Introduction
1. This is the assessment of damages (“AOD”) of the Plaintiff’s claims. At the AOD hearing, the Plaintiff was represented by counsel Mr George Chu (“Mr Chu”) upon the instruction of Messrs Chiu & Partners (“C&P”). The Defendant acted in person and was absent. Save for the Acknowledgement of Service filed by his then solicitors on 12 February 2019, and a Notice to Act in Person filed by himself on 15 May 2019, the Defendant had neither appeared in any of the court hearings prior to this nor filed any documents in this action.
2. Affirmations of service had been filed by C&P to confirm that the Notice of Appointment for Assessment of Damages, the AOD hearing bundles (collectively referred to as the “AOD Bundles”), and the Opening Submissions and List of Authorities of the Plaintiff, had all been served on the Defendant in good time before this AOD hearing.
3. In light of the above, I am therefore satisfied that the Defendant was informed of this AOD hearing and had received from the Plaintiff the said documents. Upon Mr Chu’s application pursuant to Order 35, r 1(2) of the Rules of High Court, Cap 4A (the “RHC”), I proceeded with this AOD hearing in the absence of the Defendant.
Procedural Background
4. This action found its life on 17 January 2019 when a Writ of Summons was issued. In spite of the Defendant giving notice of his intention to defend this action via the aforesaid Acknowledgement of Service, there was inaction on his part after the Statement of Claim was filed on 21 March 2019. This gave rise to a judgment on liability being entered against him in default of a defence[1] on 10 July 2019 by Master S. P. Yip (the “1st Judgment”)[2].
5. However, integrity of the 1st Judgment was questioned by Master Kent Yee when he dealt with the Plaintiff’s application for examination of the Defendant as a judgment debtor.[3] The learned Master pointed out that the remedies granted under the 1st Judgment concerns specific performance; as it is a specie of injunction, it is not a remedy that a Master could grant.[4] The examination was therefore adjourned pending the Plaintiff’s further action of rectification or amendments.
6. The matter then went before Deputy High Court Judge Leung. On 30 July 2021, apart from granting leave for the Plaintiff to amend its Statement of Claim, the learned deputy judge set aside the 1st Judgment. A fresh application for judgment in default of defence was made by the Plaintiff and was heard by the same learned deputy judge on 10 December 2021. Judgment was entered on liability against the Defendant, with damages to be assessed, and costs of the action to be taxed if not agreed (the “2nd Judgment”).
7. The present AOD is conducted pursuant to the 2nd Judgment.
The Plaintiff’s Case
8. As judgment on liability has been entered, the Plaintiff’s case, according to its Amended Statement of Claim, is summarised below for background information.
9. On 26 March 2018, the Plaintiff and the Defendant entered into an Option Deed (“1st Option Deed”)[5] concerning WT Group Holdings Limited (“WT Ltd”), a company incorporated in the Cayman Island with limited liability whose securities are listed and actively traded on the Main Board of the Stock Exchange (stock code: 8422). Under the 1st Option Deed, the Plaintiff was granted a put option (“Put Option”) by the Defendant, under which the former could require the latter to purchase 8,400,000 ordinary shares (“1st Option Shares”) in the capital of WT Ltd, at the price of HK$1.534 per share (“1st Option Exercise Price”) and free from encumbrances.[6] The Plaintiff could exercise the Put Option once in respect of part or all of the Option Shares by giving to the Defendant the Put Exercise Notice[7] at any time on the Option Exercise Date[8].
10. On 30 April 2018, the parties entered into another Option Deed (“2nd Option Deed”)[9] which contained largely the same terms in the 1st Option Deed, save that the Exercise Price was HK$0.897 per share (“2nd Option Exercise Price”), and the Option Shares relate to 20,000,000 ordinary shares in the capital of WT Ltd (“2nd Option Shares”).
11. On 21 September 2018, i.e. before the Option Exercise Date, the Plaintiff gave to the Defendant Put Exercise Notices under the 1st and 2nd Option Deeds.[10] The Defendant was therefore required to purchase from the Plaintiff 8,400,000 shares at the price of HK$1.534 per share under the 1st Option Deed (at the total sum of HK$12,885,600), and 20,000,000 shares at the price of HK$0.897 per share under the 2nd Option Deed (at the total sum of HK$17,940,000). Notwithstanding the Put Exercise Notices, and the demand letter issued by C&P on 4 October 2018[11], the Defendant had failed to comply, hence was in breach of the 1st and 2nd Option Deeds.
12. The Plaintiff emphasised that it was willing, ready and able to deliver the 1st and 2nd Option Shares to the Defendant upon payment of the 1st and 2nd Option Prices.
13. It is said that the share prices of WT Ltd were HK$0.247, HK$0.242 and HK$0.242 respectively on 17 January 2019[12], 15 March 2019 and 21 March 2019[13]. The Plaintiff has therefore suffered loss and damage that it now seeks to claim against the Defendant.
Evidence of Frank Dominick (“Mr Dominick”)
14. Pursuant to the order of Master Matthew Leung dated 26 July 2022, Mr Dominick’s 2nd affidavit filed on 15 March 2021 (“2nd Affidavit”), 3rd affidavit filed on 29 October 2022[14] (“3rd Affidavit”), and witness statement filed on 7 July 2022 (“Witness Statement”), shall stand as his evidence-in-chief at the AOD hearing.
15. Mr Dominick, the director of the Plaintiff, had in his 3rd Affidavit provided some background facts of this case consistent with those set out in the Amended Statement of Claim which have been summarised in the above. On top of these, he gave the following narratives: -
(1) The Exercise Price under the 2nd Option Deed is lower than that under the 1st Option Deed as the prevailing market price of the shares of WT Ltd was falling at the material time.
(2) The decision to exercise the Put Option on 21 September 2018 was due to the fact that the market price of the shares of WT Ltd was falling, and it was favourable for the Plaintiff to put the 1st and 2nd Option Shares to the Defendant at the respective 1st and 2nd Option Exercise Prices.
(3) As of 18 October 2021, the closing market price of the shares of WT Ltd was HK$0.050.[15] Mr Dominick opined that the Plaintiff would not be able to sell the 1st and 2nd Option Shares at a price higher than the 1st and 2nd Option Prices. The Plaintiff had therefore suffered loss and damage in the sum of HK$29,405,600.[16]
16. In his 2nd Affidavit[17], Mr Dominick reported that the market price of each share in WT Ltd was HK$0.065 at the close of market on 12 March 2021.
17. Comparing the share prices of WT Ltd as reported in Mr Dominick’s 2nd and 3rd Affidavit, one could observe that the same had deflated with the passing of time.
18. As per the Witness Statement, the falling trend of the of WT Ltd’s shares continued into 2022. Mr Dominick recounted that between the 2nd Judgment[18] and 14 February 2022, the closing market price of the shares remained stagnant each day ranging between HK$0.039 and HK$0.043. Seeing the unlikelihood that the price of the shares would reach the same or exceed the level set under the 1st and 2nd Option Exercise Prices, the Plaintiff decided to cut its losses and on 15 February 2022 sold the 1st and 2nd Option Shares on the Hong Kong Stock Exchange, at the highest price of HK$0.039 per share, and on an average price of HK$0.0306 per share net after brokerage and other related transaction expenses.[19] After such sale, the Plaintiff’s loss had escalated to HK$29,956,560[20] as compared to the situation on 18 October 2021.
Discussions
19. I will start by saying that I have no reservation in accepting Mr Dominick’s evidence. His narratives were clear and straight forward, and he was forthcoming with his answers to my questions, with no swerve or evasion. Majority of his evidence was supported by documents; there was neither inconsistency nor self-contradiction. Overall, I find him to be an honest and reliable witness. I have also considered the documentary evidence adduced by the Plaintiff in this case, and I give full weight to them.
20. I have no hesitation in finding that the Plaintiff has suffered a loss due to the breach of the 1st and 2nd Option Deeds by the Defendant. The remaining question is the quantum. In this regard, one can see that the value of the shares was apparently and consistently on the decline from March 2021 (HK$0.065 per share) to October 2021 (HK$0.050 per share), and such falling trend continued until December 2021, when, as Mr Dominick correctly described it, the price had become stagnant, hovering at around HK$0.040 per share.[21]
21. Be that the 1st and 2nd Option Shares were sold at a time when their values were at the lowest amongst those reported by Mr Dominick, I see no fault on the part of the Plaintiff.
22. First, I have considered the Privy Council case of China and South Sea Bank Ltd v Tan Goon Gin[22] cited by Mr Chu. Whilst considering the options available to a mortgagee when the mortgagor was in default of payment, Lord Templeman had these to say at 545C-G: -
“…The creditor had three sources of repayment. The creditor could sue the debtor, sell the mortgage securities or sue the surety. All these remedies could be exercised at any time or times simultaneously or contemporaneously or successively or not at all… If the creditor chose to exercise his power of sale over the mortgaged security he must sell for the current market value but the creditor must decide in his own interest if and when he should sell.” (emphasis added)
23. Although the above authority concerns a mortgagee action, I think the same rationale should apply to ours. Unquestionably, 1st and 2nd Option Shares were sold at the market price on 15 February 2022.
24. Second, as to the timing of the sale, one should consider that the 2nd Judgment was not made until 10 December 2021. It was then the Defendant’s liability was re-affirmed by the Court, and the Plaintiff had there and then elected to claim monetary compensation against the Defendant instead of its previously preferred method of specific performance under the 1st Judgment. I do not see that the Plaintiff was unreasonable to sell the shares at any time between the dates of the 2nd Judgment and 15 February 2022, as the price of the shares was largely stagnant during such period with only marginal fluctuations.
25. Finally, I will briefly deal with the topic of mitigation of loss for completeness sake. It is well established that the duty to mitigate loss imposes upon the plaintiff a duty to act reasonably to reduce the extent of the damages as “…the plaintiff…cannot recover for a loss avoidable by reasonable action on his own part, because, if he could reasonably have avoided it, it would not be regarded as caused by the wrongdoer”.[23] The criterion for reasonableness is that the claimant is not “under any obligation to do anything other than in the ordinary course of business”.[24]
26. Although available documents showed that the price of the shares in WT Ltd had attained a high of HK$0.440 per share at some point during the 52 weeks prior to 19 October 2021,[25] I see no fault on the part of the Plaintiff in selling the 1st and 2nd Option Shares after the 2nd Judgment, as I have mentioned in the above. Even if I were wrong on this, the issue of mitigation of loss, if any, must be properly raised and proved by a defendant.[26] The Defendant had failed to do so in our case.
Conclusion
27. For the above reasons, I award the sum of HK$29,956,560 to the Plaintiff for the loss and damage it suffered as a result of the breach of the 1st and 2nd Option Deeds by the Defendant.
28. I would award interest on the sum of HK$29,956,560 at the rate of 8% per annum from the date of Writ (i.e. from 17 January 2019) to the date of AOD and thereafter at judgment rate until payment in full.
29. The Plaintiff should get costs of the AOD, including all costs previously reserved and the costs of this AOD hearing. Despite that a statement of costs was submitted to me at the hearing, time was given for C&P to serve the same to the Defendant, and for the Defendant to lodge and serve his list of objections to the statement of costs. No list of objections was received from him within the time prescribed for him to do so.[27]
30. After considering the statement of costs, the costs payable by the Defendant to the Plaintiff is summarily assessed at HK$106,775.00. Unless any party applies to vary this costs order nisi within 14 days from the date of this assessment of damages, the costs order shall become absolute.
31. Finally, I thank Mr Chu for his assistance.
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(David Chan)
Master of the High Court
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Mr George Chu instructed by Chiu & Partners, for the plaintiff
The defendant acting in person, absent
[1] Pursuant to O.19, r.7 of the RHC
[2] Under which it was ordered that the Defendant: (1) do purchase from the Plaintiff 8,400,000 ordinary shares of WT Group Holdings Limited at the price of HK$1.534 per share; (2) do purchase from the Plaintiff 20,000,000 ordinary shares of WT Group Holdings Limited at the price of HK$0.897 per share; and (3) do pay costs of the action including costs of the application summarily assessed at HK$106,250.
[3] Under O.49B of the RHC
[4] See O.32, r.11 of the RHC
[5] See AOD Bundle B, at pp. 133-142
[6] Under the 1st Option Deed: (1) WT Ltd is defined as “Listco”; (2) the ordinary shares of HK$0.01 per value each in the capital of WT Ltd (or Listco) are defined as “Listco Shares”.
[7] Described as, under the 1st Option Deed, a notice in writing by the Plaintiff to the Defendant stating the former’s intention to exercise the Put Option
[8] Stipulated for 26 September 2018 under the 1st Option Deed and the 2nd Option Deed
[9] See AOD Bundle B, at pp. 144-155
[10] See pp. 157-158 of AOD Bundle B
[11] Ibid., at pp. 160-161
[12] The date when the Writ of Summons was issued
[13] The date of the Statement of Claim
[14] The 3rd Affidavit of Mr Dominick was filed on 29 October 2021, not in 2022; it was filed in support for the making of the 2nd Judgment
[15] See copy of the equities quote of WT Ltd retrieved from HKEX’s website on 18 October 2021; AOD Bundle B, at pp. 163-164
[16] Calculations: (1) For the 1st Option Deed [(HK$1.534 x 8,400,000) – (HK$0.050 x 8,400,000)] = HK$12,465,600 loss; (2) for the 2nd Option Deed [(HK$0.897 x 20,000,000) – (HK$0.050 x 20,000,000)] = HK$16,940,000 loss
[17] Filed in support of the O.49B examination
[18] The closing market price of WT Ltd’s shares as at the date of the 2nd Judgment was HK$0.041.
[19] See AOD Bundle C, at pp 221-222
[20] Calculations: (1) For the 1st Option Deed [(HK$1.534 x 8,400,000) – (HK$0.0306 x 8,400,000)] = HK$12,628,560 loss; (2) for the 2nd Option Deed [(HK$0.897 x 20,000,000) – (HK$0.0306 x 20,000,000)] = HK$17,328,000 loss
[21] See the value of the shares on 7 and 8 February 2022; AOD Bundle C, at pp. 214-217
[22] [1990] 1 AC 536
[23] Per Robert Goff J in Koch Marine Inc v D’Amica Societa di Navigatione, The Elena d’Amico [1980] 1 Lloyd’s Rep. 75
[24] Per James L.J. in Dunkirk Colliery Co v Lever (1878) 9 Ch D 20, cited with approval by Viscount Haldane in British Westinghouse Co v Underground Ry [1912] AC 673
[25] Supra, n.15. The lowest unit price for the shares reached HK$0.029 during the same 52 weeks
[26] See Chua Ming Yuen v Hentron Investments Ltd & Anor (unreported, CACV 50/2005, per Hon. Yeung JA, 30 November 2005), at §§73-74
[27] Within 14 days after service of the statement of costs on him. By the 15th Affirmation of Chan Hok Pan filed on 15 November 2022, the statement of costs together with my order dated 7 November 2022 were served on the Defendant by leaving on 11 November 2022.
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