FOOK WOO WASTE PAPER CO LTD v. LEUNG KAI KUEN

HCA 1922/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1922 OF 2012

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J U D G M E N T

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Case Summary

1.  This is an assessment of damages payable by the defendant to the plaintiff.

2.  The plaintiff’s claim herein is for return of a Porsche Cayenne Turbo (the “Car”).

3.  The plaintiff is a subsidiary of a listed company in Hong Kong.

4.  The defendant was a director of the plaintiff and its parent company at the material times until 6 June 2012 when he was removed.

5.  In about December 2010, when the defendant was a director of the plaintiff, the defendant caused the plaintiff to pay $1,736,572 for the purchase of the Car which was subsequently registered under the defendant’s personal name when the same was delivered.  The defendant has been in possession of the Car since its delivery.

6.  By a document entitled confirmation of balance and signed by the defendant after 31 March 2011 (the “Confirmation”), the defendant confirmed that he was holding the Car on behalf of the plaintiff.

7.  After the defendant was removed from its office at the plaintiff, the plaintiff through its parent company issued a letter dated 11 July 2012 to the defendant (the “2012 Letter”) demanding the defendant to return the Car to the plaintiff within five days (ie by 16 July 2012).  No response was received from the defendant.

8.  On 10 August 2012, the plaintiff through its solicitors issued a demand letter to the defendant for return of the Car.  The defendant still did not respond.

9.  The plaintiff also found that the defendant had on 10 October 2011 before his removal issued a cheque for the sum of $1,600,000 (the “Sum”) to a company called “Kee Cheong Securities Company Limited” for legal and professional fee.  The plaintiff’s investigation found that the aforesaid company had not provided any advisory service to the plaintiff or the plaintiff’s parent company.  The plaintiff said that the defendant was in breach of his fiduciary and director’s duties in causing payment of the Sum.

10.  The plaintiff commenced these proceedings against the defendant on 16 October 2012 to claim for the Car and the Sum.  The plaintiff claimed various reliefs against the defendant including an injunction; an order for deliver-up the Car and transfer of the legal title of the Car; an account for mesne profit for use of the Car; liquidated damages for the purchase price of the Car; damages for conversion or detinue of the Car; and damages for payment of the Sum.  Of course, the plaintiff also claimed interest and costs.

11.  No notice of intention to defend was served by the defendant.  On 13 February 2014 interlocutory judgment was entered against the defendant for the plaintiff’s claim for delivery of the Car or payment of the value of the Car to be assessed and also damages for detention of the Car to be assessed (the “Interlocutory Judgment”).

12.  The Interlocutory Judgment was served to the defendant by ordinary post on 31 March 2014 and 13 May 2014.

13.  The plaintiff also served the witness statement of Mr Kot Koon Yue Eric (“Mr Kot”) to the defendant by ordinary post on 14 May 2014.

14.  On 6 June 2014, the court granted leave for the parties to adduce expert evidence on the value of the Car as at 17 July 2012 and 7 April 2014.  The plaintiff named Mr Lau Che Ming as its expert.  The court directed the defendant to inform the plaintiff and the court the name of his expert within 14 days after service of the order on him.  Direction was given for the parties to file and serve their expert reports.  The aforesaid order was served to the defendant by ordinary post on 17 June 2014.  The defendant did not inform the court the name of his expert and did not file any expert report.

15.  At the hearing on 6 June 2014, the plaintiff’s solicitors confirmed to the court that the plaintiff had abandoned the reliefs for injunction, liquidated damages, mesne profit and damages for the Sum.

16.  On 6 March 2015, the plaintiff obtained leave from the court to change its expert to Dr Tony CH Cheng (“Dr Cheng”).  The plaintiff filed Dr Cheng’s report on 13 March 2015 and served the same to the defendant by ordinary post on the same day.

17.  On 27 March 2015, the court ordered that the aforesaid report of Dr Cheng be adduced as expert evidence of the plaintiff without calling the maker to testify at the assessment hearing.  The court also ordered that as the defendant had failed to nominate his expert as previously directed by the court, the defendant should be deemed to elect not to adduce any expert evidence at the assessment of damages hearing.

18.  The plaintiff issued the notice of appointment of assessment of damages (the “Assessment Notice”) on 14 April 2015 returnable on 9 September 2015.

19.  The Assessment Notice was served to the defendant by ordinary post on 17 April 2015.

20.  The defendant did not file any document nor take any step in these proceedings.  The defendant also did not attend the assessment of damages hearing on 9 September 2015.

The plaintiff’s claim

21.  Mr Wong, representing the plaintiff, confirmed at the assessment hearing that the plaintiff would not pursue the judgment for delivery of the Car nor claim damages for detention of the Car.  The plaintiff would only base on conversion to claim value of the Car as at the date of conversion together with interest at the prime rate thereon from the date of conversion.

Evidence of the plaintiff

22.  The plaintiff only called Mr Kot to testify at the assessment hearing as its factual witness.

23.  Mr Kot adopted his witness statement as his evidence which confirmed the plaintiff’s case as set out above in the case summary.

24.  Mr Kot stated that the plaintiff’s solicitors had by a letter dated 31 March 2014 (the “2014 Letter”) informed the defendant of the Interlocutory Judgment and demanded return of the Car together with its keys and registration documents to the plaintiff within seven day.

25.  Mr Kot confirmed that as at the date of the assessment hearing, the defendant had not returned the Car to the plaintiff.

26.  Dr Cheng had issued a report dated 10 March 2015 on valuation of the Car as at 17 July 2012 and 7 April 2014.  His report had been ordered by the court to stand as the plaintiff’s expert evidence.

27.  Dr Cheng has various engineering qualifications.  He is a member or office bearer of various institutes and societies of engineers.  He has experience in machinery valuations and vehicle valuations in Hong Kong and China.  I accept Dr Cheng as the plaintiff’s expert.

28.  Dr Cheng adopted the market approach to arrive at his valuation on the Car.  The market approach considers transaction prices recently paid for similar assets, with adjustments made to the indicated market prices to reflect the conditions and utilities of the appraised assets relative to their market comparables.

29.  Dr Cheng obtained transaction prices in 2012 of two units of Porsche Cayenne Turbo both made in 2008 as comparables for the 2012 valuation.  After making adjustments for the effective age difference (ie (effective age of comparables – effective age of the Car) ÷ usual life), Dr Cheng valued the Car at $1,423,716 as at 17 July 2012.

30.  Dr Cheng obtained transaction prices in 2014 of three units of Porsche Cayenne Turbo made in 2010 or 2011 as comparables for the 2014 valuation. After making adjustments for the effective age difference, Dr Cheng valued the Car at $1,372,173 as at 7 April 2014.

Discussion and findings

31.  Mr Wong submitted that the plaintiff was the owner of the Car and the defendant was holding the Car on trust for the plaintiff.  The plaintiff had paid for the purchase price of the Car and had immediate right to possession of the Car.  Mr Wong submitted that the tort of conversion was committed when the defendant interfered with the possessory title of the plaintiff and caused harm or injury to the plaintiff’s right or title.  He contended that the conduct of the defendant in refusing to return the Car to the plaintiff was a clear example of conversion.

32.  Mr Wong further submitted that the relevant date should be 17 July 2012 (the day after the deadline for return of the Car stipulated in the 2012 Letter) instead of 7 April 2014 (the deadline stipulated in the 2014 Letter for return of the Car).  He contended that the plaintiff’s parent company had by the 2012 Letter requested the defendant to return the Car to the plaintiff by 16 July 2012.  The defendant made no reply and had failed to return the Car to the plaintiff by 16 July 2012.  In such case, the defendant had misappropriated / converted the Car for his / others use since 17 July 2012.

33.  However, this was not the pleaded case of the plaintiff.  In the statement of claim, the plaintiff pleaded that:

“9. Despite a written demand made by the Plaintiff’s solicitors herein on 10^th August 2012 asking the Defendant to return the said Vehicle [ie the Car], the Defendant has failed to make any reply and failed to return the said Vehicle to the Plaintiff or pay any damages.”

34.  There was no mention of the 2012 Letter in the statement of claim.  In the plaintiff’s solicitors’ letter dated 10 August 2012, the plaintiff’s solicitors referred to the 2012 Letter and demanded the defendant to return the Car “within the next 3 days” (ie by 13 August 2012).  If the plaintiff relied on the defendant’s failure to return the Car when demanded to contend that the defendant had converted the Car for his own use, the plaintiff’s pleaded case was that the failure to return occurred on 13 August 2012 instead of on 16 July 2012.

35.  Mr Wong relied on General and Finance Facilities Ltd v Cooks Cars (Romford) Ltd [1963] 1 WLR 644 to submit that the date of conversion should be the date for the calculation of damages.  In that case, Diplock LJ stated at p 649 that:

“The action in conversion is a purely personal action and results in a judgment for pecuniary damages only. The judgment is for a single sum of which the measure is generally the value of the chattel at the date of conversion together with any consequential damage flowing from the conversion and not too remote to be recoverable in law.”

36.  The aforesaid view was echoed by Lord Templeman in BBMB Finance (Hong Kong) Limited v EDA Holdings Limited & others [1990] 1 WLR 409 PC at 412B when His Lordship stated that:

“The general rule is that a plaintiff whose property is irreversibly converted has vested in him a right to damages for conversion measured by the value of the property at the date of conversion.”

37.  In Moorgate Mercantile Co v Finch and Read [1962] 1 QB 701 CA Danckwerts LJ cited at 706 with approval the following definition for conversion put forward in Salmond on Torts, 13^th ed (1961):

“Conversion Defined: a conversion is an act of wilful interference, without lawful justification, with any chattel in a manner inconsistent with the right of another, whereby that other is deprived of the use and possession of it. Two elements are combined in such interference: (1) a dealing with the chattel in a manner inconsistent with the right of the person entitled to it, and (2) an intention in so doing to deny that person’s right or to assert a right which is in fact inconsistent with such right.”

38.  The Car was paid for by the plaintiff and the defendant had confirmed in the Confirmation that he was holding the Car on behalf of the plaintiff.  There was no suggestion that the Car was not in the defendant’s possession when the demands were made in 2012.  The defendant should have returned the Car to the plaintiff upon the plaintiff’s demand.  I agree that when the defendant failed and / or refused to return the Car to the plaintiff when the plaintiff demanded the same in the 2012, the defendant had converted the Car for his own use.  This was inconsistent with the plaintiff’s right as the beneficial owner of the Car.  It also showed an intention on the part of the defendant to deny the plaintiff’s aforesaid right.  The defendant was liable to the plaintiff for conversion. However, as pointed out above, the date of conversion should be 13 August 2012.

39.  The normal measure of damages for conversion is the market value of the goods converted.  However, there are different views as to the time at which value is to be taken.  Generally, the time of conversion will be taken as the time at which the market value is to be assessed.  However, there are authorities suggesting that value at subsequent time may also be adopted.  In Greening v Wilkinson [1825] 1 C&P 625, Abbott CJ ruled that on a rising market the jury might give the value at the time of conversion, or at any subsequent time, at their discretion, as damages for conversion because the plaintiff might have had a good opportunity of selling the goods if they had not been detained.  The learned editors of McGregor on Damages, 19^th ed (2014) suggested at para 36-013 that “the soundest approach is to start off with the value at the time of conversion as the prima facie measure; this is in accord with the general principle that damages are to be assessed as at the date of the wrong.  The effect upon this measure of damages of increases or decreases in the value between wrong and judgment must then be considered.”

40.  In this case, we are not concerning with commodities in a fluctuating market.  There was no suggestion that there were special market conditions leading to rise or fall of the market value of the Car between 2012 and 2015. I agree that the plaintiff’s loss in this case shall be assessed by reference to the market value of the Car as at the date of conversion, ie 13 August 2012.

41.  Dr Cheng valued the Car at $1,423,716 as at 17 July 2012 by reference to comparable transactions of cars of the same make and model with adjustments to reflect their different ages.  I accept Dr Cheng’s valuation and round down the value of the Car as at 13 August 2012 to $1,420,000 to reflect the slight further depreciation of the Car from 17 July 2012 to 13 August 2012.  I assess the plaintiff’s damages for loss of the Car at $1,420,000.

42.  Mr Wong submitted that the plaintiff was entitled to recover interest at the prime rate of 5% per annum from the date of conversion to the final determination of the amount of damages sustained by the plaintiff.

43.  Interest should be awarded to the plaintiff for being kept out of money which ought to have been paid to it. (See para 6/L/10 of Hong Kong Civil Procedure 2015 Vol 1 at 92)  In commercial cases, interest is often awarded at 1% above prime rate.  Although this is not a commercial case, the plaintiff is a commercial entity being deprived of this sum of money now assessed by the court since 2012.  The plaintiff has to incur costs of funding for such sum since 13 August 2012.  Borrowing from banks is the most common form of funding for commercial entity.  The prime rate is the best lending rate at which a bank is prepared to lend money to its customers.  I agree that the defendant should pay pre-judgment interest by reference to the prime rate at 5% per annum to the plaintiff on the amount of damages suffered by the plaintiff due to the defendant’s wrongful act.  I so order.

Conclusion and costs

44.  I assess that the damages payable by the defendant to the plaintiff in this case is $1,420,000.

45.  The defendant shall pay to the plaintiff interest on the aforesaid sum of $1,420,000 at 5% per annum from 13 August 2012 to the date of this judgment and thereafter at judgment rate until payment.

46.  I also make a costs order nisi against the defendant in favour of the plaintiff for the assessment of damages proceedings, including costs previously reserved in relation to the assessment of damages proceedings.

47.  The above costs order nisi shall become absolute after 14 days from the date hereof unless any party shall apply to vary it within this 14 day period.