ESHED DIAM (HK) LTD v. SIAM COLOR GEMS & JEWELRY LTD

CACV 128/2017

[2018] HKCA 282

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 128 OF 2017

(ON APPEAL FROM HCCL NO 7 OF 2015)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  In this action, the Plaintiff sought to set aside an agreement under which they agreed to sell a sapphire and diamond necklace [“the Necklace”] to the Defendant at the price of HK$5.05 million. The Plaintiff said the agreement was made under unilateral mistake on its part as the Necklace was worth substantially more than that, the Necklace having been consigned to them by another company Carrera under a consignment note at the price of US$6.2 million. The mistake stemmed from the failure of Mr Yaakov of the Plaintiff to note that the price in the consignment note was stated in US$ as he had been told by a director of Carrera that the price was HK$6.5 million.

2.  The Plaintiff alleged that the responsible persons in the Defendant knew of such unilateral mistake and took advantage of that. 

3.  The Defendant denied that it was aware of any unilateral mistake. 

4.  The trial of the action took place before Madam Justice M Chan in March 2017.  On 9 May 2017, the judge gave judgment in favour of the Defendant.  She was not satisfied that the Defendant was aware of the unilateral mistake and dismissed the Plaintiff’s claim.

5.  The crucial findings of the judge can be found at [51] to [53] of the judgment:

“ 51.   On the evidence available in this case as to the value of the Necklace, being the HK$7 million initially offered by the Plaintiff to the Defendant, the “opening price offer” of US$2 million made by the Defendant to Benny, the negotiations conducted between the Plaintiff and the Defendant including those contained in the Whatsapp messages, and the HK$5.01 million as stated in the Agreement, I cannot conclude, on a balance of probabilities, that Patricia and/or William actually knew that the Plaintiff had made a mistake in the Purchase Price, or in the prices quoted to them.  Nor can I find on the evidence that William and/or Patricia must have known from the circumstances that something could be wrong, so as to be put on inquiry to alert the Plaintiff to any possible mistake.  On the available evidence, there is no basis to find that it would have been obvious to a purchaser in the position of William and Patricia that the Necklace was worth US$7 million or US$5.05 million, instead of HK$7 million, such that the prices quoted to and agreed upon on 24 June 2015 must have been a mistake.  The market value of a “true treasure of nature” is unknown.  I accept William’s evidence, when he was asked what value could be put on a sapphire bearing all the qualities and descriptions referred to in the SSEF Report, its appended letter, and the Gubelin Report, that he could not put a figure or make a valuation, as he had not in fact come across such an item as described.  He maintained that his valuation of the Sapphire, as inspected by him, and on his discernment, was HK$5 million.

52.   On the evidence, it cannot be said that the Defendant (through Patricia or William) could not reasonably have supposed that the Purchase Price could not have been the real intention of the Plaintiff.

53.   As I cannot conclude that the Defendant knew that the Plaintiff was mistaken as to the terms of the offer of the Purchase Price, I have no basis to find that the Defendant had in any way knowingly encouraged the Plaintiff’s mistake, or that it was unconscionable for the Defendant to let the Plaintiff remain deluded, or to take advantage of the Plaintiff’s “mistake”.”

6.  The Plaintiff appealed against that judgment. In essence, the appeal was brought against the findings by the judge that on the balance of probabilities it could be said that the Defendant knew that the Plaintiff was mistaken.  

7.  By a summons of 13 February 2018, the Plaintiff applied for leave to adduce further evidence in the form of a witness statement of Judy Lin of 5 January 2018 together with its exhibits.  Judy Lin was a director of Carrera.  The purpose of the new evidence was to support the Plaintiff’s case on the real value of the Necklace.  It is said that the real value of the Necklace is relevant to the Defendant’s knowledge of the Plaintiff’s mistake.

8.  Parties lodged their respective written submissions on the summons in accordance with Practice Direction 4.1.  Having read and considered the same, we are of the view that the application can be determined on the papers without any oral hearing.  We now give our determination on the application.

9.  The judge alluded to the state of evidence on the value of the Necklace at [38] to [46]:

“ 38.   The SSEF Report and the Gubelin Report describe the qualities, appearance and even the rarity of the Sapphire.  They are no doubt authoritative reports, but they do not give any indication as to the value of the Sapphire.

39.   On the Defendant’s case, William claims that he had formed his own view of the Purchase Price of the Necklace based on the quality of the Sapphire and the diamonds, and on the price of HK$7 million initially offered by Yaakov.  He maintained that the Purchase Price finally agreed upon on 24 June 2015 was not unreasonable or unrealistic.

40.   The Defendant pleads in the Defence that the quality of the Necklace and in particular the Sapphire and the diamonds used in the Necklace did not justify the initial asking price of HK$7 million in the market, and the Defendant had not ever considered purchasing the Necklace at any price substantially higher than HK$5 million.  It maintains that it had no reason to suspect that the eventually agreed Purchase Price of HK$5.05 million was in any way unreasonable or unrealistic by reference to its quality and/or market value.

41.   According to the Defendant, William had inspected the Necklace on 15 June 2015 and his opinion was that: (1) the Sapphire was of a low grade as it was grayish blue in color and contained color zoning or banding and inclusions which affected the clarity and durability of the Sapphire; (2) the emerald cut diamond (4.51 ct) was of a low grade of H/VS 1; and (3) the rest of the diamonds were of small size and the majority were of lesser grades.

42.   No other expert evidence was adduced at trial as to the value of the Sapphire, or as to a reasonable price which the Sapphire may fetch on the market.

43.   In support of its claim that the Defendant had knowledge of Yaakov’s mistake as to the price of the Necklace, and in support of what it claims to be the true, higher value of the Necklace, the Plaintiff relies heavily on the fact that as soon as the Defendant had obtained the Necklace on consignment from the Plaintiff on 17 June 2015, Patricia had made a special trip to Singapore, where she offered the Necklace to Benny at the price of US$2 million. This, it is contended, shows that Patricia knew that the Necklace was worth at least US$2 million, as opposed to the value of US$923,000 consigned to the Defendant by the Plaintiff.  As Patricia accepted in cross-examination, she would not offer the Necklace at an outlandish price to Benny, whom she knew to be a seasoned trader and an experienced one in the trade.  On behalf of the Plaintiff, it was argued that Patricia must have thought that the Necklace was worth, at least, US$2 million.

44.   According to Patricia, although the SSEF Report and the Gubelin Report had been supplied to Benny, he never made any counter offer for the Necklace.  As Counsel for the Defendant highlighted, if the price sought by the Plaintiff (in the region of HK$7 million) was indeed such an obvious mistake, and if the true value of the Necklace and the Sapphire were as purported to be much higher than HK$5.05 million or HK$7 million as asked for by the Plaintiff initially, there was no reason why an experienced trader like Benny would not have immediately purchased the Necklace at US$2 million, as asked for by Patricia.

45.   The Plaintiff claims that there was no sale of the Necklace to Margaret at HK$6.1 million as the Defendant alleges.  It was argued that, having just offered the Necklace at US$2 million to Benny, it is unbelievable that Patricia would have agreed to sell it to Margaret at $6.1 million, a drop of more than 60% within 5 days.

46.   According to Patricia, the figure of US$2 million she put to Benny was simply an opening price offer, and Benny was used to making counter offers at 50% of the offer.  Patricia claims that Benny was in the trade, and that on looking at the Necklace, Benny would know and have a value in mind.  On Patricia’s testimony, Benny told her that the color of the Sapphire was not royal blue, that it did not have the proper color for a Burmese sapphire, was cracked and stained, and was of lower quality than as described or claimed.  Whether or not US$2 million was reflective of the reasonable market price, Patricia highlighted that no counter offer was made by Benny and no sale was concluded with Benny.  He did not make any counter offer for the Necklace at all.”

10.  Hence, there was a glaring lacuna in the Plaintiff’s evidence.  The main plank of their case on knowledge on the part of the Defendant was the real value of the Necklace.  Yet they chose not to place before the judge at the trial any expert evidence or other cogent evidence on the value of the Necklace.

11.  The present application by the Plaintiff is an attempt to fill that gap.

12.  The established test for admission of fresh evidence is set out in Ladd v Marshall [1954] 1 WLR 1489.  It is not disputed by Mr Sakhrani, counsel for the Plaintiff in this application, that the Plaintiff has to show:

(a)   That the evidence could not have been obtained with reasonable diligence for use at the trial;

(b)   That the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and

(c)   That the evidence must be such as is presumably to be believed or it must be apparently credible, though it need not to be incontrovertible.

13.  The adherence to a stringent standard against admission of fresh evidence in an appeal is important.  As it has been said repeatedly, in the context of modern litigation, the main event is the trial and an appeal should not be exploited as a second bite of the cherry, having failed once at the trial.  In an appeal against a finding of fact (as in the present appeal), this Court primarily examines if the court below made any palpable error in coming to its factual findings.  The availability of appeal is not designed as providing an avenue for supplementing one’s evidence after some gaps in the evidence were exposed at the trial.

14.  The Plaintiff said the first requirement in Ladd v Marshall, supra, was satisfied as the Plaintiff could not have obtained the evidence from Judy Lin as Carrera had engaged in litigation with the Plaintiff regarding the Necklace in HCCL 8/2015.  That action was only settled after the judgment in the present action was handed down.

15.  The details of the litigation in HCCL 8/2015 were not put in the evidence in this summons by the Plaintiff.  We are not told if Judy Lin or someone else from Carrera had given any evidence as to the value of the Necklace in that action and what was the stance of the Plaintiff towards such evidence, if any.  Further, as submitted by Mr Cooney SC (together with Mr D Chan) for the Defendant, there was no reason in principle why the Plaintiff could not call Judy Lin to give evidence in this action.  Whatever the position adopted by the parties in HCCL 8/2015, it is unlikely that Judy Lin would give evidence unfavourable to the Plaintiff in the real value of the Necklace in this action.  It would be against the interest of Carrera to do so.  We have no hesitation in rejecting the bare assertion of Mr Yaakov (and repeated by Mr Sakhrani for the Plaintiff) that the mere existence of litigation between the Plaintiff and Carrera rendered it impossible to adduce evidence from Judy Lin in this action.  There are means to procure evidence from a witness unwilling to give a witness statement, see Order 38 Rule 2A(5) and Order 39 Rule 1.

16.  Further, in substance the evidence of Judy Lin is only probative in respect of the value of the Necklace.  Irrespective of whether her evidence should be regarded as expert evidence, the real crux of the matter is that the Plaintiff could have adduced evidence on the real value of the Necklace at the trial and they chose not to do so.  We do not accept for a moment that such evidence can now be admitted in the guise of “factual evidence” from Judy Lin. 

17.  Hence, we do not accept that the first condition in Ladd v Marshall was satisfied.

18.  Whilst evidence on the real value of the Necklace may have a bearing on the assessment of knowledge of the Defendant, we are not satisfied that Judy Lin’s evidence per se would have an important influence on the outcome.  Unless her expertise in valuation is accepted (and there is no evidence on her expertise before us), her own assessment of the value of the Necklace is not admissible as evidence in this action.  Hence, there is force in the submission of Mr Cooney that the Plaintiff should have obtained direction for expert evidence.  Further, insofar as she purported to give evidence on the history of dealings between Carrera and the Plaintiff, a glaring omission is the failure on her part to explain how Kenneth Lin had told Mr Yaakov that the price of the Necklace was HK$6.5 million (see [3] of the judgment).

19.  Moreover, since the ultimate question is the knowledge of the Defendant as to the mistake, the mere proof of the real value of the Necklace cannot influence the outcome unless there is some basis for holding that the Defendant should have been aware of the real value and the discrepancy between such real value and the price quoted by the Plaintiff was so great that it was too good to be true.  Weighed against the evidence of Judy Lin, there was evidence that another trader Benny regarded the price of US$2 million for the Necklace as too high, see [12] of the judgment. 

20.  We can see that there is much room for cross-examination of Judy Lin on her evidence as to the value of the Necklace. We are not persuaded that the third requirement in Ladd v Marshall, supra, was satisfied.

21.  For these reasons, we dismiss the summons of 13 February 2018.

22.  We see no reason why costs should not follow the event. 

23.  In the statement of costs of the Defendant of 6 April 2018, the Defendant sought $162,700 for the present application.  We have considered carefully whether the application merits the engagement of 2 counsel.  In the end, bearing in mind the potential implications on the conduct of the appeal, and having regard to the overall fees charged by counsel (showing that Mr Cooney was substantially assisted by Mr Chan), we decide that we would give a certificate for 2 counsel.  However, we would reduce some of the fees payable to the solicitor on account of perusal and consideration of documents and attendances.  We would fix the costs at $140,000.

24.  Such costs shall be payable forthwith.

25.  Lastly, we must say something on the timing of this summons.  The notice of appeal was dated 6 June 2017.  The litigation between Carrera and the Plaintiff was settled on 5 July 2017.  In the circumstances, we cannot understand the substantial lapse of time between those events and the issue of the present summons (13 February 2018) after the filing of the application to fix date for the hearing of the appeal. 

26.  It is also presumptuous for the parties to suggest in the Joint Checklist of 5 February 2018 that the application for admission of fresh evidence to be listed for hearing at the same time of the substantive appeal.  Interlocutory application should have been taken out before the application to fix a date for the hearing of the appeal.  It is ultimately a case management decision of the Court if the application for admission of fresh evidence should be processed in advance or at the same time at the hearing of the substantive appeal.  However, it is the duty of the party who wishes to make such application to proceed expeditiously after an appeal has been brought.  In the circumstances of this appeal, we do not see any good reason for leaving the application to be dealt with at the hearing of the appeal.