CHOW SUI HEI v. CHOW SUI TAK

HCA 2925/2017 & HCA 1287/2018
(Heard Together)

[2024] HKCFI 3360

HCA 2925/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2925 OF 2017

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HCA 1287/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1287 OF 2018

________________

________________

(Heard Together)

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J U D G M E N T

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A.  INTRODUCTION

1.  This is a trial of two actions. The main protagonists are two brothers, Chow Sui Hei (“Hei”) and Chow Sui Tak (“Tak”). Hei is the elder of them, and they have 4 other siblings.[1]

2.  Their late mother, Madam Tong Siu (“Mother”), died on 24 February 2011 leaving behind a will dated 20 August 2007 (“Will”). By all accounts, Mother was a remarkable lady. She supported her family through diligence and hard work. Unfortunately, after her death, there has been a serious breakdown in relationship between the two brothers.

3.  The first action is HCA 2925/2017 (“2017 Action”) commenced by Hei against Tak. Hei seeks specific performance of an agreement dated 7 December 2014 (“the 2014 Agreement”) against Tak to compel the distribution of sales proceeds of G/F, 145 Third Street (“Third Street Property”) in accordance with the terms set out in that agreement.

4.  The second action is HCA 1287/2018 (“the 2018 Action”) commenced by Tak and Kam Yip International Company Limited (“Kam Yip”) against Hei and Circuit Trading Company Limited (“Circuit Trading”). This is a conversion claim where Tak and Kam Yip seek damages for the alleged wrongful disposal of certain goods and chattels in March 2018.

5.  At trial, I directed that the two actions be tried one immediately after the other starting with the 2017 Action. I took the view that this was the most efficient and sensible way to conduct the trial.

6.  The trial of both actions was fixed before me for six days commencing on 23 March 2023. This was clearly insufficient. Leave to set down for trial was granted by a Master in August 2022, and it appears to me that neither party gave careful consideration to the time required for the trial of both actions.[2]

7.  Trial counsel, who did not appear before the Master, were at a loss to explain how the situation arose. Inevitably this led to the trial being adjourned part-heard. This resulted in unfairness to other litigants since these proceedings were able to ‘jump the queue’ and obtain earlier trial dates than would have been allocated had a proper time estimate been provided. There is an important duty on legal representatives to provide realistic time estimates to facilitate the proper allocation of judicial resources. Unfortunately, that duty was not fulfilled and, in my view, both parties share responsibility for allowing this to happen. The parties were warned at the PTR about the potential adverse costs consequences arising irrespective of the result of these proceedings. I will deal with this at the end of the judgment.

8.  Over the course of trial, there has been cross-examination into a wide range of matters covering an extended period of time. In my view, it is unnecessary to make a determination on every factual dispute that has arisen at trial. Some of these were peripheral in nature, and do not merit detailed examination. Suffice it for me to say that I have considered the various points made in the submissions of both parties, but I will focus on what I perceive to be the more important factual issues to resolve these disputes.

B1.  Overview of the 2017 Action

9.  The main issue in these proceedings is whether Hei is entitled to an order for specific performance of the 2014 Agreement to require Tak to distribute the sale proceeds of the Third Street Property in accordance with the agreed ratios set out in Clause 3. In practical effect, Hei contends that an order for specific performance would require Tak to distribute 10% of the sales proceeds to Yuk.

10.  The relief pursued by Hei in the 2017 Action at trial[3] is as follows:

(1)  A declaration that the 2014 Agreement is binding and enforceable;

(2)  A declaration that Hei, Tak, Chun, Kwai and Yuk shall be entitled to and paid 40%, 30%, 10%, 10% & 10% respectively of the net proceeds of sale from the Third Street Property; and

(3)  An order for specific performance that Tak shall distribute and take all necessary steps to cause the distribution of the sale proceeds from the sale of the Third Street Property in accordance with the 2014 Agreement.

11.  It is not disputed that Tak has received 40% of the proceeds of sale from the Third Street Property, and that he has not distributed the sales proceeds in accordance with the 2014 Agreement. However, Tak contends that the contract is unenforceable because it should be set aside since it amounted to a family arrangement and Hei was guilty of material non-disclosure. Tak also contends that it was entered into as a result of undue influence and economic duress. As a fallback position, Tak submits that the Court should not exercise its discretion to grant the relief sought by Hei.

12.  Tak counterclaims in the 2017 Action. Although a number of claims were pleaded by Tak,[4] the focus at trial was his counterclaim for equitable compensation for (i) the difference between HK$3,000,000 and 40% of the net sale proceeds from the sale of Unit C, 8/F, Sing Teck Factory, 44 Wong Chuk Hang Road (“Unit 8C”); and (ii) 40% of the rental income received by Hei from the Third Street Property until its sale.

13.  On behalf of Tak, Ms Leung has quantified the claim for the shortfall of the net sale proceeds for Unit 8C at HK$949,692, and for the 40% of the rental income for the Third Street Property at HK$416,760.[5] It was accepted that the counterclaim largely depended on whether Tak’s defence to the main action was successful. However, even if the 2014 Agreement was not set aside, Tak still pursues the counterclaim to the limited extent of his 40% share of the rental income from the Third Street Property prior to 2015 quantified at HK$216,240.

B2.  Background Facts in the 2017 Action

14.  Mother was married to Chow Hon Kam. Together, they had six children in the following order (i) Chun; (ii) Hei; (iii) Tak; (iv) Yee; (v) Kwai; and (vi) Yuk. Hei is the eldest son in the family.

15.  Before 13 July 2009, Hei and Tak both held shares in Kam Yip and Circuit Trading. A mutual exchange of shares took place on 13 July 2009. As part of this exchange, Tak transferred his 50,000 shares in Circuit Trading to Hei. In return, Hei transferred 4 shares in Kam Yip to Tak. Kwai also transferred his 1 share in Kam Yip to Tak. On 23 March 2012, Hei transferred 1 share in Kam Yip to Tak’s wife.

16.  Mother died on 24 February 2011. Under the Will, she bequeathed her entire estate to Hei and Tak under a 60:40 ratio, to the exclusion of the other siblings. According to the Schedule of Assets and Liabilities dated 21 July 2011, Mother’s estate included the Third Street Property, Unit 8C, certain bank balances, shares, gold and jewellery. The two brothers were named as executors and probate was obtained on 8 September 2011 in HCAG 6486/2011.

17.  On 29 September 2001, Hei and Tak purchased Units 12C and 12D, Sing Teck Factory Building, 44 Wong Chuk Hang Road as tenants in common (“Units 12CD”). Later, in January 2018, the brothers entered into an exchange which resulted in (i) Tak becoming the sole owner of Unit 12C and (ii) Hei becoming the sole owner of Unit 12D. As will be seen later in this judgment, this is part of the relevant background to the 2018 Action as well.

18.  There is a dispute over whether Mother, Hei and Tak formed a consensus prior to her death that her estate was to be distributed in the ratio of “4:3:1:1:1” as between Hei, Tak, Chun, Kwai and Yuk respectively (“Consensus”). Hei’s case is the Consensus was reached despite what was expressly provided for under the Will executed in 2007. Under the Will, Chun, Kwai and Yuk were not entitled to any distribution from Mother’s estate. According to Hei, the Will did not mention the other siblings due to Mother’s concern over Chun’s husband knowing about Chun’s potential entitlement.[6] Hei explained that Mother took the view that if Chun’s share was not mentioned in the Will, then Kwai and Yuk’s share should also not be mentioned.

19.  A few years after Mother died, Unit 8C was sold on 20 November 2014 for HK$16 million. Part of the sale proceeds were used to redeem mortgage loans obtained by Tak secured by Unit 8C and Units 12 CD, and for other relevant expenses. After paying off these mortgages, the net sale proceeds were around HK$8.9 million. Out of these proceeds, Hei caused HK$1.5 million and HK$2 million to be paid to Kwai and Yuk, respectively. Hei’s case is that Tak insisted on receiving HK$3 million.

20.  After the sale of Unit 8C, there was a meeting between Hei and Tak at Hei’s residence on 7 December 2014 where the 2014 Agreement was signed by them. The document is written in Chinese on a single page, with five clauses set out in two columns. There is also a copy of the 2014 Agreement which was certified by Mr Chan Hui Tong (“Mr Chan”), a solicitor at KY Lo & Co. The date of certification is 8 December 2014. It is common ground that Mr Chan assisted in the drafting of the 2014 Agreement.

21.  The 2014 Agreement[7] states as follows: -

(1)  Ah Hei would not mention the previous debt, and also give up the 8,000,000 debt owed by Kam Yip to Ah Hei. Both parties to work out how to cancel the latter.

(2)  For purchase[8] of Unit 8C, Ah Hei to distribute 3,000,000 to Ah Tak.

(3)  In the event that the Third Street Property is sold, it would be distributed in a ratio as follows: 4 (Hei), 3 (Tak), 1 (elder sister), 1 (younger sister), 1 (Kwai).[9] Ah Hei would perhaps pay elder sister by way of instalment, and provide receipts for Ah Tak’s review. For 10 years starting from 2015, the rental income would be received by Ah Hei, and be distributed in the aforesaid ratio thereafter.

(4)  12C, D be shared equally by Ah Hei and Ah Tak. In the event of sale, Ah Tak would repay 200,000 to Ah Hei. Ah Tak would be responsible for all the management fees. As from 2015, Ah Hei and Ah Tak each bear half the rates.

(5)  Stock and gold left by Mother for Ah Tak would be kept by and be to Ah Tak.

22.  Hei’s case is that this meeting took place against the background of the Consensus which explains the specific distribution ratio set out in Clause 3 for the sale proceeds for the Third Street Property.

23.  Under the 2014 Agreement, both Hei and Tak would receive less than what they were entitled to under the Will with respect to the Third Street Property. There would be a reduction from 60% to 40% for Hei, and from 40% to 30% for Tak. Their reduced share in the sales proceeds would, in effect, be given to Kwai, Chun and Yuk in equal 10% shares.

24.  Hei then drew a cheque dated 25 November 2014 for HK$1,500,000 in favour of Kwai’s wife, and another cheque of the same date for HK$2,000,000 to Yuk.

25.  It is an agreed fact that Hei collected all the rental payments for the Third Street Property from 8 September 2011 to 30 January 2018.

26.  In September 2017, Sound Advice Property Limited offered to purchase the Third Street Property for HK$41,000,000. After the offer was made, there was an exchange of correspondence between Hei and Tak’s solicitors. In short, Hei sought confirmation from Tak that the sale proceeds would be dealt with in accordance with the 2014 Agreement. Tak did not agree to this. Despite this, the parties made the practical decision to proceed with the sale without prejudice to their positions under the 2014 Agreement. That dispute was left to another day, but to avoid the sale falling through, the sale proceeds would first be distributed to Hei and Tak in accordance with the 60:40 ratio under the Will.

27.  On 12 December 2017, a Provisional Sale and Purchase Agreement (“PSPA”) was entered into to sell the Third Street Property for HK$32,000,000. Hei and Tak signed as executors of Mother’s estate who was the vendor. A Compensation Agreement dated 12 December 2017 was also entered into. Under this, the purchaser agreed to pay HK$9,000,000 for ‘loss of renovation costs’, which was to be paid in accordance with the 60:40 ratio stated in the Will.

28.  Before completion of the sale and purchase, Hei commenced the 2017 Action on 29 December 2017 asserting his rights under the 2014 Agreement against Tak. The assignment for the Third Street Property was then executed on 30 January 2018. In February 2018, Hei paid HK$4,000,000 to each of Kwai and Chun. According to Hei, this represented their share of the sale proceeds under the 2014 Agreement.

29.  At the same time, Tak received 40% of the sale proceeds.[10] It is an agreed fact that out of the sales proceeds, Hei received HK$24,477,000, Tak received HK$16,618,000, with HK$205,000 being paid to Shun Cheong Estate Company as agency fees.

30.  Hei’s case is that Yuk was entitled to a 10% share under the 2014 Agreement, since he had already paid Kwai and Chun’s share in February 2018. Since Yuk had not received any share, Hei says that Tak is responsible for paying Yuk’s 10% share of the sale proceeds which he has failed to do. This is the factual matrix against which Hei seeks specific performance of the 2014 Agreement.

B3.  The Witness Evidence

31.  I have been guided by the principles on the evaluation of the credibility of witness evidence which I set out in Leung Chin Sing Rabo v Ko Chun Kay Kelvin [2021] HKCFI 2242 at [41].[11]

32.  The relevant considerations are as follows:

“(1) contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

(2) in deciding whether to accept a witness' account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3) regard should be had to the consistency of the witness' evidence with undisputed or indisputable evidence, and the internal consistency of the witness' evidence;

(4) care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness' character;

(5) witnesses' credibility should be tested by reference to the objective facts proved independently of their testimony, and regard should be had to their motives and to the overall probabilities”.

33.  At the same time, as pointed out by Ms Leung, I have also borne in mind that the credit of a witness in matters not germane to the litigation may be of less assistance in the overall evaluation of credibility, and that it is important to have regard to the entirety of the evidence of a witness.

34.  Tak was the only witness to give evidence on his behalf. Having heard his testimony, I formed the distinct impression that Tak was an evasive, unsatisfactory and unreliable witness. As far as the 2017 Action is concerned, I am certain that he has not been a truthful witness. It is impossible for me to place any meaningful reliance on his evidence to the extent that it is disputed or not supported by the contemporaneous documents. For a start, his oral testimony consisted of numerous factual matters not mentioned in the pleadings or the witness statements.[12] This was not an isolated occurrence. Moreover, when inconsistencies between his evidence and documents were pointed out in cross-examination, he sought to blame others and paint himself as the victim. His evidence was also, in many respects, incredible and illogical. To the extent necessary, I will refer to some of the more incredible aspects of Tak’s evidence in my discussion below. However, these are only select examples of the overall unsatisfactory nature of his evidence. Having regard to his evidence as a whole, I find that it is of undeniably poor quality.

35.  In contrast, Hei gave evidence in a straightforward manner. He answered questions directly, and in my view, his evidence was reliable despite thorough cross-examination by Ms Leung. While I accept were occasions where he answered questions in a blunt manner, I do not think this detracted from the overall reliability of his evidence. I prefer his evidence over Tak’s evidence on the major issues in dispute in the 2017 Action.

36.  I was less impressed with the evidence of Chow Sui Kwai who testified on behalf of Hei, but I am prepared to accept his evidence to the extent that it corroborates and supports Hei’s evidence. Lastly, Mr Tang Chan Kwan (“Tang”) gave evidence on behalf of Hei as well. I find that he was an honest witness who attempted to assist the Court to the best of his ability. I am prepared to accept his evidence in its entirety.

B4.  The 2014 Agreement

37.  The immediate impetus of the 2014 Agreement was the sale of Unit 8C on 20 November 2014 for HK$16 million. At this time, both Hei and Tak had been named as executors of Mother’s estate which included Unit 8C. It seems clear to me that the purpose of the meeting between the two brothers was to resolve Tak’s request to receive HK$3 million out of the net sale proceeds and come to an amicable overall agreement about other issues between the brothers, including how the sale proceeds from the Third Street Property – which at the time, had yet to be sold - were to be distributed. This is so despite the express terms in the Will which provided for a 60:40 split between Hei and Tak. The meeting took place on 7 December 2014 at Hei’s residence.

38.  Mr Chan agreed to assist in the process and to record the important points which were agreed. He was a solicitor known by both brothers since childhood. I understand Mr Chan’s decision to not testify at trial. According to Hei, Mr Chan took the view that the disputes between the brothers were ‘troublesome’. I am certain that is the truth, and having regard to their breakdown in relationship, it is also inherently probable and logical. I accept that the reason Mr Chan did not wish to give evidence in these proceedings was because he did not want to be perceived as taking sides, and I refuse to draw any adverse inference against either party for not calling Mr Chan as a witness.

39.  After hearing the evidence, I find that the 2014 Agreement accurately recorded what had been discussed and agreed at the meeting at Hei’s residence on 7 December 2014, except for a mistake in Clause 2 when “purchase” ought to have read “sale”. This was a genuine mistake that should have been obvious to everyone. I accept Hei’s evidence that it was necessary to document their agreement in order to ensure that Tak would not go back on his words. In the light of the unsatisfactory manner in which Tak testified, there is every reason to believe that Hei was telling the truth in this regard.

40.  One of the important features of the 2014 Agreement is the 4:3:1:1:1 ratio expressly set out under Clause 3 governing the distribution of future sales proceeds for the Third Street Property. This constituted an agreement on Tak’s part that, first, the distribution would not follow the 60:40 ratio in the Will and, second, that Chun, Kwai and Yuk would each be entitled to a 10% share even though they were not named as beneficiaries under the Will. In light of this, I find that Tak’s outright denial of the Consensus to be incredible. It is obvious to me that the 4:3:1:1:1 ratio did not come out of the blue, and Tak provided no credible explanation for why he agreed to it if the Consensus did not exist. I accept Hei’s explanation as to the reason why the Consensus came about, and I believe that it accurately reflected Mother’s wishes.

41.  There are also a few important points arising from Tak’s letter dated 16 September 2017 in response to Hei’s former solicitors when they demanded that Clause 3 of the 2014 Agreement must be enforced. First, Tak did not suggest that the sales proceeds should be distributed in a 60:40 ratio in accordance with the Will. Second, the focus of the letter was not that the 2014 Agreement was unenforceable, but rather that he believed that the stated distribution rations were unfair. Third, even under his own two proposed distribution proposals set out at the end of this letter, the majority or all of their siblings were to receive a 10% share. For their siblings, the only difference in the two proposals was that Yee would receive a 10% share under the first proposal while under the second she was excluded, similar to the 2014 Agreement.

42.  In my mind, what Tak was trying to do here was to unravel and re-negotiate a contract which he had agreed to. Even under Tak’s second distribution proposal, each of Chun, Kwai and Yuk were to receive a 10% share which is identical to the position under the 2014 Agreement.[13] This clearly suggests to me that Tak knew that there was at least some basis for the three siblings to receive a 10% share. His outright denial of the Consensus does not make sense in the absence of any convincing explanation of what is set out in his own correspondence. In his oral evidence, he sought to distance himself from the contents of this letter stressing that it was not drafted by him, but by a friend, Ms Lin. This was mentioned for the first time at trial. But even putting that to one side, and assuming that to be true, seeking to blame Ms Lin for correspondence which he signed, and where it is obvious that the information contained in the letter would have been approved by him, was a pathetic excuse.

43.  Even though this letter was sent in September 2017, in my judgment, it is important since it contains the first real comprehensive response by Tak to Hei’s request to enforce the 2014 Agreement.

44.  Overall, I accept Hei’s evidence as to the circumstances leading up to the 2014 Agreement and also as to what transpired at the meeting. In terms of inherent probability, it is important that on his own case Hei stood to lose out significantly under the 2014 Agreement. Hei would only receive 40% of the sales proceeds from the Third Street Property, compared to his 60% entitlement under the Will. I accept Hei’s evidence that the inclusion of the 4:3:1:1:1 ratio in the 2014 Agreement was not because of any self-interest but due to respect for Mother’s wishes. In contrast, Tak had every reason to lie.

45.  It is clear to me that Tak had direct knowledge of what was proposed and discussed at the material time and that he approved of the contents that were recorded in the 2014 Agreement voluntarily. To the extent that he now claims ignorance of these matters, I reject his evidence as being wholly incredible. To my mind, his professed ignorance, which I disbelieve, is entirely consistent with his propensity to disown his own deeds and actions as evident from his testimony. Lastly, I agree with Ms Lan that Tak was evasive in his version of events as to what actually happened at Hei’s residence when Mr Chan was putting down each and every clause in the 2014 Agreement. With the above in mind, I now turn to the defences raised by Tak.

C1.  Family Arrangement & Duty of Disclosure

46.  A family arrangement is a species of contract entered between members of the same family, intended to be generally and reasonably for the benefit of the family either by compromising doubtful or disputed rights or by preserving the family property or the peace and security of the family by avoiding litigation or saving its honour: Leung Ping Chiu Roy v Wai Wai Chen [2021] HKCA 941 at [176].

47.  There is a duty on all the parties to a family arrangement to make full disclosure, before the arrangement is entered into, of all material facts known to them so that no party’s ignorance is taken advantage of. Material facts are those that may reasonably affect the parties’ determination of whether to enter into the arrangement in question. The innocent party may be entitled to rescind the contract where the duty of disclosure has been breached: Leung Ping Chiu Roy at [176] & [185].

48.  There was, I think, no serious dispute over the applicable principles. On behalf of Hei, Ms Lan submitted that the duty of disclosure did not arise because 2014 Agreement did not constitute a family arrangement. This is because, says Ms Lan, the agreement dealt with personal disputes between Hei and Tak under Clause 1 and Units 12CD did not form part of Mother’s estate. I am unable to accept this submission.

49.  In my judgment, it is plain that the purpose and effect of the 2014 Agreement was to reach a binding consensus as to how matters affecting the family generally and the two brothers in particular, including the distribution of assets, should be dealt with. This much is clear from its terms and the background leading to its conclusion. I find that the agreement was made with a view to avoiding future disputes between family members, and between Hei and Tak themselves as to their respective entitlements, and in so doing, to maintain family harmony. Not only did the 2014 Agreement provide for distribution of the sales proceeds of the Third Street Property to the wider family, it also sought to resolve the disputes between the two brothers.

50.  In my view, the matters relied upon by Ms Lan do not undermine the overall character and purpose of the 2014 Agreement being a family arrangement. The resolution of the personal disputes between Hei and Tak which the 2014 Agreement sought to achieve under Clause 1 were, in my mind, part of the objective of achieving a global family arrangement and to solve disputes between the brothers as family members. In addition, the fact that Units 12 CD did not form part of Mother’s estate is not a significant factor in my view. Reaching an agreement over the distribution of assets of a deceased family member might be one situation where a family arrangement is reached, but it is certainly not the only one. I find that the agreement regarding Units 12CD was part of the overall arrangement to finally resolve the disputes between the two brothers, and come to a sensible solution to avoid litigation. In my judgment, the 2014 Agreement was a family arrangement which required the parties to make proper disclosure.

51.  What is Tak’s case on material non-disclosure?

52.  Ms Leung helpfully distilled Tak’s case into five matters.[14] These were (i) the nature and particulars of the HK$8 million debt; (ii) the nature and particulars of the HK$200,000 debt; (iii) the justification for reducing Tak’s entitled share of the net sale proceeds of Unit 8C to HK$3,000,000; (iv) details of the rental income of Unit 8C and the Third Street Property after Mother’s death; and (v) part of the sale proceeds of Unit 8C was paid to redeem and discharge a mortgage over Units 12CD. Having heard the evidence and submissions, I do not accept the complaint that there was material non-disclosure.

53.  Nature and particulars of the HK$8 million debt. As to the debts mentioned in Clause 1 of the 2014 Agreement, Tak’s own evidence was that he did not object to this because it was not against his interest. He was disinterested because it was Hei who was giving up something. In other words, Tak was not concerned about the precise details of these debts, how they arose, or their exact quantum. Against that clear evidential background, I am unable to see how the disclosure of these matters would have reasonably affected Tak’s decision to enter into the 2014 Agreement. Further, and in any event, I accept Hei’s evidence on how the HK$8 million debt arose. Hei explained that he transferred four shares in Kam Yip to Tak in 2009 and that Kam Yip held a property on Robinson Road which had a redevelopment value of HK$20 million and a market value of HK$16 million. The figure of HK$8 million represented half of the market value of the Robinson Road property which was, in effect, the consideration for the transfer of the Kam Yip shares. Hei was cross-examined on this issue. His evidence, which I accept, is that Tak knew about how the HK$8 million figure arose. Whether this was an actionable debt, and its precise basis of calculation, is not of determinative importance in my mind. Often, there may be compromises of potential claims between family members which will be disputed either as to liability, quantum or both. What is clear to me on the evidence, however, is that that Hei held a genuine belief that Tak owed him HK$8 million at the time of the 2014 Agreement, and Hei was prepared to relinquish whatever entitlement he had to this. I find that Tak fully knew of Hei’s position on these matters, and in any event, none of this mattered to Tak at all. This is evident from the fact that Tak did not object or raise any inquiries at all on Clause 1 during the meeting.

54.  Nature and Particulars of the HK$200,000 Debt. The HK$200,000 debt is mentioned in Clause 4 in the context of what would happen to Unit 12CD. It says that ‘in the event of a sale, Ah Tak would repay 200,000 to Ah Hei’. It is clear, in my view, that the HK$200,000 was related to Units 12CD. I accept Hei’s evidence that he explained to Tak at the meeting how this debt came about. It was Hei’s evidence that this arose from his payment of outstanding sums under a mortgage of Units 12 CD with DBS Bank which was discharged in 2007. I do not accept that there was material non-disclosure. I reject Ms Leung’s submission that the discussion between Hei and Tak did not occur because Mr Chan did not spell it out in Clause 4. I also accept Hei’s explanation as to why this debt was singled out. His evidence was as follows:

“Q. But somehow you decided to single out this rather small debt of $200,000 and put it in Clause 4.

A. As I have told you earlier on, in relation to those bigger sums, I expected that he would not be able to may repayment and so I would give them up. However, I relation to this one – that is, 12 CD – the property was still there and 200,000 was not a large sum, so when the property was going to be sold, I think he would not refuse to pay me".

55.  Tak’s HK$3million share of Net Sale Proceeds of Unit 8C. The complaint of material non-disclosure with respect to Unit 8C is that the justification for reducing Tak’s entitled share of the net sale proceeds of Unit 8C to HK$3,000,000 was not disclosed by Hei. To recap, on 20 November 2014, Unit 8C was sold at HK$16,000,000. The purchaser paid HK$1,600,000 in deposits by 13 October 2014, and the remaining balance of the purchase price of HK$14,400,000 was paid on 20 November 2014. Part of the remaining balance was used to redeem two mortgages and to make other several smaller payments.[15]

56.  The breakdown of how the monies were applied can be seen from a letter dated 20 November 2014 sent by solicitors for the purchaser. This records that (i) HK$3,083,589.28 was used to redeem a Chiyu Bank mortgage over Unit 8C with the Defendant as borrower; and (ii) HK$2,207,505.05 was used to redeem an Allied Bank mortgage under Units 12CD with the Defendant as borrower.

57.  I accept Hei’s evidence that the brothers had a discussion after the completion of the sale where Tak requested to receive HK$3 million from the sale proceeds. I accept that Tak did not mention any specific calculation to justify the figure, and that initially Hei was reluctant to agree to this payment. Later on, Mr Chan agreed to help out as a family friend to reach an amicable solution to their dispute.

58.  I find that Tak knew that he stood to gain from his request to receive HK$3,000,000 from the sale proceeds from Unit 8C, and that he knew that a substantial part of the proceeds was used to redeem mortgage loans in respect of which Tak was the borrower. It is also clear to me that the figure of HK$3,000,000 was requested by Tak. In my judgment, Tak knew that this sum was more than he what he was entitled to under the 4:3:1:1:1 ratio and that is a major reason why the brothers had to discuss matters leading to the 2014 Agreement. Against that factual background, I do not see any basis to suggest that Hei was obliged to disclose the justifications for Tak to receive HK$3,000,000 out of the sale proceeds. After all, it was Tak who made the request for this sum. I also accept Hei’s evidence that he genuinely believed that Tak was entitled to less than HK$1.5 million at the time of the 2014 Agreement on the basis of a 4:3:1:1:1 ratio.

59.  Ms Leung also pointed out that the mistake in Clause 2, namely, that the “purchase” of Unit 8C should read “sale” was not pointed out by Hei at the meeting. With respect, there is nothing in this point. As I have mentioned in [39] above, this was an innocent mistake in drafting and both parties must have known that the actual context of the clause the sale of Unit 8C. There is no basis to suggest that this amounted to material non-disclosure.

60.  Details of Rental Income of Third Street Property. Clause 3 of the 2014 Agreement provides that the rental receipts of the Third Street Property would be kept by Hei for 10 years starting from 2015. Ms Leung argues that Hei admitted that except for the for the tenancy agreement dated 8 May 2012, Hei did not tell anyone about his keeping the rental from the Third Street Property. Therefore, it was argued that Tak did not know how much he rental he would be missing out on by agreeing to Clause 3.[16]

61.  I am unable to accept this argument. The starting point is that Tak accepted that he knew that Hei received the rental from the Third Streety Property. I accept Hei’s evidence that, after the first tenancy agreement, Tak asked Hei to handle the rental matters for the Third Street Property (“You handle it yourself. So in future you just handle it yourself”).[17] Tak was not entirely in the dark on this issue. I do not think that the precise amount received by Hei is material. I reject the submission that Tak was unable to know how much rental he would be missing out on by agreeing to Clause 3 of the 2014 Agreement. It seems to me that he was indifferent to the precise amount, and in any event, as a person experienced in dealing with properties, he likely would be able to ascertain either the actual or approximate rental value with ease. On the whole, it seems to me that this is another one of Tak’s excuses to extricate himself from the 2014 Agreement and seeking to blame others for his own decisions.

62.  Lastly, I record that although the point about part of the sale proceeds of Unit 8C was used to redeem and discharge a mortgage over Units 12CD was mentioned in Tak’s opening submissions, the point (rightly, in my view) was not developed in closing. Accordingly, it is unnecessary for me to deal with it.

63.  For all of the above reasons, I reject Tak’s defence of material non-disclosure to set aside the 2014 Agreement. It is unnecessary for me to express a view on Ms Lan’s submission made in closing submissions that Tak himself was guilty of material non-disclosure. So I shall decline to do so.

C2.  Undue Influence

64.  On behalf of Tak, Ms Leung submitted that the 2014 Agreement should be vitiated by reason of undue influence allegedly exerted by Hei over Tak. As the eldest brother of the family, it was suggested that Hei was in a position of power and influence over Tak, and that Tak was more ‘simple-minded’ than Hei. Ms Leung also argued that the chronological events leading up to the 2014 Agreement point to the conclusion that Hei was in a position to, and did, exert undue influence over Tak.

65.  On the applicable legal principles, the issue is whether there is evidence to justify the inference that, on a balance of probabilities, that the impugned transaction was procured by undue influence, namely, an abuse by the allegedly dominant party of the trust and confidence reposed in him by the allegedly subservient party: Li Sau Ying v Bank of China (2004) 7 HKCFAR 579.

66.  I have no hesitation in rejecting this defence as not being made out on the evidence. I have rejected Tak’s evidence. I find that his complaints of undue influence are entirely incredible. In my judgment, he entered into the 2014 Agreement independently, voluntarily and free from any undue influence. At the time, Tak considered that he stood to benefit from the 2014 Agreement. He had full knowledge of its terms and I reject any suggestion that Hei exercised any undue influence over him. It is patently clear to me that Tak did not enter into the 2014 Agreement by reason of any abuse of trust and confidence which he allegedly deposed in Hei at the time.

67.  I also reject the submission that Tak was so ‘simple-minded’ as to be inherently likely be subject to subject to undue influence. After all, Tak ran his own business for many years which operated both in Hong Kong and Macau, and he had ample experience in property development.

68.  I have taken into account the matters raised by Ms Leung in closing submissions said to support an inference of undue influence.[18] I take the view these matters do not, either viewed individually or collectively, come anywhere close to suggesting that Hei procured Tak to enter into the 2014 Agreement by undue influence. Ms Leung placed the greatest reliance on the manner in which Hei handled the sale of Unit 8C. Hei received HK$1,600,000 as the deposit for the sale of Unit 8C between September and October 2014 which was deposited into Hei’s personal bank account. Further, it was also said that Hei decided to allow some of the sales proceeds of Unit 8C being used to redeem the Allied Bank mortgage. I think these complaints need to be viewed in proper context. As a matter of fact, I find that Tak was consciously indifferent to matters relating to the sale of Unit 8C except for his request to receive HK$3,000,000 out of the sales proceeds. It is clear to me that his indifference was due to his desire not to personally handle these matters even though he was also an executor of Mother’s estate, and not because of any alleged trust and confidence he reposed in Hei.

69.  Ms Leung also placed reliance on Hei’s evidence that he only paid HK$3 million to Tak after the 2014 Agreement was signed, and that Hei accepted in cross-examination that if Tak did not sign it that Hei would only issue a cheque to Tak for HK$1 million odd. It was said that this ‘precisely proves’ Tak’s case of undue influence. With respect, I am unable to see how this follows. Instead, I find that Hei’s evidence reflects his genuine belief that the proceeds of sale of Unit 8C should have been distributed in accordance with the 4:3:1:1:1 ratio, and that it was only because of the terms of the 2014 Agreement which he expected Tak to honour that Hei paid out the HK$3 million to Tak. I do not see how this evidence supports an inference that there was undue influence.

70.  For these reasons, and especially in light of my rejection of Tak’s evidence, I am unable to accept the undue influence defence.

C3.  Economic Duress

71.  Tak’s case was that he began to suffer financial difficulties in around 2013 and 2014. His financial pressures including supporting his three daughters to study in Canada, Kam Yip’s monthly cash flow needs of at least HK$40,000, and expenses to maintain the household. Tak’s financial difficulties were known to Hei, and Hei took advantage of it.

72.  In Pao On v Lau Yiu Long [1980] AC 614, Lord Scarman giving the advice of the Privy Council stated at 635B-E: -

“Duress, whatever form it takes, is a coercion of the will so as to vitiate consent. … In determining whether there was a coercion of will such that there was no true consent, it is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it.”

73.  Economic pressure may be sufficient to amount to duress provided that it may be characterised as illegitimate and has constituted a significant cause inducing the plaintiff to enter into the relevant contract. Pressure may be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct, but the categories are not closed. In determining whether there has been illegitimate pressure, the court will take into account a range of factors including the plaintiff’s impecuniosity, whether pressure was applied, how the pressure arose, whether the plaintiff had a practical alternative, whether the plaintiff had access to independent advice, and whether the pressure was illegitimate: Zebra Industries (Orogenesis Nova) Ltd v Wah Tong Paper Products Group Ltd [2016] 1 HKC 213 at [79-87] per G Lam J (as he then was).

74.  The key to proving economic duress is proof of the illegitimacy of the suggested pressure. Much commercial activity necessarily involves pressure, often considerable and sometimes overwhelming, exercised by parties who find themselves in powerful bargaining positions. But that of itself is not illegitimate: Esquire (Electronics) v Hong Kong and Shanghai Banking Corporation [2007] 3 HKLRD 436 at [154] per Stock JA (as he then was).

75.  On the evidence, Ms Leung stressed that Hei was informed by Tak at the time of the sale of Unit 8C that Tak was in need of money. But the mere knowledge by one party that another might have a need for funds is not sufficient in itself to amount to economic duress. Much more needs to be demonstrated to substantiate this defence, and I am not satisfied that this has been done here.

76.  In my judgment, this defence has shaky evidential foundations. On behalf of Tak, there was little in terms of concrete analysis to identify what acts amounted to the relevant pressure and why it was said to be illegitimate. Nor was there any real analysis of the range of factors which the court will usually take into account when identifying whether pressure is legitimate or not. It also seems to me that a fundamental difficulty with Tak’s case on economic duress is my finding that he entered into the 2014 Agreement independently and voluntarily.

77.  Moreover, even though I am prepared to accept that Tak might have genuinely wished to receive funds at the time, I have reservations as to whether he could properly be described as impecunious. Though he said he needed funds, these were for recurring expenses. It appears that one of the reasons for his need for funds at the time of the agreement was that had gifted HK$2.5 million to his friend, Ms Lin, in late 2013 or early 2014. It was said that he had an extra-marital affair with her. This was a matter that Tak mentioned for the first time in the witness box, and his alleged gift was not supported by documentary evidence. However, even assuming it to be true, it seems to me that if Tak was truly in need of funds, he could have approached Ms Lin for financial assistance.

78.  In addition, as pointed out by Ms Lan, there was no contemporaneous protest made by Tak after the 2014 Agreement was concluded to support a case of economic duress. Instead, matters came to be disputed only in 2017 when the Third Street Property was sold. Even then, the focus of Tak’s complaint was not about any economic pressure having been applied. There was also no urgency for Tak to sign the 2014 Agreement at Hei’s residence. He was fully able, but declined, to take legal advice on its contents since Tak was no stranger to instructing solicitors. Indeed, after it was signed, Tak never took any prompt steps to avoid the agreement.

79.  Viewing the evidence in its entirety, I am simply unable to see how it can be said that Hei used any form of illegitimate pressure to coerce Tak to sign the 2014 Agreement against his will. I reject this line of defence.

C4.  Whether Specific Performance Should be Ordered

80.  From my analysis above, I have concluded that none of the substantive defences raised by Tak have been established. Accordingly, I conclude that the 2014 Agreement is valid and enforceable, and that Tak has failed to distribute the proceeds of sale from the Third Street Property in accordance with Clause 3 of the 2014 Agreement. It remains to be considered what relief should be ordered in light of the above. Since specific performance is the main remedy sought in these proceedings, and I will start with the relevant legal principles.

81.  The equitable jurisdiction to order specific performance of a contract is founded on the inadequacy of damages at common law as a remedy to the claimant. Therefore, specific performance of contractual obligations should ordinarily be refused where damages are an adequate remedy. This is because the minimum condition for an order of specific performance is that the innocent party should have a legitimate interest extending beyond pecuniary compensation for breach (Cavendish Square Holding BV v Makdessi [2016] AC 1172 at §30). The approach is to ascertain whether specific performance will do more perfect and complete justice than an award of damages (Chitty on Contracts, Vol. 1 (35^th ed) at §31-018). Specific performance of a contract may be available to compel a contracting party to pay a sum of money to a third party (Beswick v Beswick [1968] AC 58).

82.  Hei submits that specific performance is appropriate because damages are an inadequate remedy. I agree. As a contracting party to the 2014 Agreement, Hei has suffered no loss and would only be entitled to nominal damages if his remedy was confined to damages. His main interest in the performance of the contract is to ensure that Yuk receives her share of the sales proceeds. In my view, specific performance is clearly an appropriate remedy to ensure that the 2014 Agreement is performed by Tak.

83.  Tak contends that specific performance should not be ordered since Clause 3 merely states that the sale proceeds would be distributed in accordance with the 4:3:1:1:1 ratio without specifying who pays whom. That may be the case, but specific performance is a flexible equitable remedy for the purpose of achieving full justice on the particular facts of the case. I find the point is without substance in circumstances where Tak has not performed any part of his obligations under Clause 3 and it is not disputed that Yuk’s 10% share has not been distributed by Tak.

84.  Tak also relies on his evidence that Yuk did not wish to pursue her share in the Third Street Property. On that footing, it was argued that specific performance should not be ordered since it serves no useful purpose. If Yuk genuinely held that position, I would have expected more in terms of evidence to confirm that is the case. Yuk has not filed any witness statement in these proceedings to confirm her position. There is no documentary evidence showing that Yuk has waived or relinquished her rights to that share. On the evidence, Hei did address this matter and I accept his explanation that he spoke to Yuk about these proceedings, and that she responded to Hei she would like to receive her share if it was Mother’s wish. Therefore, in the light of the evidence as a whole and in the absence of clear evidence of a waiver by Yuk, I am unable to accept that an order for specific performance would be of no utility.

85.  I am satisfied that the declarations pursued at trial are appropriate. For these reasons, I grant an order along the lines of §§1, 2(a) and 3 of the Prayer for Relief in the Statement of Claim with suitable modifications. As confirmed by Ms Lan, it is unnecessary to make any order with respect to §§2(a)-(b). As such, I decline to do so.

C5.  Tak’s Counterclaim

86.  Ms Leung fairly accepted that Tak’s counterclaim largely rises or falls with the defence to the main action. Since I have rejected the defence, I do not need to deal Tak’s counterclaim in detail.

87.  However, there is one aspect that still needs to be addressed. Tak’s case is that even if the 2014 Agreement is not set aside, there is no justification for Hei to retain the rental income received from the Third Street Property before 2015. Ms Leung stressed that that the 2014 Agreement does not provide such entitlement to him. To recap, Clause 3 only provides that for 10 years starting from 2015, the rental income would be received by Ah Hei, and be distributed in the aforesaid ratio thereafter. Therefore, it is silent as to the rental income position prior to 2015. As such, it should be governed by the terms of the Will which provide that Tak is entitled to a 40% share.

88.  Ms Leung has calculated the 40% share for the rental income received prior to 2015 to amount to HK$216,240.[19] I do not understand there to be a dispute over the accuracy of this calculation.

89.  Ms Lan objects to this claim only very briefly in her note of reply submissions asserting that there is no proper basis for this claim, and that it was not the subject-matter of cross-examination. However, as a matter of fact, Hei was cross-examined by Ms Leung as to Hei’s keeping of the rental income from Unit 8C since Mother’s death. Hei confirmed that he received all of that rental income. Further, it has all along been Tak’s case that he is entitled to an account for rental income in relation to Unit 8C, and Ms Leung made her case clear throughout that the counterclaim would be pursued to the limited extent above even if the 2014 Agreement was not set aside. I am unable to see any unfairness arising from the pursuit of this aspect of the counterclaim, and there was no clear articulation of any defence to this aspect of the counterclaim. I find that Tak’s counterclaim to be established with respect to the 40% share of rental income derived from Unit 8C that Hei received prior to 2015. The counterclaim is quantified at HK$216,240.

C6. Conclusion and Orders

90.  I have found that Hei’s main claim has been established. I make the following declarations:

(1)  The 2014 Agreement is binding and enforceable;

(2)  Pursuant to the 2014 Agreement, the entitlement to the net proceeds of sale of the Third Street Property is: - (i) Chow Sui Hei as to 40%; (ii) Chow Sui Tak as to 30%; (iii) Chow Shui Chun, Chow Shui Kwai and Chow Shui Yuk Phoebe each as to 10%.

(3)  An order for specific performance of the 2014 Agreement that the Defendant shall distribute and take all necessary steps to cause the distribution of the net proceeds of sale of the Third Street Property in accordance with the 2014 Agreement.

91.  I have found that Tak’s counterclaim is partially established. I order that Hei must pay Tak HK$216,240. I dismiss the remainder of Tak’s counterclaim.

D1.  Overview of the 2018 Action

92.  This is an action for conversion in which Tak and Kam Yip seek damages arising from an alleged wrongful disposal of goods and chattels stored in Unit 12D which occurred between 23 to 27 March 2018. As a matter of timing, the disposal took place after the 2017 Action was commenced on 19 December 2017. Hei also has a counterclaim seeking to recover removal costs in the sum of HK$187,000.

93.  There is no dispute that Hei instructed True One Design & Decoration Co. Ltd. (“True One”), as contractor, to dispose of the goods. As such, there is no dispute over his responsibility for the disposal. On liability, the main defence raised is that Tak had abandoned ownership of the relevant goods and chattels by the time of the disposal. If liability is established, there is an issue as to whether the Plaintiffs have proven loss and damage. On quantum, the damages sought by the Plaintiffs are HK$13,111,160.

D2.  Background Facts of the 2018 Action

94.  On 29 September 2001, Tak and Hei purchased Units 12CD as tenants in common. Prior to their breakdown in relationship, Tak and Hei used Units 12CD to operate Kam Yip and Circuit Trading. Tak and Kam Yip carried on the business of wholesaling and retailing carpets and floor mats, and related cleansing products, while Hei and Circuit Trading were in the business of trading stainless steel and other metal hardware.

95.  The partition wall between the two units were, at the time, demolished such that the units were not physically separated. It is common ground that by 2017 all parties were in occupation of Units 12CD in some way, and each camp had goods and chattels located inside without any differentiation as to which unit they were in. There were a large number of metal racks which were used to store various chattels, including large rolls of floor mats and carpet material. There was photo and video evidence of the physical state of Units 12CD both before and after the disposal, which was reviewed during trial.

96.  The genesis of this dispute was in late 2017, at around the time of the sale of the Third Street Property. By this time, the relationship between the brothers had soured, and they instructed solicitors who corresponded on matters relating to Units 12 CD.

97.  Lam & Lai (“L&L”) represented Hei, and Henry Fok & Company (“HFC”) represented Tak.[20] Between 2 November and 11 December 2017, L&L and HFC exchanged correspondence on a proposed exchange of ownership of Units 12CD. The intention was to convert the tenancy in common into two units with separate legal ownership. In connection with that, a partition wall would be constructed to separate the two units after the exchange, and that separate electricity and water meters for each unit would be installed.

98.  In a letter dated 9 November 2017, HFC stated that Hei should dispose of the floor mats in Units 12CD which were said to have been stored there for over 10 years. It is unclear to me which precise floor mats are being referred to. In any case, as recorded in L&L’s letter dated 21 November 2017, the parties left this issue to be dealt with on another occasion, presumably to avoid it becoming an obstacle to the proposed exchange and the preparation of legal documents for that purpose.

99.  Eventually, on 30 January 2018, Hei and Tak executed an agreement and deed of exchange. The result was that Tak became the sole owner of Unit 12C and Hei became the sole owner of Unit 12D. Under the agreement of exchange, both parties were required to deliver vacant possession of the respective units by 30 January 2018.

100.  The issue of the chattels inside the units was revisited in later solicitor’s correspondence. Between 31 January 2018 to 22 March 2018, there were letters exchanged on the logistics arising from the splitting of the two units. Some of the essential points are set out below: -

(1)  On 31 January 2018, L&L requested that the goods in Unit 12D belonging to Tak should be removed within three working days failing which Hei would dispose of the same.

(2)  On 1 March 2018, L&L stated that although some of Tak’s goods had been removed from Unit 12D, it remained unusable because of the existence of the remaining goods, and more importantly, the existence of numerous metal racks in Unit 12D. Tak was asked whether he would remove the racks from Unit 12D, and if not, whether he agreed to pay for their disposal.

(3)  On the same day, HFC replied to request that Hei remove his goods from Unit 12C by 9 March 2018, and said that the costs of removing the metal racks be shared equally between Hei and Tak. This letter also mentioned that the parties had previously agreed to move their respective chattels, inventory, furniture and belongings to their respective units between 26 February and 2 March 2018.

(4)  On 6 March 2018, L&L refused the request to share the costs of removing the metal racks, but asked whether Tak would agree to their removal without claiming for any loss and damage arising as a result. Tak was informed that the racks were of a large volume, and that their complete demolition and disposal would require about two weeks, involving the use of 15 to 20 skips (環保斗). The estimated costs were about HK$97,500 to HK$130,000.

(5)  On 8 March 2018, HFC repeated Tak’s request that Hei should move his goods from Unit 12C. HFC disagreed that Tak should be solely liable for the demolition and removal of the metal racks and raised queries on the overall cost.

(6)  On 9 March 2018, L&L requested an answer to the question whether Tak agreed to the demolition of the metal racks and that he will not claim for any losses or liability arising as a result.

(7)  On 14 March 2018, True One started demolishing the metal racks in Unit 12D on Hei’s instructions.

(8)  On 21 March 2018, L&L stated that Hei’s contractor demolished most of the racks in Unit 12D. It was claimed, however, as some of the goods had not been moved that it was impossible to further demolish the remaining metal racks.

101.  Paragraph 4 of L&L’s letter of 21 March 2018 is set out in full because Hei relies on it to prove an abandonment of ownership: -

“4. Please kindly write to us to confirm your client’s resumption of the removal of his goods and chattels from Unit D and please also kindly ask your client to actually resume the removal of his goods and chattels from Unit D. Please be inform [sic] that if by 3:00pm of 22 March 2018 we do not see both your letter of confirmation and your client’s actual resumption of the removal of his goods and chattels from Unit D to Unit C, our client shall take your client’s conduct as a confirmation of his abandonment of all ownership, right and interest of all the goods chattels whatsoever inside Unit D. Our client will proceed on that basis and instruct contractor to remove and dispose of all such goods and chattels and proceed to claim against your client for the relevant costs and expenses. Upon the removal and disposal of such good [sic] and chattels in due course our client will also move his goods and chattels from Unit C to Unit D when sufficient room has been made in Unit D for such purpose.” (emphasis added).

102.  On 21 March 2018, HFC responded repeating the allegation that Hei still continued to occupy Unit 12C with his goods. The confirmation requested by L&L’s letter was not provided by HFC. HFC requested an inventory list of the items that were said to belong to Tak, which L&L rejected on 22 March 2018. L&L pointed out the request was unusual since the goods belonged to Tak, and stated that Tak is allowed to enter Unit 12D to remove the goods, and allowed to prepare the list himself.

103.  On 23 March 2018, True One started disposing the goods and chattels in Unit 12D on Hei’s instructions. On 26 March 2018, HFC wrote to object to the disposal and alleged that Hei wrongfully misappropriated Tak’s goods. This was said to include 500 pieces of 4-feet and 6-feet water absorbing mats, 70 rolls of PVC mats, $400,000 worth of brand-new machines, and machine components and parts. The total value of these items was said to be HK$5,000,000, and a request for compensation was made.

104.  By 27 March 2018, the various goods and chattels and metal racks located in Unit 12D had been demolished by True One’s workers and removed. There is photographic evidence of boxes and large quantities of floor mat rolls loaded onto skips for disposal. There were also five receipts issued by recycling companies between 23 to 27 March 2018 showing that a net weight of 920kg, 520kg, 1950kg, 2020kg and 1810kg of ‘garbage’ had been deposited with them.

105.  On 28 March 2018, L&L relied on the lack of the requested confirmation by HFC before the deadline of 3pm of 22 March 2018 to suggest that Tak had confirmed his abandonment of his interest in all goods and chattels inside Unit 12D.

106.  From the above, it is clear that parties were in dispute over the logistics of moving their respective goods. Instead of putting their heads together and co-operating, the brothers were pointing fingers at each other and complaining that one side should move their goods first. It is not my function to adjudicate on whose side was right in that dispute, but it does provide the factual context leading up to the disposal. There was also a dispute over whether the costs of removing the metal racks in Unit 12D should be solely borne by Tak, or shared equally by the parties. In the lead up to 21 March 2018, it appears that Hei became frustrated by the lack of any meaningful progress and instructed his solicitors to impose the unilateral deadline of 3pm of 22 March 2018.

107.  Importantly, in my view, there was never any express abandonment by Tak in the documentary evidence over his interest in the goods in Unit 12D. Moreover, there is sufficient evidence in the form of photographs and the receipts issued by the recycling companies to show that a substantial amount of goods and chattels were disposed of by True One, and it is not in dispute that these came from Unit 12D.

D3.  Witness Evidence

108.  In contrast with the 2017 Action, the resolution of this dispute turns less on the credibility of witnesses given that much of the relevant facts can be ascertained from the contemporaneous documents, or is incapable of dispute. The Court also been provided with various photographs and video evidence as well. I have not lost sight of my findings on Tak’s credibility in the 2017 Action, but it is important to bear in mind that relevant evidence and issues in dispute in the 2018 Action are different.

109.  For the Plaintiffs in the 2018 Action, I heard evidence from Tak and Mr Kwok Siu Chung (“Kwok”).

(1)  Tak gave evidence on the relevant background facts and events leading up to the disposal. In this regard, I find that his account is largely consistent with the undisputed facts and the documentary evidence. Therefore, I am able to place some reliance on his evidence despite my findings of adverse credibility against him in the 2017 Action. In particular, I am prepared to accept his evidence that he protested with Tang that the metal racks and the objects stored on them should not be interfered with pending the parties reaching a consensus on the issue. I deal with his evidence on loss and damage separately.

(2)  Kwok was a Kam Yip employee and Tak was his boss. He gave evidence in a straightforward manner. I accept Kwok’s account of what transpired. I also accept his evidence on his routine working arrangement where he and Tak would normally go to Macau for Thursdays and Fridays each week. Since 22 March 2018 was a Thursday, they were in Macau and Kam Yip had no left in Units 12CD. I also accept Kwok’s evidence that he was approached by Tang to ask which stock were best-sellers and more valuable. I accept his evidence that he informed Tang which goods were more valuable, and that some old-fashioned carpets were in less demand.

110.  For the Defendants in the 2018 Action, I heard evidence from Hei, Tang and Mr Yau Shun Wing (“Yau”).

(1)  Hei gave evidence on the background leading to the dispute, and his reasons for acting the way he did. A large part of his evidence consisted of references to the documentary evidence, and as such, his testimony did not add much value. He was cross-examined on other alternatives to an outright disposal of the goods, and I was not satisfied by his explanation. I am not able to place meaningful reliance on Hei’s personal knowledge of the actual events relating to the disposal since he was not personally present.

(2)  Tang gave a brief witness statement. He explained that he spent time working in Unit 12C since 2007, and that he did not look in detail as to what was stored in Unit 12D. He observed that some stacks and rolls of carpets were stored in Unit 12D for a long time. Though he gave evidence in a straightforward manner, my impression that his recollection of events was fairly vague. For this reason, and though I do not believe that he was a dishonest witness, I am not able to place much reliance on his evidence.

(3)  Yau was a manager of True One. True One was the contractor engaged to perform the reinstatement and removal works. In general, his testimony was clear and satisfactory and supported by the relevant documents. However, there were some inherent limitations to his evidence due to the fact that he actually only attended the premises on 24 January and 16 March 2018. The relevant work done for the disposal was done by his workers who did not testify. That said, Yau did produce in evidence various photographs sent to him by his workers. I am prepared to accept his evidence, except insofar as it relates to his view that the goods located on the metal racks which did not have A4 pieces of paper affixed to them could be freely disposed of.

E1.  The Claim in Conversion

111.  Conversion consists of 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: Man’s (Asia) Development Ltd v Fung Chi Kin (HCA 1279/2013, 24 March 2017) at [34] per A Chan J, citing Danckwerts LJ in Moorgate Mercantile Co Ltd v Finch [1962] 1 QB 701, 706.

112.  Lord Nicholls described the tort of conversion in Kuwait Airways Corp v Iraqi Airways Co (Nos 4 & 5) [2002] AC 883 at [39] as follows:

“Conversion of goods can occur in so many different circumstances that framing a precise definition of universal application is well-nigh impossible. In general, the basic features of the tort are threefold. First, the defendant's conduct was inconsistent with the rights of the owner (or other person entitled to possession). Second, the conduct was deliberate, and not accidental. Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods. The contrast is with lesser acts of interference. If these cause damage they may give rise to claims for trespass or in negligence, but they do not constitute conversion.”

113.  A person has title to sue in conversion if he had, at the time of conversion, either actual possession or the immediate right to possess, the property concerned. It is not necessary to prove ownership, and indeed an owner may not sue unless he either possesses or has the immediate right to possess. If a claimant proves that he has been once in possession, and the defendant cannot show that he has a better title, the claimant will normally succeed: Clerk and Lindsell on Torts (24^th ed) at §16-43 & §16-47. A claim under conversion may be made even where the plaintiff has the right of possession but not the actual possession of the chattel at the time of interference: Tort Law and Practice in Hong Kong (3^rd ed) at §7.011.

114.  In my judgment, it is clear that Tak enjoyed an immediate right of possession over the 12D Chattels,[21] and Hei recognised this. This is why Hei, through his solicitors, went to great lengths in correspondence to request the removal of the 12D Chattels from Unit 12D. After all, it is Hei’s own case that Tak acquired them over many years. Moreover, there was no credible suggestion by Hei that anyone else, apart from Tak, had an immediate right of possession over them. I do not think anything turns on the point that there are two plaintiffs in this action. As submitted by Ms Leung, Hei and Circuit Trading admitted in their pleadings that Kam Yip is the corporate vehicle and alter ego of Tak who through Kam Yip operated his business dealings. I accept Ms Leung’s submission that there is no difficulty in finding that Tak allowed his alter ego, Kam Yip, to have possession and the immediate right to possess the 12D Chattels. In this regard, it was Hei and Circuit Trading’s own pleaded case that the 12D Chattels were “objects left by Tak and/or Kam Yip in Unit 12D”. This, to my mind, supports the suggestion that no real differentiation should be drawn between Tak and Kam Yip insofar as the title to sue in conversion is concerned.

115.  As far as ownership is concerned, Tak gave evidence that he owned 90% of the 12D Chattels whereas Kam Yip owned 10% of them. It is unnecessary to make a finding on this issue. It seems to me that what is important is my finding that both Tak and Kam Yip had an immediate right of possession over the 12D Chattels. As set out above, it is not necessary to prove ownership in order for a person to have title to sue in conversion. However, irrespective of the precise division between them, I am prepared to accept that the goods and chattels disposed of were owned by either Tak or Kam Yip.

116.  Ms Lan argued that the Plaintiffs’ claim in conversion must fail given that Hei became the sole owner of Unit 12D on 30 January 2018, and therefore had actual possession of all the items left in Unit 12D. I do not accept this argument. It was never Hei’s case that 12D Chattels were his property and he could dispose of them as he pleased. The argument also fails to focus on the immediate right to possession over the 12D Chattels, which I found to belong to Tak and Kam Yip, and it is also inconsistent with the requests made by Hei’s solicitors demanding that Tak remove the 12D Chattels.

117.  Ms Lan cited a series of cases starting with Cumberland Consolidated Holdings Limited v Ireland [1946] KB 264 dealing with the situation where a previous owner or occupier leaves chattels behind in breach of his obligation to deliver vacant possession. It was submitted these cases show that the new owner, with a right to vacant possession, is ‘almost invariably’ not liable in conversion for disposing of the chattels.[22] I firmly reject this submission. I am unable to see how the cases referred to by Ms Lan support the sweeping proposition for which it is cited.

118.  To start with, Cumberland is not a conversion case. It stands for the proposition that the obligation to deliver vacant possession requires the plaintiff to hand over the relevant part of the property in such a state that there would not be physical impediment to the defendant’s enjoyment of its use and occupation (Strong Beauty Ltd v Gain Legend Industries Ltd [2008] 1 HKLRD 570 at [22] per Recorder Ambrose Ho SC).

119.  Robot Arenas Limited v Simon Waterfield [2010] EWHC 115 (QB) was another case cited by Ms Lan, but relevantly at [19] Judge Edelman QC held as follows:

“If goods are abandoned on the land of a property owner, the property owner is entitled to dispose of them. If the goods have not in fact been abandoned by the true owner, the result is that the person on whose property the goods are found is in fact a possessor of someone else's goods. It does not seem to me that, in principle, the approach to the liability of a possessor of goods in such circumstances ought to be any different from that of a possessor in a situation such as that which arose in AVX v. EGM Solders. On that basis, the possessor's liability for conversion by destruction should be conditional upon his failure to establish that he was not aware and should not reasonably have become aware of the true ownership of the goods when he committed the act of destruction”.

120.  Accordingly, the possessor’s liability in conversion for destruction of goods may arise where he fails to establish that he was not aware, and should not have reasonably been aware, of the true ownership of the goods.[23] But, on our facts, Hei knew that Tak and Kam Yip had ownership and possessory rights over the 12D Chattels. This is not a case where Hei was under any doubt as to whether the chattels might or might not belong to someone else. He knew that they did. Moreover, as I will discuss in the section below, this is also not a case where Hei was reasonably entitled to treat the goods as abandoned either.

121.  In conclusion, I do not consider that there is any proposition that a new owner is ‘almost invariably’ not liable in conversion for the disposal or destruction of goods left behind by an old owner or occupant in breach of a requirement to deliver vacant possession. This is especially the case where the new owner knows that the goods belong to someone else, and has no reasonable grounds to believe that they have been abandoned.

122.  Applying the above principles, and subject to the defence of abandonment, I find that the disposal of the goods and chattels inside Unit 12D on Hei’s instructions amounted to conversion. The act of disposal is a clear example of an interference with the ownership and possessory rights which Tak and Kam Yip had over the goods. In circumstances where Hei knew that the goods belonged to them, I do not think Hei’s reliance on his entitlement to vacant possession of Unit 12D amounts to a valid defence to the tort of conversion either.

E2.  Abandonment

123.  Abandonment is a defence to conversion provided that a party entitled to do so has renounced possession and the immediate right to possession of the chattels in question. Clear evidence is required both of an intention to abandon and of some physical act of relinquishment. A mere belief, even if reasonably held, that abandonment has taken place does not suffice: see Palmer on Bailment (3^rd ed) at §26-030, cited with approval in Robot Arenas Ltd v Waterfield [2010] EWHC 115 at [14].

124.  Precision is required in terms of pleading and in the identification of the relevant date and conduct which is said to amount to an abandonment of goods. It is for the party asserting abandonment to plead it as a defence, with particulars such as the date from which the owner allegedly abandoned the goods, and by what conduct. This allows proper focus on the particular date and conduct pleaded: Man’s (Asia) Development Ltd v Fung Chi Kin [2018] HKCA 239 at [25] per Yuen JA.

125.  On the issue of the burden of proving abandonment, in Biel Crystal (HK) Manufactory Ltd v U-Borne Environment Ltd [2021] HKCFI 2097, Q Au-Yeung J held as follows at [61]:

“However, abandonment requires evidence. In Robot Arenas Ltd v Waterfield [2010] EWHC 115 (QB), at §88, Edelman QC, it was held that once the claimant has proved its ownership of the equipment, the burden of proving abandonment as a defence to a claim in conversion must be on the defendants and, in that case, the defendants have not discharged the burden of proving on the balance of probabilities that the claimant had the necessary subjective intent to abandon whatever remained in the object.”

126.  The mere fact that a party who is required to deliver vacant possession of a property leaves chattels there does not entitle the party taking possession to dispose of the chattels left behind without giving a reasonable chance for them to be retrieved: Wong Shuen Shuen Susan v Chan Chak Kau [2019] HKCFI 832 at [203] per DHCJ Kent Yee.

127.  The principal case of abandonment advanced by Hei rested on the failure of Tak’s solicitors to provide a confirmation by the unilaterally imposed deadline of 3pm on 22 March 2018. Tak’s side was given one day to respond. Hei’s case on abandonment is riddled with difficulty, and I reject it. I say this for a number of reasons.

128.  First, as a matter of general law, silence is usually not equivalent to acceptance. I do not think the failure to respond in time amounted to clear evidence an intention to abandon. Second, the deadline imposed was unreasonably short, and it appears to me that Hei had already made up his mind to proceed with the removal. Third, there was no physical act of relinquishment on Tak’s part. Fourth, Tak’s solicitors promptly objected to the disposal of the goods which undermines the suggestion that there was an intention to abandon. Fifth, even if Hei subjectively believed that the goods were abandoned, I find that the belief was not justified. In any event, that belief is irrelevant because the test of abandonment is an objective one.

129.  I have taken into account the exchange of correspondence between the solicitors on the issue of the disposal of the metal racks and the goods from Unit 12D. To some extent, I agree that Tak’s solicitors could have addressed the issue of the goods more directly. However, when viewing L&L’s letter of 21 March 2018 in the wider context of the correspondence and looking at the matter objectively, I do not think there is an intention to abandon the goods has been established by clear evidence.

130.  In my view, there were obvious less drastic alternatives open to Hei instead of disposing the goods and chattels. He could have applied for a mandatory injunction for the removal of the goods from Unit 12D relying on trespass to land. He could have sued Tak for failing to deliver vacant possession. He could have arranged the goods to be placed at a separate location while suing Tak for the costs associated with the removal, transportation and storage of the goods. Instead, Hei took the extreme step of arranging for the outright disposal of the goods on the basis that a unilateral and unreasonably short deadline was not complied with. In my judgment, this might have been a result of the sense of frustration which Hei had with his brother, but I do not think this justifies the drastic conduct which occurred.

131.  There was also a secondary case of abandonment. This was based on Yau’s evidence that his workers were informed on 20 March 2018 by Kam Yip’s staff which items were to be kept. There were a number of metal racks marked by affixing an A4 piece of paper on them, but there were other metal racks that were not marked. Yau produced five photos and a short WhatsApp video showing some racks with A4 paper affixed. In essence, Hei’s case is that the goods on metal racks without the A4 paper were abandoned by Tak. I am unable to accept that this amounted to abandonment. Most fundamentally, this case is inconsistent with the contemporaneous solicitor’s correspondence. This was never mentioned in L&L’s letter of 21 March 2018 or 28 March 2018. If there was a clear agreement on Tak’s side that the goods on metal racks without A4 paper affixed were abandoned, one would have expected that to feature prominently in the correspondence. Moreover, I am unable to conclude from Yau’s evidence that there was an intention to abandon the goods on the metal racks without the A4 paper. Yau was not present at Unit 12CD on 20 March 2018, and it was only his workers who reported the situation to him. None of the workers testified at trial. I do not have direct evidence as to what agreement was allegedly reached at the material time, and it suffices for me to find that the evidence that I have received is insufficient to amount to clear evidence of an intention to abandon. It seems to me that the evidence is at best equivocal.

132.  For the reasons stated above, and having regard to the applicable legal principles, I reject the defence of abandonment. I next turn to the issue of loss and damages, and the extent to which they have been proved.

E3.  Loss and Damages

133.  The general rule is that a claimant whose property has been wrongfully and irreversibly converted has a right in him to claim damages for conversion that are measured by the value of the property as at the date of conversion: Tort Law and Practice in Hong Kong (3^rd ed) at §7-097.

134.  The aim of the law in respect of the wrongful interference with goods is to provide a just remedy. Normally, the measure of damages is the market value of the goods at the time of expropriation. This is the case because generally this measure represents the amount of basic loss suffered by the plaintiff owner: Kuwait Airways Corp at [67].

135.  If there is a market price, the value of the goods is to be taken as that market price at the relevant time. If there is no market, the value of the goods to the claimant must be determined by any available evidence, such as the price at which the goods have been bought, or sold under a sub-contract. In a suitable case, replacement cost may be some guide as to value: Clerk & Lindsell on Torts (24^th ed) at §16-100.

136.  Where no evidence has been called to prove the quantum of loss suffered, the claimant cannot recover anything other than nominal damages. However, there is an important distinction between a case where no evidence of loss has been adduced, and one where some evidence of loss exists but evidential corroboration of the quantum of loss is not presented or is limited. The task of the court in assessing loss was described in the following terms by Yuen JA in Man’s (Asia) Development Ltd v Fung Chi Kin [2018] HKCA 239 at [29.2]: -

“Where however the court accepts that loss has been suffered due to the wrongdoer's act and some evidence of the loss has been adduced, but corroboration (e.g. by way of documentary evidence such as financial statements, tax returns, quotations for supply of replacement goods, etc) of such evidence is not presented, or e.g. due to the nature of the loss, there is difficulty assessing the loss, then it is for the court, taking into account all the circumstances, to estimate the damages "as best it can".”

137.  Given that all the goods have been disposed of, and there was no inventory list available, Ms Leung placed significant reliance on the maxim omnia praesumuntur contra spoliatorem (“all things are presumed against the wrongdoer”). In Armory v Delamirie (1722) 1 Strange 506, a chimney sweep’s boy found a jewel and took it to a shop find out what it was worth. The apprentice told the boy that the jewel was only worth three halfpence and decided that he wanted the jewel back. The apprentice refused to return the jewel. The court instructed the jury to award damages which, in the absence of the actual jewel, was equal to the worth of similar jewel of the finest quality. The burden of proving that the worth of the jewel was other than that of the finest type was shifted to the defendant, who was afforded the opportunity to produce it. Armory is known as the locus classicus of the maxim.

138.  The maxim was examined in more detail by the Court of Appeal in Hongkong and Shanghai Banking Corporation v Chan Yiu-wah [1988] 1 HKLR 457 in a conversion case. This was a case where the bank was presented with a $1,000 banknote issued by it which, instead of being the usual gold colour, was brown. The respondents wished to sell the banknote as a collector’s item and took it to the bank for verification. The banknote was found to be genuine, but the bank destroyed the note and offered to replace it with an ordinary $1,000 banknote. The respondents sued in conversion contending that it was ‘genuine error note’ which was of substantial value. The respondents relied on the maxim in Armory v Delamirie to contend that a party who destroys evidence may be required to prove what it asserts, and that the bank had not proved that the banknote was not a ‘genuine error note’.

139.  Fuad JA held that the application of the ‘full rigour’ of the maxim is precluded where there is no indication that a party has, intentionally and in bad faith, destroyed (or refused to produce) the subject matter in question.[24] Similarly, Hunter JA stated that the maxim operates at two different levels. At the highest level, where there is evidence suggesting deliberate destruction, all is presumed against the spoliator and the presumption may be ‘virtually irrebuttable’.[25]

140.  On the facts, it is important that to note the bank did not destroy the banknote in bad faith. Fuad JA took the view that the maxim can be applied in a ‘much less rigorous manner’ even when the subject matter has not been destroyed in bad faith.[26] Kempster JA stated that the maxim could loosely be regarded both as an aspect of the more general proposition that a party should not be allowed to gain an advantage from his own wrong and an admonition to judges to use their common sense when considering their approach to a party's destruction of or failure to produce a document or record which might materially assist his opponent in the proof of his case.[27] Hunter JA concluded that in a case which did not involve deliberate destruction, that a ‘lower level of application’ of the maxim would be involved which gives rise to an inference which transfers the evidential burden of proof upon the very matter rendered uncertain by the destruction.[28]

141.  More recently, in Blendoran Limited v Appeal Tribunal (Buildings) (CACV 196/2016, 20 October 2017), Kwan JA described the ‘less rigorous’ effect of the maxim at [56] as follows:

“In the situation of an innocent destruction, which may have a tortious basis, the maxim would be applied in a much less rigorous manner. At this lower level, there arises not so much a presumption (a presumption from deliberate destruction may be virtually irrebuttable as all is presumed against the spoliator) but an inference which transfers the evidential burden of proof upon the very matter rendered uncertain by the destruction”.

142.  The issue which arises in the present case is that there is no sufficiently precise evidence to identify what exactly were the goods and chattels located in Unit 12D which were disposed from 23 March 2018 onwards.

143.  There was photographic and video evidence before the court, including photographs which show a significant amount of goods being loaded onto the skips for disposal. These included numerous rolls of floor mats or carpets which came from Unit 12D. There were also receipts issued by the recycling companies as well. Viewed broadly, this is clear evidence to demonstrate substantial amount of goods was, as a matter of fact, disposed on Hei’s instructions. However, it is not possible to make any finding as to precisely what, or how much, was disposed from evidence of this nature alone.

144.  Tak did not have an existing inventory list setting out the goods and chattels which were located in Unit 12D at the time. He was fair in admitting this in cross-examination and I make it clear that I do not attach any blame on him for that. These were, essentially, his goods and it was a matter for him whether he kept updated records or not. He was entitled to assume that the goods in Unit 12D would not simply be disposed of without his consent. Since the goods were all disposed of on Hei’s instructions, and given their vast amount, I accept that it would be difficult, if not impossible, for Tak to prepare a precise inventory list after the disposal. In this sense, the evidential difficulty in the case in conversion is caused by the wrongful act of disposal itself.

145.  Tak explained in his evidence that in view of the huge quantity of goods that were disposed that he spent a considerable amount of time and energy in compiling a detailed list which set out, as far as possible, the characteristics, nature, serial number, quantity and estimated amount of goods lost.[29] Tak prepared a 14 page table setting out the colour, size, model, quantity, market price and approximate storage location of each item (“the Schedule”). The majority of the goods listed in the Schedule were floor mats of various types and descriptions. The total market price set out in the Schedule was HK$13,111,160. Various market comparables were used to justify the market prices. Having heard his evidence, I am prepared to accept that the Schedule was a document prepared by Tak in good faith and to the best of his recollection to set out the particulars. He was, in my view, candid in accepting that the Schedule was an ‘approximation’ and did contain some inaccuracies.

146.  Ms Lan relied on discrepancies between the Schedule and a stock list prepared in 1999.[30] I was not impressed by this submission. It was never Tak’s case that the goods in Unit 12D were identical to those in 1999, and his evidence was that goods were brought in and out of Unit 12D over the years as goods were sold and purchased. Ms Leung was correct, in my view, in her submission that the relevant question is the stock position as at March 2018 and that the discrepancy was irrelevant.

147.  Ms Lan was more justified in her reliance on Tak’s admission that his sketch plan of Unit 12D was inaccurate and depicted more metal racks than actually present on site. The sketch plan attempted to show the location of various goods on listed in the Schedule within the racks in the unit. Although I am unable to conclude that this was a deliberate exaggeration by Tak, it does reinforce the point that the Schedule was only an approximation on his part.

148.  On behalf of Tak, Ms Leung submitted that, applying the maxim in Armory v Delamirie that the goods were disposed by Hei in bad faith, and therefore, all must be presumed against the tortfeasor. So, the argument runs, it was incumbent upon Hei to disprove the market value of the goods set out in the Schedule. I am unable to accept this submission. There are two main reasons for this. First, although I agree the goods were wrongly disposed of on Hei’s instructions, and that the tort of conversion has been established, I have reservations as to whether this amounts to ‘bad faith’ as described in Hongkong and Shanghai Banking Corporation v Chan Yiu-wah. This is not a case which involved, for example, the deliberate destruction of evidence or the withholding of a precious jewel – where one can readily see the rationale for the maxim to be applied in its full force. In other words, the disposal of the goods was not done for the purpose of making it impossible for the goods to be valued. Second, this is not a case where the only evidence of market value are the goods themselves.[31] To borrow the words of Yuen JA in Man’s Asia, evidence of loss could be produced by way of corroboration in the form of documentary evidence. The best evidence of market value would, in my view, be invoices and receipts showing the price at which some of the floor mats were sold to third parties. However, in the present case, there was no such evidence produced by Tak. To my mind, that is a significant factor against the approach advocated by Ms Leung.

149.  Taking all the strands together, and in view of my findings, I am certain that there was at least a significant amount of goods that were listed in the Schedule that were wrongfully disposed of on Hei’s instructions. However, I am uncertain as to the precise type and quantity of goods that were disposed, but this uncertainty was caused by the wrongful disposal itself (Blendoran at [56). Accordingly, I agree that Hei does carry an evidential burden to prove that the goods disposed of were not of the type and quality claimed by Tak. In this sense, the tortfeasor should not be entitled to take advantage of his own wrong.

150.  Although there were attempts by Ms Lan to challenge specific entries in the Schedule, there was no positive evidence from Hei to challenge the Schedule as a whole. No doubt, Ms Lan was unable to do so because the goods had all been disposed of by her client. At the same time, I cannot ignore the fact that the Schedule was an ‘approximation’ and that Tak admitted that there were inaccuracies contained in it.

151.  In my mind, the market value of the goods as listed in the Schedule stands on a different footing from their type and quantity. As I have mentioned above, it seems to me that there could have been corroborative evidence produced but even so I am satisfied that this is not a case where there was no evidence of loss being suffered adduced by Tak.

152.  In my view, this is a case where there has been some evidence of loss adduced, but there is difficulty in assessing the actual quantum of loss suffered due to the lack of certainty arising from the fact that the goods were disposed of, and because the lack of corroborative evidence. The lack of any invoices or receipts is a matter which suggests that any market for the goods was limited, and it appears that at least some of the goods were stored in Unit 12D for many years already. However, after giving the matter careful consideration, I am unable to form the view that all of the goods disposed of was ‘rubbish’ (and therefore of nil value) because they were ‘old’ and stored in a place which was ‘messy’.

153.  I agree with Ms Leung that the mere fact that old goods are placed in a messy warehouse does not mean that the goods are worthless, but the likely age and state of storage of the goods are matters to be considered.

154.  The goods were, after all, not perishable goods and Hei did not call any evidence to suggest that there was simply no market for them. At the same time, I also take into account the fact that Tak could have, but did not, seek leave to file an expert opinion on the market value of the goods. In the particular circumstances of this case, it seems to me that the only way to assess damages is by way of applying a substantial discount to the amount claimed in the Schedule.

155.  Taking into account all the circumstances, the Court must estimate damages “as best it can” (Man’s Asia at [29.2]). Although I am satisfied that it would be too extreme to say that all of the goods were not of merchantable quality, and I do not think that Hei has demonstrated that on the evidence, I take the view that a very substantial discount (to borrow from Ms Leung’s submissions) should be applied to amount claimed by Tak. This is to reflect the fact that (i) the Schedule, though prepared in good faith, was admittedly only an approximation and may have overstated the quantity of stock in question; (ii) at least some portion of the goods disposed had been stored in Unit 12D for many years; (iii) the lack of any current invoices, contracts or receipts to demonstrate the current market value of the goods set out in the Schedule; and (iv) the lack of any expert evidence on market value being adduced. I record that Ms Lan had the opportunity to, but did not, address the issue of the appropriate discount to be applied. She insisted on her case of nil value. At the same time, I also record that Ms Leung suggested a ‘very substantial discount’ (without mentioning a specific percentage) could be applied if I did not accept her primary case on the application of the maxim in its full force. Viewing the evidence as a whole, and doing the best I can in light of the evidential constraints, I take the view that the amount to be allowed is 10% of the amount claimed - rounding the figure down, I find that the loss and damages proven are HK$1,300,000.

E4.  Hei’s Counterclaim

156.  I find that Hei is entitled to his counterclaim for HK$55,000 in relation to the costs incurred by him for the dismantling and removal of the metal racks in Unit 12D. This was, sensibly, not seriously contested by Ms Leung in closing submissions. I am not satisfied that Hei is entitled to the remaining sum of HK$132,000 incurred for moving ‘other things’ from Unit 12D. The sum of HK$55,000 should be set-off against Hei’s liability of HK$1,300,000 to Tak and Kam Yip in the conversion claim.

E5.  Conclusion

157.  For all the above reasons, I find that Hei is liable to pay Tak and Kam Yip the sum of HK$1,245,000. I enter judgment accordingly. I decline to enter judgment against Circuit Trading since I find that the relevant acts were performed by Hei in his capacity as owner of Unit 12D.

F.  Costs

158.  Costs are in the discretion of the court, and the starting point is that costs should follow the event. As I have alluded to, I take the view that both parties share responsibility for their failure to properly fix a proper trial length to accommodate both actions being heard together. To mark the disapproval of the court, I am of the provisional view that it is appropriate to deprive the winning party in each action 10% of its costs.

159.  In the 2017 Action, I make a costs order nisi that Tak pays 90% of the costs of these proceedings, including all costs reserved, to Hei, to be taxed if not agreed.

160.  In the 2018 Action, I make the following costs order nisi:

(1)  Hei pays 75% of the costs of these proceedings, including all costs reserved, to Tak and Kam Yip to be taxed if not agreed.

(2)  There be no order as costs between Circuit Trading, on the one hand, and Tak and Kam Yip, on the other.

161.  My provisional view in the 2018 Action is that there should a further reduction from 90% to 75% to reflect the fact that (i) Hei was partially successful in his counterclaim; and (ii) the damages awarded was substantially less than what Tak and Kam Yip sought in these proceedings. Provisionally, I also take the view that there should not be any costs order in favour of Circuit Trading since no significant costs were incurred by reason of its inclusion as a party. The proceedings would have been conducted in exactly the same way if had not been joined as a party.