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

HCCL 7/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 7 OF 2015

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J U D G M E N T

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Background

1.  This action is part of the litigation saga involving a diamond necklace with a Burmese sapphire pendant (“Necklace”) which is said to be a rare and “true treasure of nature”.

2.  Both the Plaintiff and the Defendant are Hong Kong companies.  The Plaintiff carries on a business of marketing high quality diamonds and emeralds. The Defendant is a manufacturer and trader of unique gems such as jade, sapphires, emeralds, rubies and other coloured stones.

3.  The chronology of events is not in dispute.  Mr Ohad Yaakov (“Yaakov”), sales manager of the Plaintiff, first saw the Necklace at the retail jewellery shop of Carrera Jewellery Limited (“Carrera”), with which the Plaintiff had a long standing business relationship.  Mr Kenneth Lin (“Lin”), who was a director and shareholder of Carrera, showed the Necklace to Yaakov during Yaakov’s visit to the shop, telling Yaakov that the sapphire pendant (“Sapphire”) was Burmese, unheated, and over 100 carats.  According to Yaakov, Lin told him that the price of the Necklace was HK$6.5 million, and asked whether Yaakov had any customer that might be interested in purchasing the Necklace.  Yaakov told Lin that he would bear the Necklace in mind.

4.  On 9 June 2015, Yaakov telephoned Patricia Pan (“Patricia”), a director of the Defendant.  Yaakov claims he had met Patricia at an industry trade show about one year before, and knew that the Defendant was in the business of dealing in special gemstones.  Yaakov told Patricia that he had recently seen “a 100-plus carat sapphire” that might be available for viewing. At Patricia’s request, Yaakov sent to Patricia at approximately 12:54 pm on 9 June 2015 a Whatsapp message with photographic images of the Necklace and of the report issued by the Swiss Gemmological Institute on 24 June 2014 (“SSEF Report”) in respect of the Necklace, which he had obtained from Carrera.

5.  About an hour later at 3:44 pm, Patricia inquired with Yaakov as to the price of the Sapphire.  Yaakov replied that it was around HK$7 million.  Some 5 hours later, at 8:12 pm, Yaakov received a Whatsapp message from Patricia, who invited him to visit the office of the Defendant the following day.

6.  On 10 June 2015, Yaakov and Patricia met at the office of the Defendant. They exchanged some background information on the respective businesses of the Plaintiff and of the Defendant.  Yaakov showed Patricia some merchandise that he had brought with him.  Patricia’s brother, Pan Jia Xong (“William”) who was another director of the Defendant, joined the meeting briefly.  At the end of the meeting which lasted around 20 to 25 minutes, Patricia asked if Yaakov could show her the Necklace.  There is common ground that the Defendant was given to understand during the meeting that the Plaintiff was not the owner of the Necklace. 

7.  In the light of the apparent interest displayed by Patricia, Yaakov thought that a deal could eventually be made and he arranged for the Necklace to be consigned from Carrera to the Plaintiff, in order to show the Necklace to Patricia for potential sale.  A meeting was arranged to take place at the Defendant’s office on 15 June 2015.

8.  On 15 June 2015, Yaakov brought the Necklace, the SSEF Report and a copy of a report issued by Gubelin Gem Lab dated 27 April 2011 (“Gubelin Report”) to the Defendant’s office, where he met with both Patricia and William.  Patricia told Yaakov she had potential customers for the Necklace, and asked for the Necklace to be consigned to the Defendant over the weekend.  Yaakov repeated the price of “around HK$7 million”.  William apparently inspected the Necklace with a magnifying glass and told Yaakov that the quality of the Sapphire and of the diamonds did not justify the asking price of HK$7 million for the Necklace.

9.  Later in the evening of 15 June, Yaakov received a message from Patricia who requested him to send the Sapphire pendant to her again.  They arranged for Yaakov to return to the Defendant’s office on 17 June 2015.

10.  After having conducted some credit check on the Defendant, Yaakov had further discussions with Patricia on 16 June 2015.  Patricia offered collateral in the form of gemstones in consideration for taking the Necklace on consignment.  It was eventually agreed that the Defendant would offer a cheque in the sum of HK$7 million as collateral, so that it could consign the Necklace from the Plaintiff, take the Necklace and show it to a potential buyer.

11.  On 17 June 2015, there was a further meeting at the Defendant’s office. Agreement was made for the Necklace to be consigned to the Defendant for the sum of US$923,000, (as evidenced by a Consignment Memo No 1705 (“Consignment Memo”)), which was roughly equivalent to HK$7.2 million.  The Defendant provided to the Plaintiff a cheque in the sum of HK$7 million (“Collateral Cheque”), and took delivery of the Necklace with the corresponding SSEF Report and the Gubelin Report.

12.  It is not disputed that on 19 June 2015, Patricia took a flight to Singapore, and showed the Necklace to a client, Benny Huen of Huen’s Diamond Pte Ltd (“Benny”).  According to Patricia’s evidence, Benny was an experienced trader, knowledgeable about sapphires, and who had been in the business for many years.  Patricia offered to sell the Necklace to Benny at the price of US$2 million.  Copies of the SSEF Report and the Gubelin Report had been sent to Benny before Patricia’s visit.  According to Patricia, no counter-offer was received from Benny, who considered that the asking price of US$2 million was too high.

13.  Patricia returned to Hong Kong on 21 June 2015.  On her evidence, she telephoned a client Margaret Cheung (“Margaret”) in the morning of 22 June, to ask if she had interest in viewing a necklace with sapphire.  They arranged to have dinner that evening at the Grand Hyatt Hotel, where Patricia showed Margaret the Necklace.  According to Patricia, Margaret looked at the Necklace, but did not say whether she would buy it on 22 June 2015.

14.  On 23 June 2015, Yaakov went to the Defendant’s office in the morning, and was told by Patricia that her customer was not interested in the Necklace. According to Yaakov, William told him that the Defendant might be interested in buying the Necklace for its own stock, and made an offer of HK$4.5 million.  Yaakov stated that that price was too low, and William increased the offer to HK$4.8 million.  After some negotiations, the parties agreed that the Necklace would remain with the Defendant on consignment, with the Plaintiff retaining the Collateral Cheque, and Yaakov indicated that he would continue to work on William’s offer.  According to Yaakov, William stated that he would only be interested in purchasing the Necklace if he could close the deal before the commencement of the Jewellery Show, due to start in Wanchai on 25 June 2015.

15.  On 24 June 2015, there was a brief meeting at the Defendant’s office at 11 am.  Yaakov had sent a message to Patricia before the meeting, saying that he had “pushed the price all night” with the owner of the Necklace.  After further negotiations, William raised the offer for the Necklace to HK$5,050,000.

16.  A further meeting took place at around 12 noon on the same day.  Yaakov brought his boss Lior Eshed (“Eshed”) to the Defendant’s office, where they met with William and Patricia.  It is not disputed that at this meeting, the Plaintiff and the Defendant reached agreement for the sale of the Necklace to the Defendant (“Transaction”) at the price of HK$5,050,000 (“Purchase Price”).  The Purchase Price was to be paid by an immediate initial payment of US$500,000, and a further sum of US$147,000 within 7 days.  The Collateral Cheque (for HK$7 million) and the Consignment Memo were returned to the Plaintiff.  An invoice (No 0729) was issued by the Plaintiff to the Defendant, for the Purchase Price.  The Defendant tendered 3 cheques for the total sum of US$500,000 by way of payment.

17.  On the same day, after the conclusion of the Transaction, Patricia telephoned Margaret, to ask if she was still interested in the Necklace.  According to Patricia, she made an opening offer to Margaret of HK$12 million for the Necklace, and Margaret said that she would only buy it at half the price.  Agreement was immediately made for the Defendant’s sale of the Necklace to Margaret at HK$6.1 million.

18.  Yaakov claims that it was only after he had left the meeting at the Defendant’s office on 24 June 2015, that he realized in the evening, at around 6 pm, that the consignment note of the Necklace from Carrera to the Plaintiff, dated 15 June 2015 (“Carrera Memo”) was in US currency, with the sum of US$6.2 million stated as the “unit price” or “net amount” of the Necklace.  After some discussions with Lin, Yaakov immediately telephoned Patricia to inform her of the US currency and asked to cancel the Transaction, and for the Necklace to be returned to the Plaintiff.  Patricia maintained that there was no mistake about the Purchase Price, that the Necklace had already been sold by the Defendant, and refused to cancel the deal, claiming that any mistake as to the Purchase Price was Yaakov’s, and not the Defendant’s.

19.  Further meetings and attempts to resolve the situation proved futile, and proceedings were commenced by the Plaintiff against the Defendant on 14 July 2015.  There are apparently separate proceedings between the Plaintiff and Carrera, as to whether the price agreed between Yaakov and Lin for the Necklace was in US, or HK, currency.

20.  According to the Statement of Claim filed in these proceedings, Carrera had consigned the Necklace to the Defendant in the amount of US$6.2 million, but this was mistaken by Yaakov to be HK$6.2 million, based on information which he had earlier been given by Lin, and that it was only at around 6 pm on 24 June 2015 that Yaakov discovered that the true Purchase Price of the Necklace should have been in US currency.  The Plaintiff accepts in the Statement of Claim that the mistake in the currency was a unilateral mistake of the Plaintiff.

21.  However, the Plaintiff avers that Margaret and William knew that the Plaintiff was mistaken as to the price of the Necklace from the outset, and at the latest by the time when the Plaintiff and the Defendant entered into the agreement for the Transaction on 24 June 2015 (“Agreement”).  The Plaintiff relies on the Defendant’s expertise and knowledge in sapphires, the Defendant being a trader of unique gemstones, its knowledge that the Plaintiff was only the consignee of the Necklace, its being in possession of the Necklace for about 6 days during which time the Defendant would have conducted its own inquiries on the true value of the Necklace, and the fact that the Defendant had pushed for a rushed sale on 24 June 2015.

22.  By way of relief, the Plaintiff claims an order to set aside the Transaction, the return of the Necklace, and damages for the Defendant’s wrongful interference with the Necklace.

23.  The Plaintiff does not accept that there was any genuine sale by the Defendant to Margaret, or any purchaser, at the price of HK$6.1 million as the Defendant alleges.  The Plaintiff claims that the Defendant had taken unfair advantage of Yaakov who had no genuine idea as to the real worth of the Necklace, and that the Defendant had purchased the Necklace from the Plaintiff for its own stock, in order to resell it at a huge profit, or to keep it for itself.

Applicable legal principles

24.  The Plaintiff relies on the fact that the Defendant was actually aware of, or ought to have known (Chitty on Contracts 32^nd Ed 2015, paras 3-022-023 and Redevco UK v WH Smith [2009] NIJB 299) the Plaintiff’s mistake, that such knowledge can be inferred from the surrounding circumstances, including the experience of the Defendant and what a reasonable person would have known in the Defendant’s position.  It contends that the effect of the Plaintiff’s mistake was a fundamental mistake as to the price and an essential term of the Agreement, such that the Agreement should be set aside as being void an initio.

25.  On the facts and evidence in this case, it is clear that the mistake as to the Purchase Price being HK$5.05 million was a unilateral mistake made by Yaakov and the Plaintiff, and only discovered by Yaakov at around 6 pm on 24 June 2015 (as pleaded in paragraph 10 of the Statement of Claim), after the Agreement was made.  For such unilateral mistake to have any effect on the Agreement, the law is clear.  A party to a contract is bound even though he may have made a mistake in entering into the contract, his real intention, understanding of or motive in making the contract being irrelevant to the question of whether a valid contract had come into effect.  The only exception is when the other party either knows (as in the case of Hartog v Colin & Shields [1939] 3 All ER 566) that the offer made was wrongly expressed, or cannot reasonably have supposed that the offer contained the offeror’s real intention.  As the court explained in Statoil ASA v Louis Dreyfus Energy Services LP [2008] 2 Lloyds Rep 685:

“The general rule at common law is that if one party has made a mistake as to the terms of the contract and that mistake is known to the other party, then the contract is not binding.  The reasoning is that although the parties appear, objectively, to have agreed terms, it is clear that they are not in agreement.  Therefore the normal rule of looking only at the objective agreement of the parties is displaced and the court admits evidence to show what each party subjectively intended to agree by way of terms.  If it is clear from such evidence that there was not consensus, then they can be no contract, because the parties have not truly agreed on the terms.  Some of the cases talk of such a contract being “void”, but I think it is clear to say that there was never a contract at all.

However, if one party has made a mistake about a fact on which he bases his decision to enter into the contract, but that fact does not form a term of the contract itself then, even if the other party knows that the first is mistaken as to this fact, the contract will be binding.”

26.  In the case of Chwee Kin Keong v Digilandmall.com Pte Ltd [2006] 1 LRC 37, the Singapore Court of Appeal highlighted the fact that the state of a person’s mind is a question of fact, and has to be proved like any other fact. At paragraph 41 of the judgment, Chao Hick Tin JA observed:

“As is so often alluded to in the cases, in the absence of an express admission or incontrovertible evidence, the fact of knowledge would invariably have to be inferred from all the surrounding circumstances, including the experiences and idiosyncrasies of the person and what a reasonable person would have known in a similar situation. If a court, upon weighing all the circumstances, thinks that the non-mistaken party is probably aware of the error made by the mistaken party, it is entitled to find, as a fact, that the former party has actual knowledge of the error. Following from that holding, the court should declare the contract so formed as void on the ground of unilateral mistake.

In order to enable the court to come to the conclusion that the non-mistaken party had actual knowledge of the mistake, the court would go through a process of reasoning where it may consider what a reasonable person, placed in the similar situation, would have known. In this connection, we would refer to what is called “Nelsonian knowledge”, namely, willful blindness or shutting one’s eyes to the obvious. Clearly, if the court finds that the non-mistaken party is guilty of willful blindness, it will in line with logic and reason hold that the party had actual knowledge.

This then gives rise to the question as to the circumstances under which a party should make an inquiry.  When should such a party make inquiries failing which he would be considered to be shutting his eyes to the obvious? We do not think this question is amenable to a clear definitive answer.  Situations in which such a question could arise are infinite.  But we could accept what Mance J said in OT Africa Line Ltd v Vickers plc [1996] 1 Lloyd’s Rep 700 at 703 that there must be a ‘real reason to suppose the existence of a mistake’.  What would constitute ‘real reason’ must again depend on the circumstances of each case.  Academicians may well query whether this should be based on an ‘objective’ or ‘subjective’ test.  At the end of the day, the court must approach it sensibly.  The court must be satisfied that the non-mistaken party is, in fact, privy to a ‘real reason’ that warrants the making of an inquiry.”

The mistake

27.  The mistake, made and discovered by Yaakov after the Transaction, was that the price or value of the Necklace as stated in the Carrera Memo was US$6.2 million, and that the price negotiated between Carrera and Yaakov before the Defendant’s conclusion of the Agreement and the Transaction with the Defendant should have been in the US currency.

28.  In paragraph 10 of the Statement of Claim, the Plaintiff pleads that “the currency, hence the true price of the Necklace, should have been in US dollars and not in HK dollars” and that “hence there was a mistake on the Plaintiff’s part”. 

29.  I accept that at the time when the Agreement was made between the Plaintiff and the Defendant, the Plaintiff (through Yaakov) was under a mistake as to an important term of the Agreement, namely the currency and the price of the Necklace being HK$5.05 million.  He genuinely but erroneously believed that the Purchase Price was and should be HK$5.05 million, on the basis of what he understood the price agreed with Carrera to be, in HK currency. 

Did the Defendant know of the Plaintiff’s mistake?

30.  Patricia and William of course deny that they had any knowledge of any mistake made by Yaakov.  According to them, it was clear that throughout, the discussions and negotiations on the price of the Necklace were made in HK currency.  They had no knowledge of the discussions between the Plaintiff and Carrera.  There was no doubt or error of expression as to the currency of the Purchase Price of the Necklace at any time when it was negotiated between Yaakov, Patricia and William.

31.  Even on Yaakov’s evidence, his Whatsapp message to Patricia on 9 June 2015 was that the price of the Necklace was “around 7 mil hk”.  The Consignment Memo evidencing the Plaintiff’s consignment of the Necklace to the Defendant on 17 June 2015 was for the sum of US$923,000, roughly equivalent to the value of HK$7 million agreed between the Plaintiff and the Defendant.  The Collateral Cheque accepted by the Plaintiff from the Defendant for the consignment was for HK$7 million.

32.  Objectively, there was no basis for any reasonable person in the position of the Defendant to reasonably suppose that the Purchase Price should not be in Hong Kong currency, or that the Purchase Price of HK$5.05 million, or even the offer price of HK$7 million, was a mistake.  So far as the expression of the offer or the terms was concerned, the facts of the present case are clearly distinguishable from Hartog v Colin & Shields [1939] 3 All ER 566, where the court was satisfied that the verbal and written negotiations between the parties had proceeded on the basis that the price was per piece, and not price per pound as mistakenly offered.

33.  Evidence which coorborrates Yaakov’s subjective intention and belief that the price and value of the Necklace was in HK currency was the fact that the Plaintiff’s insurance coverage was up to US$1 million (approximately HK$7.8 million), which was sufficient to cover the price of the Necklace quoted by Yaakov to the Defendant on 10 June 2015 (HK$6.5 million), and on the basis of which Eshed gave approval to Yaakov to consign the Necklace to the Defendant.  (This fact was not made known to the Defendant at the material time.)

34.  The Plaintiff relies on the fact that William and Patricia ran the operation of the Defendant as a well-established and specialist trading company dealing in unique and rare gemstones, and that William in particular holds himself out as a person qualified to examine and value sapphires.  Yaakov in comparison is inexperienced in the trade, and at most, it is claimed that his experience extends only to diamonds and emeralds.  The Plaintiff’s case is that from their experience, Patricia and William must have known, even before the Agreement was concluded on 24 June 2015, that the Necklace was a “treasure of nature” as described in the SSEF Report, and that Yaakov was mistaken as to the price of the Necklace being quoted to the Defendant and eventually agreed on 24 June 2015. 

35.  The SSEF Report is stated to be a report “on the authenticity” of the Sapphire, which was set in the Necklace as a pendant, with diamonds.  The weight of the Sapphire was stated to be 121.1 g, including its setting and diamonds.  It was octagonal in shape and described in the SSEF Report as “step cut”, measuring approximately 30.45 x 23.3 x 17.55 mm.  Its calculated weight was approximately 130 carats, and its color described as “blue of medium strong saturation”.  The “comments” stated in the SSEF Report were:

“The analyzed properties confirmed the authenticity of this transparent sapphire.

No indications of heating.

Origin: Burma (Myanmar)

The calculated weight is in accordance with the declared weight of 131.17 ct.”

36.  The SSEF Report appends a letter, which reads as follows:

“Exceptional Sapphire

The natural sapphire described in the Test Report No 75464 from the Swiss Gemmological Institute SSEF possesses extraordinary characteristics and merits special mention and appreciation.

The described sapphire is set in a very classical design in a necklace as a pendant together with colourless diamonds. The sapphire exhibits a highly impressive size and weight (131.17 ct declared weight), combined with a beautifully saturated blue colour and a very attractive octagonal cutting style.

The inclusions found by microscopic examination are the hallmarks of sapphires from the classical mines in Burma (Myanmar). Its saturated blue colour is due to a combination of well-balanced trace elements in the gemstone, typical and characteristic for the finest sapphires of Mogok, Burma.

In addition to these qualities, this sapphire has been spared exposure to heat treatment and its clarity and colour are thus all natural.

A natural sapphire from Burma of this size and quality is very rare and exceptional and can be considered a true treasure of nature.”

37.  The Gubelin Report sets out substantially the same description as to the shape, style and measurements of the Sapphire.  It describes it as “transparent”, and states its color to be “blue”.  Under “Comments”, the Gubelin Report states:

“No indications of heating (NTE).

Sapphires which have not been heated are scarce.”

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

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

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

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

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

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

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

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

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

47.  As Mr Whitehead SC submits on behalf of the Plaintiff, I accept that Patricia has not been totally forthright and direct in her evidence.  Her offer of the Necklace to Benny and her trip to Singapore were not mentioned in her witness statement at all.  Nor did her statement mention the dinner with Margaret on 24 June 2015, when the Necklace was first shown to her.  There are inconsistencies in the witness statements of William and Patricia, as to the potential buyers to whom Patricia had shown the Necklace.  The Defendant was a family business and I do not believe that William and Patricia would not let the other know of their dealings.  The evidence as to Margaret’s alleged payment for the Necklace, and how such payments were received (belatedly, and into the personal accounts of William and his father, and not the Defendant), are much too indirect for a simple sale and purchase of the Defendant’s merchandise, if there was indeed a sale as claimed.

48.  Nevertheless, the burden is on the Plaintiff to show that the Defendant had knowledge of the mistake in the Purchase Price, such that there was no true agreement on an essential term of the Agreement.  Even if I should accept the Plaintiff’s case, that the Defendant knew that the true value of the Necklace was US$2 million, as evidenced by Patricia’s offer of the Necklace to Benny at that price, I am unable to conclude that this constitutes evidence that the Defendant actually knew, or ought to have known, that the Purchase Price (of HK$5.05 million) was a mistake, and could not have been a true term of the Agreement.

49.  A reasonable purchaser in the situation of William and Patricia, with their knowledge, experience and expertise, might have taken the view that the Necklace with the Sapphire was worth more than HK$5.05 million, and that it could fetch a price on the market in the region of US$2 million (which is equivalent to approximately HK$15.6 million).  Would this mean to the reasonable purchaser that the HK$5.05 million stated in the Agreement must be a mistake in the terms expressed and agreed? I do not consider it so.  The value of an item purchased, particularly a unique one not commonly on the market, is largely a matter of the discernment of the vendor and the purchaser.  To be able to purchase the Necklace at HK$5.05 million may be a good bargain, or even an extremely good deal, for the purchaser.  However, that does not mean that the purchaser must necessarily have concluded and known that the vendor had obviously made a mistake.  As Russell LJ put it aptly in Riverlate Properties Ltd v Paul [1974] 2 All ER 656 (quoted at paragraph 71 of the judgment in Redevco UK One Ltd v WH Smith plc [2009] NIJB 299, cited by the Plaintiff in this case), in the context of equity and rescission:

“If a man may be said to have been fortunate in obtaining a property at a bargain price, or on terms that make it a good bargain, because the other party unknown to him has made a miscalculation or other mistake, some high-minded men might consider it appropriate that he should agree to a fresh bargain to cure the miscalculation or mistake, abandoning his good fortune. But if equity were to enforce the views of those high-minded men, we have no doubt that it would run counter to the attitudes of much the greater part of ordinary mankind (not least the world of commerce) and would be venturing on the field of moral philosophy in which it would soon be in difficulties.”

50.  The facts of this case can, again, be distinguished from those in Chwee Kin Keong.  In that case, the actual and real price of the laser printer was S$3,854, whereas by mistake, the price shown on the seller’s website was S$66.  On the evidence, the court at first instance found that the purchasers knew that there was a mistake as to the pricing, and on appeal, the court of appeal considered that it was open to the court to infer knowledge from the evidence available at trial.  It was held that equity can intervene to set aside the purchases on the basis of the purchasers’ impropriety, in deliberately not bringing the suspicion of a possible mistake to the attention of the mistaken party.

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

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

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

Conclusion and orders

54.  For all the above reasons, I conclude that there is no basis to grant any of the relief sought by the Plaintiff, and accordingly dismiss the Plaintiff’s action, with costs to the Defendant.