FU SAU KWOK BARRY v. FOO SAU CHUN RICHARD

HCCL 20/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 20 OF 2004

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J U D G M E N T

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1.  The plaintiff Barry Fu is the younger brother of the defendant Richard Foo.  When their father died in 1987 Richard was appointed executor of his estate.  Part of that comprised one fully paid up A share in the Hong Kong Stock Exchange Limited (HKSE).  Following listing of the HKSE that was converted to 805,000 shares and a trading right.

2.  During the years following the father’s death administration of his estate was delayed, then resolved by a settlement involving the interested parties.  It was agreed that the HKSE shares and trading right should vest in Barry; thus from that time Richard held them in trust for Barry.  On Barry’s direction he sold the trading right and 500,000 of the shares.  The proceeds of sale were paid to Barry.  These sales were in 2000 and 2001.

3.  Then there was an unauthorised transaction.  Without seeking leave from Barry or telling him, Richard sold the remaining 305,000 shares and withheld the sale proceeds for his own use; this all in clear and obvious breach of his duty to Barry as trustee.

4.  When later in 2001 Barry came to learn of the misappropriation he demanded return of the shares, but Richard had insufficient resources to buy them back from the market.  The upshot was that the parties entered into an agreement, called the Settlement Agreement, dated March 2002.

5.  The primary function of the Settlement Agreement was to restore to Barry, over a passage of several months in 2002, the shares that Richard had wrongfully taken from him or, at Barry’s option, to pay to him the cash equivalent based on the shares’ then market value.  It was thus so couched that the risk (or benefit) dependent on the market fluctuation was for Richard to bear.

6.  Richard defaulted at the first hurdle; this led to a confrontation and meetings between the parties on 31 May and 1 June 2002.

7.  Barry brought this action in April 2004 because of Richard’s persistent default.

8.  The dispute does not concern Richard’s liability for which there is no defence.  Rather it concerns the extent of the consequential loss.  One issue I need to resolve is to what extent if at all the parties agreed to vary the terms of the Settlement Agreement at the meetings which spanned the last and first days of May and June 2002.  Richard contends that Barry agreed to take from him paintings in part satisfaction and, because his ability to meet the balance depended on realizing property in Hong Kong and Canada, more time to complete.  It is Barry’s case there was no variation; that he took (and still retains) the paintings not as part payment but as collateral security.  He is ready to return them when Richard pays up. 

9.  There are matters of law to resolve as well, going to the construction of the Settlement Agreement and the consequences of Richard’s failure to comply with its terms.

10.  I come now to deal with the pertinent issues; first, in greater detail, the terms of the Settlement Agreement.

The Settlement Agreement

11.  Barry, who lives with his Indonesian wife in Jakarta, came to Hong Kong in March 2002 for the purpose of contracting with Richard for the return of his shares.  He and Richard negotiated terms giving rise to a preliminary draft.  Barry’s solicitors Messrs Holman Fenwick v Willan (HFW) were engaged to draw up a second draft.  This was discussed with the parties and amended.  They signed fair copies on 28 March 2002.

12.  By its terms:

(a)     Richard acknowledged that he was liable to Barry for breach of trust;

(b)    Richard was committed to transfer to Barry 305,000 shares in HKSE by eight tranches on designated monthly dates between 30 April and 31 (sic) November 2002 as set out in Schedule I.  Any fluctuation in the price of the HKSE shares was at Richard’s risk;

(c)     reserved to Barry was the right to serve a conversion notice in specific form, and on any particular due date be paid in cash in whole or part the market worth of the shares (as determined by a designated stockbroker)which but for the conversion were on that due date to be transferred to him;

(d)    there was an obligation upon Richard to pay certain sums to Barry these being:

(i) the sum of $157,837, being an agreed sum for interest, on 30 April 2002;

(ii) $8,448.02 + 2,284.50 (totalling $10,732.52) by 4 April 2002, with interest at 18% p.a. for late payment;

(e)   should prior to the transfer of a particular tranche of shares those shares have attracted a dividend, Richard was required on demand to pay to Barry the equivalent of that dividend, with interest at 18% p.a. for late payment;

(f)      were Richard to default in making a transfer or in the event of a conversion in paying the cash equivalent on or by any due date then the following clause was to come into effect:

“all and each of the remaining balances due under Schedule I shall become immediately due and payable”;

(g)     all legal costs incurred in respect of the Settlement Agreement were to be borne by Richard (prior to signing he came to know that Barry had been charged $70,000);

(h)     the rights of both parties were not to be prejudiced by any indulgence or forbearance extended to the other, with no waiver in respect of a breach to operate as a waiver of a subsequent breach;

(i)      the Settlement Agreement could not be varied unless in writing.

13.  It is also appropriate to note that in the preamble it was recorded that Richard, who owned a commercial property in Kin Wah Street, anticipated a sale of the property with the intention of using the proceeds to meet his indebtedness under the Settlement Agreement or part thereof.  The first clause of the Settlement Agreement recorded an obligation by Richard to use the net proceeds of sale to this end.

The Meetings of 31 May and 1 June 2002

14.  Richard defaulted almost immediately, not paying any of the cash on due date and failing to transfer the first tranche of shares by the deadline of 30 April.  Nor had he paid the legal fees.

15.  Barry with his wife Florence came from Jakarta to find out why.  There was a meeting at Richard’s home on 31 May attended by Barry and Florence on the one hand and Richard and his wife Karen on the other, although on her account Karen was not present throughout.  All four gave an account of what was said and, purportedly, agreed.  The accounts differ.  What is not disputed is that the atmosphere was tense; Barry was angry, and harsh words were exchanged.  But no one made a contemporaneous note of what was said, or decided.

16.  Richard’s account is that he explained he was unable to comply with the terms of the Settlement Agreement and he asked for more time; that he would do his best to pay $100,000 in mid-June and a further $100,000 by the end of June and thereafter what and when he could.  There were discussions as to payment in kind, including the transfer of personal chattels and real estate in Hong Kong and Canada.  Amongst the items were 10 paintings he had acquired at auction some time ago.  He offered these at the price he paid for them, although they were probably worth more.  He also asked for time to pay.  He says Barry agreed to give him more time, to forego the method of reimbursement and timetable set out in the Settlement Agreement, and to take the paintings in part reduction of his obligation on the terms proposed.

17.  On the following day Richard and Karen brought the paintings to Barry’s and Florence’s hotel room and they were transferred on that basis.

18.  Karen in a brief witness statement whose accuracy she confirmed from the witness box, agreed with the gist of Richard’s account of what happened at their home on 31 May, although she conceded she was not present throughout, needing to leave from time to time because she was upset at the aggressive attitude displayed by Barry and Florence.

19.  Barry’s version of events differs.  He says Richard promised to pay the two instalments of $100,000 by the end of June; this to go towards the cash settlements, including overdue interest and legal costs.  He says that Richard offered him the paintings which he agreed to take, but not outright; these were to be held as security against Richard’s obligations under the Settlement Agreement, to be returned upon due compliance by him.  When Richard delivered them to him the next day, he got him to sign a note which stated in part as follows:

“I also agree to provide you with more securities/collaterals in the form of watches, paintings and other valuable items acceptable to you by end of June 2002.  I promise to pay you on or before 15 June the sum of HK$100,000 in cash and further sum of at least HK$100,000 on or before 30 June 2002 in additions to paintings and valuables provided as collaterals.”

20.  There was no agreement for him to take the paintings in part settlement of Richard’s obligations.  He did not thus call for a valuation of the paintings.  And there was no record of what would have amounted to a variation of the Settlement Agreement, because there was no variation.

21.  Florence’s account matched that of Barry’s. 

22.  Pertinent to the dispute of fact on the issue of the status of the paintings is a series of emails and other communications from Barry to Richard following the meetings dealing with Richard’s ongoing default.  In calculating what was due Barry concedes he made certain miscalculations, including charging interest when he should not have and interest where it was payable at a rate that was higher than his entitlement.  He accepts this, and has amended his demands.  But what is pertinent is that, save for one email that I shall come to, there was no reference at all to the taking into account the 10 paintings he had taken possession of, whether at the price Richard had paid or at any other figure.  These emails spanned 26 June 2002 to 2 March 2004, which was the date of the letter before action.  Until pleaded, Richard had raised no query or protest at the exclusion of the paintings and the paintings’ worth from the calculations.

23.  The one email that does refer to the paintings was sent on 8 June 2002.  It reads:

“Richard,

Just to remind you that next week, 15^th June you should pay HKD100,000- as agreed and 30^th June another HKD100,000-.  I am still waiting for all invoices of the paintings and also the books.  Without the books it is very difficult to sell those paintings out.  I will have to charge you more interest because the loan I am getting now from my friend is 3% p.m. which is 36% p.a. instead of 18% p.a. I am currently charging you.  I will make the calculations up to end May next week for your reference.

How is the news on Kin Wah St., and Vancouver property?  Pls. keep me posted and I am still waiting for the fax from Bill.

Barry”

24.  Barry explained that the books he was calling for were the catalogues Richard had promised him to establish the purchase price of the paintings.  In cross-examination it was put to him that this email demonstrated he was preparing to sell the paintings, as confirmation that he had taken ownership of them.  He denied that.  He said his intention was to try to establish their worth in case he had to realize on his security because of Richard’s default.  In any event there was not any response from Richard, and he made no reference in his accounting to the paintings because he had not taken them on that basis.

Subsequent Developments

25.  Following the meetings of 31 May and 1 June 2002, Richard made certain payments to Barry which did not bear to any specific obligation under the Settlement Agreement, but in the event Barry received them in part settlement of Richard’s obligations.  Although he served no conversion notice during the designated term of the Settlement Agreement or thereafter when these payments were made, he did, where the funds were sufficient, credit the same against the worth of the shares Richard was committed to transfer to him as at the date of payment, thus in reduction of the number of shares outstanding.

26.  It is Richard’s case that this reflected the revised terms that the parties had agreed to on 31 May 2002.  Barry says he did so because it was “the fair thing to do” where the cash received exceeded the cash debits due.

27.  The payments made were as follows:

$100,000 on 20 June 2002;

US$150,000 (approximately $1,170,000) on or about 20 September 2002;

CAD$34,000 (approximately $200,000) on or about 10 October 2003;

$100,000 on or about 3 December 2003;

$100,000 on or about 17 February 2004;

in all $1,670,000 when converted.

28.  Barry sent to Richard a number of accounts showing how the funds were utilized and what the outstanding balance was, which included, where they had been declared, dividends on the shares not transferred and interest.

29.  I have already stated that he accepts these are not accurate, with excessive and inappropriate charges.  In any event it is for me to establish the methodology and the accounting in final form.

30.  The final act was undertaken by or on behalf of Barry in March 2007; this was the delivery of a notice of conversion of those of the 305,000 shares not already notionally “cashed in”, namely 191,000 at the then market rate of $71.55 per share, at a total sum of $13,666,050.

The Note of 12 January 2004 — Was This a Conversion Notice?

31.  This is a point of contention.

32.  It is not disputed that Barry wrote it by hand and signed it.  It transcribes as follows:

“12-January 2004

To:  Richard Foo

Fax:  152-28684962

Fr:  Barry Fu

I am fixing 150,000 shares of HK Exchange & Clearing (0388) at HK$18.70 for total value of HK$2,805,000-.  The remainder shares will remain as shares.  I am preparing the agreement which will fax to you and please sign back.

Regards,

(signed)”

33.  Barry in evidence stated that he put it in his fax machine and operated the same to transmit it as a fax, but the transmission report indicated a failure; the fax did not go through.

34.  In the event he changed his mind and decided not to make another attempt or formalize the matter by agreement or other means.

35.  Richard through cross-examination challenged the failure of the transmission.  The significance is apparent.  Were this to have been sent and received, it might have been a conversion notice, thus fixing the value of part of Richard’s liability as at that date.  Following that date the shares increased in value fourfold.  In fact on the 1^st day of trial I was asked to permit the late discovery of a document produced by Richard purporting to be the fax received.

36.  I declined to permit this course.  I shall not fully rehearse my reasons which I gave at the time.  Suffice to say that no adequate reason was put forward as to why this had not been produced in a timely manner; the consequences would have required the trial to go off whilst the authenticity of the so-called fax was expertly analysed (there was no footer or header).  At the pre-trial review the presiding Judge had asked the direct question as to whether further discovery was being pursued and was told there were no outstanding documents.  Further, it was contrary to Richard’s pleaded case, which was at clause 8 of the defence:

“8.     At all material times,

(a)     the plaintiff has never given and/or sent to the defendant conversion notice and/or partial conversion notice, whether in accordance with Settlement Agreement or at all; …”

And there was no application to amend the pleadings, incorporating the proposed amendment.  Finally, there was no recorded response to the fax if it were sent, whether in the pleadings, or witness statement, or elsewhere.

37.  As matters transpired, and as I shall come to, whether the fax had been sent or not would not have changed the final result.

The Issues

38.  What now remains to be resolved are the following, namely:

(a)     As matters of fact whether the Settlement Agreement was varied on 31 May and 1 June 2002, and whether the note of 12 January 2004 was binding on Barry as a conversion notice?

(b)    To what extent does the Settlement Agreement as constructed impact on the parties’ rights?

(c)     How should the relief due to Barry be assessed?

The Disputes of Fact

39.  The burden is on Richard to prove that there was a variation of the Settlement Agreement on the days in question.  This is particularly so given the provision that the parties had committed to allowing no alteration unless it was in writing; and there was no contemporaneous note.

40.  It is apparent from the background and the evidence that the primary purpose of the meetings was the pursuit by Barry for the recovery of his shares and he persistently sought a response from Richard as to when that should be.  There were discussions which included propositions by Richard to pass over property and assets in kind; this included the 10 paintings.  But I find nowhere in the evidence that Barry acceded to this proposal; indeed the note he extracted from Richard (see paragraph 19) spoke of more collaterals, indicating that was the status of the paintings Richard had already handed over.  The absence of a contemporaneous note recording the transfer, the absence of reference to the paintings in the numerous statements of accounts Barry sent thereafter, and the absence of protest about that from Richard are also compelling.

41.  I am satisfied the paintings were handed over as collateral security, and all along and to date have been held by Barry as security.  He stands ready and willing to return them as and when there is full payment.

42.  I am not satisfied that Barry gave Richard further indefinite time to pay and that the obligation to transfer shares had been dropped.  The purpose of the meeting as I have said was for Barry to press for the transfers.  And this continued thereafter in demands that he sent Richard.  Richard made no response to the contrary.  There was no written variation of what would have been a most significant departure from the Settlement Agreement.  The fact that in the end Barry settled for the payments made and where appropriate credited the sums against the then market worth of the shares does not alter things.  This was as I find a pragmatic approach to reduce the indebtedness when it became apparent that Richard’s default was deep-rooted; in any event, he was conscious of an obligation to mitigate his loss.

43.  There was no variation under this head. 

44.  The note of 12 January 2004 did not amount to a conversion, fixing the value of the shares referred to therein at their then market value.  It is not established that the fax Barry tried to send was transmitted.  There is the pleading point and lack of positive evidence as I have referred to.  But even if it had, there was no conversion notice in proper form as required by the Settlement Agreement, and no variation which allowed for a less formal approach.  There was no follow up at all.

The Construction of the Settlement Agreement

45.  Mr Soo representing Richard made two specific points.

46.  The first concerned the clause to the effect that upon default by Richard in meeting any particular transfer payment or obligation then “all and each of the remaining balances due under Schedule I shall become immediately due and payable” (See paragraph 12f).  His contention was that the parties were contractually bound to a satisfaction of liability in full upon such default by payment of money, as defined by the phrase “due and payable”.  And that sum was required to equate with the worth of the shares at the date of the breach which was 30 April 2002.

47.  I reject that proposition.  It is quite apparent on a proper reading of the clause in question that the expression “due and payable” is not restricted to money but what in the circumstances of this case was required to discharge the defaulter’s obligation and that, without a conversion notice, was to hand over the shares.  Were there to have been an automatic conversion on default that would have had to have been spelt out in the Settlement Agreement; unsurprisingly, that was not so.

48.  The second matter concerned the interpretation of those clauses going to the payment of interest at 18% per annum on default of payment.  It is Mr Soo’s submission that there was no provision for this to be met except on specific sums and the Settlement Agreement was silent on whether it applied to such items as dividends from the date they were declared.

49.  The simple answer is that the Settlement Agreement does provide for interest on all sums due whether specified or not; that includes dividends.  The particular provision is at clause 2.4. 

50.  Mr Lam, representing Barry, indicated that it would not be charged on the sum of $157,837.50 because that was designated as accrued interest and would amount to a charge of interest upon interest.

The Relief

51.  Barry pursued initially specific performance being a transfer of the shares Richard had taken from him, alternatively damages.

52.  Now that Barry has caused a notional conversion of some of the shares utilizing the money Richard has part paid, and issued a conversion notice in respect of the balance, the appropriate remedy is for damages in lieu.

53.  That is not disputed.  In any event as both sides agree, where an award of damages provides adequate restitution, that is the preferred remedy ahead of specific performance.

54.  The question now arises:  What is the basis upon which damages should be calculated; that is, what share price should be adopted?

55.  Mr Lam submits that this should be upon the date of conversion, or the date of trial.  Mr Soo contends it should be the date of breach or at least significantly earlier than the date of conversion or trial, when the value of the shares was much less.

56.  The starting point is that normally, but not invariably, assessment is at the date of breach.

57.  This is confirmed by the House of Lords in Johnson v Agnew [1980] AC 367.  Lord Wilberforce stated at page 400:

“The general principle for the assessment of damages is compensatory, i.e., that the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed.  Where the contract is one of sale, this principle normally leads to assessment of damages as at the date of the breach — a principle recognised and embodied in section 51 of the Sale of Goods Act 1893.  But this is not an absolute rule: if to follow it would give rise to injustice, the court has power to fix such other date as may be appropriate in the circumstances.

In cases where a breach of a contract for sale has occurred, and the innocent party reasonably continues to try to have the contract completed, it would to me appear more logical and just rather than tie him to the date of the original breach, to assess damages as at the date when (otherwise than by his default) the contract is lost.  Support for this approach is to be found in the cases.  In Ogle v. Earl Vane (1867) L.R. 2 Q.B. 275; L.R. 3 Q.B. 272 the date was fixed by reference to the time when the innocent party, acting reasonably, went into the market; in Hickman v. Haynes (1875) L.R. 10 C.P. 598 at a reasonable time after the last request of the defendants (buyers) to withhold delivery.  In Radford v. De Frober-ville [1977] 1 W.L.R. 1262, where the defendant had convenanted to build a wall, damages were held measurable as at the date of the hearing rather than at the date of the defendant’s breach, unless the plaintiff ought reasonably to have mitigated the breach at an earlier date.

In the present case if it is accepted, as I would accept, that the vendors acted reasonably in pursuing the remedy of specific performance, the date on which that remedy became aborted (not by the vendors’ fault) should logically be fixed as the date on which damages should be assessed.”

58.  The significance of what might be the appropriate date is that the shares have materially increased in value.  As at 1 June 2002 the price was $14.10.  This rose to $71.55 as at 5 March 2007, being the date of the conversion notice.  By the date of trial the price had gone up to around $80.

59.  The editors of McGregor on Damages, seventeenth edition, deal with the particular situation of shares not transferred on or by a due date that have subsequently risen in value.  At paragraph 24-012 they address the issue of whether a claimant who has been deprived of shares by a breach of contract is entitled to recover as damages their value at the time of judgment where this is higher than at the time of the breach.  The argument in favour is that the claimant until judgment has been deprived of the shares or money with which to replace them.  This argument was fully accepted in several cases of yesteryear; amongst them Shepherd v Johnson (1802) 2 East 211, Sanders v Kentish (1799) 8 TR 162 and McArthur v Seaforth (1810) 2 Taut 257.  Grose J is quoted as having said in Shepherd v Johnson, at p.212:

“The true measure of damages in all these cases is that which will completely indemnify the plaintiff for the breach of the engagement.  If the defendant neglects to replace the stock at the day appointed, and the stock afterwards rises in value, the plaintiff can only be indemnified by giving him the price of it at the time of the trial.”

The editors of McGregor suggest that this recognizes the normal measure of damages being the market value at the time of the breach, and that the subsequent rise is by way of consequential loss.  This way of measuring damages gives the claimant the opportunity to opt for either of the two dates, depending on which is more favourable.

60.  The caveat to this approach is that each case must be considered on its own facts; in particular, the extent to which the claimant has been diligent in pursuing his claim or otherwise been tardy, and has otherwise mitigated his loss.

61.  Mr Soo referred me to an appeal case of 1978 from the Supreme Court of Canada, Asamera Oil Corp. Ltd. v. Sea Oil & General Corp.89 DLR (3d) 1, where the court considered the ancient English cases I have referred to but declined to follow them.  This case concerned a claim for the return of shares or their worth arising from a breach of contract.  The trial took place some 21 years after the breach by which time the 125,000 shares the subject of the litigation had risen in value from 29 cents to about 150 times that, $46.50.  In a long lead judgment Estey J first recorded the appropriate test, in the following passage at p.8:

“The assessment of the quantum of damages for this breach of contract is somewhat complex.  The calculation of damages relating to a breach of contract is, of course, governed by well-established principles of common law.  Losses recoverable in an action arising out of the non-performance of a contractual obligation are limited to those which will put the injured party in the same position as he would have been in had the wrongdoer performed what he promised.

Not all kinds of losses are recoverable in actions for breach of contract.  The limitations on damages recoverable in contract were discussed in Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd; Coulson  & Co. Ltd (Third Parties), (1949) 2 K.B. 528, wherein Asquith, L.J., at p. 539, went to great lengths to explain such limits:

‘(1)   It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights had been observed: (Sally Wertheim v. Chicoutimi Pulp Company [1911] A.C. 301).  This purpose, if relentlessly pursued, would provide him with a complete indemnity for all loss de facto resulting from a particular breach, however improbable, however unpredictable.  This, in contract at least, is recognised as too harsh a rule.  Hence,

(2)    In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach.

(3)    What was at that time reasonably so foreseeable depends on the knowledge then possessed by the parties or, at all events, by the party who later commits the breach.’

…

In any event the damage flowing from the wrongful act of the respondent in this case, that is the loss of the opportunity to resell the shares at a profit, is recoverable under any of the tests set out above.”

Then was discussed the principle requiring the injured party to mitigate his loss.  At page 10:

“The second is the responsibility imposed on a party who has suffered from a breach of contract to take all reasonable steps to avoid losses flowing from the breach.  This responsibility to mitigate was explained by Laskin, C.J.C., in Red Deer College v. Michaels et al. (1975), 57 D.L.R. (3d) 386 at p.390, [1976] 2 S.C.R.324 at pp.330-1, [1975] 5 W.W.R.575:

‘It is, of course, for a wronged plaintiff to prove his damages, and there is therefore a burden upon him to establish on a balance of probabilities what his loss is.  The parameters of loss are governed by legal principle.  The primary rule in breach of contract cases, that a wronged plaintiff is entitled to be put in as good a position as he would have been in if there had been proper performance by the defendant, is subject to the qualification that the defendant cannot be called upon to pay for avoidable losses which would result in an increase in the quantum of damages payable to the plaintiff.  The reference in the case law to a ‘duty’ to mitigate should be understood in this sense.

In short, a wronged plaintiff is entitled to recover damages for the losses he has suffered but the extent of those losses may depend on whether he has taken reasonable steps to avoid their unreasonable accumulation.’

and later in the judgment at pp.390-1 D.L.R., p.331 S.C.R.:

‘If it is the defendant’s position that the plaintiff could reasonably have avoided some part of the loss claimed, it is for the defendant to carry the burden of that issue, subject to the defendant being content to allow the matter to be disposed of on the trial Judge’s assessment of the plaintiff’s evidence on avoidable consequences.’”

Next the court gave consideration to the old English cases I have already referred to, and of them stated at p.13:

“These authorities raise no responsibility in the plaintiff to mitigate his losses:  Shepherd v. Johnson, supra, per Grose, J., at p.211.  The application of the principle developed in these early cases would produce damages calculated at the end of the trial or perhaps at the highest point prior to that date.  The trial proceeded intermittently from June, 1969, to December, 1971, and final judgment was pronounced in May, 1972.  The later price would be about $21 a share and the highest price attained was about $46.50 per share, allowing recovery of approximately $2,625,000 and $5,812,500 respectively.

A proper analysis of these cases is made difficult by reason of their antiquity, and after serious consideration, I have concluded that they ought not to be followed by this Court.  In the first place, they were decided long before modern principles of contractual remedies had been developed.  Secondly, they are not in accord with recent decisions of this Court.  Thirdly, they ignore the all-important and overriding considerations which have led to the judicial recognition of the desirability and indeed the necessity that a plaintiff mitigate his losses arising on a breach of contract.  There is a fourth consideration.  This old principle produces an arbitrary, albeit a readily ascertainable result because it lacks the flexibility needed to take into account the infinite range of possible circumstances in which the parties may find themselves at the time of the breach and before a trial can in practice take place.  The pace of the market place and the complexities of business have changed radically since this rule or principle was developed in the early 19^th century.”

Estey J then proceeded to consider the particular circumstances of the case; in particular, the huge increase in value of the shares, the impact on the market were the claimant to have had the shares and taken the opportunity to sell them at any given time, the “inordinate delay” of the claimant in pursuing its claim, and that it should have at one point in the history of events “crystallized these damages by the acquisition of replacement shares so as to minimize available losses flowing from the deprivation of its opportunity to market the 125,000 shares”.

The Court considered the appropriate level of damages should be at a price per share at somewhere approaching halfway between the values at breach and trial.  Estey J stated, at p.17:

“This is no more than a philosophical explanation of the simple test of fairness and reasonableness in establishing the presence and extent of the burden to mitigate in varying circumstances.”

62.  Mr Soo invited me to adopt the premise of this case and reject the proposition that Barry should be entitled to reap the windfall of a dramatic increase in the worth of the shares that he is pursuing.  He contended that it is reasonable to assume that Barry, who claimed at one point that he needed the shares as a bulwark against the costs of his son’s tertiary education, would have not held on to the shares as they climbed towards their current level.  He bolstered this view with the fact that those payments Richard made which were notionally exchanged for shares were not actually used to buy shares; that in the case of the sum of US$150,000 that in fact was paid to a creditor.  And, like the claimant in Asamera Oil, at some stage he could and should have bought in, an equivalent number of shares.

63.  I do not accept either proposition.  The burden is on Richard to establish an ability to mitigate.  This was not pleaded and there was no evidence led to establish let alone prove this.

64.  Referring back to the principles set out by Asquith LJ in Victoria Laundry in 1949, I find as a matter of fact and law the parties at the time of the Settlement Agreement would have reasonably foreseen that the shares in HKSE, a blue chip company, could well have increased in value to the extent they did over the years.

65.  Under the Settlement Agreement Richard had the opportunity to settle his liability over eight months in 2002.  Having failed so badly to honour this obligation, it lies ill in his mouth to call for a limitation in the damages he should pay.

66.  And applying the principle that all circumstances have to be taken into account, one that stands out is that the Settlement Agreement was founded in a serious defalcation by Richard.  If he had not sold his brother’s property, taken for his own use the proceeds and then compounded this reprehensible behaviour by putting himself in a position where he could not repay, he would not now be in the position of having to pay back so much more.

67.  Many particular circumstances in Asamera Oil do not feature in this case.  The rise in the shares’ value was an expected and not exceptional one.  Barry pressed continuously for the shares back, and prosecuted this action diligently.  That included an application for summary judgment, which failed because of the dispute of fact concerning the status of Richard’s paintings.  And that dispute has been resolved in Barry’s favour.  There was not established any obligation to mitigate that Barry had not pursued.

68.  I am satisfied that the level of damages should reflect, for those shares left not already notionally converted, the value as at the date of conversion being 5 March 2007.

The Outcome

69.  There will be judgment in favour of Barry.  The sum in question needs to be calculated.  A number of different schedules have been put before me by both sides.  I adopt, with amendments, that which I find is closest to the award which by this judgment Barry is entitled to; the one headed “Payment as Collateral” handed up by Mr Lam during his closing speech.

70.  The amendments are:

(1)     there shall be no interest charged on the sum of $157,837.50 or any balance thereof unpaid, this being interest;

(2)     there shall be no debit for commission, in the notional conversions and the one of 5 March 2007, because none was paid;

(3)     interest on the converted values shall run at 18% p.a. from 6 March 2007 to the date hereof;

(4)     there shall be no compound interest.

71.  I leave it to Barry’s solicitors in concert with Richard’s to agree the schedule and confirm the amount of damages, with liberty to apply it they cannot agree.

72.  Costs are nisi.  These are to Barry, including those reserved in the Order 14 RHC application.