DR ANDREW KEE-SUAN KOH v. DR VINCENT KAY-LO IP

CACV 75/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 75 OF 2000

(ON APPEAL FROM HCA 699/92)

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J U D G M E N T

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Ribeiro JA:

1. This is an appeal by the defendant from the judgment of Deputy High Court Judge Z E Li whereby he awarded damages for deceit against the defendant in the total sum of $1.5 million.

The facts

2. The plaintiff ("Dr Koh") had practised successfully for many years as a general surgeon in Malaysia. After the death of his first wife, he moved to Perth in Australia and practised there effectively on a half time basis. In 1990, at the suggestion of his sister, also a doctor ("Dr Chan") and living in Hong Kong, Dr Koh started looking into the possibility of moving to practise surgery here. It was in this context that, via Dr Chan, Dr Koh came into contact with the defendant ("Dr Ip").

3. Dr Ip had been in practice in Hong Kong for some years and had established a clinic in Admiralty Centre known as the Admiralty Doctors' Group or "ADG" comprising 4 full time and 3 part-time doctors. Dr Ip was also, in 1990, exploring the possibility of starting a larger group in Park Lane in Kowloon, to be known as the Parklane Doctors' Group or "PDG". A circular issued by Dr Ip with a view to attracting doctors to join came to the notice of Dr Chan who informed Dr Koh about it.

4. An exploratory meeting took place on 4 June 1990 between Dr Chan (acting on behalf of her brother) and Dr Ip at which certain representations were found to have been made by Dr Ip and passed on by Dr Chan to Dr Koh. This led to a meeting in Hong Kong on 23 June 1990 between the parties where certain representations were also found to have been made. After meeting some of the other doctors involved, Dr Koh decided to join, having been told that he would be replacing a surgeon who was leaving ADG.

5. After his return to Australia, he received documents from Dr Ip, in consequence of which he paid $300,000 to Dr Ip for 1000 shares in a company called Health Resource Limited ("HRL") and 1000 shares in another company called Masterform, which had been set up as management companies for the practices. Dr Koh also paid $70,000 to HRL as an entrance fee into PDG.

6. Dr Koh arrived here on 13 October 1990 and started practising at ADG. However, the association proved unsuccessful. There was little demand for Dr Koh's services as a surgeon and in consequence he received a very low income. He also faced higher than anticipated expenses. In March 1992, Dr Koh transferred his membership in PDG to another doctor, resigned his directorships in the management companies and left ADG, returning to Australia.

7. Dr Koh commenced the present action contending that he had been induced to uproot himself from Perth by a series of fraudulent and/or negligent misrepresentations made by Dr Ip, causing him loss and damage.

The Judge's findings on deceit

8. After a detailed review of the evidence, the Judge preferred Dr Koh's evidence and rejected that of Dr Ip in so far as inconsistent. The Judge found it to have been proven "beyond reasonable doubt" that the following misrepresentations constituting wilful deceit had been made by Dr Ip (some of which I have treated as in substance a single misrepresentation, where the Judge found more than one), namely :-

(1) that ADG had made profits of $1 million in 1989 when in fact it had not, the figures shown by Dr Ip to Dr Koh having related in fact to a company called Gaylaw and having included rental and laboratory service income which did not form part of ADG's income;

(2) that Dr Koh would be replacing a departing surgeon who had been part of the ADG group, there being sufficient surgical work available to keep a surgeon working full-time and justifying an expectation of about $60,000 net per month, such representation having made partly orally and partly by showing Dr Koh the income records of two doctors in a manner suggesting the above, whereas the ADG practice generated little demand for surgical services and the departing surgeon had only worked part-time and earned a very modest income;

(3) that the contribution of each doctor to the management expenses of ADG was about $28,000 per month and was likely to remain the same, whereas Dr Ip was in fact anticipating the rent for ADG to increase, as supported by the fact that on Dr Koh's arrival in Hong Kong, he was told that the expenses would be substantially higher; and,

(4) that Dr Koh had to contribute $300,000 to join ADG (structured as a purchase of shares in HRL and Masterform), this being a sum which every ADG doctor had had to pay, when no other ADG doctor had in fact ever made such payment.

The Judge found that these misrepresentations were made by Dr Ip intending Dr Koh to rely on them and that Dr Koh had in fact relied on them in coming to Hong Kong, suffering loss in consequence.

Appeal against such findings

9. Mr Neil Thomson, acting for Dr Ip, submitted on appeal that the Judge's abovementioned findings should be overturned. He referred to aspects of the evidence in relation to each of the principal misrepresentations and sought to argue that each such finding was implausible and ought not to have been made. However, as Mr Thomson acknowledged, an appellant seeking to overturn factual findings made by the Judge has heavy burdens to discharge.

10. In the present case, the Judge's findings were made after hearing conflicting testimony, requiring the credibility of the witnesses to be assessed. On the principles summarised at paragraph 59/1/141 of the Supreme Court Practice 1999, this court would only be justified in interfering if it could be demonstrated that the Judge has failed to use or has palpably misused his advantage of seeing the witnesses. In my view, subject to one exception which I shall mention, Mr Thomson's submissions fell distinctly short of discharging that burden. In effect, he was doing no more than inviting the Court of Appeal to overturn the Judge based on a view of the probabilities that he was propounding rather than by showing that the findings were wrong and untenable.

11. The exception mentioned above relates to the Judge's conclusion, under the heading "General Credibility" in his judgment, that in arranging for Dr Koh's payment of $300,000 to be treated as a payment for shares in the management companies, Dr Ip was either fooling Dr Koh (and two other doctors who had also made such payment) or was engaging in "a ploy to render the sum arguably irrecoverable even if ADG turns out to be not as attractive to Dr Koh as Dr Ip held out." For my part, I do not follow the logic of that criticism and cannot see any factual basis for the Judge drawing such unfavourable inferences from the share purchase arrangement. I have difficulty understanding why the Judge thought the amount should be less easily recoverable if structured as a share purchase, not least since he evidently had no problem including reimbursement of that sum in the damages he awarded. I therefore consider his inference in respect of that particular matter unsupportable.

12. However, it remains my view that the other findings cannot be overturned and that, accordingly, Dr Ip's liability for deceit was properly established.

Appeal against the award of damages

13. Mr Thomson's second main criticism of the judgment related to the quantum of damages awarded by the Judge. These the Judge divided into what he called "special" and "general" damages respectively. Included in his first category were the following heads of damages :-

(1) Personal expenses for relocation to Hong Kong	$ 93,066.00
(2) Loss due to forced sale of car	$150,300.00
(3) Extra management expenses paid	$279,228.29
(4) Payment for entry into ADG	$300,000.00
Total	$822,594.29
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The computation of these items is not in dispute. However, the defendant challenges the plaintiff's legal entitlement to each of these heads of award.

14. In relation to the category referred to as "general damages", the Judge considered a submission made on Dr Koh's behalf that he should award (i) "expected reasonable earnings as misrepresented being $60,000.00 net for 17 months less earnings over the same period totalling $361,977.43" giving a net amount of $658,622.60; and (ii) the sum of $100,000.00 as "damages for physical inconvenience, discomfort, worry, stress, anxiety and unhappiness". The amount sought by Dr Koh under this head therefore totalled $758,622.60.

15. The Judge held that the claim to item (i) was made good. However, he did not award the full sum of $100,000 claimed but merely "rounded up" the award so that there would be an overall award of $1.5 million, stating that he did not consider it "worth the effort of going into a debate on whether a further $100,000 should be awarded for inconvenience, discomfort, etc.". This means that he ultimately awarded (i) $822,594.29 as "special damages"; (ii) $658,622.60 as "general damages" comprising lost earnings; and (iii) an additional sum of $18,828.11 as a rounding up figure, taking the total award to $1.5 million. The basis of item (iii) is uncertain but presumably represents compensation for non-pecuniary injury of the kind contended for.

Damages for deceit

16. It is common ground that the leading authority on the measure of damages for deceit is the decision of the House of Lords in Smith New Court Securities Ltd v Citibank NA [1997] AC 254, which approved and expanded upon the principles laid down in Doyle v. Olby (Ironmongers) Ltd [1969] 2 QB 158. The principles relevant for present purposes may be summarised as follows :-

(1) The plaintiff in an action for deceit is not entitled to be compensated in accordance with the contract measure of damages, ie, for losing the benefit of his bargain. The aim is to put the plaintiff into the position he would have been in if no false representation had been made (at p 281G-H and 282H, per Lord Steyn).

(2) The measure of damages where a transaction has been induced by fraudulent misrepresentation is reparation for all the actual damage directly flowing from (ie, caused by) entering into the transaction, less receipts obtained as a result of entering into that transaction (at pp 264H-265B and 266H-277B, per Lord Browne-Wilkinson).

(3) Such damages are not limited to those which are reasonably foreseeable. However, they must not be too remote, eg the consequences of the plaintiff's own imprudent or unreasonable conduct (at pp 282B-D and 285C-E per Lord Steyn).

(4) Such damages can include consequential loss suffered as a result of entering into the transaction (at p 267C-D per Lord Browne-Wilkinson and p 282C-D per Lord Steyn).

(5) The plaintiff must take all reasonable steps to mitigate his loss once he has discovered the fraud (at p 267C-D per Lord Browne-Wilkinson and p 285C-E per Lord Steyn).

17. In my view, on the evidence, these principles are to be applied to the present case by postulating that if the misrepresentations had not been made, Dr Koh would not have made the move from Perth to Hong Kong but would, instead, have continued to work half-time in Perth. That appears to me to be the most probable hypothesis, supported by the fact that when the Hong Kong venture failed, Dr Koh returned to Perth. It is by comparing his position, having come to Hong Kong, against what his position would have been if he had instead remained in Australia over the relevant period, that the damages for deceit are to be computed in the present case.

18. Although findings of negligent misrepresentation were also made by the Judge, I do not think they require separate treatment as any sums recoverable thereunder are encompassed within the broader measure of damages applicable to deceit.

Relocation expenses

19. Approaching the appeal on the abovementioned basis, the defendant's attack on the Judge's award reimbursing Dr Koh for his expenses of relocating to Hong Kong must fail. The argument as formulated in Mr Thomson's skeleton argument, is that Dr Koh :-

" ...... had the intention to move to Hong Kong to practise as a surgeon so removal expense[s] would have been incurred in any event. Cost of fitting out the Hong Kong flat is an expense which would have been incurred in any event."

This approach proceeds on the incorrect premise that if the misrepresentation had not been made, Dr Koh would have come to Hong Kong in any event. Assuming that Dr Koh would have remained in Australia, such relocation expenses would plainly have been avoided. It is of course possible to postulate that a different offer for a place in a Hong Kong practice might have materialised and been accepted if Dr Ip's misrepresentations had not been made. However, on the evidence, that would be a purely speculative approach. The fact that after leaving ADG, Dr Koh did not remain in Hong Kong with a view to joining another Hong Kong practice militates against it.

Payment of $300,000

20. Mr Thomson's attack on the award reimbursing Dr Koh for the $300,000.00 paid as the price of shares in the management companies fails on the same grounds. The argument is again that Dr Koh:-

" ...... had decided to come to Hong Kong. No evidence to show [he] would have paid nothing or any other sum in relation to any other practice."

In my view, the simple answer is that Dr Koh would not have paid anyone that sum if he had remained in Australia, not having succumbed to the deceitful inducement.

Management expenses

21. In relation to the management expenses in the sum of $279,228.29, Mr Thomson argued that Dr Koh "willingly accepted a cost sharing basis and that the claim represents an attempt to renegotiate." With respect, he may have willingly accepted cost sharing, but this does not help the defendant since such "willingness" derived from Dr Koh's reliance on a fraudulent misrepresentation. The claim is not an attempt to renegotiate. It is based on the principle that Dr Koh is to be put in the position he would have been in but for the deceit. Remaining in Australia, he would not have had to incur these expenses.

22. The only point that may have called for investigation in relation to this award concerned quantification of the value of the benefits which Dr Koh received (in the form of use of consultancy rooms, the services of staff, etc) in return for the management fees paid since the proper measure of damages requires credit to be given for the value of such benefits.

23. The Re-Amended Statement of Claim indicates that the figure of $279,228.29 represents the total of overpayments allegedly made by Dr Koh in respect of such management expenses, derived from deducting sums said to be properly payable from the sums actually paid. As I have stated, the computation of these figures is not challenged. Accordingly, it would appear plausible to treat the figure relating to fees properly payable as representing a quantification of the value of the benefits obtained by Dr Koh and accordingly treating the resultant award as representing his expenditure less the benefits received. On this basis, the award correctly reflects the applicable damages principles and should be upheld.

Loss on forced sale of car

24. The award for loss on the forced sale of Dr Koh's car in the sum of $150,300.00 was attacked as too remote. In my view, it was not. It flowed directly from the decision taken by Dr Koh to move to Hong Kong. It does not need to have been a foreseeable expense from Dr Ip's point of view and, provided that such loss is not the consequence of Dr Koh's own imprudent or unreasonable conduct, it is not too remote. I do not consider such a sale imprudent or unreasonable.

25. Accordingly, I would uphold all four of the heads of award referred to by the Judge as "special damages".

Loss of earnings

26. However, again applying the principles mentioned above, I do not consider the Judge's award of $658,622.60, comprising "expected reasonable earnings as misrepresented being $60,000 net for 17 months less earnings over the same period", justified. In my view, it computes loss on the wrong basis, ie, by trying to put Dr Koh in the position he would have been in if the misrepresentation as to the expected level of income were true, ie, compensating him for loss of a promised bargain. He should instead have asked what income Dr Koh would have earned if there had been no misrepresentation and if he had stayed in Australia.

27. The evidence and the Judge's findings are both to the effect that if, not having been exposed to the deceit, Dr Koh had stayed in Australia, he would probably have continued at his half-time practice and would have earned about $25,000 per month. It follows that over the 17 month period utilised for calculating lost earnings (presumably the period he was away), Dr Koh would have earned $425,000 remaining in Australia. The Judge found that over the 16 months working with ADG Dr Koh took home an average of about $6,000 per month after deductions (totalling $96,000). Deducting such net earnings in Hong Kong from the $425,000 figure results in the sum of $329,000.00, which is, in my view, recoverable as consequential loss. I would accordingly substitute the Judge's award of $658,622.60 with an award of $329,000.00 under this head.

Non-pecuniary loss

28. I turn next to the award which I have taken to cover non-pecuniary loss and which, in "rounding up" the overall damages figure, the Judge put at $18,828.11. I take it that this sum is subject to challenge in that the Notice of Appeal complains that the Judge failed to "state a basis for the global figure of damages of $1.5 million." There is no cross-appeal seeking any higher amount.

29. Jurisdiction to award damages for non-pecuniary injury resulting from deceit is recognised. Thus, in Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 at 170, while noting that "no damages are being awarded, at any rate, in this case today, by the court for worry, strain, anxiety and unhappiness", Winn LJ indicated "that in some cases such considerations might well be appropriate."

30. In Mafo v Adams [1970] 1 QB 548, Sachs LJ (at p 554) accepted that damages for physical inconvenience caused by deceit were in principle recoverable. Widgery LJ also treated such damages as recoverable, treating them as a species of aggravated damages (at p 558):-

"And I would add that, ...... where there are aggravating circumstances which aggravate the suffering and injury to the plaintiff, then in compensating him for the wrong which has been done, the damages must be similarly increased. Here one has a plaintiff deprived not only of his valuable protected tenancy, but subjected to considerable inconvenience and unpleasantness. He was, as the evidence relates, induced by this trick of the defendant to set off with his pregnant wife in a van with his furniture and travel from Richmond to Norbury arriving at 7 o'clock on a February evening, and there, thanks to the activities of the defendant, he and his wife were kept out in the cold for two hours whilst they sought to obtain admission. In the end they were forced to go back and take refuge with friends who put them up. I have not the least doubt myself that ￡100 is not an excessive figure to compensate the plaintiff, and accordingly I endorse without hesitation the figure which the county court judge has assessed for general compensatory damages."

31. In Broome v Cassell & Co Ltd [1972] AC 1027 at 1079, Lord Hailsham, referring to Mafo v Adams remarked that he considered :-

"...... the damages there awarded for inconvenience, breach of covenant, and loss of a regulated tenancy were perhaps at present-day values too small for the wrong committed."

32. In Archer v Brown [1985] QB 401, Peter Pain J held that damages for injured feelings were recoverable in deceit on the same basis as in contract, although the sum awarded should be moderate, ￡500 being thought appropriate in that case.

33. The evidence in the present case clearly indicates that Dr Koh suffered both physical inconvenience and injury to feelings in consequence of the deceit. The "rounding up" award is modest in amount and is justified on the authorities. I would therefore uphold that award.

Indemnity costs

34. Finally, the defendant appeals against the award of indemnity costs made against him by the Judge. In my view, whether or not other judges might have decided to make such an award, it cannot be said to fall outside the proper ambit of the Judge's discretion, given his findings of deceit. I would accordingly dismiss the appeal against such order.

Conclusion

35. I would therefore uphold the Judge's award of $822,594.29 in respect of loss and expenses incurred, reduce the award for consequential loss from $658,622.60 to $329,000.00 and uphold the award for inconvenience and injured feelings in the sum of $18,828.11 as well as the award of indemnity costs.

36. The defendant has succeeded in obtaining a significant reduction to one head of the damages awarded. However, the attempt to overturn the findings of deceit and to attack all the other heads has failed. In such circumstances, I would make a costs order nisi that the plaintiff do have two-thirds of his costs of the appeal.

Rogers JA:

37. I agree and have nothing to add.

Godfrey VP:

38. I agree with the reasoning and conclusions of Ribeiro JA. The appeal will accordingly be allowed to the limited extent which he has indicated and we will make an order (pursuant to Order 42 rule 5B(6) of the Rules of the High Court) that the costs of the plaintiff of this appeal be taxed (if not agreed) and that two-thirds of those costs when taxed or agreed as aforesaid be paid by the defendant to the plaintiff.