廈門新景地集團有限公司 formerly known as 廈門巿鑫新景地房地產有限公司 v. ETON PROPERTIES LTD AND OTHERS

CACV 235/2024, [2025] HKCA 1119

On appeal from [2024] HKCFI 1291

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 235 OF 2024

(ON APPEAL FROM HCCL NO 13 OF 2011)

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J U D G M E N T

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

1.  This is the appeal of the 1^st and 2^nd defendants[1] against the judgment of Mimmie Chan J in the assessment of damages in this action after a hearing of eight days. The main judgment was handed down on 14 May 2024 (“Judgment”)[2], followed by two further rulings on 9 September 2024[3] (on the Redfern Schedule lodged by the parties)  and 15 October 2024 (on post-judgment interest)[4]. By the Judgment and rulings, the plaintiff was awarded damages of RMB 169,044,298.25, pre-judgment interest of RMB 174,272,854.28 at prime rate + 1% from 27 October 2006 to 14 May 2024 (with 14 months disallowed during the 18-month period in April 2016 to October 2017), further pre-judgment interest on damages at prime rate + 1% from 15 May 2024 to 9 September 2024, post-judgment interest on the judgment debt inclusive of pre-judgment interest from 10 September 2024 until full payment, and costs.

2.  The defendants argued on appeal that the judge erred in these respects: (1)  adopting the plaintiff’s proposed counterfactual in assessing damages for the defendants’ breach; (2)  adopting 27 October 2006 as the date of assessment of damages instead of 30 April 2005; (3)  misunderstanding the evidence of the accounting experts (Ms Kong Huixia for the plaintiff, “Ms Kong”; and Ms Mao Yanyan for the defendants, “Ms Mao”); (4)  awarding pre-judgment interest for a period of over 16 years to the plaintiff; and (5)  not awarding to the defendants the costs thrown away by the plaintiff’s abandonment at the eleventh hour of claims and expert questions proposed by it.

3.  Mr Paul Shieh, SC[5] appeared for the defendants on appeal and Mr Bernard Man, SC[6] appeared for the plaintiff.

Material background

4.  The facts relevant to this appeal are taken from the Judgment, the judgment of the Court of Appeal in CACV 158/2012 dated 15 April 2016 (“CA Judgment”)[7] and the judgment of the Court of Final Appeal in FACV 3 and 5/2019 dated 9 October 2020 (“CFA Judgment”)[8] and may be stated as follows.

5.  By an agreement dated 4 July 2003 (“Agreement”)  made between the plaintiff and the defendants, the plaintiff agreed to purchase and the defendants agreed to sell their shareholding in the 4^th defendant (“Shares”), in order for the plaintiff to obtain the right to develop Lot 22 in Xiamen comprising an area of 11,994.59 sq m (“Land”)  which was held in the name of the 5^th defendant.  The Agreement provided for the laws of the PRC to be the governing law with an arbitration clause for submission of disputes arising from performance of the Agreement to CIETAC[9] in Beijing.

6.  The 5^th defendant was established in the PRC as a “foreign-owned enterprise” and held the right to develop and use the Land.  The 5^th defendant was wholly owned by the 4^th defendant.  Before the events in this action, the 4^th defendant issued only two shares, one to the 1^st defendant and the other to the 2^nd defendant.

7.  Under the Agreement, the 1^st and 2^nd defendants warranted that they had “absolute control” over the 4^th and 5^th defendants, and in consideration and upon payment (by instalments)  of the price of RMB 120 million, the defendants were to transfer the Shares to a company designated by the plaintiff, to enable the plaintiff to obtain the right to develop the Land in the name of the 5^th defendant, and to obtain the right to profits from the development.  Delivery of the Land was to take place within six months of the date of the Agreement and the Agreement provided for a significant degree of supervision by the defendants in the event the development process should occur.

8.  After the plaintiff had paid RMB 5 million as deposit, the 1^st and 2^nd defendants failed to deliver possession of the Land to the plaintiff and purported to terminate the Agreement by a notice dated 14 November 2003.  The 5^th defendant took steps to develop the Land, obtaining regulatory and town planning approvals between November 2004 and February 2005.

9.  On 8 August 2005, the plaintiff commenced arbitration proceedings against the defendants before the CIETAC tribunal (“Arbitration”), seeking the continued performance of the Agreement.  By the time of the commencement of the Arbitration, development of the Land had already begun in around May 2005, on the basis of a design which had been submitted by the 5^th defendant, and approved by the relevant Mainland authorities.

10.  Shortly after the commencement of the Arbitration, and without the knowledge of the plaintiff and the tribunal, a restructuring of the corporate shareholdings relating to the Land was carried out (“Restructuring”).  9,998 newly-issued shares in the 4^th defendant were allotted to the 3^rd defendant, another entity within the Eton Group.  The 1^st defendant transferred its share in the 4^th defendant to the 3^rd defendant and the 2^nd defendant declared itself trustee of its single share in the 4^th defendant in favour of the 3^rd defendant.  As a result, all the issued shares of the 4^th defendant were held beneficially by the 3^rd defendant.  The promise in the Agreement that the 1^st and 2^nd defendants would transfer their shares in the 4^th defendant to the plaintiff at the completion of the development could not be performed.

11.  On 30 June 2006, the 5^th defendant started pre-sales of the units being developed on the Land.  By July 2006, 80% of the residential units developed or to be developed were sold.  By the end of 2006, 95% of the residential units were sold.

12.  On 27 October 2006, the arbitral tribunal issued an award in the Arbitration (“Award”).

13.  The tribunal recorded that the defendants had repudiated the Agreement and that the plaintiff refused to accept termination.  It noted that the defendants asserted that the Agreement was illegal and invalid and claimed that even if it was valid, it had become impossible to perform, because construction activities on the ground and sales of the residential units meant that they were unable to transfer the Land to the plaintiff for development.

14.  The tribunal rejected the defendants’ claim that the Agreement was illegal under PRC law, as being an illegal transfer of land, or to achieve an illegal transfer of land use right. It held that:

“The Arbitral Tribunal considers that the Agreement in this case is a share transfer arrangement made between the parties for the contractual purpose of assigning and obtaining the right to develop and obtain earnings from the development of the No 22 Land. To this end, the Applicant agrees to pay the Respondents RMB 120 million by instalments, and progressively obtain the right to develop and make earnings from the No 22 Land. After the amount is paid in full, the Applicant is further entitled and obligated to purchase all the shares in [the 4^th defendant] for HK$2. On analysis of the provisions of the Agreement in this case, the subject matter of the Agreement is neither the shares in [the 4^th defendant] nor the right to use the No 22 Land held by [the 5^th defendant]. The subject matter of the Agreement is the contractual right to buy and sell the shares in [the 4^th defendant] that has an indirect effective control over the No 22 Land. The amount of RMB 120 million is the consideration for the Applicant to obtain the contractual right to acquire all the shares in [the 4^th defendant] for HK$2, and also the consideration for the Respondents to obtain the contractual right to sell all the shares in [the 4^th defendant] for HK$2.”

“The Arbitral Tribunal considers that such arrangement fully indicates that the true intent of the parties is to progressively transfer the right to develop, operate and make earnings from the No 22 Land and, after all the terms and conditions provided in the Agreement are met, to sign the legal instrument on transfer of shares in the target company and to handle the specific procedures. In other words, the main rights and obligations of the parties in the Agreement in this case do not involve how to transfer the shares in [the 4^th defendant] in detail but involve how to perform certain specific obligations to cause the said transfer of shares to be effected ultimately.”

15.  The tribunal also rejected the defendants’ claim that it was impossible to perform the Agreement:

“The Arbitral Tribunal notes the Respondents repeatedly emphasize in its ‘Third Submission made after the Hearing’ that it is impossible to perform the Agreement in this case. The Arbitral Tribunal considers that an agreement shall be binding upon the parties thereto once the agreement is executed. Even though any change in circumstances makes it difficult to perform the agreement during its performance, the parties shall exert reasonable efforts in good faith to perform the Agreement completely and fully other than purely emphasize external causes. In this case, as stated by the Respondents, the Agreement is a framework agreement, whose performance may be difficult due to various uncertainties. This needs close cooperation between the parties and reasonable efforts to seek alternative approaches to meet the purpose of the Agreement. The Respondents’ allegations cannot constitute justifiable reasons for impossibility to perform the Agreement and discontinuing performance of the Agreement without the consent of the Applicant.”[10]

16.  The tribunal decided that the plaintiff’s claim for continued performance of the Agreement should be supported and dismissed the counterclaim of the defendants seeking confirmation that the Agreement was invalid.  The tribunal awarded the plaintiff damages for breach of contract of RMB 1,275,000 (representing damages for delay in delivering the Land)  and ordered that “The Respondent shall continue to perform the Agreement made on July 4, 2003 between the Applicant, the Respondents and the third parties to the case.”[11]

17.  The plaintiff applied to the Xiamen Municipal Intermediate Court to enforce the Award but on 30 July 2007 its application was dismissed, principally because the 1^st and 2^nd defendants were Hong Kong companies whose assets were outside the jurisdiction.

18.  The plaintiff then applied to the Hong Kong court (HCCT 54/2007)  for leave to enforce the Award.  On 31 October 2007, judgment was entered by the Hong Kong court in terms of the Award (“Statutory Judgment”).  On 2 January 2008, the defendants applied to set aside the Statutory Judgment.  In the supporting affirmation, it was disclosed for the first time that performance of the Award was impossible by reason of the fact that as a result of the Restructuring, the 1^st and 2^nd defendants could no longer transfer the Shares in the 4^th defendant to the plaintiff.  It was further stated that the Land could not be delivered to the plaintiff for redevelopment, since 99% of the residential units developed had by then already been sold.

19.  With that realisation, the plaintiff commenced HCA 961/2008 (later relisted as HCCL 13/2011)  on 27 May 2008 as a common law action to enforce the Award (“the Common Law Action”).

20.  The defendants’ application to set aside the Statutory Judgment was dismissed by Reyes J on 24 June 2008, as the judge was not satisfied that the Agreement was substantially incapable of performance[12].  His judgment was affirmed by the Court of Appeal[13], which took the view that there was no insuperable impediment to the transfer of the 4^th defendant’s Shares to the plaintiff from the 3^rd defendant, particularly when the alleged impossibility of performance was “self-inflicted”.

21.  In August 2008, the 1^st and 2^nd defendants returned to the CIETAC tribunal to seek a determination that the Agreement could no longer be performed, and that the parties should be discharged from the Agreement.  That application was dismissed by the tribunal on 22 April 2009 by the second award.  The tribunal rejected the claims by the 1^st and 2^nd defendants that the transfer of the shareholding from the 3^rd defendant to the plaintiff was impossible as a matter of fact, as the Restructuring was a breach of the Agreement and not a ground for lawful termination.  Further, the tribunal was not satisfied that the objectives of the Agreement could not be met.

22.  The defendants made a further attempt on 19 June 2009 to seek a ruling from the tribunal as to the “alternative approaches to meet the purpose of the Agreement” as mentioned in the Award.  The tribunal rejected the application on 27 July 2009 on the basis that the Award was final, and there was no remaining matter which could be determined according to the PRC Arbitration Law.

23.  There were a series of interlocutory applications in the Common Law Action.  On 21 December 2011, the plaintiff was given leave to re-amend the statement of claim (“RASOC”)  to add an alternative claim in §35(5)  for damages or equitable compensation in the event that the relief it had been pressing for, namely, transfer of the entire shareholding in the 4^th defendant and through the Shares, acquisition of the benefits earned by the 5^th defendant, should prove unachievable.  The loss and damage pleaded is:

“the difference between (i)  the existing value of the entire shareholding in the 4^th Defendant (which includes the entire interests in the Land or its sale proceeds held by its wholly-owned subsidiary, the 5^th Defendant)  and (ii)  the sum of RMB 120,000,000 which the Plaintiff agreed to pay under the Agreement for the acquisition of the same.”

24.  All the plaintiff’s claims in the Common Law Action were dismissed on 14 June 2012 by Deputy High Court Judge Stone QC after a trial of 22 days.  On appeal in CACV 158/2012, the Court of Appeal allowed the plaintiff’s claim on 15 April 2016 in respect of the 1^st and 2^nd defendants’ breach of their implied promise that they would honour the Award obtained by arbitration in accordance with a valid submission under the Agreement (“Implied Promise”).  At §114 of the CA Judgment, Yuen JA explained that the essential ingredients of the new and fresh cause of action on an arbitral award, which is separate and independent from an action based on breach of the underlying contract, are simply a valid submission of the dispute to arbitration, an award in favour of the plaintiff, and the defendant’s failure to honour it.

25.  On the defendants’ application filed on 27 October 2016, the plaintiff was compelled by the Court of Appeal on 3 October 2017 to elect between maintaining the Statutory Judgment and obtaining a judgment for damages for breach of the Implied Promise.  It elected in favour of judgment for damages on the Common Law Action on the Award.  On 20 October 2017, the Court of Appeal ordered that the Statutory Judgment be set aside and that judgment be entered in favour of the plaintiff against the 1^st and 2^nd defendants for breach of the Implied Promise to honour the Award and assessment of damages was to await the quantum stage of the split trial of the Common Law Action.  On 30 April 2018, on the application of the defendants, Mimmie Chan J granted an interim stay of the proceedings for assessment of damages pending the determination of the defendants’ intended appeal against the CA Judgment.

26.  The 1^st and 2^nd defendants’ appeal against the CA Judgment was dismissed by the Court of Final Appeal (FACV 3/2019).  The CFA Judgment was handed down on 9 October 2020.

27.  The trial on quantum for assessment of the damages in the Common Law Action finally proceeded before Mimmie Chan J in September 2023, 17 years after the issue of the Award.

28.  We turn to consider the five grounds of appeal.

Ground 1: the proper counterfactual

29.  The counterfactual proposed by the plaintiff is that damages should be assessed: (1)  as at 27 October 2006, being the date of the Award; and (2)  on the basis that as at the date of the Award, the plaintiff would have been in a position to have obtained the Shares in the 4^th defendant and be entitled to obtain the earnings from the actual development of the Land which was according to the 5^th defendant’s design.  The proposition is that the plaintiff’s damages should be equivalent to the profits generated from the 5^th defendant’s existing development, and quantified by the value of the 4^th defendant’s Shares which is the gross development value (“GDV”)  of the 5^th defendant’s development of the Land as at 27 October 2006, minus the costs associated with the development including the contract price of RMB 120 million under the Agreement[14].

30.  The counterfactual proposed by the defendants is that damages should be assessed: (1)  not as at the date of the Award but as at 30 April 2005, when the plaintiff would have obtained an arbitral award if it had not delayed in taking action; and (2)  on the basis of the profits that the plaintiff would have made from its development of the Land according to its own design, as envisaged under the Agreement, and not referable to the more superior design of the 5^th defendant.  Their position is that if they should succeed on Ground 1 (proper counterfactual)  and/or Ground 2 (date of assessment), regardless of the outcome of the other grounds of appeal, the action on assessment of damages should be remitted for a retrial or further assessment before the judge.

31.  The judge adopted the plaintiff’s counterfactual.  Her reasoning has been helpfully summarised by Mr Man as follows:

(1)   The object of awarding damages for breach of the cause of action based on the Implied Promise is to put the plaintiff, so far as money can do it, in the same situation as if the contract had been performed (Robinson v Harman (1848)  1 Ex 850 at 855, per Parke B).  In this case where the Implied Promise is to perform the Award, the plaintiff’s damages are to be assessed on the basis as if the Award had been complied with[15].

(2)   The enforcing court has flexibility in the remedial measures to be granted, such that it is able to “fashion an appropriate remedy to give effect to the Award”, as distinct from any remedy that might have been claimed in the Arbitration and which might have been within the jurisdiction and powers of the tribunal to have granted[16].

(3)   An arbitral award should be read generously, in a reasonable and commercial way, and in accordance with the expectations of commercial persons who are parties to the arbitration agreement[17].

(4)   It is clear from the Award that the purpose of the Agreement was to transfer the Shares in the 4^th defendant to the plaintiff to enable the plaintiff to attain the right to develop the Land and to obtain the earnings from the development.  The order that the 1^st and 2^nd defendants were to continue to perform the Agreement must and can only be for attaining this purpose[18].

(5)   By the time the Award was issued, the tribunal already knew the state of the works which had already been carried out on the Land, namely, that construction had already commenced based on the 5^th defendant’s design, such construction had already been partially completed, and 80% of the residential units developed or to be developed had been sold by July 2006.  The Award mandated the parties to “continue performance of the Agreement”.  In directing the parties to continue to perform the Agreement, this meant by implication that the situation on the ground and the status of the development was to continue, instead of being overturned or changed fundamentally[19].

(6)   Against the facts prevailing and the realities existing at the time of the Award, continued performance of the Agreement as ordered “must include” the transfer of the Shares in the 4^th defendant to the plaintiff, for the plaintiff to adopt the 5^th defendant’s design and continue the development on the Land based on that design.  As such, the purpose of enabling the plaintiff to obtain the right to develop the Land and the earnings therefrom would be attained[20].

(7)   It would be against common sense to read the continued performance of the Agreement ordered by the tribunal as meaning that the plaintiff was obliged to demolish all that had been built, and sold, by the time of the Award, and to construct a new development by seeking fresh approval of its own design on the Land.  There is a presumption against construing the Award to mean nonsense[21].

(8)   The tribunal also recognised the need for flexibility, and could not have been envisaging strict adherence to the precise terms of the Agreement when it ordered “continued performance”.  The tribunal’s reference to the parties’ continued performance and to their exerting “reasonable efforts in good faith to perform the Agreement completely and fully” must be a reference to their doing so on the basis of the conditions and the situation as at the date of the Award[22].

(9)   It was the unchallenged evidence of the plaintiff’s witness that the plaintiff would simply and realistically have adopted the 5^th defendant’s design and continued the development based on that design.  Therefore, damages should be assessed on that basis.  The counterfactual must be as if the defendants had performed in accordance with the Award in 2006, and the position the plaintiff would have been, in 2006.  The court considers the position then, and fashions a remedy which would give effect to the Award and be appropriate and realistic in those circumstances in 2006[23].

32.  The defendants essentially repeated the submissions of their former counsel before the judge.  Mr Shieh argued along these lines.

33.  First, the judge was wrong to interpret the Award as requiring the 1^st and 2^nd defendants to simply procure the transfer of the Shares of the 4^th defendant to the plaintiff. This involved rewriting the Award[24].  Mr Shieh highlighted these features in the Award:

(1)   The Award emphasised throughout that the Agreement was not one for the transfer of shares[25].  The tribunal contrasted the “common practice” in the domestic real estate development market (where the purchaser acquires shares in a target company first and then as its controller or capital contributor holds the right to use the land and claims the earnings derived from land development)  with the Agreement which enabled the plaintiff to “progressively” obtain the right to develop and make earnings from the Land and positioned the share transfer procedures at the end.

(2)   If, by ordering continued performance of the Agreement, the tribunal intended that the 1^st and 2^nd defendants shall perform the simple act of transferring the Shares of the 4^th defendant to the plaintiff, it would not have been necessary to refer to the need for the parties to “cooperate” and make “reasonable efforts”.  Nothing in the Agreement required the 1^st and 2^nd defendants to procure the 5^th defendant to let the plaintiff adopt the 5^th defendant’s design for free and take over the related benefits, nor did the tribunal impose such an obligation on the 1^st and 2^nd defendants in the Award.  It makes no difference that the tribunal was aware of the 5^th defendant’s development activities at the time of the Award.  The Award mandated the parties to continue to perform the Agreement, not a different set of obligations[26].

(3)   That the Award “must include”[27] the transfer of the Shares of the 4^th defendant to the plaintiff is just one of the steps contemplated under the Agreement.  The crucial point is that the transfer of the Shares came at the tail-end upon satisfaction of the terms and conditions of the Agreement for the plaintiff to enjoy the end product of the development[28].  Hence, it is incumbent on the plaintiff to plead and prove how it would have taken those steps under the Agreement, and how the parties would have continued to perform the Agreement by “close cooperation” and making “reasonable efforts to seek alternative approaches to meet the purpose of the Agreement” as stated in the Award[29].  These aspects have not been pleaded[30] or proved by the plaintiff.

34.  Second, the finding that the Award by implication meant that “the situation on the ground and the status of the development was to continue, instead of being overturned or changed fundamentally”[31] was without basis and plainly wrong for these reasons:

(1)   The phrase “to continue to perform the Agreement” did not by itself indicate whether the 1^st and 2^nd defendants were to continue with the development based on the 5^th defendant’s design, or whether they should take other steps to enable the plaintiff to take over and proceed with the development based on the plaintiff’s own design.  The tribunal had left this open by directing the parties to act “in good faith”[32] to perform the Agreement “completely and fully”, to “cooperate” with each other, and to make “reasonable efforts to seek alternative approaches to meet the purpose of the Agreement”.  If the cooperative efforts contemplated by the Award did not bear fruit and the plaintiff were to resort to damages for breach of the Implied Promise, it remains for the plaintiff to plead and prove its case according to the requisite counterfactual.

(2)   The use of the phrase “continue to perform” does not mean the situation on the ground was to continue for the purpose of the assessment.  The phrase “continue to” describes the word “perform”, not the status quo on the ground.  As the parties were ex hypothesi not performing the Agreement at the time of the Award, there could be no performance for them to “continue” with.

(3)   Insofar as the judge rejected the defendants’ counterfactual given that the tribunal could not have ordered the parties to build a different development with a different design “18 months before the Award”[33], she erred in conflating the correct counterfactual with the proper date of assessment, being two separate issues which warrant separate considerations.

35.  Third, the judge’s reliance on the statement in §126 of the CFA Judgment (the enforcing court is able to fashion “an appropriate remedy to give effect to the award, distinct from any remedy that might have been claimed in the arbitration”)[34] is misplaced.  Ribeiro PJ was contemplating a likely significant overlap between the damages awarded by the enforcing court and those that might have been awarded by the tribunal for breach of the Agreement.  His lordship did not say that the enforcing court, in having “remedial flexibility” (at §123)  and fashioning an “appropriate remedy” (at §126), could rewrite the Agreement.

36.  Fourth, the judge erred in considering and accepting the evidence of the plaintiff’s witness that if the Award had been performed by the defendants, the plaintiff would simply and realistically have adopted the 5^th defendant’s design and continued with the development on that basis[35].  In an action for breach of contract, a defendant is not liable for not doing that which he is not bound to do.  The law is concerned with legal obligations only, not with “expectations, however reasonable, of one contractor that the other will do something that he has assumed no legal obligation to do.”  The first task of the assessor of damages is to estimate as best he can “what the plaintiff would have gained in money or money’s worth if the defendant had fulfilled his legal obligations and had done no more”[36].  The relevant question the judge should have asked is whether the 1^st and 2^nd defendants or the 5^th defendant was obliged to let the plaintiff adopt for free the 5^th defendant’s design and works and take over the contracts with end-purchasers, not whether the plaintiff would have done so.  None of the defendants had any obligation to do so, whether under the Agreement or the Award.  There was no basis to assume that they would have allowed the plaintiff to adopt the 5^th defendant’s design and works and take over the contracts with end-purchasers for free.

37.  Fifth, in holding that it would be “nonsensical” or “absurd” to suggest that performance of the Award required the plaintiff to demolish what had already been built on the 5^th defendant’s design and construct a new development by seeking fresh approval of the plaintiff’s own design[37], the judge effectively allowed the “impossibility” of performance of the Award to dictate what the proper counterfactual should be.  Such an approach is contrary to authorities, as in postulating the counterfactual, the fact that an obligation would be impossible to perform is irrelevant[38]. Hence, the judge was prepared to ignore the impossibility of the 1^st and 2^nd defendants transferring the Shares of the 4^th defendant to the plaintiff by reason of the Restructuring[39].  There was no reason why, in the same vein, she was prepared to take account of “the facts prevailing and the realities existing at the time when the Award was issued in October 2006”[40] in determining what may or may not have been practicable in terms of what performance of the Award required.  Had she adopted the correct approach, she should have disregarded the actual state of the development on the ground and adopted a counterfactual which notionally regarded the plaintiff’s own design had been used.

38.  Sixth, the judge erred in treating the 5^th defendant’s profits from the development as “reflective of” or “proximate to” the profits which the plaintiff would have been able to obtain if the Award was performed[41].  In doing so, she conflated an award for damages with an account for profits, and effectively allowed the plaintiff to seek disgorgement of profits obtained by the 5^th defendant under the guise of a claim for damages for breach of the Implied Promise[42].  In assessing damages for breach of contract, the court’s primary concern is with the victim’s position, not the wrongdoer’s.  A claimant’s loss is measured by the difference between the claimant’s actual situation and the situation he would have been in if the contractual obligation had been performed[43].  Instead of looking at the 5^th defendant’s position and the profits it had made on the actual development, the judge should have focused on the plaintiff’s actual situation and compared that with the position the plaintiff would have been in had the Award been performed.  To the extent that the judge accepted the plaintiff’s loss “coincides with or mirrors” the 5^th defendant’s profits[44], this was without basis.  What profits the plaintiff would have made depended on the steps it would have taken in furtherance of the Agreement, including the design it was to adopt, the extent to which it was able to carry out the development, and the costs required.  All these matters have not been pleaded and proved by the plaintiff[45].

39.  The judge had remarked[46] that in quantifying the plaintiff’s loss, the court “is simply doing its best (with ‘the exercise of a sound imagination and the practice of the broad axe’[47]).”  But the above fundamental defect in pleading and evidence cannot be saved by the principle of reasonable assumptions[48], which is not without limits[49].  That principle applies where there are evidential gaps and factual uncertainties created by the contract-breaker’s wrongdoing[50].  Here the question is what and how the plaintiff would have done to perform the Agreement absent wrongdoing and impossibility.  The principle cannot be used to rewrite the parties’ substantive rights and obligations by conferring the benefit of the 5^th defendant’s design on the plaintiff for free, and giving the plaintiff a windfall as this is superior to the 2003 design of the plaintiff.

40.  We do not agree with Mr Shieh the plaintiff’s counterfactual adopted by the judge involved rewriting the Award or the Agreement.  As stated in §§65 to 66 of the Judgment, the focus is on identifying the obligation of which the defendants are said to be in breach, and the counterfactual to be considered is that the defendants had performed that obligation.  The obligation of which the 1^st and 2^nd defendants were in breach under the Implied Promise is to “continue to perform the Agreement in 2006 in order to meet the purpose of the Agreement”.  The relevant counterfactual is “simply that the 1^st and 2^nd Defendants would have procured the transfer of the Shares of the 4^th Defendant to the Plaintiff, to enable the Plaintiff to obtain the benefits of the development of the Land held by the 5^th Defendant.”  As submitted by Mr Man, the various interim steps prior to the transfer of the Shares are irrelevant to the assessment of quantum, which concerns the ultimate position the plaintiff would have been in had the 1^st and 2^nd defendants complied with the Award.  The appropriate counterfactual assumes the performance of the Award.  The plaintiff does not need to plead and prove the interim steps prior to the transfer of the Shares, as contended by Mr Shieh.  

41.  We agree further with the judge that these matters are immaterial for the assessment of damages:

“The fact that it was no longer possible to procure the transfer of the Shares is irrelevant for the Court’s assessment of damages. If it was claimed that development of the Land was for some reason also impossible, this would likewise be an irrelevant consideration. Whether the Land could be developed on the basis of the Plaintiff’s design similarly makes no difference.”[51]

42.  The judge rightly took into account that under the terms of the Agreement (in article 6(1))  the plaintiff was free to decide the development details[52].  There was nothing in the Agreement which required the plaintiff to build in accordance with its design only.  As the 1^st and 2^nd defendants are obliged to “continue to perform the Agreement in 2006 in order to meet the purpose of the Agreement”, they were not entitled to disallow the plaintiff from adopting the 5^th defendant’s design, whether under the Agreement or the Award.  What the defendants should have done under the Implied Promise is not a matter of “expectations” but something that they have assumed a “legal obligation” to do.

43.  It is incorrect to say that the plaintiff would have adopted for free the 5^th defendant’s design and works.  As the plaintiff would have acquired the 5^th defendant in the counterfactual, it would have to assume the liabilities of the 5^th defendant in the development, including the costs of the design and the works.  As submitted by Mr Man, the judge is right not to take account of the amounts that the 5^th defendant could have charged the plaintiff for the design and the works but did not do so, when the 5^th defendant would become owned indirectly by the plaintiff with the transfer of the Shares in the 4^th defendant.  This is because the assessment of damages has taken into account the cost of the actual development including the design.

44.  In identifying the content of the 1^st and 2^nd defendants’ obligation under the Award, the judge rightly took into account the state of the works already carried out and the activities which had taken place on the Land.  This is because the arbitral tribunal was apprised by the 1^st and 2^nd defendants of the fact that the 5^th defendant had obtained a permit from the government based on the 5^th defendant’s design proposal, and construction on the Land based on that design had been partially completed as early as December 2005[53].  This is a relevant factual matrix to consider in construing the content of the obligation for the Implied Promise to perform the Award.  We agree with the judge that against this background, it would be inconceivable that the tribunal had ordered the parties to continue to perform the Agreement by demolishing the actual development built in accordance with the 5^th defendant’s design and to construct a new development based on the plaintiff’s design[54].

45.  There is no error for the judge in disregarding the impossibility of performance in the transfer of the Shares in the 4^th defendant due to the Restructuring, which was deliberately concealed by the 1^st and 2^nd defendants from the tribunal.  Such impossibility could not be a relevant factual matrix in construing the defendants’ obligation under the Award.  The judge is right to hold that performance of the Award would involve the transfer of the 4^th defendant’s Shares to the plaintiff and disregard any suggestion that such performance was impossible.

46.  There is nothing in the contention that in construing the Award, the court should proceed on the basis that the tribunal intended the parties’ economic position under the Award would not be different or materially different from that if the Agreement had been performed[55].  The tribunal ordered the defendants to “continue to perform the Agreement” despite it was apprised of substantial change in circumstances regarding the Land.  The Award did not order the parties to perform the Agreement in the way it would have been performed in November 2003.  We agree with Mr Man the tribunal clearly intended the parties to achieve the economic position of the Agreement being performed in October 2006, against the prevailing circumstances at that time.

47.  We reject the defendants’ argument that the judge has conflated an award of damages with an account for profits.  The damages were quantified on the basis of putting the plaintiff in the position if the defendants had complied with their obligation under the Award in accordance with conventional compensatory principle.  That such loss of the plaintiff coincides with or mirrors the amount of the 5^th defendant’s profits does not mean that damages were awarded for the object of ordering the defendants to disgorge their profits[56].

48.  For the above reasons, we reject the defendants’ challenge on the proper counterfactual in Ground 1.

Ground 2: date of assessment

49.  The defendants submitted that the court has power to fix some other date of assessment as may be appropriate in the circumstances, if to adopt the date of breach of contract (27 October 2006)  would give rise to injustice[57].  It was argued that nothing in the cases confines this broad power to fixing a later date.  Mr Shieh was however unable to find any decided case in which the date of assessment was fixed to a date before the date of breach on which the cause of action accrued. 

50.  He submitted there were compelling reasons in this instance why the breach date rule should be displaced in favour of the earlier date of 30 April 2005, and the judge did not give adequate reasons for rejecting the earlier date[58]. He drew attention to the findings of DHCJ Stone in the Common Law Action at §§119 to 121 that by the end of 2003, the plaintiff ought to have known, by reason of the defendants’ termination notice in November 2003, that the defendants would not continue to perform the Agreement.  It was only 21 months later that the plaintiff commenced the Arbitration.  Such delay was unreasonable and unexplained.

51.  Mr Shieh argued that if the plaintiff had acted promptly, the Award would have been issued much earlier and in all likelihood by 30 April 2005.  Had damages been assessed at that date, damages would be measured by the then applicable property price (RMB 5,999/m²)  instead of the market price prevailing as at 27 October 2006 (RMB 9,145/m²)[59]. By adopting the date of breach as the date of assessment, the plaintiff was allowed to take advantage of its own delay.  This obvious injustice should have justified a departure from the breach date rule.

52.  As we are against the defendants on the proper counterfactual in Ground 1, Ground 2 must also be rejected.  The general principle is 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.  The earliest date the Implied Promise to perform the Award could have been met was the date of the Award, on which the cause of action accrued[60]. There is no valid basis to displace this date with an earlier date before the cause of action accrued.

53.  Mr Man further submitted there was no delay in commencing the Arbitration on 8 August 2005.  He pointed out the parties were in negotiation between November 2003 and March 2005.  It was only when it became clear the defendants would not perform the Agreement that the plaintiff resorted to arbitration.  Further, the plaintiff required time to obtain legal advice and prepare the legal papers for arbitration[61]. The delay was not unexplained, nor do we find the extent of the delay so unreasonable as to justify a departure from the breach date rule, assuming that it could be a date before the cause of action accrued.

Ground 3: assessment of expert evidence

54.  Ground 3 sought to challenge the judge’s assessment of the quantum of damages in these respects: (a)  land appreciation tax; (b)  funding costs for the RMB 120 million to be paid by the plaintiff under the Agreement; and (c)  project management costs.  It is pertinent to mention some relevant principles, of which there is no dispute.

55.  Generally, in an appeal against the assessment of damages, the appeal court will interfere only if it is convinced that the trial judge acted upon some wrong principle of law, or that the amount awarded was so extremely high or so very small as to make it an entirely erroneous estimate of the damages to which the plaintiff is entitled[62].

56.  In respect of findings of fact, the Court of Appeal can intervene if the findings by the trial judge are plainly wrong[63]. As for assessment of competing expert evidence and the preference for one expert over another, these are within the purview of the trial judge, with which the appeal court will only intervene if it can be demonstrated that the trial judge was plainly wrong[64].

57.  Also, as mentioned earlier, in assessing damages, the court is aided by the principle of reasonable assumptions.  It will not allow difficulty of estimation to deprive a plaintiff of a remedy to which it is found to be clearly entitled, particularly where the difficulty is the result of the defendant’s wrongdoing.  Uncertainties about what would have happened but for a defendant’s wrongdoing may be resolved by reasonable assumptions which err on the side of generosity to the plaintiff.

(a)  Land appreciation tax

58.  The defendants’ contention is that the judge’s finding of the land appreciation tax payable by the 5^th defendant was premised on a misunderstanding of the competing evidence of the parties’ accounting experts, Ms Kong for the plaintiff and Ms Mao for the defendants.  Mr Shieh’s arguments are as follows:

(1)   Ms Kong contended that the land appreciation tax payable by the 5^th defendant was RMB 101,194,431.25[65] ^[66].  The calculation in her formula assumes that the 5^th defendant had incurred development costs of RMB 331,866,805.91, a deductible item for assessing the land appreciation tax payable.  The lower the deductibles, the higher would be the taxable profits and the higher would be the amount of the land appreciation tax payable.  The higher the amount of the land appreciation tax payable, the less profits the development would yield for the purpose of the assessment of damages.  Hence, the “reduction” of deductible costs is a point in the defendants’ favour.

(2)   According to Ms Mao, given that the 5^th defendant would not have been able to obtain formal invoice to support an “account payable” of RMB 25,755,597.24 (shown in the 5^th defendant’s 2009 audit report; an item of alleged deductible cost)  by the time the land appreciation tax for the year 2009 was assessed, the same could not have been recognised as a deductible item, and so the taxable profit should have been higher.  As such, when computing the land appreciation tax payable, RMB 25,755,597.24 should be deducted from the total development costs of RMB 331,866,805.91 as recorded in the 5^th defendant’s accounts to determine the amount of deductible items in Ms Kong’s formula[67].

(3)   The judge correctly concluded there were “no invoices at the relevant time to support” the account payable of RMB 25,755,597.24. Nevertheless, she went on to reject Ms Mao’s opinion on the deduction to be made, noting that neither Ms Mao nor the 1^st and 2^nd defendants produced the relevant documents or invoices to evidence the costs payable[68].

(4)   In other words, the judge regarded the reduction of deductible costs as a point against the defendants.  She was asking the defendants to establish a negative and to prove positively that the deduction was justifiable.  This reflects a fundamental misunderstanding of Ms Mao’s evidence.  Ms Mao was suggesting that the lack of invoice meant that the account payable of RMB 25,755,597.24 should not be recognised as a deductible item for ascertaining the taxable profit, and it was not appropriate to adopt the 5^th defendant’s accounts (as Ms Kong did)  without making an appropriate adjustment (ie deducting RMB 25,755,597.24 from the total development costs of RMB 331,866,805.91).

(5)   This erroneous approach resulted in the total development costs being overstated by RMB 25,755,597.24 and, correspondingly, the land appreciation tax payable being understated.  Had the judge not made such error, she should have accepted Ms Mao’s computation of the land appreciation tax payable by the 5^th defendant at RMB 110,262,613.83[69].

59.  The judge dealt with the land appreciation tax payable by the 5^th defendant in this manner:

“128. According to the summary of the accounting experts’ assessments, there appears to be a dispute over Kong’s calculation of the land appreciation tax payable (of RMB 101,194,431.25)  for Question (b)[70]. According to Mao, a sum of RMB 25,755,597.24 should be deducted from the costs actually incurred by the 5^th Defendant and as reflected in its audit reports. From my understanding of paragraph 3.7 of Mao’s supplemental report, her evidence is that upon her review of the 5^th Defendant’s audit reports, she inferred that it was ‘highly probable’ that the 5^th Defendant had completed the settlement of the land appreciation tax in 2009, and had paid the settlement amount in 2010. The 5^th Defendant’s audit report for 2009 shows an ‘account payable’ of RMB 25,755,597.24, but as payment of the sum was not made in 2009, it was not possible for the 5^th Defendant to obtain an invoice for the account payable in 2009, and without the invoices, the account payable would not be recognized as a deductible item for settlement of the land appreciation tax. This, Mao explained, was her ‘inference’ drawn from the 5^th Defendant’s tax documents but she had not made further inquiries. In Mao’s opinion, when calculating the land appreciation tax payable (on the basis of the income and costs)  the account payable of RMB 25,755,597.24 should be deducted from the total project development costs actually incurred by the 5^th Defendant.

129.  I do not accept Mao’s opinion on the deduction to be made.  What it comes to is that there were no invoices at the relevant time to support the alleged payable or costs of the development to justify deductions for the purposes of land appreciation tax.  Nor has Mao or the Defendants produced for the purpose of these proceedings any documents or invoices (not available in 2009 but since obtained by the 5^th Defendant)  to evidence the costs payable.  It has not been established to my satisfaction that what the Defendants allege are deductible as costs should, on any evidence, be deducted.”

60.  There is no dispute that the judge correctly summarised Ms Mao’s opinion in §128 and the second sentence in §129.

61.  We agree with Mr Man that the judge did not misunderstand Ms Mao’s evidence.  Her reasons for rejecting Ms Mao’s opinion in §129 could have been worded in a more comprehensive manner but we think the meaning is sufficiently clear.  She stated that she did not accept Ms Mao’s “inference” (1)  there were no invoices available at the relevant time in 2009 to support the alleged account payable of RMB 25,755,597.24; and (2)  the account payable of RMB 25,755,597.24 would not be recognised as a deductible item for settlement of the land appreciation tax and should be deducted from the total project development costs actually incurred by the 5^th defendant when calculating the land appreciation tax payable.  She mentioned that neither Ms Mao nor the defendants produced for the purpose of these proceedings any documents or invoices (not available in 2009 but since obtained by the 5^th defendant)  to evidence the costs payable.  She noted that Ms Mao had not made further inquiries in drawing her “inference”.

62.  The judge took the view that the defendants failed to adduce credible evidence to support Ms Mao’s “inference” and concluded that it has not been established to her satisfaction what they allege as deductible costs (ie increased land appreciation tax)  should be deducted.  This is a view she is entitled to take.  We are not persuaded that she was plainly wrong.  She did not require the defendants to establish a negative.  It is consistent with her approach that where the defendants dispute the costs and profits alleged or relied on by the plaintiff, on the basis that some other or further item of costs should be deducted from the sales income recorded in the accounts of the 5^th defendant, the defendants have to establish their assertion, although always bearing in mind that the plaintiff has the burden to prove its case[71].

63.  We reject the defendants’ contention the judge was wrong to reject Ms Mao’s opinion that the total development costs should be reduced in the calculation of the land appreciation tax.

(b)  Funding costs for the price of RMB 120 million under the Agreement

64.  The issue of funding costs for the RMB 120 million to be paid by the plaintiff under the Agreement arises in calculating the costs of the development, to be deducted when ascertaining the profit to which the plaintiff was entitled if the Award had been performed.  This includes what the funding costs comprised, the duration of such funding costs and the interest rate.

65.  The plaintiff argued below that the funding costs for the RMB 120 million should be “negligible”, since the plaintiff would have been able, if the Award had been performed, to utilise the sale proceeds received by the 5^th defendant to immediately repay any loan borrowed by the plaintiff for the purpose of settling the RMB 120 million due under the Agreement.  The judge accepted this argument and declined to deduct funding costs for the RMB 120 million when assessing the costs of the development[72].

66.  Mr Shieh argued that the judge was wrong to hold that such funding costs were negligible and they should be deducted.  The judge’s assumption that the plaintiff would have been able to immediately utilise the sale proceeds received by the 5^th defendant for repaying any loan of RMB 120 million is without evidential foundation. Further, the judge did not deal with Ms Mao’s opinion that deducting the funding costs of RMB 120 million from the net profit and corporate income tax of the development is inconsistent with Mainland accounting standards and tax law requirements[73].

67.  Assuming that the plaintiff would have borrowed funds between July 2003 and January 2006 for payment of various instalments of RMB 120 million under the Agreement by reference to the time due for those instalments, the defendants calculated the financing costs of the RMB 120 million at RMB 14,308,333.89.  This is modelled on the computation of Ms Kong[74].

68.  We see no reason to assume that the plaintiff would have borrowed funds to pay instalments of the RMB 120 million before the handing down of the Award in October 2006.  Besides, Ms Kong’s calculation was made on the assumption that her opinion (as mentioned below)  is rejected by the court.  As stated by the judge, the basis of Ms Kong’s calculation of the funding cost by reference to the time due for payment of the instalments of RMB 120 million is not applicable, when the consideration is what the parties should have done by way of continued performance of the Agreement in October 2006[75].

69.  Nor do we agree with the contention there is no evidential foundation for the judge’s inference that funding costs for the RMB 120 million should be negligible.  Had the defendants performed the Award and transferred the Shares in the 4^th defendant to the plaintiff on 27 October 2006, the plaintiff would have been able to utilise the sale proceeds received by the 5^th defendant to immediately repay any loan for the purpose of settling the RMB 120 million under the Agreement, as by that time a significant majority of the residential units had been sold[76].  This is supported by the audited financial statements of the 5^th defendant showing that it had received over RMB 513 million of sale proceeds as at 31 December 2006, and the opinion of Ms Kong who opined that due to the short period between the commencement of the loan and repayment of the same, the plaintiff’s funding costs of the RMB 120 million could be omitted[77].  Having taken the view that such funding costs should not be deducted, it is not necessary for the judge to deal with Ms Mao’s opinion that deducting such funding costs is inconsistent with Mainland accounting standards and tax law requirements.

(c)  Project management costs

70.  The defendants submitted that the judge was plainly wrong in finding there should be no deduction for “project management costs”[78], which they have calculated at RMB 7,308,377.58.  Mr Shieh argued that the judge failed to take any account of the unchallenged evidence of the 1^st and 2^nd defendants[79] that the 5^th defendant had the benefit of free services provided by its related companies within the Eton Group and, as such, the audited statements of the 5^th defendant were not a reliable “proxy”[80] for ascertaining the likely costs which the plaintiff would have to incur.  Further, such finding was inconsistent with her acceptance of Ms Mao’s assessment of sales and administrative expenses, which expressly took into account the fact that a developer in the plaintiff’s like position would have to incur higher costs in the absence of the support and free services of the Eton Group companies[81].  No material distinction could be drawn between sales and administrative expenses, and project management costs in this regard, as the 5^th defendant had the benefit of free intra-group services for both types of expenses.

71.  Mr Man pointed out that the defendants have not seriously pursued the argument on project management costs at the trial.  There was only a passing reference to deduction of project management costs in the defendants’ closing submissions without any elaboration[82]. The judge is entitled to find that the 1^st and 2^nd defendants have not shown that any project management costs should be deducted[83].  We are inclined to agree.

72.  The plaintiff has filed a respondent’s notice to contend that the 1^st and 2^nd defendants have failed to adduce credible evidence to establish that the cost of the actual development as recorded in the 5^th defendant’s account has not adequately reflected the project management costs and the purported amount of the project management costs to be deducted.  Mr Shieh argued that cogent factual evidence was adduced to show that the 5^th defendant did have free intra-group assistance and there was expert evidence from Ms Mao that the project management costs should be estimated at 2.96% of the other development costs of the project[84].  Mr Man submitted to the contrary that even on the assertions of Benito Choa, the project management costs would unlikely be substantial in any event and the majority of the project management costs would have been reflected in the 5^th defendant’s account.  Further, the project management costs could not amount to 2.96% of the other development costs of the project, as this percentage is used to calculate the entire project management costs for the construction project.

73.  The disputes on the project management costs should have been resolved at the trial.  We decline to deal with this on appeal as this issue had not been properly ventilated below.  As the judge has stated, the defendants have to establish their assertion where they dispute the costs and profits alleged or relied on by the plaintiff, on the basis that some other or further item of costs should be deducted from the sales income recorded in the accounts.  The judge is entitled to take the view they have not done so to her satisfaction.  We do not consider it appropriate to interfere with her finding.

Ground 4: pre-judgment interest

74.  The award of pre-judgment interest is a matter of discretion for the trial judge.  In accordance with established principles, the appeal court would not interfere with the exercise of such discretion unless it can be shown that the trial judge exercised the discretion under a mistake of law, or in disregard of principle or under a misapprehension as to facts, or took into account irrelevant matters or failed to exercise the discretion, or the conclusion was outside the generous ambit within which a reasonable disagreement is possible[85].

75.  Although a plaintiff is generally entitled to pre-judgment interest from the date of writ to the date of judgment, where he has delayed unreasonably in commencing or prosecuting the proceedings, the court may exercise its discretion to disallow interest for a period or reduce the rate of interest.  In exercising that discretion, the court must take a realistic view of delay.  In the case of business disputes, litigation is for all parties an unwelcome distraction from their proper business.  It is not reasonable to expect any party to take every litigious step at the first possible moment, or to concentrate on litigation to the exclusion of all else.  Delay should only be characterised as unreasonable for present purpose when, after making due allowance for the circumstances, it can be seen that the claimant has neglected or declined to pursue his claim for a significant period.  The court should also bear in mind that the defendant has had the use of the money during the period of delay[86].

76.  Mr Shieh submitted that the decision to award pre-judgment interest of over 16 years to the plaintiff (disallowing only a period of 14 months during the 18-month period in April 2016 to October 2017)  was plainly wrong.  This fails to reflect the “egregious delay” of 11 years on the plaintiff’s part, from the date of the Award (27 October 2006)  to the time of the plaintiff’s decision to elect to pursue the claim for damages in lieu of maintaining the Statutory Judgment (20 October 2017).

77.  The parties had addressed the judge on the total delay of 17 years and in particular the delay of 11 years from the date of the Award to October 2017 when the plaintiff finally elected to have judgment for damages.  Having considered the overall conduct of the parties and the manner of progress of the relevant proceedings, the judge took the view that the delay in obtaining judgment on the damages claim cannot be attributed to the plaintiff only.  She noted that the plaintiff’s claim and the proceedings commenced “have been resisted by the Defendants every step of the way: consistently, relentlessly and on the whole effectively so far as causing delay, costs and difficulties is concerned”[87]. She went on to say as follows[88]:

“As Counsel rightly pointed out, the cause of action on the Implied Promise arose in 2006 when the Award was issued. The Plaintiff had taken immediate steps to enforce the Award on the Mainland in 2007, which enforcement steps were of course strenuously resisted by the Defendants. After its unsuccessful attempts in enforcement on the Mainland, the Plaintiff commenced proceedings in Hong Kong on 31 October 2007 to apply for the Statutory Judgment. It was only in the course of the Defendants’ opposition to these enforcement proceedings that the Defendants disclosed the Restructuring for the first time, which Restructuring (according to the Defendants)  made transfer of the Shares pursuant to the Agreement impossible. The Plaintiff then commenced these proceedings on 27 May 2008 as a common law action to enforce the Award (and subsequently relisted the action on the Commercial List). The amendment in December 2011 of the plea in the SOC for damages, once made, date back to the original pleading in May 2008.”

78.  The judge dealt with the complaint of delay in the plea for damages which was made in December 2011, and the election to pursue the damages claim which was only made in October 2017 in this manner[89]:

“As Mr Man submitted, there is no suggestion (and it is highly dubious)  that the Defendants would have immediately made payment or accepted liability for damages, if the Plaintiff had made its election earlier, and before 2017. Any delay in the election was not, on the facts of this case, the predominant cause of the Plaintiff being put out of its money, or of its being deprived of the fruits of the judgment. As Mr Man also highlighted, the Defendants had been keeping and had free use of funds which, if the Defendants had duly performed its obligations under the Award, they would not have had. The Defendants’ duty under the Award was to act in accordance with the Award, to continue to perform the Agreement or to pay damages, as the alternative of performance. The Plaintiff has been deprived of the money or the value of the Implied Promise which it ought to have received in October 2006, and it cannot be denied that the predominant cause of this is that the Defendants have been opposing the common law action on the Award persistently and steadfastly until today.”

79.  On the unique facts and circumstances, and having regard to the fact that the case has been pursued on appeal all the way to the Court of Final Appeal for resolution of the complex issues raised, the judge was not satisfied that the delay is due to any neglect on the plaintiff’s part to pursue its claims, or that the plaintiff has been kept out of the fruits of the judgment in its favour by its own fault.  Her only reservation is the period of 18 months from the CA Judgment (which held that the plaintiff was entitled to elect between maintaining the Statutory Judgment and obtaining a judgment for damages)  to the time when the plaintiff made the election for damages.  She exercised her discretion to deprive the plaintiff of interest for 14 months during this period.

80.  Mr Shieh submitted that the judge’s reasons to explain why the delay between 2006 to 2017 should be ignored are in error.  First, the plaintiff’s own delay cannot be side-stepped merely because the defendants resisted the proceedings every step of the way. The plaintiff failed to put its own house in order by ascertaining the correct legal basis of its claim, the claim for damages was introduced only in 2011 by a late amendment, and the two inconsistent reliefs were pursued until it was compelled by the Court of Appeal to make an election.  Had the plaintiff correctly focused on the damages claim at the outset in 2006, very likely these proceedings would have concluded by 2013, even assuming that the defendants had resisted the claim to the same extent.  Second, it was wrong to regard the unlikelihood of the defendants making payment before 2017 as relevant.  As the comparison should be made between the time taken to judgment with culpable delay and the putative time taken to judgment without culpable delay, such period would be present in both scenarios and cancel each other out, even if the defendant would have taken time to resist.

81.  We do not think the judge has erred in law or in principle or has taken into account irrelevant matters in the exercise of her discretion, or that her conclusion is outside the generous ambit within which reasonable disagreement is possible.  There is no basis to interfere with her finding that the predominant cause of the delay of 17 years is that the defendants have been opposing the Common Law Action on the Award persistently and steadfastly and her conclusion that the plaintiff was not responsible for any culpable delay apart from the 18-month period since April 2016.  She is entitled to take into account the defendants’ conduct of the proceedings, and to find that it was due to the defendants’ strenuous opposition of the enforcement action since 2007 that the plaintiff has been kept out of its money.  There is no suggestion that the defendants would have made payment or accepted liability earlier and before 2017.  We agree with the judge that any delay in the election was not, on the facts of this case, the predominant cause of the plaintiff being deprived of the fruits of the judgment.

Ground 5: costs

82.  The defendants’ complaint is that significant time and costs have been thrown away as a result of the plaintiff’s abandonment at the eleventh hour in its opening at the trial of an unmeritorious claim[90] (which allege that the 5^th defendant failed to maximise profits)  and its insistence on Question (c)[91] (for which substantial expert evidence had been adduced).  This was raised in the defendants’ closing submissions[92] but the judge did not address it in the Judgment.  Mr Shieh submitted that the costs thrown away by the abandoned claims and expert question should be paid by the plaintiff to the 1^st and 2^nd defendants, pursuant to the Rules of the High Court Order 62, rules 5(1)  and (2).

83.  We do not think the defendants have met the high threshold for reversing the discretion of the trial judge on costs.  The appeal court will only interfere when the decision of the trial judge is wrong in principle or plainly wrong[93].

84.  The court may depart from the general rule that costs should follow the event where the successful party raises issues or makes allegations on which he fails, and that has caused significant increase in the length or costs of the proceedings, and deprive the successful party of the whole or part of his costs[94].

85.  Mr Man submitted that minimal time has been spent, whether at trial or before trial, on the plaintiff’s claim in §§11(2)  to (3)  of its Statement of Case.  As for the expert evidence on Question (c), this has been relied on by the defendants[95] in arguing the appropriate damages to be awarded and the expert evidence has not been wasted.  It seems to us that these matters would have been considered by the judge in awarding costs to the plaintiff.

Conclusion

86.  For the above reasons, we dismiss the appeal of the 1^st and 2^nd defendants.  There is no dispute that costs of this appeal should follow the event.  We order the defendants to pay the plaintiff’s costs of this appeal, with a certificate for three counsel.