KWAI TAK MING v. KS CAPITAL ONE LTD AND OTHERS

HCA 679/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 679 OF 2012

BETWEEN

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D E C I S I O N

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The application

1. By summons dated 14 May 2014, the defendants apply for a split trial on damages in lieu of specific performance as pleaded in their Counterclaim.

2. The plaintiff opposes this application.  The parties are legally represented.[1]

The factual background

3. The factual background of this matter is as follows:

a. By a formal Sale and PurchaseAgreement dated 23 March 2012, the plaintiff agreed to sell his 1/3 interest in the property situated at known as (“San Fung Avenue Properties”) to the 1^st defendant. The completion date was on 30 April2012.

b. The plaintiff failed to complete the transaction as scheduled.

c. The plaintiff relied on the grounds of actual undue influence, unconscionable dealings, misrepresentations and breach of fiduciary duties on the part of the 2^nd and 3^rd defendants to claim rescission of, inter alia, the Sale and Purchase Agreement.  Alternatively, the plaintiff claims damages against the 2^nd and 3^rddefendants.

d. The 1^stdefendant counterclaims for, inter alia, specific performance of the Sale and Purchase Agreement and damages in addition thereto or in lieu thereof.

The issues in dispute

4. The issues in dispute as identified by the parties are:

a. Whether the 2^nd and 3^rd defendants were guilty of any undue influence, unconscionable dealings, misrepresentations or breach of fiduciary duties.

b. If the defendants are liable to the plaintiff, what remedies should be granted to the plaintiff.

c. On the other hand, if the plaintiff was in breach of the Sale and Purchase Agreement, what remedies should be granted to the defendants.

d. Further, if the plaintiff is liable to the 1^st defendant for damages, how such damages should be assessed.

The grounds of the application and opposition

5. The grounds of the application for a split trial are that there is a clear demarcation between liability and damages and it is just and convenient to do so because, as submitted by the defendants:

a. Parties cannot prepare their evidence on damages in lieu before the Court selects the date of assessment and the Court will only make such a selection after hearing on liability.

b. Unnecessary costs may be saved.[2]

6. The plaintiff opposes the application on the grounds that the defendants should have made the application long before; that the damages in lieu of specific performance was added by way of amendments to the Defence and Counterclaim without particulars; that there have been joint statement of expert evidence on the liability and the same experts can compile the report for the damages in lieu, if necessary and there will be duplication of evidence for the assessment of damages in lieu. Therefore the defendants’ proposal will be wasting costs.

Discussion

7. Applications can be made under O.18, r.11 for a separate trial of a preliminary issue or O.33, r.4 for a split trial.  Though the court should be more careful before ordering a preliminary issue, “nevertheless it is clear that both concepts share the common theme that as a general principle the trial should take the form of cohesive whole, and that unless it is clear that it is ‘just and convenient’, in the preliminary issue context …the court ought not to accede to applications therefor.”  See paragraph 19 of Pagoda Ventures Ltd. v JE Fulfilment Ltd & Another (unreported, HCCL 39/2007, Stone J. 13 June 2008).

8. The legal principles for split trial are trite.  As decided in Telford Development Limited v Shui On Construction Co. Ltd. [1990] 2 HKC 110, the court should bear in mind that it is only usual for the trial to dispose of all the issues in dispute in one go.  It is only rare and under exceptional circumstances and it is just and convenient to do so that an order for split trial should be made.  The burden is on the applicant to demonstrate to the Court that a split trial order should be made.  In the applicant’s application, it is incumbent upon the applicant to provide information, with reasonable degree of accuracy, as to how much time and costs would be saved if an order for split trial is made.  The Court will, of course, take into consideration that the witnesses will be called twice for the split trial and the delay that would be caused if the decisions of the trials are appealed to the appellant courts.  See page 10 of the judgment.

9. The main reason for the defendants’ application is that expert evidence cannot be prepared before the court awards damages in lieu of specific performance to the defendants in their Counterclaim.

10. The defendants in their written submissions have stated the law for the assessment of damages in lieu of specific performance.  At paragraph 13 of their counsel’s written submissions, counsel refers to Conveyancing in Hong Kong, August 2014 Issue 71, Vol 1(B) §1404:

“Previously, the date of assessment for common law damages was the date of breach of the contract, so that depending on whether the plaintiff was purchaser or vendor, and the market had risen or fallen, the type of damages might be crucial. In equity the date of assessment, being a date which was just and equitable, was either the date the specific performance became impossible, or the date of judgment or some other date fixed by the court.

There now seems to be convergence of the two dates, so that common law damages are awarded as at a date the court thinks just in the circumstances. …”(emphasis added)

11. The above legal principles are illustrated in a case determined by the Court of Final Appeal in Lau Suk Ching, Peggy v Ma Hing Lam also known as Wingo Ma & Others (2010) 13 HKCFAR 226 at §61, per Lord Millet NPJ discussed the issue of assessment of damages for the plaintiff and he said:

“60. Prima facie she was entitled to damages at common law for breach of contract. The case is virtually the converse of Johnson v Agnew. In that case the contract fixed a date for completion, the purchaser failed to complete on that date or at all, and the vendors brought an action for specific performance. They obtained a decree, but before the sale could be completed the vendors’ mortgagees sold the property. This put it out of the vendors’ power to complete the sale, but their inability to do so was attributable to the earlier failure of the purchaser to complete the purchase, the purchase price being easily sufficient to discharge the mortgage. The vendors then sought damages. The English Court of Appeal awarded damages under Lord Cairns’ Act (damages in substitution for specific performance). The House of Lords held (i) that it was a case for common law damages, not damages under Lord Cairns’ Act; (ii) that the measure of damages in the two cases was the same; (iii) that the breach of contract was the purchaser’s failure to complete on the date for completion fixed by the contract, notwithstanding that this was not a repudiatory breach since time was not of the essence of the date; and (iv) that although the general rule was that damages for breach of contract are assessed as at the date of breach, where a party brings an action for specific performance but elects (or is forced to elect) for damages they should be assessed at the date when the contract was lost. Damages therefore fell to be assessed at the date when the vendors’ mortgagees sold the property.”

12. With the legal position of assessment of damages in lieu of specific performance as demonstrated in the Court of Final Appeal case, it is not difficult to see that if the defendants are successful in the trial, the Court would either grant a decree of specific performance in favour of the defendants, alternatively damages in lieu on the date of judgment as the pleadings stand, which will render specific performance not possible. If the date for assessment is the date of the breach, that causes no problem.  Mr. Lee submits that the only possible problem is the date of the judgment or some other date which the Court will order for the assessment of damages.  The date of judgment can be readily ascertainable by reference to the period of trial and the approximate time for the Court to deliver the judgment.  Mr. Lee submits that there is no guarantee that the Court will give the final decision on a certain date or within a short period of time, which will render the assessment of the market price not possible.  Granted that there is such a possibility, which should be very rare, the Court is always in a position to nominate a date for the assessment of the market price of the property, in which case, it would be a simple assessment of the market price of the property at the relevant period of time.  Assessment of damages is not an exact science on the dot of the date of judgment.  It is, after all, an estimate of the market price of the property during a certain period of time. The market is, of course, fluctuating.

13. It is right for the plaintiff to comment that the defendants have not pleaded the particulars of the damages in lieu of specific performance in their Amended Defence and Counterclaim. Mr. Lee replies that this is impossible before the Court makes the final decision of this case. But this may not be relevant for the present purpose. It is always the Court’s discretion to make an order as to the date on which damages in lieu should be assessed.  The Court may, in a usual trial, order the assessment of the damages on a date to be fixed before a Master, directing the preparation of the expert reports in the meantime.  If it is a split trial, there is a possibility that in the assessment of damages, the same witness, that is, the expert will have to be recalled again and further there might be dispute as to the conduct of the parties for the assessment of the amount of damages in lieu, overlapping with the trial on liability.

14. Mr. Ho further submits that the respective experts have already prepared a joint expert report for the market value of the property on the various dates as agreed by the parties for the issue of liability.  If the experts are to prepare an expert report on the market value of another date, it would be very easy and convenient for them to do so within a short period of time, based upon their joint expert report.  They have already set out the way the market values of the property should be assessed in their joint report.

15. The difficulty relied upon by the defendants does not render the assessment of damages in lieu impossible.  There are no exceptional circumstances in support of the defendants’ application for a split trial.  The defendants have not been able to provide this Court with the information as to how much costs and time would be saved if a split trial is ordered.  If it is a split trial, the assessment has to be dealt with by the trial judge, which will escalate the costs for the parties.  The defendants’ application should be dismissed.

Costs and order

16. As to the costs of this application, including all the costs reserved and the hearing today, the costs should follow the event and today’s hearing should be certified fit for counsel.  The costs should be assessed summarily under O.62, r.9A RHC at $110,000 to be paid by the defendants within 14 days from the date hereof.

17. The Court now makes an order in terms as follows:

a. The defendants’ application be dismissed;

b. The costs of this application be as per paragraph 16 supra.

c. Time for the parties to file and serve the supplemental expert report as ordered in the Order dated 18 July 2014 be extended by consent of the parties to 15 November 2014.

d. Leave to the plaintiff to set down within 42 days as from 15 November 2014 for a 9-day trial before a judge alone in the fixture list in consultation with counsel’s diaries.  There be a pre-trial review before the trial judge for 30 minutes on a date 12 weeks before trial.  Parties prepare the agreed/certified translation for the Chinese documents, shall raise the issue of recusal and confirm the length of the trial by counsel in charge at the pre-trial review.  At the setting down, parties shall produce a joint letter to the Listing Clerk confirming that there are no outstanding interlocutory applications pending. Until the pre-trial review, all interlocutory applications shall be listed to be heard by the Registrar or a Master;

e. Liberty to apply for further directions on expert evidence;

f. The 5^th Case Management Conference scheduled on 12 December 2014 be vacated.