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

CACV 128/2017

[2018] HKCA 844

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 128 OF 2017

(ON APPEAL FROM HCCL 7/2015)

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REASONS FOR JUDGMENT

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Hon Lam VP (giving the Reasons for Judgment of the Court):

1.  On 12 October 2018, we heard this appeal by the Plaintiff against the judgment of M Chan J of 9 May 2017. By that judgment given after trial, the judge dismissed the Plaintiff’s claim to set aside an agreement for the sale and purchase of a necklace at the price of HK$5.05 million.

2.  After hearing submissions from counsel for the Plaintiff, we dismissed the appeal without calling upon counsel for the Defendant.  We now give reasons for the dismissal of the appeal.

3.  The background to this appeal were set out at [1] to [6] in a judgment of this Court (Lam V-P and Cheung JA) [2018] HKCA 282 on 16 May 2018 when the application by the Plaintiff to adduce further evidence was rejected.  We do not see any need to repeat the same in this judgment.  It suffices to recap that the judge found against the Plaintiff because she was not satisfied that the Defendant had knowledge about the mistake of the Plaintiff in the terms of the offer of the purchase price.  The Plaintiff mistakenly quoted and agreed to a price in HK dollars instead of US dollars.  After reviewing the evidence and the submissions, she concluded at [53] of the judgment of 9 May 2017:

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

4.  All the grounds of appeal advanced on behalf of the Plaintiff focused on the judge’s finding as to the lack of knowledge on the part of the Defendant regarding the mistake of the Plaintiff. 

5.  Mr Sakhrani (counsel for the Plaintiff) very properly accepted that the Plaintiff had to persuade this Court that there is palpable error in such finding, see China Gold Finance Ltd v CIL Holdings Ltd CACV 11 of 2015, 27 November 2015; Zhang Rui Hua v Wang Lan CACV 208 of 2013, 4 February 2016.  He valiantly tried to do so by these submissions:

(a)   In assessing the question of knowledge, the judge demonstrably failed to consider all the available evidence, including her own adverse findings on the credibility of William and Patricia, the two witnesses for the Defendant;

(b)   The judge failed to make adverse findings against the Defendant in relation to the dubious (and perhaps non-existent) onward sale of the necklace to Margaret Cheung.

6.  Elaborating on these submissions, Mr Sakhrani pinpointed two specific matters of which he said the judge had failed to take account in assessing knowledge on the part of the Defendant:

(a)   The judge found William and Patricia had not been open and honest in their evidence on the purported onward sale of the necklace;

(b)   The audio recording of a conversation between Patricia and Yaakov (the representative of the Plaintiff) in the evening of 24 June 2015. Counsel said Patricia had admitted that she had knowledge of the mistake.

7.  The submission regarding the audio recording can be disposed of shortly.  We have read the transcript of the audio recording in light of the submissions from counsel.  With respect, we do not find the relevant response of Patricia to have the effect that Mr Sakhrani contended for.  The context of that late evening conversation was that Yaakov had been trying hard (with previous attempts) to impress Patricia that it was a mistake on his part and pressed her for a short meeting.  Patricia tried to ward him off but Yaakov was insistent.  Towards the end of a tiring conversation, the following was said:

“ OY : Please, Patricia, don't leave it, don't leave it like this, Patricia, I am asking you very very honest ....

PP : One thing I can say is I will try how to solve it

OY : So let me meet you or William to try to solve it. I don't want to disturb you and I don't want to disturb William and I wish you both a happy life

PP : I know you are very nice also

OY : Tell me, Patricia but you know, you know it was a mistake. It was impossible to sell it in this price. It was mine only mistake.

PP : You are speaking from the first day until now.

OY : Yes, you know, yes because after the first day I never came back to check

PP : And you told me last night you bargain with the owner for the price

OY : Yes, but you know the problem, it was a currency mistake. People taking millions but they don't say US dollar or HK dollar. I am asking you as a friend you know also it was also much more ...

PP : Yes, I know, I know

OY : I don't know because this is not my type of business. I take it as a service from one guy to anther for you so you will be satisfied and we can open business together

PP : You told me you bargained for 2 nights, what are you taking about? Can you speak?

OY : I want to ask you something before we end up the conversation before you hang up. Can we solve it? You want to solve it? You want to help and solve it?

PP : We try to, how to say. I don't want to see your boss and the other guy

OY : I will come by myself, no one will come with me to see how we can solve it

PP : I know you are a very nice guy

OY : You are also a nice lady and I trust you 100%. Everyone knows you are honest and everyone also know are honest and that tis was a mistake between honest people. So respect me, I will come by myself.

PP : The deal is closed. Everything is closed. The goods are passed and everything is settled. I only ask the customer to see I will try it, try to ask the customer how they want to sell

OY : You ask your customer it will be impossible to take it back. Let's try to do it before you ask your customer. Let me try to offer you something for you and for your customer

PP : We are not in that position. Okay, thanks, bye bye. You are not honest to hold the problem, sorry.

OY : Don't leave me like this. I don't want to ......” (sic)

8.  Patricia had been cross-examined on that part of the telephone conversation during the trial.  She explained that she was only saying that she knew what Yaakov was trying to convey to her in the conversation: viz it was his mistake, see transcript of the trial at p.170H to 171I.  She categorically disagreed with the suggestion that she knew the necklace was worth a lot more at the time of the transaction: see p.170O.

9.  Viewed in that light, given the ambiguity in Patricia’s statement in the conversation and her explanation in her evidence about her statement, the probative value of that statement is very limited and we do not find it surprising that the judge did not refer to it in her judgment.

10.  In respect of the onward sale, the judge had directed her mind to the same and found the evidence of the Defendant unsatisfactory.  Thus, she said at [47] of the judgment:

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

11.  It should be noted that the judge did not reject the evidence of the Defendant regarding the response of Benny to the offer of US$2 million as she alluded to the same as part of her consideration at [51].

12.  She had plainly weighed this finding against the rest of the evidence when she continued at [48] to [49] and [51] to [52],

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

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

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

…

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

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

13.  From these paragraphs, it is clear to us that the judge reasoned as follows:

(a)   The burden of proof of knowledge was vested upon the Plaintiff;

(b)   The necklace was a unique item not commonly on the market and its price was largely a matter of the discernment of the vendor and the purchaser;

(c)   A reasonable purchaser in the position of the Defendant might regard the price as a bargain but not necessarily conclude that it had been a mistake;

(d)   Taking account of the initial offer of HK$7 million from the Plaintiff, the offer by the Defendant to Benny at US$2 million and the negotiations between the Plaintiff and the Defendant as reflected in the Whatsapp messages and the price as stated in the Agreement, the judge refused to draw the inference that Patricia and/or William actually knew that the Plaintiff had made a mistake;

(e)   The circumstances surrounding the sale do not give rise to a positive duty of inquiry on the part of William and/or Patricia to alert the Plaintiff to any possible mistake;

(f)   The market value of the necklace is unknown;

(g)   The judge accepted the evidence of William that he had not come across anything like the sapphire and he could not put a figure on its market value.  On his discernment, he would give it a value of HK$5 million;

(h)   On the evidence, the judge could not be satisfied that the Defendant was aware that the real intention of the Plaintiff was not to sell at HK$5.05 million.

14.  We cannot find any palpable error in such reasoning.

15.  Mr Sakhrani submitted that the judge erred in not taking suspicious surrounding circumstances into account.  The suspicious surrounding circumstances were the dubious onward sale and the reservation of the judge regarding the evidence of William and Patricia in that regard.

16.  With respect, it is plain to us that the judge had duly taken her reservation on such evidence into account.  As observed at the hearing, it was perfectly open to the judge to accept part of the evidence of William and Patricia notwithstanding her reservation on their evidence regarding the onward sale to Margaret Cheung.  The judge was plainly right in regarding the burden of proving the Defendant’s knowledge of mistake being vested on the Plaintiff.

17.  As held in Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd CACV 90-91, 93-96/2012, 17 September 2013, whilst adverse inference can be drawn in the assessment of evidence, there must have been some evidence (however weak) adduced by the other party on the matter in question amounting to a case to answer before such inference is permissible.

18.  In Prest v Petrodel Resources Ltd [2013] UKSC 34 at [44], Lord Sumption said:

“ There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities before a court can draw useful inferences from a party’s failure to rebut it.”

19.  In the present context, based on the reasoning as explained in [13] above, after giving regard to the unsatisfactory state of evidence on the onward sale, the judge found that the Plaintiff failed to establish a reasonable basis for suggesting that the Defendant had knowledge of the Plaintiff’s mistake.  In light of that, there is nothing to gainsay her refusal to draw adverse inference on knowledge against the Defendant simply because of the unsatisfactory state of evidence discussed at [47] of the judgment.

20.  This is particularly so when the judge did not reject all the evidence regarding the conducts of William and Patricia after the making of the Agreement.  As mentioned earlier, she accepted the evidence regarding the approach of Benny.  

21.  For these reasons, we were not persuaded that this Court has any proper ground to disturb the finding of the judge.  The appeal was dismissed with costs accordingly.