JADE BASE INVESTMENT LTD v. FAN WONG & TSO (a firm)

HCA 5212/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5212 OF 2001

_________________________

_________________________

HCA 5213/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5213 OF 2001

_________________________

BETWEEN

_________________________

(Consolidated pursuant to the Order of Master Cannon on 1st February 2002)

___________________________

ASSESSMENT OF DAMAGES

___________________________

Background

1. By the Statement of Claim filed herein dated 4 December 2001 the Plaintiffs claimed against the Defendant for specific performance of an undertaking and/or alternatively damages in lieu of specific performance.

2. Interlocutory judgment on liability was obtained on 28 April 2003 with damages to be assessed.

The Plaintiffs' case

3. Jade Base Investment Ltd (“JB”) is the Plaintiff in High Court Action No. 5212 of 2001.  It was the registered owner of the property known as Flat A on 34/F and car park no. 312, No. 35-37 McDonnell Road (“34A”).

4. Ticsound (Music) Ltd (“Ticsound”) is the Plaintiff in High Court Action No. 5213 of 2001.  It is the registered owner of the property known as Flat A on 33/F and car park no. 218, No. 35-37 Mcdonnell Road (“33A”).

5. Back in 1993, JB and Ticsound mortgaged 34A and 33A to a finance company known as Shun Kai Finance Company Ltd (“SKF”) (“the 1st Mortgages”).

6. SKF in turn mortgaged the properties to Japan Leasing (HK) Ltd (“JL”) (“the 1st Sub Mortgages”).

7. In 1995, JB and Ticsound entered another mortgages in respect of 34A and 33A with SKF (“the 2nd Mortgages”).

8. SKF further submortgaged the properties to JL (“the 2nd Sub Mortgages”).

9. In 2001, the Plaintiffs would like to redeem the 1st and 2nd Mortgages and through their solicitors, Messrs. Chui & Lau (“C&L”) made enquiries about the sum payable on redemption of these properties.

10. At the material times, the Defendant was the solicitors acting for SKF while Messrs. Baker & McKenzie (“B&M”) acted for JL.

11. On 5 September 2001, the Defendant wrote to C&L informing them the amount payable to SKF and JL in order to obtain a discharge of the Mortgages and Sub Mortgages.  The sum payable to SKF were HK$2,790,477.16 for (34A) and HK$2,193,657.17 (for 33A) respectively.  The sum payable to JL were HK$2,036,813.40 (for 34A) and HK$2,588,796.54 (for 33A).  B&M will charge $3,000 for each property.  The last 3 figures were quoted by JL.

12. Cheques for the said sums were sent by C&L to the Defendant on 13 September 2001 with a covering letter notifying the Defendant that the cheques were made available for representation for payment against the Defendant’s personal undertaking (“the Undertaking”) to send to C&L within 17 days, inter alia, the duly executed and attested Discharge of the 1st and 2nd Mortgages and the 1st and 2nd Sub Mortgages.

13. The Defendant failed to perform the Undertaking in that they failed to send the Discharge of the 1st and 2nd Sub Mortgages and other related documents to C&L.

14. It is common ground that JL refused to execute the discharge on their part because the figures quoted by JL as referred to in the Defendant’s letter dated 5 September 2001 were incorrect in that JL had failed to include the sum payable to redeem the 2nd Sub Mortgages.  The figures quoted by JL were only sufficient for the redemption of the 1st Sub Mortgages.  However, the sums paid to SKF by the Plaintiff included the sum for discharging the 2nd Sub Mortgages.  In short, SKF pocketed the money belonging to JL under the 2nd Sub Mortgages.

15. JB sold 34A in 2004 and on 2nd July 2004 paid JL HK$6,254,093.30 to obtain a discharge of the Sub Mortgages concerning 34A.  This figure comprised of the principal, interest and overdue interest owed by SKF to JL.  There is no dispute that no one repays the principal to JL since May/June 2001.  33A is still subject to the Sub Mortgages.

16. The Plaintiffs called 2 witnesses.  The first witness is Ms. FUNG Yuk Fan.  She adopted the contents of her witness statements dated 24 February 2003 and 28 February 2005 respectively as her evidence which verified the Plaintiffs’ claim.

17. The second witness is Mr. Fergal POWER who is the senior manager of KPMG, liquidators of JL, and involved in the liquidation of JL.  He explained the contents of the schedules, showing the amount owing by SKF to JL in respect of 34A, at pages 178 to 181 of the witness bundle,  being part of the exhibit of Ms. FUNG’s witness statement. He confirmed that the total sums owing by SKF to JL as on 4 June 2004 were HK$3,600,472.85 and HK$2,653,566.45 respectively.

18. Mr. POWER further explained similar schedules in relation to 33A.  He confirmed that the sums payable to JL to obtain a discharge of the 1st and 2nd Sub Mortgages as on 6 February 2006 are HK$4,447,304.15 and HK$3,381,515.85 (total = HK$7,828,820) (see page 258 and page 295 of Bundle C2).  According to his calculations, the sum due under the 1st Sub Mortgage attracts daily interest at the rate of around HK$1,700.  Adopting his formula, the daily interest for the sums due under both Sub Mortgages is HK$3,110.92.

Preliminary Issue

19. In the light of my query at the commencement of the hearing, Mr. Li, Counsel for the Plaintiffs, invited the Court to rule, as a preliminary issue, whether it was open to the Defendant to argue that the Plaintiff in fact suffered no loss.  Mr. Li submitted that according to the skeleton submission of Mr. Bartlett, Counsel for the Defendant, it appeared that the Defendant sought to re-argue matters that had been fully canvassed in the Order 14 application before Master Ho who eventually granted summary judgment against the Defendant.  I ruled in favour of the Plaintiffs and held that, in the light of the English authority Pugh v Cantor Fitzgerald International [2001] EWCA Civ 307, in an assessment of damges, all issues were open to a defendant save to the extent that they were inconsistent with the earlier determination of the issue of liability. Since the arguments to be advanced on behalf of the Defendant, as per Mr. Bartlett’s skeleton, were inconsistent with the determination of liability, I ruled that the Defendant was not entitled to argue those matters in this hearing.

20. Upon my ruling, Mr. Bartlett asked for an adjournment so that the Defendant can appeal against my decision.  I refused such application.

The Defendant's case

21. The Defendant did not call any witness.  They maintained throughout the hearing that the Plaintiffs suffered no loss and if the Plaintiff did suffer any loss, such loss was not occasioned by the breach of the Undertaking.

Findings and Assessment

22. The Plaintiffs relied on the evidence of Mr. POWER to prove what sums are payable in order to obtain a discharge from the Sub Mortgages. While it is noted that there is no documentary evidence to support Mr. POWER’s version, there is no evidence to contradict what he said.

23. The figures including interest rates given by KPMG were not positively challenged by BDO McCable Lo & Co, liquidators of SKF, who should be in the best position to do so if they have anything concrete to suggest otherwise.

24. I accept the evidence and thus the figures given by Mr. POWER.

25. I agree with Mr. Li that the Plaintiffs should be put in the same position as if the Defendant had complied with the Undertaking.

26. For 34A, JB had paid HK$6,254,039.30 to obtain the release of the Sub Mortgages.  It meant that the Plaintiff had paid HK$4,217,225.90 more than the sum that JB was required to pay JL back in 2001.  JB should be entitled to such difference as damages.

27. For 33A, the same principle applies.  Ticsound should be entitled to damages representing the difference between the sum payable to JL to obtain the release from Sub Mortgages and the sum payable to JL in 2001.

28. As of today (6 February 2006) such difference is HK$5,240,023.46 (HK$7,828,820 – HK$2,588,796.54) plus a daily addition of HK$3,110.92 thereafter.

Conclusion

29. JB is entitled to damages in the sum of HK$4,217,225.90 together with interest at commercial rate from 2nd July 2004 to today and thereafter at judgment rate.

30. Ticsound is entitled to damages in the sum of HK$5,240,023.46 (as on 6 February 2006) and an additional daily sum of HK$3,110.92 until payment. Ticsound is also entitled to interest, if any, at judgment rate from the date it obtains releases from the Sub Mortgages till the Defendant pays up the damages.  This however should be subject to an undertaking to be given by the Plaintiff to the effect that they should only enforce this judgment to such extent to obtain the release of the Sub Mortgages (I shall leave it to the Plaintiff to submit the draft undertaking for the Court’s approval within 14 days). Liberty to apply.

32. I make an order nisi in respect of costs: the Defendant do pay costs of the assessment, including costs reserved, if any, to be taxed if not agreed.  Certificate to Counsel.  This order shall be absolute 14 days after the handing down of this judgment.