Sky Motion Holdings Ltd v. China Create Capital Ltd
Read the full judgment text of HCA 1151/2019 on BabelCite. This High Court CFI judgment was delivered on 6 May 2024.
1. The Defendant has, in breach of a written agreement, failed to transfer certain shares and notes to the Plaintiff despite the Plaintiff’s full payment of the purchase price. The Plaintiff has obtained judgment on liability for damages to be assessed. This is the consequent assessment of damages.
Cited by 7 cases · Cites 4 cases
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HCA 1151/2019 [2024] HKCFI 1123 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1151 OF 2019 ________________________ BETWEEN
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________________________ J U D G M E N T ________________________ Introduction 1.The Defendant has, in breach of a written agreement, failed to transfer certain shares and notes to the Plaintiff despite the Plaintiff’s full payment of the purchase price. The Plaintiff has obtained judgment on liability for damages to be assessed. This is the consequent assessment of damages. Background 2.The Plaintiff and the Defendant are both companies incorporated in the BVI. Jiayuan International Group Limited (“Jiayuan International”) was at the material time a company listed on the Hong Kong Stock Exchange (stock code: 2768). 3.By a written agreement dated 25 October 2018 (“Agreement”), the Plaintiff agreed to transfer HK$343,912,270 (“Sum”) to the Defendant and/or parties designated by the Defendant, and the Defendant agreed to transfer to the Plaintiff:-
4.On or before 25 October 2018, the Plaintiff made various transfers to the Defendant and its designated parties in the total sum of HK$455,662,270, comprising the Sum and a balance of HK$111,750,000 for the repayment of loans due from the Plaintiff to the Defendant under a separate transaction. 5.On or around 31 October 2018, the Defendant transferred 3,450,000 shares in Jiayuan International to the Plaintiff. On or around 8 November 2018, the Defendant transferred another 2,000,000 shares to the Plaintiff. However, despite the Plaintiff’s demands, the Defendant has failed to transfer the remaining 85,760,000 shares (i.e. the Subject Shares) and the Subject Notes to the Plaintiff. Procedural History 6.As will become clear, the procedural history of this case has some bearings on the assessment of damages, in particular the date of assessment, as well as two ancillary applications made by the Plaintiff for release of monies paid into court. It is thus necessary to briefly set out the history of the proceedings. 7.Prior to commencing this action, the Plaintiff obtained on an ex parte basis a Mareva and proprietary injunction against the Defendant on 24 June 2019 (“Injunction Order”). The Mareva injunction restrained the Defendant from disposing of assets up to the value of HK$343,912,270 (ie the value of the Sum) whereas the proprietary injunction restrained the Defendant from dealing with the Subject Shares and Subject Notes. 8.The Plaintiff subsequently issued the Writ of Summons on 26 June 2019. In the prayer for reliefs in the Statement of Claim dated 13 September 2019, the Plaintiff sought specific performance of the Agreement and/or damages and/or equitable compensation. 9.The Injunction Order was continued on 5 July 2019, when the Plaintiff was ordered to provide fortification in respect of its cross-undertaking as to damages in the sum of HK$10,000,000 by way of payment of cash into court. The Plaintiff made the payment into court on 19 July 2019. The Injunction Order was subsequently continued again on 25 September 2019 until trial or further order. 10.Separately, on 2 December 2019, by consent, the Plaintiff was ordered to pay into court a sum of HK$1,800,000 as security for costs. The Plaintiff made the payment into court on 19 December 2019. 11.On 7 May 2020, the Plaintiff filed a summons (dated 7 April 2020) seeking summary judgment on liability for damages to be assessed, and it filed an Amended Statement of Claim with no change to the prayer for reliefs. After the hearing before the Court of First Instance on 5 January 2021, the Defendant was granted unconditional leave to defend. On the Plaintiff’s appeal, the Court of Appeal on 16 June 2021 set aside the order below and granted the Defendant conditional leave to defend instead – the condition being the Defendant’s payment of HK$295,014,400 into court within 28 days, failing which the Plaintiff would be at liberty to enter judgment on liability with damages to be assessed. 12.Eventually the Defendant did not make the payment into court. On 23 March 2022 the Plaintiff entered judgment against the Defendant on liability with damages to be assessed. The Hearing 13.For the purpose of this hearing, the Defendant has filed two witness statements of Ms Wang Tao, the sole director and shareholder of the Defendant. Ms Wang was not called to testify in court, and it is common ground that as a result her two statements are not admissible evidence. 14.The Plaintiff has filed two witness statements of Mr Yang Chen, the president of the Plaintiff. Mr Chen’s evidence relates mostly to the undisputed background and procedural history of the case, as well as the market price of the shares of Jiayuan International and of the notes issued by Jiayuan International at various points of time. 15.During cross examination, Mr Chen accepted that he joined the Plaintiff as its president in June 2019 and so he did not have personal knowledge of the matters pertaining to the negotiation and performance of the Agreement that took place in 2018. He also accepted that since 21 December 2018, Ms Xie Xinhong had become the sole shareholder and director of the Plaintiff, so it was Ms Xie who would make the final decision relating to the Plaintiff’s affairs. 16.Nothing really turns on Mr Chen’s evidence. At the hearing, the main bone of contention between the parties was the legal argument as to the date of assessment of damages. Date of Assessment 17.Mr Patrick Chong, counsel for the Plaintiff who appeared with Mr Michael Ng, submitted that the date of assessment should be fixed on 7 April 2020, ie the date when the Plaintiff applied for summary judgment where the relief for specific performance was aborted. 18.In this connection, Mr Chong relied on the English House of Lords decision in Johnson v Agnew [1980] AC 367, where it was held that the date on which the remedy of specific performance became aborted should be fixed as the date for assessing damages. Lord Wilberforce said the following at 401D:-
19.In Lau Suk Ching Peggy v Ma Hing Lam also known as Wingo Ma (2010) 13 HKCFAR 226, the Court of Final Appeal has considered Johnson v Agnew in relation to the issue of assessment of damages. Lord Millett NPJ said at §61 that:-
20.Mr Chong submitted that when the Plaintiff took out the summons for summary judgment on 7 April 2020, it only sought judgment on liability with damages to be assessed, thereby having aborted the claim for specific performance. 21.The Plaintiff’s decision to abandon the relief for specific performance was prompted by the Defendant’s own disclosure – when the Defendant opposed the continuation of the Injunction Order, it filed an affirmation of Ms Wang dated 16 August 2019 where she deposed that “the Defendant does not currently hold any of the Notes and is only holding a small amount of shares of Jiayuan International”. Mr Chong thus submitted that it was not unreasonable for the Plaintiff to initially pursue the remedy of specific performance but ultimately abandon it when it applied for summary judgment. 22.Mr Howard Chan, Solicitor Advocate for the Defendant, submitted that the date of assessment should be fixed on 23 March 2022, ie the date on which the Plaintiff entered judgment against the Defendant on liability with damages to be assessed, after the Defendant failed to fulfill the condition imposed by the Court of Appeal for leave to defend. 23.Mr Chan’s arguments, in sum, are that the date for assessment of damages should be fixed on the date when specific performance became impossible. In the present case, before 23 March 2022, there was no certainty that specific performance would not be awarded by the court:-
24.With respect, I am unable to agree with Mr Chan. The whole basis of Mr Chan’s arguments is that the Plaintiff was at all material time still pursuing the remedy of specific performance, and only obtained damages in lieu when the Court of Appeal entered judgment in its favour, rendering specific performance impossible. He therefore relied on authorities such as Wroth v Tyler [1974] Ch 30 at 60E-F and Radford v De Froberville [1977] WLR 1262 at 1286E-F to contend that the appropriate date of assessment should be the date of judgment. 25.That, however, is not what actually happened in this case. The Plaintiff did not press ahead with its claim for specific performance and did not seek damages in lieu only when performance of the Agreement became impossible or when specific performance was not granted by the court because of some discretionary bars. Rather, when the Plaintiff took out the summons for summary judgment, it clearly opted only for the relief of damages. 26.Properly analyzed, the Plaintiff was seeking common law damages, having elected to abandon the claim for specific performance. As Mr Chong has rightly pointed out, a party who has chosen to put an end to a contract by accepting the other party’s repudiation cannot afterwards seek specific performance. Thus, the Defendant’s breach of the Agreement must be taken to have been accepted and the remedy of specific performance must be taken to have been aborted when the Plaintiff sought damages in its summary judgment application, notwithstanding that the relief of specific performance had somehow not been crossed out in the Amended Statement of Claim. 27.In any event, even assuming the Plaintiff obtained damages in lieu of specific performance, there is no inflexible rule that the date of assessment has to be the date of judgment. As the learned authors of Hong Kong Conveyancing Law and Practice (rev. 2024) observed at [1555]-[1600] (a passage cited with approval in Kwai Tak Ming v KS Capital One Limited (unrep., HCA 679/2012, 21 October 2014) at §10):-
28.The Plaintiff has completed its side of the contract by paying the Sum in full to the Defendant. It was reasonable for the Plaintiff to seek specific performance when it first commenced proceedings (which was also accepted by Mr Chan), as there was nothing to suggest that the Defendant could not perform its obligations under the Agreement. It was also reasonable for the Plaintiff to subsequently seek damages only, after being alerted to the fact that the Defendant did not actually possess the requisite number of shares and notes for it to perform the Agreement. 29.The date of assessment should therefore be fixed on the date when the Plaintiff aborted the claim for specific performance. In the normal course of event, I would have agreed with Mr Chan that the date of the summons for summary judgment, ie 7 April 2020, should not be adopted for the purpose of assessment. Rather, it is the date when the Plaintiff filed the summons, ie 7 May 2020, thereby making its stance known, that matters. However, I was informed at the hearing that the Plaintiff actually did serve the summons on the Defendant on 7 April 2020, and the summons could not be filed until a month later only because of the closure of the High Court Registry due to the coronavirus pandemic at that time. In the circumstances, I would fix the date of assessment at 7 April 2020. Value of the Subject Shares and Subject Notes 30.Mr Chong for the Plaintiff submitted that the starting point for assessment of damages for breach of contract 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: Johnson v Agnew at 400H. Where the breach of contract consists in a failure to transfer property, the basic loss is the market value of the property, minus the contract price if not already paid: McGregor on Damages (21st Ed 2021) at §4-004. 31.The Defendant did not dispute that the market price should be taken for the valuation of the Subject Shares. However, for the Subject Notes, Mr Chan submitted that if the assessment date was to be fixed at 23 March 2022, the Subject Notes would have already matured so there would be no secondary market value for them; their face value should be adopted. Since I have ruled that the assessment date should be 7 April 2020, this concern does not arise. 32.I would therefore adopt the market value of the Jiayuan International shares and its notes in valuing the Subject Shares and Subject Notes. There is no dispute that the share price of Jiayuan International as of 7 April 2020 was HK$3.19 per share. As to the Subject Notes, the secondary market price of the notes as of 7 April 2020 was US$0.95917 per US$1. Quantum and Interest 33.Applying the market price of the shares and notes as at 7 April 2020 to the actual number of Subject Shares and Subject Notes, the damages payable in respect of the Subject Shares and the Subject Notes are HK$273,574,400 (HK$3.19 x 85,760,000) and HK$261,181,991 (US$35,000,000 x 0.95917 x 7.78) respectively, with the total sum being HK$534,756,391. 34.For the sake of completeness, I would set out below what the quantum of damages would have been if I had chosen other assessment dates (for the record, the Plaintiff fairly did not propose adopting the date of breach or the filing date of the summons, which would have resulted in a higher sum of damages):-
35.The Plaintiff also sought pre-judgment interest at 1% over the HSBC prime rate, and did not pursue the pleaded claim for pre-judgment interest at the contractual rate of 0.5% per day. 36.The Defendant opposed the award of pre-judgment interest, praying reliance on Horace Yao Yee Cheong v China Technology Global Corporation (formerly known as DF China Technology Inc and Dransfield China Paper Corporation) (unrep, HCA 1284/2004, 2 April 2007). In that case, the plaintiff claimed remuneration payable in the form of shares and contended that he was entitled to damages in lieu of specific performance. Reyes J awarded damages in lieu to the plaintiff but did not award pre-judgment interest, one reason given at §47 being that if the plaintiff had been paid the shares by the defendant and disposed of them on the same day, the share price might have fluctuated downwards. Hence, “[denying] pre-judgment interest would cater for and counter-balance against the possibility of a greater downward fluctuation.” 37.Each case would depend on its own facts, and I do not consider that the aforesaid observations apply to the present case. The Plaintiff here is claiming damages under common law. Thus, in assessing damages, this court is to put the Plaintiff in the same position as of 7 April 2020 in monetary terms as if the Defendant had performed the Agreement. It would seem irrelevant to consider the possible impact on the market price of the shares and notes in the hypothetical situation where the Plaintiff was given the Subject Shares and Subject Notes to be disposed of on 7 April 2020. 38.I would therefore award interest at 1% over the HSBC prime rate, which is the usual pre-judgment interest rate, from 7 April 2020 to the date of this judgment, and thereafter at judgment rate until payment. Release of Monies Paid into Court 39.As noted above, the Plaintiff has paid into court a sum of HK$10,000,000 as fortification monies and a sum of HK$1,800,000 as security for costs. The Plaintiff relied on Order 22A of the Rules of the High Court to apply for the release of those two sums back to the Plaintiff. Rule 1(1) of Order 22A provides that:-
40.As held in MGA Entertainment Inc formerly known as ABC International Traders, Inc doing business as MGA Entertainment v Toy and Trends (Hong Kong) Limited (unrep, HCA 2152/2002, 15 July 2014) at §§16-17, the court has an unfettered discretion under Order 22A which should be exercised so as to achieve justice between the parties. The discretion should be exercised on a case by case basis, depending on all the circumstances of the case before the court. 41.The Defendant did not object to the release of HK$1,800,000 to the Plaintiff. At the hearing, I was satisfied that the Plaintiff’s application relating to this sum was governed by Order 22A and I ordered by consent that the sum together with the interest accrued thereon be paid out to the Plaintiff through its solicitors. 42.The Defendant objected to the release of the fortification monies of HK$10,000,000, arguing that the Injunction Order was still in force and, in the absence of material change of circumstances, the Plaintiff’s liability arising from its cross-undertaking as to damages was not affected. I was not persuaded by this argument. The fortification was ordered to afford protection to the Defendant in the event that the Injunction Order turned out to be wrongly granted and the Defendant suffered damages as a result. Interlocutory judgment has now been entered against the Defendant, and even the Defendant’s proposed quantum of damages of HK$ HK$490,304,800 was larger than the restrained sum. It is unreal to suggest that the Defendant may somehow enforce the Plaintiff’s cross-undertaking as to damages. 43.That said, the fortification monies were paid into court pursuant to the order of Mimmie Chan J when she continued the Injunction Order. Seeking a release of the fortification monies is tantamount to seeking a variation of the Injunction Order, and I did not think I had jurisdiction to deal with such an application. Having noted my concern and seeing the necessity for the Plaintiff to apply to extend the Injunction Order before a judge in any event, Mr Chong for the Plaintiff did not press ahead with the application for the release of the fortification monies and indicated that the Plaintiff may make the application in an appropriate occasion. Disposition 44.I make the following orders:-
45.During the hearing, I heard the parties’ submissions on costs. Mr Chan for the Defendant sensibly conceded that the Plaintiff should be awarded costs if I am to accept the Plaintiff’s proposed valuation date, which I do. I therefore make an order that costs of the action (including the assessment of damages) be paid by the Defendant to the Plaintiff, to be taxed on a party to party basis if not agreed, with certificate for one counsel.
Mr Patrick Chong and Mr Michael Ng, instructed by Au & Vrijmoed, for the Plaintiff Mr Howard Chan, Solicitor Advocate of Fangda Partners, for the Defendant |
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