Szeto Ming and Another v. Li Man Kee Gailey
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DCCJ 1991/2008 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 1991 OF 2008 --------------------
Coram : Her Honour Judge H.C. Wong in Court Dates of Hearing : 15-17 December 2009, 13-14 April 2010 Date of Handing Down Judgment : 10 August 2010 JUDGMENT 1.The 1st Plaintiff Szeto Ming (“Szeto”) and the 2nd Plaintiff Lee Man Yin (“Man Yin”) are husband and wife. The Defendant Lee Man Kee Gailey (“Gailey”) is a younger sister of the 2nd Plaintiff. The Plaintiffs claimed that by an oral agreement between the Plaintiffs and the Defendant on or about 11 July 2002, the Plaintiffs agreed to lend to the Defendant a sum of $200,000 which the Defendant promised to repay on or before 31 January 2003 (“the 1st agreement”). 2.A few days after the 1st agreement, the Defendant (“Gailey”) requested the Plaintiffs for a further loan of $500,000. The Plaintiffs agreed to lend to Gailey 50,000 shares of the Hong Kong and China Gas Company Limited (“The Towngas share”), they would sell the shares for the benefit of Gailey on condition that she would repay to them the same number of Towngas shares plus all dividends and/or bonus shares issued and distributed by Towngas during the period up to and until full repayment of the loan. Gailey further promised to repay the loan on or before 31 January 2003. (“the 2nd agreement”). 3.Pursuant to the 2nd agreement, Man Yin, sold 50,000 Towngas shares in the open market on 15 July 2002 and deposited the net proceeds of sale of $517,857.60 into Gailey’s bank account on 16 & 17 July 2002. 4.Between October 2002 and March 2007, Gailey made certain repayments to Szeto and Man Yin. According to the Plaintiffs’ case, the outstanding Towngas shares plus bonus shares and dividends due from the Defendant to the Plaintiffs to date are:
Undisputed facts 5.It is not disputed that:
Issues of dispute 6.(1) whether the stock loan under the 2nd Agreement was fully settled in 2003 as alleged by the Defence;
The Plaintiff’s Case 7.The Plaintiffs and the Defendant had an amicable relationship before July 2002. In the late 1980s, after Gailey returned to Hong Kong from Canada, she began trading actively in the Hong Kong stock market. As neither Man Yin and Szeto was familiar with trading in stocks and shares in the security market at the time, they purchased shares through Gailey at her account with Wardley James Capel (Far East) Limited. Both Szeto and Man Yin claimed their investments in the stock market were long term savings for their retirement. Hence, they invested mostly in blue-chips company shares such as Hysan Development, First Pacific and Hong Kong & China Gas which they hope would provide a stable income each year. In those days, shares would be purchased through Gailey and Man Yin would deposit payments into Gailey’s Wardley’s account each time shares were purchased by her and Szeto, Gailey would keep the shares purchased in her Wardley account on behalf of Man Yin and Szeto. She would regularly account to Man Yin and Szeto the dividends and bonus shares issued paid into Gailey’s account at Wardley. In or about 1994, after Man Yin opened her own security trading account with Ramon Investment Co. Ltd. (“Ramon”), she and her husband began to purchase shares directly through her Ramon account. The shares they had purchased through Gailey consisted of 10,000 Hysan Development shares, 100,000 First Pacific shares and 60,000 to 70,000 Hong Kong and China Gas shares continued to be kept in Gailey’s Wardley account until they were gradually transferred by repurchases through the account at Ramon. The final transfer of 161,000 Towngas shares was made by repurchase on 30 and 31 January 2002. 8.On 11 July 2002, Gailey requested a loan of HK$200,000 from Szeto. Szeto agreed as he understood Gailey had a temporary urgent need for the money. A few days later on 13 July 2002, Gailey requested a further loan of HK$500,000 from Szeto as a bridging loan for temporary relief of her financial difficulties at the time. As the loan requested was a large one and he did not have the money ready in cash, after a discussion with Man Yin, they eventually agreed to lend 50,000 Towngas shares to Gailey upon Gailey’s assurance to both that she had liquid assets in the bank and proceeds from the sale of her house in Canada would be remitted to Hong Kong shortly. Man Yin claimed it was made clear to Gailey that the loan was for 50,000 Towngas shares and Gailey was required to repay the same number of shares together with all dividends and bonus shares issued in the meantime. Furthermore, they demanded from Gailey a written memorandum to acknowledge her indebtedness to Man Yin and Szeto consisting of the cash loan of HK$200,000 and the 50,000 Towngas shares. 9.Upon Gailey’s agreement to the aforesaid conditions, on 15 July 2002, Man Yin sold 50,000 Towngas shares at the price of $10.40 per share through her broker Ramon Investment Company Limited. As settlement for the sale of the shares took place 2 days later on 17 July 2002, Gailey telephoned Man Yin requesting an immediate advance of HK$150,000 out of the loan of the 50,000 Towngas shares loan on 16 July 2002. Man Yin agreed to the request and transferred the cash sum of HK$150,000 from her own bank account to Gailey’s bank account on the same day. On 17 July 2002 upon being given a broker’s cheque for the proceeds of sale of the 50,000 Towngas shares in the sum of HK$517,857.60 after deduction of expenses, she presented the cheque in person at the bank and transferred the balance of $367,857.60 into Gailey’s bank account at Hang Seng Bank. On 28 July 2002, Gailey gave to Man Yin a memorandum acknowledging the loan of 50,000 Towngas shares and the cash loan of HK$200,000 promising that both loans would be repaid in full on or before 31 January 2003 (See page 99 of the Bundle). 10.On 6 October 2002, Gailey gave Man Yin a post-dated cheque dated 11 October 2002 in the sum of HK$206,000. She was also given a written note stating that the cheque was for the repayment of the cash loan made on 11 July 2002 with interest up to 11 October 2002 at 1% per month (See page 100 of the Bundle). Man Yin claimed Gailey had never told her or her husband that the HK$206,000 should be used to acquire the Towngas shares. 11.As neither Man Yin nor her husband had asked for interests on the loan, Man Yin told Gailey the extra sum of HK$6,000 would be treated as interim dividend of the Towngas shares for 2002 as the interim dividend declared by the company in October 2002 was 12 cents per share. 12.Man Yin claimed that at the Sunday family gathering at their parents’ home in late October 2002, Gailey gave her a deposit slip showing on 26 October 2002 she had deposited a sum of HK$6,000 into Man Yin’s savings account at the Hong Kong Bank as payment for the interim dividend for 2002 on the 50,000 Towngas shares. Since Man Yin and Szeto did not intend Gailey to pay interest on the cash loan, they decided to return the HK$6,000 to Gailey, they did so on 31 October 2002 by depositing the said sum into Gailey’s bank account at the Hang Seng Bank. 13.In spite of her promise to return the 50,000 Towngas shares on or before 31 January 2003, Gailey failed to do so. Even though Man Yin had repeatedly reminded Gailey to return the loan in the months that following January 2003, Gailey kept asking for time telling Man Yin she had been diagnosed with brain tumor and required a lot of money for her medical care. 14.On 29 May 2003, Gailey telephoned Man Yin to inform her she had deposited a sum of HK$11,500 into Man Yin’s savings account at the Hong Kong Bank as payment of the final dividend of the 50,000 Towngas shares for the year of 2002 which was 23 cents per share. On 29 June 2003, Gailey informed her she was going to deposit the sum of HK$200,000 into her bank account on 30 June 2003 so that Man Yin can repurchase the Towngas shares in the stock market as part payment of the 50,000 shares she had borrowed from them. Man Yin claimed it was the first time Gailey had ever asked her to use the money repaid by her to repurchase the shares borrowed by Gailey. On 9 July 2003, Man Yin and Szeto applied the HK$200,000 repaid by Gailey to purchase the Towngas shares at HK$9.85 per share. As the share price had come down, they managed to purchase 20,000 Towngas shares for HK$197,811.70, leaving a cash balance of HK$2,188.30. 15.The Plaintiffs claimed Gailey had failed to return the remaining 30,000 Towngas shares to them in spite of repeated requests, Gailey had used the same excuse claiming she needed the money for her own medical treatments at Queen Mary Hospital. They further claimed that in the 3 years following the last payment of HK$200,000, Gailey had failed to pay to them any part of the dividends or bonus shares issued by Towngas in spite of repeated requests. According to Man Yin, the dividends receivable on the 30,000 Towngas shares between 20 October 2002 and 22 May 2006 amounted to HK$31,500. When she received, in early July 2006, the sum of HK$30,000 deposited into her Hong Kong savings account by Gailey, she assumed the sum was for the payment of the dividends declared between October 2003 and May 2006. 16.On 14 August 2006, Gailey deposited a further sum of HK$30,000 into Man Yin’s savings account at Hong Kong Bank. At the time, the Towngas shares were fluctuating between HK$17 and HK$18.20. Even at the average price of HK$17.60, with the HK$30,000, they could only purchase one lot of 10,000 shares with the sum of HK$12,000 remaining. For this reason, they did not purchase any shares with the HK$30,000 returned to them. The Plaintiffs claimed even if they had purchased one lot of 10,000 shares, Gailey would still owe them 29,000 Towngas shares. Apart from making a further payment of HK$5,000 on 13 March 2007 deposited into Man Yin’s Hong Kong Bank account, Gailey failed to repay any further sums or shares to Man Yin and Szeto to date. Further, as Towngas had declared and issued one bonus share for 10 in May 2007 and May 2008, Man Yin claimed it is equivalent to 2,900 shares for the 29,000 shares Gailey owed her and Szeto, and 3,190 shares in May 2008 for the 31,900 outstanding to them. The total being 6,090 shares, she claimed she is therefore entitled to the return of 35,090 shares and dividends declared during the period of HK$19,792. The Defence Case 17.The Defendant did not dispute receiving the cash loan of HK$200,000 from Szeto on 11 July 2002 and a further loan of HK$500,000 on 14 July 2002 from the Plaintiffs. She admitted Man Yin had telephoned her on the evening of 14 July 2002 agreeing to lend her the proceeds from the sale of 50,000 Towngas shares they owned, requesting the return of the same number of shares to them later on. She further admitted that on 16 July 2002 she received the sum of HK$150,000 from Man Yin, while the balance of HK$367,857.60 was received on 17 July 2002. She was given a copy of the sale invoice of the 50,000 Towngas shares from Man Yin on 21 July 2002 at their parent’s home. In return, she gave them a memorandum acknowledging the loan of HK$200,000 cash and 50,000 Towngas shares, promising to return the said loans on 31 January 2003. 18.On 6 October 2002, she gave them a cheque in the sum of HK$206,000 informing them that the sum of $6,000 was interest on the cash loan. She claimed, however, that when she talked to Man Yin on 15 October 2002 she was told no interests would be charged on the cash loan of HK$200,000. She then informed Man Yin she should use the HK$206,000 as repayment of the Towngas shares and repurchased the shares to avoid unexpected future fluctuation of the Twongas shares in the stock market. 19.On 26 October 2002, Gailey deposited a further sum of HK$6,000 into Man Yin’s Hong Kong Bank savings account for the payment of interim dividend on the 50,000 shares. On the next day, 27 October 2002, at the family gathering at their parent’s home, there was a quarrel over a misunderstanding by Man Yin that her mother had accused her of charging HK$6,000 interest on the cash loan to Gailey. The quarrel consequently disclosed to their parents Gailey’s borrowing of HK$200,000 cash and 50,000 Towngas shares from Man Yin and Szeto. Because Man Yin told their parents she had no intention of charging any interest on the cash loan, their father ordered Man Yin to repurchase the shares immediately with the money repaid by Gailey to avoid misunderstanding and further arguments in future. 20.On 31 October 2002, Gailey received the sum of HK$6,000 deposited by Man Yin into her Hang Seng Bank account. She claimed she had telephoned Man Yin and requested her to repurchase the shares with the HK$200,000 she had repaid on 11 October 2002. It was her evidence that the share price at the time was around $9. She further claimed on 31 January 2003, when she telephoned Man Yin and informed her she was unable to repay the full amount of the loan on 31 January 2003, Szeto and Man Yin agreed to defer the repayment of the cash loan. She further claimed that in March 2003 during the SARS epidemic period, she had telephoned Man Yin and told her on several occasions to repurchase the shares because the share price had fallen below HK$9 per share at the time. 21.It came as a surprise to Gailey in about May 2003 to discover Man Yin and Szeto did not apply the HK$200,000 repaid in October 2002 to repurchase the shares. Consequently, Gailey paid to them the sum of $11,500 equivalent to the final dividend declared on the 50,000 Towngas shares. She claimed that she again urged Man Yin to repurchase the shares because the share price had gone down in 2003. 22.The next payment of HK$200,000 to the Plaintiffs at the end of June 2003 was made through her father who had instructed her to transfer the repayment through his account into Man Yin’s account at the Hang Seng Bank. This was done on 30th June 2003. 23.Gailey claimed their father had told Man Yin in early July 2003 to apply the second payment of HK$200,000 repaid to purchase the shares immediately. According to Gailey, at the time, her father had told the Plaintiffs that if the HK$400,000 Gailey repaid them was insufficient to repurchase the 50,000 Towngas shares, he would make up the difference himself and Man Yin was told not to mention the matter ever again. 24.It is Gailey’s evidence that some time in July 2003, she had telephoned Man Yin and enquired about the share repurchase and requested for copies of the sale invoice on the repurchase, but, she was not shown any sale invoices. 25.Between July 2003 and mid 2005, Gailey seldom saw Man Yin and her husband; she had however communicated on the telephone with Man Yin. She also claimed that she had called up Szeto a number of times to explain to him her situation and the delay in repayment of the loan. She claimed she told him it was because her mother’s diabetic condition had deteriorated in 2004 leading to kidney dysfunction, expensive medical care and treatments were required, further, their father was suffering from old age problems, she was the only child paying for their private medical care. She claimed the Plaintiffs understood her situation and did not press for repayment of the loan. 26.On 6 July 2006 and 6 August 2006, Gailey paid two further sums of HK$30,000 into Man Yin’s Hang Seng Bank account as repayment of the cash loan. 27.Since early August 2006, their father had been hospitalised repeatedly, he finally succumbed to cancer and died in January 2008. She claimed the medical bills of their father and mother had been fully borne by her. Because of her mother’s illness, she needed to conserve her financial resources in case of sudden needs required by her mother. Consequently, she did not pay any further sums to the Plaintiffs until 30 March 2008 when she transferred the sum of HK$5,000 to Man Yin’s Hong Kong Bank account. She conceded that HK$135,000 of the cash loan is still outstanding but she denied the Plaintiffs are entitled to the return of 35,090 Towngas shares. Issues in dispute Issue 1: Whether the stock loan under the 2nd agreement was fully settled in 2003 as alleged by the Defence 28.In order to determine if the loan of the shares was fully settled in 2003, the following had to be considered:
(a) Whether the HK$206,000 payment on 6 October 2002 represented settlement of the cash loan? 29.It is not disputed that Gailey handed over a post-dated cheque in the sum of HK$206,000 to Man Yin on 6 October 2002, at the same time, she gave Man Yin a photocopy of the post-dated cheque endorsed with the remarks that the cheque was for the repayment of the HK$200,000 cash loan borrowed on 11 July 2002 together with interests at 1% per month. Gailey told Man Yin to keep the note as record. On 11 October 2002, Man Yin deposited the cheque. Later that month, she returned the HK$6,000 the interest Gailey paid her on the cash loan. She had told Gailey after the cheque was given to her, no interest was payable on the loan. 30.On the day of presentation of the HK$206,000 cheque to Man Yin, Gailey’s intention was stated on the note handed over to Man Yin, she had designated the $206,000 as repayment of the cash loan of HK$200,000. 31.The law is clear:
32.The authors of Clerk & Lindsell stated at paragraph 21-060 at page 1435:
33.Gailey claimed after she was informed on the telephone by Man Yin on 15 October 2002 that the Plaintiffs would not be charging any interests on the HK$200,000 cash loan, she immediately told Man Yin to use the HK$206,000 as repayment of the Towngas shares and that she should repurchase the shares or part of the shares with the money. On the other hand, Man Yin claimed she was told by Gailey on 6 October 2002 the cheque of HK$206,000 was for the repayment of the cash loan; she was told not to present the cheque until 11 October 2002. At the time, neither she nor her husband were told the money should be used for the repurchase of the Towngas shares. She told Gailey since she and her husband were not going to charge Gailey any interest on the cash loan, she would treat the HK$6,000 as payment of interim dividends declared by Towngas at 12 cents per share. 34.At the family gathering in late October 2002, Gailey gave Man Yin a deposit slip showing that on 26 October 2002 she had deposited a sum of HK$6,000 into her savings account at the Hong Kong Bank as payment for the interim dividend on the 50,000 Towngas shares for the year 2002. Man Yin decided to return the sum of HK$6,000 to Gailey on 31 October 2002 by depositing the same amount into Gailey’s Hang Seng Bank account. 35.The sequence of events and dates of payment of the HK$206,000 and the HK$6,000 deposit by Gailey and the repayment by Man Yin of HK$6,000 into Gailey’s account indicated that the communication by Man Yin to Gailey that she and her husband were not charging Gailey any interest on the cash loan was made after 6 October 2002. Because Gailey admitted to have deposited on 26 October 2002 a further sum of HK$6,000 into Man Yin’s Hong Kong Bank savings account for the payment of interim dividend on the 50,000 Towngas shares, it showed on 26 October 2002, Gailey had accepted the 11 October 2002 payment was a repayment of the cash loan. If Gailey was informed by Man Yin on 15 October 2002 that Man Yin and her husband would not be charging any interest on the cash loan of HK$200,000, and if as Gailey claimed, she immediately informed Man Yin she should use the money repaid to repurchase the Towngas shares as part repayment of the 50,000 shares she borrowed, why would she deposit a further sum of HK$6,000 as interim dividend on the shares on 26 October 2002 when she was told the HK$206,000 cheque of 11 October 2002 included HK$6,000 dividend on the shares. 36.Gailey acknowledged that on 31 October 2002 she had received HK$6,000 deposited into her Hang Seng Bank account returned by Man Yin and Szeto. She claimed she again requested Man Yin over the telephone to repurchase the shares with the HK$200,000 she repaid on 11 October 2002; she said the share price was around HK$9 per share at the time. This allegation was disputed by the Plaintiffs. According to the evidence obtained by the Plaintiffs’ solicitors from the Hong Kong Stock Exchange on the price of Towngas shares on 15 October 2002, the closing price was $10.15 per share (Page 135 of the Bundle), not $9. 37.Gailey had indicated and expressed her intention in the note given to Man Yin on the day of payment of the post dated cheque of HK$206,000 specifying it was the repayment of the cash loan of HK$200,000 with interest at 1%, the extra HK$6,000 being payment of interest on the loan for six months. It was duly accepted by Man Yin and Szeto when they deposited the cheque into the bank on 11 October 2002 as repayment for the cash loan of HK$200,000. It was a designated repayment specified in the hand-written note from Gailey on 6 October 2002. The deposit of the 11 October 2002 cheque constituted an appropriation of the payment to the cash loan as designated by Gailey on 6 October 2002. The alleged telephone conversation between Gailey and Man Yin requesting Man Yin to apply the whole sum of HK$206,000 on the repurchase of the Towngas shares did not take place until 15 October 2002. Even if the conversation on 15 October did take place and Gailey did ask Man Yin to apply the repayment of HK$206,000 to repurchase part of the 50,000 shares; this change of designation of the repayment of loan cannot be effective four days after Man Yin cashed the cheque as the repayment of the cash loan, the act of acceptance of the cash loan repayment as directed had completed. (b) Whether there was an agreement for the HK$206,000 to be applied in repurchasing the shares borrowed by Gailey? 38.The evidence of Gailey and Man Yin was completely contradictory on this aspect. While Gailey stated in her evidence that she had asked Man Yin to repurchase the shares with the whole of the repayment sum of HK$206,000; Man Yin, on the other hand, deposited the sum of HK$6,000 into Gailey’s bank account at the end of October 2002 because she and her husband had decided that the HK$6,000 should be returned to Gailey as they did not intend to charge Gailey interests for the HK$200,000 loan. If the conversation on 15 October 2002 had taken place between Gailey and Man Yin, Man Yin would have repurchased the shares with the whole HK$206,000, why then would Man Yin return the HK$6,000 interest on the cash loan to Gailey at the end of October 2002? Furthermore, according to the Hong Kong Stock Exchange record (page 135) the share price of Towngas on 15 October 2002 was HK$10.15. To repurchase 20,000 Towngas shares, it would take HK$203,000 plus brokerage charges. This showed Man Yin would not have an extra HK$6,000 to repay Gailey to return the interest payment on the cash loan if she had agreed to repurchase 20,000 Towngas shares in mid October 2002. 39.Consequently, the only logical conclusion deduced from the chronology of events and undisputed facts is: Man Yin and Szeto had deposited the HK$206,000 cheque on 11 October 2002 in accordance with the direction of Gailey on 6 October 2002. Even if there was a conversation on the repurchase of part of the shares instead of the complete repayment of the cash loan on 15 October, the right to appropriate the payment of HK$200,000 to the cash loan had been exercised on 11 October 2002. It is logical to conclude that the telephone conversation on 15 October 2002 did not take place, even if there was a telephone conversation, there was no agreement to apply the HK$206,000 to repurchase part of the 50,000 shares borrowed, otherwise, Man Yin would not have returned the HK$6,000 paid as interests on the cash loan at the end of October 2002. 40.It follows, therefore, the dispute involving their parents whether it be the end of October, November or December 2002 is irrelevant, because the appropriation had been exercised as directed by Gailey at the time the cheque was handed over to Man Yin on 6 October 2002 and the repayment was completed when the cheque was deposited on 11 October 2002. The fact that the money was not applied in the repurchase of part of the shares borrowed but was used in the repayment of the cash loan was known to Gailey at an early stage because she deposited HK$6,000 into Man Yin’s account on 26 October 2002 which she admitted was payment of dividends on the shares. In fact, it was this amount of HK$6,000 that Man Yin returned to Gailey on 31 October 2002 for she had already told Gailey earlier on that she was not going to charge Gailey interest on the cash loan and had treated the HK$6,000 Gailey repaid with the HK$200,000 on 11 October as dividends declared by Towngas. Furthermore, Gailey admitted on 29 May 2003 she paid the sum of HK$11,500 to Man Yin, it represented the 2002 final dividend of the 50,000 Towngas shares at 23 cents each. On 30 June 2003, after Gailey paid a further payment of HK$200,000 through their father’s account to Man Yin and Szeto, Man Yin purchased 20,000 Towngas shares on 9 July 2003 at HK$9.85. She did, like on former occasions, fax a copy of the purchase invoice to Gailey to let her know the exact amount applied to repurchase 20,000 Towngas shares. Therefore, if Gailey had told her to use the HK$206,000 on 15 October to buy back the Towngas shares, Gailey would have received a copy of the purchase invoice from Man Yin. 41.Consequently, the answer to the question whether there was an agreement for the 1st repayment of HK$206,000 to be applied in the repurchase of part of the 50,000 shares borrowed by Gailey must be no. (C) Whether the total sum paid by Gailey up to 30 June 2003 represented the full settlement of the share loan borrowed by Gailey? 42.The total sum paid by Gailey to Man Yin and her husband before 30 June 2003 was HK$206,000. Mr. Chong, Counsel for the Plaintiff, submitted that according to Exhibit-P1, the circular to shareholders of Towngas, the highest and lowest stock price of Towngas in October 2002 were HK$10.55 and HK$10.05 respectively. Mr. Chong took an average stock price of HK$10.30 with the transaction expenses of 0.412% on the stock transaction, he submitted the HK$206,000, if applied to buy the Towngas shares, would only enable them to purchase 19,000 shares in the market, leaving a credit balance of HK$9,293.72. 43.On the subsequent payment of HK$200,000 on 30 June 2003, the Plaintiffs did use the money to buy 20,000 shares at HK$9.85 on 9 July 2003. The average share price for the month of July 2003 was between HK$10.10 and HK$9.75 (See Exhibit 3). Mr. Chong submitted that even applying the total sum of the money repaid on 30 June 2003 to repurchase the shares, there would still be 11,000 shares outstanding to the Plaintiffs. On that basis, Mr. Chong set out in Schedule 1 of his final submission, taking into account the dividends declared and bonus shares issued between July 2003 and the end of 2009, the number of total shares outstanding including the bonus shares issued in May 2007 and May 2008 to be 13,310 plus dividends that added up to HK$20,208.68. 44.The Plaintiffs objected to the Defendant’s raising an additional defence when she was cross-examined at the trial that any outstanding number of shares owed to the Plaintiffs would have been settled by their late father in 2003. As this was not pleaded in the Defendant’s amended defence, I agree she is not entitled to raise it as a defence (see Order 18 r.8 R.D.C.). Furthermore, it was Gailey’s evidence that she did not request her late father to make any payment on her behalf, neither did she know if he actually made any payment to the Plaintiffs; and, if he did, when and in what sum. Her evidence was simply, her father had put a stop to the argument over the cash and the share loans between Gailey and Man Yin and Szeto by telling them if Gailey did not settle the repayment, he would. 45.Gailey claimed she was told by her father he had told Man Yin to repurchase the shares with the money she received from Gailey, if the money was insufficient he would make up the balance. This evidence is at best hearsay, it was something her father told her. Man Yin, on the other hand, denied it was ever said to her by her father. 46.Mr. Chong referred to Chitty on Contracts Vol. 1 at paragraph 21-041:
47.Gailey admitted to have no knowledge of the amount or the time of payment by their father to Man Yin to make up the difference to repurchase the Towngas shares, even though in July 2003 she had called up Man Yin and asked about the share repurchase and requested for a copy of the sale invoice, she was not given any. Mr. Chong submitted that as such, even if there were repayments made by their father, it was done without Gailey’s prior authority or subsequent ratification. Consequently, as a matter of law, the defence cannot stand. 48.Based on the evidence adduced and based on the fact that Gailey had no knowledge of when and how much of the share loan had been repaid by their father, and because it was not pleaded or put to either Man Yin or Szeto in the witness box, the claim of payment by a third party as satisfaction of repayment of Gailey’s loan cannot be raised as a defence. Furthermore, the assertion is improbable, Gailey claimed the HK$406,000 repaid was sufficient to pay off the share loan because in 2003, due to the SARS virus, Towngas shares had fallen below HK$7. This is not supported by evidence from the Hong Kong Stock Exchange in Exhibit P-3. I find this defence most improbable. 49.As to Mrs. Li Ho Ching Fong’s evidence on her late husband informing Man Yin and her husband that all of the shares should have been repaid and asking them not to mention the matter in future, it is doubtful if Mrs. Li had any real knowledge as to the number of shares sold with the proceeds paid to Gailey by Man Yin and Szeto and the two agreements between Gailey and Man Yin and Szeto on the loans and the conditions attached. There is no evidence from her that her husband had in fact paid any further sums to Man Yin other than being the conduit of transfer of the HK$200,000 Gailey paid into his account for payment to Man Yin on 30 June 2003. Issue 2: The outstanding number of shares and dividends due to the Plaintiffs to date 50.I have found and accepted the Plaintiffs’ evidence that the cash loan had been fully settled with the payment of HK$206,000 in October 2002. Therefore, the subsequent payment from Gailey to Man Yin and Szeto in the sum of HK$200,000 on 30 June 2003 was applied by Man Yin to repurchase 20,000 shares at HK$9.85 per share on 9 July 2003 leaving a balance of cash HK$2,188.30. On 10 July and 14 August 2006, Gailey made two payments of HK$30,000 to Man Yin and Szeto, and a further sum of HK$5,000 on 30 March 2007 (see calculation set out in Mr. Chong’s final submission Schedule 2). With the bonus shares issued in May 2007 and May 2008, after deducting the 20,000 shares purchased by Man Yin in July 2003, a total of 35,090 shares remained outstanding. With the dividends declared from October 2003 to October 2009, after the deduction of HK$35,000 paid by Gailey to Man Yin, the cash sum outstanding is HK$19,792. Issue 3: Damages in lieu of specific performance 51.The Plaintiffs are seeking an order that the Defendant should, at her own expense and costs purchased the shares in the name of the Plaintiffs and delivered them to the Plaintiffs the relevant share certificates for the 35,090 Towngas shares. I agreed with Mr. Chong’s submission, with reference to Chitty on Contracts Vol. I paragraph 27-005, the authors’ considerations on the appropriateness of the remedy of specific performance. The question for the Court to decide is whether specific performance is the most appropriate remedy in the circumstances of the case and whether it is just in all the circumstances, that the Plaintiff should be confined to his remedy in damages. 52.In the present case, logistically and for purposes of execution, it is more practical if damages are ordered in lieu of specific performance, so that when damages is ordered the plaintiffs would be able to purchase the exact number of shares with the sum awarded and put the share certificates in their own names. 53.On the Plaintiffs’ duty to mitigate, the Defendant failed to raise this in her defence. Under the Rules of District Court Order 18 r.8, mitigation of damages must be pleaded (HK Civil Procedure 2010 18/8/17AA). Even if she had pleaded it, given the state of the stock market between 2003 (the SARS virus period) and the 2008 financial tsunami which had a global effect, it would be unreasonable to expect the Plaintiffs to take advantage of these events as a reasonable time to repurchase the shares. 54.Chitty on Contracts Vol. I paragraph 26-104 stated: “Nor is the claimant required to sacrifice any of his property or rights in order to mitigate the loss. It has been suggested that the claimant’s duty to mitigate does not require him to guard against the effects of inflation per se, i.e. it does not apply to the risk of pure price increases which may lead to “inflationary increases in damages” after the date of the breach of contract.” 55.The 2nd agreement clearly indicated it was within the contemplation of the parties that the stock market in Hong Kong would fluctuate, that was why the Plaintiffs decided they wanted the security of their investment in the Towngas shares with Gailey taking the risks of market fluctuations. If the Plaintiffs had a duty to mitigate their loss by repurchasing the shares when the share price was low, so should the same duty be on Gailey who had agreed to repay the Plaintiffs the shares borrowed by her instead of the proceeds of the sale of the shares in 2002. She too could have mitigated any loss due to the fluctuation of the market and purchased the same number of shares that she owed the Plaintiffs when the market was down. She could have mitigated any possible loss by purchasing the shares at an opportune moment to protect herself in case the Plaintiffs failed to do so. 56.For the aforesaid reasons, I hold the Defendant liable to pay to the Plaintiffs a sum equivalent to 35,090 Towngas shares at the mean price between the year’s high (within 52 weeks of the day of the judgment) and the year’s low. In my calculation, the 52 weeks high of the Hong Kong and China Gas share is HK$20.00 and the 52 weeks low is HK$14.40, the mean price of the shares during the year is therefore HK$17.20.
Interests 57.As I have ordered damages in lieu of specific performance and as the shares attracted dividends payable which had been included in the judgment sum, the only interest payable is interest after judgment at judgment rate until full payment. Costs 58.The costs incurred in the repurchase of the shares such as brokerage and other expenses shall be borne by the Defendant. As to legal costs, the Defendant shall bear the costs of the Plaintiff to be taxed if not agreed with certificate for Counsel.
Parties : Mr. Manuel Chong instructed by Messrs. Herbert Tsoi & Partners for the 1st and 2nd Plaintiffs. Defendant, in person, present. (I) Defendants application to the District Court for leave to appeal out of time refused. Please refer to DCCJ1991/2008 dated 7 December 2010 (II) Defendant's appeal to Court of Appeal dismissed. Please refer to CACV80/2011 dated 2 November 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other judgments that cite this case
Further hearings and rulings under DCCJ 1991/2008