Top One International (China) Property Group Co Ltd and Another v. Top One Property Group Ltd and Others

HCA 1244/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1244 OF 2009

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BETWEEN

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Before: Deputy High Court Judge L. Chan in Chambers

Date of Hearing: 27 October 2011

Date of Decision: 27 October 2011

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D E C I S I O N

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1.On 28 September 2011, I allowed an appeal by the 2nd plaintiff against a decision of a Master and ordered the 1st and 3rd defendants to pay the 2nd plaintiff an interim payment of HK$20 million under order 29 rule 11 of the Rules of the High Court. The 1st and 3rd defendants now seek leave to appeal against my decision.

2.This application is made under section 14AA of the High Court Ordinance and Order 59, rule 2B of the Rules of the High Court. Section 14AA(4) provides:

“(4) Leave to appeal for the purpose of subsection (1) shall not be granted unless the court hearing the application for leave is satisfied that -

(a) the appeal has a reasonable prospect of success or

(b) there are some other reason in the interests of justice why the appeal should be heard” 

3.This application is made on the bases of a reasonable prospect of success in the appeal under subsection 4(a).  A reasonable prospect of success under subsection (4)(a) means a prospect that is more than fanciful but without having to be probable (see  SMSE v KL [2009] 4 HKLRD 125 at para 17).

4.Fok J in a Judgement dated 24 October 2010 held that the 1st and 3rd defendants should pay damages to the 2nd plaintiff.  The amount of damages is measured by reference to the value of the shares of a company called Chongqing Dading Property Company Limited (“Chongqing Dading”) as at 5 July 2008.

5.In directing the amount of damages to be assessed by a Master, Fok J said in para. 71 of the Judgement that-

“The value of the Chongqing Dading shares and the loss arising from the deprivation of that asset is lacking in precision and the court cannot realistically make an assessment at this stage.”

6.In ordering the 1st and 3rd defendants to pay 2nd plaintiff interim payment HK$20 million, I said in para. 33 of my decision:

“(33) Looking at the matter in the round. I certainly cannot say with any degree of precision or certainty on the value of the Chongqing Dading shares as at 5 July 2008 when they were transferred by the 1st plaintiff to the 1st defendant. However, I can say with confidence that the value of the shares of this company as reflected in the value of its properties was likely to exceed the RMB200 million allegedly paid by the 1st defendant to the 1st plaintiff plus the RMB108 million allegedly owed by the 1st plaintiff to the 3rd defendant and the HK$20 million sought by the 2nd plaintiff as interim payment.”

The principle for ordering interim payment

7.The first point taken by counsel for 1st and 3rd defendants is that Fok J was of the view that there was no evidential basis to show that the plaintiff could recover any damages against the 1st and 3rd defendants.  Counsel thus suggested that there was and still is no basis to order the 1st and 3rd defendants to pay any interim payment. 

8.However, the principles governing the assessment of damages and the ordering of interim payment are very much different.  For assessment of damages, the court has to find on the balance of probability the amount of loss suffered by the victim.  For interim payment, the court is to order an amount not exceeding a reasonable proportion of the damages which in the opinion of the court are likely to be recovered by the plaintiff at the end. 

9.On this, I echo the words of Recorder J. Leong in her decision in Sony Computer Entertaining Inc. and Anor v Lik Sang International Limited and Ors, HCA3583/2002 given on 11 April 2003 where she said in paragraph 62:

“Any amount to interim payment is, to an extent, an educated guess which, if wrong, can be collected by adjustment at the assessment stage”.

I therefore disagree that, I, in ordering interim payment, have acted contrary to Fok J’s view.

The rise of property values

10.The next point made by the counsel for the 1st and 3rd defendants is that I had wrongly preferred the unaudited consolidated account of Chongqing Dading as at 31 June 2008 rather than the audited account as at 31 December 2007. 

11.The audited account was about ½ a year before the relevant date of 5 July 2008 and it valued the long term investments held by Chongqing Dading’s subsidiaries at the costs of RMB60 million without regard to appreciation of land value in the Mainland. 

12.Counsel submitted that I should not pay any regard to such appreciation in land value.  Counsel relied on Whitehall Finance Limited v Win & Fair Securities Company Limited [1985] 1 HKC 68 at 75 A to D and said that Fuad JA had held there that it was not right for the court to take judicial notice of the fall of the property market in Hong Kong even if everyone in Hong Kong was aware of that.  I do not think this is a correct understanding of the words of Fuad JA.

13.In that case, a firm of character surveyors valued the properties of the plaintiff on 25 March 1981 and opined that there was an appreciation of HK$12,222,950 in value over costs.  This sum was then transferred to the capital reserved account of the plaintiff.  There was then a sharp fall in property value in Hong Kong since March 1981. 

14.The amount of the plaintiff’s capital and reserve as at 25 August 1983 was an important issue in that case.  Lending counsel for the defendants submitted that the trial judge should not have included in his Judgement the appreciation in value of the properties at HK$12,222,950 as part of the plaintiff’s capital and reserve because the judge should have taken juridical notice of the fall of property values.  Fuad JA rejected this submission and held that the onus was on the defendant to call evidence on the issue of the value of the plaintiff’s properties.

15.In the present case, the value of the properties have been given in a valuation report prepared by Jones Lang LaSalle Sallmanns dated 16 May 2008 (“the Jones Lang report”), which buttressed the view that the value of the properties was a lot more than RMB60 million.  The 2nd plaintiff relies on this report.  But there is no contrary valuation evidence adduced by the 1st and 3rd defendants.  In the premises, I think the reliance by counsel for the 1st and 3rd defendants on the words of Fuad JA is misplaced. 

No valuation evidence from the 1st and 3rd defendants

16.Counsel also took the point that I should not have expected the 1st and 3rd defendants to adduce expert evidence at this interlocutory application to rebut the Jones Lang report and that the 1st and 3rd defendants would seek leave to adduce such evidence to rebut the report at the assessment of damages if the report should then be relied on by the 2nd plaintiff. 

17.However, I fail to see the wisdom of this argument.  The 2nd plaintiff was clearly relying on the Jones Lang report to seek interim payment.  It was certainly open to the 1st and 3rd defendants to adduce expert evidence to rebut this report.  If the 1st and 3rd defendants did not see fit to do so, then the court could only consider the Jones Lang report in the light of its contents and the other evidence before the court.  The court would not have the benefit of any reports in rebuttal.

Reliance on the Jones Lang report against the 3rd defendant

18.Counsel for the 1st and 3rd defendants also argued that the 2nd plaintiff was not entitled to reply on the Jones Lang report as against the 3rd defendant.  Counsel referred to Cl.9.1 of the Share Charge which provides

“9.1 Negative Undertaking

Sun (the 3rd defendant) undertakes not to challenge the legality, validity, or enforceability or admissibility in evidence in any jurisdiction of (i) this Share Charge as well as the transactions contemplated herein and (ii) the Company’s or any of its subsidiaries, title to any of its, or their, assets in any circumstances whatsoever.”

19.The 2nd plaintiff relied on Clause 3.1(c) of the Share Charge which provides:

“3.1 (c) The Chargor shall produce, to the satisfaction of the Security Trustee (acting on the instruments of the Majority Beneficiaries acting reasonable\y)

(i) The Jones Lang Report by 7 May 2008, which contents maybe relied upon by the Security Trustee without any independent verification”.

20.Obviously, it is not open to 3rd defendant to challenge the enforceability by the 2nd plaintiff of its rights to rely on the Jones Lang report.  Furthermore, when the Chongqing Dading shares were transferred by the 1st plaintiff to the 1st defendant on 5 July 2008, the 3rd defendant was sole shareholder and director of the 1st defendant. 

Reliance on the audited and unaudited account

21.I would also add that I have not rejected the audited account of Chongqing Dading.  I have in fact given regard to both the audited and unaudited accounts.  I only pointed out that the valuation of the long term investment at costs in the audited account was too conservative and this view was indeed buttressed by the Jones Lang report.

22.Counsel for 1st and 3rd defendants also argued that I should not have relied on the unaudited consolidated account as the subsidiaries of Chongqing Dading were not managed by it and there was thus no requirement for Chongqing Dading to prepared consolidated account.  That is the reason why the audited account was not a consolidated account.

23.I, however, take a different view, though Chongqing Dading was not obliged to prepare a consolidated account, it does not mean that the unaudited consolidated account is of no worth.  It was provided by 3rd defendant/Chongqing Dading to the 2nd plaintiff as evidence of the assets and liabilities of Chongqing Dading.  In the premises, it does not lie in mouth of the 3rd defendant now to say that such account should be ignored. 

Decision

24.All in all, I see no merits in the arguments raised by the 1st and 3rd defendants on this application.  I therefore dismiss it with costs.  I also certify the application fit for counsel.  I further direct that if the parties cannot agreed on the amount of costs payable, they should fix a 9:30 am hearing before me for summary assessment.

Mr Douglas Lam, instructed by Messrs Hogan Lovells, for the 2nd Plaintiff

Mr William Wong and Mr Adrian Lai, instructed by Messrs L H Kwan & Co., for the 1st and 3rd Defendants