West Coast International Trading Ltd t/a Dandelion Fine Arts v. Chelesa Art Company Ltd

HCA 1636/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1636 OF 2010

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D E C I S I O N

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INTRODUCTION

1.This is the defendant’s appeal against the order of the registrar dated 10 January 2014 whereby the registrar dismissed the defendant’s applications to:

(a) seek particulars of interrogatories; and

(b) further amend its re-amended defence,

and gave directions for valuation (and other) expert reports to be served.

BACKGROUND

2.The plaintiff commenced this action in November 2010, relying on conversion as the cause of action.  In short, the plaintiff complains that the defendant has converted to its own use 4 of the plaintiff’s paintings.

3.There is also a claim for unspecified properties of the plaintiff against the defendant, but this claim is irrelevant for present purpose.

4.Both parties are painting and artwork traders in Hong Kong.  A former employee of the plaintiff, one Ms Tsang (“Tsang”) (the husband of whom was Mr Yeung (“Yeung”)), was convicted of having stolen 3 of the plaintiff’s paintings. It is the plaintiff’s case these paintings were sold by Yeung to the defendant in February, March and June 2007 respectively; they were later on sold by the defendant.

5.The defendant also deposed earlier it had purchased yet another painting from Yeung in February 2007 but which it resold back to Yeung in July 2007 at a profit.  This becomes one of the subject-matters of this action.

6.It is common ground 3 out of the 4 stolen paintings have been returned to the plaintiff (the only exception being the painting referred to below).

PROCEEDINGS LEADING TO THIS APPEAL

7.The two issues which are of importance to this appeal are:

(1) whether one of the 4 paintings Yeung sold to the defendant was in fact a painting of the plaintiff (“the now disputed painting”);

(2) the basis of the plaintiff’s claim for loss regarding the 4 paintings.

To understand how these came about, a few words have to be spent on one particular aspect of this action.

8.The now disputed painting was a painting described in the amended statement of claim as:

“[an] oil painting by CHEN Yifei (陳逸飛) by the name of ‘Water Village’” (para 1(b) thereof).

The above painting was called “the 2^nd Painting” by the parties in the pleadings.

9.Before about April 2013, the parties’ pleadings appeared to assume the 2^nd Painting to be one of the 4 paintings sold by Yeung to the defendant.  What prompted the defendant to doubt that was a letter dated 9 April 2013 from the plaintiff (which contains a description in Chinese of what the 2^nd Painting looked like).  The said letter was part of the correspondence made originally for the purpose of valuing the paintings (the subject-matters of this action).

10.Upon learning of the said description, the defendant procured a photograph to be taken of the now disputed painting, and later showed the same to the plaintiff.  The defendant’s case is that Yeung sold to it this painting.  The plaintiff denies that the now disputed painting looks like the 2^nd Painting.

11.The plaintiff’s said denial was the reason for the defendant to take out the applications referred to in para 1(a) and (b) above.  Until the hearing before the registrar, the plaintiff indicated no objection to the defendant’s application for further amendment.  As stated above, the registrar dismissed the said applications.

This appeal: (a) Application to further amend

12.In gist, this application seeks to withdraw the defendant’s present admission that the 2^nd Painting has been sold to it by Yeung, and raise a new case that Yeung has instead sold the now disputed painting to it.

13.Judging from the history of this action, and bearing in mind:

(a) no photographical or pictorial image of the 2^nd Painting has been provided by the plaintiff so far;

(b) no narrative description of the 2^nd Painting has been given in Tsang’s criminal prosecution, or in this action by the plaintiff until April 2013 (except the “generic” description mentioned in sub-para (c) below);

(c) “Water Village” is a description commonly used in the painting and artwork trade to refer to a series of Chen Yifei’s paintings wherein the painter used the landscape theme of village-by-the-water,

the defendant’s claim that its present case relating to the 2^nd Painting resulted from a mistaken belief that the 2^nd Painting was the same as the now disputed painting is believable.

14.It should be pointed out the last observation above is not intended to bar the plaintiff from factually disputing the defendant’s new case concerning the now disputed painting (if the plaintiff should decide that it is appropriate to dispute it).

15.Two complaints have been made by the plaintiff in this regard.  One, no affidavit evidence has been filed by the defendant to explain the reason for the mistake.  Two, the allegation that the defendant only purchased the now disputed painting (and not the 2^nd painting) is in any event incredible.

16.As regards the first complaint, although there is no affidavit evidence in support, the only plausible explanation for the mistake is inadvertence on the defendant’s part.  It is far-fetched to contend that the defendant intentionally made an admission so as to seek its withdrawal later (no other possible explanation for the mistake has been put forth).

17.While it can be argued that it is conceivable the defendant wanted to cause delay to this action by doing so, the fact that:

(1) as will be explained below, any delay which may be caused by the withdrawal of the admission is unlikely to be substantial;

(2) the defendant’s conduct in admitting it had also purchased a painting from Yeung (which Tsang did not disclose) (para 5 above), and in returning one of the paintings to the plaintiff earlier (and did not dispute the return of the other paintings by the police to the plaintiff),

militates against any such bad faith.

18.This action has reached the stage where inspection of documents and filing of witness statements have been completed.  Undoubtedly, some delay may result if leave to further amend is given.  Examples given by the plaintiff of further steps to be taken in relation to the defendant’s proposed new case include obtaining the police statements and trial transcript of Tsang’s criminal prosecution, and the possibility of asking Tsang and Yeung to testify.

19.However, this action has not been set down still; and trial dates are likely to be quite some time later even if this action were set down today.  Materials connected with the criminal prosecution are unlikely to be still unavailable by the time of trial if they are sought diligently; the same can be said about the testimony of Tsang and Yeung (who are likely to be unwilling witnesses (be it witnesses for the plaintiff or for the defence)).

20.The plaintiff also argues that the defendant’s proposed new case will lengthen the trial.  This is likely but only to an extent.  As observed above, the issue between the parties if the proposed new case is put forth is whether the defendant purchased the 2^nd Painting.  Judging from the present materials, this part of the plaintiff’s case is to be proved by establishing the chain of events from the theft of the paintings to the sale by Yeung to the defendant.  The people who can speak to these events are: the plaintiff’s own witness(es), Tsang and Yeung.

21.As regards the second complaint, the plaintiff submits that it is inherently implausible for the defendant not to have an image record of the now disputed painting if in fact the defendant had dealt with it in the course of its business.  I only need to observe here that the plaintiff does not have such a record for the 2^nd Painting either. The sufficiency of proof of such matter is (at least in the context of this action) not a valid ground for not allowing the plea to be made.

22.For the record, when deciding this aspect of the appeal, I have taken into the observations of the court in cases such as Re Chung Wong Kit (a bankrupt) [1999] 1 HKLRD 410 (see also Hong Kong Civil Procedure 2014, Vol 1, para 27/3/9).

23.For the reasons given above, I disagree with the registrar, and find that this is a proper case for my discretion to be exercised in giving leave to the defendant to further amend its case as per the draft now placed before the court.

24.This part of the appeal is accordingly allowed; the related parts of the registrar’s order is set aside and an order is made in terms of para 1 and 2 of the summons concerned.

This appeal: (b) Application for particulars of interrogatories

25.This apparently arose in the following manner. In May 2013 the defendant served interrogatories on the plaintiff (probably pursuant to RHC Ord 26 r 3(1) (interrogatories without leave)).  In June 2013 the plaintiff filed an affirmation in reply.  Not satisfied with the reply, in July 2013 the defendant took out a summon for particulars for the interrogatories.

26.The particulars sought in the summons concern:

(a) the now disputed painting (its possession and ownership and the like);

(b) the 2^nd Painting (its purchase, possession, ownership and theft and the like);

(c) the basis for valuing the 2^nd Painting at $3 million.

27.I agree with the registrar that the summons should be dismissed:

(1) the particulars sought in para 26(a) and (b) above are irrelevant because the current version of the defence does not raise any issue which warrants a request for those particulars (so stated above, the defendant has admitted the purchase of the 2^nd Painting, one of the paintings stolen from the plaintiff);

(2) insofar as the defendant should contend that the said particulars are relevant to the proposed new case, the request for particulars was premature in that leave to further amend has not been given in May, June or July 2013; in any event, the plaintiff’s response thereto should first be given by way of further amendment(s) to its re-amended reply;

(3) the basis of valuation of the 2^nd Painting is properly a matter for expert evidence rather than interrogatories.

28.Consequently, this aspect of the appeal is dismissed.

This appeal: (c) Application for expert/valuation

29.The summons which brought about the registrar’s order sought expert reports for the market values of the 4 paintings on the following dates:

(a) when the paintings were sold by Tsang/Yeung to the defendant;

(b) when the paintings were sold by the defendant;

(c) the time of the reports.

Further,

(1) in relation to the 1^st and 3^rd Paintings, the market value when they were returned to the plaintiff;

(2) in relation to the 2^nd Painting, the market value on 3 November 2010 (the date of writ).

30.The relevant parts of the registrar’s order are consistent with para 29(a) and (b) and 29(1) and (2) above.  However, in addition to market values, the registrar also directed expert reports on the rental value of the 4 paintings as at the above dates (as the case may be).

31.The law requires full particulars of loss to be given by a claimant: Hong Kong Civil Procedure 2014, Vol 1, para 18/12/10 and 18/12/41.

32.The current version of the statement of claim contains the following related averments:

“The Plaintiff has … suffered and will continue to suffer inconvenience and/or loss of enjoyment from the time of the Defendant so converted the 1^st, 2^nd and 3^rd Paintings until such Paintings are recovered and returned to the Plaintiff” (emphasis supplied) (para 9 thereof);

“It was [on 13 September 2010] estimated that the market value of the 1^st and 2^nd Paintings were at [$5 million] and [$3 million] respectively, which are likely to rise in value at the pronouncement of judgment” (emphasis supplied) (para 10 thereof).

After pleading that the 1^st Painting has been returned in November 2010:

“… the Defendant has continued the wrongful act of conversion of wrongfully converted the 2^nd Painting to its own use and wrongfully deprived the Plaintiff of the use, enjoyment and possession thereof, by reason whereof the Plaintiff has suffered further loss and damages” (emphasis supplied) (para 12 thereof).

The value of the 2^nd Painting as at the date of writ (3 November 2010) was then given as particulars (see para 26(c) above).

33.It is therefore not known from the language used in the current version of the statement of claim (quoted above):

(a) the plaintiff’s case as to relevance of the market values of the paintings already returned to the plaintiff (these having been returned, it is unnecessary/improper to order for their return, or for damages in lieu for their physical loss);

(b) lost opportunity to gain rental income for hiring out the paintings would be part of the plaintiff’s loss (and the reason(s) for such a claim);

(c) in any event, which date(s) the plaintiff would consider to be proper for date(s) for valuation (whatever may be the relevance of such valuation), it being the law that prima facie damages are to be assessed at the time of conversion: Clerk & Lindsell on Torts (2010) 20^th Ed, para 17-93 to 17-98.

34.By reason of para 33 above, and especially since the time of the Civil Justice Reform (which lays more emphasis on systemic efficiency and time- and costs-savings of individual civil litigation), the lack of proper averments in the statement of claim means it is improper and/or premature to give directions to the parties’ expert(s) to compile valuation reports because time and costs may be wasted in preparing materials which may later prove to be irrelevant.

35.During the appeal hearing, the plaintiff contended that the paintings’ market values are relevant to its claim for “interest on locked-up capital” even for the returned paintings.  The plaintiff explained the nature of this claim using the following example.

36.Suppose one of the paintings was purchased for $1 million, but the market value of which became $10 million at the time of its return to the plaintiff, the plaintiff should be entitled to claim interest loss on the $10 million because it has been deprived of the opportunity to realize its return by the conversion.

37.The simpler answer to such a contention is that it has not been so averred.

38.That apart, the longer answer is that the contention is very probably flawed for the reasons set out below (but because it has not been so pleaded yet, there is no need to make a definitive determination about it).

39.Damages for conversion is, as is generally the case for monetary claims in tort, intended to compensate the victim (as much as monetary awards can) “[such as] will put [him] in the same position as he would have been in if he had not sustained the wrong”: Clerk & Lindsell (2010) 20^th Ed, para 28-07 quoting from Livingstone v Rawyards Coal Co (1880) 5 App Cas 25, 39.

40.But for the act of conversion, the plaintiff (as a painting and artwork trader) could have sold the paintings at any time between the date of conversion to any date in the future.  But the plaintiff must adduce satisfactory evidence that, prior to the return of the paintings, there was a genuine intention to sell them, as well as a ready market for such sale.  The paintings’ market values as at that point in time can be a good basis for calculating any loss arising from the lost opportunit(ies) to sell.

41.However, in relation to the 3 paintings which have already been returned to the plaintiff, the fact that the plaintiff continue to hold on to them nonetheless can well be relied on by the defence as good evidence either that the plaintiff did not genuinely intend to sell them, or there was no ready market for the same (or both).

42.Because the matters set out in para 39 to 41 above have not been pleaded, the real issue in this regard are still unknown. Para 34 above is repeated.  Accordingly, those parts of the registrar’s order should thus be set aside.

43.The other part of the registrar’s order concerns expert report about the genuineness of the now disputed painting (and its market values).  The now disputed painting has no place in the current pleadings of both parties.  Para 9 and 27(1) and (2) above are repeated.  It is unclear why the plaintiff should seek such expert report (or why the registrar should give such direction).

44.The final part of the registrar’s order directed expert report to be obtained for an alleged “general practice of art dealers in Hong Kong to conduct due diligence exercise to verify the origin of a painting”. Again, in view of the current state of the pleadings, the purchase of the 2^nd Painting is admitted (para 9 and 27(1) and (2) above are repeated). The relevance of such a general practice (assuming it exists) is not immediately apparent.  Further, the common law concept of “custom” (if this is what the plaintiff meant as “general trade practice”) must be strictly uniform; even in its less conventional form (“usage”), it must be reasonably certain, notorious and generally acquiesced:  Phipson on Evidence (2013) 18^th Ed, para 7-26.  It is in any event to be proved:

“… either: (1) by the direct evidence of witnesses which must be positive and not amount to mere opinion, … or (2) by a series of particular instances in which it has been acted upon … or (3) by proof of similar customs in the same or analogous trades in other localities; or (4) when ancient, by, e.g. the declarations of deceased persons of competent knowledge … ”: Phipson, para 7-26.

45.By reason of the above matters, the registrar’s order should be (and is) set aside.  This aspect of the appeal is thus allowed.

CONCLUSION

46.The appeal in relation to the application set out in para 1(a) above is dismissed but the other parts of the appeal are allowed.

OTHER MATTERS

47.The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

COSTS ORDER

48.The parties agree to the usual rule that costs should follow the event (save and except the costs relating to the costs of the further amendment to the current version of the defence (which were agreed)).  There will accordingly be a costs order that two-thirds of the costs of this appeal (and the hearing before the registrar) be paid by the plaintiff to the defendant forthwith to be summarily assessed if not agreed (with certificate for counsel for the hearing below).

49.For the purpose of the summary assessment of costs:

(1) the defendant be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(2) the plaintiff be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.

Mr Clark Wang, instructed by Hau, Lau, Li & Yeung, for the plaintiff

Mr Justin Lam, instructed by Kao, Lee & Yip, for the defendant

Please refer to HCMP1228/2014 for the relevant appeal(s) to the Court of Appeal.