WEST COAST INTERNATIONAL TRADING LTD t/a DANDELION FINE ARTS v. CHELESA ART COMPANY LTD

HCA 1636/2010

[2020] HKCFI 243

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1636 OF 2010

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COSTS DECISION

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A  Introduction

1.  These proceedings began in 2010.  They have a chequered procedural history, perhaps exemplified by the multi-coloured pleadings which have been through up five rounds of amendments, engaging black, red, green, purple, yellow and brown ink.  The matter was finally set down and trial dates were fixed for September 2019.  The trial was avoided by the plaintiff’s acceptance on 18 June 2019 of a sanctioned payment made by the defendant on 23 May 2019, following an earlier letter in similar terms on 15 May 2019.

2.  The sanctioned payment was made against the defendant’s informing the plaintiff that even if the payment were accepted, the defendant reserved the right to seek an exceptional costs order under the “Otherwise Proviso” to RHC Order 22 rule 20(1).  Now by summons dated 2 July 2019, the defendant seeks an order that it pay the plaintiff 25% (or such other percentage as the Court deems fit) of the plaintiff’s costs of these proceedings, including any costs reserved, up to 18 June 2019.

3.  The underlying proceedings focused on a painting (“the 2^nd Painting”) which had been stolen from the plaintiff by one of its former staff members and allegedly sold to and converted by the defendant.  For purposes of introduction, it suffices to say that the original issue between the parties was one of valuation, because there did not appear to be any dispute that the defendant had purchased the 2^nd Painting from the thief’s husband and on-sold it.  However, it later transpired that that common ground might have been a mistake, and the real issue between the parties turned into one of identity: was the painting bought by the defendant in fact the 2^nd Painting, or was it some other painting.

B  Applicable Principles

4.  The applicable principles are well settled. Order 22 is a self-contained code introduced by the CJR into the Rules of the High Court in April 2009.

5.  Order 22 rule 20(1) provides that:

“Where a defendant’s sanctioned offer or sanctioned payment to settle the whole claim is accepted without requiring the leave of the Court, the plaintiff is entitled to his costs of the proceedings up to the date of serving notice of acceptance, unless the Court otherwise orders.”

6.  It can be seen that the “Otherwise Proviso” is to be found in the last few words of the rule.  That rule is different from the equivalent rule of English procedure in CPR Part 36, which has no similar proviso.  For that reason, I share the view expressed by others that the English case law under Part 36 is not helpful in informing the approach to the Otherwise Proviso.

7.  Order 22 rule 20(1) envisages that upon acceptance of the sanctioned payment or sanctioned offer, the plaintiff is prima facie entitled to the costs of his proceedings up to the date of serving notice of acceptance.  The prima facie rule may, however, be displaced when the Court orders otherwise by applying the Otherwise Proviso. How that proviso is approached was considered by Jeremy Poon J (as he then was) in Etratech Asia-Pacific Ltd v Leader Printed Circuit Boards Ltd [2013] 2 HKLRD 184.  In comments with which I agree, he said at [19]:

“The prima facie rule is important. In ordinary civil litigations, costs are incurred in a recoverable inter-parties sense from the moment the proceedings commenced and continue to be incurred as the litigation progresses. Every litigant, who needs to incur costs in order to pursue or defend the claim, definitely regards them as very real and present expenses. Further, the litigation is inescapably chancy. The prospect of paying costs to the other side after losing one’s case in addition to his own costs must very much exercise a party’s mind. Costs thus factor heavily in the negotiations and considerations of settlement. Sometimes, it may even make or break the settlement. But uncertainty as to costs is a notoriously difficult subject. It may easily frustrate an otherwise meaningful settlement negotiation and even become an irremovable obstacle to the settlement itself. What the prima facie rule does is to create certainty as to the costs consequences upon acceptance of the sanctioned payment or sanctioned offer. A party knows the exact extent of his exposure or entitlement to costs, as the case may be. Thus he will not be inhibited in proposing or accepting an otherwise reasonable offer to settle, as the case may be, because of uncertainty as to the cost consequences. This surely [facilitates] the principal objective of sanctioned payments and sanctioned offers, which is to encourage the parties to take positive settlement seriously and avoid unproductive and expensive prolongation of the litigation, resulting in more early settlements.”

8.  Nevertheless, as Jeremy Poon J recognised at [20] and [21]:

“By virtue of the Otherwise Proviso, the court retains the discretion to depart from the prima facie rule where necessary. But the discretion should only be exercised in exceptional circumstances that clearly warrant a different costs order. Otherwise, the certainty as to costs consequences created by the prima facie rule, one of the very important features underpinning the effectiveness of sanctioned payments and sanctioned offers, will be greatly diminished.

While it is impossible and indeed imprudent to exhaustively state the exceptional circumstances that justify the departure from the prima facie rule, which by definition must be rare, the burden rests squarely on the party seeking to invoke the Otherwise Proviso to establish such circumstances.  The court will not lightly displace the prima facie rule until and unless the applicant has discharged the burden to its satisfaction.”

9.  The conclusion is that the prima facie rule in Order 22 rule 20(1) should apply unless (1) the defendant discharges the burden of showing exceptional circumstances that justify a departure; and (2) he has given a prior warning to the plaintiff that he will apply to invoke the Otherwise Proviso upon acceptance of the sanctioned payment or sanctioned offer.

10.  Of course, what constitutes “exceptional circumstances” is a matter in the Court’s exercise of discretion.  But, as always, the discretion must be exercised judicially, where the overriding objective of the Court is to do justice between the parties.  Examples of circumstances which have previously been held to fall within the Otherwise Proviso include where the terms of the ultimate settlement were the same as an offer made previously, perhaps particularly if the offer was made even before commencement of the proceedings.  Each case will turn on its own facts.

11.  Sometimes it may be necessary for the Court in dealing with matters of costs to look at, and make some assessment of, the merits of substantive issues which have not been fought to a conclusion.  This is clear from, for example, the approach to the exercise of the Court’s discretion as to costs provided for in Order 62 rule 5.

12.  That rule requires the Court to take into account, to the extent as may be appropriate in any given circumstances, amongst other things: the underlying objectives set out in Order 1A rule 1; written offers made on a “without prejudice save as to costs” basis; and the conduct of all the parties.  Order 62 rule 5(2) provides that the conduct of the parties includes: (a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue; (b) the manner in which a party has pursued or defended his case or a particular allegation or issue; (c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and (d) conduct before, as well as during, the proceedings.

13.  The reference to the underlying objectives seems to me to be important.  One such objective is the early identification of the issues really in dispute, so as to encourage the parties to cooperate and to promote efficiency and cost effectiveness, as well as potential settlement.  Nevertheless, rarely can it be appropriate on costs arguments to conduct what amounts to a mini-trial on affidavits or witness statements so as to decide who might have won the case, or any particular issue, had compromise not been achieved.

14.  In the context of the costs at issue on an application under the Otherwise Proviso, this last point seems to me to circle back to the importance of the prima facie rule.  The structure of the regime for sanctioned offers and sanctioned payments is strongly to promote efficient resolution, finality and certainty.  Applications under the Otherwise Proviso are not to be taken as an opportunity generally to revisit the procedural history or merits of the particular piece of litigation, and to apply the broader exercise of discretion on costs as might in appropriate circumstances be applicable outside the context of Order 22.

15.  As to reserved costs, they do not fall within the purview of Order 22 rule 20(1), but fall to be dealt with under Order 22 rule 22(5)(b): see Golden Tonn Industrial Ltd v Hong Kong Cyberport (Ancillary Development) Ltd [2015] 3 HKC 226, at [7]-[8].

C  Procedural and Factual Background

16.  The plaintiff is an art dealer.  So is the defendant.

17.  One of the plaintiff’s employees was a Candy Tsang (“Tsang”), whose husband was Thomas Yeung (“Yeung”).  It is common ground that sometime between 1997 and 2007, Tsang stole various artworks from the plaintiff.  Apparently due to the plaintiff’s poor or lax management, the theft was discovered only in 2009.  In DCCC 868/2009, Tsang was subsequently convicted of theft of three paintings.  Yeung was acquitted.

18.  In the trial of those criminal proceedings, the plaintiff’s director or CEO Mr Kan Ho-ming (“Kan”) gave evidence as PW2, asserting that five paintings were noted to be missing and that was reported to the police.  (I note in passing that some aspects of Kan’s evidence were not accepted by the court because they were “less than frank”.)  There were photographs of only four of the five paintings.

19.  The defendant’s director Mr Siu Fai Lung (“Siu”) gave evidence as PW1 that three stolen paintings were sold to him by Yeung in 2007.  One of those paintings was a “Water Village” painting by Chen Yifei.  But there was no photograph or other image of that painting produced in the criminal proceedings.  There were photographs of the other two paintings sold, and Siu identified the paintings depicted in the two photographs as two of those which the defendant had purchased from Yeung.

20.  That evidence was consistent with the statement of Tsang, given in a video-recorded interview (which the trial judge ruled in as evidence at the trial, notwithstanding objections to it).  The judge accepted that Tsang was telling the truth, and relied on her confession, when she said she stole three paintings from the plaintiff, of which two were by Ai Xuen and one was by Chen Yifei and that they were sold by her husband, Yeung, to the defendant.  The judge did note that though Tsang did not specify which three paintings were stolen from the plaintiff and sold to the defendant, the “vacuum is filled by the evidence of [Siu] and the admitted facts”.  That is why the judge said he had no doubt that the three paintings referred to in the confessions were the paintings set out in the charges.

21.  In fact, Siu had purchased four paintings from Yeung.  Once he discovered the theft involving Tsang, he not only cooperated with the police and gave evidence at the criminal trial, he sought to recover the lost paintings.  The four paintings were subsequently defined for the purposes of these proceedings as the “1^st Painting”, “2^nd Painting”, “3^rd Painting”, and “4^th Painting”.  All but the 2^nd Painting had been returned to the plaintiff before the commencement of these proceedings by writ and statement of claim dated 3 November 2010.  Nevertheless, the statement of claim contained a claim for conversion of all four paintings, as well as ancillary and other claims.

22.  In its original Defence to the claim, the defendant admitted purchasing the 2^nd Painting from Yeung, though in good faith and without any knowledge or notice of any alleged theft. That remained the case on the pleadings until 2014.

23.  Siu says that from 2010 to April 2013 the defendant tried to locate the painting which he understood to be the 2^nd Painting, and which he thought was a Water Village painting dated May 1994 (“1994 Painting”).  Siu has said in evidence that he bought the 1994 Painting from Yeung on 12 March 2007, and sold it to a Mr Zheng on 26 October 2007.  He has produced a copy of the receipt from Yeung, and a copy of the invoice to Zheng.

24.  In early 2013, the defendant changed solicitors, and by letter dated 25 March 2013 those solicitors (“KLY”) asked the plaintiff for an image of the 2^nd Painting.  Originally the request was made as regards the issue of valuation.  In a response dated 9 April 2013, the plaintiff’s solicitors (“HLLY”) stated that even though the plaintiff “has tried very hard to find an image of” the 2^nd Painting, it had yet to locate one.  The letter however set out a description of “Chin Yifei’s famous painting”.  No source was identified as the basis for that description. By letter dated 17 April 2013, KLY stated that the defendant upon exercising its best endeavours had managed to obtain an image of the 2^nd Painting, and attached that image, also giving the actual size of the painting.  The image attached was of the 1994 Painting.

25.  By letter from HLLY dated 18 April 2013, the plaintiff categorically denied that the image provided by the defendant was a true image of the 2^nd Painting.  It was pointed out that the scenery depicted in the image does not come even close to that of the 2^nd Painting when comparing the image with the description previously provided on 9 April 2013.  As the letter stated, “they are so different”.  By letter dated 23 April 2013, KLY identified that it seemed that there was a dispute as to the identity of the 2^nd Painting.  Indeed, that had clearly become the case.

26.  Facing allegations from the plaintiff that the defendant was now deliberately misrepresenting matters, that there was now a suggestion that the defendant had purchased five paintings (not four) from Yeung, and the change of story identified a false statement, the defendant refuted those allegations in KLY’s letter of 5 November 2013.  That letter made clear that the defendant originally believed that the 1994 Painting was the 2^nd Painting stolen from the plaintiff by Tsang, but it now seemed clear that there was the issue as to the correct identity of the painting.  KLY pointed out that there was no basis for the suggestion that the 1994 Painting was stolen property, or that it should or could properly be returned to the plaintiff or to the police.  Indeed, the police had confirmed that the image of the 1994 Painting was not an image of the stolen painting, and there was no basis for suspecting the 1994 Painting was stolen property.  The relevant dilemma was identified, as was the potential amendment to the pleadings.

27.  Subsequently on 27 December 2013, the defendant applied to re-amended its Amended Defence to withdraw what it said was a mistaken admission.  The amendment was refused by the Master, but taken on appeal to Chung J.  Before the appeal was heard, the plaintiff filed a notice of non-admission of authenticity of the 1994 Painting, or its image.

28.  At the appeal, Chung J allowed the amendment.  In his Decision, he identified the issues of importance to the appeal, including whether one of the four paintings sold by Yeung to the defendant was in fact a painting which had belonged to the plaintiff.  He also identified that from the history of the action the defendants claim that its then pleaded case relating to the 2^nd Painting resulted from a mistaken belief was believable, bearing in mind that no photographic or pictorial image of the 2^nd Painting had been provided by the plaintiff up to that point, and no narrative description of the 2^nd Painting was given in the criminal prosecution, except the “generic description of “Water Village” commonly used in the painting and artwork trade to refer to a series of Chen Yifei’ as paintings in which the painter used the landscape theme of village-by-the-water.  Indeed, Chung J accepted that the only plausible explanation for the mistake was inadvertence on the defendant’s part, and he rejected as “far-fetched” the plaintiff’s contention that the defendant intentionally made an admission so as to seek its withdrawal later.  Chung J also noted that the plaintiff’s complaint that it was inherently implausible for the defendant not to have an image record of the now disputed painting was difficult to reconcile with the fact that the plaintiff did not have a record for the 2^nd Painting either.

29.  In connection with the rejection of the “far-fetched” contention, I might add that inadvertence as the cause of the mistake seems to me to be consistent with the defendant’s swift efforts to assist the police with their enquiries, with Siu’s giving evidence at the criminal trial, with the defendant voluntarily identifying it purchased four paintings (not just three) from Yeung, and with the defendant’s seeking to recover and return the paintings to the plaintiff, even at some loss or cost to itself.

30.  The permitted amendment was made, in purple, on 2 May 2014.  It was pleaded to in the purple amendments to the Reply, which pleading essentially asserted that the defendant always knew that the 1994 Painting was not the 2^nd Painting (for various reasons which it particularised), and the mistake said to have led to the earlier admission was denied.  It was asserted that the 1994 Painting was a fake, and the plaintiff unhelpfully redefined, tendentiously, it as the “Fake Painting”.

31.  On 14 June 2016, Chung J heard the plaintiff’s “renewed” application for expert evidence directions.  In his Decision dated 27 June 2016, Chung J summarised the latest pleading position on which the application was premised.  Materially, of the four paintings alleged to have been wrongfully converted, three of them had by then been returned, and the only painting still not recovered was the now disputed painting, such that the plaintiff claimed the loss and damage for which it was entitled to compensation and/or the return of the 2^nd Painting.  He also materially noted that the loss suffered by the plaintiff was the value of the 2^nd Painting if it were ultimately not recovered.

32.  The expert evidence for which the plaintiff sought directions was in relation to whether the 1994 Painting was painted by Chen Yifei.  This was proposed evidence as to its authenticity. Understandably, and for reasons with which I am in accord, Chung J did not agree that whether or not the 1994 Painting was in fact painted by Chen Yifei was in itself a relevant issue.  As he pointed out, it was the plaintiff’s own case that it was never the owner of the 1994 Painting (irrespective of the identity of its painter and/or its monetary worth). Hence, it could not logically be part of the plaintiff’s case that it could seek the return of the 1994 Painting, or that the return of the painting could constitute a valid defence to the loss of the 2^nd Painting.  Therefore, on the part of the plaintiff, authenticity was irrelevant.  Further, authenticity could not be relevant to the defence case now pleaded that the defendant never purchased or converted or detained the 2^nd Painting.

33.  Chung J noted the contention that the question of authenticity of the 1994 Paint could assist determining the veracity of the defence case was an attempt to adduce evidence concerning credibility, and to contradict a collateral matter.  Albeit with stated reluctance, Chung J granted leave to adduce authenticity opinion, on the basis that where the plaintiff pleaded that the 2^nd Plaintiff was worth $4.2 million whereas the defendant pleaded it acquired the 1994 Painting for RMB850,000, that substantial monetary worth and the difference between the values seemed to make it worthy for more thorough examination of the credibility of the defendant’s acquisition of the 1994 Painting.

34.  I note in passing that the disparity in values was based upon the then available expert evidence as to valuation.  It seems to me to be striking that at that point in time expert valuations had been attempted simply on the basis of what was said to be a description of the 2^nd Painting, and in circumstances where no expert had seen either the 2^nd Painting itself or any photographic or other image of it.  The reliability of any such opinion must have been in significant doubt, as later circumstances only showed (see below).

35.  The plaintiff’s expert reports on authenticity were filed on 24 and 28 February 2017.  The defendant’s expert evidence report on authenticity was filed on 27 March 2017.

36.  In July 2017, the plaintiff discovered an image of the 2^nd Painting and it was disclosed in these proceedings.  The delay was explained by Kan in the affirmation filed to oppose this costs application, broadly as follows.  Kan was only employed by the plaintiff in 1997, and was informed that previous records relating to the purchase of the 2^nd Painting by the plaintiff could no longer be located.  It was only realised that the 2^nd Painting was missing in 2007.  The plaintiff has disclosed photo albums of photos taken in January 2006 and January 2008, but no photo of the 2^nd Painting was included.  That was how it was realised it was missing.  Time was taken to deal with various matters relating to Tsang’s complaint to the Labour Department, checking her expenses and so forth.  As the police searched and investigated the plaintiff’s shop in about May 2009, the plaintiff did not consider it necessary to conduct further investigation or search for images of the 2^nd Painting, when focus was on locating the actual missing paintings. Subsequently, when the present proceedings started, the defendant initially admitted the plaintiff’s case on the 2^nd Painting, so that there was no need to search for any image of it. When in 2013 or 2014, the identity of the 2^nd Painting became an issue, there was a burst pipe which caused flooding to the plaintiff’s shop.  All paintings there were removed for storage, and it did not occur to Kan that there would still be any relevant evidence in relation to the 2^nd Painting in the plaintiff’s shop.  In mid to late 2017, the new handling solicitor (albeit at the same firm) advised the plaintiff to conduct a fresh search. That search led to the discovery of film negatives which included a picture of Tsang with the 2^nd Painting.

37.  It might at once be noted this explanation is difficult to reconcile with the later assertion that the plaintiff had tried very hard to find an image.  The explanation seems rather to suggest that the plaintiff did not think it needed to search for such an image, or that it had not even occurred to it to do so.

38.  Anyway, a quick comparison between the image of the 2^nd Painting and the image of the 1994 Painting clearly shows the two paintings to be different.

39.  It was subsequently discovered that the 2^nd Painting was sold under the name “Blue Homeland” at an auction in China on 7 July 2007.  It was apparently sold again at another auction in China on 26 June 2014.

D  The Current Application

40.  Ms Margaret Ng, Counsel for the defendant appearing with Mr Leonard Chow, identifies the grounds of the defendant’s application as being broadly that the plaintiff has conducted these proceedings in “the most high-handed manner contrary to the spirit” of the CJR, violating the underlying objectives in Order 1A rule 1, as well as the duty to assist the Court under Order 1A rule 3.  She says that had the plaintiff conducted the proceedings in accordance with those requirements, in particular in focusing on the real issue of the case, substantial costs would not have been incurred.

41.  As to the specific manner in which Ms Ng says the plaintiff has acted unreasonably in the conduct of these proceedings, they include:

(1)  the plaintiff’s unjustifiable failure to provide sufficient and relevant particulars in the claim necessary to identify the issues at an early stage;

(2)  the plaintiff’s unjustifiable late discovery of an image of the 2^nd Painting only almost 7 years after the proceedings commenced;

(3)  the plaintiff’s spending unnecessary and disproportionate time and effort and costs in contesting the authenticity of the 2^nd Painting;

(4)  the plaintiff’s unreasonable and unjustifiably combative approach against the defendant;

(5)  the plaintiff’s late withdrawal of unreasonable claims;

(6)  the plaintiff’s rejection of a settlement proposal made in 2017 (“2017 Settlement Proposal”) and its failure in facilitating settlement.

42.  As against the procedural and factual matters, I shall address them individually as follows.

43.  (1) Insufficient particulars in claim:  I can deal with the first point relatively shortly.  It is, of course, correct that the original form of the statement of claim did not provide detailed particulars of the 2^nd Painting.  All that was stated was that it was “An oil painting by Chen Yifei by the name of ‘Water Village’”.  However, that must be viewed against the fact of the previous criminal proceedings, and other conduct, in and by which the defendant appeared to accept that it had unwittingly purchase stolen paintings, including the second Painting.  Where there did not appear to be any issue as to the identity of the relevant painting, I think the original pleading was probably sufficiently particularised (though there was undoubtedly room for improvement).  Of course, it may be that if better or more detailed particulars of the 2^nd Painting had been given, either in the criminal proceedings or in the statement of claim, and in circumstances where there was a series of similar paintings, the defendant would have discovered at an earlier stage what it says to be the mistake.  So there is some force in Ms Ng’s submission that the defendant’s original admission on the pleadings was indirectly caused by the way in which the claim was pleaded, but I do not think this point amounts to the necessary exceptional circumstances for triggering the Otherwise Proviso.  There is also some force in the point made by Mr Andrew Mak, Counsel for the plaintiff appearing with Mr Nicholas Oh, that there was some burden on the defendant properly to satisfy itself that it should make any admission before in fact so doing.

44.  (2) Late discovery of image of 2^nd Painting:  There is more to this complaint, and the consequences that flowed from it.  Even though at first there may not have been an issue as to the identity of the relevant painting, it seems to me that an image of the 2^nd Painting was always relevant to, and so discoverable in, the proceedings.  Until the issue as to identity arose, the central issue in the case was one of valuation.  Where valuation was likely to turn upon expert evidence, some image of the 2^nd Painting was bound to be relevant, if the original 2^nd Painting were not to hand (as it was not).  I do not accept that because the defendant originally admitted purchasing the 2^nd Painting, somehow that made an image of that painting (if available) not properly discoverable in these proceedings.  Rather, the fact that the actual 2^nd Painting was apparently not available made it all the more important that there was the most thorough search for and disclosure of any image of it held by the plaintiff.  Indeed, once the image of the 2^nd Painting became available, it was properly disclosed, and it appears to have had a real impact on the valuation (even leaving the identity issue to one side).  This is because the plaintiff’s expert’s valuation as at 27 February 2017 was HK$4.2 million, and after sight of the image that valuation was reduced as at 10 November 2017 to RMB2.8 million (approximately HK$3.2 million).  When it comes to the issue of identity, the image of the 2^nd Painting is central.  The short point is that the image was at all times held by the plaintiff on its own purposes, and could have been found long before it was found almost 7 years into the ‘progress’ of these proceedings.  The failure to have found and disclosed that image earlier was the result of the failure properly to look for it.  That failure has had a significant impact on the proceedings.  Many of the interlocutory proceedings, and preparation of supporting affirmations and attendance at hearings, as well as the preparation of the initial expert reports, took place before disclosure of the image, and in the context of the absence of any such image.  I do not think this can be ignored, and is the sort of point which creates exceptional circumstances permitting departure from the prima facie rule.  Nevertheless, I also take into account that (on the evidence) it is possible that the defendant might have been able to obtain at least an image of the 1994 Painting, if not actually to purchase it, somewhat earlier than April 2013.  Clearly, if such an image had been presented to the plaintiff earlier, the plaintiff would have denied then (as it did later) that that image depicted the 2^nd Painting.  Hence, the identity issue might have been recognized earlier.

45.  (3) Contest on authenticity:  I have already indicated my understanding of, and agreement with, the views expressed by Chung J in his reluctant grant of leave for the deployment of expert evidence as to authenticity.  I also note that the leave granted was at a time when there was yet to be disclosure of the image of the 2^nd Painting.  Had that image already been disclosed, Chung J might have taken a different approach.  In any event, where it remains Mr Mak’s submission that the totality of evidence, including that in the criminal proceedings, suggested it could only have been the 2^nd Painting and not the 1994 Painting or some other Water Village painting by Chen Yifei that was stolen and sold to the defendant, surely the authenticity point remained peripheral as a collateral attack on credibility.  I do not think it carries the force Mr Mak now wishes to place upon it.  Nor do I think I can properly make any assumptions as to the basis upon which the defendant was ultimately willing to settle by making a sanctioned payment on the valuation last provided by the plaintiff’s expert.  I do not think that it would be right to find, and I do not find, that the settlement was to avoid losing the case “badly”.  So I reject Mr Mak’s submission that the settlement was proffered to avoid an adverse costs order upon what he says would be the inevitable finding that the defendant had proceeded on a false basis.  I have already referred to the other circumstances of the defendant’s conduct, once it became aware that it had apparently purchased stolen paintings, which make such an allegation rather less likely to be correct.  Ultimately, the real issue remaining on the pleadings was that as to the correct identity of the painting sold by Yeung to the defendant: was it the 2^nd Painting or was it the 1994 Painting.  The authenticity point was in my view a largely irrelevant and unnecessary side excursion.

46.  (4) Combative approach and (5) late withdrawal of unreasonable claims:  I think these two points can be taken together.  Ms Ng points to the various events which she says identify the plaintiff’s hostility against the defendant and unwillingness to be cooperative.  Amongst them, she relies on the plaintiff’s initial unreasonable claims for over 40 lost items launched against the defendant without any legal or factual basis, and the unreasonable insistence to include voluminous documents for translation exercise which at one point HLLY estimated might cost HK$2.45 million (when ultimately the translations performed cost a small fraction of that amount).  The claims for over 40 lost items were only withdrawn in April 2015, and the additional claims for inconvenience and/or loss of use of the four paintings were only withdrawn in January 2018, so there is some force in this point.  But, these two points taken alone would not, in my view, amount to the exceptional circumstances required to trigger the Otherwise Proviso.  They might however be considered in the overall context, which I shall do later.

47.  (6) Rejection of the 2017 Settlement Proposal:  The 2017 Settlement Proposal was an offer of the same monetary figure as ultimately was the subject of the sanctioned payment, namely HK$3.2 million.  That figure was put forward on the basis of the (then recent) re-valuation by the plaintiff’s own expert after sight of the image of the 2^nd Painting.  It is correct that the 2017 Settlement Proposal proposed that the figure be accepted with no order as to costs between the parties, and was put forward only on a “Calderbank” basis.  Nevertheless, in light of the fact that the plaintiff accepted the same sum of HK$3.2 million after it was made the subject of a sanctioned payment, it is significant that, if the issue was truly one of costs, there was no counter-proposal accepting the offered figure but on the basis of some different costs arrangement than proposed by the defendant.  Instead, what the plaintiff did was to counter-propose settlement at the figure of RMB4.5 million plus its costs.  I do not think that was a reasonable response.  Mr Mak has drawn my attention to the fact that the counter-proposal was made at that figure, because it appeared that the 2^nd Painting was sold at auction in mid-2014 for around that sum.  But I do not see on the pleadings any basis for claiming that figure.  Indeed, it might be noted that figure was almost twice the plaintiff’s own expert’s valuation, which the plaintiff was putting forward in support of its claim to damages.  I do not think the analysis is changed by the fact that Mr Mak submits that the plaintiff reasonably accepted the sanctioned payment on 23 May 2019, instead of proceeding to trial and/or disputing whether the defendant’s 15 May 2019 letter constituted valid sanctioned offer.  Against the two-week difference in date, that seems to me to have been an entirely sterile argument in any event.  If there were to be speculation, it might also be suggested that the plaintiff’s willingness to accept the sanctioned payment in the amount of its own expert’s valuation showed understandably little confidence in obtaining any higher figure.  But the point is that the plaintiff ultimately accepted a monetary figure which it had been offered 18 months earlier.  It is also relevant that the sanctioned payment was accepted in the knowledge that the plaintiff would then face this application under the Otherwise Proviso (so that the plaintiff could not reasonably say that it knew it was definitely going to receive all of its costs up to 18 June 2019).  These matters seem to me to be of the sort which permit triggering the Otherwise Proviso.

48.  (7) Other matters:  I agree with Mr Mak that the losses which the defendant the ledge it suffered as a result of recovering and returning the various paintings is immaterial to the present consideration.  I have also taken into account to the extent that it seems to me to be material Mr Mak’s criticisms of the defendant’s own conduct within the proceedings, in so far as they provide the context against which to assess the conduct of the plaintiff in the proceedings.  However, I do not think anything of the point about the commencement and abandonment of third-party proceedings.

E  Result

49.  I am therefore satisfied that this is one of those rare cases where the Otherwise Proviso is triggered, and where it would not be overall fair or appropriate for the prima facie rule to be followed.  The question remains as to what the “otherwise” order should be.

50.  I agree with Mr Mak that no clear basis has been identified by Ms Ng to justify the proposed discount of 75%, or (to put it another way) to identify why the defendant should only be liable for 25% of the plaintiff’s costs.  Indeed, I see no basis for depriving the plaintiff of as much as 75% of its costs, when it has ultimately succeeded on its claim by accepting the sanctioned payment calculated by reference to its primary valuation of its loss.

51.  It is open to approach the question by reference to dates, such as when the 2017 Settlement Offer was made, or by issue, such as the costs of dealing with authenticity.  Nevertheless, both Ms Ng and Mr Mak accepted that it would be appropriate in the present circumstances, if the Otherwise Proviso has been triggered, to approach the “otherwise” order on a relatively broad brush basis.  That basis would also include taking into account those costs which had been so far reserved, though it would be necessary to look at the specific applications on which they had been reserved. I note that costs were reserved in relation to the issue of authenticity, amendments to plead the falsity case, updating is of valuations, and the application to deal with certain expert evidence by VCF at trial.

52.  Looking at the matter overall, it seems to me that the fair and appropriate costs order to make in the exercise of my discretion is to order the defendant to pay 70% of the plaintiff’s costs, including those costs reserved.  I think this properly takes into account the principle which underlies the prima facie rule in Order 22 rule 20(1), as well as the various matters which I have dealt with above, individually and in combination.  I think it also takes into account the fact that the plaintiff has ultimately recovered what it says is the value of the lost 2^nd Painting, but at the end of proceedings which have been increased in length and complexity for ultimately no good, or little good, purpose.

53.  As to the costs of this application, whilst it can be said that the defendant has succeeded in obtaining an order under the Otherwise Proviso, it has nowhere near achieved its discount target.  In the circumstances, I make an order on a nisi basis that there should be no order as to costs on this application.

54.  The nisi order will become absolute after 14 days, if neither party applies for variation.  If any variation application is made, the precise variation sought should be identified with reasoning, it shall be responded to by the other party within 14 days, and the matter will be decided by me on the papers.

Mr Andrew Mak and Mr Nicholas Oh, instructed by Hau, Lau, Li & Yeung for the plaintiff

Ms Margaret Ng and Mr Leonard Chow, instructed by Kao, Lee & Yip for the defendant

HCA 1636/2010

[2018] HKCFI 1367

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1636 OF 2010

___________

___________

___________________________

DECISION ON COSTS

___________________________

Introduction

1.  This is the defendant’s application in effect for the variation of para 7 of the order dated 30 January 2018 (“the Jan 2018 order”).  The relevant parts of the Jan 2018 order read:

“6. Subject to Paragraph 7 below, costs of the Case Management Conference today be in the cause; and

7. Costs of the Plaintiff’s Summons [dated 25 January 2018] (including half an hour of today’s hearing) be to the Plaintiff in any event”.

2.  The defendant argues that the costs of the plaintiff’s above summons (“the expert reports summons”) should be reserved, alternatively, be in the cause of this action.  The plaintiff opposes this application.

3.  The parties do not dispute that the court has jurisdiction to vary the Jan 2018 order.  It is therefore unnecessary to consider whether there is jurisdiction to do so (in this connection, I would have decided that there is jurisdiction to vary had this aspect been disputed).

Background

4.  In a nutshell, this action concerns the plaintiff’s claim that the defendant has caused it loss by converting to the defendant’s use several of the paintings belonging to the plaintiff.

5.  By virtue of the state of the latest version of the parties’ pleadings, it was necessary to give directions for the preparation of expert reports (for use at the trial of this action) relating to:

(a)   the value of the paintings converted (or, in the case of the so-called “disputed painting”, allegedly converted) to the defendant’s use;

(b)   the authenticity of the disputed painting.

6.  Two earlier orders are relevant to this decision:

(1)   para 4, order dated 27 June 2016 (“the 2016 expert reports order”);

(2)   para 6, order dated 6 October 2017 (“the 2017 expert reports order”).

In both orders, the direction given was in effect that the parties were to provide reply reports in tabular form (the 2017 expert reports order was made by consent).  There is a dispute as to the meaning (and therefore the coverage) of the two orders; but, as will become clear below, the dispute is irrelevant for present purpose.

This application

7.  The defendant’s principal argument on the merits of this application is in short that:

(a)   the expert reports summons was intended to compel the defendant to use the version of reply (in tabular form) used by the plaintiff.  The plaintiff has no right to do so because the defendant can decide whether to file a reply (and if so, to use its own version);

(b)   the plaintiff itself has failed to comply with the deadline prescribed by the 2016 expert reports order.

8.  In response to para 7(a) above, the plaintiff points out that:

(1)   at least up to the time of the 2017 expert reports order, the defendant implicitly indicated that it would file a reply (in tabular form);

(2)   further, in a letter dated 16 January 2018, the defendant in fact proposed a tabular form, which the plaintiff considered unacceptable for being too simplistic;

(3)   it was only at the hearing on 30 January 2018 that the defendant disclosed it would not respond in any way to the plaintiff’s reply (in tabular form);

(4)   the relief sought by the expert reports summons was not that the defendant must provide answers to the plaintiff’s version of reply, but also any other orders or directions which the court might deem fit.  It was in effect a summons intended to assist case management.

In response to para 7(b) above, the plaintiff contends that the time extension sought was brought about by the defendant’s above change of stance.

9.  In the above circumstances, the plaintiff contends that it was appropriate for it to have taken out the expert reports summons, and for it to be awarded the costs of that summons.

10.  It is unfortunate that the point has not been highlighted upon (or, at the very least, clearly presented) at the hearing of 30 January 2018 (which resulted in the Jan 2018 order), but by the time of the hearing of this application, the defendant informed the court that, in compliance with para 6, 2017 order, its reply has in fact been filed and served on 19 January 2018 already.  This point is important (because it would effectively render the expert reports summons otiose), but, as stated above, it was not put at the forefront (for example, it was not mentioned in the defendant’s skeleton submissions for the 30 January 2018 hearing).

11.  Such being the case, on 30 January 2018, there was in truth nothing of substance for the court to deal with pursuant to para 6, 2017 order (except to consider whether to grant a time extension to the plaintiff to comply with that order).

12.  Normally this would have resulted in the dismissal of the expert reports summons and for the costs concerned to be awarded to the respondent (the defendant herein).  However, almost all of the time for arguing on the expert reports summons was spent mainly because the defendant did not place emphasis upon the matter mentioned in para 10 above; the hearing would have been much shorter if the defendant had done so.

13.  By reason of the above matters, both parties were at fault for failing to economize on the hearing of the case management conference on 30 January 2018.  Accordingly, para 7, the Jan 2018 order should be varied so that each party is to bear its own costs of the expert reports summons.

Conclusion

14.  The defendant’s application to vary para 7, the Jan 2018 order is allowed to the extent indicated in para 13 above.

Other matters

15.  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 on costs and its easier 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

16.  The parties agree that costs should follow the event.  The defendant is effectively the successful party (although only to a limited extent).  There will accordingly be a costs order that half of the costs of this application (to vary the Jan 2018 order) are to be paid by plaintiff to the defendant.

17.  I consider summary assessment of costs to be appropriate.  The above costs shall thus be so assessed.  For this purpose:

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

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

  

  

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

________________________

________________________

_______________

DECISION

_______________

THE APPLICATION

1.  This is the hearing of the plaintiff’s summons dated 5 January 2015 for leave to amend its Re-Amended Statement of Claim (“RASOC”) as per the draft Re-Re-Amended Statement of Claim attached thereto (“the RRASOC”).  The defendant agrees to the proposed further amendments in paragraphs 1(b), 5, 10, 11, 17, 18, 23-27 and (4) of the prayer for relief.  However, the defendant objects to the remainder of the proposed amendments set out as follows:

a. Amendments relating to the clarification of the cause of action of both conversion and detinue (§§ 9, 12, 19, 21 of the RASOC);

b. Amendments relating to the fake Painting (§11A of the RASOC); and

c. Amendments relating to the particulars of loss and damages (§12, 22A-22F, prayers (1), (2), (2a), (3) of the RASOC).

2.  In the course of discussion today, the defendant points out that the plaintiff is not seeking to claim on detinue for the 2^nd painting only, but on all four paintings, which is contrary to what the plaintiff submits in the written submissions.  Mr. Wang, counsel for the plaintiff, confirms that the plaintiff now only claims on detinue for the 2^nd painting only by making clarification to paragraph 22A by deleting “and detinue” in the third line and adding after the words 4^th Paintings “and detinue of the 2^nd painting”.  Defence counsel agrees that this would clarify the plaintiff’s claim on detinue on the 2^nd painting only.  The defendant confirms that it has no objection to the proposed clarification. The discussion below will be on this basis.

3.  The defendant opposes the above amendments on the following grounds:

a. The proposed amendments seek to slip in a completely new cause of action based on detinue.  However, the averments in the RRASOC are bound to fail as they are wholly deficient and fail to address even the basic elements of the tort of detinue. (“No merit in detinue”)

b. Furthermore, the proposed amendments are objectionable since they would introduce a new cause of action after the expiry of the applicable limitation period. (“Limitation”)

c. The proposed amendments regarding the plaintiff’s alleged consequential loss go with the plaintiff’s averments on detinue and, in any event, are bound to fail both in law and on the facts of the case. (“No merit on consequential loss”)

d. Lastly, there has been unexplained delay on the part of D in making the Amendment Application. (“Delay”)[1]

4.  The parties are legally represented.[2]

5.  Before discussion of the issues for the application, let me thank counsel for their assistance in preparing the written submissions with the facts stated therein and the issues of dispute, so that I may concentrate on the resolution of their disputes for my Decision.

THE FACTUAL BACKGROUND

6.  I shall now adopt thefacts as set out by the defendant in the written submissions as the factual background of our discussion below:

“3. In this Action, P claims against D for conversion of four paintings (i.e. the 1^st, 2^nd, 3^rd and 4^th Paintings), which were allegedly stolen by Candy Tsang, P’s ex-employee, passed on to her husband, Thomas Yeung, and sold to D. It is D’s case that it purchased the 1^st, 3^rd and 4^th Paintings and another oil painting of Chen Yifei (陳逸飛) with the theme of “water village” dated May 1994 (“the May 1994 Water Village Painting”) from Thomas Yeung without knowledge of the alleged thefts or any dealing between Thomas Yeung, Candy Tsang and P. D subsequently re-sold the 1^st, 3^rd and 4^th Paintings and the May 1994 Water Village Painting. The 1^st, 3^rd and 4^th Paintings were traced back and returned to P. Subsequently, D managed to obtain the May 1994 Water Village Painting with a view to returning it to P. However, P disputes that the painting obtained by D is not the 2^nd Painting which was allegedly stolen by Candy Tsang.

4. P claims an order for the delivery up of the 2^nd Painting or alternatively damages, as well as damages for inconvenience and loss of enjoyment of all four paintings. D resists P’s claims on the basis that D had only purchased the May 1994 Water Village Painting but not the 2^nd Painting and P did not suffer any loss. D also relies on the defence of contributory negligence.”[3]

THE LEGAL PRINCIPLES

7.  The defendant relies upon the relevant legal principles set out in Tsang Foo Keung v Chu Jim Mi Jimmy (unrep, HCA 7140/1995, 8 October 2013).  It is not necessary to rehearse those legal principles here. In particular, the defendant relies upon the following legal principles:

a. The guiding principle is that the amendments ought to be allowed for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings. It can be made at any stage of the proceedings, subject to RHC O.20 r.8(1A), which requires that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

b. In effect, an opposition to the application for amendment is a mirror image of an application to strike out a pleading on the basis that it discloses no cause of action.  Therefore, an amendment should not be allowed if it is clear that it will not succeed at trial and/or bound to fail.[4]

c. Delay in the making of the application is one of the factors for the court’s consideration in exercising its discretion.  Hesson Development Ltd v Tang Ki Fan Tso [2004] 1 HKLRD B4 at §5.  But the court will require good explanation for the delay, especially if it is a last minute application.  DBS Bank (Hong Kong) Ltd v Sit Pan Jit (unrep., HCA 382/2009, 6 February 2014) at §19.

8.  I shall now discuss each of the grounds of opposition as raised by the defendant.

NO MERIT IN DETINUE

9.  It must be stated clearly at the outset of the discussion below that now the defendant has amended its defence to dispute the identity of the 2^nd painting, the subject matter in dispute in these proceedings.  The defendant originally did not dispute the identity and it had applied to this Court for amendment, which application was refused for lack of explanation.  The defendant appealed and succeeded.  If the defendant succeeds to dispute the identity of the 2^nd painting that it had bought and sold, then there is no question of liability on its part in respect of the loss of the 2^nd painting by the plaintiff.  The plaintiff maintains that the 2^nd painting was stolen from it and had been sold to the defendant.

10.  The defendant says that the plaintiff’s proposed amendment to plead detinue is bound to fail for the reason that:

“(a) There is no averment of any demand made by P for the return of each of the four paintings when the paintings were in D’s possession and, if so, how and when it was made. At §§10 and 11 of the RASOC, P only alleged that it had demanded for the delivery of the 1^st and 2^nd Paintings and such demand was made in 2010 when the paintings were not in D’s possession [43-44].

(b) There is no averment of any refusal by D of P’s demands to return the four paintings to D.

(c) There is no averment that, at the time of the demand, D was in actual possession of any of the paintings or was estopped from denying that it was still in actual possession by reason of D’s own wrongful conduct.”[5]

11.  The defendant’s argument is based upon the authority of Diplock LJ (as he then was) in General and Finance Facilities Ltd. v Cooks Cars (Romford) Ltd. [1963] 1 W.L.R. 644 at 648-651.  In the judgment, the learned judge was discussing the difference of an action on conversion and detinue as he said: “There are important distinctions between a cause of action in conversion and a cause of action in detinue.  The former is a single wrongful act and the cause of action accrues at the date of the conversion; the latter is a continuing cause of action which accrues at the date of the wrongful refusal to deliver up the goods and continues until delivery up of the goods or judgment in the action for detinue.”  This is on the basis of bailment of the property by the plaintiff to the defendant, the absence of which will render a different consideration as he said in the same paragraph: “In the absence of bailment, an unqualified refusal to comply with a demand for delivery up of a chattel made by the person entitled to possession may amount to conversion as an alternative to detinue if the defendant at the time of the refusal was in actual possession of the chattel.”[6]

12.  The undisputed fact of this case is that the plaintiff had never bailed the 2^nd painting with the defendant.  The defendant relies upon “If he has wrongfully delivered it to a third person before the date of the demand the prior wrongful delivery constitutes the conversion, not the subsequent refusal to comply with the demand…” to support its argument that only conversion could be claimed.  In my view, the learned judge did not mean that the plaintiff was not entitled to claim detinue.  Rather, he opined that conversion took place upon the wrongful delivery of the property to the third person, not at the time of the refusal to comply with the demand.  It is the timing of the tort under discussion.  It is quite contrary to common sense that if the plaintiff is entitled to claim conversion in the first place, but is not entitled to claim on detinue if the defendant refused to return the property upon demand subsequently.  In Banks v Ferrari [2000] NSWSC 874 at paragraph 60 of the judgment, the court held that if the goods were not in the actual possession of the tortfeasor, “the tortfeasor must have wrongfully parted with possession.”

13.  The defendant cannot say that there had not been demand by the plaintiff for the return of the 2^nd painting as in paragraph 11 of the RASOC, the plaintiff had, through its solicitors corresponded with the defendant’s then solicitors for the return of the 2^nd painting.  The plaintiff pleaded that the defendant had failed to deliver the 2^nd painting or pay damages in lieu thereof to the plaintiff.  To say the plaintiff had not pleaded that the defendant had refused to return the 2^nd painting to the plaintiff as pleaded in paragraph 11 verges upon a game of words.  This is simply not correct.  We must bear in mind what the Court of Final Appeal said: “It is important to bear in mind that litigation should not be treated as a game and Rules do not exist for the sake of compliance with them as an end in itself; they exist for the purpose of ensuring that disputes before the courts are justly resolved.”  See paragraph 34 of Wing Fai Construction Co Ltd v Yip Kwong Robert (2011) 14 HKCFAR 935 by the CJ.

14.  I do not support the defendant’s argument on this issue.

LIMITATION

15.  Since I have held against it on the “No merit” issue, time for the claim on detinue should commence in November 2010 instead of 2007.  This will bring the plaintiff’s claim on detinue within time.

16.  There is no dispute that the defendant had obtained the 2^nd painting on 12 March 2007 and it sold it on 26 October 2007.[7]  The plaintiff has pleaded in paragraph 11 of its RASOC that its solicitors had in November 2010, made the demand by correspondence with the defendant’s then solicitors.  But the defendant had failed to return the 2^nd painting to it. To this paragraph, the defendant had admitted in its Re-re-amended Defence[8] that it had not returned the 2^nd painting to the plaintiff.  It had not denied the demand being made in November 2010 by the plaintiff.  It had amended its defence to dispute the identity of the 2^nd painting that the defendant had purchased from Thomas Yeung and says that it was not the plaintiff’s 2^nd painting.  If the defendant is successful, the plaintiff’s claim in respect of the 2^nd painting must fail, as admitted by Mr. Wang.

17.  The argument on limitation fails.

NO MERIT ON CONSEQUENTIAL LOSS

18.  The defendant first relies upon Chung J’s comments in the appeal on the plaintiff’s case.  I do not consider that it is helpful for my determination of discretion for the plaintiff’s application. Chung J.  has not ruled out the possibility of the plaintiff’s proposed claim for detinue in the hearing.  At least, this issue is arguable at the trial.  Since the defendant agrees with the Court of Appeal’s view in Natamon Protpakorn v Citibank, N.A. [2009] 1 HKLRD 455 that to deny the plaintiff’s application for amendment is akin to striking out of the plaintiff’s claim, it must be plain and clear case that the court should exercise its discretion against the plaintiff.  In case of doubt, the matter should be submitted to a trial.

19.  The defendant agrees that it is correct that an intention to use or hire out goods may not be necessary for a claim for a reasonable hire charge.  Gaba Formwork Contractors Pty Ltd v Turner Corporation Ltd (1991) 32 NSWLR 175 at 182G-183A.  However, as submitted by the defendant, in that case, what is required is that the goods were in fact detained and used by the defendant for his own benefit.  However, what is the definition of “use” is ambiguous and subject to argument.  In this case, the defendant had sold the 2^nd painting for profit and used the money.  Would this amount to “use”?  This may be for the trial judge to resolve.

20.  The defendant has no answers to the authorities cited by the plaintiff in its written submissions, derived from the judgment of the House of Lords in The Owners of The Steamship “Mediana” v The Owners, Master and Crew of the Lightship “Comet” [1900] AC 118 at 116 :

a. McGregor at §33-067 (A12) commented that the claimant “should be able to recover the market rate of hire for the goods between conversion and judgment, certainly where he was in the habit of hiring out the goods and possibly even where he was not”.

b. Clerk & Lindsell at §109 (A11) commented that “A similar rule has been applied to property the claimant never intended to hire out at all, where there was nevertheless a figure that might be called a reasonable hire charge, or something analogous”.[9]

21.  What the defendant proposes is that the plaintiff can only be able to claim damages on detinue if it can prove that the defendant had detained the goods for its own benefit.  But in the same judgment, the court had also held that “if the use of an article has a recognisable hiring value then such value constitutes the measure of damages …” at 182D.  It seems that in that judgment, the court had not expressed its view whether though the defendant had not derived benefit from possession and refusal of return of the property to the plaintiff, nevertheless had cause damage to the plaintiff, then the plaintiff would still be entitled to claim damage on detinue.  Common sense and sense of fairness question why the plaintiff cannot claim against the defendant in those circumstances.  Whether the plaintiff is able to prove its loss or damage is the issue for the trial.

22.  At most, this issue is arguable.  On the same legal principle as above, the issue should be submitted to trial.

23.  The defendant fails on this issue.

24.  Before I discuss delay, the defendant has, in the written submission at paragraph 30 argued that the plaintiff’s proposed amendment that the painting that the defendant intended to return to the plaintiff as the 2^nd painting was a fake painting is immaterial and unnecessary.  The defendant puts up the reason that because the defendant has now raised the defence that what the defendant had purchased from Thomas Yeung and sold it to a third party was not the 2^nd painting as alleged by the plaintiff, an issue of the identity of the plaintiff’s 2^nd painting as pleaded in the pleadings, the real issue for resolution of the trial is the identity of the painting.  Whether it is a fake painting is irrelevant now.

25.  However, this argument has missed the point that the plaintiff has pleaded that the defendant had purchased the 2^nd painting from Thomas Yeung.  The original defence before the amendment was that the defendant had no issue on the identity of the 2^nd painting.  It only argued that what it had bought from the third party and intended to return to the plaintiff was that 2^nd painting.  The plaintiff argued that it was a faked painting. This return of the 2^nd painting happened after the plaintiff’s Statement of Claim.  This issue remains alive at trial if the plaintiff is able to prove that the painting stolen from it and sold by Thomas Yeung to the defendant was the 2^nd painting as pleaded.  The plaintiff has never abandoned its claim that the 2^nd painting stolen from it was sold to the defendant.  At trial, the defendant will be cross-examined for the reason to change its defence of identity, the reason of which was not given before me when I heard the application for amendment by the defendant.  Nor was it given before Chung J. on appeal as I could see from Chung J’s judgment.[10]  In passing, I think the plaintiff has not brought to my attention or to Chung J’s attention the decision of the Court of Appeal in Leung Kin Fook & Others v Eastern Worldwide Co Ltd & Another (unreported, CACV 184/1990, 8 February 1991, per Power JA at page 3)  This issue may touch on the credibility of the defendant’s evidence.  This will be an issue to be resolved by the court.  As I understand it, the parties will be arguing on the expert evidence for the verification of the genuineness of the 2^nd painting before Chung J, the docketed judge of this matter.

26.  I do not accept the defendant’s argument on this issue.

DELAY

27.  This is the gist of the defendant’s complaint:  “Had P acted on Chung J’s suggestion and applied for leave to amend its pleadings immediately after the Decision, this case would have been ready to be set down for trial at the CMC.  There has been a delay of more than 8 months since the handing down of the Decision and no explanation whatsoever has been given by P to explain such delay.  P’s conduct is in blatant disregard of the underlying objectives of the CJR as enshrined in RHC O.1A.”[11]

28.  As conceded by the defendant, the present application, if disallowed, would be tantamount to striking out of the plaintiff’s proposed claim on detinue, the Court, in exercising its discretion should bear in mind the guidance of the higher courts.  In Wing Fai Construction Company Limited (in Compulsory Liquidation vYip Kwong Robert & Others (2011) 14 HKCFAR935 at §75(5), the Court of Final Appeal adopted the following legal principles on delay:

‘I would also adopt what was said by Neuberger J in Annodeus regarding the court’s consideration of delay:- “Ninthly, it appears to me that it is normally relevant to consider the following factors. First, the length of the delay; secondly, any excuses put forward for the delay; thirdly, the degree to which the claimant has failed to observe the rules of court or any court order; fourthly, the prejudice caused to the defendant by the delay; fifthly, the effect of the delay on trial; sixthly, the effect of the delay on other litigants and other proceedings; seventhly, the extent, if any, to which the defendant can be said to have contributed to the delay; eighthly, the conduct of the claimant and the defendant in relation to the action; ninthly, other special factors of relevance in the particular case.’”

29.  Here, we have the following scenarios for consideration:

a. there has not been any trial date fixed for the matter;

b. the issue of expert evidence is still to be determined by the trial judge;

c. the defendant has not shown any prejudice by the plaintiff’s delay in taking out the application;

d. on a global view of the progress of the matter, the defendant had caused the delay in the proceedings;

e. the Re-Amended Statement of Claim was filed on 3 May 2012;

f. the defendant only took out the application to amend on 23 October 2013, a delay of one year and five months;

g. the defendant has yet given any explanation for its withdrawal of its earlier admission of the identity of the 2^nd painting.

30.  On a fine balance of the above relevant factors, it is clear that this Court should not dismiss the plaintiff’s application.

31.  On the reasons above, I grant the order in terms of the plaintiff’s summons and as clarified by the plaintiff today and not objected by the defendant.

COSTS AND ORDER

32.  On the question or costs, the costs should follow the event (with counsel certificate).  However, this Court should take into consideration that the plaintiff has made further amendment to the proposed amendments to the Statement of Claim.  The costs will be summarily assessed under O.62, r.9A at $72,000, taking into account that some costs has to be deducted for the plaintiff’s clarification today, to be paid by the defendant to the plaintiff within 14 days from the date of this order.

33.  The court shall now make an order in terms as follows:

a. An order in terms of the plaintiff’s summons as clarified;

b. The defendant is at liberty to make consequential amendments within 28 days from the date of this order and the plaintiff be at liberty to make the consequential reply within 14 days thereafter;

c. The costs of the consequential amendments be to the defendant, to be taxed, if not agree, in any event;

d. Costs of the application and the hearing today be as per para 32 above.

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

____________

_________________________________________

D E C I S I O N  ON  W A S T E D  C O S T S

_________________________________________

1.  By a decision handed down on 30 April 2014 (“the Apr2014 decision”), it was determined in essence the defendant was the successful party in two of the 3 matters before the judge in chambers.

2.  This decision on wasted costs has its origin in the registrar’s order dated 10 January 2014 whereby (among other things) the registrar gave directions for valuation (and other) expert reports to be served.  That part of the order (among others) has been set aside by the Apr 2014 decision.

3.  It turned out the parties have in fact complied with the registrar’s said directions before the Apr 2014 decision was pronounced, and costs have thereby been incurred.  The defendant now seeks an order to have those costs paid by the plaintiff (and for them to be summarily assessed if not agreed).

4.  In the circumstances set out above, the only viable objection which the plaintiff can (and does) raise is that those costs were actually necessary.  The argument is summarized below.

5.  The painting allegedly stolen from the plaintiff and said to have been sold to the defendant has been described as “Water Village” (called “the 2^nd Painting” and “the now disputed painting” in the Apr 2014 decision).  The defendant has been given leave to amend the defence to deny having obtained the 2^nd Painting, and now claims it only purchased “the now disputed painting”.

6.  The plaintiff contends that, because of the above averments (which the plaintiff denies), there is a need to:

“. . . assist the Court in identifying the issues . . . including . . . the authenticity of [the now disputed painting] . . . ” (2^nd paragraph, plaintiff’s letter dated 4 August 2014).

Those costs are thus necessary and not wasted.

7.  It is doubtful how the authenticity of the now disputed painting can be relevant to whether the defendant has acquired the 2^nd Painting.  But leaving aside that reservation, I do not think it correct to describe the expert reports as limited only to the above issue. As has been made clear in the Apr 2014 decision, the expert reports also covered the valuation of the paintings (probably for the purpose of quantum of loss) (para 29 to 33, 35 to 41 and 44 thereof), as well as to cover an alleged “custom” or “usage”.

8.  Accordingly, I reject the plaintiff’s above contention as having no merit.

9.  It is therefore correct to order that the costs wasted for complying with the registrar’s directions are to be paid by the plaintiff.

Hau, Lau, Li & Yeung, for the plaintiff

Kao, Lee & Yip, for the defendant

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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1. The relevant part of the costs order made in the decision handed down on 30 April 2014 reads:

“… two-thirds of the costs of this appeal (and the hearing before the registrar) be paid by the plaintiff to the defendant forthwith … ” (para 48 thereof).

The above is expressed in plain and simple language.

2. Court orders which award a proportion of the costs to one or more of the litigating parties are common; examples of such orders have been mentioned in Hong Kong Civil Procedure 2014, Vol 1, especially at p 1125.

3. The appeals from the registrar to the judge which brought about the above costs order involved 3 matters:

(a) the defendant’s application for leave to further amend its defence;

(b) the defendant’s application for particulars of the interrogatories earlier served on the plaintiff;

(c) the plaintiff’s application for expert/valuation directions.

In short, the defendant has been successful in respect of two of the 3 above matters.

4. With the above (in particular para 1 and 2 above) in mind, one would have thought such an order should not give rise to difficulties of interpretation; unfortunately it apparently did for the plaintiff.  In its skeleton submissions lodged for the present purpose, the plaintiff somehow read the above costs order as entitling it to one-third of the costs of the appeals: para 5(1) and 7 to 11 thereof (with the net result that the defendant would end up with only one-third of the costs).

5. The meaning of the costs order contended for by the plaintiff has no merit.  The costs order never awarded any costs in the plaintiff’s favour.  Insofar as the plaintiff is seeking a variation of the order (which it is not seeking (see para 11, plaintiff’s skeleton submissions)), it is refused on the ground that this will bring about an overall result which does not match fairly the extent of the defendant’s success in the appeals.

6. The next complaint of the plaintiff is that the defendant has lodged with court 6 sets of statement of costs.  The plaintiff’s letter of 13 May 2014 pedantically says:

“[pursuant] to paragraph 49 [of the 30 April 2014 decision], the Defendant should lodge … and serve a statement of costs. However, we note that the Defendant has lodged six statement[s] of costs … ”.

The defendant’s statements of costs are:

(1) 2 sets for its application for leave to further amend the defence (one for the registrar hearing and another for the appeal hearing);

(2) 2 sets of its application for particulars of interrogatories (one for the registrar hearing and another for the appeal hearing);

(3) 2 sets for the plaintiff’s application for expert/valuation directions (one for the registrar hearing and another for the appeal hearing).

It is obvious the defendant intends to give a break down of the overall costs incurred into the different aspects covered by each set of the statements of costs.  Such an approach cannot be faulted as a matter of principle, and should in fact be helpful to both the paying party and the court when assessing the reasonableness of the costs charged by the defendant.  The plaintiff has not complained that it had been confused by the 6 sets of statement of costs.

7. Insofar as there should be any complaint that parts of the defendant’s costs have been partially inflated, the complaint should properly be raised (and considered) in the context of the summary assessment itself.  Accordingly, there is no merit in this complaint either.

8. Unknown to the court when the 30 April 2014 decision was handed down (which (among other things) set aside the registrar’s directions for expert/valuation), the parties have complied with the registrar’s directions, and costs have been incurred as a result.  The defendant has earlier included those “wasted” costs in its statements of costs.  However, it readily accepted during the hearing that those costs should more properly be the subject-matter of a separate costs order.  The defendant has helpfully in its letter of 16 May 2014 set out the total amount of such wasted costs ($71,370). Nothing further came out of this aspect during the hearing.

9. It is accepted by the parties the other points mentioned in the parties’ respective skeleton submissions are related to the quantum of costs.  They are therefore more appropriately points to be raised, and considered, as part of the summary assessment of costs.  They will thus not be elaborated here.

10. As regards the costs of this hearing, the parties do not dispute that the summary assessment of costs itself should not attract further costs.  The only further costs which require the court’s determination are those concerning matters which the court needs to consider in this decision (see para 1 to 7 above).

11. Because the defendant turns out to be the substantial successful party herein in relation to those matters, the costs of this hearing should be awarded in its favour (to be paid forthwith).

12. For the purpose of the summary assessment of costs (if those costs cannot be agreed):

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

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

HCA 1636/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. HCA 1636 OF 2010

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________________________

_______________________________

DECISION

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THE APPLICATIONS

1.  The following summonses are for determination today:

a. The defendant’s application for further and better particulars on the answers given by Mr. Kan Ho Ming Patrick of the plaintiff to the interrogatories administered by the defendant as set out in summons dated 22 July 2013, pursuant to Order 26 rule 5(3) RHC (“the summons for further and better particulars);

b. The plaintiff’s application for leave to the plaintiff and the defendant to adduce expert reports by an art valuer on quantum in relation to the issues as stated in the Schedule annexed to the summons dated 23 October 2013 (“the summons for expert evidence”).  In this summons, the plaintiff also asked for leave for the parties to exchange their expert reports by an art valuer on the following issues:

i. Whether the defendant’s painting “May 1994 Water Village Painting by Chen Yifei” as stated in the supplemental list of documents of the defendant was a genuine painting; and

ii. The market value of the defendant’s said painting, which was produced by the defendant but denied by the plaintiff as the 2^nd painting as referred to in the Re-Amended Statement of Claim, as at the date of the report; and

c. The defendant’s summons for amendment of the Re-Amended Defence by summons of 27 December 2013 (“the summons for amendment” belatedly brought up by its solicitors’ letter dated 31 December 2013)[1].

2.  In the summons for amendment, the defendant proposed to withdraw its admission of conversion of the 2^nd painting as pleaded in the Re-Amended Statement of Claim described as “an oil painting by Chen Yifei (陳逸飛) by the name of ‘Water Village’ (水鄉)”.

3.  The plaintiff opposes the summons for further and better particulars.

4.  The defendant opposes the plaintiff’s summons for expert evidence on the bases that it is not necessary to have expert evidence for the valuation of the 1st, 3rd and the 4th paintings as they had been returned to the plaintiff.  As to the 2^nd painting, it is premature to consider expert evidence as the plaintiff has not yet been able to prove the identity of the 2^nd painting.^[2]

5.  The plaintiff at first agreed to the proposed amendment to the Re-Amended Defence, but subsequently withdrew its consent as explained below.

6.  Mr. C. Wang, counsel acts for the plaintiff.  Mr. J. Lam, counsel acts for the defendant.

Pro Active case-management

7.  This matter is an example that requires the court’s pro active case management in order to ensure a fair trial on the real issues for the parties.  Two days before the hearing, in accordance with Practice Direction 5.4, Mr. Wang lodged his written supplemental submissions in response to the defendant’s further and better particulars application and the application for leave to amend the Re-Amended Defence.  In the supplemental submission, counsel says that the plaintiff has no objection to the defendant’s application for leave to amend the Re-Amended Defence.

8.  This Court fully appreciates that the parties have the liberty to frame the issues of dispute for the court’s resolution at trial.  This liberty is obvious when they start the pleadings and frame the issues.  Once the issues have been framed, the court has the duties under Order 1B, RHC to monitor its progress under its case-management power.  No doubt, it has the inherent power and the duties to prevent any parties from abusing its process.  The Court has the power under Order 1B rule 1(2)(l) to take step for the purpose of managing the case and furthering the underlying objectives under Order 1A, as in this case, to ensure that it is dealt with expeditiously as is reasonably practicable and to ensure fairness between the parties.^[3]  It was on this basis I considered that I should take up the matter on my own initiative, informing the respective parties’ solicitors that the Court would require explanation for the plaintiff’s stance.  I shall state my reasons below.

9.  Although the court will usually allow a party to amend the pleadings at any stage of the proceedings, especially when the case has not been set down for trial, such as this case, it will only exercise its discretion for the purposes of putting the real issues before the court for fair trial or saving costs.  The court will therefore be reluctant to allow any amendment, which, contrary to the said purposes, causes embarrassment to the proceedings.  To allow a defendant to withdraw admissions pleaded in the Defence without good reasons will obviously cause embarrassment to the legal proceedings.  The court will, of course, take all the circumstances into consideration when it exercises its discretion.  It will allow the defendant to do so if it has good reasons such as genuine inadvertent mistakes as shown in the cases in HKCP 2014 at 20/8/17.

10.  However, the defendant has not given any reasons for the withdrawal of the admission.  The only reasons are those set out in the draft Re-Re-Amended Defence.  They do not show any mistakes on the part of the defendant, or negligence or being misled into the admission.

11.  It therefore appears to me that the defendant does not have the legal basis for their application.  It was indeed beyond me why the plaintiff would agree to the proposed amendments.

12.  I am fully aware that such case-management power should be exercised with prudence and restraint and that I should not intervene if those proposed amendments are just cosmetic amendments causing no practical effect to the parties’ substantive rights or adversely affect a fair trial.  However, I consider that the proposed amendments will change and enlarge the scope of the disputes between the parties substantially.  I can envisage that if the amendments were allowed, there would be further interlocutory applications for further particulars on the identity of the 2^nd painting, causing more time and costs.  Mr. Wang has already said in his written submissions that, because of the proposed amendments, the plaintiff will have further witness statements to serve.  See paragraph 63 of his supplemental written submissions.  Conservatively estimated, the delay will be more than a year and the length of the trial will be more than double the original pleaded case as it now stands.

13.  By a letter dated 8 January 2014, the plaintiff’s solicitors informed the Court that upon reconsideration, the plaintiff had decided to withdraw its consent.  It requires explanation from the defendant for its withdrawal of admission that it had purchased the 2^nd painting.

14.  With no objection from the defendant, I shall allow the plaintiff to withdraw its consent to the proposed amendments to the Re-Amended Defence.  The defendant’s summons for amendments will be considered below.

15.  I shall now deal with the applications.

16.  The plaintiff’s objection to the defendant’s application for further and better particulars is that the answers given to the interrogatories are sufficient or they are not necessary for disposing fairly of the matter or for saving costs.^[4]

17.  The defendant’s objection to the plaintiff’s proposed expert evidence for the trial is that the scope is overly broad and it covers matters which are irrelevant as a matter of law and fact.^[5]  In any event, no expert evidence should be adduced at all when the plaintiff has not yet been able to prove the identity of the 2^nd painting.  If valuation of the 2^nd painting is to be conducted, it should be done on the following basis:

a. Painted in 1994

b. By Chen Yifei

c. With the theme of “Water Village”

d. With the size of 75x110cm

e. Dates of valuation be restricted to i) date of the alleged conversion; and ii) date of the expert report.[6]

18.  The applications are, in principle, for the purpose of case management.  They are for the purpose of having fair disposal of the matter or for saving costs.  The facts of this matter and the issues in dispute will determine the result of the applications.  I will therefore set out the factual background undisputed and the issues of dispute below.

19.  It is obvious that the defendant’s summons for amendment should be dealt with before the other summonses because the proposed amendments will inexorably change the factual basis of the pleaded case, which will, in turn, affect the way the parties argue their case for the other summonses.

THE PLEADED FACTS

The Re-Amended Defence

20.  The relevant facts as pleaded in the Re-Amended Defence and before the defendant’s proposed Re-Re-Amended Defence, are as follows:

a. The plaintiff claims against the defendant in respect of 4 paintings, which were found to have been stolen by its former employee and through her husband sold to the defendant.  Mr. Siu Fai-lung is a shareholder and director in charge of the defendant and he is an experienced paintings and artwork trader himself.  The defendant admitted that Mr. Siu had been a trader of paintings and artwork for about 25 years.[7]

b. The 1^st, 3^rd, and 4^th paintings had been traced back and returned to the plaintiff.  It was not pleaded that the defendant had demanded payments from the plaintiff for their return.  The only outstanding claim relating to the returned paintings is “damages for inconvenience and/or loss of enjoyment of the paintings at a value to be assessed.”[8]

c. With regard to the 2^nd painting, the plaintiff claims against the defendant for return of it or alternatively for damages at a value to be assessed.  However, the plaintiff pleaded in paragraph 10 of the Re-Amended Statement of Claim that the estimated value of it was $3,000,000.[9]

d. The defendant admitted that he had bought the 2^nd painting from Mr. Thomas Yeung on 12 March 2007 for $530,000 and had on 26 October 2007 sold to some third party for $620,000.[10]  The defendant also admitted that the 2^nd painting had not been returned to the plaintiff, nor had it paid damages in lieu thereof to the plaintiff.[11]

e. The facts above are pleaded in the pleadings.

f. In Mr. Siu’s witness statement, he said that he had purchased the 2^nd painting from 林勛哲先生(“Mr. Lin”) for RMB850,000, which he intended to return to the plaintiff.  However, the plaintiff denied that it was the 2^nd painting stolen from it.  The plaintiff proposed to have inspection of the alleged 2^nd painting in order to ascertain its authenticity.[12]

21.  The issues of dispute between the plaintiff and the defendant relating to the 2^nd painting are these:

a. Liability for the admitted conversion of the 2^nd painting by the defendant as it has raised the defence of contributory negligence on the part of the plaintiff[13];

b. Whether the painting now in the defendant’s possession is the 2^nd painting stolen from the plaintiff.  If it is, then it should be returned to the plaintiff by the defendant; or

c. If it is not the 2^nd painting stolen from the plaintiff as it is a faked one, and if the defendant is found to be liable to the plaintiff for the conversion, then the defendant has to pay damages to the plaintiff in lieu of the return of the 2^nd painting.  There has to be an assessment of the amount of damages.

The proposed Re-Re-Amended Defence

22.  The defendant now proposes to amend the Re-Amended Defence, the main purpose of which is to withdraw its admission and put the plaintiff to strict proof of the identity of the 2^nd painting as pleaded in the Re-Amended Statement of Claim.  The defendant admitted in its Defence that it had purchased the 2^nd painting, relying upon the finding of the District Court that the 2^nd painting entitled “’Water Village’ by Chen Yifei” was stolen by the plaintiff’s ex-employee, who passed it over to her husband, Mr. Thomas Yeung.  The husband sold it to the defendant.[14]

23.  The reason for the defendant to change its stance now is because the defendant through Mr. Siu had re-purchased the Water Village painting, which he thought to be the 2^nd painting as alleged in the plaintiff’s Re-Amended Statement of Claim, from Mr. Lin for RMB850,000 with the ostensible intention of returning it to the plaintiff.  However, the plaintiff denied that that painting was the 2^nd painting stolen from it.^[15]

24.  The defendant admits that it had purchased a painting entitled “May 1994 Water Village Painting” through Mr. Siu Fai Lung.^[16] The defendant also admits that Mr. Siu had given evidence at the criminal trial that he had purchased a painting by Chen Yifei named “Water Village” from Thomas Yeung.

The relevant legal principles on amendment

25.  The application is made under Order 20 rule 5:

5. Amendment of writ or pleading with leave (O. 20, r. 5)

(1) … …, the Court may at any stage of the proceedings allow the plaintiff to amend his writ, or any party to amend his pleadings, on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct.

26.  Rule 5 is subject to rule 8(1A):

8. Amendment of pleading and certain other documents (O. 20, r. 8)

(1) For the purpose of determining the real question in controversy between the parties to any proceedings, or of correcting any defect or error in any proceedings, the Court may at any stage of the proceedings and either of its own motion or on the application of any party to the proceedings order a pleading or any other document in the proceedings to be amended on such terms as to costs or otherwise as may be just and in such manner (if any) as it may direct. (L.N. 152 of 2008)

(1A) The Court shall not under paragraph (1) order a pleading to be amended unless it is of the opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs. (L.N. 152 of 2008)

27.  An admission made inadvertently may be withdrawn and the pleading amended accordingly. See 20/8/17 of Hong Kong Civil Procedure 2014 Vol. 1.

28.  Mr. Lam refers me to a case of Cheung Wan Hung v Fai WongConstruction (Asia) Ltd DCPI 136/2009, in which the legal principles for withdrawal of admission were discussed.  The Judge had referred to the legal principles as set out in the decision by Summer J. in Braybrook v Basildon & Thurrock University NHS Trust, October 7, 2004(Lawtel).  It is sufficient, for this purpose, to remind us of the factors that the Court should take into account when exercising the discretion, viz,:

a. The reasons and justification in good faith;

b. The balance of prejudice to the parties

c. The public interest, in avoiding where possible satellite litigation, disproportionate use of court resources and the impact of any strategic manoeuvring.

29.  To those factors, I should also consider whether such withdrawal truly reflects the real issues between the parties.

DISCUSSION

Amendments to theRe-Amended Defence

30.  The question is whether the admission in its Re-Amended Defence was inadvertent mistake. The defendant has given its reasons for its withdrawal of its admission in the proposed amendments.  It is because it had bought the alleged 2^nd painting from Mr. Lin, intending to return it to the plaintiff, who refused to accept it saying that it was a counterfeit.  The issue in dispute relates to the authenticity of the 2^nd painting, not its identity.  The defendant is not permitted to rely upon the plaintiff’s dispute on its authenticity to withdraw its admission of its identity.  There is no dispute as to the title of the painting.  Mr. Siu admitted that he had over 25 years’ experience in the trade of paintings himself and he had identified the 2^nd painting at the time he bought it from Thomas Yeung.  He had given evidence on this painting in the criminal trial at the District Court.  He had also identified it when he bought it back from Mr. Lin.

31.  The defendant bears the burden to show to the Court that he should be given leave to withdraw its admission.  It has given no evidence to the Court that Mr. Chen Yifei had more than one painting with the same title as the 2^nd painting.  The dispute is on its authenticity, not its identity.

32.  The defendant has clearly failed to discharge the burden for leave.  I also take the view that the defendant’s proposed amendments to the Re-Amended Defence will muddle the issues for the trial; and if allowed, will waste time and costs for the proceedings as I can envisage that there will be further interlocutory applications for the particulars on the identity of the 2^nd painting.  Its application for the proposed amendments to the Re-Amended Defence is refused and dismissed.

The further and better particulars application

33.  Since the defendant’s application for leave to amend its Re-Amended Defence is refused, the discussion below should base upon the Re-Amended Defence only.

34.  I shall now consider the other summonses. First is the defendant’s application for further and better particulars of the interrogatories pursuant to Order 26 rule 5(3) of RHC, the relevant parts of which are set out as follows:

1. Discovery by interrogatories (O. 26, r. 1)

(1) A party to any cause or matter may in accordance with the following provisions of this Order serve on any other party interrogatories relating to any matter in question between the applicant and that other party in the cause or matter which are necessary either-

(a) for disposing fairly of the cause or matter; or

(b) for saving costs.

5.  Objections and insufficient answers (O. 26, r. 5)

(1)

(2)

(3) Where any person on whom interrogatories without order have been served answers any of them insufficiently, the party serving the interrogatories may ask for further and better particulars of the answer given and any such request shall not be treated as service of further interrogatories for the purposes of rule 3(1).

6. Failure to comply with order (O. 26, r. 6)

(1) If a party fails to answer interrogatories or to comply with an order made under rule 5(2) or a request made under rule 5(3), the Court may make such order as it thinks just including, in particular, an order that the action be dismissed or, as the case may be, an order that the defence be struck out and judgment be entered accordingly.

35.  It must be noted that the further and particulars under rule 5(3) are subject to the objectives of Order 26 rule 1, namely, for fair disposal of the dispute or for saving costs.

36.  The interrogatories and further and better particulars on the answers given by Mr. Kan Ho Ming, Patrick purport to resolve two issues, viz. whether the painting alleged by the defendant to be the 2^nd painting stolen from the plaintiff is the genuine 2^nd painting; and how the estimated market value of HK$3,000,000 is arrived at.

37.  Looking at the requests generally, I do not consider that pursuing those requests for particulars will solve the issues in questions satisfactorily.  Nor do I consider that this is the proper course to be taken by the defendant for saving costs.  Quite the contrary.  The authenticity of the 2^nd painting cannot be solved by the facts as requested by the defendant.  It is difficult to understand the relevance of particulars such as the circumstances in which the plaintiff obtained the 2^nd painting, the purchase price of it and the time it was stolen (para. 2c); who had seen it and the circumstances under which those people had seen it and the relationship of Madam Sheng Shan Shan with the plaintiff (para. 2(d) and the name of Madam Sheng’s friend (para. 2(d) of Mr. Kan’s affirmation) to the issue of authenticity of the 2^nd painting.  This issue has to be solved by expert evidence.

38.  The defendant admits that the 2^nd painting had been sold on 26 October 2007 for $620,000.  He subsequently bought it back from Mr. Lin for RMB850,000.  The plaintiff now says that the one bought from Mr. Lin is not the 2^nd painting stolen from it.  The plaintiff has given the reason in support of its allegation.  It refers to Madam Sheng Shan Shan, a famous painter, who, according to the plaintiff, had studied and received the 2^nd painting from the late painter.  Madam Sheng had already identified the 2^nd painting and she said that the defendant’s painting “is only a poor quality counterfeit which does not even represent a genuine piece of work by Mr. Chen Yifei.”  Therefore it is clear that the question boils down to whether the defendant’s painting is a counterfeit of the 2^nd painting, which is an area to be determined by an expert. I do not believe that the facts as requested can possibly resolve this issue.  As I have said, they will muddle the real issue for the trial and will, if not properly controlled and case-managed, deteriorate into a game of words and particulars between the parties, wasting time and costs.

39.  With regard to the requests on the estimated market value of the 2^nd painting, I shall pass the same comments on the defendant’s approach.  This issue can be resolved by the expert evidence.  The plaintiff has only pleaded in the Re-Amended Statement of Claim that $3 million was an estimated market price.  See paragraph 10.  It is by no means a valuation of the market value and it asks for damages to be assessed in the prayer.

40.  I will therefore dismiss the defendant’s summons for further and better particulars.

Application for leave to adduce expert evidence

41.  I shall now deal with the plaintiff’s summons for expert evidence.

42.  After the discussion at the hearing, the plaintiff has now agreed that the expert evidence should be as follows:

a. The 1^st painting and the 3^rd painting:

i. The market value and rental value on the date the defendant’s purchase of them, respectively dated 16 February 2007 and 5 June 2007;

ii. The market value and rental value as at the dates of the defendant’s sale of them, respectively dated 26 February 2007 and 7 October 2007; and

iii. The market value and rental value as at the date of the return of the painting to the plaintiff respectively dated 2 November 2010 and 2 September 2010.

b. The 4^th painting:

i. The market and rental value as at the date of the defendant’s purchase of it on 12 February 2007; and

ii. The market and rental value as a the date of the defendant’s sale of the painting back to Thomas Yeung on 11 July 2007.

c. The 2^nd painting by Chen Yifei:

i. The market and rental value as at the date of the defendant’s purchase of it on 12 March 2007;

ii. The market and rental value as at the date of the defendant’s sale of it on 26 October 2007;

iii. The market and rental value as at the date writ (3 November 2010, amended on 14 May 2011); and

iv. The market and rental value as at the date of report.

d. The May 1994 Water Village painting the defendant obtained in June 2013 from Mr. Lin:

i. Whether this painting is a genuine painting painted by the famous Chinese contemporary oil painter Chen Yifie;

ii. The market and rental value as at the date of the defendant’s alleged sale of the painting (26 October 2007); and

iii. The market and rental value as at the date of the writ (3 November 2010, amended on 14 May 2011; and

iv. The market and rental value as at the date of report; and

e. General practice of art dealers – what is the normal practice for an art dealer in Hong Kong to conduct due diligence exercise to verify the origin of a painting.

43.  The plaintiff explains that the above expert evidence is for the purpose of proving the loss of enjoyment or use of the 4 paintings, the authenticity of the painting in the defendant’s possession allegedly to be the 2^nd painting, which it intends to return to the plaintiff; and if it is found to be faked, then the market value of the 2^nd painting for assessment of damages of it.  It also serves the purpose of proving that the defendant’s defence that Mr. Siu purchased the paintings in good faith and without knowledge of notice of thefts as pleaded in the Defence[17] is not believable.

44.  The defendant argues that the plaintiff is not entitled to claim for loss of enjoyment or use of the paintings because there is no evidence to show that the plaintiff had the intention of leasing out the paintings.  Therefore there is no evidence of possible loss.

45.  The plaintiff, however, submits that the plaintiff is entitled to claim for loss of use of the chattel, the paintings in this case, even if it had no intention of leasing them for profit, admitting that there is no evidence that the plaintiff had ever leased out the paintings for profit.  Mr. Wang refers me to Clerk & Lindsell on Torts twentieth edition at paragraphs 17-108 and 17-109 and also to Mc Gregor on Damages, eighteenth edition paragraph 33-067.

46.  Mr. Lam argues that those authorities refer to the situation where the defendant had obtained benefits from conversion, which is the remedy under the equitable principle of restitution.  But there is no evidence that the defendant had obtained any profit during the period of conversion in this case.

47.  However, Mr. Wang draws my attention to the case of Strand Electric Co v Brisford Entertainments [1952] 2 QB 246 CA referred to in McGregor that Denning LJ had reserved his decision that the plaintiff was entitled to restitution remedy only.  The question that the plaintiff should also be entitled to claim damages under torts remains a valid issue for the trial.  I agree.  Under the general principle, remedy under torts should put the plaintiff to the same position as if no torts had been committed. The plaintiff then would be entitled to use the paintings for commercial purposes for profit. It may not be necessary for it to prove that it had the intention of using them for specific purposes.  In Wong Hoi Fung v American International Assurance Company (Bermuda) Limited & Shrila Chan [2002] 3 HKLRD 507 at 511J, the Court held where the court could not form a clear view on the relevance of the proposed expert evidence, leave should be given to the plaintiff to adduce the expert evidence at the trial. I shall follow this decision.

48.  Mr. Lam agrees that expert evidence will be required for the 2^nd painting.  But he submits that since the plaintiff is not able to identify the 2^nd painting, it is pre-mature to make directions for the expert evidence.  He submits that the date for the valuation of the 2^nd painting should be the date of conversion and the date of judgment only.

49.  For the reasons given above, I do not agree with Mr. Lam that the 2^nd painting has not been identified.  The crux is whether the defendant’s painting is the genuine 2^nd painting stolen from the plaintiff.

50.  As to the expert evidence on the general practice of the trade, Mr. Lam argues that it should not be allowed because this is irrelevant to the issue of conversion.  But I can see that since the defendant has pleaded good faith in its Defence, it will be unfair to disallow the plaintiff to adduce expert evidence to show that the paintings were purchased at a gross undervalue of the market and that the defendant should have adopted the prudence that is usually required in the trade to ascertain the original source of the paintings, given the value of those paintings.

51.  For the reasons above, I give leave to the plaintiff to adduce expert evidence on those issues above.

52.  The directions will be as follows:

a. Inspection of the defendant’s painting be arranged within 21 days from the date hereof;

b. The plaintiff shall, within 28 days thereafter, serve an expert report on those issues in paragraph 42 supra;

c. The defendant shall be at liberty, within 28 days from the date of receipt of the plaintiff’s expert report, serve an expert report in response thereto; and

d. The plaintiff’s expert shall be at liberty to serve an expert report in reply within 14 days thereafter;

e. The solicitors for the respective parties shall cooperate with one another for the inspection of the defendant’s painting in question;

f. Liberty to apply to court for further directions; and

g. The experts of the respective parties shall be available for cross-examination at the trial.

53.  As to the costs of the summonses and the hearing today, including costs reserved, the plaintiff should have the costs of all the three summonses (with counsel’s certificate) assessed under Order 62 rule 9A RHC at $110,000 to be paid by the defendant within 14 days from the date hereof.

ORDER

54.  I shall now make an order in terms as follows:

a. The defendant’s summons for further and particulars be dismissed;

b. The plaintiff’s summons for expert evidence as proposed be amended to those per paragraph 52 supra;

c. The defendant’s summons for leave to amend its Re-Amended Defence be dismissed;

d. The costs of the applications be in terms of paragraph 53 supra.

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

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

HCA 1636/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. HCA 1636 OF 2010

_______________________________

_______________________________

DECISION

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The Application

1.  This is the Plaintiff’s application to amend the re-amended statement of claim.  A copy of the draft “Re-Re-Amended Statement of Claim” incorporating the intended amendment (i.e. an addition of one new paragraph at paragraph 27) is attached to the Plaintiff’s Summons dated 7 January 2013.  Today, the draft re-re-amended statement of claim is further amended by deleting one item of lost property under paragraph 27.

2.  The plaintiff’s claim is based upon a tort of conversion against the defendant in that the plaintiff’s former employee had stolen some pieces of artwork and sold them through an agent to the defendant.  The former employee had been convicted by the court and sentenced to imprisonment.  It is the plaintiff’s case that the Defendant had already returned two pieces of artwork to the Plaintiff through the assistance of the Hong Kong Police, and had “sold back” one piece of the artwork to the Plaintiff through another converter (i.e. Mr. Thomas Yeung), there are still other pieces of artwork that remained lost. The Plaintiff had recently finished stock taking, and discovered further properties were lost.  The Plaintiff has good reasons to believe that they are also lost as a result of the unlawful acts of conversion of the Defendant together with other people.

3.  The plaintiff therefore applies for leave to re-re-amend its re-amended statement of claim by adding paragraph 27, in which the plaintiff pleads:

“In addition to the above, upon the completion of stock taking at the Plaintiff’s Shop, it was discovered that the following properties of the Plaintiff were also missing:

[a list of 9 items of artwork]”

Discussion

4.  The defendant opposes this paragraph, saying that what the Plaintiff essentially seeks to do is to plead a speculative cause of action, in the hope that particulars can be provided pending possible future revelations.  The case of Wharf Properties v. Eric Cumine Associates [1991]2 HKLR 154 makes it clear that the Plaintiff should not be permitted to do so as the Privy Council at 166F of the report said:

“It is for the plaintiff in action to formulate his claim in an intelligible form and it does not lie in his mouth to assert that it is impossible for him to formulate it and that it should, therefore, be allowed to continue unspecified in the hope that, when it comes to trial, he may be able to reconstitute his case and make good what he then feels able to plead and substantiate…”

5.  I agree.  The proposed amendment has clearly not pleaded any particulars in support of the list of additional lost artwork relating to the defendant.  Nor had the plaintiff pleaded damages against the defendant.  At best, it is only a list of lost items, with the speculation, based upon other admitted facts found against the defendant in respect of other lost items in question, that the defendant might have converted those pieces of artwork.  In this application, the plaintiff has to answer one practical question: what cause of action against the defendant has the plaintiff pleaded in the proposed paragraph 27 supported by pleaded facts?  If the plaintiff is unable to answer it, it must be struck out under Order 18 rule 19 (1)(a) immediately, even if it has already been pleaded in the statement of claim.

6.  Ms. Tjia submits that paragraph 23 of the re-amended statement of claim will suffice to lay the factual foundation upon which the plaintiff would claim against defendant for other unlawful dealing and/or conversion of the plaintiff’s other properties.  With respect, I consider that this general pleading has not set out the causation of the lost properties in paragraph 27 of the proposed amendment.

7.  Ms. Tjia has further asked this court to read the re-amended statement of claim as a whole: the fact that the ex-employee had been convicted of theft and the stolen properties were converted by the defendant and there had been 4 pieces of artwork proved or admitted to have been converted by the defendant.  The court can then draw the inference that those lost items in paragraph 27 must have been converted by the defendant as well.

8.  I am afraid this court is unable to draw such inference as there has been no factual basis other than the background as stated by Ms. Tjia to support that it must be the defendant who had converted those lost properties.  I do not consider that the other 4 properties and the circumstances on which they were converted by the defendant have laid sufficient factual basis as suggested by Ms. Tjia.

9.  For the reasons above, I consider that there has not been pleaded the causation in relation to the lost properties in paragraph 27, which if pleaded, should be struck out under Order 18 rule 19(1)(a) and the application should not be allowed.

10.  As to the costs of this application, Mr. Lam asks for indemnity costs on the basis that the plaintiff has not given thought to the amendments to see if they should be pleaded within the spirit of the CJR.  Ms. Tjia argues that the plaintiff has not been, as submitted by Mr. Lam, negligent in paying attention to the pleadings.  It is only that this court disagrees with the plaintiff.  I agree with Ms. Tjia.  This is not a case that warrants indemnity costs against the plaintiff.

11.  The costs should follow the event and the costs of the plaintiff’s application, including the costs reserved and for the hearing today (with counsel certificate) be to the defendant, to be assessed under Order 62 rule 9A at $28,000.  However, for today’s assessment of costs, the defendant has not complied with paragraphs 7 & 8 of the Practice Direction 14.3.  As a result, the hearing has to be stood down for the preparation of the schedule of costs, which has taken about 45 minutes. For this waste of time, the costs should be disallowed and the wasted costs should be given to the plaintiff, which I assess at $2,000 to be set off against the costs to the defendant today.  The net sum is $26,000.

Order

12.  I shall now make an order in terms as follows:

i.   The plaintiff’s summons be dismissed;

ii.   Costs of this application, assessed at $26,000, are to be paid by the plaintiff to the defendant within 14 days from the date hereof.