ABLE SUCCESS ASIA LTD v. CHINA PACKAGING GROUP CO LTD AND OTHERS
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HCA 1120/2014
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
HIGH COURT ACTION NO 1120 OF 2014
_________________________
| BETWEEN | ||
| ABLE SUCCESS ASIA LIMITED | Plaintiff | |
| and | ||
| CHINA PACKAGING GROUP COMPANY LIMITED | 1st Defendant | |
| GET NICE SECURITIES LIMITED | 2nd Defendant | |
| SIU YUN FAT | 3rd Defendant | |
| LAU FAI LAWRENCE | 4th Defendant | |
| SIU SIU LING ROBERT | 5th Defendant | |
| TAM TAK WAH | 6th Defendant | |
| CHAN YEE POR SIMON | 7th Defendant | |
| SKYWAY SECURITIES INVESTMENT LIMITED | 8th Defendant | |
| and | ||
| CELESTIAL SECURITIES LIMITED | Intervener |
_________________________
| Before : Master Lai in Court |
| Date of Hearing : 27 July and 27 October 2015 |
| Date of Judgment : 25 November 2015 |
_______________
JUDGMENT
_______________
Introduction
1. This is an inquiry of the amount of damages payable by the plaintiff to the intervener (“Celestial”) pursuant to an order dated 18 September 2014 (the “Order”).
2. In this case, the plaintiff claimed against the defendants for 548,604,802 shares in the 1st defendant (the “Shares”). The 1st defendant was and is a company listed in the Hong Kong Stock Exchange.
3. The plaintiff commenced these proceedings on 19 June 2014 and obtained on 20 June 2014 an interim injunction restraining the 1st and 2nd defendants, inter alia, from disposing of, dealing with or trading of the Shares (the “Injunction”). In obtaining the Injunction, the plaintiff gave, inter alia, the following undertakings to the court (the “Undertakings”):
“1. If the Court later finds that this Order [ie the Injunction] has caused loss to the 1st and 2nd Defendants or any other party and decides that the 1st and 2nd Defendants or that other party should be compensated for that loss, the Plaintiff will comply with any order the court may make.”
“5. The Plaintiffs will pay the reasonable costs of anyone other than the 1st and 2nd Defendants which have been incurred as a result of this Order including the costs of ascertaining whether that person holds any of the Shares and if the Court later finds that this Order has caused such a person loss, and decides that such person should be compensated for that loss, the Plaintiff will comply with any order the Court may make.”
4. On 27 June 2014, the court continued the Injunction to until determination of this action or further order of the court.
5. On 25 July 2014, Celestial took out a summons for leave to intervene in this action to enforce the Undertakings against the plaintiff (the “Application”). The Application was supported by an affirmation of Hui Wai Ling (“Ms Hui”) filed herein on the same day (“Ms Hui’s 1st Affirmation”).
6. On 3 September 2014, the court dismissed this action against all the defendants.
7. On 18 September 2014, G Lam J made the Order granting leave to Celestial to intervene in the action for the purpose of enforcing the Undertakings against the plaintiff. His Lordship further ordered that there be an inquiry as to the amount of damages that should be paid to Celestial. His Lordship gave directions for Celestial and the plaintiff to file and serve further affirmation(s) for the purposes of the inquiry as to damages. Leave was given to Celestial and the plaintiff to set down the inquiry for hearing before a Master. Costs of the Application were reserved to the inquiry.
8. G Lam J also pronounced on 18 September 2014 that the Injunction should be taken as having been discharged.
9. Ms Hui filed her second affirmation on 30 September 2014 (“Ms Hui’s 2nd Affirmation”).
10. The plaintiff had not filed any affirmation in opposition.
11. The inquiry hearing first took place before me on 12 November 2014. It was adjourned to 3 February 2015 for Celestial to file and serve further supporting affirmation. Ms Hui filed her third affirmation on 25 November 2014 (“Ms Hui’s 3rd Affirmation”).
12. On 1 December 2014, a winding-up order was granted against the plaintiff.
13. The hearing on 3 February 2015 was further adjourned to 27 July 2015 pending the appointment of liquidators for the plaintiff. Mr Darach E Haughey and Mr Ho Kwok Leung, Glen (“Mr Ho”) were appointed joint and several liquidators of the plaintiff on 13 March 2015.
14. After the hearing of 27 July 2015, I directed the parties to attend a further hearing on 27 October 2015 to address the court on the issue as to whether Celestial should give credit to the profits made in the subsequent disposal of the A Shares (as defined in para 20 below) affected by the Injunction in the assessment of the damages claimed by Celestial.
15. Mr D James of Sidley Austin acting for Celestial and Mr Ho of the liquidators of the plaintiff attended the hearings.
16. At the hearing on 27 October 2015, Celestial applied to file an affirmation of Wang Lipeng (“Mr Wang”). Mr Ho raised no objection to Celestial’s said application. I granted leave for Celestial to rely on Mr Wang’s said affirmation (“Mr Wang’s Affirmation”) at the hearing of 27 October 2015.
Celestial’s claim and evidence
17. Celestial is a wholly owned subsidiary of a listed company in Hong Kong. The group to which Celestial belongs to provides a range of financial products and services including investment banking, wealth and asset management. Celestial is the brokerage arm of the group in securities.
18. Ms Hui stated in her affirmations that Celestial had suffered loss and expenses as a result of the Injunction, including the costs of ascertaining whether Celestial held any of the Shares.
19. Ms Hui further stated that the steps taken by Celestial to ascertain whether it held any of the Shares revealed that two of its customers had placed trades involving shares of the 1st defendant.
20. On 23 June 2014, a customer of Celestial (Customer A) purchased 2,420,000 shares of the Shares (the “A Shares”) at the costs of $133,340.48 (see para 5 of Mr Wang’s Affirmation). On 27 June 2014, Customer A placed a sell order to sell the A Shares with a net profit of $9,182.29 (see para 12(b) of Ms Hui’s 1st Affirmation). The A Shares were due to be delivered to the purchaser (the “Purchaser”) on 2 July 2014. In complying with the Injunction, Celestial withheld delivery of the A Shares to the Purchaser on 2 July 2014. On 3 July 2014, the Hong Kong Stock Exchange conducted a compulsory buy-in of 2,420,000 shares of the 1st defendant (the “Substituted Shares”) in the open market at the total costs of $162,726.01 (see “HWL-10” exhibited to Ms Hui’s 3rd Affirmation) in order to complete the transaction committed by Celestial for Customer A.
21. On 23 June 2014, another customer of Celestial (“Customer B”) bought 200,000 shares in the 1st defendant in the open-market. On 30 June 2014, pending clarification from the plaintiff, Celestial temporarily suspended dealings in the account of Customer B. The temporary suspension of dealing was uplifted following a review of Celestial’s trading records which confirmed that none of the 200,000 shares in the 1st defendant bought by Customer B formed part of the Shares. In the interim, Celestial had not received instructions from Customer B to dispose of the aforesaid 200,000 shares.
22. Celestial had spent a great deal of time dealing with and responding to enquiries and expressions of concern from its customers.
23. In para 17 of Ms Hui’s 1st Affirmation, she set out the claims of Celestial as at 7 July 2014 as follows:
(1) HK$133,100.00 representing Celestial’s liability to indemnify Customer A for the total consideration (excluding trading fees etc) paid by Customer A to purchase the A Shares on 23 June 2014 which were being held on “trust” for the plaintiff (the “Total Consideration Claim”);
(2) HK$20,203.24 representing the increased costs of the compulsory buy-in of the Substituted Shares in the open market on 3 July 2014 at a higher price to settle the transaction committed by Celestial for Customer A (the “Increased Cost Claim”);
(3) HK$9,182.29 representing Celestial’s liability to make good to Customer A the notional gain had the aforesaid transaction with the Purchaser been allowed to settle on 2 July 2014 using the A Shares purchased on 23 June 2014 (the “Notional Gain Claim”);
(4) HK$750.20 representing the penalty imposed by the Hong Kong Stock Exchange for failure to deliver the A Shares on 2 July 2014 (the “Penalty Claim”); and
(5) US$15,573.75 in legal fees for professional services rendered by Celestial’s solicitors on this matter up to 7 July 2014 (the “Legal Costs Claim”).
24. Ms Hui further stated that Celestial had incurred a further sum of US$18,700.00 in legal fees from 8 July 2014 to 25 July 2014.
25. In Ms Hui’s 2nd Affirmation, she reported that the A Shares were sold on 19 September 2014, the next day after the discharge of the Injunction, at the gross consideration of $677,600.00 (trading fees not yet deducted). She confirmed that as the A Shares were disposed of at a higher price, Celestial would not pursue further the Total Consideration Claim and the Notional Gain Claim. The remaining claims of Celestial were for the Increased Cost Claim, the Penalty Claim and the Legal Costs Claim. Ms Hui stated that the Legal Costs Claim up to 25 July 2014 was US$34,273.75 and that further legal costs in the sum of US$10,017.50 had been incurred up to 30 September 2014.
26. In Ms Hui’s 3rd Affirmation, she stated that Celestial’s claims were for HK$750.20 (the Penalty Claim), HK$20,203.24 (the Increased Cost Claim) and US$44,291.25 up to 30 September 2014 (the Legal Costs Claim).
27. In Mr Wang’s Affirmation, he stated that the A Shares were sold on 19 September 2014 after the uplifting of the Injunction realizing net proceeds in the sum of $676,379.92 (after deducting trading fees) and net profit in the sum of $543,039.44 (the “Profit”) (after deducting Customer A’s acquisition costs for the A Shares in the sum of $133,340.48). Mr Wang said that the whole of the Profit was paid to Customer A and Celestial, as broker, did not receive, share or retain any portion of the Profit.
Evidence of the plaintiff
28. The plaintiff had not filed any affidavit in opposition to Celestial’s claims. Mr Ho had in a letter dated 17 June 2015 expressed the liquidators’ views to Celestial’s claims as follows:
“ 1. Sections 186 and 330 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance have no effect to stay the Intervener’s [Celestial’s] inquiry of damages.
2. As the 2,420,000 Relevant Shares [the A Shares] was sold on 19 September 2014 for HK$677,600 (at HK$0.28 per share) which was higher than the costs of the Relevant Shares of HK$162,726.01 (at approximately HK$0.06715 per share), the “increased cost” of compulsory buy-in of HK$20,203.24 (i.e. 2,420,000 x HK$0.06715 minus 2,420,000 x HK$0.059) was just a notional cost as at 3 July 2014, not an actual expense incurred over the period from 23 June 2014 to 19 September 2014 in complying with the Injunction Order.
3. The hourly rates of the legal advisers of the Intervener are higher than the High Court scale.”
29. Mr Ho had attended the inquiry hearings. He reiterated his aforesaid views.
Discussion and findings
30. On an application to enforce an undertaking as to damages, there are two separate points to consider: first, as a matter of discretion, should the court order that the undertaking be enforced? Secondly, if so, what loss has the applicant suffered in terms of money, was it caused by the injunction and was it too remote? (See Balkanbank v Taher [1995] 1 WLR 1056 (CA) at 1059).
31. In this case, as G Lam J had granted leave for Celestial to intervene for the purpose of enforcing the Undertakings, this inquiry is to determine the amount of damages that should be paid to Celestial. The court shall look into the causation, remoteness and quantum to determine the amount of damages payable by the plaintiff to Celestial.
32. The damages must be confined to loss which is the natural consequences of the Injunction. As Mason J (as he then was) observed in the often cited Australian case of Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1980-1981) 146 CLR 249 at 325 that “it is for the party seeking to enforce the undertaking to show that the damage he has sustained would not have been sustained but for the injunction.”
33. It has been held that in assessing damages payable pursuant to an undertaking for damages given in obtaining an interlocutory injunction, the court should apply the principles applicable to an award of damages for breach of contract.
34. In Ho Wing Cheong t/a Hong Leong Securities & Ors v Margot & Anor [1990] 1 HKC 235, Godfrey J (as he then was) held that the damages awarded pursuant to an undertaking for an interlocutory injunction had to be assessed in accordance with the rules governing an award of damages for breach of contract. The damages to be allowed were to be the proximate and natural damage caused to the claimant by reason of the injunction, and no more.
35. In F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295, Lord Diplock observed at 361E-F that:
“…… if the undertaking is enforced the measure of the damages payable under it is not discretionary. It is assessed on an inquiry into damages at which principles to be applied are fixed and clear. The assessment is made upon the same basis as that upon which damages for breach of contract would be assessed if the undertaking had been a contract between the plaintiff and the defendant that the plaintiff would not prevent the defendant from doing that which he was restrained from doing by the terms of the injunction.” (Original emphasis)
36. In this case, the assessment will be made upon the basis if the Undertakings had been a contract between the plaintiff and Celestial that the plaintiff would not prevent Celestial from doing that which it was restrained from doing by the terms of the Injunction. As such prohibition had continued until the Injunction was discharged, this was not a case where the loss crystallised at the date of breach of the notional contract (whether it was the date of the Injunction or the date of sale of the A Shares to the Purchaser or the completion date of the aforesaid sale) but a case where a single act constituted a continuing wrong and the final damages could be ascertained only when the Injunction was discharged. As the Injunction was discharged on the same day when the Order was granted, the damages caused by the Injunction to Celestial (if any) could be assessed with certainty when this inquiry took place.
The Penalty Claim
37. Evidence had been exhibited to Ms Hui’s 3rd Affirmation showing that a default fee of HK$750.20 had been charged by the Hong Kong Stock Exchange to Celestial for failure to deliver the A Shares on 2 July 2014 to complete the transaction committed by Celestial for Customer A. (See “HWL-9” exhibited to Ms Hui’s 3rd Affirmation)
38. No evidence had been adduced by the plaintiff to rebut this claim of Celestial.
39. I accept that Celestial’s inability to deliver the A Shares on 2 July 2014 to the Purchaser was caused by the Injunction. This loss of default fee was caused by the Injunction and was covered by the Undertakings. I allow the Penalty Claim of Celestial in the sum of HK$750.20.
The Increased Cost Claim
40. Mr James submitted that Celestial had demonstrated clear and undisputed evidence of its loss of HK$20,203.24 being the increased cost of the compulsory buy-in of the Substituted Shares carried out by the Hong Kong Stock Exchange in the open market on 3 July 2014 at a higher price in order to complete the transaction committed by Celestial for Customer A.
41. Celestial’s case was that it had committed for Customer A on 27 June 2014 to sell the A Shares to the Purchaser at the total consideration of HK$142,522.77 (net of trading fees). However, due to the Injunction, Celestial was unable to deliver the A Shares to the Purchaser on 2 July 2014 and was compelled to buy the Substituted Shares in the open market on 3 July 2014 at the total consideration of HK$162,726.01 (inclusive of trading fees). Celestial thus suffered loss of HK$20,203.24 (ie HK$162,726.01 – HK$142,522.77).
42. Mr James submitted that such loss should not be set-off from the Profit as they were different heads of damages.
43. He further referred to MGA Entertainment Inc v Toys & Trends (Hong Kong) Ltd & Ors [2013] 5 HKC 372 to submit that damages in this case should be liberally assessed. In the MGA case, the court in assessing damages payable pursuant to an undertaking for damages given for an interlocutory injunction referred to the analogous context of the assessment of damages for patent infringement in General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd (No 2) [1976] RPC 197 HL when Lord Wilberforce stated at 212 that “the defendants being wrongdoers, damages should be liberally assessed”. However, His Lordship continued to say that “but that the object is to compensate the plaintiffs and not to punish the defendants.” Although damages in this case shall be liberally assessed, we shall not lose sight that the object of this inquiry is to compensate Celestial and not to punish the plaintiff.
44. The general rule for the measure of compensatory damages has been set out by the learned author of McGregor on Damages (19th ed) (2014) at para 2-002 as follows:
“The statement of the general rule from which one must always start in resolving a problem as to the measure of compensatory damages, a rule equally applicable to tort and contract, has its origin in the speech of Lord Blackburn in Livingstone v Rawyards Coal Co. He there defined the measure of damages as:
‘that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation.’
This statement has been consistently referred to or cited with approval, or restated in similar language.”
45. As I have pointed out above, this assessment would be made upon the same basis as that upon which damages for breach of contract would be assessed. In a breach of contract case, the innocent party’s loss is assessed on the basis as if the contract has not be breached by the defaulting party and the innocent party shall be put back as far as money can do to the position if the contract has not been breached.
46. Adopting the analogy stated by Lord Diplock in the F Hoffmann-La Roche case (supra) to this case, the contract would be that the plaintiff would not prevent Celestial from selling the A Shares and delivering the same to the Purchaser on 2 July 2014. The breach was that the plaintiff had prevented Celestial from delivering the A Shares to the Purchaser on 2 July 2014. Celestial/Customer A had incurred HK$162,726.01 to purchase the Substituted Shares in the open market to complete the transaction committed by them. Celestial did not claim this sum of HK$162,726.01 but only the difference between the acquisition costs of the Substituted Shares and the net selling price of the A Shares to the Purchaser. Celestial termed this as the “increased cost”.
47. If Celestial had not been restrained by the Injunction, it would have delivered the A Shares to the Purchaser without the need to incur HK$162,726.01 to acquire the Substituted Shares. If the Injunction had not been granted, as at 2 July 2014, Celestial would have received HK$142,522.77 for Customer A being the net selling price of the A Shares and thereafter Celestial would not be holding any of the A Shares or any shares in the 1st defendant for Customer A. Because of the Injunction, Celestial or Customer A had to arrange funding for HK$162,726.01 to purchase the Substituted Shares. However, Celestial had still received for Customer A HK$142,522.77 from the Purchaser. In such case, Celestial/Customer A was out of pocket for HK$20,203.24 but at the same time kept the A Shares which Celestial and Customer A would otherwise not be entitled to keep.
48. This is not a case where a seller fails to deliver goods to a buyer under a contract. In those cases, the buyers have to buy substituted goods in the market at increased price and suffered loss being the difference between the increased price and the contract price for the goods. In those cases, the buyers will not end up getting both the contract goods and the substituted goods. In this case, when Celestial bought the Substituted Shares on 3 July 2014, it was holding at the same time the A Shares with the same theoretical market value (but subject to the Injunction) as the Substituted Shares.
49. Celestial or Customer A had paid out HK$162,726.01 on 3 July 2014 but at the same time retained the A Shares which was theoretically of the same value of the Substituted Shares as at 3 July 2014. Celestial and Customer A were not worse off except that they had to fund the acquisition costs of the Substituted Shares and were forced to keep the A Shares (subject to the Injunction at that time). These were the consequences of the Injunction on the transaction committed by Celestial for Customer A. If these consequences had caused loss to Celestial or Customer A, the plaintiff should be liable to answer the same.
50. The A Shares forced to be held by Celestial for Customer A against their will were disposed of on 19 September 2014 generating the Profit. Celestial/Customer A not only suffered no loss for this consequence of the Injunction. Instead, it made a profit out of it. However, Celestial or Customer A had suffered loss for funding the acquisition costs for the Substituted Shares from 3 July 2014 to 19 September 2014.
51. In the premise, I find that the loss suffered by Celestial or Customer A and caused by the Injunction was not the “increased cost” of HK$20,203.24 but the funding costs for HK$162,726.01 from 3 July 2014 to 19 September 2014. No evidence had been adduced on the actual costs of such funding. I am of the view that awarding interest to Celestial/Customer A by reference to the prime rate which is the best lending rate at which a bank is prepared to make commercial lending to its customers will compensate Celestial/Customer A for such loss.
52. The judgment rate is currently about 3% above the best lending rate of commercial banks. The judgment rate for the months of July to September 2014 was 8% per annum. In such case, I adopt 5% per annum as the interest rate in assessing the loss of Celestial/Customer A under this item. I assess that the costs of funding for HK$162,726.01 for the period from 3 July 2014 to 19 September 2014 (79 days) is HK$1,761.01 (ie HK$162,726.01 x 5% ÷ 365 x 79).
The Legal Costs Claim
53. Celestial claimed US$44,291.25 under this item. Mr James submitted that this represented Celestial’s reasonable legal expenses incurred in complying with the Injunction up to 30 September 2014.
54. Ms Hui exhibited to her affirmations breakdown of Celestial’s solicitors’ costs for the periods from 30 June to 4 July 2014 in the sum of US$15,573.75 (the “1st Period”) (see p22 of “HWL-1” exhibited to Ms Hui’s 1st Affirmation); from 8 to 25 July 2014 in the sum of US$18,700.00 (the “2nd Period”) (see “HWL-2” exhibited to Ms Hui’s 1st Affirmation); and from 26 July to 30 September 2014 in the sum of US$10,017.50 (the “3rd Period”) (see “HWL-5” exhibited to Ms Hui’s 2nd Affirmation).
55. The Undertakings provided, inter alia, for the plaintiff to pay reasonable costs of anyone other than the 1st and 2nd defendants which had been incurred as a result of the Injunction including the costs of ascertaining whether that person held any of the Shares. The plaintiff shall pay reasonable costs of Celestial in complying with the Injunction.
56. However, the costs for complying with the Injunction should not be mixed up with the costs of the Application and the costs for this inquiry. G Lam J in making the Order had ordered that costs of the Application be reserved to the inquiry. Costs of the inquiry will be dealt with later in this judgment. The inquiry on the amount of damages only concerns with costs for complying with the Injunction.
57. Mr James estimated that about 25% of the costs incurred in the 2nd Period were for complying with the Injunction. The remaining costs for the 2nd Period were for the Application. The costs for the 3rd Period were incurred after the Application was taken out. They were costs for the Application and this inquiry. In such case, The Legal Costs Claim of Celestial should be for US$20,248.75 (ie US$15,573.75 + [US$18,700.00 x 25%]).
58. Mr James submitted that Celestial should be entitled to recover all its reasonable costs on an indemnity basis.
59. A plaintiff who resorts to the Mareva injunction must expect to pay all reasonable expenses and all reasonable costs to which an innocent third party may be put by his action on an indemnity basis of taxation. However, the innocent third party should establish that his costs were reasonably incurred and were reasonable in amount. (See para 29/1/82 of Hong Kong Civil Procedure 2015, Vol 1 at p 676)
60. Order 62, rule 28(4A) of the Rules of the High Court provides that:
“(4A) On a taxation on the indemnity basis all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred and any doubts which the taxing master may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the receiving party.”
61. In Re Wing Fai Construction Co Ltd (Costs: Taxation) [2012] 15 HKCFAR 657, the Court of Final Appeal held that in a taxation of costs on indemnity basis all items incurred for the purpose of the litigation were included except that those items or amounts which the taxing master considered to be unreasonable would be taxed off and the receiving party did not have to show that his costs had been reasonably incurred or were of a reasonable amount, only that they were not unreasonable.
62. It can be seen that payment of reasonable costs and expenses for complying with an injunction is not exactly a taxation of costs on indemnity basis pursuant to a costs order. In the injunction context, the innocent third party has to show that his costs were reasonably incurred and were reasonable in amount.
63. I accept that the items set out in the breakdown of the legal costs for the 1st Period were reasonably incurred for complying with the Injunction. However, the items set out in the breakdown of the legal costs for the 2nd Period did not suggest that they were incurred for complying with the Injunction. The breakdown suggested that they were costs incurred in relation to the Application.
64. In the breakdown of the legal costs for the 1st Period, Celestial’s solicitors charged US$1,100 (about HK$8,580 at the exchange rate of US$1 : HK$7.8) per hour for their handling partner; US$660 (about HK$5,158 at the aforesaid exchange rate) per hour for their handling associate; and US$325 (about HK$2,535 at the aforesaid exchange rate) per hour for the handling senior legal assistant. Taking into account the nature of the Injunction and the nature of work required on the part of Celestial to comply with the Injunction, I am of the view that the aforesaid charging rates of Celestial’s solicitors are unreasonable. I am of the view that reasonable hourly rates for a case like this should be US$600 for a partner; US$400 for an associate; and US$200 for a senior legal assistant.
65. I accept that the time spent by the fee earners of Celestial’s solicitors as stated in the breakdown of the legal costs for the 1st Period was reasonable. Applying the aforesaid reasonable charging rates to the time claimed, the reasonable costs and expenses incurred by Celestial for complying with the Injunction should be US$9,350.00 (ie [US$600 x 1.5] + [US$400 x 19.25] + [US$200 x 3.75]).
66. I assess the Legal Costs Claim of Celestial at US$9,350.00.
Profit made on disposal of the A Shares
67. I assess the amount of damages caused to Celestial by the Injunction as follows:
(1) HK$750.20 for default fee imposed by the Hong Kong Stock Exchange;
(2) Interest on the sum of HK$162,726.01 for the period from 3 July 2014 to 19 September 2014 in the sum of $1,761.01 for funding the acquisition costs of the Substituted Shares; and
(3) US$9,350.00 for reasonable legal costs to comply with the Injunction.
68. Celestial had been acting as Customer A’s agent in handling the A Shares. The default fee imposed by the Hong Kong Stock Exchange and the funding costs for purchasing the Substituted Shares should have been paid by Customer A or reimbursed to Celestial by Customer A (if Celestial had paid the same). However, the legal costs for complying with the Injunction were expenses incurred by Celestial which expenses Customer A was not legally obliged to reimburse Celestial.
69. The total loss of Customer A (through Celestial) caused by the Injunction was about HK$2,511.21 (ie HK$750.20 + HK$1,761.01) which was far less than the amount of the Profit made by Customer A through Celestial in disposing of the A Shares after the Injunction was discharged.
70. If the damages payable by the plaintiff herein are assessed based on the principles for breach of contract, the principles on mitigation of loss applicable to breach of contract shall also apply.
71. In breach of contract cases, the claimant must take all reasonable steps to mitigate the loss to him consequent upon the defendant’s wrong and cannot recover avoidable loss. Where the claimant does take steps to mitigate the loss to him consequent upon the defendant’s wrong and these steps are successful, the defendant is entitled to the benefit accruing from the claimant’s action and is liable only for the loss as lessened. (See paras 9-004 to 9-005 of McGregor on Damages (supra))
72. Mr James did not contend that the principles on mitigation of loss did not apply in this case but submitted that the Profit should only apply to set-off one of the items of Celestial’s claim. Mr James submitted that Celestial had three items of claim in respect of the A Shares, namely (1) increased costs for purchasing the Substituted Shares, ie the Increased Costs Claim (“Item 1”); (2) loss of the A Shares, ie the Total Consideration Claim (“Item 2”); and (3) loss of the profit for the sale of the A Shares to the Purchaser, ie the Notional Gain Claim (“Item 3”). He contended that the Profit should only apply to set-off Item 3 and Celestial was still entitled to pursue the other two items of claim which were of different nature.
73. If the Injunction had led to Customer A losing the A Shares under the name of Celestial, I agree that Customer A/Celestial would suffer loss for all Items 1, 2 and 3.
74. However, in this case the Injunction did not lead to total loss of the A Shares. It only restrained the disposal of the A Shares prior to 19 September 2014. Celestial/Customer A is to be “compensated for any loss which he may have suffered by being temporarily prevented from doing what he was legally entitled to do.” (per Lord Diplock in the Hoffmann-La Roche case (supra) at 361G-H) As I have assessed above, the actual loss caused by the Injunction to Customer A through Celestial was the aforesaid sum of HK$2,511.21 (being penalty imposed by the Stock Exchange and the costs for funding to acquire the Substituted Shares). In my judgment, Celestial/Customer A had no claim for any of Items 1, 2 and 3 when the A Shares were sold at the Profit after the Injunction was discharged.
75. The Injunction had restrained Celestial/Customer A from disposing of the A Shares. After the Injunction was discharged on 18 September 2014, the reasonable step for Celestial/Customer A to take to mitigate their loss was to sell the A Shares in the market within reasonable time which they did by selling the A Shares on 19 September 2014 which generated the Profit.
76. The question is whether the Profit should be applied to set off the damages which I have found suffered by Celestial and/or Customer A? In British Westinghouse Co v Underground Ry [1912] AC 673, Viscount Haldane LC stated at 689 and 690 that:
“…… when in the course of his business he [the plaintiff] has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act.” (at 689)
“…… provided the course taken to protect himself by the plaintiff in such an action was one which a reasonable and prudent person might in the ordinary conduct of business properly have taken, and in fact did take whether bound to or not, a jury or an arbitrator may properly look at the whole of the facts and ascertain the result in estimating the quantum of damage.” (at 690)
77. Selling the A Shares after the Injunction was discharged was a subsequent transaction arising out of the consequences of the Injunction and in the ordinary course of business. In the words of the learned author of McGregor on Damages (supra) at para 9-107, the subsequent sale of the A Shares was “the act giving rise to the benefits [which] forms part of a continuous transaction starting with the wrong.” I see no reason why the Profit generated by this subsequent sale should not be taken into account in ascertaining the quantum of the resulting damages caused by the Injunction.
78. In Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 CA, the claimant was wrongfully dismissed by the defendant company. The dismissal released the claimant from a restrictive covenant in his employment contract with the defendant which would prevent him from being interested in any other business. The claimant took employment with another company at a modest salary and acquired half of the shares in that company. He made a profit out of these shares. It was held by the English Court of Appeal that the claimant’s damages fell to be cut down by the profit made by him on the shares as the profit arose from his loss-avoiding action.
79. In the case before me, Celestial held 2,420,000 shares in the 1st defendant after completing the sale to the Purchaser. This holding of extra shares in the 1st defendant was the direct consequence of the Injunction. To avoid or mitigate loss which might be caused by this consequence of the Injunction, Celestial took reasonable action to sell these extra shares immediately after the Injunction was discharged. In the course of doing that, the Profit was generated. Benefit obtained from the direct consequence of the Injunction should be taken into account in assessing the loss caused by the Injunction. I am of the view that the Profit will not only set off the Total Consideration Claim and the Notional Gain Claim but also other items of loss caused to Customer A through Celestial by the Injunction.
80. The contention that “there is no authority which establishes that a benefit secured in mitigation of damage of one kind can be set off against damage of a wholly different kind” was not accepted in Nadreph Ltd v Willmet & Co [1978] 1 WLR 1537 at 1540E. Whitford J stated at 1543H that:
“In my view, in all these cases [considered in the earlier parts of the judgment] it is a question to be decided on the facts of the particular case whether any particular benefit can be said to relate sufficiently closely to a particular head of damage as to be appropriate to be set off against that head of damage.”
81. The Profit was generated out of a direct consequence of the Injunction. I also do not accept similar contention advanced by Mr James for Celestial in this case.
82. In Mr Wang’s Affirmation, Celestial contended that:
“7. … … if the Court is minded to give credit for the profits made by Customer A on disposal of the Relevant Shares [ie the A Shares] when assessing Celestial’s claim for damages, then Celestial would be left out of pocket for the default penalty (HK$750.20) levied by the Exchange for withholding delivery of the Relevant Shares, the net-loss (HK$20,203.24) incurred by Celestial associated with the compulsory buy-in of 2,420,000 replacement shares [ie the Substituted Shares] on 3 July 2014 to complete the original sale transaction and its legal expenses.”
83. The A Shares were beneficially owned by Customer A but registered under the name of Celestial. Celestial was all along acting as the agent of Customer A in dealing with the A Shares. In such case, Celestial should be entitled to reimbursement from Customer A for the default penalty imposed by the Hong Kong Stock Exchange as the withholding delivery of the A Shares to the Purchaser was not due to Celestial’s fault.
84. Celestial had to be acting as agent for Customer A in purchasing the Substituted Shares as it was Customer A’s obligation to make available the necessary shares to its agent, ie Celestial, for delivery to the Purchaser. The costs incurred for purchasing the Substituted Shares, if paid by Celestial, would be reimbursed by Customer A.
85. If Celestial had chosen to purchase the Substituted Shares by its own fund and delivered the Substituted Shares to the Purchaser on behalf of Customer A without seeking reimbursement from Customer A, then Customer A would have already received 2,420,000 shares of the 1st defendant which Customer A had placed under the name of Celestial. In such case, Customer A should have no further claim to the A Shares remained in the hands of Celestial because of the Injunction and the beneficial owner of the A Shares would then be Celestial, otherwise Customer A would at one stage be owner of 4,840,000 shares of the 1st defendant (ie the A Shares + the Substituted Shares) when Customer A had only paid to purchase 2,420,000 shares (the A Shares).
86. If Customer A had not reimbursed Celestial for the acquisition costs of the Substituted Shares, Customer A was not entitled to have further claim on the A Shares and would not be entitled to receive the Profit earned from disposal of the A Shares. As the Profit had been paid to Customer A, it was clear that Celestial was still acting as agent of Customer A in selling the A Shares on 19 September 2014. In such case, Customer A had to have reimbursed Celestial for the acquisition costs of the Substituted Shares. If for its own reasons, Celestial did not require Customer A to reimburse it of such acquisition costs, it is a matter between Celestial and Customer A. This will not operate to require the plaintiff to pay damages which it will otherwise not liable to pay.
87. The default fee imposed by the Hong Kong Stock Exchange and the funding costs for the acquisition costs of the Substituted Shares were damages caused by the Injunction to Customer A but under the name of Celestial as the A Shares though beneficially owned by Customer A were registered under the name of Celestial. The Profit was also earned by Customer A under the name of Celestial. The court may properly look at the whole of the facts in estimating the quantum of damages caused by the Injunction which the plaintiff is liable to pay pursuant to the Undertakings.
88. The loss caused by the Injunction to Customer A as assessed above was HK$2,511.21 which was far less than the Profit (ie HK$543,039.44). Mr Wang confirmed in his affirmation that the whole of the Profit was paid to Customer A. In such case, the actual amount of loss suffered by Customer A was nil.
89. However, the Injunction had not only caused expenses incurred to Customer A but also expenses incurred to Celestial in the sum of US$9,350.00 being legal costs incurred for complying with the Injunction. Such expenses were borne by Celestial.
90. Mr Wang in his affirmation stated that the Profit was paid to Customer A and Celestial, as broker, did not receive, share or retain any portion of the windfall. In such case, Celestial is entitled to be paid by the plaintiff its reasonable legal costs incurred to comply with the Injunction.
91. Judgment in the sum of US$9,350.00 or its Hong Kong dollars equivalent at the date of payment will be entered against the plaintiff in favour of Celestial together with interest at judgment rate from 27 July 2014 (ie the date of the summons for the Application) to the date hereof and thereafter also at judgment rate until payment.
Conclusion and costs
92. In my judgment the damages suffered by Customer A in the name of Celestial had been wholly set-off by the Profit but Celestial will be entitled to payment as damages from the plaintiff for legal costs incurred by Celestial to comply with the Injunction pursuant to the Undertakings.
93. Celestial made the Application on 25 July 2014 and obtained the Order to intervene and to inquire for the quantum of its damages on 18 September 2014 prior to disposal of the A Shares on 19 September 2014. Before the Profit was realized on 19 September 2014, Celestial was entitled to make the Application for the claims set out in Ms Hui’s 1st Affirmation. Celestial is entitled to the costs for obtaining the Order.
94. However, when the Profit (ie HK$543,039.44) was made on 19 September 2014 which amount far exceeded the amount of damages even as claimed in Ms Hui’s 1st Affirmation filed herein on 25 July 2014 which was HK$284,710.98 (ie HK$133,100.00 + HK$20,203.24 + HK$9,182.29 + HK$750.20 + HK$121,475.25 [ie US$15,573.75 x 7.8]) (see para 17 of Ms Hui’s 1st Affirmation), Celestial should have stopped to proceed further for claims other than the Legal Costs Claim.
95. In Ms Hui’s 2nd Affirmation filed herein on 30 September 2014, Celestial put its claim at HK$288,288.69 to include further legal costs incurred (ie HK$20,203.24 + HK$750.20 + HK$267,335.25 [ie US$34,273.75 x 7.8]) (See para 7 of Ms Hui’s 2nd Affirmation). This was still far less than the amount of the Profit.
96. Furthermore, Celestial should have confined its Legal Costs Claim to legal costs incurred for complying with the Injunction instead of including the costs for the Application and for this inquiry under that item of claim.
97. In such case, Celestial is not entitled to all its costs incurred after 19 September 2014. I apportion 50% of the costs incurred after 19 September 2014 to those other claims which should not have been pursued in this inquiry as aforesaid and order the plaintiff to pay 50% of the costs incurred by Celestial after 19 September 2014.
98. In Project Development Co Ltd SA v K.M.K. Securities Ltd and Ors [1982] 1 WLR 1470, it was held that since innocent third parties were entitled to expenses against plaintiffs incurred as a result of complying with Mareva injunctions, it followed that the intervener should be indemnified for the expenses it had incurred in successfully applying to vary the order by permitting the intervener to recover all the costs it established as being reasonable. In that case, the English court ordered that the intervener’s costs were to be taxed in accordance with Order 62, rule 29 of the then English Rules of Supreme Court on a solicitors and own client basis but with a direction that, notwithstanding the terms of rule 29(1), it was for the intervener to establish that the costs had been reasonably incurred and were reasonable in amount.
99. As pointed out by Chan PJ in the case of Re Wing Fai Construction Co Ltd (supra) at p 667 that:
“18. This statutory formula (“all costs shall be allowed except insofar as they are of an unreasonable amount or have been unreasonably incurred”) [stated in Order 62 rule 28(4A) of the Rules of High Court for taxation of costs on indemnity basis] is the same as in O.62 r.29(1) of the previous English Rules of the Supreme Court (RSC). That rule provided for taxation on a solicitor and own client basis which basis was held by Sir Robert Mergarry V-C in EMI Records Ltd v Ian Cameron Wallace Ltd [1982] 2 All ER 980, 989 to be equally applicable to a taxation on an indemnity basis (subject of course to the differences provided in the statute, such as the conclusive presumptions in the case of solicitor and own client taxation).”
100. Celestial is entitled to its costs for the Application and this inquiry on indemnity basis subject to the direction proposed in the Project Development Co Ltd SA case (supra).
101. I make a costs order nisi against the plaintiff in favour of Celestial for the costs incurred by Celestial for the Application (including costs previously reserved in relation to the Application) up to 19 September 2014 and 50% of the costs incurred thereafter (including costs previously reserved and costs of this inquiry) both costs to be taxed, if not agreed, on indemnity basis but notwithstanding Order 62, rule 28(4A) of the Rules of the High Court, Celestial should establish that its costs were reasonably incurred and were reasonable in amount.
102. The above costs order only confines to costs incurred for the Application and this inquiry as I have already dealt with the costs incurred for compliance with the Injunction as part of the damages caused by the Injunction.
103. The above costs order nisi shall become absolute after 14 days from the date hereof unless any party shall apply to vary it within this 14 day period.
| (Lai) Master of the High Court |
Mr Ho Kwok Leung, Glen, joint and several liquidator of the plaintiff appear in person
Mr Dominic James of Sidley Austin for the intervener