Eshed Diam (Hk) Ltd v Siam Color Gems & Jewelry Ltd

HCCL 7/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 7 OF 2015

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J U D G M E N T

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Background

1. This action is part of the litigation saga involving a diamond necklace with a Burmese sapphire pendant (“Necklace”) which is said to be a rare and “true treasure of nature”.

2. Both the Plaintiff and the Defendant are Hong Kong companies. The Plaintiff carries on a business of marketing high quality diamonds and emeralds. The Defendant is a manufacturer and trader of unique gems such as jade, sapphires, emeralds, rubies and other coloured stones.

3. The chronology of events is not in dispute. Mr Ohad Yaakov (“Yaakov”), sales manager of the Plaintiff, first saw the Necklace at the retail jewellery shop of Carrera Jewellery Limited (“Carrera”), with which the Plaintiff had a long standing business relationship. Mr Kenneth Lin (“Lin”), who was a director and shareholder of Carrera, showed the Necklace to Yaakov during Yaakov’s visit to the shop, telling Yaakov that the sapphire pendant (“Sapphire”) was Burmese, unheated, and over 100 carats. According to Yaakov, Lin told him that the price of the Necklace was HK$6.5 million, and asked whether Yaakov had any customer that might be interested in purchasing the Necklace. Yaakov told Lin that he would bear the Necklace in mind.

4. On 9 June 2015, Yaakov telephoned Patricia Pan (“Patricia”), a director of the Defendant. Yaakov claims he had met Patricia at an industry trade show about one year before, and knew that the Defendant was in the business of dealing in special gemstones. Yaakov told Patricia that he had recently seen “a 100-plus carat sapphire” that might be available for viewing. At Patricia’s request, Yaakov sent to Patricia at approximately 12:54 pm on 9 June 2015 a Whatsapp message with photographic images of the Necklace and of the report issued by the Swiss Gemmological Institute on 24 June 2014 (“SSEF Report”) in respect of the Necklace, which he had obtained from Carrera.

5. About an hour later at 3:44 pm, Patricia inquired with Yaakov as to the price of the Sapphire. Yaakov replied that it was around HK$7 million. Some 5 hours later, at 8:12 pm, Yaakov received a Whatsapp message from Patricia, who invited him to visit the office of the Defendant the following day.

6. On 10 June 2015, Yaakov and Patricia met at the office of the Defendant. They exchanged some background information on the respective businesses of the Plaintiff and of the Defendant. Yaakov showed Patricia some merchandise that he had brought with him. Patricia’s brother, Pan Jia Xong (“William”) who was another director of the Defendant, joined the meeting briefly. At the end of the meeting which lasted around 20 to 25 minutes, Patricia asked if Yaakov could show her the Necklace. There is common ground that the Defendant was given to understand during the meeting that the Plaintiff was not the owner of the Necklace.

7. In the light of the apparent interest displayed by Patricia, Yaakov thought that a deal could eventually be made and he arranged for the Necklace to be consigned from Carrera to the Plaintiff, in order to show the Necklace to Patricia for potential sale. A meeting was arranged to take place at the Defendant’s office on 15 June 2015.

8. On 15 June 2015, Yaakov brought the Necklace, the SSEF Report and a copy of a report issued by Gubelin Gem Lab dated 27 April 2011 (“Gubelin Report”) to the Defendant’s office, where he met with both Patricia and William. Patricia told Yaakov she had potential customers for the Necklace, and asked for the Necklace to be consigned to the Defendant over the weekend. Yaakov repeated the price of “around HK$7 million”. William apparently inspected the Necklace with a magnifying glass and told Yaakov that the quality of the Sapphire and of the diamonds did not justify the asking price of HK$7 million for the Necklace.

9. Later in the evening of 15 June, Yaakov received a message from Patricia who requested him to send the Sapphire pendant to her again. They arranged for Yaakov to return to the Defendant’s office on 17 June 2015.

10. After having conducted some credit check on the Defendant, Yaakov had further discussions with Patricia on 16 June 2015. Patricia offered collateral in the form of gemstones in consideration for taking the Necklace on consignment. It was eventually agreed that the Defendant would offer a cheque in the sum of HK$7 million as collateral, so that it could consign the Necklace from the Plaintiff, take the Necklace and show it to a potential buyer.

11. On 17 June 2015, there was a further meeting at the Defendant’s office. Agreement was made for the Necklace to be consigned to the Defendant for the sum of US$923,000, (as evidenced by a Consignment Memo No 1705 (“Consignment Memo”)), which was roughly equivalent to HK$7.2 million. The Defendant provided to the Plaintiff a cheque in the sum of HK$7 million (“Collateral Cheque”), and took delivery of the Necklace with the corresponding SSEF Report and the Gubelin Report.

12. It is not disputed that on 19 June 2015, Patricia took a flight to Singapore, and showed the Necklace to a client, Benny Huen of Huen’s Diamond Pte Ltd (“Benny”). According to Patricia’s evidence, Benny was an experienced trader, knowledgeable about sapphires, and who had been in the business for many years. Patricia offered to sell the Necklace to Benny at the price of US$2 million. Copies of the SSEF Report and the Gubelin Report had been sent to Benny before Patricia’s visit. According to Patricia, no counter-offer was received from Benny, who considered that the asking price of US$2 million was too high.

13. Patricia returned to Hong Kong on 21 June 2015. On her evidence, she telephoned a client Margaret Cheung (“Margaret”) in the morning of 22 June, to ask if she had interest in viewing a necklace with sapphire. They arranged to have dinner that evening at the Grand Hyatt Hotel, where Patricia showed Margaret the Necklace. According to Patricia, Margaret looked at the Necklace, but did not say whether she would buy it on 22 June 2015.

14. On 23 June 2015, Yaakov went to the Defendant’s office in the morning, and was told by Patricia that her customer was not interested in the Necklace. According to Yaakov, William told him that the Defendant might be interested in buying the Necklace for its own stock, and made an offer of HK$4.5 million. Yaakov stated that that price was too low, and William increased the offer to HK$4.8 million. After some negotiations, the parties agreed that the Necklace would remain with the Defendant on consignment, with the Plaintiff retaining the Collateral Cheque, and Yaakov indicated that he would continue to work on William’s offer. According to Yaakov, William stated that he would only be interested in purchasing the Necklace if he could close the deal before the commencement of the Jewellery Show, due to start in Wanchai on 25 June 2015.

15. On 24 June 2015, there was a brief meeting at the Defendant’s office at 11 am. Yaakov had sent a message to Patricia before the meeting, saying that he had “pushed the price all night” with the owner of the Necklace. After further negotiations, William raised the offer for the Necklace to HK$5,050,000.

16. A further meeting took place at around 12 noon on the same day. Yaakov brought his boss Lior Eshed (“Eshed”) to the Defendant’s office, where they met with William and Patricia. It is not disputed that at this meeting, the Plaintiff and the Defendant reached agreement for the sale of the Necklace to the Defendant (“Transaction”) at the price of HK$5,050,000 (“Purchase Price”). The Purchase Price was to be paid by an immediate initial payment of US$500,000, and a further sum of US$147,000 within 7 days. The Collateral Cheque (for HK$7 million) and the Consignment Memo were returned to the Plaintiff. An invoice (No 0729) was issued by the Plaintiff to the Defendant, for the Purchase Price. The Defendant tendered 3 cheques for the total sum of US$500,000 by way of payment.

17. On the same day, after the conclusion of the Transaction, Patricia telephoned Margaret, to ask if she was still interested in the Necklace. According to Patricia, she made an opening offer to Margaret of HK$12 million for the Necklace, and Margaret said that she would only buy it at half the price. Agreement was immediately made for the Defendant’s sale of the Necklace to Margaret at HK$6.1 million.

18. Yaakov claims that it was only after he had left the meeting at the Defendant’s office on 24 June 2015, that he realized in the evening, at around 6 pm, that the consignment note of the Necklace from Carrera to the Plaintiff, dated 15 June 2015 (“Carrera Memo”) was in US currency, with the sum of US$6.2 million stated as the “unit price” or “net amount” of the Necklace. After some discussions with Lin, Yaakov immediately telephoned Patricia to inform her of the US currency and asked to cancel the Transaction, and for the Necklace to be returned to the Plaintiff. Patricia maintained that there was no mistake about the Purchase Price, that the Necklace had already been sold by the Defendant, and refused to cancel the deal, claiming that any mistake as to the Purchase Price was Yaakov’s, and not the Defendant’s.

19. Further meetings and attempts to resolve the situation proved futile, and proceedings were commenced by the Plaintiff against the Defendant on 14 July 2015. There are...