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Lee Yuk Shing v Dianoor International Ltd (In Liquidation)

Judgment Cited authorities 20 Cited in Precedent Map Related
Vincent
Judgment Date23 May 2016
Subject MatterCivil Appeal
Judgement NumberCACV185/2015
CourtCourt of Appeal (Hong Kong)
CACV185/2015 LEE YUK SHING v. DIANOOR INTERNATIONAL LTD (In Liquidation)

CACV 185/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 185 OF 2015

(ON APPEAL FROM HCMP NO. 2483 OF 2011)

________________________

BETWEEN
LEE YUK SHING Plaintiff
and
DIANOOR INTERNATIONAL LIMITED
(In Liquidation)		 Defendant

________________________

Before: Hon Yuen JA, Kwan JA and Harris J in Court
Date of Hearing: 7 April 2016
Date of Judgment: 23 May 2016

________________________

J U D G M E N T

________________________

Hon Yuen JA:

1. I agree with the judgment of Kwan JA and Harris J.

Hon Kwan JA:

A. INTRODUCTION, BACKGROUND AND ISSUES

A1. Introduction

2. This is an appeal by a company in liquidation, Dianoor International Limited (“the defendant”), against the judgment of To J on 2 July 2015, given after a six-day trial in July and December 2014. The action was brought by Lee Yuk Shing (“the plaintiff”) pursuant to a court order on 29 December 2011 made on an interpleader application taken out by Equipnet Asia Pacific Limited (“Equipnet”), which carried on business as an auctioneer.

3. The plaintiff’s claim against the defendant is for the return of money (being the purchase price of $1,050,000 plus the auctioneer’s commission of $105,000) for seven lots of goods described as “rough diamond stones” sold at a public auction by the defendant acting through its liquidators, but the items were in fact synthetic cubic zirconia (“the Stones”).

4. The judge found in favour of the plaintiff. He ordered the money paid into court by Equipnet be paid out to the plaintiff, who shall return the Stones to the defendant upon receipt of the said sum, and awarded damages to the plaintiff of $40,000 being the costs of Equipnet deducted from the purchase price and auction premium before the payment of the net amount into court. The plaintiff succeeded on the claims of fraudulent misrepresentation, negligent misrepresentation under section 3 of the Misrepresentation Ordinance, Cap 284, and breach of contract for total failure of consideration.

5. In his decision on costs handed down on 30 March 2016, the judge awarded indemnity costs to the plaintiff save for the costs relating to the issue on the construction of the Notice to Bidders and the Conditions of Sale, which he ordered to be taxed on a party and party basis.

A2. The applications before this court

6. We dealt with three applications on both sides at the outset of the hearing of this appeal.

7. We allowed the plaintiff to file a respondent’s notice out of time to affirm the judgment on an additional ground.

8. We allowed the defendant to amend its notice of appeal as per a further revised draft submitted the day before the hearing to raise these matters: (1) to bring an appeal against the decision on costs; (2) to challenge the judge’s finding that the defendant’s vault was only accessible to its “four top managers” and they together were the defendant’s “only controlling minds”; and (3) to challenge the holding on the claim in contract for total failure of consideration, which was not pleaded by the plaintiff.

9. Mr Anson Wong, SC, who appeared for the plaintiff on appeal[1], had no objection to (1) and (3). He was opposed to (2) on the ground of lateness and that the plaintiff did not have sufficient time to verify the matters deposed to by the defendant’s solicitor, namely, that there was no reference in the trial bundles or the transcript of evidence to matters that would support the finding the defendant sought to challenge in (2). He did not seek an adjournment for this purpose.

10. In the exercise of our discretion, we allowed the late amendment of the notice of appeal to raise the matter in (2) and to hear submissions if there was any irregularity in the proceedings in that the judge’s finding was apparently based on matters located by the judge, not referred to by any party at the trial, and on which the defendant had no opportunity to address him.

11. The third application was the defendant’s summons to adduce new evidence on appeal relating to the death of the defendant’s former manager, Mr K N M Ziaudeen, on 19 January 2012. The judge drew an adverse inference against the defendant on the basis of Mr Ziaudeen not having been called to testify. We exercised our discretion to admit this new evidence. We accepted the submission of Mr Ashley Burns, SC, who appeared for the defendant on appeal but not below[2], that neither the defendant nor its legal advisers could have foreseen the need to place the evidence of Mr Ziaudeen’s death before the judge with the exercise of reasonable diligence. During the trial, the defendant was not made aware of the judge’s intention to draw such an adverse inference, nor was the defendant given an opportunity to address this matter at trial.

12. We have not dealt with the costs of these summonses at the hearing. I propose to make an order nisi that the costs of each of the summonses are to be in the cause of the appeal.

A3. The background

13. For present purpose, the background matters may be stated as follows.

14. The defendant is a member of a group of companies known as the Dianoor group, which used to carry on a very successful jewellery business with offices in London, Hong Kong and other parts of the world. The Hong Kong arm of the Dianoor group was made up of the defendant and two other companies. On 25 April 2008, the Hong Kong court appointed Mr Kevin Mawer of KPMG LLP, Mr Patrick Cowley and Mr Edward Middleton both of KPMG China as the receivers and managers of those three companies. In December 2008, the employees petitioned for the winding up of the companies for non-payment of wages. The same individuals were appointed as provisional liquidators of the companies in December 2009 and later as joint and several liquidators of the companies in July 2010.

15. Upon the appointment of the receivers, Mr Middleton secured the assets of the defendant. On 2 May 2008, he and his staff arranged for the opening of the vault in the defendant’s office by Chubb Security. An inventory of various items of jewellery in the vault was taken by them in the presence of an independent solicitor, Mr Damien Laracy. Among the jewellery was a collection of eight stones inside a piece of folded paper, seven of which were the Stones. KPMG was not able to identify any entry in the defendant’s books and stock inventory referable to the eight stones.

16. On 3 May 2008, a staff of KPMG arranged for a gratuitous survey of the jewellery items in the vault by Mr Alex Wong, who is a graduated gemmologist and an assistant manager of a branch office of Chow Tai Fook Jewellery Co Ltd. Mr Wong wrote to KPMG giving a rough estimate of all the jewellery items at $7 million, but did not give a breakdown of the individual items.

17. On 3 June 2008, the receivers obtained a court order for the sale of ten items of jewellery. Nine of them had been valued by the Hong Kong Gems Laboratory to be worth $1,056,200. The ten items were subsequently sold for $648,000.

18. In December 2008, there was an auction in London of various jewellery items including 12 lots of jewellery which belonged to the defendant apparently, and two of the items were sold for £226,000.

19. In April 2009, Mr Ziaudeen wrote to the receivers claiming ten items of jewellery kept in the vault as belonging to him personally. The receivers responded with a request for proof of ownership.

20. In mid April 2010, Mr Middleton decided to sell all the jewellery items and appointed Equipnet as the auctioneer. Delivery of all the jewellery items to Equipnet was completed on 6 September 2010, with a collection list prepared by KPMG in which the eight stones were described as “diamond stones (8 pcs) 70.59 carats”.

21. On 20 October 2010, the liquidators wrote to Mr Ziaudeen giving him notice of an auction to be held in November 2010 of the items of jewellery still held by the companies and stating that in the event of his failure to substantiate his claim to certain items within 14 days, the liquidators would proceed with the auction on the basis that those items of jewellery were vested unencumbered in the companies.

22. Mr Ziaudeen replied by letter dated 25 October 2010 stating that of the ten items he claimed as his personal property, the liquidators had returned five items to him and the others were still pending. He maintained that the outstanding items had nothing to do with company stock. He stated that he held the key to the vault and kept his belongings there.

23. Mr Middleton and Mr Francis Yau, a director of Equipnet, executed the Exclusive Public Auction Sale Agreement between the defendant and Equipnet in mid November 2010. Mr Middleton left it to Equipnet to identify and evaluate each item for the purpose of establishing a reserved price and for the preparation of the auction catalogue. In the catalogue, the eight stones were identified as Lots 94 to 101 and each was described as “Rough Diamond Stone” with an approximate weight. Attached to the catalogue was the Notice to Bidders and Conditions of Sale.

24. Equipnet placed advertisements for the auction in English and Chinese newspapers on various dates between 16 and 23 November 2010, inviting the public to the auction on 24 November at 1:30 pm in a hotel in Tsimshatsui, with preliminary viewing between 10:30 am and 1:30 pm. The jewellery items for auction stated in the advertisements included “eight rough diamond stones of a total weight of 70.59 carat”.

25. In the morning of 24 November 2010, the plaintiff and his uncle attended the hotel. The plaintiff operated a small jewellery business under the mentorship of his uncle. After completing the registration formality, he was given a bidder number and a...

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