TOP CATERING DEVELOPMENT LTD v. CHAN SZE NGA FIONA t /a TASTY

HCA 1817/2015

[2018] HKCFI 2554

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1817 OF 2015

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D E C I S I O N

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1.  This action concerned the contractual dispute between the plaintiff (“Top Catering”) and the defendant (“Tasty”) under a catering service subcontract. After trial, DHCJ Paul Lam SC handed down his judgment on 30 May 2018 (“the Judgment”) whereby he allowed the claim and the counterclaim to certain extent. After set-off between the two, Tasty was ordered to pay a net sum with costs to Top Catering. Tasty has since lodged an appeal against the judgment—CACV 265/2018—which is pending. Top Catering now sought to appeal the Judgment as well, but has been out of time. Hence Top Catering’s present application for extension of time to lodge its cross appeal.

BACKGROUND

2.  Both sides have all along been legally represented up the conclusion of the trial of this action.  They all act in person now, and in the case of Top Catering, it is represented by director Mr Ng.  Ms Chan appeared on behalf of Tasty.

3.  I do not intend to repeat the background of the case set out in detail in the Judgment, except insofar as it concerns the issues now raised by the proposed grounds of appeal by Top Catering.

4.  Top Catering was contracted by China Merchants Container Services Ltd (“CMCSL”) to provide catering service at its staff canteen (“the Canteen”) by written agreement dated 1 August 2008 (“the CMCSL Contract”).  By a written agreement dated 8 September 2012, Top Catering contracted out the catering service at the Canteen to Tasty for a term of 3 years from 16 September 2012 (“the Contract”).

5.  The learned deputy judge found that due to the repeated complaints by CMCSL about the quality of the service at the Canteen, Top Catering exercised its contractual right to terminate the Contract in August 2014.  CMCSL also gave notice to terminate the CMCSL Contract soon afterwards.  In this action, the parties claimed against each other for the resultant loss and damage.

6.  Now for its intended appeal, Top Catering takes issue as to the Judgment in respect of two heads of its claim:

(1) loss of profits arising out of the termination of CMCSL Contract; and

(2) free meals pursuant to an alleged oral agreement between the parties.

THE PRINCIPLES

7.  The principles are trite.

8.  Top Catering has to explain its delay.  Even assuming that the delay was minor or excusable, extension of time to lodge the appeal will not be given, if the appeal has not reasonable prospect of success.

9.  Insofar as an appeal against findings of fact is concerned,the appellate court would be prepared to intervene only if it is satisfied that the conclusion reached by the trial judge on the facts was plainly wrong.  Otherwise, it should defer to the trial judge’s conclusion even if in doubt as to its correctness.  See Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336.

DELAY

10.  An appeal against the Judgment must be brought within 28 days of its handing down (on 30 May 2018): Order 59, rule 4, Rules of the High Court.  Top Catering lodged its application on 11 September 2018.  By then, Top Catering has been out of time by about 2½ months.

11.  It matters not that Tasty has also lodged her appeal against the Judgment[1]. That Top Catering is entitled to answer the appeal as a respondent does not therefore entitle it to go further by lodging a cross appeal, if its intended cross appeal is out of time.  Apparently, Top Catering was also late and has applied for extension of time to serve the respondent’s notice.  I understand that such application is pending.

12.  Mr Ng in his affirmation in support attributed the delay in lodging the intended appeal to Top Catering’s lack of legal representation.

13.  According to the records, after Tasty has lodged the appeal— CACV 265/2018, notice to act in person has been filed on behalf of Top Catering in late June 2018, and leave for Mr Ng to represent his company as the respondent in the appeal was obtained on 10 July 2018.

14.  Had Top Catering been minded to lodge a cross appeal, he could have done so within time, whether or not acting in person.  Even assuming that it was incapable of doing so within time because of the lack of legal representation, it could still have taken the necessary step to apply for extension of time to lodge its cross appeal at about the time when it knew it was faced with Tasty’s appeal.

15.  Mr Ng then blamed his company’s former solicitors for seeking leave to cease to act for the company in this action only a week before this hearing. He then sought leave of the court pursuant to Order 5, rule 6 to represent the company.  However, I do not see the relevance of that to justifying the delay, when Mr Ng was well aware that the initiative has become that of his in taking step in connection with the company’s intended appeal since July 2018 at the latest.  Top Catering allowed the time to run until the present application on 11 September 2018.

16.  I am not at all impressed by Mg Ng’s explanation for the delay.

MERITS OF THE PROPOSED APPEAL

17.  Even assuming that Top Catering’s delay were excusable, extension of time to appeal should not be granted if the proposed grounds of appeal have no reasonable prospect of success.  As mentioned, the proposed appeal concerns its claim for:

(1) loss of profits; and

(2) free meals.

Loss of profits

18.  Clause 5 of the Contract provided that:

「 5. 由本承包合約生效日起，甲方可在下列情況下單方面終止乙方承包權

A. 因為招商局對乙方提供的服務包括食物水準及衛生、服務水準、餐廳衛生、用膳環境、違反貨櫃碼頭場地規定……等原因不滿，未能達到招商局的要求，而需要發出共三封或以上警告信或投訴信，甲方有權隨時終止乙方的承包權，甲方可取回餐廳經營權。若招商局在第三封或以上的警告信或投訴信中要求甲方終止將餐廳對外承包或中止甲方的經營權，乙方同意在乙方按金內扣繳貳拾萬圓，作為賠償甲方一切損失。

B. 招商局取消或搬遷本餐廳或收回餐廳經營權。」

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19.  Top Catering pleaded its claim for loss of profits for the sum of HK$2,451,000 or alternatively, the sum of HK$200,000 pursuant to clause 5A of the Contract.  In the schedule to the statement of claim, the primary basis of this head of claim was set out to be HK$ (48,000 − 5,000) × 57 months.  HK$48,000 was the sub-contracting fee payable by Tasty to Top Catering whereas $5,000 was the monthly rent payable by Top Catering to CMCSL.  57 months was allegedly the period from the date CMCSL terminated the CMCSL Contract to the expiry of the current 8‑year contractual period concerning the CMCSL Contract.

20.  Tasty denied the claim.  Alternatively, Tasty contended that such loss as alleged by Top Catering was not within the reasonable contemplation of the parties at the time the Contract was made.  In particular, Tasty never had knowledge from Top Catering or at all about the alleged monthly rental payable by it to CMCSL or the alleged duration of the term of the CMCSL Contract. Tasty also raised the issue of the duty on the part of Top Catering to mitigate its loss upon the termination of the Contract.  Finally, Tasty also relied on clause 5A of the Contract to limit the damages.

21.  When counsel for Top Catering opened the case, he contended that Tasty’s breach went to the root of the Contract, and Top Catering might elect to put an end to it.  On this basis, the obligation to honour the HK$200,000 limit in clause 5A was relieved.  Otherwise it would be unjust in view of Top Catering’s actual loss.  Nevertheless, the claim pursuant to clause 5A remained as an alternative.

22.  In response, counsel for Tasty argued that as Top Catering relied on clause 5A for its unilateral termination of the Contract, it would be inconsistent for it to argue that the limit on damages under the same clause should not apply.  It was also argued that any damages exceeding the contractual limit was not contemplated by the parties at the time of the Contract, when Tasty had no knowledge about the terms of the CMCSL Contract.

23.  In his closing, counsel for Tasty confirmed that Tasty did not seek to challenge Top Catering’s reliance on clause 5A of the Contract to terminate the Contract.  However, he argued that the parties should be held to the amount of damages agreed under this clause, being what the parties contemplated at the time the Contract was made.

24.  In his closing, counsel for Top Catering submitted that the situation, where after the termination of the Contract, the CMCSL Contract was also terminated, was beyond the contemplation of the parties.  He submitted that it was only just to construe clause 5A to confine the agreement on the amount of damages to apply in either case of the termination of the CMCSL Contract or the Contract but not when both happened.

25.  In his judgment, DHCJ Lam SC found that the Contract was terminated by Top Catering’s exercise of its contractual right under clause 5A, and not a case of termination by its acceptance of any repudiatory breach on the part of Tasty.  This was a factual finding that Top Catering did not seek to challenge, and would not be susceptible to challenge on appeal as this was a finding that the court was entitled to make on the evidence.

26.  As to the primary basis of the claim for loss of profits, the learned deputy judge noted that the CMCSL Contract was not for a fixed term. However, even assuming there was basis for Top Catering to reasonably expect the CMCSL Contract to have lasted until the end of the alleged current 8‑year term in July 2019, the learned deputy judge concluded[2]that:

“ In any event, I take a clear view that Top Catering’s primary claim in this respect must fail. The last sentence in clause 5A of the Contract provided that, if CMCSL demanded Top Catering to stop sub-contracting the catering service at the Canteen in its third (or subsequent) complaint or warning letter, or if CMCSL terminated the CMCSL Contract, Tasty agreed that a sum of $200,000 out of the deposit of $250,000 that it had paid to Top Catering shall be deducted as compensation for all loss and damage suffered by Top Catering. This part in clause 5A was an agreed or liquidated damages clause. What happened in fact fell squarely within the scope of this contractual provision. Top Catering has not suggested any reason why this agreed or liquidated damages clause is not legally enforceable. As Top Catering is bound by this contractual provision, whether it would be unjust to apply this provision (as claimed by Top Catering) in the circumstances is irrelevant. Hence, Top Catering is only entitled to deduct $200,000 from the deposit of $250,000 as compensation for all loss and damage that it has suffered as a result of the termination of the CMCSL Contract.”

27.  Now Mr Ng, in his affirmation, set out Top Catering’s argument in this respect for the intended appeal:

(1) Top Catering had sufficient reason to believe that the CMCSL Contract would have been renewed, and in any event would have at least lasted until the end of the current 8-year term in July 2019, but for Tasty’s breach.

(2) It was the common belief of the parties at the time of the Contract that it was impossible the CMCSL Contract might be terminated due to Tasty, and it was on such basis that the contractual damages were agreed at the nominal sum of HK$200,000.

(3) The agreed damages under clause 5A was not a genuine pre-estimate of loss, and should not be enforced.

28.  As to (1) above, what the learned deputy judge found as mentioned in §§25 and 26 above refers.

29.  As to (2) above, clause 5A speaks for itself, and there was literally no room for adducing extraneous oral evidence for the purpose of construing its terms.  The parties agreed to limit Top Catering’s damages to the sum of HK$200,000 deducted from Tasty’s deposit in either of two situations, namely, Top Catering terminating the Contract at the request of CMCSL or CMCSL terminating the CMCSL Contract.  Top Catering’s present argument would be tantamount to a contention that when clause 5A was agreed, that CMCSL might terminate the CMCSL Contract was not actually contemplated.  This argument must be fairly rejected.

30.  As to (3) above, further to the failure of the argument under (2)above, it matters not whether Tasty knew, but Top Catering must know about the term of the CMCSL Contract, and thus the potential loss in the event of the termination of the CMCSL Contract, when it agreed to the clause.  Putting aside whether or not this was actually argued during the trial, there was in the circumstances no basis for arguing that the liquidated damages provision did not reflect a genuine pre-estimate of the potential loss on the part of Top Catering.  That Top Catering might have somehow chosen to feel assured about the improbability of that contingency would not render the liquidated amount short of a genuine pre-estimate of the potential loss in the event the contingency arose.

31.  All considered, I see no merit in the proposed appeal against the Judgment in respect of Top Catering’s claim for loss of profits.

Free meals

32.  As pleaded, the claim was based on an alleged oral agreement between Mr Ng on behalf of Top Catering and the parents of Ms Chan whereby the latter agreed to provide free meals to Mr Ng, and that Mr Ng could claim free meals for other people up to a monthly sum of $2,000.  This was what was defined as the 2^nd Oral Agreement in the Judgment[3].

33.  The learned deputy judge noted[4]that the father of Ms Chan (“CY Chan”) admitted that at about the time when the Contract was signed, he came to such agreement with Mr Ng.  The documentary evidence suggested that Mr Ng was informed on 22 March 2013 that due to poor business, Tasty would stop providing such free meals from 1 April 2013.

34.  The learned deputy judge had this to say [5] :

“ The issue is whether the above oral promises made by CY Chan were supported by consideration. In its opening submission, Top Catering suggested that the consideration for these oral promises was Ng’s agreement to provide advices to Tasty, and act as a go‑between between CMCSL and Tasty. However, this was not the pleaded case of Top Catering. Nor was it mentioned in Ng’s witness statement. The oral evidence given by Ng on what services he had actually provided to Tasty was vague and equivocal. In its closing submission, Top Catering changed its case and submitted that the consideration was that Ng was obliged to take meals at the Canteen. In the letter dated 23 March 2013, Top Catering merely stated that Tasty made the oral promises because Ng was the ultimate boss of the Canteen. Top Catering’s case and evidence on what constituted the consideration for the oral promises are inconsistent and confusing. I am not satisfied that the oral promises made by CY Chan on behalf of Tasty were supported by good consideration in order to constitute a legally enforceable agreement. I believe CY Chan made those promises merely as a gesture of goodwill, and to give face to Ng.”

35.  In his affirmation, Mr Ng essentially repeated what the learned deputy judge has already considered as mentioned above.  All considered, I am of the view that the evidence entitled the learned deputy judge to come to the above factual finding in respect of consideration and the conclusion in respect of the legal enforceability of Chan’s promise.  It cannot be said that such findings are plainly wrong.

36.  Even assuming that the oral promise were legally enforceable, the claim encountered another problem.  The pleaded basis of the claim for $68,000 was a monthly sum of HK$4,000 (ie, HK$2,000 for Mr Ng and HK$2,000 for his guests) for a period of 17 months from April 2013 to the termination of the CMCSL Contract in late August 2014. In principle, this could not be the correct measure of its loss.  The loss suffered by Top Catering (and its guests) should be their actual loss, namely, what they have actually incurred on their such number of meals that should have been free.  Such actual loss should have been pleaded, and evidence to prove it should have been adduced.  The learned deputy judge took the same view[6]. As noted by the learned deputy judge, the plaintiff has not adduced any evidence on the actual amounts incurred by him or his guests.

37.  In the circumstances, even assuming that the oral agreement in respect of free meals were legally enforceable, the learned deputy judge was nevertheless entitled to find that Top Catering has failed to discharge its burden of proving the quantum.  His finding that it would be wrong in principle and artificial to nevertheless allow the amount claimed as if it were a notional sum, in my view, cannot be faulted.

DISPOSITION

38.  Top Catering’s application for extension of time to appeal is refused. Following such event, Tasty should have her costs of and occasioned by this application.  In the absence of application within 14 days to vary this costs order, this shall become absolute without further order, and upon which Tasty may submit and serve her statement of costs of this application within 7 days and Top Catering may submit and serve its written comment on the costs claimed within 7 days thereafter.  Costs shall be assessed summarily and on paper.

39.  I heard the application in Chinese for the parties’ benefit.  Interpreter’s assistance will be arranged to facilitate the parties’ receipt of this decision, if so requested.