TAI CHOK MAN v. TVB PAY VISION LTD

[English Translation – 英譯本]
HCSA 5/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO. 5 OF 2009

(ON APPEAL FROM SCTC NO. 20194 OF 2008)

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BETWEEN

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JUDGMENT 

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1. The claimant lodged a claim in the Small Claims Tribunal against the defendant for a refund of $1,441.74 being service fees already paid under a contract. The defendant subsequently made a refund of $129.80. After trial, the adjudicator dismissed the claimant’s claim. The claimant’s application for review of the adjudicator’s decision was dismissed after hearing. The claimant now applies to this Court for leave to appeal.

Facts

2. On 9 March 2007, as a result of the marketing promotion of a salesperson for the defendant, the claimant entered into a Pay Television Service Contract with the defendant. The salient terms of the contract were as follows:

(1) The contract was for a fixed term of 18 months, commencing 9 March 2007.

(2) During the contract period, the claimant had to pay a monthly basic subscription fee of $128.

(3) During the contract period, the claimant was entitled to a two-month waiver of fees (hereinafter “fee waiver”). An issue in the present case was to which two months in the contract period was the fee waiver applicable.

(4) Should the claimant fail to pay any payment due, the defendant was entitled to suspend or cease the services (Clause 4.6).

(5) If the claimant terminated the use of the basic services before the expiry of the contract period, or if the defendant terminated the contract in accordance with clause 7.1(a), (b), (c) or (e), then the claimant was required to pay all the monthly fees for the unexpired term of the contract, and all waivers or special offers of fees and/or deposits given pursuant to the fixed-term contract would immediately become null and void and all such fees and/or deposits would immediately become due and payable by the claimant.

(6) If the claimant failed to pay the monthly subscription fee within 7 days from the due date, the defendant was entitled to forthwith terminate the contract by serving written notice on the claimant (Clause 7.1(a)).

3. The claimant paid three months’ subscription fees in advance on the day of execution of the contract.

4. After the signing of the contract, the claimant had a number of telephone conversations with the defendant’s staff, during which the claimant on several occasions indicated that he did not intend to continue using the service or paying the monthly fee at the expiry of three months. On each occasion, the defendant’s staff pointed out to the claimant that under the provisions of the contract, if he terminated the contract prior to its expiry, he was liable to pay the monthly fees for the rest of the contract period. The claimant also talked to the defendant’s staff over the telephone about the question of the fee waiver.

5. On 4 July 2007, the claimant paid the shortfall in service fee for the month of June. The claimant received the demand notes for July and August but did not pay. The defendant suspended the service on 22 August 2007. On 6 September 2007, the defendant received by fax a notice of termination of contract issued by the claimant (the notice was dated 2 September 2007).

6. On 15 October 2007, the defendant issued a final notice to the claimant, demanding payment of the monthly fees in arrears as well as the fees for the unexpired term of the contract. Eventually, the claimant made the relevant payments in the total sum of $1,663.80 to the defendant on 19 October 2007 and 1 May 2008. After the claimant lodged the claim in question, the defendant agreed not to charge him for the service fees which had been waived but which waiver had subsequently become null and void, and agreed to charge only for the unpaid monthly fees and the monthly fees for the rest of the agreed contract period after the termination of the contract. For this reason, the defendant refunded $129.80 to the claimant.

Issues in the claim

7. The major issue between the claimant and the defendant was to which two months in the contract period did the fee waiver apply. The defendant submitted that as the handwritten part of the contract stipulated: “7^th, 8^th months free of charge”, it was the fees for the 7^th and 8^th months of the contract period (i.e. from 9 September to 8 November 2007) that were waived. On the other hand, the claimant contended that the salesperson for the defendant had stated at the time of execution of the contract that the fees for July and August were waived, and hence the claimant should not be required to pay any fees for July and August 2007. The claimant further alleged that as the fees for July and August were waived, the defendant acted in breach of contract by suspending the service on 22 August and, accordingly, the claimant was entitled to terminate the contract, and that it was unreasonable for the defendant to have charged him for the rest of the contract period.

The adjudicator’s ruling

8. The service contract in question was in triplicate with two copies prepared, contemporaneously with the execution of the original contract, by means of carbon paper. At the call-over hearing before the Tribunal, each party produced to the adjudicator the carbon copy in its/his possession. As the copy kept by the claimant was the bottommost copy, the handwritten part thereon turned out to be the most unclear of the three. After examination, the claimant confirmed to the adjudicator that the triplicate copies were authentic and also confirmed that the words “7^th, 8^th months free of charge” were written by one Madam Wong, a saleslady for the defendant. Furthermore, in a document entitled “certificate of acknowledgment”, Madam Wong had set out the months which fell within the contract period and had marked an “X” below the months of March, April, May, September and October. The adjudicator took the view that Madam Wong had done this in order to remind the claimant that he was not required to pay any fees for those months.

9. The defendant also provided a transcript of the audio recording of the relevant telephone conversations, which showed that on the day of execution of the contract, another employee of the defendant confirmed the contents of the contract with the claimant over the telephone, including the duration of the contract, the fee waiver for the 7^th and 8^th months, and the term requiring the claimant to pay for the monthly fees for the rest of the contract period in the event of early termination of the contract. The aforesaid transcript also set out the numerous telephone conversations between the claimant and the defendant’s employee regarding the fee waiver.

10. Having considered and analyzed the above matters and the evidence as a whole, the adjudicator ruled that, as a term of the contract, the fees for the 7^th and 8^th months of the contract period were waived, and that the claimant had been made well aware of it by the time he signed the contract. The adjudicator also ruled that the defendant’s staff had on numerous occasions clarified and reiterated the same point over the telephone; and that, following the suspension of the service, the defendant’s staff offered to the claimant to bring the fee waiver period forward and re-start the service, but the claimant did not accept the offer. The adjudicator took the view that the defendant was all along prepared to provide the service to the claimant and that, as soon as the claimant paid off the monthly fees in arrears and the re-connection charges, he could resume using the service.

11. The adjudicator also pointed out that pursuant to the contract, as the claimant had defaulted on the monthly fees, the defendant was entitled to suspend the service. Furthermore, the defendant had notified the claimant in the demand notes of June and July that the service would be suspended if the claimant failed to pay off the arrears within 7 days. The adjudicator therefore ruled that the suspension of service by the defendant did not constitute breach of the contract.

12. The adjudicator also ruled that the provision in the contract on the requirement to pay monthly fees for the rest of the contract period was a liquidated damages clause which set out a genuine pre-estimate of the loss to be suffered in the event of a breach and, as such, was valid at law. The adjudicator ruled against the claimant accordingly.

Intended grounds of appeal

13. In the document which accompanies his application for leave to appeal, the claimant has put forward the following grounds of appeal:

(1) The requirement to pay monthly fees for the rest of the contract period in the event of early termination was a penalty clause.

(2) The contract stipulated that a customer who did not wish to renew the contract upon its expiry was required to give one month’s written notice before the expiry, but he/she was not required to pay any fees.

(3) As the contract stipulated that “July, August free of charge”, it was legitimate and reasonable for the claimant not to pay the fees for July and August 2007. The unjustifiable suspension of the service by the defendant constituted a breach of contract.

(4) The defendant had falsified the contract by altering the handwritten part thereof from “July, August free of charge” to “7^th, 8^th months free of charge”.

14. The above allegations also formed the subject-matter of the written and oral submissions made by the claimant at the hearing of his application for leave to appeal.

Reasons for judgment

15. Section 28(1) of the Small Claims Tribunal Ordinance provides as follows:

Any party who is aggrieved by a decision of the tribunal ―

(a)   on any ground involving a question of law alone; or

(b)   on the ground that the claim was outside the jurisdiction of the tribunal,

may apply to the Court of First Instance for leave to appeal and the Court of First Instance may grant such leave if it thinks fit.

It follows that the claimant must show that his intended grounds of appeal involve a question of law and that the question of law is arguable.

16. The first ground raised by the claimant is that the provision in the contract requiring payment of the monthly fees for the rest of the contract period in the event of early termination of the contract by the customer was a penalty clause, with the aforesaid payment being a penalty. Whether a contractual term is a liquidated damages clause or a penalty clause is a question of law involving the construction of the contractual term and also a consideration of the factual matrix.

17. As a general legal principle, where a contractual term expressly provides that the party who is in breach of the contract is to pay a fixed sum to the other party, and that sum is a genuine pre-estimate of damages representing the loss likely to flow from the breach, then the term is a liquidated damages clause and not a penalty clause: see Dunlop Pneumatic Tyre Co. v. New Garage and Motor Co. [1915] AC 79, 86 and Philips Hong Kong v. Attorney-General of Hong Kong (1993) 61 B.L.R. 41, 63. In normal circumstances, the party who alleges that the clause is a penalty clause bears the onus of proving that the clause is of an oppressive and punitive nature: see Robophone Facilities v. Blank [1966] 1 WLR 1428, 1447.

18. In the present case, the adjudicator made the following analysis of the clause in question:

The evidence shows that the monthly subscription fee charged by the defendant for basic television services was $128. Under the service plan in question, the subscriber was entitled to a 2-month waiver of fees upon entering into a contract for a term of 18 months. On the first day of the contract period, the defendant company provided the service of adjusting the claimant’s equipment for receiving the defendant’s TV channels. The total service fees receivable by the defendant after 18 months would be $2,048 ($128 x 16), representing the proceeds to be received by the defendant company upon completion of the contract. The defendant would certainly suffer loss in the event of early termination by the subscriber.

It is difficult to anticipate the circumstances in which a breach of contract can occur, and the calculation of the loss flowing from a breach of contract will inevitably involve certain cost. This also holds true for pay TV service providers who have to calculate the loss arising from an individual contract. It is in my view reasonable to insert in a contract a clause providing for compensation, which also serves to clearly indicate to the parties what their obligations are. The relevant part of the compensation clause in the contract stipulated that in the event of termination before the expiry of the contract period, the subscriber was required to pay the total amount of the monthly fees for the unexpired term of the contract. This was intended to compensate the defendant for the profits that it should have obtained but for the early termination of the contract by the subscriber. The amount payable under that clause was, in my view, a genuine pre-estimate of the loss sustained by the defendant company in the event of a breach by the customer. I rule that this is a reasonable and valid compensation clause, that the claimant was clearly aware of this clause in the contract, and that he was bound by the contract to pay all the monthly fees for the rest of the contract period.

I rule that the defendant was entitled under the compensation clause in the contract to receive the service fees which ought to have been receivable for the unexpired term of the contract. As the defendant has already refunded $129.80 to the claimant out of the amount paid by him, the defendant has in effect only received a sum equivalent to, and no more than, the monthly fees receivable by it for the remaining term of the contract. The defendant is not required to make any further refund to the claimant. The claim is dismissed accordingly.

19. In my judgment, the legal principles and background circumstances taken into account by the adjudicator in making the above findings are accurate and correct. The claimant has failed to show either in the documents in support of his application for leave to appeal or in his submissions that the adjudicator had erred in any way. The thrust of the claimant’s argument is that the clause in question was unfair and unreasonable. However, a contract represents an agreement concluded between the contracting parties. As a matter of the spirit of a contract and under the general principles of contract law, it is not for the court to strike down or refrain from enforcing a contractual clause merely because a party subsequently considered it unreasonable or unfair.

20. Furthermore, as the adjudicator pointed out, the service contract in question was a contract for a fixed period, i.e. starting from 9 March 2007, both parties had to continuously perform the terms of the contract for 18 months until 8 September 2008. The contract did not provide for early termination thereof by the parties. Therefore, a party who terminated the contract before the expiry of the 18-month contract period would be in breach of contract. Under the legal principles generally applicable to fixed-term contracts, the innocent party is entitled to demand the party who terminated the contract before its expiry to pay such sums as are payable for the rest of the contract period as damages for the breach. This being the case, the provision in the contract between the claimant and the defendant which required the claimant to pay to the defendant the monthly fees for the rest of the contract period if he terminated the contract before its expiry, was a legally valid liquidated damages clause. The clause was not a penalty clause, nor was it manifestly unfair. This ground of appeal is not arguable.

21. The second ground raised by the claimant is that, according to the contract, the customer was not required to pay any fee if he gave notice of termination of contract one month before the expiry of the contract period. The claimant says that Madam Wong, the saleslady, also said so at the time of execution of the contract. However, this clause did not enable the customer to shorten the 18-month contract period by terminating the contract before the expiry of that period. It merely stated that a customer who did not wish to continue to use the service after the expiry of the 18-month contract period had to give written notice one month in advance before the expiry of the contract, and it was in this scenario that the customer was not required to pay any fee. The clause did not apply to early termination or shortening of the contract period. The claimant cannot rely on the clause to argue that he was not liable to pay the monthly fees for the rest of the contract period even if he terminated the contract before its expiry. Nor can he rely on the clause to argue that the contractual provision requiring payment of monthly fees for the rest of the contract period in the event of early termination of contract was a penalty clause.

22. The third and fourth grounds of appeal put forward by the claimant pertain to the issue of to which two months in the contract period did the fee waiver apply, and also to the related issue of whether it was the suspension of service by the defendant or the giving of notice of termination by the claimant before the expiry of the contract period that constituted a breach of contract.

23. The question of whether the fee waiver applied to July and August 2007 or to the 7^th and 8^th months of the contract period was a question of fact. The adjudicator had considered the evidence from various sources, including the contract in triplicate copies, the contents of another document (i.e. the “certificate of acknowledgment”) and the part of the document written under the hand of Madam Wong, and the telephone conversations between the claimant and the defendant’s staff when the contract was confirmed and after it was signed. Upon analysis of the evidence, the adjudicator concluded that: (1) what was written in the contract was “7^th, 8^th months free of charge”; (2) the contract provided that the fee waiver was applicable to the 7^th and 8^th months and not July and August; (3) when he signed the contract, the claimant well knew that the fees for the 7^th and 8^th months of the contract period were waived and was clearly aware of the consequences of terminating the contract prior to its expiry.

24. In my view, the adjudicator had sufficiently and thoroughly considered the aforesaid issue. She had correctly understood and analyzed the relevant evidence, and her conclusions were properly supported by evidence.

25. The claimant alleged that the defendant had falsified the contract by altering the handwritten part thereof from “July, August free of charge” to “7^th, 8^th months free of charge”. The adjudicator had taken this allegation into account in making her ruling. She pointed out that the triplicate contract had been examined, and its authenticity confirmed, at the call-over hearing. She took the view that the claimant’s allegation that the contract had been falsified was made up by him for the purpose of strengthening his own case and that there was nothing to substantiate the allegation. This is a finding of fact. Furthermore, in the present application, the claimant has not put forward any cogent material or ground to show that the adjudicator’s ruling is wrong in law.

26. As the fees for July and August 2007 had not been waived under the contract, the adjudicator was correct in ruling that the suspension of service after giving written notice by the defendant on account of the claimant’s failure to pay the monthly fees for those two months did not constitute a breach of contract. Similarly, it was correct for the adjudicator to proceed to rule, as she did, that the termination of contract by the claimant by notice in September 2007 was a breach of contract and that he was liable to pay the monthly fees for the rest of the contract period in accordance with the contractual provisions.

Conclusion

27. For the above reasons, the claimant has failed to show that his intended appeal involves any arguable question of law and hence has failed to satisfy the condition for the granting of leave to appeal. The application is dismissed accordingly.