YEUNG YIN v. TANG CHI HO

DCCJ26261/1998

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 26261 OF 1998

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JUDGMENT

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This is a business transfer dispute concerning a guesthouse situated at Flat F2 6th Floor, Mirador Mansion, 58 Nathan Road, Kowloon (the guesthouse). The transfer agreement between the Plaintiff and the Defendant is in the following terms:-

"I Yeung Yin, shall assign the guesthouse at the unit of F2, 6th Floor, Mirador Mansion, No. 58 Nathan Road, valued at HK$530,000.00 to Mr. Tang Chi Ho. Mr. Tang shall pay HK$400,000.00 in advance and the balance of HK$130,000.00 till the guesthouse license has been issued. In the event that any reconstruction work should be done for issue of license (according to the stipulation by Government License Bureau), such costs shall be set off against the balance of HK$130,000.00 by Mr. Tang Chi Ho, the part of the aforesaid costs exceeding HK$130,000.00 shall be paid by Miss Yeung Yin). This two copies of transfer agreement shall be held by Miss Yeung Yin and Mr. Tang Chi Ho.

signature:

Yeung Yin Tang Chi Ho"

2. It is common ground that, pursuant to the transfer agreement the Defendant paid $400,000 to the Plaintiff and took over possession and management of the guesthouse on or about 1st September 1997.

3. Evidently, the property was still being decorated and fitted to meet guesthouse licensing requirements. In May 1998, the Plaintiff eventually collected the guesthouse licence which took effect from 1st March 1998. Then, when the Plaintiff demanded the Defendant to pay the balance of $130,000 for transfer of the guesthouse licence to the Defendant, the Defendant took the view that $89,967.50 ought to be deducted from the $130,000 as fitting expenses to meet licensing requirements. The Plaintiff demurred. As a result of the dispute over fitting expenses, the Plaintiff refused to transfer the licence although the Defendant continued to operate the guesthouse.

4. When this matter first came before me on 23 August 2000, I ordered the Plaintiff to transfer the licence to the name of the Defendant and gave judgment for the Plaintiff for $40,032.50 being the amount admitted by the Defendant as due to the Plaintiff. I am now concerned with the $89,967.50 balance alleged to be due to the Plaintiff.

5. During the trial, the Defendant put forward the following items to be set off against the balance due to the Plaintiff:-

The aggregate amount by adding all items listed above is $81,967.50 only. Although another $8,000 ($3,000 + $5,000) has been pleaded in the Amended Defence as deductible fitting expenses, there is no evidence at all to support the $5,000 part of this additional sum. The remaining $3,000 will be dealt with in due course.

The Deductible Expenses

6. It is convenient to consider the Defendant's claims for deductible fitting expenses item by item.

I. Electric Heater

The Plaintiff all along admits that work under item Ia was a licensing requirement and hence the expense is deductible.

Item Ib, Ic and Id are disputed. According to the evidence of the Defendant, the pump to the electric heater (Item Ic) had broken down for some time but he did not notice it. He believed this led to damage to the electric heater filament (Item Id). Also, as a result of re-installation of the electric heater (Item Ia) there was leakage necessitating replacement of pipes (Item Ib).

It should be noted that the electric heater and associated water pump were in use even before the Defendant took over the guesthouse. The inspection record of the guesthouse licensing authority indicates that the water heater and associated water pump had been re-installed to meet licensing requirement by 15 December 1997. The Defendant however says that the whole set of equipment was re-installed in March 1998. The burden is of course on the Defendant to prove on the balance of probabilities that Items I b, I c and I d were work related to licensing requirements. But there is no expert opinion from a technically qualified or experienced person to support the Defendant's claims. Mr. Luk for the Defendant suggested that I can draw inferences. Yet the Defendant's own evidence indicates that the water pump (Item I c) probably had broken down before the whole set of equipment was re-installed and that the break down of the water pump led to damage to the electric heater filament. As to replacement of pipes (Item I b), if the pipes leaked due to faulty re-installation, it seems to me that work to re-re-install the same pipes with better water-proofing is justified but not replacement with a different (brass) type of pipes.

Bearing in mind that work for Items I b, I c and I d were done at least a couple of months after re-installation of the electric heater and the water pump had broken down before re-installation, it is more probable that the work for Item I b, I c and I d were occasioned by a cause or causes other than licensing requirement. Accordingly, the expenses for Items I b, I c and I d are not deductible.

II. Emergency lights

The Plaintiff all along admits that the installation of 11 additional emergency lights is a licensing requirement and hence the expense for Item II a is deductible.

Item II b is disputed. According to the Defendant, after the additional emergency lights had been installed, the signal reception of the television sets in a number of rooms became bad and the television sets had to be relocated to a lower position. Also, signal boosters had to be installed.

I do not quite understand why lowering the television sets was necessitated by the installation of new emergency lights. Apparently, the television sets were and still are fed by fixed antenna outlets. The television sets do not rely on mobile antennaes. If the circuitry for the emergency lights produces interference with television signals, it would be necessary to re-wire the antenna cable lines leading to the fixed antenna outlets rather than re-locate the television sets. Moreover, as Mr. Siu for the Plaintiff points out, the emergency lights would be turned on only during sleeping hours to mark the exit. I cannot see how a low power light used during sleeping hours can seriously affect television signal reception.

I believe it is more probable that the Defendant caused the television sets to be re-located and signal boosters to be installed as an improvement to please the customers of the guesthouse rather than to remedy an adverse consequence of meeting licensing requirement. Accordingly, Item II b is not a justified deductible expense.

III. Other internal decoration works

Under Item III a, the documents show a number of replacements, e.g. some floor files, fluorescence tube, door stops, flexible bathroom doors, etc. The expenses for all these are lumped together and charged at $4,400. It is quite obvious that most of these expenses cannot be the result of licensing requirement. The installation of water drain pipes for air-conditioners is a statutory requirement; but the expense for such work is lumped with that of all the other non-deductible items. I do not even know how many air-conditioners required a drain pipe to be installed for it may be that most of the air-conditioners handed over to the Defendant already had proper water drain pipes. In the circumstances, the entire sum of $4,400 is disallowed.

Item III b is in fact the estimated cost of making good the decoration of ducts and pipes that had to be rendered fire-proof. Fire-proofing of ducts and pipes is a licensing requirement. The fire-proofing work was carried out by the Plaintiff's contractor. In the course of making the ducts and pipes fire-proof, the original decoration had to be demolished. The Defendant complains that although the fire-proofing work passed licensing requirement, the ducts and pipes are left in an unsightly state and ought to be restored to their original decorative look. I accept that the expense is a direct consequence of licensing requirement and the Defendant ought to be allowed the sum to be incurred.

IV Settlement of Debts

Item IV a, let me say at once, is a preposterous claim. According to the Defendant, the decoration contractor showed him an invoice for $33,940 issued by that contractor to a superior contractor engaged by the Plaintiff. Thus it cannot be seriously disputed that the contractor was working for the superior contractor. The superior contractor had disappeared before work on the guesthouse was completed, leaving the contractor unpaid. The invoice in question was issued to the superior contractor, not even to the Plaintiff. Apparently, because the superior contractor did not pay the contractor, the contractor went to the Plaintiff who engaged the superior contractor to demand settlement. The Plaintiff refused to pay on the ground the superior contractor had absconded with contract money already paid by the Plaintiff. So, according to the evidence of the Defendant, the contractor went to the Defendant demanding payment otherwise he the contractor would demolish the decoration in the guesthouse. The Defendant says he paid the $33,940. He regards this as payment on behalf of the Plaintiff and claims set-off. I have no doubt that the Defendant had no right to admit liability on behalf of the Plaintiff towards the contractor. The threat by the contractor to demolish the decoration in the guesthouse should have been dealt with robustly.

As to IV b, the Defendant says that he paid $700 for labour for installation of 23 additional window frames and one glass pane. The Plaintiff has produced a receipt for purchase of the window frames she paid. So, I have no doubt that the Plaintiff accepted the work as a necessary expense. The Plaintiff said in evidence that she thought the labour cost for installation of window frames was covered by the $6,000 in Item I a. Bearing in mind there were 23 window frames to be installed, and in the light of the actual invoice issued by the contractor to the Defendant, I believe the Defendant did have to pay $700 extra.

The Defendant further alleges that the Plaintiff borrowed $3,000 cash from him to buy the 23 window frames. He, therefore, claims repayment. The Plaintiff flatly denies this. The Defendant's performance in the witness box shows that he does not have reliable recollection of events. I think this is another instance of faulty memory. I reject the claim that the Plaintiff borrowed $3,000 from the Defendant.

V Miscellaneous Expenses

Again, these are obvious preposterous claims. According to the Defendant's own evidence, the contractor told him that, when the superior contractor absconded without paying for the contractor's work, the superior contractor left behind some tools and raw materials for the contractor as partial compensation. However, the contractor allegedly told the Defendant, the Plaintiff's husband stealthily took and sold the tools and pocketed the proceeds. Really, this kind of hearsay evidence based on suspicion must be rejected as unreliable.

As to the $300 under Item V b, it is not clear from the supporting document what the work was for.

Accordingly, all the items under this head are rejected.

Damages

7. The Plaintiff further claims for damages which are in fact disbursements. According to her evidence, she paid the following which are chargeable to the Defendant:-

(1)	Licence fee for 1998	$7,930.00
(2)	Licence fee for 1999	4,350.00
(3)	Licence fee for 2000	4,350.00
(4)	Fire fighting installation maintenance fees for 2 years (1999 - 2001) at $4,000 each	8,000.00
		$24,630.00
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Since the Defendant agreed to and did take over the guesthouse on 1 September 1997, the Defendant must reimburse the Plaintiff the aforementioned disbursements necessarily incurred to render the guesthouse operational.

Counterclaim

8. The Defendant has abandoned his Counterclaim.

Final Accounts

9. In the premises, the accounts between the Plaintiff and the Defendant can be settled as follows:-

Outstanding balance of transfer price			$89,967.50
Less:	I a	$6,000.00
	II a	$8,250.00
	III b	$6,000.00
	IV b	$700.00	20,950.00
			69,017.50
Add:	Disbursements		24,630.00
Due to the Plaintiff			$93,647.50
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Order

10. Accordingly, there is judgment for the Plaintiff for $93,647.50 together with interest thereon at judgment rate, as to $69,017.50 from 1 June 1998 and as to $24,630.00 from the date of issue of the writ, until payment. The Defendant's Counterclaim is dismissed.

11. I have been informed that there may be complications on the matter of costs. Nonetheless, I make an order nisi that the Plaintiff is to have costs of the action to be taxed if not agreed. The order nisi becomes absolute after 28 days from the date hereof unless application is made by either party for variation.