HA SAU MEI WINNIE v. NG WAI WING AND ANOTHER

CACV 258/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL APPEAL NO 258 OF 2011

(ON APPEAL FROM HCA 1472 OF 2009)

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J U D G M E N T

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Hon Cheung JA :

1. I agree with the judgment of Poon J.

Hon Chu JA :

2. I agree with the judgment of Poon J and have nothing to add.

Hon Poon J :

3. This is the defendants’ appeal against the judgment of Deputy Judge Louis Chan (as he then was) dated 2 November 2012, ordering them to pay the plaintiff various sums totaling HK$1,481,380.80 with interest and dismissing their counterclaim in its entirety.  The defendants seek to set aside the judgment entered in favour of the plaintiff and to enter judgment on their counterclaim.

A.  THE PARTIES

4. The plaintiff is the sister of Mr Har But Yan (“Mr Har”), an undischarged bankrupt at the material times.  Mr Wong Fai Ling (“Mr Wong”) was, according to the plaintiff, her employee.  It is the plaintiff’s case, which is hotly disputed by the defendants, that Mr Har and Mr Wong were at all material times her agents.

5. The 1^st and 2^nd defendants are husband and wife.  They provided catering service through Top Catering Management Limited (“Catering Management”) and Top Catering Development Limited (“Catering Development”), of which they were shareholders.  Catering Management and Vogue Laundry Services Limited (“Vogue”) had entered into a catering service contract for two years between 11 September 2007 and 10 September 2009 (“the Vogue Contract”).  Catering Development had another catering service contract with AS Watson Industries (“Watson”) for a year between 1 May 2008 and 30 April 2009 (“the Watson Contract”), which was later extended for 2 months up to end of June 2009.  The catering service was provided at Rooms 1, 2 and 10, 9/F, Block B, Gold Way Industrial Center, 16 – 20 Wing Kin Road, Kwai Chung (“the Premises”).

6. The parties did not know each other before they entered into the disputed transactions.

B.  THE THREE AGREEMENTS

7. In late 2008, Mr Har and Mr Wong learnt that the defendants desired to sell their catering service business.  Following negotiations, three agreements, the subject matters of these proceedings (“the Three Agreements” collectively), were made.  It is common ground that the Three Agreements were all inter-related, made for the purpose of effecting the sale of the defendants’ catering service business.

B1.  The Tenancy Agreement

8. The first agreement was a tenancy agreement dated 10 February 2009 between the 1st defendant as landlord and Mr Har as tenant in respect of the Premises for a term of 6 years from 1 March 2009 to 28 February 2015 at the monthly rent of HK$12,000.00.  A deposit of HK$24,000.00 had already been paid (“the Deposit”).

9. Clause 3 of the Tenancy Agreement provided :

“The Tenant shall not assign, transfer, sublet or part with the possession of the Premises or any part thereof to any other persons. This tenancy shall be personal to the Tenant named herein.”

10. Under Clause 2 of Schedule 2 to the Tenancy Agreement, Mr Har, as tenant, was responsible for the management fee whereas the 1^st defendant, as landlord, was to pay the Government rent and rates. 

11. Clause 4 of the same Schedule provided that the parties could give a 6 months’ notice or 6 months’ rental in lieu to terminate the tenancy provided that such right shall not be exercisable before the expiration of the 36 months of the tenancy.

B2.  The Transfer Agreement

12. The second agreement was an agreement in Chinese dated 13 February 2009 between the defendants as transferors and Mr Har and Mr Wong as transferees for the transfer of the defendants’ shares in Catering Management together with the Watson Contract and the Vogue Contract at the price of HK$908,000.00 payable by three instalments :

(1)  HK$508,000.00 before 1 March 2009 (which had been paid already);

(2)  HK$200,000.00 before 1 June 2009 (“the 2^nd Instalment”); and

(3)  HK$200,000.00 before 1 September 2009 (“the 3^rd Instalment”).

13. The defendants guaranteed the renewal of the Watson Contract and the Vogue Contract in May 2009 and September 2009 respectively unless the Contracts were not renewed because of “the errors in the product quality, hygiene and service” caused by the operation of Mr Har and Mr Wong (“the Proviso”).

14. Clause C then provided :

“未能延續膳食新供應合約之安排，甲方需按營運月份之比例退回予乙方，其價格以轉讓金額之港幣玖拾萬捌仟元正，當中分別為雅潔洗衣(屯門廠房)以港幣伍拾伍萬捌仟元正，並以十八個月計算。而屈臣氏飲品(大埔廠房)港幣叄拾伍萬元正，並以十四個月計算。”

15. Since the Watson Contract was then held by Catering Development, Clause H of the Transfer Agreement provided that Catering Development would subcontract the Watson Contract to Catering Management for the period between 1 March and 30 April 2009.

16. Pending the completion of the transfer, the defendants would pay Mr Har and Mr Wong the money received from Watson and Vogue for the catering services rendered within 3 day of receipt under Clause G.  The defendants would be responsible for all the expenses of Catering Management incurred before 1 March 2009, Mr Har and Mr Wong, thereafter under Clauses J and K respectively.

17. The Transfer Agreement did not expressly provide for the completion of the transfer of the defendants’ shares in Catering Management. 

B3.  The Takeover Agreement

18. The third agreement was an agreement in Chinese also dated 13 February 2009 under which the 1^st defendant agreed to sell the kitchen and facilities installed at the Premises (“the Equipments”) to Mr Har and Mr Wong at the price of HK$380,000.00 by monthly instalments of HK$12,700.00 each.  Two monthly instalments totaling HK$25,400.00 had already been paid in advance before 1 March 2009.

19. The 1^st defendant was the licensee of a Food Factory License issued by the Food and Environment Hygiene Department for Room 10 of the Premises.  Under Clause E of the Takeover Agreement, the 1^st defendant authorized Mr Har and Mr Wong to use it.  Clause E further provided :

“日後當乙方決定轉讓時，甲方必須以現行條件作出配合，不得干涉其買賣交易。而就乙方之買賣交易在合理價格下甲方可擁有優先購買的權利。而先決條件以乙方能清楚結算有關上述單位的賬務。”

20. Under Clause G, the 1^st defendant would apply for electricity and water supply for the Premises but the deposits would be paid by Mr Har and Mr Wong.  The 1^st defendant should refund the deposits to Mr Har and Mr Wong after they sold the Equipments.

C.  DISPUTES

21. Disputes soon arose, which centered round the following incidents.

22. By a letter dated 16 April 2009, Vogue gave a two month’s notice to terminate the Vogue Contract on 15 June 2009.  By a letter dated 27 May 2009, Watson gave a one month notice to terminate the Watson Contract on 1 July 2009.  The plaintiff complained that the defendants had failed to procure the renewal of the Contracts, which entitled her to the contractual remedy under Clause C of the Transfer Agreement.  The defendants contended that the Proviso applied as the Contracts were not renewed because of the poor quality of food and service provided by Mr Har and Mr Wong.

23. Despite repeated requests, the defendants had not transferred their shares in Catering Management under the Transfer Agreement.  On the other hand, the plaintiff had not paid the 2^nd Instalment when it fell due on 1 June 2009.

24. The defendants had received a sum of HK$703,341.30 (“the Vogue Sum”) through Catering Management from Vogue for the catering service rendered between 1 March and 15 June 2009 and two sums of HK$115,771.00 and HK$34,502.50 from Watson (“the Watson Sums”) for the catering service for May 2009 and 1 to 8 June 2009 through Catering Development.  But they did not pay them over under Clause G of the Transfer Agreement.

25. The plaintiff did not pay the rent for the Premises for June 2009.  Vacant possession of the Premises together with the Equipments was delivered back to the defendants on 1 July 2009.  The defendants’ solicitors then wrote on 3 July 2009 :

“We are instructed that the term of [the Tenancy Agreement] is fixed for three and half years. In the circumstances, we are instructed that your client is not entitled to terminate the Tenancy Agreement before its expiration. [Our] client shall take all necessary actions against your client for recovery of all rental payments for the remaining term of the Tenancy Agreement together with all costs and expenses.”

26. The disputes eventually resulted in litigation.

D.  PROCEEDINGS BELOW

27. As noted, the defendants denied that the plaintiff was the principal of Mr Har and Mr Wong.  They further contended that even if she was their principal, the Three Agreements were personal contracts, thus debarring her from suing on them.  If she was found to be entitled to sue or be sued on the Three Agreements, the defendants would counterclaim against her for the loss and damage suffered as a result of the breaches of the Three Agreements.

28. The Judge found that the plaintiff was the principal of Mr Har and Mr Wong and that the Three Agreements were not personal contracts.  She was entitled to sue and be sued on them.

29. The plaintiff complained that the defendants had made various misrepresentations inducing Mr Har and Mr Wong into entering the Transfer Agreement and the Takeover Agreement and sought recission.  However, the Judge found that none of the misrepresentations were made out.

30. What remained for the Judge’s determination were the parties’ respective monetary claims arising from breaches of the Three Agreements.

D1.  Under the Tenancy Agreement

31. The plaintiff had not pleaded any breach of the Tenancy Agreement on the 1^st defendant’s part.  She merely alleged that the 1^st defendant was not entitled to enforce the remaining terms of the tenancy from 1 July 2009 onwards because of the defendants’ misrepresentations and breaches of the Transfer Agreement and the Takeover Agreement.

32. The defendants’ case is that the plaintiff had breached the Tenancy Agreement by failing to pay the monthly rental, management fee and other utility charges since 1 June 2009.  They counterclaimed for the monthly rental and management fee for June 2009 and the remainder of the term from 1 July 2009 until 28 February 2015 in the sum of HK$828,000.00 and HK$116,610.00 respectively, and the outstanding electricity charge of HK$7,547.00.

33. The Judge found that the plaintiff was in breach of the Tenancy Agreement when she failed to pay the rental for June 2009. However, vacant possession of the Premises was returned to and accepted by the defendants on 1 July 2009 without demur.  The plaintiff should pay the rental (HK$12,000.00) and management fee (HK$1,690.00) for June 2009.

34. The Judge further found that the defendants had not suffered any loss and damage after the Premises had been returned.  There was no forfeiture clause and the defendants were not claiming for forfeiture.  The defendants had to return the Deposit.  After setting off against the outstanding rental and management fee for June 2009, the Judge ordered the defendants to pay the plaintiff the net sum of HK$10,310.00.

35. The Judge also found that the defendant should refund to the plaintiff the deposits for gas, water and electricity (HK$29,618.00), with deduction of the outstanding electricity charge (HK$7,547.00).  The Judge ordered the defendants to pay the plaintiff the net sum of HK$22,071.00.

D2.  Under the Takeover Agreement

36. The plaintiff complained that the Equipments were not of merchantable quality, which was rejected by the Judge.  The plaintiff next complained that the defendants had repudiated the Takeover Agreement by failing to repair some defective items.  That was also rejected by the Judge.

37. The defendants counterclaimed for the monthly instalments of HK$12,700.00 under the Takeover Agreement from 1 June 2009 for the remainder of the terms until 1 June 2011, totaling HK$304,800.00.  But the Judge found that there was no evidence that the defendants had suffered any loss and damage after the Equipments were returned to them on 1 July 2009.

38. The parties had agreed that the plaintiff should pay the defendants HK$9,000.00 for the use of the Equipments between 1 March and 1 June 2009, amounting to HK$36,000.00.  However, the plaintiff had already paid 5 instalments of HK$12,700.00 each.  So the Judge ordered the defendants to refund the plaintiff the overpayment of HK$27,500.00

D3.  Under the Transfer Agreement

39. The plaintiff claimed for the contractual remedy under Clause C for the non-renewal of the Vogue Contract and the Watson Contract in the respective sum of (HK$350,000.00 x 12/14 =) HK$300,000.00 and HK$558,000.00; and the Vogue Sum and the Watson Sums.

40. The defendant counterclaimed for the 2^nd and 3^rd Instalments.

41. The Judge found that while the defendants had been difficult in refusing to transfer the shares, before the plaintiff had accepted their repudiation, she herself had repudiated the Transfer Agreement by failing to pay the 2^nd Instalment due and payable on 1 June 2009, which was accepted by the defendants.  However, it was already known by the end of May 2009 that both the Vogue Contract and the Watson Contract would not be renewed.  The defendants’ obligation to make payment under Clause C of the Transfer Agreement became crystallized there and then, which was not affected by the subsequent discharge of the Agreement by the defendants’ acceptance of the plaintiff’s repudiation, subject to the Proviso.  Later, the Judge found that the reason for not renewing the Contracts had nothing to do with the quality of food and service rendered by the plaintiff.  He held that the Proviso did not apply.  He ordered the defendants to pay the plaintiff in respect of the Watson Contract HK$300,000 and in respect of the Vogue Contract HK$558,000.00.

42. The Judge also found that the defendants were in breach for not paying over the Vogue Sum and the Watson Sums to the plaintiff. The Judge then held that the defendant had suffered the loss of the 2^nd and 3^rd Instalments totaling HK$400,000.00 because of the plaintiff’s non-payment.  But he did not enter judgment on the defendants’ counterclaim for these two items.  Instead, he ordered a deduction of HK$400,000.00 from the Vogue Sum.  After setting off, the judge ordered the defendants to pay the plaintiff the sums of HK$303,341.30 and HK$260,158.50.

43. The Judge then dismissed the defendants’ counterclaim in its entirety.

E.  GROUNDS OF APPEAL

44. The defendants have raised a total of 10 grounds of appeal.

E1.  Ground 1 – no fair trial because of the judge’s interventions

45. Ground 1 contends that the defendants did not have a fair trial because of the Judge’s interventions during the course of the evidence.  The defendants argued that the Judge erred, through interruption of the proceedings, in descending into the arena, which caused confusions and muddles, such that in the eyes of an informed bystander, they did not have a fair trial.

46. The leading case on judicial intervention is Jones v National Coal Board [1957] 2 QB 55.  Denning LJ (as he then was) laid down the general principle at pp 63-64 thus :

“ If a judge, said Lord Greene, should himself conduct the examination of witnesses, ‘he, so to speak, descends into the arena and is liable to have his vision clouded by the dust of conflict’ : see Yuill v Yuill.

   Yes, he must keep his vision unclouded.  It is all very well to paint justice blind, but she does better without a bandage round her eyes.  She should be blind indeed to favour or prejudice, but clear to see which way lies the truth : and the less dust there is about the better.  Let the advocates one after the other put the weights into the scales - the ‘nicely calculated less or more’ - but the judge at the end decides which way the balance tilts, be it ever so slightly.  So firmly is all this established in our law that the judge is not allowed in a civil dispute to call a witness whom he thinks might throw some light on the facts.  He must rest content with the witnesses called by the parties : .... So also it is for the advocates, each in his turn, to examine the witnesses, and not for the judge to take it on himself lest by so doing he appear to favour one side or the other : ... And it is for the advocate to state his case as fairly and strongly as he can, without undue interruption, lest the sequence of his argument be lost : ... The judge’s part in all this is to hearken to the evidence, only himself asking questions of witnesses when it is necessary to clear up any point that has been overlooked or left obscure; to see that the advocates behave themselves seemly and keep to the rules laid down by law; to exclude irrelevancies and discourage repetition; to make sure by wise intervention that he follows the points that the advocates are making and can assess their worth; and at the end to make up his mind where the truth lies.  If he goes beyond this, he drops the mantle of a judge and assumes the robe of an advocate; and the change does not become him well.”

47. Whether or not the interventions by a trial judge is excessive must depend on the circumstances of the case, the context and nature of the interventions : John Baptist Wu v Tsoi Kay otherwise known as Tsoi Chiu Sam & Another, CACV3/1998, unreported, per Nazareth VP at p 21.

48. I have studied the transcripts of the trial very carefully.  The transcripts shows that most of the interventions complained of were in fact made by the Judge for the purpose of clarification of the parties’ case and evidence.  Such interventions are perfectly legitimate.  On one or two occasions, the Judge indicated in rather robust terms to counsel for the defendant the difficulty that he had with certain aspects of the defendant’s case and evidence.  But plainly he made his concerns known so that counsel could properly deal with them.  He had not shut his mind to the matters in question. Nor had the defendants been deterred from running any particular point or adducing any evidence in any way.

49. I do not think the defendants had been deprived of a fair trial by the Judges’ interventions.  Ground 1 fails.

E2.  Ground 2 – the plaintiff not an undisclosed principal

50. Ground 2 attacks the factual finding by the Judge that the plaintiff was an undisclosed principal of Mr Har and Mr Wong.

51. The Court of Appeal will only disturb primary findings of fact by a trial judge in very limited circumstances.  The test is whether, even though the Court does not have the advantages enjoyed by the trial judge who received the evidence at first hand, it is nevertheless satisfied that this conclusion on the facts was plainly wrong.  The Court should interfere if so satisfied.  If not so satisfied, the Court should defer to the trial judge’s conclusion even if in some doubt as to its correctness. See Ting Kwok Keung v Tam Dick Yuen & Others (2002) 5 HKCFAR 336, per Bokhary PJ at paras 41-42 at pp 339J-350G.

52. The Judge dealt with the evidence on agency adduced by the plaintiff and Mr Har, both oral and documentary, rather thoroughly.  He was fully aware of the defendants’ arguments as well.  After a careful analysis of the evidence and the arguments, he came to the conclusion as he did.  I can see no basis to disturb his finding.  Ground 2 fails.

E3.  Grounds 3 to 7 – Personal nature of the Three Agreements

53. Grounds 3 to 7 can be conveniently dealt with together.  Essentially, they contest the Judge’s factual finding that the Three Agreements were not personal in nature and that the plaintiff, even as an undisclosed principal, was entitled to sue on them.

54. The same principle on when the Court of Appeal will interfere with a trial judge’s finding of primary facts applies.

55. Again, the Judge had looked at all the relevant circumstances carefully, including the fact that the Three Agreements were inter-related for the single purpose of selling the defendants’ catering business.  He noted Clause 3 of the Tenancy Agreement which provided the Agreement was personal to the signing parties.  But he placed it in the overall context of the Three Agreements, noting that the Transfer Agreement and the Takeover Agreement did not contain any provision similar to Clause 3 and that quite to the contrary, Clause E of the Takeover Agreement allowed Mr Wong and Mr Har to sell the Equipments to a third party upon full payment.  The Judge also found that the defendants were willing to sell their business to whoever that was willing to buy at a price that they regarded as sufficiently attractive.

56. The Judge’s finding on this point is wholly supportable by the evidence before him.  The Court of Appeal cannot interfere. Grounds 3 to 7 all fail.

E4.  Ground 8 – Failure to make deductions

57. Ground 8 complains that the Judge had failed to make deduction of the running costs incurred by the defendants for Catering Management after 1 March 2009 from the Vogue Sum.  In his submissions, Mr YC Yeung for the defendants argued that the same deduction should apply to the Watson Sums as well.

58. I first note that the defendants had not pleaded the deduction in his Re-Amended Defence and Counterclaim.  In the absence of a proper plea, this point is not open at trial, let alone on appeal.

59. In any event, there is simply no basis to support the deductions.  For at trial, counsel for the defendants, Mr Alwin Chan, told the Judge that there was no evidence to show that the defendants had made any payment to discharge the running costs of Catering Management after 1 March 2009.  Ground 8 fails.

E5.  Ground 9 – Loss and damage arising from the breach of Tenancy   Agreement

60. Ground 9 argues that the Judge should have ordered damages to be assessed for the damages that the defendants had suffered because of the plaintiff’s breach of the Tenancy Agreement.

61. It is well established that a tenant’s repudiation of the lease during its term may be accepted by the landlord.  The effect of such acceptance is that the lease immediately ends and the landlord loses his right to sue for rent but may sue for damages instead.  See Hong Kong Tenancy Law, An introduction to the law of landlord and tenant (4^th ed) pp 154-155.

62. Here, when the plaintiff returned vacant possession of the Premises to the defendant on 1 July 2009, her conduct amounted to repudiation of the tenancy during its term, which was, as the Judge found, accepted by the defendants without demur.  The tenancy came to an end there and then.  The defendants were only entitled to claim for loss and damage but not, as pleaded, the rental for the remainder of the term.  Further, the Judge found that the defendants had not suffered any loss or damage after the Premises had been returned.  The defendants did not seek to appeal against that particular finding.  That being the case, there is no basis to order assessment of damages as contended.  Ground 9 also fail.

E6.  Ground 10 – Refunds under the Transfer Agreement

63. Finally, Ground 10 complains that it was unfair for the Judge to hold the defendants to their obligations under Clause C of the Transfer Agreement when he ordered them to make repayments for the non-renewal of the Watson Agreement and the Vogue Agreement.

64. I pause to note that the Judge should have entered judgment for the defendants on their counterclaim for the 2^nd and 3^rd Instalments, after he found that the plaintiff was in breach of the Transfer Agreement and that they represented the loss suffered by the defendants.  Although the amount could be set off against the award to the plaintiff, it would not be right to dismiss the counterclaim in its entirety.

65. Whether the Judge was correct in ordering the defendants to make repayments under Clause C depends on its proper construction.  To recap, Clause C provided :

“未能延續膳食新供應合約之安排，甲方需按營運月份之比例退回予乙方，其價格以轉讓金額之港幣玖拾萬捌仟元正，當中分別為雅潔洗衣(屯門廠房)以港幣伍拾伍萬捌仟元正，並以十八個月計算。而屈臣氏飲品(大埔廠房)港幣叄拾伍萬元正，並以十四個月計算。”

66. The construction placed by the Judge on Clause C is this.  The defendants guarantee the renewal of the Watson Contract and Vogue Contract upon their expiry for another 14 months and 18 months respectively. When either of the Contracts is not renewed for the guaranteed period in full, the defendants shall repay the plaintiff the designated sum for the Contract in question divided by the guaranteed period multiplied by the number of months in shortfall.  For the Watson Contract, it had been extended for 2 months. The shortfall was reduced to 12 months.  Thus the repayment by the defendants to the plaintiff was HK$350,000.00 x 12/14 = HK$300,000.00.  For the Vogue Contract, no extension was granted.  So the entire sum of HK$558,000.00 was repayable.

67. The Court is given to understand that no evidence had been adduced on the surrounding factual matrix which might impact on the meaning of Clause C.  Absent such evidence, I will just look at the plain language used.  Having done so, I do not think the Judge’s construction is correct.

68. The words “營運月份”means the months of operation; they do not mean “guaranteed period”.  Thus read, they should be referring to the period of operation under the Transfer Agreement since 1 March 2009.  Under Clause C, the period of operation (營運月份) for the Vogue Contract has been specified to be 18 months, Watson Contract, 14 months, both of which are to commence on 1 March 2009.  When either of the Contracts is not renewed, the defendants shall repay the designated sum divided by the specified period of operation (營運月份), multiplied by the difference between the specified period of operation (營運月份) and the period of actual operation since 1 March 2009 up to the cessation of the Contract (“the Multiplier”).

69. The Transfer Agreement was discharged at the end of June 2009.  The period of actual operation was 4 months, counting from 1 March 2009.  For the Watson Contract, the Multiplier is 14 – 4 = 10.  For the Vogue Contract, the Multiplier is 18 – 4 = 14.  The repayments should have been respectively HK$350,000.00 x 10/14 = HK$250,000.00; and HK$558,000.00 x 14/18 = HK$434,000.00. These are the sums that the defendants are liable under Clause C.

F.  DISPOSITIONS

70. For the above reasons, I allow the appeal to the limited extent that :

(1)  Judgment be entered for the defendants on the counterclaim on the 2^nd and 3^rd Instalments of HK$200,000.00 each, totaling HK$400,000.00 but the deduction ordered by the Judge against the payment of the Vogue Sum do stand;

(2)  The sums the defendants are liable to pay the plaintiff under Clause C of the Transfer Agreement be varied to HK$250,000.00 and HK$434,000.00 respectively.

71. The appeal against the balance of the judgment is dismissed.

72. Costs should generally follow the event.  Based on how I have disposed of the appeal, I will make an order nisi that the plaintiff shall have 90% of the costs of the appeal, to be taxed if not agreed.  The order nisi is to be made absolute 14 days after handing down of this judgment.