UNIVERSAL WORLDWIDE TRANSPORTATION LTD v. CARIBBEAN (LATIN AMERICA) CARGO SERVICES LTD AND OTHERS

HCA 917/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 917 OF 2011

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J U D G M E N T

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The proceedings and the parties

1. This action concerns the recovery of a sum of US$500,000 or HK$3,900,000 paid by the plaintiff (“P) to the 1^st defendant (“D1”) under a Loan Agreement entered into by them and dated 15 December 2010 (“Loan Agreement”).

2. The 2^nd to 5^th Defendants (respectively “Lee”, “Sit”, “Chan” and “Tsang”, collectively “D2-D5”) are shareholders and directors of D1.  Each of them has executed a personal guarantee for D1’s liability under the Loan Agreement up to the amount of HK$1,950,000 (“Guarantees”). 

3. P’s claim is for repayment of the sum of HK$3,900,000 against D1 under the Loan Agreement (with interest from 23 January 2011 at the contractual rate of 2% per month), and for up to HK$1,950,000 against each of D2-D5 under the Guarantees.

Background

4. The following background facts are not in dispute, save where indicated otherwise.

5. P and D1 are both companies in the business of providing air cargo logistics and transportation services. 

6. D1 was specifically incorporated in early 2010 to act as the general sales and service agent of Jamaica Airways Cargo Ltd (“Jamaica Airways”).  Jamaica Airways intended to operate a cargo route between Jamaica and Hong Kong / PRC.  On 8 June 2010, D1 entered into a Cargo General Sales and Service Agency Agreement with Jamaica Airways.

7. In late 2010, P and D1 entered into initial discussions for the appointment of P as D1’s general sales and service sub-agent (“Sub-agent”) in Shanghai.  They entered into a Memorandum of Understanding on 30 November 2010 (“MOU”) in relation to the proposed venture.  This was in essence to signify the intention of the parties to cooperate and to further agree on the terms of the proposed venture which were to be set out in documents to be executed (Clauses 1.1, 2.1 and 2.2 of the MOU).

8. Clause 5.1.1 of the MOU provided that it should operate for 30 days subject to the payment of an initial cash deposit of US$1 million by P within 2 days of the date of its signing.  P did not make any such payment.

9. However, the parties entered into the Loan Agreement on 15 December 2010, which stated that P agreed to make a short term loan of US$500,000 to D1, to be repaid by D1 in US$500,000 or HK$3,900,000 on 22 January 2010.

10. The Loan Agreement contained, inter alia, the following terms :-

(a) Clause 1 : P should provide the loan “by way of lending only and not otherwise”;

(b) Clause 2 : In default of repayment on 22 January 2011, the loan should carry interest at 2% per month from 23 January 2013;

(c) Clause 6 : Messrs Danny Lau & Lam (“DLL”) were P’s solicitors only and D1 had been advised to seek independent advice and decided to sign the agreement without any legal representation (“Independent Advice Clause”).

11. On the same day, D2-D5 also executed the Guarantees in favour of P, each guaranteeing up to HK$1,950,000.  Each of the Guarantees contained an Independent Advice Clause (as Clause 11 or Clause 10).

12. Pursuant to the Loan Agreement and 2 of the Guarantees, post-dated cheques (dated 22 January 2011) in favour of P were provided by D1 (in the sum of HK$3,900,000), Lee and Sit (each in the sum of HK$1,950,000) (“Ds’ Cheques”).

13. The originals of the Loan Agreement, the Guarantees, and Ds’ Cheques were kept by P.  P made the payment of US$500,000 (“Sum”) to D1 by way of a cheque dated 15 December 2010.

14. The execution of the above documents was carried out at a meeting held in the office of DLL, in the presence of Mr Tony Lam (“Lam”) of that firm.

15. Ds have not made any repayment to P under the Loan Agreement or the Guarantees. 

16. On 20 December 2010, there was a meeting between Mr Andy Wong (“Wong”), the managing director of P, Chan and Tsang during which they reached an agreement on some of the terms of the intended cooperation between P and D1.  In particular, it was agreed that during the negotiation over the terms of a contract to be entered into between the parties and until 31 January 2011, P would not enforce the Loan Agreement or the Guarantees.

17. In January 2011, the parties began negotiating for a formal agreement for the appointment of P as D1’s Sub-agent in Shanghai. On 25 February 2011, P and D1 signed a Cargo General Sales and Service Agency Agreement (“Agreement”).

18. The Agreement contained, inter alia, the following terms :-

(a) Article 1 : P was appointed as D1’s Sub-agent within Shanghai;

(b) Article 12 : Remuneration for P was to be agreed between the parties and set out in Annex A.  However, there was no Annex A to the Agreement;

(c) Articles 5 & 6 provided for the various functions and duties of P as the Sub-agent;

(d) Article 14(v) : a cash deposit in the sum of US$1,000,000 was to be placed with D1 for the duration of the Agreement as a form of security for the due and faithful performance of the same;

(e) Article 26(i) : the Agreement should become effective on 1 March 2011 and should continue in force for 1 year subject to yearly performance review.

19. Also on 25 February 2011, Wong executed a personal guarantee in favour of D1 over the liabilities of P.  At the same meeting during which the Agreement was signed, Wong returned the originals of the Loan Agreement, the Guarantees, and Ds’ Cheques to the defendants (“Ds”).  Further, Wong was given an “Official Receipt” for the Sum which was issued by D1 and back-dated to 16 December 2010 (“Receipt”).  On the Receipt, the Sum was described as “Freight Space Allotment Deposit”.  It is not disputed that it was a reference to the deposit payable under the Agreement.

20. The Agreement was never performed by the parties.  By an email dated 1 April 2011, P informed D1 that it would like to terminate the Agreement and asked for the refund of its cash deposit of US$500,000.  The reply email from Lee dated 11 April 2011 was short: “I will pass to our lawyer to settle our agreement!”.

21. This action was issued on 1 June 2011.  On 29 February 2012, the Agreement, which was not extended, expired.

22. Neither Jamaica Airways nor D1 had at any material time operated or offered any cargo flight routes or air cargo transportation services between Jamaica and Hong Kong or the Mainland.

23. A cargo or freight route to or from Jamaica cannot be operated without an Air Operator’s Certificate (“AOC”) issued by the Jamaica Civil Aviation Authority.  In this regard, Ds had informed P prior to the signing of the Loan Agreement that Jamaica Airways was going to obtain an AOC by around 20 January 2011. 

24. In an email from Lee to Mr Jonathan Tsang (“JT”) (a representative of P who subsequently became its employee in February 2011) dated 21 January 2011, Ds sent to P a document which purported to be an AOC issued to Aviation Partners Jamaica Ltd (“AP”).  The evidence of Ds is that Aviation Partners was acquired by Jamaica Airways in late 2010.  Although it is not seriously challenged, such evidence is not accepted by P.  However, I see no reason to doubt the evidence and I accept it. 

25. There was no AOC issued to Jamaica Airways. However, an AOC was issued to Jamaica Far East Ltd (“JFE”), which was dated 20 August 2011.  Jamaica Airways was, and is, a wholly-owned subsidiary of JFE.  JFE’s application for the AOC was made in March 2010.

Ds’ case

26. There is no challenge to the validity of the Loan Agreement or the Guarantees.  The burden is on Ds to make out a defence to this action.

27. First, Ds say that there was an oral agreement made between Wong and D2-D5 over the phone on 13 December 2010 (“Oral Agreement”)[1], which is said to contain the following terms :-

(a) P should pay to D1 US$1,000,000 as security for its performance of an agency agreement to be entered into;

(b) P should pay US$500,000 first, which should be returned to it if Jamaica Airways failed to obtain an AOC by 20 January 2011;

(c) D1 should enter into the Loan Agreement and provide a cheque for HK$3,900,000.  D2-D5 should enter into the Guarantees and provide cheques totalling the same sum;

(d) If P and D1 did not enter into the agency agreement, P could present Ds’ Cheques for payment;

(e) If Jamaica Airways was awarded an AOC by 20 January 2011, D1 should inform P and they should execute an agency agreement;

(f) The US$500,000 should be credited as part of the US$1,000,000 payable by P to D1, and P should return the Loan Agreement, Guarantees and Ds’ Cheques; 

(g) Upon such return, the obligations under the Loan Agreement and the Guarantees would be discharged;

(h) As to the remaining US$500,000, US$300,000 should be paid by P to D1 30 days before the commencement of flight service, and US$200,000 should be paid 7 days before commencement of the flight between Shanghai and Jamaica.

28. It is said that the Loan Agreement, the Guarantees and Ds’ Cheques were all executed or provided by Ds pursuant to the Oral Agreement.

29. It is also pleaded by Ds that, before entering into the Loan Agreement and the Guarantees, Wong and Lam :-

(a) refused to include a clause in the Loan Agreement to provide for the discharge of the same on the signing of the agency agreement;

(b) made certain representations to the effect that such a clause was not needed; and

(c) did not explained the effect of the Loan Agreement or the Guarantees and had not advised Ds to get independent advice.

30. Ds claim that the Sum had been credited as part of the US$1,000,000 security payable by P to D1. Further, the Loan Agreement and Guarantees had been discharged in accordance with the Oral Agreement because of the following :-

(a) Jamaica Airways was awarded an AOC by 20 January 2011 and P was informed by Ds as to this.  In this regard, Ds say that the AOC issued to AP was sufficient to comply with the Oral Agreement;

(b) P and D1 entered into the Agreement on 25 February 2011;

(c) The originals of the Loan Agreement, Guarantees and Ds’ Cheques were returned by P to Ds;

(d) Ds also rely on the Receipt as evidence that the Sum had been credited as part of the security.

P’s response to Ds’ defence

31. P denies the Oral Agreement.

32. As to the reason for paying the Sum and signing the Loan Agreement, P’s case is that :-

(a) It was under the impression that Ds wanted the money in advance because D1 had a tight cash flow;

(b) It was not comfortable in making an advance payment of such a large sum to Ds on a business venture which might not eventuate;

(c) It therefore proposed (on the advice of DLL) the loan arrangement with security so that the Sum could be easily recovered.

33. As to the signing of the documents on 15 December 2010, P says that Wong and Lam never made the alleged representations, there was no discussion of the discharge of the Loan Agreement, and Lam did explain the Loan Agreement and Guarantees to D2-D5.

34. P denies that the Sum had been credited as part of the security payable under the Agreement, and that the Loan Agreement or Guarantees had been discharged. 

35. As to the AOC issued to AP, P says that it was not issued to Jamaica Airways and appears not to be a genuine document.

36. In respect of the Agreement, P’s case is that :-

(a) It decided to enter into the Agreement on Ds’ representations that the flight routes would commence operation very soon;

(b) Wong did not insist on the immediate repayment of the Sum because he wanted to maintain a good relationship with Ds and that P would be indebted to D1 once the business began;

(c) Wong returned the loan documents to Ds at their request and as a gesture of goodwill in light of the future cooperation. However he did not agree to cancel the Loan Agreement or treat the Sum as part of the deposit given that the flight routes had not begun to operate;

(d) The Receipt was not issued at P’s request and Wong did not pay much attention to it.

37. Further, P denies that the execution of the Agreement had the effect of discharging the Loan Agreement or the Guarantees.  Furthermore, P says that there were implied conditions precedent that the obligations under the Agreement would not come into effect unless :-

(a) Jamaica Airways had been awarded a valid AOC;

(b) Flight routes between Jamaica and Shanghai had commenced operation.

38. As none of these conditions had been satisfied, the Oral Agreement, even if made and complied with, could not operate to transfer the Sum towards the deposit under the Agreement.

39. In any event, even if the Loan Agreement had been discharged and the Sum transferred to become part of the deposit, D1 is still liable to repay it to P because :-

(a) The parties had by conduct abandoned and discharged the Agreement, as there had never been any performance on either side.

(b) In any event, the Agreement had expired by 29 February 2012.

Witnesses

40. Two witnesses were called by P, namely, Wong and Lam.  Lee was the only witness who gave evidence for the defence.  I shall deal with the material evidence when I address the issues in this case.

Issues

41. Like most cases, with the benefit of sensible counsel, the scope of dispute has been narrowed down after the conclusion of the evidence.  It is clear that this action is mainly about the personal liability of D2-D5 under the Guarantees.  Given that the Agreement had expired some time ago, it is difficult to see why any deposit paid thereunder should not be returned.  Indeed, save for a technical issue over its viability as a cause of action in these proceedings, Mr Cheng, who appeared for Ds, is not resisting D1’s liability to return the deposit paid under the Agreement on the ground that it had expired. 

42. In respect of the alleged discharge of the Loan Agreement and the Guarantees, the dispute is primarily a factual one over the Oral Agreement.  There is also a legal argument that, even if the Oral Agreement is upheld, there was no discharge by reason of the non-compliance with the terms thereof.  That legal argument has two limbs, namely, (a) there was no valid AOC (which is an issue of fact) and (b) there was no valid transfer of the Sum into a deposit under the Agreement by reason of the fact that it was an incomplete and therefore invalid contract. 

43. Finally, the incomplete contract point is also run as a standalone argument in that even if the court finds that the Loan Agreement and the Guarantees had been discharged the Sum, which had been transferred to an invalid agreement, has to be repaid.  In this regard, Mr Cheng’s only quarrel is whether the Agreement was incomplete.

Discharge of the Loan Agreement and Guarantees 

44. I believe that the fact finding exercise here is not a difficult one in light of the undisputed contemporaneous documents. These documents will of course have to be examined against the undisputed background and with simple common sense. 

45. One starts with the MOU under which P was to pay a refundable cash deposit of US$1,000,000 within 2 days from the signing of that document (30 November 2010).  Wong’s unchallenged evidence is that P had endeavoured to investigate the background of D1 and what was discovered did not give him confidence to pay over a large sum of money to that company.  It may be said that the result of the investigation could not be surprising given that D1 was a newly formed company. 

46. I should mention that Lee’s evidence is that it was common in his trade that a deposit under a memorandum of understanding would not be paid notwithstanding a provision to do so in the same.  I do not believe that anything turns upon whether the deposit under the MOU should or should not have been paid.  In any event, Wong accepted in cross-examination that D1 had a proper basis to demand the payment of deposit under the relevant provision of the MOU. 

47. However, upon the advice of Lam P decided to structure the payment of deposit by way of a loan backed up by the personal guarantee on the part of D1’s directors.  There is ample justification for this inference.  Although the Loan Agreement referred to a short term loan to “ease cash flow”, Lee disagreed that D1 had a cash flow problem at the material time.  This is not a material factual issue.  According to Wong, P was not providing a loan to D1 out of kindness to relieve D1 of its financial problem. Instead, the loan was provided to move forward a potentially profitable business venture. 

48. It should be noted that the repayment date under the Loan Agreement (22 January 2011) coincided with the anticipated grant of an AOC to Jamaica Airways (by around 20 January 2011). 

49. Five days after signing the Loan Agreement, the parties had a meeting on 20 December 2010 and para 5 of the Minutes recorded as follows :-

“在商議 [CONTRACT] 內容期間，UNIVERSAL不能從香港法律途徑追討CARIBBEAN及私人金錢USD500,000.00 (REF NO 2235/SS/L (50M))。

期限到31/JAN/2011。”

50. Plainly, the repayment of the Sum was extended to allow more time to conclude the anticipated agreement.  Such evidence serves to fortify the fact that the loan went hand in hand with the business cooperation which the parties were trying hard to bring to fruition.  I reject Wong’s evidence that he always treated the loan and the Agreement as two separate transactions.  Such proposition runs against the documents, common sense and his own evidence that, inter alia, the loan was provide to bring forward the business venture. 

51. In due course, the parties entered into the Agreement.  Although the Agreement did not explicitly provide for the time when the deposit should be paid, in my view that is reasonably plain from the wordings of the Article 14(v) :-

“A cash deposit for the sum of USD$1,000,000 to be placed with the Principal for the duration of this Agreement as a form of security for the due and faithful performance of this Agreement.”

52. The “duration” of the Agreement was 1 year beginning on 1 March 2011 (Article 26(i)).  In other words, the deposit should be in place on 1 March 2011.  I reject Wong’s evidence that the deposit needed not be paid until shortly before the flights started.  Such evidence flies in the face of the Agreement and is quite inconsistent with Wong’s acceptance of the Receipt (see further below). 

53. Upon the signing of the Agreement, the originals of the Loan Agreement, Guarantees and Ds’ Cheques were all returned to Ds.  At the same time, the Receipt, which was prepared in advance, was provided to Wong.  Wong agreed that he had read the Receipt when it was given to him. However, he said that although he disagreed with its content, he did not return the document because he did not think much about it. 

54. If not for the use or transfer of the Sum as part of the deposit payable under the Agreement, P would have completely failed to make any payment of deposit.  That would be quite inconsistent with the fact that the parties had firmed up their cooperation with the signing of the Agreement and were no doubt looking forward to developing a “very attractive business opportunity”[2].

55. Further, viewed objectively, the conduct of returning the loan documents and the acceptance of the Receipt acknowledging the payment of US$500,000 as “Freight Space Allotment Deposit” suggest that they were carried out pursuant to an arrangement which the parties had discussed and agreed. 

56. I do not believe Wong’s evidence that he returned the loan documents because of a request by Chan at his office[3] (the Agreement was signed there) that Ds would feel more comfortable to have those documents back whilst doing business with P.  Such evidence defies common sense.  What does it mean by feeling more comfortable? If it were true that Wong treated the loan and the Agreement as separate transactions and he was expecting the loan to be repaid, he would not have handed over those documents.  If the loan had to be repaid, holding onto the documents (by Ds) was completely meaningless.  Further, it should be said that the return of Ds’ Cheques was quite inconsistent with the expectation of repayment.  It is common ground that those cheques were valid for payment for 6 months in accordance with banking practice in Hong Kong. 

57. Furthermore, I am unable to see any reason why Ds would have agreed to continue to incur interest under the Loan Agreement on a substantial sum at 24% per annum. 

58. Wong’s evidence that he took the Receipt without thinking much over its content cannot be taken seriously.  He had just executed the Agreement which provided for the payment of a deposit and the Receipt acknowledged a partial payment of that deposit.  It is significant that the Receipt was backdated to 16 December 2012.  It suggests that the Loan Agreement had been superseded with the transfer of the Sum to become part of the deposit.  The incontrovertible evidence strongly suggests that the parties had an agreement that the loan be discharged upon entering the Agreement.

59. This conclusion is to some extent supported by the concessions which Wong had made in cross-examination when the terms of the Oral Agreement were put to him.  In particular, Wong agreed that he had a telephone conversation with Lee on 13 December 2010 after consulting with Lam. He agreed with Lee that if no AOC was obtained by 20 January, Ds would be required to return the Sum.  Moreover, the parties were required to sign an agency agreement after the AOC was obtained. 

60. Finally, I reject Wong’s evidence that if the business did start and P therefore had to pay a deposit under the Agreement, P would have paid US$1,000,000 to D1 without setting-off the Sum under the Loan Agreement.  Such suggestion makes no business sense. 

61. I should say that I am not impressed by Lee as a witness.  He clearly embellished his evidence to try to strengthen his case.  For instance, he down played his ability in understanding English, and his evidence that the deposit under the Agreement was actually payable to Jamaica Airways is incredible. Apart from being inconsistent with the terms of the Agreement, I see no reason why such an arrangement would have been kept from P (Lee said that he did not tell P about the arrangement). 

62. However, the lack of credibility in other matters does not necessarily undermine Ds’ case over the Oral Agreement, especially when it is well-supported by the documents and the undisputed circumstances. 

63. Finally, I should deal with a point raised by Mr Lam, who appeared for P, that there is a contradiction between Lee and Lam concerning the evidence of the former that there was a request by Ds to insert a clause in the Loan Agreement to provide for the discharge of the same which was made during the signing of that document at Lam’s office.  Lam denied that there was any such discussion.  Mr Lam submitted that Lam’s evidence should be given due weight by the court because he is an independent witness. 

64. I do not believe that Lam’s evidence can counteract the weight of the documents and the undisputed circumstances. Taking the point at the highest, Lee might have lied about that episode to try to enhance his case.  As explained above, I am of the view that Lee is not a good witness in any case. 

65. In the premises, I find in favour of Ds on the Oral Agreement.

Compliance with the Oral Agreement

66. Mr Lam argued that even if this court finds in favour of the Oral Agreement, the Loan Agreement and the Guarantees had not been discharged due to 2 non-compliances with the Oral Agreement (see para 42 above).

Validity of AP’s AOC

67. Mr Lam submitted that the burden of proving compliance with the Oral Agreement rests with Ds and that AP’s AOC is, on its face, different to the AOC granted to JFE.  Further, there was no attempt by Ds to adducing any evidence to prove the authenticity of that document.  Nor is there any satisfactory evidence to show that AP was in fact acquired by Jamaica Airways. 

68. With respect, I do not find much substance in this complaint.  The evidence of Wong is that he was not concerned about the identity of the holder of the certificate as long as a landing permission could be obtained from the Shanghai authority.  He did apply for such a permission with AP’s AOC and the only query raised by the authority concerned whether P had a place of operation at the Shanghai airport.  I have not overlooked the evidence that Wong was chasing for a certified true copy of AP’s AOC and it was not produced by Ds.  However, there is no evidence to suggest that there was anything more than tardiness behind such failure. 

69. The difference between AP’s AOC and that of JFE concerns the absence of 1 short paragraph and a date in the former as compared with the latter.  That paragraph reads :-

“This certificate is not transferable and unless sooner surrendered, suspended or revoked, shall continue in effect until midnight, [date].”

70. It is possible that AP’s AOC did not have an expiration date which partly explains the absence of that paragraph.  The difference in the 2 AOCs does not demonstrate that one of them is not authentic.  This court was reminded by Mr Cheng that P did not take any issue with the authenticity of AP’s AOC prior to the filing of its Amended Reply on 25 April 2012.

71. Further, it would have been very easy for P to make enquiries with the Jamaican authority on the authenticity of AP’s AOC.  No effort has been made in that regard.

Transfer of the Sum as a deposit under the Agreement

72. The argument here is founded on 2 propositions, namely, (a) the Agreement was invalid because it was incomplete and (b) there was no valid transfer of the Sum to become part of the deposit payable under the Agreement.

Incomplete agreement

73. Article 12 of the Agreement expressly provided that P’s remuneration was “to be agreed” and set out in Annex A.  There was no Annex A to the Agreement.

74. It is not disputed that there were generally 2 ways by which P might be remunerated as a sub-agent, namely, getting a commission on the price charged by Jamaica Airways or adding a margin to the price.  There was a further complication in that besides having to agree the method by which the P was to be remunerated, the tariffs charged by Jamaica Airways would be subject to seasonal fluctuations.  According to Lee, P’s remuneration was not agreed because the market conditions were not yet clear and that Ds could not fix the price without market data on Shanghai, which was to be provided by P.

75. This court has not been given a clear picture on why the parties did not bring the business venture to fruition.  From the available evidence, it appears that the parties became inactive after P’s attempt to terminate the Agreement on 1 April 2011 (see para 20 above).  That termination was not accepted by D1.  However, no issue has been taken in this regard, and the fact is that due to the lack of further action there was no agreement on P’s remuneration. 

76. I agree with Mr Lam that it is trite that there would be no binding contract if an agreement is incomplete with essential terms still to be worked out : see Chitty on Contracts, 31^st edn, vol 1, §2-127.  It is difficult to see that P’s remuneration is anything other than an essential term of the Agreement. 

77. In the well-known case of May & Butcher Ltd v The King [1934] 2 KB 17 (cited in Chitty, §2-127), the parties to the sale of tentage agreed that the price, dates of payment and manner of delivery should be agreed from time to time.  The House of Lords held that there was no concluded agreement because the critical parts of the agreement had not been concluded but were left undetermined.  At pg 21, Viscount Dunedin explained as follows :-

“To be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties. Of course it may leave something which still has to be determined, but then that determination must be a determination which does not depend upon the agreement between the parties … Therefore, you may very well agree that a certain part of the contract of sale, such as price, may be settled by some one else …, and if that was so left and that person either would not or could not act, there would be no contract … ”.

78. Mr Cheng has taken this court to the authority of Pagnan v Feed Products [1987] 2 Lloyd’s Rep 601.  I do not believe that Pagnan assists Ds.  In that case, Lloyd LJ summarised the relevant legal principles at pg 619 and stated as follows :-

“…

(4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled (see Love and Stewart v Instone per Lord Loreburn at p 476).

(5) If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty.

(6)   It is sometimes said that the parties must agree on the essential terms and that it is only matters of detail which can be left over.  This may be misleading, since the word ‘essential’ in that context is ambiguous.  If by ‘essential’ one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. … But there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later.  It happens every day when parties enter into so-called ‘heads of agreement’.”

79. I am unable to see how the Agreement could be enforced without the terms on P’s remuneration.  In the circumstances, I agree that the Agreement was incomplete and therefore invalid.  In coming to this view, I have borne in mind also the commentaries at Chitty, §§ 2-114 and 2-129. 

80. In respect of his second proposition (see para 72 above), Mr Lam had referred this court to Barclays Bank Ltd v Thomas & Ors [1979] 2 Lloyd’s Rep 505.  In that case, the bank sued on a guarantee made in 1974.  The defendant alleged that the 1974 guarantee was delivered in escrow and thus not binding.  The bank then amended its pleading and relied on an earlier guarantee made in 1973.  The defendant then argued that the 1973 guarantee had already been discharged because of the 1974 guarantee (Mr Lam submitted that the discharge must have been based on an express agreement or by implication).  Parker J held (at p 507) that as the 1974 guarantee was delivered in escrow :-

“… it was a mere piece of paper to have no effect whatsoever unless and until certain conditions were fulfilled. If that be right then it would appear that it could not possibly have the legal effect of discharging anything beforehand.”

81. However, the facts in that case are quite different to those before this court and the authority may therefore be distinguished. 

82. Whilst P’s argument here is not without merits, I find that it is, with respect, somewhat detached from the real business world.  Pursuant to the Oral Agreement, the parties had entered into the Agreement.  It is true as a matter of fact that they failed to take the matter further by agreeing the remuneration of P.  However, at the time when the parties entered into the Agreement, I have no doubt that they did not envisage that the venture would be abandoned. 

83. As stated by Lloyd LJ above, “there is no legal obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later”.  I have little doubt that at the time when they signed the Agreement the parties fully intended to be bound by it.  This is fortified by the Receipt, as well as the actions taken by the parties thereafter.  Unfortunately, what they had left to be agreed was of such significance that without which the Agreement could not be enforced.  More likely than not, the subsequent course of events which ended up in the abandonment of the Agreement was not something within the contemplation of the parties when they entered into the same. 

84. What then is the proper legal analysis for resolving this difficult but interesting point which may not be altogether uncommon in the business world?  I believe that answer lies in the intention of the parties when the Oral Agreement was made.  Was it intended that the Sum should only be credited as a deposit under the agreement to be made if they managed to agree all the essential terms or that such transfer could take place once they had, to adopt the words of Lloyd LJ, agreed to be bound whilst deferring important matter(s) to be agreed later. 

85. I have little doubt that most businessmen operate in less exacting manner.  The Receipt demonstrates that the parties were quite content to treat the Sum as a deposit in accordance with the Oral Agreement.  In the premises, I am of the view that the intention was that the transfer would take place once there was an agreement to be bound and notwithstanding that they had left out important matter(s) to be agreed later.

86. This conclusion may be tested as follows (this was explored with Mr Lam in the course of his final submissions).  Assuming that the parties did manage to reach agreement on Annex A and thereby completing the Agreement, would it be permissible for Ds to turn round and argue, for whatever purpose, that no deposit had been paid because the transfer of the Sum was ineffective given that the Agreement was incomplete at the time of transfer?  I do not believe that such argument will go very far. 

87. The above analysis may be applied to a case like Barclays Bank v Thomas.  A creditor would not normally intend to have a guarantee discharged before the conclusion of a fresh one. 

88. Mr Lam has made a forceful point that the parties would not have agreed to a discharge of the Loan Agreement and the Guarantees in the absence of a valid agreement.  I believe that the answer to that point is that the deposit would undoubtedly have to be repaid (under the principles of restitution) in the event, as turned out to be the case, that the Agreement remained incomplete.  Indeed, Mr Cheng is not arguing otherwise. 

89. In the premises, I hold that the Loan Agreement and the Guarantees were validly discharged. 

90. Given this conclusion and my finding that the Agreement was incomplete, there is no argument that the deposit of US$500,000 must be returned to P by D1.  Accordingly, it is not necessary to deal with the argument whether there is a valid cause of action for the return of the deposit based on the expiration of the Agreement (29 February 2012). 

91. However, out of deference to counsel’s submissions, I shall state briefly why I agree with Ds on this point.  There is no dispute that this cause of action only accrued after the writ herein was issued (1 June 2011).  I take the view that such a cause of action is plainly unsustainable in accordance with the Court of Appeal authority of Wing Siu Co Ltd v Goldquest International Ltd [2003] 2 HKC 64 (see in particular para 18 at 70I to 71B).  This court is bound by that authority.

Conclusions 

92. The consequential relief is not disputed.  In light of the findings above, this action is dismissed against D2-D5 with a costs order nisi in their favour.  There be judgment in favour of P against D1 for the sum of HK$3,900,000 with a costs order nisi in favour of P.  Interest shall be paid by D1 on that sum at prime plus 1% from 1 April 2011 and at judgment rates until payment from date of judgment.

93. Last but not least, I am grateful to counsel for their assistance in these matters.