NGAN, WANG SANG t/a TIN WO TONG MEDICINE, also known as TIN WO TONG MEDICINE HONG v. CHANG BO KWONG CHRIS AND ANOTHER

DCCJ 23/2021

[2023] HKDC 1496

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 23 OF 2021

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JUDGMENT

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Introduction

1.  The plaintiff claims against the 1^st and 2^nd defendants (collectively “the defendants”) for damages of HK$180,000 as a result of the 2^nd defendant’s breach of the agreement in failing to deliver on the agreed date of delivery 1,000 boxes of surgical masks purchased by the plaintiff and also that the defendants failed to refund the purchase price of HK$180,000 to the plaintiff as agreed.

2.  The plaintiff is a sole proprietor dealing in medicine and cosmetics retail. The 2^nd defendant is a limited company incorporated in Hong Kong on 12 March 2020. The 1^st defendant was and is at the material times the sole director of 2^nd defendant.

3.  The plaintiff’s witness Madam Joanna Ngan (“Madam Ngan”), the daughter of the plaintiff, gave evidence in support of plaintiff’s case. The defendants however did not appear in the pre-trial review nor the present trial hearing in spite of the fact that the plaintiff has duly notified the defendants of the present trial hearing by serving them all the relevant documents and orders.

4.  The defendants have all along been represented by their then instructing solicitors Messrs Eva Kwok & Co Solicitors until 11 July 2023 on which date the defendants’ then instructing solicitors have served a notice to cease to represent the defendants, sometime prior to the pre-trial hearing. No notice to act in person has ever been filed by the defendants.

5.  The plaintiff has served to the defendants’ last known addresses the Opening submissions and Trial bundles with covering letter in which it clearly stated the trial hearing date and time to the defendants by registered post and personal service pursuant to O 67, r 7 of the Rules of District Court, Cap 336H. There is no return mail. The said last known addresses of the defendants were the same addresses stated in the Certificate of Service filed by the defendants’ then Instructing Solicitors on 31 July 2023 in which they had sent the Order to cease to act for the defendants in the present proceedings.

6.  In the premises, this court, having been satisfied that sufficient notice has been given by the plaintiff to the defendants for attending the trial hearing and also that the defendants must have been well informed of the date of the present trial hearing by their then counsel and Instructing Solicitors who were representing the defendants in the Case Management Conference before Master Maurice Lam on 18 August 2022 in which the dates for the pre-trial review and present trial hearing had been set down, directed the present trial hearing to proceed in the absence of the defendants, pursuant to O 35, r 1(2), Rules of District Court, Cap 336H.

Background of the case

7.  On or about 14 March 2020, the plaintiff entered into an agreement (“the Agreement”) by his daughter Madam Ngan as the plaintiff’s authorized representative with the 1^st defendant, the sole director on behalf of the 2^nd defendant, for purchasing 1,000 boxes of the “SafeShield” surgical face masks (“the Masks”) at the price of HK$180,000 (“the Purchase Price”). The Agreement was evidenced by WhatsApp messages and an invoice issued by the 2^nd defendant to the plaintiff (“the Original Invoice”), in which, among other terms, parties has agreed and provided in its “Description” box that “estimated time of arrival” of the Masks would be the week of 20 March 2020 and that the plaintiff shall receive full refund in case the Masks are out of stock (“the Refund Clause”). Parties had also agreed that Madam Ngan would go to the 2^nd defendant’s warehouse to pick up the Masks.

8.  On 16 March 2020, the plaintiff has paid and transferred to the personal account of the 1^st defendant the full amount of the Purchase Price for the Masks upon the request of the 1^st defendant with his assurance that the delivery date of the Masks would not be delayed and also that so long as the Purchase Price was successfully paid, the Masks would be taken out from the 1^st batch of the surgical masks to be delivered to Hong Kong on Friday, ie 20 March 2020.

9.  According to the plaintiff’s case, time was of the essence for the delivery of the Masks since the Agreement was concluded in the midst of pandemic and it would make more commercial sense to interpret that way. On behalf of the plaintiff, Madam Ngan on 16 March 2023 requested the 1^st defendant to amend the Original Invoice by removing from it the “estimated time of arrival” of the Masks and inserting into it “client shall receive full refund in case goods above are out of stock on/before 23 March 2020” (“the Amended Invoice”).

10.  On or about 20 March 2020, upon the enquiry by Madam Ngan via WhatsApp message, the 1^st defendant informed Madam Ngan that the Indian government would impose a ban on export of surgical masks on the following day, ie 21 March 2020. On the agreed date of delivery, ie 23 March 2020, the Masks were not available in stock for the plaintiff. The plaintiff accepted the repudiation by asking for refund of the Purchase Price for the first time.

11.  On 4 April 2020, after Madam Ngan had on behalf of the plaintiff demanded for a full refund of the Purchase Price if the Masks could not be delivered by 16 April 2020, 1^st defendant replied that he would try his best. Fortunately, the plaintiff on the other hand managed to order surgical masks in substitution directly from an Indian supplier at a lower price in April 2020. On or about 2 May 2020, since the defendants failed to deliver the Masks to the plaintiff or refund the Purchase price, Madam Ngan has contacted 1^st defendant via WhatsApp that the plaintiff would demand for a full refund if the Masks could not be delivered by 15 May 2020.

12.  Further on or about 29 May 2020, Madam Ngan has contacted and demanded the 1^st defendant that the Purchase Price should be paid back in full by 30 June 2020. The 1^st defendant replied that he would “try his best”. Finally on 3 July 2020, Madam Ngan has contacted 1^st defendant again to further demand the Purchase Price be paid back by 15 July 2020, failing which the plaintiff might take legal action against the defendants.

13.  The plaintiff has accepted the defendants’ repudiation of the Agreement and such acceptance has been communicated by the relevant WhatsApp messages and telephone conversation between Madam Ngan and the 1^st defendant.

Plaintiff’s claim

14.  In the present proceedings, the plaintiff’s claim against the 1^st defendant is in four folds: (i) for holding the Purchase Price for the specific purpose on Quistclose trust for the plaintiff; (ii) for holding the Purchase Price on common intention constructive trust for the plaintiff; (iii) for holding the Purchase Price on resulting trust for the plaintiff; and (iv) for being unjustly enriched by the Purchase Price.

15.  And the plaintiff’s claim against the 2^nd defendant is in two folds: (i) for refund of the Purchase Price with interest arising from the breach of Agreement committed by the 2^nd defendant, ie failing to deliver to the plaintiff the Masks on the agreed date of delivery; and (ii) for recovery of the 2^nd defendant’s unjust enrichment of the Purchase Price caused by total failure of consideration.

Issues in dispute

16.  According to the Statement of Issues exchanged between the parties’ solicitors, the issues in dispute could be summarized as follow: -

(1)  Whether the Agreement was entered into between 2^nd defendant and Madam Ngan in her personal capacity or on behalf of the plaintiff;

(2)  Whether time was of the essence for the Agreement, and accordingly, whether the 2^nd defendant breached the Agreement by failing to deliver the Masks on 23 March 2020; and

(3)  Whether the plaintiff is entitled to the refund of the Purchase Price for total failure of consideration, and/or by reason of the principle of resulting trust, Quistclose trust and/or constructive trust.

17.  The defendants denied that time was of the essence in the Agreement and contended that the Refund clause was not triggered as the Masks were in stock in India on 23 March 2020. Alternatively, the defendants’ pleaded case was that the Agreement had been discharged due to impossibility. However, the defendants no longer pursued this argument in their Statement of Issues.

Analysis

Capacity of Madam Ngan in entering into the Agreement

18.  It is the defendants’ case that they entered into the Agreement with Madam Ngan in her personal capacity but not with the plaintiff. The undisputed facts in the present case were that the name of Madam Ngan and her residential address were written in the Original and Amended Invoices instead of the name and its business office address of the plaintiff. At the hearing, the plaintiff’s witness Madam Ngan reconfirmed her evidence that she has all along been helping her father in the plaintiff’s business and she did tell the 1^st defendant that she had been sourcing face mask for the plaintiff’s company. Moreover, at the material times since the outbreak of Covid-19, Madam Ngan did not attend the plaintiff’s business office but worked from home. She used her own name and her residential address as corresponding address in the Original and Amended Invoices so that the sample masks and business documents would be delivered to her home address instead of the plaintiff’s office address. In this context, this court accepted plaintiff’s case that Madam Ngan has, at all material times, represented for the plaintiff in its dealings with 1^st defendant on behalf of 2^nd defendant, and this was well known to the defendants and acknowledged by them throughout the course of negotiation. This could be evidenced by the contemporaneous WhatsApp messages between Madam Ngan and the 1^st defendant in which Madam Ngan had repeatedly mentioned that she was purchasing the Masks for and on behalf of the plaintiff and also that she needed to report and provide update to her boss or the CFO of the plaintiff regarding placing order of the Masks and the issue of refund of the Purchase Price. These were all acknowledged by the 1^st defendant in his relevant WhatsApp messages in reply.

19.  In the premises, on the balance of probability, this court is convinced by Madam Ngan’s evidence that she was representing the plaintiff to negotiate and later enter into the Agreement with the 1^st defendant who was at the material time acting for 2^nd defendant.

Breach of the Agreement

20.  It is the plaintiff’s primary case that time was of the essence in the Agreement and therefore the 2^nd defendant was in breach of the Agreement in failing to provide the Masks for the plaintiff to pick up on 23 March 2023. It was Madam Ngan’s evidence that she on 14 March 2023 took initiative to request the 1^st defendant to insert the Refund Clause in the term that “estimated time of arrival” of the Masks to be the week of 20 March 2020 and that “Client (ie the plaintiff) shall receive full refund in case the Masks are out of stock”. Further, on 16 March 2023, upon the request from the 1^st defendant for transferring the full Purchase Price to the 2^nd defendant and also upon 1^st defendant’s assurance that the Masks would be delivered to the plaintiff on or before 23 March 2020 and that the 2^nd defendant would arrange the Masks from the 1^st batch of masks that the 2^nd defendant had ordered, Madam Ngan had again requested the 1^st defendant to amend the Refund Clause in the Original Invoice as “client shall receive full refund in case goods above are out of stock on/before 23 March 2020” (“the Amended Refund Clause”).

21.  Ms Li, counsel for the plaintiff has referred this court to United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 at 950E which reads: -

“In commercial transactions, provisions as to time are usually but not always regarded as being of the essence of the contract. The are certainly so regarded where the subject matter of the contract is the acquisition of a wasting asset or of a perishable commodity or is something likely to change rapidly in value. In such cases if, eg the seller fails to deliver within the time specified in the contract, the buyer well be seriously prejudiced.” (emphasis added)

22.  There is no requirement that the phrase “time is of the essence” should be expressly provided in the contract verbatim. Time is still of the essence if a contract simply provides that the innocent party is entitled to terminate in the event of one party’s failure to perform within the stipulated time. In the present action, this court accepted Madam Ngan’s evidence that at that material times it was the common knowledge of the plaintiff and defendants that the price of the surgical masks in the market would be fluctuated rapidly according to the circumstances of pandemic. Madam Ngan and the 1^st defendant were well aware of that and therefore Madam Ngan requested to put down the Refund Clause in the Original Invoice issued by the 2^nd defendant and informed the 1^st defendant that she would pick up the Masks at 2^nd defendant’s warehouse. It expressly ascribed the consequence of failure to deliver the Masks on 23 March 2020 and the plaintiff was entitled to be refunded the full Purchase Price. In other words, the Agreement had been terminated due to the failure in delivering the Masks.

23.  In this circumstance, I am convinced by the plaintiff’s submission that the insertion of the Refund Clause with a specified date of delivery and the further amendments of it to revise the delivery date which accordingly showed that the Refund Clause was in effect a clause stipulating time for delivery of the Masks to the plaintiff and the consequence of failing to do the same, ie a full refund of Purchase Price to plaintiff. Hence, time was clearly of the essence for the Agreement by reason of the Refund Clause.

24.  In the premises, time was of the essence in the Agreement, and the 2^nd defendant had breached the Agreement by failing to ensure that the Masks were in stock with 2^nd defendant in Hong Kong on 23 March 2020 as stipulated in the Refund Clause. It was a breach of the main agreed term of Agreement. Hence, the plaintiff is entitled to be refunded of the Purchase Price.

25.  I also accepted Ms Li’s submission that the fact that the plaintiff had allowed multiple time extensions for the delivery of the Masks and refund of the Purchase Price, did not assist the defendants’ case because in any event the defendants did not provide or deliver the Masks on or before 23 March 2020 or the last extended date of 15 May 2020, or refund the Purchase Price on or before the last extended date of 15 July 2020.

26.  Besides, I do not accept the pleaded defence which averred the Refund Clause has not been triggered as the Masks were in stock with 2^nd defendant’s supplier in India. First, there was in fact no mention of any Indian supplier in both the Original and Amended Invoices. The pleaded defence also contradicted to the contemporaneous WhatsApp messages sent by 1^st defendant on 16 March 2023 requesting Madam Ngan to deposit the full Purchase Price of the Masks to his bank account to ensure the date of delivery of the Masks would not be delayed and so long as the Purchase Price was successfully paid, the Masks would be taken out from the 1^st batch of surgical masks to be delivered to Hong Kong on Friday (ie 20 March 2020). In this circumstance, I accepted the plaintiff’s submission that the plaintiff only contracted with 2^nd defendant and did not have any contractual relationship with 2^nd defendant’s supplier in India, and the Masks should be made available to the plaintiff in Hong Kong on the agreed dates.

Unjust Enrichment

27.  The leading authority on unjust enrichment is Shanghai Tongji Science & Technology Industrial Company Ltd v Casil Clearing Limited [2004] 7 HKCFAR 79, (which was followed and applied in Takahashi v Cheng Zhen Shu [2011] 14 HKCFAR 558), the Court of Final Appeal held that:

“66. The common law cause of action asserted by the plaintiff for money had and received where consideration has totally failed is now generally regarded as a species of claim for restitution based upon principles of unjust enrichment……

67. A useful framework for approaching such claims which was adopted by the parties involves asking four questions: (a) Was the defendant enriched? (b) Was the enrichment at the plaintiff’s expenses? (c) Was the enrichment unjust? (d) Are any of the defence applicable?

…

79. Consideration in the context of a restitutionary claim based on total failure of consideration is the anticipated performance for which the money was paid, or the basis or purpose of the payment…… ‘The money was paid to secure performance and, if performance fails the inducement which brought about the payment is not fulfilled.’”

28.  In the present case, I am convinced by the evidence of Madam Ngan which corresponds to those WhatsApp written messages between her and the 1^st defendant, which showed that Madam Ngan at the material times had the sole intention to transfer the payment on behalf of the plaintiff to 1^st defendant as the Purchase Price of the Masks purchased from 2^nd defendant via 1^st defendant’s personal account upon 1^st defendant’s request since the 2^nd defendant was then a new establishment which did not have a company bank account yet. The defendants thereby were wholly enriched by the transfer of the Purchase Price at the expenses of the plaintiff. There was no evidence that the agreed 1,000 boxes of Masks were available in stock for the plaintiff on 23 March 2020 and thereby the defendants failed to furnish good consideration for its enrichment of the said HK$180,000. It was simply unjust to the plaintiff without any consideration furnished by defendants for the transfer of money. Hence, the plaintiff should be entitled to restitution to recover the Purchase Price paid to the defendants.

29.  The defendants in fact did not plead change of position or any other defence to restitution. I also accepted Ms Li’s submission that the fact that the plaintiff had allowed multiple time extensions for the delivery of the Masks and refund of the Purchase Price did not constitute a change of position and the defendants in any event did not deliver the Masks on or before the last extended date of 15 May 2020 or refund the Purchase Price on or before the last extended date of 15 July 2020.

Resulting Trust/Quistclose Trust/Constructive Trust

30.  As the 2^nd defendant did not have any company bank account at the material times when the Agreement was entered into, the 1^st defendant requested Madam Ngan of the plaintiff to deposit the Purchase Price into 1^st defendant’s personal bank account. On this, the plaintiff further submits that the 1^st defendant holds the Purchase Price on resulting trust and/or Quistclose trust and/or constructive trust for the plaintiff.

31.  The concept of resulting trust was best summarized in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 in which Lord Browne-Wilkinson set out the law in the following terms (at pg 708A-B): -

“Under existing law a resulting trust arises in two sets of circumstances: (A) where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions. It is important to stress that this is only a presumption, which presumption is easily rebutted either by the counter presumption of advancement or buy direct evidence of A’s intention to make an outright transfer… (B) Where A transfers property to B on express trusts, but the trusts declared do not exhaust the whole beneficial interest… Both types of resulting trust are traditionally regarded as examples of trusts giving effect to the common intention of the parties. A resulting trust is not imposed by law against the intentions of the trustee (as is a constructive trust) but gives effect to his presumed intention.”

32.  In the present proceedings, the plaintiff’s claim was not based on an express trust, hence, it did not fall into category B of the resulting trust as propounded in Westeutsche Landesbank. The plaintiff’s case falls into type A instead, ie where Madam Ngan on behalf of the plaintiff made the full payment of the Purchase Price for the Masks to 1^st defendant, it was vested in the 1^st defendant. Upon the failure of 2^nd defendant’s delivery of the Masks on 23 March 2020 or the further extension date of 15 May 2020, resulting in the repudiation of the Agreement, the specific purpose for the 1^st defendant to hold the Purchase Price of the Masks has failed. The Purchase Price was then held in resulting trust for the plaintiff and the plaintiff shall be entitled for a refund of the Purchase Price. In the premises, this court accepts that a resulting trust would operate in favour of the plaintiff against 1^st defendant.

33.  In determining whether there is a Quistclose trust, the plaintiff counsel refers this court to the central question which states from Lewin on Trusts, 19^th ed, Sweet & Maxwell at para 8-048 that “whether the parties intended the money to be at the free disposal of the recipient and his freedom to dispose of the money is necessarily excluded by an arrangement that the money should be used exclusively for the stated purpose.”

34.  The plaintiff submits that it was the common intention and agreement among Madam Ngan, plaintiff, 1^st defendant and 2^nd defendant that 1^st defendant would hold the Purchase Price on trust for the specific purpose of deposit for the Masks pursuant to the Agreement entered into by plaintiff and 2^nd defendant. In this context, this court is convinced by the plaintiff’s contention in particular when considering there was a specific Refund Clause expressly stipulated in the Amended Invoice that “Client shall receive full refund in case goods above are out of stock on/before 23 March 2020.” This provision was inserted as a result of the parties’ discussion. As such, 1^st defendant was not free to dispose of the money paid into his account as the Purchase Price of the Masks with specific purpose.

35.  The second requirement constituting a Quistclose trust is that “a requirement to keep moneys separate is normally an indicator that they are impressed with a trust and the absence of such a requirement, if there are no other indicators, normally negatives it.” (Lewin on Trusts, 19^th ed, Sweet & Maxwell at paras 8-065). In the present case, as admitted by the plaintiff, there is no such evidence before this court as to whether the Purchase Price was so set aside by the 1^st defendant and put into a special account separated from 1^st defendant’s other monies, hence, I am not satisfied that the plaintiff case falls within the ambits of a Quistclose trust.

36.  As for common intention constructive trust, the relevant law is summarized in Mo Ying v Brillex Development Ltd [2014] 3 HKLRD 224 that there could be express common intention constructive trust as well as inferred one (paras 33-40). In this regard, however, there is no explanation by the plaintiff as to how and under what circumstances a constructive trust was operated between the plaintiff and 1^st defendant and also how it was operated in plaintiff’s favour. The court will not go into an analysis of whether the plaintiff would have a cause of action in constructive trust.

Frustration

37.  Further, this court agreed with the plaintiff’s submission that this court does not need to go into details regarding the law governing frustration as the defendants no longer consider it an issue in dispute in the Parties’ Statement of Issues despite it forming part of their pleaded defence case. In any event, pursuant to section 16 of Law Amendment and Reform (Consolidation) Ordinance, Cap 23, money paid upon a contract governed by Hong Kong law which has become frustrated can be recovered regardless of whether there has been any total failure of consideration.

38.  By reason of the aforesaid, I rule that judgment be entered in favour of the plaintiff and the defendants are therefore liable to pay the sum of HK$180,000 to the plaintiff with interest and costs.

Interest

39.  Relying on the principle laid down in Hong Kong Civil Procedure 2023 para 6/L/10 that interests are awarded to the plaintiff to compensate for being kept out of the money which ought to have been paid by defendants, counsel for the plaintiff submits that the plaintiff should be entitled the pre-judgement interest. The standard commercial rate is 1% above the prime rate. In this regard, having considered and applied the case authorities of Changgang Dunxin Enterprise Co Ltd (In Liquidation) v 北京精准溝通傳媒科技股份有限公司 [2022] HKCFI 2646 and Roxy Management Co Ltd v Hoopeston Ltd [2022] HKDC 75, I order that judgment in favour of the plaintiff in the sum of HK$180,000, with interest thereon at 1% above the Best Lending Rate quoted by HSBC from time to time from the date of the writ to date, and thereafter at judgment rate until date of payment.

Costs

40.  Costs of the present proceedings shall follow the event. Although there appears two counsel (ie Mr Taylor Li and Ms Polly Li) in the plaintiff’s Opening and Closing submissions, Ms Li is the counsel appearing in the trial hearing. Further, considering the relatively straight forward nature on the facts and the amounts claimed in the present action, it is appropriate to allow one certificate for counsel.

41.  In the premises, the defendants shall pay to the plaintiff the costs of the proceedings (including the costs be reserved) and the trial hearing on party and party basis with one certificate for counsel, to be taxed if not agreed.

42.  The above costs order is made on nisi basis. Unless an application is made within 14 days hereof to vary this costs order, this order shall become absolute 14 days hereafter.

Conclusion

43.  In conclusion, this court holds that (1) the 1^st and 2^nd defendants do pay the plaintiff damages in the sum of HK$180,000 with interest thereon at 1% above the Best Lending Rate quoted by HSBC from time to time from the date of the writ to date, and thereafter at judgment rate until date of payment; and (2) there be costs order nisi that the 1^st and 2^nd defendants do pay to the plaintiff the costs of the present action (including costs be reserved) and the trial hearing on party and party basis with one certificate for counsel, to be taxed if not agreed. Unless an application is made within 14 days hereof to vary this costs order, this order shall become absolute 14 days hereafter.

44.  Lastly, I thank the plaintiff’s counsel and their instructing solicitors for their assistance rendered to me in these proceedings.