CIRCLE RESTAURANT LTD v. JV ENTERTAINMENT PRODUCTIONS LTD

DCCJ 4275/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4275 OF 2009

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BETWEEN

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JUDGMENT

Background

1.  The Defendant by the Original Action ("JV") was at all material times the producer and promoter of "Butterflies", a Chinese musical ("Musical"), in Hong Kong. It was also authorized by the Guangzhou Post Office in China to supply a set of limited edition postal stamps featuring the Hong Kong singer Kay Tse ("Stamps"). By an agreement in writing dated 9 July 2009 ("Agreement"), JV contracted with the Plaintiff by the Original Action, then known as Why Five Ltd. ("Why Five"), to cooperate in the distribution and sale of the Stamps in Hong Kong and to sell merchandise and memorabilia relating to the Musical.

I. The Stamp Sets Dispute

2.  Under the Agreement, JV agreed to supply to Why Five 5000 sets of the Stamps, with associated postcards and folders ("Stamp Sets"), at the price of $65 per Set, and agreed to appoint Why Five as the exclusive seller of the Stamp Sets in Hong Kong.

3.  Clause 2.1.5 of the Agreement provides that upon the signing of the Agreement, Why Five is to pay a deposit of $162,500 ("Deposit"), being 50% of the total purchase price, and upon receiving the 5000 Stamp Sets, to pay the balance of $162,500 ("Balance") at the same time upon receiving the 5000 Stamp Sets. Clause 2.1.5 reads as follows:

"乙方須于雙方簽訂本合作書後繳付相等于售價的50%之訂金 (即港幣十六万二千五百元)，並于收取五千套謝安琪郵票同時，以銀行本票繳付餘額(即港幣十六万二千五百元)。"

4.  Under clause 2.1.7 of the Agreement, JV was to deliver 5000 Stamp Sets to Why Five's office in Hong Kong before 20 July 2009.

5.  It is not disputed that Why Five only paid the Deposit on 21 July 2009, and that the balance was never paid. It is also not in dispute that on 20 July 2009, only 500 complete Stamp Sets were delivered to Why Five, together with 4500 postcards and folders for the Stamp Sets.

6.  Each of JV and Why Five claims the other to be in breach of the Agreement. JV claims that Why Five failed to make payment of the balance of $162,500 due under the Agreement, whereas Why Five claims that JV had failed to deliver the 5000 complete Stamp Sets.

II. The Musical Memorabilia Dispute

7.  Under clause 2.2 of the Agreement, Why Five was authorized to sell memorabilia and other merchandise in respect of the Musical ("Memorabilia"), which includes heart-shaped pendants and USB portable drives. JV agreed under clause 2.2.2 of the Agreement to supply to Why Five photographs, songs and other promotional materials related to the Musical, for Why Five to use and incorporate into such Memorabilia, and generally for use in the promotion of the Memorabilia.

8.  JV further agreed, under clause 2.2.4 of the Agreement, to provide space and venue at the Hong Kong Cultural Centre, where the Musical was to be performed, for Why Five to sell and promote the Memorabilia. Why Five was entitled under clause 2.2.4 to choose other venue and ways to sell the Memorabilia, including sales on the internet, sales in conjunction with other products and sales with Why Five's other sales partners.

9.  Sale proceeds of the Memorabilia were to be shared equally between JV and Why Five, after deduction of the production costs (clause 2.2.5).

10.  Why Five claims that in breach of the Agreement, JV refused to permit Why Five's representatives to conduct sales of the Memorabilia at the Cultural Centre when the Musical was performed from 30 July 2009. JV denies that there was such refusal, and claims that the representatives of Why Five left the Cultural Centre on their own accord.

III. The proper party dispute

11.  At the foremost, JV claims that it had never contracted or intended to deal with Why Five. It claims that at all material times, it had intended to deal with Y5Zone Ltd. ("Y5Zone"), a separate company which has been joined as 2nd Defendant by Counterclaim. Miss Mona (or Mabel) Choi ("Mona"), the Operation Director of JV, claims that at all material times, she had contact with Mr. Billy Yeung ("Billy") who had corresponded and dealt with her as a representative of Y5Zone. JV claims in its defence that Billy had represented to Mona that Why Five was "the same as" Y5Zone. On such basis, JV claims that the Agreement should be rectified to substitute Why Five with Y5Zone as the proper party to the Agreement.

12.  Billy claims, on behalf of both Why Five and Y5Zone, that Why Five and JV were the only proper parties to the Agreement. Billy was a director of Why Five and Y5Zone. According to Billy's evidence, Why Five was at the material time in the general marketing business, whereas Y5Zone was in the wireless and internet business. The "Y5 card" and the "Y5ZONE" website were part of the assets of Y5Zone, and utilized by Y5Zone for its business.

Issues

13.  From the arguments made and the evidence relied upon at trial, the issues for determination are:

(1)   Was Why Five, or Y5Zone, the proper party to the Agreement?

(2)   Was Why Five, or JV, in breach of the Agreement in respect of the Stamp Sets Dispute?

(3)   Was JV in breach of the Agreement in relation to the Musical Memorabilia Dispute?

(4)   What are the damages payable by any party in breach?

Was Why Five, or Y5Zone, the proper party to the Agreement?

14.  Mona claims that Billy had been referred to JV by one Sammy Haze, who had described Billy as someone familiar with doing business by utilizing Wi-Fi technology and the internet.

15.  Mona claims that when she first met with Billy in June 2009 in their negotiations for cooperation on the projects for the Stamp Sets and the Musical ("Projects"), she was given Billy's name card which featured a "Y5Zone" logo, and which showed the name of the company as "Y5Zone Limited". The name card Billy gave Mona described him as Managing Director of Y5Zone. Mona also met with Miss Haily Leung ("Leung"), whose name card described her as the Marketing Director of Y5Zone. Leung's name card likewise featured the "Y5Zone" logo.

16.  After their initial meeting on about 24 June 2009 when terms of their cooperation in the Projects were discussed, Mona asked Billy and Leung to send JV a written proposal. JV relies on the fact that in the proposal and business plan ("Proposal") which was prepared by Billy and Leung and sent to Mona under cover of Leung's e-mail of 25 June 2009, references were made to Y5Zone, the "Y5ZONE Wi-Fi Account", "the Y5ZONE website", the "Y5ZONE login page" and to Y5Zone's customers and partners.

17.  It has been highlighted on behalf of JV that after the meetings in June, all the e-mails from Billy and Leung to Mona and her staff at JV bore the Y5Zone logo, and showed the name of Y5Zone at the end. The e-mail addresses of Billy and Leung incorporated "y5zone.net".

18.  It is Mona's evidence that all the above features led her to believe that she was dealing at all material times with Y5Zone, the operator of the  Y5 card and the internet business, and not Why Five.

19.  It is beyond dispute that after Leung had sent the Proposal to Mona, a draft written agreement ("Draft") was prepared by Leung's colleague, and sent by e-mail to Mona on 8 July 2009. The Draft named JV as Party A and Why Five as Party B. After some further discussion and amendments, this Draft was finalized into the Agreement. Why Five remained as Party B. The Agreement was signed by Billy, stated in the Agreement to be acting on behalf of Why Five on 9 July 2009, and by Mona on behalf of JV on 15 July 2009.

20.  Mona's evidence is that she had noted Why Five as the party named in the Draft and in the Agreement. She claims that she had asked Billy about this, and that Billy assured her that "the two were the same". Mona claims that she took this to mean that Why Five was the proper corporate name of Y5Zone, and that it was only after dispute had arisen and solicitors had been instructed that she was advised that Why Five and Y5Zone were 2 separate companies.

21.  It was argued on behalf of JV that Mona was mistaken as to the identity of the party with which JV was contracting under the Agreement, and that it was all along Mona's or JV's intention to contract with Y5Zone named in the e-mails and the name cards of Billy and Leung. It was also argued that Billy and Why Five knew of Mona's mistake, but either failed to draw the mistake to the attention of JV, or was willfully reckless, such that it would be inequitable to allow Why Five to insist on the binding effect of the Agreement.

22.  Counsel for JV accepts that the burden rests on JV to prove that JV only intended to deal and contract with Y5Zone, and that "convincing proof" is required.

23.  I am not satisfied on the evidence that Mona had only intended to enter into the Agreement with Y5Zone, and not with Why Five as the party clearly identified and named in the Draft and in the Agreement.

24.  Irrespective of the references to y5zone.net and Y5Zone in the e-mails from Billy and Leung to Mona in June and early July 2009, when the Draft was sent to Mona, it was clear and obvious that what was proposed was an agreement between JV and Why Five. The Agreement sets out the services to be provided by Why Five in the context of its promotion and sales of the Stamp Sets and the Memorabilia. These terms were reviewed, amended and then accepted by Mona on behalf of JV.

25.  Mona's own evidence is that she had all along envisaged dealing with the company which would provide Wi-Fi services and sales through the Y5 card and the internet. Her interest was in the Y5 card, with which she was not familiar, and Mona was clear in her evidence that the person she trusted was Billy, whom she believed was experienced in, and familiar with, the modern technology and how it can be used to attract sales and interest in the Projects. It is clear from her cross-examination that Mona would have signed the Agreement with either Why Five or with Y5Zone, so long as Billy was involved in the Projects and could utilize the resources described in the Proposal. Her evidence that she was prepared to accept the Agreement as it covered sales with the Y5 card and on the internet is consistent with the foregoing.

26.  There is no dispute that Billy was involved in the Projects and in the performance of the Agreement. Billy was at the material times a director of both Why Five and Y5Zone. There has been no suggestion that Why Five was not able to utilize the resources such as the Y5 card and the Y5ZONE webpage under the Agreement. The evidence of Billy and Leung is that Why Five and Y5Zone were co-operating in the sales and promotion of the Stamp Sets and the Memorabilia, with Why Five purchasing the Stamp Sets from JV and selling them to Y5Zone for sales to the public.

27.  Mona claims that when she noted the name of Why Five in the Agreement and raised query with Billy, Billy had assured her that "the two were the same". This is denied by Billy. Even if I were to accept Mona's evidence that such an assurance had been given to her by Billy, the statement that Why Five and Y5Zone were "the same" is entirely equivocal. It could mean that to have Why Five as a contracting party to the Agreement is the same as having Y5Zone as the contracting party, because the performance under the Agreement would be the same, as Why Five would be able to procure Y5Zone's services. It could mean that it was the same as Billy would be involved in the performance under the Agreement, whether Why Five or Y5Zone was the contracting party.

28.  I cannot see how it can be said that the assurance allegedly given by Billy would, in all the circumstances, indicate to an honest and reasonable man that notwithstanding the obvious appearance of the name of Why Five in the Agreement, Y5Zone was in fact or was intended by Mona and JV to be the contracting party.

29.  For all the above reasons, I do not accept that JV has proved that it had intended only to contract with Y5Zone, or that its mistake as to the contracting party was known to Billy or, as JV suggests, ought to have been known to Billy, or that Billy was willfully and recklessly blind to JV's obvious mistake. Nor do I accept that it was reasonable for Mona and JV to have relied on any alleged representation made by Billy that Why Five and Y5Zone were the same companies.

30.  I therefore reject JV's claim of rectification of the Agreement.

Was Why Five, or JV, in breach of the Agreement in respect of the Stamp Sets Dispute?

31.  The parties in this case are in serious dispute on the facts, as to the circumstances of delivery and time for payment of the Stamp Sets. The testimony of the witnesses is, as is usual in such a case, polar and their recollection imprecise and incomplete.

32.  It is not disputed that the Agreement provides that the Deposit was to be paid by Why Five upon the signing of the Agreement. The Agreement was signed by Billy on 9 July 2009 and by Mona on about 15 July 2009. It is also not in dispute that the Stamp Sets were to be delivered to Why Five under the Agreement by 20 July 2009. Although clause 2.1.5 of the Agreement provides that the Balance was to be paid by cashier order at the same time as the delivery of the 5000 Stamp Sets, Why Five only made payment of the Deposit on 21 July 2009.

33.  Why Five's claim is that payment of the Deposit had been extended by agreement to 21 July 2009, and that the reason why Why Five did not pay the Balance was the fact that JV only delivered 4500 sets without the Stamps, and only 500 complete Stamp Sets.

34.  Mona's evidence is that Billy and Leung had been pressing for the delivery of the Stamp Sets, to prepare for their sale at the Book Fair scheduled to start on 22 July 2009. To accommodate them, JV delivered to Why Five on 20 July 2009 500 Stamp Sets and 4500 sets with post cards, folders and plastic sheets for insertion of the Stamps, but Mona withheld 4500 Stamps since no payment had been received by that time. On 21 July 2009, the Deposit was received and Mona claims that Billy had called her and promised to pay the Balance before 23 July 2009. According to Mona, Billy explained that he had not been able to obtain the necessary funds from his partner, and could only pay the Deposit, but asked when he could get the remaining Stamps. Mona claims that she informed Billy that the Stamps were in JV's office and that he could collect them when the cheque for the Balance was ready.

35.  According to JV's evidence, Why Five did not take delivery of the 4500 Stamps as it did not have the money to pay for the Balance, and Billy had repeatedly sought extensions of time for such payment.

36.  In a case such as this where there are serious disputes on the facts, I find it more useful to rely on such contemporaneous documents as do exist and to compare the witnesses' evidence with such contemporaneous documentation as an aid to test the reliability of the oral testimony of witnesses. This is because the parties' evidence by the time of trial is often affected not only by lapse of time but by their subjective interpretation of the issues in dispute and their perception of the parties' rights and wrongs. In this case in particular, where the parties have not been able to present all the relevant facts and documents in a consistent manner, I prefer to place more reliance on the contemporaneous documents which appear to me to be more reliable than the witnesses' accounts and recollection of the oral discussions held some time ago, their retrospective interpretation of the meaning and effect of the payments made and their unilateral declaration of their intention in making the payments and taking various steps.

37.  So far as the contemporaneous documents are concerned, an e-mail was sent by Leung to Miss Tina Cheung ("Tina") of JV on 16 July 2009, asking for delivery of the 5000 Stamp Sets to an address in Kwun Tong, and asking for confirmation of the time of delivery and the number of cartons in the morning of 20 July 2009. On 17 July 2009, at 10:50 am, Leung emailed Tina again, as follows:

"Could you please confirm if the deposit for the 5000 stamps should be payable to JV Entertainment Productions Ltd."

38.  On 17 July 2009, at about 2 pm, Tina sent an email to Leung, asking for a cashier order to be prepared for JV before 21 July 2009. The email reads:

"請於2009年7 月21日前，準備銀行本票予本司。因我們需要向郵政有關方面交代。"

39.  It is not in dispute between the parties that the Stamp Sets had been delivered to the Kwun Tong address specified by Leung in the morning of 20 July 2009, but had to be sent back as Why Five could not make arrangements to take delivery at Kwun Tong. They were finally delivered in the afternoon of the same day.

40.  On the same day of the delivery on 20 July 2009, there were SMS messages exchanged between Mona and Leung, as evidenced by Mona's telephone record. Leung first sent a text to Mona to confirm receipt of the sets with folders and asked when the Stamps would be received. Mona replied by asking when the cashier order would be received that day (on 20 July 2009). In response, there was a text message from Leung to say that she had reminded Billy to make arrangements, and that he would follow up with Mona.

41.  On 21 July 2009, at about 1:22 pm, Leung emailed Tina to enclose a bank in slip to evidence the payment of the Deposit at 1:04 pm that day. In the e-mail, Leung asked when the Stamps could be delivered to their office.

42.  On 24 July 2009 at about 5:30 pm, Mona emailed Leung to ask when the cheque for the Balance would be received. On 27 July 2009, at about 4:51 pm, Leung emailed Mona to say that Billy was not in the office, and she had informed him about the cheque. This was followed by an e-mail from Tina to Leung at 5:10 pm on 27 July 2009, in which Tina asked when the cheque could be received, and that the cheque must be received before Thursday, as it had been late for many days.

43.  Leung relies on the e-mail from Tina of 17 July 2009 to support JV's claim that the time for payment of the Deposit had been extended, to refute the claim that the payment of the Deposit was late according to clause 2.1.5 of the Agreement. The alleged extension is denied by Tina, who claims that she had only spoken to Leung on the telephone in the morning of 17 July 2009, to confirm that the payment of the Deposit should be made payable to JV. According to Tina, her e-mail in the afternoon of 17 July 2009 was not in response to any request for extension of time to make payment, but a reminder to Leung to have a cashier order ready before 21 July 2009, in accordance with the Agreement.

44.  I agree with Counsel for JV that Tina's e-mail of 17 July 2009 does not appear to support Why Five's claim of an extension of time to make payment of either the Deposit or the Balance. It was simply a reminder for payment to be made before 21 July 2009, when delivery was scheduled under the Agreement to take place on 20 July 2009.

45.  The contemporaneous emails and text messages exchanged between the parties support JV's case that JV had been pressing for payment of the amounts due under the Agreement. I find it improbable that if Why Five was in a position to pay the Balance after 21 July 2009, they would not press for the delivery or release of the 4500 Stamps, particularly when the sale of the Stamp Sets was scheduled to take place at the Book Fair commencing on 22/23 July 2009. Yet, surprisingly, after 21 July 2009, there was no e-mail from Why Five to seek delivery of the 4500 Stamps, or to make arrangements with JV for payment to be made against JV's delivery of the outstanding Stamps, despite JV's repeated requests for payment on 24th and 27 July 2009. Nor has either Billy or Leung deposed to their having made demands on JV for delivery of the Stamps, or offered to make payment against delivery, during this period.

46.  If, as Why Five alleges, Why Five had been able to make payment of the Balance at any time, but had failed to do so because it was JV which was in fact at breach in not having delivered the 4500 Stamps, I find it just as surprising that when Mona and JV's representatives later complained about Why Five's default in payment of the Balance on 31 July 2009 when the Musical was performed at the Cultural Centre, and (on Why Five's case) refused to let Why Five carry out its sales of the Memorabilia at the Centre, Why Five could have accepted the situation and left without protest. This will be dealt with in a more detailed manner under the next issue.

47.  Overall, in the light of all the evidence, I consider it inherently improbable and hence unbelievable that Why Five withheld payment of the Balance by reason of any breach on JV's part in failing to make delivery of the 5000 Stamp Sets on 20 July 2009. JV was not obliged under the Agreement to deliver the Stamp Sets on 20 July 2009 without payment of either the Deposit or the Balance, but it did deliver 500 Stamp Sets and 4500 incomplete sets. By failing to make payment of the Balance by 21 July 2009 at the latest, or within the time stipulated in JV's e-mail of 27 July 2009, Why Five was in breach of the Agreement.

Was JV in breach of the Agreement in relation to the Musical Memorabilia Dispute?

48.  On this issue, there are no contemporaneous documents relating to the events at the Cultural Centre on 30 July 2009.

49.  Leung claims that as they were setting up a sales booth at the Cultural Centre in the evening of 30 July 2009, she was informed by Miss Choi of JV that as JV had not received the Balance, Leung and her team were not allowed to sell the Memorabilia. Leung also claims that she was asked by Tina of JV to leave before the Musical commenced, such that Leung's team were not able to sell any merchandise that evening.

50.  On JV's part, it is claimed that Mona had been trying to speak with Billy on the telephone on 30 July 2009 with regard to the outstanding Balance, but had not been able to do so. A telephone conversation which was commenced in the course of preparations at the Cultural Centre was interrupted. Mona and Tina claim that they asked Leung to contact Billy and to get Billy to speak with Mona. Tina claims that as they were not able to contact Billy to discuss the outstanding Balance, she informed Leung that JV was put in a very difficult position, but she had only asked Leung to consider stopping their sales of the Memorabilia after the performance of the Musical had started, until Billy could speak with Mona, or until the next day.

51.  Having considered the evidence, I consider it improbable that Tina would have made such a vague suggestion to Leung, to stop their sales "temporarily". It is more probable than not that Tina and her team had made Leung understand that they would not be able to conduct sales of the Memorabilia at the Cultural Centre that evening, because of Why Five's failure to make payment of the Balance in respect of the Stamp Sets. Leung claims that she spoke to Billy on the telephone, and was told by Billy that they had no alternative but to leave. In this regard, it is clear that both Billy and Leung accepted that evening that they were in default in having failed to make payment of the Balance, and that JV would not permit them to sell the Memorabilia as a result of their default in payment. As explained in the preceding paragraphs, I find it surprising that Billy and Leung would, without protest, accept their being turned away from their sales activities at the Cultural Centre, if they had indeed taken the view that it was JV which was at breach and that Why Five was entitled to withhold payment under the Agreement.

52.  In its Defence and Counterclaim, JV has not pleaded that it was entitled to refuse to permit Why Five to carry out sales of the Memorabilia as a result of Why Five's breach in failing to pay the Balance for the Stamp Sets. It only denies that it had turned Leung and her team away, and challenges the quantum of damages suffered by Why Five as a result of its breach.

What are the damages payable by any party in breach?

53.  I have found that Why Five was in breach of the Agreement in failing to pay for the Balance, and in failing to take delivery of the 4500 Stamps. I accept that the property in 500 Stamps and the 4500 incomplete sets of folders and postcards, which had been delivered to and accepted by Why Five, had passed to Why Five. I also accept, on the evidence, that the 4500 Stamps which were delivered to JV's office and retained in its office for collection by Why Five had been appropriated to the Agreement with Why Five's implied consent. The property in these Stamps had likewise passed to Why Five. Accordingly, Why Five is liable to pay to JV the Balance of the price under the Agreement.

54.  JV accepts that it will deliver the 4500 Stamps to Why Five upon receipt of the Balance.

55.  Why Five claims that as a result of their being turned away from the Cultural Centre on 30 July 2009, it has suffered loss of profits in the sale of the Memorabilia, calculated to be $57,369.70. Under clause 2.2.5 of the Agreement, the profits were to be shared equally between JV and Why Five. Hence, Why Five claims its half share of $57,369.70, in the sum of $28,684.85.

56.  Under the Agreement, Why Five was entitled to sell the Memorabilia at any venue and by any method, and was not restricted to selling the Memorabilia at the Cultural Centre during the performance of the Musical. There is no evidence that JV had in any way prohibited Why Five from selling the Memorabilia at any time after 30 July 2009. Billy and Leung accept in their evidence that they chose not to undertake any further sales of the Memorabilia.

57.  Why Five has not adduced any evidence that the Memorabilia had no value after 30 July 2009, or that the Memorabilia could not be sold for any reason after 30 July 2009, or before 30 July 2009 as a result of any breach on the part of JV. I am not satisfied that Why Five has discharged its burden of proving that the damages sought in the sum of $28,684.85 are sustained as a result of JV's breach. I reject its claim for damages.

Conclusion

58.  I disallow Why Five's claims against JV for damages for breach of contract.

59.  I reject JV's claim for rectification of the Agreement, but allow its claim against Why Five for the sum of $162,500 as the outstanding Balance payable under the Agreement, with interest at Hong Kong prime rate from the date of the Writ and Statement of Claim to the date of judgment. Thereafter, there will be interest on the judgment sum at the judgment rate until payment. JV consents to an order that it should deliver the 4500 Stamps to Why Five upon the latter's payment of the Balance sought, and I order that the same be delivered by JV upon Why Five’s payment of the Balance and interest, as awarded.

60.  Bearing in mind the orders made, I consider that a fair order for costs would be for Why Five to pay to JV 75% of the costs of the Original Action and of the Counterclaim, to be taxed if not agreed, with certificate for Counsel, and I will make an order nisi to such effect. The order nisi is to be made absolute after 14 days in the absence of any application for variation of the order on costs.