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DCCJ 3238/2009
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO. 3238 OF 2009
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BETWEEN
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LAU MUNG LAM |
Plaintiff |
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and
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ICHI STAR LIMITED formerly known as CARS’ MATE LIMITED |
1st Defendant |
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WONG YUET LING JOJO trading as BEAUTY STATION |
2nd Defendant |
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Before: His Hon Judge Leung in Court
Date of Hearing: 27, 28 March 2012
Date of Judgment: 23 May 2012
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J U D G M E N T
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1. The plaintiff (“Lau”) used to be a customer of the 1st defendant from which she had purchased and prepaid for beauty treatment packages. The 1st defendant ceased business; and in its place the 2nd defendant commenced a similar business at the same address. This is Lau’s claim against the defendants for the unused value of the packages.
BACKGROUND
2. In 2004 or 2005, Lau became a customer of the 1st defendant which operated a beauty treatment business in the name of “Fit & Chic Bodyshape” or “Fit 型堂” (“Fit & Chic”) in Mongkok, Kowloon. She had purchased and prepaid tens of thousands for beauty treatment packages from Fit & Chic.
3. In about April 2009, the 1st defendant ceased its business; and replacing it at the same address was a business in the name of “Beauty Station or “美之駅” (“Beauty Station”). The 2nd defendant was the proprietor of Beauty Station.
4. Lau claims that the 1st defendant was in breach of contract by evincing an intention not to provide the services covered by the packages already paid for.
5. Lau also claims that as the transferee of the business of the 1st defendant, the 2nd defendant becomes liable for the debts and obligations of the 1st defendant that arose out of its business pursuant to section 3 of the Transfer of Business (Protection of Creditors) Ordinance, Cap 49 (“the Ordinance”).
6. In default of appearance, the 1st defendant was adjudged liable to Lau for damages to be assessed on 23 September 2009. This trial concerns whether the 2nd defendant is liable pursuant to the Ordinance as well. The assessment of damages of course concerns both defendants.
LIABILITY OF THE 1ST DEFENDANT
7. Where a party has, by his act or default, disabled himself from performing his contractual obligations in some essential respect, the other party will be entitled to treat himself as discharged: see Chitty on Contract (13th ed) Vol.1 at §24-028.
8. The primary obligation of the party in default to perform any of the promises made by him and remaining unperformed come to an end, and is substituted by the secondary obligation to compensate the innocent party for the loss sustained as a result of the unperformed primary obligation: see Chitty on Contracts (above) at §24-052.
9. In the present case, by resigning from the subsisting contract to provide the beauty treatments fully paid for by Lau, the 1st defendant was rightly taken to have evinced an intention not to perform the contract with Lau.
10. In view of the default judgment, the 1st defendant’s liability strictly is no longer in issue. In any event, the 1st defendant is rightly liable to Lau for damages that should at least be equivalent to the unused value of the treatment packages fully prepaid.
LIABILITY OF THE 2ND DEFENDANT
Liability under the Ordinance
11. Section 2 of the Ordinance defines transfer to mean the transfer or sale of a business, but does not include the sale of the stock-in-trade of a business in the ordinary course of its trade.
12. Section 3 of the Ordinance read as follows:
“(1) Subject to this Ordinance, whenever any business is transferred, with or without the goodwill thereof, the transferee shall, notwithstanding any agreement to the contrary, become liable for all the debts and obligations …… arising out of the carrying on of the business by the transferor.
(2) Notwithstanding subsection (1), where a part of a business is transferred (other than the goodwill thereof) and in any proceedings –
(a) the transferee would, but for this subsection, be adjudged liable under this Ordinance for any debts and obligations arising out of the carrying on of the business by the transferor; and
(b) it is shown to the satisfaction of the court hearing the proceedings that –
(i) the transferee purchased such part of the business in good faith and for value; and
(ii) at the date of the transfer of such part of the business, the transferee had no knowledge (whether actual, constructive or imputed) that what he was acquiring formed part of a business,
The transferee shall not be liable under this Ordinance for the debts and obligations arising out of the carrying on of the business by the transferor.”
13. Section 4 sets out the circumstances in which the transferee’s liability would cease. In particular, the transferee shall not be become liable if notice of transfer has been given prior to the date of transfer pursuant to that section and section 5. However there is no dispute that no such notice has been given.
14. As to the approach, Deputy Judge Reyes SC (as he then was) in BNP Paribas v GC Luckmate Trading Ltd [2002] 2 HKLRD 156 reviewed the English and local authorities and said (at §21):
“From the above survey of case law, I derive the following principles:
(1) In deciding whether there has been a transfer of business under the TBO, the court objectively considers all surrounding circumstances. The fact that there is no document formally evidencing a transfer is not conclusive.
(2) A transfer of assets may indicate a transfer of business. But a transfer of assets does not of itself mean that there has been a transfer of business within the TBO.
(3) There may be a transfer where the alleged transferee can be shown to have gained some advantage from taking over the purported transferor’s business. Such advantage will often arise because thw alleged transferee is shown to have taken over a “going concern”. But even where an entity is on the verge of bankruptcy, an alleged transferee may perceive a real benefit to be gained from assuming some or all aspects of that entity’s business.
(4) Factors indicating that a business has been transferred from one person to another include the following:
(a) Use of the same or similar name.
(b) Assignment of goodwill.
(c) Use of the same premises.
(d) Use of the same fixtures, fittings and equipment.
(e) Use of the same personnel.
(f) Use of the same stock-in-trade.
(g) Conduct of the same or similar type of business.
(h) Conduct of business in the same or similar manner.
(i) Servicing of the same customers.
Although the above may not be conclusive individually, the cumulative presence of a number of the foregoing factors can establish a transfer.”
15. In SMEloan Hong Kong Ltd v Wong Wing Cheung [2006] 4 HKLRD 757, Recorder Fok SC (as he then was) adopted the above principles and added (at §§18-20) that there must be a divesting of assets to the detriment of creditors in order for there to be a transfer of a business within the meaning of the Ordinance. However, the assets of a business may take many different forms and may include its goodwill. It is not necessary to show that the business alleged to be transferred was substantial or of any particular level of value so long as there was something left in the way of assets or goodwill.
The circumstances of the present case
16. According to her pleading (in Chinese), the 2nd defendant’s case is as follows:
(1) On or about 7 April 2009, she took over (or as pleaded “承讓”) both the customers and beauty equipment of Fit & Chic: §2 of the defence.
(2) Since then, Beauty Station continued to provide the treatments in the packages that the customers of Fit & Chic had purchased: §3 of the defence.
(3) There were 14 items of treatment remaining in the packages that Lau had purchased from Fit & Chic. As pleaded, the unused value was HK$278,969: §3 of the statement of claim; §4 of the defence.
(4) Her staff did inform Lau that the customers of Fit & Chic had been transferred to Beauty Station; and the latter undertook to provide to Lau the remaining items of treatment in her packages in place of Fit and Chic without additional charge: §6 of the defence.
(5) Beauty Station was ready, willing and able to fulfil the obligation to provide to Lau the remaining items of treatment in the packages in place of Fit and Chic; but Lau had no right to demand her to refund: §9 of the defence.
17. According to her statement, which was adopted in court, the 2nd defendant admitted that besides taking over the fixtures and fittings of the business premises and part of the beauty equipment from Fit & Chic, Beauty Station also employed some of the former employees of Fit & Chic. In court, the 2nd defendant also accepted that Beauty Station kept the customer files of Fit & Chic when starting its business at the same premises. The files were useful to her business in that the customers of Fit & Chic might also become those of Beauty Station.
18. It only transpired from the 2nd defendant’s evidence in court that though she was the proprietor of Beauty Station, it was her elder sister, Wong Yuet Shan, Sandy (“Sandy”) who was in charge of the dealings with Fit & Chic and the subsequent operation of Beauty Station including customer service, recruitment and all internal affairs. The 2nd defendant was responsible for design and publicity.
19. It was only 2 weeks before the trial when the 2nd defendant caused the witness statement of Sandy to be filed. That Sandy would be a witness was not indicated even during the pre-trial review. Nor was leave applied for the purpose of adducing the statement before the trial. Leave was sought only during the trial, and granted in the absence of objection by Lau.
20. By the statement of Sandy, the 2nd defendant sought to suggest that it was never a transfer of business from the 1st defendant under the Ordinance; and that Beauty Station was not liable for the obligations of Fit & Chic.
21. According to Sandy, her dealings between the 1st defendant were conducted verbally. She emphasized that Beauty Station took over part but not all of the equipment of Fit & Chic. She emphasized that about 40% to 50% but not all of the employees of Fit & Chic were re-employed by Beauty Station. She admitted that Beauty Station took over the fixtures and fittings of the business premises of Fit & Chic; but emphasized that additional decorations were made. She admitted the takeover of the remaining 2 months of the tenancy of Fit & Chic for the business premises whereby Beauty Station paid the rent to Fit & Chic before the new tenancy under Beauty Station commenced.
22. As to the customers of Fit & Chic, Sandy suggested in court that they did not form part of the deal with Fit & Chic. Fit & Chic simply left behind the customer files and declined to retrieve them. She would have returned the data to the customers if requested. Having said that, she agreed that the files constituted a very important source of customers. She also admitted active use of the information from the files to contact the customers of Fit & Chic with a view to sourcing business for Beauty Station. As an instance, there is an invoice/receipt to Lau which bears a customer number apparently allotted by Beauty Station. However it also bears Lau’s customer number with Fit & Chic as a cross reference, which admittedly came from the customer files of Fit & Chic.
23. As to the provision of the treatments in the packages purchased and prepaid by the customers of Fit & Chic, Sandy agreed to do so, according to her, as a matter of common sense. She had assessed and anticipated about 20% to 30% of the customers of Fit & Chic would really come forward for the unused value of those packages. Nevertheless, she denied having in fact taken such undertaking into account when she negotiated the deal with Fit & Chic.
24. According to Lau, she had no idea about the cessation of business of Fit & Chic before she visited its business premises on 13 April 2009. Nothing appealed to her that suggested otherwise, when she entered the building and the same business premises on that day. According to Sandy, notwithstanding the change of tenant, the floor directory at the entrance of the building should remain unchanged and still showed the name of Fit & Chic until at least 21 April 2009. As to the new decorations inside the premises, she admitted that they were added only phase by phase afterwards. All these lend weight to the evidence of Lau in respect of her observation when she visited the premises on 13 April.
25. I am sceptical about the attempt by the 2nd defendant, through the evidence of Sandy, to deviate from her pleaded case that it was materially a transfer of the business of Fit & Chic by the 1st defendant to the 2nd defendant in the name of Beauty Station.
26. In any event, in terms of the factors enumerated by the court in BNP Paribas (above), I find the cumulative presence of such factors pointing towards the transfer of business from Fit & Chic substantially as a going concern to Beauty Station. I am not convinced by the evidence of the 2nd defendant, and particularly that of Sandy, that they did not perceive any real benefit to be gained by Beauty Station from assuming those various aspects of the business of Fit & Chic when the deal with the 1st defendant was negotiated and concluded.
27. The 2nd defendant referred to the case of 海富寶國際有限公司 (Seabo International Limited) v 黄偉國經營福俊貿易公司及另一人, DCCJ 2564 & 2570/2005 (14 August 2006). In that case, the question was whether there was a transfer of the business as a frozen seafood supplier from the 1st defendant to the 2nd defendant under the Ordinance. The court applied the same approach in BNP Paribas (above).
28. The court in Seabo then found no assignment of goodwill because the customers of the 1st defendant were not perceived to be the customers of the 2nd defendant. The 1st defendant even removed his computer on the ground that it contained his customers’ details. The 2nd defendant replaced the existing and aged fixture and fittings of the shop premises with new ones. The 2nd defendant had to install new computer and freezer. The 2nd defendant did not re-employ the former employees of the 1st defendant. The context of the apparent transfer was in reality an assignment of the tools and equipment by the 1st defendant in satisfaction of his debts.
29. Each case has to be decided on its own facts. On the facts, Seabo is materially distinguishable from the present one.
30. In the circumstances, I find that it was a transfer of business caught by the Ordinance; and the 2nd defendant was and is liable as the transferee of the business of the 1st defendant for the debts and obligations that arose out of the latter’s business. There is no suggestion or evidence that the liability of the 2nd defendant was avoided pursuant to the other sections of the Ordinance.
Whether Lau’s rights under the Ordinance was affected by what happened on 13 April 2009
31. Mr Li for Lau submitted that the expression of readiness and willingness of the 2nd defendant to provide the remaining treatments under the Fit & Chic packages that Lau had paid for is not an answer to the debts and obligations that have to be discharged under the Ordinance. I agree. Further, peculiar to the present case is that beauty treatment was a personal service. The 2nd defendant could not insist, as much as Lau was not obliged to accept, that the change in the identity of the service provider had no bearing. That would be so, even assuming that Beauty Station managed to arrange some of the former beauticians from Fit & Chic to perform the treatments.
32. Of course, the customers might well decide to agree to accept the arrangement by Beauty Station in satisfaction of what Fit & Chic owed them. That would be similar to novation of contract, as Mr Li submitted. Indeed the dispute in the present case is whether or not Lau accepted such arrangement offered by Beauty Station (§§7 and 8 of the defence; §§4 and 5 of the reply). Essentially, the 2nd defendant contends that Lau did agree to such arrangement during her visit on 13 April 2009.
33. According to Lau, she received a telephone call on about 6 April 2009 from someone representing to be staff of Fit & Chic. The purpose was to invite Lau to make appointment for treatment since the last appointment that was months ago. Therefore Lau went on 13 April 2009. As mentioned, she entered the building and the premises of Fit & Chic without noticing any material change. According to her, she was received by the receptionists whom she recognised to be from Fit & Chic.
34. Lau continued to describe how she was led to the changing room to get changed and then to the treatment room. It was then when Sandy and Ling Cheung (“Cheung”), a manager, were present and informed Lau that Fit & Chic had been taken over by a Japanese company. They presented Lau with their business cards. One would notice that the business cards represented that Beauty Station was operated by an overseas branch of a certain Japanese company. In court, Sandy admitted that that was mere marketing puff rather than fact.
35. It is common ground that Beauty Station offered to provide, free of additional charge, the remaining items of treatment in her Fit & Chic packages, except for osteopathic manipulative medicine (or “骨療”) and acupuncture (or “針灸”). To make up for that, Beauty Station offered a new treatment called cavitations (or “爆脂”).
36. It is also common ground that at the end of the day, Lau signed an invoice/receipt for the sum of HK$11,200, which represented the difference between the remaining value of the above 2 items of treatments in the Fit & Chic packages that Beauty Station did not provide and the price of the cavitations treatment now offered. What is in dispute is whether Lau actually agreed to the arrangement by paying the top-up amount as alleged.
37. According to Lau, she did agree to a trial of the new cavitations treatment on that day. It was Cheung who performed the trial treatment. This contradicts the evidence of Sandy. According to Sandy, Lau had received some treatments under the old Fit & Chic packages before she personally performed the trial treatment on Lau.
38. The 2nd defendant admitted the compilation of a handwritten list of the remaining 14 items of treatments in Lau’s Fit & Chic packages as at 14 April 2009. The information came from the customer files of Fit & Chic kept by Beauty Station. According to Sandy, the list reflected the account after taking into account the further treatments in the Fit & Chic packages that Lau allegedly received on 13 April 2009.
39. The content of the list was reproduced in Lau’s pleading, subject to the minor amendment made with leave when the trial began. As mentioned, the items and their values are admitted by the 2nd defendant. However, as pleaded, they represent Lau’s account as at 7 April 2009. That connotes no change in Lau’s account between 7 and 14 April 2009. In that case, there is no room for Sandy’s allegation that some remaining treatments in the Fit & Chic packages were performed on 13 April 2009 and Lau’s account was adjusted accordingly on the following day. When confronted with that, Sandy suggested that that had to be a mistake, apparently one that was never discovered until that very moment in court.
40. According to Lau, after the trial cavitations treatment, Cheung presented to her an invoice or receipt setting out the offer and the top-up price of HK$11,200. Lau admitted signing the document acknowledging the offer and calculation of the top-up price. According to Sandy, Lau wanted to settle payment by a credit card which she did not possess at the time. According to Lau, she simply expressed her wish to consider more. The fact was that Lau did not pay. Lau telephoned Beauty Station to confirm her refusal to accept and requested refund on the following day. she visited Beauty Station for similar purpose weeks later with a couple of friends.
41. No doubt, Cheung was the person who should be in a position to tell the exact circumstances in which the invoice/receipt came to be signed by Lau; and the conversation between them during then. The 2nd defendant admitted that she possessed the contact details of Cheung and could find her if necessary. According to Sandy, no attempt has been made to summon Cheung to testify, notwithstanding the dispute in this respect.
42. Considering all the evidence on the balance of probabilities, I prefer the evidence of Lau in respect of what happened on 13 April 2009 insofar as this is at variance with the evidence of the 2nd defendant and Sandy. Indeed Lau had received the trial treatment of cavitations newly offered by Beauty Station before signing the invoice/receipt at the request of Beauty Station on 13 April 2009. However, the intention and understanding, I find, had to be that the treatments offered by Beauty Station likewise would take the form of prepaid package. In the absence of actual payment, neither the trial treatment nor the signing of the invoice/receipt, in my judgment, sufficed to constitute a binding agreement between Beauty Station and Lau for the provision of services, be they the treatments in the Fit & Chic packages or the new treatment just tried.
43. The 2nd defendant referred to Shum Kit Ching v Caesar Beauty Centre Limited, HCSA 38/2002 (16 April 2003). It suffices for me to say that the facts and issues of that case are far from being relevant to the dispute in the present case.
44. In the circumstances, Lau’s right against the 1st defendant for damages for repudiation of their contract; and her right against the 2nd defendant as the transferee of the business of the 1st defendant under the Ordinance have not been compromised.
ORDER
45. The 1st defendant shall pay damages to Lau in the sum of HK$278,969. I also give judgment in favour of Lau against the 2nd defendant for damages in the same amount.
46. The judgment sum shall carry interest. I notice that nothing material has developed since the entering of judgment against the 1st defendant on 23 September 2009 until the notice of intention to proceed on 28 December 2010. Another 6 months later, on 22 June 2011, the proceedings became active again.
47. In my discretion, I would disallow interest for the period between 24 September 2009 and 21 June 2011. Subject to that, interest on the judgment sum shall run at 1% above HSBC best lending rate from the date of writ until today. Interest thereafter shall run at the judgment rate until full payment.
48. Following this event, I make an order that the 2nd defendant shall pay Lau’s costs of this action against her, including any costs between them that have been reserved. The trial also served the purpose of assessment of damages that the 1st defendant was adjudged liable to pay. In the circumstances of the present case, I make no separate order as to costs of these proceedings between Lau and the 1st defendant. All costs shall be taxed, if not agreed. For clarity, I certify the engagement of counsel.
49. The above orders as to interest and costs are nisi; and shall become absolute in the absence of application within 14 days to vary.
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Simon Leung |
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District Judge |
Mr Vincent M K LI instructed by Messrs Lui & Law for the plaintiff
The 2nd defendant, in person, present
Note: For the purpose of receiving this judgment, the 2nd defendant may request for the arrangement of interpreter’s assistance if necessary.
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