FUNG YIU CHUNG v. YU KWAN TIN

­DCCJ 4980/2014

[2018] HKDC 1500

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4980 OF 2014

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JUDGMENT

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BACKGROUND

1.  This is a case of contract dispute arising from the sale of a business between the plaintiff as the buyer and the defendant as the seller through a business consultant, iBoss Business Consultation Limited (“iBoss”).

2.  At the material times, the defendant and a Chau King Yin were shareholders, with 25% and 75% of shareholding respectively, of a Grand Force Limited (“GFL”), a company incorporated in Hong Kong.

3.  By a Provisional Sale and Purchase Agreement (“PSPA”) dated 10 June 2014[1],the defendant agreed to sell and the plaintiff agreed to buy a food business named “和味Wo Mei” (“Business”) which was located at G/F, 58C Yen Chau Street, Sham Shui Po (“Premises”) for a consideration of HK$300,000 (plaintiff’s version) or HK$230,000 (defendant’s version).  The Premises were leased by GFL as tenant for a monthly rental of $25,800 for a term of two years commencing on 23 December 2012.

4.  The PSPA, which was written in Chinese, provided, inter alia, that:

“13. 租務條款– 賣方會以下列方式讓買方獲得該鋪位的經營權（可選取多於一項）

公司股份轉讓 – 賣方會把持有租約的公司股份100%轉讓予買方，而買方會負責有關費用（如有）；或

簽署新租約 – 賣方會協助買方與業主簽署新租約，而買賣雙方會平分有關費用（如有）。如果業主不願意和買方簽署新租約或新租約加租幅度大於30%，而且這是唯一的租務處理安排，買方可選擇取消本約。所有訂金將會退回，而買賣雙方不會有任何收費；…

其他附加條款: 查數條款– 買方在簽臨時買賣合約後可查閱2013年10月至2014年5月的收入記錄，如果上述記錄的平均數和較早前賣方提供的同一時期數字有超過15%的差距，買方可選擇退出交易”

5.  The plaintiff was also provided with a document entitled “業務資料表Details of the Business” (last updated on 2 June 2014)[2]. That document set out important information of the Business, including the “Business Trading Name” as “和味Grand Force Ltd”, “是否有營收記錄(any income records) : 是 (yes)”, “可審查的記錄類型 (type of records for inspection) : Excel Record (每日埋數) (calculated daily) , 店內 (in-shop) POS system”, “約滿期 (expiry of tenancy) 12/2014”, “會否加租(any rental increase) 未知(not yet known) ”, “加租幅度 (degree of rental increase) N/A ”, “租約轉讓形式 (mode of transfer of tenancy) : 公司股份轉讓 (transfer of company shares) ”.

6.  The plaintiff and the defendant signed a Formal Sale and Purchase Agreement (“FSPA”) dated 1 July 2014[3], which was a bilingual document.  It was provided under Clause 14 that the FSPA should be governed by the Hong Kong law, that the FSPA should constitute the entire, full and complete agreement between the parties, that it superseded all prior agreements, and that the Chinese version should prevail in case of discrepancy between the English and the Chinese versions of the agreement.

7.  The FSPA provided, inter alia, that:

“第2條

賣方代表確認其代表的個人 ,合夥人或公司（賣方）為本正式買賣合約「有關業務」的法定及實益擁有人，擁有「有關業務」的店舖租約及所有資產，提供了業務資料表上及其他所有和業務有關的所有資料，並且有關人仕或組識已批准轉讓「有關業務」。買方或賣方為買方或賣方代表指定的個人，合夥人或公司。

第3條資產及權利轉讓內容

A. 賣方確定其本人或有關公司是有關鋪位的法定租客，並且擁有「有關業務」的所有資產。賣方會協助買方進行租約轉讓、租約轉名、簽署新租約、公司股份轉讓或以其他方式獲得該舖位的經營權。有關程序細節將在本約的第3D條細列。

B. 除特別列明外，「有關業務」的所有資產，除了租按，電按，水按及其他按金等，所有店舖名稱及商譽，網站 (如有)及知識財產，裝修，傢俬，設備，生財工具，牌照(如有)，供應商名單，客戶名單，存貨及商標(如有) 等將會在交易中轉讓。

C. …

D.除特別列明外，賣方會以下列方式讓買方獲得該舖位的經營權 (完全按照臨約):

深水埗欽州街58C號地鋪

公司股份轉讓 –賣方會把持有租約的公司股份100%轉讓予買方，而買方會負責有關費用（如有）；或

簽署新租約 –賣方會協助買方與業主簽署新租約，而買賣雙方會平分有關費用（如有）。如果業主不願意和買方簽署新租約或新租約加租幅度大於30%，而且這是唯一的租務處理安排，買方可選擇取消本約。所有訂金將會退回，而買賣雙方不會有任何收費。

第4條買方付款

A. 作為買賣條件，買方須經IBOSS繳付賣方轉讓業務的成交價金額，IBOSS將以寄托人身份託管有關金額，並根據本約條款放款與賣方。

B. 買方在簽署本協議時或之前須繳付買入業務的訂金予IBOSS(「有關訂金」)。

C. 頂讓費用的所有餘額，即包括成交價餘額及買方服務費，須在簽署本正式買賣合約時繳付予IBOSS。IBOSS將以賣方寄託人收取和保管有關餘額。

第5條賣方收款

A. 作為買賣條件，IBOSS將在收到買方頂讓費用後根據本約條款向賣方支付出售業務的金額。

B. (第一筆放款)賣方會在雙方簽署所有上述3(D)的文件、IBOSS收到買方餘額後及各方簽署本正約後的5個工作天內收到臨約訂明「出售金額」的「第一筆放款」，所有賣方服務費將在該放款中扣除。

C. 在正式接手日後60天內，買方可以在受 [收] 到書面追討有關業務正式接手日前的債務時向IBOSS發出書面暫停放款通知（書面通知必須詳細列明有關債務及提供有關書面追討的副本）。此外，在正式接手日後60天後，如果買方受到書面追討有關業務正式接手日前的債務，買方亦可根據香港法律向賣方追討任何因此而造成的損失。

D. 臨約訂明「出售金額」的「第二筆放款」，將由IBOSS以賣方寄託人身份保管。除特別列明外，如果IBOSS沒有在正式接手日後60天內收到

買方發出的書面暫停放款通知，則「第二筆放款」將經IBOSS在正式接手日後第61天發放予賣方。

第7條

「賣方個人擔保聲明」

除特別說明外，賣方須確保在正式接手日當天賣方或賣方公司已經清還所有和有關業務相關的法律責任、債務、合約責任或應付支出，或上述所有責任不會轉移到買方或買方公司身上。賣方以個人身份作出保證，如有任何對買方構成有效索償的隱藏責任或債務、或違反了本約內的保證而造成對買方任何實際損失，賣方須全數賠償買方以及作出指示在「第二期款項」扣除任何未清還的債務及責任。

第9條成交日、接手日

A. …

B.「正式接手日」為詳列在附件二的日期。…

C. 在「正式接手日」當天，所有資產的擁有權將會不可逆轉地轉移，賣方需確保所有設備在操作正常狀態，而牌照（如有）在可以轉讓狀態。

D.  …”

8.  In Annex 2 of the FSPA[4], Clause 3 repeated the “其他附加條款”in the PSPA, i.e. “查數條款 – 買方在簽臨時買賣合約後可查閱2013年10月至2014年5月的收入記錄，如果上述記錄的平均數和較早前賣方提供的同一時期數字有超過15%的差距，買方可選擇退出交易”[5]   (“Verification Clause”).  Clause 4 in Annex 2 of the FSPA provided for the official handover date of the Business (“Handover Date”) to be 1 July 2014[6].

9.  The plaintiff paid the deposit of $90,000 to iBoss at the time of PSPA and the balance of the transaction price at the time of the FSPA.

10.  On 1 July 2014, being the Handover Date of the Business, the plaintiff took possession of the Premises and started operating the Business until 20 December 2014.

11.  Between 2 July and 11 August 2014, the plaintiff had various WhatsApp exchanges with Charlotte Ng and Sze Ching (both staff members of iBoss responsible for this transaction).  There were discussions about provision of documents, transfer of shares, cancellation of contract, etc.[7]

12.  By a letter dated 4 August 2014 to GFL[8] , the landlord of the Premises demanded re-possession of the Premises upon the expiry of the lease on 22 December 2014.  The plaintiff understood that the landlord demanded an increase of the monthly rent from $25,800 to $36,000 (which is about 40%) for any renewal of the lease.  The plaintiff found the increase of rent unacceptable.  Eventually no new lease was entered into and the Premises was re-possessed by the landlord on 20 December 2014[9].

13.  By a letter dated 26 August 2014 from the plaintiff’s solicitors to iBoss[10], with copy to the defendant, the plaintiff gave notice to cancel the FSPA, demanded that the deposits of HK$300,000 should not be released to the defendant, and that iBoss should refund the said sum together with the consultancy fee of $35,000 to the plaintiff.  iBoss replied by way of a letter on the same day refusing to accede to the plaintiff’s demands[11].

14.  The plaintiff received a letter dated 29 August 2014 from the Labour Department[12] and a summons dated 2 September 2014 from the Kowloon City Magistrates’ Courts[13], prosecuting GFL for failing to take out insurance as required under the Employees’ Compensation Ordinance (“Labour Summons”).

15.  The plaintiff’s solicitors issued another letter dated 17 September 2014 to iBoss[14], also with copy to the defendant, reporting among other things the Labour Summons, and again demanding the return of the deposits of HK$300,000 as well as the consultancy fee of HK$35,000.  iBoss made a similar reply to refuse by letter dated 19 September 2014[15].

16.  Finally, by a letter dated 30 September 2014[16] from the plaintiff’s solicitors to the defendant, the plaintiff gave notice to cancel the FSPA, demanded the refund of HK$300,000 and the defendant to take up the Business and the Premises.  The defendant replied to the plaintiff direct by a letter dated 2 November 2014[17] demanding the plaintiff to complete the transfer of the company shares.

PLAINTIFF’S CLAIMS

17.  Originally, at the pleading stage, and up to the filing of the written opening submission, the plaintiff’s claims were under three headings:

(a)   the FSPA was void ab initio as the defendant had no right, power or authority to enter into the agreement;

(b)   there was a total failure of consideration as the Business was not legally existent at the time of the FSPA; and

(c)   the defendant was in breach of various express or implied conditions of the FSPA.

On the first day of the trial, the claims under both (a) and (b) were abandoned and only those under (c) were proceeded with by the plaintiff.

18.  In summary, the plaintiff’s case is that:

(a)   There were two implied terms in the FSPA, namely (i) the plaintiff should be entitled to various documents, i.e. accounts, books, records and tax return of the Business, tenancy agreement of the Premises and employment contract (“Documents”), for the verification of the liabilities, rights and profits (if any) of the Business or the holding company (GFL) (“1^st Implied Term”); and (ii) the defendant should comply with the laws of Hong Kong in carrying out the Business at all material times and should not subject the Business to any criminal liability (“2^nd Implied Term”).  

(b)   The defendant was in breach of the 1^st Implied Term by failing to provide the Documents to the plaintiff.  The defendant was also in breach of the 2^nd Implied Term by not taking out the required employee’s insurance (which resulted in the issuance of the Labour Summons) and not filing the required tax return with the Inland Revenue Department thereby causing the Business to be subjected to criminal liability.

(c)   Both the 1^st and the 2^nd Implied Terms were conditions and the breaches of which by the defendant were repudiatory in nature thereby entitling the plaintiff to terminate the FSPA and have the refund of contract price of HK$300,000, and/or damages. 

(d)   As the defendant was unable to provide the Documents and that GFL was subject to criminal liability, it would be unreasonable for the plaintiff to accept the shares of GFL under the first limb of Clause 3D of FSPA[18]. This triggered the second limb of Clause 3D, i.e. the option for a new lease to be entered into for the plaintiff to use the Premises and operate the Business as “唯一的租務處理安排”(the only arrangement for lease matter).  As the rental increment required by the landlord was over 30%, the plaintiff could, pursuant to Clause 3D, terminate the FSPA and have the refund of the deposits paid.

19.  In summary, the defendant’s case is that:

(a)   The 1^st Implied Term regarding the provision of Documents did not exist, or if such or any implied term did exist, the defendant was never in breach.  Even if there was any breach, which was denied, the alleged term was at most warranty and the breach of which did not entitle the plaintiff to terminate the FSPA.

(b)   There was no evidence that the defendant was ever in breach of the 2^nd Implied Term, i.e. subject the Business or GFL to any criminal liability.  Again, in any event, such term was not condition but warranty only and the plaintiff would have been protected under Clause 5C of the FSPA[19]

(c)   The common intention of the parties was that the transfer of the Business should take place by way of transfer of the shares in GFL, i.e. the first option under Clause 3D of the FSPA.  The second option under Clause 3D, i.e. signing a new tenancy agreement with the landlord was a “back-up” plan which would only be triggered when it became impossible for the shares in GFL to be transferred to the plaintiff.

(d)   Even if there were any implied terms in the FSPA and that there were any breaches by the defendant, the plaintiff had by conduct, i.e. taking possession of the Premises and operating the Business from 1 July 2014 (handover date) to 20 December 2014 (return of the Premises by the plaintiff to the landlord), affirmed the FSPA and rescission of which had become impossible.

20.  Therefore, as far as the plaintiff’s claims are concerned, as listed in the plaintiff’s closing submissions, the issues are:

(a)   Issue (1) – Whether the FSPA contained the 1^st and the 2^nd Implied Terms (as pleaded in paragraph 5 of the Statement of Claim)

(b)   Issue (2) – Whether the defendant breached the FSPA (as pleaded in paragraph 10 of the Statement of Claim) and whether such breaches were repudiatory in nature

(c)   Issue (3) – Whether the plaintiff was entitled to terminate or rescind the FSPA

(d)   Issue (4) – Consideration of the Business under the FSPA and damages which P was entitled to 

(e)   Issue (5) – Whether the plaintiff had made any profits by conducting the Business at the Premises; if so, whether the defendant should be entitled to set off such amount in the event that he was found liable to pay any damages to the plaintiff

DEFENDANT’S COUNTERCLAIMS

21.  Originally, as pleaded in the Amended Defence and Counterclaim, the defendant’s counterclaims are under three headings:

(a)   reimbursement of rental deposit in the sum of HK$51,600 which had been forfeited by the landlord of the Premises;

(b)   reimbursement of the electric and water bills charged against GFL and settled by the defendant for the plaintiff; and

(c)   liquidated damages in the sum of HK$150,000 under Clause 12C of the FSPA.

Eventually, as submitted in the written opening and confirmed on the first day of the trial, the defendant abandoned the claims under both (b) and (c) and would pursue only the claim under (a).

22.  In summary, the defendant’s case is that:

(a)   There was an implied term in the FSPA that, upon the transfer of the shares in GFL to the plaintiff, the plaintiff would pay or reimburse a sum equivalent to the rental deposit in the sum of HK$51,600 to the defendant (“3^rd Implied Term”).

(b)   The plaintiff, after having entered into possession of the Premises and engaged in the trade of the Business therein, caused rent for the amount of HK$25,800 to be in arrears and failed to reinstate the Premises before returning the same to the landlord.  As a result, the plaintiff caused the rental deposit in the sum of HK$51,600 previously paid by the defendant to be forfeited by the landlord of the Premises.

23.  In summary, the plaintiff’s case is that:

(a)   There was no such implied term as the 3^rd Implied Term in the FSPA for the plaintiff to pay or reimburse the defendant of the rental deposit. 

(b)   Even if the plaintiff’s conduct were to lead to the landlord’s forfeiture of the rental deposit, any such loss was suffered by GFL which was the tenant of the Premises.  GFL was not a party to the FSPA and not a party to these proceedings.

24.  As far as the defendant’s counterclaim is concerned, the only issue is, Issue (6) – Whether there was the 3^rd Implied Term in the FSPA for the plaintiff to pay or reimburse the defendant of the rental deposit in the sum of HK$51,600.

ANALYSIS

Issue (1) – Whether the FSPA contained the 1^st and the 2^nd Implied Terms

Issue (2) – Whether the defendant breached the FSPA and whether such breaches were repudiatory in nature

Issue (3) – Whether the plaintiff was entitled to terminate or rescind the FSPA

25.  Issue (1) to Issue (3) can be conveniently dealt with together.

26.  As to the appropriate test to be applied for the implication of terms,  Au-Yeung J in Yifung Developments Ltd v Liu Chi Keung Ricky and ors HCA 1341/2014, at paragraph 25, cited the binding authority of the Court of Final Appeal in Kensland Realty Ltd v Whale View Investment Ltd & anor (2001) 4 HKCFAR 381 at paragraph 59, which set out the following 5 requirements: (i)the proposed term is reasonable and equitable; (ii) it is necessary to give business efficacy to the contract, so that no term will be implied if the contract are effective without it; (iii) it must be so obvious that it goes without saying; (iv) it must be capable of clear expression; and (v) it must not contradict any express term of the contract.

27.  As Lord Hoffmann in AG of Belize v Belize Telecom Ltd [2009] 1 WLR 1988stated,

“17. The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.”

28.  Also as explained in Chitty on Contract, the 32^nd Edition,

“Whether or not a term is implied is conventionally said to depend upon the intention of the parties as collected from the words of the agreement and the surrounding circumstances.” (at 14-003)

“In many cases where it is sought to imply a term as a matter of fact, one or other of the parties will seek to imply a term from the wording of a particular contract and the facts and circumstances surrounding it.  The court will not make a contract for the parties but will be prepared to imply a term if there arises from the language of the contract itself, and the circumstances under which it is entered into, an inference that the parties must have intended the stipulation in question. Traditionally, an implication of this nature may be made in two situations: first, where it is necessary to give business efficacy to the contract, and secondly, where the term implied represents the obvious, but unexpressed, intention of the parties.  These two criteria often overlap and, in many cases, have been applied cumulatively, although in other cases they have (more sensibly) been treated as alternative grounds.  Both are predicated to depend on the presumed common intention of the parties.  Such intention is, in general, to be ascertained objectively and is not dependent on proof of actual intention of the parties at the time of contracting.  As so formulated, these criteria were traditionally regarded as “tests” which were required to be satisfied if a term was to be implied.” (at 14-005)

29.  I first deal with the 1^st Implied Term contended by the plaintiff.  The essence of the plaintiff’s argument is that the Verification Clause under Clause 3 of Annex 2 of the FSPA[20] constituted an implied term for the defendant to provide the Documents, it was a condition of the contract in question, the defendant was in breach by failing to provide the Documents upon request and the plaintiff was therefore entitled to terminate the FSAP.  The primary argument of the defendant in reply is that there was no such implied term as contended by the plaintiff as Clause 2 of the FSAP had already expressly provided that “the Seller has provided all information on the Details of the Business and any other information related to the Business” (“(賣方) 提供了業務資料表上及其他所有和業務有關的所有資料 ”).  The secondary argument of the defendant was that, even if there was such an implied term and the defendant was in breach (which was denied), it could at most be a breach of warranty of the contract and the plaintiff was not entitled to terminate the FSPA.

30.  At the outset, it may be helpful to have an overview of the FSAP.  The FSPA is divided into different parts:

(a)   The first part being “Conditions of Sale 買賣條件” consisting of Clauses 1 to 6 in relation to the identity of the parties, confirmation of provision of information of the Business, details of the transfer of assets and rights, payment terms and method, details of iBoss’s consultancy service, which are apparently the essential or the more important terms of the FSPA.

(b)   The second part being “Warranties of Sale 買賣雙方作出的保證” consisting of Clauses 7 to 10 in relation to the seller’s certain warranties or undertakings, details of handover and training.

(c)   The third part being “Other Standard Terms and Conditions 其他條款” consisting of Clauses 11 to 14 in relation to matters of confidentiality, breach of contract, parties’ rights, governing law and prevailing of the Chinese version.

(d)   Then an Annex 1 附件一 setting out the personal particulars of the buyer and the seller.

(e)   Finally an Annex 2 附件二 consisting of Clauses 1 to 4 in relation to the Business’s details, the deposit and other amounts of payment, the Business’s assets and liabilities and the official handover date, it was only under “其他Other” of Clause 3 that there was such Verification Clause, providing for the buyer’s right to inspect documents, namely “收入記錄” (income records).

31.  Though the labels of “conditions” and “warranties” in the FSPA may not be conclusive, the fact that the Verification Clause was only included under “其他Other”of Clause 3 of Annex 2 demonstrated the relatively minor importance given by the parties to that clause and the relative insignificance of that clause under the FSAP.

32.  It is important to note that before the signing of the PSPA dated 10 June 2014, the plaintiff had already been provided with the document entitled “業務資料表Details of the Business” (last updated on 2 June 2014)[21] which included the average monthly income and expenses as well as the average profit of the Business.  That document also provided that there was “Excel record” under POS system of the shop for inspection.  It was the defendant’s evidence that he had provided an Excel file containing the details of income and expenses of the Business to the plaintiff through iBoss, and that the plaintiff had been verbally informed of the details of the tenancy, the relevant food licence and the water, electricity matters of the Business, prior to the official handover date[22].

33.  A difficulty in the plaintiff’s case is that there was no evidence from any representatives of iBoss at the trial.  Nevertheless, one would reasonably believe that iBoss must have passed on all the documents, for example that “Excel record” received from the defendant, to the plaintiff, in particular when it was the plaintiff’s version that he had repeatedly asked for it.  Also, one could reasonably infer that the plaintiff, just like any reasonable man, must have received and considered all the records provided, or even if no or insufficient records had been provided, must have been satisfied with the information already provided before proceeding to execute the FSPA and make full payments.   It would be contrary to common sense to suggest that the obligation of providing essential or important documents or information of the Business existed or continued to exist after the execution of the FSPA and full payments had been made.  The plaintiff, just like any reasonable man, must have been satisfied with all the information available to him before he could make up his mind to purchase the Business, proceed to execute the FSPA and make full payment of the contract price as well as the agency fee.  That explained why that Verification Clause in FSPA was merely a repetition of a clause of the PSPA and was only included as part of a clause in an annex but not in the main body of the contract.  More importantly, that also explained why there was an express clause, Clause 2 (under the “Conditions of Sale 買賣條件”), in the FSPA which confirmed that “the Seller has provided all information on the Details of the Business and any other information related to the Business” (“(賣方) 提供了業務資料表上及其他所有和業務有關的所有資料”).

34.  Upon closer examination of the Verification Clause, one could see it only provided that the plaintiff could inspect the “income records from October 2013 to May 2014” (2013年10月至2014年5月的收入記錄). That term “income records” or “收入記錄” was not equivalent to, and clearly could not be extended to include, all the “Documents” (i.e. accounts, books, records and tax return of the Business, tenancy agreement of the Premises and employment contract) now contended by the plaintiff.   As discussed in paragraph 32 above, there was clear evidence, which I accept, that the plaintiff had been provided with the document entitled “業務資料表Details of the Business” (last updated on 2 June 2014, which meant covering the period up to May 2014) which included the average monthly income and expenses as well as the average profit of the Business and, that the defendant had provided the Excel file containing the details of income and expenses of the Business to the plaintiff through iBoss.

35.  Having considered all the above, I am not satisfied that the requirements for an implied term had been met.  I am not satisfied that there was the 1^st Implied Term, as contended by the plaintiff for provision of Documents, in the FSPA.

36.  Even if there was such an implied term as the 1^st Implied Term requiring the defendant to provide the Documents, it was not proved to my satisfaction that the defendant was in breach by failing to provide the same, for reasons stated in paragraphs 32 to 34 above.

37.  In any event, taking the plaintiff’s case here to the highest (which I do not accept), even if there was such an implied term as the 1^st Implied Term and the defendant was in breach by failing to provide any of the Documents, for reasons stated in paragraphs 30 and 31 above, that was not a breach of a condition of the contract and the plaintiff was not entitled to terminate the FSPA.

38.  I now proceed to deal with the 2^nd Implied Term contended by the plaintiff, i.e. the defendant should comply with the laws of Hong Kong in carrying out the Business at all material times and should not subject the Business to any criminal liability.  The plaintiff argued that the defendant, by not taking out the required employee’s insurance (which resulted in the issuance of the Labour Summons) and not filing the required tax return with the Inland Revenue Department, was in breach of that term which was a condition of the FSPA.

39.  First of all, it should be noted that, on record, an insurance policy with Blue Cross was taken out by GFL for the period from 11 April 2014 to 10 April 2015[23], and that policy covered employee’s compensation.  It was also on record that the defendant, in his reply letter dated 2 November 2014 to the plaintiff, stated that “labour insurance  had been completed and the certificate has been shown to Labour inspector”[24]. That is not the end of the matter.  There was also the defendant’s evidence that he and Mr Chau (the other shareholder of GFL) did not attend the court for that Labour Summons, and that he called the Labour Department on 18 April 2016 and was told the next day that the relevant file had been closed with no follow-up action[25] .  That was not challenged by the plaintiff at all.  As such, there was simply no evidence that GFL was ever convicted of the offence in the Labour Summons or that the allegation therein was true.   The same logic applied to the allegation against the defendant for failing to file the requisite tax return with the Inland Revenue Department.  There was no evidence at the trial that the defendant or GFL was at the material times under any obligation and/or liable for failing to file any tax return.   It must follow that there was no or insufficient evidence that the defendant had in fact failed to take out the required employee’s insurance or failed to file the required tax return and thereby subject GFL or the Business to any criminal liability.

40.  Whether or not that 2^nd Implied Term as contended by the plaintiff existed, and whether or not it was a condition, there was clearly no or insufficient evidence to prove that the defendant was in breach.

41.  In summary, I do not accept that the 1^st Implied Term as contended by the plaintiff existed in the FSPA.   If it existed, I find no breach by the defendant.  In any event, that 1^st Implied Term, if existed in the FSPA, was not a condition of the contract, and any breach of which by the defendant would not have entitled the plaintiff to terminate the FSPA.  I also find no breach by the defendant of the 2^nd Implied Term as contended by the plaintiff, if it existed in the FSPA.

42.  To complete the analysis, I agree with the defendant’s submissions that it was the parties’ common intention that the first option under Clause 3D of the FSPA, i.e. to transfer the Business by way of shares in GFL, was the “preferred” option and that the second option under Clause 3D, i.e. signing a new tenancy with the landlord was the “back-up” option.  This is consistent with what had been described in the “業務資料表Details of the Business” where it clearly stated “租約轉讓形式 (mode of transfer of tenancy) : 公司股份轉讓 (transfer of company shares)”.  The plaintiff under cross-examination accepted that this document was provided to him as early as about a week before the signing of the PSPA and he had repeatedly studied it.  With this understanding in mind, the parties signed the PSPA which included Clause 13[26] providing the above two options, with the option of transfer of shares mentioned in the first place, for the transfer of the Business.  The same clause was repeated and had become Clause 3D of the FSPA.  For the reasons stated above, I do not find the defendant having failed to provide the required documents or having subjected the Business to any criminal liability, there was no valid or justifiable reason for the plaintiff not to proceed with the first option under Clause 3D as the defendant was all along prepared to.  The second option under 3D was not triggered as it was not the “唯一的租務處理安排”(the only arrangement for lease matter) under the circumstances of the case.  The plaintiff was therefore not entitled to rely on Clause 3D to terminate or rescind the FSPA.  Lastly, for the sake of completeness, I also indicate my agreement with the defendant’s contention that, even if there was any breach of condition by the defendant, the plaintiff had by conduct, i.e. taking possession of the Premises and operating the Business for close to 6 months up to expiry of the tenancy, affirmed the FSPA and could not subsequently seek to terminate or rescind it.

43.  In view of my findings as above, it is not necessary for me to consider Issue (4) and Issue (5), which were in relation to the consideration of the Business under the FSPA and the profits made by the plaintiff by conducting the Business.

44.  All the plaintiff’s claims herein are dismissed.

Issue (6) – Whether there was the 3^rd Implied Term in the FSPA for the plaintiff to pay or reimburse the defendant of the rental deposit in the sum of HK$51,600

45.  I now proceed to deal with the defendant’s counterclaim, i.e. Issue (6).  The defendant argued that, as the rental deposit was not included as part of the Business being the subject matter to be sold under the FSPA, it was the parties’ intention that upon successful transfer of shares of GFL the plaintiff would pay or reimburse a sum equivalent to the rental deposit to the defendant, so that was the 3^rd Implied Term in the FSPA.  The plaintiff argued that there was no such implied term.

46.  Though Clause 3B and Annex 2 provided that the rental deposit (also utility or other deposits) was not to be transferred, the FSPA was silent as to how that rental deposit, which was at the time of the signing of FSPA being retained by the landlord of the Premises pending expiry of the tenancy, was to be dealt with.  Apparently, there was no provision under FSPA imposing any obligation on the part of the plaintiff to pay or reimburse the defendant of the rental deposit.  If the defendant had ever intended to recover the rental deposit from the plaintiff, the defendant could and should have asked for an express term to that effect, bearing in mind the tenancy would expire and the rental deposit would only be returnable by the landlord close to 6 months away from the signing of the FSPA[27].

47.  The defendant during cross-examination in the trial repeatedly said that he was only concerned about the net sum which he would receive from iBoss for the sale of the Business and that he believed he would receive the net sum of HK$230,000 (after deduction of consultancy fee payable to iBoss).   It could be reasonably inferred that the defendant must have factored the amount of the rental deposit, and other deposits for water, electricity and other utilities, into the consideration which he was prepared to accept for selling the Business.  That explained why there was no particular or express provision in the FSPA which dealt with the rental deposit and other deposits.

48.  In the circumstances, I am not satisfied that the requirements for an implied term had been met and I do not find the 3^rd Implied Term as contended by the defendant exist in the FSPA.   Even if the plaintiff’s conduct, i.e. failing to pay the rental for the last month of the tenancy and failing to deliver vacant possession to the landlord, led to the landlord’s forfeiture of the rental deposit, the loss was suffered by GFL who was the tenant of the Premises.  GFL was not a party to the FSPA and not a party to these proceedings.

49.  The defendant’s counterclaim for payment or reimbursement of the rental deposit of HK$51,600 is dismissed.

DISPOSAL

50.  Both the plaintiff’s claims and the defendant’s counterclaim are dismissed.  Having considered the complexity of the respective issues in the plaintiff’s claims and the defendant’s counterclaim, as well as the time and costs taken for handling those issues, I am of the view that it is just to order the plaintiff to be responsible for half of the costs of the defendant.   I therefore make a costs order nisi that the plaintiff shall pay half of the defendant’s costs of this action, to be taxed if not agreed, with certificate for counsel.  Unless any party applies to vary the costs order nisi within 14 days hereof, the costs order shall become an order absolute.

51.  Lastly, I thank both counsel for their useful assistance.