HENRY YIJIAN CO., LTD v. KINGSON INTERNATIONAL LTD

HCMP 2737/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 2737 OF 2013

(ON AN INTENDED APPEAL FROM DCCJ NO. 2061 OF 2011)

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Hon Macrae JA (giving the judgment of the court):

1.  In this action the plaintiff claims for repayment of items of expenses incurred by the plaintiff on behalf of the defendant, on the basis of a verbal agreement between the plaintiff and the defendant, which agreement is denied by the defendant.

2.  HH Judge Chow found, in paragraphs 2 to 4 of his Judgment dated 5 August 2013 (see also paragraph 65 of the Judgment), that in early 2009 Mr Yau Pak Sum (Yau) and Mr Tsui Sze Wai (Tsui) agreed to develop anchoring systems and other products in the construction industry.  Towards that end, the plaintiff (a company controlled by Yau) was incorporated in April 2009 to operate a curtain wall business.  In August 2009, the defendant was incorporated by Tsui and Yau as the holding company of the joint venture.  It was envisaged that in due course the shareholding in the plaintiff would be transferred to the defendant.  The plaintiff’s business began to generate revenue soon after the plaintiff was formed.  On the other hand, the anchoring systems business was a new line of business which might take 1 to 2 years before it could become operational.  Since the plaintiff would one day become part of the group of companies with the defendant as the holding company, Yau and Tsui verbally agreed that the plaintiff would pay for certain expenses for the defendant, which the latter would repay upon demand.

3.  The judge gave judgment for the plaintiff, and refused leave to appeal.  The defendant now applies for leave to appeal from the Court of Appeal.  11 grounds were advanced in the draft notice of appeal.  The defendant company’s grounds of appeal may be summarised as follows: (1) that the judge erred in holding that the defendant ratified the verbal agreement after its incorporation or after the signing of the joint venture agreement, which took place only on 13 April 2010; (2) that the judge should have held that certain expenses incurred by the plaintiff amounted to past consideration; (3) that the judge was wrong in finding that the expenses claimed had in fact been paid by the plaintiff; and (4) that the judge was wrong in finding that the expenses claimed related to the business of the defendant.

4.  Although the judge made no express finding as to when the verbal agreement was made, it is clear from the evidence of Yau, which the judge set out and accepted in his Judgment that it was made after the incorporation of the defendant.  The shares in the defendant were equally split and beneficially owned by Yau and Tsui, who would have been entitled to vote at a general meeting of the defendant.  The subject matter of the verbal agreement was one which a general meeting of the defendant could have carried into effect.  Yau and Tsui together represented the entire shareholding in the defendant.  Their unanimous assent to the verbal agreement amounted in effect to a resolution of a general meeting of the defendant.  They were therefore entitled to and did authorise the defendant to enter into the agreement with the plaintiff.  The fact that the joint venture agreement was signed at a much later stage (on 13 April 2010) could not affect the defendant’s capacity, after its incorporation, to enter into an agreement binding upon the defendant.  The issue of ratification generally arises when a contract is made purportedly on behalf of a company prior to its incorporation.  In the present case, the verbal agreement was made when the defendant was already in existence.  It is therefore unnecessary for the plaintiff to show that the verbal agreement was ratified by the defendant after the signing of the joint venture agreement.

5.  In any event, the judge considered the issue of ratification after the signing of the joint venture agreement.  He accepted and relied on certain conduct on the part of Tsui as amounting to an implied ratification by the defendant of the verbal agreement, including the evidence referred to in grounds (1) and (2).  After the joint venture agreement, Tsui was made aware of the claimed expenses and had ample opportunity to examine them but he never disputed the defendant’s general liability to do so or the validity or correctness of any such claims.  The judge was quite entitled to come to the view which he did on the evidence and there is no arguable basis for upsetting his conclusion.

6.  The defendant has also raised the issue of past consideration in ground (3), to the effect that expenses paid for by the plaintiff prior to the defendant’s incorporation or the signing of the joint venture agreement amounted to past consideration.  Past consideration generally refers to consideration provided by a contracting party which has already been rendered before the making of a contract, and in the absence of fresh consideration, such past consideration is no consideration at all.  The defendant’s ground of appeal, however, has adopted the date of the defendant’s incorporation or the date of the joint venture agreement as the temporal reference, which seems to have confused the concept of past consideration with pre-incorporation contracts.  In any event, the date of the joint venture, as I have said above, has no relevance to the binding effect of the verbal agreement.  Nor is it relevant to the sufficiency of any consideration provided prior to that date.  In so far as certain expenses may have been incurred by the plaintiff prior to the verbal agreement, the defendant was no less liable.  This is because the plaintiff provided sufficient consideration in promising to pay for certain future expenses for the defendant in the interim period before the defendant’s business could become operational, in return for which the defendant promised to repay all expenses, future or past (whether incurred prior to the verbal agreement, or prior to the defendant’s incorporation).

7.  This is sufficient to dispose of grounds (1) to (5) of the proposed grounds of appeal.

8.  Grounds (6) and (8) are to the effect that the judge was wrong in making the finding that the expenses had as a matter of fact been paid and settled by the plaintiff, in that Yau, the plaintiff’s only witness, had said in evidence that he did not have personal knowledge whether the claimed items were paid by the plaintiff.

9.  It is clear from the evidence that the plaintiff has incurred and undertaken legal responsibility for those items and, therefore, whether the plaintiff has settled those expenses is neither here nor there.  In any event, the judge found that the plaintiff did settle the expenses, for which he gave his reasons based on his assessment of the evidence.  There is no basis for upsetting his findings of fact.

10.  As to grounds (7) and (9), that the judge failed to give sufficient weight to the defendant’s evidence that some of the items were relevant to the plaintiff’s other businesses, and that the consultancy fees of Mr Yam Yee Wong were connected to another PRC company and not to the defendant, the judge was quite entitled to find on the evidence before him that the expenses did relate to the defendant’s business.  In particular, the judge gave his reasons for his finding in relation to Mr Yam’s consultancy fees at paragraph 47 of the Judgment.  There is no merit in these grounds.

11.  Grounds (10) and (11) add nothing of substance to the proposed appeal.  For the above reasons, none of the proposed grounds of appeal have any reasonable prospect of success.  The application for leave to appeal is hereby determined without a hearing on the basis of written submissions only, and leave is refused.  It also follows that the application for a stay of execution of the Judgment, in the absence of any arguable grounds of appeal, must likewise be refused.

12.  As the application for leave to appeal is entirely without merit, we make a further order pursuant to Order 59 r 2A(8) that no party may under rule 2A(7) request the determination to be reconsidered at an oral hearing inter partes.

13.  We make an order nisi that the defendant is to pay the plaintiff’s costs of this application, which we assess summarily on a gross sum basis at $30,000.  Any party who seeks to vary the order nisi shall lodge a written submission within 7 days hereof, failing which such order shall become absolute.