LAI YU SAN AND OTHERS v. WONG KWAN KIT

DCCJ3360/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3360 OF 2010

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BETWEEN

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J U D G M E N T

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1.  The 1st and 2nd plaintiffs are the former shareholders and directors of Good Resources Limited (hereinafter referred to as “Good Resources”).  They are claiming against the defendant for the return of rental deposit of $238,368.20 for the lease of a restaurant situated at Shop 301, Tin Wan Shopping Centre, Tin Wan, Hong Kong (hereinafter referred to as the “premises”).  The lease of the premises was held by Good Resources. 

2.  Under an agreement of sale and purchase of the shares of Good Resources including all the furniture, fittings, decorations at the restaurant situated at the premises executed by the plaintiffs and the defendant on 29 June 2010 (hereinafter referred to as the “contract”), the defendant became the owner of the restaurant and the tenant of the restaurant premises.  The 1st plaintiff is also a shareholder and director of the 3rd plaintiff.  The 3rd plaintiff claims against the defendant for a breach of clause 8 of the contract for failing to honour an agreement between the 3rd plaintiff and the Hongkong Electric Company Limited (hereinafter referred to as the “Hongkong Electric”) dated 19 June 2010, which resulted, according to the 3rd plaintiff, in damages suffered in the sum of $470,000. 

3.  The defendant, Wong Kwan-kit, is the son of Madam Tsang Sau-yam (hereinafter referred to as “Madam Tsang”).  By an instrument of transfer dated 8 July 2010, the 1st plaintiff transferred his 5,000 shares in Good Resources to the defendant, while the 2nd plaintiff transferred his 5,000 shares in Good Resources to Madam Tsang.  On the same day, the 1st and 2nd plaintiffs resigned as directors of Good Resources, and the defendant and Madam Tsang were appointed as directors in their place.  Madam Tsang was also appointed the secretary of Good Resources.

4.  The defendant counterclaims for the transfer of the restaurant licences and damages suffered for the plaintiffs’ failure to assist the defendant in the change of the name of the restaurant and the apportioned rental and electricity charges at the premises for the period 1 July to 7 July 2010. 

Background

5.  It is not disputed that Good Resources was and is a tenant of the Link Properties Limited (hereinafter referred to as “Link”) at Shop 301, 3rd Floor, Tin Wan Shopping Centre in Tin Wan, Hong Kong since April 2007.  Under a tenancy agreement dated 19 April, 2010, Link extended a further term of three years to Good Resources.  The extended tenancy commenced from 1 April 2010 to 31 March 2013 at a monthly base rental of HK$70,000 with an air-conditioning charge of $49,184.10 per month (hereinafter referred to as the “tenancy agreement”).

6.  Under clause 8 of the tenancy agreement, Good Resources paid to Link a rental deposit of $238,368.20 as guarantee of due performance of the tenancy agreement.  Mr Lai Wai-ming (hereinafter referred to as “Mr Lai”) is the father of the 1st and 2nd plaintiffs.  He is the shareholder and director of a company called Shining Star Restaurant Limited that operated a restaurant named Shining Star Restaurant at the premises since April 2007 (hereinafter referred to as the “restaurant”).

7.  In January 2010, the operation of Shining Start restaurant was transferred from Shining Star Restaurant Limited to the 3rd plaintiff, Shining Star Restaurant (Tin Wan) Limited, the shares of which were owned by the 1st and 2nd plaintiffs. 

8.  In mid-June 2010, Madam Tsang approached the manager of the Shining Star Restaurant and conducted a negotiation for the transfer of the restaurant on behalf of herself and the defendant.  At a meeting between Mr Lai and Madam Tsang and the defendant in the afternoon of 29 June 2010 at the Sunshine Café in Tsuen Wan, the parties reached an agreement for the transfer of the restaurant and the lease of the restaurant at a consideration of $2.68 million.  The agreement was reduced into writing by Mr Lai at Mr Lai’s Shining Star Restaurant in Tsuen Wan.  The agreement was signed by Mr Lai and the defendant. 

9.  The restaurant was handed over to the purchaser after the close of business in the evening of 7 July, 2010.  Two days prior to the handover, the parties met at an accountant’s office and executed documents for the transfer of the shares of Good Resources.

10.  The licence of the restaurant was issued by the Food & Environmental Hygiene Department in the name of the 1st plaintiff, while the liquor licence at the restaurant was issued to the 2nd plaintiff as the licensee by the Liquor Licence Board.  The liquor licence expired on 28 June, 2010, while the restaurant licence remained effective to date.  At the hearing, the plaintiffs agreed to transfer the restaurant licence to the defendant at the end of the trial of these proceedings. 

The issues of dispute

11.  The issues of dispute agreed by the parties at the trial are:

(1) whether the defendant had, by virtue of clause 8 of the sale and purchase agreement, agreed to perform the obligations stipulated in the contract between the plaintiffs and Hongkong Electric Company; 

(2) if yes, what were the obligations which the defendant had agreed to perform;

(3) whether the plaintiffs suffered any loss and damage as a result of the defendant’s failure to perform the obligations defined in issue 2;

(4) whether the defendant had orally agreed to reimburse the 1st and 2nd plaintiffs the rental deposit as part of the consideration for acquiring the business of Shining Star, or there has been no such agreement and a cheque was given to the plaintiffs out of grace without support of consideration;

(5) whether the plaintiffs have agreed to transfer the general restaurant licence and liquor licence to the defendant;

(6) if yes, whether the defendant suffered any loss and damage as a result of the defendant’s failure to transfer the said licences;

(7) whether the plaintiffs have agreed to offer any reasonable assistance to procure the change of the name of Shining Star to any other name as desired by the defendant;

(8) if yes, what is the reasonable assistance and whether the plaintiffs have failed to offer such assistance in this respect;

(9) if yes, whether the defendant has suffered any loss and damage as a result of the defendant’s failure to assist in changing the name of Shining Star to another name, as decided by the defendant.

12.  At the trial the defendant conceded his abandonment of issues 6, 8 and 9. 

The plaintiffs’ case

13.  Mr Lai was the sole witness for the plaintiffs.  He confirmed he was an experienced operator of Chinese restaurants having been in the business for 30 years, he was operating four restaurants at the time of the trial. 

14.  Mr Lai admitted that on 19 June 2010 the 3rd plaintiff signed an agreement with Hongkong Electric to join the Hongkong Electric Kitchen Equipment Incentive Scheme whereby it agreed to install 30 new sets of electric kitchen equipment and use electricity as its sole energy source and specific kitchen equipment for the duration of the restaurant’s tenancy of three years.  In return the Hongkong Electric would contribute a sum of $800,000 towards the 3rd plaintiffs’ purchase and installation of specific electric kitchen equipment (hereinafter referred to as the “Hongkong Electric agreement”)(pages 131 to 133 of the bundle). 

15.  Pursuant to the Hongkong Electric agreement, Mr Lai obtained a quotation for 30 sets of new kitchen equipment as replacement equipment set out in the Hongkong Electric agreement from OMA Kitchen Equipment Company Limited (hereinafter referred to as “OMA”) on 6 May 2010 (pages 188 to 193 of the bundle).  He subsequently requested Mr Lam of OMA to prepare a revised quotation reducing the number of new sets of kitchen equipment to 14 to be supplied by OMA, thus reducing the cost of the original $545,400 to $330,000.  The new revised quotation is at page 195 to 197.1 of the bundle. 

16.  He had further agreed with Mr Lam that the incentive payment by Hongkong Electric under the Hongkong Electric agreement would be made directly to OMA.  In return, OMA would issue two post-dated cheques of $235,000 each in favour of the 3rd plaintiff as reimbursement.  The kitchen equipment supply agreement was in writing, it is dated 27 June 2010 (pages 195 to 197.1).  Mr Lai claimed he had signed and returned a copy of the supply agreement to Mr Lam. 

17.  Mr Lai claimed that he had explained to Madam Tsang at the time of negotiation on 29 June 2010 that the tenancy of the restaurant was held by a company named Good Resources Company Limited, and Madam Tsang’s purchase of the restaurant would require the transfer of the shares of Good Resources, and the existing decoration, furniture, equipment and other tools of trade of the restaurant, and that the new operator would also have to take over and continue to employ all the existing employees of the restaurant.  He said Madam Tsang had agreed to these conditions before they reached an agreed sale price of $2.68 million.

18.  Mr Lai admitted he was the drafter of the written contract in Chinese.  The contract recorded the terms the parties had agreed at the café which Mr Lai had reduced into writing at the Tsuen Wan Shining Star Restaurant situated at the same shopping arcade as the Sunshine Café.  Mr Lai said he had also told Madam Tsang about the Hongkong Electric Kitchen Equipment Incentive Agreement that the 3rd plaintiff had signed and that he had insisted that the purchaser of the restaurant should perform the agreement which the 3rd plaintiff would benefit from.  He said he told her she would get a completely new kitchen equipment replacement with a three year warranty. 

19.  After Mr Lai completed the first draft of the written agreement, he showed it to Madam Tsang.  At Madam Tsang’s request, he inserted clauses 4 and 5 stating that the transfer must be completed on or before 8 July 2010 or the purchaser’s deposit of half a million dollars would be forfeited should the purchaser fail to complete.  And should the seller fail to complete the sale, the seller would return the deposit, in addition, pay to the purchaser a further sum equivalent to the deposit.

20.  Mr Lai confirmed that before the parties left the Tsuen Wan restaurant that day, the parties had discussed and orally agreed on matters in relation to:

(a) the transfer of shares of Good Resources to be executed at an accountant’s office to be nominated by the purchaser;

(b) apportionment of utility charges, such as water, electricity and gas, with apportionment to be borne by the seller before the handover, and after the handover to be borne by the purchaser, together with the refund of the utilities deposit;

(c) there will be a refund of the rental deposit of the premises at Tin Wan Shopping Centre by the purchaser on the day of the handover by cheque.

21.  Mr Lai claimed that two days later, Madam Tsang came to his Tsuen Wan office, he handed over to Madam Tsang a Chinese document explaining the Hongkong Electric Incentive Scheme and told her to contact the installation contractor.  He claimed that they had also agreed to use Mr Lai’s accountant, Excel Services Limited, for the execution of the transfer of the shares of Good Resources. 

22.  A few days later, the parties attended the office of Excel Services Limited and a transfer of the shares of Good Resources was executed.  On that occasion, Madam Tsang also paid over the balance of the purchase price to Mr Lai.  It was the evidence of Mr Lai that Madam Tsang did not raise the matter of transfer of the general restaurant and liquor licences with him even at that stage, though he admitted the licences were useless to him after the restaurant was sold. 

23.  On the night of the handover, 7 July 2010, Mr Lai confirmed the parties had conducted an inventory check, including meter reading of the water, electricity and gas metres.  He received from Madam Tsang a cheque for the rent deposit of $238,368.20 and a cheque for $40,504.60 for the food, beverages and miscellaneous items left behind at the restaurant.  Both cheques were issued by a Mr Wu Yuquan in favour of Shining Star Super Seafood Limited.  He admitted the payee’s name was supplied and requested by him. 

24.  Afterwards, Mr Lai said he asked Madam Tsang about the progress on the Electric Kitchen Equipment Incentive Scheme, but Madam Tsang told him at that stage the new operator of the restaurant preferred to use gas as the sole source of energy at the restaurant. She then requested Mr Lai to sign on a document to effect the transfer of the restaurant and liquor licences to the defendant.  Mr Lai refused to do so on the basis that the purchaser had committed a breach of the contract by refusing to perform the 3rd plaintiffs’ agreement with Hongkong Electric, and that the parties had never reached an agreement on the transfer of the restaurant and liquor licences. 

25.  On 9 July 2010, Mr Lai was informed the rental deposit cheque had been countermanded by the drawer.  In the afternoon of the same day Madam Tsang visited him and requested for the transfer of the restaurant and liquor licences, offering to him an extra $100,000.  She had also told him she would honour the rental deposit cheque should the restaurant licence be transferred to the defendant. He said he rejected Madam Tsang’s offer because she had breached her agreement to perform the 3rd plaintiff’s Hongkong Electric agreement and refused to use electricity as the sole source of energy in the restaurant’s kitchen.

The Defence case

26.  Madam Tsang told the court that she had been in the restaurant business in Hong Kong for 20 years, she is the operator of four restaurants, the restaurant in Tin Wan is her fifth restaurant.  Her restaurants’ main business is to cater to package tour groups from China.  As the restaurant in Tin Wan is close to tourist sights, including the Ocean Park and Aberdeen, with parking facilities for coaches close to the restaurant’s shopping arcade, it was suitable for her customer’s needs.  She decided to purchase the restaurant in June 2010 to be ready for the summer vacation period tourists from China and she was willing to pay a high price for the restaurant. 

27.  She said she had informed Mr Lai at the meeting on 29 June 2010 that it was important the restaurant should be able to carry on its business right after the transfer and that the renovation work would be conducted at a later date. She claimed that she had insisted that the restaurant and liquor licences should be transferred to the defendant together with the restaurant in the lease of the premises because the restaurant could not operate without a restaurant licence.  She further claimed that Mr Lai had also agreed to assist her in the change of the name of the restaurant, which she had intended to name 「迎賓閣」. She claimed that these became part of the contract terms.  

28.  Madam Tsang admitted that even though she had no intention of purchasing the shares of Good Resources, when she negotiated the purchase of the restaurant with Mr Lai, she was given to understand the lease of the restaurant premises was held by Good Resources.  As the landlord, Link, would not permit any subletting or transferring of the lease to other persons or companies, she had agreed to purchase the restaurant and sign the contract with Good Resources and to take over the shares of Good Resources in order to inherit the tenancy agreement and all the equipments, decorations, furnitures and trade implements situated at the premises of the restaurant. She claimed she had no idea that the 3rd plaintiff existed at the time of the signing of the contract.

29.  As to clause 8 of the contract, she claimed it was inserted without her consent or understanding and that Mr Lai had never told her there was an agreement with Hongkong Electric under the Electricity Kitchen Equipment Incentive Scheme.  When she questioned Mr Lai about clause 8 before signing the contract, all he told her was the new operator had to retain the two electricity metres situated at the roast meat section and the kitchen. 

30.  She claimed she would not agree to use electricity as the sole source of energy in the kitchen because the tour groups her restaurants catered to required speedy service, and electricity kitchen equipments are too slow for her restaurants’ use.  She would not have agreed to clause 8 had it been explained to her that the restaurant had to use electricity as the sole source of energy for three years.  She said all her restaurants used gas as the sole source of energy. She admitted, as a matter of fact, the Hong Kong Gas Company also offered an incentive scheme in the form of gas charges rebate in the monthly invoice.

31.  She further claimed that the items of electricity equipment selected by Mr Lai set out in the OMA quotation and contract were unsuitable for her restaurants’ use.  She gave the example of the steam oven, the capacity of which was too small for the tour groups’ customers.  And as rice rolls were not in her restaurant menu, rice roll steamers are not used in her kitchen.  She denied she had ever agreed to the refund of rental deposit to the 1st and 2nd plaintiffs.  She claimed it was not mentioned at the time of the contract.  It was not set out under clause 9 nor was it orally agreed by her.

32.  However, on the evening of the handover at the restaurant, she was told to pay for the food and beverages and miscellaneous items left in the restaurant, and in addition, the rental deposit.  As she was never told there were these additional payments to be made at the handing over of the restaurant she did not bring any money or a chequebook.  She admitted, after the inventory check, she agreed to pay the $40,000-odd for the food stuff and beverages left in the restaurant.  She had to ask her partner, Mr Wu, to issue a cheque for the payment.  She admitted she had asked Mr Wu to issue a cheque for the rental deposit even though she had always considered the rental deposit to be part of Good Resources’ assets, and it was not a term agreed by the parties under the contract, but because she had wanted the handover to go smoothly, she agreed to issue the cheque.

33.  Madam Tsang brought with her at the handover, on the evening of 7 July 2010, a restaurant licence consultant.  He had prepared an application of change of name of the licensee of the restaurant for the 1st plaintiff’s signature.  Mr Lai then mentioned to Madam Tsang for the first time the Hongkong Electric Kitchen Equipment Incentive Agreement he had signed with Hongkong Electric.  He said he would receive several hundred thousand dollars if all the kitchen equipment were replaced with new ones.  He claimed he had already paid a deposit of $320,000. 

34.  Madam Tsang said it was the first time she was told about the Electric Kitchen Equipment Incentive Agreement.  She then told him she would not use electricity kitchen equipment and could not agree to the commitment he made to Hongkong Electric.  Mr Lai asked her to think about it and the matter on transfer of restaurant and liquor licences was put on hold.

35.  It was on that basis she decided to stop the rental deposit payment cheque.  Madam Tsang admitted she attended Mr Lai’s office at his Tsuen Wan restaurant on 9 July 2010 to resolve the matter of the licence transfer and the change of name of the restaurant.  Mr Lai told her, that his son, the 1st plaintiff, will be in the office later that day.  While she waited, Mr Lai showed her a document in English with a quotation from OMA and told her he had indeed signed an agreement with Hongkong Electric.  Madam Tsang said she did not understand the English language and she had no idea what the document was about.

36.  While Mr Lai was trying to persuade her the benefits he would get if she would agree to use electricity in the kitchen, a Mr Lam Wai-ming from OMA Kitchen Equipment Company Limited joined the meeting.  Because Mr Lai claimed he had paid a deposit of $320,000 to Mr Lam for new electric kitchen equipment to be installed, and in order to obtain the transfer of the restaurant licence and the plaintiffs’ assistance in the change of name of the restaurant with Link, Madam Tsang offered to pay half of the deposit Mr Lai had paid Mr Lam.  The offer was rejected by Mr Lai. 

37.  According to Madam Tsang, because of the plaintiffs’ failure to transfer the liquor and restaurant licences to the defendant, the defendant suffered loss due to the delay in obtaining a renewal of the liquor licence for four months. Fortunately, the restaurant, with a licence issued in the name of the 1st plaintiff, was able to operate its business at the premises.  The defendant has abandoned his claim for damages under this head. 

38.  On the other hand, the plaintiffs have failed to pay the electricity charges or the rental for the period apportioned between 1 July to 7 July 2010 as agreed.  The defendant counterclaims for the reimbursement of the sum of $53,798, including the electricity charges and $28,000 rental.

39.  The defence’s subpoena witness Mr Lam Wai-ming told the court he was asked by Mr Lai to give a quotation for the replacement of all the electric kitchen equipment at the restaurant in May 2010.  He admitted he was the supplier and had installed the restaurant’s electric kitchen equipment in mid-2007 when the restaurant first opened at the premises in Tin Wan Shopping Centre.  According to the Hongkong Electric Kitchen Equipment Incentive Agreement, Hongkong Electric would contribute a lump sum to restaurants which use electricity as the sole source of energy as an incentive to replace the kitchen equipment with new electric equipment.

40.  Mr Leung admitted he had sent a quotation for the replacement of 30 new sets of kitchen equipment in the restaurant, as requested by Mr Lai, to Hongkong Electric, the quotation was for an amount over $1 million.  Mr Lam admitted he had given Mr Lai an earlier quotation for replacement of 30 sets of new kitchen equipment on 6 May 2010.  Afterwards, at Mr Lai’s request, 16 items which could be purchased from other suppliers or makers were deleted, reducing the costs from the original quotation of $545,400 to $330,000.  (pages 188 to 193 of the bundle).

41.  Mr Lam admitted, he had agreed with Mr Lai to give him two post-dated cheques after receiving the two stage payments for the replacement of electric kitchen equipment from Hongkong Electric because Mr Lai had agreed to arrange the incentive cash payment from Hongkong Electric to be paid directly to OMA, and OMA would reimburse Mr Lai the two post-dated cheques for the difference in the purchases ordered from OMA. 

42.  Mr Lam claimed Mr Lai’s restaurant was required to replace the kitchen with new electric kitchen equipment, and the costs, including cabling and installation, should exceed the cash incentive offered of $800,000; that Hongkong Electric would only approve new kitchen equipment replaced in the restaurant after it made sure the cost of electricity consumed would be of a certain value before the cash incentive sums were paid.  He also said Hongkong Electric would inspect the restaurant from time to time prior to releasing the money.  As the restaurant could purchase its equipment from other suppliers to make up the difference in the purchases from OMA and the quotation he sent to Hongkong Electric on Mr Lai’s restaurant, he did not query Mr Lam’s request in the deletion of some of the items from the quotation which could be supplied by other suppliers while he would supply and install the $330,000 worth of kitchen equipment.

43.  He claimed he was told by Mr Lai to pretend he had received a deposit of $320,000 for the replacement of new kitchen equipment contract.  He said Mr Lai had told him he had received a very good offer for the restaurant from a purchaser, and that he would persuade the purchaser to use electricity in the kitchen and install electric kitchen equipment that he would purchase from OMA, so that OMA would benefit from the business and Mr Lai would benefit from the Hongkong Electric Incentive Scheme.  However, Mr Lam admitted he felt he had to inform Madam Tsang after the meeting on 9 July 2010 that he had not received a deposit from Mr Lam because Madam Tsang had offered to pay half of the deposit sum to Mr Lai at the meeting.  He thought Mr Lai was deceiving Madam Tsang in doing so. 

Findings

44.  After observing the witnesses who gave evidence in court on behalf of the plaintiffs and the defendant, and after considering carefully the documents produced, I find Madam Tsang and Mr Lam to be honest witnesses.  Their evidence was reasonable and credible.  On the other hand, I find Mr Lai to be evasive and untrustworthy. 

Issue 1: Whether the defendant had, by virtue of clause 8 of the sale and purchase agreement, agreed to perform the obligations stipulated in the Hongkong Electric contract

45.  Based on the evidence of Mr Lai, Madam Tsang was not shown or given a copy of the Hongkong Electric contract on 29 June 2010 when the parties came to an agreement for the sale of the restaurant.  Mr Lai admitted he gave her a document in Chinese which explained the Electric Kitchen Equipment Incentive Scheme two days after the contract was signed.  She was shown the Hongkong Electric Agreement in English on 9 July 2010 when she went up to his office requesting him to transfer the licences to the defendant.  Though he claimed he had briefly mentioned the Hongkong Electric Agreement to her before the parties signed the written contract, it was clear he did not explain the obligations or the details of the Hongkong Electric contract to her.

46.  On that basis alone, the obligations under the Hongkong Electric agreement with the 3rd plaintiff were not disclosed to the defendant to render it binding on the defendant.  According to Madam Tsang’s evidence, she was never told there was any Hongkong Electric Incentive Agreement.  She was only told clause 8 referred to the continued use of the two electric metres at the restaurant.  She said that was the only reason she had agreed to clause 8 being inserted.

47.  I accept Madam Tsang’s evidence that she would not have agreed to be bound by an agreement that would require her restaurant to use electricity as the sole source of energy in the kitchen for three years.  There was no incentive for her to do so when all her other restaurants used gas and her kitchen staff and her customers’ demand inclined towards the use of gas kitchen equipment. Furthermore, the fact that the order clause 8 was placed at the end of the contract indicated it was added as an afterthought together with the utilities deposit term under clause 9. 

Issue 2: What were the obligations the defendant agreed to perform?

48.  Madam Tsang or the defendant cannot be expected to agree to perform any of the obligations under the Hongkong Electric Agreement when they were not told what obligations were included at the time the contract was signed.  The only obligation under clause 8 that the defendant was bound to perform was, as Madam Tsang said, to retain the two electricity metres at the restaurant.

Issue 3: Whether the plaintiff suffered any loss and damage as a result of the defendant’s failure to perform the obligations

49.  As I have found there were no obligations under clause 8 other than retaining the two electric metres, the plaintiff suffered no loss or damage.  Even if it was true, as claimed by the plaintiff, that the clause 8 meant the obligations under the Hongkong Electronic agreement, had been explained to Madam Tsang before the contract was signed and that she had agreed to the obligations, in my view, the plaintiff would have suffered no loss or damage, the reason being, the Hongkong Electric agreement was a conditional agreement. 

50.  The conditions the 3rd plaintiff had to satisfy are that the restaurant’s 30 sets of electric kitchen equipment have to be completely replaced with new ones.  The quotation for such replacement would have to be approved by Hongkong Electric. According to Mr Lam, Hongkong Electric’s offer of $800,000 was based on the OMA’s quotation of over $1 million for the total replacement of the restaurant’s kitchen equipment.  Mere renovation of some of the old equipment would not be approved by Hongkong Electric. 

51.  The incentive cash payment was calculated according to the expected use of electricity based on the minimum power ratings of the 30 sets of kitchen equipment and the cost of replacing them.  There would be no extra cash to be pocketed if all 30 sets of kitchen equipment were replaced with new sets including the cost of installation and cabling.  For Mr Lai to delete 16 sets of the items, pretending that these would be purchased from other suppliers by retaining the old equipment in the kitchen, it would amount to deceiving the Hongkong Electric.

52.  In order for the 3rd plaintiff to obtain monetary benefits from the Hongkong Electric agreement, it would require not only the cooperation of Madam Tsang to agree to use electricity as the sole source of energy in the kitchen for three years and to agree to the replacement of only part of the kitchen equipment, but also to pretend to Hongkong Electric that there was a complete replacement of 30 sets of kitchen equipment, he would also have to obtain OMA’s cooperation in the deception hoping that Hongkong Electric would not find out when Hongkong Electric inspected the restaurant’s kitchen. 

53.  Even if what Mr Lai told the court is true, I find that for the 3rd plaintiff to succeed in obtaining some cash benefits under clause 8, the 3rd plaintiff would have to practise fraud on Hongkong Electric with the assistance of the defendant and Mr Lam.  It would be an illegal agreement and is unenforceable due to illegality.

Issue 4: Whether the defendant has orally agreed to reimburse the 1st and 2nd plaintiffs the rental deposit as part of the consideration for acquiring the business of Shining Star, or there was no such agreement and a cheque was given to the plaintiff out of grace or without support of consideration

54.  I reject the evidence of Mr Lai and accept the evidence of Madam Tsang that Mr Lai had never requested the defendant to pay the 1st and 2nd plaintiffs the rental deposit of the premises on 29 June 2010 when the parties reach an agreement on the purchase of the restaurant.

55.  Based on the legal principle of contra proferentum, that the least favourable construction should be adopted against him, the page 130 written contract was drafted by Mr Lai and he had drafted and re-written it before it was signed. It is obvious that he had put in the first three clauses, before showing it to Madam Tsang.  He then inserted clauses 4 and 5 at Madam Tsang’s suggestion before clause 6 was inserted when Madam Tsang paid him the deposit of half a million dollars.  He then recorded the numbers of the two cheques paid to him. After recording clause 6, he recorded clause 7 that released the 3rd plaintiff’s liability to pay redundancy payment to the restaurant employees. He further inserted clauses 8 and 9 as an afterthought.  However, the rental deposit was not mentioned in any of these clauses in the contract.  If the rental deposit, which belonged to the assets of Good Resources, was intended to be paid by the defendant to the 1st and 2nd plaintiffs it would have been recorded in the agreement. 

56.  It is clear that Mr Lai made use of Madam Tsang’s eagerness for a smooth handover of the restaurant on the night of 7 July 2010 to make numerous monetary demands on her.  She was obviously unprepared for such further payments on the night of the handing over and she did not bring a chequebook with her. 

57.  I find the rental deposit cheque was not supported by any consideration because Madam Tsang and the defendant had already purchased all the shares of Good Resources with its assets when the instruments of transfer were executed at the accountant’s office two days before the restaurant handover on 7 July 2010, when she paid over, to Mr Lai, the consideration of $2.68 million as a purchase price.  As the rental deposit formed part of the assets of Good Resources, the rental deposit cheque issued on 7 July 2010 was not supported by any consideration. 

Issue 5: Whether the plaintiffs have agreed to transfer the general restaurant licence and liquor licence to the defendant

58.  The sale of the restaurant must surely include its licences as Mr Lai admitted these licences are useless to him because they are attached to the restaurant and belong to the restaurant.  He obviously was making use of them to bully Madam Tsang into agreeing to use electricity in the restaurant so that he can benefit from the Hongkong Electric agreement.  However, since the defendant has been operating the restaurant with the restaurant licence issued in the name of the 1st plaintiff, the defendant has abandoned the claim for loss and damage and the claim for the failure to transfer the liquor licence. 

Issue 7 - Change of the restaurant name

59.  The defendant has conceded that he could negotiate directly with Link the change of the restaurant name as the shareholder and director of Good Resources, and his counterclaim for loss and damage has been abandoned.  I therefore make no findings on this issue. 

The Defence’s Counterclaim

60.  The defendant counterclaims for the plaintiffs’ failure to pay the apportioned rental and electricity charges.  The plaintiffs have conceded on the rental charges and the unpaid electricity charges.  I find the defendant is entitled to the reimbursement of the rental and electric charges which was part of the agreement on apportionment.  The electricity charges were charges that the plaintiff had failed to pay the electricity company, and the defendant had to partly deduct them from the electricity deposit and pay the balance. 

61.  I accept Mr Lee’s calculation of an average cost of electricity from the 85 days between 21 April to 14 July 2010 at $299,799.10, which works out to be $3,527.04 per day.  The seven days in July, from 1 to 7 July 2010, therefore amounted to $24,689.28. 

62.  As to the rental of the same period of seven days, based on a monthly rental and air-con charges at $120,000, the plaintiff is liable to reimburse the defendant the sum of $27,096.78.  The total ($24,689.28 + $27,096.78) comes to $51,786.06.

63.  The plaintiffs’ claim is dismissed.  Judgment to the defendant on his counterclaim for:

(1)  the plaintiffs to assist the defendant in the transfer of the restaurant licence in the terms set out by the defence counsel, Mr Poon, i.e. the plaintiffs shall jointly and severally assist and/or procure (as the case may be) the transfer of the general restaurant licence of the Restaurant to the defendant or any person designated by the defendant by:

(a)  causing the 1^st plaintiff to sign document(s) which are necessary for the transfer of the said licence within 7 days upon request by the defendant from time to time as requested by the defendant; and

(b)  providing, surrendering all and any documents that are in the possession, power or control of any of the plaintiffs which are necessary for effecting the transfer of the said licence to the defendant from time to time within 7 days upon request by the defendant;

(c)  procuring the 1^st plaintiff to truthfully and accurately answer or supply information in relation to any questions/enquiries issues raised by the relevant governmental authorities in relation to the transfer of the said licence, either by supplying those information and/or answer to the defendant or the relevant governmental authorities direct (including but not limited to attending relevant hearings), from time to time upon request and as directed by the defendant; and

(2)  plaintiffs to pay the sum of $51,786.06, with interests at half judgment rate, from the date of counterclaim to the date of judgment, and thereafter at judgment rate.

Costs

64.  Costs to follow the event.  The defendant’s costs to be borne by the plaintiffs, to be taxed if not agreed, with certificate for counsel. 

(Submissions re costs)

65.  On the basis of my findings in the judgment, the plaintiffs have failed to succeed in any part of their claims.  The defendant was clearly reasonable in making the two sanctioned offers on 9 and 19 March 2012 to the plaintiff before the trial commenced, and the offer of settlement on the day of the trial.  For that reason, I allow the defendant’s application for costs to be taxed on an indemnity basis after 6 April 2012.