SUN TAK SHING CONFECTIONERY (HK) LTD v. CHEUNG WAI TIM t/a KWUN HEUNG SUN TAK SHING CO

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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Background

1. Prior to June 1992, Kwun Heung Sun Tak Shing Company ["Kwun Heung"] was a partnership business in food provision/bakery between Cheung Wai Tim ["the Plaintiff"], Ng Kai On ["Ng"] and Ko Wai Leung ["Ko"]. By a certificate of registration dated 21.12.1983, a trade mark in the name of Sun Tak Shing ["the Trade Mark"] was registered with the Hong Kong Trade Marks Registry in the names of the Plaintiff, Ng and Ko trading as Kwun Heung in Class 30 for "eggrolls, bread, biscuits, cakes, pastry and confectionery". Registration of this mark was renewed on 2.11.1990 for 14 years from 29.6.1990. In about February, 1989, Kwun Heung registered a similar mark in China for eggrolls and wafer. In the final quarter of 1989, Kwun Heung was also granted the right by the Hong Kong Article Numbering Association Limited ["HKANA"] to use Manufacturer Number 3368 and a bar code to depict its products.

2. In about June 1992, the Plaintiff discussed with Ng and Ko for dissolution of their partnership in Kwun Heung. That partnership was formally dissolved on 27th June, 1992 by a written agreement between them dated 20.8.1992. The Plaintiff was to pay to each of Ko and Ng $750,000. In return the Plaintiff became the sole owner of the partnership assets including the Trade Mark; an automatic egg-rolls baking machine and a piece of property in the Tsing Yi Industrial Centre ["the Tsing Yi Premises"] where Kwun Heung conducted its business. The Trade Mark was assigned to the Plaintiff by an Assignment of 9.9.1992.

3. By a written document dated 1.7.1992 ["the First Document"] signed by the Plaintiff, Lo Lun ["the 1st Defendant"] and witnessed by one Cheng Wai Hong, the Plaintiff and the 1st Defendant were said to have agreed on the transfer of the trade marks and assets of Kwun Heung. In respect of the trade marks, for the first 10 years, the Plaintiff would be paid $1 for each lb. of egg-rolls and $0.3 for each lb. of other products sold. For the next 5 years, the Defendant would be paid $0.5 for each lb. of egg-rolls and $0.15 for each lb. of other products sold. The trade mark was to belong to a company nominated by the 1st Defendant after the expiration of 15 years. The other assets were priced at $1,080,000 to be paid equally in 10 years. The First Document expressly provided that "Formal documents are to be executed in a solicitor's office".

4. By a further written document also dated 1.7.1992 ["the Second Document"] and signed by the Plaintiff and the 1st Defendant for Kwun Heung and the 2nd Defendant, Kwun Heung and the 2nd Defendant were said to have reached agreement on use of the Trade Mark and the price of products to be sold. In respect of the Trade Mark, Kwun Heung was to be paid on terms similar to those set out in the First Document. The Trade Mark would belong to the 2nd Defendant on expiration of the agreement. Without the consent of the 2nd Defendant, Kwun Heung was not permitted to sell its products to others. The Second Document further recorded Kwun Heung's agreement that 10% of the trade mark fees should be deducted by the 2nd Defendant in favour of Cheng Wai Hong who also witnessed that Document. The Second Document concluded with the statement which Counsel agreed should read as follows : "It is hoped that the above agreement can be observed and performed by the parties."

5. On 9.7.1992, the 2nd Defendant changed its name from Koon Wah Wine, Spirit and Provisions Co. Ltd. to Sun Tak Shing Confectionery (HK) Ltd. ["Confectionery"]. It also commenced ordering egg rolls from Kwun Heung. A consignment of those egg-rolls were shipped by the 2nd Defendant to Australia on 26.8.1992. The Plaintiff was paid from time to time for the egg rolls they supplied. The Plaintiff was further paid trade mark fees computed on the basis of egg-rolls sold by Confectionery.

6. 2 circulars both dated 21.8.1992 were prepared. The first of such circular was signed by the Plaintiff in the name of Kwun Heung and addressed to its customers and suppliers. By that circular the customers and suppliers were informed of Kwun Heung's alleged registration of Confectionery. Those customers and suppliers were invited to use 1st July as the cut off date for their dealings with Kwun Heung and Confectionery The second of such notice was signed by the 1st Defendant on behalf of Confectionery. Suppliers and customers of Kwun Heung were informed of the registration of Confectionery for operating and managing all the products and business of Kwun Heung.

7. Annual subscription for HKANA's membership fell due in mid-October. By letter dated 19.10.1992, Confectionery asked Kwun Heung for its labour insurance policy in order to pay the subscription. The Plaintiff signed on this letter to signify his consent that Confectionery should effect such subscription on his behalf. By letter dated 20.10.1992, Confectionery paid HKANA and informed them that with effect from 1.7.1992, Kwun Heung had changed its name to that of Confectionery. This letter was chopped with a chop of Kwun Heung. The 1st Defendant signed for both Confectionery and Kwun Heung.

8. On about 22.10.1992, a consignment of egg-rolls totalling 6,149.16 kgs. was despatched by one Hau Kong Food Factory ["Hau Kong"] in Tung Kwun China to the Tsing Yi Premises. Such despatch was made pursuant to the direction of Confectionery. On about 30.11.1992, the Plaintiff was paid trade mark fees for the months of July to September 1992 calculated at $1 for each lb. of egg-rolls sold.

9. By a letter dated 30.11.1992, on the instructions of Confectionery, Fred Kan & Co. sent 2 draft documents to Paul Kwong & Co. for the attention of Miss June Leung for her consideration on behalf of the Plaintiff. The first was a draft Agreement for Assignment of Trade Mark between the Plaintiff and Confectionery providing for immediate assignment of the Trade Mark in favour of Confectionery for the sum of $10. The second was a draft Manufacturing Agreement between the same parties whereby Confectionery authorised the Plaintiff to use the Trade Mark in the production of his products. Instead of Paul Kwong & Co. the Plaintiff instructed C.K. Chan & Co to reply on his behalf. By their reply of 9.12.1992, C.K. Chan & Co. pointed out that the Plaintiff was "considering and reviewing [Confectionery's] offer" and demanded for the return of his company stamp chop, trade mark certificates and all other documents relating to the Trade Mark because "no contract has yet been entered between the parties". In their response of 10.12.1992, Fred Kan & Co. pointed out that their clients were not prepared to accept substantial amendments to the 2 drafts. They also returned the trade mark certificates and other documents to C.K. Chan & Co. Further correspondence ensued between the 2 firms. By their letter of 18.12.1992. Fred Kan & Co. asserted that "our respective clients have entered into an agreement in respect of the Trade Mark as evidenced by the enclosed Chinese document dated 1st July, 1992. If your client refuses to sign the Agreement for Assignment of Trade mark and Manufacturing Agreement drafted by us on behalf of our client, our client will still rely on the Chinese document". The Chinese document enclosed was the Second Document. C.K. Chan & Co. challenged the "validity" of the Second Document by their letter of 24.12.1992. No reason was furnished in support of their contention. Further drafts exchanged between the 2 firms but the parties did not sign any further agreement.

10. Confectionery continued to order goods from Kwun Heung. By a receipt dated 15.4.1993, Kwun Heung acknowledged payment of $1,054,398.3 from Confectionery in respect of supply between July 1992 and February 1993. On 20.4.1993, the Plaintiff acknowledged receipt of 2 further cheques drawn by Confectionery in favour of Kwun Heung - one dated the same day for $20,000 and the other post-dated to 26.4.1993 for $56,994.54. The post-dated cheque was dishonoured upon presentation. Confectionery explained in their letter of 6.5.1993 that they countermanded payment because the Plaintiff did not issue any receipt for the payments they made between November 1992 and April 1993. Confectionery further informed the Plaintiff that the sum of $56,994.54 "is available at any time" upon provision of official receipts from the Plaintiff. 12 days later the Plaintiff demanded Confectionery to cease using the Trade Mark.

11. From 26.7.1993. Confectionery pressed the Plaintiff for delivery of egg-rolls. Their attempts to contact the Plaintiff directly and indirectly (through one Mr. Ricky Cheng) were unsuccessful. Further correspondence passed between the parties in relation to the use of the HKANA Number and bar code culminating in the commencement of the first of the 2 consolidated actions [A8980] by Confectionery on 6.10.1993. The Plaintiff issued his writ [A9488] on 20.10.1993.

The Agreed Issues

12. Both Counsel agreed that the issues as defined by the pleadings are as follows :

The Plaintiff's case

13. Despite repeated requests for particulars prior to trial and several adjournments in the course of trial for proper formulation of the Plaintiff's case, Mr. Leong (Counsel for the Defendants) protested at the end of his case that the Plaintiff's claim remains wholly unintelligible. There is considerable force in Mr. Leong's criticisms.

14. The Plaintiff's case was first opened on the basis that there was an oral agreement between the parties on 1.7.1992 evidenced by the First and the Second Documents. The agreement was "partly oral and partly written". It is only "a temporary arrangement" with an implied term "that it is to be terminated upon reasonable notice". When it was pointed out this case differed from the case as pleaded, Mr. Chu (Counsel for the Plaintiff) made clear that he was relying merely on an oral agreement. He further pointed out that his sole basis for contending that the Second Document is not a binding agreement hinges on the sentence "It is hoped that the above agreement can be observed and performed by the parties". Mr. Chu maintained that this indicates an intention not to be contractually bound.

15. Mr. Chu invited this Court to answer each of the agreed issues as follows :

16. In his closing submissions, Mr. Chu maintained that "the oral agreement reached in or about July, 1992 should be supplemented by extrinsic evidence to prove 2 further terms". The 2 additional terms relate to instructing "solicitors to reduce the agreed terms of the meeting into a formal agreement" and giving shares to the Plaintiff in a new company to be formed. He also relied on 4 acts of repudiation. The first was Confectionery's change of name on 9.7.1992. Mr. Chu submitted that the Plaintiff was unaware of this until commencement of litigation. Secondly, it was argued that Confectionery gave unequivocal notice of termination in or about August 1992. However this so-called "act of repudiation was not accepted by the Plaintiff". Thirdly, it was said that Confectionery failed to give further account of royalty to the Plaintiff. Finally, Mr. Chu asserted that Confectionery refused to make further payment. Mr. Chu contended that the Plaintiff accepted the last 2 acts of repudiation. He did not however identify when and how such acceptance was effected.

The Defendants' Case

17. In contrast, the case of the Defence is clear and consistent. Mr. Leong invited the Court to answer each of the agreed issues as follows :

Evidence of the Plaintiff

18. In his evidence in chief, the Plaintiff informed the court that he only received 1 year of primary education and is almost illiterate. He admitted signing the First Document on 1st July, 1992 and the Second Document on 6th or 7th July, 1992. The Second Document was signed because the terms and profit given to him under the First Document was "not quite reasonable" to him. When the Second Document was signed there was an agreement to instruct solicitors to write out a formal contract. However there was no agreement at that juncture to form a new company. When he made the 1st July 1992 oral agreement, he did agree to grant exclusive right in Hong Kong but not in any other territory. He was to manufacture 6 bags of flour per day resulting in approximately 500 pounds of final products. He attended the office of Paul Kwong & Co. to see Miss June Leung in August 1992. The purpose of that meeting was to "talk about the problems for co-operation". He intended to vary "the contract to reflect its not a sale but its a co-operation between us". No agreement was reached in the office of Paul Kwong & Co. After he left he requested the 1st Defendant not to despatch the circulars dated 21.8.1992. Thereafter he continued to manufacture his products and sold the same exclusively to the 1st Defendant. He was asked to attend a meeting in the office of Fred Kan & Co. The meeting lasted about 5-6 minutes. He was presented with draft agreements which he refused to sign. After March 1993, the 1st Defendant did not contact him at all for the supply of goods. The cheque dated 26.4.1993 for $56,994.54 was for payment of goods supplied between November 1992 - February 1993. When he pressed the 1st Defendant for payment of this cheque, the 1st Defendant was non-receptive. Thereafter he telephoned Confectionery once or twice pressing them to take delivery. The calls were answered by its female staff

19. In cross examination, he said in relation to the First Document that the parties failed to reach agreement with the result that the First Document was destroyed. In relation to the Second Document, he described that as a preliminary draft. He pointed out that terms such as daily production; the manner and time of payment were not in that Document. He reckoned that a proper agreement would be worked out in a solicitor's office. He accepted that the Second Document was written out by Cheng Wai Hong in his presence but maintained that the same was not prepared pursuant to his instructions. He couldn't remember whether this Document went through several drafts. He signed that Document for the purpose of doing a joint venture. As he is illiterate, he was not fully aware of its terms. He knew he would be paid for use of the Trade Mark but did not know that the Trade Mark would belong to the 1st Defendant after 15 years. He admitted that he trusted Cheng Wai Hong whom he described as his "good friend". He was asked about a trip that he made with the 1st Defendant and Cheng Wai Hong to Tung Koon, China on 12.7.1992. He thought the purpose of that trip was enjoy the lychee season as opposed to introducing the 1st Defendant to Hau Kong as a source of supply for Sun Tak Shing products to meet the forthcoming Chinese New Year peak season. He stated categorically that "No such thing happened". He attended the office of Paul Kwong & Co. with Ricky Cheng on 27th August, 1992. The Second Document was handed to Miss June Leung of that firm. After reading that Document, Miss June Leung refused to accept instructions as she reckoned that the Second Document was unfair to him. He denied that he demanded at that meeting for higher trade marks fees. He could not recall whether he protested against the term for transfer of the Trade Mark after 15 years. He reluctantly conceded that he signed the circulars dated 21.8.1992 on the same day when he visited the office of Paul Kwong & Co. He signed those circulars because he was told to do so. He said the 1st Defendant was wrong in sending out those circulars before the meeting at the solicitors' office. Whilst he did not accept that the 1st Defendant threatened to terminate the Second Document after the meeting at Paul Kwong & Co., he admitted that he approached Cheng Wai Hong and one Yu Chi Hung and asked them to persuade the 1st Defendant to honour the Second Document. Cheng Wai Hong and Yu Chi Hung were paid $40,000 for their efforts. The 1st Defendant was persuaded to continue with the "joint venture" and the "co-operation". He denied authorising Cheng Wai Hong to apply the chop of Kwun Heung for the purpose of effecting changes with the HKANA. He maintained that there was no fresh discussion or agreement for a guaranteed sum of $1.5 million as consideration for the immediate transfer of the Trade Mark. At the end of 1992 and the beginning of 1993, he noticed products of Sun Fung Shing and Sun Tak Shing being advertised in the television. He disagreed with such marketing policy by the 1st Defendant. He agreed that in February, 1993, the 1st Defendant returned to him 4,000 carton boxes of egg-rolls which were unsold during the peak Chinese New Year Season. He further agreed that he was paid $16,572 for re-packaging the undamaged and $2,800 for discarding the damaged egg-rolls. On 27.2.1993, he went to the 1st Defendant's office for a loan of $10,000. He borrowed that in order to pay Cheng Wai Hong the 10% trade mark fees reserved for Cheng Wai Hong under the Second Agreement. Cheng Wai Hong "did not want to do it any more". It was during that meeting that he was told by Cheng Wai Hong that he would not be given any share in the limited company formed by the 1st Defendant. He took no action in relation to this intimation. He only pressed the 1st Defendant to take delivery of his goods. He said there was no agreement at this meeting to stop production in order to enable the 1st Defendant to dispose of his over-stock from the Chinese New Year Season. As a result of the 1st Defendant's failure to place any order with him, his factory in the Tsing Yi Premises had to close down between March to August 1993. He admitted receiving various payments for trade mark fees. He was not prepared to issue official receipt for such fees in April, 1993 because "agreement not yet signed".

20. The Plaintiff called Ricky Cheng. He attended the meeting at the end of August 1992 in the office of Paul Kwong & Co. with the Plaintiff. The Second Document was produced at that meeting. Part of it was explained by Miss June Leung. He did not hear the 1st Defendant instructing Miss June Leung to prepare an English version of the Second Document. According to him, the 1st Defendant merely said if there is agreement reached between the parties an English version would be made. The Plaintiff did not try to increase trade mark fee from $1 to $2. The Plaintiff did however object to ownership of the Trade Mark belonging to the 1st Defendant after 15 years. Miss June Leung sent the parties away as she could not draw up any agreement in view of the parties' disagreement. After the meeting he was instructed by the Plaintiff to ask the 1st Defendant not to despatch the 21.8.1992 circulars but was told that those had already been sent. He brought a receipt dated 15.4.1993 to the 1st Defendant's office in Park Street and sought from the 1st Defendant copies of supporting documents pertaining to payments made on behalf of the Plaintiff. He was paged by the 1st Defendant in July 1993. The 1st Defendant asked him to locate the Plaintiff as he wanted to take delivery of goods from him. Ricky Cheng only managed to contact the Plaintiff's wife as the Plaintiff was in Mainland China.

21. The Plaintiff then called Cheng Wai Hong. He has known the Plaintiff for more than 10 years and was once his partner in Kwun Heung. From March/April 1990 to the end of the Chinese 1992 lunar year, he worked for the 1st Defendant. Around 27.6.1992, the Plaintiff through him sought the assistance of the 1st Defendant in settling his disputes with his then partners in Kwun Heung. He drafted the First Document. The Plaintiff changed his mind. He wanted to retain the Tsing Yi Premises. He drafted the Second Document in the Park Street Office of the 1st Defendant. He went through many drafts. He suggested that a term should be inserted whereby the 1st Defendant should underwrite a quantity of 300,000 lbs. per year but that suggestion was rejected by the Plaintiff. In relation to the Second Document, there was no discussion to go to see a solicitor firm later on. It is his understanding that it is a binding agreement. After the agreement between the parties, he joined the Plaintiff and the 1st Defendant for a trip to Hau Kong so that the Plaintiff could introduce that supplier to the 1st Defendant. The Plaintiff told Yu Wai, factory manager of Hau Kong, that the 1st Defendant had taken over the business. During that visit the Plaintiff agreed that the 1st Defendant could order Sun Tak Shing products from that company. He drafted the circulars dated 21.8.1992 in the office of the 1st Defendant. That was done pursuant to the instructions from both sides. All the circulars were put into envelops for despatch before the parties visited the office of Paul Kwong & Co. There was no disagreement between the parties before that visit. Whilst the parties were in the office of Paul Kwong & Co. he did not hear any specific instruction being given by the Plaintiff or the 1st Defendant. He reckoned that the Second Document speaks for itself and Miss June Leung's instruction was to act in accordance with that document. He did not pay much attention but did hear the Plaintiff objecting to transfer of the Trade Mark after 15 years. After the meeting in Paul Kwong & Co. the 1st Defendant wished to terminate the relationship because the Plaintiff failed to stand by the agreement in the Second Document. The Plaintiff then met him and Yu Chi Hung in the Wah Yen Restaurant and promised them $40,000 for the purpose of persuading the 1st Defendant to continue with the venture. The 1st Defendant reluctantly agreed. Throughout this period, egg-rolls continued to be ordered and delivered. Attempts were thereafter made by the 1st Defendant to secure an immediate transfer of the Trade Mark from the Plaintiff in return for a guaranteed sum of $1.5m. The Plaintiff agreed and instructions were therefore given to Fred Kan & Co. to prepare the 2 draft agreements. The Plaintiff however changed his mind again when he attended Fred Kan & Co. The Plaintiff left that meeting saying that there was no need to sign any English agreement as the Chinese agreement was binding. The Plaintiff however did not refer to any specific Chinese document. Around lunar new year 1993 he received $35,000 in respect of his own entitlement under the Second Document. This was computed on the basis of 350,000 lbs. of Sun Tak Shing products sold. He waived his entitlements thereafter. He received a further $35,000 by way of commission pursuant to a separate agreement with the 1st Defendant. Sometime in 1993 the Plaintiff told him that the 1st Defendant did not take delivery from him because the 1st Defendant had ordered a great deal of goods from Hau Kong and those goods from China had to be sold first. He assisted the Plaintiff in the sale of one consignment of egg-rolls after receiving the Plaintiff's assurance that he had obtained favourable legal advice for such sale.

Evidence of the Defendants

22. Only the 1st Defendant gave evidence. He told this court that after signing the First Document, the Plaintiff changed his mind and wished to retain the Tsing Yi Premises. The Second Document was signed on 8.7.1992. Cheng Wai Hong read the document to the Plaintiff before he signed it. It was back-dated to 1.7.1992 because he had started ordering egg-rolls from the Plaintiff since signing the First Document. The name of the 2nd Defendant was changed on 9.7.1992 to incorporate a reference to the Sun Tak Shing mark. A total of 13,500 lbs. were sold in July 1992 and he paid trade mark fees on the basis of the Second Document. He visited Hau Kong on 12.7.1992 with the Plaintiff and Cheng Wai Hong. The Plaintiff told him that he could make use of Hau Kong to do the processing work when the Plaintiff's plant in the Tsing Yi Premises could not produce sufficient to cater for his requirements. Pursuant to this arrangement he placed orders with Hau Kong and paid the Plaintiff trade mark fees for sale of Sun Tak Shing products produced by Hau Kong. He attended the office of Paul Kwong & Co. on 21.8.1992. The meeting was arranged by the Plaintiff. The Plaintiff had waited till this date because he had not sorted out the dissolution of the old Kwun Heung partnership. When the Plaintiff informed him of this meeting on 20.8.1992, he caused the 2 circulars of 21.8.1992 to be drafted. Those were signed by the Plaintiff in his Park Street office on the morning of the 21st. In the office of Paul Kwong & Co, he and the Plaintiff gave joint instructions to Miss June Leung to prepare an English version of the Second Document. When Miss June Leung read out that document, the Plaintiff sought to increase the trade mark fees and objected to the transfer of the Trade Mark after 15 years. He disagreed whereupon the Plaintiff asked him not to send out the circulars. He tried to stop such despatch but without avail. After this meeting in Paul Kwong & Co.'s office, he wanted to drop the whole deal because the Plaintiff had twice disavowed what he signed. He was however persuaded by Cheng Wai Hong and Yu Chi Hung to continue with the Second Document. On 20.10.1992, he signed the letter addressed to HKANA indicating the change of Kwun Heung's name to that of the 2nd Defendant. He emphasised that he had secured the Plaintiff's authority before he signed that letter on behalf of Kwun Heung. He wished to embark upon a campaign to promote the Trade Mark. He wanted to obtain immediate transfer of the Trade Mark before such campaign. He offered and the Plaintiff accepted a guaranteed sum of $1.5m in return for an immediate transfer. Fred Kan & Co. was then instructed to prepare an English agreement incorporating the Second Document and this new term. He attended Fred Kan & Co. with the Plaintiff and Cheng Wai Hong. The Plaintiff lost his temper when Mr. Timothy Cheung of that firm explained to them the provisions concerning the transfer of the Trade Mark. The Plaintiff left the meeting saying "Why trouble to do all this sort of thing. Furthermore the Chinese document is binding already". Despite K.C. Chan & Co. letter of 9.12.1992 denying any agreement, he continued to order goods from the Plaintiff on the basis of the Second Document. The egg-rolls were packed by the Plaintiff in tins ordered by the 2nd Defendant bearing the Trade Mark, the Bar Code and the name of the 2nd Defendant. Sale during Chinese New Year 1993 was worse than expected. Substantial quantity of egg-rolls sold on consignment basis was returned. The Plaintiff was asked to sort those out. He had a discussion with the Plaintiff at the end of February 1993. The Plaintiff told him that he normally stops production in March to May every year during the low season. The 1st Defendant should telephone him at his home or page Ricky Cheng for delivery of egg-rolls that he stocked after the 1st Defendant had finished selling his. On 20.4.1993 he gave 2 cheques to the Plaintiff. The cheque for $56,994.54 was post-dated because he was pressing the Plaintiff for receipts in order to satisfy the requirements of his accountant. He started looking for the Plaintiff in July 1993 for further delivery. He paged Ricky Cheng and telephoned the Plaintiff's girl friend in Tsing Yi. He had no response. He was therefore forced to place order with Hau Kong in order to secure supply. Through his solicitor he had tendered to the Plaintiff a cheque of over $70,000 in respect of trade mark fees. The Plaintiff had refrained from cashing that cheque. He estimated that a further sum of $500,000 is due in favour of the Plaintiff in respect of sales after June 1993.

Assessment on credibility

23. Despite his repeated emphasis on his own illiteracy, I am of the view that the Plaintiff is an experienced businessman well capable of looking after his own interest. I have no doubt that he played an active part in introducing the 1st Defendant to Hau Kong on or about 12.7.1992. His attempt to downplay that episode gives him little credit. The substantial consignment of egg-rolls delivered by Hau Kong to the Tsing Yi Premises on 22.10.1992 pursuant the instructions of the Defendants shows the Plaintiff's heavy involvement. Giving every allowance for his level of education, I also find his assertion that it was only at inception of these proceedings that he first became aware of the 2nd Defendant's change of name incredible. The circulars of 21.8.1992, the numerous cheques issued by the 2nd Defendant in payment of goods and trade mark fees and the tin cans for egg-rolls bearing the name of the 2nd Defendant must have driven home to him the incorporation of the words "Sun Tak Shing" as part of the 2nd Defendant's name. In the course of cross-examination, he repeatedly sought to deflect the thrust of Mr. Leong's challenges by characterising the matters involved as trivial. I find his evidence as a whole unsatisfactory.

24. The evidence of Ricky Cheng is short and largely uncontroversial.

25. I approach the evidence of Cheng Wai Hong with reservation. Although called as the Plaintiff's witness, questions put to him by Mr. Chu in Chief and in Cross Examination were hostile and searching. Cheng Wai Hong, largely incensed by the failure of his long time friend to honour his bargains, reciprocated with equal aggression. Bearing in mind his past relationship with both the Plaintiff and the 1st Defendant and his personal interest under the Second Document, I have come to the conclusion that I should accept his evidence as providing support to the Defendants' case.

26. I find the 1st Defendant an impressive and reliable witness. He strived to be fair throughout his evidence. He did his best to assist the court with his recollection. In relation to any conflict between his testimony and that of the Plaintiff, I have no hesitation in preferring the evidence of the 1st Defendant.

My findings and conclusions

The first issue

27. As put by Mr. Chu, he was not disputing that the parties had a concluded and binding agreement in around early July 1992. What he sought to do is to engraft onto the Second Document 2 additional terms. The Plaintiff's own evidence disabused any suggestion that there was any agreement in early July 1992 concerning shareholding in a new company to be formed. The other term relates to instructing "solicitors to reduce the agreed terms of the meeting into a formal agreement". Save for the bare assertion of such term, the Plaintiff gave little evidence on the discussions between the parties leading to such term and the intended effect of such term. I accept the evidence of Cheng Wai Hong that the Second Document went through several drafts. The Second Document as signed made no reference to the same being subject to any formal agreement to be executed in a solicitor's office. There was no serious dispute of the immediate ordering of egg-rolls after the signing of the Second Document. I find that the Plaintiff introduced the 1st Defendant to Hau Kong for the purpose of ensuring adequacy of supply. I further find that the Plaintiff was aware of the 2nd Defendant's change of name in August 1992. The Plaintiff further consented to the 2nd Defendant's use of the HKANA Bar Code in marketing Sun Tak Shing products. All these steps were taken pursuant to the subsistence of a binding agreement between the parties as embodied in the Second Document.

28. Apart from the attempt to engraft the 2 additional terms, the only other attack against the Second Document relates to the last sentence in that Document. I accept the submission of Mr. Leong. That sentence, far from indicating a lack of intention to be bound, serves the function of emphasising the subsistence of a binding agreement. Mr. Chu placed no reliance on the fact that the Second Document did not impose any obligation on the 1st Defendant to take delivery from the Plaintiff. The evidence of Cheng Wai Hong in relation to the Plaintiff's rejection of his suggested guarantee removes any disquiet on this front.

29. For these reasons, I hold that the parties did reach a concluded and binding agreement in around early July 1992. The Second Document sets out the express terms of that agreement.

The Second Issue

30. Hardly any evidence was given by the Plaintiff in support of a new and distinct agreement reached in around August/September, 1992. The proposed answer by Mr. Chu did not identify what additional terms other than those in the Second Document did the parties reach agreement. It is common ground that the visit to Paul Kwong & Co. did not bear any fruit. The Plaintiff thereafter paid a substantial inducement to Cheng Wai Hong and Yu Chi Hung in order to secure the 1st Defendant's continued willingness to abide by the Second Document. A further attempt to sign English agreements in the office of Fred Kan & Co. proved futile. By their letter of 18.12.1992, Fred Kan & Co. made clear the Defendants' reliance on the Second Document. The Plaintiff has not put forward any legal basis for the continued supply of egg-rolls and payment of the trade mark fees. On the evidence, the Second Document constitutes the only viable basis for such supply and payment.

31. For these reasons, I am of the view that the parties did not reach a further agreement around August/September. The Second Document continued to govern their relationship.

The Third Issue

32. It follows from what I outlined above that I am of the view that as at March 1993, the relationship between the parties continued to be regulated by the Second Document.

The Fourth Issue

33. The only cheque that the 2nd Defendant dishonoured was the one dated 26.4.1993 for $56,994.54. I am satisfied that the dishonour of that cheque did not constitute repudiation of the Second Document. The dishonour was not an absolute refusal on the part of the 2nd Defendant to perform his side of the contract. The 2nd Defendant was seeking to secure receipts for past payments and had made clear that the cheque would be honoured once such receipts were forthcoming. The circumstances as a whole are not such as to lead a reasonable person to conclude that the 2nd Defendant no longer intends to be bound by the provisions in the Second Document.(Chitty Para. 24-016 and see Woodar Investment Development Ltd. v. Wimpey Construction U.K. Ltd. [1980] 1 W.L.R.277). Further trade mark fees were tendered and the Plaintiff had refused to accept the same by virtue of his contention that there is no contract between the parties.

34. In relation to the alleged breach on the part of the Plaintiff, I am of the view that the parties must have intended after the visit on 12.7.1992 that Hau Kong should form an alternative source of supply. Although the 1st Defendant failed to contact the Plaintiff in July 1993, he managed to secure adequate supply from Hau Kong. I therefore reject the Defendants' case that the Plaintiff was in breach in failing to supply in July 1993. In any event, such breach, if any, did not cause any loss.

35. The Plaintiff had thereafter refused to perform the Second Document. In denying the subsistence of that Document, the Plaintiff acted in breach thereof. Such breach had not been accepted by the Defendants. It follows that the Second Document remains on foot and I so declare.

Conclusions and orders

36. I dismiss the Plaintiff's claim with an order nisi for costs in favour of the 1st and the 2nd Defendants.

37. I allow the 2nd Defendant's counterclaim and make an order nisi in favour of the 2nd Defendant for the following reliefs :

38. The parties are at liberty to restore the matter before me upon 48 hours notice on the precise terms of the order and on any direction pertaining to the inquiry for damages.