TAI YUE FOR v. CHOI CHUN CHING

HCA 5403/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5403 OF 2001

----------------------

----------------------

----------------------

J U D G M E N T

----------------------

I.   INTRODUCTION

1.  Tai sues Choi for a refund of $470,000.  According to Tai, that amount is the outstanding balance of a sum of $580,000 which Tai paid pursuant to a Chinese Memorandum (CM) dated 22 April 1998.  Tai says that, under the CM, he and Choi had agreed to form a limited company to sell frozen meat on a retail basis.  No such company was ever formed.  Accordingly, Tai contends that there has been a total failure of consideration entitling him to the return of his monies.

II.  BACKGROUND

2.  In April 1998 Tai had been engaged in the wholesale frozen meat business for some 20 years.  He traded under the name Honour International Seafoods Company (Honour). 

3.  Choi operated a retail frozen meat business in Mei Foo under the name Ming Hing Frozen Meat Retail Shop.

4.  On its face, the CM recorded an agreement whereby Tai and Choi would form a company, to be named Ming Hing Food Supermarket Company Ltd., with a registered share capital of $10,000.  Choi would own 51% of the company, Tai 40%, and Tai’s wife 9%. 

5.  The CM provided for the limited company to have a working capital of $700,000.  This was to be accomplished by Choi injecting $351,000 (51% of $700,000) and Tai $343,000 (49% of $700,000).  Further, Tai was to pay $219,000 for use of food processing facilities and equipment which Choi owned and had been using in his retail business.

6.  It was envisaged that the proposed company would take over the business of Choi’s Retail Shop.  The company’s working capital had been set at $700,000 because Choi had informed Tai that such was the amount which Choi had already invested in the Retail Shop.  Thus, Tai’s capital contribution of $343,000 was to be paid to Choi as compensation for 49% of Choi’s $700,000 investment.

7.  The CM was subsequently amended at some time, possibly around 25 June 1998. 

8.  In the amended CM, the name Ming Hing Food Supermarket Company Ltd. was crossed out.  Choi says this was because there already was a company of that name (of which Choi was a shareholder).  Choi claims that, consequently, there was no way in which Tai could have become a member of such company.  In any event, Choi denies that he and Tai ever agreed on the formation of a company.  It was simply decided (according to Choi) that he and Tai would form a partnership venture that would engage in the retail trade of frozen meat.

9.  Tai does not know why the company name was crossed out in the amended version.  He suggests that this may have been because a company of that name already existed and presumably another name would have to be used.  But Tai is adamant that it was fundamental to his agreement with Choi that there be a limited company.  This was because he believed, rightly or wrongly, that the financial accounts of limited companies (but not partnerships) had to be audited.

10.  In the amended CM, the name of Tai’s wife was also deleted.  According to Choi, this was because he objected to her participation in the business.  Tai accepts that Choi so objected and he agreed to leave his wife out of the venture.

11.  As at June 1998, there is no dispute that Tai had paid $400,000 of the total amount which he had to pay under the CM.  The $400,000 was paid mostly in cash, but partly in kind. 

12.  There is some question over the precise total amount which Tai was obliged to contribute to the venture.  Literally read, the CM required Tai to pay $562,000 ($343,000 + $219,000).  But Choi says that the $219,000 contribution towards the use of his equipment and facilities was an error.  The correct figure (according to Choi) should have been $201,000.  Thus, Choi maintains that Tai was only supposed to pay $544,000 ($343,000 + $201,000).

13.  On the other hand, Tai claims that the amount due from him was rounded upwards from $562,000 to $580,000.  Tai does not accept that there was an error in the $219,000.  In any case, $580,000 is the full amount which Tai contends that he ultimately paid.

14.  Tai claims that he paid the balance of the amount due to Choi in kind in about July 1998.  Tai did so by causing 247 cartons of 20/30 scallops (weighing 30 lbs per carton) held for him in a public warehouse to be transferred from his account to that of Choi.

15.  There is a dispute about the amount to be ascribed to such transfer of scallops.

16.  Choi asserts that he and Tai agreed to treat the scallops as worth $75,000.  This figure (which equates to $10.12 per lb.) was reached (Choi says) in light of the quality of the scallops (apparently from Qingdao), storage charges at the public warehouse, and the difficulty of selling 247 cartons as one lot.  This calculation would then leave $69,000 ($144,00 - $75,000) outstanding from Tai.  Choi argues that Tai never paid this amount.

17.  Tai, on the other hand, says that the wholesale price of the scallops at the time of the transfer was $23 per lb.  Thus, according to Tai, the 247 cartons should be treated as equivalent to $170,430 wholesale.  The $23 unit price is backed up by a monthly statement of Honour indicating that in June 1998, 20/30 scallops were selling at that rate.

18.  But the price of scallops is volatile.  For instance, there is evidence that, in about May 1998, 20/30 scallops were selling at $19.50 per lb. wholesale.  At that price, the 247 cartons would have been worth $144,495.

19.  If one takes the unit price of $23 per lb. which Tai contends, one would still not obtain a total of $580,000.  One would at most only have $570,430 ($400,000 + $170,430).  Tai accounts for the difference by arguing that the retail price of scallops should be some 10% higher than the wholesale price.  Thus, Tai suggests that the 247 cartons would be equal to at least $180,000 retail.

20.  On the other hand, if one takes a unit price of $19.50 per lb., Tai would have transferred a total of $544,495 ($400,000 + $144,495) to Choi.  This amount would be slightly more than the total sum which Choi maintains Tai was obliged to pay under the CM.  I note that Choi claims that he could obtain a discount on the $19.50 unit price, reducing the same to $16.50 per lb.

21.  Tai complains that he repeatedly chased Choi to form a limited company in accordance with the CM.  Tai says that he also pressed Choi for the accounts of the business.

22.  On 22 September 1998 Tai received accounts headed with the name (in Chinese) Mei Foo Ming Hing Frozen Meat Company Ltd. (the Mei Foo company).  This (Tai says) led Tai to believe that a company of that name had actually been formed.  In fact, no such company had ever come into existence.

23.  Choi admits that the business which he was supposed to be running with Tai did not have bank accounts of its own.  Choi simply used his personal account to receive or pay out monies relating to his business with Tai, to Choi’s other businesses, and to his personal matters.  This meant that Tai was in no position to draw up financial accounts for his business with Choi.  Only Choi could really do this.

24.  Choi says that an accounts clerk handled the accounts of the business between Choi and Tai.  That accounts clerk wrongly prepared financial accounts headed with the name of the non-existent Mei Foo company.  Choi accepts that he was negligent not to have spotted this error by the accounts clerk before faxing the accounts to Tai.

25.  The financial accounts sent in September 1998 indicate that, as a partnership, the business between Choi and Tai was losing money.

26.  In November 1998, faced with mounting credit card debts and the threat of foreclosure of the mortgage on his home, Tai sought a refund of the $580,000 paid to Choi.  Tai threatened to commit suicide if he did not receive his money.

27.  Choi only offered to repay $110,000.  According to Tai, Choi “forced” him to sign a memo confirming his withdrawal from the joint business upon receipt of Choi’s $110,000.  Tai says that he only accepted the $110,000 under duress.

28.  The confirmatory memo which Tai signed is dated 23 December 1998.  It reads (in translation):-

“Received from Choi Chun Ching the sum of One Hundred and Ten Thousand only ($110,000) being the funds towards Tai Yue For’s withdrawal of all this shares in Mei Foo Ming Hing Frozen Meat.”

29.  At some point, probably in November 1998, Choi sold the Retail Shop business to his relative, Choi Siu Kam.  Choi says that he sold the business for $98,000.

30.  But there is evidence in the form of a letter dated 26 April 1999 from Choi’s then solicitors that the business was sold for $450,000.  The solicitor’s letter purported to claim $222,558.74 from Tai in respect of Tai’s 49% share of the losses from the business.

31.  Choi says that his solicitors must have misunderstood him when the latter alleged a sale at $450,000.  Choi explains that the letter was sent in response to Tai’s having sent debt collectors to harass Choi.  The letter’s intended message (according to Choi) was that Tai should be content with his $110,000 in light of the substantial losses made by the business for which (if Choi were minded) contribution could be sought from Tai.

III. DISCUSSION

32.  This section will consider the following issues:-

(1) Whether Tai and Choi agreed to form a limited company to engage in the retail frozen meat trade.

(2) Whether Tai paid $580,000 or some other amount towards the business with Choi.

(3) Whether there was a total failure of consideration.

(4) Whether the $110,000 payment in 23 December 1998 bars Tai’s present claim.

A.  Issue 1: Whether agreement to form a limited company?

33.  In my judgment, the CM evidences an agreement between Tai and Choi to carry out a retail business in frozen meat through a limited company.  That seems the most plausible explanation for the reference to Ming Hing Food Supermarket Company Ltd. in the CM.

34.  The earlier, unamended, version of the CM was signed by Tai and Choi and hand-dated April 1998.  Such signature evidences their intention at the time to trade as a limited company under the relevant name, not just as a partnership.

35.  It is true that a company with the relevant name already existed.  This is probably why the name was crossed out in the later version of the CM.  But all that deletion is likely to signify is that, having realised that there already was a company by the name previously chosen, the parties decided to form a company with a different name.

36.  I do not accept Mr. Choi’s evidence that there never was a discussion (much less agreement) about running a business through a limited company.  In my view, it was precisely because incorporation was contemplated that the Mei Foo company name was placed at the head of the accounting sheets provided to Tai in relation to the joint venture. 

37.  I do not accept that it was purely through Choi’s negligent oversight that the Mei Foo company name was used in the accounts furnished.  On the contrary, it is more likely that the Mei Foo company name was used because, the name Ming Hing Food Supermarket Company Ltd. being found to be unavailable, that was the name under it was proposed by Choi to conduct the agreed business.

B.  Issue 2: Whether Tai paid a total of $580,000?

38.  I do not think that $580,000 is the correct total to be attributed to Tai’s payments in cash and kind.

39.  The dispute is essentially over the value of the 247 cartons of scallop which Tai transferred to Choi’s account.

40.  There is some evidence that the 20/30 scallops were worth $23 per lb. wholesale in July 1998.  But, even so, that still does not explain how Tai arrives at a total of $580,000. Tai can only explain the $580,000 amount claimed, if it is assumed that the retail price of scallop is some 10% above the $23 unit price postulated.  Apart from Tai’s assertion in the witness box, there is no evidence to back the suggestion of a 10% price differential (which in any event was unpleaded and unsignalled in Tai’s witness statements).  It is also unclear why one should have regard to the retail, as opposed to the wholesale, price of the scallops.  I am thus unconvinced by Tai’s attributed value of $580,000.

41.  On the other hand, Choi’s evidence that a notional value of $75,000 was attributed to the 247 cartons is equally unpersuasive.  Such suggestion was only raised orally by Choi’s counsel (Mr. Kevin Hon) in the course of the trial.  Nothing was mentioned about it in Choi’s Defence or his witness statement.  On the contrary, those documents alleged that Tai had not paid $144,000 (as opposed to $69,000).

42.  I add that a value of $75,000 equates to a per lb. unit price of $10.12.  This seems rather low in comparison with the $19.50 or $23 unit prices for 20/30 Qingdao scallops evidenced by contemporaneous documents.  Nor is it apparent how warehouse storage values would have reduced the price (whatever that may have been) down to $10.12 per lb.

43.  It is true that some indirect evidence (in the form of a handwritten statement by Tai on the amended CM that he still owed Choi $69,000) supports Choi’s price of $75,000.  Mr. Tai admitted signing the statement, but he claimed in cross-examination not to know how the $69,000 had been calculated.

44.  Mr. Hon submits that it is incredible that a businessman such as Mr. Tai would acknowledge a debt in writing without knowing how it was calculated.  Nonetheless, given that the $75,000 price was only raised at the last minute by Mr. Hon, it is not surprising that after so many years Mr. Tai should now be unclear as to the genesis of his acknowledgment of a $69,000 debt.  There may be some other explanation for the $69,000 figure.  Indeed, the figure is only some evidence if one accepts Mr. Choi’s assertion of an error in the recording in the CM of the $201,000 payment for use of equipment and facilities in the Ming Hing Retail Shop.

45.  In all the circumstances, I think that Mr. Hon asks me to infer too much from the mere acknowledgment by Mr. Tai of a debt of $69,000.  I am not prepared on the basis of such slim evidence alone to accept Choi’s belated assertion that the value of the 247 cartons of scallops was $75,000.

46.  I think that the correct price for the 247 cartons is to be obtained by using the unit price of $23.  That appears to have been the wholesale market rate in June 1998 when the cartons were transferred.  It would be reasonable for the parties to have considered that as a relevant price in any discussion of the value to attribute to a transfer of 20/30 scallops in the following month.  That would mean that Mr. Tai’s total payment was $570,430.

C.  Issue 3: Whether total failure of consideration

47.  Tai’s case is that he never received the fundamental benefit for which he bargained with Choi.  The essence of that agreement (Tai says) was the carrying out of a retail business in frozen meat by means of a limited company.  Since no limited company was ever formed, it follows (Tai argues) that there was a total failure of consideration.  Such situation would entitle Tai at common law to recover the monies which he originally paid to Choi.

48.  As a matter of law, it is possible to have a “total failure of consideration” even where a person receives some benefit out a contract.  For the doctrine to apply, what is important is that the substantial benefit for which a person has bargained should not have been obtained.

49.  On this issue, in the course of closing submissions, Mr. Hon conceded that, if I were against him on Issue 1, then there was a total failure of consideration.  This was because no limited company was ever formed for the retail business envisaged under the CM.

50.  Accordingly, I conclude that there was here a total failure of consideration entitling Mr. Tai at law to the return of his monies.

D.  Issue 4: Whether Tai barred by payment of $110,000

51.  Having got so far, Tai’s case unfortunately faces what I believe to be an insurmountable hurdle.  That is that Tai appears to have acknowledged receipt of the $110,000 from Choi in full and final settlement of whatever claims he might have against Choi.

52.  Tai has by his counsel (Mr. Brian Wong) argued as follows:-

(1) There is no evidence that Tai received the $110,000 in full and final settlement of any claims against Choi.  Nothing in the memo of 23 December 1998 expressly states that Tai was giving up his claims against Choi.

(2) In any event, any agreement to treat the $110,000 as full and final settlement would have been obtained as a result of economic duress and therefore be voidable.

(3)   There was no consideration for any promise by Tai to accept a lesser amount ($110,000) in lieu of the more than $500,000 to which Tai would have been entitled.

53.  I am not persuaded by Mr. Wong’s submissions.

54.  First, it is true that the memo does not explicitly state that it is in full and final settlement of all obligations between Tai and Choi in relation to the business.  But that cannot be conclusive.  I must instead objectively consider the entire factual matrix at the time of the $110,000 payment and the signing of the December 1998 memo.  The payment of $110,000 and the memo are key elements in that factual matrix.  They are by no means the only elements.

55.  Contrary to Mr. Wong’s submission, it seems to me that the payment of $110,000 must have been intended to function as a rough-and-ready buy-out by Choi of Tai’s interest.  That buy-out in the words of the December 1998 memo meant that Tai could “withdraw” from his involvement with the joint business.  No further claims arising out of losses in the business might then be made by Choi against Tai.  By the same token, Tai could no longer have claims in respect of the business against Choi.  There would be a clean-break between Tai and Choi.

56.  It would be odd if the $110,000 were simply to be regarded as some sort of advance on Tai’s claim for $580,000 which left it open to Tai to claim more in the future.  On his own evidence, Tai was asking for his money back.  He was in difficult financial circumstances.  He accepted the $110,000 (rather than persisting with his demand for $580,000) because of such straitened circumstance.  This conduct is far more consistent with the $110,000 being a final payment, as opposed to some sort of first instalment or down payment.

57.  I am unable to read much significance into the April 1999 letter from Choi’s then solicitors.  Given that the payment of $110,000 constituted an agreed settlement between Choi and Tai, Choi could not go back on such agreement merely by his solicitors claiming more money from Tai.  One cannot rely on a party’s subsequent conduct to construe the ambit of an earlier agreement.  The solicitors may have misunderstood Mr. Choi’s instructions (as Mr. Choi suggests) or have been over-zealous in claiming more money from Tai.  But, whatever the explanation for the fanciful letter, such “after the fact” event cannot re-open the settlement previously reached.

58.  Second, there is nothing to justify a finding of economic duress.  The mere fact that Tai was in financial difficulty would not be enough to bring the situation within the rubric of economic duress.  Something more would be required, such as (for example) evidence of illegitimate pressure being applied by Choi. There is no evidence of that.

59.  Third, there would have been adequate consideration for Mr. Tai’s acceptance of the $110,000 payment.  Thus, in return for Mr. Choi giving up any claims against Mr. Tai in relation to business losses suffered by their joint venture, Mr. Tai agreed to accept the lesser sum of $110,000.

60.  Mr. Wong faintly suggests that Mr. Tai went into the deal without sufficient information being provided by Mr. Choi by way of financial accounts. However, if Mr. Tai went ahead with the deal despite an absence of proper accounts, that would be his own commercial decision.  It is not a basis at law for querying the sufficiency of consideration or the finality of the settlement agreement.

61.  I conclude then that the payment of the $110,000 was a full and final settlement between Tai and Choi.  That payment is consequently a bar to Tai asking for more through this action.

IV. CONCLUSION

62.  Tai’s claim for repayment of an alleged outstanding balance of $470,000 fails.  The claim is dismissed.

63.  There will be an Order Nisi that Mr. Tai is to pay Mr. Choi’s costs, such costs to be taxed if not agreed.

64.  There will also be an Order that Mr. Tai’s own costs are to be taxed in accordance with Legal Aid Regulations.