HO KAI MAN AND ANOTHER v. BONNIE VEGETABLES & FRUIT WHOLESALE LTD

DCCJ 4925/2016

[2020] HKDC 123

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4925 OF 2016

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JUDGMENT

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Introduction

1.  KM Ho and CH Chan (collectively “the plaintiffs”) commenced these proceedings by a writ dated 7 October 2016 to seek to recover from Bonnie Vegetables & Fruit Wholesale Limited (“Bonnie”) a total sum of HK$394,316 (“the Whole Sum”) which they had previously paid to acquire a vegetables and fruit retail business in Hong Kong (“the Business”) to be operated at a stall known as Stall SSW12 of Siu Sai Wan Market, 10 Siu Sai Wan Road, Hong Kong (“the Stall”). Bonnie was at the material time the licensee of the Stall.  

2.  The plaintiffs relied on the plea of misrepresentation only at the outset. The alleged misrepresentations were made by one Mr Jackie Lee who was an agent or staff of Profi Delta Consultancy Limited (“Profi Delta”) purportedly on behalf of Bonnie. After the filing of the defence by Bonnie, by way of amendments with leave, they introduced a restitutionary claim for money had and received and/or unjust enrichment.

3.  Mr Leon Ho, for the plaintiffs, in his opening submission, expressly abandons the plea of misrepresentation. Therefore, the plaintiffs have only a restitionary claim against Bonnie for a part of the Whole Sum.

Issues

4.  The plaintiffs did carry on the Business at the Stall from 2 to 30 September 2016 (inclusive). Prior to the commencement of the Business, they paid a sum of HK$72,000 on 26 August 2016 and another sum of HK$168,000 on 1 September 2016 to Profi Delta. They further paid a sum of HK$154,316 (“the Amount”) to Bonnie on 1 September 2016.

5.  Now that the plaintiffs have abandoned the plea of misrepresentation and their allegation of any relationship between Profi Delta and Bonnie, the focus is now on the Amount only instead of the Whole Sum. The monthly rent of the Stall paid by Bonnie to its landlord was HK$38,579 and the Amount comprised four months’ rent of the Stall. Three months’ rent was regarded as rental deposit and the remaining one month’s rent was for the plaintiff’s first month’s occupation of the Stall (September 2016).

6.  The dispute between the parties boils down to whether Bonnie was unjustly enriched by the receipt of the Amount. This is very much a legal question without any need to resolve factual issues. Indeed, the bulk of the evidence of the parties was hardly challenged at trial by the other side.

7.  The position of Bonnie is that it is entitled to retain the Amount and it has given consideration for the same even though it did not authorize Mr Jackie Lee to enter into any agreement with the plaintiffs on its behalf. Anyhow, it allowed the plaintiffs to operate the Business at the Stall with its equipment upon their payment of the Amount.

Factual findings

8.  KM Ho alone testified for the plaintiffs and Madam Jian testified for Bonnie. Madam Jian is the only director and shareholder of Bonnie. Both of them adopted the contents of their respective witness statements as part of their evidence.

9.  The following matters are gleaned from the unchallenged evidence of the parties and accepted as proven by this court after consideration of the same against other incontrovertible evidence and its inherent probability. I shall first narrate the evidence of KM Ho accepted by this court.

10.  In August 2016, KM Ho was interested in an advertisement relating to the acquisition of a business to be operated at the Stall posted on the website of Profi Delta. The website actually contained sale information of other businesses and Profi Delta apparently carried on its business in the provision of agency services for business sales and transfers.

11.  KM Ho then approached Profi Delta and was received by one Madam Yip. Subsequently, the plaintiffs and Profi Delta entered into an undated written agreement entitled “Confidentiality and Service Agreement”. The soft copy of the agreement was emailed by Madam Yip to KM Ho on 17 August 2016. In the agreement, Profi Delta was engaged by the plaintiffs to purchase an unidentified business from potential vendors.

12.  Madam Yip disclosed further information of the Business to KM Ho on a computer.  The sale price was stated to be HK$268,000.

13.  The plaintiffs showed their interest in the Business. Madam Yip arranged a meeting with Mr Jackie Lee, who claimed to have worked for Bonnie for around 11 years in the office of Profi Delta on 23 August 2016. Mr Jackie Lee displayed his knowledge of the commercial information of the Business and offered to KM Ho records of goods purchased for the previous 3 months. Mr Jackie Lee suggested that an inference that the daily revenue of the Business could reach HK$19,000 to HK$23,000 could be made.

14.  After the meeting, Madam Yip further provided daily delivery notes of the Business from 17 to 23 August 2016 in Excel spreadsheets to KM Ho.

15.  The conversations between Madam Yip and KM Ho and that of the parties present in the meeting were recorded secretly by KM Ho and the audio recordings were made available to this court.

16.  I find that the representations made by Profi Delta on the website and Mr Jackie Lee pleaded in the Re-amended Statement of Claim have been borne out by evidence. However, I do not accept that Mr Jackie Lee made such representations on behalf of Bonnie and he was ever authorized to do so.

17.  On 26 August 2016, the plaintiffs and Mr Jackie Lee (purportedly on behalf of Bonnie) signed an agreement entitled “Sale and Purchase Agreement” (“the SPA”). The SPA contained, among other matters, the following express terms:

i.  Handover date is 1/9/2016;

ii.  Consideration is HK$240,000;

iii.  Assets to be purchased included trade name, renovation, furniture and equipment, etc.;

iv.  the plaintiffs pay 30% of the consideration to Profi Delta as agent of Bonnie upon signing the SPA;

v.  the plaintiffs pay 70% of the consideration to Profi Delta as agent of Bonnie before the handover date;

vi.  Profi Delta will release HK$24,000 to Bonnie as deposit from stakehold after signing the SPA;

vii.  Profi Delta will release HK$144,000 to Bonnie as deposit from stakehold after the handover date;

viii.  After completion of the handover, Bonnie should immediately provide related training. During the course of actions, the plaintiffs should release the balance of stakehold to Bonnie within 5 working day after the handover training period;

18.  The plaintiffs and Mr Jackie Lee (purportedly on behalf of Bonnie) further signed another agreement in the Chinese language entitled “業務經營授權書” (“the Business Agreement”). The Business Agreement contained, among other matters, the following express terms:

i.  Bonnie should give possession of the Stall to the plaintiffs on 1 September 2016 and the licence period would end on 27 August 2017.

ii.  The plaintiffs should pay Bonnie a sum of HK$115,737 as deposit for the operation of the Business. In the absence of any default of rent and utilities expenses, damage caused to any equipment at the Stall, Bonnie should return the deposit to the plaintiffs on 27 August 2017.

iii.  the monthly rent of the Stall is HK$38,579. The plaintiffs should pay the landlord of Bonnie on its behalf such rent on the first day of each month.

iv.  the parties agreed that the defaulting party should pay to the other side a sum of HK$308,632 as compensation.

19.  The plaintiffs paid Profi Delta a sum of HK$72,000 by two cheques both dated 26 August 2016 (the plaintiffs in fact paid HK$100,000 in total including a service charge of HK$28,000) and another sum of HK$168,000 by cheque dated 1 September 2016 pursuant to the SPA.     

20.  The plaintiffs also delivered to Profi Delta a cheque dated 1 September 2016 in favour of Bonnie (“the Cheque”) for the Amount pursuant to the Business Agreement. The Cheque was drawn out of the joint account of one Chan Mei Lin and KM Ho.

21.  Profi Delta did not pay Bonnie anything other than the Cheque. Thus, Bonnie received from the plaintiffs the Amount only and no other sums.

22.  The plaintiffs’ solicitors sent a letter dated 9 September 2016 to Profi Delta. They made allegations of fraudulent misrepresentations and demanded a return of the monies paid.

23.  I now turn to the evidence of Madam Jian which is accepted by me. Bonnie runs a sizeable business in wet markets and operates 98 stalls in different markets. It has more than 1,000 employees. The Stall was one of such stalls and Bonnie was then the lessee of the Stall.

24.  Mr Jackie Lee was neither an employee nor an agent of Bonnie. He was never authorized to enter into the SPA and the Business Agreement with the plaintiffs on behalf of Bonnie, let alone making the representations under complaint. These agreements must be void ab initio for want of authority of Bonnie.

25.  Mr Jackie Lee went so far as to instruct Messrs. H.L. Wong & Co. to send a demand letter dated 13 September 2016 purportedly on behalf of Bonnie to Profi Delta and ask for the release of the sum of HK$144,000 received from the plaintiffs pursuant to the SPA. Messrs. H.L. Wong & Co. subsequently clarified in their letter to Messrs. Philip K.Y. Lee & Co., solicitors for the plaintiffs, dated 19 April 2018 that they had no further instruction to act for Mr Jackie Lee or Bonnie in this matter upon discovery of his lack of authority to represent Bonnie.

26.  Madam Jian actually does not know anyone by the name Jackie Lee.  She knows that her former chauffeur Mr Chow “周子偉”  had a close friend called Ah Lung “阿龍”  or Lee Ka Lung “李家龍” and she just assumed that Jackie Lee was Ah Lung. She made this assumption because Mr Chow once in mid-2016 indicated to her that someone wanted to obtain the right from Bonnie to operate the Business at the Stall with the payment of the Amount.  When Madam Jian came across the name Jackie Lee for the first time in the Statement of Claim, she surmised that he was Ah Lung or Lee Ka Lung.

27.  Madam Jian eventually agreed to the Amount, which merely represented the monthly rent of HK$38,759 (evidenced by a receipt issued by the management company) and the rental deposit payable to the landlord of Bonnie. Bonnie did not really make any profit out of the transfer of the Business. Madam Jian was just eager to pull out from the Business, which was not profitable at that time.

28.  As a result, Madam Jian thought a deal was struck through Mr Chow and the licensee would operate the Business at the Stall with the existing equipment including an octopus electronic till. Madam Jian did not know the actual identity of the plaintiffs. She did not really care who the licensee was so long as its rental payment obligation was taken up by someone else.  Nor did she know Profi Delta and Messrs. H.L.Wong & Co. at all, let alone instructing them for whatever purpose. The Cheque was delivered to Bonnie when Madam Jian was out of town on 1 September 2016 and the Cheque was duly presented for payment.

29.  I do not accept Mr Ho’s submission that there being no agreement between the plaintiffs and Bonnie by reason of the lack of authority of Mr Jackie Lee, Bonnie did not permit the plaintiffs to occupy the Stall in September 2016. It is not quite a correct analysis of the real situation. Despite the fact that SPA and the Business Agreement could not be legally binding on the plaintiffs and Bonnie, after all Bonnie was indeed aware of the payment of the Amount made by the licensee by way of the Cheque and was happy to allow the licensee to operate the Business at the Stall by reason of the payment, see also §8 of the Re-Amended Defence. The Cheque was drawn by KM Ho in favour of Bonnie. Needless to say, but for the Cheque, Bonnie would not have allowed anyone to gain possession of the Stall and operate the Business there. It was not suggested to Madam Jian in cross-examination that Bonnie would have done so even if it had not received the Cheque or any other payments. Madam Jian’s answer that Bonnie had not made any agreement with the plaintiffs does not alter these facts.

30.  After the commencement of these proceedings, Madam Jian came to realise the fraudulent conduct of Mr Jackie Lee purportedly done on behalf of Bonnie previously. She reported the matter to the police on 5 June 2017 as evidenced by a police report card.  Despite the doubt of Mr Ho, I am convinced that a report has been made.

31.  I accept that Madam Jian and Bonnie have nothing to do with Mr Jackie Lee and Profi Delta. I accept the validity of Mr Ho’s criticism about the failure of Bonnie and Madam Jian to make proper investigation with Mr Chow so that the identity of Mr Jackie Lee could be found out, nevertheless. In any event, the case of the plaintiffs at trial was conducted on the basis that Mr Jackie Chan acted without the authorisation of Bonnie and so there was no contractual relationship between the parties.

32.  I further find that Madam Jian genuinely believed that the Cheque was collected on behalf of Bonnie by Mr Chow from the licensee.

 Analysis

33.  Now I turn to the critical issue: whether or not Bonnie is entitled to retain the Amount in the circumstances.

34.  Both counsel agree that for the applicable legal principles relating to a claim for unjust enrichment are set out by Ribeiro PJ in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at §67. The following four questions are pertinent:

(1)  was the defendant enriched?

(2)  was the enrichment at the plaintiff’s expense?

(3)  was the enrichment unjust?

(4)  are any of the defences applicable?

35.  There can be no dispute that Bonnie was enriched by the Amount and it was at the plaintiffs’ expense. With respect, I fail to understand Mr Lai’s argument to the contrary. The crux is whether the enrichment was unjust.

36.  Mr Ho submits that the enrichment was unjust in that the SPA and the Business Agreement were void ab initio for mistake and there is a total failure of consideration for the payment of the Amount to Bonnie. It follows that the plaintiffs must be entitled to the restitution of the Amount. Mr Ho advances an alternative case in his closing submission. He submits that alternatively, the plaintiffs are entitled to recover the rental deposit portion of the Amount, i.e. HK$115,737. He even argues that the plaintiffs merely occupied the Stall for 29 days in September 2016 and so they should be entitled to the refund of one-day licence fee i.e. HK$38,579 x 1/30 = HK$1,285.97.

37.  On this issue, both counsel refer to Barclays Bank Ltd v WJ Simms Son & Cooke (Southern) Ltd [1980] QB 677. The following dictum of Robert Goff J (as he then was) at p.695, cited with approval by Tang VP (as he then was) in Takahashi v Cheng Zhen Shu [2010] 1 HKLRD 603 at §27, is apposite:

“From this formidable line of authority certain simple principles can, in my judgment, be deduced: (1) If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact. (2) His claim may however fail if (a) the payer intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; or (b) the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, a debt owed to the payee (or a principal on whose behalf he is authorized to receive the payment) by the payer or by a third party by whom he is authorized to discharge the debt; or (c) the payee has changed his position in good faith, or is deemed in law to have done so.”

38.  In passing, I should add that Mr Ho also refers extensively to an earlier English Court of Appeal’s decision in Rover International Ltd v Cannon Film Ltd. [1989] 1 W.L.R. 912. I do not think Dillon LJ meant to set out exhaustively all the circumstances under which the absolute right of the payer to recover the money from the payee where money had been paid under a mistake of fact could be denied or barred.

39.  Mr Ho submits that principle (1) in the Barclays Bank case applies here and reminds this court that in any event principle (2)(c) does not assist Bonnie as the Defence does not have such a plea. He is quite right.

40.  For principle (1), I accept that the plaintiffs paid the Amount to Bonnie under a mistake of fact, namely that Mr Jackie Lee had the authority to enter into the SPA and the Business Agreement with them on behalf of Bonnie.

41.  For principle (2)(a), I opine that it is plain that the plaintiffs did not intend that they should let Bonnie have the Amount at all events. It was not so suggested to the plaintiffs at trial.

42.  For principle (2)(b), the key question is whether the payment of the Amount was made for good consideration, I believe that this is where the real controversy lies.

43.  It is noteworthy that “consideration” is to be deliberated in the context of a restitutionary claim. In this regard, Ribeiro PJ in the case of Shanghai Tongji said this (at §§79-80),

“79. “Consideration” in the context of a restitutionary claim based on total failure of consideration is the anticipated performance for which the money was paid, or the “basis or purpose” of the payment: see Birks, op cit, 223-6 and “Failure of consideration and its place on the map” (2002) 2 OUCLJ 1 at 3-4; Burrows, op cit, 324-6. Thus, in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at 48; Viscount Simon LC stated:

“In English law, an enforceable contract may be formed by an exchange of a promise for a promise, or by the exchange of a promise for an act - I am excluding contracts under seal - and thus, in the law relating to the formation of contract, the promise to do a thing may often be the consideration, but when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise. The money was paid to secure performance and, if performance fails the inducement which brought about the payment is not fulfilled.”

80.        It is accordingly crucial correctly to identify and characterise the transaction providing the basis for the defendant’s enrichment.  Only then can one identify the relevant anticipated performance and ascertain whether it has totally failed.” 

44.  Kerr L.J. in Rover at p.923G said this,

“… The question whether there has been a total failure of consideration is not answered by considering whether there was any consideration sufficient to support a contract or purported contract. The test is whether or not the party claiming total failure of consideration has in fact received any part of the benefit bargained for under the contract or purported contract.”

45.  Kerr L.J. went on to refer to the following speech of Viscount Simon LC in Fibrosa Spolka Akcyjna, supra, at p.924C:

“The role of the contractual specification means that it is not true to say that there can be a total failure of consideration only where the payer received no benefit at all in return for the payment. The concept of total failure of consideration can ignore real benefits received by the payer if they are not the benefit bargained for…”

46.  Indeed, Mr Ho highlights the danger of mistaking receipt of a benefit for consideration given in the context of a restitutionary claim. He refers to §13-07 of Goff & Jones The Law of Unjust Enrichment (9^th edn.,2016) which reads,

“Failure of basis must not be confused with receipt of benefit. The transferor may receive a benefit from the transferee, but it does not follow that the basis for the transfer has, therefore, been satisfied. The benefit must be (at least part of) what was understood to be the basis of the transfer…”

47.  With these principles in mind, I proceed to determine whether the plaintiffs received any part of the benefit bargained for with the payment of the Amount.

48.  The Cheque was paid pursuant to the Business Agreement. The Amount was paid for a distinct purpose. The two separate sums making up the Amount were clearly referable to the monthly rent and the rental deposit payable by Bonnie to its landlord in the Business Agreement. The Amount was for the plaintiffs’ acquisition of the right to occupy the Stall for the purpose of the Business.

49.  On this score, after receipt of the Amount, Bonnie permitted the plaintiffs to enter the Stall and operate their Business with their equipment and furniture. In effect, Bonnie granted a licence to the plaintiffs in September 2016. But for the departure of the plaintiffs, the licence would have been continued to be effective and there is no suggestion that Bonnie would withdraw its consent to the plaintiffs’ occupation of the Stall anytime soon. By the payment of the Amount to Bonnie, Bonnie allowed the plaintiffs to occupy the Stall for the purpose of the Business, which was the benefit they had bargained for under the Business Agreement and it was the basis of the payment of the Amount. In the premises, I can conclude that the Amount was paid for good consideration.  I cannot accept that there is a total failure of consideration.

50.  Nor can I accept the fallback position of the plaintiffs. Mr Ho first explains that if a divisible part of the contract has wholly failed, and part of the consideration can be attributed to that part, that portion of the money so paid can be recovered, see Chitty on Contracts (33^rd edn., 2018) at §29-066.

51.  He then submits that the consideration for the rental deposit element of the Amount in the sum of HK$115,737 has totally failed and so it has to be refunded to the plaintiffs by way of restitution.

52.  I cannot accept his submission. The two sums making up the Amount are divisible but there was only one single purpose/function of the payment of the Amount. In the Reply to the Plaintiffs’ Requests for Further and Better Particulars of the Re-Amended Defence of the Defendant, one of the answers given by Bonnie in respect of the rental deposit element of the Amount is that 3-month rental deposit is a common trade practice for handover of the Stall to other users or licensees including the plaintiffs.

53.  This is not canvassed at trial. Nevertheless, her answer accords with common sense. rental deposit is always payable in commercial leases and is an integral part of a lease or licence. The entire sum of the Amount served one non-divisible function in the present case and it was for the plaintiffs to gain possession of the Stall and carry on the Business. It is unrealistic to expect that Bonnie would allow the plaintiffs to occupy the Stall with the payment of the monthly licence fee only and the payment of rental deposit could be dispensed with. This was not suggested to Madam Jian at trial too.

54.  Therefore, I could not accept that Bonnie only gave consideration for the monthly license charge but not for the rental deposit element of the Amount. Without payment of the latter, the plaintiffs would not have been allowed to occupy the Stall in September to start with. Bonnie has given consideration for the rental deposit as well and the plaintiffs’ claim for restitution must be rejected.

55.  The suggestion that there should be restitution for the one-day licence fee is not reasonable. The permission to occupy the Stall was never withdrawn by Bonnie. The plaintiffs’ abandonment of their right to do so on their own volition cannot provide justification for restitution.

Conclusion and Disposition

56.  For the reasons given, I am not convinced that there has been a total failure of consideration for the plaintiffs’ payment of the Amount to Bonnie. I reject the restitutionary claim of the plaintiffs and the plaintiffs’ claim falls to be dismissed.

57.  I see no reason why costs should not follow the events. I make a costs order nisi that the plaintiffs should pay the costs of Bonnie of this action including any costs previously reserved, to be taxed if not agreed with a certificate for counsel.

58.  It remains for me to thank Mr Ho and Mr Lai for their invaluable assistance rendered to this court.