LOK KIT SHUM AND OTHERS v. IP YUI SUN AND ANOTHER

DCCJ 9259/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 9259 OF 2001

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J U D G M E N T

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1. In this action, the Plaintiffs sue the Defendants for breach of an alleged agreement for the sale of an electroplating factory carried on in partnership by the three Plaintiffs.

2nd Plaintiff's evidence

2. According to the evidence of the 2nd Plaintiff, Shum Kee (Wing Yip) Electroplating Factory used to be owned by her late father. She started participating in running the business in around 1978. She was then joined by her late husband in running the business. After the death of her husband, her son, the 3rd Plaintiff, became involved in running the business of the factory. The 1st Plaintiff, the mother of the 2nd Plaintiff, although a partner in the factory after the death her husband (i.e. the father of the 2nd Plaintiff), lived in the United States at all material times and apparently played an inactive role in the business of the factory. The factory operated from Unit B and Unit C on the 7th Floor of Man On Industrial Building in Kwai Chung. The 1st and 2nd Plaintiffs were at all material times the registered owners of Unit B, whereas the 2nd Plaintiff and her sister were the registered owners of Unit C. The factory had the use of the two units as a tenant of their registered owners.

3. According to the evidence of the 2nd Plaintiff, after the death of her husband, she formed the intention of selling the factory to a suitable buyer as she found the burden of running the factory all by herself (with the assistance of her young son) rather difficult to shoulder. In 1997, a Mr. Ng expressed some interest in the matter but it came to nothing. Then in March 1999, the Defendants approached the 2nd Plaintiff expressing an interest to acquire the factory. The 1st Defendant was a driver in the employ of the factory and played some supervisory role in the factory. By then he had been working in the factory for about 10 years. The 2nd Defendant used to run a business supplying accessories to the factory, and providing maintenance and repair service to the machinery in the factory.

4. According to the 2nd Plaintiff, after negotiations, the parties agreed on the basic terms. The "production tool or equipment" of the factory, i.e. the physical assets and properties of the factory, plant and equipment, machinery, furniture, fixtures and fittings, etc. would be sold by the Plaintiffs to the Defendants for a price of $900,000. The price would not include the outstanding accounts receivable or liability of the factory or the factory name which would continue to belong to the Plaintiffs. As regards the factory premises, the two units (together with a car parking space) would be rented to the Defendants at rent totalling $19,000 per month. According to the 2nd Plaintiff, very substantial deposits for the supply of electricity and water which were required in large quantities for the electroplating process of the factory had been paid to the utility company and water authority. And the parties agreed that instead of the Plaintiffs cancelling their existing accounts and the Defendants applying for new ones, the Defendants would simply use the Plaintiffs' existing accounts but pay the Plaintiffs back the deposits, who would in return hand over the deposit receipts to the Defendants.

5. According to the 2nd Plaintiff, agreement was reached orally during the discussions in March that the transfer would take place on 1st May 1999 which would be the cut-off date for apportioning the liability for electricity and water consumptions, rates and government rent, management fees and other necessary outgoings. Moreover, the parties agreed that the price of $900,000 would be paid first by means of a deposit of $500,000 on 25th (subsequently postponed to 26th) April and then by instalments after the transfer on 1st May. The 2nd Plaintiff, on behalf of the other two Plaintiffs, also agreed to let the Defendants use a goods van belonging to the factory free of charge. Further, according to the 2nd Plaintiff, the Defendants also agreed to take back at half-price a consignment of accessories supplied by the 2nd Defendant to the factory earlier in the year; the accessories had not been used by the factory and would be of no use to the Plaintiffs after 30th April.

6. According to the 2nd Plaintiff, her mother had since 1997 left the matter of any possible transfer of the factory to her, and as for her son he took part in some of the negotiations and agreed to the above agreement reached with the Defendants. The 2nd Plaintiff then instructed a firm of solicitors to prepare the necessary legal documentation. In April, she was advised by the lawyers that a power of attorney would be required from the mother appointing her as her attorney to execute the relevant documents. The power of attorney was expected to be forthcoming in late April or early May. In the meantime, the Plaintiffs had to dismiss the workers working for the factory by giving them notice of seven days and paying them severance pay. According to the 2nd Plaintiff, she delayed this until 26th April when payment of the deposit of $500,000 was due. The solicitors prepared a draft agreement which was passed to the Defendants for their consideration on 22nd April.

7. It was not disputed that a cashier order of $500,000 was indeed given by the 2nd Defendant through the 1st Defendant to the 2nd Plaintiff on 26th April. According to the 2nd Plaintiff, as no formal agreement had yet been signed by then, she and her son considered that in order to protect the respective positions of the two sides, something in writing and in Chinese that everyone could understand should be signed before they accepted the cashier order and deposited it into the factory's account. They therefore asked their solicitors to prepare a draft provisional agreement in Chinese for them, which their solicitors did in the early afternoon of 26th April. The 3rd Plaintiff inserted a clause to the draft provisional agreement (which looks more like a memorandum) to the effect that if the Defendants did not complete the transfer, the deposit would not be returned to the Defendants, whereas if the Plaintiffs failed to complete the transfer, the deposit would be refunded to the Defendants.

8. The 2nd Plaintiff did not consider that the provisions in relation to the eventuality of the Plaintiffs' refusing to complete the transfer as insufficient. According to her, the Plaintiffs had every intention to carry out the transfer, and in any event she did not foresee any loss to the Defendants in such a case apart from the deposit which according to the provisions would be refunded to the Defendants. A clean copy was prepared by the 3rd Plaintiff for the parties' signature.

9. The provisional agreement or memorandum was in the following terms (in accordance with the certified English translation):

"Re: Transfer of Business of Shum Kee (Wing Yip) Electroplating Factory

Whereas [the Plaintiffs] are the three partners of [the factory] (hereunder referred to as "the Transferor"), it is hereby agreed that in consideration of Hong Kong Dollars Nine Hundred Thousand (HK$900,000.00), the Transferor shall transfer the business of [the factory], which is run as a partnership, to [the Defendants] (hereunder referred to as "the Transferee").

If the Transferee unilaterally rescind the transfer of business, the deposit already received by the transferor shall not be returned. If the Transferor unilaterally rescind the transfer of business, the deposit already received shall be returned.

Now the Transferor acknowledge receipt of a cheque from the Transferee for the amount of Hong Kong Dollars Five Hundred Thousand Only (HK$500,000.00), being the deposit paid by the Transferee for the aforesaid transfer of business. Now the Transferor and the Transferee sign and confirm the aforesaid matter, using this (memorandum) as evidence.

(sd.) Lo Lai Wah		(sd.) Yip Yui Sun
(Transferor)		(Transferee)
Name: Lo Lai Wah		Name: Yip Yui Sun
Date: 26-4-1999		Date: 26-4-1999 "

10. According to the 2nd Plaintiff, the provisional agreement or memorandum was immediately shown to the Defendants who raised no objection to the contents. The 2nd Defendant, when asked to sign the provisional agreement or memorandum, said he had not got "a single drop of ink" in him (meaning that he was uneducated) and his hand would tremble even in writing his signature (apparently meaning either literally that his hand was for whatever reason trembling or figuratively that he was unaccustomed to writing anything at all due to lack of education), and therefore asked the 1st Defendant to sign the provisional agreement or memorandum on his behalf. The 1st Defendant agreed and thus signed the provisional agreement or memorandum as transferee both on his own behalf and on behalf of the 2nd Defendant.

11. The 2nd Plaintiff maintained during cross-examination that both Defendants had ample opportunity to read the contents of the provisional agreement or memorandum, and did not express any disagreement with its contents or unwillingness to sign. She never said to the Defendants that the document was just a receipt and had no legal binding force, or hurried the 1st Defendant to sign the document. Quite to the contrary, the 2nd Plaintiff insisted that according to her understanding and intention, the provisional agreement as she called it or memorandum had legal and binding effect and was more than a receipt, pending the parties' execution of the legal documents. If the document had no binding effect, there would have been no point in preparing or signing it at all.

12. After the provisional agreement or memorandum was thus signed by the 2nd Plaintiff (on behalf of all Plaintiffs) and the 1st Defendant (allegedly on behalf of himself and the 2nd Defendant), the 2nd Plaintiff believed that the transfer agreement orally reached between the parties had thus been confirmed, and therefore the 2nd Plaintiff through her son deposited the cashier order into the account of the factory. It was also agreed between the parties on that day that the parties would attend the solicitors' office to execute the formal legal documents on 7th May.

13. On the same day (i.e. 26th April), the 2nd Plaintiff informed all the workmen in the factory of the agreed transfer as from 1st May. During the following days, the mother and son calculated the payments in lieu of notice as well as severance payments due to the outgoing workmen. The payments were made to the workmen on the last working day in April prior to the transfer. It is noteworthy that the 1st Defendant being a driver in the employ of the factory for about 10 years was also paid a substantial severance pay. According to the 2nd Plaintiff, he had told her that the Defendants intended to re-hire the workmen to work for the new company which the Defendants were forming to run the factory business.

14. Although the agreement to transfer did not strictly speaking include the transfer of either the factory name/goodwill or the existing business of the factory in favour of the Defendants (notwithstanding the reference to the transfer of "the business" of the factory in the provisional agreement or memorandum), nonetheless the 2nd Plaintiff's intention was to cease running any electroplating business anymore and to refer her customers to the Defendants' new factory. So on 4th May 1999, she on behalf of the factory issued a standard letter to her former customers informing them that the factory had been taken over by the Defendants' new company as from 1st May 1999 and urging the customers to continue patronising the Defendants' new company, as well as reminding them that all outstanding bills issued before 1st May were to be settled with the Plaintiffs' factory.

15. According to the 2nd Plaintiff, the keys were handed over to the Defendants after the last working day in April and the factory together with all its machinery, equipment, accessories mentioned above, the van and so forth were transferred to the Defendants on 1st May who commenced a new electroplating business in the factory premises under the name Shum Kee Electroplating Co. Ltd. which the Defendants came up with. According to the documentary evidence available, several of the former workers of the factory remained after April to work in the factory premises as before and the Defendants' new company did business with customers including the former customers of the factory after April.

16. On 7th May 1999, the 2nd and 3rd Plaintiffs attended the office of their solicitors together with the Defendants for the purpose of signing a transfer agreement and two tenancy agreements prepared by the solicitors. By then the 2nd Plaintiff had already received a power of attorney from her mother to execute the legal documents. But upon being shown the transfer agreement (an earlier draft of which had already been sent to the Defendants for their perusal and comment on 22nd April as mentioned above), the 2nd Defendant said that he did not understand English and had to take the agreement home to study before he was prepared to sign it.

17. On that day, the Defendants were also asked to pay the Plaintiffs a sum of $103,000 as reimbursement of the water and electricity deposits and rental deposits for the two factory units. No payment was made on that day but the two Plaintiffs were promised payment on 11th May when the bank account of the Defendants' new company would become operative. It was on this occasion that the Defendants mentioned their wish to nominate their company as the transferee in the legal documentation.

18. According to the 2nd Plaintiff, whilst the Defendants and their wives were observed to be working inside and running the factory business from the factory premises formerly occupied by the her factory since 1st May, the Defendants refused or failed to pay the Plaintiffs the balance of the purchase price of the transfer, the one-month rental deposits for the two units, or the water and electricity deposits, despite repeated requests and demands.

19. It should be mentioned here that according to the 2nd Plaintiff, although originally the transfer deposit was agreed at $500,000, subsequently it was agreed that out of this sum a sum of $20,000 should be treated as payment of rent for the month of May, so that the deposit paid for the transfer was only $480,000, with the balance to be paid by instalments. The latest agreement of the parties in relation to the instalment payment terms was reflected in clause 4(a) of the transfer agreement (as revised) which the solicitors prepared for the parties' signature on 7th May.

20. It is apparent from the inter-solicitors correspondence between the Plaintiffs, the 1st Defendant and the 2nd Defendant respectively that starting in May the parties soon disputed amongst themselves whether a binding agreement had been reached for the transfer, whether the balance purchase price, rent, deposits and so forth were payable by the Defendants, whether the 2nd Defendant was entitled to the return of the sum of $500,000 which according to the 2nd Defendant's solicitors was just a loan made by the 2nd Defendant to the 2nd Plaintiff in order to enable her to make the severance payments, and whether the Defendants could return the keys and possession of the factory units to the Plaintiffs.

21. Eventually the Plaintiffs recovered possession of the two units including the machinery, equipment and accessories mentioned above and so forth left behind by the Defendants on 28th August 1999, after the Defendants' new company dismissed its employees and ceased business towards the end of May. The 2nd Plaintiff gave evidence on the loss suffered by the Plaintiffs as a result, in terms of severance payments, loss of profit between May and 10th September 1999 when the old factory resumed operation in the factory premises, arrears of rent, rates, government rent, management fees, water and electricity charges, as well as telephone charges.

3rd Plaintiff's evidence

22. The 3rd Plaintiff also gave evidence in support of the Plaintiffs' case. His evidence was substantially in agreement with that given by her mother, although admittedly his role in the matter was by and large subsidiary to that played by her mother. His evidence relating to the terms agreed by the parties in March essentially agreed with the evidence given by her mother. He said he was present in some of the discussions between her mother and the Defendants that took place in March for several days. He gave a breakdown of the monthly rental of $19,000 as $8,500 for Unit B, $9,000 for Unit C and $1,500 for the car parking space. The 3rd Plaintiff also clarified that the so-called goods van was in fact a 5.5 tonnes goods vehicle which he did not consider as part of the "production tool or equipment" of the factory and therefore was not included in the purchase price of $900,000. But he agreed that his mother had agreed to let the Defendants use the goods vehicle free of charge.

23. The 3rd Plaintiff explained in cross-examination that apart from the deposit, the balance of the transfer price was agreed to be paid by instalments. The Plaintiffs' original proposal was reflected in clause 4(a)(ii) of the draft agreement of 22nd April. Subsequently, the Defendants counter-proposed instalment payment terms which were more favourable to the Defendants. The terms were agreed and were reflected in clause 4(a)(ii) of the revised transfer agreement which the solicitors prepared for the parties' signature on 7th May. It may be noted here that apart from the change of name of the transferee and the change in the instalment payment terms, the original draft and the revised agreement were of substantially the same contents.

24. The 3rd Plaintiff's account of what took place in the afternoon of 26th April after the 1st Defendant handed the cashier order of $500,000 to the 2nd Plaintiff corroborated the one given by her mother in the witness box. He maintained that he considered the provisions relating to the forfeiture or (as the case might be) refund of the deposit in case one party did not complete the transfer as reasonable and fair, although obviously when he drafted those provisions he had primarily in mind the interest of the Plaintiffs to protect. He pointed out that at the time he and his mother had total intention and sincerity to transfer the factory to the Defendants as agreed. The provisional agreement or memorandum served as evidence of the parties' agreement relating to the transfer of the factory and the purpose of payment of the sum of $500,000. He insisted during cross-examination that the cashier order was only deposited by him into the account of the factory after the provisional agreement or memorandum had been signed by the 2nd Plaintiff and 1st Defendant on behalf of the parties respectively. He denied that the Defendants were rushed into signing the provisional agreement or memorandum, or that any pressure was exerted on the 1st Defendant to sign the same. He also disagreed that the 2nd Defendant expressed any disagreement with the contents of the provisional agreement or memorandum or any unwillingness to sign it (save that he asked the 1st Defendant to sign it on his behalf).

25. The 3rd Plaintiff clarified that in March when the agreement was orally reached, it was intended and agreed that a formal agreement would be signed on 25th (subsequently postponed to 26th, a Monday) April and on that day the deposit would be paid; and the transfer would take place on 1st May. However in April the lawyers told them that the power of attorney of the 1st Plaintiff was required. By 26th April, the power of attorney had not yet arrived from the States, and he and his mother considered that there was a need to sign something in writing to evidence the parties' agreement and the purpose of the payment of the sum of $500,000. He accepted that the provisions he inserted into the provisional agreement had not been agreed to by the Defendants beforehand. But he maintained that an adequate opportunity had been given to the Defendants to read the whole document before they were asked to sign it. He explained that just as the 1st Defendant signed on behalf of both Defendants, so his mother signed on his behalf the document and he did not sign it. According to the 3rd Plaintiff, the parties also agreed to postpone the execution of the formal agreement to 7th May awaiting the arrival of the power of attorney. The 3rd Plaintiff said that changes suggested by the Defendants to the draft transfer agreement given to them on 22nd April (i.e. that relating to the instalment payment terms) had already been conveyed to the solicitors for amendment.

26. The 3rd Plaintiff said in evidence that the power of attorney arrived in late April, the factory was transferred as agreed to the Defendants as from 1st May, and on 7th May he and his mother went to the factory premises in the morning to ask the Defendants to go to the solicitors' office together to sign the legal documents. However, the 2nd Defendant put forward the excuse that he could not read English, he did not understand the formal documents, and therefore he would not go to the solicitors' office to sign the documents. The 3rd Plaintiff got very upset, feeling that the 2nd Defendant was simply putting up an excuse not to sign the formal documents even though everything had been transferred as agreed by the Plaintiffs to the Defendants, and almost got into a fight with the 2nd Defendant, which was prevented by others also present.

27. Eventually the parties attended the solicitors' office in the afternoon, but nothing was signed as the 2nd Defendant maintained that he could not read English and he needed to take the documents home to study before he would sign the documents. The 1st Defendant did not express any such unwillingness. On that occasion, the Defendants mentioned for the first time their intention to nominate their company to sign the documents and thereupon the solicitors made some changes to the prepared documents accordingly. The 3rd Plaintiff maintained during cross-examination that previously the Defendants had only mentioned their intention to use a limited company to run the business of the factory after the transfer but not any intention to use the company to take up the transfer. He thought the Defendants might inject the factory as their capital contribution to the limited company which would run the business. At the solicitors' office, the Defendants also promised to pay the deposits for water and electricity and the rental deposits or rent, amounting to $100,000 odd, to the Plaintiffs on 11th May.

28. The 3rd Plaintiff maintained during cross-examination that he considered that a binding agreement had been orally reached in March. If the Defendants did not pay the agreed deposit of $500,000 in April or sign the formal agreement (which was indeed the case), he would consider the Defendants as acting in breach of contract. He regarded the so-called provisional agreement as something in writing to evidence what had been agreed orally between the parties and in particular the purpose of the payment and receipt of the sum of $500,000 and what should happen to it in case either party did not complete the transfer.

1st Defendant's evidence

29. The 1st Defendant gave evidence at trial. He started working in the factory as a delivery driver in 1988. His monthly income by 1999 was in excess of $20,000. He apparently became interested in acquiring the factory from the Plaintiffs in early 1999 and he came to an agreement with the 2nd Defendant to do so. He said without the 2nd Defendant, he alone would have insufficient capital to acquire the factory. He said the 2nd Defendant agreed to form a limited company with him to acquire the factory and run the business. He would be a minority shareholder in the company owning 45% of the issued capital, whereas the 2nd Defendant would be the majority shareholder owning 55%. He said he could only afford $150,000 by way of contribution towards the working capital, and the 2nd Defendant had promised to lend him $300,000 as his further contribution towards the working capital. He said he had agreed with the 2nd Defendant that he would be in charge of the daily operation of the factory, whereas the 2nd Defendant would be in charge of its finance and accounts.

30. He described in evidence the matters discussed between the parties in March. Although he called them discussions in his evidence-in-chief, it was plain during cross-examination that the parties had reached agreement orally on the transfer (including the goods vehicle according to the 1st Defendant), the letting of the two units, the transfer date (1st May 1999), the transfer price, the first payment of $500,000 (inclusive of $20,000 on account of rent), and the rent (exclusive of management fees and rates). The 1st Defendant also agreed that payment of the balance of the purchase price by instalments was subsequently agreed after the Defendants had sight of the draft agreement of 22nd April to which they made a counter-proposal, which was accepted by the Plaintiffs, as reflected in the subsequent revised agreement prepared by the solicitors for their signature on 7th May. He maintained that the question of reimbursement of the water and electricity deposits in the total sum of $80,000 odd was only raised by the 2nd Plaintiff for the first time in early May, but he agreed in cross-examination that this was not a major item and he believed that this could be resolved by negotiations. He maintained that the Defendants had made known to the Plaintiffs that they intended to use a limited company to take up the transfer, but he accepted that in any event by the time the parties attended the solicitors' office on 7th May, the Plaintiffs had no objection to their changing the name of the transferee in the legal documents from themselves to that of the company, which was there and then done by the solicitors with the prepared legal documents.

31. The 1st Defendant said during cross-examination that he considered that there was no binding agreement between the parties until the formal documents were signed, as he thought that an agreement made orally had no legal effect. But he also agreed that provided the terms of the formal documents were reasonable, he was prepared to sign them. He could not think of anything important which had not been agreed upon (perhaps with the exception of the water and electricity deposits), or anything else to include into the written agreements between the parties before they could be signed.

32. The 1st Defendant agreed that the 2nd Plaintiff had given him and the 2nd Defendant a copy draft transfer agreement on 22nd April for their perusal and comment. The 1st Defendant said he relied on the 2nd Defendant who said he would ask his daughter to study the draft document for him. As mentioned above, the Defendants came back with their proposal on the instalment payment terms. It should be noted that in fact the draft agreement of 22nd April clearly set out in clause 5(b) that upon completion of the transfer the Defendants had to reimburse the Plaintiffs the water and electricity deposits in the total sum of $85,000. This clause was repeated in the revised agreement of 7th May without any amendment. Apparently the Defendants never made any counter-proposal in relation to this part of the draft agreement of 22nd April.

33. The 1st Defendant's account of the circumstances surrounding the payment of the sum of $500,000 (which he understood as a payment of deposit) and his signing of the so-called provisional agreement in the afternoon of 26th April differed not only from that respectively given by the 2nd and 3rd Plaintiffs, but that of his own as set out in his pleading, witness statement as well as an affirmation he made back in July 1999 when proceedings were first commenced. He now accepted that the cashier order was handed to the 2nd Plaintiff before the document was signed (whereas before he said this was done only upon his signing the document). He now said he had indeed read through the document but could not fully comprehend the contents (whereas before he said just as he was about to read the document the 2nd Plaintiff told him that there was no need to do so as the document was an informal one which was not binding, and therefore he signed without reading the document). He said in the box that after the 2nd Defendant read the document he said it was unfair because if the Defendants did not complete the transfer the deposit would be forfeited whereas if the Plaintiffs did not complete they need only return the deposit without any compensation, and upon hearing that the 1st Defendant also felt what he had read as thus explained by the 2nd Defendant was indeed unfair to them. None of these was mentioned in the 1st Defendant's earlier court documents. He also said in the box that after hearing what the 2nd Defendant said, he was hesitating whether to sign the document, and at that juncture the 3rd Plaintiff shouted loudly at him to sign the document immediately. He therefore signed it. Again this did not appear in his previous documents prepared for the purpose of this litigation. But the 1st Defendant did agree with the Plaintiffs, and disagreed with the 2nd Defendant, that the 2nd Defendant said in the meeting that his hand was trembling, he had "no ink", and it was sufficient for the 1st Defendant to sign the document which the 1st Defendant understood and took as a request to him to sign the document on the 2nd Defendant's behalf, which he did. He said that the whole meeting lasted about 10 to 15 minutes.

34. During cross-examination, the 1st Defendant accepted that he could understand well the meaning and effect of the 1st and 3rd paragraphs of the provisional agreement, and as to that of the 2nd paragraph (inserted into it by the 3rd Plaintiff) he agreed that after hearing the complaint of unfairness by the 2nd Defendant in relation to it he could understand the meaning and effect of the paragraph as well and also felt that it was unfair to the Defendants.

35. The 1st Defendant further disagreed with the case put to him on behalf of the 2nd Defendant during cross-examination that after the meeting the 2nd Defendant asked him to get back the cashier order from the Plaintiffs because the 2nd Defendant was dissatisfied with the document and had lost interest in acquiring the factory as a result of the events on 26th April, and threatened to report the matter to the police. He disagreed with the suggestion that he had guaranteed to the 2nd Defendant to obtain the return of the cashier order or money from the Plaintiffs, or that the 2nd Defendant chased him for the money on a daily basis after 26th April.

36. The 1st Defendant maintained in cross-examination that he and the 2nd Defendant proceeded with the acquisition of the factory after the meeting, whilst the 2nd Plaintiff dismissed the factory's workers at the end of April. He together with the other workers were paid severance pay by the Plaintiffs. The new company commenced business in the factory premises on 1st May when the transfer was effected by the Plaintiffs, and on 4th May he on behalf of the company signed new employment contracts with six of the former employees of the Plaintiffs (he being in charge of the operational side of the new factory business). He said, despite suggestion to the contrary made to him during cross-examination on behalf of the 2nd Defendant, that starting from 1st May until 13th May, both the 2nd Defendant and his wife came to the factory premises and attended to the business of the company on a daily basis. The company did business with customers including the former customers of the factory. According to the 1st Defendant, he paid a total of $70,000 odd for the company in connection with its business and factory operation.

37. The 1st Defendant agreed that on 7th May, the 2nd Defendant was reluctant to attend the solicitors' office to execute the formal documents, and this nearly led to a fight between the 3rd Plaintiff and 2nd Defendant. Eventually the parties attended the solicitors' office in the afternoon. At the suggestion of the Defendants, the name of the transferee was changed to that of their new company. But then the Defendants said they needed to take away the documents to read them, and as a result nothing was signed on that day. In cross-examination, the 1st Defendant explained that his understanding of the 2nd Defendant's attitude was not that he would not take over the factory or run the business, but only that he would not sign any document with the Plaintiffs.

38. The 1st Defendant related an incident that took place in the factory premises on 13th May, which marked the beginning of the end of the co-operation between the two Defendants in running the factory business. According to the 1st Defendant, on that day the 2nd Defendant returned to the factory premises and demanded to take away the company seal and rubber stamp, but was unable to give any reason for wanting to do so. The 1st Defendant disagreed, thereupon the 2nd Defendant threatened to commit suicide. In her panic, the 1st Defendant's wife who also helped out in the factory went over to an unit opposite to the factory units where the 2nd Plaintiff had an office under an unrelated business to ask the 2nd Plaintiff to come over and help. When the 2nd Plaintiff arrived at the factory premises, the 2nd Defendant knelt down on the floor and begged the 2nd Plaintiff to return to him the sum of $500,000 which the 2nd Plaintiff refused. It may be added that in her evidence, the 2nd Plaintiff said she was frightened by the 2nd Defendant's behaviour but felt his demand was totally unjustified as she had already transferred the factory to the Defendants.

39. The 1st Defendant said in evidence that since then the 2nd Defendant and his wife did not return to the factory premises or attend to the business and affairs of the factory. He called the 2nd Defendant over the telephone to come back but to no avail. There were arguments between them over the telephone, and not soon thereafter the two Defendants exchanged letters written by solicitors. As the 2nd Defendant unjustifiably abandoned the factory business, the 1st Defendant found that he alone was unable to shoulder the operation and financial requirements of the factory. In those circumstances, any possibility of his and the 2nd Defendant's signing the formal documents with the Plaintiffs was gone. Further, upon the advice of his lawyers, on 26th May 1999 he wrote through his lawyers to the Plaintiffs attempting to return the factory and the goods vehicle to the Plaintiffs, which the Plaintiffs refused to accept (until August). On the following day, the 1st Defendant on behalf of his company dismissed the factory workers on the ground of cessation of the factory business. The 1st Defendant accepted in cross-examination that but for the 2nd Defendant's unjustified and unilateral abandonment of the factory business, he would have continued operating the factory together with the 2nd Defendant under the new company.

40. The 1st Defendant accepted in cross-examination that from 26th April up to the end of May, he was ready and willing to and did since 1st May take over the factory and run an electroplating business from the factory premises, notwithstanding what the Plaintiffs did or did not allegedly do during that period of time, and his quitting the factory and determination of its business was caused by the 2nd Defendant's unilateral abandonment of the same.

2nd Defendant's evidence

41. The 2nd Defendant also gave evidence at trial. He said he used to run a machinery accessory and repair business or factory before, which provided repair service to the machinery used by the Plaintiffs' factory and supplied accessories required by the factory. He had known the 2nd Plaintiff and her late husband for a long time. He learned of the intended sale of the business of the Plaintiffs' factory from the 1st Defendant whom he had also known for about 10 years as a driver working at the factory. Originally the intention was for he, the 1st Defendant together with Mr. Ng to buy the factory from the Plaintiffs. But subsequently Mr. Ng dropped out, and he and the 1st Defendant decided to do it by themselves through a limited company to be formed, at the ratio of 55:45 with he, i.e. the 2nd Defendant, as the majority shareholder.

42. There was a meeting in March between the 2nd Plaintiff and the two Defendants at the factory premises. The transfer price was agreed at $900,000, a deposit of $480,000 was to be paid first, and the rest of the money would be paid from the profits to be earned by the new company of the Defendants in running the factory. According to the 2nd Defendant, the term of the tenancy of the two units was to be three years, as he considered that a term of two years would be too short. According to him, it was agreed that a formal document in Chinese would be drawn up by lawyers for the parties' signature before anything would be binding. He said he was persuaded by the 2nd Plaintiff to use her lawyers to do the drafting so as to save costs. He said he had only received up to primary one or two education and he could not read any document in English, and that was why it was agreed that the contract would have to be in Chinese. He said the parties never reached a definite timetable for the payment of the balance of the transfer price by any instalments. The 2nd Defendant said that no money was payable until the signing of the formal document and until confirmation after three days of newspaper advertisements that the factory did not owe any outsider any money or have any liability. He accepted during cross-examination that this was never mentioned in any of his pleading, witness statement, solicitors letters or other documents relating to this case. He said he did not know that this need be told until he was asked about what had been discussed between the parties in the witness box.

43. He said afterwards in April the 2nd Plaintiff showed him a draft contract prepared by her lawyers in English. She explained that the lawyers were trained in English and could not prepare any contract in Chinese. She read over and explained the terms in the draft to him. He said the terms were different from what had been orally agreed, by that he meant the instalment payment terms, and he gave the draft back to the 2nd Plaintiff, as he did not know how to read the draft and did not agree with its terms in so far as they had been explained to him.

44. The 2nd Defendant said the 2nd Plaintiff was not worried that the transfer would fall through as she told him that her business had been running at a profit and she was only willing to sell because she wanted to emigrate with her son to the States.

45. The 2nd Defendant also said that in April the 2nd Plaintiff borrowed from him a sum of $500,000, telling him that she needed the money to meet a cashflow problem as her money had been transferred to the States. He said he agreed to lend money on condition that she would repay the money within three months failing which he could sell her flat for repayment and that she would pay him interest at 1% over the then prevailing savings interest rate. This was agreed and so on 26th April, he gave a cashier order of $500,000 to the 2nd Plaintiff through the 1st Defendant. He accepted during cross-examination that this was never mentioned in any of his pleading, witness statement, solicitors letters or other documents relating to this case. He said he did not know that this need be told until he was asked about what had been agreed between the parties relating to the loan in the witness box.

46. He said when the cashier order was given to the 2nd Plaintiff on 26th April, he asked for an IOU from the 2nd Plaintiff. In the late afternoon when the parties met at the factory premises, what the 2nd Plaintiff and her son tried to give him back in return was an agreement relating to the transfer instead (i.e. the so-called provisional agreement referred to above), and they asked him to sign the document. He refused to read the document or sign it, insisting that all he was asking in return for his loan was an IOU. Upon his refusal to sign, the 2nd and 3rd Plaintiffs spoke loudly to the 1st Defendant, insisting that he had to sign the document, which he did. During cross-examination, the 2nd Defendant denied that during the meeting, he said he had "no ink" or that his hand was trembling as an excuse for not signing the document. He also denied the suggestion that he authorised or asked the 1st Defendant to sign the document on his behalf. He said during the meeting he never read the document, and it was only after the meeting that he read it. He found the provisions in the document relating to forfeiture and refund of the deposit in case of breach by either side respectively unfair to the Defendants, and told the 1st Defendant his view.

47. In any event, by then the 1st Defendant had already signed the document, and the cashier order had already been handed over to the 2nd and 3rd Plaintiffs. The 2nd Defendant said because of what had happened he had totally lost trust and confidence in the Plaintiffs, as well as any interest in taking up the transfer of the factory. He told the 1st Defendant that he would report the matter to the police so as to get back his $500,000, but the 1st Defendant begged him not to do so as this would jeopardise his employment with the 2nd Plaintiff. He said the 1st Defendant promised to get back for him his $500,000 within a week. He said from then on, he took no part in taking up the transfer of the factory or running the limited company or the new factory business. Anything that was done was done by the 1st Defendant himself unilaterally. He denied in cross-examination that he or his wife worked in the factory premises for a week or so before he distanced himself from the running of the business.

48. During cross-examination, the 2nd Defendant admitted that he had signed some documents in an accounting firm for the formation of the limited company, some of which according to the documents were dated after 26th April. He said he could not recall what documents he had signed, but he believed that all documents were signed before 26th April when he was still interested in taking up the transfer of the factory.

49. He said he only opened a company account together with the 1st Defendant on 3rd May because of a promise of the 2nd Plaintiff related to him by the 1st Defendant that she would return the money to him through his company account if he agreed to manufacture a new machine for the 2nd Plaintiff's factory, which he reluctantly agreed to do.

50. The 2nd Defendant said he went back to the factory premises on 7th May when he had been promised by the 2nd Plaintiff again through the 1st Defendant that the 2nd Plaintiff would return the money to him on that day. However, when the 2nd and 3rd Plaintiffs arrived, they demanded that he went with them to the lawyers office to execute the formal documents for the transfer instead. The 3rd Plaintiff punched him and was only restrained by his mother when he refused to go. He said he was threatened by the 3rd Plaintiff that he and his wife could not leave the premises if he did not go to sign the formal documents that day. He said he had no choice but to go. He found the documents all in English, he did not understand them, and eventually he did not sign any of the documents at the solicitors office.

51. The 2nd Defendant said that he returned to the factory premises on 13th May in order to retrieve company documents for the purpose of instructing lawyers in the matter. He met the 2nd Plaintiff there. He said it was the 2nd Plaintiff instead of he himself who had gone mad on that occasion. According to him, the 2nd Plaintiff insisted that he could not take anything away from the factory premises as everything belonged to her.

Applicable principles in approaching the facts

52. Mr. Hung, counsel for the Plaintiffs, referred me to a number of authorities which are relevant and helpful in the context of the present case. Thus Halsbury's Laws of England (4th ed.) paras. 650, 669 and 675 say:

" Where there is a lengthy course of negotiations between the parties, it may be difficult to decide when they have reached agreement and have concluded a binding contract. Despite the continuing negotiations, the court may be willing to find a concluded bargain; and, if so, continuance of the negotiations thereafter will not itself terminate that agreement, unless evincing a subsequent mutual intention to rescind that agreement. Moreover, the court may be more willing to infer that the parties have reached a binding contract where one party to the continuing negotiations renders partial performance, even to the extent of giving retrospective effect in respect of that partial performance.

Where there is a definite acceptance of an offer to enter into a provisional agreement, the fact that it is accompanied by a statement that the acceptor desires that the arrangement should be put into a more formal shape does not relieve either party from his liability under the provisional agreement ...

Where an 'agreement' remains executory on one side, but has been wholly or partially executed on the other, the very fact of execution may itself tend to lead to the conclusion that the 'agreement' is binding; or, where it is only partially executed on the one side, the court may alternatively deduce that there is a binding contract broadly on the terms of the 'agreement', but merely in respect of the executed part; and, where the 'agreement' has been partly or wholly executed on both sides, it would seem probable that the courts would give their assistance, even sometimes to the extent of giving retrospective effect to the terms eventually agreed.

It is especially common in the case of large commercial agreements to find that terms which would probably be too vague and incomplete to constitute a binding contract whilst the matter remains wholly executory tend to be held binding when they have been wholly or partially acted upon...

... a partially executed agreement will not necessarily fail merely on the ground that it envisages further agreement between the parties. Should the parties subsequently fail to agree the outstanding matters, it has been said that the contract will only fail if their failure makes it 'unworkable or void for uncertainty'; and that it is unlikely to be the outcome where the outstanding matter is only of subsidiary importance."

53. In Law v Jones [1974] Ch 112, 123, Buckley LJ said as follows:

"It is well settled that, where there has been a definite acceptance of an offer, the fact that the parties intend that it shall be put into a more formal shape does not relieve either party from his liability under the contract (see Halsbury's Laws of England [3rd Edn, vol 8, p 76, para 130] and cases there cited). As Lord Blackburn observed in Rossiter v Miller [(1878) 3 App Cas 1124 at 1152, [1874-80] All ER Rep 465 at 475]: 'I think the decisions settle that it is a question of construction whether the parties finally agreed to be bound by the terms, though they were subsequently to have a formal agreement drawn up.' Where, as in the present case, the agreement was oral, it is a question of finding the facts on the evidence, rather than one of construction. Such a case is entirely different from an agreement 'subject to contract', where the use of that expression indicates that the parties do not intend to be immediately bound, or, to put it into Latin, that they have no present animus contrahendi."

54. In Trentham Ltd. v Archital Luxfer [1993] 1 Lloyd's Rep. 25, 27, Steyn LJ (as he then was) observed thus:

"The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often make it difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised in negotiations as inessential. In this case fully executed transactions are under consideration. Clearly, similar considerations may sometimes be relevant in partly executed transactions."

55. With all these passages and observations I agree. In fact, neither Ms. Chui nor Mr. Lau, respectively counsel and solicitor representing the 1st and 2nd Defendants, expressed any disagreement with these principles. Bearing them in mind, I shall proceed to deal with the facts and factual disputes in the present case.

Findings of fact

56. In this regard, in my view, there are three related yet separate focuses. First, whether there was any intention on the part of the parties to enter into a legally binding contract. Second, what were the terms agreed; including who were the parties to the agreement. Third, were the terms agreed between the parties certain enough to constitute a concluded and legally binding contract. Having listened carefully to the oral evidence adduced before me and observed the respective demeanour of the witnesses, and having considered all the available documentary evidence and the surrounding circumstances of this case, I prefer the evidence given by the 2nd and 3rd Plaintiffs to that given by the Defendants in so far as their evidence differed, and as between the two Defendants, I prefer the evidence of the 1st Defendant to that of the 2nd Defendant.

57. The 2nd Defendant's evidence was seriously contradicted not only by the evidence of the 2nd and 3rd Plaintiffs, but by the 1st Defendant's evidence as well, in relation to many important aspects. So for instance, his story about why he gave $500,000 to the 2nd Plaintiff on 26th April, what happened during the meeting on 26th April, why he did not sign the memorandum or provisional agreement, the circumstances under which the 1st Defendant came to sign the document, what happened afterwards particularly in relation to his attitude towards the completion of the transfer and the signing of the formal documents, the taking up of the transfer and commencement of the new business including the hiring of employees and the doing of business with customers as from 1st May, his and his wife's participation in running the business after 1st May, the events on the 7th and 13th May, and his withdrawal from the taking up of the transfer of the factory, were all contradicted by the evidence given by the 1st Defendant which corroborated in many important aspects the story given by the 2nd and 3rd Plaintiffs. Further his story about the newspaper advertisements and the terms of the alleged loan of $500,000 never appeared in any of the previous documents that came into being because of the present dispute or litigation. They were never put to the 2nd or 3rd Plaintiff whilst they were in the box, or for the matter, the 1st Defendant.

58. I reject his story of a loan of $500,000 to the 2nd Plaintiff. Quite plainly, the money was paid in connection with the transfer of the factory. I also reject the 2nd Defendant's story that after the 26th meeting, he had lost interest in acquiring the factory at all. If he was telling the truth, there would have been no reason for the 1st Defendant to still proceed with the transfer as he undoubtedly did given that he was dependant on the 2nd Defendant's financial support in taking part in the acquisition of the factory and running the new factory business.

59. I find the inaction of the 2nd defendant to recover his "loan" of $500,000 from the 2nd Plaintiff after the 26th meeting according to his version of events totally surprising, and I was absolutely amazed by his suggestion of intimidation and false imprisonment by the 3rd Plaintiff against him and his wife at the factory premises relating to his refusal to attend the solicitors office to sign the documents on 7th May, although I accept that the 2nd Defendant and the 3rd Plaintiff almost got into a fight in the morning. Why he did not make any report to the police or ask his friends or relatives to come over and help and instead agreed to yield to the wrongful demand of the 3rd Plaintiff to attend the solicitors office was never explained in evidence. Why no complaint was made to the solicitors was equally left unexplained. I totally reject his story in this regard and generally.

60. As for the differences between the evidence of the 2nd and 3rd Plaintiffs and that of the 1st Defendant, I note that in final submission the 1st Defendant through counsel dropped all arguments relating to his lack of knowledge or understanding of the terms of the memorandum or provisional agreement or his being forced to sign the same. He also dropped any argument that no binding agreement had been reached as no formal document was signed. In those circumstances, I find that, first, this was really a concession by the 1st Defendant that his story was factually untrue in so far as it differed from that given by the 2nd and 3rd Plaintiffs in relation to these important aspects, and second, those differences in evidence did not matter at all at the end of the day given the 1st Defendant's concessions during final submission.

61. But in any event, as I said, I prefer the evidence of the 2nd and 3rd Plaintiffs to that of the 1st Defendant in so far as their evidence differed. It was clear from the 1st Defendant's own evidence that he had read and fully understood the contents of the memorandum or provisional agreement before he signed it. I do not believe that any shouting on the part of the 2nd or 3rd Plaintiff (which I do not accept in any event) would have had the effect of forcing him to put his signature on the document as a grown-up and mature adult, given the importance of the contents of the document in question. Many of the things he said in relation to the meeting of the 26th April did not appear in his previous court documents including his witness statement as pointed out above.

62. The 1st Defendant's subsequent action of taking over the transfer of the factory as from 1st May clearly indicated that he took the transfer seriously, that this was something done with legal consequences to both sides, and that to suggest that no legal relationship had been created between the parties relating to the transfer would be totally unsustainable. He frankly admitted in cross-examination that the primary reason for the failure to sign the formal documents and thus the payment of the remainder of the transfer price was the wrongful refusal of the 2nd Defendant's to proceed with the signing of the formal documents and his wrongful and unilateral withdrawal from the new business between them through the limited company.

63. I find, on a balance of probabilities, that there was from the outset an intention to enter into an immediate legally binding relationship in the parties' discussions in March. I accept that the parties intended to sign a formal legal document, but that did not mean that no legally binding relationship had been created in the meantime. The 2nd and 3rd Plaintiffs were obviously very keen to have something in writing signed between the parties in Chinese. That in my judgment reflected their concern to have something in writing as evidence of what had been agreed. That did not mean that prior to the signing of the provisional agreement or memorandum on 26th April, nothing binding had been agreed or intended. In other words, I reject any suggestion that the discussions were held and agreement reached without any intention to create a legal relationship, or that they were held and reached on an express or implied "subject to contract" basic.

64. But even if I were wrong with that assessment of the evidence, I have no doubt that there was a definite intention on the part of all parties to enter into something legally binding on 26th April as evidenced by the signing of the memorandum and the payment of the very substantial sum of $500,000. The immediate dismissal of the employees of the factory and making of very substantial severance payments to them (including the 1st Defendant) by the Plaintiffs following the signing of the document and the payment of $500,000 only served to illustrate that something definite and binding had been reached by the parties and they had gone beyond the point of no return. In other words, on the question of intention to create a legally binding relationship, I find that such intention on the part of all concerned existed by the latest on 26th April.

65. As regards the terms of agreement between the parties, I find that so far as the parties were concerned, it was an agreement between individuals on both sides, although on the part of the Defendants they intended to use a company as their nominee to take up the transfer, as to which the Plaintiffs had no objection at all. I accept the 2nd and 3rd Plaintiffs' evidence that this was only mentioned subsequently by the Defendants. But in any event, I find that the Defendants only wanted to use the limited company as a nominee in taking up the transfer, whereas they themselves remained the contracting parties with the Plaintiffs relating to the transfer. This was fully reflected by the fact that the provisional agreement or memorandum referred to the Defendants personally as the transferees of the factory.

66. As regards the terms of the transfer, I accept fully the account given by the 2nd and 3rd Plaintiffs, and I shall not repeat in detail here what they said about the terms. So far as the more important terms agreed were concerned, the subject matter of transfer had been agreed, the price had been agreed, the payment of the initial deposit of $500,000 (subsequently reduced to $480,000) had been agreed, the forfeiture or refund of the same in case of failure to complete by either side had been agreed, the payment of the remainder by instalments (details of which were subsequently agreed and contained in the revised agreement prepared by the lawyers) had been agreed, the letting of the factory premises and the car parking space for a total of $19,000 had been agreed, the transfer date of 1st May had been agreed, the free use of the goods vehicle had been agreed, the date of signing of the formal documents had been agreed, and I would add that the water and electricity deposit arrangement had been agreed.

67. In relation to this last item, the Defendants had been given a copy of the draft agreement on or about 22nd April to study which clearly set out amongst other things the instalment payment terms (clause 4(a)(ii)) as well as the deposit arrangement (clause 5(b)). The Defendants made a counter-proposal relating to the instalment payment terms (which were accepted and incorporated into the revised agreement) but not the deposit arrangement. In those circumstances, I find that the parties had agreed on the deposit arrangement as per the draft agreement as well as the 2nd and 3rd Plaintiffs' oral evidence. In any event, in my judgment, this was a subsidiary matter which even if not agreed would not have prevented the parties from having concluded a legally binding and certain agreement, and worse came to worse, the Plaintiffs could simply cancel their accounts and get back their deposit monies from the utility company and water authority and the Defendants could open new accounts by payment of deposits with the utility company and water authority.

68. In my judgment, as per the evidence of the 2nd and 3rd Plaintiffs, and in accordance with my above findings, everything that had to be agreed had been agreed by late April the latest, and what had been agreed was certainly sufficient and certain enough to constitute a concluded binding contract between the parties.

Conclusion on liability

69. In conclusion, I find that there had been concluded a legally binding and certain contract between the Plaintiffs on one hand and the Defendants on the other for the transfer of the factory as per the 2nd and 3rd Plaintiffs' oral evidence as evidenced by the memorandum or provisional agreement as well as the revised transfer agreement (re the instalment payment terms and deposit arrangement). It had been partially performed by the 2nd and 3rd Plaintiffs as well as by the Defendants as from 1st May. It had been breached by the 2nd Defendant in refusing to sign the formal documents or pay the remainder of the purchase price. The 1st Defendant was jointly and severally liable together with the 2nd Defendant for his breach, and was in any event also personally liable for failing to pay the balance purchase price himself.

70. I do not accept Ms. Chui's argument that the 1st Defendant's position should be viewed separately from that of the 2nd Defendant's vis-à-vis the Plaintiffs. In my judgment, on the facts and bearing in mind the nature of the Defendants' agreed acquisition of the factory from the Plaintiffs, the liability of the Defendants under the transfer contract, like their rights against the Plaintiffs under the same, must have been joint and several, like that in the case of a partnership although they intended to use a limited company to take up the transfer. In other words, I find that both Defendants are liable to the Plaintiff for breach of contract.

Quantum

71. Turning to quantum, the parties agreed that the Defendant should be responsible for the arrears of rent, management fees, rates and government rent, utility charges, all for the period after April and until the Plaintiffs re-took possession of the factory premises and the assets left behind by the Defendants in August, as well as legal costs for the preparation of the formal documents which were never signed, in the total sum of $144,200.81, in the event of a finding of liability against the Defendants. I award the same as damages to the Plaintiffs in the light of my above finding on liability against the Defendants.

72. It is apparent from the above that the Plaintiffs are claiming for damages on the basis of restoring them to the position they would have been in had no contract been made, as an alternative to the normal basis of putting them into the same position as if no breach had been committed by the Defendants, given the fact that the Plaintiffs have abandoned their claim for specific performance of the transfer agreement and have re-taken possession of the factory premises and assets, and it would be difficult to prove and quantify the Plaintiffs' loss of bargain. I accept this basis for claiming damages: See Mcgregor on Damages (16th ed.) para.47 et seq.

73. On that basis, apart from the aforesaid damages, the Plaintiffs also claim damages representing the severance payments made to the factory's employees prior to the transfer on 1st May, totalling $349,429.60, as well as loss of profits for four odd months in the estimated sum of $200,000 representing the period when the Plaintiffs were out of business due to the abortive transfer. As a matter of principle, I agree that the two items may be claimed under this alternative basis for claiming damages.

74. Turning to the severance payments, the amounts paid were not disputed by either Defendant. But they argued at trial that these payments would have been payable by the Plaintiffs to the employees in any event given the Plaintiffs' intention to sell the factory and the evidence of the 2nd Plaintiff that due to poor business the factory eventually closed in May this year.

75. I do not agree. First, according to the evidence, although the Plaintiffs had the intention to sell the factory if the right offer came along, on the evidence that might well not have happened. Apart from Mr. Ng who had expressed some interest in buying the factory but eventually dropped out, no one else had expressed any interest in acquiring the business apart from the Defendants themselves. The successful selling of the business by the Plaintiffs was on the evidence nothing more than a subjective wish on the part of the Plaintiffs; it was nowhere near a likely possibility or certainty. Whilst I bear in mind that the burden lied with the Plaintiffs to prove their loss, the Defendants in raising their argument at least had to lay some proper evidential foundation for their argument. I reject therefore the Defendants' argument on the evidence before me.

76. Further, the cessation of business this year happened almost two years after the events in question, and according to the 2nd Plaintiff's unchallenged evidence this was partly due to the loss of customers resulting from the suspension of the Plaintiffs' factory business for several months in 1999 caused by the Defendants' abortive take-over of the factory. It therefore lied ill in the mouth of the Defendants to say that the Plaintiffs would have closed down their business and had to make severance payments to their workmen in any event.

77. Moreover, the employees might have left of their own accord or been dismissed for cause in the meantime, had the Defendants not entered into the transfer agreement with the Plaintiffs in 1999 which they breached and which caused the Plaintiffs to pay the severance payments prematurely, in which event no severance payments would be payable to these employees. So looking at the matter as a whole, I am satisfied that the Plaintiffs have made out a case for claiming the severance payments back by way of damages, and I reject the Defendants' argument in this regard.

78. Finally, turning to the loss of profits, I accept Ms. Chui's argument that looking at the available tax and accounting documents of the factory, the claim of $200,000 is on the high side. On the other hand, I also accept the 2nd Plaintiff's unchallenged evidence that the four odd months in question, i.e. May to early September when the Plaintiffs' factory resumed business, were amongst the best months of the year. So without burdening this judgment with details of the tax and accounting documents and the adjustments which according to Mr. Hung one needs to make to the documents and figures on account of the taxation nature of the documents and figures, and bearing in mind the 2nd Plaintiff's own estimate, I think a fair assessment of the loss of profits for the four odd months in question is $100,000, and I award this figure in favour of the Plaintiffs.

79. On a different basis, the Plaintiffs also claim against the Defendants in relation to the resale of the accessories to the Defendants' new business at half-price, namely, $35,000. This was, as I see it, put forward at trial, or, in any event should be regarded as a claim based on a separate though related sale of goods contract between the parties.

80. I say "separate" because the transfer price of $900,000 did not include the accessories which were not regarded as part of the subject matter of transfer, and the unsigned formal transfer agreement did not refer to it. I say "related" because quite obviously the resale to the Defendants was agreed given that the Plaintiffs' factory would be sold to the Defendants, and it would be the Defendants instead of the Plaintiffs who would be requiring these accessories after the sale. In those circumstances, I see no contradiction in the Plaintiffs making their claim for the preceding items of damages on the alternative basis as explained above whilst at the same time suing for the unpaid resale price of the accessories.

81. The 2nd Defendant through his solicitor conceded this claim during final submission. As this was a deal between by the Plaintiffs and the Defendants in connection with the transfer of the factory, the 1st Defendant is liable for the sum as well. It should be noted that the Plaintiffs sue for this sum as unpaid purchase price of the accessories. Although subsequently the accessories were left abandoned in the factory premises by the Defendants, this in my judgment did not affect the position. The accessories had been abandoned by the Defendants in the units, the Plaintiffs had no choice but to take possession of them, and they had no duty to return them to the Defendants (who had abandoned the accessories in the first place).

82. In my judgment, the accessories belonged to the Plaintiffs by virtue of the abandonment of the same by the Defendants. The Plaintiffs could do anything with the accessories as they liked without affecting their claim for the unpaid purchase price. The Defendants did not cross-examine the 2nd or 3rd Plaintiff regarding what they had done subsequently with the accessories, and in any event whatever they did would not have mattered because no question of mitigation of loss or giving of credit to the value of the abandoned accessories is involved here as the Plaintiffs are suing for the unpaid purchase price. I award the sum against the Defendants as well.

83. The Plaintiffs through counsel accepted that the deposit of $500,000 should be deducted from the common law damages claimed before me. I agree that that must be so given the basis of the Plaintiffs' claim. In other words, net damages due to the Plaintiffs should be in the sum of $93,630.41 ($144,200.81 + $349,429.60 + $100,000 - $500,000), plus the payment of the sum of $35,000 being the unpaid purchase price of the accessories, totalling $128,630.41.

Conclusion

84. I order that judgment be entered by the Plaintiffs against the Defendants, jointly and severally, for damages in the sum of $93,630.41 and for payment of the sum of $35,000, totalling $128,630.41.

85. I also award interest on the total judgment sum at the rate of 5% p.a. from the date of Writ to the date of judgment and thereafter at the judgment rate until full payment, 5% p.a. being in my judgment a reasonable interest rate bearing in mind the fluctuations or rather more correctly the continuous decline in interest rate since 1999 and bearing in mind also that this is a commercial dispute (and the commercial interest rates over the past 2 years are therefore more relevant here).

86. I also make an order nisi that the Defendants pay the Plaintiffs their costs of this action to be taxed if not agreed, and that there be a certificate for counsel. My order nisi as to costs will become an absolute order upon the expiry of 14 days from the date this judgment is handed down unless any party applies within the 14-day period to vary the order.