TAM SHAIR LEUNG v. TAM CHEUNG SHIU

DCCJ 3079/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3079 OF 2002

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JUDGMENT

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1. The Plaintiff claims against the Defendant for breach of the purchase agreement to pay for the Plaintiff's shares in a business venture in their home village in Tsui Hang Tsuen, Zhong Shan in Guangdong, China.

2. The Defendant denies he was liable to the Plaintiff due to the Plaintiff's failure to perform his part of the agreement which he claims was partly written and partly oral. The Defendant further denies he is liable because the agreement in writing is void for uncertainty or alternatively, the Plaintiff had failed to comply with the implied terms. Further in the alternative, the Defendant claims that there was total failure of consideration. The Defendant further claims the agreement was void by reason that it was obtained under duress and induced by threats of violence. The Defendant counterclaims for the return of the $45,000 paid to the Plaintiff.

Background

3. In or about 1994, the Defendant together with two friends jointly invested in a restaurant and fishpond development business in the Defendant's home village in Zhong Shan. The business development is known as the 'Wan Jie Le Restaurant and Fish Farm' (hereinafter called the "the said business").

4. In late 1994 or early 1995, the Plaintiff agreed to become a partner in the said business and invested a total of $492,000 between March 1995 and October 1996.

5. On the other hand, the Plaintiff and the other two partners， namely his friend in Hong Kong, Fung Cheung Hung and his clansman, Tsang Kin Man, invested a total of $4.423 million. The Defendant is and was the majority partner having invested over $3 million of his own money in the said business by 1997. While the investment of Mr. Fung Cheung Hung was $500,000 and that of Mr. Tsang was about $200,000. The said business was managed by the Defendant's brother-in-law Mr. Kwan Hong Chung (Kwan) in Zhong Shan. After the Plaintiff began his investment in the said business, the management was shared between the Plaintiff's elder brother Tan Ben Liang (Mr. Tan) and Kwan, while the Plaintiff's niece (daughter of Mr. Tan) Ms. Tan Qian Ying, was in charge of the accounts. It is not disputed that the said business was never registered as a business in Hong Kong or incorporated as a limited company. No share certificates were ever issued to its partners either in Hong Kong or in mainland China.

The Agreement

6. It is the Plaintiff's case that the Plaintiff entered into an agreement with the Defendant on 1 April 1999 whereby the Plaintiff agreed to transfer his shares in the said business to the Defendant in return for the repayment of the $492,000 that he had invested by 32 monthly instalments of $15,000 each with the last and final 33rd payment of $12,000 to be paid on the 33rd month ('the first agreement'). The aforesaid agreement was recorded in writing witnessed by a mutual friend Mr. Lo Sher Hong (Mr. Lo) who is and was an official of the Zhong Shan municipal government.

7. The first agreement was varied on 7 June 1999 at a shareholders' meeting. It was resolved and agreed that the Plaintiff would cause the immediate surrender of the accounts of the said business to the Defendant and that the salary dispute concerning the Plaintiff's relatives would be resolved in accordance with the resolution as recorded in the said business's minutes of meeting of the same day (the second agreement).

8. It is the Defendant's case that it was a condition and a term of the said second agreement that the Plaintiff and his relatives would:-

(a) withdraw from the management of said business and its activities;

(b) stop the bombardment and threats exerted on the Defendant;

(c) return the said business accounting records and account to the partners the full detail accounts of the said business.

9. The Plaintiff claims that the Defendant had only paid 3 of the 33 monthly instalments totaling $45,000, and therefore, is in breach of the agreement.

10. On the other hand, the Defendant claims that the Plaintiff failed to honour the condition and terms of the agreement. Consequently, the Defendant refused to carry out the said agreement any further after paying 3 monthly instalments between April and August 1999.

11. The Defendant in his evidence in Court, claimed that in June 1998, he returned to his home village in Zhong Shan and he was bombarded by the Defendant's brother Tan Ben Liang with demands of repayment of money invested by the Plaintiff because of the failure of the Wan Jie Le Restaurant. Mr. Tan demanded further for salaries due to himself, his father and his daughter. The Defendant claimed he was threatened with bodily harm then and on subsequent occasions in September and December 1998 when he was verbally bombarded and poked by Mr. Tan. As a result of the aforesaid harassment from the Plaintiff's relatives, and the continued dispute between the Plaintiff and himself over the failure of the business, the Defendant agreed to repay to the Plaintiff the $492,000 invested by the Plaintiff. He claimed the repayment was conditional upon the Plaintiff and his relatives withdrawing from the management and control of all of the investment activities; ceasing the bombardment and threats levelled at the Defendant; and the immediate return of all of the accounting records of the said business.

12. It is the evidence of both the Defendant and the mutual friend of the Defendant and the Plaintiff, the said Mr. Lo, that the repayment terms were reduced into writing on 1 April 1999 (p.14 of bundle) after the Defendant and the Plaintiff agreed to the aforesaid terms.

13. The Plaintiff, in his pleaded case, disputed that the 1 April 1999 agreement was varied by the second agreement on 7 June 1999, the minutes of meeting of the same date and the oral conditions. However, the Plaintiff admitted he had signed the second agreement and he had accepted the Defendant payment of interest of $2,000 in return for delay of monthly instalments.

The Law

14. Chitty on Contract vol. 1 p. 167 para. 3-001 stated:-

"In English Law, a promise is not, as a general rule, binding as a contract unless it is either made in a deed or supported by some "consideration"."

Findings

15. As the said agreement was not executed by deed, it is, therefore, necessary to determine if it was supported by consideration. Under the first agreement, the Defendant agreed to return the total sum invested by the Plaintiff three years after the Plaintiff injected the final installment of capital in the said business. By the end of 1998, it was quite apparent to all the partners the restaurant was not a going concern. The Plaintiff in his evidence in Court, insisted the fishpond was receiving an income. That may be so, but the rental for the fishpond was a mere $70,000 for a 3 year tenancy. With expenses such as salaries to the Plaintiff's brother, father and niece to defray, one would hardly regard the said business profitable.

16. According to the Defendant and DW3 Mr. Fung Cheung Hung, at the time the 1 April 1999 agreement was entered into, the construction of the Wan Jie Le Restaurant had already been completed but it had to be abandoned due to the construction by the state of the Beijing Zhuhai Highway passing the restaurant by. The turn of events had rendered the restaurant as part of the said business a total and complete failure and a write off. The fishpond was the only income generating part of the said business. This was admitted and emphasised by the Plaintiff in his evidence in Court.

17. I find the minutes of meeting on 7 June 1999 (p.16 of bundle) consistent with the Defendant's evidence. In that, paragraphs 2 and 3 of the minutes of meeting revealed there were disputes over the salaries of the Plaintiff's relatives. Paragraph 4 of the meeting minutes further resolved the matter as to the date of payment of the salaries of the Plaintiff's relatives to take place after the receipt of rental payment of the fishpond at the end of December 1999. Paragraph 5 specified that the Plaintiff's niece Tan Qian Ying would hand over the accounting records to Kwan Hong Chung before July 1999. This last requirement was repeated in para. 3 of the second agreement of the same date. In para. 13 of the Plaintiff's own witness statement (p.5 of bundle) he claimed he had caused the return of the accounting records to be handed over on 16 January 2000. The Defendant, on the other hand, claims the records were not handed over.

18. Based on the aforesaid, the consideration for the Defendant to repay the Plaintiff $492,000 and the takeover of the Plaintiff's 'shares' of the said business which by then consisted of nothing of value save for the fishpond business must be for those reasons given by the Defendant. That it was a condition that the Plaintiff and his relatives would withdraw from the management and handover the accounts immediately and cease harassing the Defendant. The evidence before me clearly suggested that the Plaintiff had failed to comply with the condition of the handing over of accounting records immediately after the second agreement of 7 June 1999. The deadline date of July 1999 was recorded in the minutes of meeting, yet the Plaintiff on his own admission did not cause the handover of the accounting records until 16 January 2000.

19. Based on the documentary evidence and evidence of the Defendant, Mr. Lo and the Plaintiff, I find there was a collateral agreement between the Plaintiff and the Defendant. The collateral agreement consisted of the 1 April 1999 agreement (first agreement) and the oral conditions, the 7 June 1999 supplemental agreement (the second agreement), the minutes of meeting of the same date.

20. I further accept the evidence of the Defendant that he was pushed, bombarded with accusations and harassed by the Plaintiff's elder brother Mr. Tan subsequent to the collateral agreement. The hostile attitude and the force of such attitude was experienced by Mr. Fung and Mr. Lo when they attended a meeting in the Plaintiff's and the Defendant's home village with local government officials, Mr. Tsang, and the Plaintiff on 8 February 2000. It was their evidence that Ms. Tan and her husband had vigorously refused to handover the accounting records on that occasion. If the accounts were surrendered on 16 January 2000 as alleged by the Plaintiff, there would not have been any need for Ms. Tan to resist surrendering the same at the 8 Febraury 2000 meeting.

21. I further accept the Defendant's witness' evidence that at the meeting of the said business held on 23 July 1995 attended by all the partners including the Plaintiff, the partners had resolved that no salaries, dividends or capital may be drawn by any partner before business profits were generated (para. 7 of the minutes of meeting on p.41 of the bundle). At that meeting, the partners also resolved that new partners should be identified (para. 2 of minutes). It is therefore obvious that the partners were still working together to pool in further resources at the time. No further documents produced indicated there had been any changes or amendments to the aforesaid resolution except for the first agreement between the Plaintiff and the Defendant and the 7 June 1999 meeting. On this basis, I am not convinced that the partners would contemplate any withdrawal of capital if the said business was not profit making. I reject the Plaintiff's interpretation of para. 7 of the minutes of 23 July 1995, he claimed that it meant only share dividends and salaries were not to be drawn by the partners, but share capital was exempted. I find the wordings in the 1995 minutes do not mean what the Plaintiff claimed.

22. I am further satisfied, based on the evidence before me, that the consideration for the said collateral agreement had not been satisfactorily performed by the Plaintiff who was in breach of it. At the time, the Plaintiff's brother was very much in charge of the fishpond and the collection of annual rental from the tenant during the 3 year tenancy and his niece was holding on to the accounting records well beyond the agreed date of July 1999. On this basis, the Defendant is entitled to repudiate the agreement.

23. Based on the aforesaid findings that the agreement was repudiated due to the non compliance with the terms of the agreement by the Plaintiff, it is not necessary for me to go into the alternative defence of duress.

24. On the basis that there was a breach of the collateral agreement by the Plaintiff, the Defendant is fully entitled to repudiate the agreement. The Defendant is therefore entitled to recover the $45,000 paid to the Plaintiff due to total failure of consideration. I further allow interests on the sum of $45,000 from the date of service of the counterclaim to the date of judgment at 1/2 judgment rate and thereafter at judgment rate until full payment.

25. Costs nisi - Costs to follow the event. Costs to the Defendant to be taxed if not agreed with certificate to counsel.