BEAUTY EXPERT (LOGISTICS) LTD v. 黃喜潤 AND OTHERS

DCCJ 1665/2017

[2019] HKDC 494

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1665 OF 2017

_________________

_________________

_________________

J U D G M E N T

_________________

1.  This is the plaintiff’s claim against the 3 defendants for the sum of HK$583,660 (“the Disputed Sum”) and for damages for breach of a joint venture agreement against the 1^st and 2^nd defendants.

2.  The action was commenced in the Court of First Instance under HCA 48/2016. By consent, the action was transferred to the District Court on 29^th March 2017.

BACKGROUND

3.  On or about 17^th September 2014, a joint venture agreement (“the Joint Venture Agreement”) was signed between the following 4 parties:

1)   Main Deal Limited (“Main Deal”);

2)   Regal Honour Limited (“Regal Honour”);

3)   Wong Hei Yun (“1^st defendant”); and

4)   Yick Ping Fai (“2^nd defendant”).

4.  Main Deal is a wholly owned subsidiary of Modern Beauty Salon Holdings Limited (“Modern Beauty”) and Regal Honour is a company belonging to the 1^st defendant, though it has not been clear whether it also belongs to the 2^nd defendant and if so, in what shares.

5.  The Joint Venture Agreement aimed to set up a business of trading and producing beauty products in Mainland China. The parties agreed to establish a joint venture company in the name of Professional Asia Pacific Limited (“Professional Asia”), which would eventually own a factory in Dongguan (“the Joint Venture Factory”) that would be responsible for production of beauty products.

6.  On or about 24^th December 2014, Main Deal caused another wholly owned subsidiary of Modern Beauty, Beauty Expert (Logistics) Limited (“the plaintiff”), to transfer a sum of HK$583,660 to Queen’s Cosmetics Co Limited (“the 3^rd defendant”). The 1^st and 2^nd defendants are directors of the 3^rd defendant.

7.  The parties do not dispute there has been a transfer of the Disputed Sum. However, the parties dispute the purpose for which the money was transferred.

8.  Main Deal alleges the Dispute Sum was transferred to the 3^rd defendant to complete the product registration of 128 products, sent by Modern Beauty (“the 128 Products”).  The 128 Products were products intended to be registered under the name of the Joint Venture Factory and were intended to be property belonging to the Joint Venture Company.

9.  Main Deal further pleads the 1^st and 2^nd defendants have failed to fulfil their duties set out in clauses 3.2, 12.1, 13.2, and 13.3 of the Joint Venture Agreement. The relevant clauses are set out below:

1)   Clause 3.2:

3.2    本協議之先決條件為乙方及/或丙方及/或丁方須在交收日或之前須提供所有令甲方滿意的證據及文件證明乙方及/或丙方及/或丁方：

(1)  已自行促使合資公司成為公司全部註冊股本的註冊[及實質]擁有人；

(2)已自行促使東莞工廠已合法持有由中國國內有關政府機關發出所有就研發，於中國國內及進出口產銷化妝品及相關產品，入口及出口生產化妝品原材料及擁有經營其東莞工廠的有效許可證，批准及同意；

(3)已自行促使合資公司成立貿易公司而成為貿易公司全部註冊股本的註冊[及實質]擁有人；

(4)已自行促使貿易公司已合法持有由中國國內有關政府機關發出的批發貿易業務牌照；

(5)已自行完全支付東莞工廠裝修及添置設備所有費用，達到高標準生產化妝品及相關產品的廠房標準，符合所有中國有法律法規標準包括但不限於生產安全、消防防火、衛生及環保要求。

(6)保證的完整性、真實性及準確性；

(7)甲方合理地滿意前述第3.1條所進行的盡責調查結果；

(8)乙方已取得所有有關本協議條款及出售股份的買賣所須的許可，批准及同意；及

(9)沒有任何情況不利影響合資公司及/或東莞工廠及/或貿易公司的法律地位或其持續存在繼續正常經營。

2)   Clause 12.1:

12.1  在本協議簽署之日之後，協議各方須促使有關方簽署：

(a) 技術及知識產權資料轉讓協議，丙方須以HKD1出售予合資公司於附表2所訂明的技術及知識產權資料。

3)   Clause 13.2:

13.2    乙方及/或丙方及/或丁方須促使東莞工廠在交收日或之前已合法持有由中國國內有關政府機關發出所有就研發，於中國國內及進出口產銷化妝品及相關產品，入口及出口生產化妝品原材料及擁有經營工廠的有效許可證，批准及同意：-

(a)   營業執照；

(b)  衛生許可証；

(c) 稅務登記証；

4)   Clause 13.3:

13.3    乙方/及或丙方及/或丁方須促使在交收日或之前東莞工廠已裝修及添置主要傢俬，達到高標準生產化妝品及相關產品的廠房標準，符合所有中國有法律法規標準包括但不限於生產安全、消防防火、衛生及環保要求。

10.  The parties initially agreed the date for fulfilment of Clause 3.2 (or the handover date) to be early December 2014. However, the parties subsequently agreed to extend the deadline to end of August 2015.

11.  On or about 21^st August 2015, Modern Beauty sent staff to inspect the Joint Venture Factory. Main Deal found the standard of the factory to be unsatisfactory and asked the 1^st and 2^nd defendants and Regal Honour when they would fulfil their contractual obligations under the Joint Venture Agreement. However Main Deal did not receive a satisfactory response and concluded the 1^st and 2^nd defendants and Regal Honour did not intend to honour their obligations under the Joint Venture Agreement.

12.  On or about 28^th August 2015, Main Deal caused an email to be sent to the 1^st defendant demanding for the return of the Disputed Sum.

13.  By a deed of assignment (“the Deed of Assignment”), Main Deal assigned the chose in action (that is, the right to sue for loss and damages for breach of the Joint Venture Agreement) to the plaintiff on or about 17^th December 2015.

14.  On 8^th January 2016, the plaintiff issued a writ of summons against the defendants suing them for damages and the return of the Disputed Sum.

15.  The defendants deny having breached the Joint Venture Agreement and claim it was Main Deal who suddenly decided not to follow through with the Joint Venture Agreement. Furthermore, the defendants claim the Dispute Sum is unrelated to the obligations set out in the Joint Venture Agreement. The defendants explain Modern Beauty requested assistance from the 1^st defendant to conduct product registration for the 128 Products so that Modern Beauty may legally import them into Mainland China and use the said products in their beauty salons in Mainland China. The 1^st defendant agreed to assist by using his own private company Toma Biotechnology Corporation – China Division (“Toma”) to facilitate in the product registration of the 128 Products.  Ultimately, only 14 of the 128 Products passed the test and were successfully registered.

ISSUES IN DISPUTE

16.  An agreed list of issues was submitted by counsel to court on the day of closing submissions.

17.  I am of the view that the issues are more properly formulated as follows:

1)   Whether the parties are entitled to raise the following “pleadings points” against each other:

a)   The plaintiff has failed to plead the particulars of the breach of Joint Venture Agreement;

b)   Though the defendants have pleaded the Deed of Assignment is invalid, they have not pleaded their reliance on clause 18.1 of the Joint Venture Agreement (“Clause 18.1”);

c)   The defendants have not pleaded a case on the terms of the Joint Venture Agreement being void for uncertainty.

2)   Having regard to Clause 18.1, is the Deed of Assignment enforceable as against the defendants such that the plaintiff may enforce the assigned chose in action against the defendants?

3)   If the Deed of Assignment is enforceable as against the defendants:

a)   Have the 1^st and 2^nd defendants breached Clause 13.3 of the Joint Venture Agreement?

4)   If Deed of Assignment is unenforceable as against the defendants:

a)   Does the plaintiff have a claim in “restitution and/or unjust enrichment and/or total failure of consideration” against the defendants or any of them?

WHETHER THE PARTIES ARE ENTITLED TO RAISE “PLEADINGS POINTS” AGAINST EACH OTHER

18.  During closing submissions, I voiced my concerns over the pleading points being raised. At the end of the discussion with both counsel, I formally invited both parties to consider whether they would amend their pleadings. After deliberation, counsel confirmed they would not amend their pleadings but insisted on pursuing the pleadings argument.

19.  In respect of the defendants’ complaint that the particulars of breach have not been pleaded, I have the following observations:

1)   The defendants have not made any application for further and better particulars or any application to strike out the Statement of Claim.

2)   Miss To (counsel for the defendants) only confined her complaints to submissions but has never objected to the evidence adduced by the plaintiff relating to the issue of breach of the Joint Venture Agreement. She has never objected to Miss Wong (counsel for the plaintiff) leading evidence on the same.

3)   At no time throughout the proceedings has there ever been a complaint by Miss To she was unable to conduct her defence due to the lack of particulars. On the contrary, Miss To was able to answer to each and every purported breach claimed by the plaintiff.

20.  Paragraph 18/8/3A of the Hong Kong Civil Procedure 2019, Vol 1 states:

“In an ordinary civil action, generally speaking, an issue that has not been pleaded is not an issue before the court. However, objections to unpleaded issues will lose its force where the parties have chosen to disregard the pleadings and conduct the hearing on some unpleaded basis. The court is ultimately guided by what is fair and just in the circumstances: Wing Hang Bank Ltd v. Crystal Jet International Ltd [2005] 2 H.K.L.R.D. 795 ; Gould v. Mount Oxide Mines Ltd (1916) 22 C.L.R. 490 at 517; 成都中泰交通建設發展有限公司 v. Neo China Land Group (Holdings) Ltd (unrep., HCA 2196/2009, [2013] H.K.E.C. 492 ) [92]-[93].”

21.  The point of pleading particulars is to enable the other party to understand the case to be met. If a party is unable to understand the case to be met because it is not pleaded properly or because there are insufficient particulars, the party suffering the prejudice may make various applications to compel the other side to reveal the true allegations behind the claim or to tie the party down to a particular version of events. Though the court is now vested with extensive case management powers since the Civil Justice Reform, it is not for this court to advise the parties on the proper applications to be made and it is definitely not the court’s function to teach parties how to conduct their case.

22.  If the defendants wish to take a pleading point, they are entitled to do so and it is for their legal advisers to advise them on the proper and necessary applications that should be made. If the defendants fail to take out necessary applications challenging the pleadings and yet are able to conduct their defence by extensively cross-examining the plaintiff’s witnesses on the purported breaches, as well as being able to answer to all allegations made against them, then I fail to see any prejudice that is suffered by the defendants caused by the lack of particulars in the pleadings.

23.  The same goes for the plaintiff. The plaintiff complains about the lack of particularity of the defendants’ pleading that the Deed of Assignment is invalid. It is evident that, throughout the trial, the plaintiff clearly understood the defendants were relying on Clause 18.1 to make good their argument on the validity of the Deed of Assignment. Moreover, the plaintiff made extensive reply submissions in their closing submissions on the same matter. Again, I fail to see how the plaintiff can now object to the argument being raised.

24.  Hence I am of the view, by reason of their conduct of the trial, the parties are not entitled to raise pleading points as set out hereinabove at paragraph 17(1).   

IS THE DEED OF ASSIGNMENT ENFORCEABLE AS AGAINST THE DEFENDANTS?

25.  For reasons set out hereinabove, I do not accept this court is pre-empted from considering whether the Deed of Assignment is enforceable as against the defendants by reason of the defendants’ failure to specifically plead reliance on Clause 18.1. I am of the view this court is seized with the said issue.  

26.  Clause 18.1 states as follows:

本協議各方在沒有經另一方書面同意的情況下不能轉讓本協議下之權利。

27.  Miss Wong submitted Clause 18.1 does not bind the parties. She argues that by operation of clause 3.4 of the Joint Venture Agreement (“Clause 3.4”), the Joint Venture Agreement is no longer binding on the parties because the 1^st and 2^nd defendants were unable to fulfil the condition precedents of the Joint Venture Agreement. Hence Clause 18.1 is not binding on the plaintiff.

28.  Clause 3.4 states:

如果任何第3.2條指定的條件，於交收日[中午12時]或甲方書面同意的較後日期前，未根據條款第3.3條完成或被豁免，本協議將停止生效及解除 (除第16條繼續生效外)，協議各方將不再承擔有關本協議的任何義務及責任，除非該義務及責任已在本協議停止生效及解除前發生。

29.  On a reading of Clause 18.1 and Clause 3.4, I am of the view Clause 3.4 does not intend to extinguish the parties’ obligation under Clause 18.1 as soon as there is any failure to perform the matters set out in clause 3.2 of the Joint Venture Agreement. The caveat in the last part of Clause 3.4 preserves the liabilities and obligations of the parties in so far as such liabilities and obligations occurred[1] prior to the handover date or the agreed date. The use of the phrase “發生” (the English equivalent would be “occur” or “happen”) must entail an occurrence of an event. The prohibition in Clause 18.1 is not an obligation or liability envisaged by Clause 3.4 as it could not “occur” or “happen” as such. Furthermore, there is nothing in Clause 3.4 which states that the agreement would be discharged and the rights therein be extinguished ab initio. I am of the view Clause 3.4 merely sets out the circumstances in which the Joint Venture Agreement is deemed to be terminated and further obligations be discharged. I do not read Clause 3.4 as rescinding the whole Joint Venture Agreement ab initio.

30.  As stated in paragraph 24-050 in Chitty on Contracts. Vol 1: General Principles, (33^rd Edition):

“But, from time of discharge, as a general rule both parties are excused from further performance of the primary obligations of the contract which each has still to perform. However, obligations for the resolution of disputes will remain in full force and effect, “as may other clauses having a contractual function which is ancillary or collateral to the subject matter of the contract.” . . . Ultimately, it is a question of construction whether or not the parties intended the contractual obligation in question to survive the termination of contract. Moreover, in principle, only those primary obligations falling due after the date of discharge will come to an end; those which have accrued due at the time may still be enforceable as such. Thus, while both parties are discharged from further performance of their primary obligations under the contract, “rights are not divested or discharged which have been unconditionally acquired.” The party in breach can therefore enforce against the innocent party such rights as it has “unconditionally acquired” by the date of termination.”

31.  Hence I am of the view the obligation or right under Clause 18.1 survives any termination or discharge of the agreement by operation of Clause 3.4.  In such circumstances, the purported assignment of the chose in action by Main Deal to the plaintiff does not bind the defendants.

32.  This position is confirmed in paragraph 3-050 of Snell’s Equity (33^rd edition, 2015) which reads:

“The terms of the original contract with the debtor may purport to prohibit the creditor from assigning the benefit of the contract to another person, or impose conditions restricting his power to assign it. . . . These restrictions aim to prevent the debtor from being brought into direct contractual relations with another person. They may be important where the performance of the contract depends on the skill, experience or personal attributes of the original parties to it.

The rights of the assignor against the debtor, and those of any assignee deriving title through him, depend on the terms of the contract. So a contractual provision prohibiting assignment makes the assignment ineffective as against the debtor. . . .

If despite the prohibition, the creditor purports to assign the contract, then the assignment may be valid between himself and the assignee. But it cannot make to debtor liable to the assignee.”

33.  Hence I find the Deed of Assignment is not enforceable as against the defendants in so far as it purports to assign the chose in action relating to the obligations and liabilities arising from Joint Venture Agreement to the plaintiff.  In so far as the plaintiff is seeking to sue for damages under the Joint Venture Agreement, the plaintiff has no locus standi to sue under the Joint Venture Agreement. Furthermore, the plaintiff is not entitled to sue for relief arising from the non-performance of obligations in the Joint Venture Agreement.

34.  I therefore dismiss the plaintiff’s claim for damages for breach of the Joint Venture Agreement against the 1^st and 2^nd defendants.  

35.  I shall now consider the plaintiff’s fall-back position of “restitution and/or unjust enrichment and/or total failure of consideration.”

DOES THE PLAINTIFF HAVE A CLAIM IN “RESTITUTION AND/OR UNJUST ENRICHMENT AND/OR TOTAL FAILURE OF CONSIDERATION” AGAINST THE DEFENDANTS OR ANY OF THEM?

36.  The plaintiff in effect pleads 3 causes of action in paragraph 6 of its Statement of Claim, which reads as follows:

“Due to the material and/or repudiatory breach of the JV Agreement by the 1^st and 2^nd Defendants jointly and severally as pleaded in paras 2 and 3 above, the said sum of HK$583,660 is now subject to recovery on grounds of restitution and/or unjust enrichment and/or total failure of consideration.”

37.  In one paragraph, the plaintiff makes 3 alternative claims to the Disputed Sum:

1)   Restitution;

2)   Unjust Enrichment; and

3)   Total failure of consideration.

38.  There are no further particulars given in respect of the 3 claims in paragraph 6 of the Statement of Claim.  

39.  The plaintiff avers the following at paragraph 11 of the Reply:

“11. The Plaintiff further avers that:-

(1) At divers dates around late September 2014, the 1^st and 2^nd Defendants’ agent 蒲亮informed the Plaintiff’s representative(s) that the 1^st and 2^nd Defendants are laboring under financial difficulties to procure fulfillment of the condition precedents of the JV Agreement at their own costs in compliance with the JV Agreement. He urged the Plaintiff to make upfront and advance payment of HK$583,660 out of consideration payment of HK$800,000 pursuant to clause 4.4 of the JV Agreement to procure fulfillment of the condition precedents of the JV Agreement;

(2) Out of trust and mutual cooperation plan under the JV Agreement, the Plaintiff paid the said sum on 24^th December 2014 as advance payment of consideration to the 3^rd Defendant which is never a party to the JV Agreement under the instruction of the 1^st and 2^nd Defendants’ agent 蒲亮.

(3)   The Plaintiff avers that the said sum of HK$583,660 should be subject to recovery on grounds of restitution and/or unjust enrichment and/or total failure of consideration as no consideration payment should be payable when the JV project failed.”

40.  It is trite law that “inconsistent” grounds of a claim should not be pleaded in a Reply but should be pleaded in the Statement of Claim: see Order 18 rule 10, Rules of District Court (Cap 336H).

41.  In the case of Goldon Investment Limited v NPH International Holdings Limited (formerly known as Nam Pei Hong International Holdings Limited), (unrep), HCA 5457/1999, Ma J (as he then was) stated at paragraph 15 of the judgment:

“In my judgment, leave should clearly be given to the plaintiff to amend its Statement of Claim. The amendments clarify the plaintiff's case enabling it to raise additional or alternative grounds to allege that the defendant repudiated the Lease and that the plaintiff has accepted this repudiation and therefore terminated the same. While this was already pleaded in the Reply and Defence to Counterclaim, it was, strictly speaking, inconsistent with what was pleaded in the original Statement of Claim in that the act constituting the acceptance of the repudiation was different. Under the existing rules of pleading, an alternative claim inconsistent with what is pleaded in the Statement of Claim must be included in the Statement of Claim by way of amendment and not be pleaded only in the Reply: see RHC Order 18, rule 10; Hong Kong Civil Procedure 2002 at paragraphs 18/10/1 and 18/10/2. The word "inconsistent" here (which is found in Order 18, rule 10(1)) means "new" or "different" and not just “mutually exclusive”: see Herbert v. Vaughan [1972] 1 WLR 1128, at 1131H.”

42.  Hence in so far as the “new” matters pleaded in the Reply relate to the claims of restitution and/or unjust enrichment and/or total failure of consideration, such matters have not been properly pleaded and cannot form part of the “restitution and/or unjust enrichment and/or total failure of consideration” claim.

Restitution

43.  It is trite to say that unjust enrichment is not equivalent to restitution. Restitution is not the only remedy if one is found of unjust enrichment. Rather, it is an available remedy to a variety of wrongdoings. See paragraphs 1-01 to 1-04 of Goff & Jones: The Law of Unjust Enrichment (9^th edition, 2016).

44.  There are essentially 2 fundamental and distinct parts in the law of restitution: restitution of an unjust enrichment and restitution for wrongs. The distinction is succinctly set out in Burrows, The Law of Restitution (3^rd edition, 2011) at page 9 as follows:

“The two parts are distinguishable by the cause of action (or event) triggering the response of restitution. The first and main part is where the case of action to which restitution responds is an unjust enrichment of the defendant at the claimant’s expense. The second part is where the cause of action to which restitution responds is the commission of a civil wrong by the defendant against the claimant (such as a breach of contract or tort or breach of statutory duty).”

45.  The plaintiff has failed to plead any particulars of its restitution claim. By reason of the lack of particulars, the following in respect of the restitution claim is unclear:

1)   Which defendant(s) is (are) being held liable for restitution?

2)   What are the grounds of restitution being alleged against each defendant?

3)   What facts are being relied on to establish the grounds for restitution against the defendants? 

46.  Paragraph 6 of the Statement of Claim pleads the Dispute Sum is subject to restitution “due to the material and/or repudiatory breach” of the Joint Venture Agreement. For reasons set out hereinabove, I find the plaintiff has no locus standi to sue the defendants for relief arising from a breach of the Joint Venture Agreement. Hence, the plaintiff’s restitution claim based on the purported breach of the Joint Venture Agreement must fail.    

Unjust enrichment

47.  According to Miss Wong’s submissions, the plaintiff’s case on unjust enrichment is premised on the assertion the 1^st and 2^nd defendants have not carried out their obligations under the Joint Venture Agreement, and therefore the basis on which the Disputed Sum was transferred has completely failed. In such circumstances, the defendants have been unjustly enriched and the plaintiff is entitled to restitution.

48.  The Court of Final Appeal in the case of Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, at paragraph 67 of the judgment, has set out the matters to be proved in a claim for unjust enrichment. The four questions to be answered are:

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?

49.  It is not disputed the plaintiff paid the Disputed Sum to the 3^rd defendant, neither of whom are parties to the Joint Venture Agreement. There is no dispute the 3^rd defendant was enriched in the sense that it had received the money. However, the plaintiff has not specifically pleaded how the enrichment is unjust such that restitution should be ordered.

50.  It is trite law that unjust enrichment must be specifically pleaded. As stated in Goff & Jones, at paragraph 1-38:

“Consistently with what has been said in the previous part about the necessary ingredient of claims in unjust enrichment, it should be made clear in a statement of claim what facts are being relied upon to establish that the defendant was enriched, that his enrichment was gained at the claimant’s expense, and his enrichment is unjust. The courts have stressed in connection with this last requirement that it will not do for a claimant to plead a generalised claim in unjust enrichment, for the same reason that it will not do for a claimant to plead a generalised claim in tort. Nor is it acceptable to assert that the circumstances make the defendant’s enrichment unfair in a broad sense, or in accordance with the claimant’s own idiosyncratic notions of unfairness: specific reasons anchored in the case law must be given to justify the assertion that the defendant’s enrichment is unjust.”

51.  For reasons already given hereinabove, in so far as the claim of unjust enrichment arises from the 1^st and 2^nd defendants’ purported breach of the Joint Venture Agreement, the plaintiff is not entitled to sue the defendants for the relevant relief.  

52.  In so far as the plaintiff relies on the “total failure of consideration” as a basis for arguing there has been unjust enrichment, the plaintiff must prove the following:  

1)   The failure of the basis of transfer must be total. (See paragraph 12-16, Goff & Jones)

2)   The basis of transfer must be jointly understood by both parties and must be ascertained objectively. (See paragraph 13-02, Goff & Jones)

53.  I am not satisfied the plaintiff is able to prove there has been a “total failure of consideration” or that the basis of transfer has failed.  

54.  Firstly, I note the plaintiff has not pleaded what the “consideration” is and how there has been a “total failure” so as to constitute unjust enrichment or give rise to restitution.

55.  Secondly, the plaintiff has put forward 3 versions of why the Disputed Sum was transferred to the 3^rd defendant:  

1)   The Statement of Claim pleads the Disputed Sum was transferred for product registration fee of the 128 Products.

2)   Paragraph 16 of the Reply avers the Disputed Sum was transferred as an advance payment of the consideration payment set out in clause 4.4 of the Joint Venture Agreement (“Clause 4.4”).

Clause 4.4 reads:

4.4 為確保乙方完滿執行第4.2及4.3條的責任，甲方須：

   (1)   支付代價：支付乙方HKD800,000；

   (2)   同意：向合資公司送達甲方委任之董事、秘書及

   其他管理人員書面同意出任。

3)   Ms Tsang stated, both in her oral evidence and in paragraph 16 of her witness statement, the Disputed Sum was also considered as pre-payment for share capital in the joint venture company. This is reiterated in the letter, dated 28 August 2015, sent by Main Deal to Regal Honour and the 1^st and 2^nd defendants.

56.  Hence, on the plaintiff’s evidence and pleadings, there are 3 possible bases of transfer for the Disputed Sum.

57.  The plaintiff has not adduced any evidence regarding how there has been a “total failure” in respect of the bases of transfer set out at paragraphs 55(2) and (3) hereinabove.

58.  In so far as the basis of transfer relates to the failure to conduct product registration of the 128 Products, I set out my analysis below.

59.  Having considered the evidence of both parties, I find the plaintiff is unable to prove, on a balance of probabilities, there has been a total failure of consideration in so far as the product registration of the 128 Products is concerned and that the failure is attributable to the defendants. I set out my reasons as follows:

1)   The plaintiff’s case on the defendants’ failure to conduct product registration is unclear. The plaintiff’s witnesses alleged that there has not been any product registration carried out but are unable to give clear evidence as to what is required of product registration and how there has been a failure as such. Ms Tsang and Ms Ma Wing Sheung Tammi (“Ms Ma”) conceded they are both inexperienced in so far as the proper procedure of product registration in Mainland China is concerned. Their assumptions are based on either their research on the internet or from other sources of which have not been tested in court.  There has not been any expert evidence to explain to the court what the proper procedure of the product registration is and what constitutes a valid product registration in Mainland China. I am therefore unable to assess what would constitute proper product registration and how the defendants have failed to register any of the 128 Products.

2)   There is insufficient evidence to show that the products have been registered under the 1^st defendant’s name. The plaintiff relies on screenshots from a Mainland China website to prove there has not been any registration of the 128 Products in the name of the Joint Venture Factory. The 1^st defendant explains that the name of Toma appears on the internet records because it was the factory that submitted the goods for registration and the records do not represent ownership of the products. There has not been any evidence adduced from the plaintiff to rebut this. Furthermore, it is not clear whether the information on the internet screenshot is conclusive of ownership of the products registered.

3)   The plaintiff did not positively dispute the claim by the 1^st defendant that he did in fact send the 128 Products for testing.  The 1^st defendant explains that only 14 out of the 128 Products passed the government tests. The remaining products could not be registered because the products sent by Modern Beauty were problematic in themselves and therefore could not pass the requisite tests. There is no evidence from the plaintiff to rebut the same.  The plaintiff does not plead the defendants (or any one of them) guaranteed the 128 Products would be registered or that the Disputed Sum was transferred on the common understanding that the 1^st defendant guaranteed the 128 Products would be registered. On Ms Tsang’s evidence, the Dispute Sum was transferred to procure the completion of the product registration. If the 1^st defendant has already sent the products for testing and the products themselves do not pass the test, I am of the view there cannot be said to be a total failure of consideration or total failure of basis as put forward by the plaintiff.   

60.  Having considered the evidence, I prefer the evidence of the defendants. I find their evidence to be the more reasonable version of events and to be more coherent.  In comparison, the plaintiff’s evidence, especially relating to product registration, is largely based on their own speculation.

61.  For reasons set out above, I am not satisfied the plaintiff has proven its case on a balance of probabilities.  

62.  Even if I am wrong and the 128 Products were related to the Joint Venture Agreement, I note the following:

1)   A total of 14 products out of the 128 Products have been registered.  In such circumstances, it cannot be said there has been a “total failure” of consideration.

2)   Since there are 3 possible bases of transfer of the Disputed Sum and the plaintiff has not adduced any evidence to show that the other 2 bases (relating to pre-payment of consideration payment and pre-payment of share capital) have totally failed, the plaintiff is still unable to prove on a balance of probabilities there has been any unjust enrichment by reason of total failure of consideration.

63.  By reason of the matters set out above, I do not find the plaintiff’s claim of unjust enrichment to be proven on a balance of probabilities.  

Total failure of consideration

64.  The plaintiff’s case on “total failure of consideration” is premised on the 1^st and 2^nd defendants’ “material and/or repudiatory breach” of the Joint Venture Agreement.  

65.  For reasons as set out above, in so far as the cause of action arises out of the Joint Venture Agreement, the 1^st and 2^nd defendants cannot be made liable to the plaintiff for any obligations arising out of the Joint Venture Agreement. Furthermore, since the 3^rd defendant is not a party to the Joint Venture Agreement, the plaintiff cannot sue the 3^rd defendant based on breach of the Joint Venture Agreement committed by 1^st and 2^nd defendants. 

66.  In so far as the total failure of consideration relates to unjust enrichment, I have made my findings above.

67.  By reason of the matters set out hereinabove, I find the plaintiff unable to prove, on a balance of probabilities, its claims against the defendants. I therefore dismiss the plaintiff’s claim with costs to the defendants.

68.  I make a costs order nisi that the plaintiff shall pay the defendants’ costs of this action to be taxed if not agreed, with certificate for Counsel. Unless any party applies to vary the costs order within 14 days hereof, the costs order shall become an order absolute.