CAI YI RUI formerly known as CHOI CHI FUNG v. CHATEAU CELLAR LIMITED

HCA 1583/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1583 OF 2014

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J U D G M E N T

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Introduction

1. In this action the plaintiff (“P”) had claimed against the defendant (“D”) for declarative relief and for damages for the alleged repudiatory breach of an agreement in relation to P’s sale of his restaurant business to D.

2. On the same day when the writ in the present action was taken out, D commenced HCA No.1571 of 2014 (as plaintiff) against P (as defendant) for the same relief under the same cause of action as in D’s counterclaim in the present action.  In light of the fact that the parties crossed writs on the same day, in order to save costs and time, the parties agreed to proceed with the present action and that HCA No 1571 of 2014 be stayed.

3. P was represented by solicitors in the present action until 16 February 2016 when leave was given to his then solicitors to cease to act. Subsequently P was absent at the Case Management Conference held on 24 February 2016, as a result of which his claim was struck out pursuant to Order 25 rule 1C(1) of the Rules of the High Court (RHC), Cap 4A.  No application had thereafter been lodged by P to restore his claim under rule 1C(3) within 3 months, and P’s claim therefore stood dismissed with costs pursuant to rule 1C(6).

4. The trial thus only concerned D’s counterclaim.  P turned up at the trial acting in person.  Counsel Mr Joseph Vaughan appeared for D at the trial.

Background

5. At all material times the P was operating a Japanese restaurant business (“Restaurant Business”) by the name of “Unryu Japanese Restaurant” (“雲龍日本料理”) (“Restaurant”) at the premises situate at 4^th Floor & Flat Roof of Zhonda Building, Nos 38, 39 & 40 Haiphong Road, Kowloon, Hong Kong (“Premises”).

6. P commenced the Restaurant Business on 1^st December 2013[1]. At the material times, P also held a liquor licence issued by the Liquor Licensing Board under the Dutiable Commodities Ordinance, Cap 109 (“Liquor Licence”) which was valid for the period from 28 January 2014 to 27 January 2015[2].  He also held a General Restaurant Licence issued to him under the Public Health and Municipal Services Ordinance, Cap 132 (“Restaurant Licence”) for the period from 19 April 2014 to 18 April 2015[3].

7. The Premises were rented by P under a tenancy agreement dated 11 December 2013 (“Lease”)[4] between him and the registered owner of the Premises, Superene Limited (超領有限公司) (“Landlord”).  The Lease provided for a term of 3 years commencing on 13 December 2013 at a monthly rental of HK$155,000.00 which was inclusive of property tax but exclusive of government rent, rates, management fees and all utilities charges and other outgoings.

8. The Lease also contained provisions and receipt clauses for the payment of a security deposit of a total HK$994,260.00 (“Deposit”) being 6 months’ rental HK$930,000, 6 months’ government rates HK$33,960 and 6 months’ management fees HK$30,300[5].

9. In around March 2014, Mr Chen Wenda (“Mr Chen”) also known as Chan Man Tat, a director and shareholder of D, became a customer of the Restaurant through the recommendation of a friend. During one of his visits to the restaurant, P was introduced to him as the owner of the Restaurant Business, and the two became friendly.  It was not disputed that on or about 31^st March 2014, P requested Mr Chen to lend him a personal loan of HK$200,000, which Mr Chen did by way of a cheque dated 1 April 2014 (“Personal Loan”)[6] against P’s signature on a written acknowledgment with a promise to repay the loan in two months with interest[7].

10. Sometime in April/May 2014, P and Mr Chen held negotiations regarding the sale of the Restaurant Business to D (“Negotiations”). It was P’s case that Mr Chen had invited him to sell, but it was Mr Chen’s case that it was P who repeatedly invited Mr Chen to buy.

11. Anyway, it was D’s case that during the Negotiations P represented to Mr Chen that P had already obtained consent from the Landlord for the proposed transfer of the Restaurant Business and the use of the Premises to D under the Lease (“Representation”) and that relying on the Representation, D was induced into entering into an agreement dated 31 May 2014 with P (“Agreement”), for the purchase of the Restaurant Business at HK$2.1m.  According to D, the Representation was a misrepresentation and/or a fraudulent misrepresentation.

12. P denied that he had made any misrepresentation, fraudulent or otherwise, to Mr Chen/D. It was P’s case that he had indeed obtained the oral approval from the Landlord to execute a new tenancy agreement to the intended purchaser of the Restaurant Business, and that P had given the original Lease to Mr Chen for review prior to the signing of the Agreement[8]. It was P’s case that the Landlord had requested supporting documents from the intended purchaser to effect the transfer of the Restaurant Business and/or other matters and he had informed Mr Chen of the same[9].

13. It was further P’s case that he and Mr Chen had agreed that Mr Chen would provide relevant company particulars of a company occupying the Premises for running the Restaurant Business (“Company Particulars”) and such particulars included[10]:

(i)  Business registration (“BR”) of the company;

(ii)    Documents for business registration;

(iii)    Shareholders’ particulars;

(iv)    Particulars of Mr Chen’s designated person/company who would hold the Restaurant Licence and Liquor Licence (collectively “Licences”); and/or

(v)    Any information needed to fill in the applications forms for the Licences.

14. According to P, Mr Chen agreed to provide the Company Particulars to P for making applications for transfer of the Licences.

15. It was not disputed that the Negotiations resulted in the Agreement being executed by both parties.  I will deal with the terms of the Agreement later in the judgment.

16. It was also not disputed that pursuant to the terms of the Agreement D paid P a total of HK$1.2m by two cheques dated respectively 4 and 5 June 2014.  P and D had further agreed that the Personal Loan of HK$200,000 would be used to set off against the consideration, and therefore the balance payable under the Agreement upon completion of transfers of the Licences and the Lease would be HK$700,000. 

17. According to P, when he delivered possession of the Premises to D in the early morning of 1 June 2014, he had already forwarded to Mr Chen all documents necessary for the transfer of the Restaurant Business and the Lease into the name of D including the original Lease.  However, although it was not disputed that P delivered possession of the Premises on 1 June 2014, it was D’s case that P had not forwarded any documents to Mr Chen/D to facilitate the transfer of the Restaurant Business, and further that P did not even provide a copy of the Lease to Mr Chen/D at that time.

18. In particular, Mr Chen denied that P had provided the original Lease to him prior to the signing of the Agreement, and it was Mr Chen’s case that he only discovered a copy of the Lease inside the office at the Premises sometime after 20 July 2014[11], and further it was only then that Mr Chen discovered that the Lease contained a provision, namely Clause 2.7[12], as follows:

“Not to assign, transfer, sub-let, lend, share or part with the possession of the said Premises or any part or parts thereof to any person, persons, firm or body corporate without the prior consent in writing of the Landlord and in the event of such transfer, subletting, sharing, assignment or parting with the possession of the said Premises (whether for monetary consideration or not) this tenancy shall absolutely determine and the Tenant shall forthwith vacate the said Premises on notice to that effect from the Landlord…”

(“Non-Assignment Provision”)

19. Anyway, according to P, after the signing of the Agreement, he had continued to urge Mr Chen/D to supply the Company Particulars to P/Landlord and that it was P’s pleaded case that D had only provided a copy of D’s business registration.  On the other hand, according to D, a copy of its BR and a copy of the document evidencing its incorporation, and Mr Chen’s Hong Kong and Macau Travel Permit (港澳通行證) had been provided to P.

20. It was P’s case that D was in breach of the Agreement and as a result of the breach, P was prevented from performing the Agreement and the P’s solicitors then had to write to the Landlord to negotiate an early termination of the Lease.  As a result of the early termination, the balance of the Deposit, after being utilized to settle the arrears of rent, rates and management fees, had to be forfeited to the Landlord. Further, P had to pay for the stock-in-trade ordered by D in the name of the Restaurant Business from a former supplier.  According to P, all of these came to a total of HK$1,021,156.93. 

21. P issued the writ herein and claimed, among other things, a declaration that D was in wrongful repudiation of Agreement and that P was relieved of all liability for further performance of his obligations under the Agreement, and the sum of HK$1,021,156.93 from D plus damages for D’s wrongful repudiation of the Agreement and interest.

22. D counterclaimed against P for the following, among other things:

(i) A declaration that the Agreement was liable to be rescinded and had been validly rescinded, alternatively, an order that the Agreement be rescinded;

(ii) A sum of HK$1,689,340 being HK$1,400,000 paid under the Agreement, rent and management fees for the month of June 2014, and electricity charges and security deposit paid to CLP Power Hong Kong Limited, gas charges paid to the Hong Kong and China Gas Company, and a sum being credited to P’s bank account through the use of the visa machine inside the Restaurant;

(iii) Damages for misrepresentation/fraudulent misrepresentation;

(iv) Alternatively damages for breach of the Agreement;

(v) Interest.

(“Counterclaim”)

23. It was Mr Vaughan’s submissions that if the court should find the facts in favour of D, the inference was very strong that the misrepresentation was fraudulently made, namely that P knew at the time when he made the representation that it was not true.

Legal Principles

24. The relevant principles on actionable misrepresentation had been set out Redgrave v Hurd (1881) 20 Ch D 1.  It was held therein that where one person induces another to enter into an agreement with him by a material representation which is untrue, it is no defence to an action to rescind the contract that the person to whom the representation was made had the means of discovering, and might, with reasonable diligence, have discovered, that it was untrue.  It was further held that it is no defence in such an action the defendant made a cursory and incomplete inquiry into the facts, for that if a material representation is made to him he must be taken to have entered into the contract on the faith of it, and in order to take away his right to have the contract rescinded if it is untrue, it must be shown either that he had knowledge of facts which showed it to be untrue, or that he stated in terms, or showed clearly by his conduct, that he did not rely on the representation[13].

25. Damages are always recoverable for a fraudulent misrepresentation subject to an exception and damages for negligent misrepresentation are also recoverable in some circumstances at common law, but damages are not generally recoverable for innocent misrepresentation unless the representation is or becomes, a contractual term, but there are a number of important exceptions to this principle[14].

26. Section 3(1) of the Misrepresentation Ordinance, Cap 284 also allows an action for damages for misrepresentation to lie in the absence of fraud, and imposes on a party to a contract a duty not to make representations which he could not prove he had reasonable grounds to believe.  Section 3(1) of the Misrepresentation Ordinance states:

“3. Damages for misrepresentation

(1) Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true.” (emphasis added)

27. The common law relating to fraud was established by the House of Lords in Derry v Peek (1889) 14 App Cas 337.  It was decided that in order for fraud to be established, it is necessary to prove the absence of an honest belief in the truth of that which has been stated.  As Lord Herschell had said :

“… fraud is proved when it is shown that a false representation has been made(1) knowingly; or (2) without belief in its truth; or (3) recklessly, careless whether it be true or false[15].”

28. The converse of the above is that however negligent a person may be, he cannot be liable for fraud, provided that his belief is honest; mere carelessness is not sufficient, although gross carelessness may justify an inference that he was not honest[16].

29. Bearing the above principles in mind, I now turn to consider the present case.

Agreed List of Disputed Issues

30. There had been a statement of agreed disputed issues filed on 23 December 2015[17] (“Disputed Issues””), which was prior to the dismissal of P’s claim.  There were a total of 15 items.  In light of the dismissal, as submitted by Mr Vaughan, the only items left for determination by this court are 7 items, namely items 1 to 3, 10 to 13 of the Disputed Issues. 

The evidence

31. P had provided a witness statement and attended the trial to be cross examined.

32. Mr Chen had also provided a witness statement and attended trial to be cross examined.  Ms Chiu Kam (“Ms Chiu”), D’s employee/secretary also provided a witness statement in support of D’s case and had attended trial to be cross examined.

33. The present case involves essentially factual disputes and largely depends on the evidence of P, Mr Chen and Ms Chui.  When assessing a witness’s evidence, I bear in mind that if possible, such should be tested by reference to contemporaneous documents where available and have regard to, among other matters, (i) the inherent probabilities, or improbabilities, of the events put forward by the witness; (ii) the consistency, or inconsistency, of the witness’s evidence with undisputed background facts or documents; and (iii) the consistency, or inconsistency, of the witness’s evidence with his/her previous statements and pleadings, and/or contemporaneous documents[18].

Item 1 of the Disputed Issues

34. Item 1 was whether, prior to the signing of the Agreement, Mr Chen had invited P to sell the Restaurant Business to D as alleged by P, or whether it was P who had invited Mr Chen to purchase the Restaurant Business from him, as alleged by D.

35. P said during the trial that he had been in the restaurant business for 27 years, starting from being a cook.  He had left Hong Kong for awhile and ran a Hong Kong style café in Fujian between 2008 – 2013. The Restaurant Business was his first business since his return. 

36. According to P, he had taken over the previous Japanese ramen restaurant and the former tenancy agreement of the Premises, but did not need to pay anything else to the previous owner who obtained the refund of the security deposit from the Landlord.  P said he entered into a new tenancy agreement, namely the Lease. He had to pay the Deposit under the Lease, and he also had to spend several tens of thousands of dollars on refurbishment of the Premises.

37. When asked whether the Restaurant Business was in difficulties in about March/April 2014, P had said there were losses in the first two month but not too much and he could pay rent and salaries, and was able to maintain the business.  According to P, for January to March 2014, the average gross income of the Restaurant Business was about HK$300,000 to HK$400,000 every month, and the main expense was the rental.  He said by 1 April 2014, he had known Mr Chen for about 2 months and that Mr Chen was generous (豪爽) and he had a lot of respect for Mr Chen.  He said the Personal Loan Mr Chen lent him was to carry out promotion and improvement of the Restaurant Business and not for rent.  P denied that it was he who was keen to get rid of the Restaurant Business.

38. The evidence showed that P and Mr Chen had got on well after they met and it would appear that they would often meet and drink on the terrace/flat roof of the Restaurant.  P had said that it was before Mr Chen left at end of March 2014 for France when they were having a drink on the terrace when Mr Chen mentioned setting up a Wenzhou association/ club, and that they were initially only chatting casually, and that the Negotiations only became serious around mid April or thereafter. 

39. In April 2014, the Restaurant Business was still in its early days, namely only 5 months after it had commenced.  There was really no sufficient evidence that the Restaurant Business was already running into difficulties by that time or that P had “repeatedly” invited Mr Chen to purchase the Restaurant Business.  Having considered the evidence, I do not find that there was sufficient evidence that P was in May 2014 keen to get rid of the Restaurant Business, and I find it more probable than not, that the matter of the sale of the Restaurant Business came up initially during casual chats between P and Mr Chen, as said by P.

Item 2 of the Disputed Issues

40. Item 2 was whether P and Mr Chen had discussed about, inter alia, the Lease prior to the execution of the Agreement, and if so, the contents of such discussions and/or the representations made.

41. Mr Chen had said in his witness statement that during the course of the Negotiations P had relayed to him that he had a lease for the use of the Premises with the Landlord for 3 years, with 6 months already lapsed, leaving a remaining term of 2 years and 6 months[19].

42. Thus, the matter of the Lease had been brought up during the Negotiations.

43. P had said in his witness statement that he had obtained oral approval from the Landlord as to the change of the Restaurant Business at the Premises and that although it was not necessary to provide the original Lease to Mr Chen, P said he did personally serve the original Lease to Mr Chen at D’s office with the consent of the Landlord upon Mr Chen’s request[20].

44. At the trial, P had further explained that he had contacted the Landlord’s representative, also a Mr Chan, to ask about the intended transfer of the Lease, and that the Landlord’s representative said he had to take instructions from the Landlord, and 2 or 3 days later, the representative told P that there was no problem.  P said the Landlord was only concerned that someone would pay the rent, and would not object to P’s transfer of the Restaurant Business, and that the Landlord’s representative had asked P for the name of the new owner and the relevant details and documents relating to the new owner, and that if the new owner is to be a company, the Landlord would need a personal guarantee from the owner of the company.  P maintained he had told Mr Chen all this prior to the signing of the Agreement.

45. P further mentioned that he had received a “what’s app” message from the Landlord’s representative indicating the Landlord’s consent, which he said he had shown to his previous solicitors.  However, the message was never produced by P.

46. Mr Vaughan had pointed out what P said about having receiving the “what’s app” message and showing to his solicitors was never mentioned previously in his witness statement.

47. I accept this was never mentioned by P in his witness statement.  Notwithstanding this, however, P maintained that he had contacted the Landlord prior to the signing of the Agreement and that he had obtained the oral approval of the Landlord, and further he had provided the original Lease to Mr Chen one or two weeks prior to the signing of the Agreement, and that Mr Chen had agreed to provide the Company Particulars.

48. As mentioned earlier, even on Mr Chen’s own evidence, the matter of the Lease had been brought up during the Negotiations.  His evidence seemed to be save that he was aware of the period, or unexpired period, of the Lease, he knew nothing about the other provisions in the Lease.  As mentioned earlier, he denied having been provided with the original Lease by P.  Mr Chen in fact had said he was not even provided with a copy of the Lease, and that he only found it sometime after 20 July 2014.

49. I must say I do not find Mr Chen’s evidence, that he only found a copy of the Lease in the office of the Restaurant at the Premises sometime after 20 July 2014, credible.

50. P’s case about having obtained the prior agreement of the Landlord and having sent the original Lease to Mr Chen was stated in his former solicitors’ letters dated 5 and 12 August 2014 to D’s solicitors[21].  In particular, P’s solicitors had imposed a deadline in their letter of 12 August 2014 demanding D or Mr Chen to return the original Lease, and had again sent another letter on 13 August 2014 demanding, among other things, the return of the original Lease[22]. 

51. The first demand letter sent by D’s solicitors to P appeared to be dated 24 July 2014 prior to P’s solicitors’ letters.  For some reasons, a copy of that letter had not been produced by D.  In any event, it could be seen in a subsequent letter dated 4 August 2014 from D’s solicitors that in the earlier letter, D’s solicitors had referred to the Non Assignment Provision in the Lease[23], and D was complaining that the Landlord had not been notified of the transfer and that there was never any consent given by them.  There was, however, no complaint or any mention by D’s solicitors that D had never been provided with a copy of the Lease or that Mr Chen only found a copy of the Lease sometime after 20 July 2014.  In particular, there were no letters produced by D to indicate that after the receipt of P’s solicitors’ letters dated 12 and 13 August 2014 demanding the return of the original Lease, D’s solicitors had replied on behalf of D denying that D had been provided the original Lease.

52. Mr Chen is not an uneducated person and he had received education up to大專level, whereas P said he only received education up to Form 1 level.  Mr Chen is not an inexperienced businessman. He started his wine business in 2009 in Mainland China importing wine from France after leaving the Public Security Bureau.  D was incorporated in Hong Kong by him on 10 January 2011 to carry out his wine business in Hong Kong.  According to Mr Chen, he imports the wine directly from France and sells it in his shop. Mr Chen denied that he understands English and/or French and said he has to rely on his assistants in Mainland China and in France for communications with sellers in France. Anyway, by the time of the Agreement, Mr Chen had been operating his wine business in Hong Kong for over 3 years.  D carried on and still carries on its wine business at the shop office in Hankow Centre.

53. I find it inherently improbable that Mr Chen, being a business man and having been told about the Lease prior to the signing of the Agreement, would have entered into the Agreement without seeking at least a copy of the Lease in particular when under the Agreement he was to take over the Deposit totalling $930,000.  I also find it inherently improbable that D would pay rent without sight or knowledge of all the terms of the Lease. 

54. Having considered all the evidence, I find P’s version more probable, in that he did provide the original Lease to Mr Chen prior to the signing of the Agreement.  Otherwise, P would not have instructed his solicitors to seek the return of the original Lease. I further find that Mr Chen should be aware of the provisions in the Lease, including the Non Assignment Provision, prior to the signing of the Agreement.

55. Neither parties had called the Landlord or the Landlord’s representative to give evidence. P had taken over the previous restaurant business at the Premises and had entered into a new lease with the Landlord.  He was not really challenged over this part of his evidence.  As pointed out by P, the Landlord would only be concerned with the new owner being able to pay rent and to pay punctually.  There was in any event no sufficient evidence to contradict what was said by P, that he did contact the Landlord through his representative in about May 2014, and obtained oral approval at that time to the transfer of the Restaurant Business at the Premises and that the Landlord had requested for supporting documents from the new owner.

56. P said during the trial he had told Mr Chen very clearly that the Landlord would require particulars of the new owner before the Lease could be transferred.  During the trial, Mr Chen did not deny that P had sought further information from him and only said he had provided whatever sought.

57. In any event, having considered all the evidence, I find P did contact the Landlord through the Landlord’s representative in about May 2014 prior to the signing of the Agreement and that the Landlord had given oral approval at that time and had requested for supporting documents from the new purchaser.  I also find that P had informed Mr Chen of this prior to the signing of the Agreement.

Item 3 of the Disputed Issues

58. Item 3 was whether P had obtained oral approval from the Landlord for the transfer of the Lease/Restaurant Business, or for the execution of a new lease of the Premises with D.

59. I have already found under Item 2 that P did obtain an oral approval from the Landlord and the Landlord had requested for supporting documents from D.  My finding is further supported by what is stated hereunder.

60. It was not disputed that D had paid one month’s rent on 16 June 2014 by bank transfer to the Landlord’s bank account[24], although P complained that D was late in paying the rent which should have been paid on 1 June 2014.

61. D had produced a copy of the transaction record for the transfer of the rent on 16 June 2014. 

62. Mr Vaughan had pointed out to P that the rental was stated in the Lease to be payable on 13^th day of each month, when P complained about D being late in paying the rent for June.  P had however explained that when he first paid the rent, he paid for the period from 13 December 2013 to the end of the month, so that thereafter the rent would become payable on the 1^st day of each month.  It was P’s case that he and Mr Chen had agreed that Mr Chen was to pay rent as from 1 June 2014.

63. What P said about the rent should be payable on the 1^st day of each month can also be seen in his solicitors’ letters to the Landlord.  In any event, even if D was under the impression that the rental period was from 13^th of the month, the payment on 16June 2014 was still late. 

64. Ms Chiu had said during the trial that P had provided D with the Landlord’s bank account details for D to pay the rent.  This was not denied by P, and in fact the details of the Landlord’s bank account were stated in the Lease[25].

65. P had pointed out that there were caretakers/security guards at the building of the Premises and that it would not have been possible that the Landlord did not know that there had been a transfer of the Restaurant Business on 1 June 2014.  There was however no sufficient evidence to support what he said.

66. P had also said during the trial that the Landlord was dissatisfied with D and wanted to recover possession of the Premises as D had failed to pay rent on time and the Landlord could not contact Mr Chen as he was often not in Hong Kong.  I accept that this part of P’s evidence was not stated in P’s witness statement.

67. P had also said it was only in early August 2014 that he found out that D had dismissed all the employees and moved everything away from the Premises leaving only kitchen utensils and broken furniture.  It was P’s case that D had moved out from the Premise around mid July 2014[26].

68. When Mr Chen was asked by this court as to when D moved out of the Premises, Mr Chen did not give a direct answer.   He was evasive and merely said “We wanted to renovate but the Landlord did not agree” and that this was in July 2014.  He went on to say that they had brought along the contractor but the management office said they had to obtain the consent of the Landlord first and Ms Chiu then telephoned the Landlord but was told that the Lease could not be transferred and Mr Chen said he then tried to find P but failed to do so.

69. It would appear from Mr Chen’s evidence that even though P did not provide the Landlord’s contact details to D, by this time, D should know how to contact the Landlord, and also vice versa, since it was Ms Chiu’s evidence that on about 20 July 2014, the Landlord’s representative telephoned D’s office line and it was she who answered the telephone.

70. I have found earlier that P had contacted the Landlord and obtained the Landlord’s oral approval prior to the signing of the Agreement.  If P had in fact not informed the Landlord or obtained the Landlord’s oral approval, one would have thought that the Landlord would raise a query, latest by 16 June 2014, when the rent was transferred to the Landlord’s bank account by someone other than P.  There was no evidence that the Landlord had done so at that time or that the Landlord had refused to accept the rent from D.

71. Mr Chen in fact had said in his witness statement that D paid rent for two months, June and July 2014.  Ms Chiu’s evidence was that she seemed to recall D did pay rent for July 2014 as well. There was no sufficient evidence to support Mr Chen’s or Ms Chiu’s evidence on this.  This was also contradicted by the Landlord’s letter dated 11 August 2014[27].

72. Further, from the settlement agreement eventually entered into by P and the Landlord on 15 August 2014[28] (“Settlement Agreement”), it can be seen that the rent, rates and management fees for the months of July and August 2014 were in arrears.  D clearly only paid rent, rates and management fees once, namely on 16 June 2014.

73. As mentioned earlier, neither P nor D had produced any witness statement from the Landlord or the Landlord’s representative, nor were they called to give evidence.  The fact was that rent was paid on 16 June 2014 from D and not P, and as I have said earlier, the Landlord should have knowledge of this, and there was no evidence that the Landlord had refused to accept the rent from D or raised any query or had indicated any objection to parting of possession of the Premises thereafter until, on D’s case about 20 July 2014.  By 20 July 2014, D had failed to pay the rent for the month of July due on 1^st July 2014 for some 3 weeks.  Although Ms Chiu said D vacated on 20 July 2014, it would not seem possible that D could have got rid of all the staff and vacated the Premises within a day as Ms Chiu said that she happened to pass by the Premises on about 21 July 2014, and that she noticed an estate agent talking to two potential tenants on the terrace of the Restaurant and showing them around the Premises.  Mr Chen had said the Restaurant was undergoing renovation and he asked the decorators to leave.  P said D abandoned the Premises around mid July 2014.  In any event, the invoices from the food suppliers showed that the food was ordered and/or delivered to the Restaurant on 17 July 2014.  I find that D had probably vacated the Premises between about 17 July and 20 July 2014. 

74. Having considered all the evidence, as the Landlord had earlier accepted P’s taking over the Restaurant Business from P’s predecessor, and the Landlord had further agreed to enter into new lease with P, there was really no commercial reason as to why the Landlord would not have accepted D as a replacement tenant, subject to the supporting documents being provided to the Landlord.  In particular, as mentioned earlier, on Ms Chiu’s evidence, the Landlord was already showing potential tenants at the Premises on about 21 July 2014.  There was also no sufficient reason for P to believe that the Landlord would not have formally gave its consent to the transfer of the Restaurant Business or to enter into a new lease with Mr Chen/D provided that supporting documents had been provided. 

75. The above confirmed my finding that P did obtain oral approval from the Landlord for the transfer of the Restaurant Business to and the use of the Premises by the new owner subject to the supporting documents being provided.

76. The duty was on D to satisfy this court that there had been misrepresentation on the part of P.  In light of my findings above, I am not satisfied that there had been misrepresentation, fraudulent or otherwise, on the part of P.

Item 10 of the Disputed Issues

77. Item 10 was whether during the period from 1 June to 20 July 2014, a turnover of HK$58,829 had been credited to P’s bank account through the use of the visa machine placed inside the Restaurant as an agreed interim arrangement pending replacement of the machine if any.

78. During the trial, P did not dispute his receipt of HK$58,829 and had said this should be deducted from the balance of the purchase price which D had failed to pay him.

Item 11 of the Disputed Issues

79. Item 11 was whether the Agreement was liable to be rescinded for misrepresentation or fraudulent misrepresentation, and was so rescinded by D.

80. As I have found earlier that there was no sufficient evidence of misrepresentation on the part of P, fraudulent or otherwise, there was no sufficient ground for D to rescind the Agreement.

Item 12 of the Disputed Issues

81. Item 12 was alternatively to Item 11, whether P was in breach of any of his obligations under the Agreement and/or whether P had repudiated the Agreement and D had accepted such repudiation.

82. The Agreement contains 6 main clauses. In particular:

(i)  Under Clause 3, the agreed purchase price is HK$2,100,000, and the payment terms are that 70% of the purchase price shall be payable upon signing of the Agreement and the balance of the agreed purchase price shall be payable within 7 days after the transfer of the Lease and various certificates and licenses in relation to the Restaurant Business to D (“Clause 3”);

(ii)    Clause 5 stipulates that P shall assist D to handle all transfer procedures in relation which must be completed within 60 days, and D shall, within one week from the date of the Agreement, nominate its representative or company for the purpose of such transfer procedure so as to accomplish such transfer soonest possible (“Clause 5”).

83. As mentioned earlier, it was all along P’s evidence that he and Mr Chen had agreed that Mr Chen would provide the Company Particulars to P for the transfer of the Licences[29].

84. Further, P’s evidence was that on 1 June 2014, (i) the original of his Restaurant Licence, (ii) the original of his Liquor Licence, (iii) the original BR of the Restaurant Business, (iv) the original Lease, (v) keys, stocks, facilities and fixtures, (vi) company chop and (vii) a copy of P’s HKID card had already been given by him to Mr Chen to effect the transfer of the Restaurant Business and/or to assist the applications for the transfer of the Licences.

85. P said he had continued to urge Mr Chen to give him the Company Particulars to forward to the Police and the Food and Environment Hygiene Department to apply for the transfers of the Licences, but Mr Chen failed to do so.  D had also failed to name an appointed person/company to hold the Licences pursuant to Clause 5.  P’s case was that after execution of the Agreement, notwithstanding P’s repeated reminders, Mr Chen was not co-operative and that the only document provided by D was a copy of the BR.

86. It was also P’s case that to further assist D, he had asked D to provide the Company Particulars to New Design Consultancy (新藝牌照顧問公司), a consultancy company which P had retained to apply for the Licences previously when P set up the Restaurant Business.  P had produced a copy of the blank form for the application for transfer of the Liquor Licence to indicate the extent of the particulars required. P said this blank form was sent to him by New Design Consultancy.

87. P further claimed at the trial that he had paid HK$15,000 to New Design Consultancy to assist D in the transfer, and that he still owed New Design a balance of several thousand dollars.  P however did not mention such fees in his witness statement, nor had he produced any invoice or any documentary evidence to support what he had said. 

88. Anyway, Mr Chen denied he was sent the blank form as alleged by P.  Mr Chen further denied that P had forwarded any documents to D to facilitate the transfer of the Restaurant Business.

89. The blank form was for the transfer of the Liquor Licence, but as pointed out by Mr Vaughan, the blank form can be downloaded from the website.

90. However, Mr Chen had said in his witness statement that during the Negotiations P had told him that the Liquor Licence was not transferrable and that arrangements would only be made for the transfer of the Restaurant Licence held by him[30].

91. P on the other hand denied that he had told Mr Chen that the Liquor Licence was not transferrable and that in the pleadings, he had put D to strict proof of what was alleged by D, and P had further said that he had told D/Mr Chen that he had made application for the transfer of the Liquor Licence before.

92. I do not find there was sufficient evidence that P had told Mr Chen that the Liquor Licence was not transferable and it further seems inherently improbable that Mr Chen would purchase and operate the Restaurant Business without a Liquor Licence.  It is however, clear from the form that any transfer or application of the Liquor Licence would require considerable information of the applicant. 

93. Although P had said in his witness statement that Mr Chen only provided him with a copy of D’s BR to prepare the new tenancy agreement with the Landlord, he said during the trial that Mr Chen had also provided him D’s registration number on a piece of paper.  It would appear that P was referring to the Certificate of Incorporation of D.

94. Anyway, it was Mr Chen’s evidence in his witness statement that at P’s request, and pursuant to Clause 5 of the Agreement, in about mid June 2014, he had provided to P a copy of D’s BR and a copy of the “documents evidencing its incorporation”, which he had clarified during the trial to be the Certificate of Incorporation, to facilitate arrangements for the transfer of the Restaurant Licence and the Lease to D.

95. In his witness statement, Mr Chen had further said that he had, between 2 June to end of June 2014 by phone and in person, repeatedly requested P to arrange for the formal transfer of the Restaurant Licence to D and that on about 13 June 2014, P met him at D’s office and told him he was still making the necessary arrangements for the transfer of the Restaurant Licence.  Mr Chen denied that P had told him about engaging any consultant company to assist D.

96. When this court asked Mr Chen what documents were obtained by P from D, Mr Chen replied that P had gone to D’s office every day and that whatever documents P wanted, photocopies of such documents would be made for P to take.  When the court again asked Mr Chen photocopies of what documents, Mr Chen said he recalled a photocopy of D’s BR and a copy of his Hong Kong and Macau Travel Permit.  Mr Chen had initially said that P was going to D’s office to obtain documents within one month before and also after the signing of the Agreement, but he later clarified that P only went there after the signing of the Agreement and not before.

97. What Mr Chen said during the trial was however not consistent with what he had said in his witness statement.  In his witness statement, Mr Chen only mentioned providing P with a copy of the BR and a copy of the documents evidencing D’s incorporation or as clarified by Mr Chen, he meant the Certificate of Incorporation, and that P had only attended D’s office on two occasions, 7 and 13 June 2014, and D did not mention anything about photocopies of whatever documents P asked for had been provided to P. 

98. When Ms Chiu gave evidence, she said photocopies of only 3 documents were given to P after signing the Agreement by D, namely D’s BR, D’s Certificate of Incorporation and Mr Chen’s Hong Kong and Macau Travel Permit (“3 Documents”), and that no other documents were given to P.  Her answer was clear in this respect and I accept what she said.

99. Thus, on Ms Chiu’s evidence, not all the Company Particulars had been provided by D to P.  There was, however, nothing on the face of the 3 Documents to indicate Mr Chen’s connection with D, or D’s shareholders or directors.  It would therefore not seem possible that the 3 Documents would be sufficient for the application and/or transfer of the Licenses or for the Landlord to prepare a new tenancy agreement.

100. P’s former solicitors had in fact sent to D a letter before action on 28 July 2014[31].  In this letter, it was stated that D was in breach of Clause 5 of the Agreement in that D had not completed all transfer procedures (including the share transfer, the Lease, and the deposit and rent under the Lease) within 60 days, notwithstanding all documents had been provided by P to D and that unless D completed the transfers within 3 days, P would institute legal proceedings.

101. In their reply dated 4 August 2014[32], as mentioned earlier, D’s solicitors, however, only referred to the Non Assignment Provision in the Lease and alleged that P was in serious breach of the Agreement based on the misrepresentation on part of P and that his action could amount to serious deception or fraud and that D had reported the matter to the police.

102. D’s case was thus based on P’s misrepresentation, and there was no denial in D’s solicitors’ letter of 4 August 2014 that D had not complied with Clause 5 of the Agreement. 

103. As earlier mentioned, P’s former solicitors further wrote to D’s solicitors on 12 August 2014.  In this letter, D’s solicitors were informed them that as a result of D’s wrongful breach of contract and its wrongful refusal to pay further rent and in order to mitigate further loss, the Landlord had agreed to accept P’s early termination of the Lease on condition that the Deposit had to be utilized to settle the rent arrears and outstanding rates and management fees and that the balance to be wholly forfeited, and that P had no alternative but to accept D’s wrongful repudiation of the Agreement.

104. Thereafter, as also mentioned earlier, P’s solicitors again wrote the following day on 13 August 2014[33] stating, among other things, that D had failed to deliver possession and return the original Lease within the deadline even though D had in fact moved out of the Premises in about mid July 2014 and abandoned the Premises, and that D was in wrongful breach and/or repudiation of the Agreement as a result of which P had suffered loss and damage.  As I have said earlier, there was no reply to P’s solicitors’ letters of 12 and 13 August 2014.

105. It was not disputed that a total of HK$1.4m was treated as having been paid under the Agreement, leaving a balance of HK$700,000 to be paid within 7 days upon the completion of the transfer of the Lease and the Licences.

106. There was no reason as to why P would not assist D in the transfers of the Licences and the Lease since he would be paid a further HK$700,000 under the Agreement, and further without the transfer of the Licenses and/or the Lease, or a new tenancy agreement being entered into by D, P would continue to remain liable for the Restaurant Business and for all the obligations under the Lease.

107. On the other hand, Mr Vaughan had also asked P why Mr Chen would not co-operate after D had paid HK$1.4m.  P’s response was according to his “speculation”, that after operating the business for awhile, Mr Chen realized that the business might not work, and therefore he wanted to return the business to P, and that D just abandoned the business.  In the words of P, D “輸打贏要”.

108. According to P, Mr Chen often changed his mind, and that this had happened before.  P gave an example, which was that Mr Chen had originally proposed that it would be more appropriate for the Liquor Licence to be held in the name of Ms Chiu, but when P asked Mr Chen for Ms Chiu’s details, Mr Chen then said he had to re-consider.  Another example was that Mr Chen had told P that the new lease would be taken up in his personal name, as he would need to provide a guarantee if he used the name of a company, but after a few days, Mr Chen changed his mind and decided to use his company, namely D to take up the new lease.

109. Again, what P said above was not mentioned in his witness statement, and when cross examined, he said that the witness statement was only a “preliminary document” and that a lot of information was missing.  Anyway, the reasons offered by P were his speculations only and I accept there was also no reason as to why Mr Chen would want to abandon the Premises or fail to co-operate as he would lose $1.4m.  I find neither P nor Mr Chan completely reliable witnesses.   

110. A lot of what P had said during the trial was not in his witness statement.  What he said during the trial was further elaboration on what he had said in his witness statement.  However, on the whole, notwithstanding the elaborations, I find P was consistent in his evidence throughout that Mr Chen had agreed to provide all the Company Particulars or supporting documents to him and/or the Landlord and that Mr Chen/D had failed to do so. Having considered all the evidence, I prefer P’s version and accept what P said and that it was D or Mr Chen who had not provided all the Company Particulars or supporting documents, and that it would not have been possible for P to carry out his obligations under the Agreement with only the 3 Documents.  There was also no evidence that D or Mr Chen had himself made any application for the Licences.  

111. Anyway, from the parties’ respective solicitors’ letters in July/August 2014, D’s case against P was essentially based on misrepresentation and there were no allegations of P’s breach of any other term/s of the Agreement.

112. Having considered all the above, I find that P was not in breach of his obligations under Clause 5 or any other clauses of the Agreement. I find it more probable than not that D had vacated the Premises around 17 July to 20 July 2014, which P only found out in early August 2014, and that P only signed the Settlement Agreement after D had vacated and abandoned the Premises and after P had informed D.  I do not find that there was sufficient evidence that P had repudiated the Agreement.

Item 13 of the Disputed Issues

113. Item 13 is if the answer to Item 11 or 12 is affirmative, whether D has suffered loss and damage as particularized in the Counterclaim for which P is liable.  In light of my above findings, I do not need to deal with this issue.

Conclusion

114. The burden is on D to prove its Counterclaim.  Having considered all the above, I find that D has not been able to discharge its burden, and the Counterclaim is hereby dismissed.

115. As for costs, costs normally follow the event. So far as the Counterclaim is concerned, P is the successful party, and I order D to pay P the costs of defending the Counterclaim.  This is an order nisi which shall be made final after 21 days.