CHAN KA MAN v. SINTAT TAXI AGENCY LTD

DCCJ 3768/2020

[2023] HKDC 1634

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3768 OF 2020

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JUDGMENT

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1.  An agreement was entered between the Plaintiff Madam Chan Ka Man (P) and the Defendant Sintat Taxi Agency Limited (D) on 16 April 2018 where D agreed to apply for P a Hong Kong-Zhuhai-Macao Bridge vehicle license (“the License”) at a total sum of RMB367,000 to be paid by P in four tranches (“the Agreement”).

2.  It is not disputed that P paid the first and third instalments of HKD125,499 and RMB150,000 pursuant to the payment schedule stipulated under Clause 2B of the Agreement. For the avoidance of confusion, the second instalment specified in the Agreement was not applicable in this case.

3.  According to Clause 7(A) of the Agreement, D was obliged to deliver the License to P on or before 15 April 2019 (“the Due Date”). It is not disputed that D failed to deliver the License to P and P never paid D the 4^th and 5^th instalments as the respective payment trigger events under the payment schedule never occurred.

THE PLEADINGS ISSUE

The Plaintiff’s pleaded case

4.  P’s case was simple and straightforward. She pleaded that the Defendant was in breach of the Agreement by failing to deliver the License on or before the Due Date or alternatively, within a reasonable time, and was therefore entitled to rescind the Agreement and to recover the loss in the sum of RMB250,000 (“the Paid Sum”) plus interest.

5.  P relied on Clause 7(C) of the Agreement to support her claim, which is read as follows:-

「丙、如本公司未能在本合約議定的最遲成交日向客户提供有關成交項目的領取方法或進行有關的安排：客戶有權於最遲成交日起 ，要求本公司收取客戶已繳訂金中的人民幣 元作為過程中的行政費用後，把訂金餘額的全數，向客戶不連利息退還，並且向客戶支付額外人民幣 元作賠償：本公司也有權要求客户按受本公司向客户不連利息退還其已繳付訂金的全數；不論以上任何一個情況，客戶都明白在接收本公司上述退還金額的同時，需把此合約服務申請過程開始後而獲安排擁有的任何公司股份和各項利益無條件退還本公司或本公司指定的單位。如本公司或客户在最遲成交日後未有向對方發出以上要求，即代表雙方都願共同遵守本合約各條直至任何一方向對方提出以上要求或成交項目的誕生。」

The Defendant’s pleaded case

6.  According to D’s Defence and Counterclaim, the Defendant averred that P breached her contractual duty under Clause 4(F) & (G) of the Agreement which required her to provide, inter alia, (i) a photograph of the person (i.e. P) who was designated to be the legal representative of the Mainland China limited company holding her Mainland Travel Permit within three days from the signing of the Agreement (“the Photograph”), and (ii) a domestic registered telephone number of the Mainland Chinese limited company within seven days from the signing of the Agreement (“the Telephone Number”). Both (i) and (ii) were collectively known as the Requisite Documents.

7.  D argued that it was therefore entitled to be absolved from the liability to deliver the License by the Due Date and to alter such deadline without P’s consent. D contended that since P was in wrongful breach and evinced an intention to not be bound by the Agreement, it had the right to terminate the Agreement and to forfeit the Paid Sum with any other damages to be assessed.

8.  However, D’s counsel Mr So in his opening submissions presented a new line of argument, i.e. the Agreement was substantially varied by way of WhatsApp correspondences between the parties later in September 2019 (“the Messages”) and thus the Due Date was no more the agreed deadline. Mr So attempted to rely on the Messages to prove that P expressly agreed to accept an existing License instead of a new License at a later but unspecified date.

9.  Mr So submitted that the disclosure of the Messages evidenced P’s knowledge as to the variation of Agreement, and thus P should plead variation of Agreement otherwise the evidence she elicited would contradict her own case (which premised solely on the original terms of the Agreement). In essence, D was trying to say P’s case must fail because the evidence did not uphold her case.

10.  With great respect, I had great difficulty in understanding Mr So’s arguments so much so that I adjourned the hearing after both sides made their opening submissions for Mr So to answer the Court’s requisitions, one of which was to confirm if D intended to amend their defence. Mr So, by way of a written submission, confirmed with the Court that D had no intention in amending its defence.

11.  No one can dictate how parties should plead their cases. The disclosure of the Messages did not imply that P agreed to such variation of the Agreement. P’s counsel, Ms Margaret Chan, made it clear in both her written and oral submissions that it was never P’s case that the Agreement was varied. Should D argue that the Agreement was varied, it is trite that D must so plead in its Defence and Counterclaim. I will not repeat the principles of pleadings from Kwok Chin Wing v 21 Holdings Ltd (2013) 16 HKCFAR 663 which both sides cited and agreed, save that the pleadings are to define the issues in a trial and it would be the pleaded issues that define the scope of the evidence but not the other way round. As such, it would not be acceptable for any issues which have not been explicitly pleaded to be raised out of the evidence which is to be or has been adduced.

12.  What D was trying to do was exactly what Kwok Chin Wing said not to do. D was trying to rely on the Messages to define a new issue that was never pleaded, namely the variation of agreement. Mr. So must bear in mind that it was D’s stance that the Agreement was varied and he could not assume that P, by producing the Messages, amounted as an admission to such variation. Order 18 rule 13(5) makes it clear that it is the defendant’s duty to put forward his version of events if it is different from that given by the claimant; failing which, the defendant would not be taken to have put forward any positive case.

13.  D never pleaded variation of Agreement in its Defence and Counterclaim. D’s only witness Mr Cheung did not mention anything close to a variation of Agreement in his witness statement. It appeared to me that no one ever thought about this line of defence until Mr So was instructed (assuming he was not involved in the earlier preparation of this case), and all along the D’s case was simply suggesting P was in breach of the Agreement based on matters raised in paragraphs 6 and 7 hereinabove.

14.  In light of the above, any allegations and arguments as to variation of the Agreement will be disregarded.

THE LEGAL AND EVIDENCE ANALYSIS

P’s non-compliance with the Agreement

15.  It is P’s case there was no delay nor failure of her providing the Requisite Documents because she had never been requested to submit them by D and no staff from D had ever reminded her to do so.

16.  It is clear to this Court that P has never submitted the Requisite Documents which were required under the Agreement. By shifting the blame to D’s staff of not reminding her the duty she agreed to perform under the Agreement would not justify her failure. As rightly submitted by Mr. So, the law never imposes an obligation on an innocent party to chase after the defaulting party for compliance of contractual terms.

17.  Ms. Chan also tried to argue that the time of performance for submitting those Requisite Documents was not made of the essence, and thus would not entitle D to terminate the Agreement. With respect, the concept of delay, which P sought to rely on must be distinguished from non-performance. P did not delay in submitting the Requisite Documents, she simply never delivered them to D as agreed under the Agreement. The argument of whether time is of essence in Clause 4 (F) & (G) therefore would not advance P’s case.

18.  The proper question that the Court should address is whether P’s non-compliance was sufficiently substantial to amount to a repudiation, in other words, whether P’s failure to perform was so serious as to justify D in bringing the contract to an end and forfeit the Paid Sum. It is trite that not every breach of contract would entitle an innocent party to terminate a contract but only terms that could be regarded as conditions, and in some instances, innominate terms. Only substantial breach of terms could be treated as repudiatory breaches, and the party asserting a right to terminate for repudiation must prove the repudiation and to provide evidence of it.

19.  The Court found no evidence from D to support its case that P’s breach could undermine the whole contract or inhibit its ability to perform its contractual obligation. There was no contemporaneous documentary evidence showing that D has ever chased after P for the Requisite Documents and/or that P’s inability to produce the Requisite Documents was the cause of the delay. The following passages were extracted from the witness statement of Mr. Cheung, the director of D:

22. 根據合約 A111664 的第4 條款（己）段，原告人必須在7天内提交客戶指定被本公司安排的内承公司之法人按本公司要求拍攝一張手持其港澳居民來往内地通信證的照片（簡稱「該照片」）。基於原告人是該内地公司的法人，在某些省份，是建立内地公司的必要文件。如果没有該照片，公司是無法成立。為了盡量讓牌照申請繼續進行，雖則原告人沒有提供該照片，我公司也動用了大量的人力物力和時間去另尋一個不需要該照片證明來建立内地公司的省份，因此原告人的失誤也耽誤了整個申請牌照的過。

24. 根據合約 A111664 的第4 條款（己）段，原告人必須在7天内提交國內註冊的電話號碼及國内政府發出的短訊 (簡稱「該電話號碼」），而該電話號碼必須原告人親自申請，被告人不能代辦申請。

25. 該電話號碼有兩個主要用途，第一，内地的商務部會透過短信與内地公司的法人，亦即原告人，進行驗證和溝通，而這是申請國内公司牌照必須的一環，如果原告人不能提供國内電話號碼那就不能以原告人名義成立公司，整個牌照申請過程亦會相對停滞。 第二，該電話號碼需要輸入到廣東省公安廳申請牌照的系統裡，如果没有輸入電話就不能進人系統的下一步，如同上述，原告人的失誤也耽誤了整個申請牌照的過程。(emphasis added)

20.  Per to paragraph 22 of Cheung’s witness statement, the purpose of the Photograph was to allow D to set up a company in the PRC. A WhatsApp message dated 9 November 2018 from D showed that both the Hong Kong and PRC companies were successfully set up, and P was asked to satisfy the third instalment.

21.  Under cross-examination, Cheung explained that since P did not submit the Photograph, the PRC company was set up under someone’s name other than P. This arrangement was out of ordinary and D said they went the extra mile to do it because of the relationship between P and one of the staff of D, namely Ms. Mon Lee (“Ms. Lee”). The application for the License was eventually declined notwithstanding D’s effort since P was not the legal representative of the PRC company (内地公司的法人) and did not provide them with the Telephone Number. D agreed they never told P that the failure in obtaining the License was due to her inability to produce the Requisite Documents.

22.  The Court finds Mr. Cheung’s evidence to be incredible. Should the Requisite Documents be some important documents for the application, and the reasons for the delay and rejection, it would be reasonable to expect D to remind P for submissions in those 17 months of waiting. Cheung explained that they wanted to keep a good relationship with P and therefore never chased P. The Court fails to understand how a friendly reminder as such could harm the parties’ relationship. Further, should the failure of P’s submission of those Requisite Documents be the reason of the declined application, it was most remarkable that D never raised this at times when P demanded for the return of the Paid Sum. D, however, simply told P the failure in obtaining the License in time was due to changes in policy in the PRC, which was not pleaded in the Defence/Counterclaim.

23.  As such, I find that although P did breach the relevant clauses of the Agreement but such non-performance was not sufficiently substantial to amount to a repudiatory breach, which would allow D to terminate the Agreement. Even if the Court was wrong in finding that such breach to be non-repudiatory, the conduct of D subsequent to P’s breach was evidence showing their willingness to affirm the Agreement notwithstanding P’s non-performance, so D must therefore continue to satisfy the contractual duties under the Agreement and lost its right to terminate the Agreement in respect of P’s breach which it affirmed.

24.  P further argued that if the Court finds that P did commit a breach, such breach had been waived by D as the acceptance of the third instalment must have led P to believe that the application was in process, and D agreed by conduct to forbear enforcing its rights under the Agreement.

25.  It is trite that an affirmation following a breach does not equate to waiving the breach. With affirmation the innocent party loses the right to terminate but does not give up the right to claim damages for losses caused by the breach. Waiver on the other hand, effectively denotes ‘letting the breach go’. Courts should therefore be slow to find waiver if it was not expressly granted.

26.  After reviewing the parties’ conduct and course of dealing after the breach of P, the Court came to a conclusion that there were sufficient unequivocal acts of conduct evidencing an intent of D to waive P’s obligation in submitting the Requisite Documents all together based on the followings:

i.  No evidence before me showing that D had ever pressed on P to tender those documents;

ii.  D unilaterally decided to set up a PRC company not in P’s name, which was contrary to what the parties agreed to;

iii.  Mr. Cheung said such arrangement was unusual and there would be hurdles to obtain the License if the company was set up in other parties’ names;

iv.  D nonetheless attempted to apply the License for P under this new arrangement;

v.  D disclosed to P the reason for the delay was due to changes in policy but not P’s failure in submitting the Requisite Documents.

27.  It was D’s case that their staff Ms. Lee did chase P for those Requisite Documents but P denied this. Mr. So asked the Court to draw an adverse inference against P since she did not submit the record of her WhatsApp conversation with Ms. Lee nor tender her as a witness to support her case. The Court refused to draw such inference because first, it was not pleaded by D that Ms. Lee or in fact anyone from D’s company did chase P for the documents. Secondly, Ms. Lee was D’s staff and D could tender her as its witness to give evidence. Thirdly, should D have pleaded that P was at any time pressed by D to submit those documents, D could take out a discovery summons to ask P to produce them, which it did not. It would be utterly unfair to criticize P for not providing evidence in respect of a case that D did not plead. Once again, D has muddled up where the burden of proof lies.

28.  Even if the Court was to accept that the real reason for the delay was due to P’s failure in submitting the Requisite Documents, one cannot overlook the continuing performance of D’s own obligations for such a significant period of time (more than 12 months) after P’s breach, and its assertions of rights to the third instalment. Such course of dealings between the parties allowed the Court to conclude that D had foregone pursuing P for the Requisite Documents but devised a new way to obtain the License, which had encouraged P to think that the application was in process and they would waive their rights to enforce those contractual terms under Clause 4(F) & (G).

29.  Since the Court was satisfied that a waiver was inferred from D’s acts, the Court was of the view that D’s counterclaim must fail and no damages could be awarded to D due to P’s breach of conduct arising from Clause 4(F) & (G).

D’s non-compliance with the Agreement

30.  D’s defence as to its failure to deliver the License by the Due Date was simply based on P’s wrongful breach, which must fail based on my earlier findings. Although D never raised in their Defence and Counterclaim that the Due Date did not make time of the essence of the Agreement, the Court still needs to be satisfied that P has proven her case on the balance of probabilities based on all evidence before me.

31.  Since the Court has already found that D waived the right in enforcing P’s obligation under Clause 4(F) & (G), the parties’ obligations under the Agreement therefore remained unchanged. D was obliged to deliver the License to P on or before the Due Date pursuant to Clause 7(A) of the Agreement, which read as follows:

本公司和客戶的成交日不遲於   2019   年  04  月15日。

32.  In equity time is of essence in three types of cases where (1) the contract expressly so stipulates; (2) the circumstances of the case or the subject matter of the contract indicate that the time for completion is of the essence; and (3) where a valid notice to complete has been given.

33.  It was not disputed between parties that in the event that D fails to deliver the License, Clause 7(C), which was quoted in paragraph 5 hereinabove, should be referred to.

34.  One must construe the contractual terms in order to ascertain their significance to the parties in the transaction. In this case, the only subject matter of the Agreement was the issuance of the License. Even though Clause 7(A) did not express time is of the essence, the fact that Clause 7(C) gave rise to a right of termination shows that the parties intended to treat the deadline stipulated under Clause 7(A) as a condition of the Agreement, which entitled P to a refund and damages.

35.  The Court bears in mind that even if time be made the essence of the contract, it may be waived by the conduct of the purchaser. In Webb v Hughes (1870) LR10 Eq218, Malins VC held that:

“… if the time is once allowed to pass, and the parties go on negotiating for completion of the purchase, then time is no longer of the essence of the contract. But, on the other hand, it must be borne in mind that a purchaser is not bound to wait an indefinite time; and if he finds, while the negotiations are going on, that a long time will elapse before the contract can be completed, he may in a reasonable manner give notice to the vendor, and fix a period at which the business is to be terminated…”

36.  P gave evidence that she did not press on D after the Due Date for the delivery of the License though she averred that she did WhatsApp and/or speak to Ms. Lee about it. I am unable to accept her verbal evidence without any documentary proof. On the contrary, the WhatsApp conversations with D showed that P never enquired about the progress of the application and/or indicated the slightest intention to rescind the contract since the deadline was passed. I gained an overall impression that P’s inaction after the Due Date encouraged D to think that it would be given time indefinitely until further notice and allowed D a leisurely pace to fulfil its task. In the face of continued breaches by the D and the prolonged inaction from the P, I found sufficient unequivocal acts of P to infer that the condition to deliver the License by Due Date was waived.

Acceptance of Repudiation under Clause 7(C)

37.  Whether P had waived the Due Date being a conditional term was, strictly speaking, inconsequential to P’s claim for the Paid Sum. This is because Clause 7(C) was triggered once D failed to deliver the License by the Due Date, and such clause was drafted widely enough to allow P to exercise her rights to terminate the contract at any time after D’s failure irrespective to the waiver. The relevant parts are read as follows:

「丙、如本公司未能在本合約議定的最遲成交日向客户提供有關成交項目的領取方法或進行有關的安排：客戶有權於最遲成交起 ，要求本公司收取客戶已繳訂金中的人民幣 元作為過程中的行政費用後，把訂金餘額的全數，向客戶不連利息退還，並且向客戶支付額外人民幣 元作賠償… … 如本公司或客户在最遲成交日後未有向對方發出以上要求，即代表雙方都願共同遵守本合約各條直至任何一方向對方提出以上要求或成交項目的誕生。」(emphasis added)

38.  In light of the matters discussed above, I find that D did breach Clause 7(A) by failing to deliver the License by the agreed deadline and Clause 7(C) allowed P to exercise her rights to accept D’s repudiation at any time after the Due Date.

QUANTUM

39.  P is asking for the refund of the Paid Sum plus interest whereas D said P is entitled to at most RMB100,000, i.e. the first instalment. D said the third instalment should be forfeited as D needed to be compensated for work done in processing P’s application.

40.  One of the arguments raised by D was the cross-examination of P where she admitted that she could only get the first instalment back in any circumstances. Mr. So in his closing submissions quoted the relevant parts he wished to rely on as follows:

Q：根據翻份合約 (referring to [TB/61]），即係被告公司可以退返訂金比你，即係客戶。

A：係。

Q：你當時簽約嘅理解，都係末到2019年4月15日，公司可以將訂金比返你？

A：係。

Q：當時你嘅理解都喺咁。

A：我當時嘅理解係我比左[money]，但 D交唔到牌照，我就可以攞返 10萬蚊。

Q：睇下我咁講同唔同意？即係點都好，你交左幾多錢都好，你唔想再申請落去，可以要求公司退還訂金比你？

A：係。

Q：你知道你要不斷比錢，根據合約嘅比錢架構。

A：係。不過我第四第五期無比。

Q：我知道。但係根據合約精神，第 7(丙)條，你比幾多都好啦，只可以拎翻第一期。係唔係？

A：係。

(emphasis added)

41.  Mr. So relied on the above cross-examination as evidence of first, P’s admission that only RMB100,000 could be recovered, and secondly the parties never agreed P would be entitled to obtain any more than RMB100,000 based on contractual interpretation and good business efficacy. With great respect, I am unable to accept this argument as all those answers given by P was premised on P’s understanding at the time when she entered into the Agreement (你當時簽約嘅理解), i.e. when she had only made one payment of HKD125,499 (equivalent to RMB100,000). In the Court’s view, such questions would naturally lead P to think that she could get back whatever she had paid at that point in time, yet this does not mean she would still think she could only get her first instalment back if she made further payments beyond that point in time.

42.  When Mr. So also asked P whether she agreed that she was only entitled to the first instalment if she decided not to continue with the application of the License (你唔想再申請落去), the Court gained an impression that P was confused by the question posed to her at that time, and the context of such question presupposed that P was the one who was at fault in bringing the contract to an end.

43.  The Court therefore has hesitation in taking the face value of P’s answers, due to the context of the questions, but finds it necessary to analyse all available evidence and to read the Agreement as a whole in order to ascertain the true intention of the parties.

44.  D explained the rationale of forfeiting the third instalment was to take into account of the expenses incurred from D in processing the application for P, albeit an unsuccessful one. However, no evidence was adduced to prove or quantify such alleged expenses.

45.  Further, it was only during Mr. Cheung’s cross-examination that he claimed he had explained to P, at the time when signing the Agreement, that only the first instalment would be refunded. Such averment was not pleaded in the Defence nor raised by Mr. Cheung in his witness statement, and this Court sees no valid grounds to accept this piece of new information as evidence which was only raised at the trial.

46.  Moreover, the Court observed that the hand-written symbol appeared in various parts of the Agreement and when one tries to read the Agreement as a whole, it is plain to me that such symbol infers the meaning being “ not applicable”. As such, the two symbols showing in Clause 7(C) which read as: 客戶有權於最遲成交日起 ，要求本公司收取客戶已繳訂金中的人民幣 元作為過程中的行政費用後，把訂金餘額的全數，向客戶不連利息退還，並且向客戶支付額外人民幣 元作賠償 implies that the parties agreed that D did not intend to retain any of the deposit money as administrative fees, and P also agreed that she would not pursue further damages should D fail to deliver the License in time.

47.  Even if the Court made a wrong interpretation of the meaning of such symbol, I agree with Ms. Chan that P is entitled to a refund of the Paid Sum by reason of total failure of consideration. It is apparent to the Court that the failure in delivering the License implies that nothing of value was received by P, and thus the original consideration given by P must be returned.

Interest

48.  P asked for interest from the date of her demand for a refund. The CFA in Polyset Ltd v Panhandat Ltd (unrep, FACV 28/2000, [2002] HKEC 512) stated that the guiding principle is to compensate a successful plaintiff for being kept out of his money. The trial judge has a discretion to determine the rate of interest. To compensate a successful plaintiff for being kept out of his money, the general practice in Hong Kong has, at least since 1984, been to award interest reflecting the theoretical cost to the plaintiff of borrowing the sums withheld. This is a rate taken to be prime plus 1% unless the evidence in a particular case makes adoption of another rate appropriate: the CA in Komala Deccof & Co SA v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina) [1984] HKLR 219 held that: -.

“(a) Prima facie the losing party should pay interest at a reasonable rate from the date when the sum due should reasonably have been paid.

(b) In order to justify a modification of that basic principle there must be something exceptional; an unexplained delay does not amount to “something exceptional”; and the onus is on the losing party to show sufficient reason why the usual principle should not apply.

(c) In principle, the rate of interest payable should reflect the general rate at which a successful party would have to borrow money to take the place of that which was withheld.

(d) Where commercial rates are appropriate the proper figure for interest is one per cent above the relevant minimum lending rate.”

49.  In a more recent judgment Tadjudin v Bank of America, National Association (No 2) [2015] 3 HKLRD 331 at §§10-12, Anthony To J further explained that since saving rate and fixed deposit rate are ridiculously low in Hong Kong, the court held that the prevailing 12-month HIBOR plus 2% realistically represented the average cost of consumer borrowing.

50.  With reference to the HIBOR rates of 2019 and 2020 submitted to the Court by Ms. Chan, I would adopt 3.65% as the mean rate for pre-judgment interest rate. As regards the period, P asked the Court to grant pre-judgment interest from the date when P asked D for refund, i.e. 10 November 2019. D did not make any submissions opposing this, so I shall so order P’s request.

ORDER

51.  For the reasons set out above,

(1) I give judgment to the plaintiff in the sum of RMB250,000 (or the Hong Kong Dollar equivalent at the time of payment) with interest at 3.65% pa from 10 November 2019 and at judgment rate from the date of judgment until payment;

(2) D’s counterclaim be dismissed;

(3) I make a costs order nisi that costs of the action and of the counterclaim, including any costs reserved, be to P on a party to party basis, to be taxed if not agreed;

(4) The costs order nisi shall be made absolute 14 days from the date of this Judgment