BAR PACIFIC XXXVI INTERNATIONAL LTD v. CHU HUNG PAN

HCMP779/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 779 OF 2017

(ON AN INTENDED APPEAL FROM DCCJ NO. 3861 OF 2014)

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JUDGMENT

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Hon Chu JA (giving the Judgment of the Court):

1.  This is the defendant’s renewed application for leave to appeal against the judgment (“Judgment”) of Deputy District Judge Eric Tam (“the Judge”) given on 1 December 2016 awarding to the plaintiff damages for breach of agreement in the total sum of HK$90,288.96 together with interest and costs.  By his decision given on 20 March 2017 (“Decision”), the Judge refused the defendant’s application for leave to appeal.

The facts

2.  In 2011, the plaintiff became the tenant of Shop 5B Ground Floor Pearl Court, No. 8 Holland Street, Kennedy Town (“Holland Street premises”) and operated a wine bar at the premises. 

3.  It is common ground that on 17 August 2013, the plaintiff acting by its shareholder, Mr Chan Wai (“Mr W Chan”), and the defendant signed a Chinese document entitled “計劃草擬書” and dated 17 August 2013 (“the Agreement”).  The Agreement contained the following terms that are relevant to the present application:

(1)   The parties shall collaborate to carry out a restaurant business at the Holland Street premises commencing on 1 September 2013 (clauses 1 and 2).

(2)   The plaintiff and the defendant shall respectively hold 30% and 70% of the shareholding (clauses 3 and 4).

(3)   The plaintiff and the defendant shall share respectively 30% and 70% of the monthly profit or loss of the restaurant business (clause 9).

(4)   The defendant shall pay the plaintiff a transfer fee (頂手費用) comprising $200,000 and 30% of the shares in the restaurant, of which $150,000 had been paid on 16 August 2013 and the remaining $50,000 was to be paid by 30 September 2013.  The transfer fee did not include water, electricity or rental deposits (clause 5). 

4.  It is also not disputed that on 16 August 2013, the defendant caused a company by the name of Billions Delight Investment Limited (“Billions”) to be formed.  The defendant and his wife are the director and secretary of Billions.  Between October 2013 and July 2016, Billions operated a restaurant by the name of Landmark Western at the Holland Street premises. 

The dispute

5.  The plaintiff’s case is that the formation of Billions and the operation of Landmark Western were done pursuant to the Agreement. 

6.  It is also the plaintiff’s case that the defendant was in breach of the Agreement by: (i) failing to allot and assign 30% of the shares in Billions to the plaintiff; (ii) depriving the plaintiff of the right to monitor and control of the finances of the restaurant business; (iii) failing to cause Billions to settle the water bill for the Shop; (iv) failing to cause Billions to return some telecommunication equipment rented from HKT; and (v) wrongfully terminated the Agreement by his solicitors’ letter dated 10 June 2014, a breach accepted by the plaintiff by its solicitors’ letter dated 31 July 2014.

7.  The Amended Statement of Claim asks for the following relief:

(1)   $13,561.50 on the basis of a 30% share in the monthly profit and loss of Landmark Western for the period from October 2013 to April 2014 under clause 9 of the Agreement.

(2)   $300,000 in lieu of 30% of the shares in Billions, being the unpaid balance of the transfer fee.

(3)   $601.22 being the amount of unpaid water charges deducted from the water deposit. 

(4)   $1,435 being the amount that the plaintiff became liable to HKT for the telecommunication equipment.

(5)   Alternatively, damages to be assessed.    

8.  The defendant defends the claim on the basis that the Agreement does not constitute a binding agreement, and is at best an agreement to agree.  It is pleaded that insofar as the parties have jointly operated a restaurant business at the Holland Street premises, it was not pursuant to any form of contract between them.  There was a change in the defendant’s position at the trial in that he denied that the formation of Billions was pursuant to the Agreement, and that it was Billions and not him who collaborated with the plaintiff in the operation of a restaurant business at the Holland Street premises.

9.  The issues at the trial, as identified by the Judge (Judgment §4) are:

(1)   Whether the Agreement is legally binding.

(2)   If the Agreement is legally binding, whether the contracting party is Billions or the Defendant.

(3)   Whether the defendant has been in breach of the Agreement, and if so, what should be the quantum of damages.

(4)   Whether the pleading supports an award of damages on the basis of a loss of 30% of the profit of the restaurant business.   

The Judgment

10.  Mr W Chan and the defendant were the only two witnesses at the trial.  The Judge accepted Mr W Chan’s evidence, finding it to be credible and supported by documentary evidence.  The Judge, however, rejected the defendant’s evidence as being self-contradictory and inconsistent with his witness statement and the documentary evidence.

11.  On the issues in dispute, the Judge found:

(1)   The Agreement is a legally binding agreement.

(2)   The defendant, and not Billions, is the contracting party to the Agreement.

(3)   The defendant is in breach of the Agreement.

(4)   On the basis of the undisputed monthly statement of account of the restaurant business for the period from October 2013 to April 2016, the 30% net profit that the plaintiff would have received for the period from May 2014 to July 2016 had the Agreement not been terminated is $89,687.74. 

(5)   On the basis of clause 5 of the Agreement, which expressly excludes water deposit from the transfer fee, the plaintiff is entitled to the claim of $601.22.

(6)   The claim for the failure to return telecommunication equipment in the sum of $1,435 is not borne out by the evidence.

(7)   The plaintiff’s claim is for unliquidated general damages for breach of agreement.  The Amended Statement of Claim has claimed for loss and damages on the basis of a 30% sharing in the profit and loss, and also specifically pleaded a claim for damages to be assessed.

12.  The Judge accordingly entered judgment for the plaintiff for $89,687.74 and $601.22, together with interest and costs.  The plaintiff has indicated that it would not pursue the claim for $300,000 and $13,561.50.

The intended appeal

13.  The defendant advanced four main grounds of appeal in the draft notice of appeal.  Grounds 1 and 2 challenge the Judge’s findings that the Agreement is legally binding and that the defendant is the contracting party.  Mr Sunny Chan who appeared for the defendant has not advanced any argument on these two grounds in the written submission.  At the hearing before us, Mr Chan indicated that he would not press these two grounds. 

14.  The thrust of the defendant’s remaining grounds of appeal is twofold.  The first is that the Judge’s award of $89,687.74 is not the plaintiff’s pleaded case.  The second is that the Judge should not have allowed the plaintiff to make late discovery of accounts concerning the restaurant business and further should not have directed the defendant to make further discovery of the accounts concerning the restaurant business during the trial.  In his written submission, Mr Chan sought to argue that the Judge’s act of ordering disclosure amounted to bias. The point was rightly not pursued at the oral hearing, given that it is never a ground in the draft notice of appeal and was not advanced in the leave application before the Judge.

15.  The test for granting leave to appeal is trite.  Leave will not be granted unless the applicant satisfies the court that the intended appeal has a reasonable prospect of success, or there is some other reason in the interests of justice why the appeal should be heard: section 63A(2) of the District Court Ordinance, Cap. 336.

Discussion

16.  On the first point of making an award of damages on an unpleaded case, we would begin by observing that the pleadings in this case are less than satisfactory. Notwithstanding this, what is tolerably clear from the Amended Statement of Claim is that the plaintiff claims that:

(1)   Pursuant to the Agreement, Billions was formed and had carried out a restaurant business at the Holland Street premises.

(2)   Under the Agreement, the plaintiff is entitled to be allotted 30% of the shares in Billions as part of the transfer fee.

(3)   Also under the Agreement, the plaintiff has 30% interest in the restaurant business, and shall share 30% of the profit and loss of the business.

(4)   The defendant committed several breaches of the Agreement, including (i) failing to allot 30% of the shares in Billions to the plaintiff; (ii) failing to pay to the plaintiff 30% of the net profit of the restaurant business; and (iii) unilateral termination of the Agreement.

17.  On these bases, the plaintiff would have been entitled to claim damages for (i) the unpaid balance of the transfer fee; (ii) the unpaid 30% of the net profit of the restaurant up to the termination of the Agreement; and (iii) wrongful repudiation of the Agreement.

18.  Apart from claiming specifically for $300,000 and $13,561.50, the plaintiff also asks for damages to be assessed.  On the basis of the plaintiff’s pleaded case, this can include damages for wrongful repudiation of the Agreement represented by 30% of the net profit of the restaurant business that the plaintiff would have received but for the wrongful repudiation.  

19.  Mr Chan is correct to point out that the plaintiff has not particularized her claim for damages to be assessed.  We also accept his submission on the objectives and importance of pleadings and the reminder given by the Chief Justice in Kwok Chin Wing v. 21 Holdings Ltd (2013) 16 HKCFAR 663 at §21.  The Judge also acknowledged that the Amended Statement of Claim did not expressly plead a loss of 30% of the net profit of the restaurant business.  The Judge, however, pointed out that to award damages on that basis would not occasion any prejudice to the defendant, and that the issues in dispute was clear to both parties and the defendant was not taken by surprise (Judgment §54, and Decision §14).

20.  It appears that at the pre-trial review, the issue about the basis of the claim for damages was flagged up by the Judge (Decision §13).  This prompted the plaintiff to amend the Statement of Claim to include the relief of damages to be assessed.  In the consequential amendment to the Defence, the defendant pointed that the plaintiff had not particularized its claim for damages for breach of agreement.  Despite this, the defendant did not ask for particulars on the amendment nor applied to strike out the amendment for lack of particulars.  At the trial, in the course of the plaintiff’s opening, the Judge pointed out that the plaintiff’s claim for damages for breach of agreement included damages other than the $300,000 specifically pleaded (Transcript p.8).  In these circumstances, we agree with the Judge that although a claim for loss of profit was not expressly pleaded, the defendant was not taken by surprise.  Further, it is too late for the defendant to complain about the lack of particulars or to take a pure pleading point on appeal.  Mr Chan accepted at the oral hearing that other than the fact that this was not specifically pleaded, he could not argue against the Judge’s decision to award damages on the basis of the 30% profit that the plaintiff would have received from the restaurant business but for the breach of the Agreement.       

21.  We turn to the second point on discovery.  The late discovery that the defendant now complains of relates to 13 pages of monthly statement of account of the restaurant business for the first seven months of its operation.  It is not disputed that they were prepared on a monthly basis by the plaintiff’s accounts staff with copies provided to the defendant (Transcript pp.24A-B, 104Q-105G).  It is also not disputed that as from May 2014, the personnel of Billions took over the management of the accounts of the restaurant business. 

22.  Shortly before the trial commenced, the plaintiff disclosed the 13 pages of monthly statement of account.  On the first day of the trial, the defendant, also represented by Mr Chan, objected to their production on the ground of late disclosure and that they were not shown to be relevant to any issue in dispute (Transcript p.23B-H).  The Judge allowed the documents to be produced and admitted them into evidence (Transcript p.24C). 

23.  We see no ground to complain about the Judge’s decision.  These documents ought to have been disclosed by both parties during discovery.  They are clearly relevant to the dispute between the parties in the light of the plaintiff’s claim that it was entitled to share in the profit and loss of the business and to be paid 30% of the net profit.  The defendant’s argument (Transcript p.105J) that they need not be disclosed because they are documents of Billions and Billions is not a party to the litigation is untenable.  Even though the plaintiff only produced the documents shortly before the trial commenced, there could not be any surprise or prejudice to the defendant who has copies of them all along and had supplied them to his legal representatives.

24.  As to the Judge’s direction to the defendant to produce the accounts of the restaurant business for the period from May 2014 to the cessation of business in July 2016, as the Judge pointed out (Decision §15), this was agreed to both by the defendant when he gave evidence and by his counsel (Transcript pp.162S-127K, 177-178).  The trial was further adjourned part-heard to October 2016 to enable the accounts to be ready for production.  While we accept as a matter of principle, it is an exceptional course for a trial judge to direct parties to make disclosure in the course of a trial, in the circumstances of this case (see also §23 above), the defendant has no ground for complaint.

25.  For the above reasons, we are not satisfied that the defendant’s intended appeal has reasonable prospect of success.  There is also no other reason why the appeal should be heard.  Accordingly, we refuse leave to appeal and dismiss the defendant’s summons.

Costs

26.  Applying the usual rule of costs follow event, we make an order that the defendant shall pay the plaintiff the costs of this application.

27.  The plaintiff has provided a statement of costs for summary assessment in the amount of $122,649.33.  The issues engaged in this appeal are not complex, and have mostly been canvassed before the Judge both at trial and in the application for leave to appeal.  The plaintiff is throughout represented by the same firm of solicitors.  The Plaintiff’s Statement in Opposition was prepared by the handling solicitor who conducted the leave application before the Judge.  In these circumstances and on a party-and-party basis of assessment, the time spent on attendance with client and counsel (items C1 and C3), drafting and preparing the Statement in Opposition and preparing for the oral hearing (items D2 and D3(a)) are excessive and should be reduced.  It should also be pointed out that general care and conduct of the proceedings (item D4) is generally not allowed in summary assessment of costs.  Taking a broad brush approach, we summarily assess the plaintiff’s costs at $80,000.