BAR PACIFIC XXXVI INTERNATIONAL LTD v. CHU HUNG PAN

DCCJ 3861/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3861 OF 2014

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DECISION

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1.  Judgment was awarded in favour of the plaintiff in the sum of $90,288.96 on 1 February 2016.

2.  On 23 February 2016, the defendant filed a summons applying for, inter alia, leave to appeal.

3.  Grounds stated in the draft Notice of Appeal are as follows:-

“1. The learned judge erred in his finding that the Joint Venture Agreement dated 17 August 2013 was a legally binding contract. The learned judge ought to have concluded that the Agreement was not legally binding for being an agreement to agree. Alternatively, the learned judge ought to have concluded that the proper party to the business venture was between the Plaintiff and Billions Ltd.

2. In reaching his decision, the learned judge: -

(a) Erred in placing weight on the oral evidence of Mr. Chu Hung Pan and Chan Wai in deciding the validity of the Agreement. Whether the Agreement is binding is purely a question of law and the learned judge should not place any reliance on oral evidence.

(b) The learned judge should have construed the Joint Venture Agreement objectively as a pure legal question and held that the same is void for uncertainty or an agreement to agree. It was never part of the Plaintiff’s case that there has been any modification to the Joint Venture Agreement.

(c) Alternatively, the learned judge should have considered the undisputed evidence that the business venture was carried out through Billions Ltd. As such, the learned judge ought to have held that even if the Joint Venture Agreement was binding, the parties never performed the said Agreement because the Defendant has reached an alternative form of partnership with the Plaintiff by setting up Billions Ltd. Thus, the proper party to the partnership was Billions Ltd instead of the Defendant.

3. The learned judge found that the Agreement was a profit sharing arrangement between the parties (paragraphs 19-24 of the judgment). This was never the Plaintiff’s pleaded case. The learned judge was wrong as a matter of law in re-writing the agreement for the parties. The said finding went far beyond the written terms of the Joint Venture Agreement and was completely beyond the Plaintiff’s pleaded case. In so deciding, the learned judge unfairly deprived the Defendant a chance to be heard by properly preparing a defence.

(d) The Plaintiff never pleaded that there has been any variation to the written terms of the Joint Venture Agreement. However, the learned judge found that the Joint Venture Agreement has been orally modified and that there was a profit sharing arrangement between the parties for profits made by Billions Ltd.

(e) In reaching this conclusion at paragraphs 17-18 of the judgment, the learned judge has decided the case that has never been pleaded by the Plaintiff. This is plainly wrong as a matter of law by reason of Kwok Chin Wing v 21 Holdings Ltd (2013) 16 HKCFAR 663

(f) The learned judge erred in law by deviating from and improving the Plaintiff’s pleaded case in awarding damages on a profit sharing basis. The Plaintiff has never pleaded or asked for damages to be awarded on the basis of profit sharing (see paragraphs 11 to 20 of the statement of claim). On the basis of the Plaintiff’s pleaded case, it was not open for the learned judge to award damages on a profit sharing basis without the Plaintiff’s pleading to the same.

(g) The learned judge erred in ordering the disclosure of Billions Ltd’s accounts without the Plaintiff either seeking them by specific discovery. Billions Ltd is not party to this case and no specific discovery has been made by the Plaintiff for those account. On the Plaintiff’s pleaded case, Billions Ltd’s accounts are not relevant as the Plaintiff never asked for a share in the profit.

(h) The learned judge erred in considering the accounts to be relevant and ordering the same to be produced without a formal application being made by the Plaintiff. The learned judge’s decision in so ordering is prejudicial to the Defendant’s interest as it deprives the Defendant a chance to properly prepare a defence to that effect.

(i) The learned judge erred by failing to take into account or address paragraphs 12-14 of the Defence relating to the principle of separate legal personality between Billions Ltd and the Defendant.

(j) The learned judge erred by dismissing the business transfer agreement signed in November 2013 where the business was stated to be transferred to Billions Ltd (see paragraph 30 of the Judgment). The learned judge erred in dismissing the legal effect of the business.

(k) Instead, the learned judge should have dismissed the Plaintiff’s case by holding that the Plaintiff cannot prove there has been any breach of contract on the Plaintiff’s pleaded case.

4. In awarding damages to the Plaintiff, the learned judge awarded damages on a 30/70 profit sharing basis (see paragraph 32 of the Judgment). This has never been a remedy asked for by the Plaintiff. The learned judge erred by descending into the arena in ordering a remedy that has never been pleaded or asked for by the Plaintiff.

(a) The learned judge erred by finding that it is not necessary for the Plaintiff to plead for accounts of profit as a remedy because it relates to general damages (see paragraph 53 of the Judgment).

(b) It has never been part of the Plaintiff’s case that the Defendant breached the Agreement by failing to account for profits. Thus, it is not open for the learned judge to grant a remedy which has never been part of the Plaintiff’s pleaded case.

(c) Instead, the learned judge should have concluded that the Plaintiff is not entitled to any profit sharing by virtue that the same has never been pleaded and also because Billions Ltd is not a party to this litigation.”

4.  Mr Chan, counsel for the defendant, submitted that the court erred in placing weight on the oral evidence in dealing with the issue of validity of the Agreement.  Whether the Agreement was binding was purely a question of law and the court should not place any reliance on oral evidence.

5.  The learned author of Chitty on Contract 32^nd edition in paragraph 13-043 says as follows:-

“The words of the agreement must be construed as they stand. That is to say the meaning of the document or a particular part of it is to be sought in the document itself:” [o]ne must consider the meaning of the words used, not what one may guess to be the intention of the parties”. However, this is not to say that the meaning of the words in a written document must be ascertained by reference to the words of the document alone. The courts will, in principle, look at all the circumstances surrounding the making of the contract and available to the parties (usually referred to as the “factual matrix” or “available back-ground”) which would assist in determining how the language of the document would have been understood by a reasonable person in their position.”

6.  The factual matrix must be considered in ascertaining the intention of the parties.  Furthermore, in paragraph 7 of the witness statement of Chu Hung Pan (“Chu”), the defendant herein, Chu alleged that he was told by Chan Wai that the Agreement was not binding.  That is why the issue of credibility of the witnesses has to be resolved.

7.  The variation of the Agreement was only the nature of the cuisine provided by the restaurant.  The fact of such change was not disputed.  Such variation was not material.  Failing to plead that would not have any effect on the outcome of this case.

8.  The business venture was carried out through Billions Ltd.  But the parties, as stated in the judgment, were the plaintiff and the defendant.  It was never pleaded any alternative form of partnership and there was no such evidence whatsoever.  The defence’s case was that there was no binding Agreement.

9.  The reasons for ruling that Billions Ltd was not the party to the Agreement were stated in the judgment.  No error in law had been pointed out by the defendant.

10.  Grounds 1 and 2 of the draft notice have no merits.

11.  As rightly denied by the plaintiff, the plaintiff did plead the terms of the Joint Venture Agreement in paragraph 4 of the Amended Statement of Claim and the breach of it in paragraph 20 thereof and asked for damages to be assessed in paragraph 21(v).  The remedies the plaintiff sought were not outside the pleadings. 

12.  However, I agree with Mr Chan that the plaintiff did not specifically plead the failure to share the profit.  But in paragraph 11 of the Amended Statement of Claim, the plaintiff stated that the defendant refused to allot and assign the shares of Billions Ltd. to the plaintiff.

13.  It is correct that before the amendment of the Statement of Claim, the plaintiff intended to claim the sum of $300,000 being the balance of the agreed price for the transfer of business assets.  In the pretrial review, the matter was discussed.  In view of the evidence before the court, it was indicated that the evidence of the plaintiff, taken at its highest, could only justify the claim of damages for the failure to distribute the profit.  The plaintiff then amended the Statement of Claim and the claim for damages was added.

14.  The amendments would be more satisfactory if it was specially pleaded for damages relating to the failure of distribution of profit.  But in the context, there should not be any dispute that the only substantial damages suffered by the plaintiff was the loss of profit.  The plaintiff’s complaint in paragraph 11 of the Statement of Claim for failing to allot shares was also ground for the claim of loss of profit.  Furthermore, as stated in paragraph 54 of the judgment, there was no prejudice to the defendant.  The issues in dispute was clear to both parties and the defendant was not taken by surprise.

15.  When dealing with the issue of damages, the court found that it was just and appropriate to direct the defendant to provide the accounts.  There was no objection from the defendant when the court made such a direction.  Mr Chan agreed to it and agreed to adjourn the hearing to October 2016 to produce the accounts for the relevant period.  If the defendant refused to provide the accounts, the court might assess the amount of damages by relying on the accounts before the court.

16.  Paragraph 12 to 14 of the defence had been dealt with.  In particular, paragraph 50 of the judgment dealt with the liability of the balance of water deposit.

17.  The November Agreement had been dealt with in paragraph 30 of the judgment. Mr Chan did not specify any error in law.

18.  Grounds 3 and 4 have no merits.

19.  The appeal has no reasonable prospect of success and there is no reason in the interests of justice that the appeal should be heard.  The application is dismissed.

20.  The application for stay of execution was granted on condition that the defendant pays the sum of $ 90,288.96 into court as security on or before 17 February 2017.

21.  There be costs order nisi that the costs of this application and the application for stay be to the plaintiff, with certificate for counsel, to be taxed if not agreed.  Unless application for variation is made within 14 days, the order shall become absolute 14 days thereafter.

22.  I thank counsel for their assistance.