HA SAU MEI WINNIE v. NG WAI WING AND ANOTHER

HCA 1472/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1472 OF 2009

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BETWEEN

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J U D G M E N T

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1.  This action arose out of three agreements:

(i) a tenancy agreement dated 10 February 2009;

(ii) a transfer agreement dated 13 February 2009; and

(iii) a takeover agreement also dated 13 February 2009.

THE TENANCY

2.  The tenancy agreement is for the letting of Rooms 1, 2 and 10 on 9th Floor of Block B of Gold Way Industrial Centre at 16 to 20 Wing Kin Road, Kwai Chung (“the Premises”).  It was made between Har But Yan (“Har”) and the 1st defendant.  It was for the letting of the Premises by the 1st defendant to Har for 6 years from 1st March 2009 to 28 February 2015 at the monthly rent of HK$12,000.  A deposit of HK$24,000 has been paid under it. It was made on a standard form purchased from a stationary shop.

THE TRANSFER AGREEMENT

3.  The transfer agreement was made between Har and Wong Fai Ling (“Wong”) as transferees and the 1st and 2nd defendants as transferors.  It was for the transfer of the shares of a Top Catering Management Limited (“Catering Management”) from the defendants to the transferees. 

4.  Catering Management had an agreement with A S Watson Industries of the Hutchison Whampoa Group (“Watson”) to provide catering service to Watson.  The defendants owned another company called Top Catering Development Limited (“Catering Development”).  Catering Development had an agreement with Vogue Laundry Services Limited of the Swire Group (“Vogue”) to provide catering service to Vogue.  The transfer agreement provided that the transfer of the shares of Catering Management would include the transfer of the two catering agreements.

5.  The defendants in the transfer agreement also guaranteed the renewal of the Watson catering agreement in May 2009 and the Vogue catering agreement in September 2009 with Catering Management unless the agreements were not renewed because of “errors in the product quality, hygiene and service caused by the operation of Har and Wong”.

6.  The transfer price was at HK$908,000 and payable in three instalments at:

(i) HK$508,000 before 1 March 2009;

(ii) HK$200,000 before 1 June 2009; and

(iii) HK$200,000 before 1 September 2009.

7.  The defendants further agreed that if the catering agreements were not renewed for certain guaranteed periods, they would return part of the transfer money to Har and Wong in proportion to the number of months short of the guaranteed periods.  For the Watson agreement, the guaranteed renewed period was 14 months.  The sum to be returned for each month short of the guarantee period was HK$25,000 or a total of HK$350,000 for the 14 months.

8.  The renewed period guaranteed for the Vogue agreement was 18 months.  The sum to be returned for each month short of the guaranteed period was HK$31,000 or a total of HK$558,000 for the 18 months. 

9.  Since the Watson agreement was then held by Catering Development, the transfer agreement further provided that Catering Development would subcontract the Watson agreement to Catering Management for the period from 1 March 2009 to 30 April 2009.

10.  The defendants also agreed to coordinate and manage the liaison work with Watson and Vogue for Har and Wong but would transfer this task to Har and Wong before 1 May 2009.  The defendants further agreed to facilitate Har and Wong in the transfer of shares of Catering Management at the Government Registry. 

11.  The defendants also agreed in the agreement to be responsible for all the expenses of Catering Management incurred before 1 March 2009 and Har and Wong agreed to be responsible for all the expenses of this company incurred from 1 March 2009 onwards.

12.  The defendants were paid HK$508,000 under the transfer agreement. 

THE TAKEOVER AGREEMENT

13.  The defendants owned some kitchen equipment and facilities installed in the Premises (“the Equipment”).  By the takeover agreement, the 1st defendant in his own name agreed to sell the Equipment to Har and Wong at the takeover price of HK$380,000 payable by monthly instalments of HK$12,700 each.  Two monthly instalments totalling HK$25,400 had to be paid in advance before 1 March 2009.  The sum of HK$380,000 should be fully paid before the Equipment would be owned by the purchasers who would then be liberty to dispose of the same.

14.  The 1st defendant also guaranteed the normal function of the Equipment for 3 months from 1 March 2009 and agreed to be responsible for the costs of repair as necessitated by normal use. 

15.  The 1st defendant was the licensee of a Food Factory Licence issued by the Food and Environmental Hygiene Department for Room 10 of the Premises.  The takeover agreement further provided that 1st defendant would authorise the purchasers to use the licence.  It further provided that if Har and Wong should in future transfer the Equipment to others, the 1st defendant would cooperate with them on the basis of the terms of this agreement and subject to their settling the account of the Premises.  If the owner of the Premises should change, the 1st defendant should also transfer the licence to Har and Wong.  Har and Wong should, however, pay the refundable deposits for the electricity and water supply which would be applied for in the 1st defendant’s name.

THE ISSUES

16.  The plaintiff is Har’s younger sister.  She brings this action as Har’s principal and she pleads that Wong was Har’s sub-agent or her agent by her ratification of Wong’ acts.

17.  The defendants had counterclaimed against the plaintiff, Har and Wong, but they have dropped the counterclaim as against Har and Wong on 28 June 2011.  The counterclaim as against the plaintiff remains. 

18.  Both sides plead that the tenancy and the transfer and takeover agreements are all inter-related.  Indeed, the Premises were let and the Equipment installed in the Premises was sold for the use of Catering Management in serving Watson and Vogue under the two catering contracts.  The parties have raised a number of issues. 

The plaintiff’s allegation of agency

19.  The first issue is the agency abovementioned as alleged by the plaintiff. 

The defendants’ allegation of personal agreements

20.  The defendants deny as a matter of fact that there was such agency.  They plead that the first time they learnt of this allegation was when it was made in a letter of the plaintiff’s solicitors dated 20 May 2009.

21.  Furthermore, they plead that the three agreements in question are personal to the parties named therein and the plaintiff is precluded from being a party therein. 

The plaintiff’s alleged representations

22.  The second issue is the plaintiff’s allegation of misrepresentation by the defendants.  Har and Wong learnt of the defendant’s offer for sale of Catering Management and its business in December 2008 or early January 2009.  The 1st defendant in negotiating with Har and Wong provided them with two documents entitled “Particulars of Transfer” and “Method of Transfer”.

23.  The Particulars of Transfer provided some information about the Premises, the Equipment and the food factory licence. 

24.  The Method of Transfer stated that the food factory had four customers with respective yearly turnovers of HK$2.6 million, HK$1.65 million, HK$430,000 and HK$220,000.

25.  It forecast that the turnover of the first customer would increase to HK$2.5 million to HK$2.8 million in mid-2009, and of the second customer, it would increase to HK$1.75 to HK$1.85 million in the beginning of 2009.  These two customers were later known to be Vogue and Watson. 

26.  It also stated that the contract to be entered into would guarantee the right to provide catering service to the customers for over 20 months, failing which there would be a proportionate refund of the transfer money.

The provisional agreement dated 30 January 2009

27.  After negotiation, Har entered into a provisional agreement with the 1st defendant on 30 January 2009.  The plaintiff and Har say that Har on behalf of the plaintiff entered into the provisional agreement in reliance on the representations of the defendants contained in the Method of Transfer.

28.  The provisional agreement provided that Har would take over from the 1st defendant the Equipment in the food factory (the Premises) including the food factory licence at HK$380,000, payable at monthly instalments of HK$12,700 each with deposit at HK$25,400. 

29.  It further provided that Har would from 1 March 2009 take over the catering agreements of Vogue and Watson at HK$558,000 and HK$350,000 respectively.  These two catering agreements would expire in May 2009 and September 2009 respectively.  The 1st defendant guaranteed the making of new agreements to extend the operation, failing which he would refund the transfer fee proportionately. 

The plaintiff’s alleged further representation

30.  The plaintiff further pleads that the 1st defendant had on about 13 February 2009 told Har and Wong that the Watson catering agreement was held by Catering Development though it was performed by Catering Management.  The 1st defendant further represented and guaranteed to Har and Wong that the 1st defendant would cause and procure Catering Development to sub-contact the Watson catering agreement to Catering Management for the remaining term and further cause and procure Watson to sign a new catering agreement with Catering Management direct. 

31.  The plaintiff pleads that Har & Wong on her behalf then entered into the tenancy and the transfer and take over agreements all on 13 February 2009 despite the tenancy was dated 10 February 2009 and they did so in reliance on the above representations. 

The alleged misrepresentations

32.  The plaintiff then pleads that the representations were false.  She pleads that:

(i)  in January 2009 the catering agreements of Vogue and Watson did not have at least 20 months to run;

(ii)  there was no basis for the forecast that the business turnover under the Vogue catering agreement would increase to HK$2.7 to HK$2.8 million in mid-2009 and the turnover under the Watson catering agreement would increase to HK$1.75 to HK$1.78 million at the beginning of 2009;

(iii)  Watson was not the customer of Catering Management but the customer of Catering Development; and

(iv)  the defendants on about 13 February 2009 had no intention to procure Watson to enter into a catering agreement with Catering Management direct.

33.  The plaintiff therefore claims rescission of the transfer and takeover agreements and the return of the sums paid thereunder with damages for misrepresentation to be assessed.

The defendants’ denial of misrepresentations

34.  The defendants denied of having made any misrepresentation.  They plead that the profits and estimates made in the Particulars of Transfer and Transfer Method were based on the 1st defendant’s experience in the catering industry and the estimates were for reference only. Regarding the fact that the Watson catering agreement was held by Catering Development, the defendants plead that the 1st defendant had told Har and Wong the same in late December 2008 or at the latest in a meeting in mid-January 2009.

The plaintiff’s allegations of breach of agreements

35.  Alternative to the misrepresentation claim, the plaintiff also claims that the defendants have breached the transfer and takeover agreements and seeks to have these agreements and the tenancy discharged with damages to be assessed. 

36.  The plaintiff pleads that there are implied terms to the transfer agreement.  They are:

(i)  the defendants should act honestly and diligently and try their best endeavour to procure Vogue to renew its catering contract with Catering Management after September 2009.

(ii)  the defendants should act honestly and diligently and try their best endeavour to procure Watson to enter into a catering contract with Catering Management after May 2009.

(iii)  the defendants should procure Catering Development to pay Catering Management for the sub-contract service which Catering Management rendered to Watson on behalf of Catering Development from 1 March 2009 onwards.

(iv)  the defendants should transfer the shares of Catering Management to the plaintiff or her appointees within reasonable time.

37.  The plaintiff further pleads that there is an implied term in the takeover agreement that the Equipment should be of merchantable quality and fit for the purpose of providing catering service. She also pleads that the defendants have breached the express and implied terms of the transfer and takeover agreements. 

38.  Regarding the express terms in the transfer agreement, she pleads that the defendants created excuses for not transferring the shares of Catering Management to her nominees so that they could continue controlling the bank account of Catering Management and she could not receive and make use of the money payable by Vogue to Catering Management.  She therefore had to use her own money to pay the wages, supplies and all other expenditure of Catering Management.

39.  The defendants also failed to procure Catering Development to pay Catering Management the money that Watson paid Catering Development for the service provided by Catering Management.  They also failed to procure Watson to enter into a catering agreement with Catering Management in breach of the implied terms of the transfer agreement.   

40.  They also received HK$703,341.30 from Vogue through their control of the bank account of Catering Management when this money was paid by Vogue for the service provided by Catering Management which was operated by Har and Wong on behalf of the plaintiff.  The plaintiff also seeks repayment of part of the transfer fee pursuant to the defendants guarantee because the two catering agreements with Vogue and Watson were not renewed for the respective periods stipulated in the transfer agreement.   

41.  She also pleads that the defendants have breached the takeover agreement as some of the Equipment were not of merchantable quality and were unfit for the purpose of providing catering service. 

The defendants’ denial of breach of agreements

42.  The Defendants deny these allegations.  They allege that Har and Wong had failed to provide enough food and had provided food of bad quality to Vogue and Watson.  They say that these resulted in the catering agreements not being renewed and hence they are not liable to make any refund of the transfer money.  

43.  They also plead that they had provided Har and Wong with all the documents and accounts of Catering Management for them to carry out the procedure for transfer of shares.  However, Har and Wong had breached their obligation to effect such transfer.  The failure of transfer of shares resulted in suppliers of Catering Management chasing the defendants for payment for the supplies made by them since 1 March 2009. 

44.  Har and Wong also breached the transfer agreement by failing to pay HK$200,000 which was due and owing on 1 June 2009. Har and Wong also unilaterally and abruptly suspended the provision of catering service to Watson from 9 June 2009 onwards.

45.  Regarding the takeover agreement, the defendants plead that the Equipment were sold on an “as is” basis and there is no implied term of merchantable quality or fitness for the purpose of providing catering service.

46.  The defendants admitted receipt by Catering Management of HK$703,341.30, but denied that Har and Wong were entitled to the same.

The defendants’ counterclaim

47.  Har and Wong had failed to pay HK$200,000 as due and owing on 1 June 2009 and had thereby repudiated the transfer agreement, they accepted the repudiation on 9 June 2009, or alternatively, on 20 June 2009 by a letter of their solicitors of the same date.  

48.  In the event that the court should find that the plaintiff is the principal of Har and Wong, the defendants also counterclaim against her for the HK$400,000 outstanding under the transfer agreement, the HK$304,800 due under the takeover agreement and all the monthly rental due under the tenancy from 1 June 2009 to 28 February 2015, totalling HK$828,000, the management fees for the same period at HK$116,610 and outstanding electricity charge at HK$7,547. 

ANALYSES AND FINDINGS

Whether the plaintiff is the principal of Har and Wong

49.  The plaintiff gave evidence that at the end of 2008, she wanted to invest in some business.  Her elder brother Har asked her if she would be interested in investing in a catering business which Har’s friend Wong had learnt from the newspaper.  Har and Wong then made some enquiries with the 1st defendant and advised the plaintiff of the result. They also provided the plaintiff with the Particulars of Transfer and Method of Transfer for her reference.  She considered the business viable and authorised Har to go ahead with the negotiation with the 1st defendant, to enter into agreements and to take over and operate the business.  She was not familiar with catering business.  She also did not want to acquire the business in her own name as she had a job with a reputable company and did not want to reveal her ownership of such business.

50.  She had given Har a written authorisation dated 15 January 2009.  From 31 January 2009 to 6 July 2009, she drew 35 cheques and paid through them a total of HK$1.7 million pursuant to the transfer and takeover agreements, the tenancy and for the running of the catering business by Har and Wong on behalf of Catering Management. 

51.  Regarding Wong, he was employed by her to assist Har at the monthly salary of HK$10,000.  She was not familiar with Wong.  She left the business to be run by Har and Wong and Wong was Har’s assistant.

52.  Her evidence was corroborated by Har.  Har said that he had worked in an executive position in a local fast food chain for several years and Wong had been in the food and beverage business for over 30 years.  He engaged Wong as his assistant because he was then contemplating whether to go back to the mainland to develop his career.  He also said that he had told the 1st defendant on about 30 January 2009 that he was acting for the plaintiff, but the 1st defendant denied it in his evidence.

53.  Har also admitted that he was then an undischarged bankrupt and had accounted his income to his trustee in bankruptcy. 

54.  The defendants insisted that Har and Wong are the principals to the three agreements.  They queried the plaintiff’s explanation for not using her name to contract with them.  They thought it was unnecessary for her to have contracted in the names of Har and Wong.  They say that the three agreements did not have to be registered.  Even if the plaintiff should have contracted with the defendants in her own name, her employer would not discover the same.  Her employer would therefore not consider that she had spent too much time and effort on her own business.  In any case, even if she had to find a nominee, Har was not a proper choice as he was then an undischarged bankrupt and his status could have created problems for her.  The defendants also questioned whether the authorisation letter by the plaintiff to Har was indeed made on 15 January 2009.

55.  They also queried why Wong would have agreed to enter into the transfer and takeover agreements and bear the responsibilities thereunder if he was only an employee earning HK$10,000 per month.  They further queried why Wong would have employed solicitors to engage in battle with them if he was merely an employee.  The solicitors only revealed that they were acting for the plaintiff in a letter dated 20 May 2009. 

56.  The defendants’ arguments are not without strength.  However, there is no evidence to show that Wong had invested any money in the take over and running of the catering business.  Instead, all the moneys totalling HK$1.7 million were paid by the plaintiff.  The payments included the wages for Wong.  These facts show that Wong was not an investor in the business but was only an employee. 

57.  Regarding the engagement of solicitors by Wong, the solicitors were acting for both Har and Wong.  From 20 May 2009, the solicitors also said that the plaintiff was the principal of Har and Wong.

58.  On the question of why Wong would have agreed to be a party to the agreements when he was merely an employee, the plaintiff’s answer is that to be named as a party to the agreements would certainly facilitate Wong’s work in operating the business.  This would be particularly so if Har should decide to go back to the mainland to develop his career as the plaintiff was unwilling to run the business in her own name.  On the question of responsibility, I think that depends on whether Wong would have regarded the position of a party to the arguments as an onerous one.  But the evidence is clear that he was an employee rather than one of the owners.

59.  Regarding Har, I also think that he was an employee rather than the owner or one of the owners.  There is again no evidence that he had invested any money in the business.  He, of course would have no money to invest then as he was an undischarged bankrupt.  The total sum invested in the business was HK$1.7 million.  There is no suggestion that such money was lent by the plaintiff to her brother Har.  The defendants also did not suggest that the plaintiff was investing the money for the benefit of herself and Har.  I do not think the plaintiff would have paid out 35 cheques totalling HK$1.7 million over a period of 5 months just for the benefit of her brother.

60.  Regarding the question of Har being a bankrupt, it seems that Har had been forthright with the trustee of his estate over his income.  If the investment money all came from the plaintiff, it would not have been difficult for him to explain to his trustee that he was only the agent of his sister.  In any case, his sister had no experience in the catering business, but he and Wong both had experience in the food and beverage business.  It is not surprising for him and Wong to have acted for the plaintiff.  I therefore find on a balance of probability that Har and Wong were the plaintiff’s agents. 

Whether 3 agreements are personal to the parties named

61.  The defendants disputed that Har had disclosed to the 1st defendant that the plaintiff was his principal before 20 May 2009, but I do not think this matter needs resolution. If Har had not done so, then the plaintiff was his undisclosed principal. 

62.  On this point, the defendants also argue that the three agreements are personal to the parties named therein and do not admit the plaintiff as the undisclosed principal.  They rely on clause 3 of the tenancy which prohibited the assignment, transfer or subletting of the tenancy.  However, there is no similar prohibition in the transfer and takeover agreements.  Indeed, the takeover agreement allowed Har and Wong to sell the Equipment to others subject to full payment to the defendants for the same before sale.  Though payment for the Equipment was by instalments, there was no prohibition against acceleration of payments by Har and Wong.

63.  Since all three agreements are inter-related and are for the single purpose of a catering business, and it is the defendants’ case that the tenancy was made on 10 February 2009 ahead of the transfer and takeover agreements, then the provision in the takeover agreement which allowed the sale of the Equipment to others would override the prohibition of assignment, transfer and sub-letting in the tenancy. 

64.  In any case, the tenancy was made on a standard form purchased from a stationary shop.  If there should be conflict or inconsistency between the terms in the standard form tenancy and the written terms in the takeover agreement, the written terms will prevail (see para 9.10 of The Interpretation of Contracts by Kim Lewison , 4th edition and Homburg BV v Agrostin Private Ltd [2004] 1 AC 715 at para. 11).

65.  Furthermore, there is no provision in the transfer and takeover agreements to prevent further sale of the catering business and the shares of Catering Management by Har and Wong. 

66.  The 1st defendant in his evidence said that he was keen to sell the business to people with experience in food and beverage business as he wanted the catering agreements with Vogue and Watson to be properly discharged.  He thought he had the moral obligation to Vogue and Watson to do so.  He also had a reputation to protect as he had been in the food and beverage business for over 30 years.

67.  He also said that if he should have been aware that it was the plaintiff with whom the defendants were contracting, then the defendants would either not enter into the agreements or would have asked for more so as to compensate the extra risks of loss and damage as the plaintiff had no experience in food and beverage business at all. 

68.  I do not accept this evidence of the defendants.  There was no indication in the Particulars of Transfer or Method of Transfer that the defendants were intending to transfer the catering business to people having experience in food and beverage business.  There is also no provision in the transfer and takeover agreements which require Har and Wong to personally operate the business.

69.  Furthermore, the defendants had made no attempt to enquire with Har or Wong or to find out in any way whether Har or Wong had any experience in the food and beverage business.  The 1st defendant only said in evidence that he regarded Har and Wong as being experienced as they were able to ask sensible questions in the negotiation and their questions indicated that they had food and beverage experience.  However, if the 1st defendant was indeed eager to transfer the business to experienced people, he would have at least asked for their working background, which he did not.  He also admitted that he had no knowledge of their previous occupation up to the moment when he was giving evidence in the witness box.  I therefore do not accept that the defendants had intended to sell the business to people with food and beverage experience.

70.  I find that the defendants were willing to sell the business to whoever that was willing to buy at a price that the defendants regarded as sufficiently attractive.  On the terms of the three agreements, I also find that they can admit the plaintiff as the undisclosed principal of Har and Wong (see Finzel, Berry & Co. v Eastcheap Dried Fruit Co [1962] 1 Lloyd’s 370 and Teheran-Europe Co. Ltd v S T Belton (Contractors) Ltd [1968] 2 QB 545 at 555C to G).

71.  I therefore find on a balance of probability that the plaintiff has discharged her burden of showing her to be either the disclosed or undisclosed principal of Har and Wong in entering into the transfer and takeover agreements and the tenancy. 

Misrepresentation

72.  The first alleged misrepresentation is that in January 2009 the two catering agreements with Vogue and Watson did not have 20 more months to go.  However, the true picture had been spelt out in the provisional agreement and the subsequent transfer agreement.  They both state that the Vogue and Watson agreements would expire in September and May 2009 respectively.  This allegation of misrepresentation therefore has not been made out. 

73.  The next alleged misrepresentation is the forecast of increase of turnover of the Vogue agreement to the level of HK$2.7 to HK$2.8 million in mid‑2009 and the increase of turnover of the Watson agreement to the level of HK$1.75 to HK$1.78 million in early 2009.

74.  After 1 March 2009 when Har and Wong were in charge of the catering business, the actual turnover under the Vogue agreement was around HK$200,000 per month and under the Watson agreement around HK$110,000 per month.  However, there was then no allegation by them or by the plaintiff against the defendants for misrepresentation in the forecast of turnover.

75.  Furthermore, both Har and Wong were experienced in food and beverage business.  They could estimate the turnover from the number of meals to be provided and the unit price thereof.  With their experience, they should also be able to estimate the amount of profit as they were aware of the costs of the operation.  It would have been more likely for them to have relied on the defendant’s forecast if they had no experience in food and beverage business. 

76.  Har has also not explained in his evidence why he should have relied on the defendants’ forecast rather than on his own experience and the experience of Wong.  I think this allegation of misrepresentation is an afterthought for use in litigation and I reject it. 

77.  The next allegation of misrepresentation is the fact that Watson was not a customer of Catering Management.  Again this has been expressly mentioned in the transfer agreement.  This allegation also has no merit. 

78.  The last allegation is that the defendants had no intention to procure Watson to enter into a direct catering agreement with Catering Management on about 13 February 2009 when the 1st defendant represented he would, but there is no evidence to support this allegation save that the defendants had not tried to procure this direct agreement.  That, however, is not evidence of the defendants’ intention as at 13 February 2009. 

79.  I see no basis for this allegation of misrepresentation because the defendants are liable to refund part of the transfer money if the direct agreement was not made.  I think it is more likely than not that the defendants did have this intention at the time when the transfer agreement was made.  The fact that they had not subsequently procured this contract was more because of the very poor relationship of the parties at the time than because the defendants did not have such an intention a few months before that.  I therefore reject this allegation of misrepresentation as well.

Whether the parties had breached the agreements

80.  I now deal with the plaintiff’s claim of breach of agreements and the defendants’ counterclaim. 

The tenancy

81.  I do not think there is any allegation of breach of the tenancy by the defendants.  But the plaintiff was in breach of it in not paying the rental for June.  The Premises were however, returned to the defendants on 1 July 2009 and the defendants accepted them without demur.  The plaintiff should therefore pay the rental for June 2009 at HK$12,000. 

82.  There is no evidence of any loss or damage to the defendants after the Premises had been returned to them.  There is also no forfeiture clause in the tenancy and the defendants are not praying for the forfeiture of the 2 months deposit.  The defendants should therefore return the deposit.  But the plaintiff should also pay the management fee for June 2009 at HK$1,690. 

83.  After setting off the June 2009 rental and the management fee, the defendants should repay HK$10,310 to the plaintiff under the tenancy agreement. 

84.  They should also refund to the plaintiff the deposits for gas, water and electricity totalling HK$29,618.  But the outstanding electricity charge at HK$7,547 should be deducted therefrom.  The net deposits repayable by the defendants under the takeover agreement should be HK$22,071.     

The takeover agreement

85.  Regarding the takeover agreement, I think there should be an implied term of merchantable quality and fitness for purpose by reason of the defendants’ guarantee that the Equipment should function normally for 3 months.  However, the only evidence that the Equipment was unmerchantable and unfit for purpose was the need to repair a number of items rather than the Equipment not capable of being used in the catering service. 

86.  There was a dispute on how many items needed repair.  The 1st defendant admitted in oral evidence that he had insisted that Har and Wong should agree with him on which of the items had to be repaired before he would effect the repair.  That was wrong.  He should have repaired the undisputed items and then tried to resolve the dispute by other means.  His attitude amounted to a breach of the takeover agreement.  However, the evidence is that Har and Wong were able to provide the catering service despite the problem caused by the defective items.  There is also no evidence of any damage suffered by the catering business as a result of these problematic items. Hence, I do not think that the defendants’ breach of the takeover agreement in failing to repair the defective items had amounted to a repudiation of the same. 

87.  In any event, there was no acceptance by the plaintiff of the defendants’ repudiation.  The Equipment had also been returned to the defendants on 1 July 2008 together with the delivery of the Premises.  There is also no evidence of any loss or damage suffered by the defendants after the Equipment was returned to them.

88.  The parties have agreed that the plaintiff should pay the defendants HK$9,000 per month for the use of the Equipment from 1 March to 30 June 2009.  The total sum payable is HK$36,000.  However, the plaintiff has paid the defendants five instalments of HK$12,700 each under the takeover agreement.  The defendants should thus return HK$27,500 to the plaintiff under this agreement.

The transfer agreement

89.  I now deal with the transfer agreement.  I do think that the defendants had been difficult on the transfer of shares. However, before the plaintiff had accepted the defendants’ repudiation of this agreement, the plaintiff herself also repudiated the agreement by not paying the defendants HK$200,000 which was due and payable on 1 June 2009.  This repudiation was accepted by the defendants.  But it was already known by the end of May 2009 that both the Vogue and Watson agreements would not be renewed. The defendants’ obligation to return a portion of the transfer money pursuant to their guarantee in the transfer agreement had already crystallised subject to the argument of whether the non-renewal was caused by the product quality, hygiene or service of Har and Wong to Vogue and Watson.  Since the repayment obligation, if any, had been crystallised, it was not affected by the subsequent discharge of the agreement by defendants’ acceptance of the plaintiff’s repudiation.    

90.  As a result of the acceptance of reputation of the transfer agreement, the defendants have suffered the loss of HK$400,000 due under this agreement.  The plaintiff should pay them this sum.  On the other hand, the defendants have received HK$703,341.30 through Catering Management. This sum was paid by Vogue for the catering service from 1 March 2009 to 15 June 2009 as provided by Har and Wong in the name of Catering Management. Now that the defendants are not going to and will not be ordered to transfer the shares of Catering Management to the plaintiff, they should account to the plaintiff this sum subject to any claim that they may have for having paid and discharged any liability of Catering Management incurred from 1 March 2009 onwards.

91.  Counsel for the defendants confirm that he cannot provide any evidence of such claim.  Then I hold that the defendants should return the whole of this HK$703,341.30 to the plaintiff, subject to the deduction of the HK$400,000 payable by the plaintiff to them.

92.  The same also applies to the sums of $115,771 and HK$34,502.50 paid by Watson for the catering service in May 2009 and from 1st to 8 June 2009.  These sums were paid to Catering Development but the service was provided by Catering Management and the defendants should repay these sums to the plaintiff. 

Refund under the transfer agreement

93.  Finally, I deal with the question of whether there should be refund pursuant to the defendants’ guarantee in the transfer agreement.  I would also mention that I do not find any implied term under the transfer agreement as alleged by the plaintiff.  If the two catering agreements were not renewed directly with Catering Management and the non-renewal was not caused by the product quality, hygiene or service of Har and Wong, then the defendants would have to make the refund pursuant to their guarantee.  There was no need to imply the alleged implied terms into the agreement.

94.  I now deal with the non-renewal of the Watson agreement.  There is no evidence from Watson showing any problem of Har and Wong’s catering service.  The 1st defendant alleged that he had received verbal complaints from Watson.  He named three days but two of them were Sundays when no catering service was provided. 

95.  He also used a letter from one Macy’s Food and Services Limited dated 20 October 2010 to say that Watson was not satisfied with the service of Har and Wong.  This letter did not indicate the identity of the signatory.  It alleged that Macy’s had provided catering service to Watson from April 2003 to March 2008 and from June 2009. 

96.  However, Macy’s sent another letter dated 7 October 2011 to the plaintiff’s solicitors denying the first letter.  It also said that most of the contents of the first letter were unreal.  The second letter was signed by the assistant sales and marketing manager of Macy’s. 

97.  After the plaintiff has produced the second Macy’s letter, the 1st defendant made a further witness statement saying that the first letter of Macy’s was signed by its then head chef, one Mr Lai.  The 1st defendant however, admitted that Mr Lai had heard from him that Watson was not satisfied with the service of Har and Wong.  He did not know if Mr Lai had heard of the same from any other source.  In the light of Macy’s second letter and the 1st defendant’s admission, I would place no weight on Macy’s first letter.

98.  Furthermore, Har said in paragraph 57 of his first witness statement that he was one of 10 caterers who had been invited by Watson to take part in the tendering of catering service.  On 11 May 2009, he was selected as one of the best three for final consideration.  However, on 14 May 2009, he was advised by Watson that another caterer was chosen for a lower price.  This evidence was unchallenged. 

99.  I also think that if the product quality, hygiene or service of Har and Wong was poor, there was no reason for Watson not to have complained about the same in writing so as to protect the interests of its staff. 

100.  On this evidence, I find that the defendants have failed to prove that the Watson catering agreement was not renewed directly with Catering Management through Har by reason of the product quality, hygiene or service of Har and Wong.  The defendants should therefore refund to the plaintiff (HK$350,000 x 12 ÷14 =) HK$300,000 pursuant to the guarantee of the non-renewal of the Watson catering agreement. 

101.  Regarding the Vogue agreement, there are three complaint letters dated 4 March, 17 March and 6 April 2009 from Vogue.  Har denies receipt of these letters, but I have no reason to doubt the authenticity of the complaints therein. 

102.  Vogue complained about the quality and quantity of food on three occasions made a general criticism of the service since 1 March 2009.  There was then a further complaint about inadequate rice on 16 April 2009 because of the fuse of a rice cooker had blown.  That was not a problem of quality of food or hygiene.  There was no further complaint. 

103.  Har was also invited by Vogue to take part in the tender exercise for the next catering agreement.  However, Vogue by a letter dated 29 May 2009 advised Har and Wong that their tender was not successful because another tenderer had offered a lower price.   

104.  Vogue had provided a further letter also signed by its personnel and administration manager and dated 16 September 2009 saying that Har and Wong through Catering Management had provided catering service to Vogue from 1 March 2009 to 15 June 2009 and served 360 meals per day.  The letter further said that Har and Wong did not obtain the next catering agreement because of the price of another tenderer was lower.  The letter also provided the name and telephone number of a member of staff of Vogue to answer any enquiry regarding this letter.

105.  If the service of Har and Wong to Vogue was so bad that it had caused their loss of the renewal agreement, then Vogue would have no reason to invite them to take part in a new tender exercise. 

106.  Vogue’s letter of 16 September 2009 (when Har and Wong had already ceased their service to Vogue for 3 months) is a stronger piece of evidence in favour of plaintiff.  If the service of Har and Wong was so poor that it had caused their loss of the renewal agreement, there was no reason at all for Vogue to have provided this further letter. 

107.  In the premises I find that the defendants have also failed to prove on a balance of probability that the non-renewal of the Vogue agreement was because of product quality, hygiene or service of Har and Wong.  I therefore order the defendants to repay the plaintiff the sum of HK$558,000 pursuant to their guarantee. 

INTEREST AND COSTS

108.  I further order the defendants to pay interest to the plaintiff on the net sum payable at the judgment rate from the date of writ to today. 

109.  I also order the defendants to pay the costs of this action to the plaintiff, to be taxed, with certificate for counsel.