Fan Hui Yang v. Sy Yuk Kwan

HCA 1453/2015

[2020] HKCFI 3051

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1453 OF 2015

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Before: Hon Lisa Wong J in Court

Date of Trial: 15, 16, 17 and 21 August 2017

Date of Judgment: 16 December 2020

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J U D G M E N T

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1.In this action, what started off as a claim by the plaintiff Mr Fan Hui Yang (“Mr Fan”) against the defendant Mr Sy Yuk Kwan (“Mr Sy”) for the outstanding balance of the purchase price of the shares held by Mr Fan in a Hong Kong private company called China Source Development Ltd (華源發展有限公司) (“China Source”) has turned into a dispute about the entitlement to an exit-entry between the PRC and the HKSAR motor vehicle driving permit (粵港澳機動車輛往來及駕駛人駕車批准) (“cross-boundary driving permit”)[1] with the Mainland registration mark 粵Z.J072港 issued by the Public Security Bureau of the Guangdong Province to China Source (“Permit”).

BACKGROUND

2.The events leading to such claim and dispute, many of which are not controversial, can be broadly summarised as follows.  Where a material matter is in dispute, I will indicate the parties’ respective positions.

3.Both Mr Fan and Mr Sy came from Fujian, the PRC and speak the Minnan (閩南) dialect.  They first knew each other in Hong Kong in the 1980’s when Mr Sy was working as a salesman for a wholesaler of packaging materials and Mr Fan was one of the owners of a local factory manufacturing cassette tapes.  Mr Fan’s factory ordered packaging materials from Mr Sy.

4.In the late 1980’s, My Sy set up his own sole proprietorship business in Hong Kong under the firm name or style of Dragon Enterprise Co (港龍企業公司) (“Dragon Enterprise”). Dragon Enterprise also traded in packaging materials.  Starting from 1993, Mr Sy ran a factory in Shenzhen through a Mainland company known as 澤爾化工深圳有限公司 (“Ze Er”) which was then wholly owned by Dragon Enterprise.

5.Mr Fan and Mr Sy remained in touch with each other throughout the years.  Then, in about 2001, the 2 gentlemen formed/acquired a Hong Kong company, i.e. China Source[2], in which they were initially the only shareholders holding equal shares[3], to wholly own a factory in Dongguan, the PRC known as港龍包裝製品(東莞)有限公司 (“Ganglong”).  Ganglong manufactured stretch film (包裝薄膜/工業用拉伸膜).  By that time, Mr Sy had had a few years of experience in a related field, while Mr Fan had no relevant background at all.  Mr Fan played the role of a passive investor in China Source and deferred to Mr Sy[4] insofar as the day-to-day operation of its wholly owned subsidiary Ganglong was concerned but the duo would confer and consult with each other on important issues affecting China Source and Ganglong’s businesses and affairs.

6.In 2006, Ganglong underwent a process known in the PRC as 驗資, which I understand to mean verification of China Source’s investment in Ganglong or Ganglong’s (registered) capital (contribution).  According to Mr Fan, in order to pass this procedure, he had to advance a sum of RMB1.5 million to be temporarily injected into Ganglong as capital, and the amount of registered capital contribution so verified rendered Ganglong’s holding company China Source[5] eligible to apply for a cross-boundary driving permit.  On the other hand, Mr Sy (while also recollecting Mr Fan’s advance) suggested at one point in his evidence under cross-examination that Ganglong’s then level of pre-existing capital (which must mean China Source’s investment in Ganglong) had already surpassed the application threshold for a cross-boundary driving permit for companies/businesses without Mr Fan’s temporary ‘contribution’, although he eventually agreed that the verification of capital in 2006 required an injection of RMB1.5 million and it was Mr Fan who provided such fund.   

7.Anyway, the Permit, which allowed access to the Mainland via Huanggang (皇崗)[6], was applied for by China Source and granted in respect of China Source’s nominated drivers and vehicle as follows:

(1)  Mr Fan as the primary driver and his son Mr Fan Ka Chun (transliteration) as the secondary driver; and

(2)  a Mercedes Benz 5-seater bearing Hong Kong registration mark JY870 (“Mr Fan’s Car”) of which Mr Fan was then the registered owner. 

Mr Fan’s Car could be the designated vehicle under the Permit because Mr Fan was a shareholder/director of China Source.

8.There was not much evidence as to what exactly had to be done to obtain the Permit.  Apart from obtaining an approval (批文) from the Dongguan Foreign Economic Relations Office (東莞外經辦) which Mr Sy personally handled, all the other steps and documentation for the issue of the Permit were taken care of by Mr Fan through a middleman engaged by him at his private expense.  Although there was no evidence as to the amount involved, Mr Fan also personally bore all the fees and expenses. 

9.It is Mr Fan’s case as pleaded in paragraphs 3 and 4 of the reply and defence to counterclaim that in around 2006, Mr Fan and Mr Sy, then the only shareholders and directors of China Source which wholly owns Ganglong, made an oral agreement between themselves and China Source that (1) Mr Fan would procure a cross-boundary driving permit to be granted to China Source at his expense and efforts and (2) China Source would register Mr Fan and/or his nominee(s) as the driver and user of such permit until Mr Fan gives up such right (“2006 Oral Agreement”), .

10.In support, Mr Fan said in paragraphs 21 to 25 of his witness statement dated 31 May 2016:

“20.  At all times, I had been focusing mainly on my own businesses and had been a passive investor in [China Source]. As my own businesses grew busier, I had to travel to Mainland China frequently. In around 2006, I wanted to have a [cross-boundary driving permit] for my car so that I could travel to Mainland China more easily.

21.  I asked the relevant Mainland authorities and was given to understand that for an individual to be granted such a licence, he/she must be a philanthropist donating a big amount in Mainland China, or he/she must be in (sic) holding some offices, such as the Political Consultative Conference or People’s Congress. Other than that [cross-boundary driving permits] will only be granted to Hong Kong businesses which have invested over RMB$10 million in Mainland China. The capital of these businesses had to be verified.

22.  Indeed, the [cross-boundary driving permits] granted by the Mainland authorities to businesses were and are often treated as personal property, only that they are held under the name of a [company]. There is an active market for the trade of such [cross-boundary driving permits].

23.  I knew that in around 2006, [Mr Sy] had owned for many years a [cross-boundary driving permit] under the name of his own business, [Ze Er].  I had definitely seen him using a car bearing both Hong Kong and China licence plates.

24.  Given there was a verification of capital in 2006 anyway, I told [Mr Sy] that I would like to get a [cross-boundary driving permit] through [China Source] for my use.  I promised that I would deal with all the application procedures because I had connections with people of the relevant authority in Mainland China and I agreed pay (sic) for all the fees.  The [cross-boundary driving permit] would be mine after it was granted.  [Mr Sy] agreed.

25.  I then made the application in the name of [China Source].  Not long after the verification of capital in or around 2006, [China Source] was granted [the Permit].  Under [the Permit], my car also bore both Hong Kong and China licence plates.  The car has all along been used by my son or me.  The [Permit] has always been referred to as my permit, even when I was talking with [Mr Sy].  All the costs of the car, such as insurance in both Hong Kong and China (which is a mandatory requirement for the maintenance of the … Permit), and all the renewal fees were paid by me out of my own pocket.”

11.Although the 2006 Oral Agreement had been set up in the reply and defence to counterclaim, there was no refute of the same in Mr Sy’s witness statement dated 21 July 2016.  Nor did Mr Sy make any supplemental statement to respond to Mr Fan’s assertion of the 2006 Oral Agreement as aforesaid in his witness statement.  Indeed, Mr Sy claimed under cross-examination, which Mr Fan also echoed under cross-examination, that it was Mr Sy who alerted Mr Fan that their company had become eligible to apply for a cross-boundary driving permit and suggested that it should do so because he knew that Mr Fan had all along wanted the use of such a permit.  Mr Sy also agreed with counsel’s suggestion that the Permit was applied for for Mr Fan’s private use for purposes unconnected with the company’s business without any time limit or agreement or understanding as to when and under what circumstances Mr Fan should return the Permit to China Source.  

12.Subject to the change to be mentioned in [23] below, the Permit, as attached to Mr Fan’s Car, has since its issue to China Source in 2006 been used by Mr Fan and his said son.

13.As for Mr Sy who also had to travel between Hong Kong and the Mainland frequently, Dragon Enterprise, had before 2006 and on the strength of its investment in Ze Er, been issued with a cross-boundary driving permit (“Dragon Enterprise’s Permit”) which also grants access via Huanggang and which is affixed to a car bearing respective Hong Kong and Mainland registration marks JF3638 and 粵Z.H(?)420港[7] (“Dragon Enterprise’s Car”).  Mr Sy has always been using Dragon Enterprise’s Permit, even after he had ceased attending to the business or affairs of Dragon Enterprise or Ze Er.

14.Then, in 2013, Mr Fan wanted to withdraw from China Source.  After failed attempts to secure an investor to take over China Source from Mr Fan and Mr Sy and after negotiation between the 2 gentlemen spread over a few months, it was agreed that Mr Sy should buy out Mr Fan.

15.Following an oral agreement on the terms of such buyout, on 31 August 2013, the parties met at China Source’s office in the presence of China Source’s accountant, a Mr Chu Wai Yuen (朱偉源) (“Mr Chu”).  The purpose of the meeting was for Mr Fan and Mr Sy to sign a written agreement (協議書) dated 31 August 2013 (“Share Sale Agreement”), which Mr Chu drafted on Mr Sy’s instruction to him as to what had been verbally agreed between Mr Fan and Mr Sy. 

16.The Share Sale Agreement read as follows:

「協議書：-

本書乃范輝揚先生及施毓群先生就轉讓華源發展有限公司之股達成的協議及由朱偉源先生作見証並加各人之簽名為實，生效日期為二零壹三年九月壹日。

1.   范輝揚先生名下所持有之華源發展有限公司共五佰零壹萬股 (*5,010,000) 轉予施毓群先生作價每股港幣一元。

2.   施毓群先生/華源發展有限公司需償還范輝揚先生借入 華源發展有限公司款項港幣共四百四十七萬元正 (*$4,470,000.00)。

3.   范輝揚先生需承担華源發展有限公司的部份虧損港幣弍佰萬元正 (*$2,000,000.00)。

就上述三項計算，施毓群先生/華源發展有限公司需支付范輝揚先生 港幣七佰四十八萬元正。

(*$5,010,000.00 + $4,470,000.00 - $2,000,000.00 = $7,480,000.00)。

范輝揚先生及施毓群先生皆同意上述款項並同意下列的支付方法：-

1.   將興業街31號即興業工廠大厦五樓D室轉讓給范輝揚先生作價港幣六佰萬元正(*$6,000,000.00) 而該物業的按揭餘款則由 范輝揚先生承擔。

2.   扣除物業後的餘款港幣壹佰四十八萬元正(*$1,480,000.00)於簽署協議書計十五個月後即二零壹五年十二月起均分十五期攤還，每期款項為港幣九萬八仟陸佰陸拾七元正 (*$98,667.00)

另由二零壹三年九月壹日即范輝揚先生退出股東的日期起有關 華源發展有限公司及其附公司的資產負債及利潤虧損皆與 范輝揚先生無關。」

Apart from Mr Fan and Mr Sy who signed as parties in their personal capacity, Mr Chu also appended his signature as a witness.

17.It can be seen that on one hand, the consideration for Mr Fan’s 5,010,000 shares in China Source (“Shares”) was HK$5,010,000, i.e. HK$1 per share.  Moreover, Mr Fan had advanced to China Source shareholder’s loans totalling HK$4,470,000, which had to be repaid by Mr Sy/China Source.  On the other hand, on its face, Mr Fan agreed to bear the operating loss of China Source to the extent of HK$2 million.  It was common ground that this deduction of HK$2 million was agreed to by Mr Fan effectively to give Mr Sy a discount.  The net result was that a sum of HK$7,480,000 was payable to Mr Fan under the Share Sale Agreement.  It was agreed that HK$6 million should be set off by the transfer of China Source’s premises at unit D, 5/F, Hing Yip Factory Building, 31 Hing Yip Street, Kowloon, Hong Kong (“Hing Yip Property”) to Mr Fan though Mr Fan should pay off the loan then secured by a mortgage of such property.  The balance of HK$1,480,000 (“Balance”) should be repaid by 15 monthly instalments of HK$98,667 commencing 15 months after the signing of the Share Sale Agreement.  There was no dispute that the correct date for the commencement of such instalment payments was December 2014, not December 2015 as stated in the second paragraph 2 of the Share Sale Agreement.  

18.There was initially an argument on pleadings and on witness statements as to whether Mr Sy had also agreed to hand over to Mr Fan 14 post-dated cheques for the 2^nd to 15^th instalments of the Balance when he paid the 1^st instalment.  Mr Fan had accepted under cross-examination, after some prompting, that although the requirement of post-dated cheques was raised at the meeting on 31 August 2013, Mr Sy had not consented to the same.

19.Pursuant to the Share Sale Agreement, Mr Fan transferred the Shares to Mr Sy on around 6 September 2013.  China Source conveyed the Hing Yip Property to Mr Fan on 15 April 2014.  As agreed, Mr Fan had discharged the outstanding mortgage debt. 

20.Apart from transferring the Shares to Mr Sy, Mr Fan also resigned as a director of China Source.  Despite the cessation of his shareholding and directorship in China Source, Mr Fan and his said son and Mr Fan’s Car remain the designated drivers and car under the Permit.  And Mr Fan continues to travel to and from the Mainland by his said car pursuant to the Permit.

21.The Permit and the closed road permit for cross-boundary vehicles (禁區紙) issued by the Commissioner for Transport are renewable annually. 

22.Prior to the Share Sale Agreement, the middleman engaged by Mr Fan, at Mr Fan’s own expense, handled the yearly renewal process of the Permit, without having to trouble Mr Sy. 

23.After the Share Sale Agreement, in or about November 2014, Mr Fan requested Mr Sy to help him renew the 2 permits.  In this regard, after he ceased to be a shareholder and director of China Source, the Permit apparently could no longer be attached to a vehicle registered under the personal name of Mr Fan who had nothing to do with China Source.  To enable Mr Fan’s Car to remain the designated vehicle under the Permit, on 25 November 2014, with Mr Sy’s agreement and cooperation, Mr Fan’s Car was transferred into China Source’s name.  Before such transfer, Mr Sy had, as director of China Source, signed a Chinese document dated 17 November 2014 and entitled《擁有權證明》to confirm that China Source holds Mr Fan’s Car as 「代管人」as follows:

「茲有於香港運輸署登記在華源發展有限公司名下之奔馳JY870 ZJ072 (MERCEDES-BENZ) S500L，車輛底盤號碼WDD2211712A062985 藍色私家車，屬范輝揚先生(香港身份證編號:D538227(1))所擁有.

華源發展有限公司僅屬該車輛之代管人，本公司同意范輝揚先生可隨時將該車輛於運輸署轉回其個人名下.」

24.Mr Sy had at the same time at Mr Fan’s request signed an “Application for Closed Road Permit for Cross-Boundary Vehicles – Specimen Signature of Applicant” and some “Notice of Transfer of Ownership of a Vehicle (Except Taxi)” in blank just in case Mr Fan should become desirous of having his said car transferred back to him.  

25.After Mr Fan’s completion of the Share Sale Agreement and, as at the trial of this action, Mr Fan had been able to have the Permit renewed annually until 31 October 2017[8], again through a middleman. 

26.In this connection, it was Mr Fan’s case as pleaded in paragraphs 8 and 9 of the replay and defence to counterclaim that

(1)  In July 2013, while in the course of negotiating for the terms of the Share Sale Agreement, he and Mr Sy made an oral agreement that (1) Mr Fan may continue to use, and China Source would continue to register Mr Fan and his nominee as the drivers under, the Permit and (2) Mr Fan would sell the Shares to Mr Sy at the net price of HK$7,480,000 (“2013 Oral Agreement”). 

(2)  Further or alternatively, in reliance on the promise made by Mr Sy that Mr Fan may continue to use, and China Source would continue to register Mr Fan and his nominee as the drivers under, the Permit, Mr Fan agreed to sell the Shares[9] at the net price of HK$7,480,000 and entered into the Share Sale Agreement with Mr Sy.

27.In support, in dealing with the discussion that he had had with Mr Sy regarding the price of the Shares and the payment thereof, Mr Fan stated in paragraph 36 of his said witness statement:

“I expressly asked him what about the [Permit]. He said we were friends for 2 decades and I had lost quite a bit to the business. He said it was not right if he asked for the [Permit], or in his own words, if he still asked for it, could he still be taken as a human being. He said I could keep it.”[10]

28.As in the case of the 2006 Oral Agreement, there was no refute of the 2013 Oral Agreement in Mr Sy’s said witness statement, nor did Mr Sy make any supplemental statement to respond in respect of the 2013 Oral Agreement.  Instead, Mr Sy only mentioned in paragraph 10 of his said statement that there were 2 to 3 occasions after the signing of the Share Sale Agreement on which he and Mr Fan talked about the Permit:

“協議書以後發生的事情

10.   後來，大約2013年年底，我和原告人在東莞的咖啡店坐低見過2至3次面，原告人提出可不可以將華源的中港車牌給了他使用。我拒絕。我當時提出2個方案，第一個方案是我未付清尾數給原告人之前，我不追原告人車牌。但如果我付清尾數，原告人便要交回車牌給華源。另一方案是華源如果在未來有新股東加入，原告人便要即時交還車牌給華源，我即時付尾數。”

29.In his evidence under cross-examination, Mr Sy supplemented that Mr Fan had mentioned the Permit multiple times including at least 3 times before signing the Share Sale Agreement and the 2 face-to-face meetings mentioned in his said statement and 1 telephone conversation after the Share Sale Agreement, all initiated by Mr Fan.

30.According to Mr Sy, before the conclusion of the Share Sale Agreement, Mr Fan invariably asked Mr Sy if he could in the future continue to use the Permit, to which Mr Sy would invariably promise that he would not ask Mr Fan to return the Permit before he made full payment under the Share Sale Agreement.  Although he had not directly said so, Mr Sy thought that Mr Fan should get the message that the Permit was China Source’s asset, which he could not personally use permanently. 

31.After signing the Share Sale Agreement, when Mr Fan raised the matter of his use of the Permit again, Mr Sy would further add the condition that Mr Fan should also return the Permit if Mr Sy found a new investor for China Source, in which case he would clear all payments due under the Share Sale Agreement. 

32.Then, at a later point in his cross-examination, Mr Sy maintained, rather inconsistently with what he had allegedly told Mr Fan, that since the Permit is China Source’s asset, he could ask Mr Fan to relinquish it whenever China Source needed it (e.g. for sale to raise funds[11]) or even at any time.

33.Special mention should be made of the telephone conversation mentioned in [29] above.  According to Mr Sy, the call was made by Mr Fan close to December 2014 to remind Mr Sy that the 1^st instalment would be due soon, to which Mr Sy responded by saying that 「你車牌未畀番公司喎」.  Mr Fan allegedly became angry and retorted that the Permit was not the company’s (「車牌唔係公司嘅」).  Mr Sy sought to justify not paying a single instalment of the amount of HK$1,480,000 under the Share Sale Agreement because Mr Fan denied China Source’s ownership of the Permit. 

34.The 1^st instalment of the Balance became due in December 2014.  However, Mr Sy did not pay, whether as agreed or at all.   Mr Fan recalled that he had personally approached Mr Sy for payment.  At first, Mr Sy invariably just asked for a few more days.  Towards the end, he once said to Mr Fan that he would not start repaying until 5 years later.  Mr Fan then contacted Mr Chu for assistance.  Mr Chu kindly approached My Sy for Mr Fan.  For the first and second time, Mr Sy said he needed more time.  Then, in response to the third chaser by Mr Chu, for the first time, Mr Sy asked Mr Chu to tell Mr Fan to return the Permit so that it could be sold to raise funds to pay him. 

THE PLEADINGS

35.After letters before action dated 17 April and 10 June 2015, to which neither Mr Sy nor his solicitors had made any reply, by a writ of summon issued herein on 29 June 2015, Mr Fan claimed against Mr Sy for (1) rectification of the Agreement by correcting the due date of the 1^st instalment of the Balance from December 2015 to December 2014 and (2) the sum of HK$1,480,005[12].

36.In his amended defence and counterclaim, Mr Sy averred:

(1)  firstly, that China Source wholly owns the Permit but approves Mr Fan to use and be registered as the driver under the Permit; that the Permit has a market value of about $1,500,000; that Mr Sy had through Mr Chu requested Mr Fan, but Mr Fan had refused, to return the Permit to China Source and to change the registered driver under the Permit to Mr Sy; that Mr Sy had further alternatively proposed to Mr Fan, through Mr Chu, but Mr Fan had declined, that the Balance be set off by the Permit; and that Mr Sy is willing and ready to pay the Balance upon Mr Fan delivering up the Permit to China Source and changing the registered driver thereunder to Mr Sy;

(2)  further and in the alternative, that as long as the Permit is not returned to China Source, China Source’s assets are not complete but is diminished by the market value of the Permit, i.e. HK$1,500,000; that it was an implied term of the Agreement that Mr Fan shall return all China Source assets (i.e. the Permit) to China Source and change the registered driver under the Permit to Mr Sy upon the completion of the transfer of the Shares (“Alleged Implied Term”); that Mr Fan was in breach of the Alleged Implied Term; that Mr Fan is not entitled to claim the Balance from Mr Sy unless and until he returns the Permit to China Source and changes the registered driver thereunder to Mr Sy;

(3)  lastly, that Mr Fan has converted the Permit for his own use thereby wrongfully depriving Mr Sy of the possession and use of the Permit and that Mr Sy has rented a motor vehicle with a cross border driving Permit at a monthly rent of HK$15,000.

37.I pause to note that the Alleged Implied Term provided for yet another circumstance under which Mr Fan was said to be obligated to return the Permit namely, the completion of the transfer of the Shares from Mr Fan to Mr Sy pursuant to the Share Sale Agreement.

38.Mr Sy counterclaimed for inter alia:

(1)  the delivery up of the Permit;

(2)  “an order to change the PRC registration of driver/user of the [Permit] to [Mr Sy]”;

(3)  “monthly rental for HK$15,000 from April 2015 to the date when the Permit is delivered up to Mr Sy.

39.With regard to the last-mentioned counterclaim, the vehicle said to have been rented is in fact Dragon Enterprise’s Car to which Dragon Enterprise’s Permit is attached, i.e. the one that Mr Sy has been using at all material times even when attending China Source’s business.  As a matter of accounting, the expense is claimed against China Source and deducted from China Source’s account.  The evidence produced by Mr Sy in support of such China Source expense are (1) 2 annual invoices issued under Dragon Enterprise’s letterhead[13] and respectively dated 1 April 2015 and 1 April 2016, each for a sum of HK$180,000 as rental for Dragon Enterprise’s Car with Dragon Enterprise’s Permit for the periods of 1 April 2015 to 31 March 2016 and 1 April 2016 to 31 March 2017; (2) the management account attached to Mr Sy’s personal tax return for the 2015/16 year of assessment, which showed the said rental of HK$180,000 as ‘sundry income’; and (3) China Source’s audited financial statement for the year ended 31 March 2016 which included ‘Rent paid to a related company’ in the sum of HK$180,000.   

40.In reply, Mr Fan set up the 2006 Oral Agreement and the 2013 Oral Agreement and denied that there was any room for the Alleged Implied Term or that Mr Sy has to rent a motor vehicle with a cross-boundary driving permit.

DISCUSSION

41.It may appear from the above accounts of the pleadings and the evidence that there are questions regarding the ownership (beneficial?)[14] of, and the right to use, the Permit for the court to decide.  On proper analysis, this is not so in light of the constitution of this action.

42.First, it is worthy of note that China Source is not the/a plaintiff to the counterclaim relating to the Permit and China Source’s loss of use thereof.  Mr Sy himself had stressed time and again that the Permit is an asset of China Source.  Leaving aside the intriguing matter of China Source renting for Mr Sy’s use the vehicle that Mr Sy has always and anyway had the use of, the damage caused by the loss of use of the Permit has, on Mr Sy’s evidence, fallen on China Source.  It is elementary that despite being a shareholder[15] and the sole director of China Source, the individual Mr Sy and the company China Source are as a matter of law separate and distinct entities.  The party having the locus standi to pursue the counterclaim raised by Mr Sy is China Source, not Mr Sy.  For this reason, the counterclaim is not competent and should, on this basis alone, be dismissed.

43.The next matter that is noteworthy is that despite raising the 2006 Oral Agreement and the 2013 Oral Agreement, Mr Fan has not made any claim whatsoever to the Permit in this action.  In my view, the lack of claim by Mr Fan to the Permit and the non-joinder of China Source make it unnecessary as well as inappropriate for this court to adjudicate on the existence of 2 oral agreements set up by Mr Fan. Mr Fan has not asked for, and China Source is not bound by, any such adjudication.

44.As I see it, in broad terms, the one issue that really requires this court’s determination in this action is whether Mr Sy was entitled to withhold payment of the Balance, the liability for which he has otherwise admitted, by reason of Mr Fan’s retention of the Permit, on any of the bases asserted by Mr Sy.  It will be seen from below that I take the view that this can be answered without addressing the existence of the 2006 Oral Agreement or the 2013 Oral Agreement.

45.I start with the observation that Mr Sy’s payment of the Balance and Mr Fan’s retention/surrender of the Permit are, prima facie, 2 independent matters.  Apart from their different nature, the former is a matter between Mr Fan and Mr Sy while the latter one between Mr Fan and China Source. That is why I find Mr Sy’s contention that the Balance (HK$1,480,000) can be set-off against the Permit (which allegedly has a market value of about HK$1.5 million according to some newspaper cutting produced by Mr Sy) most unattractive.

46.Mr Sy sought to turn them into dependent acts through the following contentions. 

47.First, I repeat [30] above by which I set out the oral statements allegedly made by Mr Sy to Mr Fan before the conclusion of the Share Sale Agreement, that is, Mr Sy would not seek the return of the Permit until he made full payment under the Share Sale Agreement.  At the risk of stating the obvious, it does not follow from such statements, even if made (see the next paragraph), that Mr Sy could withhold payment as long as he did not ask Mr Fan to surrender the Permit.

48.Anyway, I find Mr Sy’s testimony of such alleged oral statements before the Share Sale Agreement incredible and unreliable.

(1)  The Share Sale Agreement was utterly silent on the matter of the Permit.  The 2^nd paragraph 2 expressly dealt with the manner of payment of the Balance.  If Mr Sy had told Mr Fan that he had to relinquish the Permit once Mr Sy had settled the Balance, given the alleged market value of the Permit, one would have expected some mention of Mr Fan’s supposed duty to give up the Permit.

(2)  Mr Sy did not raise the issue of the Permit until the third time when Mr Chu approached him on behalf of Mr Fan for payment of instalments of the Balance. 

(3)  Mr Sy made no reply to Mr Fan’s letters before action and missed the first opportunity to put such alleged verbal statements on the record.

(4)  There was no mention of any such oral express alleged statements by Mr Sy whether on his pleading or in his witness statement.

(5)  They first emerged under cross-examination.

(6)  Mr Sy kept adding to the circumstances under which Mr Fan is supposed to hand over the Permit to China Source, which circumstances are not at all consistent.  See [29] to [32] and [37] above.

49.For these reasons, I find that there was no express oral agreement concluded, or understanding reached, between Mr Fan and Mr Sy making Mr Sy’s payment of the Balance under the Share Sale Agreement and Mr Fan’s surrender of the Permit dependent acts or even terms of the same contract.

50.Second, for the sake of completeness, Mr Sy placed reliance on the last paragraph of the Share Sale Agreement (I should add in the absence of pleading!).  The question raised is one of construction and can be disposed of shortly.  I just do not see how a standard statement in this type of agreement that Mr Fan shall have nothing to do with the assets and liabilities and profits and losses of China Source from the date when he ceased to be a shareholder of the company can be interpreted to impose on Mr Fan an obligation to surrender the Permit back to China Source upon full settlement of the Balance.  This is particularly so in light of the finding that I have just made against Mr Sy in the preceding paragraph.

51.Third, as for the Alleged Implied Term:

(1)  The Share Sale Agreement did not touch upon the Permit at all.  To borrow the words of Lord Hoffmann in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 at [17]:

“The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.” (emphasis added)

(2)  Mr Sy has not pleaded, and I fail to see, any legal bases for implying such term.  It is not for the court to supplement a party’s pleading.

(3)  The implication of this term is wholly unsupported by Mr Sy’s evidence as to when Mr Fan was supposed to part with the Permit.  Indeed, it should be apparent that the Alleged Implied Term is incongruous with Mr Sy’s evidence on when he expected Mr Fan to give up the Permit.  See [29] to [32] above.

(4)  Mr Sy’s own action in not seeking to recover the Permit after Mr Fan transferred the Shares to him is inconsistent with the Alleged Implied Term.  To the contrary, he facilitated Mr Fan’s continued use of the Permit in November 2014, which was long after the transfer of the Shares by Mr Fan to Mr Sy.  See [23] to [25] above.  

52.Mr Sy’s case based on the Alleged Implied Terms is without merit.

53.Consequently, there was no express or implied agreement or understanding requiring Mr Fan to return the Permit.  It will be recalled that Mr Sy attempted to justify his complete non-payment of the Balance with reference to Mr Fan’s denial of China Source’s ownership of the Permit.  See [33] above.  It is trite that a party to a contract can obtain a discharge if the other side has committed a repudiatory breach of the contract and the first-mentioned party accepts such breach thereby terminating the contract.  Even if the telephone conversation mentioned in [33] above did occur as alleged by Mr Sy, in the absence of any express or implied obligation on Mr Fan’s part to return the Permit under the Share Sale Agreement, Mr Sy could not rely on Mr Fan’s alleged denial of China Source’s ownership of the Permit as a repudiation of such agreement, which Mr Sy could accept to discharge himself from performance of his obligation to pay the Balance.

DISPOSITIONS

54.For these reasons:

(1)  I allow Mr Fan’s claims under prayer paragraphs 1 and 2 of the amended statement of claim. 

(2)  Each instalment of the Balance shall carry interest from its date of accrual to the date of this judgment at 1% per annum above the best lending rate for HK dollars of The Hongkong and Shanghai Banking Corporation Limited and thereafter at judgment rate until payment. 

(3)  I dismiss the counterclaim.

(4)  I also make an order nisi that Mr Sy should pay Mr Fan the costs of the action, to be taxed on a party and party basis if not agreed.

Mr Dixon Co, instructed by David Hui & Co, for the plaintiff

Mr Patrick Wong, instructed by H L Wong & Co, for the defendant