Kwok Ka Man Barbara and Another v. Li Yuk Lan and Another

HCA 320/2020

[2021] HKCFI 2519

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 320 OF 2020

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BETWEEN

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Before:  Master Queenie Lau in Court

Date of Hearing:  27-28 May 2021, 17 June 2021

Date of Decision:  30 August 2021

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J U D G M E N T

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A.  INTRODUCTION

1.This assessment of damages arises from the defendants’ breach of a contract made partly in writing and partly orally between the plaintiffs and the 1^st defendant.

B.  BACKGROUND

B1.  Factual background

2.The 1^st and 2^nd plaintiffs are mother and daughter respectively.

3.At all material times, the 1^st defendant was the sole director and shareholder of the 2^nd defendant.

4.At all material times, the 2^nd defendant was the registered owner of: (a)  17 school private light buses with vehicle numbers LD3261, KB611, KS7612, PJ9868, MZ3427, RP3748, SE2251, SE8431, DS2520, SW7139, SF884, HG365, TW5253, PW2302, RK7616, DG1910 and NP2148 respectively; and (b)  three 28-seater public buses with vehicle numbers NS334, EA113 and LJ5492 respectively (collectively, the “20 Vehicles”).

5.The 1^st defendant through the 2^nd defendant operated a school transport vehicle services business by using the 20 Vehicles to transport students to and from certain schools (the “Business”).

6.By a Chinese document dated 8 July 2017 and entitled “有限公司股東轉讓合約” (translation: Limited Company Shareholder Transfer Contract)  (the “Chinese Agreement”), which was entered into by the plaintiffs and the 1^st defendant, as well as an oral agreement (the “Oral Agreement”)  made on the same date between the plaintiffs and the 1^st Defendant, the plaintiffs agreed to purchase and the 1^st defendant agreed to sell the shares in the 2^nd defendant, inclusive of the Business and the 20 Vehicles, free from any vehicle loans, together with the business goodwill or business routes.

7.Under Clause 1 of the Chinese Agreement, the agreed consideration for the 1^st defendant’s shares in the 2^nd defendant was HK$13,150,000.

8.By Clause 2 of the Chinese Agreement, the aforesaid sum of HK$13,150,000 was to be paid as follows:

8.1  The first payment of HK$500,000 shall be made on the date of the execution of the Chinese Agreement.

8.2  The second payment of HK$3,000,000 shall be made on or before 15 August 2017.

8.3  The third payment of HK$4,000,000 shall be made on or before 28 February 2018.

8.4  The fourth payment of HK$4,540,000 shall be made on or before 30 April 2018.

9.By Clause 8 of the Chinese Agreement, unless mutually agreed by the parties, if the plaintiffs for any reason requested the termination of the Chinese Agreement, the 1^st defendant had the right to forfeit the deposit of HK$500,000 (which was to be paid on the date of the signing of the Chinese Agreement), and if the 1^st defendant for any reason requested the termination of the Chinese Agreement, the 1^st defendant would return the deposit of HK$500,000 and compensate HK$500,000 to the plaintiffs.

10.As mentioned above, the plaintiffs and the 1^st defendant also reached an Oral Agreement on the same day as the Chinese Agreement, which included the following terms:

10.1  The 1^st defendant would sell and transfer the Business but not limited to the shares in the 2^nd defendant, together with the 20 Vehicles free from all vehicle loans, business routes and business goodwill to the plaintiffs before 1 September 2017.

10.2  The agreed consideration for the business routes and business goodwill was HK$2,500,000 (the “Route Consideration”), which Route Consideration was separate from the consideration of HK$13,150,000 stipulated in Clause 1 of the Chinese Agreement.

10.3  The plaintiffs shall be responsible for the expenses and also entitled to the income of the Business being money received or to be received in the Business since 1 September 2017 (ie when the school term started).  The 1^st defendant shall be entitled to deduct the Route Consideration from the income collected, and the income in excess of the Route Consideration shall be released to the plaintiffs.

10.4  Pending the completion of the transfer of the shares in the 2^nd defendant and the Business, the income of the Business shall be collected by the defendants on behalf of the 1^st and 2^nd plaintiffs which shall be accounted and paid to the plaintiffs after deducting the routes consideration in due course.

11.The Chinese Agreement and the Oral Agreement are collectively referred to as the “Contract”.

12.In accordance with the Chinese Agreement, the plaintiffs paid to the 1^st defendant the sum of HK$500,000 on 8 July 2017 (the “1^st Payment”)  and the sum of HK$3,000,000 on 1 August 2017 (the “2^nd Payment”).

13.In or around August 2017, the 1^st defendant told the plaintiffs that the deadline for transferring the Business, ie 1 September 2017, could no longer be complied with.  According to the 1^st defendant, this was because the 1^st defendant had to find an auditor to prepare the share transfer documents, and the 1^st defendant had to deal with certain bank matters of the 2^nd defendant.  The 1^st defendant requested a few months’ time extension for transferring the Business.

14.The plaintiffs accepted that the 1^st defendant should transfer the Business including the 20 Vehicles to the plaintiffs as soon as possible, say within a month or so.  Further, although the shares in the 2^nd defendant had not yet officially been transferred to the plaintiffs, the parties acted at all material times in accordance with the Contract, namely on the basis that the plaintiffs were entitled to the income from the Business and were responsible for the expenses of the Business.  The expenses incurred by the plaintiffs for the period from August 2017 to December 2017 were said to amount to HK$2,406,059.90, though that was revised to HK$2,481,775.90 in paragraph 12 of the 1^st plaintiff’s Witness Statement dated 12 January 2021, and further revised by the 1^st plaintiff in examination-in-chief to HK$2,376,483.94.

15.In accordance with the Oral Agreement, the Route Consideration of HK$2.5 million was paid by the plaintiffs to the 1^st defendant by the 1^st defendant deducting the Route Consideration from the income generated by the Business and collected after 1 September 2017.

16.After the deduction of the Route Consideration from the income from the Business, during the period from 16 October 2017 to 14 November 2017, the 1^st defendant paid to the plaintiffs a total of HK$1,643,003.

17.Since early December 2017 however, the 1^st defendant has refused to accede to the plaintiffs’ request that the 1^st defendant transfer the shares in the 2^nd defendant and the Business to the plaintiffs.

18.By a letter dated 27 December 2017, the 1^st defendant through her legal representatives informed the plaintiffs that the 1^st defendant terminated the Contract and delivered a cheque to the plaintiffs in the sum of HK$4,000,000 by way of compensation.  Such sum of HK$4,000,000 included the return of HK$3,500,000, ie the 1^st and 2^nd Payments, as well as HK$500,000 by way of compensation.

19.The plaintiffs’ case is that the 1^st defendant was not entitled to terminate the Contract on 27 December 2017, and that the 1^st defendant had wrongfully repudiated the Contract on that date.  According to the plaintiffs, the Contract was rescinded on 27 December 2017.

20.In the plaintiffs’ Statement of Claim dated 16 March 2020, the plaintiffs made two claims.

21.First, by paragraph 25 of the Statement of Claim, the plaintiffs claimed for loss of profit on the basis that the 20 Vehicles should have been able to sustain the Business for a length of 8 years, and that the total loss of profits would amount to HK$48,550,404.  The sum of HK$48,550,404 was calculated on the basis of a monthly income of HK$577,981 and on the premise that income would be generated for 10.5 months each year, ie HK$577,981 x 10.5 x 8.  In paragraph 27 of the Statement of Claim, the plaintiffs pleaded that the aforesaid claim for loss of profits was subject to deduction of the sum of HK$4,000,000 paid by the 1^st defendant to the plaintiffs.

22.Further or alternatively, by paragraph 26 of the Statement of Claim, the plaintiffs claimed for a total of HK$10,206,059.90 as follows (also subject, as per paragraph 28 of the Statement of Claim, to deduction of the sum of HK$4,000,000 paid by the 1^st defendant to the plaintiffs):

22.1  Repayment of the 1^st and 2^nd Payments totalling HK$3,500,000;

22.2  The Route Consideration in the sum of HK$2,500,000;

22.3  Expenses paid by the plaintiffs in the sum of HK$2,406,059.90; and

22.4  Loss of appreciation of the value of the licences of the three 28-seater public buses (the “Three Public Buses”)  in the sum of HK$1,500,000.

23.The plaintiffs adjusted their claim for the purposes of trial, and as confirmed in the plaintiffs’ written and oral opening submissions, the plaintiffs’ claim at trial was for the following items:

23.1  The Route Consideration in the sum of HK$2,500,000;

23.2  HK$588,839.70, being the income for December 2017, which the plaintiffs calculated by taking the income from September to November 2017 (ie HK$4,143,003), deducting the expenditure of HK$2,376,483.94[1], and calculating the average monthly income therefrom; and

23.3  HK$1,500,000 to reflect the increased licence value of the Three Public Buses.

24.The plaintiffs accept that credit should be given for the sum of HK$500,000 paid as compensation by the 1^st defendant to the plaintiffs on or about 27 December 2017, and thus the plaintiffs’ claim at trial was for a total of HK$4,088,839.70, ie HK$2,500,000 + HK$588,839.70 + HK$1,500,000 - HK$500,000.

25.By paragraph 14 of the plaintiffs’ written opening submissions dated 24 May 2021 and the plaintiffs’ oral opening submissions on the first day of the trial, the plaintiffs confirmed that they no longer claim for 8 years insofar as their claim under paragraph 25 of the Statement of Claim is concerned.  Instead, the plaintiffs now focus on the four months that elapsed before the 1^st defendant repudiated the Contract. The plaintiffs’ case is that they should be able to retain or be paid the income generated from September to December 2017.

B2.  Procedural background

26.The plaintiffs commenced the present proceedings by a Writ dated 16 March 2020.

27.The defendants did not give notice of intention to defend, and default judgment was entered against them on 6 July 2020, by which the defendants were ordered to pay the plaintiffs damages to be assessed.

28.By a letter dated 28 August 2020, the defendants confirmed in writing that they do not dispute the interlocutory judgment on liability, but dispute quantum and costs.

C.  DISCUSSION

29.I begin by considering several preliminary points.

30.First, I consider the defendants’ complaint about the plaintiffs’ present claim being for loss of bargain for the period from September to December 2017, which was not what the plaintiffs had pleaded.  I do not find substance in this complaint.  As stated in paragraph 21 above, the plaintiffs had pleaded a claim for loss of profits based on 8 years, and the plaintiffs’ focus at trial on the four-month period of September to December 2017 is part of that 8 years.  In my view, it is permissible for a plaintiff to abandon part of its claim.

31.Secondly, I consider the defendants’ argument that the sum of HK$2,500,000 should be characterised as the 1^st defendant’s remuneration for her services provided during September to November 2017, rather than as Route Consideration.  In short, I do not consider that it is open to me to explore such an argument.

31.1  As explained in paragraph 10.2 above, the plaintiffs had pleaded in paragraph 8(ii)  of the Statement of Claim that under the Oral Agreement, the Route Consideration of HK$2,500,000 was the agreed consideration from the business routes and business goodwill, which was separate from the consideration of HK$13,150,000 stipulated in Clause 1 of the Chinese Agreement.

31.2  By making default in giving notice of intention to defend, a defendant admits all the allegations in the statement of claim indorsed on the writ: Hong Kong Civil Procedure 2021, paragraph 13/0/10.

31.3  The defendants have not been able to identify any legal basis upon which they could reopen the question of what the sum of HK$2,500,000 represented and to challenge what the plaintiffs had pleaded, namely that such sum was the Route Consideration.

32.I now turn to the plaintiffs’ claim for damages as framed before me at trial.

33.As I expressed during the trial, I had concerns about how the plaintiffs’ three claims sit together.

34.As explained at paragraph 23 above, the first of the plaintiffs’ claims is for the Route Consideration in the sum of HK$2,500,000, and is a request for the recovery of the purchase price.  By contrast however, the second of the plaintiffs’ claims for HK$588,839.70, being the income in December 2017, and the plaintiffs’ third claim for HK$1,500,000 to reflect the increased licence value of the Three Public Buses are in my view plainly premised on the assumption that the plaintiffs had acquired the Business under the Contract, ie the plaintiffs would have had to pay the consideration agreed under the Contract.

35.I invited submissions on my above concern from the parties.  I also invited submissions on the proper approach where there is part performance of the Contract since the plaintiffs had enjoyed the Business for around 4 months.

36.Whilst Mr Wong cited various cases to me concerning the return of deposits in the context of agreements for the sale and purchase of land which did not complete, and whilst those cases often allowed recovery by a purchaser of not only the deposit, but also loss of bargain being the difference between the market value of the property less the contract price, in the present case the plaintiffs have not adopted such a method of calculating loss of bargain.  The plaintiffs in the present case are not asking me to compare market value and the contract price.

37.Importantly, the more usual method of seeking the difference between the market value of the relevant property less the contract price is one which, as I understand it, essentially identifies the net profit.  By contrast, the plaintiffs’ claim for income in December 2017 and their claim for the loss of the appreciation of the value of the licences of the Three Public Buses do not take into account or in any way reflect the fact that the plaintiffs would have had to pay consideration of HK$13,150,000 and HK$2,500,000 in order to acquire the Business and generate those sums claimed for.

38.Mr Ng drew my attention to Grange v Quinn [2013] 1 P&CR 18 and McGregor on Damages, 21^st edition, paragraphs 4-037 and 4-038.  In Grange v Quinn, the claimant (Mrs Grange)  had taken a six-year lease of property together with the business, a sandwich shop, which was run on the property, paying a premium of £9,950 for the goodwill of the business as it existed immediately prior to the lease.  After six months, Mrs Grange was wrongfully evicted by the defendant.  She initially bought a claim for loss of profits, but difficulties of proof caused her to switch to claiming the premium as damages.  The Recorder decided to award nominal damages in the sum of £300 on the basis that he did not consider there to be any value in the goodwill of the business and concluded that the appellant, Mrs Grange, as a result of the poor financial position of her business, had suffered no significant loss.  The Recorder’s decision was reversed by a majority on appeal, with Gloster J and Jackson LJ allowing the appeal by different routes and Arden LJ dissenting.

39.Gloster J re-analysed the evidence and was satisfied that the defendant had not shown that Mrs Grange had made a bad bargain.  On this basis the appeal was allowed.  In terms of how much Mrs Grange should be able to recoup, Gloster J approached the matter as one where Mrs Grange was claiming for the return of the purchase price as wasted expenditure.  Gloster J held at paragraph 128 that Mrs Grange should recover the amount of premium of £9,950, less a figure representing that proportion of the premium attributable to her use of the premises and operation of the business for a period of six months and ten days, which represented the benefit she had derived from the contract.  This reflected that a plaintiff cannot recover all of the money paid under a contract as damages for wasted expenditure in circumstances where he has received some of the performance for which he has paid.

40.On the other hand, Jackson LJ decided to follow Sampson v Flood [1989] 2 EGLR 49.  He did not consider it necessary to embark upon detailed calculations in order to see whether Mrs Grange had paid too much for the lease and goodwill of the sandwich shop.  Rather, the starting point for assessing damages was the purchase price which Mrs Grange paid, namely £9,950. He was of the view that it would be manifestly unjust if the defendants could evict Mrs Grange after only six months and still keep the purchase price.  See Grange v Quinn, paragraphs 77 to 85.

41.Whether based on the line of reasoning of Gloster J or of Jackson LJ in Grange v Quinn, in my view the plaintiffs are entitled to the Route Consideration, subject to the question of whether any deduction should be made from that sum to reflect that proportion of the sum attributable to the plaintiffs’ use of the 20 Vehicles and operation of the Business for around 4 months.

42.Mr Ng sought to emphasise that the sum of HK$2,500,000 in question in the present case was not consideration that was paid out of the plaintiffs’ pocket, but was deducted from the income from the months of September to November 2017.  He tried to argue that because of this, if the plaintiffs are to be put to a position as if the Contract had never been made, then the plaintiffs are not entitled to any part of the sum of HK$2,500,000.  However, I do not consider that there is any valid or relevant distinction as to whether the sum of HK$2,500,000 was in fact paid from the plaintiffs’ pocket or paid through other means.  In my view, how the sum was paid was simply a payment mechanism, and does not affect the nature of the sum. The nature of this sum was, as explained above, Route Consideration, and it was part of the purchase price paid by the plaintiffs.

43.As to the question of whether any deduction should be made from the sum of HK$2,500,000 to reflect the plaintiffs’ operation of the Business for around four months, I bear in mind that the total consideration under the Contract was made of two parts, namely: (1)  the consideration of HK$13,150,000 under the Chinese Agreement; and (2)  the Route Consideration in the sum of HK$2,500,000.  The sum of HK$2,500,000 was to reflect (only)  the business routes and business goodwill, as pleaded at paragraph 8(ii)  of the Statement of Claim.

44.Further, I consider it significant that whilst the sum of £9,950 in Grange v Quinn was premium for the goodwill of the business of the sandwich shop, that sum differs from the present Route Consideration of HK$2,500,000 in that Grange v Quinn concerned a lease, whereas the present case concerns the sale and purchase of shares in the 2^nd defendant, inclusive of the Business and the 20 Vehicles, business goodwill and business routes.  The routes to which the Route Consideration of HK$2,500,000 relates were not being leased from the 1^st defendant to the plaintiffs, and the sum of HK$2,500,000 was a one-off payment for the acquisition of the routes.

45.This is significant because in the context of a lease, there is a term against which the period of enjoyment (ie the part performance)  can be measured against.  As explained above, a deduction was made in Grange v Quinn to reflect a proportion of the premium attributable to Mrs Grange’s use of the premises and operation of the business for part of the term of the lease.  On the other hand, in Sampson v Flood, only 1 per cent of the lease had expired, which was de minimis, and no deduction was made: see paragraph 86 of Grange v Quinn.  In the present case, I have not been shown any evidence of there being any “term” which applies to the routes, and I have not seen any evidence that there is any fixed or estimated “lifetime” for the routes.  I would add that whilst the plaintiffs had pleaded that the 20 Vehicles could sustain the Business for a length of about 8 years, that was not explored in evidence, and in any event, that appeared to relate to the alleged lifetime of the 20 Vehicles rather than of the routes.

46.I do not agree with Mr Ng’s submission that should I award the Route Consideration of HK$2,500,000 to the plaintiffs, I should deduct from HK$2,500,000 the sum of HK$1,100,000 to reflect the fact that the date of completion of the transaction was 30 April 2018 and the plaintiffs had already benefited from the 2^nd defendant’s business for 4 months out of 9 months (ie HK$2,500,000 x 4 / 9 (months)  = HK$1,100,000), with the figure of 9 months arising because there were 9 months between the entry of the Contract and the completion of the transaction.  In particular, I do not see why the period of 9 months is relevant.  That is simply the period of time agreed for completion of the transaction, and I do not see how that is comparable to, for example, the term of a lease.  I do not consider that a deduction should be made in this way.

47.Next, I turn to Mr Ng’s submission that the Route Consideration of HK$2,500,000 only formed part of the purchase price under the Contract, and that by the end of December 2017, the sum which the plaintiffs ought to have paid for the benefit derived from the Contract should have been HK$6,280,000, namely HK$3,500,000[2] + (HK$4,000,000[3] x 137[4] / 197[5] days).  I do not consider that I can accept Mr Ng’s submission.

47.1  First, the present issue before me concerns whether any deduction should be made from the Route Consideration of HK$2,500,000.  The 1^st defendant has already returned the 1^st and 2^nd Payments to the plaintiffs, and has not pleaded any defence or counterclaim that the plaintiffs should not be able to retain such sums.  I do not consider that I can at this stage try to factor in the 1^st and 2^nd Payments and to make deductions from the Route Consideration on account of the 1^st and 2^nd Payments.

47.2  Secondly, as explained above, I have not seen any evidence as to any “term” or “lifetime” which applies to the routes, but Mr Ng’s submission essentially assumes that there is some correlation between dates of payments and the “term” or “lifetime” of the routes.  I do not consider that I can assume any such correlation.

48.In the premises, I consider that there is no proper basis for me to make any deduction from the Route Consideration of HK$2,500,000 to reflect the plaintiffs’ operation of the Business until late December 2017.

49.For completeness, I would add that in Grange v Quinn, the English Court of Appeal expressly recorded at paragraphs 130 and 131 that no claim had been advanced on the basis of a partial failure of consideration or unjust enrichment grounds, and as the authorities raise difficult questions of principle and because the point was not argued, the Court of Appeal did not consider it appropriate to explore such a possibility.  In the present case, there is also no claim on the basis of a partial failure of consideration or unjust enrichment grounds, and I similarly do not consider it appropriate for me to consider such a possibility.

50.That deals with the first of the plaintiffs’ claims.

51.As to the plaintiffs’ second claim for HK$588,839.70, being the income for December 2017, and the plaintiffs’ third claim for HK$1,500,000 for the loss of the appreciation of the value of the licences of the Three Public Buses, for the reasons explained in paragraphs 34 to 37 above, I am not satisfied that I can make any award for these two claims, which seem to me to contradict the basis upon which I award the first claim.

52.It is therefore not necessary for me to comment on the merits of the plaintiffs’ second and third claims, though I would in particular highlight that I find there to be wholly inadequate evidence of the alleged loss regarding the value of the licences of the Three Public Buses.  In particular, the plaintiffs have only adduced evidence of some sale prices[6] (or, more accurately, “desired price” or “理想價”)  of a Toyota 28-seater bus manufactured in 2017 from a website, www.pooa.hk (公共巴士同業聯會).  I agree with Mr Ng that this is not at all adequate since these prices were only the asking price (and there is no guarantee that someone would buy the relevant bus at the price sought), and it is not known what method was used to arrive at such asking prices.  Further, the ages of the Three Public Buses were significantly greater than the aforesaid Toyota, with the Three Public Buses’ manufacture dates ranging from 2002 to 2009, and I have not seen any evidence to show how comparable the prices of these various vehicles are.

53.I would add that in the same way that I find the plaintiffs’ second and third claims to be inconsistent with the plaintiffs’ claim for the Route Consideration, the fact that the plaintiffs still retain some profit from the first few months of operation of the Business similarly does not sit entirely comfortably with my finding in favour of the plaintiffs for the Route Consideration or the fact that the defendants returned the 1^st and 2^nd payments to the plaintiffs.  However, as mentioned above, there is no counterclaim before me in that regard, and thus I do not consider it open to me to delve into that.

54.Further, I note that insofar as December 2017 is concerned, the plaintiffs are out of pocket for the expenses they expended and which are attributable to that month whilst I have not awarded them the profits for that month.  However, even though the various expenses expended by the plaintiffs had been pleaded and claimed for at paragraphs 13 and 26 of the Statement of Claim, Mr Wong expressly confirmed to me on Day 1 on the trial that the plaintiffs are no longer maintaining that claim.  In light of the plaintiffs’ express abandonment of their claim for expenses, I do not consider there is any avenue open to me to try to deal with the December 2017 expenses which the plaintiffs paid.

D.  CONCLUSION

55.In conclusion, the plaintiffs succeed in their claim for HK$2,500,000, being the Route Consideration.  As there is no dispute that the plaintiffs should give credit for the sum of HK$500,000 referred to in paragraphs 18 and 24 above, I order that the 1^st defendant pay the sum of HK$2,000,000 to the plaintiffs.  I dismiss the rest of the plaintiffs’ claims.

56.I invite submissions from the parties on costs, and direct that both parties file submissions on the same within 7 days of today, and (if they wish)  submissions in reply to each other’s submissions within 7 days thereafter.  I shall determine the question of costs by way of paper disposal.

Mr Kenneth Y F Wong, instructed by Messrs Lennon & Lawyers, for the Plaintiffs

Mr Eddie Ng, instructed by Messrs Cheung & Yeung, for the Defendants