Kwok Sui King v. Yim Yuk Leung
Read the full judgment text of DCCJ 2082/2020 on BabelCite. This District Court judgment was delivered on 2 February 2024.
1. In this action the plaintiff is seeking damages for breach of contract in the amount of $1,148,277 and on an alternative basis damages in lieu of recission in the amount of $2,039,677. The plaintiff’s claim is based on, inter alia, the defendant’s failure to provide various licences in relation to an ongoing restaurant business after the said business was sold from the defendant to the plaintiff. Mr Immanuel Fong acted as counsel for the plaintiff and Mr Kelvin Man acted as counsel for the de
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DCCJ 2082/2020 [2024] HKDC 210 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 2082 OF 2020 ------------------------------------ BETWEEN
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------------------------------ JUDGMENT ------------------------------ Background 1.In this action the plaintiff is seeking damages for breach of contract in the amount of $1,148,277 and on an alternative basis damages in lieu of recission in the amount of $2,039,677. The plaintiff’s claim is based on, inter alia, the defendant’s failure to provide various licences in relation to an ongoing restaurant business after the said business was sold from the defendant to the plaintiff. Mr Immanuel Fong acted as counsel for the plaintiff and Mr Kelvin Man acted as counsel for the defendant. 2.The defendant operated a restaurant business at Shop No. C, Ground Floor, Gartside Building, 24 Yue Wah Crescent, Tsz Wan Shan (“Shop A”) and Shop 3A, Ground Floor, Man Po Building, 28 Yuk Wah Crescent, Tsz Wan Shan (“Shop B”) (collectively “the Restaurants”) from about May 2018 and October 2016 respectively. 3.In late July or early August 2019, the defendant intended to find a buyer to take over the Restaurants. At around the same time, Lau Ka Ming Raymond (“PW2”) expressed his interest in taking over the Restaurants to Liu Chi Pui (“DW2”) who was the manager of Shop A. 4.On 5 August 2019, the defendant wrote to the Food and Environmental Hygiene Department (“FEHD”) to cancel the restaurant licence of Shop A. 5.It was on or about 11 August 2019, the plaintiff and defendant (together with PW2) started to discuss the terms of the transfer of the business of the Restaurants. There is some minor dispute as to the exact time and where such discussions and negotiations took place but they did take place in the evening of 11 August 2019 and continued into the early morning of the 12 August 2019. The parties’ respective cases 6.It is the plaintiff’s case that during the aforesaid discussions and negotiations on 11 and 12 August 2019 that the defendant represented to the plaintiff that the Restaurants had validly subsisting restaurant, liquor and food licences (collectively “the Licences”) which the defendant would then transfer the Licences to the plaintiff (or PW2). This was knowing that if the FEHD had issued demerit points and which if led to a conviction of pending summonses would render the Licences suspended for a short period of time (it was not entirely clear whether it would be for 7 or 14 days) after transferring the business of the Restaurants. For the sake of completeness, the issues in dispute (or at least substantively) relate to the Licences as pertaining to Shop A. 7.In contrast, it is the defendant’s case that PW2 was aware of previous inspections and convictions of Shop A and was expressly told by DW2 that the licences of Shop A would not be renewed by the FEHD due to the demerit points accumulated from the previous convictions of Shop A by the FEHD. 8.In any event, it is also the defendant’s case that the discussion on 11 and 12 August 2019 involved the plaintiff, PW2 and the defendant inside the defendant’s car on 11 August 2019 where the defendant made it clear to both the plaintiff and PW2 that the transfer of the Restaurants would not include any of Shop A’s licences as they could not be renewed. The defendant alleges that he also expressly told the plaintiff and PW2 that he had already made a written request to FEHD to cancel Shop A’s licences. As such, the defendant alleges that both the plaintiff and PW2 were fully aware that Shop A’s licences would not be transferred and would be cancelled subsequent to the aforesaid written request already made by the defendant to the FEHD. The Transfer Agreement 9.It is agreed by the parties that a transfer agreement was prepared by the defendant and made after their negotiations (“the Transfer Agreement”) of which the said document is undated albeit the material date at clause (7) is indicative of its make. It was admitted by the defendant that there was an absence of dating the Transfer Agreement as such. The Transfer Agreement was executed between the plaintiff and defendant on 12 August 2019 where the plaintiff agreed to pay a consideration of $280,000 to the defendant for the transfer of business of the Restaurants. 10.It is the defendant’s case that prior to the signing of the Transfer Agreement, the plaintiff and PW2 were given ample time to peruse and comment on the Transfer Agreement although what is meant exactly by ample time is questionable given that pursuant to clause (2) of the Transfer Agreement the plaintiff did pay the initial deposit of $100,000 on the same day of 12 August 2019 at 10:20 am. 11.As such, the transfer of business relating to the Restaurants was the very same day of the conclusion of negotiations which led to the execution of the Transfer Agreement and then payment of the initial deposit of the plaintiff later that same morning of 12 August 2019. 12.The Transfer Agreement itself is a short document in Chinese and consists of only 9 clauses which the parties agreed to their English translations as found in the Amended Statement of Claim. It is worth considering the relevant clauses of the Transfer Agreement which are as follows:
13.It was held in Jumbo King Ltd v Faithful Properties Ltd & Others (1999) 2 HKCFAR 279, Lord Hoffmann NPJ said, at 296D-I:
14.Balance should be flexibly struck between the contractual text and context, as Lord Hodge said, and Lord Neuberger, Lord Mance, Lord Clarke, and Lord Sumption agreed, in Wood v Capita Insurance Services Ltd [2017] AC 1173 (SC), at §13:
Aftermath of the Tenancy Agreement 15.It is not disputed that on 15 August 2019 the restaurant licence for Shop A was cancelled by the FEHD. On 23 August 2019, the plaintiff, PW2 and the defendant went to the FEHD to meet the regional officer to discuss matters relating to the licences required to operate the Restaurants. 16.The plaintiff executed the tenancy agreement for the Restaurants with the landlord on 19 and 28 August 2019 for Shop A and Shop B respectively. 17.For completeness sake, it was later on 27 April 2020 that a provisional general restaurant licence was granted by the FEHD to the plaintiff for 6 months starting from 24 April 2020 albeit this fact is not admitted by the defendant per se. In any event, on 12 and 26 November 2020 respectively, the restaurant licence and then the liquor licence were issued to PW2 on behalf of the plaintiff for Shop A. 18.The plaintiff has not paid the full balance of the consideration of $180,000 to the defendant pursuant to clause (8) of the Transfer Agreement on or before 30 September 2019 but instead paid $60,000 on 10 November 2019. The defendant counterclaims against the plaintiff for the outstanding $120,000 of the remaining sum owed under the Transfer Agreement. 19.The plaintiff’s case is that the defendant is not entitled to its counterclaim (and any other relief) given that the defendant failed to transfer the Licences which the plaintiff pleaded was agreed under the Transfer Agreement which in any event also included all operating material tools, installations, equipment and the lease of the Restaurants. As such, the plaintiff claims damages for breach of contract and/or alternatively damages for misrepresentation made by the defendant to the plaintiff that the Transfer Agreement would contain the Licences. The Agreed Issues (a) to (h) 20.The trial proceeded on the basis of agreed issues between the parties which were:
21.Both parties have also very helpfully explained that the gist of the case turns on two main factual aspects to be determined, namely, what was said and/or represented between the parties as relating to the signing of the Transfer Agreement and interpretation of the Transfer Agreement itself. The witnesses 22.A general description of the witnesses is useful in order to understand the context of the evidence given by them since both parties agree that their respective versions of events are quite contradictory to one another. 23.The plaintiff was at all material times an individual interested in investing in the restaurant business despite having little experience in working in or dealing with the restaurant trade. PW2 had some experience working in the restaurant business and in fact had worked briefly at Shop A as a chef. PW2 was not a stakeholder in such a business per se or what would be called or known as a restaurant proprietor. PW2 also had some level of stake in the business of the Restaurants to be operated after the execution of the Transfer Agreement but the extent was unclear. 24.The opposite is true of the defendant who was already operating the Restaurants and was its proprietor since at least May 2018 for Shop A and in October 2016 for Shop B. DW2 was the manager of the Restaurants, was familiar with how the operations of the Restaurants took place as well as having some knowledge of licensing issues relating to the restaurant trade. 25.Given that both parties agree that much of the case turns on what was said and/or represented between the parties as relating to the signing of the Transfer Agreement, credibility of the witnesses is a key aspect of this case and in Hui Cheung Fai & Anor v Daiwa Development Limited, HCA 1734/2009 (unrep, 8/4/2014) at §§76-82 it was held by DHCJ Eugene Fung SC the following:
The Former Contract 26.To begin with, counsel for the plaintiff placed certain emphasis on the fact that it should be “normal business practice” in the context of Shop A that transfer of a restaurant would include its restaurant and liquor licence. 27.Counsel for the plaintiff submitted that because previously the defendant had in fact taken over the business from his predecessor of Shop A and that former contract between the defendant and the previous owner of Shop A, which was drafted by the previous owner (later discovered to be the previous owner’s daughter) and not the defendant himself, provided that the defendant could operate Shop A immediately after the defendant took over Shop A. The plaintiff for this reason had such an expectation on the part of the plaintiff of there being a “normal business practice” of transferring the restaurant business of Shop A including its restaurant and liquor licence (“the Former Contract”). As such, the plaintiff expected that this previous method of taking over of Shop A would apply to the Transfer Agreement upon execution, namely, that the plaintiff could immediately or shortly thereafter operate Shop A in the stead of the defendant including its restaurant and liquor licence. It is note worthy that counsel for the defendant also made some submissions on the Former Contract between the defendant and the previous owner. 28.With respect, these submissions are inapplicable in this factual context because the plaintiff simply never saw the Former Contract between the defendant and the previous owner of Shop A, which was in any event drafted by the daughter of the previous owner of Shop A and not the defendant, before entering into the Transfer Agreement. It is without any foundation that it could be said the plaintiff would even know, let alone have an expectation, that the Transfer Agreement would somehow grant such assumed rights to the plaintiff upon its execution with the defendant. 29.In fact, counsel for the plaintiff made other arguments based on the Former Contract between the defendant and the previous owner of Shop A as applying to the Transfer Agreement. However, it is again because the plaintiff never had any knowledge or sight of the aforesaid contract which was in any event drafted by the daughter of the previous owner of Shop A and not the defendant, the plaintiff has no factual basis to assert any expectation from, aspects of, understanding, characteristics or otherwise of the Former Contract to that of the Transfer Agreement. Evidence at trial 30.Resolution of the first agreed issue is critical to the determination of the core issues relating to the case as a whole, namely whether the plaintiff had prior knowledge about the fact that the restaurant and liquor licence of Shop A would expire on 15 August 2019 and would not be valid, effective and/or renewed thereafter before entering into the Transfer Agreement. The Plaintiff 31.At trial, the plaintiff agreed that the parties did have discussions on 11 and 12 August 2019 regarding the terms of the Transfer Agreement before its execution. The plaintiff stated that the defendant told him he would transfer the Licences of Shop A and Shop B to the plaintiff upon execution of the Transfer Agreement, namely on 12 August 2019 (later that day), but that the word “licence” did not appear on the Transfer Agreement. The plaintiff agreed that such a word or term could have been inserted into the terms of the Transfer Agreement but were not. In any event, the plaintiff asserted that the defendant verbally agreed to the plaintiff to transfer the respective licences of the Restaurants which were valid upon execution of the Transfer Agreement to the plaintiff and/or PW2 and the plaintiff believed the defendant. 32.The plaintiff believed that the Transfer Agreement would include the transfer of valid and subsisting Licences of Shop A and Shop B which included all things necessary to operate the said shops, including the restaurant licence, liquor licence and food factory licence (namely the Licences). 33.The plaintiff’s evidence in this regard was criticised by counsel for the defendant who submitted the plaintiff should be disbelieved in favour of the defendant. Part of the criticism stems from facts such as the plaintiff was unacquainted with the defendant, the plaintiff’s knowledge about the defendant came only from PW2 who was only a chef at Shop A and admittedly the plaintiff was not familiar with the restaurant business. 34.Criticism was also made of the plaintiff’s credibility when he stated that the defendant told him that relevant licences were expired only after executing the Transfer Agreement. Part of the criticism against the plaintiff is because WhatsApp messages between PW2 and the defendant on 13 and in particular on 14 August 2019 showed PW2 asking the defendant to introduce licensing agent(s) (“牌佬”) to PW2 for their fees thus suggesting PW2 knew of the need to seek “new” licences for the Restaurants. 35.Further criticism was made about the plaintiff admitting that he would need the assistance of licensing agents to pay for applying for licences (申請) instead of transferring licences (“轉名”) and such terminology was used in a quotation given by one of the licensing agents. The defendant submits that such licensing agent fees were “new” in nature and not included in the sum of $280,000 since the defendant told him that the Licences were expired and could not be transferred which would require him to apply for “new” licences. This was submitted on behalf of the defendant suggesting the plaintiff (and/or PW2) had prior knowledge of the Restaurants not having any required licences and that they knew that “new” licences needed to be applied for. However it is noted that the aforesaid factual complaints against the plaintiff are in the context of matters arising after the execution of the Transfer Agreement which took place previously on 12 August 2019 and the seeking out of and the introduction of such licensing agents appears to have been done by the defendant, although there was some dispute on who exactly sought out such licensing agents. 36.At trial the plaintiff also admitted that after execution of the Transfer Agreement, namely on 23 August 2019, there was a meeting at the FEHD office where the plaintiff discovered that the defendant had misrepresented to him that the relevant licences for Shop A were valid and he was furious. Nonetheless, the plaintiff did not complain to the defendant about such misrepresentations and in fact the plaintiff maintained a relationship with the defendant, albeit he states such a relationship was a superficial one, so that he could just obtain the relevant licences and get on with starting business at the Restaurants. In fact various WhatsApp messages going as far as 19 February 2020 showed no complaints per se from the plaintiff or PW2. The plaintiff admitted that nonetheless he did pay $60,000 on 10 November 2019 and a reason he did so was because, inter alia, PW2 advised him to do so in order to avoid the defendant cancelling Shop B’s licence as well. It is important to note that the plaintiff did also quite consistently testify throughout the trial that after executing the Transfer Agreement that he felt that his hands were tied and could not back out of the deal. PW2 37.It is not challenged that the plaintiff was much less aware of how to operate a restaurant business than PW2. At trial PW2 admitted that he was responsible for operating the Restaurants, he invested in them and had business dealings with the plaintiff. 38.PW2 stated that it was DW2 who recommended he take over the business and it was thereafter DW2 who gave PW2 the defendant’s contact number but there were no detailed discussions between PW2 and the defendant before the negotiations starting on 11 August 2019. PW2 had met the defendant briefly before that date, but there were no discussions about the transfer of Shop A and Shop B or its business. However, it will be noted that there was a WhatsApp conversation between PW2 and the defendant on 9 August 2019 whereby it was stated by the defendant that “the deposit for the transfer of Licences would be more than $500,000 (攪埋牌照轉名按金真係差唔多50幾萬喎)” and it did not state that it was an application for a “new” licence per se. When questioned, PW2 disagreed that the reduction in price from $500,000 to $280,000 was due to the fact that Shop A’s licence would not be transferred. 39.In fact, the other notable WhatsApp group between the plaintiff, PW2 and the defendant that was active on or until about 23 August 2019 was in fact named “友間要轉名” which “友間” is the name of the proposed name of the Restaurants and “要轉名” which can be loosely termed “required name change” or a “transfer” and is not indicative of applying afresh or for a “new” licence. 40.PW2 admitted that a day or two immediately before the negotiations began on 11 August 2019, it was with DW2 that he had a brief discussion about the price of taking over the business of the defendant but no other significant details were communicated. 41.PW2 agreed that Licences relating to the Restaurants were very important but he also stated that he was not familiar with procedural matters relating to such licences and more importantly PW2 was not aware of the status of those licences. PW2 was asked why he did not raise to the plaintiff that there was no term regarding licences (牌照) in the Transfer Agreement when they were presented with the draft. PW2 replied that the plaintiff stated to him that the right to operate (經營權) was synonymous with relevant licences and this is what the plaintiff saw and understood from the Transfer Agreement albeit it was also admitted that PW2 never heard such an explanation from the defendant directly himself. 42.A voice note recorded in a WhatsApp conversation between the defendant and PW2 on 12 August 2019 was that if the FEHD were to do inspections, the restaurant licence of Shop A could be used to protect the food factory licence of Shop B. PW2 further stated at trial that it was DW2 who told him that the licence for Shop A could be used to protect Shop B in lieu for one additional occasion. This suggests that the restaurant licence of Shop A was still somehow valid and active. 43.It was again after the Transfer Agreement was entered into that in a WhatsApp conversation in or around 13 or 14 August 2019 between the defendant and PW2 that PW2 sought the defendant’s assistance for fee quotes of licensing agents. On balance and from other related evidence it appears that it was the defendant who sought out the licensing agents but the fee quote shows PW2’s surname. PW2 maintained that it was in fact the defendant who introduced the licensing agent to him. Counsel for the defendant made the point that these details were not specifically stated in PW2’s witness statement. 44.PW2 agreed that he too was furious after meeting the FEHD on 23 August 2019 and it was then known of the status of the Licences or lack thereof. PW2 also agreed that there were no records of complaint about misrepresentations made by him or PW2 about the Licences but PW2 answered that it was because the defendant (and/or his business partner) had a strong influence in the area where the Restaurants would be operating and that PW2 only wanted to do business without causing any chaos per se. PW2 denied that he was told by DW2 that all the demerit points issued by the FEHD against Shop A had been deducted. The Defendant 45.The defendant agreed that he did some renovation work to the Restaurants before the Transfer Agreement so that Shop A was fit for obtaining a restaurant licence and Shop B was fit for the food factory licence. The defendant agreed that he was not acquainted with PW2 but that PW2 contacted him through DW2. The defendant alleged that DW2 told PW2 about the status of the Licences relating to Shop A. Furthermore, PW2 witnessed inspections conducted by the FEHD at the Restaurants so therefore the plaintiff was imparted with knowledge of the status of the Licences prior to the execution of the Transfer Agreement. 46.The defendant also agreed that Shop A’s demerit points were completely deducted at the time of the Transfer Agreement and that obtaining a new licence would be in the range of about $60,000 for hiring a licensing agent and related fees. 47.When asked why other potential buyers did not take over the business of the defendant he answered he did not know why but that the amount of $280,000 did not include the transfer of the relevant licences for Shop A and Shop B. 48.When the WhatsApp message between PW2 and the defendant took place on 9 August 2019 it showed that the initial price was $500,000 and the defendant said at trial that this included the licence of Shop B but not Shop A. It was also admitted by the defendant that the WhatsApp message was unclear on the aspect of the licence of Shop A or Shop B but in any event the $500,000 only included Shop B’s licence for such a price. The defendant admitted that the Transfer Agreement was drafted by him although he did also admit that he did not know why it was not dated and simply felt that it was there. 49.The defendant was asked to remark on the voice note recorded in a WhatsApp conversation between the defendant and PW2 on 12 August 2019 that if the FEHD were to do inspections that the restaurant licence of Shop A could be used to protect the food factory licence of Shop B. The defendant agreed that by 5 August 2019 that the licence of Shop A was applied to be cancelled by him and he knew in fact that further demerit points could still be deducted on 12 August 2019, namely the day of the Transfer Agreement itself. 50.The defendant agreed that there were WhatsApp conversations between himself and PW2 regarding fee quotations for sourcing licensing agents. When the defendant was put by counsel for the plaintiff that there were no discussions about finding a licensing agent before 13 August 2019 the defendant responded that he had told the plaintiff verbally that the plaintiff needed to apply for a licence and therefore there was no written record of such a conversation taking place between the plaintiff and the defendant or otherwise. 51.The defendant also agreed that the other notable WhatsApp group between the plaintiff, PW2 and the defendant that was active on or until about 23 August 2019 named “友間要轉名” was not about applying for a new licence but was in fact for a transfer of the name of the Restaurants. 52.This date of 23 August 2019 coincided with their joint visit to the FEHD office and the defendant stated that he went jointly with the plaintiff and PW2 to try to save Shop A’s licence despite himself knowing that he had himself applied to cancel the said licence on 5 August 2019. The defendant remarked that his attendance with the plaintiff and PW2 was not a waste of time and he went to attend the FEHD meeting nonetheless. 53.When the defendant was questioned about whether[1] the Transfer Agreement was reasonable to include the relevant licences for Shop A and Shop B to operate legally, the defendant remarked that the plaintiff could operate Shop A and Shop B illegally and simply be fined for such unlicensed operations or they be used for other activities. DW2 54.DW2 admitted hiring PW2 as a chef for around 2 weeks before the execution of the Transfer Agreement and DW2 confirmed that he knew that the parties had executed the Transfer Agreement on 12 August 2019. DW2 agreed that PW2 had asked him for the defendant’s contact information. 55.DW2 stated that PW2 knew about the FEHD inspections prior to the execution of the Transfer Agreement since at one stage some 30 odd FEHD inspectors had entered Shop A but it will be noted that PW2 was only a chef for 2 weeks and there is no record of the FEHD making any inspections of Shop A during that period of time. 56.DW2 stated at trial that PW2 was verbally told that the demerit points against Shop A were all deducted. Furthermore, DW2 at trial stated that he told the cousin of PW2 that relevant licences of Shop A could not be transferred but this is also not a matter previously recorded in DW2’s witness statement. Agreed Issue (a) 57.I would make some preliminary observations regarding the witnesses’ evidence given at trial. I am aware of the guidance given in Hui Cheung Fai (supra) about avoiding placing too much reliance on the appearance of witnesses at trial and that there are a various matters that need to be considered, whether it is the nature of available documentary evidence, the timing and nature of such documentary evidence placed in the overall context of the case and their plausibility. However that is not to say that a tribunal of fact will ignore a witness’ giving of viva voce evidence at trial entirely. 58.I am also reminded that it was held in Yu Siu Cheuk v Realray Investments Limited, HCA 277/2007, (unreported, 31 March 2009) at §80(2):
59.Overall I found that both the plaintiff and PW2 were honest witnesses. Their memory relating to the facts of the case was not without flaws but nonetheless reliable on the whole. They struck me as being honest but somewhat inexperienced businessmen who wanted the Restaurants to start as soon as possible and acted consistently in that regard. On the contrary, I found that both the defendant and DW2 were unreliable witnesses. Their memory, much like the plaintiff and PW2, was also not without flaws but at times they gave previously unrecorded and new evidence at opportune moments. Although the evidence from DW2 was rather short, he certainly struck me as being both opportunistic with giving new evidence and was embellishing on his previous evidence quite openly. 60.The plaintiff’s side of the events leading up to the signing of the Transfer Agreement was more credible and believable when considering the evidence given by the plaintiff and PW2. In addition to the plaintiff’s side being more honest and credible than the defendant’s side when giving viva voce evidence, this court believes that the plaintiff when reading the term the right to operate (經營權) in the Transfer Agreement has had the same consistent understanding and meaning, namely, upon execution of the Transfer Agreement, the Licences for the Restaurants were validly subsisting which the defendant would then transfer to the plaintiff (or PW2). 61.Counsel for the defendant submitted that because the plaintiff never saw this particular term of the right to operate (經營權) before, there could be no expectation on the part of the plaintiff to have the belief that he held. However, the plaintiff’s understanding of the said term is fact sensitive and which I have found that I prefer the evidence of the plaintiff to that of the defendant and that the plaintiff’s belief in the term was consistent and in the manner as explained hereinabove. 62.There was some argument over whether the reduction in price from $500,000 to $280,000 somehow meant this reflected there not being any relevant and valid licences attached to the Restaurants or at least to Shop A. I have found that there is no positive evidence of this specific argument being properly substantiated and in any event, even on the defendant’s case, the eventual price of $280,000 did not include any licensing agent fees and related costs which were agreed to be in the range of about an additional $60,000 - $80,000 and an unknown amount of time to acquire such valid and relevant licences. The plaintiff alleged that the Restaurants also needed to include new fire safety equipment that costed in the range of about $100,000, this is a matter borne out and discussed later in this judgment. 63.I also reject the notion that shortly after the Transfer Agreement was executed that requesting the aid of the licensing agents somehow showed that the plaintiff knew that the Transfer Agreement did not include the Licences or at least not for Shop A. The various WhatsApp messages, voice recordings and quotations from the licensing agents do not show a prior knowledge of the plaintiff knowing and needing to apply for “new” licences prior to the execution of the Transfer Agreement but rather such evidence was simply showing the need for such licences to be acquired and/or that the plaintiff and/or PW2 had expected there instead to be a transfer of licences only. 64.There was initially some doubt of which party actually sought out the licensing agents shortly after execution of the Transfer Agreement on 13 and 14 August 2019. On balance it appears that it was the defendant who did so and not PW2 nor the plaintiff. This suggests that neither the plaintiff nor PW2 knew what exactly to do nor did they expect a need to seek out the services of a licensing agent since they believed they had all the relevant and validly subsisting licences necessary to carry on the business of the Restaurants immediately (or at least possibly shortly thereafter) upon execution of the Transfer Agreement. 65.The fact that the licensing agents and their services were sought after execution of the Transfer Agreement but before attending the FEHD offices on 23 August 2019 when they received news that “new” licences would be needed to operate the Restaurants further confirms that the plaintiff and PW2 did feel extreme anger at being misrepresented to but at the same time there was nothing they could do about the matter aside from applying for “new” licences. Albeit not a complete answer for why there were no further written complaints by the plaintiff or PW2 to the defendant via WhatsApp or otherwise, it does explain their predicament and needing to work as quickly as possible to acquire “new” licences so they could simply get on with starting the business of the Restaurant and to not antagonize the defendant further of which the evidence of the plaintiff and PW2 in this regard were always consistent. 66.From the facts of this case, it is also this court’s finding that indeed the defendant did verbally and falsely misrepresent to the plaintiff that the Restaurants had validly subsisting restaurant, liquor and food licences (namely the Licences) which would then be transferred to the plaintiff (or PW2) upon execution of the Transfer Agreement. 67.Given my foregoing findings, this court finds that the plaintiff (or PW2) did not have prior knowledge about the fact that the Licences would expire on 15 August 2019 and would not be valid, effective, and/or renewed thereafter before entering into the Transfer Agreement. Agreed Issue (b) 68.Counsel for the plaintiff submitted that clause (1) of the Transfer Agreement stating the “right to operate” (經營權) meant the defendant shall transfer all things necessary for the operating of the Restaurants including the Licences. It was also submitted that given the informality, brevity, and the absence of skilled professional assistance, this is particularly the case to which greater emphasis should be put on the factual matrix of the case at hand as per Wood v Capita Insurance Services Ltd (supra). 69.Counsel for the defendant submitted that the “right to operate” did not include transfer of the Licences (of Shop A). It was firstly submitted that the Transfer Agreement did not have any word, phrase or reference to the word “licence”. The Transfer Agreement was admittedly a simple document and the evidence from both parties accepted that licences for any restaurant were very important which could have been but were not included in the Transfer Agreement. This was notable given both the plaintiff and PW2 were present for the negotiation relating to the Transfer Agreement itself. 70.It was further submitted by counsel for the defendant that the interpretation of contracts are trite and the basic rule is that the court must find the intentions of the parties. One of the key principles as illustrated in Arnold v Britton [2015] 2 WLR 1593 at p.1600, §20:
71.However, where the ordinary and natural meaning are not particularly helpful, the context in which the contract is made should be determinative, in Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351, Ma CJ held at §15:
72.As a finding of fact, I find it highly doubtful and do not believe that the plaintiff would execute the Transfer Agreement knowing that it meant he would be operating the Restaurants without valid licences and thus illegally. The absence of the word(s) “licence” from the Transfer Agreement is understandable if the defendant had previously verbally represented to the plaintiff that the Restaurants had validly subsisting Licences which the defendant would then transfer the Licences to the plaintiff (or PW2) upon execution of the Transfer Agreement, to which this court does believe the plaintiff. 73.I find that the plaintiff was a reasonable person and believe he would not have entered the Transfer Agreement with the knowledge he would be immediately subject to paying fines after any inspection and eventual prosecution to be carried out by the FEHD which is what the defendant believed could be done as a result of operating the Restaurants without valid and subsisting licences. 74.For the avoidance of doubt, I invited submissions from counsel if the said term (經營權) could also be read from an objective context of the Transfer Agreement itself. It will be noted that the term “經營” (whereas the word “權” means, in the present context “right” or “a right”) arises in different ordinances and some examples of these were brought to the attention of counsel, namely, the following:
75.The instances where the term (經營) arises in these examples, the terminology used appears to mean “carrying on” [a trade, profession or business], “operate [includes manage, form, conduct, organize, advertise and aid, assist or take part in operating]”. “engaged in a business”, “carrying on business”. 76.Counsel for the plaintiff submitted that the plaintiff’s belief was consistent with the subsequent application for the Business Registration Certificates for Shop A on 12 August 2019 and Shop B on 17 September 2019 in compliance with ss. 3(1) and 5(1) of the Business Registration Ordinance so that the plaintiff could legally carry on (經營) the business of Shop A and Shop B. In other words, there would be an inconsistency if the plaintiff knew that the Licences were expired and would not be valid, effective, and/or renewed thereafter, he would still execute the Transfer Agreement and apply for the business registration certificates for Shop A and Shop B thereafter. 77.It was further submitted for the plaintiff that 12 August 2019 is exactly the same day that the Transfer Agreement was executed, meaning that the business registration certificate for Shop A was obtained immediately after execution of the Transfer Agreement in the belief that there would be an immediate carrying on of the business of the Restaurants right after execution of the Transfer Agreement. 78.Counsel for the defendant submitted that the word “operate” (經營) may have been defined differently in various ordinances but it was important to stress that there was no evidence in this case that the parties had made reference to or placed any reliance from any definition in any ordinance and that neither party had any professional legal background to attempt to incorporate the meaning of “operate” (經營) from these statutory provisions into the Transfer Agreement in question. 79.It was further submitted by counsel for the defendant that the definitions or interpretations employed in these ordinances may only be relevant to their own respective context and should have no bearing in this case. Further, even if this court were to construe the said words (經營權) in the present case in light of these sections, it was submitted that none of the sections had provided any implication to include a licence to operate. As such, it was submitted that if this court was minded to rely or make reference to the definitions from these sections, the defendant invited this court to consider that even in various contexts and legislative background, the word “operate” or “經營” does not include a license to operate. 80.It is accepted that the foregoing examples where the word “operate” or “經營” appears does not expressly include a licence to operate but the use of the term “經營” does express some form of ongoing legally permitted business activity as found under that particular ordinance. 81.I repeat the fact that I find it highly doubtful that the plaintiff would execute the Transfer Agreement knowing that it meant he would be operating the Restaurants without valid licences and thus illegally. I find that clause (1) of the Transfer Agreement in the context of this case, inclusive of the term (經營權) meant the inclusion of validly subsisting Licences. For the avoidance of doubt, this is consistent with this court’s factual finding that the plaintiff when reading the term to operate (經營權) in the Transfer Agreement has had the same consistent understanding and meaning, namely, upon execution of the Transfer Agreement, the Licences for the Restaurants were validly subsisting which the defendant would then transfer to the plaintiff (or PW2). 82.For the avoidance of doubt, this court also finds that clause (6) requires that the defendant shall deliver “all tools of trade” (所有生財工具) to the plaintiff. It is however notable that there was no particular evidence at trial which identified what such “tools” were save only for matters generally mentioned in the witness statement of the plaintiff. Although it was pleaded that “tools” included “tables, chairs, cashier machine, and all the tools in the kitchen” and that “required installations” included “all installations and equipment as required by the [FEHD] and/or the Liquor Licensing Board for the granting, transfer and/or reward of the [Licences]”, there is no evidence that such “tools” and/or “required installations” were not delivered per se upon execution of the Transfer Agreement. 83.Given my foregoing findings, this court finds that the proper construction of the Transfer Agreement in relation to the transfer of the restaurant licence and liquor licence was that upon execution of the Transfer Agreement that the defendant shall transfer “the” things necessary for the operation of the Restaurants including the Licences. Impact of findings from Agreed Issues (a) and (b) 84.For the avoidance of doubt, the findings under Agreed Issues (a) and (b) are repeated when considering the remaining Agreed Issues given they have an impact on how those remaining Agreed Issues are to be resolved. Agreed Issue (c) 85.Counsel for the plaintiff submitted that this is an appropriate case where the conditions or requirements for an implied term are applicable and cited Kensland Realty Ltd v Whale View Investment Ltd & Another (2001) 4 HKCFAR 381, at §23:
86.Counsel for the defendant submitted that when facing an argument for the implication of a “missing” term, the court should be careful not to cross the line and to “re-write” the parties’ contract for them with the benefit of hindsight. This fair proposition is accepted. 87.It was further submitted for the defendant that if the plaintiff fails to prove that it was the clear intention of the parties that the Licences of Shop A would not be transferred that the plaintiff will have failed to prove there were any implied terms in the Transfer Agreement. However, given this court’s findings as relating to Agreed Issues (a) and (b), this particular argument of the defendant relating to Agreed Issue (c) fails. 88.The implied terms of the Transfer Agreement in relation to the transfer of the restaurant licence and liquor licence are found at, inter alia, the Amended Statement of Claim at paragraph 17 where it is pleaded that:
89.It is also apparent on the Amended Statement of Claim at paragraph 34 where it is pleaded (as relating to implied term(s)) that:
90.When Kensland Realty Ltd (ibid) is applied in the present case, all five criteria are satisfied. Firstly, it has been found that the defendant verbally and falsely misrepresented to the plaintiff that the Restaurants had validly subsisting restaurant, liquor and food licences (namely the Licences) which would then be transferred to the plaintiff (or PW2) upon execution of the Transfer Agreement. Also the findings made in relation to Agreed Issue (a) are relevant to the first criteria of Kensland Realty Ltd (ibid). Secondly, as already mentioned, to give business efficacy to the Transfer Agreement there would need to be a validly subsisting legal right for the plaintiff to carry on the business of the Restaurants with valid licences which is also legally and factually consistent with clause (1) of the Transfer Agreement and in particular when also considering the term (經營權) meant the inclusion of validly subsisting Licences. Again, the findings made in relation to the Agreed Issue (b) are relevant to the second criteria of Kensland Realty Ltd (ibid). Thirdly, the aforesaid first and second considerations makes it obvious that inclusion of the implied term goes without saying. Fourthly, the implied term as pleaded is capable of and accepted to be of a clear expression. Fifthly, the implied term as pleaded does not contradict any express term of the contract. This is also particularly true given the brevity of the Transfer Agreement and there being no clauses to expressly restrict there being an implied term(s) per se unlike other more sophisticated commercial contracts of which this was not. 91.After consideration and applying Kensland Realty Ltd (ibid), this court finds that the implied term as pleaded at paragraphs 17, 18(a) and (b) of the Amended Statement of Claim is found and applicable. The Amended Statement of Claim at paragraph 18(c) is pleaded too widely to satisfy the first four criteria required under Kensland Realty Ltd (ibid). Agreed Issue (d) 92.The implied terms as expressed from the Amended Statement of Claim at paragraphs 17, 18(a) and (b) have been found in the Transfer Agreement as per Agreed Issue (c). 93.As such, the defendant has committed the pleaded breaches of the implied terms of clause (1) the Transfer Agreement. For the sake of completeness, clause (1) of the Transfer Agreement clearly makes no mention of a “licence” and therefore there was no breach of the express terms of the Transfer Agreement.[2] 94.Given the findings of this court, it is established that the defendant had committed the pleaded breaches of the Amended Statement of Claim at paragraphs 17 and 18(a) but with 18(b) in the limited capacity that there is no evidence that such “Required Installations” were not delivered per se upon execution of the Transfer Agreement. 95.The Amended Statement of Claim at paragraph 18(c) is pleaded too widely to satisfy that Agreed Issue (c) should be found in favour of the plaintiff. In any event, evidence of the nature to prove that there was a breach by the defendant in failing to transfer “All things necessary to operate Shop A to the Plaintiff” was not properly particularized or provided and beyond the scope of this trial. Agreed Issue (e) 96.Given the findings of this court and as stated earlier in this judgment, it is established that the defendant did verbally and falsely misrepresent to the plaintiff that the Restaurants had validly subsisting restaurant, liquor and food licences (namely the Licences) which would then be transferred to the Plaintiff (or PW2) upon execution of the Transfer Agreement. Agreed Issues (f) and (g) 97.Counsel for the plaintiff submitted that the Transfer Agreement is subject to a collateral contract and/or or “contains” collateral warranties (which basically mirrors a slightly reduced version of paragraph 19 of the Amended Statement of Claim, “the Terms of the Plaintiff’s Collateral Contract and/or Collateral Warranties”), whereby the defendant:
98.Counsel for the plaintiff submitted that if the defendant is found to have made the misrepresentations to the plaintiff as already outlined in Agreed Issue (a), then Agreed Issues (f) and (g) will have been satisfied since the Terms of the Plaintiff’s Collateral Contract and/or Collateral Warranties will have been satisfied. 99.Counsel for the defendant submitted that the plaintiff has failed to prove the existence of any collateral contract and/or collateral warranty. Fairly cited was the case of Bank of India v Surtani Murlidhar Parmanand T/a Ajanta Trading Corporation, CACV 196/1992 at §44, the Court of Appeal referred to the rule laid down by Lord Moulton in Heilbut, Symons & Co v Buckleton [1913] AC 30 at p. 47, namely:
100.In particular, points (c) to (e) of the Terms of the Plaintiff’s Collateral Contract and/or Collateral Warranties have not been proven to have existed on a balance of probabilities by the plaintiff, let alone proved strictly on the evidence. 101.For point (c) of the Terms of the Plaintiff’s Collateral Contract and/or Collateral Warranties, even though the Licences which were to be validly subsisting and to be provided after execution of the Transfer Agreement, there was never a stipulation that it would be the defendant’s obligation to provide the same to the FEHD and/or the LLB. 102.For point (d) of the Terms of the Plaintiff’s Collateral Contract and/or Collateral Warranties, as already explained, there are difficulties with ascertaining what exactly were the “Required Installations” let alone what would be the criteria for them being “installed and in compliance” with the FEHD and/or the LLB for the Licences. 103.For point (e) of the Terms of the Plaintiff’s Collateral Contract and/or Collateral Warranties, the facts of this case never showed that the defendant guaranteed in such a broad sense and ongoing manner “that the Licences can be renewed without additional installations and/or repair to the Required Installations”. 104.The plaintiff’s position on Agreed Issues (f) and (g) fails when considering the full ambit of the Terms of the Plaintiff’s Collateral Contract and/or Collateral Warranties. Agreed Issue (h) 105.Agreed Issues (a) to (e) have been found in favour of the plaintiff and the reasons therein give rise to the plaintiff’s right to relief. 106.Given the findings of this court, it is without much controversy that the defendant’s counterclaim based on the outstanding balance of $120,000 from clause (8) of the Transfer Agreement is dismissed. 107.Furthermore, counsel for the defendant very fairly accepted that there was little to no cross-examination of the plaintiff or PW2 regarding any alleged losses suffered by the plaintiff. 108.Counsel for the plaintiff submitted that if the defendant failed to transfer the Licences as agreed under the Transfer Agreement, the plaintiff has pleaded damages for breach of contract with the alternative being damages for misrepresentation made by the defendant to the plaintiff that the Transfer Agreement would contain the Licences. Given submissions made at closing, plaintiff accepted that this court should proceed only on the basis that damages for breach of contract in the circumstances is the more appropriate route if liability is found for the plaintiff. 109.This court was provided with a surprisingly limited amount of evidence, whether documentary or otherwise, on the issue of damages. In fact, this court was also provided with a surprisingly limited amount of submissions on how exactly to assess and determine the correct amount of damages to be awarded if such an award were to be made. 110.The witness statement of the plaintiff provides some evidence on how well (or lack thereof) the business of the Restaurants were operating at in a limited capacity due to not having validly subsisting licences and then contrasted with what would have been his estimate on what could have been earned with valid licences and operating at a full and proper capacity. 111.A photograph of a handwritten note which allegedly showed the record of the cashier machine of Shop A with figures written down to reflect monthly sums of food sales was provided but there was no proper explanation of how this was to be read or understood. The plaintiff alleges a loss of some $2,000 per day on reduced food sales, but even on a generous understanding of his case, there lacks any substantive evidence to support such an amount. Doing the best this court can in the circumstances and knowing the Restaurants were operating in a limited capacity, a loss of $1,000 per day is found until the Restaurants were operating in a normal business capacity for food sales. As such, the losses in this regard are $1,000 x 259 days (i.e. 12 August 2019 to 26 April 2020) being $259,000. 112.Having again little evidence to assist on the plaintiff’s alleged loss of some $1,000 per day on there being no alcohol sales whatsoever, a loss of $500 per day is found until the Restaurants were operating in a normal business capacity for alcohol sales. As such, the losses in this regard are $500 x 469 days (i.e. 12 August 2019 to 25 November 2020) being $234,500. 113.Fees to a licensing agent for a new restaurant and liquor licence of Shop A, as well as costs to renovate Shop A to necessitate the facilities for applying for a restaurant licence were necessary and documented at $43,000 and $118,277 respectively. These amounts are awarded in full. Conclusion 114.I give judgment in favour of the plaintiff and the defendant’s counterclaim is dismissed. 115.I order that the plaintiff be awarded $654,777 for damages for breach of contract with interest at judgment rate from the date of writ until payment. 116.I make an order nisi that the defendant do pay the plaintiff the costs of the action to be taxed if not agreed with certificate for counsel. 117.I thank counsel for their assistance.
Mr Immanuel Fong, instructed by Liu & Co, for the plaintiff Mr Kelvin Man, instructed by S. H. Chan & Co, for the defendant [1] 問：嚴生，我哋講番document bundle第1頁嗰份合約，即係關於買賣A、B舖嗰份合約。其實成份合約咁去睇呢，係應該包埋餐廳牌同埋酒牌嘅轉讓，成件事先會變得合理，同意唔同意？
[2] (1) 甲方承諾以港幣$280,000元將上述店鋪完全轉讓給乙方，包括經營權。Party A undertakes to completely transfer the above-mentioned shops to Party B for HK$280,000, including the right to operate. | |||||||||||||||||||
Cases cited in this judgment