Shum Kit Ching v. Caesar Beauty Centre Ltd

HCSA000038A/2002

HCSA 38/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO. 38 OF 2002

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL CLAIM
NO. SCTC 27591 OF 2001)

____________

____________

Coram: Mr Recorder Edward Chan S.C. in Court

Date of Hearing: 7 February 2003

Date of Handing Down Judgment: 16 April 2003

________________

J U D G M E N T

________________

1.This is an appeal against the decision of the Small Claim Tribunal Officer. The hearing before the Tribunal was conducted in Chinese. In fact the hearing of this appeal was also conducted in Chinese. As I have indicated to the parties and with their consent, for the sake of expediency I will give my judgment in English and the parties may obtain a copy of the translation of this judgment from the Judiciary.

2.The appellant was the claimant before the Tribunal. On 29 March 2001, she entered into a contract with the respondent under which she became a member of a health club ran by the respondent for a period of 2 months at a fee of $549 which she had duly paid. On top of this, she also paid the sum of $99 for a massage service. As a kind of extra favour to her on her joining the health club, the respondent was prepared to provide her free of charge a certain facial treatment. After she joined the club, she went to the respondent's gymnasium on the next two days to exercise. On 31 March 2001 she agreed to extend her club membership until the end of 2001 at an extra cost of $1,675.80 which she had duly paid.

3.On 7 April 2001, she went to the respondent's place again to enjoy her free facial treatment. After the treatment she entered into another contract with the respondent "to join a certain gold card VIP membership". What it involved was that in consideration of her paying $48,060, she would be entitled to receive 267 times "Ceasar facial treatment" that would include a mask treatment and on top of that for each treatment she would also be entitled to (a) receive a treatment to her hands; (b) have the treatment performed in a VIP room, (c) an extension of the membership for the gymnasium facilities for another year; and (d) certain gift items. She paid the $48,060 by 3 credit cards.

4.On 8 April 2001 she sought to withdraw from the contract entered into on 7 April 2001. The respondent did not accede to her request. She reported the matter to the Police and also the Consumer Council. She also brought a claim in the Small Claim Tribunal to recover not just the amount she paid on 7 April 2001 but also all the sum she paid since 29 March 2001. Her claim was dismissed by the Small Tribunal.

5.She obtained leave to appeal from Deputy Judge Lam who granted her leave to appeal on 3 grounds. I paraphrase the 3 grounds as follows:

(a) The Tribunal Officer had failed to appreciate that the $48,060 paid by the claimant was in the nature of advance payment and the contractual provision entitling the respondent to forfeit the sum would be void because it would amount to a penalty in the circumstances of this case. On this scenario, the respondent must refund the amount subject to the respondent's right to prove its damages and to recover the damages proved.

(b) The Tribunal Officer had failed to take into account 5 important factors sufficiently or at all when he was considering whether the terms of the contract reached between the parties were fair and conscionable.

(c) In considering the application of the Unconscionable Contracts Ordinance the Tribunal Officer had erred in thinking that unless there was evidence to show that the respondent was aware of any reservation and doubt on the part of the appellant and had further exploited the appellant on her weakness, otherwise he could not refuse to enforce the contract.

6.Before me, her counsel made it clear that she would not now be appealing against that part of the decision dismissing her claim for the refund of monies she paid before 7 April 2001. Her appeal was only directed at the part of the decision dismissing her claim for the refund of the $48,060 she paid on 7 April 2001. Her case before me was that (a) the contract of 7 April 2001 should not be enforced under section 5 of the Unconscionable Contracts Ordinance or at least those provisions in the contract which enabled the respondent to retain her $48,060 paid should not be enforced; and (b) even if the Court should refuse to exercise its power under section 5 of the Ordinance to refuse to enforce the contract or the forfeiture provisions, the Court should nevertheless refuse to allow the respondent to keep the monies because that would tantamount to enforcing a penalty provision.

7.Apart from statutes equity would also allow the Court under certain circumstances to refuse to enforce a contract on the ground that it is an unconscionable bargain. The Tribunal Officer was plainly aware of this aspect of the law. However in the present case, it is probably not necessary for the Court to resort to the common law position because there is now a much wider power to give relief for unconscionable contracts under the Unconscionable Contracts Ordinance. This is a case when the appellant dealt with the respondent as consumer, and if the Court should find that the contract or any part thereof was unconscionable in circumstances relating to the contract at the time when it was made, the Court would have the jurisdiction under section 5 of the Unconscionable Contracts Ordinance to refuse to enforce the contract, or to enforce the remainder of the contract without the unconscionable part, or to limit the application of, or revise or alter, any unconscionable part so as to avoid any unconscionable result. Section 6(1) of the Ordinance listed out a number of factors to be considered by the Court in deciding whether a contract is unconscionable. These factors were clearly listed out by the Tribunal Officer in his judgment. It is important to realize that at least under the statute, the Court is only to take into account the circumstances relating to the contract at the time when the contract is made. Hence, any change of circumstances after the contract is made rendering the performance of the contract to be a very harsh one on one of the parties could not be taken into account by the Court.

8.In the present case in deciding not to exercise his jurisdiction whether under common law or under the Ordinance to refuse to enforce the contract or any part thereof, the Tribunal Officer appeared to have taken the view that unless it could be shown to him that the respondent was aware of certain weakness on the part of the appellant, he could not refuse enforcement on the ground that the contract was unconscionable. The appellant contended that in so holding, the Tribunal Officer had misdirected himself on the law. The appellant referred to the decision of Hodgson J in AGC (Advances) Ltd v West (1984) 5 NSWLR 590 and contended that the correct approach for deciding whether a contract or any part thereof is unconscionable is to look at all the circumstances of the case and there is no one factor which is essential or decisive.

9.The AGC (Advances) Ltd case concerned a lending transaction between a financier and the debtor. The money was borrowed by the debtor, a married woman, under a deed of loan and guarantee for the purpose of enabling a company to expand its business. The loan was guaranteed by the borrower's husband, the company and also 3 directors of the company. Also on the date of the loan, the borrower also executed a deed of mortgage over her home to secure the loan. The money was not repaid and the financier sought to have possession under the mortgage. The debtor sought, inter alia relief under the Contracts Review Acts of New South Wales of Australia in respect of the mortgage and the deed of loan and also in respect of the obligation to indemnify the other 3 company director guarantors. In a related action, the other 3 guarantors all sought to be released from the obligation under the guarantees under the Contracts Review Acts. In considering the application of the Contracts Review Acts, Hodgson J said (at page 608):

" A question which arises is the extent to which the circumstances which make the contract unjust must be known to the party against whom relief is sought. The Act provides that the court should not have regard to any injustice arising from circumstances which are not reasonably foreseeable at the time the contract was made; see s 9(4). It is not clear whether that provision excludes consideration of existing circumstances which are not known to, or seen as a possibility by, the party against whom relief is sought, or whether it only applies to future circumstances. It is also unclear whether it has any application to the appreciation of the other party of the legal consequences of the existing or foreseeable circumstances ...

I have not been referred to any authority on this question. May tentative views on it are as follows:

(a) the court may have regard to all existing circumstances which are relevant whether they are known to the party against whom relief is sought or not, though lack of knowledge of such circumstances could affect the exercise of the court's discretion;

(b) the court may have regard to future circumstances, only if those circumstances were reasonably foreseeable having regard to the existing circumstances;

(c) the court may have regard to the legal effect of the contract and the time the contract is made whether this effect is appreciated by the party against whom relief is sought or not, although again if that party does not appreciate this effect, then that may be relevant to the exercise of discretion."

10.It is important to note that Hodgson J's main concern was whether and to what extent under the Australian Contracts Review Act 1980, it would be permissible for the Court to take into account things not within the knowledge of the person against whom relief was sought. Although the intention of the relevant sections in Part II of that Act is rather similar to sections 5 & 6 of the Unconscionable Contracts Ordinance, the wordings of sections 5 & 6 of the Ordinance are not identical to sections 7 & 9 of the New South Wales legislation. The NSW sections are in the following terms:

"7. Principal relief

(1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:

(a) it may decide to refuse to enforce any or all of the provisions of the contract,

(b) it may make an order declaring the contract void, in whole or in part,

(c) it may make an order varying, in whole or in part, any provision of the contract,

(d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that:

(i) varies, or has the effect of varying, the provisions of the land instrument, or

(ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument.

(2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order.

(3) The operation of this section is subject to the provisions of section 19.

9. Matters to be considered by Court

(1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of:

(a) compliance with any or all of the provisions of the contract, or

(b) non-compliance with, or contravention of, any or all of the provisions of the contract.

(2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following:

(a) whether or not there was any material inequality in bargaining power between the parties to the contract,

(b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation,

(c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract,

(d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract,

(e) whether or not:

(i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or

(ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented,

because of his or her age or the state of his or her physical or mental capacity,

(f) the relative economic circumstances, educational background and literacy of :

(i) the parties to the contract (other than a corporation), and

(ii) any person who represented any of the parties to the contract,

(g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed,

(h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act,

(i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect,

(j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act:

(i) by any other party to the contract,

(ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or

(iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract,

(k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and

(l) the commercial or other setting, purpose and effect of the contract.

(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made.

(4) In determining whether a contract or a provision of a contract is unjust, the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made.

(5) In determining whether it is just to grant relief in respect of a contract or a provision of a contract that is found to be unjust, the Court may have regard to the conduct of the parties to the proceedings in relation to the performance of the contract since it was made." (emphasis added)

11.It is important to note that in New South Wales, the ultimate question to be decided is whether the contract is unjust, whilst in the context of the Hong Kong legislation; the ultimate question for the Court is whether the contract is unconscionable. The concept of unjust in the context of the New South Wales legislation is slightly wider than the concept of unconscionable. This is so because section 4 of the Contracts Review Act 1980 defined "unjust" as including unconscionable, harsh or oppressive. Likewise in section 9(1) of the Contracts Review Act of New South Wales, it is expressly provided that in deciding whether a contract is unjust, the Court must have regard to the public interest and to all the circumstances of the case. Hence, it is not surprising at all that in AGC (Advances) Ltd case, Hodgson J held that the Court must have regard to all the circumstances. It is important to note that in section 6 of the Unconscionable Contracts Ordinance, there is no similar express reference that the Court must have regard to all the circumstances when deciding whether the contract or any part thereof is unconscionable. Hence, I am of the view that for these 2 reasons, AGC (Advances) Ltd case is distinguishable and is not an authority to support the contention that the Tribunal Officer was wrong.

12.However, the real question is whether the Tribunal Officer was wrong in taking the view that unless it could be shown that the respondent was aware of the fact that the appellant could be easily persuaded, and that the circumstances of her entering into the contract were such that she still had doubts and reservation in deciding to enter the contract and that there might be things about the contract that she was not clear about, and had further made use of these weaknesses to persuade the appellant to enter into the contract, there was no sufficient ground to set aside the contract freely entered into by the parties. I am of the view that although the Hong Kong legislation does not expressly state that the Court must consider all the circumstances relevant to the issue of whether the contract was unconscionable, it is plain that section 6(1) does not enjoin the Court only to take into account matters set out in sections 6(1)(a) to (e) only. Hence, in deciding whether a contract or part of a contract is unconscionable or not for the purpose of section 5, the Court must have regard to all circumstances relevant to that issue but on top of that, the Court must also take into accounts the factors set out in sections 6(1)(a) to (e) as appropriate.

13.However, the question still is: are matters not within the knowledge of the respondent relevant to the issue of whether the contract is unconscionable? In this respect, it is to be noted that the Ordinance does not define what is unconscionable. The Concise Oxford Dictionary defines "unconscionable" as meaning "wholly unreasonable, not guided or restrained by conscience". Certainly there is an element of lack of conscience before one can say that that thing is unconscionable and it is difficult to see how a person's conscience could be affected by things that he does not know. Accordingly in the context of section 5 of the Ordinance, it is difficult to envisage a situation where the party against whom relief is sought not knowing the points of weakness of the other party and not exploiting the points of weakness of the other party to induce the other party to enter into the contract, could nevertheless produce a result that the contract entered into be properly described as unconscionable.

14.This would also appear to be the position at common law. The Court's power to give relief against unconscionable bargain is not unlimited. There is a limitation to the scope of this doctrine. The law in this respect is summarised by the editors of Chitty on Contracts (28th edition) paragraph 7-078 as follows:

"The doctrine of unconscionable bargain seems to be limited in three ways. The first is that the bargain must be oppressive to the complainant in overall terms; the second that it may only apply when the complainant was suffering from certain types of bargaining weakness; and the third that the other party must have acted unconscionably in the sense of having knowingly taken advantage of the complainant ... " (emphasis added)

Thus it would appear that the law would certainly require an element of knowledge of the weakness and knowingly taking advantage of the weakness before the Court would give relief to the bargain. Of course knowledge in this respect is not restricted to actual knowledge but would include constructive knowledge or knowledge that a person should have reasonably possessed.

15.Accordingly, notwithstanding that the Tribunal Officer had failed to follow the decision of Hodgson J in AGC (Advances) Ltd case, I am of the view that he is right in considering that unless it could be shown that the respondent was aware of the weakness of the appellant and had taken advantage of her weakness, the contract could not be said to be unconscionable and could not be set aside.

16.The next question is whether the Tribunal Officer was right in finding that the respondent did not have any knowledge of the weakness of the appellant. The particular points of weakness in question would include (a) her being easily persuaded to spend money; and (b) her not having clearly understood the terms of the contract and having reservation in deciding to enter into the contract. In this respect, I would disagree with the conclusion of the Tribunal Officer.

17.In relation to (a) plainly there is indisputable evidence that within a short period of 2 days, the appellant had been persuaded to spend $1,675.80 on extending her membership of the health club to the end of 2001. Furthermore, on 7 April 2001 just before the appellant had entered into the contract in question, she had agreed to become a VIP club member enjoying 30 times of facial treatment at the cost of $6,000, and then she was successfully persuaded to change her mind to purchase another plan at the cost of $30,000. On top of that the respondent's staff plainly knew that the credit limit of the appellant was rather low and that it was quite apparent that the appellant would have to stretch her financial resources to enter into this contract. According to the evidence of Mona, one of the staff of the respondent, the appellant's Dao Heng Bank credit card did not have sufficient credit limit to cover the charge of $30,000 and hence she had to use her Chartered Bank Credit Card to pay the sum of $30,000. The respondent must also know that the appellant had to pay the $48,060 by installments provided by the Dao Heng Bank credit card and that to do so the appellant would have to arrange for an increase of her credit limit.

18.In relation to (b), it is important to note that the Tribunal Officer appeared to have overlooked that the terms of the contract as appearing on the membership application form were printed in very small print. Likewise the terms as found at the back of the receipt were printed in small and very light colour print. The printed clauses are extremely difficult to read. Even on the evidence of the respondent's witnesses, there was nothing to show that anyone had drawn the appellant's attention to the clauses which provided that the money paid could not be refunded (clause 19), or that the respondent may at any time amend the rules without any notification (clause 25) and that in the event of any dispute, the respondent was the sole party having the power to resolve the dispute (clause 26). Indeed apart from telling the appellant the attractiveness of the plan and the superficial savings she could get if she were to accept the plan by making one lump sum payment, there was no attempt whatsoever to explain to the appellant any of the terms of the contract. In fact given the size and the colour of the printing, even if one were to accept all the evidence of the respondent's witnesses on how the negotiation had taken place, it is unrealistic to expect that the appellant knew the terms of the contract that she was persuaded to enter into. The respondent submitted that since the appellant had become a member of the health club for the use of the gymnasium facilities on 29 March 2001, by 7 April 2001, she would have some 9 days to read the standard terms of the contract of the respondent. However, I do not think that it would be reasonable to expect her to read the terms at the back of the receipt she obtained on 29 March 2001. After all, she having joined the club on 29 March 2001 and having in fact enjoyed the facilities and that the membership was only for 2 months, there was little reason for her to turn up the receipt to read the clauses at the back of the receipt. At any rate, there was no suggestion by any of the respondent's witnesses that at the time when they introduced the $48,000 plan to the appellant, they had drawn her attention to the fact that the terms of the contract for that plan were the same as those stated at the back of the receipt she previously obtained so as to alert her of the necessity to read the terms from her receipt. Furthermore, the terms endorsed at the back of the receipt were not identical with those set out in the application for membership signed by the appellant on 7 April 2001. In these circumstances, I am of the view that the Tribunal Officer had not actually directed himself to all the pertinent evidence in considering whether the appellant actually knew or understood the terms of the contract that she had entered into.

19.At this stage it is convenient for me to deal with the 2nd ground of the appeal, viz. the Tribunal Officer had failed to take into account 5 specific matters. Of the matters mentioned, I am of the view that the Tribunal Officer could not be criticised in failing to take into account (a) the appellant's request to take the material home to read and to further consider before making up her mind; and (b) the appellant's having said that she had to consider whether the treatment administered by the respondent was suitable for her. This is because both allegations (a) and (b) were supported only by the appellant's evidence. There was no such request or such reservation on the suitability of the treatment according to the evidence from the respondent's witnesses. The Tribunal Officer having heard the evidence from both the appellant and the respondent's witnesses had decided to prefer the evidence of the respondent's witnesses on the course of the whole transaction, I have no reason to disagree with the Tribunal Officer.

20.As to suggestion that the Tribunal Officer had failed to properly considered that the appellant did not have the proper opportunity to read and comprehend the terms of the contract, I am of the view that this complaint has been properly made out, because as I have said above, even on the account given by the respondent's witnesses, there was no such opportunity. In fact this is also a factor which the Court is directed by section 6(1)(c) of the Ordinance to consider.

21.I would also agree that the Tribunal Officer had not properly considered whether clause 19 of the contract was properly required for the protection of the legitimate interest of the respondent. Again this is a matter which the Court is asked to consider by section 6(1)(b) of the Ordinance. For reasons given later in conjunction of the first ground of the appeal, I am of the view that had the point been properly considered, the Tribunal Officer should come to the view that clause 19 is not necessary for the protection of the legitimate interest of the respondent.

22.As to the argument that the Tribunal Officer had failed to consider whether any unfair tactics or undue influence had been employed as directed by section 6(1)(d), I have to bear in mind that the Tribunal Officer had decided to accept the evidence of the respondent's witnesses on how the event took place. No doubt the Tribunal Officer had also found that the appellant was a person easily susceptible to persuasion and that the respondent's staff had every intention of persuading her to subscribe to the various plans, I do not think these per se would be sufficient to render the contract unconscionable. On the evidence of the respondent's witnesses, they separately introduced the respondent's products to the appellant and the appellant freely made her choice to accept the package available to her. There were definitely some advantages of this gold VIP membership which the appellant had finally chosen over those cheaper packages. For instance it would work out to be some $20 cheaper per facial treatment, and on top of that there would be an additional hand treatment to go with each facial treatment. On the finding of the primary facts by the Tribunal Officer on how the event had taken place, I could not conclude that there was any undue influence or undue pressure or unfair tactics employed to induce the appellant to enter into the contract.

23.However, since I have come to the view that the Tribunal Officer had overlooked some important factors, it would follow that his conclusion that he should refuse to exercise his power under section 5 of the Ordinance should be set aside. It remains for me to consider whether and how I should exercise the power in the light of the evidence and the finding of primary facts of the Tribunal Officer.

24.In considering whether and how I should exercise the power under section 5, apart from the matters I have considered above, I also have to have regard to the other matters specially set out in section 6(1) of the Ordinance. In relation to section 6(1)(a), viz. the relative bargaining position of the appellant and the respondent, I have to bear in mind that the appellant is a consumer and apparently not of any strong financial position. Furthermore, in common with nearly all services rendered to consumers, the terms of the services in this case were dictated by the respondent. There was hardly any real negotiation or bargain on the terms of the services. It is really a matter of take it or leave it. However, I do not think that I should place a lot of weight on this factor. This is because there is nothing to show that the appellant would desperately require this type of services rendered by the respondent. Even if she felt that she needed the treatment given by the respondent very much, it would be up to her to opt for paying for the services separately on each occasion. In this way, she would not be bound to make any payment in advance of any treatment which she has not yet received. In relation to the matters set out in section 6(1)(e) that is, the availability and terms for the supply of similar services, there is simply no evidence on this point. However, I am prepared to take judicial notice that there must be quite a number of establishment similar to that of the respondent, although the package and pricing may not be quite the same.

25.Taking all the circumstances into account, I have to consider whether the contract ought to be enforced in whole or in part. In this respect, I have to bear in mind that there were harsh clauses in the contract which the appellant's attention had not been drawn to, and that the appellant would not have any real opportunity of realizing their existence. On the other hand, I have also have to bear in mind that the terms such as the costs for the whole package, the method of payment, the number of times of treatment that the appellant would be entitled to and the sort of treatments she should get on each occasion had been clearly explained to the appellant and she had freely accepted them. There was no evidence or even suggestion that the amount payable and paid by the appellant for the services contracted for was excessive. Although she was financially weak, she freely decided to enter into the contract by making her credit cards available for payment and possibly believing that with installment payments available, she would be able to afford the package. In all these circumstances, I do not think that it would be just to set aside or to refuse to enforce the whole of the contract. However, since the contract contained harsh terms which were not brought to her attention, it would not be right to enforce those terms against the appellant.

26.Hence my conclusion is that on proper consideration of relevant factors, in exercise of the power under section 5 of the Unconscionable Contracts Ordinance, I am of the view that the contract is only to be enforced without, inter alia condition 19 which provided that if the treatment contracted for is to end or cancel in any circumstances, the respondent is not liable to refund any of the money received should not be enforced. The other terms which are not to be enforced are clauses 25 & 26. However, they are not relevant in the context of the present dispute.

27.I now consider the first ground of the appeal. It is plain that under the contract, the whole amount of $48,060 had been paid and this amount was for 267 facial treatments to be administered by the respondent. In the circumstances, the payment was plainly not in the nature of a deposit but was in fact full payment. The law is now settled that a provision for the forfeiture would not be enforced even against the party guilty of the breach of contract resulting in the termination of the contract. In such circumstances, the innocent party would still not be entitled to forfeit anything other than a deposit, and his remedy is to recover the damages he suffered as a result of the guilty party's breach (see Workers Trust & Merchant Bank Ltd v Dojap Investment Ltd [1993] AC 573 & Polyset Ltd v Panhandat Ltd [2002] 3 HKLRD 319).

28.In the circumstances of the present case, the completion of the performance of the contract would require the co-operation of both parties. If the appellant does not turn up to the respondent's place to receive the treatments, the respondent could not render any of the treatments contracted for. On its face, clause 19 would operate whenever the treatments were ended or cancelled regardless of the circumstances or reasons that lead to the ending or the cancellation of the treatments. This would of course also include the circumstances when the termination was due to the breach of the contract by the appellant. In the event of the appellant's refusal to perform the contract by rendering herself available to receive the treatments, she would stand to lose all the money she paid. The amount paid obviously could not be a pre-estimate of the actual loss suffered by the respondent. In the ordinary course of event, the only loss which the respondent would suffer if the appellant refused to turn up for treatments so as to enable the respondent to complete the performance of the contract would be his loss of profit. Thus I am of the view that the provision for the non-refunding of the money received could not be any genuine estimate of loss but is in fact a penalty. Accordingly this is another reason for this clause not to be enforceable.

29.Hence, both on account of section 5 of the Ordinance and also at common law, under the doctrine of penalty and forfeiture, I have come to the view that clause 19 would not be enforceable.

30.But where does this conclusion lead the appellant to? The fact that clause 19 is not enforceable does not entitle the appellant to terminate the contract. In the present case, the conduct of the appellant on 8 April 2001 and her subsequent complaint to the Police and the Consumer Council clearly indicated that she did not want to carry out the contract. In fact her conduct would amount to a repudiation or renunciation of the contract such that it would be open to the respondent to accept her repudiation to terminate the contract. However in the present case, I could find no evidence that the respondent had accepted the repudiation of the contract and to terminate the contract. In the circumstances, the contract still subsists for the benefit of both parties albeit without clauses 19, 25 & 26. The respondent had never indicated that it would not render the services contracted for to the appellant, and it would thus appear that if at any time the appellant would change her mind and go the respondent's place to receive her 267 treatments. She would be given the treatments.

31.The appellant's counsel however contended that since this was a case where the performance of the contract would have to be dependent on the co-operation of both parties, the contract must be taken as having been terminated. I accept that in the absence of the co-operation of the appellant, which would definitely not be forthcoming, it would not be open to the respondent to "perform" the contract and to claim its $48,060 remuneration. In this respect, the situation was quite different from that in White and Carter (Councils) Ltd v McGregor [1962] AC 413 where the advertising agent was able to completely perform its part of the contract by putting up the advertisement of the other party on the litter bins without any co-operation of the other party and was held by the majority of the House of Lords to be entitled to sue for the whole sum payable under the contract even though well before the agent started performing its obligation, the other party had written in clear terms that it no longer wanted to place any advertisement on the litter bins. Indeed, in White and Carter (Councils) Ltd case, Lord Reid, being one member of the majority said (at page 499):

"Of course, if it had been necessary for the defender to do or accept anything before the contract could be completed by the pursuers, the pursuers could not and the court would not have compelled the defender to act, the contract would not have been completed and the pursuers' only remedy would have been damages."

It is agreed that in circumstances of the present case, since it would be necessary for the appellant to co-operate to make herself available for the treatment before the contract could be completed, the contract could not be completed by the respondent and so the respondent's only remedy would be to claim damages. While it is certainly right that the Court would not compel the appellant to make herself available for treatment by specific performance or injunction order, in the present case, the respondent is not trying to sue for the $48,060 remuneration for the treatments. It is rather a situation where the appellant is trying to find ways of recovering the amount she had paid. Her difficulty in the present case is to find a basis to enable her to do so without any termination of the contract. The fact that the respondent would not be able to compel her to perform the contract and would only be compelled to sue her for damages does not mean that the contract had already been terminated upon her repudiation. The position is explained by the editors of Chitty on Contract (28th edition) paragraph 25-009:

"Where the innocent party, being entitled to treat himself as discharged by the other's breach, nevertheless elects to affirm the continuous existence of the contract, he does not thereby necessarily relinquish his claim for damages for any loss sustained as a result of the breach. Further, he may insist on holding the other party to the bargain and continue to tender the performance on his part. [After referring to White and Carter (Councils) Ltd v McGregor] The decision in this case has not passed without criticism and one of the majority (Lord Reid) considered that the right to complete the contract and claim the price would not apply "if it can be shown that a person has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages. Further, if the innocent party is unable to complete the contract without the co-operation of the other party, his only remedy is to sue for damages and not for the contract sum. So an employee who is wrongfully dismissed can ordinarily only sue for damages and not for his wages or salary. But the fact that the remedies of the innocent party are restricted to damages does not mean that a discharge occurs at the moment of breach; he may (in the case of an anticipatory repudiation) refuse to accept the repudiation and await the time fixed for performance, keeping the contract alive during the interval. In such a case, the innocent party is not required to mitigate his loss before the time for performance."

32.In the present case, there is no evidence that the respondent had opted to terminate the contract and I am of the view that the fair inference is that the contract is still kept alive for the benefit of both parties. Although the contract was made on 7 April 2001, there is no time limitation for the treatments to be given. Even if there is to be an implied term that the treatments must be given or received within a reasonable time, it is plainly envisaged that it could take more than 3 years for a contract for the supply of over 150 treatments since it was clearly stipulated that the 3 years limitation would not apply to VIP membership. Furthermore, it has not been argued before me that the term of the contract requiring payment for the 267 treatments at $180 per treatment forthwith in advance was unconscionable and should not be enforced. In any event, given the fact that this term requiring the payment in advance for 267 treatments was part and parcel of a package and that by accepting this package, the appellant would get certain benefits, such as the additional mask and hand treatment and the use of the VIP room for the treatment which would not be available had she opted for other packages, I am not convinced that this term is unconscionable.

33.At the end of the day, even though I am with the appellant on 2 out of the 3 grounds of the appeal, I cannot see any ground for the appellant to recover her payment in this action brought by her in the Small Claim Tribunal. Notwithstanding that I have considerable sympathy for the appellant who had entered into an unwise bargain beyond her means; my decision is that the appeal must be dismissed. There will also be an order nisi that the appellant is to pay the respondent's costs of this appeal including the costs for the application of the leave to appeal. As the appellant is on legal aid, I will also order that appellant's own costs are to be taxed in accordance with the Legal Aid Regulation.

Representation:

Mr Newman Wong, instructed by Messrs Simon Si & Co. assigned by Director of Legal Aid, for the Appellant

Respondent: Caesar Beauty Centre Limited represented by its Director, Chan Chi Wing Ray, in person