Pok Wai Co Ltd v. Cambridge Nursing Home (Sai Wan Ho) Ltd
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DCCJ96/2008 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 96 OF 2008 -------------------- BETWEEN
-------------------- Coram : H.H. Judge E. Yip in Court Dates of Hearing : 3rd May 2010 to 6th May 2010 Date of Handing Down of Judgment : 23rd June 2010 -------------------- JUDGMENT -------------------- Introduction 1.The Plaintiff (“P”) owned and operated an elderly nursing home, Golden Days (“GD”), in Wanchai (“Wanchai Premises”). P received a monthly Fee (“Monthly Fee”) from each elder and, from some elders, a deposit (“Deposit”). The Defendant (“D”) owned and operated a chain of nursing homes. In order to get an allowance payment for early termination of its tenancy with the landlord, P and D negotiated for the transfer of P’s elders to D’s new nursing home in Sai Wan Ho (“SWH Premises”). 2.After negotiations, P and D entered into an agreement (“Agreement”) for pursuant to the Agreement, P would receive a transfer fee (“Transfer Fee”) per elder who moved into the SWH Premises as well as a reimbursement of deposit (“Deposit”) for those elders who did not move into the SWH Premises. 3.After the transfer, D refused to pay P anything by alleging that P had innocently misrepresented the total amount of Monthly Fee received by P and the Deposit kept by P, and also in breach of various implied terms of the Agreement. P denies misrepresentation and breach. P claims the Transfer Fee for those elders who had moved into the SWH Premises as well as the Deposit P had returned to those elders who did not move into the SWH Premises. D counterclaims rescission of the Agreement or damages in lieu of rescission on the one hand and damages for P’s breach of the Agreement on the other hand. Issues to be determined by this Court 4.The following issues are relevant to P’s claim:
5.The following issues are relevant to D’s counterclaim:
List of witnesses 6.P and D have all their witnesses’ statements adopted as the evidence-in-chief. The witnesses are tendered for cross-examination. P calls 3 witnesses as follows:
7.D calls 3 witnesses as follows:
P’s evidence Closing down of GD 8.Since 1994, Mr. Chong, assisted by Mrs. Chong, began to operate elderly nursing homes. The maximum number of such homes they had been operating at the same time was 3. They were small-sized operations. 9.In August 2006, from a transfer of business, he took up GD on Canal Road East. That was the Wanchai Premises. The Social Welfare Department issued a licence to P. 10.In March 2007, P received the landlord’s notice to repossess Wanchai Premises before the expiry of the tenancy. The landlord offered to give an allowance payment of $800,000 for early termination of the tenancy. P was contemplating a transfer of the elders in GD to other nursing homes to surrender the Wanchai Premises to the landlord. Negotiations between P and D 11.On 22 August 2007, through the introduction of friends, Mr. and Mrs. Chong took part in negotiations with Mdm Luk in a restaurant. Mdm Luk had huge experience in operating elderly nursing homes. Both parties eventually agreed that Mdm Luk would pay for the transfer of elders to SWH Premises. That was an outright sale of all P’s business interest relating to the elders. With no disrespect to the elders, it would be most convenient to use the term “Sale” to describe this arrangement. 12.Mr. and Mrs. Chong’s told Mdm Luk that there were “58” elders in GD and each one’s Deposit averaged less than $2,000. Mdm Luk did not enquire of the Monthly Fee. The price of Sale per elder was agreed at “$19,000”, odd-looking as it was, was the only price ever offered by her and immediately accepted by them. 13.On 24 August 2007, Mdm Luk provided them with the draft. Mr. Chong signed on behalf of P whereas Mdm Luk signed on behalf of D. The draft thus became the Agreement [A/75]. Terms of the Agreement 14.There are 7 clauses in the Agreement. Only some of them are relevant to the present case. Clause 1 stated that the Transfer Fee was $19,000 per elder. Clause 2 stated that P could keep the Deposit and P is only required to provide the data. Clause 3 stated that P could take the portion of the Monthly Fee before the move whereas D could take the portion after the move. Events before moving 15.In September and October 2007, P informed the elders and their families orally and by written notices that GD would move the SWH Premises, which was almost ready to commence business. There was no express mention that the move was pursuant to the Sale. Out of the 58 elders in GD, 47 decided to move over whereas 11 decided to leave. Events after moving over to SWH Premises 16.On 7 November 2007, the licence for SWH Premises was issued. The 47 elders moved into SWH Premises. Within a months’ time after the move, a large number of them left. P’s claim 17.Because of the exodus, D refused to pay P anything. On 9 January 2008, P took out a Writ of Summons to claim:
18.P admits having received for D’s behalf Monthly Fee in the sum of $35,100 and another sum of $50,357 [B/11 – 12: V F & B para. 1] by way of adjustment paid by the elders after the move. D’s evidence 19.I shall only set out facts in dispute or D’s background not in dispute. Negotiations based on P’s misrepresented revenue and Deposit 20.Mdm Luk had 20 odd years’ experience in operating elderly nursing homes. She operated a chain with over 20 such homes. She had handled at least 10 cases of Sale of elders. In a simple case not involving a large number of elders, a few phone calls by her or her colleagues would work out the deal. As the present deal involved so many elders, she found the need for a written agreement. 21.In the meeting on 22 August 2007, Mr. and Mrs. Chong told her that the total Monthly Fee received by P from the 58 elders was “around $400,000”. She made her own calculations and averaged $6,900 per elder. They also told her that the Deposit of each elder averaged less than $2,000. In her own mind, based on a 3-month Monthly Fee and a Deposit of less than $2,000 (which she approximated down to $1,700), she came up with a figure of $19,000 (i.e., $6,900 x 3 - $1,700) as the Transfer Fee per elder. 22.On 24 August 2007, she produced a draft agreement which both parties signed (“the Agreement”). Elders felt annoyed for being cheated 23.In September and October 2007, P informed the elders and their families orally and by written notices that GD would move into SWH Premises. There was no express mention that the move was pursuant to a Sale. 24.On 8 November 2007, Mr. Kong made a welcoming announcement to the elders from GD. He introduced D and SWH Premises. After learning of the Sale, some elders appeared annoyed for being cheated by P, who had so far only talked of SWH Premises as a new address operated by P. Leung’s husband, Tung Siu-yim, was also an elder from GD. Leung also felt cheated by P but Tung Siu-yim still decided to move into the SWH Premises. 25.Mdm Luk soon discovered from the books of accounts that the elders from GD had been paying D only a Monthly Fee of $5,328 on average. As a further blow, many of them were leaving within the first month or afterwards. To make the matter worse, she soon learned that Ms. Lau, who had moved into SWH Premises as a floor supervisor, was in fact Mr. Chong’s daughter-in-law. She worried, as commonly perceived in the trade, that a close relative like Ms. Lau might be a kind of secret agent poaching elders away to other homes. 26.As a result, she refused to pay P the Transfer Fee or reimburse P the Deposit. Based on the aforesaid facts, she accuses P of innocent misrepresentation of the amount of the Monthly Fee. 27.Apart from P’s misrepresentation, she regards it, among others, an implied term in the Agreement for P to inform the elders of the Sale to ensure that their consent to move into SWH Premises was an informed decision. She says that P had failed to perform such obligation. It led to D’s loss of revenue when a large number of the elders left SWH Premises. Being in breach of such implied term, P was not entitled to the Transfer Fee or the reimbursement of the Deposit. D’s counterclaim 28.D seeks to rescind the Agreement. D says the notice to rescind was given upon the service of the defence pleadings. Alternatively, in lieu of rescission, D counterclaims damages for breach of the Agreement. My findings on P’s claim (Issue A) What were the implied terms of the Agreement? 29.The Defendant pleads [D & C/C: para. 2(2)] an implied term for P to “obtain the prior consent” of the elders and/or their family members before the move. P’s counsel submits that D has not pleaded the basis for implying such term [Closing Submission: paras. 30 – 32]. The Defendant only begins to refer to “business efficacy” in its Closing Submission [para. 31]. As I see it, even on the basis of business efficacy, it does not call for such implied term because the elders may change their mind the next moment. The elders’ consent, or, to be more precise, inclination, obtained by P does not bind them to any contract with D, nor does it give D any actionable right. 30.D next alleges an implied term for P to “procure the elders and/or their family member each to enter into an agreement with D in respect of the elders’ stay”in the SWH Premises [D & C/C: para. 2(2)]. I do not see how such term can be implied. It is one thing for P to invite the elders to consider or view the SWH Premises but another thing, which is not at all proximate, to procure the elders to enter into an agreement with D to stay in the SWH Premises. I find no reason to imply such term. 31.As conceded by P in the course of the trial, it is an implied term that P shall deliver all the personal documents, including identity cards and medical records, to D at the time of the move. (Issue B) Had P performed its obligation according to the Agreement? 32.Let us assume for an implied term that P had to notify the elders of the Sale to a new operator. Thereappears to be an apparent breach on the part of P. Mr. Chong gives evidence in Court to the effect that the written notices only meant to state what he believed to be a prospective case of merger of P with D in the operation of the SWH Premises. I find such notices misleading or at best evasive. They werenot full and frank announcements. 33.P had kept all the personal documents, including identity cards and medical records, in the SWH Premises but had not tendered them to D until the police had come to assist D. (Issue C) If Yes, what damages would P get? 34.There is no loss caused to D for P’s belated delivery up of all the personal documents, including identity cards and medical records, in the SWH Premises. 35.D regards it the cream of the bargain P’s full and frank announcement of the Sale. As I see it, despite what P and D described in the Agreement, the elders were not commodities. D has to adduce evidence to show that the elders had left because they were annoyed by P’s less than full and frank announcements. Quite the contrary, despite these, some elders, such as Tung Siu-yim, whose wife is a defence witness, 47 out of 58 still decided to move into the SWH Premises. 36.D also argues that some elders had left shortly after the move, so D need not pay their Transfer Fee. I find nothing in the Agreement for P to secure a minimum stay or a minimum Monthly Fee for any elder. Whether the elders had been paying $6,900 or less in GD, there can be no guarantee that the elders might be prepared to continue paying the same Monthly Fee to D, orstayingfor long in the SWH Premises. 37.In the Agreement, D was in substance purchasing a chance to make a profit by hoping that some elders might pay much and stay long. In the event that the elders were only prepared to pay less or to leave soon after the move, D would make a loss despite P’s due performance of the Agreement. Alternatively, in the event that the elders were to stay for many years at the SWH Premises, D would make a handsome profit. 38.As the Agreement stipulated that the date of counting the number of elders moving into SWH Premises was to be the date of the move, P should not be deducted the Transfer Fee of those not staying long after the move. D has also failed to justify her not paying the corresponding Transfer Fee for those elders who had stayed for some time after the move. Myfindings on D’s counterclaim (Issue D) Had P misrepresented the Monthly Fee and the Deposit? 39.Mr. and Mrs. Chong’s evidence is that they made no mention of the amount of the revenue of GD or told Mdm Luk that the Deposit averaged less than $2,000 for each elder. Mdm Luk says that they did both. I have considered whether it is possible for Mdm Luk tomention a figure as the transfer fee without others’ aid. She impresses me as a successful and experienced operator and I think she holds, perhaps justifiably so, a very high regard of her own achievement. It is likely, and it would not surprise me, that she would be able to mention a figure without any imput from Mr. and Mrs. Chong. She was even confident enough to sign the Agreement without first getting hold of the accounts. I do not find she was relying at all on what they told her. Since D alleges misrepresentation, D has to prove that they had made it in the first place and she had relied on it in the second place. D has failed to prove both. (Issue E) If Yes, could D rescind the Agreement or get damages in lieu of rescission? 40.It follows that D could get no relief for misrepresentation. (Issue F) Was P in breach of the Agreement? 41.As said hereinbefore, I do not find P in breach of the Agreement. (Issue G) If Yes, what damages would D get? 42.It follows that D would not get any damages. Conclusion 43.D fails in its counterclaim. P succeeds in its claim. P shall get $920,393, which consists of an adjustment for (1), (2) and (3) as follows:
44.The judgment sum shall carry interest at judgment rate from the date of the filing of the Amended Statement of Claim until payment. 45.I order costs nisi to P with certificate for counsel on both the claim and the counterclaim. This costs order shall become absolute after 21 days from today.
Mr. Eugene Yim, instructed by M/s. Chung & Kwan for the Plaintiff. Mr. Chase Pun, instructed by M/s. Lily Fenn & Partners for the Defendant. | |||||||||||||||||||||||||||||||||||||