Bauhinia Catering Management Co Ltd v. Heung Sai Kit and Others

DCCJ 5561/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5561 OF 2006

____________

Coram : Her Honour Judge H.C. Wong in Court

Dates of Hearing : 24^th –28^th January and 1^st February 2011

Date of Handing Down Judgment : 29^th April 2011

JUDGMENT

1.The Plaintiff, Bauhinia Catering Management Co. Ltd., is a company incorporated in Hong Kong carrying on the business of providing food and catering services in the name of Bauhinia Court at the Chung Chi College Staff Club (“the Staff Club”) of the Chinese University of Hong Kong (“the University”) between 24 July 2000 and 31 July 2005.

2.Mr. Tang King Wah, Ringo (“Ringo”) and his wife Madam Wu Su Lan are the directors and shareholders of the Plaintiff (“the Restaurant”).

3.The Defendant is and was at all material times an unincorporated association consisting of staff members of Chung Chi College of the University.

4.On 12 August 1998, before the incorporation of the Plaintiff, Ringo and 3 other partners jointly entered into a written catering agreement with the Staff Club.  At the expiry of the 1998 agreement, Ringo and his wife carried on in the Plaintiff’s name under a 23 July 2000 contract signed with the Staff Club (“the 1^st agreement”).  Upon the expiry of the 1^st agreement, on 9 July 2002, the parties entered into a second catering contract for a period of 36 months from 24 July 2002 to 31 July 2005 (“the 2^nd agreement”).  It is not disputed that, under all three agreements, the caterer was required to pay water, electricity, trade effluent, fuel and other government and University prescribed charges incurred by the caterer.  It was also a term of the agreements that the water, electricity and trade effluent charges would be deducted from the caterer’s business proceeds each month.

5.Under the agreements, the Restaurant catered for members of the Staff Club who would settle their respective accounts for food and beverage consumed at the Restaurant at the end of each month through the University.  The 1^st and 2^nd agreements stipulated that the Staff Club would levy a 5% charge on all food and beverage consumed at the Restaurant by its members and functions and dinners catered by the Restaurant at the Staff Club, while payments in cash or by credit card collected by the Restaurant, the levy was 13%.  As water, electricity and trade effluent charges were settled by the University on behalf of the Staff Club, these were deducted by the University at the end of each month from payments collected from Staff Club members.  The University levied a monthly building maintenance fee of $6,800 in 2000; this fee was increased to $7,000 in 2001.  The building maintenance fee was borne by the Restaurant under the agreements.

Undisputed Facts

6.At the time when the parties entered into the 1^st agreement on 23 July 2000, it was anticipated that the Staff clubhouse (“the clubhouse”) would be undergoing complete refurbishment between 30 October 2000 and 3 January 2001.  As the cost of refurbishment was estimated at around $6 million, the Staff Club requested the Plaintiff to contribute the sum of $500,000 towards the cost of refurbishment under the 1^st agreement.  The University would pay a sum of $2 million towards the refurbishment of the clubhouse while the balance of the renovation cost would be raised by the Staff Club with an interest free loan from the University of $3 million to be repaid within 10 years.  On this basis, the Staff Club was committed to finance the refurbishment cost of $4 million from the loan from the University, its own accumulative savings and a contribution of $500,000 from the Plaintiff.  Ringo and his wife agreed to contribute the sum of $500,000 by 2 instalments.

7.Under the 1^st and 2^nd agreements, the Staff Club agreed to provide all fixtures and fittings at the Restaurant and kitchen including ovens, stoves, refrigerators, washing machines etc. while the Plaintiff was required to supply the furniture including tables, chairs, table cloths as well as cutlery and crockery at the clubhouse.  The Plaintiff was also required to maintain all fittings and fixtures at the clubhouse under the 1^st and 2^nd agreements.  In addition, the Plaintiff agreed to supply a fixed number of kitchen and service staff in accordance with Annexure 2 clause 4(3) of the agreement (p. 18 of the bundle).

8.Clause B3.5 of the 1^st agreement (p. 6 of the bundle) is identical to clause B3.6 of the 2^nd agreement (p. 15 of the bundle).  It provided that “water, electricity, trade effluent, fuel and other government and University prescribed charges incurred would be borne by party B. The water, electricity and trade effluent charges would be deducted from the sale proceeds in the monthly account to be settled”.  Party B was the Plaintiff.

9.Since 1998, the Restaurant had been purchasing cylinder LPG from Shell and settling the charges incurred to the supplier directly.  In or around February 2001, after the LPG pipeline connecting the clubhouse to the student canteen at Chung Chi College was installed, LPG was supplied by one Calley & Company (“Calley”), a nominated distributor of Mobil Oil Co. (“Mobil”). The Restaurant was instructed by the Staff Club to pay the February fuel charge directly to the supplier.  Since March 2001 and after the Staff Club signed a contract with Calley in September 2001, the LPG used by the Restaurant was settled by the University Bursary (“the University”) on behalf of the Staff Club.  The Staff Club would deduct the Restaurant’s LPG charges from members’ monthly payments collected by the University before releasing the balance to the Restaurant each month.  This practice continued between March 2001 and July 2005 upon the termination and expiry of the 2^nd agreement.

10.It is not disputed the Staff Club had settled the construction cost of $230,000 on the extension of the LPG pipeline from the student canteen of Chung Chi College, Chung Chi Tang（眾志堂）, to the Staff Club.  It further signed an agreement with Calley to supply LPG to the clubhouse in September 2001.

The Plaintiff’s Case

11.It is the Plaintiff’s case that under the 1^st and 2^nd agreements, the Staff Club is under a duty to render a true and full account of the LPG charges to be paid by the Restaurant or alternatively, to be deducted from the Restaurant’s account.

12.It is the Plaintiff’s alternative claim that it was an implied term of the 1^st and 2^nd agreements that the Staff Club should render a true and full account of the LPG charges to be paid by the Restaurant or alternatively to be deducted from the Restaurant’s account.

13.The Plaintiff claimed the Staff Club had overcharged 26% of the LPG charges each month without the Plaintiff’s consent in breach of the 1^st and 2^nd agreements and retained an unlawful profit in the sum of $539,514.44 i.e. under the 1^st agreement $166,332.11 and under the 2^nd agreement $373,182.33.

The Defendant’s Case

14.The Staff Club claimed it had entered an oral agreement with the Restaurant that the Staff Club would retain 26% of the 36% discount on all LPG used while the remaining 10% discount would be passed on to the Restaurant.  Alternatively, because the Restaurant had consistently accepted the discount arrangement set out in the monthly account statements, the terms of the 1^st agreement were amended accordingly.  The Staff Club further claimed that the 2^nd agreement was amended in accordance with the discount arrangement agreed and accepted in practice.  The Staff Club denied there were any unlawful retention of profits or breaches of the two agreements; if there were such breaches, it had been waived or acquiesced by the Restaurant’s conduct or that the Restaurant is otherwise estopped to contend such alleged breaches.  The Staff Club further sought by counterclaim an order for rectification of the terms of the 2^nd agreement to reflect the parties’ acceptance of the discount arrangement.

The issues

15.The parties’ amended agreed list of issues are:-

(1)  Whether there is an implied term or duty in the 1^st agreement and the 2^nd agreement that the Defendant would render a true and full account of LPG charges to be paid by the Plaintiff or alternatively to be deducted from the Plaintiff’s account.

(2)  Whether there is an oral agreement that the Defendant would retain the benefit of the 26% discount on the LPG bills and that the remaining 10% discount would be passed on to the Plaintiff.

(3)  If there was no oral agreement, whether the conduct of the Plaintiff amounted to acceptance of the discount arrangement.

(4)  If there were any breaches of the agreements whether the conduct of the Plaintiff amounted to waiver and acquiescence of the breaches.

(5)  If the oral agreement was established, whether the second utility charges clause was made by a mistake between the Plaintiff and the Defendant and that the Defendant was entitled to seek rectification of the 2^nd agreement accordingly.

(1) Whether there is an implied term or duty in the 1^st and the 2^nd agreements that the Defendant would render a true and full account of LPG charges to be paid by the Plaintiff or alternatively to be deducted from the Plaintiff’s account

16.According to the 1^st and 2^nd agreements written in Chinese, clause B3.5 (乙 3.5) (p. 6 of bundle C) of the 1^st agreement and clause B3.6 (乙 3.6) in the 2^nd agreement (p. 13 of bundle C) stated:-

“有關之水費、電費、排污費、燃料費及其他政府和大學規定的費用概由乙方自行負責支付。水費電費及排污費將由營業收益中按月扣除。”

The above clause translated in the pleadings is as follows:-

“Water, electricity, trade effluent, fuel and other government and University prescribed charges incurred would be borne by party B. The water, electricity and trade effluent charges would be deducted from the sales proceeds in the monthly account to be settled.”

Under the 1^st and 2^nd agreements, party A（甲）is the Staff Club, party B（乙）is the Plaintiff.  The fuel charges referred to the liquefied petroleum charges (“LPG charges”).

17.Ever since Ringo and his partners took up the catering at the Staff Club in 1998 and up to February 2001, cylinder LPG was used at the restaurant kitchen.  All LPG were ordered and paid for directly by the Restaurant. Consequently, clause B3.5 of the 1^st agreement was fully complied with when water, electricity and trade effluent charges were deducted by the University from members’ payments collected each month and the Restaurant settling the LPG charges directly with the supplier.

18.In April 2001, the Restaurant, instead of settling the LPG charges with the supplier directly, was told the LPG charges would be deducted from the monthly payments collected by the University.  This was not an expressed obligation under the 1^st or the 2^nd agreement.  The question therefore is: if there were no expressed agreement between the parties, whether this arrangement was consistent with the expressed agreement in the 1^st and 2^nd agreements’ clause B3.5 (under the 1^st agreement) and B3.6 (under the 2^nd agreement) that only water, electricity and trade effluent charges would be deducted from the monthly payments collected by the University?

19.So far as the water, electricity and trade effluent charges are concerned, Professor Wong admitted the charges deducted were exactly as per invoices and demand notes received from the Water Works Department and the power company, no additional charges were levied by the Staff Club or the University.  Furthermore, there was no provision under the 1^st or the 2^nd agreement for the Staff Club to levy any additional charges on top of the Restaurant’s actual consumption of electricity and water at the clubhouse other than the University’s monthly building maintenance fee and the Staff Club’s management fee of 5% under clause C4 on members’ food and beverage accounts, staff dinner functions at the club house and 13% on all cash and credit card payments collected by the Restaurant.

20.Consequently, it is fair for the Restaurant to assume all deductions by the Staff Club and the University to reflect the actual invoice amount settled by the University on behalf of the Staff Club, failing expressed agreement between the parties.

(2) Whether there is an oral agreement that the Defendant would retain the benefit of the 26% discount on the LPG bills and that the remaining 10% discount would be passed on to the Plaintiff

21.According to the Defendant’s pleaded case and the evidence of Professor Wong, before the parties entered into the 1^st agreement on 23 July 2000, the parties understood that Chung Chi College would be renovating certain parts of the college including the clubhouse.  The clubhouse renovation was intended to improve the clubhouse facilities to cater for the increasing membership at the Staff Club.  The cost of renovation approved by the University was about $6m to be paid by the Staff Club and Chung Chi College. The renovation work included the improvement and enlargement of dining facilities at the Restaurant and the installation of a function room on the ground floor of the Staff Club.  Consequently, after negotiating with the Plaintiff, the Staff Club inserted in the 1^st agreement a special provision clause that the Plaintiff would contribute the sum of $500,000 towards the cost of renovation by 2 instalments.  The 1^st instalment was payable upon the signing of the agreement and the balance of $265,000 (including $15,000 interests on the loan of $250,000) would be paid on or before 24 July 2001 under clause D 1.6 of the 1^st agreement (p. 7 of Bundle C).

22.In or about mid-October 2000, Professor Wong learned from Dr. Yung Kung Hing (the Chairman of the Task Force on the Renovation Project) the student canteen at Chung Chi College, Chung Chi Tang（眾志堂）, was enjoying a substantial discount of about 1/3 of the market price on LPG from Mobil Oil Hong Kong Limited and that the Staff Club would enjoy a similar discount provided a LPG pipeline was installed to connect the clubhouse and Chung Chi Tang.  The cost of laying the LPG pipeline from Chung Chi Tang to the Staff Club was estimated at $230,000.

23.On or about 23 October 2000, Professor Wong, the Staff Club Chairman, had a discussion with the Vice Chairman Dr. Chiu Ha Ying and the Staff Club executive assistant Miss Shady Tai (“Miss Tai”).  They agreed the pipeline would be constructed for the Staff Club to enjoy savings on the LPG and a stable supply of LPG to the kitchen of the Restaurant.  They also decided that the Staff Club would seek a contribution from the Restaurant for the pipeline construction; should the Restaurant refuse to contribute to the construction cost, the Staff Club would retain a portion of the discount on the LPG charges to cover the construction cost.

24.Professor Wong claimed that shortly after the 23 October 2000 meeting, he had discussed the LPG pipeline proposal with Ringo at the clubhouse and Ringo did not object to the installation of the LPG pipeline, but had indicated the Restaurant would not be making any contribution to the construction cost. He told Ringo that the LPG storeroom at the Restaurant would be demolished and the kitchen area would be enlarged as a result.  He further told Ringo if the Staff Club were to bear the construction cost, it would only pass on part of the discount to the Plaintiff.  He claimed Ringo had agreed in principle with this arrangement.

25.Professor Wong then asked the Renovation Project Task Force of the University to proceed with the laying of the LPG pipeline.  In or about 21 December 2000, Professor Wong was told that Mobil had agreed to the construction of the LPG pipeline extension on condition that the cost of laying the pipeline of $150,000 and trenching works of $80,000 would be borne by the University or Chung Chi College.

26.Mr. Andrew Lau, the secretary of the executive committee of the Staff Club between 1996 and 1998 who was also the secretary to the Renovation Project Task Force of Chung Chi College, said he had a number of discussions with Ringo on the renovation at the clubhouse.  The discussions were about the installation of new kitchen equipments, items and prices on the menu, uniform of the Restaurant staff and cashier arrangements etc.  In January 2001, Mr. Lau talked to Ringo about the arrangement of the LPG pipeline construction cost and the LPG discount.  Mr. Lau said Ringo confirmed to him his agreement in principle to share the discount with the Staff Club but told him he would not contribute to the construction cost.  They did not discuss the details of discount arrangement.  Meanwhile, Mr. Lau and Professor Wong and other members of the Task Force of the Renovation Project exchanged emails on the discount sharing arrangement between the Staff Club and the Restaurant.

27.Mr. Lau admitted that in mid-January 2001 Ringo told him the price of cylinder LPG paid by the Restaurant was $10.08/kg with a 5% rebate.  According to the calculation of Mr. Lau and Professor Wong, upon the extension of the LPG pipeline to the Staff Club, the discount offered by Mobil would mean a saving of around 40% on the cylinder LPG used by the Restaurant.

28.On 1 February 2001, the Restaurant reopened its doors.  As the construction of the pipeline was not completed until 8 February 2001, the Restaurant continued to purchase cylinder LPG between 1 and 8 February 2001.

29.It was the evidence of Professor Wong that at the 6^th meeting of the Catering Services Sub-Committee of the Staff Club on 29 March 2001 (“the Meeting”), the sub-committee resolved that the Restaurant would receive 10% discount on the LPG charges while the Staff Club would retain the remaining 26% discount offered by the LPG supplier (“the discount arrangement”).

30.At the end of the said sub-committee meeting, Ringo was asked to join the meeting.  Professor Wong claimed he told Ringo about the discount arrangement offering 10% discount on the LPG charges to the Restaurant while the Staff Club would retain 26% discount based on the assumption that the total discount on the LPG supplied by Mobil was 36% of market price.  It was the evidence of Professor Wong that ‘Ringo did not object to the proposal and had thereby accepted it’ on behalf of the Restaurant with effect from February 2001 when the pipeline was completed (“the oral agreement”).

31.In mid-August 2001, Professor Wong learned from Ms. Tai that Ringo told her Mobil required the Restaurant to sign a LPG supply agreement with its nominated distributor Calley LP Gas Co. Ltd. (“Calley”).  She was given a copy of the LPG supply agreement signed by Calley naming the Restaurant as the purchasing party.  Professor Wong signed the agreement for LPG supply with Calley on behalf of the Staff Club on 20 September 2001.  From then on, Calley would send monthly LPG invoices directly to the Staff Club and Ms. Tai would work out the LPG charges payable by the Restaurant and set it out in the monthly account statements to the University.  The University would issue cheques payable to the Restaurant after deduction of the maintenance and management fees, water, electricity and trade effluent charges and the LPG charges.  This practice continued after the signing of the 2^nd agreement for the period of 24 July 2002 to 31 July 2005.  It is not disputed that the 2^nd agreement contained terms similar to the 1^st agreement and there was no amendment to the 2^nd agreement to include the oral agreement on LPG charges.

32.Ringo claimed he was not informed Mobil had offered 36% discount on the LPG used by the Restaurant.  He claimed it was only in or about April 2001 that he came to know the Restaurant would be receiving 10% discount on the market price for LPG supplied by Mobil and that it was not until January 2002 that he discovered the Staff Club had retained 26% discount on LPG used by the Restaurant.  He claimed he had learned that a large discount had been offered by Mobil to the Staff Club through his football friends at the Chinese University during causal conversation in August 2001.  He denied he had any discussions with Professor Wong or Mr. Lau on the discount offered by Mobil and there was no agreement between the Staff Club and the Restaurant on the discount arrangement at any time.  He said he would have opposed and rejected the discount arrangement proposal for the Staff Club to retain a discount of 26% with the remaining 10% discount to the Restaurant on LPG used by the Restaurant.

33.Ringo said he was informed by Professor Yung during the Staff Club renovation period that the Staff Club had decided to install the LPG pipeline to the Restaurant and the work would cost around $200,000.  He admitted he told Professor Yung he would not pay further sums as he was already committed to pay a contribution of $500,000 on the renovation of the clubhouse.  After the renovation was completed, Professor Wong talked to him after dinner at the Restaurant one evening requesting the Restaurant to pay the Staff Club the cost of LPG pipeline installation.  Ringo refused to pay a further sum saying he had already contributed $500,000 plus $15,000 interest on the renovation cost.  He reminded Professor Wong the pipeline was a fixture installed at the clubhouse premises.

34.After discovering in August 2001 the LPG used by the Restaurant received a big discount from the LPG supplier and realising a large portion was retained by the Staff Club, Ringo wrote to the executive committee of the Staff Club on 25 August 2001 asking for the reason for the Restaurant’s high LPG charges compared to Chung Chi Tang which had a higher consumption of LPG.  He further asked for a similar discount enjoyed by Chung Chi Tang.  Unfortunately, he did not receive any reply either orally or in writing from the Staff Club.

35.Ringo claimed that throughout the contract period he had never queried the Staff Club over the utility charges deducted from the monthly proceeds or the account statements the Staff Club submitted to the University.  Ringo further claimed he had never seen a copy of the water rate demand or electricity invoice of the clubhouse, he had simply accepted the utility charges deduction in the monthly payments from the University to be accurate and fair because he trusted the Staff Club as part of the University.

36.Ringo denied that at the meeting on 29 March 2001 he was ever told of the discount arrangement.  He further denied the Staff Club had disclosed to him at any time the amount of discount from the LPG supplier to the Staff Club, neither had he ever agreed to a discount split of 10% to the Restaurant and 26% to the Staff Club.

37.The Restaurant’s letter of 25 August 2001 to the executive committee of the Staff Club supported the Plaintiff’s claim that the Restaurant had never reached an agreement with the Staff Club on the LPG discount.  Paragraph 3 of that letter (p. 227 of the documents bundle) stated:-

“此外，鋪設全新石油氣管道之費用約弍拾多萬（不知確實數目），目前紫荊閣理解為該筆費用已被定為由紫荊閣攤期支付(未知攤期數目)以 貴會與紫荊閣簽訂之承辦合約所示，分擔餐廳裝修工程費用總數為五十萬，之前紫荊閣從不知道石油氣管道之安排。如果石油管道鋪設費用由紫荊閣支付，那麼分擔餐廳裝修工程費用總數已超過五十萬。”

38.In the above letter, Ringo claimed that (i) the Restaurant had no knowledge of the exact cost of construction of the LPG pipeline extension from Chung Chi Tang to the Staff Club; (ii) the Restaurant understood the cost of LPG pipeline construction would be borne by the Restaurant to be paid by installment; (iii) under the 1^st agreement, the Restaurant’s contribution to the Staff Club renovation was $500,000, the renovation contribution by the Restaurant would have exceeded $500,000 if the LPG pipeline cost was also to be borne by the Restaurant.

39.In the letter of 5 May 2005, the Restaurant stated:-

“自二零零一年會所翻新， 貴會重鋪石油氣輸送管道以供應石油氣予餐廳使用，而將石油氣費用於營業額內扣除，唯 貴會在未有雙方協議下將供應商提供予使用者之折扣撥作 貴會收益。”

(p. 379 of the documents bundle)

40.The 5 May 2005 letter supported the Plaintiff’s claim that up to 5 May 2005 there was no agreement on the split of the 36% discount offered by the LPG supplier.  The Defendant admitted there were no written replies from the Staff Club to the Restaurant’s two letters.

41.The emails exchanged on the LPG supply between Mr. Andrew Lau, Professor Eric Wong, Mr. Louis Heung copied to Miss Angeline Kwok and Miss Dorothy Fok on 11 January 2001 were produced at the trial (p. 422-426 of the documents bundle).  In the first email, Mr. Lau informed Professor Wong and Mr. Heung the price of the Shell LPG at the Restaurant was $9.58/kg while the LPG from Mobil to Chung Chi Tang was only $6.09/kg.  Mr. Lau suggested the Staff Club to absorb the LPG pipeline construction cost of $230,000 and the Restaurant to be given a rebate of 1/3 of the LPG discount during the catering contract.  He reported that Ringo had preliminarily agreed to share the savings with the Club but details of the percentage had not been discussed with him.  The next email was a reply from Mr. Heung suggesting that at least half of the costs of pipeline construction of $115,000 should be recovered from the caterer.  He further suggested during the 2 year catering contract, the Restaurant should pay $5,000 per month for a period of 23 months from the savings on the cost of LPG.  He requested Mr. Lau to liaise with Ringo and prepare a letter of understanding with the Restaurant.  In the 3^rd email (p. 425 of the documents bundle), Professor Wong agreed that at least 50% of the discount should be given to the Staff Club and suggested a meeting of the executive committee for a consensus on the discount percentage.  The last email (at p. 426 of the bundle) dated 17 January was from Mr. Lau, reporting that Ringo had agreed to share half of the purchase price of the twin oven and the mixer.  He also confirmed the price the Restaurant paid to Shell was $10.08/kg with a 5% discount.  He further said he would prepare a letter of understanding to the Restaurant for committee members’ comments.

42.It is not disputed that no letter of understanding had been signed by the parties and no explanation tendered on why the alleged discount arrangement agreement had not been reduced into writing.  On the other hand, a number of written agreements were produced indicating the Staff Club had always been careful on matters involving loans and financial transactions with the Restaurant.  These included e.g. a letter dated 16 September 1998 from the Staff Club to the Restaurant addressed to Ringo and his partners recording the agreement between the Staff Club and Bauhinia Court for an interest-free loan of $60,000 for the procurement of furniture at the restaurant to be repaid by 6 monthly instalments of $10,000 to be deducted from Bauhinia Court’s income collected by the University (p. 185 of the bundle).

43.At p. 188 of the bundle of documents is a letter dated 30 September 1998 from the Staff Club to Bauhinia Court recording the agreement for advancement of a loan of $100,000 from the Staff Club to Bauhinia Court.  The letter stated that repayment would be by 10 monthly instalments of $10,000 in 1999.  The loan was to finance the operation of Bauhinia Court when the 4 partners first took over the catering contract at the Staff Club in 1998.

44.Page 221 of the documents bundle is a memorandum dated 24 July 2001 from Miss Dorothy Fok, Secretary of the executive committee of the Staff Club, to Ringo on the loan repayment arrangement of a $265,000 loan from the Staff Club to be repaid within 3 months at an interest rate of 4% per annum.  When the Restaurant was late in repaying the 2^nd instalment, Miss Fok wrote to Ringo on 29 October 2001 reminding him to pay the 2^nd instalment (p. 223 of the documents bundle).  The 2^nd instalment of $133,825 was paid by cheque on 6 November 2001 (p. 222 of the documents bundle).  These documents recorded the Restaurant’s contribution of the $515,000 towards the renovation of the clubhouse in 2001.

45.Page 271 is a letter from the Restaurant to the Defendant dated 21 June 2002 requesting the cost for the replacement of the carpet under the 2^nd agreement of $100,000 to be paid by 5 instalments.  Page 272 is a memorandum from Miss Fok to Ringo setting out the terms of the loan repayment arrangement.  All of these documents were signed by the parties and formally recorded.

46.At the 6^th meeting of the Staff Club Catering Services Sub-Committee of 2000 - 2001 on 29 March 2001 at the clubhouse, item 3 of the minutes of meeting recorded the arrangement for LPG payment.  Professor Wong reported at the meeting the LPG supplier’s discount offer to the clubhouse was approximately 37%, the minutes further stated:-

“As the connection fee was part of the total renovation cost, which was borne by the College and the Club, the Caterer would not be entitled to such discount. Members agreed to offer the Caterer a 10% discount only, while the rest of discount would be enjoyed by the Club for the purpose of further Clubhouse maintenance, especially the VIP room would be of the highest priority to be renovated in the future. It was resolved that the Executive Committee would settle the gas payment each month on behalf of the Caterer, and deduct the gas fees (with the 10% discount of the original cost only) directly from its revenue gained each month. Ms. Shady Tai was requested to confirm the exact amount of discount with the gas company. Professor Dennis Ng will report the resolution in the next Executive Committee meeting.” (page 216 of the bundle)

47.Professor Wong was cross-examined on the post-meeting notes recorded in the minutes of meeting on 29 March 2001 (see pages 216 to 218 of the bundle of documents).  Under the minutes of meeting, item 4 referred to a revised booking form, item 6 referred to Ringo’s failure to report the customer services manager’s resignation and his employment of a new manager without consulting the Staff Club.  Ringo was invited at the end of the sub-committee meeting to explain the change.  Under Item 6, the post meeting note recorded: “A verbal warning was given to Mr. Ringo Tang at the end of the meeting and he agreed to recruit a new customer services manager shortly to replace Ms. Au Yeung”.

48.Unlike item 6, there was no post meeting note under item 3 of the agenda on the new arrangement of gas payment or that Ringo was informed by Professor Wong at the meeting the discount arrangement.  One would expect an important agreement such as the discount arrangement on LPG supply would have been recorded in the post meeting note of the minutes of meeting.  Professor Wong’s explanation was Miss Fok had probably forgotten to record Ringo’s agreement accepting the 10% discount offered to him out of the 36% discount.  He claimed the minutes of meeting was not circulated after the meeting.  Even so, it is most unusual for the discount arrangement agreement to be omitted in the post-meeting note while other items such as Ringo’s response to the replacement of a customer services manager without notice to the Staff Club was recorded at length in the minutes of the same meeting.

49.The percentage of discount of LPG charges was a topic under discussion in detail since 7 January 2001 between Professor Wong, Mr. Lau and Mr. Heung. They were clearly working out the savings on the LPG charges in relation to the cost of construction of the LPG pipeline.  After the email discussions in January 2001, the sub-committee finally resolved at the 29 March 2001 meeting to offer only 10% discount to the Restaurant.  There was no reference to a letter of understanding with the Restaurant in the meeting minutes.  The defence relied solely on an oral agreement between the parties on the split of 10% and 26% discount with no explanation on why no letter of understanding had been signed.  The reason given by Professor Wong on the failure to record the oral agreement in the 2^nd agreement was the lack of legal knowledge of Miss Fok who was the drafter of the agreement.  He did not explain why the committee had failed to direct or authorize Mr. Lau or Miss Fok to prepare a written agreement on the discount arrangement for Ringo to sign.

50.The 2^nd agreement signed by the parties on 9 July 2002 made special provisions under para. B3.3 (p. 13 of the bundle) requiring the Restaurant to replace the carpet at the Restaurant by 20 August 2002.  It stated in no uncertain terms the carpet was to be financed by a loan from the Staff Club of $100,000 with interest at 2% below prime rate per annum and repayment in 5 monthly instalments of $20,000.  Compared to the agreement on the alleged discount arrangement agreement on LPG charges, the joint contribution for the purchase of a mixer/blender worth $9,600 (p. 50 of the documents bundle) is decidedly trivial.  The reason why the alleged discount arrangement for LPG supply was not recorded in any written document remained a mystery.  Paragraph 2 of the minutes of the 2^nd regular meeting with Chairperson on 27 August 2001 (p. 229 of bundle of documents) recorded the receipt of the Ringo’s 25 August 2001 letter on the arrangement of LPG payment and the LPG supply contract with Mobil.  At para. 2(3) it stated: “and both parties agreed that the discounts received from Esso would be distributed among them.”  Again, there was no reference to the percentage of the split of discount or the alleged oral agreement.

51.Based on the aforesaid, it is most likely that Ringo was merely informed the Restaurant would enjoy a discounted charge on the LPG used by the Restaurant. Even though Ringo had been told the Staff Club would share the LPG discount with the Restaurant, as the Restaurant was previously only receiving 5% discount from its former LPG supplier (Shell) for the cylinder LPG, the Staff Club probably considered the Restaurant would be contended with a discount above 5%.  The executive committee meeting minutes indicated that on 29 March 2001, the exact discount percentage had not yet been verified, consequently, it is unlikely for Professor Wong to have informed Ringo the percentage of discount from Mobil was 36% and the Staff Club would retain 26% of the 36% discount.

52.I accept Ringo’s evidence that he had only discovered the Staff Club was receiving a large discount from the LPG supplier in August 2001.  It led to his 25 August 2001 letter to the Staff Club raising queries on the high LPG charges compared to charges paid by other caterers at the University campus.  He received no reply from either the Staff Club executive committee or Ms. Tai. Professor Wong claimed he understood Miss Dorothy Fok had orally replied to Ringo’s letter of 24 August 2001.  Unfortunately, Miss Fok did not give evidence at the trial.  Ringo, on the other hand, denied anyone had given him a reply either orally or in writing to his 25 August 2001 letter on the high LPG charges.  In Ringo’s letter of 5 May 2005, he repeated his complaint and that his earlier letter had not been answered.  Again, there was no written reply from the Staff Club to his letter of 5 May 2005.  Based on the aforesaid evidence, I am not satisfied the parties had reached an agreement orally or otherwise on the discount split of 10% to the Restaurant and 26% to the Staff Club.  It is obvious from the 29 March 2001 meeting minutes, the Staff Club came to a consensus on the LPG discount and decided to offer only a 10% discount to the Restaurant, keeping the savings for its own use in Ringo’s absence at that meeting.  I am not persuaded that the discount arrangement was ever explained to Ringo.  The Staff Club executive committee’s minutes of meeting did not support the Defence’s pleaded case.

53.I further find that even if there was an oral agreement reached, there was no consideration in support of the agreement.  The decision to extend the gas pipeline from Chung Chi Tang to the Staff Club was made solely by the executive committee, the decision did not involve the Restaurant.  The only reason Ringo was informed of the extension of the LPG pipeline before the renovation was because the Staff Club had hoped the Restaurant would pay the cost of the pipeline construction.  Ringo rejected it outright from the start because he had no spare cash as shown from his borrowings from the Staff Club and from his relatives to pay the $500,000 contribution to the Staff Club at the time.

54.As to the Defendant’s claim that the Restaurant would enjoy a larger kitchen area after the LPG cylinder storage room was demolished with a stable supply of LPG after the pipeline was laid, these were not direct benefits to the Restaurant when fittings and fixtures at the Restaurant belonged to the Staff Club and the renovation benefited the Staff Club beyond the 1^st and 2^nd agreement period.  Further, the Staff Club had decided to enlarge the Restaurant to cater for its increasing membership, it was for the sole benefit of the Staff Club to put in a function room on the ground floor of the clubhouse.  Unlike the furniture and cutlery at the Restaurant, the LPG pipeline was a permanent fixture which the Restaurant could not remove on the expiry of the 1^st and 2^nd agreements.  I cannot find sufficient reasons for the Restaurant to accept the alleged “oral agreement on 29 March 2001”, there were inadequate basis to support good consideration to the “oral agreement”.  Furthermore, the decision to install the pipeline extention was made in late October or November 2000 while the alleged ‘oral agreement’ was made in 29 March 2001, over one month after the pipeline was completed and put into use by the Restaurant.  It was past consideration even if there was an oral agreement.

(3) If there was no oral agreement, whether the conduct of the Plaintiff amounted to acceptance of the discount arrangement

55.Mr. Nip, Counsel for the Defendant, argued that since the Restaurant had accepted the monthly payment cheques from the University from April 2001 to the end of the 2^nd agreement in August 2005, it amounted to an acceptance of the discount arrangement.  Each of the monthly payments was based on the monthly account statement to the University copied to the Restaurant setting out the deduction of the LPG payment returned to the Staff Club based on the supplier’s 36% discount.  Mr. Nip submitted that to all outward appearance, the Plaintiff had agreed to be bound by the discount arrangement.  The Plaintiff’s Counsel, Miss Gwilt, on the other hand, disputed an acceptance of payment of a smaller sum would amount to acceptance of the discount arrangement.

56.Miss Gwilt relied on para. 24-010 of Chitty on Contracts 30^th ed. vol. 1:-

“Effect of affirmation

Where the innocent party, being entitled to treat himself as discharged by the other’s breach, nevertheless elects to affirm the continued existence of the contract, he does not thereby necessarily relinquish his claim for damages for any loss sustained as a result of the breach.”

57.In my view, the Restaurant’s acceptance of the monthly cheque payment from the University does not eliminate its claim to recover the sum it is entitled to.  For example, an employer cannot pay an employee a lesser sum than the salary agreed under contract and say to him at the expiry of the contract that since the employee had continued to work for him that his acceptance of a smaller sum each month had estopped him from claiming under the contract.  The employee does not lose his right to recover the balance.

(4) If there were any breaches of the agreements whether the conduct of the Plaintiff amounted to waiver and acquiescence of the breaches

58.Chitty on Contracts vol. 1 30^th Ed. para. 22-044 at p. 1472 stated:-

“Consideration for waiver. A waiver is also distinguishable from a variation of a contract in that there is no consideration for the forbearance moving from the party to whom it is given. It may therefore be more satisfactory to regard this form of waiver, that is “waiver by estoppel”, as analogous to, or even identical with, equitable forbearance or “promissory” estoppel. Although consideration need not be proved, certain other requirements must be satisfied for such an estoppel to be effective: first, it must be clear and unequivocal; secondly, the other party must have altered his position in reliance on it, or at least acted on it.”

59.In the present case, the Staff Club did not alter its position in any way in reliance of a waiver by the Restaurant even if the Restaurant had waived a breach of the agreement by the Staff Club’s retention of a portion of the discount from the LPG supplier.  The Staff Club did not do anything detrimental to its interests or suffered any prejudice, neither did it alter its position. The Staff Club stood to gain from the discount of the LPG consumed by the Restaurant and accumulated a profit over and above the construction cost of the gas pipeline.  There was no clear and unequivocal representation of waiver from the Restaurant at any time.  The decision to construct the LPG pipeline extension was made by the Staff Club before the alleged oral agreement.  The pipeline was also completed and put into use before the alleged oral agreement.

60.Furthermore, it was the Staff Club’s obligation under its contract with the LPG supplier, Calley, to pay Calley the LPG used at the clubhouse.  The Restaurant was only bound under clause B3.5 of the agreement to pay the University its consumption of water, electricity and trade effluent charges. Under the two agreements, the Restaurant contracted to pay the LPG charges to the supplier.  The Staff Club, by entering an agreement with Calley, had taken over the obligation to pay the supplier from the Restaurant.  Clause B3.5 (p. 6 of the documents bundle) of the 1^st agreement and clause B3.6 (p. 13 of the bundle of documents) of the 2^nd agreement had not been amended, therefore only the water, electricity and trade effluent charges should have been deducted from the Restaurant’s monthly business proceeds.  It was clearly a departure from the terms of the agreements when fuel charges were deducted from the Restaurant’s monthly proceeds after March 2001.

61.Paragraph 22-047 at p. 1473 of Chitty on Contracts vol. 1 provided:-

“Waiver of breach. One party may waive his right to terminate a contract consequent upon a repudiation of the contract by the other party. It is, however, important to distinguish between the case in which a party waives his right to treat the contract as repudiated but does not abandon his right to claim damages for the loss suffered as a result of the breach and the case where the innocent party waives not only his right to terminate performance of the contract but also his claim for damages for the breach. The former is an example of waiver by election, whereas the latter is more properly classified as a species of waiver by estoppel.”

62.There was no evidence that the Plaintiff had represented to the Staff Club that it would waive the balance of the discount, namely 26% of the 36% discount from the LPG supplier.  The Staff Club’s claim was when Ringo attended the sub-committee meeting on 29 March 2001, he had, after the discount arrangement was explained to him, immediately agreed to the arrangement. However, in paragraph 29 of Professor Wong’s witness statement, he said:-

“Ringo did not object and thereby accepted it on behalf of the Plaintiff”.

63.The Defence’s assertion was not supported by the minutes of meeting of the sub-committee.  There was no reference of the discount arrangement or Ringo’s agreement to it in the post meeting note or that Ringo had made a representation that he would forgo the 26% discount at any stage during the duration of the 1^st and 2^nd agreements.  I cannot find any evidential support in the Defendant’s claim of waiver and estoppel.

64.As to acquiescence, I have been referred to Estoppel by Conduct and Election, a book by Mr. Justice Handley of the Court of Appeal of NSW, para. 12-007:-

“Acquiescence after the event is an equitable defence when inaction, delay and other facts make it inequitable for the claimant to enforce his rights. This defence and an estoppel by representation overlap when the claimant by his conduct represents to the defendant that he has abandoned his rights or does not intend to enforce them. In such a case there could be an estoppel if the defendant was thereby induced to change his position.

This defence is connected with that of laches and does not depend on estoppel. As Cotton LJ. said in Allcard v. Skinner:

‘Mere delay in enforcing a right is not a defence.  It is very different from raising no objection to an act while it is being done, which may be treated as assent to the act, and therefore as being acquiesced in [so] as to be an equitable defence.’”

65.Paragraph 28-136 at p. 1825 of Chitty on Contracts vol. 1 30^thed. stated:-

“In this sense of the term (which has been described as the only proper one) acquiescence by the claimant amounts to the waiver of his rights and raises a species of estoppel preventing him from subsequently enforcing them. The conduct of the claimant need not necessarily bear any relation to lapse of time, because it may take place before or at the time when his rights are violated. Mere delay by the claimant in seeking relief does not amount to acquiescence.”

66.In the present case, the Restaurant’s delay in seeking relief does not amount to acquiescence because the Restaurant did send a written enquiry to the Staff Club on the high LPG charges deducted from its business proceeds compared to charges paid by other restaurants and canteens in the University indicating its disagreement with the arrangement in August 2001.  Ringo’s 5 May 2005 letter repeated the demand, he did not receive an answer from the Staff Club.  The letters showed the Restaurant did not standby and acquiesce to it or waive its claim against the Staff Club.  For the aforesaid reasons, the Restaurant is entitled to the judgment claimed.

Money had and received

67.The definition of money had and received set out in the Law of Restitution by Goff & Jones 7^th ed. para. 1-002 is :-

“…… The action for money had and received lay to recover money which the claimant had paid to the defendant, on the ground that it had been paid under a mistake or compulsion, or for a consideration which had wholly failed. By this action the claimant could also recover money which the defendant had received from a third party, as when he was accountable or had attorned to the claimant in respect of the money, or the money formed part of the fruits of an office of the claimant which the defendant had usurped. The action also lay to recover money which the defendant had acquired from the claimant by a tortuous act; and, in the rare cases, where the defendant had received money which the claimant could identify as his own at the time of receipt and for which the defendant had not given consideration, the claimant could assert his claim by means of this action.”

68.In the case of Official Custodian for Charities v. Mackey & Others (No. 2) [1985] WLR 1308.  At p. 1314H, Mr. Justice Nourse held:-

“In Goff and Jones, Law of Restitution, 2^nd ed. (1978), p. 477, the case of a person who wrongly collects another’s rents is treated as an example of a wider class of case where the defendant, intervening without right between the plaintiff and a third party, renders himself accountable to the plaintiff for the sum which he receives from the third party. It seems to me that it is of the essence of all those cases both that there is a contract or some other current obligation between the third party and the plaintiff on which the defendant intervenes and that the third party is indebted to the plaintiff in the precise amount of the sum which he pays to the defendant, so that he cannot claim repayment from the defendant in the face of a claim made against the defendant by the plaintiff. It is that which enables the plaintiff to sue the defendant without joining the third party, who no longer has any interest in the subject matter of the suit. It would be a waste of time and money if the plaintiff had to sue the third party and the latter had to sue the defendant. The suit for money had and received avoids circuity of action. ”

69.The Plaintiff claimed the Defendant became a beneficiary when the Defendant intervened in the LPG purchase between the supplier and the Restaurant and took over the contract for the LPG supplied to the Restaurant by signing an agreement directly with Calley.  Before doing so, in August 2001, the Staff Club had to obtain the University’s permission for the discounted charges of LPG used by the Restaurant to be settled by the University and for the same to be deducted from the Restaurant’s income.  Consequently, after the adjustment of charges debited by the Staff Club in the monthly accounts, the Restaurant was required to pay a surplus over Calley’s invoice amount of 26% of the 36% discount to the Staff Club.

70.Mr. Nip argued that though secret profits and an account of moneys held on behalf of beneficiaries are remedies available where a fiduciary has abused his/her position, the Staff Club was not the Restaurant’s fiduciary.

71.The definition of fiduciary is explained in Goff & Jones Law of Restitution 7^th ed. Chapter 33 para. 1:-

“[A] fiduciary is someone who has undertaken to act on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence ”

The authors continued at p. 720:-

“the courts may be reluctant to find a fiduciary relationship between businessmen, who enter into commercial dealings with each other, for “the essence of fiduciary relationship is that it creates obligations of a different character from those deriving from the contract itself”.  But, the nature of the transaction between businessmen, in particular the nature of the obligations incurred by one party to act for another, may lead to the conclusion that one party is in a position of trust towards the other.

The class of fiduciary relationships is never closed.  Yet, as Justice Frankfurter once said:

“To say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?”

To state that no man “who stands in a position of trust towards another [can], in matters affected by that position, advance his own interests (e.g. by making a profit) at the other’s expense” is, therefore, to initiate a complex inquiry.”

72.Mr. Nip relied on Snell’s Equity 32^nd ed., Chapter 7 on p. 210:-

“The second of the two major themes of fiduciary loyalty is the profit rule.  The essence of the profit rule is that a fiduciary acts in breach of fiduciary duty where he or she makes a profit by reason or in virtue of the fiduciary office or otherwise within the scope of that fiduciary office.  A fiduciary is required “to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it.

The fiduciary’s honesty is no defence.

“The rule is not dependent on fraud or bad faith or whether the actions of the fiduciary were clandestine. The rule is dependent on the mere fact of the profit being made.”

73.When the Staff Club took over the obligation to pay the LPG supplier and signed the contract directly with Calley, stating on the contract it was signing the contract on the Restaurant’s behalf, it had therefore put itself into the position of a fiduciary for the Restaurant.  Consequently, any profits made by taking over that position should be accounted to the Restaurant.  Under the 1^st and 2^nd agreements, the only profit the Staff Club was entitled to was the 5% levy on members’ dining charges and 13% from cash and credit card receipts.  On the aforesaid basis, I find the Defendant liable to account the money it profited from the discount on the LPG supply to the Plaintiff.

The Defence’s Counterclaim

74.I reject the Defendant’s counterclaim for a rectification of the 1^st and 2^nd agreements.  As stated above, I do not accept there was an oral agreement between the parties for the Staff Club to retain 26% of the 36% discount from the LPG supplier and for the Plaintiff the remaining 10% on 29 March 2001 nor did the Restaurant accept the discount arrangement by conduct.  The Defendant’s counterclaim is therefore dismissed.

Interests

75.Interest is payable at half judgment rate from the date of writ to the date of judgment, thereafter at full judgment rate.

Costs

76.Costs to follow the event.  I make a cost nisi order that the Defendant shall pay the Plaintiff’s costs to be taxed if not agreed with certificate for Counsel, should there be no application on costs within 14 days hereof, the order will be made absolute.

Parties

Mrs. Angela D. Gwilt instructed by Messrs. Y.T. Szeto & Co. for the Plaintiff.

Mr. Norman Nip instructed by Messrs. Haldanes for the Defendant.

Please refer to CACV184/2011 for the relevant appeal(s) to the Court of Appeal.