Kinetics Medical and Health Group Company Ltd and Others v. Dr Tse Ivan Cheong Yau
Read the full judgment text of HCA 1115/2010 on BabelCite. This High Court CFI judgment was delivered on 7 October 2013.
1. The present case concerned a contractual dispute between the plaintiffs and the defendant. The 1 st plaintiff Kinetics Medical and Health Group Company Limited (“ Kinetics ”), the 2 nd plaintiff Dr Tse Kin Sang (“ Dr Tse ”) and the 3 rd plaintiff Dr Yu Chi Hung (“ Dr Yu ”) (collectively, “ plaintiffs ”) were formerly shareholders holding the entire issued share capital (“ Shares ”) of a company incorporated in April 2004 known as Kinetics Radio-Diagnostic Centre Limited (“ Company ”).
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HCA 1115/2010 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1115 OF 2010
BETWEEN
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_______________ J U D G M E N T _______________ I. BACKGROUND 1.The present case concerned a contractual dispute between the plaintiffs and the defendant. The 1st plaintiff Kinetics Medical and Health Group Company Limited (“Kinetics”), the 2nd plaintiff Dr Tse Kin Sang (“Dr Tse”) and the 3rd plaintiff Dr Yu Chi Hung (“Dr Yu”) (collectively, “plaintiffs”) were formerly shareholders holding the entire issued share capital (“Shares”) of a company incorporated in April 2004 known as Kinetics Radio-Diagnostic Centre Limited (“Company”). 2.Kinetics was/is a Hong Kong company whose directors were/are Mr Chan Ho Yin David (“Mr Chan”), a registered nurse, and his wife Ms Kwan Mei Sum (“Ms Kwan”). Mr Chan was a first director and major shareholder of Kinetics, and Ms Kwan was/is its operation manager. Since 2002 Kinetics operated a medical group (“Group”) with clinics in Causeway Bay, Jordan and Tsuen Wan. The Group’s headquarters were at its clinic in Jordan (“Jordan Clinic”) which opened in 2002. 3.Dr Tse, Dr Yu and the defendant read medicine at the same university. Drs Tse and Yu became registered doctors in 1998-1999, and they are serving public hospital doctors. Dr Tse used to work for a private medical group in 2006-2007. The defendant interned at public hospitals after he graduated in 2005. 4.In 2004, Kinetics established a medical clinic in Tsing Yi (“Clinic”) via the Company as corporate vehicle. In/about February 2005, Drs Tse and Yu joined the Company as shareholders/directors. They acquired interests in the Company for investment purpose, but had no intention of carrying on a medical practice at the Clinic. They entrusted its operation/management to Mr Chan and Kinetics’ staff. 5.Kinetics operated its clinics by entering into independent contractor agreements with medical doctors. There was difficulty in securing a long-term independent-contracted doctor (“ICD”) for the Clinic. Different doctors were arranged to work there on temporary basis, so the Clinic did not have regular opening hours. 6.In/about January 2006, Mr Chan invited the defendant to work for the Company/Clinic. On 15 February 2006, the defendant and the Company entered into an independent-contractor agreement (“Contractor Agreement”) whereby the defendant agreed to be an ICD for the Clinic from 1 July 2006 to 31 July 2007. Appendix I of the Contractor Agreement provided inter alia that:
7.The Company’s audited accounts for the years ended 30 September in 2005, 2006 and 2007 (“2005, 2006 and 2007 Accounts”) showed that the average monthly turnover was below HK$150,000.00, so the defendant’s remuneration from July 2006 to February 2007 was HK$53,000.00 per month of which HK$10,000.00 was withheld by the Company. He was paid HK$27,000.00 for March 2007. 8.When the Company was newly set up, it operated at a loss (HK$897,057.00 in the 2005 Accounts). But after Drs Yu and Tse joined in/about February 2005, the Clinic started to build up its goodwill and the number of patients gradually increased, so the annual loss was reduced to HK$774,730.00 in the 2006 Accounts. After the defendant started to work at the Clinic on/about 1 July 2006, with the plaintiffs’ efforts/support, regular opening hours and diversification into other services,[1] the number of patients (and the income) of the Clinic improved with further reduction of the annual loss to HK$195,012.00 in the 2007 Accounts. 9.In December 2006, the plaintiffs sold and the defendant purchased the Shares. On 15 December 2006, the Shares were transferred to the defendant for HK$1,499,994.00 (“Price”). The plaintiffs resigned as directors of the Company, and the defendant became its sole director. On 22 December 2006, the defendant as buyer and the plaintiffs as sellers entered into a Business Ownership Transaction Memorandum (“Memorandum”) whereby the defendant agreed to pay the Price in the following manner:
10.In/about December 2006, to increase income, diversify business and reduce costs, the plaintiffs helped to renovate the Clinic by setting up a physiotherapy room and a dentistry room. They advanced to the defendant a sum of HK$56,619.50 being half share of the renovation costs, which he agreed to reimburse in April 2010 together with the last instalment payment of the Price. 11.The plaintiffs also successfully negotiated a renewal of the lease for the Company/Clinic. In/about mid-December 2006, they further advanced to the defendant a sum of HK$121,572.00 for the rental deposit under the renewed lease, which he also agreed to reimburse in April 2010 together with the last instalment payment of the Price. 12.In December 2006 to February 2007, the defendant paid the 1st, 2nd and 3rd instalments of the Price each in the sum of HK$150,000.00. He also paid a monthly sum of HK$10,000.00 to the plaintiffs from July 2006 to March 2007 totalling HK$90,000.00. 13.Following a series of emails between the defendant and inter alia Mr Chan, Dr Tse and/or Dr Yu between March and May 2007 (discussed in greater detail below), the parties signed an Agreement for Repayment of Consideration Money (“Agreement”) and an Addendum for such Agreement (“Addendum”) on 7 May 2007. 14.By the Agreement, the defendant acknowledged he would pay the Price to the defendant by instalments as follows:
The defendant also agreed to reimburse the plaintiffs on or before 1 April 2010 (a) the renovation costs of the Clinic up to February 2007 (HK$56,619.50) and (b) the new rental deposit (HK$121,572.00) (collectively, “Other Sums”). 15.The Addendumwas “to confirm a mutually agreed terms in relation to the terms and conditions in relation to the [Agreement]” as follows:
II. PRESENT ACTION 16.On 22 July 2010, the plaintiffs commenced the present action to claim for the outstanding balance of the Price in the sum of HK$959,994.00 (“Balance Price”) and the Other Sums. The defendant paid the Other Sums to the plaintiffs on 4 March 2013 without prejudice to his defence to the plaintiffs’ claim for the Balance Price and to his own counterclaim.[2] 17.The defendant claimed that in breach of contract the plaintiffs failed to provide or procure to be provided to him at the Clinic the clinical, marketing and management support (collectively, “Support”) set out in the Addendum (including, but not limited to, failure to provide locum support at the Clinic (“Locum Support”) and visiting medical officer (“VMO”) support at voluntary institutions (“VMO Support”) and to pay hire charges for use of the Clinic’s physiotherapy room (“Physio Hire”) from March 2007 to April 2010, and failure to provide orthopaedic specialist support (“Ortho Support”) from August 2007 to April 2010, and as a result he suffered loss/damages. 18.Further, the defendant claimed that by reason of (a) the plaintiffs’ aforesaid breach of contract and/or (b) his average monthly net income from the Clinic from March to September 2007 falling below HK$53,000.00, he was entitled to and did suspend payment of the Balance Price as from April 2007 pending agreement on reducing the amount of the Price and/or the plaintiffs resuming provision of adequate Support for the Clinic. 19.Still further, the defendant claimed that Drs Tse and Yu warranted to and agreed with him (“Collateral Agreement”) that from March 2007 to April 2010 they would personally provide Locum Support at the Clinic up to a maximum of 100 hours per year and VMO Support at least twice a week. But in breach thereof, Drs Tse and Yu failed to provide such support, and the defendant thereby suffered loss/damages. 20.The defendant counterclaimed for the loss/damages he suffered as a result of breach of contract by the plaintiffs and breach of the Collateral Agreement by Drs Tse and Yu. But by his 2nd witness statement filed on 13 March 2013 the defendant confirmed he would not counterclaim for loss/damages for the plaintiffs’ failure to provide Locum Support from March 2007 to April 2010. Mr Ng (with him Mr Lui), counsel for the defendant, confirmed in his closing submissions that the defendant would further abandon his counterclaim for loss/damages under paragraphs 25A-C and 26 of the Amended Defence and Counterclaim.[3] The only remaining counterclaim is for loss/damages due to the plaintiffs’ alleged failure to provide Ortho Support from August 2007 to April 2010 (“Ortho Support Loss”). 21.On the other hand, the plaintiffs claimed that the defendant as sole owner took over control/operation of the Clinic in March 2007, and that they continued to provide support gratuitously to help him establish his practice at the Clinic. The defendant had difficulty in making payment, and since April 2007 failed to pay the Balance Price. The Support specified in the Addendum was not a condition for payment of the Price, and the plaintiffs never provided Ortho Support for the Clinic even though the locum doctor Dr Fu Kok Tai (“Dr Fu”) happened to be an orthopaedist employed by Kinetics after his retirement. Further, the defendant never specified the amount of the “target net income” (“TNI”) that would allegedly trigger the “grace period” in the Addendum. The plaintiffs also denied they failed to provide adequate Support for the defendant/Clinic. III. FACTUAL ISSUES 22.The factual issues in this case are as follows:
IV. WITNESS’ CREDIBILITY 23.Mr Chan, Dr Tse, Dr Yu, Ms Kwan and the defendant gave oral evidence. Both Mr Tang (with him Ms Kei), counsel for the plaintiffs, and Mr Ng agreed that Ms Kwan’s evidence was of peripheral importance to the core issues. In assessing witnesses’ credibility, I bear in mind not only their demeanour in court but also the intrinsic value of their evidence upon considering the totality of their evidence against the chronology of events, the documentary evidence, and inferences based on inherent probabilities and/or undisputed facts.[5] 24.At the time when the disputed events occurred, the defendant was a newly qualified professional on the brink of his career as a private doctor. He was unseasoned in (and understandably worried about) commercial and/or administrative matters as he contemplated taking over the Clinic. When viewed against such background, his actions and written communications, though somewhat clumsy, had a degree of earnestness that convinces me he was honest and reliable on the core matters (save for the matter of the Collateral Agreement and some of the Support services for the Clinic). 25.The same could not be said for the plaintiffs’ witnesses. M Chan was a commercially savvy businessman who together with Ms Kwan grew and developed the Group over the years into what it is now. Drs Tse and Yu were also professionally more experienced than the defendant. In my view, their professed lack of understanding of certain crucial matters and the inherent inconsistencies in their evidence are unreliable and unconvincing. Their overall evidence is unsatisfactory as evident from the analysis below. Save for the matter of the Collateral Agreement and some of the Support services for the Clinic, I reject their evidence on the core matters where it differed from that of the defendant. 26.Mr Ng asked me to be skeptical about the plaintiffs’ witnesses because crucial aspects of their evidence could not be found in their witness statements or even in the pleadings, and were not put to the defendant. He also criticised Mr Chan’s and Dr Tse’s attempts to distance themselves from certain “admissions” by Dr Yu by being totally/partially forgetful of Dr Yu’s evidence given in their presence in court. Mr Tang suggested that the narrow ambit of the witness statements might be due to legal advice, but the plaintiffs’ witnesses did not offer such reason when they gave evidence. In my view, such reticence on the part of the plaintiff’s witnesses (especially when witness statements were to stand as evidence-in-chief) suggested they were not above embellishing their case and/or changing their evidence to suit their contentions. 27.On balance, I prefer the defendant’s evidence whose overall account sat well with the factual matrix and documentary evidence, and he was largely unshaken in cross-examination on the core issues. Those parts of his evidence that I reject do not detract from his overall veracity. 28.Mr Ng also placed emphasis on paragraph 6(3) of the Reply and Defence to Counterclaim[6] that seemed to acknowledge the C/G Period under the Addendum and the provision of Support to the defendant. Such plea prima facie contradicted the plaintiffs’ case but was verified by statements of truth. It was eventually removed by amendment that was also verified by statements of truth. Mr Ng submitted that the original plea as verified by the initial set of statements of truth undermined the plaintiffs’ case and spoke of its unreliability. 29.Dr Yu frankly accepted the contradiction between the aforesaid plea and the plaintiff’s case, but Mr Chan and Dr Tse claimed such plea was due to their miscommunication with counsel who settled the pleadings as well as their carelessness in failing to spot the error. Subsequently, newly engaged counsel (ie Mr Tang and Ms Kei) advised the plaintiffs to amend their pleadings to correct the error. In such circumstances, I will not discredit the evidence of the Mr Chan, Dr Tse and/or Dr Yu merely on discrepancies between the plaintiffs’ pleadings and amended pleadings. I prefer to assess their credibility/reliability on the principles set out in paragraph 23 above. V. LEGAL ISSUES 30.Question arose as to whether the defendant had locus standi to recover the Ortho Support Loss by counterclaim. There is no dispute that income earned from orthopaedic cases with the help of Ortho Support was for the Company/Clinic and not the defendant, so the Ortho Support Loss (if any) was the Company’s corporate loss and not the defendant’s personal loss. 31.Mr Tang submitted that the counterclaim for the Ortho Support Loss must fail since the defendant could not claim for reflective loss that belonged to the Company.[7] Mr Ng complained that (a) the plaintiffs never took this point on the pleadings even though they carried the onus of establishing the applicability of such exclusionary rule,[8] and/or (b) such counterclaim came within an exception to such rule.[9] In my view, this issue goes to the jurisdiction to award damages for the Ortho Support Loss, so the court has to form a view as to whether the defendant had a claim here regardless of the parties’ respective pleadings and/or positions.[10] 32.There is no dispute over the applicable exceptions to the “no reflective loss principle”:[11]
33.Mr Ng submitted that the counterclaim for the Ortho Support Loss fell within the exception in (2) above, ie the Company suffered such loss but had no cause of action to sue to recover such loss, and the defendant as shareholder of the Company could therefore sue in respect of it. It was argued that the reason why the Company had no cause of action was because the disputed agreements[12] were made between the plaintiffs and the defendant, and there was no privity of contract with the Company, [13] so it would be proper for the defendant as shareholder to step into the Company’s shoes and counterclaim against the plaintiffs. There was no danger of “double recovery” since the Company would not be able to sue the plaintiffs in a separate action to recover loss/damages. 34.The legal principles were not in dispute. Under the general rule of privity of contract (but subject to a few exceptions), the promisee is entitled to damages representing his own loss and not that of a third party.[14] But this can lead to unsatisfactory “legal black holes” in which “the promisor has committed a plain breach which has caused loss to the third party whom the contracting parties intended to benefit but none to the promisee, and in which no other remedy (other than damages in respect of the third party’s loss) is available against the promisor”.[15] In other words, the third party’s cause of action has completely disappeared with the result that there is no ensuing liability. 35.The Albazero exception to the above general rule was developed to overcome such undesirable result. It applies if at the time when the contract was made the parties actually contemplated that an identified third party would or might suffer damage in the event of a breach of contract. There is no obvious injustice since knowledge that an identified third party would or might suffer damage if there were a breach of contract ought to be capable of being readily demonstrated, and the possibility of loss would have been known at the time the contract was made. Indeed, it seemed to do justice because it gave effect to the contemplation of the contracting parties and provided a means of compensating the third party for whose benefit, at least in part, the relevant contractual obligation was undertaken.[16] This “narrow ground” exception was considered and endorsed in Panatown Ltd v Alfred McAlpine Construction Co Ltd[17] even though the majority in that case held on the facts the third party acquired an independent contractual right against the promisor and the Albazero exception did not apply. 36.In light of the above principles, it is necessary to ascertain the purpose of the transaction that gave rise to the counterclaim for the Ortho Support Loss. In my view, it is appropriate to take a wide view of the commercial realities since contracts have to be construed in their factual context. There is no dispute the Company was the corporate vehicle for holding the Clinic formerly for the benefit of the plaintiffs as shareholders and later for the defendant as sole shareholder. Although the defendant was the sole residing doctor in charge of the Clinic after its handover, all income/expenses of the Clinic were for the Company’s account. The plaintiffs were well aware of this since they adopted the same arrangement when the Clinic was under their control. So when one approaches the question of who it was that the disputed agreements[18] were to benefit, it is obvious that the defendant made such agreements with the plaintiffs for the Company to be the real beneficiary of the income from orthopaedic cases handled with Ortho Support provided by the plaintiffs. 37.In my view, the defendant’s counterclaim for the Ortho Support Loss falls squarely within the Albazero exception to the general rule of privity of contract and/or also within the exception to the exclusionary rule against reflective loss as explained in Johnson v Gore Wood. In the circumstances, the defendant was/is entitled to maintain such counterclaim. 38.There is a second legal issue. In his closing submissions, Mr Ng invited the court to dismiss the plaintiffs’ claim and to allow the defendant’s counterclaim for the Ortho Support Loss. However, it is common ground that (a) the defendant was contractually obliged under the Memorandum, Dec06 Agreement and/or Agreement to pay the Balance Price to the plaintiffs, but (b) to date the Balance Price is still outstanding and unpaid. 39.Even on the defendant’s own case, he was only entitled to suspend and not extinguish his contractual obligation to pay the Balance Price if either or both of the conditions for the exercise of the C/G Period under clause 2 of the Addendum (“Clause 2”) were satisfied. Again, even on the defendant’s own case, by 2009 he no longer satisfied the first condition for the exercise of the C/G Period (ie the monthly net income of the Clinic falling below the TNI which, according to the defendant, was HK$53,000.00). Although the defendant argued that the second condition for the exercise of the C/G Period (ie there was inadequate Support by the plaintiffs) was/is still applicable, there can be no doubt that the defendant’s counterclaim for the Ortho Support Loss represented the entirety of his claim for loss/damages arising from the plaintiffs’ alleged breach of the disputed agreements[19] to provide Support for the period from March 2007 to April 2010 that triggered/maintained such condition. After all, the defendant had made a considered decision under legal advice to abandon other heads of his counterclaim, and it would be an abuse of process for him to reinstate any such abandoned claims in future. 40.In the circumstances, one therefore wonders why, as Mr Ng submitted, the defendant would be entitled not only to recover loss/damages under his counterclaim for the plaintiffs’ breach of contract but also to have his contractual obligation to pay the Balance Price extinguished by dismissal of the plaintiffs’ claim, especially when he still has and continues to hold/own the Company/Clinic/Shares. This obviously gives rise to concern over “double benefit” or “double recovery”, but Mr Ng had no submissions to make when this proposition was put to him. 41.There was a faint attempt to refer to clause 3 of the Addendum (“Clause 3”). Mr Ng conceded this had not been pleaded, and indeed such argument did not feature in his closing submissions. But in fairness I should point out that the defendant did plead[20] that according to the disputed agreements[21] he suspended payment of the Price “pending the parties’ agreement on the reduced amount and the [plaintiffs’] resuming adequate [Support] to the [Clinic]”. 42.I am not persuaded that such plea aids the defendant. First, the reference to “pending …… the [plaintiffs’] resuming adequate [Support] to the [Clinic]” had been overtaken by the counterclaim brought by the defendant to seek monetary compensation for the plaintiffs’ alleged failure to provide adequate Support for the whole period from March 2007 to April 2010. It is plain that any award in the defendant’s favour under such counterclaim meant he could no longer wait for resumption of adequate Support by the plaintiffs otherwise there would be “double recovery”. 43.Secondly, the reference to “pending the parties’ agreement on the reduced amount” harked back to Clause 3 which provided that “[during] the grace period, the payment amount and date will be compromised by both parties”. Both parties agreed they intended to create legal relations by the Addendum, but is Clause 3 (which is an agreement to agree but without any criteria/machinery for negotiation or agreement) contractually enforceable? First, since there were no criteria or machinery in Clause 3 for negotiation or agreement, there is no basis for suggesting that the “payment amount” would necessarily be reduced by eventual agreement between the parties. Secondly, the parties in fact did not reach any consensus over “the payment amount and date” under Clause 3, let alone any “reduced amount”. Thirdly, neither party (nor indeed their respective counsel) made any suggestion as to any applicable basis for ascertaining the “payment amount and date” in default of agreement under Clause 3. However, I find this unsurprising because at all material times neither party actually gave Clause 3 much thought at all. The defendant frankly admitted he had not given thought to what would happen if the parties failed to compromise on the “payment amount and date” during the C/G Period, but agreed he could not defer payment of the Price indefinitely even if the plaintiffs refused to provide the agreed Support. 44.In my view, Clause 3 was too uncertain to amount to any enforceable contractual obligation, but it would not have vitiated the Addendum as a whole. Chitty on Contracts provides that:[22]
But even if I were wrong and Clause 3 was contractually binding on the basis that reasonable “payment amount and date” were to be imposed in the absence of agreement, I cannot see why the Balance Price less any sum allowed under the defendant’s counterclaim would not be a reasonable “payment amount” or why the Balance Price so reduced (if at all) should not be paid now (ie more than 3 years after the due date of the last instalment payment in April 2010). Payment of the Balance Price so reduced (if at all) means that the defendant would pay for the purchase of the Shares/Company/ Clinic (which he still holds/owns) at the agreed Price less full compensation payable to him for any loss/damages he now seeks to recover against the plaintiffs for breach of contract under his counterclaim. 45.That being the case, even if the defendant succeeded on his counterclaim for the Ortho Support Loss, there is no escape from his having to pay the plaintiffs the Balance Price less the Ortho Support Loss as assessed with interest. He cannot keep the Shares/Company/Clinic and receive compensation for breach of contract on the one hand and at the same time does not pay the Balance Price on the other hand. Indeed, the defendant had deferred reimbursement of the Other Sums for almost 3 years when the plaintiffs had defrayed such sums on his behalf as early as in 2006-2007 and when reimbursement of such sums did not turn on any TNI and/or Support. VI. CONTRACTOR AGREEMENT 46.In 2006, Mr Chan invited the defendant to work as an ICD. Question arose as to whether he agreed to subsequently acquire the Clinic under the Contractor Agreement. In my view, although it was envisaged that he might in due course acquire the Clinic, he did not make any commitment at that stage. The Contractor Agreement merely gave him a right to acquire the Company/Clinic,[24] but a sum of HK$10,000.00 out of his monthly remuneration was kept for his future acquisition of the Company (if any). 47.On/about 1 July 2006, the defendant started to work as residing doctor at the Clinic. Since then the Clinic had regular opening hours, and its income gradually increased. From July 2006 to January 2007, due to the defendant’s inexperience, Dr Tse helped him (mostly via exchange of emails) whenever he encountered clinical problems in his practice. VII. DEC06 AGREEMENT 48.After a while, Mr Chan asked the defendant whether he would purchase the Shares and take over the Clinic. The defendant claimed he was initially reluctant because from July to December 2006 the business of the Clinic was poor with about 12-15 patients a day. He believed (but Ms Kwan disagreed) the Shares were valueless. 49.I do not accept the Shares were valueless. Even though the Company was operating at a loss and the number of patients was not very many, the Clinic’s business had started to grow,[25] and plans to renovate the Clinic and to diversify into dentistry/physiotherapy in early 2007 prophesied further growth. Further, the defendant did not have to pay off the Company’s accumulated loss, and he must have been broadly aware of possible tax savings from such loss. On balance, I find the defendant was not discouraged by the Clinic’s performance in December 2006, and even though he had a huge task ahead of him to stimulate the turnover and develop the practice, he was willing to acquire the Company/Clinic because of its perceived potential. 50.So in/about early December 2006, the defendant agreed to buy the Shares and take over the Company/Clinic for the Price. The defendant conceded that the Dec06 Agreement was an oral contract, and not a partly oral and partly written one as suggested in his pleadings. 51.The defendant claimed to have a series of telephone discussions with Mr Chan. It is common ground that eventually there was a meeting at least amongst Mr Chan, Dr Tse, Dr Yu and the defendant in December 2006 (“Dec06 Meeting”) to discuss the sale and purchase of the Shares, including renewal of the tenancy, renovation of the Clinic and expansion into dentistry. But the parties disputed over whether it was agreed under the Dec06 Agreement that the plaintiffs would continue to provide Support services for the defendant/Clinic. 52.The defendant claimed the parties discussed/agreed that the plaintiffs would continue to provide the Support they had hitherto provided until the last instalment payment of the Price in April 2010. Due to such understanding, Mr Chan merely confirmed at the Dec06 Meeting that the plaintiffs would continue to provide Support without further elaboration. 53.Mr Chan denied any such discussion/agreement. But under cross-examination Dr Yu accepted it was agreed at the Dec06 Meeting that the Support hitherto provided by the plaintiffs would continue after the defendant took over the Clinic. Dr Yu later resiled from this by saying there was no such agreement and the Dec06 Meeting focused only on the Clinic’s operation (eg renovation and dentistry matters). Dr Tse gave evidence that at the Dec06 Meeting the plaintiffs agreed to continue with the Support (eg Locum and VMO Support) after the handover of the Clinic to the defendant, but he denied there was any concrete discussion because the Clinic would require different kinds of support at different stages of its development. 54.On balance, I accept that before the Dec06 Meeting the defendant and Mr Chan on behalf of the plaintiffs had discussed the matter of the plaintiffs’ continued Support for the Clinic after the sale and purchase of the Shares. The defendant knew he had to (a) commit his parents’ monies for the initial payments to acquire the Clinic and (b) turn around the Clinic to earn sufficient return for the remaining payments. Notwithstanding the perceived future potential of the Clinic, given such background and his relative inexperience in running a medical clinic on his own, I find the defendant had reason to (and did) bargain for the plaintiffs’ commitment to provide continued Support for the Clinic. At that time, the parties were on good terms and wanted to close the deal, and there was incentive for the plaintiffs to help the defendant improve the Clinic’s business/revenue. After all, they gave the defendant an extended period until April 2010 to make instalment payments of the Price, and in my view, it was agreed that the plaintiffs would continue their Support until April 2010, which accords with the “admissions” by Drs Tse and Yu in the above paragraph. I reject their attempts to resile from such stance as unreliable afterthoughts. 55.In light of the above understanding, I find on balance it was agreed at the Dec06 Meeting that the plaintiffs would continue their existing Support to the Clinic, but the particular kinds of Support to be provided were not specifically canvassed. I find this unsurprising as (a) the parties were then on good terms, (b) the plaintiffs faithfully provided Support for the defendant/Clinic all along, (c) renovation/expansion plans for the Clinic were in the pipeline, and (d) there was nothing to suggest the plaintiffs would not abide by their promise to provide continued Support. In my view, the defendant merely lacked commercial astuteness to insist on recording the fullness of the Dec06 Agreement in writing. I find on balance the defendant would not have purchased the Shares and/or signed the Memorandum in the absence of the plaintiffs’ promise to provide continued Support. Indeed, the defendant’s email dated 16 March 2007 to Mr Chan, Dr Tse and Dr Yu titled “cushion period” (“16/3/07 Cushion Email”) stated it was the promise of such continued support that the Clinic was worth the Price. VIII. HANDOVER OF THE COMPANY/CLINIC 56.There is no dispute that:
57.The defendant worked as an ICD until the handover of the Clinic. The parties disputed over when such handover took place: the plaintiffs said it was on/about 9 (or 10) March 2007, and the defendant claimed it was in mid-May 2007. But I do not think there is any real/material discrepancy. 58.Mr Chan claimed that when the defendant became the “owner” of the Company/Clinic in December 2006 he should be responsible for its operation. By about March 2007, Ms Kwan had taught him how to supervise staff and handle administrative work, and all books and accounts were delivered up to him when he took over control/operation of the Clinic on 10 March 2007. Dr Yu said that after the defendant became the residing doctor at the Clinic, he gradually gained experience in clinical consultation and patient management techniques and took over the medical practice. Dr Yu said the control/operation of the Clinic was handed over to the defendant on 10 March 2007 in line with commencement of the renewed lease. 59.On balance, I find the parties intended the defendant to (and he did) take over day-to-day operation/management of the medical practice at the Clinic on 9 (or 10) March 2007 in line with the commencement of the renewed lease and his personal guarantee. But he did not havefinancial control of Company because he was not yet a signatory for operating the Account. The plaintiffs did not release financial control until after the Agreement was signed and the bank mandate was changed on 12 May 2007, but for accounting purpose, 9 (or 10) March 2007 was adopted as the cut-off date so that expenses incurred before and after such date would be attributed to the plaintiffs and the defendant respectively. IX. MAR07 AGREEMENT 60.The defendant claimed that in/about March 2007 the parties agreed to vary the Dec06 Agreement (ie Mar07 Agreement), and such variation was partly oral (a series of telephone conversations between Mr Chan and the defendant at/around March 2007) and partly written (contained in a series of emails dated 8 and 13-16 March 2007, and evidenced by an email dated 26 April 2007 by the defendant to Mr Chan (“26/4/07 Email”) and the Addendum). The defendant further claimed the following were inter alia express terms of the Mar07 Agreement:
61.The defendant explained that after the Dec06 Agreement the plaintiffs gradually reduced their Support to the Clinic and the income of the Clinic remained low, so he raised the matter of the C/G Period with the plaintiffs by way of emails in March/April 2007. Drs Tse and Yu were aware of such emails either as recipients or through Mr Chan, and Mr Chan would discuss with them before responding to the defendant on their behalf. 62.On 8 March 2007, the defendant sent an email to inform the plaintiffs’ solicitor Mr Jesse Kwok (“Mr Kwok”) that he was working out an agreement with Mr Chan to add flexibility to the “rigid” payment dates for the Price “in case of clinic low income”, and to ask how this could be put into an agreement (“8/3/07 Email”). Mr Kwok told him to liaise with Mr Chan, so he emailed Mr Chan on 13 March 2007 (“13/3/07 Email”) to suggest adding a C/G Period to the scheduled instalment payments of the Price as follows:
63.On 14 March 2007, the defendant emailed Mr Chan to clarify inter alia that the C/G Period would be exercised whenever the TNI (and not target gross income) of the Clinic was not met (“14/4/07 Email”). On 15 March 2007, Mr Chan replied by email (with copy to Dr Tse, Dr Yu and Ms Kwan) as follows (“15/3/07 Email”):
64.In my view, there were discussions in March 2007 between the parties over the instalment payments of the Price,[26] and they were keen to resolve these matters and “finalise the agreement” as suggested in the 15/3/07 Email. But despite Clinic renovation and service diversification in early 2007, the defendant doubted whether sufficient income would be generated for timely payment of the scheduled instalments under the Memorandum. I find this led to the defendant’s proposal in the 13/3/07 and 14/3/07 Emails for a C/G Period that would temporarily suspend payment of the Price whenever the TNI was not met, but as explained above,[27] he had not given much thought on how to compromise (if at all) the “payment amount and date” upon the exercise of the C/G Period. 65.I do not accept Mr Chan’s claim that the plaintiffs rejected the defendant’s proposal in the 13/3/07 and 14/3/07 Emails because they did not understand the references to the C/G Period and the TNI therein. I find they in fact understood the defendant’s proposal, which understanding elicited Mr Chan’s challenge in the 15/3/07 Email that the defendant having bought the Company/Clinic should bear the ensuing business risk (including the risk of developing the Clinic to generate income to meet the instalment payments of the Price), and it was not the plaintiffs’ duty as sellers to guarantee a baseline business. 66.As seen from above, the plaintiffs appeared somewhat reluctant at this stage to accede to a C/G Period, but in the 15/3/07 Email they recognised an interest in the Clinic’s “successful growth” so that the defendant could make timely instalment payments of the Price. In my view, this was in line with (a) the Dec06 Agreement whereby the plaintiffs made a broad commitment to provide the Support that they had hitherto provided to the Clinic, and (b) the plaintiffs’ promise in the 15/3/07 Email to provide “solid” management and/or marketing support (which Drs Tse and Yu said was made in response to the defendant’s “counter offer”). But in the absence of detailed discussion as to particular items of the Support, it is unsurprising that in the 15/3/07 Email Mr Chan took the initiative to ask for details of the required “solid” Support. Although he referred to “management and marketing aspect”, I find on balance there was no agreement that confined the Support to these aspects. 67.The defendant gave evidence that shortly before the 16/3/07 Cushion Email he told Mr Chan that the TNI in the 14/3/07 Email was HK$53,000.00 per month which was equivalent to his monthly income as an ICD at the Clinic. By the 16/3/07 Cushion Email, he agreed he had to accept the risk of even lower income in the near future (ie he was prepared to accept some responsibility/risk of business growth), but:
68.In another email to Mr Chan, Dr Tse and Dr Yu on the same day titled “partnership” (“16/3/07 Partnership Email”), the defendant stated that the parties were partners “which meant support and sharing and not buying and selling”. Although it was said that the Clinic was making progress since July 2006, the defendant and his family had low confidence in the transaction as they did not see future sharing and support, eg
The defendant wanted contribution from all partners, and “…… would like to temporarily stop the transaction at this moment unless there is concrete evidence of adequate support and sharing of risk for the transaction ($1500000)”. 69.After discussing with Drs Tse and Yu, Mr Chan replied by email (with copy to Dr Tse, Dr Yu and Ms Kwan) on 17 March 2007 (“17/3/07 Email”) as follows and he also confirmed the upcoming locum arrangements:
70.The parties disagreed over the meaning/effect of the reference to “the SUPPORT and SHARING of risk” in the 16/3/07 Cushion Email. As regards “SHARING of risk”, I find that even though (a) Mr Chan claimed that “business entry is worth such an amount of money” (ie the Price) because the defendant/buyer had to carry the business risk, and (b) Dr Tse claimed the defendant as sole shareholder/owner should be responsible for the Company’s profit/loss, both parties knew they had to take some business risk in respect of the sale and purchase of the Shares/Company/Clinic. In the 16/3/07 Cushion Email the defendant recognised and accepted the risk of even lower future income. But the plaintiffs also had to bear some business risk because the Company/Clinic/Shares were not sold “in one go”. By agreeing to instalment payments of the Price and deferring reimbursement of the Other Sumsover an extended period, and also knowing the defendant depended on income from the Clinic to make further instalment payments, the plaintiffs had plainly accepted “SHARING of risk”. 71.As regards “the SUPPORT”, Dr Tse claimed the plaintiffs had no idea what support the defendant wanted although he thought it would probably be operational support (eg bookkeeping etc). Dr Yu said there was no solid evidence as to what “the SUPPORT” meant, but the plaintiffs were prepared to discuss the kinds of support the defendant wanted. Mr Chan claimed that even after discussion with Drs Tse and Yu he did not understand what the defendant was saying. On balance, I find the defendant insisted (and the plaintiffs understood) he was entitled to “the SUPPORT” pursuant to the Dec06 Agreement, and he agreed to buy the Shares for the Price at least partly because of the plaintiffs’ promise of continued Support. This explained why in the 17/3/07 Email Mr Chan did not object to “the SUPPORT and SHARING of risk”. I do not accept Dr Tse’s vague claim that Mr Chan must have denied this in some other way. I also note the 17/3/07 Email did not refute the defendant’s complaints against the plaintiffs’ unwillingness to provide/share Locum/VMO Support in the 16/3/07 Partnership Email, which illuminate some of the agreed Support. I find Mr Chan’s explanation that he did not object because he was still trying to understand what the defendant was saying specious. If he did not understand, surely he would have raised query in the 17/3/07 Email instead of asking the defendant to elaborate on the support he required. There is no inconsistency between such request and the Dec06 Agreement as it would be useful to clarify the relevant Support under the broad commitment to provide continued Support in the Dec06 Agreement. 72.On balance, I also accept the defendant had informed Mr Chan by telephone in mid-March 2007 the TNI for the proposed C/G Period was his then monthly income of HK$53,000.00 as an ICD at the Clinic. In the 16/3/07 Cushion Email, he drew a comparison between the Clinic’s low income and his own income of HK$53,000.00 to explain why he should not bear the entire risk of such discrepancy and pay the Price as well. Such comparison did not excite any objection by the plaintiffs because, in my view, they well knew the proposed C/G Period would be exercised if the monthly income of the Clinic fell below the TNI of HK$53,000.00 (which also reflected sharing of business risk between the parties). It is true that the 16/3/07 Cushion and Partnership Emails did not state the threshold amount for the TNI, but it reflected, in my view, the defendant’s lack of commercial sophistication in setting out every understanding in writing rather than his failure to make up his mind. Even thoughhe was worried about the Clinic’s poor income and the plaintiffs’ reduced support, he still trusted the plaintiffs. 73.After two weeks, the defendant came up with a list of the Support for inclusion in the contract asset out in his email to Mr Chan dated 30 March 2007 (“30/3/07 Email”):
In his 26/4/07 Email to Mr Chan, the defendant copied the 30/3/07 Email which “we agree and can send to [Mr Kwok]”. 74.The defendant frankly accepted it would have been better if he had recorded the TNI amount of HK$53,000.00 per month in the 30/3/07 Email, but I find on balance he did not think of doing so because he had informed Mr Chan by telephone in mid-March 2007 and Mr Chan did not raise any disagreement save to say he needed to speak with Drs Tse and Yu. It is common ground between the parties that there was a subsequent dinner meeting attended by at least Mr Chan, Dr Tse, Dr Yu and the defendant in late March 2007 (“Mar07 Meeting”). I prefer the defendant’s evidence that the TNI amount of HK$53,000.00 per month was further confirmed at the Mar07 Meeting. I find Dr Yu’ssuggestion that at the Mar07 Meeting they merely talked about clinic operations and how to help the defendant without any mention of Locum/VMO Support incredible in view of the clear references to the C/G Period, the TNI and “SUPPORT and SHARING of risk” in the March 2007 emails that preceded such meeting. 75.I find the defendant’s evidence as to the Mar07 Agreement that (a) the parties agreed to a C/G Period exercisable in the manner set out in the 30/3/07 Email with the TNI amount of HK$53,000.00 per month, and (b) the plaintiffs promised to provide the Support in the 30/3/07 Email but the parties had yet to confirm the operational details (ie date/time/schedule) for actual performance of the promised Support (as reflected in, say, notations of “(detail)” or “(detail outline)” or “(schedule)” in the 30/3/07 Email) reliable and convincing, especially when (as I find) the plaintiffs did not object to or disagree with the 30/3/07 Email. 76.In coming to such conclusion, I have considered the differing evidence of Mr Chan, Dr Tse and Dr Yu which I find unreliable. Mr Chan said that even after speaking to Drs Tse and Yu he still did not understand what the C/G Period and the TNI meant, but Dr Tse believed the TNI referred to HK$53,000.00 per month being equivalent to the defendant’s income as an ICD at the Clinic. Dr Yu explained that the C/G Period was under discussion at the time of the 30/3/07 Email, and although he disagreed with the defendant’s proposal he understood the TNI in the 30/3/07 Email to mean HK$53,000.00 per month. 77.As regards the reference to “solid concrete SUPPORT” in the 30/3/07 Email, Dr Tse said the plaintiffs only realised what Support the defendant had in mind by the 30/3/07 Email, but there was no agreement until the signing of the Addendum. But Mr Chan claimed the Support listed in the 30/3/07 Email (ie same found in the Addendum) was too vague for him to give instructions to Kinetics’ staff to arrange such Support. However,Dr Yu said he understood what inadequate Support meant. 78.I find the aforesaid different understandings of the 30/3/07 Email unreliable and unconvincing, especially when Mr Chan, Dr Tse and Dr Yu claimed they would discuss the defendant’s emails amongst themselves. Dr Yu plainly admitted he understood the C/G Period would be exercised if the monthly net income of the Clinic fell below the TNI of HK$53,000.00 and/or there was inadequate Support by the plaintiffs. His attempt (as well as Dr Tse’s attempt) under re-examination to shy away from such “admission” by saying that the defendant never put forward a specific sum for the TNI and that HK$53,000.00 was merely a reference to the defendant’s income as an ICD at the Clinic is unconvincing. Further, contrary to Mr Chan’s evidence, both Drs Tse and Yu confirmed the parties reached agreement over the C/G Period between March and May 2007 before the Addendum was signed (ie the Mar07 Agreement). I disagree with Mr Tang’s submissions that the evidence by the plaintiffs’ witnesses to the effect that the terms of the Mar07 Agreement were as reflected in the Addendum meant there was no agreement over the amount of the TNI. I also do not accept that Mr Chan (who was commercially savvy), Dr Tse (who was careful and meticulous) and Dr Yu (who went along with Mr Chan and Dr Tse) would enter into the Mar07 Agreement with the defendant without finding out the amount of the TNI for the exercise of the C/G Period, especially when any exercise of the C/G Period would postpone their receipt of the Balance Price. 79.It is also telling that (as Dr Yu confirmed although Mr Chan and Dr Tse was not sure) there was no email reply to refute the 30/3/07 Email. The plaintiffs’ suggestion of not understanding the references to the C/G Period, the TNI and inadequate Support in such email, and their complaints against the vagueness of the “solid concrete SUPPORT” sound hollow in the absence of objection/query, especially when Mr Chan was not adverse to communications with the defendant by email. 80.Mr Chan gave oral testimony that Kinetics’ staff tried to follow up with the defendant and he himself repeatedly asked the defendant to explain the TNI and the inadequate Support in the 30/3/07 Email but all to no avail. He added that sometime in April 2007 he went to the Clinic with Kinetics’ staff Mr Billy Tang (“Mr B Tang”) for such purpose, but they left when the defendant became agitated and cried (“Apr07 Visit”). Dr Tse also claimed to have a strong impression of Mr Chan reporting to him about the Apr07 Visit. But such incident was not mentioned in their witness statements. Dr Tse claimed Mr Chan reported to him that even though he had raised queries with the defendant, the defendant had not decided what he wanted so they continued to wait. In my view, there was no plausible reason for the defendant (who was eager to have the plaintiffs agree to the C/G Period) to not give an answer. I reject the evidence of the plaintiffs’ witnesses which I find unreliable. X. COLLATERAL AGREEMENT 81.The defendant claimed that to induce him to purchase the Shares, take over the Clinic and enter into the Agreement, Drs Tse and Yu at the Mar07 Meeting warranted and agreed they would from March 2007 to April 2010 (a) personally provide Locum Support at the Clinic up to a maximum of 100 hours per year, and (b) personally provide VMO Support at least twice a week, but the details of Locum/VMO Support (eg the date/time of the locum and VMO sessions) would be discussed later. 82.On balance, I do not agree there was any Collateral Agreement. Drs Tse and Yu were full-time public hospital doctors, and Dr Yu had to work at different hospitals from time to time. I find it unlikely they would be able to spare time to perform Locum/VMO Support at the frequency suggested. The defendant argued that Drs Tse and Yu personally provided Locum/VMO Support for the Clinic in the past on public holidays or on their leave days, and that they should make time for such purpose. I am not persuaded by such argument. Public hospital doctors could not take up outside work without employer’s approval, so Drs Tse and Yu were in breach of their employer’s guidelines when they previously provided, say, Locum Support for the Clinic. But they felt constrained to do so as shareholders/owners of the Company/Clinic because there was no residing doctor before the defendant’s arrival, and thereafter they still helped out when other locum doctors were unavailable. I find it unlikely they would agree to place themselves in continued breach of their employer’s guidelines after signing the Memorandum. In my view, Drs Tse and Yu would not have personally agreed to the Collateral Agreement, but I accept that the plaintiffs (including Drs Tse and Yu) as sellers did agree to provide Locum/VMO Support to the defendant. 83.The Collateral Agreement was not mentioned in the Agreement, Addendum and/or other emails passing between the parties after March 2007. Indeed, in the defendant’s email dated 22 January 2009 to Mr Chan, Dr Tse, Dr Yu and Mr B Tang (“22/1/09 Email”), there was no mention of the Collateral Agreement even though he referred to Locum Support by Dr Fu. Anyway, my rejection of the Collateral Agreement is immaterial since the defendant abandoned his counterclaim for loss and damages for alleged failure to provide Locum/VMO Support. XI. NON-PAYMENT OF APRIL 2007 INSTALMENT 84.The defendant did not pay the instalment of the Price due on 1 April 2007 (“5th Instalment”) under the schedule in the Memorandum. 85.Dr Tse said no one chased for the 5th Instalment because he and Dr Yu wrongly thought the due date was 1 August 2007. He further said the Apr07 Visit to the Clinic was to ask about the Clinic’s income and not to chase for payment. But Dr Yu said Mr Chan and Dr Tse went to the Clinic in April 2007 to demand for payment of the 5th Instalment, and the plaintiffs allowed the defendant to postpone payment when Mr Chan and Dr Tse reported back that the defendant was financially pressed. However, Mr Chan gave evidence he did not personally chase the defendant for payment, but Kinetics’ staff (who was probably mistaken about the due date for the 5th Instalment) did. Such oral testimony contradicted the assertion in Mr Chan’s witness statement that the defendant indicated difficulty in making payment so he arranged a dinner meeting on 25 April 2007 with the defendant and his parents to discuss payment of the Balance Price, and that during such meeting he proposed to sign a further agreement for payment of the Price because the plaintiffs had no security after the transfer of the Shares. 86.I reject Mr Chan’s evidence which is inherently contradictory and which does not sit well with that of Drs Tse and Yu (which I also reject). I cannot see how a further agreement confirming (and not changing) the schedule in the Memorandum would offer additional security for the plaintiffs. In my view, the main purpose of the Agreement was to record the advance of the Other Sumsand the promise to repay such sums. I further find the defendant was willing to sign the Agreement because the plaintiffs were prepared to sign the Addendum to affirm the plaintiffs’ continued provision of Support for the Clinic and to establish a C/G Period in case of low Clinic income. 87.I accept that following the Mar07 Agreement the defendant exercised the C/G Period and suspended payment of the 5th Instalment on the basis that the TNI was not met and/or there was inadequate Support. I find on balance the defendant told the plaintiffs about this, but did not think of recording this in the Addendum because (a) the Addendum already specified the C/G Period as per their oral agreement and (b) the plaintiffs did not chase him for payment of the Balance Price. XII. AGREEMENT AND ADDENDUM 88.On/about 7 May 2007, the Agreement and Addendum were signed at Mr Kwok’s office. The Addendum was essentially a “cut and paste” adoption of the 30/3/07 Email save for (a) some cosmetic changes (eg replacing “cushion period” with “grace period”), (b) the recitals, and (c) the provision that “[it] is agreed that all the above terms and conditions are subject to mutual agreement in writing by both parties before execution” in clause 5 of the Addendum (“Clause 5 Provision”). The plaintiffs agreed to these agreements after discussion amongst Mr Chan, Dr Tse and Dr Yu. 89.Clauses 1-3 of the Addendum which dealt with the C/G Period did not expressly mention the threshold amount of HK$53,000.00 per month for the TNI or refer to the Mar07 Agreement. The defendant explained (and on balance I accept) he did not think about this because by that time the threshold amount had been agreed and the plaintiffs had been cooperative all along. He trusted the plaintiffs, especially Drs Tse and Yu who were seniors from his alumni. 90.I do not accept the plaintiffs would sign the Addendum without finding out and/or confirming the TNI threshold amount. Had there been any uncertainty they could have sought Mr Kwok’s professional advice/assistance. In my view, they signed the Addendum because they knew the TNI was HK$53,000.00 per month and inadequate Support meant breach of their promise to provide the Support that had hitherto been provided for the Clinic and as listed in clause 5 of the Addendum (“Clause 5”) (save for working out the exact date/time/schedule for carrying out such agreed Support). 91.On balance, I reject Mr Chan’s claim that he still had no idea how to calculate the TNI or how to exercise the C/G Period. He claimed to have asked the defendant again when they went to Mr Kwok’s office to sign the agreements, but, in my view, it made no sense for him to sign the Addendum if the defendant still refused to give an answer. Moreover, Mr Chan changed his evidence when it transpired they went separately to Mr Kwok’s office to sign the agreements. His evidence is unreliable and unconvincing. 92.I also disagree with Dr Tse’s evidence that although the plaintiffs waited in vain for clarification of the TNI and inadequate Support (and Dr Tse felt this would be a big problem in future), they still went ahead to sign the Addendum. Even though the parties were on good terms and the plaintiffs were eager to finalise the matter, this “sign first, discuss later” approach[28] is unconvincing especially when the plaintiffs claimed that the defendant had not been forthcoming since March 2007 and failed to pay the 5th Instalment since April 2007. 93.The plaintiffs’ pleadings and witness statements did not refer to Clause 3 and/or the Clause 5 Provision, but these provisions featured in the oral testimony of Mr Chan, Dr Tse and Dr Yu. Mr Tang assured me the plaintiffs would not rely on such provisions to raise a positive case/defence, but only to cast doubt on the defendant’s case. 94.Mr Tang argued that in view of Clause 3, which provided that “[during] the grace period, the payment amount and date of repayment will be adjusted and compromised by both parties”, the defendant could not just stop payment of the Balance Price, and the parties had to mutually agree an extension of time for payment and a reduction of the payment amount. I cannot accept such argument. Clause 2 and not Clause 3 governed the exercise of the C/G Period, ie it would be exercised “if any of the following circumstances [ie condition (a) and/or condition (b) therein] occur”. Clause 3 referred to “[during] the grace period” (ie after the exercise of the C/G Period)which had no bearing on the condition(s) for triggering the exercise the C/G Period. 95.I reject Mr Chan’s claim that although he disagreed with the 30/3/07 Email he agreed to the Addendum (which closely resembled the 30/3/07 Email) because they could further negotiate pursuant to the Clause 5 Provision. A careful study of the Addendum shows that the Clause 5 Provision did not apply to the TNI and the C/G Period under clauses 1-3 of the Addendum. Further, the fact that the parties still had to work out the exact date/time/schedule for actual performance of the agreed Support did not, in my view, mean there was no agreement for the plaintiffs to provide “solid concrete SUPPORT” under Clause 5 and/for the exercise of the C/G Period under Clause 2. XIII. C/G PERIOD 96.The defendant claimed he was entitled to (and did) exercise the C/G Period because (a) the “average monthly net income received by the [defendant] from the [Clinic]” was less than the TNI of HK$53,000.00 per month and/or (b) the plaintiffs failed to provide adequate Support for him/Clinic. 97.Although the defendant’s pleadings seemed to suggest one should consider the defendant’s remuneration from the Clinic, it is the net income of the Clinic as specified in condition (a) of Clause 2 that is relevant. The defendant admitted the monthly net income of the Clinic was calculated by combining (a) his monthly remuneration of HK$30,000.00 and (b) the 12-month average of the annual net profit (or loss) of the Company. The Company’s net profit (or loss) for the year could be seen in the 2007 Accounts and the audited accounts for the financial years ended 30 September in 2008, 2009, 2010 and 2011. Thus, the average monthly net income of the Clinic was as follows:
98.Mr Tang submitted this was not the correct approach. He argued that since the defendant did not produce any management accounts or bookkeeping data, the defendant could not prove whether or not the actual net income (as distinct from the 12-month average income) of the Clinic for any particular month was below HK$53,000.00. But such contention had not been pleaded. 99.I accept on balance the defendant’s evidence that the income of the Clinic was unstable and below the TNI of HK$53,000.00 per month in the early months after the handover of the Clinic in 2007, which is supported by the calculation/breakdown for the year ended on 30 September 2007 in the above paragraph.[29] I agree that the plaintiffs well knew it was unlikely the TNI would be met given the poor business of the Clinic at that time. The defendant was therefore entitled to (and he did) exercise the C/G Period in April 2007, and he continued with it under the Addendum. This is also borne out by the defendant’s email dated 25 July 2007 to Mr Chan, Dr Tse and Dr Yu which stated that “clinic income was below expected level in the past 4 months” (“25/7/07 Email”), and his further email dated 27 August 2007 which stated that the reason for exercising the C/G Period was due to “low clinic income” with an average of HK$39,000.00 per month from March to June 2007 (“27/8/07 Email”). 100.The 2007 and 2008 Accounts also lent weight to the defendant’s evidence that the Clinic’s income fluctuated throughout 2007-2008 with some months making less and other months making more than HK$53,000.00. The defendant admitted that by the end of 2008 there were 4-5 consecutive months with the Clinic’s net income reaching HK$53,000.00, so on 9 and 22 January 2009 he sent emails to inter alia Mr Chan, Dr Tse and Dr Yu stating that the Clinic’s income had become more stable.In my view, there must have been some months in 2008 that did not satisfy condition (a) in Clause 2. The defendant further confirmed that the TNI of HK$53,000.00 per month was satisfied ever since the end of 2009. So even on the defendant’s own case and even before he commenced the present action, he could no longer rely on this ground to maintain the C/G Period. So unless the defendant satisfied condition (b) in Clause 2, the C/G Period could not be maintained. XIV. SUPPORT 101.Whilst I accept that the plaintiffs did provide some gratuitous support for the defendant/Clinic before and after the handover of the Clinic, Ms Kwan confirmed they were not given pursuant to the Addendum. I do not propose to discuss such gratuitous support since they were not the subject of the defendant’s complaints. 102.Condition (b) in Clause 2 for the exercise of the C/G Period was “inadequate clinical, marketing, or management assistant”. In my view, the threshold for measuring the adequacy or otherwise of any Support provided by the plaintiffs was prescribed in Clause 5 that identified and listed the “solid concrete” Support. Mr Tang argued the lack of detail plainly required further elaboration/agreement (as reinforced by the Clause 5 Provision), but the plaintiffs waited in vain for the defendant’s instructions on the required Support so the defendant could not complain of breach of the Addendum. But as I have found, the plaintiffs had agreed to provide the Support that had hitherto been provided to the defendant/Clinic, and the need to work out the operational details for actual performance of the promised Support would not detract from the plaintiffs’ contractual obligation to provide the Support listed in Clause 5.[30] 103.As seen from the analysis below, I find on balance there was inadequate Support(ie the plaintiffs failed to provide or cause to be provided Locum, VMO and/or Ortho Support, the handbook for daily clinical practice and secretarial support) that justified the exercise and/or continuation of the C/G Period, especially during/after 2008-2009. XV. LOCUM SUPPORT 104.Mr Chan and Ms Kwan drew a distinction between part-time doctor service before 1 July 2006 and Locum Support after such date because they took the view there must be a residing doctor before there could be any locum service. For present purpose, it is a distinction without any material difference because the key question here was whether the plaintiffs had provided such support services in the past and whether they were obliged to so continue after the handover of the Clinic. 105.When the defendant worked as an ICD at the Clinic, the plaintiffs would arrange Locum Support on the days he was off-work so the Clinic would not have to close. The disclosed records showed that Drs Tse and Yu worked at the Clinic on the following days, which tallied with the defendant’s claim that they last provided Locum Support on 11 January 2007 (Dr Tse) and 10 December 2006 (Dr Yu):
The last time an “outside” doctor (ie Dr G T Wong) provided Locum Support was on 25 March 2007. Dr Fu provided Locum Support until 29 July 2007 when it was said he had a “heart problem”. After that, all further Locum Support by the plaintiffs ceased. 106.As explained above, Drs Tse and Yu admitted they provided Locum Support in the early days when there was no residing doctor otherwise the Clinic would have to close and there would be no revenue.[31] Even so, Dr Yu claimed he provided Locum Support only sparingly before December 2006 (mostly in the evenings if no one else was available). The locum fee for Drs Tse and Yu was HK$300.00/hour as the Clinic’s business was poor, and sometimes Dr Yu would not be paid. 107.Operationally, Ms Kwan explained that since July 2006 she would ask the defendant for his off-work days in the following month and then instruct her colleague Ms Tsui to find locum doctors from Kinetics’ shortlist. If none were available, she would ask Dr Tse. Dr Yu was the last resort since he did not like locum work. Ms Kwan claimed that during the trial she checked Kinetics’ records and found Dr Fu only provided Locum Support for the Clinic from March to July 2007 and not from November 2006 to February 2007. She was unable to locate records before November 2006. But Dr Tse gave evidence that until March 2007 Kinetics would first approach Dr Fu to provide Locum Support, and if Dr Fu were not available they would ask him and others doctors, failing which Dr Yu would be approached. 108.On the other hand, the defendant said Drs Tse and Yu were the usual locum doctors despite their full-time employment, or alternatively the plaintiffs hired “outside” locum doctors (eg Dr GT Wong) at HK$300.00 - HK$400.00 per hour, or sometimes the defendant himself would act as locum doctor (but he was paid only several times for locum services). 109.In my view, prior to the handover of the Clinic, the plaintiffs did arrange Locum Support for the Clinic when the defendant was off-work. I accept that after the defendant joined the Clinic as an ICD Drs Tse and Yu reduced their level of Locum Support, but the plaintiffs still engaged “outside” help for such purpose. In my view, by the Dec06 and Mar07 Agreements the plaintiffs agreed to provide Locum Support that they had hitherto provided to the defendant/Clinic, and this has been elaborated in the Addendum as “including public holidays arrangement and occasional session” with a maximum of 100 hours per year, but by the Clause 5 Provision advance notice of the schedule was required. 110.Indeed, Drs Tse and Yu agreed that the plaintiffs should provide Locum Support after the handover of the Clinic. Dr Yu claimed the defendant should approach Mr Chan/Ms Kwan to further discuss/agree the scope of the Locum Support, but Dr Yu/Ms Kwan both said that after July 2007 the defendant did not request for Locum Support. Interestingly, Dr Tse claimed the plaintiffs could not arrange Locum Support because of the defendant’s insistence on a below-market locum fee of HK$300.00/hour (but this reason was not put forward in his witness statement). 111.I reject the evidence of the plaintiffs’ witnesses which is inherently contradictory. I find it incredible that having insisted on Locum Support of not less than 100 hours per year in the 30/3/07 Email and having obtained the plaintiffs’ agreement to such in the Addendum, the defendant would not have asked for Locum Support. Without any Locum Support the defendant could not take any time off-work without closing the Clinic, which step would of course add to the Clinic’s and/or his financial burden, and he therefore engaged an “outside” locum doctor Dr Edward Chan in September 2007 at HK$300.00/hour. But when Dr Chan quitted after September 2007, the defendant could not find any other locum doctor and the Clinic had to close down for the day with no revenue when the defendant was off-work. On balance, I also accept the parties understood the rate for Locum Support was HK$300.00/hour, which was Dr Tse’s and Dr Yu’s previous rate before the handover of the Clinic and Dr Fu’s rate after such handover until the end of July 2007. XVI. ORTHO SUPPORT 112.The defendant claimed that Dr Fu, an experienced orthopaedist, provided on-site Ortho Support for the Clinic from 1 July 2006 until 29 July 2007. Thereafter, the defendant referred a few orthopaedic cases to Dr Fu at the Jordan Clinic and/or asked his patients to consult Dr Fu. The defendant said Kinetics gave him a list of referral doctors, but this was not the envisaged on-site Ortho Support. The records as disclosed in the present action showed payments for Dr Fu’s Ortho Support from March to July 2007 (including an extra HK$80.00 for each orthopaedic consultation):
113.Mr Chan disagreed and claimed Dr Fu (who happened to be an orthopaedist) only provided Locum Support. Ms Kwan claimed Kinetics’ records showed Dr Fu did not provide on-site Ortho Support for the Clinic from November 2006 to March 2007[32] (this was not mentioned in her witness statement). But Dr Yu (who was not sure about Kinetics’ arrangement) said Dr Fu provided Ortho Support for the Clinic as at December 2006, but there was no Ortho Support after July 2007 because no request was received from the defendant. 114.Mr Tang argued there was no breach of the Addendum because (a) Dr Fu did not provide on-site Ortho Support prior to March 2007 and (b) as Ms Kwan confirmed both on-site and off-site[33] Ortho Support were equally useful. I disagree. The evidence of the plaintiffs’ witnesses in the above paragraph was contradictory. But even on the plaintiffs’ own case, by the time of the 30/3/07 Email (and later the Addendum) which spelled out “[ortho] specialist support” Dr Fu had been providing on-site Ortho Support for some time without suggestion of any off-site Ortho Support during that period. In my view, the parties agreed and the Addendum envisaged that the “[ortho] specialist support” would be on-site Ortho Support at the Clinic as bolstered by the sign for Dr Fu as an orthopaedic specialist at the Clinic’s main entrance. On balance I accept the defendant’s evidence that on-site Ortho Support was crucial to enhance the multi-disciplinary image of the Clinic, and that income from orthopaedic cases would more than cover the cost of Ortho Support. In my view, the plaintiffs were in breach of contract in failing to provide any on-site Ortho Support after July 2009. 115.At first the defendant claimed the market rate for an orthopaedic consultation was about HK$1,000.00 excluding disbursements. Ms Kwan rejected this as the going rate for specialists practicing in Central and not in Tsing Yi. The defendant conceded the average patient fee per consultation was about HK$920.00 being medical consultancy fee (HK$500.00) and disbursements such as medication, x-rays etc (HK$420.00). Ms Kwan still disagreed, and said Dr Fu charged HK$400.00 per orthopaedic consultation in 2006-2007 and HK$600.00 at the time of the trial. Neither party produced any document to support these assertions. 116.For the Ortho Support Loss from August 2007 to April 2010 (ie 33 months), I am prepared to accept HK$500.00 as the average orthoapedic consultancy fee and HK$420.00 as the average disbursement fee payable by the patient for an orthopaedic case. But in ascertaining the defendant’s loss of profits, one cannot just deduct the Locum/Ortho Support charges of HK$300.00 and HK$80.00. To ascertain the true loss, the cost of medication, X-rays and other procedures etc must also be taken into account. There is paucity of information in this respect, but in fairness I shall adopt half of HK$420.00 as such cost. Hence, the Ortho Support Loss is (HK$920.00 – HK$300.00 – HK$80.00 – HK$210.00) x 16 cases x 33 months = HK$174,240.00. XVII. VMO SUPPORT 117.For VMO Support, the doctor would attend and provide medical consultation services at old-age homes and hostels for patients with mental incapacity. Before the handover of the Clinic to the defendant, the plaintiffs secured VMO service contracts with 4 homes/hostels close to the Clinic. Dr Tse was not sure whether VMO services started in 2006 or 2007, but Ms Kwan said such services only started in January 2007. Except for one hostel, VMO visits were scheduled to take place outside the Clinic’s opening hours. Kinetics also arranged for its registered nurses to give health talks at the homes/hostels, which arrangements (and income thereof) had nothing to do with the Clinic. 118.The plaintiffs explained that VMO services were arranged to provide training for the defendant, to increase the income of the Clinic and to enhance the defendant’s image as a family doctor as well as the profile of the Clinic in the Tsing Yi community, so they claimed that VMO duties should be performed by the defendant as residing doctor of the Clinic. After securing a VMO service contract, Dr Tse would pay initial visit(s) to the institution to identify any problem. He would teach the defendant how to perform VMO duties and also accompany the defendant on the first few visits to make sure he could handle VMO duties on his own, but Dr Tse would not give any VMO Support after that. Mr Chan and Ms Kwan denied any sharing of VMO duties prior to the handover of the Clinic. Drs Tse and Yu both said Dr Yu performed VMO Support perhaps only once because of his work commitments. But Dr Yu agreed Dr Tse performed VMO Support from July 2006 to March 2007 (even though he did not know the frequency of such service). 119.On the other hand, the defendant claimed that Drs Tse and Yu would share VMO duties twice a week, and they last provided VMO Support on 15 March 2007 (Dr Tse) and 14 February 2007 (Dr Yu). But after the handover of the Clinic, Drs Tse and Yu refused to take the defendant’s telephone calls, and later the plaintiffs said the Clinic would have to pay for VMO Support. Without VMO Support, the defendant could not manage and had to stop VMO services for 2 homes/hostels after 21 June 2007. Ms Kwan helped to terminate the VMO service contract for one of them, and she arranged for Kinetics’ registered nurse to complete the contract for the other one. In April 2010, the defendant stopped VMO service for the 3rd institution, and he now only performs VMO services for one old-age home. 120.I accept the plaintiffs arranged the 4 VMO service contracts to improve the income of the Clinic. I further accept that Dr Tse trained the defendant in respect of VMO duties, and Dr Yu played a minor role in respect of VMO matters. Whilst I agree that VMO duties should largely be done by the residing medical doctor, I also believe there was VMO Support even before the handover of the Clinic. First, the defendant complained of the plaintiffs’ unwillingness to share VMO sessions as early as in the 16/3/07 Partnership Email. Secondly, the scheduled evening visits under the VMO service contract for one of the institutions clashed with the Clinic’s opening hours. Without VMO Support, it would be pointless to secure a VMO service contract only to have to close the Clinic for those VMO visits. 121.In any event, the 30/3/07 Email and the Addendum made clear the agreed Support was the “[sharing] of VMO duties”. Although Mr Chan claimed there was as yet no discussion of the “detail outline of schedule” for sharing VMO duties, this did not mean there was no need to provide any VMO Support at all. After the handover of the Clinic, the business of the Clinic was poor. In my view, the defendant would not have turned down an opportunity to earn more income and to increase the Clinic’s profile unless he was constrained to terminate the 3 VMO service contracts due to the plaintiffs’ failure to provide VMO Support at all. It is true that apart from the 16/3/07 Partnership Email the defendant only raised written complaint about lack of VMO Support in 2009 after consulting a lawyer friend, but I find on balance that he believed the plaintiffs were unwilling to provide him Support, and was thereby disheartened. XVIII. PHYSIO HIRE 122.Kinetics seconded their physiotherapist Mr Alex Chan (“Mr A Chan”) to provide physiotherapy services at the Clinic. Kinetics provided all equipment/consumables, and shared the physiotherapy fee with the Clinic on 70:30 basis. This arrangement continued until Mr A Chan last provided physiotherapy services at the Clinic on 12 June 2010. The defendant claimed that physiotherapy services were remunerative due to high profit margin and minimal competition in Tsing Yi. There was a sign at the main entrance of the Clinic for Mr A Chan. 123.The defendant claimed that in/about December 2006 Mr Chan on behalf of the plaintiffs promised to pay HK$8,000.00/month for Physio Hire, which he later reduced to HK$5,000.00/month and which he further reduced to HK$2,500.00/month in April 2007 together with 5% of the gross profit if the monthly gross income exceeded HK$30,000.00 and the equipment fee to be shared equally. Mr Chan denied this. 124.There was no written record of any Physio Hire, but the 26/4/07 Email did raise the matter of “physio and allied health” as follows:
Mr Ng submitted that Mr Chan would have objected or raised question to this email if there was no agreement over Physio Hire, but he did not. But in my view, as at the date of this email (ie after the Mar07 Agreement and the 30/3/07 Email and less than 2 weeks before signing the Addendum), plainly there was no agreement as yet over Physio Hire. At best, the defendant was only putting forward a proposal, but such proposal did not refer to Physio Hire of HK$8,000.00/month and/or HK$2,500.00/month as suggested by the defendant. In my view, “[physiotherapist] support” in the 30/3/07 Email (which preceded the 26/4/07 Email) and in the Addendum (which resembled the 30/3/07 Email) was a reference to profit-sharing for physiotherapy services at the Clinic. Indeed, both before and after the handover of the Clinic and until after April 2010 the Clinic continued to receive 30% of the physiotherapy income. By the 22/1/09 Email the defendant did raise a complaint about Physio Hire,[34] but I am of the view that whilst there had been discussions about proposed amounts for Physio Hire, there was no firm commitment and consequently no breach of contract under this head. XIX. PUBLIC HEALTH TALKS AND VACCINATIONS 125.Public health talks by Kinetics’ staff (particularly Mr Chan) at kindergartens/schools/hostels helped raise public awareness on health issues, encouraged body checks and vaccinations, and helped promote the Clinic to the Tsing Yi community. Mr Chan would also introduce the defendant to the audience (eg parents and school officials) after such talks. The defendant complained that the plaintiffs no longer organised such public health talks after the handover of the Clinic, but agreed Kinetics had some arrangements with kindergartens for free vaccinations. 126.Ms Kwan agreed that previously Mr Chan did give public health talks, but after 1 July 2006 the defendant as residing doctor of the Clinic should be the one to give such public talks to enhance his own reputation in the Tsing Yi community. Mr Chan said Ms Kwan taught the defendant how to arrange different healthcare activities. Ms Kwan gave evidence that by March 2007 the defendant already knew how to make presentations and give talks. Mr Chan and Ms Kwan said (but the defendant could not remember) on 2 March 2007 Kinetics organised a free presentation on pneumonia and chickenpox (because there were vaccinations for such illnesses) for the parents/teachers of a kindergarten, but the defendant refused to attend and Kinetics had to arrange for a registered nurse to give the presentation on behalf of the Clinic. 127.I am not persuaded there was breach of contract on the part of the plaintiffs in this respect. The Addendum provided for “regular public talks on health screening and vaccination (schedule)”. There is no dispute that the plaintiffs did arrange for some free vaccinations. I agree that the defendant as residing doctor of the Clinic should be involved in public health talks, and further find that the plaintiffs were not unwilling to help in organising such talks (as evident from the talk on 2 March 2007). But the parties had to work out a schedule for such talks. Even if the defendant had professional concerns over advertising services and soliciting business, he should have raised and discussed this with the plaintiffs and not simply decline to participate in the talk on 2 March 2007 organised by the plaintiffs. Although the defendant in the 22/1/09 Email raised the matter of public health talks, he only said the timetable and details had not been confirmed. There was no suggestion that the plaintiffs were unwilling to assist. XX. HEALTH CHECK DAYS 128.On health check day at the Clinic, there would be a brief presentation on a particular theme, and Kinetics’ staff would perform examinations and/or health checks for minimal/no charge. If abnormality was detected, Kinetics’ staff would recommend that the doctor be consulted. For example, for the health check day for “flatfoot” on 27 July 2005, a podiatrist was arranged for free examination of children’s feet. 129.The defendant claimed that health check days usually took place on Sundays, but Ms Kwan said they were normally held on weekdays from 1:00pm-4:00pm. The defendant claimed (but Mr Chan disagreed) that before the handover of the Clinic there would be a health check day once a month, and Dr Tse or Dr Yu would be the attending doctor. On the other hand, Ms Kwan agreed that Kinetics’ staff would run health check days prior to 1 July 2006 when there was no residing doctor at the Clinic, but there was no health check day from July 2006 to March 2007 as they were busy training the defendant on clinical work. 130.It is true that the 30/3/07 Email and the Addendum provided for “health check day (schedule)”. Whilst both parties agreed there were health check days in the past and (subject to working out a schedule) the plaintiffs were to provide support for health check days, I do not believe the plaintiffs were in breach of contract in this respect. I accept health check days were more frequent prior to 1 July 2006, but I do not think they took place once a month on Sunday. The defendant would usually be off-work on Sunday and public holiday, and it hardly made sense to incur locum fee on those days and spend time on promotion of the Clinic when the residing doctor was away. I also note Ms Kwan’s evidence that the Clinic could not re-run a limited portfolio of themes for health check days within a short period. Further, apart from saying that the plaintiffs did not arrange any health check day after the handover of the Clinic, the defendant had no specific answer to Ms Kwan’s testimony he did not reply to her email dated 17 July 2007 asking him to choose a health check day theme so that Kinetics could organise the event and borrow the equipment. XXI. OTHER HEALTH CARE SUPPORT 131.The defendant explained that other healthcare support included dietician, nutritionist, speech therapist, occupational therapist, psychotherapist and podiatrist services, which were previously provided by the plaintiffs. These services were useful in some cases (eg diet/nutrition care for managing diabetes), and other clinics in Tsing Yi did not have such services. The defendant claimed (but Mr Chan denied) the plaintiffs promised to have such therapists come to the Clinic to provide their services on request. 132.The defendant complained that the plaintiffs failed to provide other healthcare support after the handover of the Clinic, and he had to refer his patients to the Jordan Clinic. But, in my view, the provision in the Addendum for “other health care support” would require the defendant as residing doctor of the Clinic to initiate request for particular allied health services and work out the operational details with the plaintiffs. There is no breach of contract on the part of the plaintiffs in this respect. XXII. HANDBOOK FOR DAILY CLINICAL PRACTICE 133.There is no dispute that Kinetics’ registered nurse 吳月華 (“RN Ng”) prepared a dedicated practice manual on clinic practice for the assistant nurses, and such manual was kept at the Clinic after its handover. But the defendant claimed the “[handbook] for daily clinical practice” in the Addendum was one which employers in the private market would provide to newly qualified doctors (which would include common prescription patterns and minor surgical procedures). He claimed (but the plaintiffs denied) that Drs Tse and Yu promised to make one for him but they never did. 134.Mr Chan and Dr Tse doubted whether the defendant’s complaint in the 22/1/09 Email that the “Basic Clinic Handbook” had not been provided referred to and/or was the same as the “handbook for daily clinical practice” in the Addendum, but felt there was no point in asking because they thought the defendant would not reply. In any event, there was no need to prepare any handbook for the defendant as a newly qualified doctor because comprehensive handbooks could be bought off the shelf. 135.I find the “[handbook] for daily clinical practice” in the Addendum concerned medical clinical practice (as suggested by the defendant) rather than the operation of the Clinic (as suggested by the plaintiffs). I do not accept Dr Tse’s attempt to explain away “clinical practice” as including the duties of assistant nurses in gathering equipment/consumables for, say, dressing a wound. By the time of the 22/1/09 Email, the manual prepared by RN Ng had been available for 2 years and there was no reason for the defendant to ask for such handbook. The plaintiffs also did not by any reply point to the manual prepared by RN Ng to refute such demand. I find on balance that notwithstanding the fact that clinical handbooks might be available in the market, the plaintiffs had promised to make up a handbook on daily clinical matters for the defendant. The plaintiffs were in breach of contract in failing to provide such handbook. XXIII. INDIVIDUAL CASE MANAGEMENT ADVICE 136.The defendant claimed that Drs Tse and Yu used to answer his queries by email/telephone, and Dr Tse even came to the Clinic to prepare a slide show to teach him common dermatology problems. But Dr Tse’s attendance at the Clinic decreased in January 2007. The defendant believed Dr Tse was not keen to help any more after he signed the Memorandum and agreed to pay the Price. After taking over the Clinic, he tried to contact Drs Tse and Yu by telephone but they could not be reached. The defendant further claimed (but Dr Yu denied) that Dr Yu also promised to show him minor surgical techniques, but up to date that had not happened. 137.I do not accept the defendant’s contentions. The disclosed emails showed that he could contact Drs Tse and Yu by email in 2007, 2008 and 2009, and Drs Tse and Yu kept the same email addresses all along. In fact, Dr Tse received few emails from the defendant by December 2006 and only 1-2 emails a month by early 2007. Both Drs Tse and Yu said there was no further email/telephone enquiry on clinical management from the defendant after the handover of the Clinic. Indeed, the defendant also admitted he did not have more than 1 email a month for Dr Tse, and accepted he had gained more experience. In my view, it was the defendant who did not raise enquiries with Drs Tse and Yu, and there was no breach of contract on the part of the plaintiffs in this respect. XXIV. CLINIC OPERATIONS AND STAFF TRAINING 138.The defendant claimed that before May 2007, Kinetics’ staff (particularly Mr Chan, Ms Kwan, Mr B Tang and RN Ng) would regularly go to the Clinic to ensure that its operations were “in order”, but these services stopped after the handover of the Clinic. I agree with Ms Kwan that before the handover of the Clinic the defendant as an employed ICD was not required to handle administrative work, but after he became the sole owner of the Company and took over control/operation of the Clinic in 2007, he would have to be in charge of the overall management, supervision and administration of the Clinic, and the plaintiffs could only offer support at his directions. 139.There is no dispute that the plaintiffs had trained the assistant nurses by the time of the handover of the Clinic, so there would not be any need for continuous staff training. There was no reason why well trained assistant nurses could not check stock and follow up with patients after medical consultations. It was not disputed that after the handover of the Clinic Ms Kwan helped the Clinic to lay off some staff. In my view, the plaintiffs were not unwilling to provide management support, it was incumbent on the defendant to work out with them the precise support required. I am not convinced there was any breach of contract on the part of the plaintiffs in this respect. XXV. SECRETARIAL AND ACCOUNTING SUPPORT 140.The defendant claimed that before May 2007 he would often contact Ms Tsui (a secretary at the Jordan Clinic before she was laid off) because she handled the daily clerical work of the Clinic, including bookkeeping, preparing cheques, contacting homes/hostels, and preparing annual returns and tax returns etc. Ms Tsui handed over all her work to the defendant upon the handover of the Clinic. Whilst I agree with Ms Kwan that after the defendant took over control/operation of the Clinic he should be in charge of overall management, supervision and administration of the Clinic, in the Addendum the plaintiffs did agree to provide “secretarial support”. In my view, the plaintiffs were in breach of contract by laying off Ms Tsui and ceasing secretarial support altogether. 141.The defendant claimed that after May 2007 the company’s auditor continued to provide auditing services, but as the parties’ relationship deteriorated he decided to change to WKL & Partners CPA Limited. In my view, there is no breach of contract since it was the defendant’s own choice to change auditors. XXVI. POST-AGREEMENT COMMUNICATIONS 142.The post-Agreement inter partes email communications took on significance because both parties claimed such communications supported their respective case. 143.A further instalment of the Price was due on or before 1 August 2007(“6th Instalment”). In his oral testimony, Mr Chan said he did not personally chase the defendant for instalment payments of the Balance Price, but Kinetics’ staff would do so and report to Ms Kwan. But in his witness statement Mr Chan said that in/about June 2007 he and Drs Tse and Yu met with the defendant to demand payment of the Balance Price to no avail. When pressed about the above discrepancy, Mr Chan accepted he might have been mistaken/confused over the timing, but insisted that after the handover of the Clinic he did meet the defendant at a tea café opposite the Clinic to talk about the situation and to see how he could help the defendant. Dr Tse gave evidence that he had the impression Mr Chan went to the Clinic to ask the defendant about non-payment of the Balance Price, and Mr Chan reported to him and Dr Yu that the defendant required more time for payment because of the poor income of the Clinic. I reject the above evidence as inherently contradictory and unreliable. 144.By the 25/7/07 Email just before the due date of the 6th Instalment, the defendant informed the plaintiffs that due to “clinic income was below the expected level in the past 4 months, the cushion period will be exercised and further payment will be delayed”. I accept on balance that the defendant did not think of spelling out the actual income of the Clinic or the threshold sum for the “expected level” because the conditions for the exercise of the C/G Period had been agreed. He believed that by stating “further payment will be delayed” he had made clear further instalment payments of the Balance Price would be suspended upon his exercise of the C/G Period. As explained in paragraph 99 above, he was entitled to do so. 145.Mr Chan gave evidence that although he did not understand what expected level or C/G Period meant, the plaintiffs did not reply to refute any exercise of the C/G Period. He gave evidence that he did not make an enquiry by email, but he might have asked the defendant personally or by telephone (yet his witness statement stated he replied by the 24/8/07 Email). The defendant’s evidence is inherently contradictory, and is contradicted by Dr Yu’s understanding that the “expected level” meant the threshold amount of HK$53,000.00 a month. I find Mr Chan’s evidence unreliable. 146.Dr Tse argued that the C/G Period had to be exercised by mutual agreement (which argument I reject in view of the analysis in paragraph 94 above), and although he thought it was a serious matter (especially when the defendant failed to pay the 5th Instalment) and he spoke to Mr Chan about this, there was no email query over the C/G Period or expected level. Indeed, in the 24/8/07 Email[35] there was no demand for payment or objection against any unilateral exercise of the C/G Period. I prefer the defendant’s evidence and reject Dr Tse’s explanation. 147.On 24 August 2007, Mr Chan sent an email to the defendant with copy to Drs Tse and Yu as follows (“24/8/07 Email”):
148.It is specious for Mr Chan to suggest that the “cushion period” in the emails in March 2007 and the “grace period” in the Addendum were different. He claimed not to understand what they meant, but not only did he not raise objection in the 24/8/07 Email he even asked for evidence (eg income breakdown) to verify whether the C/G Period had been properly exercised. In my view, Mr Chan plainly knew what the C/G Period and TNI meant. On balance I do not accept his evidence that without an explanation by the defendant, there was insufficient information for him to discuss/determine the TNI or the scope of the Support specified in the Addendum so as to seek legal advice from Mr Kwok or to have Kinetics’ staff arrange for provision of Support for the Clinic. Further, although Mr Chan claimed the defendant did not reply to the 24/8/07 Email, the defendant actually replied by the 27/8/07 Email.[36] Mr Chan also agreed the defendant did send income breakdown for March to June 2007 to him by email. 149.Dr Tse said that by the time of the 24/8/07 Email, even though the plaintiffs did not exactly know (and the defendant did not confirm) the amount of the TNI, they guessed the defendant referred to HK$53,000.00 per month. He claimed the plaintiffs wanted to find out how bad the Clinic’s business was in order to understand how and/or why the defendant unilaterally exercised the C/G Period. In my view, the 24/8/07 Email did not dispute the existence of the C/G Period or raise query over the expected level, and the plaintiffs knew the defendant had exercised the C/G Period even though they queried his basis for doing so. 150.On 27 August 2007, the defendant wrote to the plaintiffs (“27/8/07 Email”) to state as follows:
151.Under Clause 2, the defendant could have relied on either or both conditions to exercise the C/G Period. Although the emails in July/August 2007 referred to failure to meet the TNI, the 27/8/07 Email also referred to inadequate Support (ie “[contribution] from each party has significantly declined after the transferral”). Whilst the defendant did not expressly spell out the agreed TNI amount and the actual income of the Clinic in the 27/8/07 Email, it was agreed that he did separately send income breakdown from March to June 2007 to Mr Chan by email. 152.There was no email reply to the 27/8/07 Email to refute the existence of the C/G Period or to deny that the plaintiffs’ Support had diminished. Mr Chan claimed Ms Kwan repeatedly asked the defendant for details of the TNI and required Support to no avail, but he himself did not have any meeting or telephone conversation with the defendant from 27 August 2007 until 2009. Yet Dr Tse said he knew Mr Chan asked the defendant about the Clinic’s income (because the plaintiffs wanted to know why the defendant would want to sell the Clinic when he still owed them the Balance Price), and Mr Chan later reported to him that the defendant was uncooperative and unwilling to discuss with them. When this was put to Mr Chan, he said Dr Tse might have liaised with his colleagues. I find the evidence of the plaintiffs’ witnesses inherently contradictory and improbable. 153.On 10 October 2007, the defendant emailed Mr Chan to say that he and his family were disappointed with the situation, that they decided to sell the Clinic and offered it to the plaintiffs for HK$2,200,000.00, and that he had asked a lawyer for advice. Mr Chan claimed the plaintiffs were surprised by the high offer price, so he replied by email on 11 October 2007 to ask for a breakdown of the offer price and to notify that Drs Tse and Yu had passed the case to Mr Kwok for advice. 154.The next instalment of the Price (“7th Instalment”) was due on 1 December 2007, and was not paid. Dr Tse said Mr Chan chased for payment of the 7th Instalment, and whenever Dr Tse met Mr Chan he would ask about progress and Mr Chan would say there was no payment yet. This was contradicted by Mr Chan’s evidence that he would not pay attention to the outstanding instalments, and that his impression was Drs Tse and Yu did not directly ask him about overdue instalments (even though they might have checked with Kinetics’ accounts department). 155.On 3 March 2008, the defendant sent email to the plaintiffs to say he was having discussions with potential buyers. On 4 March 2008, Dr Tse wrote to Mr Chan and Dr Yu to note the defendant had no intention to make payment even a year after the transaction. 156.On 9 January 2009, the defendant sent email to Mr Chan, Dr Tse and Dr Yu to say he had consulted his lawyer and would send a formal email/letter in two weeks. By the 22/1/09 Email to Mr Chan, Dr Tse, Dr Yu and Mr B Tang, the defendant said as follows:
157.The defendant explained that the income of the Clinic had reached the TNI, but there was still inadequate Support so he asked the plaintiffs to provide the agreed Support as soon as possible. At that time, he was “willing to pay the remaining amount on a quarterly basis, or monthly basis, or in one lump sum” if the plaintiffs provided adequate Support (my emphasis). Hence, the defendant was not negotiating for a reduction of the Price. By saying he “sincerely hope all partners can reach consensus as soon as possible so that the remaining contractual terms can be carried out smoothly”, he was urging the plaintiffs to work with him to provide the agreed Support. 158.Mr Chan said he did not understand what the defendant meant in the 22/1/09 Email, but he did not ask because the defendant all along did not answer his queries. Mr Chan claimed he also did not understand the 22/1/09 Email to mean the plaintiffs had to provide the Support specified in the Addendum. But Drs Tse and Yu agreed thatthe references to “both parties have to perform the contract terms” and “all of us have to perform the contract terms in all respects” in the 22/1/09 Email included the Support set out in Clause 5. 159.Nevertheless, the plaintiffs did not seek any clarification in their email to the defendant on 14 February 2009. In such email, the plaintiffs only demanded for payment and stated (a) the receipts for payments made were ready for collection, (b) the defendant should pay according to the payment methods stated in the contract signed by both parties, and (c) cheques should be issued to the plaintiffs who were the relevant parties. 160.On 17 March 2009, the defendant sent an email to the plaintiffsto note that upon seeking further legal advice (a) the contract contained mutual obligations which both sides had to perform, (b) the defendant was entitled to continue to exercise the C/G Period if the plaintiffs failed to perform their obligations, and (c) he reserved the right to claim against the plaintiffs for failure to providethe Support as stated in the contract. If the parties were unable to reach any consensus, he proposed to sell the Clinic or the plaintiffs could buy back the Clinic or they could renegotiate the contract terms afresh. Mr Chan disagreed with such email, and to protect the plaintiffs’ interest he sought advice from Mr Kwok. 161.From the above analysis, the post-agreement communications support (and did not in any way detract from) my conclusions above. XXVII. CONCLUSION 162.In the circumstances, I conclude that the plaintiffs are entitled to the Balance Price of HK$959,994.00 and the defendant is entitled to his counterclaim for the Ortho Support Loss in the sum of HK$174,240.00. Upon set-off, I grant judgment in favour of the plaintiffs in the sum of HK$785,754.00 with interest thereon from the date of the writ of summons to the date hereof at the rate of 8% pa and thereafter at judgment rate until payment. There is no reason why costs should not follow event. I grant a costs order nisi that the defendant do pay to the plaintiffs costs of this action (including half of the costs of the counterclaim and all costs reserved if any) on High Court scale to be taxed if not agreed.
Mr Ronald Tang and Ms Carmen Kei, instructed by Jesse H Y Kwok & Co, for the 1st, 2nd and 3rd plaintiffs Mr Lawrence Ng and Mr Victor Lui, instructed by Lam & Partners, for the defendant [1] see paragraph 10 below [2] see paragraph 3(10) and footnote 10 of the written opening submissions of the defendant’s counsel Mr Ng (with him Mr Lui) [3] counterclaim for loss/damages for the plaintiffs’ failure to provide Locum and VMO Support, to pay the Physio Hire, and to provide or procure to be provided other Support set out in the Addendum [4] in my view, notwithstanding Mr Chan’s and Dr Tse’s doubts (which I reject), there is only semantic and not real/material difference between “cushion period” and “grace period”, which shall all be referred to as “C/G Period” in this Judgment [5] Star Glory Investment Ltd v Kai Tua (H.K.) Technology Ltd & ors HCA3523/2002 (unreported, 13 August 2005) para 12 (see also Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439, 494, and Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd & anor HCA 1957/2005, HCA 714/2007, HCA 886/2007 and HCA 1364/2008, Poon J (unreported, 28 July 2011)) [6] which averred that “[the plaintiffs] have given adequate [Support] to the [defendant] in pursuant to the Addendum as to assist the [defendant] in the grace period” [7] Waddington Ltd v Chan Chun Hoo (2008) 11 HKCFAR 370 [8] Shaker v Al-Bedrawi & ors [2003] Ch 350, 378 [9] Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 [10] Lehman & Co Management Limited v Effiscient Limited & anor CACV 272/2011 (unreported, 13 March 2013) paras 46-47 [11] Johnson at p 35-36 (see also Lehman & Co Management Limited at para 38, East Satellite Television (Holdings) Limited v New Cotai, LLC & ors HCA 2189/2009, Reyes J (unreported 16 July 2010) para 130, and Re Landune International Ltd [2005] 4 HKLRD 46, 59-60 (upheld on appeal [2006] 1 HKLRD 39)) [12] the alleged Dec06 and Mar07 Agreements as well as the Agreement and Addendum [13] see Chitty on Contracts 31st ed (Vol.1) para 18-003 at p 1374 [14] see Woodar Investment Development v Wimpey Construction UK Ltd [1980] 1 WLR 277 [15] see Chitty on Contracts 31st ed (Vol.1) para 18-051 at p 1411 [16] Rolls-Royce Power Engineering Plc & anor v Ricardo Consulting Engineers Limited [2003] EWHC 2871 (TCC) (unreported, 2 December 2003) at para 124 [17] [2004] 4 All ER 97, 106-109, 115-116, 137-143, 149 and 154-158 [18] see footnote 12 [19] see footnote 12 [20] paragraph 31 of the Amended Defence and Counterclaim [21] see footnote 12 [22] 31st ed Vol.1 para 21-137 at pp 256-258 [23] see also paras 2-127 - 2-128 at pp 248-250 [24] see paragraph 6(a) above [25] see paragraph 8 above [26] see 8/3/07 and 14/3/07 Emails in paragraphs 62-63 above [27] see paragraph 43 above [28] see paragraph 95 below [29] see also the 27/8/07 Email referred to in paragraphs 150-151 below [30] see paragraphs 55, 75 and 95 above [31] see paragraph 82 above [32] see paragraph 107 above [33] referral of orthopaedic cases to the Jordan Clinic [34] see paragraph 156 below [35] see paragraph 147 below [36] see paragraph 150 below Please refer to CACV228/2013 for the relevant appeal(s) to the Court of Appeal. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 1115/2010