Wan Chi Hing v. Wong Chung Kai

HCA 1552/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1552 OF 2013

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(HEARD TOGETHER)

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JUDGMENT
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A. INTRODUCTION

1.These proceedings arise out of the disputes between Mr Wan Chi Hing (“Mr Wan”) on the one hand, and Mr Wong Chung Kai (“Mr Wong”) and the companies controlled by Mr Wong on the other, in relation to the operation of certain fee-paying car parks on Government-leased land in Hong Kong under short-term tenancies granted by the Government (“STT”).

2.There are common issues in the three High Court actions and the actions were transferred to the High Court and were ordered to be heard together by the orders of HH Judge Wilson Chan dated 9 August 2013.

3.On the first day of the trial, Mr Bernard Man SC (leading Ms Theresa Chow), counsel for the Defendants, sought leave from the Court to rely on certain new documents at the trial which were not previously disclosed.  The application was opposed by Mr Robert Pang SC (leading Ms Pauline Leung), counsel for the Plaintiff.  I dismissed the application and my reasons for doing so are set out in Section L below.

B. THE RELEVANT FACTUAL BACKGROUND

B1. The Parties

4.Mr Wan (the Plaintiff) and Mr Wong have been in the business of operating fee-paying car parks in Hong Kong for over 20 years.

5.At all the material times, Mr Wong was the person in charge of each of the Defendants, namely Kai Hing Trading Company (“Kai Hing”), Strong Master Corporation Limited (“Strong Master”) and Fan’s Trading Company (“FTC”).

6.Before 2004, Mr Wan and Mr Wong had been competitors in the car park business for many years.

7.In 2004, there were discussions between Mr Wan and Mr Wong about cooperation in the car park business to reduce their competition.

B2. The General Agreement

8.The Defendants’ case is that an oral agreement (“the General Agreement”) was entered into in June 2004 between Mr Wan and Mr Wong (on behalf of themselves and those entities controlled them) in relation to the sharing of income and expenses of the car parks which were to be jointly operated by them in the following terms:

(1) the STT tenant would share with the other party the income generated from operation of the car park according to an agreed ratio on condition that the latter pay the former an agreed share of all outgoings incurred; and

(2) the STT tenant is only obliged to pay the other party its agreed share of income upon the other party paying in advance its share of Government rent to the tenant and deducting the other outgoings from the total income generated.

9.The Plaintiff denies the existence of the General Agreement. 

B3. Written Agreement of 31 August 2004

10.By an agreement in Chinese dated 31 August 2004 (“Yuen 5 Agreement”), Mr Wan and Strong Master agreed, amongst other things, to share the operating costs and the profits in relation to the land located at Tai Kiu Road, Yuen Long (“Yuen 5”) pursuant to STT No 2044 in equal shares.  The effective date of the Yuen 5 Agreement was 1 September 2004.

B4. Written Agreements of November 2004

11.By an agreement in Chinese dated 23 November 2004 (“Tai 3A Agreement”), Mr Wan and FTC agreed, amongst other things, to share the operating costs and the profits in relation to the land located at Dai Wah Street, Area 33 of Tai Po (“Tai 3A”) pursuant to STT No 1236 in equal shares.  The effective date of the Tai 3A Agreement was 1 December 2004.

12.By an agreement in Chinese dated 24 November 2004 (“Sha 12/13 Agreement”), Mr Wan and Kai Hing agreed, amongst other things, to share the operating costs and the profits in relation to (1) the land located at Hang Ming Street, Area 90B, Ma On Shan, Shatin (“Sha 12”) pursuant to STT No 1161 and (2) the land located at Area 86B, Ma On Shan, Shatin (“Sha 13”) pursuant to STT No 1144, in the percentages of 65% (Kai Hing) and 35% (Mr Wan). The effective date of the Sha 12/13 Agreement was 1 December 2004.

B5. Written Agreement of 1 April 2005

13.By an agreement in Chinese dated 1 April 2005 (“Kai 2 Agreement”), Mr Wan and Strong Master agreed, amongst other things, to share the operating costs and the profits in relation to the land located at Concorde Road, Kai Tak, Kowloon (“Kai 2”) pursuant to the tenancy agreement No KX2324 in equal shares.  The effective date of the Kai 2 Agreement was 1 April 2005.

B6. Defendants’ Deductions of Profits Tax in October and November 2005

14.In October and November 2005, the Defendants deducted various sums from Mr Wan’s share of profits generated from the operation of the car parks at Sha 12/13, Yuen 5, Kai 2 and Tai 3A. The deducted sums were said to be Mr Wan’s share of the profits tax.

B7. Plaintiff Ceased Paying Rent from November 2005

15.From November 2005, the Plaintiff ceased paying to Mr Wong his share of the rent for the Government in relation to Sha 12/13, Kai 2 and Tai 3A.

16.On 29 November 2005, the STT for Tai 3A was terminated, and the Tai 3A Agreement therefore came to an end as well.

17.From January 2006, the Plaintiff ceased paying to Mr Wong his share of the rent for the Government in relation to Yuen 5.

B8. Parties’ Correspondence in January 2006

18.By a letter dated 11 January 2006 to Mr Wong, Mr Wan’s former solicitors (Messrs David Hui & Co Solicitors), amongst other things, alleged that Mr Wong had unilaterally and wrongfully deducted $96,350.31 as profits tax from Mr Wan’s share of profits and demanded Mr Wong to return the deducted sum within 3 days failing which legal action would be initiated against him.

19.By 3 letters dated 12 January 2006 to Mr Wan, the Defendants alleged that Mr Wan was late in paying his share of the rent for the Government since November 2005 and sought to terminate the Sha 12/13, Yuen 5 and Kai 2 Agreements under the agreements and/or common law.

C. THE PLAINTIFF’S PLEADED CASE

20.The Plaintiff’s pleaded case can be summarised as follows:

(1) There was no General Agreement.

(2) There are the following implied terms in the Sha 12/13 Agreement, the Kai 2 Agreement, the Tai 3A Agreement and the Yuen 5 Agreement:

(a) the Plaintiff was required to pay the Defendants only the first month’s rent (in the case of the Sha 12/13 Agreement, the Kai 2 Agreement and the Tai 3A Agreement) or the first two quarters’ rent (in the case of the Yuen 5 Agreement) in advance;

(b) the Defendants would distribute profits of the first month (in the case of the Sha 12/13 Agreement, the Kai 2 Agreement and the Tai 3A Agreement) or on a monthly basis (in the case of the Yuen 5 Agreement) to the Plaintiff according to the relevant percentage after receiving the rent from the Plaintiff; and

(c) after the first month (in the case of the Sha 12/13 Agreement, the Kai 2 Agreement and the Tai 3A Agreement) or after the first 6 months (in the case of the Yuen 5 Agreement), the Plaintiff would pay his share of the rent to the Defendants after receiving his share of monthly profits of the preceding month.

(3) Kai Hing and Strong Master were not entitled to deduct the various sums described as profits tax from the Plaintiff’s share of profits pursuant to the Sha 12/13 Agreement, the Yuen 5 Agreement, the Kai 2 Agreement.  By doing so, Kai Hing and Strong Master were in breach of such agreements.

(4) FTC failed to pay the Plaintiff his profit entitlement for October 2005 and was in breach of the Tai 3A Agreement. 

(5) There was no basis for Strong Master to withhold the return of deposits upon the termination of STT 2044 (Yuen 5) and KX2324 (Kai 2).

21.In his pleadings, the Plaintiff seeks:

(1) in HCA 1552 of 2013 against Kai Hing:

(a) the return of the profits from October 2005 until the Sha 12/13 Agreement was lawfully determined; and

(b) $96,350.31 being the deducted profits tax;

(2) in HCA 1554 of 2013 against Strong Master:

(a) damages;

(b) an account of the profits under the Yuen 5 Agreement for October to December 2005 and payment of the sum due;

(c) an account of the profits under the Kai 2 Agreement for October 2005 and payment of the sum due;

(d) $157,604.88 and $13,986.41 being the deducted profits tax;

(e) the return of $333,000 and $381,000 being the Plaintiff’s share of the deposits paid.

(3) in HCA 1555 of 2013 against FTC the return of the profits for October 2005 and the period from 1 to 29 November 2005.

22.The parties have agreed certain amounts to be payable in the event that liability is established by the Plaintiff. 

D. THE DEFENDANTS’ PLEADED CASE

23.The Defendants’ pleaded case can be summarised as follows:

(1) The written Agreements were entered into pursuant to the General Agreement.

(2) There was an oral agreement that (a) the Plaintiff would pay his share of the rent for the Government in advance to the Defendants on or before the first day of each month and (b) other outgoings (including profits tax) would be deducted by the Defendants from the profits payable to the Plaintiff for the corresponding month (“the Oral Rent Payment Agreement”).

(3) There is an implied term in each of the written Agreements to the same effect as (2)(a) above.

(4) There is an express, or alternatively implied, term of the Agreements, or alternatively there were oral agreements to the same effect, that the incidence of profits tax would be shared between the parties in the relevant percentage.

(5) Strong Master was entitled to withhold the deposits for set-off against the share of income due to Super Eastern Ltd from the car park at STT 1137, and any obligation to return such deposits would have been discharged as a matter of law upon the termination of the General Agreement, the Yuen 5 Agreement and the Kai 2 Agreement.

(6) There was no breach of the Agreements on the part of the Defendants.

E. THE ISSUES FOR DETERMINATION

24.In my view, there are the following 6 principal issues in this trial for my determination:

(1) Whether the General Agreement exists (“the General Agreement Issue”).

(2) Whether there was any agreement between the parties as to when the Plaintiff should pay his share of rent for the Government to the Defendants (“the Payment of Rent Issue”).

(3) Whether the Defendants were entitled to deduct profits tax from the Plaintiff’s share of profits (“the Profits Tax Deduction Issue”).

(4) Whether the Defendants were entitled to terminate the Sha 12/13, Yuen 5 and Kai 2 Agreements (“the Termination Issue”).

(5) Whether the Plaintiff is entitled to the return of deposits upon the termination of STT 2044 (Yuen 5) and KX2324 (Kai 2) (“the Return of Deposits Issue”).

(6) What remedies are the Plaintiff entitled to against the Defendants? (“the Remedies Issue”)

These 6 issues largely correspond to the 5 issues agreed by the parties.

F. ISSUE 1: THE GENERAL AGREEMENT ISSUE

25.Whether or not the General Agreement exists ultimately depends on my assessment of the credibility of the relevant witnesses.

F1. My Approach in Assessing Credibility and Finding Facts

26.In making my findings of fact in this case, I adopt the following general principles as to fact finding and assessment of credibility I set out in Hui Cheung Fai v Daiwa Development Ltd (unreported, HCA 1734/2009, 8 April 2014) at §§77-80:

“77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce)…

78. In deciding whether to accept a witness’s account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: eg Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5th May 2011) §39 (Chu J).

79. In determining a witness’s credibility, I have also attached importance to the consistency of the witness’s evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses: Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ).

81. The practical approach to assessing credibility of witnesses in a case such as the present may have best been summarised by the words of Robert Goff LJ, as he then was, in The Ocean Frost [1985] 1 Lloyd’s Rep 1 at 57:

“Speaking from my experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities.  It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth.”

82. Whilst these words were spoken in the context of a fraud case, I believe they are applicable to any case where a witness’ credibility features prominently in the court’s determination…”

F2. Mr Wong’s Evidence in Summary

27.Mr Wong’s evidence was that an oral agreement (namely the General Agreement) was reached in or around June 2004 between himself and Mr Wan in the following terms:

(1) The STT lessee shall share with the non-lessee the income generated from the operation of the car park on the land leased from the Government under the relevant STT according to an agreed ratio on condition that the non-lessee pays to the lessee an agreed share of all operating expenses incurred in the car park operation.

(2) The lessee is only obliged to pay to the non-lessee its agreed share of income upon the non-lessee paying in advance its share of the rent for the Government the lessee and deducting the other operating expenses from the total income generated from the car park.

(3) At all material times, the interest in and the responsibility to manage the car park business remain solely with the lessee.

28.In addition to the above, Mr Wong in his cross-examination stated that he and Mr Wan also agreed, as part of the General Agreement, that their cooperation to operate car parks would take two different forms:

(1) A limited company would be formed to be co-owned by Mr Wong and Mr Wan; and

(2) A party, who was already a Government lessee of a site, would continue to operate the car park and both parties would share the income and expenditures of that car park.

29.Further, in cross-examination, Mr Wong described the General Agreement as “abstract” (抽象) and his “vision” (願景).

30.In answer to the Court’s questions, Mr Wong stated that the General Agreement was reached on the first occasion when he and Mr Wan met in June 2004 at a club for mariners in Kwai Chung. 

F3. Mr Wan’s Evidence in Summary

31.Mr Wan’s evidence was that there was no General Agreement between himself and Mr Wong at any time.  He said that due to the lapse of time, he could not recall when he and Mr Wong first met but the time should be around June 2004.  He stated that their agreements were not about blanket cooperation. 

32.In cross-examination, Mr Wan accepted that he and Mr Wong did meet in around June 2004 to talk about whether there could be business opportunities between them.  Mr Wan also agreed that there were discussions between him and Mr Wong about two modes of cooperation.  The first mode was through a limited company through which each of them would have shares.  The second mode was for one party to bid for the land from the Government and to share the profits and outgoings with the other party.  However, Mr Wan stated that everything (including the sharing percentage and the payment arrangement) were agreed separately for each site and disagreed with the suggestion that there was any overall “game plan” in relation to the payment of rent and the sharing of profits.

F4. My Assessment of the Evidence

33.There are the following unsatisfactory aspects in Mr Wong’s evidence concerning the General Agreement.

34.First, I do not find Mr Wong’s evidence regarding the provenance of the General Agreement to be sufficiently cogent.

(1) In his oral testimony (in answer to one of the Court’s questions), Mr Wong said that the General Agreement was reached with Mr Wan in a club in Kwai Chung.  This was different from an answer Mr Wong gave to a request for further and better particulars on 26 January 2011, when he said the “terms of the General Agreement were discussed, negotiated and agreed on divers occasions at various restaurants in the Hang Fa Chuen, Kowloon City and Yuen Long areas in Hong Kong”.  No satisfactory answer was given by Mr Wong for this discrepancy.

(2) In all of Mr Wong’s pleadings and witness statements filed before the trial, it was stated that the General Agreement was made in August 2004.  On the first day of the trial, Mr Man applied for leave to amend 3 sets of the Defendants’ pleadings to change the date of the General Agreement from August 2004 to June 2004.  Mr Pang did not oppose the application and I gave leave to the Defendants to amend their pleadings accordingly.  In Mr Wong examination-in-chief, he also corrected the date of the General Agreement at 7 different places in his witness statements.  There was no explanation from Mr Wong as to why he put August 2004 as the date of the General Agreement in the first place.

(3) The terms of the General Agreement are set out in Mr Wong’s second witness statement (§8).  In his cross-examination, Mr Wong stated that the two different forms of cooperation were also agreed between him and Mr Wan as part of the General Agreement (see Section F2 above).  It is clear that Mr Wong did not refer to the agreement regarding the use of jointly-owned limited companies in his witness statement.  When Mr Pang cross-examined Mr Wong about such an omission, no satisfactory explanation was given by Mr Wong.

(4) Mr Wong described the General Agreement as “abstract” and his “vision”.  These descriptions are not apt to describe a legally binding agreement.

35.Second, the existence of the General Agreement was not mentioned in any way in any of the contemporaneous documents between the parties.  The Defendants’ case is that the General Agreement was an overarching agreement and all the written agreements were entered into pursuant to the General Agreement.  In cross-examination, Mr Wong said that the subsequent written agreements were prepared in a rush and suggested that was the reason why the General Agreement was not referred to in the written agreements.  This might have been the case for the Yuen 5 Agreement executed on 31 August 2004 when the STT for the Yuen 5 site was only granted by the Government to Strong Master on the previous day (30 August 2004).  However, no good reason could be proffered by Mr Wong in cross-examination as to why the Tai 3A, the Sha 12/13 and the Kai 2 Agreements were entered into in a rush.  Accordingly, I do not accept Mr Wong’s reason for the absence of reference to the General Agreement in the various written agreements.  It seems to me that if the parties did reach the General Agreement as alleged by Mr Wong, they would have mentioned it in the subsequent written agreements.

36.Third, the General Agreement was not mentioned by Mr Wong in Kai Hing’s original Defence dated 19 April 2006 and his witness statement dated 5 September 2006 filed in HCA 1552 of 2013 (in relation to the Sha 12/13 Agreement).  There was already a complaint pleaded in the original Statement of Claim regarding Kai Hing’s wrongful termination of the Sha 12/13 Agreement but Kai Hing did not rely on the terms of the General Agreement as a defence to say that the Plaintiff was late in paying the rent for the Government.  Mr Wong agreed in cross-examination that the General Agreement was important to him but could not give any good reason to explain why there was no mention of the General Agreement in his witness statement dated 5 September 2006.  He said he might not have remembered the General Agreement when he prepared his witness statement or might have thought that it was immaterial to mention it in his witness statement.  I find these reasons hard to believe.

37.Fourth, in the light of the relationship between Mr Wong and Mr Wan in June 2004, I find it inherently unlikely for them to have made a binding oral agreement (the General Agreement) in the first meeting they had.

(1) At the time, Mr Wong and Mr Wan were still competitors.   

(2) Mr Wong and Mr Wan were involved in winding up proceeding from 2006 to 2008.  In HCCW 238 of 2006, Mr Wan caused winding up petitions to be presented against three companies that were ultimately beneficially owned by Mr Wan and Mr Wong through other companies controlled by them.  In §34 of the judgment of Barma J (as he then was) dated 18 June 2009, the nature of the relationship of Mr Wan and Mr Wong was described as follows:

“Both Mr Wan and Mr Wong were cross-examined about the nature of their relationship. Mr Wong said that from the very outset, he had known that Mr Wan was a cunning person, and that he had cautioned his sister to be watchful in respect of Mr Wan. He also claimed that he had never had any confidence in Mr Wan. Similarly, Mr Wan said that he had been ‘on his guard’ against Mr Wong, because Mr Wong was a cunning person. He said that this view of Mr Wong was one he had held from before the start of their co-operation in the three companies….”

At §§6 and 7 of the judgment, Barma J referred to late November 2004 as the time when their cooperation in the companies started.

(3) Mr Wong was cross-examined about what Barma J said regarding the nature of the parties’ relationship and did not dispute his Lordship’s description of the relationship.  Indeed, Mr Wong in cross-examination described himself and Mr Wan as “wolf and fox”.

(4) In these circumstances, I find it hard to believe the parties would have entered into any oral agreement at the first meeting they had in June 2004.

F5. My Findings

38.For the above reasons, I disbelieve Mr Wong’s evidence regarding the General Agreement.  I find that Mr Wong and Mr Wan did meet in June 2004 to discuss the prospects of their cooperation in the car parking business.  However, they did not reach any formal or binding oral agreement.  I find that the General Agreement does not exist.

G. ISSUE 2: THE PAYMENT OF RENT ISSUE

39.Both parties contend in their pleadings that there are implied terms in the written agreement which support their respective position on this issue.  Alternatively, the Defendants say that the issue is governed by an Oral Rent Payment Agreement between the parties.

40.In his oral closing address, Mr Man informed the Court that the Defendants would no longer maintain a case of implied term in the written agreements that the Plaintiff would pay his share of the rent for the Government in advance to the Defendants on or before the first day of each month.

G1. Plaintiff’s Case of Implied Term of Rent Payment

41.The Plaintiff contends that there are the following implied terms in the Sha 12/13 Agreement, the Kai 2 Agreement, the Tai 3A Agreement and the Yuen 5 Agreement:

(1) the Plaintiff was required to pay the Defendants only the first month’s rent (in the case of the Sha 12/13 Agreement, the Kai 2 Agreement and the Tai 3A Agreement) or the first two quarters’ rent (in the case of the Yuen 5 Agreement) in advance;

(2) the Defendants would distribute profits of the first month (in the case of the Sha 12/13 Agreement, the Kai 2 Agreement and the Tai 3A Agreement) or on a monthly basis (in the case of the Yuen 5 Agreement) to the Plaintiff according to the relevant percentage after receiving the rent from the Plaintiff; and

(3) after the first month (in the case of the Sha 12/13 Agreement, the Kai 2 Agreement and the Tai 3A Agreement) or after the first 6 months (in the case of the Yuen 5 Agreement), the Plaintiff would pay his share of the rent to the Defendants after receiving his share of monthly profits of the preceding month.

G1a. The relevant legal principles

42.It is a question of law whether a term should be implied into a contract.

43.The requirements for implying a term into a written contract were set out by Lord Simon in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20 at 26D:

“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express.  In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied : (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

44.This statement was applied by Ribeiro PJ in the Court of Final Appeal in Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 at §59.

45.In recent years, the courts have approached the implication of a term as part of the process of the interpretation of the contract as a whole.  In AG of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, Lord Hoffmann, giving the opinion of the Privy Council, adopted the same approach.    

(1) Although Lord Hoffmann was dealing with the question of whether a term should be implied into the articles of association of a company, rather than into a contract, he was clear that the process was the same for both and indeed for any written instrument. 

(2) At [16-17], Lord Hoffmann said:

“[17] The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.

[18] In some cases, however, the reasonable addressee would understand the instrument to mean something else.   He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen.  The event in question is to affect the rights of the parties.  The instrument may not have expressly said so, but this is what it must mean.  In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument.  It only spells out what the instrument means.”

(3) He stressed that the implication of a term is an exercise in the construction of the instrument as a whole so that the central question for the Court is whether the implication “would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean” (at [21]).

(4) At [26-27], Lord Hoffmann referred to the five conditions set out by Lord Simon in BP Refinery and said that the list should be “best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so”.

G1b.  Discussion

46.In my view, it is neither reasonable nor obvious to a reasonable bystander for the rent of the first month (in the case of the Sha 12/13 Agreement, the Kai 2 Agreement and the Tai 3A Agreement) or the rent in the first two quarters (in the case of the Yuen 5 Agreement) to be paid in advance, and for the subsequent rent to be paid on a different basis. 

47.Further, it does not seem to me to be necessary to imply the purported terms into the written agreements; the written agreements would be perfectly efficacious in the business sense without them.

48.Moreover, the purported implied term (that rent is only payable by the Plaintiff to the Defendants after the profits of the preceding month have been paid to the Plaintiff) seems to me to be inconsistent with the express term of the 3 out of the 4 written agreements.

(1) Clause 3 of the Sha 12/13, Kai 2 and Tai 3A Agreements provides that if and when Plaintiff has paid to the Defendants the outgoings as stated in clause 2, the earnings generated from the operation of the site in question would be shared according to the agreed percentage. Outgoings for the purpose of clause 2 would include the rent for the Government. 

(2) Therefore, it is an express term in the Sha 12/13, Kai 2 and Tai 3A Agreements that the Plaintiff would only be paid his share of the profits after he paid his share of the rent to the Defendants. 

(3) In his oral closing address, Mr Pang submitted that the Plaintiff’s obligation to pay rent in clause 3 should be construed to mean actual payment or a deduction of the earnings.  I cannot accept this submission. It seems to me that such a construction is against the plain wording of clause 3.  I am unable to see how the concept of set-off can be introduced into clause 3 even on a proper construction of the entire written agreement.

49.Furthermore, using the interpretation of contract approach, I do not think that the written agreements would reasonably be understood to encompass the implied terms contended for by the Plaintiff.

50.In his closing submissions, Mr Pang referred to the evidence on the timing of the parties in arranging for the payment of rent and the distribution of profits to support the Plaintiff’s case on implied term. He submitted that the closeness of time between the two events suggests that the parties intended them to take place simultaneously, and therefore a term of such effect should be implied into the written agreements.  I am unable to accept these submissions.

(1) As mentioned above, whether or not the Court should imply a term into a contract is a question of law and is an objective exercise.  Whether a term should be implied should in my view depend upon the consideration of the 5 conditions set out by Lord Simon in the BP Refinery case, having regard to the relevant background material available at the time of the contract.  Indeed, no authorities were cited by Mr Pang to support the proposition that subsequent conduct is relevant to determine whether or not a term should be implied into a contract.

(2) As a matter of Hong Kong and English law, the court may not generally look at the subsequent conduct of the parties to interpret a written agreement: James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603, 606, 611 and 614-615; L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 252, 260, 265-270, 272-273; Marble Holding Ltd v Yatin Development Ltd (2008) 11 HKCFAR 222 at §22 (Mortimer NPJ).

(3) If the implication of a term is to be treated as part of the process of the interpretation of the contract as a whole, then it must follow that subsequent conduct should likewise not be admissible to determine whether a term should be implied.

51.For these reasons, I conclude that the implied terms contended for by the Plaintiff do not exist as a matter of law.

G2. Defendants’ Case of the Oral Rent Payment Agreement

52.Whether or not the Oral Rent Payment Agreement exists again depends on my assessment of the credibility of the relevant witnesses. 

53.In my view, there are the following unsatisfactory aspects in Mr Wong’s evidence concerning the Oral Rent Payment Agreement.

54.First, the provenance of the Oral Rent Payment Agreement is questionable and unclear.

(1) In their pleadings, the Defendants refer to the Oral Rent Payment Agreement at four different places with slightly different terms.  In summary, the terms were as follows: the Plaintiff’s share of Government rent would be paid in advance by the Plaintiff to the Defendants on or before the first day of each month (in the case of the Sha 12/13, Kai 2 and Tai 3A Agreements) or on a quarterly basis on or before the first day of January, April, July and October of each year (in the case of the Yuen 5 Agreement), and other operating expenses, including but not limited to rates, staff recruitment expenses, water and electricity charges, charges for construction works and profits tax, would be settled on a monthly basis by deducting such expenses from the Plaintiff’s share of income generated from the operation of the car park in question.  The Defendants’ pleadings appear to suggest that a different Oral Rent Payment Agreement was entered into in respect of each of the four sites.

(2) In his second witness statement (§22), Mr Wong stated that the Oral Rent Payment Agreement in respect of Sha 12/13, Kai 2 and Tai 3A was entered into after the various sites had been in operation for some time.  This means that the Oral Rent Payment Agreement was entered into after April 2005.

(3) In his answers to the Court’s questions, Mr Wong stated that the oral agreement in relation to the payment of rent was reached before the parties entered into any of the written agreements.  Mr Wong said that he could not recall the date when the oral agreement was made but it would have been sometime in June or July 2004.  He also said that the oral agreement in relation to the payment of rent was made in “one go”.  In this regard, Mr Wong’s oral testimony was inconsistent with his witness statement.

(4) In his oral closing address, Mr Man submitted that there were 3 Oral Rent Payment Agreements (one made in August 2004, one made in November 2004 and one made in March 2005).  He acknowledged that his submissions were contrary to the evidence given by Mr Wong in the witness box.

(5) I do not believe that there was sufficient cogent evidence from Mr Wong to establish the existence of the 3 Oral Rent Payment Agreements.

55.Second, if (on the Defendants’ case) the first Oral Rent Payment Agreement (made in August 2004) required the Plaintiff to pay his share of the Government rent in advance on or before the first day of the month, it is more likely than not that this requirement would have been expressly included in the subsequent written agreements (in November 2004 and April 2005) and it would not have been necessary for the parties to make a fresh oral agreement on each of the latter occasions.

56.Third, it is inherently improbable that Mr Wong would have entered into a third Oral Rent Payment Agreement with Mr Wan in late March 2005.

(1) On the Defendants’ case, the Plaintiff started making late payments for the rent in January 2005 (for Sha 12/13 and Tai 3A), and continued to make late payments for rent subsequently. 

(2) Yet, by the time it came to the end of March 2005 when the third Oral Rent Payment Agreement was said to have been made, Mr Wong would have already known that the Plaintiff had been late in paying the rent.

(3) In these circumstances, one would have expected Mr Wong to insist the Kai 2 Agreement executed on 1 April 2005 to expressly spell out the requirement (for the Plaintiff to pay his share of the Government rent in advance on or before the first day of the month), and not to make a fresh oral agreement with Mr Wan.

57.Fourth, it seems to me that Mr Wong’s execution of the Kai 2 Agreement on 1 April 2005 undermines his case of Oral Rent Payment Agreement.  If such an oral agreement existed, I do not believe Mr Wong would have entered into a new cooperation agreement with Mr Wan in April 2005.

(1) Mr Wong in cross-examination said that punctual payment of rent was very important and that persistent late payment of rent would not be forgivable.  He also said that he would not continue to cooperate with someone who was persistently late in paying rent. 

(2) When Mr Wong was asked later in cross-examination why he nonetheless executed the Kai 2 Agreement on 1 April 2005 despite the late payments of rent by the Plaintiff, Mr Wong said that they were already working on other sites and the Plaintiff’s late payments did not affect his (Mr Wong’s) confidence in the Plaintiff.

(3) I find Mr Wong’s explanations difficult to understand.  They do not sit well at all with the oral evidence he gave earlier (see §57(1) above).

58.Fifth, if (on the Defendants’ case) there were 3 Oral Rent Payment Agreements to require the Plaintiff to pay his share of the Government rent in advance on or before the first day of the month, it is more likely than not that there would have been some contemporaneous documents from the Defendants making protests of the Plaintiff’s non-compliance of the oral agreements. 

(1) The Defendants submitted that the Plaintiff’s persistent lateness in paying his portion of the Government rent was the subject of numerous written complaints from Mr Wong’s side. 

(2) The first of the series of documents referred to by the Defendants was a fax from Ms Amy Wong (for the Defendants) to Ms Lam (for the Plaintiff) dated 7 April 2005:

“林小姐:
有勞閣下安排繳交元朗5場尹先生所佔50%之租金 (1/4/2005-30/6/2005) HK$166,500.00 (見附上之繳費單)。
謝謝!
	Amy敬上
	2005年4月7日”

“Ms Lam:
Please arrange payment of Mr Wan’s 50% share of rent in relation to Yuen 5 (1/4/2005-30/6/2005) HK$166,500.00 (see attached demand note).
Thank you!
	Amy
	7 April 2005”

(3)   The second of the series of documents was a fax from Ms Amy Wong (for the Defendants) to Ms Cherry Ng (for the Plaintiff) dated 12 April 2005:

“吳小姐:
有勞閣下代為安排尹先生需支付之按金及租金 ，現詳列如下:
		4月份租金	按金
元朗5場	50%	$166,500.00	--
沙田12場	35%	$36,944.25	--
沙田13場	35%	$140,350.00	--
沙田7場	50%	$154,000.00	$924,000.00
啟2	50%	$127,000.00	$381,000.00
大埔3A場	50%	$72,777.50	--
謝謝!
Amy敬上
2005年4月12日”

“Ms Ng:
Please arrange on behalf of Mr Wan to pay rent and deposit as follows:
		Rent in April	Deposit
Yuen 5	50%	$166,500.00	----------
Sha 12	35%	$36,944.25	----------
Sha 13	35%	$140,350.00	----------
Sha 7	50%	$154,000.00	$924,000.00
Kai 2	50%	$127,000.00	$381,000.00
Tai 3A	50%	$72,777.50	----------
Thank you!
			Amy
			12 April 2005”

(4)   Thereafter, Ms Amy Wong sent a letter in similar format to Ms Cherry Ng once every month from May to November 2005.

(5)   On an objective reading of these documents, it seems to me that the Defendants were doing no more than asking the Plaintiff to pay the rent and deposits as stipulated in the letters.  These documents do not appear to be the Defendants’ protests of the Plaintiff’s non-compliance of the obligation in the 3 Oral Rent Payment Agreements to pay his share of the Government rent in advance on or before the first day of the month.

(6)   The only exception was a letter dated 18 October 2005 from Ms Amy Wong to Ms Cherry Ng:

“吳小姐:
我曾於2005年9 月10日傳真請閣下代安排尹先生繳付9 月份租金 ，至今仍未見收到。請儘早支付。
謝謝!
Amy敬上
2005年10月18日”
“Ms Ng:
On 10 September 2005, I asked you to arrange payment of the September rent by Mr Wan. I still have not received the same. Please pay as soon as possible.
Thank you!
	Amy
	18 October 2005”

(7)   The contents of this document suggest that Mr Wan was late for the payment of the rent for September 2005 and are in this sense different from those of the other documents.  In my view, this is the only contemporaneous document which may be used to support the case that the Defendants had made protest of the Plaintiff’s non-compliance of the oral agreements.  However, this document is not sufficient to establish the existence of the oral agreements.

G3. Plaintiff’s Evidence of Oral Agreement for Payment of Rent

59.In his cross-examination on the first day of the trial, Mr Wan said that whenever a written agreement was executed, the parties would at the same time agree orally that Mr Wan’s side would only pay the rent to Mr Wong’s side upon receiving his share of the profits from Mr Wong’s side.

60.In his oral closing address, Mr Pang stated that the Plaintiff would not be advancing any case on the basis of what Mr Wan said about the oral agreements in the witness box.  It is therefore unnecessary for me to say any more about this.

G4. My Findings

61.For the above reasons, I disbelieve Mr Wong’s evidence regarding the Oral Rent Payment Agreements.  I find that (1) the implied terms contended for by the Plaintiff do not exist as a matter of law, and (2) the 3 Oral Rent Payment Agreements do not exist.  In these circumstances, there was no agreement between the parties as to when the Plaintiff should pay his share of rent for the Government to the Defendants.

H. ISSUE 3: THE PROFITS TAX DEDUCTION ISSUE

62.The Defendants’ pleaded case is that there is an express term (namely clause 2), or alternatively an implied term, of the written agreements, or there are oral agreements to the same effect, that the incidence of profits tax is to be shared between the parties in the relevant agreed percentage.  In his written closing submissions, Mr Man submitted that the Defendants were entitled to deduct the Plaintiff’s share of profits tax from the monthly outgoings to be distributed both as a matter of construction of the written agreements and pursuant to an oral agreement made in August 2005 (“the Oral Deduction Agreement”).

H1. Construction of the Written Agreements

H1a. The Defendants’ case

63.The Defendants rely on clause 2 of the written agreements to contend that the parties expressly agreed that profits tax was to be shared between the parties.

64.Clause 2 of the Sha 12/13, Kai 2 and Tai 3A Agreements relevantly provides as follows:

“雙方同意由[有關日期]始，所有支出包括上述[場地]租金、差餉、招聘員工費用、水費、電費、工程費，均由[王重家方]負責[X]%及尹志興負貴[Y]%”

“Both parties agree that with effect from [the relevant date], all outgoings including rent, rates, staff recruitment expenses, water and electricity charges and engineering fees for the aforesaid [premises] are to be borne by [Wong Chung Ka’s side] and Wan Chi Hing in the ratio of [X]% and [Y]% respectively.”

65.Clause 2 of the Yuen 5 Agreement does not contain a similar provision.  However, the fourth paragraph of the Yuen 5 Agreement provides as follows:

“所有支出包括上述場地管理費、招聘員工、水費、電費、工程費，由鎭強及尹志興各付一半，而鎭強及尹志興有權各攤分上述車場全部收入之一半。”

“All outgoings including the management fee, staff recruitment expenses, water and electricity charges and engineering fee for the Subject Premises are to be borne by Strong Master and Wan Chi Hing in equal shares; and Strong Master and Wan Chi Hing have the right to share all income generated from the aforesaid carpark in equal shares.”

66.The Defendants submitted:

(1) The precise meaning of “outgoing” may be open to doubt, but it is certainly a large word, and may fairly comprehend rates and taxes: R v Shaw (1848) 12 QB 419 at 427 (Patterson J).

(2) “Outgoings” is defined to mean “Expenses to be met out of the gross returns of a business before its net proceeds can reach the owner, e.g. the salaries of employees; the financial liabilities incidental to the use of the land, other than those for maintenance or repairs, e.g. a drainage rate on land … It is a general, comprehensive expression often found in a lessee’s covenant signifying the lessee’s responsibility to pay taxes and other charges…”: Jowitt’s Dictionary of English Law (3rd ed) vol 2 at p 1622.

(3) The relevant clause in the written agreements is a non-exhaustive list of what is considered as “outgoings” of the relevant sites, and tax is an “outgoing” of a business.

(4) In clause 2(m) of each of the STTs, the Defendants as tenant must “pay and discharge all existing and future rates, taxes, assessments, duties and outgoings whatsoever which are now or during the term of the tenancy shall be imposed, assessed or charged upon the Premises or the Tenant in respect thereof”.  The Defendants were therefore obliged to pay all rates and taxes, including profits tax, to the Government.  A reasonable man cannot read the written agreements to mean that the tenant alone has to shoulder the burden of paying profits tax in the profits-expenses sharing arrangement when all other outgoings are split in accordance with the agreed ratio.

H1b. The relevant legal principles on construction of written contracts

67.An interpretation of a document involves the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the relevant parties in the situation in which they were at the time of the document.  See ICS Ltd v West Bromwich BS [1998] 1 WLR 896 at 912H (Lord Hoffmann); Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 at 296D-E (Lord Hoffmann NPJ); Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351 at §15 (Ma CJ).

H1c. Proper construction of the written agreements

68.What the term “outgoings” (支出) means in the written agreements must necessarily depend on the context in which the term was found and used in the agreements: see Fully Profit (above) at §15 (Ma CJ).  I do not find the references to R v Shaw and Jowitt’s on the meaning of the term to be particularly helpful.

69.In the Sha 12/13, Kai 2 and Tai 3A Agreements, the “outgoings” that the parties expressly agreed to share were “rent, rates, staff recruitment expenses, water and electricity charges and engineering fees for the [site]”.  In the Yuen 5 Agreement, the “outgoings” that the parties expressly agreed to share were “the management fee, staff recruitment expenses, water and electricity charges and engineering fee for the [site]”. I accept that these expenditures were not intended to constitute an exhaustive list (because of the use of the word “including” in the agreements).  However, it seems to me that these expressly stated expenditures would indicate to a reasonable person the type or types of outgoings that the parties intended to share.  In my view, the expressly stated expenditures are all necessary for the day-to-day practical operation of the car park at the relevant site.  They are therefore expenditures that the operator needs to incur in order to make the profits for his business. 

70.Further, in the Sha 12/13, Kai 2 and Tai 3A Agreements, clause 3 makes express reference to the outgoings mentioned in clause 2.  Clause 3 provides that if and when Plaintiff has paid to the Defendants the outgoings as stated in clause 2, the earnings generated from the operation of the site in question would be shared according to the agreed percentage.  This clause therefore envisages that the outgoings referred to in clause 2 would be paid by the Plaintiff to the Defendants before the sharing of the earnings from the operation of the relevant sites.  This means that the outgoings which the Plaintiff are obliged to pay must have been incurred and must be readily ascertainable before the time when the earnings are shared.

71.In my view, on a proper construction of the written agreements, profits tax of the lessee cannot be an “outgoing” which the Plaintiff was obliged to pay to the Defendants.

(1) First, I do not consider the profits tax of the car park operator to be an expenditure necessary for the day-to-day practical operation of the car park, or for making profits, at the relevant site.  Profits tax is a liability which only arises after the profits have been made, declared and assessed.  Therefore, and by definition, it cannot be used for the day-to-day practical operation of the car park, or for producing the profits of the business.

(2) Second, profits tax is generally only levied once a year by the Inland Revenue Department through the issue of notice of assessment.   It follows that (a) the liability to pay profits tax would not have been incurred by the Defendants (being the lessees and operators of the relevant car park) on a monthly basis, and (b) the Plaintiff would not have been in a position to know how much “profits tax” he should pay as “outgoings” to the Defendants on a monthly basis. 

72.Further, I do not believe the reliance on clause 2(m) of the STTs assists the Defendants’ construction.

(1) First, the Plaintiff was not a party to the relevant STTs and there is no evidence that the Plaintiff had knowledge of this clause at the time when the written agreements were entered into.  Accordingly, clause 2(m) of the STTs cannot constitute the background knowledge which the Court can have regard to for ascertaining the meaning of “outgoings” in the written agreements.    

(2) In any event, clause 2(m) of the STTs only refers to the Defendants’ obligations vis-à-vis the Government and provides no answer to the difficulties set out in the previous paragraph.

73.Even if the analyses of the conditions laid down by Lord Simon in the BP Refinery case are undertaken, I cannot find that there is an implied term contended for by the Defendants in relation to the sharing of profits tax.  For the reasons set out in §71 above, it is neither reasonable, necessary nor obvious to say that the parties agreed that the incidence of profits tax of the Defendants would be shared between the parties in the relevant percentage.

H2. Oral Deduction Agreement

74.Whether or not the Oral Deduction Agreement exists once again depends on my assessment of the credibility of the relevant witnesses. 

H2a. Mr Wong’s evidence in summary

75.In his two witness statements, Mr Wong’s relevant evidence in relation the Oral Deduction Agreement can be summarised as follows:

(1) Mr Wong raised the issue of profits tax at the start of their cooperation.  In particular, Mr Wong proposed to Mr Wan to include profits tax as the business’ outgoings.  However, no agreement was reached at the time and therefore Mr Wong’s side did not make any deduction of profits tax.

(2) In mid-2005, Mr Wong raised the issue of profits tax with Mr Wan again.  Mr Wan suggested that he should be responsible for dealing his own tax affairs.  However, Mr Wong declined the suggestion.

(3) In around August 2005, Mr Wong and Mr Wan made an agreement (namely the Oral Deduction Agreement) at a café in Kowloon City for the deduction of profits tax for all of the car parks.

H2b. Mr Wan’s evidence in summary

76.Mr Wan denied that there was any oral agreement between him and Mr Wong in relation to the deduction of profits tax. 

H2c.  My analysis of the evidence

77.In my view, Mr Wong’s evidence concerning the Oral Deduction Agreement is unsatisfactory.

78.First, I find Mr Wong’s evidence on the provenance of the Oral Rent Payment Agreement to be questionable and unclear. In this regard, there were inexplicable and fundamental discrepancies between Mr Wong’ pleadings and witness statements on the one hand and his oral testimony on the other.

(1) The Defendants’ pleaded case is that “it was orally agreed between the Plaintiff and the [Defendants] in August 2005 that the Plaintiff’s share of profits tax payable in respect of the operation of the [car park in question] would be deducted before the Plaintiff’s share of net profit arising [therefrom] would be distributed to him pursuant to [the relevant written agreement]”.  Mr Wong’s evidence in his two witness statements supports the Defendants’ pleaded case (see Section H2a above).

(2) However, in his cross-examination, Mr Wong changed his pleaded case and his written evidence.  He stated that the parties’ agreement to deduct profits tax was part of the General Agreement.  Later in his cross-examination, Mr Wong stated that he even questioned Mr Wan why the agreement to deduct profits tax was not reflected in the Yuen 5 Agreement executed on 31 August 2004.

(3) What Mr Wong said in his oral testimony regarding the provenance of the Oral Deduction Agreement was completely inconsistent with his pleaded case and his witness statements.  When this was pointed out to him in cross-examination, Mr Wong acknowledged the discrepancies and maintained that the agreement had existed at the start of their cooperation (i.e. before September 2004).  No explanation was given by Mr Wong about the discrepancies and there was no re-examination on these issues. 

79.Second, if the Oral Deduction Agreement was part of the General Agreement (according to Mr Wong’s latest evidence), there is no explanation as to why this was not mentioned in the Defendants’ pleadings and the filed witness statements.

80.Third, if the Oral Deduction Agreement was reached before the Yuen 5 Agreement was executed (according to Mr Wong’s latest evidence), it would be more probable than not that such an oral agreement would be reflected in the subsequent written agreements.  This is particularly so when Mr Wong, according to his latest evidence given in the witness box, said that he questioned Mr Wan why the Yuen 5 Agreement did not mention the deduction of profits tax.  When he was asked in cross-examination why there was no mention of it in the subsequent written agreements (namely the Sha 12/13, Tai 3A and Kai 2 Agreements) drafted by Mr Wong’s side, Mr Wong just stated that his side was careless in preparing the documents.  Given that Mr Wong’s acknowledgement in his oral testimony that the issue of deduction of profits tax as an important issue, I cannot accept his explanation. 

81.Fourth, if the Oral Deduction Agreement was reached before September 2004 (according to Mr Wong’s latest evidence), I would have expected Mr Wong’s side to start deducting Mr Wan’s share of profits tax shortly after the oral agreement was reached.  However, this did not happen until October 2005, more than a year later.  This was no explanation from Mr Wong as to why there was such a long delay on the part of the Defendants in carrying out the purported oral agreement. 

H3. Defendants’ Contention that Plaintiff is not Entitled to Pleaded Loss

82.In HCA 1552/2013, the Plaintiff seeks HK$96,350.31 as damages for breach of the Sha 12/13 Agreement for the wrongful deduction of profits tax.

83.In HCA 1554/2013, the Plaintiff seeks a total of HK$171,591.29 as damages for breach of the Yuen 5 and Kai 2 Agreements for the wrongful deduction of profits tax.

84.In his oral closing address, Mr Man submitted that the Plaintiff is not entitled to his pleaded loss.  He submitted that:

(1) the Court should ask what position the Plaintiff would have been in had the contract been performed;

(2) in this case, the Plaintiff cannot get 100% of his pleaded loss because:

(a) the Defendants had paid tax on the Plaintiff’s behalf; and

(b) the Plaintiff accepted in cross-examination that he has to pay tax in any event.

85.The Defendants’ contention that the Plaintiff is not entitled to get all of his pleaded loss is not pleaded.  It did not even feature in the written opening submissions filed by the Defendants.  The first time that the point was put in writing was in the closing written submissions of the Defendants.  It seems to me that such a point should have been pleaded by the Defendants in their Defences. 

(1) If a defendant wishes to advance a case on quantum to contend that the plaintiff should not succeed on a claim of damages but should only get a lesser sum even if liability is established, the defendant must in my view plead in the defence the material facts on which the defendant relies in mitigation of or otherwise in relation to the claim.  See RHC Order 18, rule 12(1)(c).

(2) In their Defences filed in HCA 1552/2013 and HCA 1554/2013, Kai Hing and Strong Master only denied that the Plaintiff is entitled to the sums deducted as profits tax.  Kai Hing and Strong Master have not pleaded that (1) the Plaintiff should be entitled to some lesser sums even if they breached the relevant agreements, or (2) any particulars to support their case on quantum. 

86.In any event, I do not accept Mr Man’s submissions.

(1) First, there is no evidence to support the assertion that the Defendants have paid profits tax on behalf of the Plaintiff.  As pointed out by Mr Pang, such an assertion was never pleaded and there was no evidence that the Defendants had paid the profits tax allegedly attributed to the Plaintiff.

(2) Second, in the circumstances of this case, I am unable to accept that the Defendants would be able to validly pay the Plaintiff’s tax on his behalf.  The Plaintiff and each of the three Defendants in this case are separate legal entities.  Each of them would have a legal obligation to separately submit their tax return to the Inland Revenue Department to report their respective tax position under section 51 of the Inland Revenue Ordinance (Cap 112).  On the facts of this case, I am not aware of any valid basis (and none was put forward by Mr Man) upon which the Defendants could validly declare and pay profits tax on behalf of the Plaintiff.

(3) As a matter of law, if the Sha 12/13, Yuen 5 and Kai 2 Agreements had been fully performed, the Plaintiff should have received his full share of the earnings from the Defendants without any deduction of profits tax.   This is what the Plaintiff in fact pleaded in his amended Statement of Claim in HCA 1552/2013 and HCA 1554/2013.

H4. My Findings

87.For the above reasons, I disbelieve Mr Wong’s evidence regarding the Oral Deduction Agreement. I find that the Oral Deduction Agreement does not exist and that there was no agreement between the parties in relation to the deduction of profits tax.  Further, I conclude that there is no express or implied term of the written agreements that the incidence of profits tax of the Defendants would be shared between the parties in the relevant percentage. I find that:

(1) Kai Hing was in breach of the Sha 12/13 Agreement in effecting the deduction of profits tax; and

(2) Strong Master was in breach of the Yuen 5 and Kai 2 Agreements in effecting the deduction of profits tax.

I. ISSUE 4: THE TERMINATION ISSUE

88.Apart from a claim against the Defendants for wrongful deduction of profits tax, the Plaintiff also claims against the Defendants for his share of the profits under the various written agreements. Whether or not the Plaintiff is entitled to anything in the latter claim depends on whether the various written agreements were lawfully terminated. 

I1. The Plaintiff’s Pleaded Case

89.In HCA 1552/2013, the Plaintiff (1) alleges that Kai Hing failed to pay his profits share for the month of October 2005 under the Sha 12/13 Agreement, and (2) seeks payment of his profits share for the months from October 2005 up to the date when the Sha 12/13 Agreement was lawfully terminated.  The Plaintiff accepts in his pleading that he would in the assessment of his claim for the month of October 2005 take into account a sum of HK$200,259.40 paid by Kai Hing to the Plaintiff on or about 13 April 2006 being the alleged profits share of the Plaintiff for the month of October 2005.

90.In HCA 1554/2013, the Plaintiff alleges Strong Master failed to pay to him his profits share for the months of October to December 2005 under the Yuen 5 Agreement and his profits share for the month of October 2005 under the Kai 2 Agreement.  He contends that Strong Master’s failure to pay his profits share amounted to a repudiation of the Yuen 5 and Kai 2 Agreements and that he would accept the repudiation and claim for loss and damage as a result of the repudiation.  The Plaintiff therefore seeks from Strong Master an account of the profits (1) under the Yuen 5 Agreement for October to December 2005 and (2) under the Kai 2 Agreement for October 2005, and payment of the sums due. 

91.In HCA 1555/2013, the Plaintiff alleges FTC failed to pay to him his profits share for the months of October and November 2005 under the Tai 3A Agreement.  He accepts in his pleading that he would take into account a sum of HK$52,292.10 being the alleged profits share for the month of October 2005 paid by FTC to the Plaintiff on or about 24 May 2006. The Plaintiff therefore seeks payment of his profits entitlement for the period from 1 to 29 November 2005 under the Tai 3A Agreement.

I2. The Defendants’ Pleaded Case

92.The Defendants’ case is that the Plaintiff failed to pay his share of the Government rent (1) from November 2005 under the Sha 12/13 and Kai 2 Agreements, (2) for the period from 1 November to 29 November 2005 under the Tai 3A Agreement and (3) from January 2006 under the Yuen 5 Agreement, and was in repudiatory breach of the written agreements. Such conduct evinced an intention not to be bound by the written agreements. Accordingly, by a letter dated 12 January 2006, the Defendants terminated the Sha 12/13, Yuen 5 and Kai 2 Agreements.

I3. Discussion

93.There is no dispute that the Plaintiff did not pay rent (1) from November 2005 under the Sha 12/13 and Kai 2 Agreements, (2) for the period from 1 November to 29 November 2005 under the Tai 3A Agreement and (3) from January 2006 under the Yuen 5 Agreement.  Mr Wan acknowledged his non-payment of his share of Government rent pursuant to these 4 written agreements in his second witness statement (§46) through the 4 schedules exhibited as Appendix A.

94.As discussed in §§48 and 70 above, clause 3 of the Sha 12/13, Kai 2 and Tai 3A Agreements provides that the Plaintiff would only be paid his share of the profits after he has paid his share of the Government rent to the Defendants. 

95.Further, the termination clause in the Sha 12/13, Kai 2 and Tai 3A Agreements provides that the agreement could be terminated if the Plaintiff “fails to continue with the payment of rent and rates required by the Government under the tenancy agreement”.

96.As far as the Sha 12/13 and Kai 2 Agreements are concerned, I consider the Plaintiff had sufficiently evinced an intention not to perform the agreements through his failure to pay his share of the Government rent to Kai Hing and Strong Master from November 2005 under the agreements and this enabled Kai Hing and Strong Master to lawfully terminate the agreements on 12 January 2006.

(1) A renunciation of a contract occurs when one party by words or conduct evinces an intention not to perform under the contract in some essential respect.  The test is to ascertain whether the action or actions of the party in default are such as to lead a reasonable person to conclude that he no longer intends to be bound by its provision.  The party in default (a) may intend in fact to fulfil the contract but may be determined to do so only in a manner substantially inconsistent with his obligations, or (b) may refuse to perform the contract unless the other party complies with certain conditions not required by its terms.  In such a case, there is little difficulty in holding that the contract has been renounced.  See Chitty on Contracts (29th ed), vol 1 §24-018; Chao Keh Lung v Don Xia [2004] 2 HKLRD 11 at §§26(1) & (3) (Cheung JA).

(2) In his first witness statement (§17), the Plaintiff stated that he did not consider himself to be in breach of contract because the requirement for him to pay the rent for the months of November 2005 to January 2006 was a deviation from the “established payment pattern” (namely the Plaintiff would pay his share of the Government rent to Kai Hing upon Kai Hing paying to the Plaintiff his share of the profits of the previous month).  This was the reason why the Plaintiff did not pay his share of the Government rent to Kai Hing for the months of November and December 2005 and January 2006. 

(3) In his second witness statement (§§42 to 47), the Plaintiff disagreed that he had to pay his share of Government rent in advance.  He considered his obligation to pay Government rent only arose when he was fully informed of the business account of each of the car parks by the Defendants. 

(4) As mentioned above, the Plaintiff under the Sha 12/13 and Kai 2 Agreements was obliged to pay his share of the Government rent first before he would be entitled to receive his share of profits from Kai Hing and Strong Master.  Therefore, the Plaintiff’s belief that he was only required to pay his share of the rent when he receives the business account of the car park in question from Kai Hing and Strong Master was erroneous. 

(5) As far as the rent from November 2005 was concerned, a reasonable person is likely to conclude that the Plaintiff would not pay it unless and until he received the business account from Kai Hing and Strong Master.  It would appear that the Plaintiff was determined to fulfil the agreements only in a manner inconsistent with his obligations.  In my view, this would be sufficient to evince an intention not to perform the agreements.

(6) Accordingly, I conclude Kai Hing and Strong Master were entitled to terminate the Sha 12/13 and Kai 2 Agreements on 12 January 2006.

97.On the question of termination, the only differences between the Yuen 5 Agreement on the one hand and the Sha 12/13 and Kai 2 Agreements on the other are: (1) the Plaintiff only started being in default of paying his share of the Government rent from January 2006 and (2) there is no counterpart of clause 3 of the Sha 12/13 and Kai 2 Agreements in the Yuen 5 Agreement.  Nonetheless, I believe that the analyses set out in the previous paragraph are equally applicable to the Yuen 5 Agreement.  

(1) The third paragraph of the Yuen 5 Agreement provides:

“… 由1/9/2004雙方同意各負責一半費用繳付政府一切租金及差餉，根據政府發收費通知書.”

“… From 1st September 2004 onwards, both parties shall each bear half of the rent and rates paid to the Government in accordance with the demand notes issued by the Government.”

(2) This clause provides that both parties are obliged to pay rent and rates in accordance with the Government’s demand notes.  I do not believe the clause should be construed to incorporate the timing for the payment of the rent and rates.  In my view, the reference to the Government’s demand notes is to enable the parties to know the quantum of the rent and rates which they are obliged to pay.  On a proper construction of the Yuen 5 Agreement, I do not believe there was any agreement between the parties as to when the Plaintiff was required to pay his share of the Government rent to Strong Master.

(3) Be that as it may, the Yuen 5 Agreement does not provide that the Plaintiff was only required to pay his share of the Government rent when he receives the business account of the car park in question from Strong Master.  As the Plaintiff was labouring under this (erroneous) belief, a reasonable person is likely to conclude that the Plaintiff would not pay his share of the Government rent for January 2006 unless and until he received the business account from Strong Master.  This would sufficiently evince an intention on the part of the Plaintiff not to perform the Yuen 5 Agreement, and entitle Strong Master to terminate the Yuen 5 Agreement on 12 January 2006.

98.As far as the Tai 3A Agreement is concerned, there is no issue that it was terminated on 29 November 2005 upon the expiry of the Tai 3A STT.  The only issue is whether the Plaintiff is entitled to be paid his share of the profits for the period from 1 to 29 November 2005.

(1) I repeat what I said above in relation to the construction of clause 3 of the Tai 3A Agreement.

(2) Since the Plaintiff failed to pay his share of the Government rent to FTC for November 2005, FTC was not obliged to pay to the Plaintiff his share of the profits for the same month.

99.For the above reasons, I conclude that the Sha 12/13, Yuen 5 and Kai 2 Agreements were all legally terminated by Kai Hing and Strong Master on 12 January 2006.

J. ISSUE 5: THE RETURN OF DEPOSITS ISSUE

100.The Plaintiff seeks the return of deposits in the sum of HK$333,000 paid under the Yuen 5 Agreement and the sum of HK$381,000 paid under the Kai 2 Agreement.

101.In his oral closing address, Mr Man confirmed that Strong Master would not be pursuing its pleaded defence of set-off to resist the Plaintiff’s claim in relation to the deposits.  Mr Man submitted that the Plaintiff does not have any right for the return of the deposits because the Yuen 5 and Kai 2 Agreement have been prospectively discharged by the termination of agreements and before the obligation to return the deposits had accrued under the agreements.

102.The Yuen 5 Agreement relevantly provides as follows in relation to the return of the deposit:

“在租約完成後，政府收回場地及退回按金鎭強，鎭強退還HK$333,000.00 (不計利息)與尹志興。”

“Upon expiry of the aforesaid tenancy, the Subject Premises shall be taken possession by the Government again and the deposit shall be returned to Strong Master, whereupon Strong Master shall return to Wan Chi Hing HK$333,000 (without interest).”

103.The Kai 2 Agreement relevantly provides as follows in relation to the return of the deposit:

“尹志興需支付上述場地之比例按金HK$381,000.00予鎮強，此比例按金於上述場地交還政府及至鎮強收到政府退還按金後，將全數免息退回予尹志興。”

“Wan Chi Hing shall pay a pro rata deposit for the aforesaid premises in the sum of HK$381,000.00 to Strong Master, which shall be returned in full and interest-free to Wan Chi Hing upon the handing over of the aforesaid premises back to the Government and Strong Master having received the return of the deposit from the Government.”

104.In my view, the parties in the Yuen 5 and Kai 2 Agreements agreed that the Plaintiff’s share of the deposit would be returned to him without interest by Strong Master when the site in question is handed back to the Government and the Government has repaid the deposit to the lessee (namely Strong Master).  This agreement would not be affected by the prospective discharge of the written agreements.

105.There is no dispute between the parties that the Yuen 5 STT and the Kai STT were terminated some years ago.  There is no evidence to suggest that the Government has not returned the deposits under such STTs to Strong Master.  Further, in his cross-examination, Mr Wong accepted that the Plaintiff’s share of the deposits paid under the Yuen 5 and Kai 2 Agreements should be returned to the Plaintiff.

106.In these circumstances, I find that Strong Master was in breach of the Yuen 5 and Kai 2 Agreements in failing to return the deposits to the Plaintiff, and that the Plaintiff must now be entitled to their return.

K. ISSUE 6: THE REMEDIES ISSUE

107.In the light of the above, the Plaintiff is entitled to the following remedies:

(1) Against Kai Hing: the sums wrongfully deducted as profits tax.

(2) Against Strong Master: (a) the sums wrongfully deducted as profits tax; and (b) the deposits wrongfully withheld.

L. DEFENDANTS’ APPLICATION TO RELY ON NEW DOCUMENTS AT THE TRIAL

108.As mentioned above, I dismissed the Defendants’ application on the first day of the trial for leave to rely on certain new documents at the trial.  I now give my reasons for doing so.

109.On the first day of the trial, Mr Man informed the Court that the Defendants wished to disclose some new documents and to rely on them at the trial.  The new documents were said to relate to what the Plaintiff said in a paragraph of his second witness statement filed on 20 July 2012 about an attempted (and subsequently failed) dealing between Mr Wan and Mr Wong in September 2005 concerning a car park site which has no bearing to the sites mentioned in the relevant written agreements between the parties.  Mr Man accepted that the new documents were produced very late.  He explained that the new documents were only produced by the Defendants when he requested for them in the afternoon before the first day of the trial.  A copy of the new documents were given to the Plaintiff’s solicitors and counsel on the first day of the trial before the trial commenced.  Mr Man submitted that the new documents were relevant (and hence discoverable) documents and would relate to the issue on whether the parties made an oral agreement about the deduction of profits tax in August 2005.  He requested the Plaintiff to disclose documents on the same issue and asked the Court for permission to be able to rely on the new documents at the trial.

110.I was unable to accept Mr Man’s submissions.

(1) It is worthwhile to bear in mind what Mimmie Chan J recently said in Ng Kwok Piu Philip v To Pui Kui (unreported, HCA 51/2007, 23 December 2014) §1 about late discovery:

“It is true that discovery is a continuing obligation. However, since the CJR, the courts have endeavoured to make it clear to the parties that the court will not condone late discovery made at the commencement of trial, or at the eve of trial. The CJR introduced measures to ensure early preparation for trial by the parties and the court will rarely exercise its discretion to admit late documents or late evidence, in the absence of exceptional circumstances or unless good reasons exist to allow the late production to ensure the just resolution of the dispute.”

(2) There is no question that the application was made extremely late.  I was unable to accept the explanations proffered by Mr Man as to delay of the application.  While it is not uncommon for counsel to pick up points in the course of his or her preparation for a hearing which may lead to a train of enquiry, this cannot constitute a good reason for not complying with the timetable laid down by the Court.  The new documents were said to relate to what the Plaintiff said in a witness statement filed almost 3 years before the trial commenced.  I can see no good reason why the new documents were not disclosed by the Defendants much earlier.  If these documents were disclosed in good time, they would clearly be able to be deployed by the Defendants at the trial.

(3) Further, I agree with Mr Pang that the new documents are only of peripheral relevance.  In my view, what the parties did or said in relation to one dealing which subsequently fell through has little probative value in ascertaining whether or not there was an oral agreement between the parties in relation to the deduction of profits tax in the dealings in question.

(4) For these reasons, I exercised my discretion and refused the Defendants from relying on the new documents at the trial.

M. CONCLUSION

111.In the light of my conclusions above,

(1) I give partial judgment in favour of the Plaintiff in HCA 1552/2013;

(2) I give partial judgment in favour of the Plaintiff in HCA 1554/2013; and

(3) I dismiss the Plaintiff’s claim in HCA 1555/2013.

112.I shall leave it to the parties to agreeon the exact form of the order to give effect to this Judgment, with liberty to the parties to apply in the event of disagreement within 14 days from the date of this Judgment.

113.As far as the costs in the three actions are concerned, it seems to me that they should follow the event. 

(1) I make an order nisi that the Plaintiff’s costs in HCA 1552/2013 and HCA 1554/2013 (including any reserved costs) be paid by Kai Hing and Strong Master respectively, to be taxed if not agreed. 

(2) I make an order nisi that the FTC’s costs in HCA 1555/2013 (including any reserved costs) be paid by the Plaintiff, to be taxed if not agreed.

(3) The above costs orders nisi shall be made absolute 14 days from the date of this Judgment.

Mr Robert Pang, SC & Miss Pauline Leung, instructed by Chow, Griffiths & Chan, for the Plaintiff

Mr Bernard Man, SC & Miss Theresa Chow, instructed by TH Koo & Associates for the Defendant