KINETICS MEDICAL AND HEALTH GROUP COMPANY LTD AND OTHERS v. DR TSE IVAN CHEONG YAU

HCA 1115/2010

 

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1115 OF 2010

_________________________

BETWEEN

	KINETICS MEDICAL AND HEALTH GROUP COMPANY LIMITED	1st Plaintiff
	DR TSE KIN SANG	2nd Plaintiff
	DR YU CHI HUNG	3rd Plaintiff
	And
	DR TSE IVAN CHEONG YAU	Defendant
	_________________________

Before: Deputy High Court Judge Marlene Ng in Chambers

Date of Hearing: 11 December 2013

Date of Handing Down Decision: 7 April 2014

_________________________

D E C I S I O N

_________________________

I.  INTRODUCTION

1.  By a judgment dated 7 October 2013 (“Judgment”), this court made the following order and costs order nisi:

(a) judgment be entered in favour of the plaintiffs against the defendant for the balance of the purchase price in the sum of $959,994 and judgment be entered in favour of the defendant against the plaintiffs for damages for breach of contract in the sum of $174,240, resulting in a net judgment of $785,754 in favour of the plaintiffs against the defendant with interest thereon from the date of the Writ of Summons to the date of the Judgment at the rate of 8%pa and thereafter at judgment rate until payment;

(b) costs order nisi that the defendant do pay 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 (“Costs Order”).

2.  Following the Judgment, both parties have issued summonses returnable before me on 11 December 2013:

(a) on 11 October 2013, the defendant filed his summons to vary the Costs Order to the effect that (i) there be no order as to costs of the plaintiffs’ claim and the plaintiffs do pay the defendant costs of the counterclaim to be taxed if not agreed, or alternatively (ii) costs of the plaintiffs’ claim be apportioned and borne by the parties in such proportion/percentage as the court deems fit and appropriate and the plaintiffs do pay the defendant costs of the counterclaim to be taxed if not agreed (“D’s Summons”);

(b) on 17 October 2013, the plaintiffs filed their summons for an order that certificate for two counsel be granted (“Ps’ Summons”).

3.  For the sake of convenience, I shall adopt herein the abbreviations used in the Judgment.

II. Ps’ SUMMONS – SYNOPSIS

4.  The defendant had no objection to the grant of certificate for two counsel for any costs order absolute that this court might make. The plaintiffs submitted that if D’s Summons were dismissed, the court should vary the Costs Order to specify that there be certificate for two counsel.  But the defendants argued that should the court decide there be no order as to costs of the plaintiffs’ claim, then apart from costs of the counterclaim which should be paid by the plaintiffs to the defendant to be taxed if not agreed with certificate for two counsel, the question of certificate for two counsel in relation to costs of the plaintiffs’ claim would become academic without further need to make any order under P’s Summons.  Alternatively, even if the defendant were required to pay a percentage of costs of the plaintiffs’ claim, the plaintiffs should still be required to pay costs of the counterclaim, and it might well be that after set-off, the ultimate costs order would be one for no order as to costs of the action in which case P’s Summons would be academic.

III. D’s SUMMONS – SYNOPSIS

5.  For costs of the plaintiffs’ claim, the defendant argued that given my findings, in particular my rejection of the plaintiffs’ pleaded case that there had never been any C/G Period, and further given substantial time and costs had been spent on such case, the fair and appropriate order would be that there be no order as to costs.  Alternatively, it would be unjust to require the defendant to be responsible for the entire costs of the plaintiffs’ claim given that substantial time/costs had been spent on the plaintiffs’ case (which I had rejected) that there had never been any C/G Period, and in such circumstances an apportionment of costs would be appropriate and at most the defendant should only bear 10% (or such other percentage as the court might think fit) of the costs of the plaintiffs’ claim.

6.  For the counterclaim, the defendant argued that given my findings that the plaintiffs were in breach of contract in failing to provide Ortho Support and my order that they should pay the defendant $174,240 as damages for such breach, the defendant was the successful party and there was no reason to depart from the general rule that costs follow the event, so the defendant claimed the plaintiffs ought to pay costs of his counterclaim to be taxed if not agreed.

7.  The plaintiffs contended that my findings in the Judgment did not support the defendant’s contentions described above, and the Costs Order should be made absolute with certificate for two counsel.

IV. BACKGROUND

(a) Claim and counterclaim

8.  On 22 July 2010, the plaintiffs commenced the present action to claim for the outstanding Balance Price of $959,994 for the Shares of the Company (being the corporate vehicle for the Clinic) and for the Other Sums. The defendant paid the Other Sums to the plaintiffs on 4 March 2013 shortly before the commencement of trial on 21 May 2013.[1]  For the Balance Price, it was common ground that the defendant was contractually obliged under the Memorandum, Dec06 Agreement and/or Agreement to pay the same to the plaintiffs, and the Balance Price was still outstanding and unpaid at the time of trial.[2]

9.  By his Defence and Counterclaim, the defendant claimed that in breach of contract the plaintiffs failed to provide or procure the provision of the Support for him as set out in the Addendum (including, but not limited to, failure to provide Locum and VMO Support) and to pay Physio Hire from March 2007 to April 2010, and further failed to provide Ortho Support from August 2007 to April 2010, and as a result he suffered loss and damages.[3]

10.  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 $53,000, 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.[4]

11.  Still further, the defendant claimed that in breach of the Collateral Agreement, Drs Tse and Yu failed to personally provide Locum Support at the Clinic up to a maximum of 100 hours per year and VMO Support at least twice a week, and the defendant thereby suffered loss and damages.[5]

12.  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. Subsequently, the defendant abandoned his counterclaim for the loss/damages he suffered due to the plaintiffs’ failure to provide Locum Support,[6] to provide VMO Support, to pay Physio Hire, and to provide or procure to be provided other Support set out in the Addendum.[7]  The only remaining counterclaim was for the Ortho Support Loss being loss/damages due to the plaintiffs’ alleged failure to provide Ortho Support from August 2007 to April 2010.

13.  The plaintiffs denied they failed to provide adequate Support for the defendant/Clinic.  They claimed they continued to provide support gratuitously after the defendant took over control/operation of the Clinic in March 2007 to help him establish his practice at the Clinic (and the Support in the Addendum was not a condition for payment of the Price), but denied they ever provided Ortho Support.  Further, the plaintiffs claimed the defendant never specified the TNI that would allegedly trigger the “grace period” in the Addendum.[8]

(b) Judgment

14.  In the Judgment, I concluded that the defendant 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), but the evidence of the plaintiffs’ witnesses (ie Mr Chan, Dr Tse, Dr Yu and Ms Kwan) was unsatisfactory.  I have found that certain aspects of their evidence were unreliable and unconvincing, and they were not above embellishing their case and/or changing their evidence to suit their contentions.[9]

15.  I also found that the parties had entered into the Dec06 Agreement, and they agreed that the plaintiffs would continue their Support (but without canvassing the particular kinds of Support) until April 2010.[10]  The defendant took over the operation/management of the Clinic on 9 (or 10) March 2007, but he only secured financial control on 12 May 2007.  There were discussions between the parties over the instalment payments of the Price in March 2007, and they were keen to resolve the matter.  After a series of discussions and emails, the parties made the Mar07 Agreement over the terms of the C/G Period.[11] But the defendant failed to establish there was any Collateral Agreement.[12]

16.  I went on to find in the Judgment that following the Mar07 Agreement, the defendant exercised the C/G Period and suspended payment of the 5^th Instalment on the basis that the TNI was not met and/or there was inadequate Support.[13]  On/about 7 May 2007, the parties entered into the Agreement and Addendum, and the latter provided that the defendant was entitled to exercise the C/G Period on the basis that (a) the average monthly income of the Clinic was less than the TNI of $53,000 per month and/or (b) the plaintiffs failed to provide adequate Support as listed in Clause 5 for the defendant/Clinic.[14]

17.  In the Judgment, I concluded that in the early months after the handover of the Clinic in 2007, the monthly income of the Clinic was below the TNI, hence the defendant was entitled to and did continue with the C/G Period.  But due to eventual increase in the Clinic’s income, the defendant could no longer rely on this ground to maintain the C/G Period even before the commencement of the present action.[15]  But there was inadequate Support in that the plaintiffs failed to provide or cause to be provided Locum Support,[16] VMO Support,[17] Ortho Support,[18] the handbook for daily clinical practice[19] and secretarial support,[20] which justified the exercise and/or continuation of the C/G Period.[21]

18.  But the defendant failed to establish any breach of contract by the plaintiffs to pay for Physio Hire,[22] to organise public health talks and vaccinations,[23] to arrange for health check days at the Clinic,[24] to provide other health care support,[25] to give individual case management advice,[26] to oversee clinic operations and staff training,[27] and to provide accounting support.[28]  The post-Agreement email communications between the parties also supported these findings.[29]

19.  Since the defendant admitted (a) he was contractually obliged to pay the outstanding Balance Price to the plaintiffs, (b) he was only entitled to suspend and not extinguish such obligation if either or both conditions for the exercise of the C/G Period under the Addendum were satisfied, (c) he no longer satisfied the first condition for the continuation of the C/G Period (ie the monthly net income of the Clinic falling below the TNI) by 2009, and further given the Ortho Support Loss of $174,240 (as found under the defendant’s counterclaim) that crystallised the defendant’s claim for loss/damages arising from the plaintiffs’ breach of the Dec06 and Mar07 Agreements as well as the Agreement and Addendum (which award of damages was less than the outstanding Balance Price), I held that the defendant should pay the plaintiffs the net judgment of $785,754 being the Balance Price ($959,994) less the Ortho Support Loss ($174,240).[30]

20.  The above thumbnail sketch of the present action culminating in the Judgment is not for the purpose of reiterating old ground, but to put the question of costs in its proper factual context.

V. LEGAL PRINCIPLES

21.  It is evident from oral submissions at the hearing that Mr Ng (and Mr Lui with him), counsel for the defendant, and Mr Tang (and Ms Kei with him), counsel for the plaintiff, had no dispute over the relevant legal principles.

22.  The starting point is Order 62 rule 3(2) of the Rules of the High Court (“RHC”) which provides as follows:

“If the Court in the exercise of its discretion sees fit to make any order as to costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.”

23.  Order 62 rule 5(1)(aa), (e) and (f) and 5(2) of the RHC provide that the court in exercising its discretion as to costs shall take into account the following matters:

(a) the underlying objectives set out in Order 1A, rule 1 of the RHC; and

(b) the conduct of all the parties, which would include:

(i)  whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(ii) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(iii) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(iv) conduct before, as well as during, the proceedings;

(c) whether a party has succeeded on part of his case, even if he has not been wholly successful.[31]

24.  The underlying objectives in Order 1A rule 1 of the RHC are as follows:

“(a) to increase the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the Court;

(b) to ensure that a case is dealt with as expeditiously as is reasonably practicable;

(c) to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings;

(d) to ensure fairness between the parties;

(e) to facilitate the settlement of disputes; and

(f) to ensure that the resources of the Court are distributed fairly.”

25.  Under Order 62 rule 7(1) of the RHC, it is only where a successful party raises issues or makes allegations improperly or unnecessarily that he may be ordered to pay a part of the other party’s costs.[32]

26.  As explained by the Court of Final Appeal in Mariner International Hotels Ltd v Atlas Ltd (No 2), “[a] party seeking to displace the general rule that costs should follow event naturally bears the burden of showing that the circumstances justify the exceptional course of such displacement”.[33]

27.  The principles governing the award of costs have been identified by Nourse LJ in In re Elgindata Ltd (No 2) [34] and summarised by Yuen JA in Wang Din Shin v Nina Kung alias Nina T H Wang [35] as follows:

“(i) Costs are in the discretion of the court [Order 62 r.2(4) RHC];

(ii) They should follow the event, except where it appears to the court that in the circumstances of the case some other order should be made [Order 62 rule 3(2) RHC];

(iii) The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or part of his costs;

(iv) where the successful party raises issues or makes allegations ‘improperly or unreasonably’ [in Hong Kong, ‘improperly or unnecessarily’], the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs [Order 62 rule 7(1) RHC].”

28.  As Tang Atg CJHC (as he then was) noted in Kwan Siu Wa Becky v Cathay Pacific Airways Limited,[36] Lam J (as he then was) said in Hong Kong Kam Lan Koon Ltd v Realray Investment Ltd (No 4) as follows:[37]

“13. I also bear in mind what was said at para 24 of the judgment of Lord Carswell in Seepersad v Persad [2004] UKPC 19,

The general rule which should be observed unless there is sufficient reason to the contrary is that costs will follow the event. Where the party who has been successful overall has failed on one or more issues, particularly where consideration of those issues has occupied a material amount of hearing time or otherwise led to the incurring of significant expense, the court may in its discretion order a reduction in the award of costs to him, either by a separate assessment of costs attributable to that issue or, as is now preferred, making a percentage reduction in the award of costs … The Court of Appeal’s order was predicated upon the proposition that the assessment of damages for pain and suffering and loss of amenity was a separate issue from the assessment of the other heads of damage. This was an incorrect assumption. An issue for these purposes must be something so distinct and separate in itself that the decision of it constitutes as ‘event’. The ‘event’ was the quantum of damages to which the appellant was entitled and he succeeded on his appeal in obtaining a higher award than the judge had given … Their Lordships accordingly consider that the Court of Appeal had insufficient ground for reducing the award of costs made to the appellant and that he should have been awarded full costs in that court … (my emphasis)

14. One therefore starts with the premise that a successful party is prima facie entitled to the full costs of the action.  The burden is on the losing party to show that there is good reason to depart from the general rule.  The exercise is a matter of discretion.  It would be wrong to read Elgindata as laying down that as a rule, the court must (instead of may) deprive a successful litigant of costs for his failure on a discrete issue which caused a significant increase in costs.  The court has to exercise its discretion to achieve a just result having regard to the circumstances of the case.”

29.  In Commissioner of Inland Revenue v HIT Finance Limited, the Court of Final Appeal held that the discretion to depart from the normal rule that costs should generally follow the event should be approached with due circumspection.  Since the Commissioner was the real winner, the general rule is that costs follow event – in other words, go to the real winner – except if and when it appears to the court that in all the circumstances some other order as to costs should be made:[38]

“6. Not every point taken by the Commissioner proved to be a winning one. But there is nothing exceptional about a case being won on only some of the winner’s points.

7. There is a discretion in the court to deprive a successful party of the whole or part of his costs because he had caused a significant increase in the length or costs of the proceedings by raising issues on which he did not succeed.  That can be done even if it was not unreasonable to have raised those issues.  Whether or not it should be done depends on all the circumstances.  This discretion exists for the purpose of avoiding the rigour of too inflexible an application of the rule that costs generally follow the event.  It is to be approached with due circumspection so as not to undermine the utility of that general rule.  In the circumstances of the present case, after weighing the rival arguments on costs, we do not consider it appropriate to deprive the Commissioner of any of her costs. ……”

30.  In Waddington Limited v Chan Chun Hoo Thomas & ors,[39] the Court of Final Appeal held that the appeal succeeded on one point (which was an important point of law) and not on the other, and said as follows:

“9. …… There can be circumstances in which it would be appropriate to make an order as to costs that deprives the substantial winner of some of his costs for the reason that his arguments on one or more points have not prevailed. But in the present circumstances Waddington’s victory was so substantial in practical terms that there is no reason why the costs of this Court should not follow the event. They should be awarded to Waddington.”

In Yiu Hon Lam v Chan Yu Chun, the Court of Appeal allowed the appeal against the order by the first instance judge that the defendant pay half of the plaintiff’s costs upon dismissal of the claim for damages for defamation, and ordered the plaintiff to pay the defendant 80% of her costs below.  Tang VP (as he then was) referred to the observations above in Waddington Limited and held that the defendant was the real winner and her victory was substantial, so she should not be deprived of any part of the costs of the appeal. The learned judge said that “as Waddington Ltd shows that it is not necessarily a reason for depriving her of some of the costs.”[40]

31.  In Regent National Enterprises Ltd v Goldlion Properties Limited,[41] it was held that two discrete issues raised by the party that was ultimately successful “added significantly to the length and costs of the proceedings”, and they should result in a reduction of the costs to be awarded to the party who, although ultimately successful, did not win on those issues.  The Court of Final Appeal therefore reduced such party’s entitlement to its costs there and below by 20%, and awarded to it 80% of those costs.

32.  Poon J in Big Island Construction (HK) Ltd v Wu Yi Development Ltd & Anor reiterated the above principles.[42] In that case, the learned judge ordered BIC to pay costs to the Wu Yi Parties. He rejected all major components of BIC’s claim and made findings there were lies and fabrication of evidence to pursue an invented claim.  But the conduct of the Wu Yi Parties who made up a particular defence which was incredible and which took up considerable time was equally bad.  Having regard to the parties’ conduct and the way they had pursued the claim and defence, under Order 62 rule 5(2) of the RHC and in order to achieve a just result overall, the learned judge varied the costs order nisi and ordered there should be no order as to costs as between the parties.[43]

33.  In Zhuhai International Container Terminals (Jiuzhou)Limitedv Lo Tong Hoi & anor,[44] the Court of Appeal noted that the court below ruled against the 1^st defendant who successfully resisted the plaintiff’s claim on his alternative ground of defence, which was a discrete issue that added significantly to the time and costs of the proceedings, and deprived the 1^st defendant of 25% of the costs below for raising the failed issue.  Kwan JA with whom Cheung and Yuen JJA concurred said as follows:

“33. …… On established principles, it is held that it is not necessary to establish that a successful party has acted unreasonably or improperly in raising an issue for it to be deprived of the whole or part of its costs. The court may so order where the failed allegation of the successful party has caused significant increase in the length or costs of proceedings (Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 at 1214B to C). By the amendments introduced to Order 62 rule 5, litigants should bear in mind the possible costs implications. There is incentive to conduct litigation in a responsible way and be selective as to the issues raised.”

34.  In Wong Wai Kay v Hong Kong Economic Journal Company Ltd & anor,[45] Chung J dismissed the action and awarded half of the costs of the trial and two-thirds of the costs of the action (including any reserved costs) to the defendant. Globally, apart from the issue of whether the subject article bore any defamatory meaning (taken as a whole), the learned judge found against the defence on four other issues at trial. Considerable time had been spent to deal with witness/documentary evidence and written/oral submissions on those issues.  Further, the credibility of the plaintiff’s witnesses had been accepted, but the testimony of the defendants’ witness was found to be less than convincing. Since half of the time and expenses of the trial (and one-third of the other costs of that action) had been incurred to deal with the matters set out above, there had been a substantial increase in the length (or costs) of the action, to the extent indicated above.

35.  Recently in Mega Yield International Holdings Limited v Fonfair Company Limited,[46] DHCJ Woo discussed the impact of the Civil Justice Reform on the Elgindata principles as follows:

“8. The “following the event” in principle (ii) is no longer regarded as a general rule but “only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of a particular case, since “a mechanistic adoption of the ‘following the event principle’ may result in parties incurring unnecessary costs in civil litigation” (Wong Kam Tong v Tin Shing Court, Yuen Long (IO) (No 2) [2012] 2 HKLRD 1125 at 1133-1135, paras 10-13 and Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679 at 701, para 100), and “too robust an application of the ‘follow the event principle’ encourages litigants to increase the costs of litigation, since it discourages litigants from being selective as to the points they take” (AEI Rediffusion Mustic Ltd v Phonographic Performance Ltd [1999] 1 WLR 1057, at 1522-1523; see also Chan Ching Kit Katherine v Lam Suk Kei, HCMP 2239/2000 (8 October 2002, unreported) paras 10-12; Chan Mei Yiu Paddy v Secretary for Justice, HCAL 16-19/2007, HCMP 1175/2007 (9 December 2010, unreported) para 5).

9. The emphasis of principle (iii) has also been shifted. It is less generally followed than it has been in the past and it is no longer necessary for a party to have acted unreasonably or improperly to be deprived of his costs of a particular issue on which he has failed (AEI, supra, at 1523-1524; Wong Kam Tong, supra, at 1133-1135, paras 10-13; Chan Ching Kit, Katherine, supra, at paras 10-12; Chan Mei Yiu Paddy, supra, at para 7; and Zhuhai International Container Terminal (Jiuzhou) Ltd v Lo Tong Hoi, CACV 181/2011 (12 July 2012, CA, unreported) at para 33, nor is it necessary to show that the plaintiff has deliberately wasted time and costs. In short, intent is irrelevant: Re Ricacorp Limited, CACV 3884/2001 (16 July 2002, unreported) at paras 23-24, upheld on appeal (2003) 6 HKCFAR 265. Even before the CJR, “where the issues as to which the petitioner was unsuccessful were substantive rather than peripheral, that alone would have justified depriving the petitioner of at least a proportion of his costs”: Re Ricacorp, supra at para 24.

10. “… where principle (3) [ie principle (iii) in Re Elgindata] refers to a significant increase in the length or costs of the proceedings, this does not mean that a precise quantum of costs over a particular threshold must be ascertained.  … the phrase simply requires the court to be satisfied that the increase is one that can be estimated as a more than trifling proportion of the total costs.  As for the question of isolation of those costs from the costs of a successful cause of action, I do not consider that it is necessary for the court to be able to quantify this to any precise extent.  It suffices if the court can give an estimate of the proportion of these costs”: Chan Lan v Shing Kei & Anor, HCA 1260/2006 (16 June 2008, unreported) at para 16.

11. There is no hard and fast rule as to how an “issue” is defined in this context.  It all depends on the circumstances of the case: Wong Kam Tong, supra, at 1136, para 16.  

12. A party may be deprived of part of his costs on the “failed issues” even if such costs overlap with those of the “succeeded issues”.  This may be the case where, for instance, the trial would not have gone to the length it had gone to, or costs would not have accumulated to the extent that they have accumulated, if the failed issues had not been raised: Zhuhai International, supra, at para 33.”

The learned judge also referred to Order 62 rule 5(1)(aa), (b), (e) and (f) and rule 5(2) of the RHC and the underlying objectives in Order 1A rule 1 of the RHC, and to the admonition in Zhuhai InternationalContainer Terminals (Jiuzhou) Limited that in light of the amendments introduced to Order 62 rule 5 of the RHC litigants should bear in mind the possible costs implications, and that there is incentive to conduct litigation in a responsible way and be selective as to the issues raised.

36.  In summary, the starting point is that costs should follow event, and a party seeking departure from that bears the burden of showing a departure is justified. The court has a discretion to deprive a successful party of costs incurred on failed issues if the issues in question are discrete and isolated and the arguments on those issues had caused a significant increase in the length or costs of the proceedings.  The court can only order a successful party to pay the costs of the unsuccessful party if the former raised issues or made allegations improperly or unnecessarily.[47] How the discretion is to be exercised in each case depends very much on the particular circumstances of the case.

VI. COSTS OF THE PLAINTIFFS’ CLAIM

37.  Mr Ng submitted that one key issue in respect of the plaintiffs’ claim was whether the parties agreed to (and whether the defendant was entitled to and did exercise) the C/G Period under the Mar07 Agreement to suspend payment of the Balance Price under one or both of the two conditions referred to in paragraph 16(a) above.  Since the plaintiffs by their pleadings denied any C/G Period and claimed that any support they provided to the defendant was on a gratuitous basis, substantial time (ie  about 70%- 80% of the time at trial) was spent on this key issue as demonstrated by the following:

(a) both parties’ witnesses (except perhaps Ms Kwan) were extensively cross-examined on this issue with cross- examination of the witnesses taking up seven days in an eight-day trial;

(b) the contemporaneous documents which featured in the cross-examination of witnesses all related to this issue, and a core bundle of email correspondence was prepared in the course of trial to facilitate such cross-examination;

(c) a large part of the Judgment was devoted to this issue.[48]

38.  Mr Ng submitted that the other key issue at trial was whether the plaintiffs agreed to provide clinical, marketing or management Support to the defendant and whether the plaintiffs were in breach of contract in failing to provide such Support, which formed the subject matter of the defendant’s counterclaim.  Mr Ng estimated that about 20%-30% of trial time was spent on this issue.

39.  Mr Ng submitted that the trial was essentially for determination of the above key factual issues, and after hearing the witnesses and considering the evidence this court rejected the plaintiffs’ case and also the evidence of their witnesses (which was found to be unsatisfactory and unreliable) on such issues and preferred the defendant’s evidence on such issues, in particular it was found that the parties did agree to and did exercise the C/G Period and there was inadequate Support provided by the plaintiffs that justified the exercise and/or continuation of the C/G Period.

40.  Mr Ng contended that this court’s conclusion there should not be “double benefit” or “double recovery” on the part of the defendant by obtaining and continuing to hold the Company/Clinic/Shares, refusing to pay the Balance Price and claiming for loss/damages under his counterclaim for the plaintiffs’ breach of contract for providing inadequate Support all at the same time as well as the court’s analysis of the effect of Clause 3 did not take up time for taking evidence at trial.

41.  Mr Ng submitted that it would not be fair and just for the defendant to bear the entirety of the costs of the plaintiffs’ claim even though I found against him and granted the net money judgment in favour of the plaintiffs upon set-off between the Balance Price and the award for the Ortho Support Loss, especially when I rejected the plaintiffs’ allegation that there had never been any C/G Period. Mr Ng argued that upon taking into account the underlying objectives and having regard to the manner the parties pursued their claim/defence, especially when I ultimately preferred the evidence of the defendant to that of the plaintiffs’ witnesses, a fair order that would achieve a just result overall would be no order as to costs of the plaintiffs’ claim.

42.  It was said that on the aforesaid grounds the second limb of principle (iii) in Elgindata was applicable in that the plaintiffs as the successful party raised issues or made allegations on which they failed, and such failed issues had caused a significant increase in the length or cost of the proceedings, so in all the circumstances the plaintiffs ought to be deprived the whole of the costs of their claim.

43.  Alternatively, Mr Ng submitted that taking into account all the circumstances, especially the plaintiffs’ unreasonable conduct in denying any C/G Period which allegation was eventually rejected by the court, any award of costs in respect of the plaintiffs’ claim should reflect this by apportioning such costs between the parties so that the plaintiffs would bear part of their own costs.  Mr Ng argued that apportionment of costs would be best based on an estimate of time and effort spent,[49] and since the resolution of the key issues pertaining to the existence or otherwise of the C/G Period and whether the defendant was entitled to exercise the C/G Period added significantly to the length and costs of the proceedings, the defendant ought only be required to bear at most 10% of the costs of the plaintiffs’ claim or such other percentage as the court might think fit. 

44.  Mr Ng went further to rely on principle (iv) in Elgindata. It is not clear why such principle is relevant since the D’s Summons did not seek to vary the Costs Order by asking the court to order the plaintiffs to pay the defendant the whole or a part of his costs in respect of the plaintiffs’ claim. Rather, the defendant only sought to deprive the plaintiffs of the whole or part of the costs of their claim.  The second limb of principle (iii) in Elgindata can apply to deprive the successful party of the whole or part of his costs even if it was not unreasonable or improper for such party to have raised some issues that failed or even if the successful party did not deliberately waste time and costs.[50]

45.  Be that as it may, I shall assume it was Mr Ng’s argument that the plaintiffs raised issues or made allegations (in particular the allegation that there had never been any C/G Period) “improperly or unnecessarily” to support the defendant’s application to deprive them of the whole or part of their costs even though there was no need to reach for such high threshold.

46.  Mr Ng relied on two grounds to suggest that the plaintiffs had raised issues or made allegations “improperly or unnecessarily”.  First, he submitted that the plaintiffs previously admitted to the existence of the C/G Period in paragraph 6(3) of the original version of their Reply and Defence to Counterclaim as verified by statement of truth, but the plaintiffs changed their case to dispute the existence of the C/G Period in their amended pleadings. But in the Judgment I concluded that I would not discredit the evidence of the plaintiffs’ witnesses merely on discrepancies between the plaintiffs’ pleadings and amended pleadings, and I preferred to assess their credibility/reliability on broad principles.[51]  I do not think the Judgment offered any support for Mr Ng’s suggestion that the plaintiffs acted improperly or unnecessarily on this matter.

47.  Next, Mr Ng submitted there was contemporaneous email correspondence that contradicted the plaintiffs’ case that there had never been any C/G Period. But the plaintiffs’ witness statements failed to deal with them, so much time had to be spent in cross-examination to elicit evidence on these documents from the plaintiffs’ witnesses, which evidence was ultimately rejected by the court. In my view, given the way how the C/G Period was featured in the case of the defendant, I am not persuaded that cross-examination of the plaintiffs’ witness would have been significantly shortened had their witness statements canvassed the subject.  To put in another way, I am not convinced that the scope of the statements of the plaintiffs’ witnesses reflected “unnecessary” or “improper” conduct or added significantly to the length and costs of the proceedings. In the circumstances, I do not think principle (iv) in Elgindata is of assistance.

48.  In my view, it is important to put Mr Ng’s submissions in their proper context.  Mr Ng’s submissions largely focused on what transpired at trial and was canvassed in the Judgment. But one must not lose sight of the fact that we are concerned with costs of the plaintiffs’ claim from the commencement of the action to its final disposal, and not merely costs of the trial. One therefore needs to look at the matter more broadly and avoid a blinkered perspective through the prism of the trial.

49.  Here, given that the defendant declined to pay the Balance Price which admittedly he was contractually obliged (but declined) to pay, the plaintiffs were necessarily entitled and indeed had to commence the present action to recover the same. In my view, they were fully justified in bringing the claim in the present action to secure what they were entitled.

50.  The pleaded quantum of the defendant’s counterclaim for failure to provide Locum, VMO and Ortho Support and to pay Physio Hire was $685,160, and the defendant further claimed general damages for the plaintiffs’ failure to provide other Support services. But ultimately the counterclaim was successful only to the extent of $174,240 in respect of Ortho Support Loss (which was still $113,520 less than the pleaded amount for such lead of loss), so looking at the financial result, the plaintiff is the overall successful party. Indeed, as pointed out in paragraph 45 of the Judgment, even if one were to take the defendant’s counterclaim for Ortho Support Loss (being the sole remaining head of loss under the counterclaim after the defendant abandoned all other heads of loss) to its highest, there was no escape from his having to pay the plaintiffs the Balance Price less the Ortho Support Loss as assessed with interest.

51.  In this respect, I note with interest the following observations in Hong KongCivil Procedure 2014:[52]

“The correct approach in principle in money claims is that it is important to identify the party who has to pay money to another when deciding what order for costs to make where both the claim and counterclaim are successful. Where the value of a defendant’s counterclaim amounted to one quarter of the claimant’s claim the English Court of Appeal quashed an order that the claimant should pay the defendant’s costs on the counterclaim and ordered the defendant to pay 75 per cent of the claimant’s costs of the claim and counterclaim taken together: ACT Construction v Mackie [2005] EWCA Civ 2336.”

52.  Mr Tang argued that since the defendant’s contentions in relation to the C/G Period (even though they were accepted by this court) did not prevail over or extinguish his liability to pay the Balance Price such that the plaintiffs secured a net judgment in their favour, the defendant having merely won the battle and not the war failed to discharge the burden of displacing the general principle that costs follow the event.

53.  But in my view, there can be no denying the fact that the issues as to the existence and/or trigger of the C/G Period to suspend payment of the Balance Price were discrete and separate issues that took up time and costs at the trial, and the defendant was successful on these issues.

54.  But this is not the end of the matter. The defendant had to go further to establish that the condition in either (a) or (b) or both in paragraph 16 above persisted in order to maintain the C/G Period after it was exercised or triggered. Since the monthly income of the Clinic had increased beyond the TNI before the commencement of the present action, it was incumbent upon the defendant to establish inadequate provision of the clinical, marketing and/or management Support services to sustain the C/G Period as part of his defence.  But there were different and distinct items of Support services, and the defendant prevailed on some and failed on others.[53]  It was certainly not a landslide victory on these matters (which went to the defence and not just solely for the counterclaim) for the defendant. Further, the defendant also failed to establish the Collateral Agreement, which again was a separate and distinct issue.

55.  Looking at the matter globally, I do not agree with Mr Ng’s suggestion that what he described as the plaintiffs’ failed issues (or the issues upon which defendant succeeded) took up 70%-80% of the time at trial. This is particularly so since cross-examination of the plaintiffs’ witnesses on the email correspondences over the aforesaid issues in paragraphs 53-54 above in which the defendant won some and lost some and which went both to his defence as well as his counterclaim were in fact quite interwoven.  

56.  Likewise, I cannot agree with Mr Tang’s suggestion that the issues upon which the defendant prevailed only took up 10% of the time at trial.  Mr Tang referred to the 11 factual issues listed in paragraph 22 of the Judgment, and submitted that the issue of the C/G Period was only one of them.  The factual issues identified in the Judgment were matters on which the court had to make findings of fact in order to determine the dispute between the parties. Mathematical counting of the number of requisite factual findings would not assist for they might not proportionately correlate to their significance and/or contribution to the length and costs of the proceedings.

57.  Looking at the matter broadly with a view to achieve a just result having regard to all the circumstances, I am neither persuaded by Mr Ng’s suggestion of having spent severely substantial time and effort on the issue of C/G Period nor by Mr Tang’s suggestion of minimal time having been spent on such issue.  In light of the above analysis, it is wholly inappropriate to deprive the plaintiffs the entire costs of their claim when they were the overall successful party and the defendant failed on some matters, eg some of the Support services and the Collateral Agreement.  A just order that achieves fairness between the parties would be to deprive the plaintiffs of half of their costs of the claim.

VII. COSTS OF DEFENDANT’S COUNTERCLAIM

58.  Mr Ng argued that since I found in favour of the defendant on his counterclaim against the plaintiffs for breach of contract in failing to provide Ortho Support and awarded damages in the sum of $174,240 for such breach, the defendant was the successful party in the counterclaim and there was no reason to depart from the general rule that costs follow the event.  He submitted that the plaintiffs should pay the entirety of the defendant’s costs of the counterclaim notwithstanding that the defendant abandoned some heads of claim in his counterclaim.  Relying on the first limb of principle (iii) in Elgindata, Mr Ng contended that the general rule that costs follow the event did not cease to apply in respect of the defendant’s counterclaim simply because the defendant as the successful party raised issues or made allegations on which he failed.

59.  On the other hand, Mr Tang submitted that except for Ortho Support Loss, the defendant had abandoned all the other four heads of his counterclaim. Further, in respect of Ortho Support Loss, this court only awarded damages in the sum of $174,240 (which was $113,520 less than the amount as pleaded in the Amended Defence and Counterclaim).  Mr Tang argued that in practical terms the defendant failed in most respects on the counterclaim, so the Costs Order that required the defendant to pay only half of the plaintiffs’ costs of the counterclaim was fair and reasonable, and verged on being generous.

60.  In my view, it is a matter of significance that the defendant abandoned his claims for loss/damages for alleged failure by the plaintiffs to provide Locum Support and VMO Support, to pay Physio Hire, and to provide or procure to be provided other Support set out in the Addendum.  The last head of claim covered a cluster of Support services. In respect of the aforesaid discrete heads of claim, one was abandoned shortly before trial and the others were abandoned as late as Mr Ng’s closing submissions during trial, leaving only the defendant’s pursuit of Ortho Support Loss (which, as Mr Tang pointed out, was only successful to a limited extent). Notwithstanding the defendant’s abandonment of the four heads of his counterclaim, the plaintiff had to meet such claims unnecessarily before they were abandoned (and most of them were abandoned at the very end of the trial). This is quite a different situation from a defendant having reasonably run a counterclaim and failing on a finding in favour of the other party.  I see no reason why the plaintiffs should be barred from recovering costs for being put to the trouble of having to meet the abandoned claims through no fault of their own.  I also note that the counterclaim based on the Collateral Agreement wholly failed. In such circumstances, I see no basis to vary the Costs Order in respect of the counterclaim.

VIII. CONCLUSION

61.  In the circumstances, I vary the costs order nisi to the extent that defendant do pay half of the costs of this action (including half of the costs of the claim and half of the costs of the counterclaim with costs reserved if any) on High Court scale with certificate for two counsel to be taxed if not agreed.

62.  In respect of D’s Summons, both Mr Tang and Mr Ng agreed that costs should follow event.  Since neither of them succeeded entirely on their contentions, I consider that a fair order to make would be no order as to costs of and occasioned by D’s Summons.

63.  In respect of Ps’ Summons, both Mr Tang and Mr Ng did inform the court at closing submissions at the end of the trial that there should be certificate for two counsel.  But this was omitted in the Judgment and the Costs Order.  Given Mr Ng’s concession on this matter at trial, one would have thought it would be simple enough to resolve this by agreement and, say, a consent summons.  However, ready consensus was not forthcoming from the defendant, which necessitated the issuance of P’s Summons to formally vary this aspect of the Costs Order with supporting affirmation to identify the relevant part of the transcript of the oral closing submissions that reflected the earlier understanding.  The defendant finally agreed to P’s Summons in Mr Ng’s written submissions lodged shortly before the hearing. In the circumstances, I am of the view the defendant should bear the costs of Ps’ Summons which could have been avoided/minimised had he adopted a proactive and timely approach to indicate his agreement.  I therefore order the defendant to pay the plaintiffs’ costs of Ps’ Summons to be taxed if not agreed with certificate for two counsel.

                

	(Marlene Ng)
	Deputy High Court Judge

Mr Ronald Tang and Ms Carmen Kei, instructed by Jesse H Y Kwok & Co, for the 1^st, 2^nd and 3^rd plaintiffs

Mr Lawrence Ng and Mr Victor Lui, instructed by Lam & Partners, for the defendant

HCA 1115/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1115 OF 2010

_________________________

BETWEEN

	KINETICS MEDICAL AND HEALTH GROUP COMPANY LIMITED	1st Plaintiff
	DR TSE KIN SANG	2nd Plaintiff
	DR YU CHI HUNG	3rd Plaintiff
	and
	DR TSE IVAN CHEONG YAU	Defendant

_________________________

Before: Deputy High Court Judge Marlene Ng in Court

Dates of Hearing: 21-24, 27-28, 31 May 2013 and 7 June 2013

Date of Handing Down Judgment: 7 October 2013

_______________

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 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”).

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:

(a) The defendant had the legal right to own the Company upon full payment of the transfer value between HK$1,500,000.00 and HK$2,500,000.00 within the contract period.

(b) The defendant’s remuneration would be calculated on inter alia gross business volume of the Clinic on monthly basis. If, say, the monthly gross business volume fell below HK$150,000.00, the defendant’s remuneration would be HK$53,000.00 out of which HK$10,000.00 would be withheld for “Reimbursement Payment for the transfer of ownership of the Company”.

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:

Date of payment	Amount (HK$)	Remarks
Before 31 December 2006	150,000.00
Before 31 January 2007	150,000.00
Before 28 February 2007	150,000.00
From 1 July 2006 to 31 March 2007	90,000.00	HK$10,000.00 each month
Every 4 consecutive months	100,000.00	starting from 1 April 2007

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 1^st, 2^nd and 3^rd 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:

Date of payment	Amount (HK$)
Before 31 December 2006	150,000.00
Before 31 January 2007	150,000.00
Before 28 February 2007	150,000.00
From 1 July 2006 to 31 March 2007	90,000.00
Before 1st day of each 4 consecutive months from 1 April 2007 to 1 December 2009 at HK$100,000.00 per month	900,000.00
Before 1 April 2010	59,994.00
Total	___________ 1,499,994.00

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:

“NOW IT IS HEREBY AGREED as follows:-

1.) There will be a grace period to the scheduled payments.

2.) The grace period will be exercised if any of the following circumstances occur:

(a) the target net income of the [Clinic] is not met., and/or

(b) there is inadequate clinical, marketing, or management assistant.

3.) During the grace period, the payment amount and the date of repayment will be adjusted and compromised by both parties.

4.) For the payment schedule, it should be $100,000. every 4 months.

5.) For solid concrete SUPPORT, it is identified as the followings:

(a.) adequate clinical support :-:

- Locum support (detail outline, including public holidays arrangement and occasional locum session max.total 100 hrs/year, which will be told well in advance)

- Sharing of VMO duties (detail outline of schedule)

- Regular public talks for health promotion and vaccination (schedule)

- Regular participation on health check day (schedule)

- Ortho specialist support

- Physiotherapist support

- Other health care support

- Handbook for daily clinical practice

- Individual Case management advise

(b.) Adequate management support: are:-

- smooth running of daily operations in the clinic

- staff training support

- secretary support

- accountant support

(c.) adequate Marketing support: are:-

- health check day (schedule)

- vaccination promotion (schedule)

- health screening programs and promotion (schedule)

- regular public talks on health screening and vaccination (schedule)

It is agreed that all the above terms and conditions are subject to mutual agreement in writing by both parties before execution.

6.) All the other terms and conditions of the said Agreement of the same date remain unchanged.”

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 2^nd 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:

(a) what were the terms of the Contractor Agreement;

(b) whether the parties made an agreement in December 2006 for the sale and purchase of the Company/Shares/Clinic (“Dec06 Agreement”), and if so, what were its terms;

(c) when did the plaintiffs hand over the Clinic to the defendant;

(d) whether in March to May 2007 the parties made an agreement to vary the Dec06 Agreement (“Mar07 Agreement”), and if so, what were its terms;

(e) whether the defendant and Drs Tse and Yu made the Collateral Agreement;

(f) if the answer to (d) is in the affirmative, whether the parties agreed to a cushion/grace period (“C/G Period”) [4] under the Mar07 Agreement and/or Addendum;

(g) if the answer to (f) is in the affirmative, whether the income of the Clinic reached the TNI, and if not, whether the defendant was entitled to and/or did exercise the C/G Period;

(h) if the answer to (f) is in the affirmative, whether the plaintiffs provided adequate Support for the defendant/Clinic, and if not, whether the defendant was entitled to and/or did exercise the C/G Period;

(i) whether the plaintiffs were in breach of contract in failing to provide or cause to be provided adequate Support for the defendant/Clinic;

(j) if the answer to (e) is in the affirmative, whether Drs Tse and Yu were in breach of the Collateral Agreement in failing to provide Locum and/or VMO Support as promised; and

(k) if the answer to (i) is in the affirmative, whether the defendant suffered any Ortho Support Loss.

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]

“These authorities support the following propositions. (1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. …… (2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding …… (3) Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by a breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other.”

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]

“A further possibility is that the parties have simply agreed to negotiate. In spite of dicta to the contrary, it has been held that an express agreement merely to negotiate is not a contract “because it is too uncertain to have any binding force.” It therefore does not impose any obligations to negotiate, or to use best endeavours to reach agreement or to accept proposals that “that with hindsight appear to be reasonable”.”[23]

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:

(a) The renewed lease of the Clinic (with the Company as tenant) commenced on 10 March 2007. The defendant gave his personal guarantee for the renewed lease.

(b) The cut-off date for the Company’s accounts was on 9 (or 10) March 2007. The plaintiffs took care of the expenses before such date, and the defendant was responsible for the expenses incurred thereafter.

(c) The specimen signatures for operating the Company’s bank account (“Account”) were replaced on 12 May 2007 (ie shortly after the Agreement and Addendum were signed) by that of the defendant as new signatory.

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:

(a) there would be a C/G Period in respect of the instalment payments of the Price scheduled in the Memorandum;

(b) the C/G Period would be honoured if (i) the monthly income of the Clinic fell below the TNI (ie HK$53,000.00) and/or (ii) the Support which the plaintiffs agreed to provide to the defendant was inadequate; and

(c) during the C/G Period the defendant was not required to pay any instalment of the Price, and the payment amount and date would be compromised by both parties.

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:

“……

- The cushion period will be exercised whenever the target gross income of the [Clinic] is not met

- During the cushion period, the payment amount and date will be compromised by both parties.” (my emphasis)

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”):

“Thanks for your counter offer regarding your concern of your future business control in [the Clinic].

After discussion with Dr Yu and Tse, we all conclude that it is not possible and fair for us to take the RESPONSIBILITY to GUARANTEE you target business volume for the entire payment period. Please understand that you are the owner of the company and will have to take certain business risk on development, that’s why this business entry is worth such an amount of money. And the repayment schedule was set to facilitate you for your convenience and development. This may be interpreted by which you are purchasing a business entity as a unit from us. We have the duty as “consultant” throughout the entire transaction period by means of securing our return; as a result we all wish you may have a successful growth, not responsible. Please consider this point.

If you need “solid” support in management and marketing aspect, Kinetics is always welcome to discuss this matter with you; actually we are engaging this issue.

Please adjust your terms and see whether we can finalize the agreement before next week.

Please feel free to discuss this matter with anyone of us, thanks”

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:

“…… If the clinic income is $3000/day (which is at of right now), the net income is much less than $40000/month. Try to compare to current $53000.

If we have to accept the entire risk and continue to make the payment, then why do we need to invest $1500000 to this clinic and accept all the risk? we can invest with less amount of money and open a new clinic and accept all the risk.

please understand that the clinic is worth this amount because of the SUPPORT and SHARING of risk. It is not like purchasing the clinic in one go.

Another option is that, we can sit back and continue the old existing contract. That maybe even better.”

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

(a) rigid payment schedule that forced the defendant to make instalment payments despite unstable net income of the Clinic;

(b) no show of support, eg existing partner (who previously shared locum sessions over public holidays and when Dr Fu was unavailable) was unwilling to provide Locum Support when Dr Fu was busy on Sunday session and when the defendant planned for overseas academic study, and there was concern over Locum Support in the upcoming Easter public holidays;

(c) unwillingness to share VMO sessions when the defendant attended VMO sessions previously for no pay.

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:

“Before we proceed, would you please prepare all related areas you want us to do in the coming contracting months, may be all of us should work out a clear time schedule with description of actions which may be involved in the coming days. Otherwise, we can discuss another option to settle the situation, agree? …… may we discuss the above matter early next week?”

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”):

“1.) there will be a cushion period to the above scheduled payment.

2.) The cushion period will be exercised if any of the following occurs:

- the target net income of the [Clinic] is not met.
- there is inadequate clinical, marketing, or management assistant.

3.) During the cushion period, the payment amount and date will be compromised by both parties.

And for the payment schedule, it should be $80000 every 4 months.

For solid concrete SUPPORT, we expect the followings:

1. adequate clinical support.

- Locum support (detail outline, including public holidays arrangement and occasional locum session max.total 100 hrs/year, which will be told well in advance)

- Sharing of VMO duties (detail outline of schedule)

- Regular public talks for health promotion and vaccination (schedule)

- Regular participation on health check day (schedule)

- Ortho specialist support

- Physiotherapist support

- Other health care support

- Handbook for daily clinical practice

- Individual Case management advise

2.) adequate management support:

- smooth running of daily operations in the clinic

- staff training support

- secretary support

- accountant support

3.) adequate Marketing support:

- health check day (schedule)

- vaccination promotion (schedule)

- health screening programs and promotion (schedule)

- regular public talks on health screening (schedule)

vaccination (schedule)”

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 (“5^th Instalment”) under the schedule in the Memorandum.

85.  Dr Tse said no one chased for the 5^th 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 5^th 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 5^th 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 5^th 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 5^th 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 netincome 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 netprofit(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:

Year	Company’s annual net loss/profit	12-month average of the Company’s annual profit/loss	Defendant’s monthly remuneration	Average monthly net income of the Clinic
2007	(HK$195,012.00)	(HK$16,251.00)	HK$30,000.00	HK$13,749.00
2008	HK$289,098.00	HK$24,091.50	HK$30,000.00	HK$54,091.50
2009	HK$275,667.00	HK$22,972.25	HK$30,000.00	HK$52,972.25
2010	HK$487,765.00	HK$40,647.08	HK$30,000.00	HK$70,647.08
2011	HK$812,091.00	HK$67,647.25	HK$30,000.00	HK$97,674.25

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):

Dr Tse
Date of record	Payroll period	Hours of work	Amount (HK$)
	3, 11-12, 26 and 30-31 May 2005	12
	5-6, 13, 21-22 and 28-30 Jun 2005	21.75
11 Aug 2005	8, 15, 17, 22, 24 and 29 Jul 2005	34	10,200.00
1 Sep 2005	5, 12, 19 and 26 Aug 2005	24	7,200.00
12 Oct 2005	2, 9, 16, 23 and 30 Sep 2005	30	9,000.00
2 Nov 2005	7, 11, 14, 21 and 28 Oct 2005	30	9,000.00
2 Dec 2005	4, 11, 18 and 25 Nov 2005	24	7,200.00
20 Jan 2006	Dec 2005	53	15,900.00
6 Feb 2006	3-7, 9-14, 16-18 and 23-27 Jan 2006	90	27,000.00
6 Mar 2006	1, 3, 6-10, 13-17, 20-24 and 27-28 Feb 2006	92	27,600.00
6 Apr 2006	2 Feb 2005 + 1-4, 6-9 and 25 Mar 2006	41.5	12,450.00
3 May 2006	8, 22 and 29 Apr 2006	14	4,200.00
	May 2006 (marked on deposit slip)		1,950.00
Note : Further, HK$10,200.00, HK$4,500.00, HK$4,200.00 and HK$3,000.00 were deposited in favour of Dr Tse on 12 Jan, 12 Jan, 12 Feb and 5 Mar 2007

Dr Yu
Date of record	Payroll period	Hours of work	Amount (HK$)
	4-6, 9-10, 13, 16-18, 20, 23, 25 and 27 May 2005	26 (1)
	1-3, 7-8, 10, 14-15, 20, 23 Jun 2005	20.5
2 Nov 2005	2 and 23 Oct 2005	6.8	2,040.00
2 Dec 2005	5, 6 and 20 Nov 2005	24	7,200.00
6 Jan 2006	25 Dec 2005	4	1,200.00
6 Feb 2006	21 Jan 2006	5	1,500.00
6 Mar 2006	11, 18 and 25 Feb 2006	15	4,500.00
			2,850.00 (2)
			1,500.00 (3)
(1)     subject to illegible notations (2)     cheque dated 12 Jan 2007 with notation “June, July 2006 Locum” on reverse (3)     cheque dated 9 Feb 2007 with notation “10/12 2-7:00”

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):

Invoice date	Consultation dates	Hours of work	Amount (HK$)
2 April 2007	11, 18 and 24 Mar 2007	14.2	4,260.00
	8 orthopaedic cases		640.00
2 May 2007	1, 6, 8-9, 15, 22 and 29 Apr 2007	35	10,500.00
	14 orthopaedic cases		1,120.00
6 Jun 2007	1, 13, 20, 24 and 27 May 2007	35	10,500.00
	14 orthopaedic cases		1,120.00
4 Jul 2007	3, 10, 17 and 24 Jun 2007	20	6,000.00
	23 orthopaedic cases		1,840.00
1 Aug 2007	1, 8, 15, 22 and 29 Jul 2007	25	7,500.00
	14 orthopaedic cases		1,120.00
	Average no of orthopaedic cases per month = 16

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 3^rd 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:

“…... We understand that physio and allied health need time to develop. In terms of physio and alleied health, How about $3500/month until end of 2007? Then $5000/month at the start of 2008? If allied health develops well, the we can discuss about equipment. But before then, equipment transportation fees will be up to K.A. responsibility since the transferral of equipment is up to the arrangement and highly unpredictable.”

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(“6^th 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 6^th 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 5^th 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”):

“As we have discussed in our last meeting, Dr Yu and Tse would like to have more information on the reason or income breakdown as evidence on how you exercise the cushion period and what is your future arrangement for clearance. Since I still have not receive any reply from you on the above matter until this week, please reply as soon as possible so that I can discuss and notify our partners on this issue, should you need any assistance from Kinetics or me, I am ready to discuss with you and your family together again at schedule, please call May Kwan for arrangement if necessary.

Please also be notified that we will consult Mr Jesse Kwok on the above issues for his professional advice.”

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:

“The reason for exercising the cushion period is due to low clinic income. The average net income from March to June was about $39000/month. It is difficult to make contribution to the agreement (which averages $25000/month) at this moment.

After further discussion with my family, we would like to express that we do not feel comfortable with the present situation. Contribution from each party has significantly declined after the transferral, and meanwhile all parties are pressing hard for further payment. As a result, we would like to meet all potential interested buyers as soon as possible in person and seriously consider selling of the clinic.” (my emphasis)

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 (“7^th Instalment”) was due on 1 December 2007, and was not paid. Dr Tse said Mr Chan chased for payment of the 7^th 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:

“Because the business of the [Clinic] started to stablise recently, I have started to deal with the contract problem. After discussion with his lawyer, he understand that both parties have to perform the contract terms. Therefore he sincerely hope all partners can reach consensus as soon as possible so that the remaining contractual terms can be carried out smoothly.

I think that the following terms can be discussed first:-

1. Please re-issue the formal receipts for previous payments;

2. Payment method: I am willing to pay the remaining amount on a quarterly basis, or monthly basis, or in one lump sum.

3. Payee: payee will be “Kinetics Medical & Health Group”, or each of the partners as one party?

In addition, I hope all partners can undersand that the contract is the contract of all parties. All of us have to perform the contract terms in all respects. Therefore and besides, we have to discuss the following arrangements:-

4. About the arrangement of medical consultation services provided at the clinic by orthopaedist (Fu Kwok Tai) on Sundays and public holidays, after August 2007 Kinetics Medical Asia has stopped providing this service. I wish it can be resumed as soon as possible.

5. About physiotherapist service: According to the earlier assurance given by Mr Chan Ho Yin, the responsible officer of [the plaintiff], physiotherapy service will be provided by monthly rental cooperation method and bonus method. However, all along there was only bonus method.

6. The timetable and Details of health talk service has not been confirmed.

7. Up to now, Basic Clinic Handbook has not be provided.

Lastly, if [the plaintiff] is not willing to see [Clinic] using “Kinetic Medical Centre” as the trade/brand name, I am willing to stop using it and will change the name to that shown in its business registration “Kinetics Radio-Diagnostic Centre Limited”.

……”

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.

	(Marlene Ng)
	Deputy High Court Judge

Mr Ronald Tang and Ms Carmen Kei, instructed by Jesse H Y Kwok & Co, for the 1^st, 2^nd and 3^rd plaintiffs

Mr Lawrence Ng and Mr Victor Lui, instructed by Lam & Partners, for the defendant

Please refer to CACV228/2013 for the relevant appeal(s) to the Court of Appeal.

HCA 1115/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1115 OF 2010

____________

BETWEEN
	KINETICS MEDICAL AND HEALTH GROUP COMPANY LIMITED	Plaintiff
	DR TSE KIN SANG	1st Plaintiff
	DR YU CHI HUNG	2nd Plaintiff
and
	DR TSE IVAN CHEONG YAU	Defendant
____________

Before: Deputy High Court Judge Marlene Ng in Chambers

Date of the plaintiffs’ Statement of Costs: 30 April 2013

Date of the defendant’s List of Objections: 3 May 2013

Date of Hearing: 7 June 2013

Date of Decision on Assessment of Cost: 17 June 2013

_________________________________

DECISION ON ASSESSMENT OF COSTS

_________________________________

 

1.  At the 2^nd Pre-trial Review (“2^nd PTR”) hearing on 30 April 2013, I declined to allow the plaintiffs to adduce or rely on the documents listed in Schedule 1 Part 1 of their Supplemental and 2^nd Supplemental Lists of Documents at trial. I also granted a costs order nisi (which is now absolute) that the plaintiffs shall pay costs of and occasioned by their application to adduce and rely on the aforesaid documents to the defendant to be summarily assessed and paid forthwith, and I apportioned 90% of the hearing time at the 2^nd PTR hearing for such purpose (“Cost Order”). On 8 May 2013, I handed down my Reasons for Decision (“Reasons”). This is the decision on summary assessment of costs under the Cost Order. I shall adopt the abbreviations in the Reasons.

2.  Since costs under the Cost Order are assessed on party and party basis, only costs that are necessary or proper for the attainment of justice or for enforcing or defending the taxing party’s rights will be allowed (see Order 62, rule 28(2) of the Rules of the High Court).

Items C1 and C3

3.  Under these items, the defendant claims $16,000 being 4 hours spent by the handling solicitor LSY for attendance on client and $8,000 being 2 hours spent on attendance on counsel.  I note that the plaintiffs’ Supplemental and 2^nd Supplemental Lists of Documents were filed on 27 March and 17 April 2013 respectively.  Given (a) the imminence of the plaintiffs’ further discovery to the 2^nd PTR scheduled on 30 April 2013 and indeed also to the trial scheduled to commence on 21 May 2013, (b) the absence of any proper application for leave to adduce and rely on the newly discovered documents by the plaintiffs, and (c) the lateness of Kwan’s affirmation, it is understandable that there would be a flurry of activity on the part of the defendant and his legal representatives to marshall their response to the same.  As evident from paragraphs 20-30 of the Reasons, there was paucity of explanation on the part of the plaintiffs for the delay until Kwan’s affirmation.

4.  There is no merit to the suggestion by the plaintiffs that the subject application was simple because most of the 309 pages of newly discovered documents were the defendant’s documents, and that the defendant therefore did not have to spend time on them.  The question here is not whether the newly discovered documents were the defendant’s documents, but how the late discovery and/or potential deployment of these documents would impact on the imminent trial and on the defendant’s response thereto.  These concerns have been dealt with in the Reasons and will not be repeated here.

5.  I find that instructions had to be taken from the defendant on the plaintiffs’ newly discovered documents.  But it must not be forgotten that counsel was involved all along.  Indeed, Mr Ng of counsel had attended the 1^st Pre-trial Review (“1^st PTR”) on behalf of the defendant, and was then expected to be the trial counsel.  Indeed, under Item E2 below, there was a conference with Mr Ng and Mr Lui.  Given direct involvement of counsel, I am not persuaded that LSY need to incur 4 hours for Item C1.  I am of the view that the appropriate time is 2.5 hours at $10,000.

6.  I also accept that the defendant’s solicitors would have to liaise and attend conference with counsel.  As seen in the discussion for Item E2 below, I allow 1.5 hours for conference with counsel.  Taking into account other necessary communication with counsel, I allow Item C3 in full for $8,000.

Item C2

7.  The defendant claims 2 hours of LSY’s time for attendance on the other side and my clerk.  As evident from Part II of the Reasons, it is plain there were correspondence by the defendant’s solicitors with the court and with the plaintiffs’ solicitors arising from the plaintiffs’ newly discovered documents.  However, I consider 2 hours of time spent by LSY excessive. I allow 1 hour of LSY’s time at $4,000.

Item D2

8.  The defendant claims 2.5 hours of LSY’s time for perusal of documents.  In my view, the newly discovered documents and the subject application happened during a brief time window and there was involvement of counsel.  Time has been allowed for attendance on client to take instructions and for conference with counsel.  I am not persuaded that LSY should or would need to spend 2.5 hours for detailed perusal of the documents given counsel’s direct involvement.  However, I accept he should have an overall understanding and appreciation of the nature of the documents disclosed.  I allow 1 hour 30 minutes of LSY’s time at $6,000.

Item D3

9.  The defendant claims $2,000 for half hour spent on preparation for hearing by LSY.  Given the involvement of counsel and the conference with counsel shortly before the hearing, I consider 15 minutes by the handling solicitor at $1,000 to be necessary or proper.

Items E2 and E3

10.  There was a conference with counsel Mr Ng (20 years’ experience) and Mr Lui (1 year’s experience).  Mr Ng was unavailable for the 2^nd PTR hearing, so Mr Lui was engaged to attend such hearing.  But for the late application by the plaintiffs to seek leave to adduce and rely on their newly discovered documents at trial, the 2^nd PTR was expected to be (and was indeed) uneventful such that it would have been appropriate to have Mr Lui attend such hearing.

11.  Mr Ng’s fees for the conference and perusal of papers were $15,000 being Item E2.  Mr Lui’s brief in the sum of $10,000 for attending the 2^nd PTR hearing as well as for attending the pre-hearing conference was discounted by 10% pursuant to the Costs Order to $9,000 (Item E3).

12.  I do not agree that Mr Lui’s fees are excessive bearing in mind that they are inclusive of the conference.  I allow $9,000 for Item E3 in full.

13.  The plaintiffs claim it was unnecessary for Mr Ng to attend the conference because he would not attend the 2^nd PTR hearing.  I disagree.  As evident from the 1^st PTR hearing, Mr Ng was expected to be the trial counsel.  The unexpected late discovery and application to adduce and rely on the newly discovered documents by the plaintiffs took the defendant by surprise, and it is necessary or proper for the defendant to seek trial counsel’s advice on the impact of such late discovery on the trial in order to determine whether (and if so how) to resist the plaintiffs’ late application.  However, given Mr Lui’s involvement, much of the preparatory groundwork in analysing the documents should have been undertaken by Mr Lui beforehand, and Mr Ng’s role essentially should be for giving forensic advice.  In the circumstances, I consider a 1.5 hours’ conference with brief review of papers at $10,000 to be necessary or proper for Item E2.

Conclusion

14.  The total costs of the defendant on his statement of costs are assessed at $51,800 (being HK$10,000 (C1) + HK$4,000 (C2) + HK$8,000 (C3) + HK$6,000 (D2) + HK$1,000 (D3) + HK$3,800 (D4) + HK$10,000 (E2) + HK$9,000 (E3)).  I therefore order that the plaintiff shall forthwith pay costs in the sum of $51,800 to the defendant.

(Marlene Ng) Deputy High Court Judge

Mr Ronald Tang and Ms Carmen Kei, instructed by Messrs Jesse H Y Kwok & Co, for the plaintiffs

Mr Lawrence Ng and Mr Victor Lui, instructed by Messrs Lam & Partners, for the defendant

HCA1115/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1115 OF 2010

-------------------------------

BETWEEN
	KINETICS MEDICAL HEALTH GROUP	1st Plaintiff
	COMPANY LIMITED
	DR TSE KIN SANG	2nd Plaintiff
	DR YU CHI HUNG	3rd Plaintiff
and
	DR TSE IVAN CHEONG YAU	Defendant

-------------------------------

Coram: Before Deputy High Court Judge Marlene Ng in Chambers

Date of Hearing: 30 April 2013

Date of Decision: 30 April 2013

Date of Handing Down Reasons for Decision: 8 May 2013

---------------------------------------

REASONS FOR DECISION

---------------------------------------

 

I. INTRODUCTION

1. The 1^st, 2^nd and 3^rd plaintiffs (collectively, “plaintiffs”) were the former shareholders of Kinetics Radio-Diagnostic Centre Limited (“Company”) which operated a medical practice in Tsing Yi (“Tsing Yi Clinic”).

2. The plaintiffs claimed that by an agreement made at the end of 2006, they agreed to sell and the defendant agreed to buy the shares in the Company for a consideration of HK$1,499,994.00.  The transfer of the shares was completed on 15 December 2006, and the defendant became the beneficial owner of the shares on the same day.

3. The plaintiffs further claimed that the parties entered into an agreement for repayment of consideration money with an addendum both dated 7 May 2007.  By such agreement and addendum, the aforesaid consideration of HK$1,499,994.00 was to be paid by the defendant to the plaintiffs by agreed instalment payments between 31 December 2006 and 1 April 2010.  The defendant paid a total sum of HK$540,000.00, but the remaining balance of HK$959,994.00 was/is still unpaid.

4. Under the aforesaid agreement for repayment of consideration money and addendum, further monies being decoration costs and reimbursement of rental deposit in the respective sums of HK$56,619.50 and HK$121,572.00 were due from the defendant to the plaintiffs.

5. On 22 July 2010, the plaintiffs commenced the present action against the defendant to claim for the aforesaid outstanding sums.

6. The defendant averred that the above agreements were made partly orally and partly in writing, and his obligation to pay the outstanding balance of the aforesaid consideration was suspended by a grace period that arose as a result of the monthly income of the Tsing Yi Clinic not meeting HK$53,000.00 and/or the plaintiffs failing to provide adequate clinical, marketing and/or management assistance.  The defendant further claimed that the plaintiffs were in breach of the above agreements which were partly oral and partly in writing, and the 2^nd and 3^rd plaintiffs (“P2 andP3”) were in breach of a collateral agreement made with the defendant to provide locum support and visiting medical officer services. The defendant therefore counterclaimed for his loss and damages arising from the plaintiffs’ breach of contract.

7. The plaintiffs disputed the defendant’s allegations, and further claimed that any support services they provided to the defendant were on gratuitous basis.

II.    PROCEDUAL HISTORY

8. According to the plaintiffs’ Timetabling Questionnaire filed on 11 January 2011, their solicitors proposed to file and serve list of documents within 42 days.  However, in the proposed directions annexed to such Questionnaire, they agreed with the defendant’s proposal to file and serve List of Documents within 14 days of the order to be made.

9. On 2 November 2011, the plaintiffs issued a case management summons seeking inter alia a case management direction that they file and serve List of Documents within 14 days.

10. By the order of Master R Lai dated 5 December 2011 made by consent, it was ordered inter alia that the plaintiffs shall file and serve their List of Documents within 14 days.

11. The plaintiffs failed to file and serve their List of Documents within the court-imposed deadline or even by the time they filed their Listing Questionnaire on 19 April 2012.  But in such Questionnaire their solicitors on one hand confirmed that “discovery has completed” and on the other hand proposed a case management direction that required the parties to file and serve Lists of Document within 14 days from the date of the order to be made.

12. By the order of Master Ko dated 26 April 2012, it was ordered that (a) unless by 10 May 2012 the parties shall serve on each other their List of Documents, the defaulting party would be taken to have no documents to disclose, and (b) there be inspection of documents (if any) within 7 days thereafter.

13. Pursuant to Master Ko’s order dated 26 April 2012, the plaintiffs filed their List of Documents on 10 May 2012.

14. The plaintiffs’ Listing Questionnaire filed on 27 September 2012 again confirmed that “discovery has completed”, that all steps that ought to have been taken to prepare the plaintiffs’ case for trial had been duly taken and complied with, and that it was appropriate in all the circumstances to set the present action down for trial.

15. At the case management conference on 3 October 2012, the Registrar granted leave for the plaintiffs to set the present action down for trial. No other case management direction was granted.

16. The trial of the present action was fixed to be heard on 21 May 2013 (ie less then 3 weeks away) with 6 days reserved.

17. In the plaintiffs’ Listing Questionnaire filed on 22 February 2013, their solicitors again made the same confirmations as in the Listing Questionnaire filed on 27 September 2012 (see paragraph 14 above).

18. At the 1^st Pre-trial Review (“1^st PTR”) on 27 February 2013, Mr Tang (and with him Ms Kei), counsel for the plaintiffs, did not mention any need to make further discovery of documents, and no leave was granted for the plaintiffs to file and serve supplemental list of documents. Indeed, on that occasion Mr Tang informed the court the plaintiffs were ready for trial.

19. Pursuant to the directions made at the 1^st PTR, a 2^nd Pre-trial Review was scheduled to be heard on 30 April 2013 (“2^nd PTR”).

20. On 27 March 2013 (ie one month after the 1^st PTR and less than two months before trial), the plaintiffs filed their Supplemental List of Documents disclosing 69 items of documents or classes of documents in Schedule 1 Part 1 therein.  The dates of those documents ranged from January 2006 to July 2010.

21. The defendant’s solicitors complained about the late discovery in their letter dated 10 April 2013 to the plaintiffs’ solicitors, but there was no reply.  On the same day, the defendant’s solicitors wrote to advise the court of such developments and requested for a hearing to deal with such matters.

22. On 11 April 2013, the defendant’s solicitors wrote to the plaintiffs’ solicitors to request for copies of the newly discovered documents without prejudice to their right to object to the same.

23. On 12 April 2013, the plaintiffs’ solicitors supplied copies of the newly discovered documents to the defendant’s solicitors, but did not offer any explanation for the late discovery.  There was also no intimation that further discovery of documents would be made.

24. On 15 April 2013, the court directed that the 2^nd PTR shall stand.  Given the imminence of the trial (which is an immovable milestone date) and the court diary of the trial judge (being myself), it was not possible to fix another date for argument as proposed by the defendant’s solicitors.

25. On 17 April 2013 (ie about one month before trial), the plaintiffs filed their 2^nd Supplemental List of Documents disclosing a further 9 items of documents or classes of documents in Schedule 1 Part 1 therein.  Most of the documents were undated and the only dated document was made in June 2006.

26. On the same day, the defendant’s solicitors wrote to the plaintiffs’ solicitors objecting to the further discovery of documents.  The defendant’s solicitors also requested for copies of the newly discovered documents without prejudice to their right to object to the same.  There was no reply to such letter.  The defendant’s solicitors also wrote to inform the court of such developments.

27. Notwithstanding the newly discovered documents and the defendant’s objection thereto, the plaintiffs’ Listing Questionnaire filed on 23 April 2013 for the 2^nd PTR again made the same confirmations as in the Questionnaire filed on 27 September 2012 (see paragraph 14 above), but made no reference at all to the plaintiffs’ Supplemental and 2^nd Supplemental Lists of Documents.  The only proposed direction annexed to such Questionnaire was “costs in the cause”.  In short, the plaintiffs did not even intimate any attempt to seek leave to adduce and/or rely on the newly discovered documents at trial.

28. Although the plaintiffs did not issue any inter partes application for leave to adduce and rely on the newly discovered documents at trial, they filed the affirmation of Madam Kwan Mei Sum (“Madam Kwan”) at 4:20pm on 25 April 2013 and served the same on the defendant’s solicitors on 26 April 2013 with a view to explain the delay and justify the relevance of the newly discovered documents (“Kwan’s affirmation”).

29. The defendant was understandably upset about this state of affairs, especially when the bundle of newly discovered documents totalling 309 pages was just as bulky as the existing documents bundle for the trial.  His concern was justifiably heightened by the plaintiffs’ failure to provide any explanation for the late discovery of documents until a working day or so before the 2^nd PTR.

30. I would add as part of the procedural history that the plaintiffs filed the witness statements of Chan Ho Yin David (a director of the 1^st plaintiff (“P1”), “Mr Chan”), P2, P3 and Madam Kwan (P1’s operation manager and director) on 21 June 2012 and P3’s supplemental witness statement on 26 September 2012.  The defendant filed his own witness statement and supplemental witness statement on 21 June 2013 (amended on 13 March 2013) and 13 March 2013 respectively.

III.   Lateness of the new discovery

31. From the above procedural chronology, it appears that the plaintiffs simply treated the recent discovery of documents as if it were part of a continuing discovery exercise that would not require leave of the court.

32. However, as I have explained in Liu Chen v Chan Poon Wing & anor HCPI779/2006 (unreported, 7 October 2009) at para.24, where discovery is given at the eleventh hour just before trial, it is quite impermissible for the litigant giving such discovery to do so under the guise of voluntary discovery without seeking leave of the court to give further discovery out of time.  Mr Tang acknowledged that the plaintiffs’ new discovery was late, but he disagreed it was made at the eleventh hour.  In my view, although the plaintiffs’ new discovery was not made on the first day or in the course of trial, there can be no doubt that making discovery of a substantial volume of documents after the 1^st PTR and a month before trial (irrespective of whether it should be described as having been made at the eleventh hour or not) is patently and obviously late.

33. Given the lateness of such further discovery, it should be anticipated (especially after the Civil Justice Reform (“CJR”)) that the opposing party would complain of such lateness.  It is therefore incumbent on a litigant giving such late discovery to make proper inter partes application to seek leave of the court for such new discovery.  Here, the plaintiffs did not even have to anticipate the defendant’s objection for the defendant had already vigorously complained against the lateness of the new discovery.  Not only did the defendant’s solicitors raise objection in their correspondence, they also criticised the shifting of the plaintiffs’ evidential goalposts without any identification of the relevance of the newly discovered documents. But notwithstanding such complaints, the plaintiffs still did not issue any proper application for leave.

34. However, given the imminence of the trial (which is an immovable milestone date) and the Kwan affirmation filed by the plaintiffs, at the 2^nd PTR hearing Mr Lui, counsel for the defendant, fairly and sensibly agreed that the need for prompt resolution of the parties’ dispute over the plaintiffs’ new discovery took precedence over the plaintiffs’ failure to take out proper inter partes application. He hoped that prompt disposal of such issue would give the parties more time to refocus their energies on preparation for the trial.

35. The Kwan affirmation stated that the plaintiffs’ witnesses had been advised of the continuing duty to make discovery of relevant documents.  Madam Kwan claimed the plaintiffs had difficulty in locating hard/soft copies of the relevant documents since the events took place 6-7 years ago.  They had caused an extensive search to be made, but only managed to find the 8 documents listed in Schedule 1 Part 1 of the plaintiffs’ List of Documents filed on 10 May 2012.  It was thought that most of the relevant emails and documents could be found in Mr Chan’s computer as he was in overall management.  But he acquired a new computer in about 2009, and many documents that were electronically stored in his old computer were lost. Madam Kwan checked her own computer and found she only had bits and pieces of documents.  After discussion with Mr Chan, P2 and P3, she realised that many emails and electronic documents were not copied for her attention.  “Thereafter, similar checks have been done with the computers of [P2 and P3].  But it is not until recently that [P2] finds that many of the relevant emails and draft documents have been stored in his old computer, which he has put away for some time after buying a new one.”  Madam Kwan said the documents so found in P2’s old computer had been listed in the plaintiffs’ Supplemental and 2^nd Supplemental Lists of Documents.

36. I have set out the court’s approach to late discovery in Liu Chen as follows:

“32. There can be no doubt that … the Documents …were very late … Given such lateness, it behoved the Plaintiff to provide the court and the 2^nd Defendant with full information as to the reasons for the lateness.

33. Even before the CJR, the need for an affidavit to account for such lateness for similar applications was accepted in Hong Lok School Limited & anor v Chow Sai Yiu & anor HCA17139/1999 and HCA19001/1999, Deputy High Court Judge Lam (as he then was) (unreported, 7 July 2003) and Guangzhou Green-Enhan Bio-Engineering Co Ltd & anor v Green Power Health Products International Co Limited & ors HCA4651/2002, HCA2802/2003 and HCMP54/2004, Lam J (unreported, 21 August 2004).

34. In Hong Lok School Limited, in dealing with a litigant giving discovery at the eleventh hour, the learned judge held that such litigant should provide the court and the other side with full and accurate information at least as to the following to enable the court to exercise its discretion properly in dealing with possible objections from the opposing party:

(a) the reasons why the subject documents were not disclosed earlier;

(b) the provenance and the makers of such documents;

(c) the relevance of such documents to the issues before the court;

(d) the availability or non-availability of the makers to attend trial for cross-examination in case the opponent objected to the hearsay evidence.

In that case, counsel was unable to deal with the above matters fully, and the court directed the plaintiffs produce an affidavit to account for the late discovery.

35. In GuangzhouGreen-Enhan Bio-Engineering Co Ltd & anor, in the wake of objection by the defendants, the case was stood down for the plaintiffs to file affirmations to account for the lateness of the application to adduce further witness statements and documents in the course of trial.

36. Let me say as a general observation that the court is generally unhappy with last minute applications at the commencement of assessment hearing for further evidence to be filed or for further discovery to be made. After the CJR, the court is even more jealous to ensure that the assessment of damages will proceed as scheduled, and that the hearing will not be burdened with last-minute applications that take up valuable time thereby prolonging the assessment hearing, causing an adjournment and/or increasing costs for the party(ies). To say the least, last minute applications fly in the face of the underlying objectives of reasonable expedition, procedural economy, cost-effectiveness and fairness between parties enshrined in Order 1A of the RHC.

37. In the circumstances, after the implementation of the CJR, if there is any last minute application (which necessarily must be a rare occurrence), the court will not expect anything less than what was required even prior to the CJR, namely, a full account for the lateness of the application. In addition, it is further expected that the applicant will place before the court full justification as to why the application should be entertained at all at such late stage notwithstanding the underlying objectives. Failure to do so may result in the court rejecting the application without further ado, especially if there is a history of breach of court timetables or if there is something in the conduct of the applicant that gives rise to suspicion of conscious manoeuvring.

38. Practitioners should bear in mind that it is the duty of the handling solicitor to ensure that his client’s case is properly prepared for assessment of damages. The court expects that careful and conscientious consideration and attention be given to the completion of the Checklists (or timetabling and/or listing questionnaires) before the case is set down for assessment hearing. As Lam J said in paragraph 19 of Wong Siu Yeung v Chu Kwong Wing & ors HCA5249/1999 (unreported, 20 May 2005), ‘[the] court should be able to rely on the diligent conduct of solicitors in the preparation of his client’s case for trial otherwise it will make a mockery of our case management system’. Such observation is even more compelling after the implementation of the CJR.

39. Plainly, the prodigious lateness of … the Documents … cried out for an explanation especially in view of the fact that (a) 6 Checklists prepared between 2007 and 2009 and personally signed by the Plaintiff’s solicitor confirmed that the Plaintiff would have ‘NIL’ witness on factual issues (see paragraph 8 above), and (b) the court had already directed the parties (i.e. including the Plaintiff) to seek counsel’s advice and to ensure that all outstanding interlocutory applications as advised by counsel be sought by 3^rd November 2008 (see paragraph 9 above).

…

42. But in personal injuries litigation, as in any other civil litigation, the case is set down for assessment of damages upon assurances by the party(ies) and/or by his(their) legal representatives that the action is ready for assessment of damages or that any outstanding matter will be attended to forthwith or within a specified deadline so that it will not upset the scheduled assessment hearing.  Thus, at the latest by April 2009 when the initial assessment hearing was fixed, the Plaintiff and/or his legal representatives should have ensured that the Plaintiff’s case was ready for assessment of damages or that there would not be any outstanding matter that would upset such assessment hearing.  If it were not so, it was incumbent on the Plaintiff and/or his legal representatives to deal with the outstanding matter as soon as possible and to alert the court of the same so that the court could have made informed and appropriate case management directions.  But the Plaintiff and/or his legal representatives did not adopt such course of action.  I am therefore unable to accept the explanation in the above paragraph as any legitimate excuse for the lateness of the Plaintiff’s present application.…”

37. I have carefully considered the Kwan affirmation and Mr Tang’s submissions, and am wholly dissatisfied with the explanation offered by the plaintiffs for the delay in making the new discovery.

38. First, insofar as general discovery is concerned, I am not persuaded that the events took place 6-7 years ago.  Madam Kwan frankly admitted that the plaintiffs had been advised of their continuing duty to make discovery of relevant documents.  By the time of the filing of the Timetabling Questionnaire in January 2011 at the latest (if not earlier), the plaintiffs would have been alive to the need to make full and proper discovery.  Moreover, the Kwan affirmation was silent as to when P2 bought his new computer and “put away” the old one.  Had P2 been advised of his continuing duty to make discovery of relevant documents and given that he was able to retrieve documents generated as late as in July 2010 (see item 71 of the plaintiffs’ Supplemental List of Documents) from his old computer (which means that his old computer was still in use at least up to July 2010), I see no reason why in only half a year’s time (ie by January 2011) P2 would not have been alert to the need to search and extract what is now alleged to be relevant documents from his old computer.

39. Secondly, Madam Kwan claimed an “extensive search” of the plaintiffs’ records was made for the purpose of discovery, but she failed to condescend upon the particulars of the scope and purpose of such exercise.  Bearing in mind that some of the documents already disclosed in the first round of discovery (see the defendant’s List of Documents also filed on 10 May 2012) were emails, the logical place to look for other emails would have been the computers.  There was no suggestion P2 had forgotten that he had replaced his computer and “put away” the old one.  No explanation is forthcoming as to why the old and new computers of all three plaintiffs were not checked in the course of the “extensive search”.

40. Thirdly, I agree with Mr Lui that the Kwan affirmation is shy and vague on the timing of the various steps alleged to have been taken by the plaintiffs in relation to general discovery as well as the new discovery.  Significantly, it did not even say when precisely P2 found the newly discovered documents in his old computer.  When a litigant seeks the court’s indulgence to make last minute discovery, it is quite insufficient to merely say that the newly discovered documents were found “recently”.

41. Fourthly, Madam Kwan claimed that upon reviewing the defendant’s List of Documents filed on 10 May 2012, it was considered that the emails disclosed by the defendant were not a complete set “and there should have been many more”.  Logically and necessarily emails would have been stored in computers or in email account servers, so it is rather surprising that P2 failed to look into his old computer throughout the past year.  I also find it strange that when the plaintiffs realised in May 2012 that the emails disclosed by the defendant were not a complete set, even up to today they had not applied for specific discovery against the defendant or referred to such lacuna in the defendant’s discovery in his witness statements.  Rather, the plaintiffs in their Listing Questionnaires time and again confirmed to the court and to the defendant that discovery had completed.

42. Fifthly, I agree with Mr Lui that Madam Kwan’s explanation, ie the plaintiffs’ newly discovered documents were “recently” found in P2’s old computer, is unconvincing. The newly discovered documents revealed that:

(a) There were a number of emails exchanged between the defendant and Madam Kwan but not copied to P2 at all.

(b) There were documents which did not appear to concern P2 and were not copied to him (see, for example, items 49-50, 53-57, 59 and 61 of the plaintiffs’ Supplemental List of Documents).

(c) There were copy emails with footers showing that such emails had been printed in 2010 and 2011 (see items 10-48, 62-65 and 67-68 of the plaintiffs’ Supplemental List of Documents).

(d) The email in item 54 of the plaintiffs’ Supplemental List of Documents had a header that showed it had been faxed in or out.

These matters cry out for explanation, and yet none is forthcoming in the Kwan affirmation.

43. Sixthly, as Mr Lui submitted, a number of documents could have been retrieved from other sources, but all along the plaintiffs had not done so until their Supplemental and 2^nd Supplemental List of Documents.  There is no explanation why the emails sent or received via P2’s and P3’s “yahoo” email accounts or the emails from Mr Chan’s and Madam Kwan’s company email accounts (the former of which appears to be powered by “Gmail” – see items 62-65 and 67-68 of the plaintiffs’ Supplemental List of Documents) cannot be retrieved from those servers.  The emails in items 49-50 and 68 of the plaintiffs’ Supplemental List of Documents were in fact electronically sent and/or copied to the plaintiffs’ solicitors.  Again, there is no explanation why such emails could not be retrieved from such solicitors as agents of the plaintiffs.

44. Seventhly and more importantly, the last point in the above paragraph suggests that Madam Kwan’s explanation for the delay is disingenuous.  The Amended Reply dated 30 March 2012 (and filed in April 2012) which was settled by Ms Kei of counsel referred to 4 emails dated 17 October 2008, 3 March and 10 October 2009 and 9 January 2009 not disclosed in the plaintiffs’ or the defendant’s respective List of Documents both filed on 10 May 2012.  Further, although the plaintiffs described item 60 of the their Supplemental List of Documents as an email dated 17 October 2007 from the defendant to Mr Chan, P2 and P3 that enclosed a breakdown of clinic expenses from March to October 2007, it was in fact an email from Ms Sophia Kwok, solicitor for the plaintiffs, dated 29 March 2012 that forwarded to Ms Kwan and P2 the aforesaid email dated 17 October 2007 with annexure and a message “FYI.  Mailed from [the defendant] on 17/10/07”.  Ms Sophia Kwok was the solicitor who signed all of the plaintiffs’ Timetabling and Listing Questionnaires that confirmed that discovery had completed.

45. It is plain and obvious from the above paragraph that at the latest by March 2012 (ie about a year ago) not only the plaintiffs but also their legal representatives had access to some of the documents which the plaintiffs now claim to have been “recently” unearthed from P2’s old computer.  Yet the plaintiffs and their legal representatives had kept such documents up their sleeves until the plaintiffs sprung such documents on the defendant at the eve of the trial by way of their Supplemental and 2^nd Supplemental Lists of Documents.  Mr Tang was constrained to acknowledge at the 2^nd PTR hearing that some of the so-called newly discovered documents were already in the hands of the plaintiffs and/or their legal representatives “some time ago”.  But when pressed as to what precisely “some time ago” meant, Mr Tang claimed he had no instructions.  This is plainly unsatisfactory, but the above analysis showed that for some of the newly discovered documents “some time ago” would not have been later than March 2012.  I find this is rather alarming since the explanation put forward in the Kwan affirmation for the late discovery was that these documents were only recently found in P2’s old computer, which explanation has been exploded by the aforesaid analysis and is clearly misleading.

46. Mr Tang submitted it was merely “stupidity” on the part of the plaintiffs and/or their legal representatives in failing to make continuing discovery as and when discoverable documents became available and in waiting to make further discovery of documents all in one go just before trial. But there is simply no affidavit evidence from either the plaintiffs or their solicitors in support of such explanation.  Indeed, such explanation is contradicted by the Kwan affirmation which stated that the plaintiffs had already been advised by their legal advisers that they had a continuing duty to make discovery of relevant documents.

47. An applicant who comes to court for indulgence, especially when the indulgence sought may put milestone event(s) at risk, should take special care to be forthcoming and frank to enable understanding and appreciation of the reason for and the ramification of such application at the earliest opportunity.  The plaintiffs’ persistent reticence in face of the defendant’s demands for explanation is of itself worrying.  Yet when they eventually decided to give an explanation a working day or so before the 2^nd PTR, it was, to say the least, incomplete and misleading.  It is disturbing to find out that some of the so-called newly discovered documents were in fact available to the plaintiffs as well as their legal representatives by March 2012 (ie about a year ago), and the plaintiffs and their legal representatives in fact had communicated with each other on these very documents (see Amended Reply settled by counsel and verified by statement of truth by each of the plaintiffs, and item 60 of the plaintiffs’ Supplemental List of Documents displaying an email from the plaintiffs’ handling solicitor to Madam Kwan and P2).  The fact that the plaintiffs’ Listing Questionnaires (which were signed by the same handling solicitor) thereafter confirmed that discovery had completed only served to add to the court’s disquiet.  I find that all these matters lead inexorably to the view that the plaintiffs, who all along were under legal advice, had made a deliberate choice not to make discovery until just before trial under the guise of general discovery of documents that were recently unearthed.  Such conduct must draw reproach from the court.

48. In my view, for all of the above reasons, there is no satisfactory explanation for the delay.  In fact, I go further to say that the explanation offered in the Kwan affirmation is wholly unsatisfactory.

IV.   OTHER CONSIDERATIONS

49. As explained in paragraph 55 of Liu Chen, whether the court should allow a late application for further discovery is a balancing exercise and the considerations of the court are largely three-fold:

(a) the merits of the proposed application, ie whether the application if granted will assist the court in securing “the just resolution of disputes in accordance with the substantive rights of the parties” (see Order 1A rule 2(2) of the Rules of the High Court (“RHC”));

(b) the presence or absence of any real prejudice to the other party;

(c) any conscious flouting of the rules of court, practice directions and/or case management directions/timetables, or any over-reaching or deliberate manoeuvring on the part of the applicant.

50. In respect of (c) above, I have discussed the court’s concern over conscious manoeuvring on the part of the plaintiffs in Part III above (see in particular paragraphs 44-47 above).

51. Before I turn to question of the relevance of the newly discovered documents, I will deal with the factor in paragraph 49(b) above, ie whether there is any real prejudice to the defendant on the assumption that such documents were of some relevance to the disputed issues in the present action.  Even on such assumption, I am still not prepared to allow the plaintiff to adduce and rely on the newly discovered documents.

52. Post-CJR case management recognises that the closer to trial an applicant makes an application to adduce late discovery the more likely it is to cause real prejudice to the other party, especially when a milestone date is likely to be compromised by there being insufficient remaining time until the commencement of trial (which is an immovable milestone date) to accommodate the other party’s response to the application if granted.

53. Mr Tang submitted that most of the newly discovered documents were inter partes documents such that the defendant should also have had or may now still have them in his possession, custody or power.  Mr Tang argued that (a) the defendant should have made discovery of such documents himself, and (b) in any event the defendant should not be surprised by such documents despite the lateness of the plaintiffs’ discovery.

54. Mr Tang’s argument that the defendant too should have disclosed the subject documents is very much a case of the pot calling the kettle black.  As will be seen below, it is the defendant’s case that the documents being the subject of the plaintiffs’ Supplemental and 2^nd Supplemental List of Documents are largely not relevant to the disputed issues.  But even if the plaintiffs thought otherwise and considered such documents to be discoverable, the recourse open to them was to make discovery themselves and to seek specific discovery against the defendant.  They did not pursue either recourse. Instead, what they did was to confirm by their various Listing Questionnaires that discovery had completed and to remain silent at the 1^st PTR hearing as to whether there would be any further discovery, and then afterwards made late discovery.  But more fundamentally, irrespective of whether the defendant had made proper discovery, it did not excuse the plaintiffs from their need to make discovery of documents in their possession, custody or power which they intend to adduce and rely on at trial.

55. As to Mr Tang’s suggestion that the defendant should not be surprised by the newly discovered documents, I do not agree there is no “surprise”.  The focus is not, as Mr Tang contended, on whether there had been previous emails and other communications between the parties in respect of the newly discovered documents, but on what evidence will be deployed at trial.  What the plaintiffs now seek to do is to shift the evidential goalposts that were already crystallised by the time leave was granted to set the present action down for trial by significantly enlarging the pool of documents that will be adduced at trial at a late stage of the proceedings when the parties should really be concentrating their efforts on preparation for trial.

56. Upon my enquiry at the 2^nd PTR hearing, Mr Tang confirmed that should the court grant leave for the plaintiffs to adduce and rely on the newly discovered documents, he would seek leave at trial under Order 38 rule 2A(7)(b)(i) of the RHC for the plaintiffs’ witnesses as to fact to “amplify” their witness statements and explain the newly discovered documents when they give evidence in the witness box.  This is tantamount to accepting that the newly discovered documents do not fully speak for themselves, and that the plaintiffs’ witnesses will need to explain the relevant factual matrix to put such documents in context.  Yet there is no application before the court for leave to serve supplemental witness statement(s), and no draft supplemental witness statement(s) were produced at the 2^nd PTR hearing.  This means that if the plaintiffs had their way, the defendant will be left in the dark (at least until the plaintiffs’ witnesses give evidence at trial) as to how the plaintiffs will deploy the newly discovered documents in establishing their case.  In my view, there must be an element of irremediable prejudice in requiring the defendant to respond to such evidence only in the course of the trial and without the luxury enjoyed by the plaintiffs who had the opportunity to consider these documents with their legal representatives and witnesses (and indeed they had access to some of these documents for about a year – see paragraphs 44-47 above).

57. Mr Tang made an oral application for leave to file and serve supplemental witness statement(s), but I was not prepared to entertain such request made without formal application or even a draft statement.  Fairness dictates that Mr Lui should be given adequate information in order to properly advise the defendant on the ramification of any such application and (if so advised) to properly oppose it.  I echo the observations of Bharwaney J in Parsad v Great Wealthy Eng. Co Ltd [2012] 3 HKLRD 705, 709 that “a late application for leave to rely on additional witness statements, that is to say, an application made after the case has been, or is ready to be, set down for trial, will not be considered without signed witness statements containing a statement of truth being furnished”.  Although such observations were made in the context of additional witness statements, I consider they have equal relevance to supplemental witness statements that touch on new dimensions.

58. Further, if leave were granted for the plaintiffs to adduce and rely on the newly discovered documents, apart from the above forensic prejudice, the defendant will necessarily be called upon to react to these documents by possible further discovery and/or supplemental/additional witness statement(s).  Such efforts imposed on the defendant at the eve of the trial may derail his preparations for trial, and they may even put the milestone trial at risk since the time required by the defendant to properly respond to the newly discovered documents is, as a result of the lateness of the new discovery, as yet unknown.  Bearing in mind that both Mr Tang and Mr Lui agreed that the written opening submissions by the defendant (being the party who is to open the case at trial) should be submitted at least 7 days before trial, there is doubt whether the defendant can put together a proper response to the newly discovered documents within the next two weeks.  There is little reason why the defendant should suffer shifting of the evidential goalposts when there is little time before the milestone trial date for him to properly respond and/or react.

59. In carrying out the balancing exercise, even if the newly discovered documents bear some relevance to the disputed issues, any reliance by the plaintiffs on the late discovery will cause real prejudice to the defendant in their preparation and conduct of the trial.  On this basis as well as on the wholly unsatisfactory explanation for the delay as discussed above, the plaintiffs’ application falls to be dismissed.

60. But Mr Lui went further to submit that the newly discovered documents were largely irrelevant to the issues in dispute, and he analysed this matter in detail in his written submissions.

61. The Kwan affirmation suggested that the newly discovered emails and letters during the period from 21 January to 13 April 2010 showed that the plaintiffs (especially P2) had assisted the defendant in setting up and running his medical practice at the Tsing Yi Clinic (see items 9-70 of the plaintiffs’ Supplemental List of Documents).

62. But in my view, many of these documents are not relevant to the disputed issues. The subject agreements between the parties were made at the end of 2006 and in 2007 (see paragraphs 2-4 and 6 above).  Insofar as there was dispute between the parties as to whether there was any breach of contract, Mr Lui submitted that the issue would not turn on the assistance rendered to the defendant prior to the parties entering into such agreements.  Indeed, the defendant’s witness statement acknowledged that P2 and P3 did answer his questions via telephone and email during such earlier period (see para.I(a) of the defendant’s 1^st witness statement).  Mr Tang submitted that the court would need to look at the nature of the gratuitous assistance rendered by P2 and P3 in the pre-contract period to appreciate whether and if so what assistance should be given to the defendant in the post-contract period. However, P2 in paragraph 8 of his witness statement already explained (and the defendant did not really disagree) that he voluntarily invited the defendant to seek assistance from him whenever the defendant encountered problems in his medical practice at the Tsing Yi Clinic.  Given the parties’ stance, it is unnecessary to review at the trial a large bundle of emails passing between the parties that discussed medical issues. Hence, the bulk of this group of documents being items 9-48 of the plaintiffs’ Supplemental List of Documents covering the period from January to October 2006 are, in my view, unnecessary.

63. Items 56-57 of the plaintiffs’ Supplemental List of Documents are emails in July and August 2007 that contained patient files and photographs of the Tsing Yi Clinic. There is no dispute that the defendant took over the operation of the Tsing Yi Clinic in 2007, so patient files and/or documents related to the clinic would be passed over to him. I do not see this as a disputed issue.

64. As for items 53 and 61 of the plaintiffs’ Supplemental List of Documents, they relate to the printing of name cards.  Although this has been alluded to in the plaintiffs’ pleadings, it is not a marketing support which the defendant claimed the plaintiffs should have provided and failed to provide. I agree with Mr Lui that such documents are not necessary for fairly disposing of the true issues between the parties.

65. In respect of items 71-73 of the plaintiffs’ Supplemental List of Documents, the Kwan affirmation claimed they showed that the plaintiffs helped the defendant to find locum support, purchase medicine and medical consumables, and give administrative support by assisting him to commence a joint practice with a dentist.  However, the disclosed invoices only showed locum support up to July 2007.  Again, this was not disputed by the defendant who stated in his witness statement that locum support lasted until July 2007.  I also agree with Mr Lui that the documents in respect of the purchase of medicine and medical supplies are unnecessary.  Not only did the defendant not complain about these matters, such support had not been pleaded in the plaintiffs’ pleadings.  In respect of the joint practice with a dentist, whilst this had been referred to in the plaintiffs’ pleadings and Madam Kwan’s witness statement, this was not disputed by the defendant in his witness statements and, as Mr Lui submitted, it was not a support which the defendant claimed the plaintiffs had promised but failed to provide.

66. Items 74-75 of the plaintiffs’ Supplemental List of Documents are (a) a draft agreement between P1 and an elderly home and (b) an inspection report dated 30 March 2007.  The Kwan affirmation stated that the latter was relevant to show that the plaintiffs provided administrative support in the form of getting an experienced nurse to write a report on the defendant’s behalf for submission to the government to get funding for the visiting medical officer service to be provided by the defendant.  However, the defendant agreed that the registered nurse Ms Ng provided support until May 2007, so there is no disagreement in relation to the service provided by the registered nurse in March 2007.  In respect of the draft agreement, it was stated in the plaintiffs’ Supplemental List of Documents that such agreement was in fact made or entered into on 10 July 2006, ie long before the subject agreements were made by the parties.  

67. In respect of item 76 of the plaintiffs’ Supplemental List of Documents, Mr Tang conceded that the company search records of Kinetic Asia (HK) Company Limited were not relevant to the disputed issues.

68. The Kwan affirmation stated items 86-94 of the plaintiffs’ 2^nd Supplemental List of Documents were part of the draft practice manuals that would show that the plaintiffs commissioned an experienced nurse in the employ of P1’s group to write the practice manuals for the Tsing Yi Clinic to provide administrative support to the defendant’s medical practice.  However, a substantial part of these documents (ie 18 pages) was stated to be the June 2006 amended version (ie before the subject agreements were entered into between the parties).  Further, the Kwan affirmation falls short of stating that such draft manuals were actually supplied to the defendant.  Still further, the preparation and/or supply of such manuals had not been pleaded by the plaintiffs in their pleadings.

69. In the circumstances, the bulk of the newly discovered documents are either not relevant or not necessary for fairly disposing of the disputed issues between the parties. It is true that a few of the newly disclosed documents touched on, say, email discussions prior to the aforesaid agreement for repayment of consideration money with addendum both dated 7 May 2007 or the alleged exercise of the grace period or the defendant’s proposal to resell the Tsing Yi Clinic back to the plaintiffs. It is, however, inaccurate for the Kwan affirmation to suggest that these documents were about how the plaintiffs assisted the defendant in setting up and running his medical practice at the Tsing Yi Clinic. More importantly, there is no witness statement from the plaintiffs that explains the factual matrix to put these emails in their proper context. As explained above, it is inappropriate for witnesses to explain the interplay between these emails and the relevant factual context only when they give evidence in the witness box. I am not persuaded I should allow the plaintiffs to adduce these emails as it will cause forensic prejudice to the defendant. Nevertheless, I note that the defendant has already disclosed and discovered items 52 and 58 of the plaintiffs’ Supplemental List of Documents.   

70. For items 62-70 of the plaintiffs’ Supplemental List of Documents, items 64-67 have already been disclosed by the plaintiffs.  Items 62-70 concern email correspondence between the parties from March 2008 to April 2010, but by that time the parties were already in dispute and I do not see their essential materiality to the core issues.  In any event, these documents have nothing to do with the assistance which the plaintiffs alleged they had rendered to the defendant in setting up and running his medical practice at the Tsing Yi Clinic as suggested in the Kwan affirmation, which explanation, as I have pointed out, is inaccurate.

V.  CONCLUSION

71. In all the circumstances and bearing in mind the underlying objectives of case management, I have at the 2^nd PTR hearing on 30 April 2013 declined to allow the plaintiffs to adduce or rely on the documents listed in Schedule 1 Part 1 of their Supplemental and 2^nd Supplemental Lists of Documents at trial.

72. There is no reason why costs should not follow event.  The plaintiffs sought indulgence from the court and they were eventually unsuccessful.  At the 2^nd PTR hearing on 30 April 2013, I also ordered the plaintiffs to pay costs of and occasioned by their application to adduce and rely on the newly discovered documents to be summarily assessed and paid forthwith.  I apportion 90% of the hearing time at the 2^nd PTR hearing for such purpose.  For the summary assessment of costs, I also directed that the defendant do within 7 days from the 2^nd PTR hearing lodge and serve statement of costs not exceeding one page pursuant to Practice Direction 14.3, and the plaintiffs do within 7 days thereafter lodge and serve succinct summary of objections of not more than one page in respect of the statement of costs.  The summary assessment of costs shall be dealt with on the 1^st day of the trial on 21 May 2013.

	(Marlene Ng)
	Deputy High Court Judge

Mr Ronald Tang and Ms Carmen Kei, instructed by Jesse H Y Kwok & Co,  for the 1^st, 2^nd and 3^rd plaintiffs.

Mr Victor Lui, instructed by Lam & Partners, for the defendant.