Cheung Kwok Leung and Another v. Chen Dah Ren, George Formerly Known As Chen Dah Shing George

HCA 2127/2015

[2020] HKCFI 1190

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2127 OF 2015

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JUDGMENT

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A. INTRODUCTION

1.The 1st Plaintiff (“Mr Cheung”) and the 2nd Plaintiff (“Gloss Mind Apparel”) (collectively “the Plaintiffs”) claim against the Defendant (“Mr Chen”) for a total sum of $1,510,002.02 due under a settlement agreement orally entered on 9 December 2011.

2.Mr Chen counterclaims against the Plaintiffs for $3,119,623.93 also on the basis of an oral settlement agreement entered on 9 December 2011 but, in his case, with terms substantially different from those asserted by the Plaintiffs. 

B.      THE AGREED FACTS AND EACH PARTY’S CASE  

3.Both Mr Cheung and Mr Chen are businessmen.

4.Mr Cheung controls Gloss Mind Group, which include Gloss Mind Apparel, Gloss Mind Apparel (Macao Commercial Offshore) Co Ltd (“Macao Gloss Mind”), Shenzhen Gloss Mind Apparel Co Ltd (“SZ Gloss Mind”), Dongguan Gloss Mind Apparel Co Ltd (“DG Gloss Mind”) and Shenzhen Wiseform Apparel Co Ltd (“SZ Wiseform”).

5.Mr Chen controls a number of companies (“Geroyle Group”), which include Geroyle Fashion Group Limited (“Geroyle”), 廣州仁儷 (“GZ Geroyle”), GR Corporation Ltd and Grow International Limited (“Grow International”).

6.     The following facts are agreed:

(1)     In or about 2005, Mr Cheung came to know Mr Chen through an introduction by a friend.

(2)     On or about 25 January 2006, Mr Cheung lent $1,000,000 to Mr Chen personally with a repayment date of 28 February 2006 (“the Personal Loan”).  Mr Cheung issued a cheque dated 25 January 2006 for $1,000,000 to Mr Chen.  The loan is evidenced by a letter signed by Mr Chen dated 25 January 2006.

(3)     In or about late January 2006, Gloss Mind Apparel lent $500,000 to Geroyle with a repayment date of 28 February 2006 (“the Corporate Loan”).  Gloss Mind Apparel issued a cheque dated 23 January 2006 for $500,000 to Geroyle.  The loan is evidenced by a letter signed by Mr Chen on behalf of Geroyle dated 25 January 2006.

(4)     On 23 February 2006, Mr Cheung on behalf of Gloss Mind Apparel and Mr Chen on behalf of Geroyle signed a Memorandum of Understanding (“the BLN MOU”) in respect of Beijing Li Ning Sports Goods Co. Ltd. (“Beijing Li Ning”). Beijing Li Ning was a customer for produced though the collaboration between Gloss Mind Apparel and Geroyle as set out in the BLN MOU.

(5)     Clause 4 of the BLN MOU provided that Gloss Mind Apparel should pay to Geroyle by way of technical fees in an aggregate amount equal to 6% of the selling prices (with VAT) of the Products sold to Beijing Li Ning, whereas Clause 5 of the BLN MOU provided that Gloss Mind Apparel should pay the technical fee deposit of $500,000 to Geroyle when the BLN MOU was signed, which deposit should be fully refunded to Gloss Mind when the contract was terminated for whatever reason.

(6)     Mr Cheung on behalf of Gloss Mind Apparel and Mr Chen on behalf of Geroyle also agreed to deem the Corporate Loan in the amount of $500,000 as the technical fee deposit under the BLN MOU (“the Technical Fee Deposit”).

(7)     In about 2005 to 2006, Geroyle did not settle invoices for garments supplied by Macao Gloss Mind in the amount of $764,560.68, and GZ Geroyle did not settle invoices for garments supplied by SZ Gloss Mind in the amount of RMB250,103.64 (ie HK$305,126.44) and invoices for garments supplied by DG Gloss Mind in the amount of RMB182,668.68 (ie HK$222,855.79) (collectively “the Outstanding Invoices”).[1]

(8)     From May 2010 to November 2011, debit notes using the letterhead of Grow International were issued to Gloss Mind Apparel for consultancy fees of $20,000 per month and business expenses (“the Debit Notes for Consultancy Fees”).

(9)     Such debit notes were fully settled.

(10)     Upon Mr Chen’s introduction, Ruitong (Shanghai) International Trading Company Limited (瑞童（上海）國際貿易有限公司) (“Ruitong Guoji Maoyi”), 瑞童（上海）信息技術有限公司(“Ruitong Xinxi”) and Shanghai Green Box Network Technology Company Limited (上海綠盒子網絡科技有限公司) (“Lu He Zi”) placed orders for down garments bearing the brand name “Green Box” with SZ Wiseform in the total amount of RMB23,464,444.44 (ie $28,265,622.22) (collectively “the Down Garment Orders”).

(11)     Mr Cheung on behalf of Gloss Mind Apparel agreed to pay commission to Mr Chen for such orders.

(12)     On 9 December 2011, Mr Cheung and Mr Chen signed a letter entitled “Termination of Consultancy service” (“the Termination Letter”).

(13)     Further, on the same day, Mr Chen signed the Statement of Accounts as at 9 December 2011 (“the 2011 Statement of Accounts”).

7.The Plaintiffs’ case is as follows:

(1)     In respect of the Personal Loan, Mr Chen did not repay it by 28 February 2006 or otherwise.

(2)     In respect of the BLN MOU, pursuant to it, Geroyle was entitled to HK$282,540.89 being the total technical fees, ie 6% of the selling price (with VAT) of the products sold to Beijing Li Ning from about July 2006 to September 2006. Therefore, the remaining balance of the Technical Fee Deposit which should be refunded by Geroyle to Gloss Mind Apparel was $217,459.11 (“the Technical Fee Deposit Refund”).  The Technical Fee Deposit Refund was recorded in a Statement of Account dated 30 September 2008 as well as the 2011 Statement of Accounts dated 9 December 2011.  The 2011 Statement of Accounts was signed and confirmed by Mr Chen.  However, Geroyle failed to repay any part of such sum to Gloss Mind Apparel.

(3)     In respect of the Outstanding Invoices, Mr Chen had signed and confirmed the outstanding amounts set out in the 2011 Statement of Accounts.

(4)     In respect of the Debit Notes for Consultancy Fees, there was in fact a consultancy agreement reached between Mr Cheung and Mr Chen in or about May 2010 (“the Consultancy Agreement”).  Under the Consultancy Agreement, Mr Cheung agreed to procure Gloss Mind Apparel to engage Mr Chen to serve as a consultant for Gloss Mind Apparel.  Mr Chen’s scope of work included sourcing customers and business for the companies within the Gloss Mind Group and liaising between these customers and the companies within the Gloss Mind Group.  The remuneration payable to Mr Chen was HK$20,000 per month, plus related travelling expenses reimbursed.

(5)     Mr Chen nominated Grow International as his nominee to receive the consultancy fees.  Therefore, from May 2010 to November 2011, the Debit Notes for Consultancy Fees under the letterhead of Grow International were issued to Gloss Mind Apparel for consultancy fees at $20,000 per month and expenses.  The consultancy fees and the expenses due under all these debit notes have been fully settled.

(6)     In respect of the Down Garment Orders, Mr Cheung on behalf of Gloss Mind Apparel agreed to pay commission to Mr Chen at the rate of 50% of the net profit, ie net sales amount less related costs and allocated expenses (“the Down Garment Commission”).  However, the net profit for the Down Garment Orders could not be ascertained by the end of 2011 by reason of disputes concerning the products.

(7)     In respect of the Plaintiffs’ version of the oral settlement agreement, in about December 2011, the Gloss Mind Group decided not to continue to use Mr Chen’s consultancy services.  Both Mr Cheung and Mr Chen would like to have a clean break for all the personal and business dealings between them and also between their respective companies and to settle all the outstanding sums between the parties as soon as possible.

(8)     On 9 December 2011, Mr Cheung (on behalf of himself, Gloss Mind Apparel, Macao Gloss Mind, SZ Gloss Mind and DG Gloss Mind) and Mr Chen (on behalf of himself, Geroyle and GZ Geroyle) orally agreed that, in consideration of all the parties agreeing to have a clean break and to fully and finally settle all the outstanding debts and claims between them:

(a)     Mr Chen would cease to be a consultant for the Gloss Mind Group with effect from 1 January 2012;

(b)     Whilst the Down Garment Commission (based on net profit) which Mr Chen was entitled to was not ascertainable at that time, instead of postponing to a later date when the net profit could be ascertained, Mr Chen should immediately be entitled to 50% of 6% of (not the net profit but) the total sales amount under the Down Garment Orders.  The calculation of the Down Garment Commission basing on return on sales was more favourable to Mr Chen than that basing on net profit;

(c)     While the projected total sales amount was HK$30,000,000 at that time and 50% of 6% of which was HK$900,000, the Down Garment Commission to which Mr Chen would be entitled would be rounded up to $1,000,000;

(d)     Mr Chen would personally be liable for and immediately pay to Gloss Mind Apparel a sum equal to the Personal Loan, the Technical Fee Deposit Refund and the sums due under the Outstanding Invoices, less the Down Garment Commission.  In respect of the Personal Loan, Gloss Mind Apparel would receive it on behalf of Mr Cheung as his collection agent; and

(e)     As Mr Chen agreed to personally pay the Technical Fee Deposit Refund and the sums due under the Outstanding Invoices (less the Down Garment Commission), Mr Cheung agreed to procure Gloss Mind Apparel, Macao Gloss Mind, SZ Gloss Mind and DG Gloss Mind not to continue to demand or commence proceedings against Geroyle and/or GZ Geroyle in respect of the Technical Fee Deposit Refund and/or the sums due under the Outstanding Invoices.  Mr Cheung also agreed on behalf of those companies to undertake not to continue to so demand or commence proceedings against Geroyle and/or GZ Geroyle.

(9)     On the same day after the oral settlement agreement was reached, Mr Cheung and Mr Chen signed on the Termination Letter, which was under Gloss Mind Apparel’s letterhead and addressed to Mr Chen.  The Termination Letter reads as follows:

“Mr. Chen Dah Shing, George

C/o Grow International Ltd.

[address]

9 December 2011

Re: Termination of Consultancy service

We regret to inform you that we decided to terminate your consultancy service effective from 1 Jan 2012. Then, if we require your service, we'll adopt ad hoc basis.

Reviewing the year of 2011, you have introduced a new customer to our Group with sales amount over HK$30M We agree to pay you a lump sum of sales commission amounting to HK$1,000,000 in addition to your consultancy fee already paid.

As you are owing to both our Group Companies and Mr. Peter Cheung amounting to HK$2,510,002.02, the above-said commission payable will be offset as part of settlement due from you.

After offset the commission payable to you, the balance due from you is HK$1,510,002.02. Please settle if you are available to pay.

Thank you for your effort contributed to the company and hoping that we can co-operate again soon.

Please sign the duplicate copy of this letter as a token of acceptance of the same.

Yours sincerely,

For and on behalf of

Gloss Mind Apparel (Hong Kong) Limited

[signed]

Authorised Signature(s)

Accepted by

[signed]

Chen Dah Shing, George”

(10)     Mr Chen also signed on the 2011 Statement of Accounts.  It is under the letterhead of Gloss Mind Apparel.  It is headed “Statement of accounts - Amount due from Chen Dah Shing, George as at 9 Dec 2011”.  It sets out how the outstanding balance due from Mr Chen was derived, which is as follows:

(a)     The amount due to Macao Gloss Mind was $764,560.68 (which was part of the sums due under the Outstanding Invoices).

(b)     The amount due to Gloss Mind Apparel was $217,459 11 (which was the Technical Fee Deposit Refund).

(c)     The amount due to SZ Gloss Mind was $305,126.44 (which was part of the sums due Outstanding Invoices).

(d)     The amount due to DG Gloss Mind was $222,855.79 (which was part of the sums due Outstanding Invoices).

(e)     The amount due to Mr Cheung was $1,000,000, ie the Personal Loan.

(f)     The “Total Amount Due” (by adding (a) to (e) above) was $2,510,002.02.

(g)     The sales commission for 2011 payable to Mr Chen was $1,000,000 (ie the Down Garment Commission), which was to be deducted from the said total amount due of $2,510,002.02.

(h)     The “Net Balance due from George [ie Mr Chen]” was $1,510,002.02.

At the bottom of the statement, Mr Chen signed below the words “Confirm balance due to Gloss Mind Group”.

(11)     Attached to the 2011 Statements of Account were 4 Statements of Account (marked thereon as Schedules 1-4), the letter signed by Mr Chen dated 25 January 2006 evidencing the Personal Loan (marked thereon as Schedule 5) and a Credit Note issued by Gloss Mind Apparel to Mr Chen for the “Sales Commission for 2011 (for introducing new customers)” in the amount of $1,000,000.

(12)     On the above basis, Mr Cheung claims for $1,000,000 and Gloss Mind Apparel claims for $510,002.02 from Mr Chen.  Alternatively, Gloss Mind Apparel claims for the whole sum of $1,510,002.02 from D.

8.Mr Chen’s case is as follows:

(1)     In or about 2005, one of the companies in the Geroyle Group was granted a license from The Walt Disney Company (Asia Pacific) Limited for retailing, distributing, manufacturing some Disney properties in the Mainland.

(2)     In between 25 December 2006 and 28 February 2006, Mr Chen agreed to use Gloss Mind Apparel as a strategic supplier and distributor for Geroyle Group's Disney products in the Mainland.  In return, Gloss Mind Apparel agreed to grant Mr Chen an open credit line facility to cover all Disney's orders with extended repayment period, and Mr Cheung agreed to treat the Personal Loan as an advancement for deduction from further future business on behalf of Gloss Mind Apparel.

(3)     The Plaintiffs and Mr Chen made an oral agreement for cooperation between the parties (“the 2006 Cooperation Agreement”):

(a)     Gloss Mind Apparel should issue sales and purchase contracts in respect of products ordered from Mr Chen’s customers.

(b)     All sales and profits arisen from those sales and purchase contracts would enter into Gloss Mind Apparel’s account.

(c)     Gloss Mind Apparel should pay to Mr Chen an aggregate amount equal to 6% of the selling prices (with VAT) of the products sold.

(d)     The Corporate Loan should be deemed to be technical deposit fee for Geroyle.

(e)     The Corporate Loan/ technical deposit and the Personal Loan from Mr Cheung would be offset from the commission payable to Mr Chen.

(4)     In respect of the BLN MOU, in addition to the Corporate Loan, the Personal Loan would also be set off against the technical fees which Mr Chen was entitled to thereunder.  Further, the arrangement under the BLN MOU did not end in September 2006 as alleged by the Plaintiffs.  The BLN MOU specifically provided that it would be valid for a period of 2 years upon signing on 23 February 2006 unless it was early terminated by written notice.  No such notice has been served.

(5)     Mr Chen’s wife passed away in around July 2006.  Mr Chen totally withdrew himself from Geroyle and the business with Disney and entered into a long period of mourning.  There was no contact between Mr Chen and the Plaintiffs from July 2006 until 2010.

(6)     Mr Chen met Mr Cheung again at a tennis match in around May 2010.  Mr Chen informed Mr Cheung that he had set up a new company, ie Grow International, with a new partner Ms Chang You Wen.  Grow International served the then existing customers of Geroyle.  Mr Cheung showed great interest to start a new working relationship, and requested Mr Cheung to set up a Gloss Mind/ Grow International division in Gloss Mind Apparel’s factory in the Mainland under the same terms and conditions as Geroyle.  Mr Cheung further informed him that he then owned 100% of Gloss Mind by acquiring Giordano's shareholding, and that all the past dues from Mr Chen’s companies (but not Mr Chen’s personally) to the Plaintiffs have been written off as bad debt during the transaction.  The parties them agreed to cooperate again (“the 2010 Cooperation Agreement”).

(7)     The 2010 Cooperation Agreement was agreed orally between Mr Cheung for Gloss Mind Apparel and Mr Chen for Grow International.  It essentially followed the same terms and conditions as the 2006 Cooperation Agreement:

(a)     Gloss Mind Apparel should issue sales and purchase contracts in respect of products ordered from Grow International's customers.

(b)     All sales and profits would be entered into Gloss Mind Apparel’s account.

(c)     Gloss Mind Apparel should pay to Grow International an aggregate amount equal to 6% of the selling prices (with VAT) of the products sold.

(d)     Grow International would send Ms Stella Yuen, Grow International's merchandising manager to set up a new division in Gloss Mind Apparel's Shenzhen factory for following up the designing, sampling, merchandising and sourcing for Gloss Mind/ Grow International Division.  Ms Stella Yuen would head this division from May 2010 onwards.

(e)     A fixed amount of $20,000 per month plus travelling expenses incurred by Ms Stella Yuen and Mr Chen would be paid to Grow International by Gloss Mind Apparel even if no sale was realized.

(8)     Between May 2010 to December 2011, the Gloss Mind/ Grow International Division has received orders from 4 customers, namely, Advancetex International Trading (H.K.) Limited (“Jeanwest”), Mark Fair Whale (Shanghai) Commercial Co. Limited (“MakeHuaFei”), HIT Trading Limited (“HTP”) and Ruitong Guoji Maoyi.  (The orders received from Ruitong Guoji Maoyi were certain tee shirts and not the Down Garment Orders mentioned above.)  Grow International was entitled to receive commission for all these orders under the 2010 Cooperation Agreement.

(9)     The total amount of commission payable to Grow International is $3,119,623.93.

(10)     In respect of the Down Garment Orders, Mr Chen and Gloss Mind Apparel made another agreement in March 2011 (“the March 2011 Agreement”).  It was agreed that the difference between the buying price from Gloss Mind Apparel and the selling price from a factory called XinXin[2] or other suppliers for down garment would be shared equally between Gloss Mind Apparel and Grow International and be invoiced by Grow International to Gloss Mind Apparel.

(11)     As a condition, Gloss Mind Apparel would disclose to Grow International fully and frankly XinXin and other suppliers’ selling price in order for Grow International to calculate the relevant amount, failing which Grow International would calculate its commission receivable based on 6% of the buying price from the customers.  Gloss Mind Apparel failed to do so by December 2011 when the relationship between the parties broke down.

(12)     It was also agreed under the March 2011 Agreement that for the other orders realized by Gloss Mind/ Grow International Division, the aggregate amount equal to 6% of the selling price (with VAT) would be invoiced by Grow International to Gloss Mind Apparel.

(13)     The March 2011 Agreement amounted to a conditional modification of the 2010 Cooperation Agreement.  However, since the said condition of full and frank disclosure was never met, Grow International calculated its commission under the Down Garment Orders based on 6% of the selling price (with VAT).

(14)     In respect of the Termination Letter and the 2011 Statement of Accounts, before the Termination Letter was signed by Mr Chen, he and Mr Cheung reached an oral agreement.  This was Mr Chen’s version of the settlement agreement.  The terms as orally agreed were as follows:

(a)     Grow International would give up claims for commission arising from the orders from customers of the Gloss Mind/ Grow International Division in future and further up until 1 January 2012.

(b)     Gloss Mind Apparel would disclose the past sales contracts with Beijing Li Ning to Geroyle to enable Geroyle to calculate the outstanding commission and claim entitlement from Gloss Mind Apparel.

(c)     Gloss Mind Apparel would disclose XinXin and other suppliers' selling contracts for the Gloss Mind/ Grow International Division to enable Grow International to calculate its commission entitlement.

(d)       The Plaintiffs agreed not to continue to demand or commence proceedings against Mr Chen or Mr Chen’s companies as to the net balance due as shown in the 2011 Statement of Accounts.  This amount would be set off by the outstanding commission owing for Geroyle and Grow International.

(e)     The condition “Please settle if you are available to pay” was to be included in the Termination Letter to reflect the above terms.

(f)     Geroyle and Grow International had the right to claim from Gloss Mind Apparel for the outstanding commission, which would be payable to Mr Chen.

(g)     The 2010 Cooperation Agreement would be terminated upon execution of the Termination Letter.

(15)     The Plaintiffs’ claim for the net balance as shown in the 2011 Statement of Accounts, ie $1,510,002.02 has been set off and extinguished by the outstanding commission in the total amount of HK$3,119,623.93.

C.      DISCUSSION AND FINDING

C1.    Finding and General Observation

9.It is obvious from the above that the crux of the dispute rests on what was agreed between Mr Cheung and Mr Chen on 9 December 2011 – whether the Plaintiffs’ version of the settlement agreement reached on that day, or Mr Chen’s version of the settlement agreement entered on the same occasion, should be preferred.

10.Having heard the witnesses and read the documents produced, in my judgment, for the reasons detailed below, the Plaintiffs’ version of the settlement agreement is preferred.

11.In short, the Plaintiffs’ version of the settlement agreement is supported by the Termination Letter and the 2011 Statement of Accounts, both of which were contemporaneous and were signed by Mr Chen confirming and accepting their contents. 

12.In contrast, Mr Chen’s version of the settlement agreement was not supported by any document, contemporaneous or otherwise[3]. In fact, as can be seen from the above, each and every agreement that Mr Chen alleges throughout the dealings with the Plaintiffs was oral and not supported by written records.  Furthermore, Mr Chen’s evidence, and indeed the whole of his case, was fraught with contradictions and inconsistencies.

13.I shall explain my finding by dealing with the following topics: (1) credibility of witnesses, (2) the Termination Letter and the 2011 Statement of Accounts, (3) the Personal Loan and the Corporate Loan, (4) the BLN MOU, (5) the Outstanding Invoices, (6) the Consultancy Agreement (in the Plaintiffs’ case) vis-à-vis the 2006 Cooperation Agreement, the 2010 Cooperation Agreement and the March 2011 Agreement (in Mr Chen’s case), and (7) the settlement agreement.

C2.    Credibility of witnesses

14.There were three witnesses giving evidence for the Plaintiffs, namely Mr Cheung, Mr Ngan Leung Lok, also known as Roy Ngan (Financial Controller of Gloss Mind Apparel) and Mr Chen Lin (Senior Production Manager of SZ Gloss Mind Apparel at the material time).  Three witnesses gave evidence for Mr Chen: Mr Chen himself, Ms Yuen Si Chu, also known as Stella Yuen (Production Manager of Geroyle and Merchandising Manager of Grow International) and Ms Chang Yiu Wen (the co-founder and co-owner of Grow International, and wife of Mr Chen).

15.I find Mr Chen’s evidence incredible.

16.Firstly, his answers given during cross-examination, even in response to straightforward questions, were convoluted and illogical.  His explanations were long and beside the point.  Much of what he said to the Court were either inconsistent with the documentary evidence, his own evidence or evidence of other witnesses whom he called, or inexplicable or simply could not be understood.  Notably:

(1)     When Mr Chen was asked why he signed on the Termination Letter and the 2011 Statement of Accounts, he answered that as Mr Cheung told him Mr Cheung needed the documents for accounting purposes to make good the record, he wanted to help his friend, that as Mr Cheung said it was urgent, he would sign anything given by Mr Cheung, and that if he could help Mr Cheung why not.  This series of explanation makes no sense.  Firstly, Mr Chen was an educated men and well versed in English[4], he would not have signed a document which was not true or inaccurate and was against his interest.  Secondly, the Termination Letter and the 2011 Statement of Accounts were clear in their contents.  Thirdly, there was no evidence suggesting Mr Chen and Mr Cheung were in such a good relationship, to the extent that Mr Chen would be willing to sign a document which was against his interest.  Fourthly, there was no evidence to explain why or in what way the two documents were necessary “for the accounting purposes to make good the record” of Mr Cheung or Gloss Mind Apparel and any other company of Gloss Mind Group.  Fifthly, there has been no suggestion of non est factum from Mr Chen in respect of his signing of these two documents.

(2)     Mr Chen also told the Court that the sentence “please settle if you are available to pay” in the Termination Letter (as recited in paragraph 7(9) above) meant that the Plaintiffs would calculate the commission payable to his side and pay him later.  His counsel submitted this reflected the outstanding amount payable to Mr Chen would still need to be calculated and the amount of $1,000,000 was put in there only as a provisional figure.  I do not find it likely at all that this represented Mr Chen’s understanding when he read the Termination Letter and signed on it.  Firstly, it is plain that literally the sentence did not and could not bear such meaning as alleged.  Secondly, looking at the sentence in context, the whole paragraph reads, “After offset the commission payable to you [ie Mr Chen], the balance due from you [ie Mr Chen] is HK$1,510,002.02. Please settle if you are available to pay.”  Nowhere in this paragraph, and indeed the whole Termination Letter, mentions that Mr Cheung and/or Gloss Mind Apparel would calculate the commission payable to Mr Chen and pay him later.  And nowhere in the letter mentioned that any figure set out there was only a provisional figure.  To the contrary, this paragraph states that the sum owed by Mr Chen was $1,510,002.02, and asks Mr Chen to pay when he was available. There was no reason for Mr Chen to countersign the letter without any qualification or reservation unless he agreed that he was indeed owing $1,510,002.02.

(3)     He further explained to the Court that he never foresaw the Plaintiffs would use the documents to sue him.  This was not a believable explanation for him to sign on those documents.  Firstly, there was no evidence that Mr Cheung or Gloss Mind Apparel had promised Mr Chen that they would not sue Mr Chen relying on the Termination Letter and the 2011 Statement of Accounts.  This appeared to be only Mr Chen’s subjective wish.  Secondly, such a subjective wish of Mr Chen could not be a good reason justifying a reasonable man to sign on those documents, especially the contents of which amount to admission of liability. Thirdly, if that was really what Mr Chen wanted, he should have spelt this out in the letter, or written something there to reserve his rights or express his intention.  Instead, he countersigned the documents point-blank without explanation, reservation or qualification.  Fourthly, as mentioned above, there was no evidence to explain that Mr Chen’s relationship with Mr Cheung was so good to the extent that Mr Chen did have such blind faith toward Mr Cheung and his company. 

(4)     The 2011 Statement of Accounts was attached with various statements of accounts concerning the Outstanding Invoices.  During cross-examination, he asserted that he only signed on the 2011 Statement of Accounts without ever seeing the attachments.  However, thereafter he said, probably in passing, that statements of account were always sent to him (ie“啲Statement 成日 send 俾我”).  This inconsistent evidence also demonstrates that he had knowledge of those statements which set out the amounts due from him and his companies.

(5)     Mr Chen also mentioned that the discussion with Mr Cheung on 9 December 2011 was simple, that Mr Cheung told him that Mr Cheung required the documents for accounting purposes.  When the plaintiffs’ counsel asked whether there were many matters discussed before he signed the documents, Mr Chen answered no. However, as pleaded by him and mentioned in his witness statement, and as summarized in paragraph 8(14) above, even according to his own pleaded case, many details of the settlement agreement were discussed and agreed.

(6)     When Mr Chen was asked during cross-examination in respect of the Plaintiffs’ plea that he told Mr Cheung that he and his companies were experiencing cash flow problems in or about October 2005, Mr Chen denied there were any such problems.  The plaintiffs’ counsel then drew Mr Chen’s reference to his plea in further and better particulars that he had in fact admitted this plea.  Mr Chen nonetheless insisted that he did not have such cash flow problems back in 2005, and explained how his companies required more funds to expand their business, which was not quite relevant to the question.  This also bore a bad reflection of his demeanour.

(7)     As summarized in paragraph 8(2) above, Mr Chen pleaded that Gloss Mind Apparel agreed to grant Mr Chen an open credit line facility to cover all Disney's orders with extended repayment period.  During cross-examination, Mr Chen said there was no time limit to this arrangement.  This Court then asked him whether there was no upper limit (in terms of credit amount), and whether he could choose to pay for the goods at any time (in terms of time limit for repayment).  Mr Chen answered yes.  This answer is incredulous.  Such alleged “open credit line facility” is against common sense as well as commercial sense, and there is no evidence to explain why Mr Cheung and his company (Gloss Mind Apparel) would be willing to provide such open ended (in terms of risk exposure) credit facility to Mr Chen.  In my view, the explanation is inherently improbable.

(8)     When referring to the Corporate Loan of $500,000, notwithstanding it was a piece of agreed facts (see paragraph 6(3) above), and notwithstanding that the loan was acknowledged in a letter signed by himself on behalf of Geroyle dated 25 January 2006, Mr Chen told the Court twice that actually it was originally intended to be a deposit for passing the business of Beijing Li Ning to Mr Cheung and before signing of the BLN MOU.  Nowhere in the evidence produced before the Court support this saying.

(9)     It can be seen from paragraph 8(9) above that Mr Chen’s counterclaim was based on the 2010 Cooperation Agreement.  As mentioned in paragraph 8(7)(c) above, his case according to the Re-Amended Counterclaim is that Gloss Mind Apparel should pay to Grow International an aggregate amount equal to 6% of the selling prices (with VAT) of the products sold.  However, in his original Counterclaim dated 9 October 2015 and Amended Counterclaim dated 20 January 2016 respectively, he pleaded that the commission was set at 3% of the sales amount instead, and that it was always his understanding that Grow International was entitled to be paid 3% commission based on the gross sale figure of business generated by the new division of Wiseform Apparel Company Limited.  (There is no dispute that he signed the statement of truth in the original Counterclaim and the Amended Counterclaim.) During the cross-examination, he was therefore asked to explain why the percentage was then changed to 6%.  He answered that he made a mistake, and did not give any reasonable explanation why the mistake was made.  It should be borne in mind that in Mr Chen’s allegation, the 2010 Cooperation Agreement was made orally and there was no written record produced to the Court showing any trace of its existence.  Mr Chen signed two statements of truth confirming 3% and he then signed a third statement of truth claiming that the percentage should be increased two-fold from 3% to 6%.  This is glaring, because this means his alleged entitlement was increased two-fold.  Absent any proper reason I find this “mistake” threw a very serious doubt on both the credibility of Mr Chen’s evidence and the question of whether the 2010 Cooperation Agreement had ever come to exist.

(10)     The internal inconsistency of Mr Chan’s case did not stop between different versions of the pleadings.  In Mr Chen’s witness statement, he mentioned another version of the formula which was not pleaded.  It was stated there that the oral agreement was to “pay to Grow [ie Grow International] in an aggregate amount equal to six (6%) of the selling prices (with VAT) of the product sold or 50% of the Gross Profit, whichever is higher”.  As the plaintiff’s counsel submitted, the “50% of the Gross Profit” alternative formula was not pleaded.  The pleaded version of the 2010 Cooperation Agreement only mentioned a straightforward 6% on the sales price (including VAT).  In examination in chief, Mr Chen explained that the agreement was always 6%, that it was because of the special trading method for the Down Garment Orders, the 50/50 method (ie the “50% of the Gross Profit” alternative formula) was adopted, and that since he did not have the documents to check the Down Garment Orders, they reverted back to 6%. Regrettably, this was not what his witness statement said.  According to his witness statement, the 50/50 method had already been agreed as part of the original oral 2010 Cooperation Agreement, and it was not first raised or adopted at the time of the Down Garment Orders.  Nonetheless, Mr Chen’s evidence changed again during cross-examination, Mr Chen said 50/50 would apply to “outsourced orders” (“外發單”) and 6% would apply to orders produced by Gloss Mind Apparel’s own factory.  He even went further saying that he used 6% and 50/50 interchangeably in a very loose sense.  He then admitted that he was confused.

17.The Plaintiffs’ witnesses, Mr Cheung, Mr Ngan Leung Lok and Mr Chen Lin, gave straightforward answers during cross-examination.  Their answers were consistent with their witness statements and documentary evidence.  I prefer their evidence to Mr Chen’s evidence.

C3.    The Termination Letter and the 2011 Statement of Accounts

18.The meaning of the Termination Letter (recited in paragraph 7(9) above) is plain and clear:

(1)     It was addressed to Mr Chen personally, not Grow International or his other companies.

(2)     Gloss Mind Apparel informed Mr Chen that they had decided to terminate “your [ie Mr Chen’s] consultancy service”.  The consultancy service which was referred to in this letter and terminated by this letter was the service provided by Mr Chen.

(3)     In addition to the consultancy fees already paid, Gloss Mind Apparel would pay Mr Chen a lump sum of $1,000,000 for the sales amount over $30 million to a new customer which was introduced by him.  (There was no dispute that this amount of $1,000,000 referred to the Down Garment Commission.  See the 2001 Statement of Accounts.)

(4)     Mr Chen was owing to Gloss Mind Group’s companies and Mr Cheung $2,510,002.02.

(5)     The Down Garment Commission of $1,000,000 payable to Mr Chen would be set off against the said amount of $2,510,002.02 owed by Mr Chen.

(6)     After the set-off, the balance due from Mr Chen was $1,510,002.02.

(7)     Mr Chen was asked to settle the outstanding amount when he was available.  I find this to be the meaning of “Please settle if you are available to pay.”.  For the reasons given in paragraph 16(2) above, I do not accept the interpretation proffered by Mr Chen and his counsel.

(8)     Mr Chen was asked to sign on the duplicate copy of the letter not only acknowledging receipt of the letter but “as a token of acceptance of the same”.

(9)     Mr Chen appended his signature below “Accepted by”.

19.By reason of the above analysis, in my judgment, by signing on the Termination Letter, Mr Chen had accepted that he was owing to Gloss Mind Group’s companies and Mr Cheung the sum of $1,510,002.02.

20.The 2011 Statement of Accounts is equally plain and clear.  As described in paragraphs 7(10) & (11) above, it set out the total amount of $2,510,002.02, what it comprised and how each amount owed by Geroyle and SZ Geroyle was derived.  It stipulated that the sum of $1,000,000 (ie the Down Garment Commission) was the commission payable to “George”, ie Mr Chen, being “Sales Commission for 2011”.  It showed the “Net balance due from George” of $1,510,002.02[5] after $1,000,000 was deducted from $2,510,002.02.  I cannot see how Mr Chen, as an experienced businessman understanding English, could put his signature on the document if he did not understand what “Confirm balance due to Gloss Mind Group” means.  Mr Chen’s saying, that he signed to help Mr Cheung and the document in fact meant the final sum was yet to be calculated, was, in my view, inherently not credible and cannot be accepted.

C4.    The Personal Loan and the Corporate Loan

21.The two loans form part of the agreed facts.  Mr Chen admitted during cross-examination that he did not repay the loans in cash.

22.The Personal Loan of $1,000,000 was included in the 2011 Statement of Accounts.

23.As mentioned in paragraph 6(6) above, as an agreed fact, the Corporate Loan of $500,000 as was deemed to be the Technical Fee Deposit under the BLN MOU.  As mentioned in paragraph 7(2) above, the Technical Fee Deposit Refund which the Plaintiffs claimed to be payable by Geroyle to Gloss Mind Apparel was $217,459.11.  It was also recorded in the 2011 Statement of Accounts (see paragraph 10(b) above) on which Mr Chen confirmed by appending his signature.

C5.    The BLN MOU

24.As mentioned in paragraph 7(2), the Plaintiffs claim that under the BLN MOU, Geroyle was entitled to HK$282,540.89 being the total technical fees, ie 6% of the selling price (with VAT) of the products sold to Beijing Li Ning from about July 2006 to September 2006.  Therefore, after deducting the Technical Fee Deposit of $500,000, the remaining balance, being the Technical Fee Deposit Refund, was $217,459.11.

25.Mr Chen said there were many additional orders so that more technical fees should be payable.  However, he did not produce any evidence.  The farthest he said was that Geroyle had delivered 5 design collections from 2007 to 2008 to Beijing Li Ning.  I agree with the plaintiffs’ counsel’s submission that this saying had no significance.  Firstly, as Mr Cheung said in his cross-examination, delivery of design collections to Beijing Li Ning did not mean that orders had been placed for those collections with Gloss Mind Apparel.  Secondly, there was no documentary evidence showing the delivery of those design collections, not to mention purchase orders.  Thirdly, as detailed in paragraphs 15-17 above, the credibility of Mr Chen’s evidence was in serious doubt and Mr Cheung’s evidence was preferred.

C6.    The Outstanding Invoices

26.Mr Chen admitted during cross-examination that he did not settle the Outstanding Invoices in cash.

27.Therefore, the outstanding amount of $1,510,002.02 shown in the 2011 Statement of Accounts was not disputable.

C7.    The Consultancy Agreement (in the Plaintiffs’ case) vis-à-vis the 2006 Cooperation Agreement, the 2010 Cooperation Agreement and the March 2011 Agreement (in Mr Chen’s case)

28.I find that the Consultancy Agreement was in place, that except the BLN MOU, there was no 2006 Cooperation Agreement, that the Consultancy Agreement was terminated by the Termination Letter, and that there was no 2010 Cooperation Agreement and the March 2011 Agreement, for the reasons below.

29.Firstly, the BLN MOU made in 2006 (see paragraph 6(4) above) was limited to purchase orders from Beijing Li Ning.  There was no other agreement ever signed.  If the agreement in respect of Beijing Li Ning had been reduced in writing, and if Mr Chen contemplated that he would introduce other customers to place orders with Mr Cheung or Gloss Mind Group, it was likely that those agreements would also be reduced or recorded in writing.

30.Secondly, as mentioned in paragraph 6(8) above, Grow International issued the Debit Notes for Consultancy Fees of $20,000 per month plus disbursement to Gloss Mind Apparel.  There was no reason why Mr Chen or his companies would choose not to keep any record of an agreement potentially involving a larger sum.

31.Thirdly, Mr Chen pleaded that the 2006 Cooperation Agreement was “still effective” as at the date of the re-amendment to his pleadings (ie 12 April 2018).  This was bizarre as according to Mr Chen’s own case, oral agreements of similar nature such as the 2010 Cooperation Agreement and the March 2011 Agreement had been reached subsequently with the Plaintiffs.

32.Fourthly, for the reasons explained in paragraphs 15-17 above, Mr Chen’s evidence was seriously doubtful.

33.Fifthly, as mentioned in paragraph 18(2) above, the Termination Letter was addressed to Mr Chen personally.  It stated that Gloss Mind Apparel decided to “terminate your [Mr Chen’s] consultancy service”.  Mr Chen countersigned it in his personal name without any amendment or qualification.  This amounts to an acknowledgement of the termination of the Consultancy Agreement.  By implication, Mr Chen has also acknowledged the existence of the Consultancy Agreement.

34.Sixthly, Mr Chen gave evidence that the consultancy fee of $20,000 per month was paid to Grow International and then passed onto Ms Stella Yuen.  His evidence was inconsistent with the evidence of Ms Stella Yuen.  Ms Yuen told the Court during cross-examination that the sums were paid to Grow International and not to herself.

35.Seventhly, if indeed there was a commission or profit sharing arrangement on top of the consultancy fee arrangement in place, in issuing the Debit Notes for Consultancy Fees, Grow International would be expected to record it either in those debit notes or elsewhere that there would be commission payable by Gloss Mind Group in addition to the consultancy fees.  Instead of issuing any reminder to Gloss Mind Apparel or Mr Cheung putting on record that there was further commission payable, Mr Cheung or his companies chose to do nothing. This was incredible and not likely to be what actually happened.

36.Eighthly, Mr Chen emphasized rhetorically that how could he only charged $20,000 per month for the customers he introduced to the Plaintiffs, which orders involved tens of millions of dollars.  It appears that he was suggesting that $20,000 was a small amount.  In my view, this is not likely to be the case.  As mentioned in paragraph 8(8) above, according to Mr Chen’s case, from May 2010 to December 2011, the Gloss Mind/ Grow International Division received orders from 4 customers (Jeanwest, MakeHuaFei, HTP and Ruitong Guoji Maoyi[6]). Whilst Mr Chen said the sales amounts in these orders involving tens of millions of dollars (totalling $16,746,879.38), actually the total gross profit generated from these orders was only $810,506.30.  Comparing with the total consultancy fees of $380,000 (at $20,000 per month for 19 months from May 2010 to November 2011) received by Mr Chen, Mr Chen’s share, ie $380,000/$810,506.30 = 46.88% - almost half of the profit, was considerable. Again, if Mr Chen did agree with Mr Cheung that he was entitled to more, it was likely that he would have recorded the agreement in writing.  In my view, the consultancy fee arrangement under the Consultancy Agreement was more likely to be what actually happened.

37.Ninthly, I have explained in paragraphs 16(9) and (10) above that Mr Chen’s evidence in relation to the 2010 Cooperation Agreement was not believable.  The evidence of Ms Stella Yuen did not help Mr Chen’s case either.  In Ms Yuen’s supplemental witness statement, she said that she requested for documents in respect of orders from the 4 customers mentioned in the preceding paragraph for calculating commission at 50% of the net profit.  Ms Chen did not make any mention of a calculation basing on 6% of the sales price.  It was only in cross-examination that Ms Yuen first raised the said calculation of 6%, of the sales price.  And she said this was informed to her by Mr Chen much later, when Mr Chen was unable to get the documents about the net profits.  Her evidence was inconsistent with Mr Chen’s allegation that there was an agreement for him to receive 6% of sales price (including VAT) as commission.  As a matter of fact, when she e-mailed Mr Roy Ngan of Gloss Mind Apparel asking for the sales record in 2015, she did not make a mention about payment of commission (in addition to the consultancy fees). 

38.Tenthly, I accept Mr Cheung’s explanation that as it was anticipated that the Down Garment Orders would generate significant profit, a special arrangement was agreed with Mr Chen that a commission of 50% of the net profits (the Down Garment Commission) should be payable to Mr Chen.  His explanation was supported by figure.  The gross profit earned from the Down Garment Orders amounted to $1,934,831.05, which was more than double of the total of the other orders received under the Consultancy Agreement.

39.Eleventhly, the March 2011 Agreement was superfluous.  As mentioned in paragraph 8(10) above, according to Mr Chen’s own case, the March 2011 Agreement was a conditional modification of the 2010 Cooperation Agreement, and since then his calculation of the commission under the Down Garment Orders had been reverted to 6% of the selling price (with VAT).  In any event, since it has been my finding that there was no 2010 Cooperation Agreement in place, it follows that I do not accept that the March 2011 Agreement had ever existed.

C8.    The settlement agreement on 9 December 2011

40.For the reasons explained above, and in particular in light of the circumstances leading to the signing of the Termination Letter and the 2011 Statement of Accounts as I found in section C3 above, I find that the settlement agreement reached on 9 December 2011 was the version as claimed by the Plaintiffs and as summarized in paragraphs 7(7) – (11) above.

41.In light of the said factual finding, I find unnecessary to deal with various other side issues[7], which do not affect the finding.

D.      CONCLUSION

42.In conclusion, on the strength of the settlement agreement reached between the parties on 9 December 2011 as contended for by the Plaintiffs, the Plaintiffs’ claim against Mr Chen succeeds and the Defendants’ counterclaim fails. 

E.      DISPOSITION

43.I order that judgment be entered as follows:

(1)     The Defendant shall pay the sum of $1,000,000 to the 1st Plaintiff.

(2)     The Defendant shall pay the sum of $510,002.02 to the 2nd Plaintiff.

(3)     There be pre-judgment interest on the said sums from 9 December 2011 to the date of this judgment at the best lending rate of HSBC plus 1%.

(4)     The Defendant’s counterclaim be dismissed.

(5)     There be a cost order nisi that the Defendant shall pay the Plaintiffs’ costs of the action and the counterclaim, to be taxed if not agreed.

44.I thank the parties’ counsel for their helpful assistance.

Mr Justin Lam instructed by Robin Bridge & John Liu for the 1^st and 2^nd Plaintiff 

Mr Brian Lo instructed by John Ho & Tsui for the Defendant