Good Century Holdings Ltd v. Hang Mei Tat Ltd
Read the full judgment text of DCCJ 5379/2019 on BabelCite. This District Court judgment was delivered on 28 March 2024.
1. This trial concerns the proper interpretation and performance of a Chinese agreement titled “化妝品行銷佣金協議書” (“the Commission Agreement ”) entered into between the Plaintiff, Good Century Holdings Limited and the Defendant, Hang Mei Tat Limited.
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DCCJ 5379/2019 [2024] HKDC 501 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 5379 OF 2019 ————————
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———————— JUDGMENT ———————— I. Introduction 1.This trial concerns the proper interpretation and performance of a Chinese agreement titled “化妝品行銷佣金協議書” (“the Commission Agreement”) entered into between the Plaintiff, Good Century Holdings Limited and the Defendant, Hang Mei Tat Limited. 2.As the parties agreed in their written closing submissions, the following is the revised list of issues which this Court is asked to determine in the trial:
3.I will set out the undisputed facts and the parties’ respective cases before discussing the issues. II. The undisputed facts 4.In around September or October 2017, Mr Kong Hok Ming (Morris) (鄺鶴明) (“Mr Kong”) of the Plaintiff and Mr Lee Wai Tat (Andy) (李煒達) (“Mr Lee”) of the Defendant entered into the Commission Agreement for a term from 1 October 2017 to 30 September 2018. The Commission Agreement contained the following express terms:
5.By a written confirmation dated 20 September 2018, the parties terminated the Commission Agreement with effect from 30 September 2018. III. The parties’ case 6.The parties’ respective cases are pleaded in the Plaintiff’s Statement of Claim dated 3 October 2019 (“SoC”), Amended Defence dated 3 June 2021 (“Amended Defence”) and Reply dated 13 December 2019 (“Reply”). The Plaintiff’s case 7.It is the Plaintiff’s case that under the Commission Agreement, it was agreed between the Plaintiff and the Defendant that for any product provided by the Plaintiff to the Defendant for sale, the commission payable to the Plaintiff shall be calculated as follows:
8.According to the Plaintiff, under the Commission Agreement, the parties agreed to share any net profit and net loss equally (as opposed to only net profit) equally. The Plaintiff said that the Defendant had shared the net loss with the Plaintiff in the past. 9.Pursuant to the terms of the Commission Agreement, a running account was kept between the parties. The Plaintiff would issue a monthly statement to the Defendant demanding the payment of the net proceeds that the Plaintiff was entitled to. 10.On 22 November 2018, after the termination of the Commission Agreement, the Plaintiff sent the final statement to the Defendant, demanding the outstanding sum of HK$498,358.89 (“the Sum”) as the outstanding commission the Defendant was liable to pay the Plaintiff pursuant to the Commission Agreement. Particulars of the Sum are as follows (“the Particulars”):
11.As could be seen from the Particulars, the Sum comprises:
12.For the “May Chu Monthly Package” (C/N 180901; C/N 181001), the Plaintiff says that Ms Chi Yin May (May Chu) (“Ms Chu”) was an agent of the Defendant. It was orally agreed between the Plaintiff, the Defendant and Ms Chu that the monthly commission/profit to be paid to the Defendant under the Commission Agreement should be split into half, one part to be paid to the Defendant and the other part to be paid to Ms Chu. When Ms Chu joined the sales operation, she expressed to the Plaintiff that she would like to have a proof of monthly salary from the Plaintiff to enable her to obtain a mortgage. Therefore, the Plaintiff paid Ms Chu a salary and provided proof of salary to her on a monthly basis. The above salary paid to Ms Chu was debited to the Defendant as part of the expenses and the Defendant never objected to the arrangement. 13.As for the “美翔乳酸菌膠原蛋白口服液” (GDN 182118861), it was purchased by the Defendant in its personal capacity and purchased at an import price. Hence, it was not considered as a sale of the Plaintiff’s Product. 14.Notwithstanding the Plaintiff’s repeated demands, the Defendant fails to pay the Sum to the Plaintiff. The Plaintiff therefore claims against the Defendant for the Sum with interest. 15.In the Plaintiff’s written closing submissions, §§3-5, the Plaintiff withdraws its claim for “美翔乳酸菌膠原蛋白口服液” (GDN 182118861) and the Sum claimed by the Plaintiff against the Defendant is reduced to HK$497,756.79 (HK$498,359.79 - HK$603). 16.As for the Previous Profit Share under the Previous Agreement (see §26 below), it represented 14% of the net profit which belonged to Mr Ng King Chong (“Mr Ng”), another agent of the Defendant. As Mr Ng was detained in the Mainland, it was orally agreed between the Plaintiff, the Defendant and Ms Chu that Mr Ng’s share of the commission/profit would be kept by the Plaintiff and paid to Mr Ng directly. For this reason, the Defendant denies that it is indebted to the Defendant for the Previous Profit Share. 17.At the trial, Mr Yu Leung Sum (Sam) (“Mr Yu”), the Human Resource and Administration Manager of the Plaintiff gave evidence on behalf of the Plaintiff. The Defendant’s case 18.According to the Defendant, at all material times, the Defendant was the buyer, distributor and/or sale agent of the Plaintiff’s Products. 19.Under the Commission Agreement, the parties agreed that the Plaintiff shall pay commission to the Defendant, being 50% of the monthly sales of the Plaintiff’s products after deducting the specified costs and expenses. 20.All moneys received from the sales of the Plaintiff’s Products by the Defendant would be received by the Plaintiff first. The Defendant only received the commission from the Plaintiff after the Plaintiff deducted the alleged costs and expenses from the sales amount and multiplied the net sum by 50%. 21.The Defendant denies that there had been any arrangement that the Defendant would pay monthly commission to the Plaintiff under a running account with the additional items payable by the Defendant to the Plaintiff as alleged by the Plaintiff or at all. 22.The Defendant contends that the Commission Agreement contained the following implied terms (“the Implied Terms”). This was accepted by the Plaintiff in its Reply, §5:
23.The Defendant contends that the Plaintiff would unilaterally prepare monthly accounts setting out the alleged amount of commission payable to the Defendant (“the Monthly Statements”). 24.The Plaintiff had not provided the Monthly Statements for August 2018 and September 2018 to the Defendant before the commencement of these proceedings. The Plaintiff had not provided to the Defendant any supporting documents for any of the Monthly Statements. 25.The Defendant makes no admission to the accuracy of the alleged profit, expense, costs, commission entitlement and/or net profit/loss alleged by the Plaintiff and puts the Plaintiff to strict proof thereof:
26.Even if the Defendant were held to be liable to pay the Sum to the Plaintiff, the Defendant should be allowed to set-off the sums of HK$32,685.66 and HK$328,485.84 against the Sum:
27.It should be noted that the Defendant is not claiming the above sums against the Plaintiff by way of a standalone counter-claim. The Defendant only seeks to set-off the sums against the Plaintiff’s claim in the event that it is held liable to pay the Sum or any part thereof to the Plaintiff[2]. 28.At the trial, Mr Lee, the sole shareholder and director of the Plaintiff and Ms Chu gave evidence on behalf of the Defendant. IV. Issue 1: Whether the Implied Terms form part of the Commission Agreement 29.As could be seen from §5 of the Amended Defence and §5 of the Reply, it is common ground between the parties that the Implied Terms form part of the Commission Agreement, and I so find. V. Issue 2: Whether the Defendant was liable to pay the Plaintiff 50% of the net loss suffered by the Plaintiff pursuant to the Commission Agreement 30.I agree with the Defendant that on a proper interpretation of the Commission Agreement, the Defendant was not required to share any net loss which the Plaintiff may suffer in the sale of the Plaintiff’s Products under the agreement. 31.Interpretation of contractual provisions involves identifying what the parties mean and intend through the eyes of a reasonable person having all the knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. A contract ought to receive that construction which its language will admit, and which will best effectuate the intention of the parties, to be collected from the whole of the agreement. 32.The express terms of the Commission Agreement made it quite clear that the Defendant were to receive commission (佣金) for the Plaintiff’s Products which were sold through the Defendant. As pointed out by the Defendant, which I agree, the ordinary meaning of “commission” denotes a form of remuneration for, inter alia, services rendered and/or work carried out. In the present context, the service/work of selling and marketing (行銷) the Plaintiff’s Products. 33.In the Commission Agreement, the parties further agreed that the commission shall be calculated by (a) first netting off from the monthly revenue earned from the sales of the Plaintiff’s Products the expenses listed in items (1) to (6) of the Commission Agreement; (b) and then giving 50% of the net amount to the Defendant as the commission (“由2017年10月1日開始至2018年9月30日止，所有“冠恒”代理的化妝品產品如經由“恒美”銷售之佣金，計算如下… 1) 當月營業額扣除貨物到倉價。2) … 3) … 得出之金額，雙方各 50 巴仙平均分配，而“恒美”一切之支出均為“恒美”自己負責。” (Emphasis added)). 34.Reading in the context of the Commission Agreement, the phrase “雙方各 50 巴仙平均分配” was referring to how the commission for the Defendant was to be calculated. It does not mean that if the Plaintiff suffers a loss for a particular month, the Defendant would have to share 50% of the loss. My interpretation is reinforced by the following in the Commission Agreement:
35.The Plaintiff said that the Defendant had shared the loss with the Plaintiff in the past. However, whether that was the case will not impact upon my interpretation of the clear provisions in the Commission Agreement as explained above. In any event, for the months in which the Plaintiff suffered a loss (ie October 2016, December 2017, July 2018, August 2018 and September 2018), there is no evidence showing that the Defendant had shared such loss with the Plaintiff by making payment to the Plaintiff or allowing its share of the loss to be deducted from the sales revenue in subsequent months. As Mr Lee of the Defendant confirmed, for these months, the Defendant would not receive any commission, but it did not share any of the loss. 36.As to the Credit Note for December 2017, Mr Lee explained that it was prepared by the Plaintiff and the Defendant stamped on the Credit Note merely to acknowledge that there was a loss in the month. I accept Mr Lee’s explanation that stamping on the Credit Note, without more, does not show that the Defendant acknowledged any liability to share the loss with the Plaintiff. In any event, the above stamping of the Credit Note took place after the Commission Agreement was entered into. It is trite that post-contractual conduct generally has no relevance to the proper interpretation of the contract. 37.In the circumstances, the Plaintiff is not entitled to claim for any loss for the months July 2018 to September 2018 (CN-180902; CN-181002; CN-181102). VI. Issues 3 and 4: Whether the Plaintiff suffered losses in the months July 2018 to September 2018 and the amount that the Defendant is liable to pay (if any) 38.As I have found in Issue 2 that the Plaintiff is not entitled to claim against the Defendant for any losses which it had suffered as a result of selling the Plaintiff’s Products under the Commission Agreement, I do not need to make any finding on Issues 3 and 4. VII. Whether the Plaintiff is entitled to claim the “May Chu Monthly Package” under the Commission Agreement 39.The remaining 2 items in the Plaintiff’s claim are the “May Chu Monthly Package” for July 2018 and August 2018. 40.According to the Plaintiff’s SoC, the basis of its claim was the Commission Agreement: see SoC §6; Answer to Requests for Further and Better Particulars of the Statement of Claim dated 21 July 2020, answer under §6; Answer to 2nd Requests for Further and Better Particulars of the Statement of Claim, answer under §3. According to the Plaintiff’s Reply §10, the May Chu Monthly Package would be paid by the Plaintiff to the Defendant and debited to the Defendant as part of the expenses. 41.In the Plaintiff’s written closing submissions §§33-34, the Plaintiff seeks to change the basis of its claim by saying that the claim arises from the Defendant’s stamping on the Credit Notes:
42.I am not prepared to consider the Plaintiff’s claim for the “May Chu Monthly Package” for July 2018 and August 2018 based on the Defendant’s stamping of the Credit Notes, as this was not the pleaded basis of the Plaintiff’s claim. 43.Focusing on the Plaintiff’s pleaded case, if one looks at the terms of the Commission Agreement, there was not mention of the “May Chu Monthly Package” or Ms Chu’s commission/remuneration as a separate item. There was no provision in the Commission Agreement that the Defendant had to pay the “May Chu Monthly Package” to the Plaintiff as an out-of-pocket item. 44.According to the Reply at §10, the “May Chu Monthly Package” were to be deducted as part of the expenses of the sales of the Plaintiff’s Products pursuant to the Commission Agreement. I agree with the Defendant that the expenses should fall under “4) 銷售及支援人員的薪金、佣金、強積金和保險費用” for the purposes of calculating the Defendant’s commission under the Commission Agreement (see also the entry “Team Payroll (MPF & Insurance) included” in the July 2018 and August 2018 Monthly Statements respectively). If the Plaintiff suffered a loss for a particular month after calculating the net profit according to the Commission Agreement (as it did in July 2018 and August 2018 according to the Monthly Statements), the Plaintiff would not have to pay commission to the Defendant. However, there was no further provision in the Commission Agreement which provided that the Defendant had to paid the “May Chu Monthly Package” to the Plaintiff. 45.Further, having heard the oral evidence of Mr Lee and Ms Chu, I accept their evidence that there was an understanding between Mr Kong on behalf of the Plaintiff and Ms Chu that on top of any commission which the Defendant may share with Ms Chu, Ms Chu would receive a monthly income from the Plaintiff (i.e. the May Chu Monthly Package) for her services provided to the Plaintiff. The Defendant was informed of the above after the discussion between Mr Kong of the Plaintiff and Ms Chu. Pursuant to the above understanding, the expenses arising from the May Chu Monthly Package should fall under under“4) 銷售及支援人員的薪金、佣金、強積金和保險費用” in the Commission Agreement. On the other hand, Mr Yu of the Plaintiff was not personally involved in the above discussion between Mr Kong and Ms Chu and he only relied on what Mr. Kong told him. However, Mr Kong did not give evidence in the trial to rebut Mr Lee and Ms Chu’s evidence. 46.For the above reasons, I am of the view that the Plaintiff’s claim for the “May Chu Monthly Package” for July 2018 and August 2018 fails. VIII. Issue 5: The Defendant’s set-off claim 47.The Defendant’s set-off claim will become relevant only if it were found to be liable for any part of the Plaintiff’s claim. 48.As I have found above that the Plaintiff’s claim fails, I do not need to make any finding on Issue 5. IX. Disposition and Costs 49.For the reasons stated above, I dismiss the Plaintiff’s claim. 50.I grant a costs order nisi that the Plaintiff shall pay the costs of any occasioned by the Action (including any costs reserved) to the Defendant, to be taxed if not agreed. The costs order nisi shall become absolute after 14 days from the date of this Judgment unless an application is taken out to vary the same. 51.Lastly, I thank Counsel for their assistance.
Ms Candy Tang, instructed by Lam Fung & Co, for the Plaintiff Ms Tina Mok, instructed by CFN Lawyers in association with Broad and Bright, for the Defendant | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||