Bdo International v. Po Sun Holding Groups Ltd
Read the full judgment text of DCCJ 16280/2000 on BabelCite. This District Court judgment.
1. The Plaintiff is an accounting firm in the Hong Kong Special Administrative Region (“Hong Kong”).
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DCCJ 16280/2000 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 16280 OF 2000 -------------------- BETWEEN
-------------------- Coram: Her Honour Judge C.B. Chan in Court Dates of Trial : 11th, 12th, 15th, 16th & 19th August 2005 Date of Handing down of Judgment : 23rd November 2005 _______________ JUDGMENT _______________ 1.The Plaintiff is an accounting firm in the Hong Kong Special Administrative Region (“Hong Kong”). 2.This is a claim by the Defendant against the Plaintiff for the sum of HK$189,828.00 being outstanding balance of the professional charges and disbursements due and owing by the Defendant to the Plaintiff in respect of a due diligence exercise provided by the Plaintiff to the Defendant in pursuance with the Engagement Letter from the Plaintiff to the Defendant dated 11 May 1999 which was confirmed, agreed and signed on behalf of the Defendant on 13 May 1999. The Plaintiff’s claim is based on the Plaintiff’s fee notes Nos. BA0667 and BA0804 delivered to the Defendant on or about 25 June 1999 and 27 October 1999 respectively. The purpose of compiling the said due diligence exercise was for an intended acquisition of shares and acquisition of indebtedness in one Great Haven Development Limited (hereinafter called “Great Haven”), a Hong Kong based company and its 52% owned subsidiary, one Beijing Sunrise Co. Limited （北京東黎廣場有限公司）(hereinafter called “Beijing Sunrise”) a Beijing based company (“Great Haven” and “Beijing Sunrise” together are hereinafter referred to as the “Vendors”). 3.In Defence, the Defendant states that the Plaintiff did not comply with the terms of the Engagement letter in that the Due Diligence Report submitted in draft form and the Final Report did not cover the period from 1 to 31 May 1999. By reason of the aforesaid, the Plaintiff had failed to provide a due diligence report which was as agreed under the letter dated 11 May 1999. On that basis, the Defendant denies the sum claimed. At the trial, the Defendant discontinued its Counterclaim. 4.The Plaintiff’s case in Reply is that for the Draft Due Diligence Report, the Plaintiff with the agreement of the Defendant adopted the cut off date of 30 April 1999 as the field trip to audit the reports of the two respective companies were conducted before 31 May 1999 when the accounts of the two vendors for the month of May were not yet available for audit as the month at the time of audit had not yet ended. 5.According to the Plaintiff’s evidence after submission of the Draft Due Diligence Report, in July 1999, the Plaintiff asked Mr. Barry Leung to arrange with the Vendors for a re-visit to Beijing so as to enable the Plaintiff to audit the month of May up to 31 May 1999 figures. Mr. Barry Leung of the Defendant refused the Plaintiff’s request and commented that this was unnecessary because there would not be much movements in the books between April 1999 and May 1999. Mr. Barry Leung never raised any objection as to the 30 April 1999 figures. The Issues
Credibility of Witness 6.Ms. Li adduced her witness statement into evidence as her evidence-in-chief and confirmed its contents to be true. 7.The Plaintiff only called one witness and that is Ms. Li Yin Fan, Fanny (“Ms. Li”) to give evidence. I find her a straightforward witness. I had the impression that she was telling the truth when she gave evidence. She was direct and replied to questions in a straightforward manner and she gave me the impression that she did not seek to hide anything. 8.The Defendant only called one witness to give evidence, Mr. John Long Rui Ming (“Mr. Long”). Mr. Long gave me the clear impression that he did not understand too much about the requirements of the audit to be done by the Plaintiff or about accounting procedures. He was relying entirely on the professionals about this. However when he gave evidence he gave the impression that he was guarded and he had taken his stance on this case and was giving evidence in order to support his position to oppose the claim. He was not entirely free and spontaneous in his evidence. I even formed the impression that he did not know fully or understand fully what took place. The 1st Issue 9.Ms. Li is a Certified Public Accountant and a partner of the abovenamed Plaintiff BDO International (“BDO”). She has practiced as a qualified accountant since 1986. She joined BDO International in 1998 and was admitted as a partner on 1 April 1999. She stated BDO is a world-wide network of independent accounting firms serving global and national businesses. It is the largest network outside the “Big 4”. BDO member firms practice in their own right and in their own name. 10.In around early March 1999 Ms. Li and Ms. Jennifer Yip another partner of BDO had entered into discussions with Mr. Barry Leung of the Defendant, related to the proposed sale and purchase of shares and acquisition of indebtedness of the Vendors to be entered into between the Defendant and the Vendors and discussed about the due diligence report to be prepared for the transactions. Various discussions had been held including discussions about certain accounting terms and provisions in the proposed draft sale & purchase agreement and debt acquisition agreement. 11.In or around early March 1999, a Mr. Barry Leung contacted Mrs. Jennifer Yip of BDO for the due diligence review job in early March 1999. Mr. Barry Leung had all along introduced himself as the Vice President of the Defendant, a property holding company. The Defendant’s group was negotiating to purchase Great Haven a Hong Kong company whose 52% owned subsidiary Beijing Sunrise held a site in Beijing. The Defendant would like to instruct to carry out a due diligence review of the target company and he asked BDO for a quotation. 12.A due diligence review will typically require site visits, interviews with various levels of management, discussions with the target company’s independent accountants and a review of their work papers, together with detailed analysis of the target company’s books and records. Their findings will be communicated to their client verbally or in writing throughout the engagement and embodied in a written report at the conclusion of the engagement. 13.In early May 1999, she was informed by Mr. Barry Leung that the Sale and Purchase Agreement and the Debt Agreement had been signed and BDO were to commence work. She agreed the scope of their work and the timetable for the work with Mr. Barry Leung. 14.On 11 May 1999, BDO issued a formal Engagement Letter (“Engagement Letter”) to the Defendant. The Engagement Letter set out in detail the scope of our work, the timetable, the distribution of their report and BDO’s fees. The Engagement Letter was accepted by the Defendant on 13 May 1999. It is found at pages 238-241 of the Bundle of Documents (BD). 15.The scope of work was defined in the Engagement Letter to cover 8 areas, and include inter alia:-
16.The timetable, for the work agreed on the assumption that BDO could obtain the full cooperation from the Vendors management and that the required information was completed and readily available to BDO was as follows:- “ 12 May 1999 Signing of the engagement letter by Po Sun 13 May 1999 BDO International to commence fieldwork on the Company 18 May 1999 BDO International to commence fieldwork on Beijing Sunrise 9 June 1999 First status report made available to Po Sun 24 July 1999 Report on due diligence review made available to Po Sun” 17.With regard to fees, BDO estimated their time costs in conducting this due diligence review to be HK$300,000.00. In addition, out-of-pocket expenses, including travelling and accommodation in China would be invoiced to the Defendant as and when they were incurred. The billing timetable for their fees were agreed as follows:-
18.Upon receipt of the Engagement Letter duly countersigned by the Defendant, BDO issued their first Fee Note dated 13 May 1999 for HK$120,000.00 which was settled by the Defendant in or about July 1999. 19.On or about 13 May 1999, BDO commenced the work. Ms. Li was the partner carrying out the engagement. Mrs. Jennifer Yip was the concurring partner, meaning that she would review Ms. Li’s work. These two-partner system is adopted by BDO in every due diligence review. In addition, Mr. Kent Ng, an Audit Manager, and Mr. John Sum, a staff accountant, of BDO also took part in this job. The fieldwork was carried out by them. Mr. Kent Ng also assisted Ms. Li in preparing the due diligence report which she reviewed, amended and finalized. Mr. Kent Ng reported the progress of the job to Ms. Li from time to time. 20.As BDO started their work on 13 May 1999 and were expected to submit their draft status report by 9 June 1999 and their final report by 24 July 1999, it was practically difficult for BDO to complete the draft report based on the cut-off date of 31 May 1999. When Mr. Kent Ng started the fieldwork, he talked to Mr. Barry Leung about this. Mr. Barry Leung suggested that BDO audited the figures up to 30 April 1999 first and wait to see whether there was any movement in the books in May 1999. If there was, follow-up audit work would be taken. Mr. Kent Ng reported this arrangement to Ms. Li and she agreed. Ms. Li stated that this kind of arrangement is quite usual in audit work done under a tight time schedule. In the accounting profession, it is called a “hard close”. 21.Mr. Barry Leung was responsible for making appropriate arrangements for BDO staff to carry out the fieldwork. He would make sure that the relevant documents and persons were available and then asked BDO staff to attend the Vendors’ offices to do the audit work. Ms. Li remembers that BDO carried out the fieldwork from mid-May 1999 to the end May 1999. They did the Hong Kong fieldwork first and then the Beijing fieldwork. 22.The Draft Due Diligence Report was sent to the Defendant on 7 June 1999. BDO issued their 2nd Fee Note for HK$150,000.00 (No. BA0667) to the Defendant on or about 25 June 1999. 23.In July 1999, Ms. Li asked Mr. Kent Ng to update the report. Mr. Kent Ng asked Mr. Barry Leung to arrange a re-visit to Beijing so as to enable BDO to audit the month ending 31 May 1999 figures. Mr. Barry Leung refused their request and commented that the same was unnecessary because there would not be much movements in the books between April 1999 and May 1999. Mr. Barry Leung never raised any objection to the report ending on 30 April 1999. 24.In August 1999, BDO was informed by Mr. Barry Leung that the completion date of the intended acquisition had been postponed to 30 September 1999 and there was a reduction in the purchase price. 25.On or about 30 September 1999, BDO sent the final draft of the Due Diligence Report to the Defendant for comment. It is not disputed that the cut-off date of the final copy of the Due Diligence Report was 30 April 1999. 26.Mr. Long the witness of the Defendant is the Chairman of the Defendant’s Board of Directors and its President. He has no direct knowledge as regards whether Mr. Barry Leung orally instructed Mr. Kent Ng of the Plaintiff in relation to a “hard close” for the Draft Due Diligence Report or a cut off date for the final Due Diligence Report as at 30 April 1999. He has no evidence to contradict the evidence of Ms. Li. All that he could say was that he did not give authority to Mr. Barry Leung to vary or change the terms of the Engagement Letter with the Plaintiff. He stated that no one told him that the scope of the Engagement Letter had been changed. If the scope of the Engagement Letter is changed he is the one who has authority to do it. 27.As regards the role of Mr. Barry Leung, he said that he was a Vice President of the Defendant. As far as his scope of work is concerned he is an accounts manager. He also did public relations work and other work authorized by the President of the Defendant namely, himself. 28.In relation to field visits, the person who the Plaintiff should contact for those is Mr. Barry Leung. The project for the preparation of the Due Diligence Report was handled by Mr. Barry Leung who would assist the Defendant in the consideration of whether the Due Diligence Report was in order. This was because of the background of Mr. Barry Leung in accountancy. If the Defendant wished to communicate with the plaintiff in relation to the Due Diligence Report Mr. Barry Leung was the conduit through whom such communication would be made. He himself would not personally handle this matter. 29.Mr. Long was not aware that when the staff of the Plaintiff went to Beijing between 19 May to 26 May 1999, to do the fieldwork in auditing the accounts of Beijing Sunrise, the accounts of Beijing Sunrise for the month ending May 31st would not yet be available. He did not seem to understand that the accounts for the month ending May 31st needed to be entered from actual records of transactions for that month and before the month had ended, it would not be possible to fully record the account records for the unexpired portion of the month. He also stated under cross-examination that he did not know that without these books of accounts the audit for the relevant period could not be done, as he was not a professional. He did not agree that the documents for the month ending 31 May 1999 would not be available during the period of the field visit to Beijing Sunrise by the Plaintiff’s staff on 19 May to 26 May 1999. He also disagreed that Mr. Barry Leung knew that without the accounts of Beijing Sunrise and Great Haven for the month of May the Plaintiff would not be able to complete the Draft Due Diligence Report up to 31 May 1999. This shows that Mr. Long had very little knowledge of what was required to conduct an audit and could not grasp this point. 30.Under cross-examination he said that about 1 week after the Draft Due Diligence Report was submitted, he asked Mr. Barry Leung the reason why the Plaintiff was unable to provide the report with the cut-off date at 31 May 1999. Mr. Barry Leung said that he would request the matter to be carried out. Mr. Barry Leung also said that maybe the accountants assigned to do the work in Beijing were not professional enough or there was not sufficient time. It seems to me that this evidence could not be true as Mr. Barry Leung being an accountant would know that the reason why the Plaintiff was not able to cover audit of the accounts for the month of May in the Due Diligence Report was simply that the account for the month of May was not yet available at the time when the Plaintiff’s staff went on the field trip to Beijing from 19 to 26 May as explained aforesaid. Mr. Long appears here to be making up his evidence as he went along. 31.Related to the up-dated reports produced by the Plaintiff subsequent to the Draft Due Diligence Report, he was asked in cross-examination whether the up-dated reports were produced because the Defendant would provide updated material to the Plaintiff. He stated that he did not know as Mr. Barry Leung would deal with this and Mr. Barry Leung was the one who handled the detail. 32.Mr. Long stated that subsequent to the submission of the Draft Due Diligence Report by the Plaintiff, it was considered by the Board of Directors who found that the report had not included the accounts for the month ending 31 May 1999 and also failed to account for the development of the court case of Beijing Sunrise with China Railway Construction Main Company at the Middle Beijing Railway Transport Court. He stated that he instructed Mr. Barry Leung to inform the Plaintiff of their concern. Ms. Jennifer Yip of the Plaintiff agreed that the Plaintiff would amend the report to include all the necessary information to reflect the true financial position of Beijing Sunrise and Great Haven. The Plaintiff also agreed orally to delay the receipt of the fees of HK$150,000.00. Ms. Li denied the aforesaid facts. She said that before preparation of her Witness Statement, she enquired of Ms. Yip whether she had verbally agreed to delay receipt of the fee of $150,000.00. Ms. Yip denied this. Ms. Li also stated that she had no such knowledge. If Ms. Yip had made such an agreement, she would have told her or left a note on the file, as she was the engagement partner for this job. There was no note related to this on the file. 33.Related to the Board of Directors meeting Mr. Long was asked whether there were Minutes of the meeting, he said that he could not remember. Subsequently he said that he could not remember whether he attended the meeting. When asked how he could account for what was discussed at the meeting if there were no Minutes of the meeting. He later said that he did not remember if there was such a meeting. He could not remember which was the draft report the Board considered. After this he later said, he could not remember who was present at the meeting but he remembered that he said to Barry Leung whether the report submitted by BDO was up to the requirement of the Engagement Letter, if not ask them to comply. The answers of Mr. Long under cross-examination seem inconsistent and contradictory. Hence it is not easy to make out whether there was a meeting of the Board or what was discussed. Hence, the evidence contained in the witness statement of Mr. Long related to this Board meeting could not be accepted. 34.In relation to the 1st Issue, the Defendant’s Counsel submits that the evidence of the Defendant is double-hearsay. Ms. Li gave evidence of what Mr. Kent Ng told her related to the instructions given by Mr. Barry Leung related to the “hard close” on 30 April 1999 related to the Draft Due Diligent Report and the instructions of Mr. Barry Leung in July 1999 that no second field trip need be made to Beijing to audit the accounts of Beijing Sunrise for the month ending 31 May 1999 as there will be little movement in the accounts. He submits firstly that Ms. Li had given no good reason for not calling Mr. Kent Ng to give evidence. Mr. Kent Ng had left the employment of the Plaintiff. Ms. Li stated that the reason why she did not call Mr. Kent Ng to give evidence was that she was fully aware of the situation as she supervised Mr. Kent Ng and Mr. Kent Ng followed her instructions and reported to her. The Defendant’s Counsel submitted that based on the Plaintiff’s failure to call Mr. Kent Ng without good excuse, adverse inference should be formed that the reason for not calling Mr. Kent Ng is that his evidence would not be favourable. 35.I am of the view that the circumstances and facts in this Issue are not such that adverse inference should be formed. The circumstances related to this Issue shall be described hereunder. He also submitted that the Court should place no weight on this evidence. In support of this he relies on Alpha-Plus Enterprise Company v. Star Fair Electronics Company Limited, DCCJ8579/2000. In that case, His Honour Judge Carlson attached no weight to double hearsay evidence of the Director of the Defendant related to the defective quality of goods delivered by the Plaintiff, the basis of the Counterclaim. It seemed in that case that the only evidence available in support of the Counterclaim is the double hearsay evidence. 36.Thirdly, the Defendant’s Counsel submitted that the event happened 6 years ago, and there is no attendance note. The reliability of what was said must be low. I shall consider the reliability of this in the light of the circumstantial evidence. 37.The uncontested facts show that Mr. Barry Leung had arranged the field trip for Mr. Kent Ng and Mr. John Sum of the Plaintiff to go to Beijing Sunrise on 19 May to 26 May 1999, to audit the accounts of Beijing Sunrise. Mr. Barry Leung being an accountant must realize that the books of account for Beijing Sunrise for the month ending 31 May would not be complete and available for audit by the Plaintiff in the duration of the site visit in Beijing ending on 26 May 1999. It is common sense that books of accounts for the unexpired portion of a month would not be available before that period comes to pass. As Mr. Kent Ng and Mr. John Sum left Beijing on 26 May 1999, it is clear that the accounts of Beijing Sunrise for the month ending 31 May 1999 could not have been prepared and available for audit before the date of their departure. According to clause 4B of the Sale & Purchase Agreement, between the Defendant and Great Haven, the documents of accounts of Beijing Sunrise and Great Haven for the month of May would be available 10 business days after the 31 May 1999, such accounts would only be available a few days after 9 June 1999, which is the deadline for submitting the Draft Due Diligence Report according to the Engagement Letter. Such being the case, it is almost inevitable that for audit purposes for the Draft Due Diligence Report that had to be submitted on 9 June 1999, Mr. Barry Leung would agree with Mr. Kent Ng to have a cut-off date on 30th April 1999. There would be no way of completing the Draft Diligence Report otherwise by 9 June 1999. Hence, for practical purposes, Mr. Barry Leung who was an accountant must have agreed to a “hard close” on 30 April 1999 for the Draft Diligence Report on the basis that it would be up-dated afterwards were there transactions after 30th April 1999. Further both Mr. Long and Ms. Li stated that Great Haven was a Hong Kong investment company that had only one investment and that was Beijing Sunrise. There is only one construction work undertaken by Beijing Sunrise and that construction work had been idle for a considerable period of time before the date of the Sale & Purchase Agreement and Debt Acquisition Agreement. It was extremely likely that there was not much movement in the accounts of Great Haven and Beijing Sunrise in the month of May 1999. 38.I accept the evidence of Ms. Li that to audit the books of Beijing Sunrise it is necessary to do a field trip to Beijing Sunrise where the books of account are. There is no evidence to challenge this. There is clear undisputed evidence that Mr. Kent Ng and Mr. John Sum had gone to Beijing Sunrise for a field trip to prepare the Draft Due Diligence Report between 19 – 26 May 1999. Ms. Li stated in evidence that in July 1999 she asked Mr. Kent Ng to request Mr. Barry Leung to arrange another field trip for BDO to go to Beijing to complete the audit of Beijing Sunrise accounts up to May 31. The Defendant adduced no evidence to contradict this. I find Ms. Li a truthful witness and she appeared to be conscientious. I find on the balance of probability that Mr. Kent Ng must have complied with the instructions of Ms. Li as he worked under Ms. Li as a Manager in charge of this project, in the Plaintiff. Mr. Kent Ng reported to Ms. Li that he did so and he reported the response of Mr. Barry Leung. I note that the evidence of Ms. Li on this is double-hearsay. However I am satisfied in the circumstances described that it is safe to accept this hearsay evidence and place weight on it. There is no reason for Ms. Li not to request for a 2nd field trip to Beijing as the Engagement Letter clearly required that the cut-off date for the Due Diligence Report to be 31 May 1999. The allegations by the Defendant that Mr. Barry Leung told him that the reason why the report did not cover the month of May 1999 because the Plaintiff did not have time or is not proficient cannot be true. I find that there is circumstantial evidence that suggests that that Mr. Barry Leung gave instructions to Mr. Kent Ng as stated by Ms. Li not to go to Beijing for the second field trip to audit the accounts ending May 31 of Beijing Sunrise for the following reasons:
39.Having considered the aforesaid I find that weight should be placed on the hearsay evidence of Ms. Li related to the instructions of Mr. Barry Leung to Mr. Kent Ng. I also come to the finding on the balance of probability that Mr. Barry Leung did tell Mr. Kent Ng firstly to take the cut off date for the Draft Due Diligence Report at 30 April 1999 as a “hard close” and secondly, that there was no need to go to Beijing for the second field trip to audit the accounts of Beijing Sunrise for the month of May 1999 as there was not much movement in the account for that month. The 2nd Issue 40.In considering this Issue, I first have to consider whether instructions of Mr. Barry Leung to the Plaintiff to do a “hard close” in the preparation of the Draft Due Diligence Report amounts to instructions to vary the Engagement Letter. 41.The scope of the due diligence review as stated in the Engagement letter require audit to be carried out for a period of 5 months ending 31 May 1999 in respect of Great Haven and Beijing Sunrise. 42.The first status report is to be submitted on 9 June 1999. There is no reference as to the extent of the first status report whether it should cover the entire period of the 5 months ending 31 May 1999. The date on which the first status report is to be submitted namely, 9 June 1999 would suggest that it could not cover the entire 5 months of the audit as the accounts ending 31 May was agreed by the Vendors to be submitted to the Defendant 10 business days after 31 May 1999. There is no way that the first status report could cover audit of the accounts of the Vendors for the month of May 1999. It would seem that the decision to do a “hard close” on 30 April 1999 for the Draft Due Diligence Report that was submitted on 7 June 1999 could not be a variation of the Engagement Letter. This is because the requirement that the final report to be submitted must cover the scope of 5 months is not affected. The instructions for the “hard close” of the Draft Due Diligence Report does not vary the scope of the final report. In my view the instructions of Mr. Barry Leung to Mr. Kent Ng to do a “hard close” for the Draft Due Diligence Report as referred to aforesaid does not amount to a variation of the Engagement Letter. In my view, Mr. Barry Leung who had been invested with authority in relation to the oversight and preparation of the Due Diligence Report project had authority to give instructions to perform a “hard close” for a cut off date of 30 April 1999 for the Draft Due Diligence Report. This is within the responsibilities given to him to oversee the manner of performance and preparation of the Engagement Letter by the Plaintiff. 43.I am of the view however, that the employment of a cut off date of 30 April 1999 for the final report of due diligence amounts to a variation of the scope of the Engagement Letter. 44.Mr. Long stated categorically that he did not give authority to Mr. Barry Leung to instruct the Plaintiff to vary the cut-off date of the Due Diligence Report on 30 April 1999. He stated that Mr. Barry Leung did not have the authority to give such instructions to the Plaintiff. 45.The Defendant’s Counsel submits that the Plaintiff had pleaded that instructions were given by Barry Leung “for and on behalf” of the Defendant. The Plaintiff’s pleaded case is one of actual authority. This is a positive allegation that the Plaintiff must make good. The Plaintiff has no evidence to substantiate this in the face of the evidence of Mr. Long that Mr. Barry Leung did not have the authority to give instructions that amount to a variation of the Engagement Letter and only Mr. Long had such authority. Mr. Long stated that he had not authorized Mr. Barry Leung to give the instructions to Mr. Kent Ng as stated by Ms. Li. On such evidence it is clear that the Plaintiff has not established that Mr. Barry Leung who is not a Director of the Defendant had the requisite authority to bind the Defendant to vary the Engagement Letter. 46.The Plaintiff’s Counsel sought to rely on apparent or ostensible authority of Mr. Barry Leung. The Defendant’s Counsel submits that authorities show that material facts that support a case that Mr. Barry Leung was held out as having the ostensible or usual or apparent authority to give instructions that amount to a variation of the Engagement Letter must be pleaded. The Defendant’s Counsel submits that the Plaintiff did not plead such material facts. The Plaintiff had pleaded that Mr. Barry Leung had actual authority. It is clear that the Plaintiff had not pleaded the material facts in support of a case of apparent or ostensible authority. The authorities relied on by the Defendant’s Counsel in support of the pleading point referred to, include Rolled Steel Ltd. v. British Steel Corporation & Others [1985] 2 WLR 908, 935H-937D, Yip Lai Fong & Another v. Sin Tung Hong & Others [2004] 3 HKC 153, Jetcom Enterprises Limited v. Dragon Victory Trading Limited & Others HCA3512 of 2003 unreported. These authorities clearly show the requirement to plead the factual basis in support of a case of apparent or ostensible authority. In the face of failure of the Plaintiff to do this, I find that the Plaintiff is not able to assert that Mr. Barry Leung had apparent or ostensible authority to vary the Engagement Letter. Hence I find that Mr. Barry Leung had no authority actual or apparent to vary the terms of the Engagement Letter. The 3rd Issue 47.I accept the evidence of Ms. Li that it is quite usual in audit work done under a tight time schedule to do a “hard-close” as described by her. That means that they prepare a draft report with an earlier cut-off date and subsequently up-date the report up to the contracting closing date for the report. The arrangement with Mr. Barry Leung related to the Draft Diligence Report for cut-off date at 30 April 1999 was an arrangement for a “hard close”. I had found that it was not a variation of a term of the Engagement Letter. That being the case, Mr. Barry Leung who had been invested with the authority to oversea the performance of on behalf of the Defendant and to liaise with the Plaintiff for performance of the Engagement Letter in my view had the authority to arrange for a “hard close” as stated. There was nothing in the Engagement Letter that defined the period of audit covered by the Draft Due Diligence Report. Para. 4B of the Sale & Purchase Agreement of the shares in Great Haven stipulated that the consolidated accounts of Great Haven and Beijing Sunrise for the 5 months ended 31 May 1999 will be released to the auditors 10 working days after 31 May 1999. That means these would be submitted after 9 June 1999. This would necessarily require that the cut-off date of the Draft Due Diligence Report be 30 April 1999 if the report were to be submitted on or before 9 June 1999. 48.For that reason I accept the evidence of Ms. Li aforesaid that it was not possible to audit the accounts up to 31 May 1999 and prepare the Draft Due Diligence Report covering the month ending 31 May 1999 by 9 June 1999. 49.I find that with the tight time schedule for the preparation of the Draft Due Diligence Report, it is clear that the Engagement Letter would have anticipated that the Draft Due Diligence Report would end with a cut-off date earlier than 31 May 1999. Mr. Long also agreed under cross-examination by the Plaintiff’s Counsel when put to him that “a draft report is only a draft. Certainly a draft could be supplemented by up-dated information.” 50.The Plaintiff’s Counsel submits that the Plaintiff is entitled to be paid the fee of $150,000, payable on “submission of draft” as stated in the Engagement Letter. The Defendant’s Counsel submits that the word draft must mean a draft of the same report. It must comply with the audit requirements in its scope. He submitted that it must include the May 1999 figures. However, it is my view that if it was by necessity not possible to prepare a draft which covered the period of the scope of audit because of the time scale for the submission of the draft, there is no reason why a draft should not be prepared as a preliminary report with as close to the cut off date as is possible according to time frame. The Defendant’s Counsel submits that the Plaintiff’s construction of the Engagement Letter that payment of $150,000.00 must be made upon submission of draft could create absurdities. Would the presentation of a draft that does not contain the figures for the month of April 1999 trigger the obligation to pay the $150,000.00. In my view, the Plaintiff has submitted a draft report, which is as close to compliance with the scope of the Engagement Letter, as is permitted by the time scale for its submission. The timetable in the Engagement Letter referred to the submission of a First Status Report available to the Defendant on 9 June 1999 and the complete to be available of 24 July 1999. The First Status Report must refer to a draft report since the actual complete report was required to be submitted on 24 July 1999. 51.Ms. Li’s evidence show that the Plaintiff was wanting and willing to audit the accounts of Beijing Sunrise and Great Haven for the month of May 1999 but for the instructions of Mr. Barry Leung. This is not a case where the Plaintiff had deliberately refused to fully comply with the terms of the Engagement Letter. The Plaintiff was obliged to do a “hard close” for the Draft Due Diligence Report because the accounts for the month of May was not made available to them. According to the Plaintiff’s evidence which I accept, it was the Defendant that did not give opportunity to the Plaintiff to audit the accounts of the Vendor for the month ending 31 May 1999. 52.For the above reasons, I find that the Plaintiff is entitled to be paid the sum of $150,000.00 which is the sum payable “on submission of draft” as stated in the Engagement Letter. The Draft Due Diligence Report with cut-off date at 30 April 1999 was the best that could be done on the basis of information available to the Plaintiff at the time. I therefore give judgment as follows: Judgment for the Plaintiff against the Defendant in the sum of $150,000.00 together with interest thereon from the date of Writ to date of judgment at judgment rate and thereafter until payment at judgment rate together with costs of the action to be taxed if not agreed with Certificate for Counsel.
Representation: Mr. Wong Chao Wai Brian instructed by Messrs. Simon Cheung & Co. for the Plaintiff. Mr. Frederick H.F. Chan instructed by Messrs. Cham & Co. for the Defendant. | ||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment