Anthony Charles Desir v. Ajax Pong Machinery Leasing Ltd and Another

DCCJ 16078/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 16078 OF 2000

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BETWEEN

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Coram:  Deputy District Judge S. T. Poon in Court

Date of Hearing: 22^nd – 24^th February 2006 and 2^nd – 3^rd March 2006

Date of Handing Down Judgment: 13^th April 2006 

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JUDGMENT

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Introduction

1.The Plaintiff (“P”) is an experienced corporate financial adviser.  He claims for outstanding fees for services rendered to the 1^st Defendant (“D1”) for a project (“the Nichimen Project”) relating to the restructuring of the debts of D1.

2.The creditor concerned in the Nichimen Project is a Japanese based company known as Nichimen Co., (HK) Ltd. (“Nichimen HK”) which is controlled by its parent company in Japan known as Nichimen Corporation (“Nichimen Corp”).

3.D1 is a company in Hong Kong carrying on business of building machinery leasing.  Nichimen Corp is a trader or supplier of building machines manufactured by Mitsubishi Heavy Industries Limited (“MHI”).

4.P was first introduced to Mr. Thomas Lau (“Lau”), the principal of D1, in 1994.  Soon after, he started to provide financial consultancy services to D1 until 1996. In late 1997, P met Lau in a social occasion and agreed to provide professional services to D1 again. 

5.P principally relies on an alleged agreement made at a meeting on 25^th October 1999 (“the October Agreement”) that P’s fee for the Nichimen Project be HK$300,000 to be paid by four equal consecutive monthly installments commencing on 1^st December 1999.

6.According to P, the October Agreement was reached between P and Lina Chan (“Chan”) and Nelson Wong (“Wong”) with the approval of Lau.  Chan is the wife of Lau and Wong is the Financial Controller of D1.

7.Alternatively, P relies on the doctrine of quantum meruit asking for a reasonable remuneration for services rendered.

8.At the hearing parties agreed that should either the Defendants be held liable in the end, the liabilities of the respective Defendants should be joint and several.  On such basis I would only refer the defending parties as D1 in this judgment.

9.D1 disputed the existence of the October Agreement. 

10.Although not pleaded in its Defence, D1 submitted that there was no consideration provided by P.

11.D1 also maintained that the contracting party for providing financial consultancy services was not P himself but a Cayman Islands company named Universal Gold Trading Co Ltd (“UGTCL”).  

12.At trial, P gave evidence on his own behalf. Wong and Mr. Hitoshi Homma (“Homma”), general manager of the Machinery Department of Nichimen HK, testified for D1.

13.On the second day of the trial, at the middle of the cross-examination of P, Mr. Kwan, counsel for D1, applied to add Lau as a witness. 

14.The application based mainly on the grounds that new documents were filed by P at the last minute and P mentioned something in his evidence which was not contained in his witness statement, namely, that there was a specific discussion between Lau and P as to whether UGTCL was the contracting party.

15.I declined the application.  Lau is obviously an important witness as he has been the person in charge of D1 all along.  He has also a lot of personal involvements in the relationship with P and he is alleged to have approved the October Agreement.

16.This action was commenced in 2000. The first trial date was adjourned.  Throughout the years D1 did not see fit to make Lau as a witness to the trial.  To allow Lau to give evidence means P must also be allowed time to respond.  A second adjournment on trial day would be inevitable.

17.Although the documents in question were served a bit late, I cannot see any reason why they cannot be dealt with in the evidence of Wong in view of the fact that D1 had chosen not to call Lau as a witness all along.

18.As regard the relevant oral evidence of P, it does not appear to me a totally fresh allegation in view of what had already been disclosed in P’s pleadings and evidence, particularly in the 3^rd supplemental witness statement of P.  Furthermore, Mr. Kwan did not indicate what more Lau could add apart from simply denying the existence of such a specific discussion.

19.On balancing the prejudice that might be caused to the respective parties, it is in my view that no further delay should be allowed and therefore, the application is declined.

P's case

20.In 1994, the then company auditor of D1, Mr. Charles Chan, introduced P to Lau.  P was retained as the corporate financial adviser of D1.

21.Upon negotiations, P prepared a written service agreement for Lau to sign.  Instead of himself, P named UGTCL as the contracting party on the draft agreement.  However, Lau refused to sign on it. 

22.P and Lau had discussed specifically on whether UGTCL should be the contracting party and it was understood that it should not.

23.According to P, he used UGTCL as the vehicle to take part in trading of gold in the future market which turned out to be unsuccessful.  UGTCL had accumulated significant tax losses and was entitled to have those losses carried forward for deduction.

24.Therefore, P was endeavored to use UGTCL as the recipient of fees for the professional services.

25.Unknown to P, UGTCL was struck off from the company register of Cayman Islands on 31^st September 1992.  P learnt about the striking off only in 1996. 

26.P also registered in Hong Kong at Business Registration Office a trade name “Universal Investment Services” (“UIS”).  However, the name used for the letterheads and P’s name card was “Universal Investment Services Ltd” (“UISL”) which had not been registered or incorporated anywhere.

27.As revealed by the documents, one can see that both UGTCL and UISL had been used in the correspondences between P and D1 since 1994.  Invoices had been issued to D1 for fees under both names.

28.In an invoice dated 26^th November 1999 signed under the name of UGTCL with UISL’s letterhead, there was a chop stamped on it stating “Assignment to UGTCL by UISL”.  As evidenced by the business registration record, it was P’s case that UIS ceased business on 2^nd February 2000.

29.P said Lau had been very cautious about the backgrounds of P and UGTCL.  P spent 6 months to make Lau understands P’s works.  During the time P had explained to Lau the purpose of using UGTCL to receive payments and Lau understood it.  Lau even applied the same method to his own companies for tax deductions.

30.One of P’s duties was to negotiate and arrange new financing for D1.  The remuneration of P was to be calculated with reference to successful deals.  P would be entitled to 2% of the amount of each facility he secured.  D1 would pay a monthly retainer of HK$50,000 and such amount was to be deducted from the success fees he entitled.

31.P said he had successfully procured several favorable offers from financial institutions but instead of accepting them, Lau showed the offers to his existing bankers and negotiated for more favorable facilities from them.  As a result, P got less success fees than what he would have earned.

32.In 1996, the relationship ceased. 

33.In late 1997, P met Lau again.  Following the meeting, P was retained again to help improving the credit profile of D1.  P suggested various strategies including the forming of special purpose companies (“SPC”), the Nichimen Project, and claiming against MHI for defective machines supplied by them.

34.The payment term was different from the first retainer.  According to P, the percentage for success fees would be lowered this time in exchange for P leaving the “internal matters” to be dealt with by D1 itself.  Which means that once P had completed the technical work and negotiations, and a final presentation was made by P to the financier in question, D1 would take over the follow up matters including documentary works and P would be entitled to the success fee.   

35.P refused to accept success fees based on agreements signed because of the manner in which D1 had manipulated agreement in the past to reduce or avoid paying his success fees.

36.As can be seen from a payment list of UGTCL, the monthly retainer this time was initially HK$25,000 and increased to HK$30,000 since July 1998.  There was a letter dated 15^th July 1998 addressed to Lau under the letterhead of UISL suggesting an increase of retainer fee from HK$25,000 to HK$50,000. 

37.It was also suggested on the said letter that “[t]he Success Fees to be agreed upon in advance, following the basic guidelines of common industry practice.  The Success Fees should not be defined in advance to avoid problems because each deal will be different.” 

38.It is P’s case that D1 had all along been late in paying him fees.  As at 29^th June 1999, the accumulated fees amounted to HK$1,068,876 and P issued an invoice to D1 reflecting the same on that day.

39.As the said fees were not settled promptly and there was no assurance from Lau as to when such fees would be paid, P requested a meeting with Lau to discuss the issue. 

40.The meeting was held on 28^th July 1999.  Chan and Wong also attended.  P indicated to Lau that P would not go to Tokyo to attend the important meetings with the management staff of Nichimen Corp for the Nichimen and MHI Projects if he is not assured of payment of his fees.

41.After accommodating Lau’s request for a discount and giving credit for the retainer fee already paid to P, it was agreed that the balance due be restricted to HK$469,500 to be paid by 4 equal monthly installments of HK$117,375 each commencing from 1^st August 1999.

42.The fees for the Nichimen and MHI Projects were expressly excluded from the above sum.

43.The above calculation and the mode of payment were recorded in a document named as “Refinancing Fee Summary” exhibited by both sides.

44.P gave evidence that he was misled by Lau as to his fees for the Dah Sing Bank project in that he was told that the revolving credit offered was HK$13 million whereas the true amount was HK$20 million.

45.It is worth noting that some projects referred to in the said document had been marked as incomplete as at that day but success fees thereof were included in the calculation.

46.On 1^st August 1999, P sent an email to Lau with copies to Chan and Wong confirming their agreement as to the calculation of fees for the MHI Project and also proposed to adopt 1% as the denominator for calculation of his fees for the Nichimen Project.  There was no reply from any of them to P.

47.Between 25^th and 28^th August 1999, P attended meetings with the management staff of Nichimen Corp in Tokyo for the Nichimen and MHI Projects.

48.According to P, D1 and Nichimen Corp had basically arrived at an understanding after the meetings and the only thing that had to be done was to submit a formal proposal for the rescheduling.  As a result, P prepared a written proposal dated 6^th September 1999.

49.P said at that point of time he had completed his work on the Nichimen Project and he started to ask D1 for payment of his fees.  A meeting was held at D1’s office on 25^th October 1999 specifically on this issue.

50.P, Lau, Chan and Wong were present at the meeting. P presented to them an invoice for HK$360,000 for the Nichimen Project.  Lau left the meeting and asked P to settle the fee issues with Chan and Wong.  Wong proposed to reduce the amount to HK$300,000 and P agreed.  Wong further asked that the amount be paid by way of four monthly installments of HK$75,000 each because of D1’s cash flow problem and P also agreed.

51.On the same day P met Lau again and Lau confirmed to him the agreement reached.

52.Since after the date of the October Agreement, P had continuously sent emails on 26^th October, 22^nd November, 25^th November, 29^th November, 6^th December, 9^th December, 17^th December, 20^th December, 23^rd December, and 24^th December 1999 to Lau, Chan and Wong reiterating the October Agreement and pressing for payment.

53.No reply was sent from anyone of D1 disputing the existence of the October Agreement.  Lau replied in a email on 27^th October 1999 saying that he need to further discuss with Chan and Wong to understand what they have committed to P regarding his fees.

54.The first written record of any objection to the October Agreement was in P’s email on 24^th December 1999 stating that P had first heard of Lau’s disapproval of payment that day.

55.In the email dated 25^th November 1999, P specifically addressed to the October Agreement.  In the email dated 9^th December 1999, it is recorded that P had spoken with Lau about the outstanding first installment and Lau agreed to check with Wong for the payment.  The October Agreement was mentioned in the emails as a matter of course.

56.The first written reply from D1 on this issue was from Chan on 28^th December 1999.  There was no suggestion of the inexistence of the October Agreement in the email and the reason given for non-payment was that the MHI Project had not yet finished.

D1's case

57.Wong had been employed by D1 as the Accounting Manager since September 1994 and was promoted to the position of Financial Controller in April 2000. 

58.Wong said he understood that it was UGTCL who contracted to D1 to provide financial consultancy services.  He drew to the court’s attention to documents where P had represented himself as the director of UGTCL in performing his works for D1.

59.Wong said that P would only be entitled to the success fees after an agreement between the financial institutions and D1 is signed.  As no agreement on the Nichimen Project was signed at the time this dispute aroused, no success fee is payable.

60.Wong also said that P had only minimal contribution to the Nichimen Project and he was the one who did most of the works.   The subject for discussion in Tokyo was mainly on the MHI Project and little had been discussed on Nichimen Project.

61.Wong was the one who prepared the written proposal dated 6^th September 1999.   Following the proposal there had been many negotiations between D1 and the Nichimen side and a final agreement was reached only in January 2001 the terms of which were largely different from that of the proposal.

62.There was no agreement reached on 25^th October 1999.  At that point of time P was not entitled to his fee for the Nichimen Project. 

63.A meeting was indeed held with participants as alleged on that day.  However, Lau was upset when he heard P mentioning fees again and he left the meeting.  Wong had only indicated to P that he would convey P’s suggestion on fees to Lau. 

64.Wong did not dispute having received P’s emails relating to the October Agreement.  He said he was surprised when receiving the same.  When asked why he did not write back to dispute the existence of the agreement Wong explained that he had orally replied to P in telephone when P called him.  Wong said further that it was P’s habit to put things in writing that had not actually been agreed.   

65.When Wong was asked about the Dah Sing Bank project, he denied having misled P and referred to an email dated 30^th July 1999 from him to P.  However, the paragraph referred to by him did not support his explanation but rather support P’s allegation.

66.Homma gave evidence for D1.  He said he was very much involved in the Nichimen Project and that P had only limited involvement in it.

67.He found P as a person being too aggressive, litigious and unprofessional.  P was in fact hindering the negotiations between his company and D1.  He suggested to Lau that P should not be involved in the negotiations of the Nichimen Project.

68.Homma said he was not involved in the MHI discussions and he was not present in the Tokyo meetings in August 1998 when he was on leave.  However, he learnt from his colleagues that little was discussed in the meetings concerning the Nichimen Project.

69.After P had ceased taking part in the Nichimen Project, there had been over 30 meetings held between D1 and Nichimen HK.  There were also numerous telephone conversations and correspondences between the two companies and as a result of which the final agreement was signed in January 2001.

Discussions

The Parties

70.I do not accept that there was an express discussion between P and Lau as to the identity of the contracting party, nor do I accept that it was D1’s understanding that UGTCL was the contracting one.

71.I am of the view that the identity of contracting party has never been raised as an issue in the negotiation of the agreement for consultancy service.  Should there be such an issue raised, and there have been discussion held in relation thereto, one would expect that there is something in writing recording the same, given P’s practice of reducing nearly all matters in writing. 

72.On the other hand, Wong’s allegation is inconsistent with D1’s behavior.  This action was taken out in March 2000, the Defence pleaded initially did not include the defence as to identity of contracting party.   It was not until December 2000 that D1 first raised this defence.  

73.Wong is an experienced professional accountant.  Although he is not legally qualified, one would reasonably expect that he would have instructed D1’s legal representatives as such should he have all along the understanding that UGTCL is the contracting party instead of P.

74.I note that P often described himself as the director of UGTCL or UISL when doing business for D1.  P also usually used the word “we” rather than “I” in correspondences.  However, it does not necessarily follow that P intended UGTCL as the contracting party.

75.If P viewed UGTCL as the party to the contract, one would query why UISL was used frequently.  In fact, both entities were legally incapable of entering into a contract at the relevant time.

76.There is evidence that P intended to use UGTCL as a recipient only for tax purposes.  Apart from P himself there was no other employee or officer of UGTCL ever participated in the relationship between D1 and P or UGTCL.  Wong can only identify, vaguely, one instance upon which he had contact with anyone other than P from UGTCL throughout the years.

77.The evidence as a whole is consistent with the fact that the parties regarded P as the one who would provide his professional services personally and the one who entered into the contract personally, with the understanding that payment of fees would be in accordance with P’s instructions.

78.I find, therefore, as a fact that the contracting parties were P and D1.  As apparently not in dispute in the evidence, the relationship remained the same at the time when D1 engaged P for his services the second time in 1997.

The October Agreement

79.I find the version of Wong incredible.  If there were in fact no agreement reached in the meeting on 25^th October 1999, P would have been lying all along in black and white in the numerous emails that he sent to Lau, Chan and Wong.

80.It is even more incredible in that Lau, Chan and Wong would allow P to carry on lying in black and white without sending a single email to spell out the truth, given the fact that Wong was a professional accountant and that he knew P’s practice to reduce in writing something that had not been actually agreed.

81.I disbelieve Wong's evidence in this respect and I find that there was an agreement reached between D1 and P on 26^th October 1999 with terms as alleged by P.

82.It might be a fact that Lau had the view that P should finish his work as regard the MHI Project before entitling to his fees, but this is not a term within the October Agreement. 

Consideration

83.There has been a lot of evidence adduced by parties as regard whether P was entitled to the success fees at the time the October Agreement was made.  Homma’s evidence is also relevant to this.

84.The meeting on 26^th October 1999 was held specifically for the discussion of P’s fees for the Nichimen Project.  As I found as a matter of fact D1 agreed to pay P’s fees in a discount by installments.  It would be absurd to suggest that at that point of time D1 was of the view that P was yet to be entitled to payment.

85.P’s evidence is that at that time there was already an agreement reached in principle between the Nichimen people and D1.  It was only because of D1’s failure for their internal reasons (e.g. cash flow problems) that the deal fell through.  This piece of evidence is consistent with P’s response to D1 in P’s email dated 3^rd January 2000.

86.As mentioned in Paragraph 45 hereinbefore, there were fees payable before the relevant projects being formally completed.

87.I am of the view that there is no requirement that a formal agreement of the relevant project be signed before P is entitled to his success fees. 

88.As at the date of the October Agreement, Nichimen HK through Nichimen Corp in Japan had in principle agreed to D1 as to the rescheduling of the debts, subject to certain financial arrangement to be fulfilled by D1.

89.I accept the evidence of P that it was due to D1’s failure to fulfill the condition that the original agreement fell through and as a result, D1 and the Nichimen people had to undergo another round of negotiations.

90.As regard Homma’s evidence, I do not think it is totally inconsistent with my above finding.  According to him, the negotiations on the Nichimen Project did not start until September 1999, but both P and Wong said that the negotiations started since February 1999.  There was a 7 months’ lapse in Homma’s participation.   

91.Moreover, P finished his proposal in early September 1999 and ceased participating in the Nichimen Project.  This is consistent with Homma’s suggestion that the negotiations started in September 1999, without the assistance of P.

92.In this respect I accept the submission of Mr. Stock, counsel for P, that Homma had simply come to the negotiation “late”.

93.Even if I were wrong in that P was not yet entitled to the success fees for Nichimen Project on 25^th October 1999, I would say there was still sufficient consideration given by P as he had discounted the original fees he proposed and allowed the fees to be paid by installments.

94.What I understand from the evidence is that P and Lau were always prepared to negotiate the amount of fees.  P only proposed the formula for his fees for the Nichimen Project in August 1999 whereas according to P’s evidence his involvement in the Nichimen Project had long been started by that time.

95.As was mentioned in the evidence of Wong, the amount of fees was flexible and subject to negotiations.  It was also stated under the letter as mentioned in Paragraph 37 that, “The Success Fees should not be defined in advance to avoid problems because each deal will be different.” 

96.It would also be beneficial to D1 to have the amount and mode of payment of P’s fees be determined at an earlier stage.

Quantum Meruit

97.As I have found that there was a binding agreement on 25^th October 1999, it would not be necessary for me to rule on the issue of quantum meruit. 

98.However, in the light of what I have found as regard the parties to the contract and also that P had contributed to the initial agreement between D1 and the Nichimen people, it would only be fair to allow P to receive a reasonable remuneration for his work.

99.There is evidence (an email dated 22^nd February 2000 from Lau to P) that Lau himself agree to pay the amount of HK$300,000 for the Nichimen Project “when the contract is duly signed”. At that point of time, P would not be involved in the Nichimen Project anymore.

100.The reasonable amount of remuneration should therefore be HK$300,000.

Conclusion

101.In the circumstances, I find that there was a binding agreement between P and D1 that D1 shall pay P a total amount of HK$300,000 by 4 installments which are all due.

102.I order accordingly that Judgment be entered against D1 and the 2^nd Defendant for the sum of HK$300,000 with interest thereon at 8% per annum from the date of Writ until Judgment and thereafter at Judgment Rate until payment.

103.Costs should follow the event.  I make a costs order nisi that D1 and D2 to pay costs of this action to P, with certificate of counsel, to be taxed if not agreed.  The order nisi shall be made absolute after 14 days from the date of handing down of this Judgment.

Mr. Alexander STOCK instructed by Messrs. Dibb Lupton Alsop for the Plaintiff.

Mr. Thomas T. H. KWAN instructed by Messrs. F. Zimmern & Co. for the Defendants.