Sekamura Ltd v. Golik Concrete Ltd

DCCJ 441/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 441 OF 2004

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BETWEEN

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Coram:  Deputy District Judge J. Ko in Court

Dates of Hearing:   5^th - 7^th December 2005, 6^th January 2006, 3^rd February 2006 & 14^th March 2006

Date of Handing Down Judgment:  4^th May 2006

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J U D G M E N T

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1.By a consultancy agreement made on 16^th October 2001 between the Plaintiff on the one part and the Defendant (then known as Dyna Concrete Limited) on the other part (“the Consultancy Agreement”), the Defendant appointed the Plaintiff to provide consultancy services for a term of 2 years from 16^th October 2001 to 15^th October 2003.

2.Under the Consultancy Agreement, the Plaintiff (as the consultant) undertook that it and its employee(s) deployed to the Defendant to carry out the services covered by the agreement should devote such of their time attention and abilities to manage and market the business of the Defendant as may be necessary for the proper exercise of its duties.

3.The services covered by the Consultancy Agreement were set out in clause 3.1 as follows [Bundle 55-56]:

“The [Plaintiff] shall manage, advise and assist the [Defendant] in respect of the day-to-day operation of the [Defendant] including in particular but without prejudice to the generality of the foregoing to be responsible for:

a. managing and supervising for and on behalf of the [Defendant] in a proper and reasonable manner and in accordance with instructions and directions given by the [Defendant] from time to time;

b. advising and assisting the [Defendant] from time to time in respect of any projects undertaken by the [Defendant];

c. providing all administrative and technical assistance and financial management and control in respect of any projects undertaken by the [Defendant];

d. using its reasonable endeavours to promote and develop to the best advantage of the business of the [Defendant];

e. liaison and co-ordination with relevant professional architects, surveyors, engineers and relevant local authorities in the development and completion of any projects undertaken by the [Defendant];

f. the day-to-day business operations of the [Defendant] subject to the directions of the [Defendant]; and

g. informing and keeping the [Defendant] informed of all material transactions in connection with the business of the [Defendant] of which the [Plaintiff] and/or its employee(s) deployed to the [Plaintiff] to carry out the services has/have knowledge or is/are aware.”

4.Notwithstanding the general nature of the services set out in clause 3.1, it is common ground that the Plaintiff was only required to provide services to the Defendant under the Consultancy Agreement upon the latter’s request (see paragraph 1 of the Plaintiff’s closing submission; and paragraph 14 of the Defendant’s closing submission).

5.In consideration of the services to be rendered by the Plaintiff under the Consultancy Agreement, the Defendant agreed to pay the Plaintiff a consultancy fees of $50,000 per month.

6.The Defendant paid consultancy fees for the first 19 months of the term of the Consultancy Agreement but has refused to pay for the last 5 months, covering the period from 16^th May 2003 to 15^th October 2003.

7.By this action, the Plaintiff claims against the Defendant for the outstanding consultancy fees, totalling $250,000.

8.At the trial of this action, the Defendant maintains that the Plaintiff is not entitled to the consultancy fees claimed because:

a. The Plaintiff was in breach of the Consultancy Agreement in that none of the directors or staff members of the Plaintiff could be located or contacted by the Defendant in early 2003.

b. The Plaintiff failed and refused to perform its obligation under the Consultancy Agreement in that Mr. Mak Kau-kei Cary (“KK-MAK”) refused to assist the Defendant in resolving the commercial dispute between the Defendant and Towa Concrete Limited (“TOWA”) despite the Defendant’s request.

c. The onus is on the Plaintiff to prove that it was ready and willing to perform the Consultancy Agreement in the relevant period as and when requested and the Plaintiff has failed to discharge that burden.

9.The above defences will be examined one by one in the ensuing discussion.  Before embarking on the discussion, it would be helpful to introduce the protagonists in this action.

a. Ms. Chang Wei-wu (“CHANG”), who is the director of the Plaintiff.

b. Mr. Yin Xiaoguang (“YIN”), who was the managing director of the Defendant at the material time.  He has since resigned from being a director and is now a consultant of the Defendant.

c. Mr. Ng Wai-kwok (“NG”), who is a manager of the Defendant.

10.KK-MAK features significantly in this dispute.  He is a chartered engineer and has extensive experience and expertise in the concrete trade.  Furthermore:

a. He is CHANG’s husband.

b. He was a director and shareholder of the Plaintiff at the time of the Consultancy Agreement (i.e. 16^th October 2001).  On 28^th October 2002, he resigned from being a director of the Plaintiff and transferred his shares in the Plaintiff to CHANG’s sister (see Bundle 73).

c. He had been a director of Dyna Concrete Limited, up to the time of the Consultancy Agreement.

d. He had been an executive director of a company known as Express Builders Company Limited, but retired from that position in December 2001.

e. His younger brother is Mr. Mak Wai-kei (“WK-MAK”).  It is common ground that WK-MAK is the person controlling TOWA, the other director being WK-MAK’s son.

11.As I have highlighted above when outlining the defences, there is a commercial dispute between TOWA and the Defendant.  The dispute has cumulated into another action in the District Court under DCCJ 7267/2003.

None of the directors or staff members of the Plaintiff could be located or contacted by the Defendant in early 2003?

12.It is the Defendant’s pleaded case under paragraph 6 of the Re-Amended Defence that “the Plaintiff had since early 2003 failed and/or refused to carry out any of the services as agreed to be provided by it under the Consultancy Agreement including the managing of, giving advice and assistance to the Defendant in respect of the day-to-day operation of the Defendant.” [Bundle 19]

13.The Defendant basically repeat the terms of clause 3.1 of the Consultancy Agreement in the particulars provided under paragraph 6 of the Re-Amended Defence.

14.Despite the rhetoric allegations in paragraph 6 of the Re-Amended Defence, the only material fact pleaded by the Defendant in its defence is that “in early 2003, none of the directors nor staff members of the Plaintiff could be located or contacted by the Defendant.”  (see paragraph 7 of the Re-Amended Defence [Bundle 20]).  The evidence purportedly in support of this defence comes from YIN and NG. 

15.YIN says that in March/April 2003, he had wanted KK-MAK to assist in the dispute between TOWA and the Defendant.  He tried to contact KK-MAK through the latter’s telephone number at Express Builders Company Limited and KK-MAK’s mobile telephone number but to no avail.  He had left messages at KK-MAK’s mobile telephone but received no return call.  In about April/May 2003, he instructed NG to take steps to contact KK-MAK.

16.According to NG, he also tried to contact KK-MAK in April/May 2003 through KK-MAK’s telephone numbers at Express Builders Company Limited [Bundle 164] as well as his mobile telephone number but again to no avail.  He further called the Plaintiff’s telephone number as appeared in the Plaintiff’s invoices sent under the Consultancy Agreement and left messages for KK-MAK but received no reply.

17.It must be appreciated that up to the second day of the trial the Defendant’s allegation that none of the directors nor staff members of the Plaintiff could be located or contacted remained the only material fact specifically pleaded and relied upon by the Defendant.  What transpires at the trial is that YIN did speak to KK-MAK over the phone in the summer of 2003 and a lunch meeting with KK-MAK was eventually held.

18.The fact that YIN managed to speak to KK-MAK and the fact that a lunch meeting was subsequently held were never pleaded.  These facts were also not mentioned in the witness statements filed by the Defendant, including the supplemental witness statement of NG filed on the first day of the trial. 

19.The Plaintiff filedKK-MAK’s witness statement and elected to call KK-MAK as a witness on the first day of the trial in response to the supplemental witness statement of NG filed by the Defendant earlier on the same day.  The fact that there had been contactsand meeting between KK-MAK and YIN in the summer of 2003 was mentioned in KK-MAK’s witness statement. 

20.The Defendant only disclosed the existence of these successful contacts between the Defendant and KK-MAK on the second day of the trial by the filing of the witness statement of YIN.  Prior to that, the Defendant had not even listed YIN as a witness.

21.The revelation of thesesuccessful contacts between the Defendant and KK-MAK has rendered the originally pleaded defence somewhat insignificant.  Given the fact that YIN did successfully contacted KK-MAK, the Defendant cannot really rely on the alleged non-availability of KK-MAK to justify subsequent non-payment of consultancy fees.  This much is accepted by YIN under cross-examination.

22.In any event, the Plaintiff has all along used KK-MAK’s mobile telephone number as the telephone number for the Plaintiff’s office.  The number was printed in the invoices sent by the Plaintiff to the Defendant.  The change of KK-MAK mobile number in March 2003 (as well as the Plaintiff’s office telephone number)was reflected in the invoices (see Bundle 142).  There were telephone conversations between CHANG on the one hand and YIN or the Defendant’s financial controller Mr. Kwan on the other hand in which CHANG pressed for payment of consultancy fees.  In the circumstances, I have much doubt on the assertions of YIN and NG that they did try to contact KK-MAK through his new mobile telephone number (which is also the Plaintiff’s office telephone number).

23.There are, in my view, more fundamental reasons why this line of defence must fail.

24.It must be remembered that the Consultancy Agreement was made between the Defendant on the one part and the Plaintiff on the other part.  It was the Plaintiff (but not KK-MAK) who agreed to provide the services covered by the agreement to the Defendant.

25.It is common ground that notwithstanding the general nature of the services to be provided under the Consultancy Agreement, the Plaintiff was only required to provide services upon the request of the Defendant.

26.Clause 9.1 of the Consultancy Agreement [Bundle 59] provides that:

“Notice may be given by any party by letter or cable or telex or fax message addressed to the other party at its respective business address for the time being…”

27.The Plaintiff sent monthly invoicesto the Defendant during the term of the Consultancy Agreement.  The address of the registered office of the Plaintiff as well as the Plaintiff’s telephone number and facsimile number were clearly printed on these invoices.  The Defendant does not deny having received these invoices and the Defendant has paid for 19 invoices by sending cheques to the Plaintiff’s address.  Be that as it may, it is not apparent from the Defendant’s evidence that the Defendant has contacted the Plaintiff by the means agreed upon under clause 9.1 of the agreement. 

28.All that the Defendant says it did was to try to contact KK-MAK in March/April/May 2003 through KK-MAK’s telephone numbers.  By then, KK-MAK no longer worked for Express Builders Company Limited and has changed his mobile telephone number. 

29.In the premises, the Defendant’s allegation that “none of the directors nor staff members of the Plaintiff could be located or contacted by the Defendant” in early 2003 is simply not supported by evidence.  This pleaded line of defence, therefore, must fail.

Did KK-MAK refuse to assist the Defendant in resolving the commercial dispute between the Defendant and TOWA despite the Defendant’s request?

30.The new line of defence relied on by the Defendant at trial is that KK-MAK refused to assist the Defendant in resolving the commercial dispute between the Defendant and TOWA despite the Defendant’s request.

31.Put simply, the Defendant’s evidence (in terms of YIN’s and NG’s testimony) is that during the lunch meeting in Shatin, the Defendant requested KK-MAK to assist in resolving the dispute but KK-MAK said that the dispute and the Consultancy Agreement were different matters and refused to do so.  This, according to the Defendant’s case, is equated with the Plaintiff refusing to perform its obligation under the Consultancy Agreement.

32.According to KK-MAK’s testimony, the commercial dispute between the Defendant and TOWA was indeed raised at the lunch meeting.  However, he had only been requested to ask WK-MAK to contact YIN and that was what he did subsequently and he further gave WK-MAK’s mobile number to YIN.

33.I have much reservation about this line of defence.

34.To start with, this line of defence is not specifically pleaded.  The evidence in support, from the Defendant, only came about on the second day of the trial in an unusual way as I have highlighted above.

35.Secondly, YIN and NG are not entirely consistent with each other in their evidence on the Defendant’s request made at the meeting.  It is YIN’s testimony that he asked KK-MAK at the end of the meeting to submit a proposal to assist the Defendant to resolve the dispute but KK-MAK never came back with a proposal.  This, according to YIN, was the reason why the Defendant did not immediately stop payment of consultancy fees to the Plaintiff after the meeting.  When NG was cross-examined on this, he denied such a request having been made.  NG even went on to explain that there was really no point for such a request as KK-MAK had outrightly refused to assist.

36.Thirdly, I have grave doubt about the real basis forthe Defendant’s request for KK-MAK’s assistance.  It is the Defendant’s case that the request was made under the Consultancy Agreement and that was how it was put to KK-MAK at the lunch meeting.  According to YIN, he told KK-MAK that it would be difficult for the Defendant to continue payment of consultancy fees should KK-MAK refuse to assist.  KK-MAK, on the other hand, characterizes the request to establish contact between WK-MAK and the Defendant as a request for personal favour and not related to the Consultancy Agreement.

37.Under cross-examination, both YIN and NG say that KK-MAK’s assistance was requested because of the relationship between KK-MAK and WK-MAK.  Although they also hinted at the fact that KK-MAK might also contribute his experience and expertise in the concrete trade in resolving the dispute, no specifics were given.  KK-MAK has not been involved in the business of the Defendant since the time of the Consultancy Agreement.  There is nothing to suggest that KK-MAK had previously been involved in the dispute between TOWA and the Defendant.  In fact, NG had brought along documentspertaining to the disputeintended for KK-MAK but the same wereeventually not passed on. In those circumstances, it is difficult to see how KK-MAK could assist with his experience and expertise without having been provided with details of the dispute.

38.I find KK-MAK’s testimony concerning what happened at the lunch meeting more believable.  In particular, I do not believe that any request for assistance made by the Defendant was pursuant to the Consultancy Agreement.  If it had been the case, the Defendant would have pleaded that specifically in its defence and further mentioned it in NG’s first and supplemental witness statements.  The fact that all these only arose on the second day of the trial in the middle of KK-MAK’s evidence-in-chief and not at the initiation of the Defendant strongly suggests a change of course of the defence.

39.Based on the testimony of KK-MAK, he has done all that was requested of him even if such request was somehow related to the Consultancy Agreement.  There is simply no basis for the Defendant to accuse KK-MAK of refusing to assist.

40.Even if I am wrong in refusing to accept the Defendant’s evidence concerning the lunch meeting, the refusal of KK-MAK to assist in the dispute cannot be equated with the Plaintiff refusing to perform the Consultancy Agreement.  It is not disputed that the Plaintiff was entitled to provide services under the Consultancy Agreement throughsomeone other than KK-MAK.  KK-MAK did not hold any office in the Plaintiff at the material time.  Had the Defendant made a formal request for services under the Consultancy Agreement, the Plaintiff could have hired other personnel or expert to assist the Defendant.

41.This new line of defence therefore also fails.

Whether the Plaintiff has failed to prove that it was ready and willing to perform the services under the Consultancy Agreement as and when requested in the relevant period?

42.Even if I am wrong on all the above and that the Plaintiff had been repudiated the Consultancy Agreement (whether by not being available to provide service or by refusing to assist in resolving the dispute between the Defendant and TOWA), the Defendant has certainly not accepted the Plaintiff’s repudiation and terminated the Consultancy Agreement.  YIN is adamant in his testimony that the Consultancy Agreement had been kept alive after the lunch meeting and he had been waiting for KK-MAK to come back with a proposal.  This, according to him, is confirmed by the continued payment of consultancy fees in March [Bundle 141], April [Bundle 144], June [Bundle 145-146], July [Bundle 147] and October 2003 [Bundle 148].  According to YIN, the decision to stop payment only came about in December 2003!

43.I agree with the observation of the Plaintiff’s counsel that there is no half-way situation whereby the Defendant might keep the Consultancy Agreement alive and yet not pay the consultancy fees thereunder.  If the Defendant did not terminate the Consultancy Agreement by clearly and unequivocally accepting the Plaintiff’s repudiation, it would run the risk of being in breach itself were it not to perform its side of the bargain by paying the consultancy fees.  See the judgment of Ma JA in Chao Keh Lung Bill v. Don Xia [2003] 4 HKC 660 at 675G-767A.

44.In his closing submission, Defence counsel relies principally on Miles v. Wakefield Metropolitan District Council [1987] AC 539 and submits that the Plaintiff bears the initial burden of averring and proving its readiness and willingness to render the services required by the Consultancy Agreement.

45.In Miles v. Wakefield Metropolitan District Council, the plaintiff was a superintendent registrar of births, deaths and marriages appointed by the defendant council pursuant to statute.  The plaintiff’s normal working week consisted of 37 hours, including 3 hours on Saturday morning which was the most popular time for civil weddings.  The plaintiff’s trade union instructed all superintendent registrars to take industrial action by, inter alia, refusing to conduct weddings on Saturdays.  The defendant made it clear that the plaintiff was not required to attend work on Saturdays whilst he was not prepared to undertake the full range of his duties.  The plaintiff did as instructed by his trade union, whilst remained to be willing to work a 37-hour week and to attend his office on Saturdays.  The defendant council deducted from the plaintiff’s salary sums representing the 3 hours pertaining to Saturdays during the industrial dispute.  After the industrial dispute ended, the plaintiff sued the defendant for the salary deducted.  His action was dismissed at first instance but the Court of Appeal allowed his appeal.  The defendant then appealed to the House of Lords.

46.The appeal was unanimously allowed by the House of Lords and the plaintiff’s action was dismissed.  The House held that there was no logical distinction between the plaintiff’s position and that of an employee under a contract of employment.  An employee’s right to remuneration depended on his doing or being willing to do the work that he was employed to do and if he declined to do that work the employer need not pay him.  Hence, the defendant council had been entitled to deduct the sums in question from the plaintiff’s salary in view of his refusal to work on Saturday mornings.

47.To me, this is a spectacular attempt on the part of the Defendant to avoid all the difficulties in its defence highlighted above.  If the Defendant were right, it does not have to prove that the Plaintiff was in breach, it does not have to establish that it accepted the Plaintiff’s repudiation, and it does not have to plead a set-off or counterclaim and to substantiate its loss by evidence.  All that the Defendant needs to do in order to succeed in this action is to sit back and let the Plaintiff tumble in proving its case.  In the end, has the Defendant succeeded in turning the tables on the Plaintiff?  I think not.

48.The main decision of the House of Lords is containedin the judgments of Lord Templeman and Lord Oliver of Aylmerton.  In my view, the decision hinges on what the counsel for the defendant council had called “the theory of interdependent obligation”.

49.Lord Templeman articulated the theory as follows (at 561B-C):

“In a contract of employment wages and work go together.  The employer pays for work and the worker works for his wages.  If the employer declines to pay the worker need not work.  If the worker declines to work, the employer need not pay.  In an action by a worker to recover his pay he must allege and be ready to prove that he worked or was willing to work.  Different considerations apply to a failure to work by sickness or other circumstances which may be governed by express or implied terms or by custom.”

50.And His Lordship concluded that (at 564H-565B):

“In my opinion, wages are remuneration which must be earned; in a claim for wages under a contract of employment, the worker must assert that he worked or was willing to work … When a worker in breach of contract declines to work in accordance with the contract, but claims payment for his wages, it is unnecessary to consider the law relating to damages and unnecessary for the employer to rely on the defences of abatement or equitable set-off.  The employer may or may not sustain and be able to prove and recover damages by reason of the breach of contract for each worker.  But so far as wages are concerned, the worker can only claim them if he is willing to work.  The plaintiff is in no better position than a worker under a contract of employment in declining to work in accordance with the duties of his office.”

51.In the words of Lord Oliver (at 570E):

“… where the employee declines to work at all for a particular period … then, subject to the question of whether the wages or salary payable are apportionable on a periodic basis, I see no ground upon which the employee who declines to perform that condition upon which payment depends can successfully sue for the remuneration which is dependent upon its performance.”

52.The conclusion reached by His Lordship was that (at 574D):

“A plaintiff in an action for remuneration under a contract of employment must, in my judgment, assume the initial burden of averring and proving his readiness and willingness to render the services required by the contract (subject, no doubt, to any implied term exoneration him from inability to perform due, for instance, to illness).”

53.In my view, the present case is distinguishable from the scenario discussed in Miles v. Wakefield Metropolitan District Council.  The so-called “the theory of interdependent obligation” does not apply to this case.

54.Defence counsel has accepted that the Plaintiff need not work at all under the Consultancy Agreement unless requested by the Defendant (see paragraph 14 of Defendant’s closing submission).  The evidence in this case reveals that the Plaintiff is entitled to consultancy fees even though it has not provided any service to the Defendant so long there was no request for services.  In the premises, the interdependency between the services provided by the Plaintiff and the payment of the consultancy fees by the Defendant is premised upon the Defendant first making a request for services under the Consultancy Agreement.  For reasons which have been set out earlier in this judgment, I am not satisfied that the Defendant has requested for services under the Consultancy Agreement.

55.In any event, even if Miles v. Wakesfield Metropolitan District Council can be applied, I am satisfied that the Plaintiff has proved that it was ready and willing to perform the Consultancy Agreement.  The evidence shows that CHANG could all along be reached at the Plaintiff’s address and by the telephone and facsimile numbers printed on the invoices during the term of the Consultancy Agreement.  I am not convinced by the Defendant’s evidence that KK-MAK had not been available.  I accept the testimony of CHANG and KK-MAK that KK-MAK would have assisted his wife (and hence the Plaintiff) had there been a request for services by the Defendant under the Consultancy Agreement.

Conclusion

56.For the above reasons, I enter judgment in this action in favour of the Plaintiff and against the Defendant in the sum of $250,000 together with interest thereon at judgment rate from the date of writ until payment.

57.There is no reason why costs should not follow the event.  I make a costs order nisi pursuant to Order 42, rule 5B(3) of the Rules of the District Court that the costs of this action including all reserved costs be to the Plaintiff to be taxed if not agreed.  Unless an application has been made to vary the costs order nisi, the order shall become absolute 14 days after the decision is pronounced.

Mr. Damian Wong instructed by Messrs. Benny Kong & Peter Tang for the Plaintiff.

Mr. Geoffrey Chang instructed by Messrs. W.K. To & Co. for Defendant.