Enterprises Solutions Group (HK) Ltd v. Pacific Ace Trading HK Ltd

DCCJ 3145/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.3145 OF 2004

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BETWEEN

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

Date of Hearing : 20^th – 21^st June 2006

Date of Handing Down Judgment : 4^th September 2006

JUDGMENT

Background

1.The Plaintiff is a company carrying on business in providing software consultancy services.  It is licensed to supply a software named “Microsoft Navision ERP System” (“the System”) including the provision of setting up and customisation services of the System to customers.

2.The System is a software for commercial firms for better management of their business with computers.

3.The Defendant is a wholesaler of various products trading between Hong Kong and the Philippines.  Its business also includes the operation of supermarkets, warehouse and delivery service from Hong Kong to the Philippines.

4.By a written agreement (“the Agreement”) signed between the Plaintiff and the Defendant, the Plaintiff agreed to provide the System licence, implement the System and provide consultancy, training and other services to the Defendant and the Defendant agreed to pay the sum of HK$647,089.00 in stages.

5.It is a provision of the Agreement that the Defendant shall pay 100% of total licence value and 50% of the total consultancy value upon signing of the agreement. (“the Deposit”)

6.The Defendant did not pay the Deposit.

7.The Plaintiff allege that the Defendant has wrongfully repudiated the Agreement and is now claiming their loss of profits of HK$322,888 as a result.

8.As submitted by Mr. Maurellet, counsel for the Defendant, in his final submission, the Defence is basically misrepresentation in that (1) representations were made on the Plaintiff providing suitable personnel having experience relating to the Defendant’s specific businesses (2) this being relied upon and (3) this being false, as the Plaintiff is unable or unwilling to do so. 

Evidence

9.It is not in dispute that parties had signed the Agreement in relation to the System albeit not on the same date.  The Agreement was originally a proposal sent by the Plaintiff to the Defendant and it was concluded upon the Defendant signing on it on 20^th February 2004.

10.The fees to be charged by the Plaintiff were separated into 2 parts according to the Agreement.  The first part was the licence fees of the System amounting to HK$257,089.  The second part was the service or system consultancy fee amounting to an estimate of HK$390,000.  As mentioned in Paragraph 5 above, the Deposit that the Defendant was liable to pay upon signing the Agreement according to its term is therefore HK$452,089.

11.An invoice dated 20^th February 2004 was sent by the Plaintiff to the Defendant asking for payment of the Deposit.  A bank account of the Plaintiff was given in the invoice.

12.A “kick-off” meeting was held between the officers of the parties on 26^th February 2004.  Apart from Mr. Kelvin Shiu (“Shiu”), Regional Marketing Manager of the Plaintiff, Miss Madeleine Lam (“Lam”) and Mr. Jack Shea (“Shea”) of the Plaintiff also attended the meeting.  Lam and Shea were introduced to be the Project Managers for implementation of the System on the Defendant.  Resume of them were given to the Defendant for reference at the meeting.  

13.During the period between 26^th February and 8^th March 2004, Shiu repeatedly urged the Defendant to pay the Deposit.  Upon negotiations between parties, Shiu proposed on behalf of the Plaintiff to revise the payment schedule of the Deposit by allowing the Defendant to pay part of the licence fee at a later stage.  However, the Defendant had made no response to this proposal.

14.In an email dated 8^th March 2004, Shiu made enquires to the Defendant as to when the implementation of the System can be started and the Defendant’s position on payment of the Deposit.

15.By a letter dated 8^th March 2004 faxed to the Plaintiff, the Defendant voiced out their dissatisfaction about the lack of experience of Lam and Shea in the Defendant’s particular field of trade and asked to replace them.  There was no mention of the payment of the Deposit in this letter.

16.In an email dated 10^th March 2004 to the Defendant, Shiu promised to arrange new project managers for the Defendant and requested the Defendant to pay the Deposit.  In an email dated 11^th March 2004, Shiu reiterated that the Deposit has to be paid in order to get the project implementation started and requested the Defendant again to pay the Deposit.  Shiu indicated in the email that if the Deposit is not paid by 15^th March 2004, legal action will be taken against the Defendant.

17.On 15^th March 2004, Shiu chased for payment of the Deposit again by another email.  On the same day, the Defendant wrote to the Plaintiff by fax querying again the capability of the project manager or consultant of the Plaintiff.  The Defendant stated also that they have concern about more costs in man-days may be resulted from the incapability of the Plaintiff’s personnel and hence a higher charge for the consultancy fees.  The Defendant asked the Plaintiff to provide information of replacement personnel for their consideration but, again, there is no mention of payment of Deposit in the letter.

18.In reply to the above letter from the Defendant, Shiu sent an email on the same day saying that the Plaintiff is willing to change the consultants but the Defendant has to settle the Deposit first.  Shiu also acknowledged the Defendant’s concern on man-days charges and suggested to discuss with the Defendant to see if the basis for calculation of consultancy fees can be changed to a “fixed project cost based on agreed project scoop”.  There was no reply from the Defendant to this email.

19.On 23^rd March 2004, the then solicitors for the Plaintiff issued a demand letter to the Defendant for payment of the Deposit.  There were subsequently some correspondences between the solicitors of parties.  In a letter dated 4^th May 2004 from the Defendant’s solicitors to the Plaintiff’s then solicitors, the Defendant denied having agreed to pay any compensation to the Plaintiff and alleged that there was no binding contract between the parties.

20.By a letter dated 10^th May 2004 from the Plaintiff’s then solicitors to the Defendant’s solicitors, the Plaintiff stated that they accepted the Defendant’s repudiation of the Agreement.

21.It is the evidence of Ms. Virginia S. Dio (“Dio”) that she had made known to Shiu before signing of the written agreement that :

(i)	the System would be of no value to the Defendant without the suitable personnel to implement or customize it, and also to answer the specific needs of the Defendant’s various businesses;
(ii)	the Plaintiff must provide project manager and consultant with the requisite qualifications and relevant experience with respect to the Defendant’s specific businesses, which was crucial to the successful customization of the System; and
(iii)	the Defendant’s goal was to use the System to cover its business not only in Hong Kong, but also in its branches at Manila and Subic of the Philippines.

22.It was in fact stipulated under the Agreement, inter alia, that the Plaintiff would provide a team of consultants which would offer to the Defendant a wealth of relevant experience including extensive experience working in global/regional implementations.

Discussion

23.It is beyond dispute that an effective contract had been concluded when the Defendant signed on the proposal from the Plaintiff.  Parties were then bound by the terms on it.

24.As it is a term of the Agreement that the Defendant shall pay the Deposit upon signing the contract, the Defendant is obliged to pay unless it can prove that the contract is void or voidable.

25.For the present case, the Defendant has to prove that the representation of the Plaintiff as alleged was false in that the Plaintiff was unable or unwilling to provide suitable consultants or project managers.

26.There is no evidence adduced from the Defendant seeking to prove that the Plaintiff was unable to provide suitable consultants or project managers.  Mr. Maurellet suggested that this court can draw inference from the fact that the Plaintiff did not provide replacements despite the repeated requests of the Defendant that there was no suitable candidates in the Plaintiff.  With respect, as can be seen from the correspondences between parties, the Plaintiff had all along been maintaining that they have the suitable candidates but would wait until the Defendant paying the Deposit for further actions.  The fact that the Plaintiff did not provide replacements at once does not mean that they are unable to do so.

27.Furthermore, as can be seen also from the correspondences between parties, the Plaintiff had all along been willing to provide replacements subject to the payment of the Deposit by the Defendant which is an obligation of the Defendant under the contract.  The Plaintiff had demonstrated no unwillingness to change personnel for the Defendant at any stage.

28.An important point to note is that, the Plaintiff had put in a lot of effort to accommodate the Defendant in order to get the project started, including restructuring the payment schedule and changing basis for calculation of consultancy fees.  On the other hand, albeit the Defendant had never disputed its liability to pay the Deposit, no payment had ever been made.  

29.I am of the view that there is no misrepresentation from the Plaintiff and the Defendant had wrongfully repudiated the Agreement in refusing to pay and/or failing to pay the Deposit within a reasonable time.

Quantum

30.It is common ground that the measure of damages is to put the Plaintiff where it would be had the contract been performed.  However, Mr. Maurellet submitted that the Plaintiff had failed to prove sufficiently the actual amount of the damages.

31.In the supplemental witness statement of Shiu, he set out the actual loss of profits of the Plaintiff in a table enclosed thereto.  The loss was calculated by way of subtracting the Plaintiff’s costs from the expected revenue under the Agreement.

32.Mr. Maurellet submitted that Shiu has failed to produce a licence agreement between Microsoft and the Plaintiff at the material time to prove the profits that the Plaintiff can generate in selling a licence.  He also commented that the Plaintiff had shown no particulars of the works of Lam and Shea to be done to justify the man-days to be charged.

33.On the other hand, Mr. Szeto, counsel for the Plaintiff, submitted that there was no challenge of the Plaintiff’s evidence on the costs of the licence and the calculations in relation to the implementation work.  I agree with him.

34.I have heard the evidence of Shiu.  Although the licence agreement produced was not between Microsoft and the Plaintiff and was dated subsequent to the Agreement, it was Shiu’s evidence that the table was prepared based on his understandings from his superiors.  I accept that Shiu was an honest witness and I see no reason to query his understandings of the practice of the Plaintiff.  As the Regional Marketing Manager of the Plaintiff, Shiu must have possessed the accurate information of the Plaintiff in order to allow him to negotiate with clients in the best interests of the Plaintiff.

35.I accept Shiu’s calculations as an accurate account of the actual loss of profits of the Plaintiff out of the repudiation of the Agreement by the Defendant.

36.Accordingly, I order that judgment be entered in favour of the Plaintiff against the Defendant for the sum of HK$322,888 and interest thereon at Judgment Rate from the day of the issuance of the Writ until payment.

37.I see no reason why costs should not follow the event and I make an order nisi that costs of the action be to the Plaintiff to be taxed

38.if not agreed, with certificate of counsel.  This order nisi will become absolute after 14 days from handing down of this judgment.

Mr. Patrick Szeto instructed by Messrs Tung, Ng, Tse & Heung for the Plaintiff.

Mr. Jose Antonio Maurellet instructed by Messrs Bobby Tse & Co for the Defendant.