TAI MEI KEI MAGGIE trading as GREAT TIME COMPANY v. STYLE TRAVEL COMPANY LTD

DCCJ 1152/2021

[2024] HKDC 1307

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1152 OF 2021

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JUDGMENT

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Introduction

1.  The defendant (Style Travel) has been a licensed travel agency operating in Hong Kong since 1994. Its only shareholders and directors are Madam Cheung Ching Lan Celina and her husband, Mr Chui Sui Hung. The defendant employs approximately 5 to 6 ticket sales staff and works with around 10 to 20 other marketing agents.

2.  In March 2009, the plaintiff was employed by Style Travel as senior travel consultant (with a basic monthly salary of HK$12,000) responsible for selling air tickets and hotel bookings. Since March 2012, she has become a marketing agent (an independent contractor) of Style Travel. She then provided ticketing and travel arrangement services to Style Travel on a commission basis or a sharing of profits, which is what is at issue in this case. The plaintiff herself is not a licensed travel agent.

3.  China Power Gas Limited (“China Power”), a related company of Beijing Gas Blue Sky Holdings Limited (a listed company, stock code: 6828) (“Blue Sky”) and Blue Sky (collectively “the Customers”) are the main customers of the plaintiff. The plaintiff dealt directly with them for the sale of the air tickets and other travel arrangements.

4.  On 24 April 2020, China Power made a payment of HK$256,429 by cheque deposited into the defendant’s bank account.

5.  On 6 January 2021 and 7 January 2021, Blue Sky made two bank transfers of HK$811,721 and HK$452,902, respectively, totalling HK$1,264,623, to the defendant’s bank account. The above three payments made by the Customers totalled HK$1,501,052 (“the Sums”).

6.  The plaintiff’s case is that the Sums represented the profits she earned from the ticketing services she provided to the defendant for the Customers and thus belong to her. The plaintiff requested the defendant to release the same to her.

7.  However, the defendant disputes the plaintiff's claim. It was considered that there were no outstanding invoices to be paid by the Customers and, and the Sums were returned to them.

8.  The plaintiff now sues the defendant for breach of contract.

The plaintiff’s case

9.  The plaintiff says that, on or about 1 March 2012, when she decided to become a marketing agent for the defendant, the defendant (through Madam Cheung) as the principal and the plaintiff (trading as Great Time Company) as the agent reached an oral marketing agreement (“the Oral Agreement”).

10.  As pleaded in the Amended Statement of Claim, the terms of the Oral Agreement are:-

(1)  The plaintiff shall provide ticketing and travel arrangement services exclusively to the defendant under the plaintiff’s sole proprietor company Great Time;

(2)  The defendant shall grant credit to the plaintiff for her request for ticketing and travel services from the defendant to her customers. If any customer of the plaintiff has failed to settle any invoice issued by the defendant to the plaintiff, the plaintiff will be liable to settle such outstanding invoice upon the defendant's request (the plaintiff was required and signed a Personal Guarantee in favour of the defendant to that effect);

(3)  Upon the plaintiff’s request for the air ticket, the defendant shall inform the plaintiff of the price quoted by the airline company and the price that the plaintiff must pay to the defendant (the plaintiff corrected this in her Reply and Defence to Counterclaim that the plaintiff would prepare the “preliminary invoice” with the preliminary top-up decided by the plaintiff for the defendant’s approval);

(4)  The defendant shall issue its “preliminary invoice” to the plaintiff upon receipt of her request;

(5)  The plaintiff will be entitled to a commission equivalent to 50% of the gross profit from the preliminary invoices issued by the defendant every month;

(6)  In order to secure due payment from the plaintiff under the preliminary invoices, the defendant shall hold a certain amount of money as security fund from the commission of the plaintiff every month;

(7)  As the defendant’s authorised agent, the plaintiff is entitled to issue her own “final invoices” to her customers on behalf of the defendant by topping up to an extent as the plaintiff shall think fit as her own profits;

(8)  The plaintiff’s customers will settle the final invoices directly with the defendant;

(9)  The defendant shall return the plaintiff such profits or any part thereof received from her customers on her behalf upon the plaintiff’s request; and

(10)  Before receiving the plaintiff’s request to pay out the profits, the profits so accrued will be recorded as credit notes, pending the funds in the defendant’s bank account.

11.  From 1 March 2019 to 23 April 2019, the plaintiff issued 58 final invoices to China Power, totalling HK$256,429.

12.  From 1 July 2019 to 31 July 2019, the plaintiff issued another 285 final invoices to Blue Sky, totalling HK$1,264,614.

13.  Both China Power and Blue Sky have settled these final invoices with the defendant (as mentioned above).

14.  The plaintiff alleged that she had already settled with the defendant all the corresponding preliminary invoices of these final invoices by deducting the profits or credit notes previously accrued. The plaintiff, therefore, claims entitlement to the Sums in full amount, ie HK$1,521,052.

15.  On or about 20 January 2021, the plaintiff received an email from the defendant's Finance and Operation Manager, Mr Jason Lui (“Jason”), stating that the defendant was terminating the marketing agreement with the plaintiff and would return the Sums to the Customers. Despite repeated demands made by the plaintiff, the defendant has still failed or refused to return the Sums to the plaintiff.

16.  On 16 March 2021, the plaintiff commenced proceedings against the defendant.

17.  The plaintiff also claims that there were other outstanding payments that the defendant owed to her:-

(1)  Profits of HK$536,560 under various credit notes listed in the Schedule attached to the Amended Statement of Claim;

(2)  Commission of HK$6,108 for the month of January 2021; and

(3)  Security fund of HK$77,000 being held by the defendant.

18.  The plaintiff’s total claim amount is HK$2,140,720.

The defendant’s case

19.  The defendant denies that there was any Oral Agreement.

20.  The defendant averred that there was actually a written marketing agreement signed by the plaintiff on or about 1 March 2012 (“Written Agreement”), together with a personal guarantee (“Personal Guarantee”). However, the defendant could not locate the Written Agreement, which might have been lost due to two office relocations. It only has the signed Personal Guarantee in its possession.

21.  According to the defendant, the Written Agreement is a standard contract drafted by then solicitors (Messrs Tam, Pun & Yipp) engaged by the defendant in 1995. The defendant would require all marketing agents, including the plaintiff, to sign such an agreement upon their appointment.

22.  The terms and conditions of the Written Agreement are inter alia as follows:-

(1)  Style Travel appoints the plaintiff as its marketing agent for Hong Kong, and the plaintiff accepts this appointment.

(2)  The commission payable to the plaintiff shall be 50% of the sales profits after deduction for the security fund (as specified in the schedule of the agreement);

(3)  “Sales Profits” is defined as the total dollar value of all contracts entered into between the customers and Style Travel each month, less Style Travel’s expenses for that month in providing the service to the customers, as determined solely by Style Travel;

(4)  The plaintiff shall pay into the security fund on the last day of each month the amounts calculated by reference to the sales volume of the immediately preceding month in accordance with the schedule, which shall be payable until the security fund has accumulated to a total of HK$100,000;

(5)  Style Travel shall be entitled to withdraw from the security fund any payments outstanding for more than 40 days from the invoice date without the need to obtain any authorization from the plaintiff;

(6)  Clause 4.01: Style Travel shall be entitled to deduct from any commission payable to the plaintiff all payments to be made by the plaintiff into the security fund.

(7)  The plaintiff shall be solely liable for all uncollectible debts howsoever and wherever contracted by the plaintiff together with all interest and incidental cost.

23.  In essence, the defendant denies that the alleged practice of two sets of invoices, namely the preliminary invoices and final invoices, existed between the defendant and the plaintiff or the Customers. The so-called preliminary invoices are the only “real invoices” issued by the defendant, and the defendant had no knowledge of any final invoices.

24.  The defendant also denies that the plaintiff was ever allowed to top up her own profits by issuing her own final invoices. According to the defendant, the credit notes issued by the defendant were intended to record any overpayment made by the customers or any refunds made by the airlines, not to record any accrued profits for the plaintiff.

25.  The defendant avers that the sales contract was made between the defendant and the customers through the marketing agents. The defendant did not have direct contact with the customers.

26.  The normal operating procedure was for the defendant to issue the invoice addressed to the customers. The plaintiff was responsible for liaising with the customers, which included passing the invoices to them and reminding them to pay any amount due to the defendant. The customers would settle the invoices directly with the defendant.

27.  The defendant avers that the 58 final invoices issued to China Power and the 285 final invoices issued to Blue Sky were false invoices made by the plaintiff without the defendant’s authorization and knowledge. These invoices were only disclosed to the defendant in these proceedings by the plaintiff’s solicitors. The defendant pleaded that the plaintiff, by issuing false invoices, had committed criminal offences under ss 71 to 75 of the Crime Ordinance (Cap 200) and should be barred from any relief by the court under the doctrine of ex turpi causa.

28.  On 7 January 2021, the plaintiff informed the defendant via WhatsApp messages that China Power and Blue Sky had transferred the Sums (HK$1,521,052) to the defendant's bank account and that the plaintiff would discuss with the Customers the arrangements for the purchase of the air tickets. However, the unusually large amount of money raised suspicions for the defendant as to whether the sums had been authorized by the Customers or whether it was a mistake by the Customers. Ms Cheung of the defendant considered that at the time of the COVID-19 pandemic, it was unusual for customers to use such a large amount of money to purchase air tickets. Furthermore, there were no outstanding invoices from the customers (and no further invoices were issued) since July 2020, according to the defendant's records.

29.  On 18 January 2021, Blue Sky suspended trading on the Hong Kong Stock Exchange.

30.  On 20 January 2021, Oriental Daily reported that Mr Cheng Ming Kit, the non-executive director and deputy chairman of the board (former CEO and co-chairman of the board) of Blue Sky, had been detained by the Mainland authorities for criminal investigation of economic crimes. The defendant discovered that some air tickets sold through the plaintiff to China Power and Blue Sky were for Mr Cheng and his family.

31.  On or about the same day, the defendant terminated the service contract (ie the Written Agreement) with the plaintiff and informed the plaintiff that it would return the Sums to the Customers.

32.  In late January and February 2021, the plaintiff through her then solicitors, issued demand letters to China Power, Blue Sky and the defendant, requesting the return or release of the Sums to her.

33.  In March 2021, the defendant made enquires with Blue Sky (which also represented China Power). On 9 March 2021, Blue Sky (and China Power) confirmed that the Sums belonged to them.

34.  On 17 March 2021, the defendant returned the Sums to China Power and Blue Sky.

35.  The defendant denies that the Sums were the profits of the plaintiff.

36.  As to the plaintiff’s other claims, the defendant avers that:-

(1)  The credit notes listed in the Schedule totalling HK$536,560 were refunds from airlines and hotels for cancelled bookings and belonged to the Customers, who originally paid the monies;

(2)  The plaintiff’s commission for January 2021 was HK$4,708. A cheque had been issued to her, but she failed to collect it; and

(3)  The defendant admits that the defendant still holds $77,000 in security funds belonging to the plaintiff.

37.  The defendant counterclaims damages for the legal expenses in the sum of HK$95,854 incurred in liaising with the Customers before returning the Sums to the Customers.

Issues

38.  The main issue to be determined by the court is whether there was an Oral or Written Agreement between the plaintiff and the defendant.

39.  I agree with Mr Cheung, counsel for the plaintiff, that once this issue can be resolved, the respective cases of the parties will follow.

40.  Mr Tsang, counsel for the defendant, submitted that there was an agreed list of issues between the parties. It covered 15 issues in dispute and lasted 3 pages long. I consider these to be only sub-issues, and I do not find it necessary to set them out here.

Analysis

41.  According to the plaintiff's evidence, the plaintiff's income or profits consists of two parts:-

(1)  The 50% commission based on the difference between the initial sales price determined by the plaintiff (with “preliminary invoices”, or as what the defendant calls the “real invoices” issued by the defendant) and the net price charged by the airlines; and

(2)  The top-up profits based on the final sales price determined by the plaintiff (with “final invoices” issued by the plaintiff) on top of the initial sales price of the preliminary or real invoices.

42.  The parties do not dispute the 50% commission. In fact, the plaintiff received her 50% commission from the defendant in the sums of HK$253,854.70 and HK$121,967 for the years 2019 and 2020, respectively.

43.  The top-up profits are at the heart of the dispute. The issue is whether the plaintiff has the right to mark up the initial sales price to a final sales price solely for her own profit, allegedly on the basis of the Oral Agreement, if such an agreement ever existed. On the basis of the Oral Agreement, the plaintiff could even reduce the price or keep the price at the level of the preliminary invoice to accommodate her customers (though this was rarely the case).

44.  Having considered all the evidence, I accept the defendant’s evidence and find the matters set out above for the defendant’s case to be facts. Conversely, although the documents appear to support the plaintiff’s case for payment of final invoices, I do not accept her case, and I reject her evidence. My reasons are as follows.

The Sums

45.  The parties have produced over 2,000 pages of documents, mainly invoices and credit notes, covering the period from 2018 to 2020 for the air tickets issued to the Customers. Each invoice represents the sale of one or more air tickets. There are two versions of each invoice: the preliminary invoice and the final invoice. Both invoices were printed in the same style and format, with the same invoice number and content description. However, they had some differences such as fonts and staff details, as noted by the defendant’s counsel. Overall, the two invoices look almost identical, aside from the difference in the prices.

46.  Counsel for the parties were very helpful in providing the court with various tables comparing the preliminary invoices and final invoices of the 58 and 258 transactions in dispute.

47.  The difficulty with this case is that, even after a review of all the invoices and credit notes presented by counsel during the four days of the trial, it appears that the documents are in support of both parties’ cases. For example, the plaintiff provided the Court with a copy of the cheque for each payment made by the Customers, together with a summary of all the invoices paid (i.e. the final invoices) and supporting copies of the actual final invoices. Since the total amount paid corresponded exactly to the dollar figure, there was no doubt that the Customers had paid in accordance with the final invoices issued by the plaintiff. The final invoices included the additional profit made by the plaintiff. This means that, from the defendant's perspective, the invoices issued by it (i.e. the preliminary or real invoices) would always be overpaid. Accordingly, in order to record the overpayment made by the Customers, the defendant would issue credit notes and official receipts. It then appears that the defendant followed the plaintiff's instructions as to which invoices should be settled with the payment received.

48.  However, this court considers that several features of this case render the plaintiff’s version implausible.

49.  First of all, it occurred to me that the defendant was not actually aware of the existence of the final invoices.

50.  It is important to note that the plaintiff has not stated in her pleadings whether the increased price she fixed for the issuance of the final invoice required the defendant's approval or at the very least, whether it should be brought to the defendant’s attention.

51.  During cross-examination, the plaintiff's testimony was convoluted in that regard. On the one hand, she seemed to suggest that the defendant had no control over the price she set for the final invoice, but on the other hand, she claimed that the final price had to be approved by the defendant before the order could be accepted, when she was asked whether setting the price for the final invoice too high would deter customers and damage the defendant's reputation. Given her contradictory evidence, I do not believe that the plaintiff has been truthful.

52.  Indeed, there was no documentary evidence, such as emails or WhatsApp messages, to indicate that the plaintiff had ever asked the defendant for approval of the final invoice in the past 10 years.

53.  In addition, it is Jason’s evidence that all invoices should have been generated by the accounting system PowerSuite, which is linked to the airlines and automatically records the sales information for accounting purposes. Jason is the Finance & Operation Manager responsible for overseeing the accounting department. He explained to the court the importance of using PowerSuite to issue invoices, and that he had never seen any staff or marketing agent allowed to invoice without using PowerSuite. He gave evidence in a straightforward manner, and I accept his evidence.

54.  In my view, if the defendant had agreed to allow the issuance of both a preliminary invoice and a final invoice, both should have been issued using the PowerSuite accounting system. There is no reason why the defendant should have allowed the plaintiff to use her computer to issue another set of invoices. It is inconceivable to me that the defendant’s IT technician would have installed Word-like software to enable the plaintiff to issue another set of invoices that mimicked the PowerSuite invoices.

55.  In this regard, I accept the defendant’s case that the final invoices issued by the plaintiff were false invoices without the defendant’s authorization. I do not accept the plaintiff's assertion that the invoice issued by the defendant (the preliminary invoice), although addressed to the Customers, was intended to be used only between the defendant and the plaintiff. I also take into account the monthly official receipts prepared by the defendant, which only pertain to the real invoices with the lower sales price of the two sets.

56.  In the premises, I find that the defendant has never agreed to allow the plaintiff to issue any final invoices.

57.  Secondly, I do not believe that the credit notes issued by the defendant were intended to record the top-up profits of the plaintiff.

58.  In my view, the question is which set of invoices was presented to the Customers, the preliminary invoices or the final invoices. If the Customers paid on the basis of the final invoices, which I have found to have been issued without the defendant's authorization, any profits made on those invoices would not be legitimate.

59.  Mr Cheung submitted that, according to the plaintiff’s evidence, the Oral Agreement had been in place between the parties since 1 March 2012, and it was only about 10 years later (7 January 2021) that the defendant first raised an objection. I do not agree. There has not been a single distribution of top-up profits being shown to the court. It is undisputed that this is the plaintiff's first attempt to seek a release of the top-up profits, and the invoices produced to the court only show that the Customers had become the defendant’s customer since about 2018. I do not see how the plaintiff can criticize the defendant for not having raised objections in the past.

60.  The crux of the matter is that on the one hand, the defendant has issued the real invoices addressed to the Customers and relied on the plaintiff to pass them to the Customers for payment. On the other hand, the plaintiff presented to the Customers a different set of invoices (referred to as final invoices) for payment. The pictures do not add up. It seems to me that for the plaintiff’s plan to be feasible, the fact that the Customers have paid or settled the final invoices (not the preliminary or real invoices) must not be disclosed to the defendant.

61.  In respect of this question, I find it extremely helpful that Jason was able to inform the court that the “Summary” was never given to the defendant or the defendant’s account department. He said that he had never seen the Summary before, which did not bear any signature or company chop of the defendant. I believe it explains everything and why the defendant was prepared to record all the overpayments with credit notes.

62.  At this juncture, I should also mention that although it seems odd to me that the defendant did not raise any queries when the Customers were always overpaying by about a hundred thousand dollars with their payments, I accept Madam Cheung’s explanation that it is not unusual for some customers to overpay. I noted that the monthly transaction amounts between the defendant and the Customers ranged from $250,000 to $500,000 on average. Therefore, any overpayment of $100,000 to $200,000 would not be disproportionate to the sales.

63.  I also accept Madam Cheung’s explanation that, in fact, the Customers would still owe the defendant’s money even though there were credit notes issued by the defendant. She said that it was because the Customers usually settle the invoices only after 6-9 months, and during that period of terms, the Customer would have accumulated many other outstanding invoices. I think it is significant to note that the defendant has never returned any credit notes money to the Customer, and it was always kept in the Customers’ account at the defendant’s company for future use. It is consistent with Madam Cheung’s evidence and I find Madam Cheung to be an honest witness.

64.  Furthermore, it is important to note that the plaintiff was never paid for the alleged top-up profit from the credit notes. In my view, if such top-up profit did exist as claimed, it would only be right for the plaintiff to have issued debit notes to the defendant for the top-up profit to which she was entitled. However, this scenario is not what is being presented to the court.

65.  I reject the plaintiff’s assertion that the credit notes recorded the profits belong to her.

66.  To conclude, I do not believe the plaintiff. I find that she has made false invoices without the defendant’s notice. I find that there was no Oral Agreement as alleged by the plaintiff.

67.  In the premises, the plaintiff’s claim for the Sums is dismissed.

Credit notes

68.  The next head of claim is the credit notes totalling HK$536,560, which are the plaintiff’s alleged profits as set out in the Schedule annexed to the Amended Statement of Claim.

69.  These credit notes are mainly refunds from the airlines for the cancelled air tickets. The original payments for those air tickets were made by the Customers; and as such, the refunds should be returned to the Customers, as named in the credit notes as the recipient party. The defendant also attached a “Receipt for Refund Ticket” to each of the credit notes to acknowledge receipt of the refunds from the airlines on behalf of the Customers.

70.  The dispute is that the plaintiff says that the refunds belong to her. In the plaintiff’s witness statement, she stated that there was an agreement made between the plaintiff and the Customers (ie China Gas and Blue Sky) that if the air tickets ever needed to be cancelled, there would be no refund to the Customers. The plaintiff further explained that it was because she gave the Customers very long payment terms (from half to one year), and the defendant agreed to record those refunds from the airlines as her profits.

71.  The refunds due to cancellation were not an insignificant sum. For example, on 24 June 2020, there was a refund for the cancellation of three first-class air tickets from Hong Kong to Dubai, totalling HK$68,925 x 3 = HK$206,775. On 28 December 2020, there was another refund for three business-class air tickets from Hong Kong to Auckland, totalling HK$41,301 x 3 = HK$123,903.

72.  I do not accept the plaintiff’s evidence. Although this is basically an agreement made between the plaintiff and the Customers (third parties), I find that this agreement would invariably have been agreed upon between the plaintiff and the defendant. As the plaintiff said, she alleged that the defendant agreed to record those refunds as the plaintiff’s profits. However, I noted that the plaintiff has never pleaded these terms or terms of the agreement in her Amended Statement of Claim. I find that these are material terms which ought to be pleaded, but the plaintiff did not.

73.  The plaintiff also could not explain why such material terms were not even mentioned in her solicitors’ pre-action letter dated 28 January 2021. I also note that the plaintiff has never requested a release of the airline refunds if they indeed belong to her absolutely. In any event, I do not believe the plaintiff’s assertions here. I find that these refunds from the airlines belong to the Customers (as stated in the credit notes), and I will leave the return of the refunds for the defendant to sort out with the Customers.

74.  In the circumstances, I dismiss the plaintiff’s claim under this head.

Commissions

75.  The plaintiff claims an outstanding 50% commission for January 2021 in the sum of HK$6,108. The defendant admits to the extent of HK$4,078, which the plaintiff is willing to accept.

76.  I will make an order for the defendant to return HK$4,078 to the plaintiff.

Security funds

77.  The defendant admits that the defendant retained the security funds in the sum of HK$77,000 belonging to the plaintiff.

78.  I will order its return accordingly.

Defendant’s Counterclaim for damages for legal expenses

79.  The defendant counterclaims for pre-action legal expenses in the sum of HK$95,854 for the liaison between the defendant and the Customers (some third parties).

80.  The defendant was cautious in seeking legal advice to return the Sums to the Customers. Since I have found the plaintiff to have made false invoices, I find that it is reasonable for the defendant to have incurred legal expenses in dealing with the Customers, and that is not too remote.

81.  There is nothing to prevent the defendant from recovering its reasonable costs by way of damages once it has been established that they are the natural consequence of a civil wrong (Fairview Park Property Management Ltd v Lee Yuen-Yau [1988] 1 HKLR 290).

82.  I would allow the HK$95,854 in full.

Conclusion

83.  For the above reasons, the plaintiff’s claims for the Sums and the credit notes are dismissed, and her claim for the return of commissions and security funds are allowed in the sum of HK$4,078 and HK$77,000, respectively. The defendant’s counterclaim is allowed in the sum of HK$95,854.

84.  I give judgment for the plaintiff’s claim in the sum of HK$81,078 and judgment for the defendant’s counterclaim in the sum of HK$95,854. As such, the plaintiff shall pay HK$14,776 to the defendant.

85.  Since the major part of the plaintiff’s claim is dismissed and the defendant is the ultimate winner of this case, I will order costs to follow the event.

86.  I make an Order nisi that the plaintiff shall pay the defendant the costs of the action and the costs of the defendant’s counterclaim, to be taxed if not agreed, with certificate for counsel.