PARAGON SEARCH LTD v. GOODWILL INVESTMENT (HOLDINGS) LTD

HCA22073/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.22073 OF 1998

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J U D G M E N T

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1. The plaintiff is a company which carries on a business specialising in the recruitment of executives in the banking, securities and financial sectors on behalf of prospective employers. In this action, the plaintiff claims payment of $1,650,000.00 as a fee for services rendered by the plaintiff to the defendant by way of an introduction of one Lincoln Lee who was later employed by two companies within the same group as the defendant, Goodwill Investment Services Limited ("GIS Ltd") and Goodwill Commodities Limited ("GC Ltd"). Both companies are wholly owned subsidiaries of Goodwill Financial Services (Holdings) Ltd ("GFS Ltd").

The pleadings

2. As pleaded in the Amended Statement of Claim and as the case was opened on behalf of the plaintiff, it was the plaintiff's primary case that at a meeting held in the office of one Patrick Ho, on 23 April 1998, between Mr Esmond Chan for the plaintiff and Mr Ho for the defendant, an oral agreement was reached whereby the defendant agreed to engage the plaintiff to recruit brokers for the defendant or its associated companies on terms agreed upon by the parties as set out in a document titled "Search Firm Agreement" dated 23 April 1998 ("the SFA").

3. An alternatively pleaded case was that the defendant had made an express request for the plaintiff to start arranging interviews with potential candidates immediately and had thereby entered into a binding agreement to engage the plaintiff on the terms of the SFA which had been given to Mr Ho by Mr Chan on 23 April 1998.

4. It is alleged that at the end of the meeting, the SFA, already signed on behalf of the plaintiff, was handed to Mr Ho for signing and that he assured Mr Chan that it would only be a matter of formality that he should look at the already agreed terms as contained in the SFA before signing and returning the same. So, it is pleaded, a binding agreement was reached between the parties in terms as agreed and set out in the SFA.

5. The plaintiff alleges that subsequent to the meeting, Mr Chan searched for suitable candidates on an urgent basis and that on 27 April 1998, one Lincoln Lee was interviewed by Mr Chan in the plaintiff's office for the position. It is further alleged that on 28 April 1998, Mr Lee was put forward by Mr Chan as a suitable candidate for Mr Ho to interview and that Mr Chan arranged the interview for Mr Lee who was duly interviewed by Mr Ho for the defendant on 28 April 1998 at Mr Ho's office.

6. It is contended that the defendant, in agreeing to interview Mr Lee and in interviewing him, had by conduct agreed to be bound by the agreement through performance.

7. The plaintiff pleads that pursuant to the agreement, it is entitled to the consultation fee set out in the SFA.

8. Alternatively, it is contended that with the full knowledge that the plaintiff would proceed with the recruitment, the defendant permitted and induced the plaintiff to believe that the defendant had accepted the terms in the SFA and agreed to be bound by them. The plaintiff having recruited Mr Lee for the defendant in reliance on the same, the defendant is estopped from denying the agreement and liability for payment of the recruitment fee according to the terms of the SFA.

9. In the further alternative, it is contended that the plaintiff is entitled to such sum for the recruitment at a reasonable market rate.

10. The claimed invoiced amounts total $1,650,000.00.

11. The defendant, while admitting that Patrick Ho is its Executive Director, avers that he was also the Chief Executive Officer ("CEO") of GFS Ltd which is not a subsidiary company of the defendant.

12. The defendant admits that there was a meeting between Mr Chan and Mr Ho on 23 April 1998 but its positive case is that at the meeting, Mr Chan offered his service to recruit staff for Mr Ho but that no terms were discussed and that at no time did Mr Chan show or give a copy of the SFA to Mr Ho.

13. The defendant admits that Patrick Ho interviewed Lincoln Lee sometime in April 1998 but denies that Mr Ho interviewed Mr Lee on behalf of the defendant, and essentially denies the plaintiff's case that the interview was arranged by the plaintiff. The defendant avers that prior to the interview, Alan Lo had recommended or introduced Mr Lee to Mr Ho for the position of broker.

14. The defendant denies that it employed Mr Lee whether on 18 May 1998 or at all. Essentially, the defendant denies that it is liable to the plaintiff whichever way the plaintiff's case is put.

15. The primary case of the plaintiff as pleaded and opened was abandoned by counsel for the plaintiff in his closing submissions after the conclusion of the evidence. It is common ground that Mr Chan and Mr Ho met and had a discussion on 23 April 1998, that Mr Lincoln Lee was interviewed by Mr Ho on 28 April 1998 and was subsequently offered and took up employment as a broker with subsidiaries of GFS Ltd. The issue is therefore whether on the facts found, an agreement was made between the plaintiff and the defendant whereby the defendant is liable for the fee provided for in the SFA or the defendant is otherwise liable to pay a reasonable fee to the plaintiff.

The witnesses and their evidence

16. Mr Lincoln Lee and Mr Esmond Chan gave evidence for the plaintiff and Mr Patrick Ho and Mr Alan Lo gave evidence for the defendant. The standard direction had been given that witness statements should stand as evidence-in-chief unless the trial judge otherwise directed. However, only at the conclusion of the evidence-in-chief of the 2nd witness called, Mr Esmond Chan, did counsel for the plaintiff inform me that the parties had agreed that the witness statements should not stand as evidence-in-chief and that evidence-in-chief would be given from the witness box. This was confirmed by counsel for the defendant. The agreement between the parties was clearly contrary to the direction earlier given as it is a matter for the trial judge to consider whether the witness statements ought not to stand as evidence-in-chief. In this case, the trial judge was presented with a situation where all the evidence to be led on the plaintiff's side had already been given and it was too late not to accord the same treatment to the defendant. Where such a direction is given and one or other party considers it appropriate, the trial judge should be invited to consider at the outset whether the witness statements should not stand as evidence-in-chief; the matter should not be left to be raised after the witnesses have commenced their evidence.

17. I find the facts to be as follows:

The facts

18. The defendant is a publicly listed company, incorporated in Bermuda and registered in Hong Kong under Part XI of the Companies Ordinance. At the material time, it was called Goodwill Investment (Holdings) Ltd. It is now known as E2 - Capital (Holdings) Ltd. According to its annual report for the year 1997, the defendant carried on a number of businesses through subsidiaries and associated companies including financial services and property development. Its principal activities are described as acting as an investment holding company and providing corporate management services to its group companies. Before 1997, the defendant owned 100% of GFS Ltd through a subsidiary but the subsidiary sold 60% of its equity interest in GFS Ltd so that GFS Ltd ceased to be wholly owned by the defendant. Nevertheless, the defendant's investment in GFS Ltd clearly had a substantial effect on the profits of the Goodwill group.

19. In April 1998, Mr Patrick Ho Kwok Wai became the CEO of GFS Ltd and was appointed an Executive Director of the defendant on 20 April 1998. He is an accountant by profession and after working at Deloitte Haskins Sells as an auditor between July 1987 and February 1989, he joined first, one securities company and then another as an account executive specialising in the sale of Japanese equities. From March 1992 to March 1996, he held the position of Vice-President of the Equities Sales Department at Morgan Stanley Asia Limited leaving to join UBS Securities (East Asia) Limited as Executive Director and Head of its Hong Kong and China Sales Department from April 1996 to May 1997. Immediately prior to being engaged as the CEO of GFS Ltd, Patrick Ho had been the Managing Director and Head of the Institutional Sales Division of Seapower Financial Service Group from September 1997 to March 1998. He had therefore had more than 10 years' experience in the financial and securities field and several years' experience at the level of senior management by the time he became CEO of GFS Ltd.

20. Upon taking up his new position in April 1998, Patrick Ho was looking to expand the business of GFS Ltd immediately and to recruit additional brokers for its subsidiaries. During his employment at Morgan Stanley, Patrick Ho had come to know one Alan Lo who had joined Morgan Stanley in December 1993 and who later became a Vice-President of the Equities Derivative Department. Patrick Ho and Alan Lo were friends; a friendship which was sufficiently close for Patrick Ho to seek Alan Lo's views in March 1998 on his proposed move to CEO at GFS Ltd. In early April 1998, Patrick Ho spoke to his good friend and former colleague, Alan Lo of his requirement to recruit brokers.

21. In February 1997, Alan Lo had moved to Natwest Securities as a Director until February 1998 after which he joined Deutsche Securities Asia Limited as Managing Director and Head of the Equity Derivative Department (Asia). At Natwest Securities, he came to know Lincoln Lee.

22. Lincoln Lee had joined Natwest in September 1996 as an Assistant Director in the Institutional Sales Department where he became a broker selling to institutional clients. After leaving Natwest in July 1997, he joined AMMB Securities (HK) Limited in August 1997 as Vice-President, Equities. This marked a change in the nature of his work as broker. Whereas previously, he had been selling to clients of his employer and was remunerated on a fixed salary, AMMB Securities had no client base so that Mr Lee brought clients with him and was remunerated on a commission basis.

23. Even after Lincoln Lee joined AMMB Securities (HK) Limited, he and Mr Lo were in contact as each did business with the other. In addition to the other clients for whom he would buy and sell, Mr Lee would sell warrants issued by Mr Lo's employers and earn commission on the trades.

24. Mr Esmond Chan caused the incorporation of the plaintiff in 1996. The plaintiff's candidates were persons working at senior executive level in the finance industry including banking, brokerages and asset management. Prior to that, he himself had been a financial broker and had dealt with bankers so he had connections with potential candidates.

25. Some time in April 1998, Mr Esmond Chan of the plaintiff had heard that, Patrick Ho was looking to recruit brokers. On 23 April 1998, Mr Chan went to see Patrick Ho at the 19th floor of Henley Building in Central. What took place during their meeting is a matter of dispute.

26. On 27 April 1998, Mr Lee went to Mr Chan's office and signed the "Candidate Interview Form" which refers to a proposed interview with Patrick Ho, Executive Director of Goodwill Investment (Holdings) Ltd to take place on 28 April 1998. Mr Lincoln Lee attended an interview with Patrick Ho on 28 April 1998 at the 19th floor of Henley Building. Terms of employment were then discussed. At some point in the interview, Alan Lo and Patrick Ho spoke over the telephone in the presence of Mr Lee. Mr Lee was handed the telephone by Mr Ho and spoke to Mr Lo who recommended Mr Lee to work for Mr Ho.

27. A few days later, Mr Lee faxed his resumé to Mr Ho and the next day, on 5 May 1998, Mr Lee entered into a single contract of employment with GIS Ltd and GC Ltd as employer. The principal terms of his remuneration were that he would receive a monthly salary of $15,000.00 and commission at a rate not exceeding 40% of commission received by the two companies from business introduced and served by him less expenses.

28. On 4 May 1998, Mr Esmond Chan sent a fax to Patrick Ho addressed to the defendant and marked for the attention of Mr Ho as Executive Director. Mr Chan congratulated Mr Ho on his new job and wished him success. Referring to the meeting which they had had and Mr Ho's expansion plans, Mr Chan said that he had short-listed more than 30 potential and qualified Private Client/Corporate Sales candidates who could fit in with those expansion plans. He briefly described their total commission and the nature of the revenue they generated and enclosed for Mr Ho's reference a document headed "Private Client/Corporate Sales' Company Profile" which consisted of a list of names of brokerages.

29. At some point, after Mr Lee had signed the contract of employment, Mr Chan telephoned Mr Ho to find out what had happened as he had not been informed by Mr Ho that he had made an offer to Mr Lee. Mr Ho informed Mr Chan that he did not consider that it was through the plaintiff's effort but through that of Mr Lo that Mr Lee was employed.

30. On 7 September 1998, Mr Esmond Chan wrote to Mr K.B. Fung, the Chairman and Managing Director of the defendant stating that the meeting between Mr Lincoln Lee and Mr Ho had been arranged through the plaintiff and seeking payment of $300,000.00 as consultancy fee. An invoice was enclosed with the letter as was a copy of a document titled "Search Firm Agreement" the document being signed by Mr Esmond Chan for the plaintiff but not by the defendant. In the letter, Mr Chan stated that the Search Firm Agreement had been given to Patrick Ho at the meeting on 23 April 1998. Also, in this letter certain words were used in relation to Patrick Ho's conduct.

31. As a result, on 22 September 1998, solicitors for Mr Ho wrote to the plaintiff referring to these words as defamatory of him and inviting a retraction and apology. In this letter, the solicitors for Mr Ho set out his version of events, according to his instructions, including a denial that the SFA was received by Mr Ho from Mr Chan. No such retraction or apology was made. On 2 November 1998, Mr Ho commenced proceedings against Esmond Chan and the plaintiff for defamation.

32. On 30 September 1998, the plaintiff sent an invoice to the defendant addressed to Mr K.B. Fung for the interim balance of the Executive Search Fee being 33% of the first $2,000,000.00 remuneration paid to Lincoln Lee less the $300,000.00 which had been invoiced earlier. The basis for the claimed 33% was Clause 2.1 of the SFA which set out that the fee payable was 33% of the candidate's first year annual remuneration. A reminder in relation to the earlier invoice was also sent.

33. The plaintiff sent further invoices to the defendant in December 1998, the total amount of the invoices being $1,650,000.00. These invoices have never been paid and this action was commenced on 24 December 1998.

34. The above facts are not in dispute. Based on the witnesses' evidence and my evaluation of their evidence, I further find as follows.

The Meeting on 23 April 1998

35. Mr Esmond Chan's evidence was that he called on Patrick Ho on 23 April 1998 as a result of appointment made over the telephone after a mutual acquaintance, Charlie Lam, had told him that Patrick Ho had a new job in Goodwill and would like to expand his sales team. Mr Ho's evidence was that Mr Chan's attendance on 23 April 1998 was a "cold call", without prior appointment, although Mr Chan had been mentioned to him as a potential head-hunter by Charlie Lam. The significance of this apparently minor difference in their evidence lies in the SFA. The SFA as prepared by Mr Chan anticipates an agreement entered into on 23 April 1998 between the defendant as "Client" and the plaintiff. When this document came into being is hotly disputed, it being the plaintiff's case that it was prepared by Mr Chan prior to the meeting on 23 April 1998 and the defendant's case that the document was created some time after 23 April 1998 and probably at the same time as the letter dated 7 September 1998 which has, as an enclosure, a copy of the SFA.

36. In paragraph 2(i) of the Amended Statement of Claim and in paragraph 3 of Mr Chan's witness statement, the plaintiff's case is that the defendant's name was supplied by Charlie Lam. However, in his oral evidence-in-chief, Mr Chan said that the defendant's name was supplied by Patrick Ho over the telephone prior to their meeting on 23 April 1998. In cross-examination, Mr Chan said that it was the plaintiff's usual practice to obtain the name of the client doing the hiring and to bring along the agreement. Mr Ho's evidence was that he had not spoken to Mr Chan at all prior to the meeting on 23 April 1998.

37. It is inherently unlikely that Mr Chan would make a "cold call" as the person he wished to see and whom Charlie Lam asked him to contact was Patrick Ho. Without making a prior appointment, Mr Chan could not be sure of seeing Patrick Ho. This does not mean that I accept Mr Chan's oral evidence that he obtained the defendant's name from Mr Ho himself prior to the meeting. Given the inconsistency between the pleading and Mr Chan's witness statement on the one hand and Mr Chan's oral evidence on the other, I make no finding on where and when Mr Chan obtained the defendant's name. The issue of when the SFA was prepared and whether it was provided to Mr Ho at the meeting on 23 April 1998 has to be separately considered.

38. Mr Chan's evidence-in-chief as to what took place at the meeting was that after an exchange of name cards and having introduced his head-hunting services, he asked what Mr Ho's requirements were and Mr Ho said he needed brokers with substantial business volume and clientele who would follow the broker. It was also Mr Chan's evidence that he had prepared the SFA on that day, before going to see Mr Ho and after obtaining the defendant's name from Mr Ho over the telephone. He signed it on behalf of the plaintiff. Mr Chan said that he showed the SFA to Patrick Ho and that after discussion, he handed the SFA to Patrick Ho, explained the terms and fees and asked Mr Ho to go through the details and sign and return the copy if he agreed with its contents. Further, Mr Chan's evidence was that Mr Ho said he would like to peruse the document before signing. Before he left, Mr Chan told Mr Ho that he would search for qualified candidates on his database.

39. Whatever was said at the meeting, I accept Mr Chan's evidence that he did search his database and as a result, contacted Lincoln Lee who came to his office on 27 April 1998 and signed the "Candidate Interview Form". He then arranged a time for Lincoln Lee to be interviewed by Patrick Ho through Mr Ho's secretary.

40. When dealing with the fax dated 4 May 1998 which he sent to Mr Ho and in response to a leading question from counsel for the plaintiff whether providing the information in the fax dated 4 May 1998 was part and parcel of his head-hunting duties, Mr Chan replied "Yes, I was trying to perform my duty for the defendant company." Up to that point in his evidence-in-chief, Mr Chan had not given evidence of any express request by Mr Ho for the plaintiff to perform any head-hunting services for the defendant or any other company in the Goodwill Group. Only in cross-examination when he was referred to paragraph 4 of his witness statement did he state that the paragraph was "pretty much" accurate as to what took place at the meeting on 23 April 1998 between himself and Mr Ho. In the last sentence of the paragraph, it is stated "Ho informed me he would sign and return it [the SFA] to me later and urged me to start introducing candidates and arrange interviews with potential candidates first".

41. This was not what he had said in his oral evidence-in-chief.

42. Later, in cross-examination, Mr Chan accepted that during the meeting on 23 April 1998, in response to Mr Chan's offer of the plaintiff's head-hunting service, Mr Ho said it was his company's policy to engage an exclusive head-hunter and that Mr Chan should not introduce anyone to him before he had engaged the plaintiff as head-hunter and that others had offered similar services and his company had not decided which head-hunter to use.

43. In re-examination, Mr Chan was asked "At what stage, did you come to agreement?" Mr Chan had not in fact given any evidence up to that point of agreement being reached between him and Mr Ho. His response was telling. The gist of it was that as Mr Ho had said that he would only engage an exclusive head-hunter, he, Mr Chan, would try to show Mr Ho by disclosing one candidate to impress Mr Ho. If Mr Ho was interested, that would mean Mr Ho had engaged the plaintiff as head-hunter. Mr Chan added that Mr Ho had told Mr Chan not to provide any candidates unless Mr Ho engaged the plaintiff. As Mr Ho was interested in the candidate produced (namely Lincoln Lee), that meant Mr Ho wanted to engage the plaintiff.

44. It was in the light of this evidence that counsel for the plaintiff rightly abandoned the plaintiff's primary case that an agreement had been made at the meeting on 23 April 1998 for the engagement of the plaintiff as head-hunter on the terms of the SFA.

45. Mr Ho's account of the meeting was that it was short, about 10-15 minutes and no commitment was made to engage any head-hunter let alone the plaintiff. Mr Chan did not show him the SFA, did not give him a copy and he did not ask Mr Chan to arrange any candidates for interview.

46. I find that no agreement was reached for the provision of head-hunting services by the plaintiff nor did Mr Ho engage the plaintiff as head-hunter nor did he make any request for the plaintiff's services at this meeting. The truth slipped out in re-examination. Mr Chan was hoping to land Mr Ho as the plaintiff's client by sending one candidate to impress Mr Ho with a view to the plaintiff being engaged as head-hunter. That is why Mr Chan searched his database and arranged an interview for Lincoln Lee with Mr Ho.

The SFA

47. Mr Chan was cross-examined extensively to suggest that the SFA was prepared not on 22 or 23 April 1998 but at some considerable time thereafter and simultaneously with the letter of 7 September 1998. There are some curious features about the SFA. In particular, the same mistake on the amount of the minimum fee appear both in the text of the SFA and the letter on 7 September 1998 making it more probable than not that they were prepared at the same time. On Mr Chan's own oral evidence, he did not state that Mr Ho ever assented to the terms of the SFA at the meeting and his evidence as to when Mr Ho was given a copy of the SFA was vague saying that the usual practice was to give the client the SFA at the end of the meeting but that he could not recall when it was given in this case. On the charges for services as set out in the SFA, Mr Chan variously answered in cross-examination that he asked Mr Ho to read the terms, that he did not discover the mistake in Clause 2.2 (which provided for a minimum fee of $300,000.00 in figures but thirty thousand Hong Kong dollars in the text) because he did not go through the terms in detail with Mr Ho. When further pressed in cross-examination on whether he did go through the charges in the SFA with Mr Ho, his reply was that he told Mr Ho the fee was 33% as that was the most crucial term.

48. I find that Mr Ho was not given the SFA at the meeting and that he never assented to its terms. I also find that while Mr Chan may have mentioned the level of fees for the plaintiff's head-hunting services to Mr Ho, he did not show the SFA to Mr Ho nor tell Mr Ho what the terms of service were. In particular, Mr Ho was not told of Clause 1.1 which provides :

"Upon Paragon's commencement of introducing candidates, the client will be deemed to have accepted the terms and conditions of their agreement."

49. Although there are grounds for suspecting that the SFA was not prepared until after the meeting on 23 April 1998, in the light of my findings, it is unnecessary for me to make any finding as to the date when it was prepared.

The interview on 28 April 1998

50. It is not apparent to what extent the defendant still disputes that it was the plaintiff who arranged for Mr Lee's attendance at the interview with Patrick Ho on 28 April 1998 at the 19th floor of Henley Building. While I find that Mr Lo did speak to Mr Ho about Lincoln Lee on learning of Mr Ho's requirement to recruit brokers with their own client base and did attempt to put Mr Lee in touch with Mr Ho, it is clear that his attempts were unsuccessful. As none of the witnesses stated that the appointment was actually made by Alan Lo for Mr Lee or directly by Mr Lee with Patrick Ho and as all the evidence points to the arrangement having been made by Mr Esmond Chan, I find that the interview was arranged by Mr Chan.

51. On the facts as found, it is unnecessary for me to resolve the other disputes of evidence between the witnesses. There was no express agreement between the plaintiff and the defendant for the provision of the plaintiff's services nor is it possible to find an implied contract .

52. In relation to the plaintiff's case that an agreement was made by conduct, Mr Raymond Chan for the defendant submitted that there must be an intention to create contractual relations which should not lightly be inferred. The burden of establishing this lies upon the plaintiff.

53. On the facts as found, Mr Chan was hoping to land a contract by introducing a candidate to Mr Ho but he failed to make it clear to Mr Ho before the interview that the plaintiff would only make the introduction on terms that the plaintiff would be paid a fee let alone 33% of the employer's remuneration for the first year of employment in the event of the candidate being employed. Mr Ho made no request for the provision of this service and I am unable to infer a contract to pay for such a service from the fact that Mr Ho did interview Mr Lee and Mr Lee was subsequently employed by two companies within the Goodwill Group.

54. Had it been relevant to do so, I would have found that the defendant was the party liable as Mr Ho was an executive director of the defendant and clearly had ostensible authority to act on its behalf. The name-card which Mr Ho gave to Mr Chan bore both his titles but with the defendant's name appearing first. Moreover, on 4 May 1998, Mr Chan sent a fax to the defendant for the attention of Mr Ho as executive director. No mention was made of GFS Ltd. Mr Ho does not suggest that he told Mr Chan the fax was addressed to the wrong company. Finally, the point that it was GFS Ltd which was doing the recruitment and that Mr Ho was acting for GFS Ltd not the defendant was not taken by Mr Ho's solicitors in the letter dated 22 September 1998. The point now taken bears all the hallmarks of being an after-thought. Within the Goodwill Group, the defendant is described as providing corporate management services to its group companies and I see no reason why it should not have been engaged in recruitment activities on behalf of other companies within the group.

55. As it is, on the facts found by me, the plaintiff's claim fails and there will be judgment for the defendant with an order "nisi" that the plaintiff do pay the defendant's costs.