C & A CONSULTANTS LTD AND ANOTHER v. HONG KONG AIRLINES LTD

HCA279/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 279 OF 2007

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J U D G M E N T

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1.  The trial dates for this action were fixed on 29 December last year.  The trial is listed to be heard over six days, starting on 4 October next.  

2.  The defendant changed its solicitors on 21 July 2010.  Those solicitors and counsel instructed by them have taken the view that the defence needs to be amended for what will be a fourth time.  They took out a summons for leave to make the amendments last week, on 9 August, which came before a judge on the following day, being the date fixed for the pre-trial review.  He adjourned the application for the amendment before me today. 

3.  This is resisted on the plaintiffs’ behalf.  It is said that the new pleading is unsustainable and for this reason alone should not be allowed, and that, in any event, coming as late as it does, 44 days before the start of the trial, it will require those dates to be given up.  The amendments, if allowed, will need to be responded to, and as they are, amongst other shortcomings, vague, they will need to be subjected to a request for further and better particulars and will result in further discovery of documents and the calling of additional witnesses by the plaintiffs.  In such circumstances, it is submitted that in the exercise of my discretion I should refuse this late application.

4.  I will now consider the nature of the case.

5.  The two plaintiff companies are controlled by Miss Kelly Cheng, who is a very experienced and highly qualified businesswoman.  They are in effect her corporate persona. 

6.  As the re-amended statement of claim shows, the 1st plaintiff, and subsequently the 2nd plaintiff on the 1st plaintiff’s behalf, entered into a retainer agreement with the defendant, then a fledgling airline, under which Miss Cheng provided the defendant with consultancy services in five areas pleaded in paragraph 3 of the re-amended statement of claim.  These were: 1. brand building; 2 creative design and advertising; 3.  sales support; 4. recruitment and staff support; and 5. executive support.  The 1st plaintiff was to be paid for Miss Cheng’s services a monthly $50,000 retainer in addition to consultancy fees billed on an hourly basis.  This all appears in the written retainer agreement.

7.  Subsequent to the retainer agreement, the 1st plaintiff, a BVI company, formed the 2nd plaintiff, a Hong Kong company, as its subsidiary, after which, with the defendant’s agreement, the 2nd plaintiff performed the services carried out by the 1st plaintiff on the 1st plaintiff’s behalf.  This is referred to as the supplemental agreement.  For practical purposes, nothing changed insofar as all the consultancy services continued to be provided by Miss Cheng, save that the defendant was now charged for Miss Cheng’s services by the 2nd plaintiff, which it paid instead of the 1st plaintiff.

8.  The initial agreement was for 2 years, from July 2003 to July 2005.  Before the expiry of this agreement, Miss Cheng, on behalf of the 1st and 2nd plaintiffs, orally agreed with Mr Robert Yip, the then chief executive officer of the defendant, that the retainer agreement and Miss Cheng’s services under it on behalf of the two plaintiffs should be extended for a further year until July 2006.  As a result, Miss Cheng continued to provide her services to the defendant, until July 2006, and it was charged by the plaintiffs in accordance with the original retainer agreement and the supplemental agreement, who continued to pay for these services.

9.  In August 2006, Mr Yip resigned his position as CEO of the defendant, which was at about the time that there was a comprehensive change of directors and in the ownership of the defendant.  Miss Cheng continued to provide her services to the defendant notwithstanding the management and ownership changes at the defendant until her services were no longer required.

10.  The claim by the plaintiffs is for unpaid retainer fees which were only paid up to 30 October 2005 and for specific consultancy work, which is itemised in numerous debit notes pleaded in paragraph 17 of the re-amended statement of claim, which total $1,546,007.  The defendant refuses to pay these outstanding amounts which come to $1,946,007.10.

11.  I will now go on to consider the defence.

12.  The defence so far has come somewhat incrementally.  The first version is dated 13 April 2007.  It was amended on 27 June 2007, re-amended on 5 January 2008, and re-re-amended on 11 September 2009.  If the proposed amendment is allowed, it will stand as the fifth version of the defence. 

13.  In its original version, it pleaded that the plaintiff was only permitted to claim until the expiry of the 2 year retainer agreement, that is to say until July 2005.  The first amendment denied the 2nd plaintiff’s entitlement to make any claim for Miss Cheng’s services as it was not a party to the original retainer agreement.  The third version, that is to say the second amendment, appears to amplify the non-entitlement of the 2nd plaintiff to be paid for Miss Cheng’s services.  The fourth version, that is to say the third amendment, pleads the counterclaim based on an alleged overpayment of $200,408.83.  This brings the matter up to the present.

14.  The cumulative effect of the amendments is relatively straightforward - a denial of the 2nd plaintiff’s status as a contracting party; a denial that the original retainer agreement went beyond its 2 year term; and finally, an allegation of overpayment contained in the counterclaim.

15.  That is how the matter has stood since September 2009.

16.  In the setting down questionnaire, the defendant’s then solicitors indicated that the matter was ready for trial and that no further amendments to their pleadings would be necessary.  After that, in December 2009, the trial dates for October 2010 were obtained based on the issues raised in the pleadings and time estimates were provided based on those issues.

17.  On 21 July this year the defendant’s current solicitors came on the record.  Mr Kong, who was instructed by them to make this application, has more than once said that the previous solicitors were incompetent, which is a grave charge to make when the solicitors concerned have no opportunity to deal with such an allegation, which he repeated despite my telling him that it would be better to tone down that sort of rhetoric on an occasion such as this.  What he wanted to say was that the defendant had come to realise, albeit late in the day, that they had not been receiving good service and so decided to change solicitors, who now advised them that further allegations can and earlier ought to have been made against Miss Cheng.  It is this which has resulted in a late change of solicitors. 

18.  For my part, I would have thought that more detailed explanation should have been provided as to why the defendant’s management had come to this view so late in the day.  They had been content to stand by their previous solicitors since 2007 when the action started and decided to change them in mid-2010.  It seems to me that whilst a party is perfectly entitled to change its solicitors, it cannot expect that its opponent will have to accommodate it, save for very good reason, which must be made plain to the court.

19.  It is very well to say in the most general terms that the previous solicitors were incompetent but this must be able to stand up to some form of reasonable scrutiny.  For my part, it strikes me that those previous solicitors have not done anything that would immediately smack of incompetence.  Although they did amend their pleadings more than one might expect in a relatively straightforward case such as this, the papers do not disclose anything abnormal about their representation and Mr Kong has not provided more than to say that they ought to have realised the availability of the pleas that are now sought to be added by him.  No explanation is given as to how that realisation came about and why so late in the day.  I propose to ignore the reasons put forward for the lateness of these proposed amendments.  

20.  If I were to refuse the application and the defendant was to ultimately lose the action, then this must be something for them to consider as to whether they should seek redress for that loss from those solicitors.  I intend to treat this as a late application to amend put forward without reasonable excuse.

21.  I now consider the proposed pleading.

22.  The first point to make is that it raises a very serious case of misconduct by Miss Cheng, who is said to have hidden behind the corporate veil of the two plaintiffs which she controls and in so doing has put herself in a situation where her own personal and financial interests were in conflict with her duties as a shadow director of the defendant, and as a result of which, she has made secret profits.

23.  The defendant is now asking the court to order, amongst other things, an account of such profits after it has pierced the corporate veil of the two plaintiffs and to get to the bottom of the matter.

24.  These grievous allegations are now made very much at the eleventh hour, notwithstanding which Mr Kong submits that in the remaining 44 days Miss Cheng and the plaintiffs ought to be well-capable of dealing with them and be ready for trial.

25.  I now turn to my disposition of the case.

26.  Perfectly understandably, Mr Wou, for the plaintiffs, protests loudly about the lateness and the gravity of the allegations.  If they are to be allowed to go forward, he would require the trial dates to be vacated in order to prepare himself in good order in the way that I have suggested earlier in the judgment, but his primary submission is that this new proposed amendment simply has no chance of success as a matter of law, nor on the evidence.  The shape of  the case is that of Miss Cheng through her companies providing consultancy services to the defendant.  No question of conflict of interest arises.  Mr Yip, the defendant’s then CEO, who will give evidence for the plaintiffs, was entirely clear what her position was vis a vis the two plaintiffs and approved of that and was well pleased with the quality of her work for the defendant.  None of these serious allegations were reasonably predictable on the papers and it is not surprising therefore that the previous solicitors did not seek to plead out a case based on them.

27.  For my part, close examination of the current evidence leads me to conclude that these allegations have no prospect of success.  Everything was above-board and approved of by Mr Yip. 

28.  The allegation that Miss Cheng was a shadow director also simply cannot stand.  She was very much a hired outside consultant to provide the services set out in the retainer agreement. The fact that her visiting card described her as chief financial officer of the defendant cannot take the matter any further than the fact that this gave her “status” within the defendant when dealing with third parties.  This view of the proposed pleading is sufficient to refuse the amendment.  The court will not allow amendments which have no prospect of success.

29.  But the matter does not stop there.  On lateness alone I would also refuse the application.  It is intolerable that such a late application should force the plaintiffs into asking for an adjournment of these trial dates nearly 8 months after they were appointed by the court in order to prepare itself.  Whilst a milestone event such as a trial date is not immovable, it needs to be realised that an adjournment can only be countenanced for very good reason in the interests of justice.  This was the practice before the CJR, and now even more so. 

30.  This, in my view, has been a particularly unmeritorious application to add amendments that are bound to fail, and to do so at the pre-trial review which would have caused the trial dates to be lost.  The application must stand dismissed with costs to the plaintiffs in any event. 

31.  Mr Wou has also asked for the directions which are commonly given at the pre-trial review.  These will be as follows:

a)   paginated bundles should be prepared by the plaintiffs and lodged with the court and served on the defendant on or before 21 days before the start of the trial;

b)  unless otherwise directed by the court, all witness statements shall be adopted as evidence-in-chief subject to the relevant witnesses being called;

c)   the parties are to submit to the court and exchange on or before 14 days before the start of the trial, firstly, a list of factual and legal issues; secondly, a chronology; thirdly, a dramatis personae; and lastly, opening submissions; and

d)  insofar as the costs of the PTR which are separate from the costs of the failed application for the amendment, the costs of the pre-trial review will be costs in the cause.