KABUSHIKI KAISHA PROJE HOLDINGS (formerly known as STELLAR GROUP CO LTD) v. KING POWER GROUP (HONG KONG) LTD

HCA 350/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 350 OF 2010

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JUDGMENT

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The parties

1.  The plaintiff is a company incorporated in Japan.

2.  The plaintiff, under its former name Apollo Investment Co Ltd (“Apollo”), was at all material times listed on the Osaka Stock Exchange. 

3.  The plaintiff changed its name from Apollo to Stellar Group Co Ltd on 1 June 2007. Hexagon Capital Partners (“Hexagon”) was established by Masahiro Takagi (“Takagi”) and a number of his banking colleagues in or about 2006 after Takagi left his employment as a banker with Mizuho Bank Ltd in Japan. 

4.  Hexagon provided services in general commercial investment, mergers and acquisitions and financial advice to private and public companies. 

5.  On 19 November 2010, Hexagon acquired shares in the plaintiff through its subsidiary Hexagon Holdings Co Ltd and became the majority shareholder of the plaintiff.

6.  Apollo was first listed on the Osaka Stock Exchange on 1 October 1986.  It was privatized and ceased to be a listed company on 14 June 2011.   

7.  On 8 December 2011 the plaintiff changed its name from Stellar Group Co Ltd to its present name.

8.  The defendant is a company incorporated in Hong Kong.

9.  The defendant, together with its associated or related companies, is, and was at all material times, engaged in the business of, inter alia, duty free, travel retail, sourcing and trading in luxury and branded goods as well as acquiring and building fashion brands in Mainland China and across South East Asia.  The defendant was part of the King Power Group of companies.

This action

10.  This action is in relation to the consulting agreement for joint business development entered into between the plaintiff and the defendant on 1 June 2006 (“the CA”).  By the CA, the plaintiff appointed the defendant to provide the services as set out therein to the plaintiff for a period of 60 months to end on 31 May 2011.

11.  The remuneration agreed to be paid and which was paid by the plaintiff to the defendant under the CA was JPY 225,000,000.

12.  The plaintiff’s primary case is that the CA is void for incompleteness and/or uncertainty.

13.  In the alternative, the plaintiff contends that the defendant’s performance of the CA was non-existent or otherwise so inadequate as to constitute a total failure of consideration or a fundamental breach of the CA.

14.  In the further alternative, the plaintiff contends that the remuneration paid under the CA is divisible into 60 parts, one for each month of the duration of the CA, and that there has been a total failure of consideration or fundamental breach in respect of:

(a) the period after Andrew Mankiewicz (“AM”) ceased to be a director of the plaintiff on 10 September 2011; or alternatively,

(b) the period after the plaintiff terminated the CA on 7 August 2009.

15.  The plaintiff claims the return of the remuneration paid under the CA alternatively, damages for breach of the CA.

16.  The defendant denies that the CA is incomplete and/or uncertain.  It also denies that it has failed to perform its obligations under the CA.  It is also denied that the remuneration paid under the CA is divisible into 60 parts, one for each month of the duration of the CA.

17.  The defendant’s case is that the plaintiff wrongfully terminated the CA by its letter dated 7 August 2009.

The issues

18.  The main issues are:

(1) Whether the CA is void for incompleteness and/or uncertainty;

(2) Alternatively, whether the defendant’s performance of the CA was non-existent or otherwise so inadequate as to constitute a total failure of consideration or a fundamental breach of the CA;

(3) In the further alternative, whether the remuneration paid under the CA is divisible into 60 parts, one for each month of the duration of the CA.

(4) If it is so divisible, then whether there has been a total failure of consideration or fundamental breach in respect of:

(a) the period after AM ceased to be a director of the plaintiff on 10 September 2007 or alternatively,

(b) the period after the plaintiff terminated the CA on 7 August 2009.

(5) Whether the plaintiff had wrongfully terminated the CA on 7 August 2009.

The applicable principles

19.  The applicable principles on the construction of documents are well settled.

20.  These have been summarized by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society and another [1998] 1 WLR 896 at 912 to 913.

21.  And as Lord Hoffman NPJ said in Jumbo King Ltd v Faithful Properties Ltd and others (1992) 2 HKCFAR 279 at 296:

“The construction of a document is not a game with words.  It is an attempt to discover what a reasonable person would have understood the parties to mean.  And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve……

But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean.  Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.”

22.  It is also useful to bear in mind what Ribeiro PJ said in River Trade Terminal Co Ltd v Secretary of Justice (2005) 8 HKCFAR 95 at 107:

“34. It is of course well-established that in construing a commercial contract such as the grant in the present case, the court is entitled to take into account the matrix of fact, meaning the objective surrounding circumstances, known to both parties, in which the agreement was made. The words of Lord Wilberforce in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at p 995, are often cited in this context:

No contracts are made in a vacuum, there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as “the surrounding circumstances” but this phrase is imprecise: it can be illustrated but hardly defined. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”

23.  The previous negotiations of the parties and their declarations of subjective intent are not admissible background facts in ascertaining the meaning which a document would convey to a reasonable person. However, evidence of pre-contract negotiations is admissible to establish the parties’ state of knowledge of facts (para 3.09 at p 97 Lewison’s The Interpretation of Contracts 5^th Edn).

The witnesses

24.  I heard evidence from Takagi who was the only witness giving evidence on behalf of the plaintiff.

25.  Takagi was appointed the President and the Representative Director of the plaintiff only in April 2011.  By that time, on the plaintiff’s case, the CA had already been terminated and this action had already been instituted against the defendant.

26.  Takagi has no personal knowledge of any of the matters concerning the plaintiff and the defendant prior to the time he was with the plaintiff.  

27.  I also heard evidence on behalf of the defendant.  I heard evidence from Antares Cheng Ying Nam (“Cheng”) who was the founder and the CEO of the defendant.  He is also the managing director of the King Power Group.

28.  I also heard evidence from Robert Osborne Lee (“RL”) who is and was at all material times a partner in Robert Lee Law Offices, a firm of solicitors in Hong Kong.  RL also has a registered foreign law firm in Tokyo.  He spends his time between Tokyo and Hong Kong on a regular basis.

29.  I also heard evidence from Andrew Mankiewicz (“AM”) who was employed by the plaintiff at all material times. He was the President and Representative Director of the plaintiff from 26 May 2006 until March 2007 when he stepped down as President and Representative Director of the plaintiff.  He remained a director of the plaintiff until 10 September 2007.

Findings

30.  Takagi’s evidence was largely opinion evidence which, in my view, was clearly inadmissible.  I place no weight on his opinion evidence.

31.  Takagi’s evidence was also based on what he learnt from Furukawa who was the President of the plaintiff in May 2008.  This was from discussions he had with Furukawa lasting about an hour in 2012 and also what he gathered from an email from Furukawa to the plaintiff’s solicitors on 2 June 2009 (exhibit P1).

32.  Furukawa did not give evidence on behalf of the plaintiff. Furukawa had been asked by Takagi to give evidence on behalf of the plaintiff but he declined to do so.

33.  Hiroyama, another director of the plaintiff at all material times, was also asked to give evidence on behalf of the plaintiff but he also declined.

34.  It is clear from the evidence of Takagi that the acquisition of the shares of the plaintiff by Hexagon was pursuant to a hostile takeover bid.  Neither Furukawa nor Hiroyama were kept in the management of the plaintiff after the hostile takeover by Hexagon.  That being so, it is hardly surprising that Furukawa and Hiroyama were unwilling to give evidence on behalf of the plaintiff.  They have also not provided the plaintiff with any hearsay statement to be adduced as evidence at the trial.

35.  Insofar as Takagi has relied in his evidence on his discussions with Furukawa and on Furukawa’s email to the plaintiff’s solicitors  (exhibit P1), I place no weight on such matters. The matters stated by Furukawa in exhibit P1 are also contradicted by the evidence of AM which I much prefer and accept.

36.  It seems to me that Takagi was unable to give any relevant and admissible evidence of probative value in support of the plaintiff’s case.

37.  I am satisfied and find that Cheng, RL and AM were honest, credible and reliable witnesses.  I believe them and accept their evidence.

38.  At all material times, the King Power Group was a successful business enterprise in Asia.  Cheng was the founder and managing director of the King Power Group and the CEO of the defendant.  The King Power Group developed from a duty free business originally established in 1979. From initially doing duty free business at airports, seaports and border crossings, this was expanded to operating and managing duty free retail outlets at locations in Mainland China and around Asia.  Apart from this, it has other businesses including the wholesaling and retailing of fashion products and acting as agent or joint venture partners with others for introducing luxury and fashion brands from Europe and America into the Mainland and Asian markets.

39.  RL had been working for Cheng both as a solicitor as well as a business associate for a number of years prior to the parties entering into the CA.

40.  RL had been providing legal services to the King Power Group and he had also served as nominee director to some of the companies in the King Power Group.  Apart from being their legal adviser, RL also served as a business consultant to the King Power Group.

41.  There is no dispute that in or about 2003 Cheng was interested in acquiring the controlling interest in World Trade Systems plc (“WTS”) a UK company listed on the main board of the London Stock Exchange. This was achieved when in the middle of 2003 the King Power Group made a loan to the major shareholder of WTS namely, Kudrow Finance Ltd (“Kudrow”) and by taking a pledge of Kudrow’s 67% shareholding in WTS thereby obtaining effective control of WTS.

42.  It was Cheng’s plan to use WTS as a vehicle to expand his business but this was not actively pursued at the time due to the SARS outbreak in Hong Kong and the downturn in the London market.

43.  At that time, the King Power Group began to look into acquiring brands for introducing the same into the Mainland China market as Cheng saw potential in that market.

44.  AM is a British national who was working and living in Tokyo at all material times.  He speaks fluent Japanese.  He is and was a respected businessman in Japan as evidenced by the fact that in April 2007 he was elected as the Chairman of the British Chamber of Commerce in Japan and remained as Chairman for 3 years.

45.  Prior to 2003, the plaintiff was engaged in the business of lower-end women’s apparel in the name of Elleme.

46.  AM joined the plaintiff as a director in about May 2004.

47.  AM was invited to join the plaintiff through one of the contacts of a Mr Morita (“Morita”).  The reason why AM was invited to join the plaintiff was to develop the business of the plaintiff.

48.  According to AM, although Morita was not a director of the plaintiff, he represented the major shareholder of the plaintiff.  He was the most influential person among the management of the plaintiff as Morita’s endorsement of a business decision made by the plaintiff was critical. I believe AM and accept his evidence

49.  AM said that it was his role within the plaintiff together with Brendan McMahon, who was a director of a subsidiary of the plaintiff, and a number of younger Japanese managers to expand the plaintiff’s and its group’s operation overseas.  Brendan McMahon was experienced in brand strategy and brand communication.

50.  AM first met RL in Tokyo in about September or October 2005.  At that time AM was already a director of the plaintiff.

51.  Through RL, Cheng met AM and Morita in or about late 2005.

52.  At that time, AM was looking at various ways for the plaintiff to obtain a listing in London.  RL mentioned to him that one of his clients namely, the defendant was the majority shareholder of WTS which was a dormant company without any business and which was listed in the London Stock Exchange.  RL also described to AM the business of the defendant and that it was actively engaged in introducing European and American fashion brands and luxury goods into markets in Mainland China and in Asia.

53.  This led to negotiations between the parties to explore ways of bringing the plaintiff and the defendant together into a new business to specialize in acquiring or introducing foreign fashion brands or luxury goods into markets in Mainland China, Japan and Asia.

54.  As WTS was immediately available as an existing public company in London, discussions also took place concerning how to make use of WTS.

55.  Over the next few months there were negotiations between the parties with RL, Cheng and Ricky Li, Cheng’s assistant, representing the defendant and AM representing the plaintiff. The negotiations between the parties took place between December 2005 to May 2006.

56.  The CA was entered into on 1 June 2006.  At the same time another agreement was entered into between the plaintiff and Kudrow also dated 1 June 2006.  This was an agreement for the sale by Kudrow and the purchase by the plaintiff of 2,935,500 shares of WTS being 50% of the shares owned by Kudrow in WTS for the sum of GBP102,742.50 and on the terms as set out in the agreement (“the SPA”).

57.  Pursuant to the SPA, the sum of GBP 102,742.50 was paid to Robert Lee Law Offices to be held in escrow pending completion of the SPA.

58.  The SPA was subject to the conditions precedent set out in clause 2 thereof.

59.  Completion under the SPA was to be on or before 31 July 2006.

60.  By the completion date the conditions precedent were not complied with.

61.  By a supplementary agreement dated 28 February 2007 (“the supplementary agreement”), the completion date under the SPA agreement was extended to 31 July 2008.

62.  By 31 July 2008 the conditions precedent had still not been complied with.

63.  At a meeting of the plaintiff’s board of directors on 24 February 2009 it was decided to seek the return of the consideration paid under the SPA. Thereafter, the plaintiff demanded the return of the consideration paid as escrow to Robert Lee Law Offices pending completion. This was refused and led to the commencement of HCA 961 of 2009 on 1 April 2009 by the plaintiff against Kudrow and Robert Lee Law Offices as defendants.

64.  By a summary judgment given by Reyes J on 12 November 2009, the plaintiff obtained judgment for a declaration that the SPA ceased to have effect and for the return of the monies paid under the SPA.

65.  There was no appeal against the summary judgment granted by Reyes J.

66.  AM signed the CA, the SPA agreement and the supplementary agreement for and on behalf of the plaintiff.  There is no doubt that AM had the actual authority of the plaintiff to enter into all three agreements.

67.  Although Mr Thomas Lee, for the plaintiff, explored with AM in cross-examination as to whether there was a board resolution authorizing AM to sign the supplementary agreement, there is nothing in the point.  It was clearly stated at the signature page of the supplementary agreement that it was signed by AM who was “duly authorized, for and on behalf of [Apollo]….”  It has never been disputed that AM had the actual authority of the plaintiff to enter into the CA, the SPA and the supplementary agreement.  Indeed, the plaintiff relied on the SPA and the supplementary agreement in its action against Kudrow and Robert Lee Law Offices in HCA 961 of 2009 in respect of which it obtained summary judgment on 12 November 2009.

68.  It is clear from the evidence of RL, Cheng and AM, which I believe and accept, that the negotiations between the parties were on the basis that there was to be a potential co-operation between the defendant and the plaintiff in developing a joint business of introducing foreign brands in Asia.

69.  Cheng was also interested in finding a business to inject into WTS so that WTS could be re-activated.  Because of the plaintiff’s interest in a listing in London, RL suggested to Cheng that the plaintiff could also help in that regard.

70.  There is no doubt that over the months from December 2005 to May 2006, there were active discussions and negotiations between the parties represented by RL, Cheng and Ricky Li, Cheng’s assistant, on behalf of the defendant and AM on behalf of the plaintiff.  There were also discussions with financial and legal advisers in London.

71.  Kudrow was undoubtedly controlled by the defendant through Cheng.  The defendant’s case is that the CA and the SPA formed part of a single joint venture scheme involving the plaintiff and the defendant.

72.  I am satisfied and find that the parties were negotiating on the basis of entering into a joint business venture with each other.  The contemporaneous emails and the evidence of RL, Cheng and AM support this.

73.  According to the minutes of the meeting of the plaintiff’s board held on 12 May 2006, the proposal to purchase the shares in WTS and the entering into of a business consultancy agreement was discussed and explained to the board.  AM was present at that meeting as a director.

74.  According to resolution number 2 of the minutes of that meeting, both proposals were presented under the same resolution.  As the minutes show, AM had explained the details of the proposal for the total maximum sum of JPY 250,000,000 to be paid for acquiring the shares in WTS and the fees for the consultancy agreement with the defendant. JPY 250,000,000 at that time was the equivalent of approximately GBP 1,200,000.

75.  According to the minutes of the meeting of the plaintiff’s board held on 26 May 2006, at which meeting AM was appointed Chairman and Representative Director of the plaintiff, AM explained the details of the consultancy agreement with the defendant.  This was under resolution 6 which was regarding the execution of a consultancy agreement in relation to deployment of joint venture with the defendant.  Hirayama, a director of the plaintiff, who had accountancy experience with KPMG, asked about the consultancy fee and the details of the agreement and the payment method.  All the directors and auditors approved the proposal and passed the resolution.

76.  AM made it plain in evidence that it was commonplace in Japan for informal meetings to take place with the directors before formally presenting proposals at formal board meetings and this is what happened in the case of the plaintiff.  AM said that the contents of the board minutes of 12 May and 26 May 2006 were discussed in detail informally before the board meetings. I believe AM and accept his evidence.

77.  There is no dispute that the consideration under the SPA together with the remuneration under the CA was approximately the equivalent of GBP 1,200,000 at that time. It was suggested to AM in cross-examination that the CA was a device that was constructed for the allocation of part of the consideration for the WTS shares under the SPA.  This was denied by AM.

78.  Mr Thomas Lee submitted that the affirmation evidence of Cheng and RL in HCA 961, the action by the plaintiff against Kudrow and Robert Lee Law Offices, shows that the CA was in effect a device to conceal an inflated consideration, namely, a price significantly above the then market price, for the purchase of the WTS shares under the SPA agreement. It was submitted that the allocation of JPY 225,000,000 under the CA was in effect a device to enable the defendant to obtain the total of GBP 1,200,000 which Cheng had wanted to obtain for the sale of 50% of the shares in WTS under the SPA.

79.  I have considered the paragraphs in the affirmation evidence referred to by counsel.  I would observe that the suggestion that the CA was in effect a device to conceal an inflated consideration for the WTS shares was put to AM but was not put to Cheng nor to RL when they were cross-examined.  In my view, basic fairness required this to be put or suggested to Cheng and to RL to see what they would say in the face of such an accusation.  But this was not done.

80.  In any event, I reject the submission that the said affirmation evidence of Cheng and RL shows that the CA was in effect a device as alleged.   

81.  Cheng gave evidence that his basic goal was to get GBP 1,200,000 from a new partner.  He explained that GBP 1,200,000 consisted of what he would spend in acquiring and maintaining WTS as well as what a new partner like the plaintiff would be able to enjoy namely, the benefit of their experience particularly, in relation to luxury goods and branded businesses in Asia and Mainland China.  The sum of GBP 1,200,000 was clearly not the amount he wished to obtain solely for the shares in WTS.  It is clear on the evidence of Cheng, RL and AM, which I believe and accept, that the parties were actively pursuing discussions and communications on the basis of a joint co-operation between the parties prior to the signing of the CA and the SPA on 1 June 2006.  I so find. 

82.  On the evidence of AM and the board minutes of the plaintiff for the meetings on 12 May and 26 May 2006 it is plain that the board of the plaintiff considered and approved the SPA and the CA.  This was done after the CA was reviewed by the Japanese law firm for the plaintiff.  Apart from the discussions at the board meetings, there were also informal discussions before the meetings where the matters were discussed and agreed by the directors.  All the directors and auditors approved the resolutions to execute the CA as well as the SPA.

83.  There is no merit in the submission that the CA was simply a device to allocate Cheng’s original asking price of GBP 1,200,000 for the  shares in WTS into two different contracts namely, the SPA and the CA.

Issue (1) (whether the CA is void for incompleteness and /or uncertainty)

84.  The plaintiff’s case is that the draft outline of the Program referred to in Clause 2.2 of the CA was fundamental to the interpretation and performance by the defendant of the CA and was not incorporated into or attached to the CA.  It is further averred that neither the draft outline nor any particulars of the Program have been provided to the plaintiff or its representative at any time since 1 June 2006.  For those reasons, it is said that the CA was void for incompleteness and/or uncertainty and was therefore unenforceable (paragraphs 7 to 9.1 of the re-amended statement of claim).

Construction of the CA

85.  It is clear from the heading of the CA that the CA was a consulting agreement for “JOINT BUSINESS DEVELOPMENT” between the defendant as the consultant and the plaintiff.

86.  Recital A of the CA makes it plain that the defendant as part of the King Power Group was engaged in developing and expanding their businesses as set out therein in Mainland China and South East Asia using King Power Group’s knowledge and expertise.

87.  Recital A also set out the program that the King Power Group was in the process of implementing (“the Program”) namely,

“a program of expansion in Asia for numerous goods and services including luxury goods and fashion brands involving acquisitions, joint ventures, sourcing agreements and various forms of agency and/or licensing distributorship arrangements.”

88.  Recital C stated that the plaintiff wished to participate in the Program and had agreed to enter into the CA

“as a means of expanding its own business activities in Asia both inside and outside Japan through participation in various ventures both with and through introductions provided by the Consultant.”

89.  Clearly, the plaintiff intended to enter into various ventures, either with the defendant or through introductions by the defendant.

90.  Clause 1 set out the appointment of the defendant as the consultant to provide the services specified in the CA for a period of 60 months ending on 31 May 2011.

91.  Clause 2 set out the scope of services.  These are set out in clause 2.1 under (a) to (f). The services to be provided by the defendant to the plaintiff in respect of the Program were:

“(a) Providing Apollo with information concerning potential business opportunities relating to duty free, travel retail, and business involving luxury goods and/or fashion brands;

(b) Assisting in analysing, negotiating and concluding business transactions including joint ventures, acquisitions, licensing, agency and distribution arrangements related to the foregoing as part of the Consultant’s Program;

(c) Developing a business plan (including where appropriate exit scenarios) for each project which is identified and made part of the Program and coordinate and oversee the implementation thereof together with Apollo;

(d) Participating with Apollo in investments as part of the Program both in Japan and other parts of Asia, and in fund raising from third parties (both debt and equity) as part of the Program’s implementation;

(e) Reporting regularly upon request to the Board of Directors of Apollo concerning implementation of the Program; and

(f) Rendering such other services as may be requested by the Board of Directors of Apollo from time to time.”

92.  The scope of services to be provided by the defendant as set out above shows that:

(a) deals with providing the plaintiff with information concerning potential business opportunities relating to the types of business set out therein namely, “duty free, travel retail, and businesses involving luxury goods and/or fashion brands.” I would observe that these were the only types of businesses envisaged;

(b) deals with assisting in analyzing , negotiating and concluding business transactions related to the foregoing as part of the “Consultant’s Program”. The foregoing must relate to the types of business set out in (a);

(c) deals with developing a business plan for each project which is identified and made part of the Program and coordinate and oversee the implementation thereof together with the plaintiff;

(d) deals with participating with the plaintiff in investments as part of the Program both in Japan and other parts of Asia and in fund raising from third parties as part of the Program’s implementation;

(e) deals with reporting regularly upon request to the board of directors of the plaintiff concerning implementation of the Program, and

(f) deals with rendering such other services as may be requested by the board of directors of the plaintiff from time to time.

93.  Clause 2.2 provided, inter alia, that the defendant had

“provided in Schedule 1 attached hereto and forming part hereof a preliminary draft outline of the Program, including a sample business projection relating to one potential investment that has already been identified and is in the process of being investigated by the consultant.”

94.  It is abundantly clear from the evidence that the one potential investment that had already been identified was the one relating to Patrick Cox. 

95.  There is no dispute that Schedule 1 or the preliminary draft outline of the Program was not attached to the CA.

96.  The evidence shows, however, that the preliminary draft outline of the Program was provided by the defendant to the plaintiff before the plaintiff’s board approved the proposal to enter into the CA.  I am satisfied and find that both parties knew what the preliminary draft outline of the Program or Schedule 1 was at the time the CA was entered into.

97.  By an email from RL to AM sent on 25 May 2006, a day before the plaintiff’s board meeting of 26 May 2006, RL sent to AM his draft of the CA together with the schedule.  AM replied saying that “the schedule looks good” and asked for the business plan to be sent.  By a further email also on 25 May 2006 RL informed AM that he would forward the defendant’s email to him containing the business plan.

98.  The draft CA together with an outline prepared by a Japanese law firm Asahi Koma Law Offices on behalf of the plaintiff was presented to the board at the meeting on 26 May 2006.  The outline in Japanese was headed “Outline of Joint Venture Consultancy Agreement”.  Schedule 1 was also presented to the board.

99.  AM said, and I accept, that Asahi Koma is a major law firm in Japan and that he had asked one of the lawyers there, whom he knew and who spoke perfect English, to review and to summarise the draft CA. Hence the outline in Japanese was prepared and presented to the board.

100.  On the evidence, which I accept, both parties knew what Schedule 1 was.  It was provided by the defendant to the plaintiff through AM on 25 May 2006 and it was presented to the board at the board meeting on 26 May together with a draft CA and the outline prepared by Asahi Koma.

101.  Schedule 1 is headed “Proposal for Cooperation with the Stellar Group.”  It then set out the background of the King Power Group and the options for co-operation with the plaintiff. All these were options to be considered including joint ventures, licensing and distribution, financial support and investment and management consulting.

102.  Schedule 1 was only a preliminary draft outline.  It was not intended to be anything more than that.  There was no binding commitment to enter into any of the proposed options for co-operation.  

103.  The CA itself was a binding contract between the parties.  The scope of services which the defendant agreed to provide are set out in full at clause 2.1 (a) to (f).

104.  By Clause 2.2 it was also provided that the parties agreed that the implementation of the Program may take different forms and that the returns would vary depending on the size and number of projects, the amount of the respective investment by the parties and the nature of the projects themselves.

105.  It was also agreed that in consideration of the remuneration to be paid under the CA the defendant understood and agreed that

“all expenses related to developing and implementing the Program in general terms are included in the Consultant’s remuneration hereunder, save and except for the specific investment requirements of a particular project within the Program, which shall be decided by the parties on a case-by-case basis.”

106.  Mr Thomas Lee, for the plaintiff, relied on the opinion evidence of Takagi that his view was that if the period of the CA was 5 years and it refers to a schedule, he would expect the schedule to contain the timetable to do what and when and the goals for such activities.  It was further submitted that the draft outline could and should have set out a starting point followed by a statement of in what ways, where and how it was intended that the defendant would expand in the following 5 years.

107.  There is no merit in this submission. First, the opinion evidence of Takagi is inadmissible and I place no weight on it.  Takagi has no personal knowledge of any of the relevant events as he was not with the plaintiff at any material time.  Secondly, Schedule 1 did not cause any concern to any of the plaintiff’s directors which included professionals persons in banking, law and accountancy.  There was never any concern raised by any of the directors as to the way the CA was to be performed.

108.  It seems to me, and I so find, that the commercial purpose for entering into the CA was for the joint business development of the plaintiff and the defendant and for the defendant to provide the services thereunder to achieve that purpose.

109.  The Program was defined in Recital A of the CA and there is no difficulty with the definition of the same.  It is plain that the King Power Group was in the process of implementing the Program as defined therein. And as is clear from Recital C, the plaintiff wished to participate in the Program both with and through introductions provided by the defendant.

110.  As I have said , the services to be provided were set out in full in clause 2.1. There was no mention of the preliminary draft outline or Schedule 1 in clause 2.1.  The focus was on the provision of services by reference to the Program.  The preliminary draft outline was mentioned only in clause 2.2 as set out above.

111.  I am satisfied that the preliminary draft outline or Schedule 1 was not fundamental to the interpretation and performance by the defendant of the CA as pleaded by the plaintiff.  It is clear, and I so find, that Schedule 1 did not contain any term that was binding on the parties or so fundamental to the interpretation or performance of the CA.

112.  I would also observe that the plaintiff did not complain that the CA was incomplete or uncertain at any time from the inception of the CA on 1 June 2006 until it first mentioned this to the plaintiff more than 3 years later in the letter of termination dated 7 August 2009.

113.  In my judgment the CA was neither incomplete nor uncertain as alleged by the plaintiff.  Issue (1) is resolved in favour of the defendant.

Issue (2) (whether there was a total failure of consideration or fundamental breach)

114.  The plaintiff’s alternative case is that there has been a total failure of consideration or a fundamental breach by the defendant of the CA.

115.  The plaintiff further pleaded that it was an implied condition of the CA that the defendant would make a reasonable, good faith effort to perform its obligations under the CA competently, diligently and transparently.  I am prepared to hold that there was this implied condition in the CA.

116.  By a letter dated 20 March 2009 to the defendant, the plaintiff gave notice to the defendant that in breach of clause 2 of the CA the defendant:

“(a) failed to provide us with any concrete service in respect of the Program and (b) ceased to provide any service to us since the departure of our client’s former president, namely Andrew Mankiewicz in September 2007”

117.  The plaintiff relied on clause 5.2(c) of the CA and gave notice that unless the defendant remedied the alleged breach within the next 60 days the plaintiff would terminate the CA. Prior to the letter dated 20 March 2009 the plaintiff had not notified the defendant at any time since the CA was entered into on 1 June 2006 that it considered that the defendant was in breach of the CA.

118.  The defendant responded by its letter to the plaintiff dated 27 April 2009 denying that it was in breach of the CA. It also stated that a summary of the projects the defendant had been working with the plaintiff through AM would be sent to the plaintiff.  The defendant also asked the plaintiff to indicate whether the plaintiff was interested in pursuing any of the current projects.

119.  By a further letter dated 10 May 2009 from the defendant to the plaintiff, a summary of the projects were supplied to the plaintiff.

120.  By a letter dated 7 August 2009 from the plaintiff to the defendant, the plaintiff gave notice of termination of the CA with immediate effect and demanded the refund of the remuneration in the sum of JPY 225,000,000.  In that letter the plaintiff concluded that no services had been provided by the defendant at all under the CA since 1 June 2006 although in the earlier letter it was stated that no “concrete service” had been provided.  Further, as I have said, for the first time since the agreement was made on 1 June 2006, it was noted by the plaintiff that Schedule 1 was not attached to the CA.

121.  Failure of consideration occurs when there has been a complete failure of the performance for which the payer had bargained. The failure has to be total because the consideration is whole and indivisible.  One cannot assume that all parts of the payee’s performance are equally valuable and that the contract price is earned incrementally. Any performance of the actual thing promised, as determined by the contract, is fatal to the recovery under this heading (para 29-056 Chitty on Contracts 31st Edn).

122.  In dealing with the issue of total failure of consideration, Lord Goff said in Stocznia Gdanska SA v Latvian Shipping Co and others [1998] 1 WLR 574 at 588

“In truth, the test is not whether the promisee has received a specific benefit, but rather whether the promisor has performed any part of the contractual duties in respect of which the payment is due.”

123.  It is clear on the evidence of Cheng, RL and AM that the parties had been working jointly on various projects both before and after the CA was entered into. And in respect of the services provided by the defendant under the CA, these have also been mentioned in the reports of RL to AM dated between 1 June 2006 and 6 September 2007, AM’s report to the plaintiff’s board dated 14 February 2007 and the defendant’s report to the plaintiff dated 10 May 2009.

124.  I bear in mind that under clause 2.1 of the CA the services to be provided by the defendant to the plaintiff were limited in scope to business opportunities relating to duty free, travel retail, luxury goods and fashion brands (“the scope”).  

125.  The evidence shows that services were provided by the defendant in respect of not only the scope but also in respect of a number of business opportunities outside the scope.  These included, for instance, a project involving technology and machinery for recycling system of plasterboards, a project for recycling wheat straw into panel boards in Xian, a project for a medical mobile phone device and other projects outside the scope as set out in counsel for the plaintiff’s submissions.

126.  Clause 9 of the CA required amendments to the CA to be made in writing and signed by the parties. This was never done and, in my view, the provision of services in respect of business opportunities outside the scope was not performance under the CA.

127.  Apart from the services provided in respect of the opportunities outside the scope, which I do not regard as performance by the defendant of its obligations under the CA, it is clear on the evidence that the defendant did in fact provide services within the scope.  I am satisfied and find that the defendant did provide its services under clause 2 of the CA to the plaintiff in respect of opportunities within the scope including Patrick Cox, in respect of branded shoes, Agatha SA and Agatha Japan in respect of jewellery, Jaeger in respect of men’s fashion, Philippe Charrioll, in respect of branded watches, Xinyu Hengdeli Holdings Ltd also in respect of branded watches, GR Holdings in respect of coats, and Elleme , the ladies’ fashion which was a subsidiary of the plaintiff.

Patrick Cox

128.  On the undisputed evidence, the parties had been working on the acquisition of the business of Patrick Cox (“Patrick Cox”) which was a brand for shoes designed by the British designer Patrick Cox even before the CA was entered into on 1 June 2006.  AM first introduced Patrick Cox to RL. The indisputable evidence is that the one potential investment referred to in Clause 2.2 of the CA was the investment in Patrick Cox.

129.  The plaintiff’s case is that any of the services provided in relation to Patrick Cox was not performance of the CA. 

130.  It was submitted on behalf of the plaintiff that because Patrick Cox was first introduced by AM, clause 2.1(a) of the CA was not engaged.  I would observe that this ground was not part of the plaintiff’s pleaded case in the re-amended statement of claim and in the further and better particulars provided.  There is no express provision in the CA prohibiting the plaintiff from mentioning or introducing any business so that the defendant can provide the services under the CA in respect of that business.  On the proper construction of the CA there is no reason why the plaintiff cannot introduce a business for the defendant to consider as part of the services to be provided under the CA.  I have no hesitation in rejecting the suggestion that just because a business was initially mentioned or introduced by AM, any work done by the defendant in respect thereof does not count as performance by the defendant under the CA.  

131.  It was further submitted on behalf of the plaintiff that any attempt to find a suitable business, like Patrick Cox, to inject into WTS cannot be treated as performance under the CA. It was also submitted that Patrick Cox was acquired by the defendant pursuant to an independent investment decision for the sole benefit of the defendant and that this investment was never offered to the plaintiff, nor considered by the parties that the plaintiff would be given an interest in Patrick Cox other than via its injection into WTS.

132.  The plaintiff’s case on Patrick Cox is contradicted by the evidence of RL, Cheng and AM.  It is clear on their evidence, which I believe and accept, that Patrick Cox was initially being looked at by both parties as a suitable business to inject into WTS.  However, after advice from financial and legal advisors in London, it was decided that Patrick Cox was not a suitable business to inject into WTS at that time.

133.  By a letter dated 1 June 2006, the same day as the CA and the SPA was entered into, RL spoke of the CA as “this new joint venture arrangement”.  He also mentioned that the defendant was prepared to investigate seriously and make a quick decision on the opportunity to purchase Patrick Cox.  It was made clear that any investment entered into would be open for participation by the defendant.

134.  The parties were working initially on injecting Patrick Cox into WTS so that there would be a business injected into the dormant WTS.  But the basis of the joint co-operation between the parties in respect of Patrick Cox was, in my judgment, pursuant to the CA.  There is nothing in the SPA to provide for any joint co-operation between the parties for any business, including Patrick Cox.  The SPA agreement was simply an agreement for the sale and purchase of shares in WTS by the plaintiff from Kudrow, not from the defendant.  The SPA agreement was subject to conditions precedent which were not complied with either by the original completion date or the extended completion date.  There was no mention of Patrick Cox or any business to be injected into WTS in the SPA. There was an entire agreement clause in the SPA (clause 11).

135.  There was also an entire agreement clause in the CA (clause  7).  Although Patrick Cox was not mentioned by name in the CA, it is abundantly clear on the evidence that the one potential investment mentioned in clause 2.2 of the CA was Patrick Cox.  I so find.

136.  As it turned out, it was considered that Patrick Cox was unsuitable as a business to be injected into WTS at that time after consulting financial and legal advisors in London.  

137.  The evidence shows that the defendant acquired Patrick Cox on or about 6 June 2006 shortly after the CA was entered into and, in my judgment, this became part of the Program under the CA.  It was up to the plaintiff to decide whether or not to participate in Patrick Cox under the CA.  

138.  AM said that the plaintiff refused to participate in the investment in Patrick Cox after getting more information on Patrick Cox.  AM said, and I accept , that he personally was in favour of the plaintiff’s participation in Patrick Cox but the board of the plaintiff disagreed and the investment in Patrick Cox was not made.  Although there was no formal minute of a director’s meeting where Patrick Cox was discussed, AM was adamant that there were informal discussions within the plaintiff about whether or not to participate in Patrick Cox.  I believe him and accept his evidence.

139.  That the plaintiff was at the initial stage interested in co-investing in Patrick Cox with the defendant is demonstrated by the fact that AM with Brendan McMahon, another director of the plaintiff, visited Patrick Cox in London together with a fashion expert recommended by AM.  The email communications in June 2006 between Brendan McMahon, director of the plaintiff, and Peter Sells of Patrick Cox copied to RL, AM and Ricky Li, of the defendant, also demonstrate that the plaintiff was actively involved in the discussions concerning the draft business plan for Patrick Cox.

140.  It seems to me that at that time the parties were actively pursuing the purchase of Patrick Cox as part of the joint venture arrangement between the parties under the CA.  In my view, there is no valid basis for the submission made on behalf of the plaintiff that Patrick Cox was only being considered in the context of the injection of the business into WTS and that once the SPA failed, the services rendered in respect of Patrick Cox, or indeed any acquisition of a business suitable for injection into WTS, which never materialized, was not performance by the defendant under the CA.  I reject those submissions.

141.  As RL said, and as I accept, the joint venture arrangements between the parties were being actively implemented at the time of the signing of the CA.  Patrick Cox was expected to be the first business transaction at that time to be acquired for injection into WTS as part of the joint co-operation between the parties.  The injection of Patrick Cox did not materialize but as Cheng, RL and AM said, the plaintiff was given the opportunity to participate in Patrick Cox but the plaintiff declined.

142.  On the evidence of RL, which I accept, the defendant has spent more that GBP 3,500,000 over the years for the acquisition and the maintenance of Patrick Cox.  This is substantially more than the remuneration the defendant received under the CA.

143.  The acquisition of Patrick Cox by the defendant cannot be said to be an acquisition purely for the sole benefit of the defendant.  It was acquired and became part of the Program under the CA.

144.  Under the CA the plaintiff was not required to participate in any investment it did not wish to.  The fact that the investment in Patrick Cox was not made by the plaintiff does not mean that the defendant did not provide its services under the CA.

145.  I am satisfied that in respect of Patrick Cox the defendant has clearly performed its services pursuant to clause 2.1 (b) and (c) of the CA by assisting in analyzing, negotiating and concluding the transaction as part of the Program and also in developing a business plan for Patrick Cox which was made part of the Program.

146.  Apart from the extensive services rendered by the defendant in respect of Patrick Cox pursuant to the CA, services were also rendered by the defendant under the CA in respect of other projects within the scope.

Agatha SA and Agatha Japan

147.  The business of Agatha SA, a French jewellery chain was acquired by the defendant shortly after the CA was entered into.  The negotiations by the defendant with the owners of Agatha SA resulted in the acquisition by the defendant of Agatha SA on 25 July 2006.  One of the major subsidiaries of Agatha SA was Agatha Japan which had shops in Tokyo and Osaka.

148.  As set out in RL’s report to AM dated 15 January 2007, there were discussions with AM and financial advisors in London to consider the possibility of injecting Agatha SA into WTS. There were also discussions concerning the joint business development of Agatha Japan.  These did not materialize but the services provided were in pursuance of the CA.

149.  RL also referred to the Agatha SA and Agatha Japan   projects in his report to AM dated 6 September 2007.  In his memo to the board of the plaintiff dated 14 February 2007, AM also gave a summary of the projects in respect of Agatha SA and Agatha Japan.

Other Projects

150.  There were also discussions between Cheng and AM concerning Jaeger in respect of men’s fashions.  RL said, and I accept, that this was a brand introduced by AM.  RL had discussions with Cheng and AM concerning the acquisition of this brand both before and after the entering into of the CA.  Discussions about Jaeger continued on for a number of months after the CA was entered into although there was no further progress in respect of this project.

151.  There were also discussions with AM concerning Philippe Charrioll, in respect of branded watches, and Xinyu Hengdeli Holdings Ltd, also in respect of branded watches.  However, these did not progress any further beyond discussions between the parties where information was exchanged.

152.  GR Holdings was a family business which held the Morlands brand in respect of sheepskin coats.  On the evidence of RL, which I accept, he went to London twice to have meetings with the Chairman of GR Holdings over a couple of months.  RL also had discussions with AM about the possibility of the acquisition of GR Holdings.  The project did not proceed further as, on the evidence of RL, there were complications because of the family situation of the owners of GR Holdings.

The Tozai Companies

153.  There was a suggestion in the evidence of Takagi that AM had set up a company using the name Tozai which the plaintiff was unaware of and had no interest in.  Takagi’s evidence on this was his opinion evidence which was inadmissible.

154.  In any event, what Takagi said is contradicted by the evidence of AM which I prefer.  AM was questioned about his involvement with the Tozai companies.

155.  AM explained that the plaintiff had a number of subsidiaries including OA System Plaza Co Ltd (“OA System”) a listed company which originally had the master franchise for the personal computer retailer PC Depot in certain areas in Nagoya and Osaka.

156.  Another subsidiary of Apollo was Tozai Capital KK (“Tozai 1”) which was a private company established in 2004 and which AM said was used as a vehicle for a number of new acquisitions in the media and IT agency business. AM was appointed the President and Representative Director of Tozai 1 in July 2004.

157.  AM said that it was decided by the plaintiff that it would be appropriate to place Tozai 1 under the listed subsidiary OA System.  In about July 2007 Tozai 1 changed its name to OA Systems KK and became a subsidiary of OA System. Eventually the companies were merged and became known as OA System.

158.  AM said that the name “Tozai”, meaning East-West in Japanese, was his idea.  By around January 2007 it was evident that the plaintiff would not be using the name Tozai.  He said that he asked the plaintiff for permission to form a company in the Cayman Islands using the name Tozai Capital Ltd (“Tozai 2”).  AM said that the directors of the plaintiff were happy for him to use the name Tozai as they were not going to continue with the international business on their own and also agreed to participate in Tozai 2 through OA System via its subsidiary Tozai 1.

159.  Tozai 2 was therefore incorporated in January 2007.  The sum of GBP 250,000, equivalent to about JPY 60,000,000 at that time, was invested by Tozai 1.  AM’s evidence is supported by the application for remittance and the statement of remittance dated 12 January 2007 to Sovereign Trust (Hong Kong) Ltd, which was the corporate service agency engaged to incorporate Tozai 2 in the Cayman Islands and the corporate secretary of Tozai 2. 

160.  Although there was no formal board minute produced in respect of this matter, I am satisfied that AM did have informal discussions with the directors of the plaintiff who knew and approved of AM’s use of the name Tozai when he set up Tozai 2 and in fact also invested in Tozai 2 to the equivalent of GBP 250,000.  AM also emphasized that in fact Tozai 2’s office premises in Tokyo were in the same office premises as the plaintiff’s after Tozai 2 was set up.  

161.  I believe AM and accept his evidence.  There is no merit in the suggestion made that AM set up Tozai 2 as his personal business without the knowledge or consent of the plaintiff.

162.  I have also borne in mind the personal interest of AM in Tozai 2 and in the SPA when assessing his credibility as a witness.

163.  As he accepted in evidence, AM did have a personal interest in the SPA through his private company Emporium Investment Holdings Ltd (“Emporium”).  The evidence shows that Emporium and World Capital Services Ltd (“WCSL”) were each to make a loan of GBP 60,000 to WTS, such loan being convertible into additional shares of WTS.  AM said that he was the beneficial owner of Emporium, whereas WCSL was owned by Morita, the representative of the major shareholder of the plaintiff. The major shareholder, according to AM, were a group of companies, special purpose vehicles.

164.  AM said that the loan of GBP 60,000 was a relatively small sum and the conversion of the loan into shares would have given him a small amount of equity in WTS.  AM was adamant that all the directors of the plaintiff were aware of his personal interest in Emporium and in WTS.  There were informed in the informal discussions he had with the directors.  He also emphasized that throughout the period that he was with the plaintiff it was clear to him that in the way the other directors treated Morita, Morita was the decision maker in the plaintiff.  I believe him and accept his evidence.

Change in strategy

165.  An important feature in the evidence is that the plaintiff had a fundamental change in business strategy in April 2007.

166.  AM emphasized that the reason that he had been appointed Chairman and Representative Director of the plaintiff on 26 May 2006 was to give the plaintiff more of an international strategy and expansion strategy.  The CA that the plaintiff entered into with the defendant was to be a long term joint venture with the defendant lasting 5 years on the terms under the CA.

167.  AM said that by the third and fourth quarter of 2006 the share price of the plaintiff, which at that time was still a listed company in Osaka, had dropped considerably.  At a board meeting of the plaintiff held on 25 April 2007 chaired by Hirayama at which AM was present, there was a proposal by Hirayama for a medium term business plan for the board’s approval which was unanimously passed.  The medium term business plan was set out in Attachment 3 to the minutes of that meeting.  This shows that there were very substantial deficits in the accounts of the plaintiff caused by losses in listed and non-listed securities for the year ended February 2007.  This led to the setting up of the new medium term business plan to be implemented for two years from February 2008 to February 2010, the gist of which was to return to the original purpose of a genuine holding company.  The plaintiff also resolved to effect a change of name of the plaintiff to Stellar Group Co Ltd.

168.  By the public announcement made by the plaintiff dated 25 April 2007 the plaintiff announced publicly that it had decided to completely do away with the investment business that they had been engaged in and return to its original aim as a pure holding company.  

169.  What is of significance is the fact that although the plaintiff had in June 2006 entered into a long term joint venture arrangement with the defendant under the CA, by the 1^st quarter of 2007, less than a year into the CA, the plaintiff’s board as well as, on the evidence of AM, which I accept, Morita, representing the major shareholder of the plaintiff, wanted to change its strategy and refocus on domestic business.

170.  AM resigned as President and Representative Director of the plaintiff in March 2007.  He, however, remained a director until September 2007.

171.  AM said that by the end of 2006 he knew and the board knew that he was going to step down as CEO.  He denied any suggestion that he was forced to resign because the plaintiff was not satisfied with the performance under the CA.  AM said, and I accept, that the reason why he resigned as CEO was because of the change in strategy on the part of the plaintiff.  AM had been hired by the plaintiff specifically to expand the international business on behalf of the plaintiff.  I believe AM and accept his evidence

172.  I would also observe that the directors of the plaintiff have in their letter to Grant Thornton Corporate Finance in London dated 12 November 2007 relating to the prospective listing of Tozai 2 in London, confirmed that AM “was not involved in any malfeasance or irregularity concerning Stellar Group during his tenure as a director of Stellar Group”. The letter was signed by the directors at that time, including Hirayama.  It is clear that the board of the plaintiff did not regard AM as having committed any irregularity while serving as a director of the plaintiff.

173.  It seems to me that it was because of the fundamental change in strategy on the part of the plaintiff that the plaintiff was no longer interested in seriously pursuing the joint business development with the defendant under the CA.  I would observe that the plaintiff did not appoint anyone else to communicate with the defendant after AM resigned as a director of the plaintiff in September 2007 and did not even inform the defendant of the resignation of AM at that time.

174.  It was only on 20 March 2009 that the plaintiff complained by its letter of that date to the defendant that the defendant was in breach of clause 2 of the CA alleging for the first time that the defendant had failed to provide the plaintiff with any concrete service in respect of the Program and ceased to provide any service since the departure of AM in September 2007.

175.  I would also observe that, on the evidence, one Hirofumi Morita was a director of the plaintiff at the time the plaintiff sent the letter giving notice of breach to the defendant by its letters dated 20 March 2009,  and the letter of termination dated 7 August 2009.  Hirofumi Morita is another gentleman also surnamed Morita and he is not the same Morita who represented the major shareholder of the plaintiff.

176.  Takagi said that he did not ask Hirofumi Morita to give evidence at the trial.  It seems to me that it is inconceivable that Hirofumi Morita would not have been asked about the events giving rise to the decision by the plaintiff to send the letters of 20 March 2009 and 7 August 2009 to the defendant which eventually led to the termination of the CA. Hirofumi Morita was a director at the time and he remains a director of the plaintiff.

177.  The plaintiff has failed to provide a satisfactory explanation for not calling Hirofumi Morita as a witness.  It seems to me that an adverse inference can and should be drawn against the plaintiff that if he had been called to give evidence, his evidence would not have supported the plaintiff’s case on the termination of the CA ( Li Sau Keung v Maxcredit Engineering Ltd and another [2004] 1 HKC 434 at 443-444; Hoie Sook Foong and another v Ismail Halima and another [2009] 1 HKC 326 at 336).

178.  In my judgment the defendant was not in breach of clause 2 of the CA as alleged by the plaintiff and the plaintiff was not entitled to give notice under Clause 5(2) of the agreement by its letter dated 20 March 2009.  This was followed by the notice of termination dated 7 August 2009 given by the plaintiff to the defendant.

179.  In my judgment, the plaintiff has failed to establish that there has been a total failure of consideration or that there has been a fundamental breach of the CA by the defendant.  Issue (2) is resolved against the plaintiff.

Issue (3) (whether the remuneration paid under the CA is divisible)

180.  The plaintiff’s further alternative case is that the remuneration of JPY 225,000,000 paid under the CA is divisible by the contractual term of 60 months.  It relies on the use of the words “aggregate total” of the remuneration in clause 3.1.  It was submitted that if the payment was in the nature of an entry fee, the CA would have said so and would not have involved a period.

181.  On the basis that the remuneration is divisible, the plaintiff’s further alternative case is that if there was a total failure of consideration only in relation to a divisible part of the CA namely, the period after AM left the plaintiff altogether or the period after the termination of the CA, the plaintiff would be entitled to restitution or damages in respect of that part.

182.  I have no hesitation in finding that the remuneration paid under the CA was not divisible as alleged by the plaintiff.

183.  Clause 3 of the CA deals with the remuneration under the CA. By clause 3.1 the parties agreed that the remuneration of the defendant for the provision of the services under the CA “shall be fixed at an aggregate total” of JPY 225,000,000 and “shall be paid with seven (7) days of the execution of this Agreement”. This was a fixed sum to be paid within 7 days of execution.  It was not stated to be paid in instalments or by stages.  It was not stated to be paid only upon the delivery of any particular service or upon any successful completion of a business deal.   

184.  I bear in mind that as provided in the CA by clause 2.2 the parties agreed that the implementation of the Program

“may take many forms and the returns will vary depending on the size and number projects, the amount of respective investment by the parties, and the nature of the projects themselves…”

185.  There is no valid basis for the submission that the remuneration is to be divided into 60 months, one for each month of the duration of the CA.  That suggests that the value of the services to be provided by the defendant is to be the same from month to month for the whole of the 60 months’ period of the CA.  That cannot be right.  Of particular importance is the fact that under the CA the plaintiff was not obliged to invest in any business opportunity. There was no obligation on the plaintiff to participate in any project.

186.  It is also important to bear in mind that it was provided in clause 2.2 that:

“In consideration of the remuneration as set out below, the Consultant understands and agrees that all expenses related to developing and implementing the Program in general terms are included in the Consultant’s remuneration hereunder, save and except for the specific investment requirements of a particular project within the Program, which shall be decided by the parties on a case-by-case basis”.

187.  The remuneration of JPY 225,000,000 was to include all expenses incurred by the defendant in developing and implementing the Program.  The evidence of RL and Cheng shows that the defendant did expend substantially more than the equivalent of JPY 225,000,000 in acquiring and maintaining Patrick Cox which became part of the Program.

188.  By clause 5.1, the CA was to remain in full force and effect for the term specified in clause 1, namely, for the 60 months ending 31 May 2011 until such time as it was terminated in accordance with clause 5.

189.  The provisions for termination are contained in clause 5.2(a) to (c).  Except for the said causes for termination, the party unilaterally terminating the agreement was liable to the other party for compensation. There was no provision in the CA for any refund of any portion of the remuneration.  

190.  On the proper construction of the CA, I am unable to accept the submission that the remuneration of JPY 225,000,000 which was paid  to the defendant was divisible into 60 months of monthly fees.  That was not the agreement between the parties.

191.  In my judgment, there is no merit in the pleaded case of the plaintiff at paragraph 10 of the re-amended statement of claim that

“the aforesaid payment of the Fees represented payment, in advance, of monthly fees of 3,750,000 Japanese Yen per month for the entire 60 month term of the Consulting Agreement (3,750,000 x 60 = 225,000,000)”

192.  The payment of the remuneration of JPY 225,000,000 under the CA was, in my judgment, the upfront fee payable and paid to the defendant for the services it would provide for the period under the CA.

193.  Issue (3) is resolved in favour of the defendant.

194.  In view of my findings on issue (3), issue (4) does not arise.

Issue (5) (whether the plaintiff wrongfully terminated the CA)

195.  I am satisfied that there was an implied term in the CA that the parties would co-operate with each other and the plaintiff would not by its own act or default, prevent the defendant from performing its obligations as pleaded in paragraph 15A of the re-amended defence.

196.  I am also satisfied that in breach of the implied term, the plaintiff prevented the defendant from further performing its obligations under the CA after it wrongfully decided to give notice of breach by its letter dated 20 March 2009 followed by the letter of termination dated 7 August 2009.

197.  As I have said, the plaintiff was not entitled to give notice of breach by its letter dated 20 March 2009 to the defendant nor was it entitled to give notice of termination by its letter dated 7 August 2009.  By so doing, the plaintiff has wrongfully terminated the CA and the defendant was absolved from any further performance of its obligations under the CA.  Issue (5) is also resolved against the plaintiff.

Conclusion

198.  I dismiss the plaintiff’s claims against the defendant.

199.  I also make an order nisi that the plaintiff do pay the defendant its costs of the action such costs to be taxed, if not agreed.