CHOPARD HONG KONG LTD v. DENIS ARMAND MULLER AND ANOTHER

DCCJ2785/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2785 OF 2007

J U D G M E N T

1.  The plaintiff claims against the two defendants for the return of payment of 50 per cent of the sponsorship money for an event known as Shanghai Fashion and Jewellery Week on 30 May 2007 to 2 June 2007 in Shanghai, the PRC, which failed to take place.

Background

2.  The plaintiff is a company registered in Hong Kong which carries on the business of promoting and marketing watches and luxury products in the Far East.  The 1st defendant is a French National whose last known address was in Dubai, the United Arab Emirates.  He is the sole director of the 2nd defendant which is a Hong Kong registered company incorporated on 5 October 2006 with a registered address at Level 39, 1 Exchange Square, 8 Connaught Place, Central, Hong Kong.  Both the 1st and 2nd defendants were represented by a firm of solicitors, Messrs Oldham Li & Nie.  They had separately acknowledged service of the writ.  The 2^nd Defendant filed a defence in this action in July and August in October and November in the 1st defendant’s case.

3.  Subsequently, upon the court’s directions, there were exchanges of witness statements and lists of documents and the case was set down to be tried in the fixture list in April 2008.  Trial bundles were agreed between the parties’ solicitors in May 2008.  On 18 July 2008, the defendants’ solicitors, Messrs Oldham Li & Nie, successfully obtained an order from the court to cease acting for both the 1st and 2nd defendants.  At the date for trial commencing yesterday, neither of the defendants were present.  Miss Mak, solicitor for the plaintiff, informed me that the trial bundle had been sent to the defendants’ solicitors before they ceased acting for the two defendants.  Both defendants should have therefore been notified by the solicitors of the date of trial when the date was fixed in April 2008.  Miss Mak has further informed me that their absence today and yesterday must be out of choice rather than ignorance of the date of trial.

4.  I accept that there is sufficient evidence in the trial procedure records to show the two defendants had notice of the date of hearing and the pre-trial directions had been complied with.  The defendants’ absence, I accept, were out of choice.

The Plaintiff’s Case

5.  The plaintiff’s claims against the two defendants are made under five causes of action:

(1) fraudulent misrepresentation of the 1st defendant;

(2) section 3 of the Misrepresentation Ordinance for negligent misrepresentation;

(3) against the 2nd defendant for total failure of consideration;

(4) against the 2nd defendant for repudiation of the sponsorship contract;

(5) against both defendants for conspiracy to defraud the plaintiff.

6.  It is the evidence of Miss Beiler, the marketing manager of the plaintiff, that the plaintiff was approached by Mr Muller, the 1st defendant, by email on 27 September 2006.  A meeting was arranged on 3 October 2006 when Miss Beiler and her boss, the managing director of the plaintiff, Mr Buser, met with the 1st defendant, Mr Muller.  Mr Muller invited the plaintiff to take part in the Shanghai Fashion and Jewellery Week (“the proposed event”) to be organised by Mr Muller.  At that meeting, Mr Muller presented various proposals on the proposed event.

7.  On the next day, Miss Beiler received by email a brochure from Mr Muller on the proposed event which would take place at the Shangri-La Pudong Hotel in Shanghai, PRC, between 30 May and 2 June 2007.  Mr Muller had included in the brochure a Financial Times feature article with an interview of himself on the “Masters of Excellence Exhibition” in Abu Dhabi on 20 May 2006.  According to Miss Beiler, she understood from Mr Buser that Chopard had taken part at that particular event in Abu Dhabi.  Mr Muller also enclosed in his email a letter of congratulations from the Abu Dhabi Motors to Mr Muller on the “Masters of Excellence Exhibition”.  Thereafter, the plaintiff and Mr Muller communicated further by emails.  Upon the plaintiff’s general manager, Mr Buser, obtaining approval from the plaintiff’s headquarters in Geneva, Miss Beiler was instructed to go ahead with the sponsorship of the proposed event in Shanghai between May and June 2006.

8.  On 13 October 2006, Miss Beiler communicated by telephone with Mr Muller informing him of the plaintiff’s interest in participating in the proposed event, asking for further details on the event.  On 14 October 2006, the plaintiff received by email a copy of a sponsorship contract.  Before signing the sponsorship contract, Miss Beiler proceeded to clarify further detail arrangements of the plaintiff’s participation at the proposed event.  Upon the details being clarified, the plaintiff’s general manager eventually signed the sponsorship contract on 25 October 2006.  This was emailed back to Mr Muller.  On the next day, on 26 October 2006, the plaintiff received an invoice for the sum of $300,000 representing 50 per cent of the sponsorship sum in the email from Mr Muller.  After further communications between Miss Beiler and Mr Muller on the details of the plaintiff’s sponsorship, the plaintiff paid the sum demanded by bank deposit of $300,000 into the 2nd defendant’s HSBC account.

9.  According to Miss Beiler’s evidence in court, Mr Muller had invited the plaintiff to take part also in a proposed Beijing show in September 2007 at the very beginning when they first met in October 2006.  Mr Muller had repeated such an invitation again in December 2006 but this was turned down by the plaintiff.  They further communicated over the arrangements of the proposed event in February and March 2007, and Mr Muller had confirmed in the email correspondence the plaintiff’s sponsorship of the proposed event to take place between 30 May to 2 June 2007.  On 22 March 2007, the plaintiff received the last email communication from Mr Muller who informed Miss Beiler he would be in Hong Kong in about 10 days’ time and would communicate with her further upon his return to Hong Kong.  However, Miss Beiler was not able to get in touch with Mr Muller.  In April 2007 she attempted to contact Mr Muller by email and telephone but failed to get in touch with him.  She further visited the 2nd defendant’s office address at Level 39, 1 Exchange Square but found the address was a commercial office centre.  Inquiries made to the Shangri-La Pudong Hotel in Shanghai confirmed that there was no reservation for the proposed event for 30 May to 2 June 2007.  Consequently, the plaintiff caused a solicitor’s letter to be sent to the 2nd defendant’s registered address at Level 39, 1 Exchange Square.  The letter was returned marked “No such company”.  The plaintiff commenced proceedings against the two defendants in June 2007.

10.  The Defence of the 1st defendant claimed he had informed the plaintiff by email and telephone announcing the postponement of the proposed event due to shortage of haute couture garments and had offered an alternative option to the plaintiff to take part in a similar event in Beijing or Macau in 2008.  The Plaintiff denied the 1^st Defendant’s claim.  Miss Beiler claimed that she did not receive any such communications from Mr Muller either in his own capacity or as the defendant’s director after 22 March 2007 and there were no announcement of postponement or proposal for an alternative event in Beijing or Macau in 2008 whatsoever.

The Defendants’ Defence

11.  As the defendants were absent at the trial, no evidence was adduced at the hearing.  The issue at trial is therefore whether the plaintiff has successfully proved its claim against the two defendants.  The defendants admitted in their respective defences that there was a sponsorship contract between the plaintiff and the 2nd defendant and that the 2nd defendant did receive the HK$300,000 from the plaintiff.

Issues

12.  (1)  The plaintiff’s claim in contract

Has the sponsorship contract between the plaintiff and the defendant been revoked and is there a total failure of consideration? 

(2)  The plaintiff’s claim in tort

Did the 1st defendant misrepresent to the plaintiff and did the 1st defendant conspire with the 2nd defendant in the misrepresentation?

(3)   Is the plaintiff entitled to recover the deposit of the sponsorship of $300,000 from the 1st and 2nd defendants?

Analysis

(1)  The plaintiff’s claim in contract

13.  Has the sponsorship contract been revoked and is there a total failure of consideration?

I find the plaintiff’s sponsorship contract was based on a partly oral and partly written agreement.  The oral agreement was reached between Miss Beiler and Mr Muller.  According to Miss Beiler, the contract was signed only by Mr Buser for the plaintiff.  The document itself showed only one signature signed on behalf of the plaintiff.  Neither the 2nd defendant nor the 1st  defendant had ever signed this document.  In spite of that, there was clearly an agreement reached between the two parties; this is not disputed by the defendants.  Consequently, there was a contract between the plaintiff and the defendants for the proposed event.  Since the proposed event never took place on 30 May to 2 June 2007, there was a clear breach of the contract.  Even if Mr Muller’s defence of postponement of the proposed event or the alternative proposal of a later event in Beijing or Macau was a genuine one, there is no evidence that the plaintiff had accepted either of the two proposals.  There was further no evidence that the sponsorship contract had been amended by agreement of the parties.  There is therefore a total failure of consideration for the deposit of sponsorship money paid by the plaintiff into the 2nd defendant’s bank account.

(2)  The plaintiff’s claim in tort

14.  Did the 1st defendant fraudulently misrepresent to the plaintiff and did the 1st defendant conspire with the 2nd defendant in the misrepresentation?

Paragraph 18-1 of Clerk and Linsell on Torts, 19th edition, chapter 18, the learned author said:

“If the tort involves a perfectly general principle, where a defendant makes a false representation knowing it to be untrue or being reckless as to whether it is true and intends that the claimant should act in reliance on it, then, insofar as the latter does so and suffers loss, the defendant is liable for that loss.”

15.  It is the plaintiff’s case that Mr Muller fraudulently misrepresented to the plaintiff that the proposed event would take place and also that many other name brands sponsors had committed to the sponsorship of the proposed event.  Contrary to the representation by Mr Muller, the event never took place and no couture houses had been committed to the event.  There was obviously a misrepresentation.  Secondly, the plaintiff claimed that Mr Muller cannot hide behind the 2nd defendant and claimed he was merely speaking as a director of the 2nd defendant or as an agent of the 2nd defendant, and denied liability to the plaintiff’s loss.

16.  Miss Mak referred me to the House of Lords case of Standard Chartered Bank v. Pakistan National Shipping Corporation (No. 2) [2003] 1 AC 959.  The House of Lords rejected an argument that an agent who lied on his principal’s orders could not be personally liable to the representee for loss suffered.  It is clear from the House of Lords case, in Lord Hoffman’s judgment, that defence is no longer open to an agent who knew what he represented was not true and the agent should be liable to the plaintiff who suffered because he had relied on the representation.  I accept the 1st defendant cannot hide behind the 2nd defendant and claim he was merely the 2nd defendant’s director and agent.

17.  When Mr Muller began negotiating with the plaintiff the proposal of the proposed event in October, the 2nd defendant was not yet incorporated into a company and did not exist.  Mr Muller, therefore, must be the principal and the perpetrator of the fraud.  Further, as he is the sole director of the 2nd defendant and as the company’s registered address is at an office centre where the 2nd defendant had only rented a desk, an inference can be drawn that the 2nd defendant is merely a front for Mr Muller’s business activities.

18.  The standard of proof in deceit claims need only be proved to civil standard according to the English Court of Appeal case in Hornal v Neuberger Products [1957] 1 QB 247.  I am satisfied the plaintiff has successfully shown, on a balance of probability, that Mr Muller had deceived the plaintiff into entering the sponsorship contract and making an initial payment of 50 per cent of the sponsorship money of $300,000 to Mr Muller via a bank account opened in the 2nd defendant’s name.  Paragraph 18-2 of Clerk and Linsell on Torts states the following:

“Deceit and other liability for misrepresentation.  Damages may, of course, be awarded for misrepresentation even if it is not fraudulent.  If a representation is a term of a contract, damages are available if it is false without even proof of fault.  Again, since the decision of the House of Lords in Hedley Byrne & Co. Limited v Heller & Partners Limited, it has been clear that misrepresentation can give rise to liability in the tort of negligence at common law, at least where there is something that can be construed as an acceptance of responsibility for its truth.  In addition, under the Misrepresentation Act 1967, section 2(1), a person who induces another to contract with him by misrepresentation is liable unless he proves he was not at fault.”

19.  Section 2(1) of the UK Misrepresentation Act of 1967 is almost identical to section 3 of the Hong Kong Misrepresentation Ordinance in Cap.284.  As Mr Muller did not appear at the trial, his defence was not supported by any evidence and there is no evidence to support Mr Muller’s claim that he was not at fault.  I am therefore satisfied the defendants are liable to compensate the plaintiff for its loss.

(3)     Is the plaintiff entitled to recover the deposit of sponsorship money of $300,000 from the 1st and 2nd defendants?

20.  For reasons set out above, I am satisfied the 1st and 2nd defendants are liable to return the sum of $300,000 paid by the plaintiff to the 2nd defendant on the basis that the proposed event never took place, the venue was never booked, and there was no evidence of any fashion houses having been committed to take part other than the plaintiff.  It is a breach of sponsorship contract by both defendants and on the basis of the common law principle of money had and received, the 1st defendant, though not paid the money directly, did derive a benefit from it.  An explanation of this principle can be found in Goff and Jones, Law of Restitution, 7th edition, paragraph 1-002, and the 1st defendant being one and the same entity as the 2nd defendant therefore should be liable.

21.  As to the plaintiff’s fifth cause of action of conspiracy to defraud, it is technically a criminal offence.  In any event, under tort, though it is also a possible cause of action, on analysis, a conspiracy must be an act performed by two or more persons.  As I have found the 2nd defendant is, in fact, merely a vehicle employed by the 1st defendant to perpetrate the deception, the 1st defendant being the sole director and shareholder, it simply means the 1st defendant was conspiring with his alto ego.  I am not convinced that it is a proper cause of action in this particular case.

Conclusion

22.  For the aforesaid reasons, I find the case proved against the 1st and 2nd defendants.  I give judgment against the two defendants for the sum claimed of $300,000.

Interest

23.  Miss Mak cited and relied on the case of Shearson Lehman Hutton Incorporated v Maclaine Watson & Co. Limited (No. 2) [1990] 3 All ER 723 on the matters relating to pre-judgment interest that the commercial interest of 1 per cent over the base rate should be awarded as pre-judgment interest.  I am satisfied that that is the rate usually awarded in the commercial court and I refer to Order 6/L/11 to 16 in the Practice Notes of the Hong Kong Civil Procedure 2008 which also confirms the same principle of commercial interest.  In this particular case which involved deception by the defendant and as the plaintiff is a commercial entity, I would apply the practice of the commercial court and award interest from the date of writ to the date of judgment on the judgment sum at 1 per cent over the base rate or best lending rate and thereafter at judgment rate until full payment.

Costs

24.  Miss Mak has asked for costs to the plaintiff be awarded on an indemnity basis.  She relied on the case authority that costs may be so awarded in cases where the circumstance or conduct takes the case out of the norm.  The case referred to is Excelsior Commercial and Industrial Holdings Limited v Salisbury Hamer Aspden & Johnson (a firm) [2002] EWCA Civ 879.  The award of costs is a discretion of the court.  It is true that Mr Muller seems to have hidden behind the 2nd defendant and had only appeared some three to four months after the writ was issued by the plaintiff.  Although the 2nd defendant did acknowledge receipt of the writ and file defence in July and August, Mr Muller eventually, through a firm of solicitors, acknowledged receipt of the writ (served on him out of jurisdiction) in October and November and thereafter all the pre-trial procedures were followed.

25.  Both defendants failed to appear at the trial which, I am told by Miss Mak, did not appear as a surprise to her after the firm of solicitors had applied to court to discharge themselves.  But, by not appearing to defend the case, the defendants inadvertently have saved some of the court’s time.  On the conduct of the defendants, I do not consider that the circumstances or the conduct had, in a technical sense, taken the case out of the norm, for that reason I order costs to the Plaintiff on a party and party basis to be taxed if not agreed.  I do not think the defendants’ conduct or behaviour warranted a higher level of taxation.

(Discussion)

26.  I further dismiss the 2nd defendant’s counterclaim.