GOAL SETTING CONSULTING CO LTD v. UNIGRAPHICS SOLUTIONS ASIA/PACIFIC INCORPORATED

HCA 994/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 994 OF 2003

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J U D G M E N T

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The appeal

1.  This is the defendant’s appeal from the order of Master J. Wong given on 30 July 2004 whereby he ordered that judgment be granted to the plaintiff against the defendant for the sum of US$666,000 or its Hong Kong Currency equivalent with interest and costs on the plaintiff’s application for summary judgment.  The defendant also appeals against the order of the Master made at the same time dismissing the defendant’s application for security for costs with costs to the plaintiff.

The claim

2.  The plaintiff’s claim against the defendant is for the defendant’s failure to pay the plaintiff the sum of US$666,000 pursuant to a Service Agreement dated 26 June 2001 entered into between the plaintiff and the defendant (“the Agreement”). By the Agreement the plaintiff agreed to provide consultancy and supportive services to the defendant so as to obtain a computing services contract with the Department of Skill Development, Ministry of Labour and Social Welfare, in Thailand (“the Ministry”).

3.  As is pleaded in the statement of claim, the plaintiff duly provided the services to the defendant and caused the defendant to successfully obtain the contract with the Ministry.  This was awarded on 28 February 2002.  The defendant has received payment of US$2,200,000 from the Ministry.  Under the Agreement, the defendant is obliged to pay to the plaintiff 28% of the said sum plus US$50,000 amounting to the total sum of US$660,000.  The defendant has failed to pay the said sum or any part thereof to the plaintiff.  The writ with the statement of claim endorsed thereon was issued on 18 March 2003.

The defence

4.  The defence and counterclaim was filed on 11 September 2003.  The thrust of the defence is that the plaintiff acted in breach of the Agreement as pleaded in para. 7 as follows :

“  7.    The Plaintiff acted in breach of the Agreement

(a)    In breach of provision in Section 1 of the Agreement, the Plaintiff failed to provide two persons working full time (or four people working half-time but not less than half-time) to support the project under the Defendant’s direction.

(b)    All activities undertaken by the Plaintiff were not carried out with the prior written approval of the Defendant, in breach of Section 1 of the Agreement.

(c)    Companies associated with the Plaintiff and controlled by the same person controlling the Plaintiff bid in competition with the Defendant on projects in Thailand.  Such conduct on the part of the Plaintiff was in breach of Section 1 of the Agreement.

(d)    In breach of Section 1 of the Agreement, the Plaintiff failed to carry out the promotion and support of the Defendant in a positive and professional manner.

(e)    In breach of Section 1 of the Agreement and in breach of its representation that its officers are conversant with and would ensure due compliance of the applicable legislations, Plaintiff failed to refrain from doing anything that would diminish the value of Defendant and its products’ name and good will in the manner as described in that paragraph, and also refused to allow audit of its books and records relating to transactions pursuant to the Agreement as necessary to ensure compliance with such requirements.

(f)    In breach of Section 3 of the Agreement, despite the request of the Defendant and the agreement that such items would be the property of the Defendant, the Plaintiff refused to provide any books, records, papers or memoranda of any kind relating to the way in which it performed its obligation under the Agreement.”

4.    There is also a plea in para. 8 that there was a total failure of consideration on the part of the plaintiff as it failed to perform its contractual obligations under the Agreement.  It is pleaded that the consideration for payment to be made by the defendant wholly failed and the defendant is discharged from making payment to the plaintiff.

5.  The defendant also relies on Section 2 of the Agreement and pleads that by a letter dated 19 July 2003 the defendant terminated the Agreement with immediate effect for cause, including failure by the plaintiff to comply with the provisions of the Agreement.  It is further pleaded that the plaintiff is not entitled to receive the payments.

The counterclaim

6.  There is also a counterclaim.  The defendant repeats the whole of its defence and counterclaims damages.  No particulars of loss and damage are given.  This is a claim for general damages for the plaintiff’s breach of the Agreement. 

7.  The defendant also counterclaims for an indemnity against the claim of Mrs. Matana Uthaivathna (“Matana”) filed in Thailand on 10 March 2003 against, inter alia, the defendant.  In the Thai proceedings,Matana alleges that the defendant engaged her to assist the defendant in the bid process with the Ministry.  She alleges that the defendant agreed to pay her for the services and that it was agreed that she would be paid 28% of the price of goods and services sold and provided by the defendant to the Ministry and expenses at US$50,000.  She was the one who assisted the defendant in obtaining the contract from the Ministry.  She claims the same amount as that claimed by the plaintiff in these proceedings.  The defendant counterclaims against the plaintiff for an indemnity against the claim of Matana.  Matana has also been brought in as a Third Party by the defendant.

Foreign Law

8.  It is expressly provided by Section 11 of the Agreement that :

“This Agreement will be governed by and construed in accordance with the laws of Delaware, without reference to its choice of law rules or any statutes on the international sale of goods.”

9.  The defendant is a company incorporated in the State of Delaware, USA. 

10.  The Agreement is clearly governed by Delaware law.  The affidavits of Bruce E. Jameson (“Jameson”) and Robert S. Saunders (“Saunders”) deal with the applicable Delaware law.  The affidavit of Saunders was not before the Master as it was only recently obtained.  As there was no objection to the filing of the same for the purpose of this appeal, I gave leave to the defendant to file and use the same for the purpose of this appeal.

11.  It is trite that questions of foreign law are matters of fact and ought to be pleaded.  The defence and counterclaim does not specifically plead the matters of fact relied on as foreign law.  Mr. Chua S.C., for the defendant, accepts that the pleading will have to be amended.  However, the evidence of foreign law relied on by the defendant is before the Court.

12.  It was submitted by Mr. Chua that the Court should be reluctant to reject the evidence of the expert on foreign law which is uncontradicted.  As stated at para. 9-016 Dicey and Morris on The Conflict of Laws Vol. 1 13^th Edn. :

“But while the court will normally accept such evidence it will not do so if it is “obviously false”, “obscure”, “extravagant”, or “patently absurd”, or if “he never applied his mind to the real point of law”, or if “the matters stated by [the expert] did not support his conclusion according to any stated or implied process of reasoning”; or if the relevant foreign court would not employ the reasoning of the expert even if it agreed with the conclusion.”

13.  It seems to me that the uncontradicted evidence of Delaware law adduced by the defendant does not fall into any of the recognized reasons for rejection as set out at para. 9-016 of Dicey and Morris.  The Court should, therefore, normally accept such evidence.

Any triable issue?

14.  Mr. Yuen S.C., for the plaintiff, submitted that under the Agreement, payment to the plaintiff was conditional upon first the defendant obtaining the contract from the Ministry and secondly, the defendant receiving payment from the Ministry.  Both of those conditions were fulfilled and, therefore, the defendant should be obliged to pay the plaintiff.  Unless the defendant can raise a triable issue, the plaintiff is entitled to summary judgment.  Is there a triable issue raised so as to resist the plaintiff’s application for summary judgment?

15.  One of the matters raised by the defendant as a triable issue is the question of whether there was a breach by the plaintiff of the Agreement because it submitted competing bids against the defendant for the contract from the Ministry.  The alleged breach is pleaded at paras. 7(c) and (d) of the defence and counterclaim.

16.  Section 1 of the Agreement included a term that during the term of the Agreement and for 24 months thereafter the plaintiff would not assist or advise, directly or indirectly(including by consultation or assistance in negotiations), any of the defendant’s competitors for the contract from the Ministry.  There was also a term that the plaintiff’s promotion and support of the plaintiff should be “undertaken in a positive, professional manner and [the plaintiff] shall not do or cause to be done anything which would diminish the value of [the defendant’s] and or its products’ name or goodwill”.

17.  The obligation on the plaintiff under the Agreement was to provide services to assist the defendant to successfully obtain the contract from the Ministry but this was not to be done at all costs.  The plaintiff was not to assist in presenting a competing bid to the Ministry.  The obligation on the plaintiff was to act professionally and the plaintiff was not to do or cause anything to be done which would diminish the value of the plaintiff’s name or goodwill.

18.  As regards the competing bids, Prayoon Jenlapwattanakul  (“Prayoon”) of the plaintiff in his 2^nd affirmation states as follows :

“10. Whilst the Defendant and the Plaintiff were preparing for the project, we were approached by a company named NBEC, to provide equipment and services for the same project.  After discussion the Defendant felt that it would be good to provide a quote to this company.  The Defendant and the Plaintiff were concerned that the Ministry might not receive enough qualified bids and the project would be delayed or cancelled.  In Thailand, the Government will always make sure that there must be a certain number of bidders so that the process was felt competitive.  Thus, the Defendant provided the same equipment and solutions for NBEC to bide, but at a price that was some 10% higher than their own quote.  There is now produced and shown to me marked exhibit “PJ-6” a copy of the Invitation for Bid No. 9908G dated 16^th November 2001.  Thus, if the NBEC bid were successful, the Defendant would end up making a higher profit with less risk, because then they would not have been the Prime Contractor on the project.  Moreover, the Ministry would have an additional bid to consider.  This strategy had been expressly approved by Mr. Davidson and Mr. Tay.  Thus, the Plaintiff supported the Defendant’s bid only.”

19.  What Prayoon did not reveal in his affirmation was the fact, as shown in the evidence adduced by the defendant, that Prayoon was both a director and shareholder of NBEC at all material times. 

20.  As Mr. Chua pointed out, in exhibit “PJ-6” the supplier under the competing bid was not the defendant, as Prayoon asserted, but another entity Unigraphics Solutions (Thailand) Co. Ltd.  The defendant and Unigraphics Solicitors (Thailand) Co. are affiliated companies as they are both part of the group of companies owned and controlled by UGS Inc.  UGS Inc. is a subsidiary of Electronic Data Systems Corporation, a corporation organised under the laws of Delaware, a publicly listed company  (para. 5 of the affirmation of Tony Affuso).

21.  The Country Manager of Unigraphics Solicitors (Thailand) Co. Ltd. at all material times was Mongkol Aksinikul (“Mongkol”).

22.  Mongkol in his 2^nd affirmation at para. 9 states, as regards the competing bids, that :

“Everything was proceeding smoothly, when we were approached by NBEC about providing them a price for the UGS solution so that they could bid the project.  We were concerned that the Ministry might not receive enough qualified bids for the project, so we provided a price for all of our equipment and solutions at a price significantly higher than our bid.  Thus, the Ministry would have an additional qualified bid, and if NBEC won, we would make even more profit on our products and services.”

23.  Joseph A. Hendrix, director of the Global Investigation of the Electronic Data System Group of Companies was asked to investigate certain corrupt practices concerning the supply of software by Unigraphics Solicitors (Thailand) Co. Ltd. to the Ministry.  These were alleged in anonymous letters in January and February 2002.  In the course of his investigation he interviewed numerous persons. 

24.  As regards the competing bids to the Ministry, Hendrix says this in his affirmation at para. 12 :

“In the interview, Mr. Prayoon also admitted that he was the ultimate shareholder of the two companies which submitted competing bids against the Defendant for the 2^nd Contract.  He indicated that NBEC North Bangkok Education Center was one of these companies.  Both of his other companies inflated their bids in order to make the bid of the Defendant more attractive.  Mr. Prayoon further stated that the government officials knew that he owned those two companies and also knew that those bids were inflated to make the Defendant’s bid more attractive.”

25.  The defendant denies the assertions of Prayoon and Mongkol that the defendant was aware of and approved of the submission of the competing bid of NBEC at an inflated price so as to make the defendant’s bid more appealing to the Ministry. 

26.  Tony Affuso, the President of the defendant and Chief Executive Officer of UGS Inc., affirms that he did not have any knowledge of the same and had he known, he would not have approved of it. 

27.  Donald E. Davidson retired on December 31 2002 from Unigraphs Solutions, Inc, a Delaware company which has changed its name to UGS PLM Solutions Inc.  This company is also a subsidiary of Electronic Data Systems Corporation.  Davidson at para. 14 of his affidavit says that he does not remember being aware of and approving of Prayoon submitting competing bids at inflated prices to make the defendant’s bid look more appealing to the Ministry.  He also says that at the time such approval is alleged to have been indicated by him in November 2001 he was no longer Vice President, Asia Pacific, for UCS PLM Solutions Inc. and would not have been in a position to provide such approval if it had been requested.

28.  Hans Kurt Luebberstedt, the Vice President of the defendant, at para. 10 of his 2^nd affirmation says that he did not have knowledge of the fact that competing bids at inflated prices was submitted by Prayoon and if it had been communicated to him he would not have agreed to the same.

29.  There is obviously a serious dispute of fact which cannot be resolved by affidavit evidence.

30.  Saunders in his affidavit gives the opinion that if the evidence set out in the affidavits and affirmations submitted by the defendant in opposition to the plaintiff’s application for summary judgment is proven at trial, Delaware law would require that judgment be entered for the defendant against the plaintiff for its claim.

31.  Saunders analysed the obligations of the plaintiff under the Agreement and concluded that the plaintiff made a variety of promises including the obligations set out above in Section 1 of the Agreement.  In his opinion, if proven at trial that Prayoon was responsible for the submission of the competing bids to the Ministry, under Delaware law that would establish that the plaintiff breached its promise that the plaintiff would not “assist or advise, directly or indirectly” any of the defendant’s competitors for the contract.

32.  Saunders is also of the opinion that if the evidence of Davidson, Affuso and Luebbderstedt were proven at trial that would, under Delaware law,establish that the plaintiff breached its promise that the plaintiff’s promotion and support of the defendant “shall be undertaken in a positive, professional manner and that the [plaintiff] shall not do or cause to be done anything which would diminish the value” of the defendant’s name or goodwill.

33.  Saunders also states that under Delaware law parties may contract as to the consequences of a breach by either party.  This was provided for in Section 2 of the Agreement where it was agreed that :

“[The Agreement] may be terminated immediately upon written notice by either party for cause, including failure of the other party to comply with any of the provisions hereof......................................    

If [the defendant] terminates this [Agreement] for cause, the [plaintiff] shall not be entitled to any payments as set forth in Section 4.”

34.  Saunders is of the opinion that under Delaware law the clear language of these provisions would be enforced.  

35.  Mr. Yuen submitted that the allegations of breaches of the Agreement by the plaintiff were only made after the contract was awarded by the Ministry to the defendant and the Agreement was performed.  It was submitted that the allegations of breach by the plaintiff are afterthoughts without merit to delay payment to the plaintiff.

36.  I am unable to accept that as there were no complaints about the plaintiff before the award of the contract to the defendant this disentitles the defendant to terminate the Agreement for cause by its letter dated 19 July 2002.  According to the defendant, it was as a result of the investigation by Hendrix that the alleged breaches of the plaintiff came to light.  In my view, it is arguable that it was only as a result of the investigation that the plaintiff’s breaches came to light.  This was after the award of the contract to the defendant.

37.  Saunders also expresses his opinion that under Delaware law a party to a contract may defend on the ground that there existed at the time of termination a legal excuse for non-performance although he was ignorant of that fact at the time of the alleged breach.  The termination by the defendant for cause was by its letter dated 19 July 2002.

38.  In my judgment, on the matters as set out above the defendant has raised a triable issue and should be given unconditional leave to defend.  That being so, it is unnecessary and undesirable for me to go into all the other issues raised by the defendant.  As there will have to be a trial, these will have to be resolved at trial.

39.  Mr. Yuen also submitted that the assertions of the defendant are incredible.  I am not persuaded that the assertions are unbelievable.  Whether or not they will be believed is, of course, a matter of credibility at trial.

40.  It is also clear that where there are doubts or suspicion as to the plaintiff’s case, the correct course is for the Court to give unconditional leave to defend so that all matters could be ventilated at trial (Billion Silver Development Ltd v. All Wide Investments Ltd. [2000] 2 HKC 262).

41.  There are unsatisfactory features in the plaintiff’s case.  There is no doubt that the contract was awarded to the defendant by the Ministry.  The plaintiff claims that this was due to its efforts for which it should be paid under the Agreement.  However, Matana,who appears to be a well connected lady in Thailand, claims that she provided the services in securing the contract for the defendant.  In her evidence in the Thai proceedings she said that she set up three teams.  She was a leader of the team responsible for contacting political authority in Thailand.  Prayoon was brought in to join the team. She assigned Prayoon to take care of the bidding until the defendant signed a contract with the Ministry.  Thus, on her case, Prayoon was working for her and she secured the contract with the Ministry for the defendant and she claims to be entitled to the same amount as claimed by the plaintiff.  

42.  Hendrix in his affirmation at para. 13 states that :

“During the course of Mr. Prayoon’s interview I asked him what his or the Plaintiff’s relationship was with Ms. Matana.  He denied knowing who she was and disavowed having any relationship with her with regard to the 2^nd Contract.  However in the interview of Ms. Matana on June 19, 2002, she stated that Mr. Prayoon was in fact a part of her team on the 2^nd Contract and thus she was entitled to 5% of the commission as provided under the [Agreement].  In fact she indicated that Prayoon was her “puppet”. Further, during the course of the investigation, I also interviewed [Mongkol] who told me that although Mr. Prayoon did not know Ms. Matana, he was introduced to Mr. Prayoon through the manpower company, HAMP, a company that had a prior working relationship with Ms. Matana on a regular basis.  He also indicated that Ms. Matana was having problems getting payment from the Defendant with regard to the 2^nd Contract.”

43.  Prayoon denies even knowing Matana but there is the evidence of Matana which contradicts him.   

44.  Mr. Yuen submitted that all this is irrelevant to the plaintiff’s claim against the defendant.  I am unable to accept this submission.  It casts doubts on whether the plaintiff did actually provide the services for which it should be paid or whether Matana was the person who provided the services.  

45.   In my view, there are unsatisfactory features in the plaintiff’s case which casts doubts as to whether the plaintiff did provide services for the obtaining of the contract from the Ministry.  This, in my view, is an additional reason why unconditional leave to defend should be given to the defendant.

Security for costs

46.  The plaintiff is a company incorporated in the British Virgin Islands and is a shelf company having been formed for the special purpose of entering into the Agreement with the defendant.  It is ordinarily resident out of the jurisdiction.  There is no evidence that it has any assets within the jurisdiction.

47.  As matter of discretion, it is the usual ordinary or general rule of practice of the Court that a foreign plaintiff ought to provide security for costs because it is ordinarily just to do so.  This is not really disputed.

48.  In BJ Crabtree (Insulation) Ltd v. GPT Communication Systems Ltd. 59 BLR 43 where there was a counterclaim by the defendant which exceeded the plaintiff’s claim, it was held on the facts of that case that it would not be fair and just to order the plaintiff to give security for costs.  This was because :

(a)    to do so would prevent the plaintiff from pursuing its claim but in the course of defending the counterclaim all the same matters would be canvassed as would be canvassed if the plaintiff were to pursue its claim; and

(b)    the cost incurred by the defendant for the purposes of the defence might equally and perhaps preferably be regarded as costs necessary to prosecute the counterclaim.

49.  As Bingham LJ said at page 53 :

“It may in some cases be fair and just to make such an order even though the defendant is himself counterclaiming, but I am persuaded that it would be wrong to do so here because the costs that these defendants are incurring to defend themselves may equally, and perhaps preferably, be regarded as costs necessary to prosecute their counterclaim.”

50.  In Hutchinson Telephone (UK) Ltd v. Ultimate Response Ltd. [1993] BCLC 307 it was held that underlying all applications for security for costs was a discretion in the court to do what was fair and just in all the circumstances.  In that case the defendants had, in addition to pleading a very full defence, pleaded an extensive counterclaim in which the damages claimed appeared to exceed by a very substantial margin those claimed by the plaintiff and in which additional substantial claims for malicious falsehood were made and in which the ambit of the action was very substantially enlarged and thereby the defendant had clearly crossed the boundary which divided an aggressive defence from an independent counterclaim.

51.  As Dillon LJ said at page 313 :

“The question is whether in the particular case the counterclaim is a cross-action or operates as a defence, that is to say merely operates as a defence.”

52.  It seems to me that the counterclaim of the defendant is a cross-action and does not operate merely as a defence despite the submissions of Mr Chua.  There is clearly a counterclaim for damages for breach of the Agreement by the plaintiff although no particulars of loss and damage suffered are given.  This is a claim for general damages.  The defendant repeats the whole of its defence for the purpose of the counterclaim.  There is also a counterclaim for an indemnity against the claim of Matana in the Thai proceedings. 

53.  It seems to me that the claim by the plaintiff and the counterclaim by the defendant raise essentially the same issues which will have to be fully litigated.  Bingham LJ in Crabtree regarded this as the most important factor when he said at page 54 :

“………………….it does not appear that [the judge] paid attention to the factor which seems most important to me, namely the fact that these two claims-the claim by the plaintiffs and the cross-claim by the defendants-raise essentially the same issues and are going to be fully litigated anyway so far as one can tell.”

54.  In the exercise of my discretion I do not think that it would be fair and just in the circumstances to order the plaintiff to provide security for costs.

Conclusion

55.  The appeal against the Master’s order giving summary judgment to the plaintiff is allowed and his order is set aside.  I grant the defendant unconditional leave to defend the action.  I also make an order nisi that the defendant should have its costs of the appeal against the order granting summary judgment with a certificate for two counsel and that the costs before the Master should be costs in the cause.

56.  The appeal against the Master’s order dismissing the defendant’s application for security for costs is dismissed.  I make an order nisi that the defendant should pay the plaintiff its costs of the appeal against the Master’s order dismissing the defendant’s application for security for costs with a certificate for two counsel.