FORREST INTERNATIONAL LTD v. CHINA INDUSTRIAL GROUP INC AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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REASONS FOR JUDGMENT

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          At the conclusion of the hearing of this action on 28th January 1997 I gave judgment for the Plaintiff for the sums claimed in the statement of claim, less the amounts claimed by way of legal expenses, which claim was abandoned at the start of the hearing, with interest at 1% above Hongkong Bank prime rate on each of the sums claimed from the date of their respective invoices, and I dismissed the counterclaim. I now give my reasons for so doing.

          The Plaintiff in these proceedings is a company engaged in corporate public relations, advising companies how to build and protect their corporate reputation, and on communication with their shareholders, the public and the media. The 1st and 2nd Defendants are overseas companies incorporated in the U.S.A. and British Virgin Islands respectively, with places of business in Hong Kong.

          By two agreements in writing dated 5th July 1994 the Defendants appointed the Plaintiff as corporate affairs adviser for a period of one year from that date to 4th July 1995, at monthly fees of $65000 and $30000 respectively payable on the first day of each month.

          In the statement of claim, the Plaintiff claims the fees for the months of December 1994, and January and February 1995, together with a number of out-of-pocket expenses, payable under the agreements, which were not paid by the Defendants.

          By their defence, the Defendants claim first that the Plaintiff repudiated the agreements on 22nd December 1994 by refusing to perform any further services and have not performed their obligations under the agreements since, and are accordingly not entitled to their fees, although they admit the expenses less the legal fees. They further counterclaim.

          (1) the cost of employing a substitute for the Plaintiff from 23rd December 1994;

          (2) the additional costs paid to their financial advisers and solicitors as a result of the Plaintiff's breach of duty arising out of a press release issued in October 1994;

          (3) the cost of reprinting a quarterly report for the Defendants as a result of the Plaintiff's breach of duty;

          (4) alternatively damages for breach of contract.

          The Defendants base their contentions on four matters which occurred between July and the end of December 1994, the evidence of which, apart from that gleaned from the documents produced, came only from the two witnesses from the Plaintiff, Ms. Anne Forrest and Mrs. Sarah Woods, the Defendants calling no evidence.

          The first two of these matters were related to the planned takeover, by a company within the Defendants' group, of another company, Nam Pei Hong (Holding) Limited, which was announced on 6th September 1994. On 8th September an article about the group, and in particular its chairman, Miss Victoria Lam, appeared in the South China Morning Post, and its proximity to the announcement of the offer for Nam Pei Hong caused an understandably angry reaction from the Defendants' financial advisers, Smith New Court, who were concerned about possible breaches of the SFC Takeover Code and jeopardising the transaction. Their immediate reaction, and that of the Defendants, was to blame the Plaintiff However, as was pointed out to them by the Plaintiff's managing director, Ms. Anne Forrest, the interview on which the article was based, took place on 11th August 1994, long before the Plaintiff was aware of the planned offer for Nam Pei Hong. When, or if, the South China Morning Post decided to publish an article based on that interview was not subject to the control of the Plaintiff or anyone else. This situation was recognized by Mr. Chester Kwok of Smith New Court, who wrote to the Plaintiff on 12th September saying:- "It is now clear to us that the appearance of the article is not the fault of Forrest International or any of its staff and that you have acted entirely properly in respect of this matter." It may be assumed that the Defendants also accepted the lack of fault on the Plaintiff's part as no further criticism was forthcoming, and, in a letter to them on another matter from Mr. Andrew Hui, the Defendants' group legal adviser, dated 27th September 1994, he said: "I'm confident that we can expect the usual exemplary work from your firm."

          The second matter arose in relation to a press release in October 1994 issued to the media by the Plaintiff.

          In articles in several newspapers on 17th October, the directors of Nam Pei Hong made statements as a result of which Mrs. Sarah Woods, then a senior associate with the Plaintiff, advised the Defendants, in a fax to Miss Victoria Lam, that a reply should be made in the press. Miss Lam agreed and a press release was drafted and faxed to the Defendants. It was substantially amended both by the Defendants and by Mrs. Woods as a result of telephone conversations with them, in the course of which she told both Victoria Lam and Miss Debbie Hui that they should obtain the approval of Smith New Court before releasing it. The Defendants clearly referred the matter to Smith New Court, as Chester Kwok telephoned Mrs. Woods on 18th October and told her not to send out the release. However, on 19th October, another article was published in the South China Morning Post and Miss Lam told the Plaintiff that she wanted the release, then further amended, issued. Mrs. Woods said that she asked Debbie Hui several times whether Smith New Court had given their approval and was assured that they had. Indeed, a copy of the release was faxed back to the Plaintiff with the signature of Andrew Hui, the group legal adviser, on the last page signifying that it had been approved, the usual practice of the Plaintiff being to require this from their clients to ensure that proper approvals had been given.

          As it transpired, no approval had been given by Smith New Court and the subsequent enquiry by the Securities and Futures Commission resulted in an apology being issued by the directors of the Defendants, to which the Plaintiff were persuaded to add their name. However, it is clear from the evidence of the Plaintiff's witness, Mrs. Woods, which is not contradicted by any evidence from the Defendants, that they had behaved entirely properly, insisted that the Defendants obtain approval from their financial advisers, and had relied on their client's word that this had been done. It is equally clear that it was not the responsibility of the Plaintiff to obtain the approval directly themselves from Smith New Court. The Defendants were their clients and it was for them to consult their own financial advisers rather than for the Plaintiff to go behind their back to check that they were telling the truth.

          The Defendants may well have been put to extra expense as a result of this incident, but, not only is there no evidence before me as to what that expense was, it could not in any way have been the result of any breach of duty or any other wrongful act on the part of the Plaintiff.

          The third matter relates to the preparation and printing of the 1st Defendant's third quarterly report for 1994 (Q3). The drafting of this had commenced in November with information and figures provided by the Defendants and had proceeded through several drafts, amended by the Defendants, their investor relations company in U.S.A., and Mr. Nils Ollquist the corporate finance director of the 2nd Defendant. As Mr. Ollquist wished to take copies of the report to U.S.A. on 15th December, and because of the time needed to print the report, Mrs. Woods informed Debbie Hui on 9th December that she must have final confirmation of the draft by 9.00 a.m. on 13th December. She did not hear from Debbie Hui until 12 noon that day with final comments and amendments from the group's lawyers, when Mrs. Woods also told her that a proof would be sent to her but only so that she could see the colours. This was accepted by her. The report was then sent for printing and a colour copy was sent to Miss Hui later that day while printing of the rest got under way. At 7.15 p.m. Miss Hui telephoned Mrs. Woods to say that there were errors in the financial highlights which had to be corrected and asked for the printing to be stopped. This was only possible the next day, by which time most of the printing had been done, and a reprint had to be ordered at a cost of $30000.

          In a later letter, the Defendants sought to place the blame for the need for reprinting on the Plaintiff saying that there was an express instruction from Miss Hui that the final draft of Q3 should be proof-read by them prior to printing. Mrs. Woods agrees with this, but says the need for a deadline because of Mr. Ollquist's impending departure changed the arrangements, which Miss Hui agreed to. In any event, the figures which proved to be wrong came from the Defendants, had been issued as a press release in U.S.A. a month before, and had been seen by the directors of the Defendants and their lawyers.

          I accept Mrs. Woods evidence as to the events surrounding the printing of Q3, and, in the absence of any evidence from the Defendants, find that no fault lies at the door of the Plaintiff.

          The final matter is the claim by the Defendants that the Plaintiff unilaterally repudiated the agreement by refusing to perform their duties under it after 23rd December 1994.

          It is apparent from the Plaintiffs' evidence that the Defendants were always late paying the monthly fee, and they had had to press for payment on several occasions. By 22nd December the fee due on 1st December had still not been paid in spite of reminders. When Miss Hui therefore called to ask for assistance with a press release that day, Ms. Forrest insisted on payment. She telephoned Miss Hui again the next day to ask when to come to help with the press release and to collect the cheque, and was told that Andrew Hui was dealing with it. That appears to be the last occasion that the Plaintiff company was asked to do anything under the agreement, although they continued performing routine work as before. The Defendants claimed in correspondence that the Plaintiff had suspended work under the agreement since 23rd December, but the evidence is clearly to the contrary, and that it was the Defendants who ceased to communicate or give instructions to the Plaintiff. Again there is no evidence from the Defendants to support their case and I accordingly find that the agreement between the parties was not terminated either by conduct, or by the Defendants' letter of 15th February 1995, which purported to give retrospective notice to the Plaintiff.

          At the conclusion of the hearing Mr. Kerr on behalf of the Plaintiff asked for costs on the indemnity basis on the grounds that the Defendants had wasted time and costs in running an unmeritorious defence, and at the trial had called no evidence to support their case, in spite of having served two witness statements, and those were from witnesses who could have given no direct evidence of the matters in issue.

          I have some sympathy for this view, as I felt that the Court's time had to a great extent been wasted. However, I was not prepared to say that the conduct of the defence amounted to the kind of abuse of process that merited such an order. Costs were accordingly awarded to the Plaintiff on a common fund basis.