TALENTNET LTD v. TOTAL WIRELESS SOLUTIONS LTD

DCCJ 1517 /2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1517 OF 2012

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JUDGMENT

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Introduction

1.  This is a claim by the plaintiff against the defendant for service fee under the Terms of Business dated 23 January 2009 (“the Agreement”).

2.  The plaintiff is a recruitment services company.  The defendant was the plaintiff’s client.  The defendant denied that she was the party signing the Agreement. She alleged that one Total Produtos (Comercial Offshore De Macau) Limitada (“TWS Macau”) was the party to the Agreement.

3.  Clause 1 of the Agreement provides that:-

“if at any time within a period of twenty-four (24) months from the date of referral of the candidates by TalentNet Limited, such candidate is employed by your firm in any position that you deem them qualified for, or by one of your subsidiaries, or any firm or person that you may refer the candidates to, then our fee schedule apply.”

4.  The defendant also alleged that even if it is held that the defendant is a party to the Agreement, the defendant is not liable for the service fee for the reason that the defendant did not hire the subject candidate Mr James Lang (“Lang”).  Lang was hired by TWS Macau, through the referral of another recruitment agency.  The defendant did not refer Lang to be hired by TWS Macau.

5.  The plaintiff argued that no actual act of referral is needed.  The word “may” in clause 1 of the Agreement means that so long as there is a possibility of referral, or the defendant possesses the information of the candidate, and the candidate is hired by a connected entity, the defendant is liable.  

Issues in dispute

6.  The issues in dispute are:-

(a) Whether the Agreement was made between (i) the plaintiff and the defendant as in the plaintiff’s case, or (ii) between the plaintiff and TWS Macau as in the defendant’s case;

(b) If it is held that the Agreement was entered into between the plaintiff and the defendant, whether actual referral is needed.

The plaintiff’s case and evidence

7.  According to the plaintiff, events leading to the signing of the Agreement between the plaintiff and the defendant are as follows:-

(a)   On about 22 January 2009, the defendant’s director Mr Leung Cheong Ming, Raymond (“Leung”) told the plaintiff’s director Miss Mok Sau Chun (“Mok") that the defendant would like to hire a human resources leader.  In reply, Mok sent an email to Leung informing the defendant that she had set up a new firm called Talentnet Limited, the plaintiff herein.

(b)   On 23 January 2009, the defendant represented by Leung, sent the requirements of the candidate of the human resources leader to Mok through Leung’s email account “raymondleung@hk.tws.com”.

(c)   In reply, the plaintiff sent a document with title “Terms of Business” to the defendant for her acceptance.

(d)   Leung signed on the Terms of Business, that is, the Agreement.

(e)   Pursuant to the Agreement, the plaintiff successfully identified many candidates for the defendant. The defendant placed the successful candidates in 2 closely connected entities of the defendant, ie TWS Macau and TWS Guangzhou, and arranged the candidates to sign up “employment contracts” with TWS Macau and TWS Guangzhou.

(f)    In late 2009, the defendant engaged the plaintiff’s services again to recruit a QA director.  The plaintiff identified a suitable candidate Lang for the plaintiff.  Lang attended interviews with the Human Resource Head SK Tse (“SK”) and another management staff of the TWS Group in December 2009.

(g)   In January 2010, the defendant made an offer to Lang but Lang did not take up the offer.

(h)   On about 17 January 2012, by an email from Lang, the plaintiff came to know that in about September 2011, Lang joined the defendant or its connected entities.  By the employment contract made between Lang and TWS Macau, Lang was employed from 1 September 2011 onwards, which is within 24 months from December 2009, and the location of service was the Guangzhou Plant, ie TWS Guangzhou.

(i)     The plaintiff therefore claims for payment of fees under the Agreement, alternatively damages for breach of the Agreement.  Both parties agreed that the amount in dispute is HK$165,120.00 (HK$1,032,000 x 16% = $165,120).

8.  Mok gave evidence for the plaintiff.  She adopted her written witness statement filed on 5 March 2013 as evidence in chief.  In her witness statement, she said:-

(a)   From her previous dealings with the defendant, she came to know that the defendant has 2 closely associated businesses: (i) a factory in Guangzhou; and (ii) a company in Macau.

(b)   On or about 22 January 2009, Leung called and told her that the defendant would like to hire a HR leader.  Therefore, on 22 January 2009, she sent an email to Leung introducing to the defendant that she had set up a recruitment firm, the plaintiff.

(c)   On 23 January 2009, Leung replied using the  raymondleung@hk.tws.com email account informing her the requirements of the candidate.  In the email, Leung wrote, “An opportunity now exists for a HR leader of the highest caliber to spearhead their Group HR function.  Reporting directly to the Group CEO, you will have ultimate responsibility for the full spectrum of HR and Administration functions of the group ……”

(d)   On the same date, she sent the Terms of Business by email.  In the email, she said that she would like to understand more about the current situation of Leung’s company and would like to call him on the same day.  In the Agreement, the client’s name was “Total Wireless Solutions” and the position of Leung was “Group CEO”.  Clause 9 of the Agreement provides that the contract will be governed by the laws of the Hong Kong SAR.

(e)   When the plaintiff referred candidates to the defendant in January 2009, Leung did not mention he was representing TWS Macau.  Leung issued a letter of employment to the first successful applicant SK under the name of TWS Macau; SK had reservation about entering into an employment agreement with a Macau company.  Mok said that she was told by Leung that this was merely for tax saving and planning purpose.  SK subsequently agreed to be placed to work in the mainland under a Macau employment agreement.

(f)    On 4 March 2009, Mok sent an email to Leung asking whether the invoice should be addressed to TWS Macau or another addressee.  Leung did not tell her that he was acting in the capacity of TWS Macau when the 2009 Agreement was signed.  Mok said that if Leung had previously told her that all payment for services provided should be made by TWS Macau directly, she would not have to clarify with him again.

(g)   Although the plaintiff was instructed by the defendant to address invoices to TWS Macau, the payment was paid in Hong Kong Dollars.  All cheques were collected from the defendant’s office at Tsimshatsui.  The plaintiff never sent any original invoices to the office of TWS Macau in Macau.

The defendant’s case and evidence

9.  In short, the defendant raised the following defence:-

(a)   The defendant is not a party to the Agreement, instead the party to the Agreement was TWS Macau, the full name was Total Produtos (Comercial Offshore De Macau) Limitada.

(b)   Even if the Agreement was made between the plaintiff and the defendant, the defendant has not actually referred Lang to TWS Macau (Lang was hired through another recruitment agency) so the plaintiff is not entitled to payment under the Agreement.

10.  Leung and Lau Seung Wah Eva gave evidence for the defendant.  Both of them adopted their witness statements as evidence in chief.  In Leung’s statement, he said:-

(a)   The defendant is wholly owned by TWS Industrial (Holdings) Limited (“TWS Holdings”), which is a company registered in the British Virgin Islands.  TWS Macau is also wholly owned by TWS Holdings.  Guangzhou TWS Electronics Limited (“GTE”), which is a company incorporated in the People’s Republic of China, is wholly owned by a company named United Energy Products Ltd, which in turn is wholly owned by TWS Holdings.

(b)   The defendant is only an investment holding company and does not operate any real business.  This is why the defendant does not employ any staff, and its annual turnover and administrative expenses are very small.

(c)   It is his company policy that all staff recruited will be required to enter into employment contract with TWS Macau and they will be assigned to work in the designated company within the TWS group as required.

(d)   After Mok left her previous employer, in or about January 2009, she took the initiative to contact him and inform him that she had set up her own recruitment firm.

(e)   In paragraph 17 of his statement, “at this point, I have to emphasis that all the way when I dealt with Ms Mok of the plaintiff regarding her offer to provide recruitment service, I have clearly explained to her that I was acting in the capacity as a director and the CEO of TWS Macau, and any service provided by her company would be handled and subsequently paid by TWS Macau.”

11.  The evidence of Lau Seung Wah, Eva (“Lau”)included that:-

(a)   She was employed by TWS Macau and reported duty on 18 February 2011.  Her predecessor SK left on 11 February 2011 and there was no handover from SK.  She had no knowledge that the plaintiff had provided recruitment service to the defendant or TWS Macau.

(b)   Lang was employed through referral by an international recruitment consultant - Korn/Ferry, and TWS Macau had paid an amount of US$58,491.1 to Korn/Ferry for the recruitment of Lang.  She did not use or take advantage of any information provided by the plaintiff in the employment of Lang.

Discussion and analysis of evidence

12.  I reject the evidence of Leung for the following reasons:-

(a)   He is not consistent as to when he told Mok that he acted for TWS Macau.  At one moment he said that he had told Mok before the signing of the Agreement, at another moment he said he did not remember.  During the cross examination, his evidence on this point kept on changing.

(b)   His evidence is also contradictory relating to whether Mok called him first or he called Mok first.  In paragraph 6 of the Defence filed on 17 July 2012, it is pleaded that “it was Leung who first approached the plaintiff to seek for recruitment services.  At the material time, he made it clear and unequivocal to the plaintiff that he was acting on behalf of TWS Macau and the recruitment services sought from the plaintiff were all to be provided to TWS Macau.  Payment for any service provided would also be made by TWS Macau.  Based on the above premise, the Agreement was signed.”

In paragraph 11 of his statement dated 2 March 2013, he said “I also recalled that after Ms Mok left Gemini in about January 2009, she took the initiative to contact me and inform me that she had set up her own recruitment firm ie the plaintiff in this action.  She requested me to consider using the service provided by the plaintiff.”

Both documents were confirmed true by Leung but they are contradictory.  No application for amendment of documents was made before or at the trial and no explanation was given.  According to the evidence of Mok and the emails, it seems that it was Leung who tried to locate Mok first and asked for the service.  In that case, the description in the witness statement is not true.

(c)   If Leung had made it clear to Mok that the contracting party was TWS Macau, it would be difficult to understand why he signed the Agreement in the capacity of Group CEO.  When Mok asked for the job requirements in her email dated 22 January 2009, Leung replied that the employee had to “spearhead their Group HR function.  Reporting directly to the Group CEO, you will have ultimate responsibility for the full spectrum of the HR and the Administrations of the Group ……  An understanding of the Mainland Chinese culture and a sound knowledge of China Labour Law & HR practices will be sought.”  Nothing about being employed by a Macau company was mentioned.  Instead there was emphasis on the need of the Group.  I do not accept that when Leung signed the Agreement, it was his intention that he signed it on behalf of TWS Macau only.

(d)   The arrangement to employ staff by TWS Macau is only a tax avoidance scheme, as admitted by Leung.  In fact one of the staff, Zhong Wenrui was employed by GTE first and signed a contract with TWS Macau later.  The first candidate SK also split the employment contract with TWS Macau and GTE.  It is not true to say that only TWS Macau made use of the recruitment service.  TWS Macau is only the company designated by Leung to sign the employment contract with the candidates employed.

13.  In the Agreement, the name of the party was Total Wireless Solutions; Leung alleged that he considered that such name referred to TWS Macau.  But such thought is not consistent with the description of Group CEO.  There is no Group CEO in TWS Macau.  If he was so conscious about not entering any contract using the defendant’s name, as so advised by his auditor, he should not have made such mistake.  His excuse of being busy is not accepted.  As far as the defendant is concerned, the Agreement is not an income generating agreement.  So long as the TWS Macau engaged the service and paid the service fee, using the Group or the defendant to sign the Agreement is not an issue.

14.  However, I accept the evidence of Lau; she impressed me as an honest and candid person.  Although counsel for the plaintiff Mr Lau submitted otherwise, Mr Lau also submitted that her evidence was not material.  I take that her evidence about hiring Lang herself without knowing the history of previous reference of the plaintiff was accepted by the plaintiff.  After all, those assertions were well supported by documentary evidence.

15.  I also accept the evidence of Mok.  Her evidence is not shaken under cross-examination.  Her evidence is also not strongly challenged by the defendant.

16.  For the reasons below, I find that the Defendant is a party to the Agreement:-

(a)   At the closing submission, counsel for the defendant submitted that it is the plaintiff’s case that the defendant is the party to the Agreement, and the defendant’s case that TWS Macau is the party, the court could only find either way, but not the third way.  Such submission is not opposed by the plaintiff.

(b)   The name of the party in the Agreement is Total Wireless Solutions, not Total Wireless Solutions (Macao Commercial Offshore) Limited and Leung signed the Agreement as Group CEO.

(c)   Mok did not know about TWS Macau at the time of signing the Agreement. Mok would have reservation if she is signing a contract with a Macau Company as there will be enforcement difficulties in the event of breach of contract.  There is no way that she knew about the name of the Macau company at the time of signing the Agreement; I reject the evidence that she had been told by Leung that he was acting as the director and the CEO of the TWS Macau only at the time of signing the Agreement.  As the Group CEO, it is difficult to understand why Leung exercise only part of his power and authority to sign the contract; after all, he is looking for staff to serve his factory in China. 

(d)   It is true that the defendant is not active in carrying its business.  But that does not preclude her from entering the Agreement.  As mentioned above, to the defendant, the Agreement will not generate any income.  In the circumstances, it is reasonable for the plaintiff to conclude that she was doing business with the defendant.

Whether the defendant is liable for the service fee?

17.  It is not in dispute that the defendant did not employ Lang.  Lang was employed by TWS Macau in September 2011, about 18 months later after the offer by TWS Macau in January 2010.

18.  It is also not in dispute that TWS Macau is not a subsidiary of the defendant.

19.  According to paragraph 6 of the Statement of Claim filed on 9 May 2012, pursuant to the Agreement, TalentNet received verbal instructions and provided recruitment services to TWS and/or its connected entities.  Candidates were placed in or employed by TWS and/or its connected entities.  According to paragraph 22(a) of the opening submission for the plaintiff, the plaintiff submitted that the gist of the matter is whether the defendant “may” refer Lang to be employed by a connected entity and not whether actually such reference has been made.  The plaintiff submitted that the rationale behind was not difficult to understand, the clause was to protect the recruitment agency.  As once a potential candidate was actually introduced to and interviewed by the defendant, the defendant had full access to the candidate.  Whether the candidates’ information was actually used is a matter controlled by the defendant and the recruitment agency had no further control.  

20.  The plaintiff was asked where to draw the line as to in what circumstances the defendant may be liable for the service fee.  For example, the information of the candidate may be passed to the defendant, but another company which the defendant is not related to subsequently employed the candidate.  It seems that according to the plaintiff’s interpretation of the Agreement, the defendant would have been liable.  The plaintiff submitted that the subsequent employer has to be a connected entity to make the defendant liable.  But no definition of connected entity was given.

21.  The defendant submitted that actual referral is needed to make the defendant liable.

22.  According to the defendant, under clause 1 of the Agreement there are 3 scenarios that the defendant should be liable:-

(a)   If at any time within a period of twenty-four (24) months from the date of referral of the candidates by TalentNet Limited, such candidate is employed by the defendant , or

(b)   the candidate is employed by one of defendant’s subsidiaries, or

(c)   the candidates is employed by any firm or person that the defendant may refer the candidates to.

23.  In this case both scenarios A and B are not applicable.  The defendant submitted that scenario C is also not applicable.  Even if the defendant is a party to the Agreement, the defendant had not referred Lang to any firm or person.  The TWS Macau employed Lang through the service of Korn/Ferry some 18 months later.  TWS Macau had already paid Korn/Ferry the service fee.  It would be wrong to make the defendant liable to pay another service fee.

Decision

24.  I accept the defendant’s submission as to the interpretation of the term of the Agreement.  I find that the Lang’s employment with TWS Macau is not due to the reference by the defendant to TWS Macau.  It was due to the referral service of Korn/Ferry.  The word “may” means the future possibility that the defendant may refer the candidate to another firm.  It does not mean that so long as the defendant possesses the information, then the defendant is liable when some connected entities employed the candidate.  In other words, for scenario C, the plaintiff must prove that the candidate is referred by the defendant.  The protection mentioned in paragraph 19 above only applies to scenarios A and B, that is, if the candidate is employed within 24 months by the client or its subsidiary, irrespective of whether the candidate is employed by the use of the information provided by the plaintiff, the client is liable.  To include the words “connected entities” or to include the concept of it is re-writing the term of the Agreement.  In fact, it is difficult to give a definition of “connected entities” and the plaintiff failed to do so.

25.  The word “may” could mean the possibility or having the power to do so.  But I find that it is unacceptable to interpret the clause to the effect that the defendant would be liable to pay the service fee so long as the defendant has the information to refer the candidate.  What is the difference between scenarios A and C?  In scenario A, no reference is needed.  If that is the case, why the word “refer” was included in the clause?  I agree with the defendant’s counsel that his interpretation makes good commercial sense.

26.  Counsel for the plaintiff sent a supplemental closing submission on 13 August 2013 submitting that if the court rules that actual referral is required, it has already been done.  He submitted that the referral of Lang by the defendant to TWS Macau did occur in December 2009.

27.  I find that such submission is not the plaintiff’s pleaded case. Throughout the trial and even at the closing submission, counsel for the plaintiff had not raised it.  The defendant did not have the chance to respond to it.  I rule that the plaintiff could not raise it, in particular at such a late stage.  Even if it is allowed, I do not accept such submission.  The meaning of referral includes that the candidate being successfully employed by the company as a result of such referral.  If it means only the act of referral, the defendant would have been liable in December 2009, after the act of referral was made at that time.  The plaintiff did not issue the invoice at the time.  It seems that this interpretation was not followed by the plaintiff.  The referral must lead on to an employment.

28.  The term of the Agreement should be interpreted in this way.  As the company possesses the information about a candidate, there is a possibility that he may use the information and refer the candidate to some other companies.  If the candidate is subsequently employed as a result of such referral, the company is liable for the service fee.  In my view, the above applies whether the company which employed the candidate is a connected entity or not.  For example, if the company uses the information and refers the candidate to a friend or his/her company, the client is liable, irrespective of whether they are connected entities or not.  To suggest that the client is liable merely for  the possession of the information, or just the referral, irrespective of whether the referral results in any employment, is ridiculous and does not have good commercial sense. 

29.  In the circumstances, the Plaintiff’s claim be dismissed.  I also make an order nisi that the costs, including any reserved costs, with certificate for counsel, be to the defendant, to be taxed if not agreed.  Unless either party applies to vary the order within 14 days, the order nisi will be made absolute.

30.  I thank counsel for their assistance.