WSP HONG KONG LTD v. BCW LTD AND OTHERS

DCCJ1320/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1320 OF 2003

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JUDGMENT

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1. This is a claim based on an Agreement (hereinafter referred to as the "Agreement") wherein the Plaintiff as purchaser agreed to purchase and Mitchell, McFarlane, Brentnall & Partners International (hereinafter known as "MMBP") as vendor agreed to sell all the Assets of MMBP.

2. Clause 1.1 of the Agreement contained the following definitions:-

"Assets	the Fixed Assets, the Intellectual Property Rights, the Continuing Contracts, the Receivables, the Goodwill, the Records and all other property rights and assets owned by or belonging to the Vendor in connection with the Business other than those items which are expressly excluded from the sale and purchase by Clause 3.2
Continuing Contracts	the rights benefits privileges (subject to the burden) of in or under all contracts engagements and orders for the supply by the Vendor in the ordinary course of the Business of goods and services and to which the Vendor is a party in connection with the Business and which are outstanding at [31st March 2000] (without prejudice to the generality of the foregoing) the brief particulars of which described in the Third Schedule for identification purpose only
Receivables	all book, trade and other debts relating to the Businesses owing to the Vendor as at [31st March 2000] and all other amounts owing to the Vendor in respect of goods or services despatched or provided, whether invoiced or not, on or before [31st March 2000] (except those specifically listed and described in the Ninth Schedule) and all deposits prepayments and bills receivable held by the Vendor as at [31st March 2000] and all rights in relation thereto and benefit of all guarantees or other security in respect thereof (without prejudice to the generality of the foregoing) the brief particulars of which are set out in the Sixth Schedule for identification purpose;"

3. Clause 8.6 of the Agreement stipulated that:-

"In the event that any Receivables shall not have been recovered in full 12 months after Completion the Warrantors and/or the Vendor shall forthwith when called upon in writing so to do by the Purchaser or repurchase (as the case may be) such Receivables for an immediate cash consideration equal to the full face value thereof and the Purchaser shall assign or re-assign (as the case may be) such Receivables to the Warrantors and/or the Vendor (or as they may in writing direct) absolutely and such payment shall operate as a discharge of the liability of the Warrantors and the Vendor in respect of any breach of the Warranties arising by reason for the non-payment of such Receivables."

4. The Claim relates to payment of a sum of HK$318,240.00 paid by a client Simon Kwan & Associates ("SKA") to the Defendant in respect of Project J0716 Henderson Centre, Beijing (hereinafter referred to as "Project J0716"). The 1st Defendant was appointed by SKA (who were appointed by Henderson (China) Investment Co. Ltd. as chief architect for Project J0716) in or around June 1994 to perform structural and geotechnical engineering design works and consultancy services in respect of Project J0716 for a consultancy fee of HK$5,200,000.00 (See letter from SKA to the 1st Defendant dated 20th May 1994 at page 102 of Bundle of Docuemnts-2 (BD-2)).

5. In April 1998 MMBP issued an invoice for HK$676,000 (the "Original Invoice") in respect of Project J0716. The Original Invoice was cancelled at the request of SKA, as their client, Henderson (China) Investment Co. Ltd. advised SKA that it shall withhold 18% of the professional fee until completion of final account (See letter from SKA to the 1st Defendant dated 23rd September 1999 at page 114 of BD-2).

6. MMBP cancelled the Original Invoice on or about 27th September 1999 (See Original Invoice stamped "cancelled" at page 105 of BD-2).

7. A replacement invoice was issued to SKA in the name of MMBP on 13th December 2000 (the "Replacement Invoice") in the amount of HK$936,001.00 (See page 126 of BD-2) under the cover of a letter from the Plaintiff to SKA (See page 125 of BD-2).

8. SKA subsequently requested for a reduction of the consultancy fee from HK$936,001.00 to HK$318,240.00 (i.e. a 66% reduction), which was agreed to by Fung Chi Keung (on behalf of the Plaintiff) (See letter of agreement between SKA and the Plaintiff dated 23rd January 2002 at page 127 & 128 of BD-2).

9. The Replacement Invoice was subsequently cancelled (See page 126 & 131 of BD-2) and a final invoice (no. 716-11R) was issued in the name of MMBP to SKA on 11th April 2002 in the amount of HK$318,240.00 (the "Final Invoice") (See page 130 of BD-2). Such sum was subsequently paid into the 1st Defendant's account.

10. The Plaintiff's claim is based on the contention that Project J0716 was one of the "Continuing Contracts" or alternatively one of the Assets of MMBP as at 31st March 2000, being the Transfer Date in the Agreement. The Plaintiff further claimed that Project 0716 did not constitute a Receivable under the Agreement as at the Transfer Date.

The Defendants' Counterclaim

11. The 2nd and 3rd Defendants counterclaim against the Plaintiff for the following sums:-

(1) HK$618,760.00 for breach of the Further Agreement by the Plaintiff.

(2) HK$356,038.94 from the TWGHs Kwok Yat Wai Prevocational School Project ("Project 603").

12. The 1st Defendant or alternatively the 2nd and 3rd Defendants counterclaim for HK$73,597.00 from the Tin Shui Wai Area 101 Project ("Project J0958S").

The Issues

13. In respect of Project J0716:-

a. What was the nature of Project J0716, was it one of the:-

(i)	Continuing Contracts; or
(ii)	Receivables;
	(and if so, whether it was subsequently assigned by the Plaintiff pursuant to the Further Agreement and, in such circumstances, who had the right to claim as assignee under the Further Agreement);
(iii)	Within the catch-all definition of Assets;

b. If not, whether Project J0716 was excluded from the sale by Clause 2.2.4 because it was an asset and business carried on in the PRC as at the date of the Agreement (bearing in mind that this exclusion does not apply to Receivables or "Continuing Contracts").

14. In respect of Project J0603:-

(a) What was the nature of Project J0603 was it one of the: -

(i)	The "Continuing Contracts"; or
(ii)	The "Receivables"
	(and, if so, whether it was subsequently assigned by the Plaintiff pursuant to the Further Agreement and, in such circumstances, who had the right to claim as assignee under the Further Agreement); or
(iii)	Within the catch-all definition of Assets.

15. In respect of Project J0958S:-

Whether the letter dated 25th October 2002 constitutes an admission that binds the Plaintiff that HK$73,597 is owed by the Plaintiff to the 1st Defendant, alternatively the 2nd and 3rd Defendants;

Principles of Construction

16. The principles of construction of the contract referred to by the Defendants' Counsel is not in dispute. These are:-

(1) The Court should consider the definition according to the plain and ordinary meaning of the words used (Chitty on Contracts 29th Ed para 12-051; Lewison: The Interpretation of Contracts 3rd Ed. Para 5.02).

(2) The entire agreement should be considered as a whole (see Chitty para 12-63; Lewison para 7.02).

(3) The conduct of the parties subsequent to the execution of a written agreement is inadmissible for the purpose of construction (Lewison para 3.12).

(4) The subjective intention and understanding of the parties is also irrelevant for the purpose of construing a written agreement (Lewison para 1.05). I therefore will have no regard to evidence of the subjective intention and understanding of the parties.

The Issues

The 1st Issue

Was Project 0716 a Continuing Contract?

The Agreement As A Whole

17. The Agreement should be construed as a whole. The purpose of the Agreement is most relevant. The Agreement is for the sale by the Vendor to the Purchaser the Assets of the Vendor's Business on the terms and conditions stated therein. When construing the terms of the Agreement, this purpose should be taken into account. The Assets of the Business is defined in the Agreement as including amongst others, "the Fixed Assets, the Intellectual Property Rights, the "Continuing Contracts", the "Receivables", the Goodwill, the Records and all other property rights and assets owned by or belonging to the Vendor in connection with the Business other than those items which are expressly excluded from the sale and purchase by Clause 2.2." When construing the definition of "Continuing Contracts" and "Receivables", note should be taken that they are parts of the assets of the business to be sold by the Agreement.

Definition of "Continuing Contracts"

18. It refers to "The rights benefits privileges (subject to the burden) of in or under all contracts ... for the supply by the Vendor...of goods and services and to which the Vendor is a party...which are outstanding at the Transfer Date..."

19. The Shorter Oxford Dictionary definition of "outstanding" has three meanings:-

1. That stands or juts out conspicuously, projecting.

2. Unresolved, pending, esp. (of a debt etc.) unsettled.

3. Noteworthy remarkable; exceptional.

20. When construing the meaning of "Continuing Contracts", it must be borne in mind that it is an asset of the Business. It is helpful to consider the definition in the light of how the definition describes "Continuing Contracts" as assets of the Business. From a reading of the definition it would appear that the "rights benefits privileges (subject to the burden) of in or under all contracts...which are outstanding at the Transfer Date..." are the assets in the "Continuing Contracts". The "rights benefits privileges... of...all contracts which are outstanding at the Transfer Date" are valuable and have a value which could be quantified. The phrase "for the supply ... of goods and services" merely describe the nature of the contract, the phrase "and of which the Vendor is a party" obviously describes the contracts etc. The phrase "which are outstanding must refer to the rights benefits privileges ...of... all contracts ...". It is in this sense that "Continuing Contracts" are continuing, it is when "rights benefits privileges (subject to the burden) of in or under all contracts etc. ... are outstanding at the Transfer Date" so that even though work in the contracts is completed, so long as "rights, benefits, privileges" are outstanding, such contracts are still deemed to be continuing.

21. The above could be tested against the second meaning of "outstanding" in the Shorter Oxford Dictionary cited above. The second meaning of "outstanding" therein would be the most appropriate meaning to be used in the context of the definition of "Continuing Contracts". "Outstanding" referring to 'unresolved, pending, unsettled" would more naturally refer to the "rights benefits privileges ... of in or under all contracts", than to simply "contracts" or to "supply of goods and services".

22. Further the word "and which are outstanding" in the definition of "Continuing Contracts" come after "and to which the Vendor is a party in connection with the Business". The latter phrase "and to which the Vendor is a party in connection with the Business" must refer to the whole phrase "the rights benefits privileges... of in or under all contracts...". The subject of the whole sentence would appear to be "the rights benefits privileges" of contracts etc. and not "contracts" on its own. In my view the words "and which are outstanding" clearly refer to the "rights benefits privileges...of in or under all contracts" and not to "goods and services" nor simply to "contracts".

23. The Defendant's Counsel in her closing submission state that the Agreement should be read as a whole and by reference to Clause 7 of the Agreement, it seems to refer to such contracts where work is outstanding. She refers to the following:-

Clause 7.1 states that the Plaintiff shall carry out and complete the "Continuing Contracts" for its own account and benefit and shall indemnify and keep indemnified the Vendor in respect thereof...

Clause 7.2 states that the 1st Defendant shall use its best endeavours to obtain the consent of any third party to an assignment or novation of any "Continuing Contracts"...

Clause 7.3 states that prior to or upon failure of assignment or novation of "Continuing Contracts", the 1st Defendant shall remain liable under such contracts but the Plaintiff may assume the obligations under such contracts as agents for the 1st Defendant...

24. She submits therefore that from the reading of Clause 7 above, it can be seen that the intention of the parties was that all "Continuing Contracts" were to be assigned by the 1st Defendant to the Plaintiff or novated after the Transfer Date. It is clear however that there is provision for "failure of assignment or novation", that is the possibility of cases where there is no assignment or novation. In actual fact, in the definition of Goodwill, it clearly states that the exclusive rights as between the Vendor and the Purchaser to use the name of the Vendor has been given to the Plaintiff and the Plaintiff has the right to represent the Purchaser as carrying on the business in continuation of or in succession to the Vendor. I do not agree with the submission of the Defendants' Counsel that from Clause 7 and its terms it could be construed that it was the intention of the parties that all "Continuing Contracts" were to be assigned by the 1st Defendant to the Defendant or novated after the Transfer Date. Her arguments flowing from that could not be accepted.

25. She submits that where the project was completed as at the Transfer Date, it cannot be considered to be "outstanding" such as to constitute a "Continuing Contract". She submitted that a project can only be categorized as a "Continuing Contract" if further work remained to be done as at the Transfer Date. Her argument is based on her construction of the definition of "Continuing Contracts". I do not agree with her construction of the definition.

26. The Defendants' Counsel submitted "Continuing Contracts" were contracts that were not yet completed and in respect of which obligations remained outstanding and further work remained to be done. She contends that where a project was completed as at the Transfer Date, it cannot be considered to be "outstanding" such as to constitute a Continuing Contract. Hence, Continuing Contract refer only to those contracts where further work remained to be done and cannot refer to contracts which have been 100% completed. This contention is blatantly contradicted by many of the contracts listed in the Third Schedule to the Agreement, headed ""Continuing Contracts": Work in Progress @ 30th April 1999". The Third Schedule sets out a "Work in Progress Report" to 30 April 1999. There is a column in this report headed "Completion". It sets out the state of completion of the project. Many of the Projects listed are 100% completed. The definition of Continuing Contract end with the words "the brief particulars of which described in the Third Schedule for identification purpose only". Were "Continuing Contracts" to exclude contracts which have been 100% completed, surely the Third Schedule would not identify many projects which are 100% completed? Further, in contracts even where work is no longer outstanding, there could clearly be situations where rights benefits and privileges are outstanding. I therefore do not accept her contention.

27. Pursuant to my construction of the definition of "Continuing Contracts", Project 0716 fits into the definition as it is a case where the "rights benefits privileges" under the contract are outstanding. The Invoice dated 30 April 1998 sent by the 1st Defendant to Simon Kwan & Associates Ltd (hereinafter referred to as "SKA"), at page 105 of BD-2, was cancelled. Mr. C.K. Fung gave evidence that he wrote the manuscript note on it which stated "temporarily cancelled subject to further notice from SKA for re-issue refer to SKA's letter dated 23/9/99". The letter from SKA state, "the client advised that they will withhold 18% of the professional fee on captioned project till the completion of final account. Therefore, we return herewith your invoice No. 716-11 in the amount of HK$676,000.00 for your cancellation. We will keep you informed of the situation in due course. The client expects all final accounts can be finalised within 12 months."

28. At page 123 of BD-2 is a note from Barry Stubbings to Malcolm Paul of the Plaintiff underneath which is a handwritten note. It states "For Job 716, the job is 100% completed in China, the outstanding fees of $936.001 has not been invoiced from the Lead Consultant, previous practice was we invoice only after they have received the money from the client."

29. At page 127 of BD-2 is a letter in Chinese from SKA to the Plaintiff and the certified English translation is at page 128. This states that "After negotiations, the landlord (Henderson China) now agrees to pay only 34% of the total amount due, the remaining amount shall be used to pay the damages incurred to the landlord due to the faults in the design of the consultants. Currently we have obtained your agreement and satisfied the landlord's request..."

30. Whatever the rights were of SKA to deduct the amount on the final invoice issued by the Plaintiff in the name of MMBP, it seemed that the landlord was of the view that they could deduct damages from the final payment due to consultants with whom they had direct agreement.

31. In my view, Project 0716 was a "Continuing Contract".

Was Project 0716 a "Receivable"?

Definition of Receivable

32. The definition refer to "all book, trade and other debts relating to the Business owing to the Vendor as at the Transfer Date, and all amounts owing to the Vendor in respect of goods or services dispatched or provided, whether invoiced or not, on or before the Transfer Date..."

33. In effect it refers to all book...debts ...owing...as at the Transfer Date, and all amounts owing...in respect of goods or services dispatched or provided, whether invoiced or not, on or before the Transfer Date..."

34. As referred to above, the amount could not as yet be stated to be owing as SKA requested the cancellation of the Invoice dated 30 April 1998 by the 1st Defendant "subject to further notice from SKA for re-issue". The letter from SKA dated 23/9/99 referred to the withholding of 18% of the professional fee on captioned project till the completion of final account. SKA stated that they would "keep the 1st Defendant informed of the situation in due course". That means that the situation is uncertain. Further the letter stated that the "client expects all final accounts can be finalised within 12 months." As it would seem the 1st Defendant agreed to cancel the invoice in the circumstances related by SKA, it could not be the case that the amount was owing as at the Transfer Date which was the 31st March 2000. From the letter from SKA dated 23 September 1999, it would seem that the invoice could not be re-issued before 23 September 2000. In fact the invoice was not re-issued until 13 December 2000 (please see page 125 of the BD-2). From the contents of the letter of SKA dated 23 January 2002 referred to above to the Plaintiff, it would seem that the landlord withheld part of the final instalment of the fee of SKA as damages for faults in the design of the consultants. In my view as at the Transfer Date it was not clear whether the withholding of fees by the landlord would affect the Plaintiff. Hence as at the Transfer date there was no ascertainment of an amount owing, there was no book trade and other debts owing. However there were rights benefits and privileges which were outstanding.

35. I therefore come to the finding that Project 0716 is not a Receivable.

Was Project 0716 an Asset?

36. As Project 0716 is a Continuing Contract, it is an Asset by definition of Asset.

37. As I have found that Project 0716 is a Continuing Contract, I find that the Plaintiff is entitled to the amount claimed in the sum of $318,240.00 together with interest. The 2nd and 3rd Defendants' counterclaim for the sum of $628,760.00 must fail as I have found that Project 0716 is not a "Receivable" as the counterclaim for this sum is based on the contention of the 2nd and 3rd Defendants that it is a "Receivable", see paragraph 7 and 8 of the Amended Defence & Counterclaim.

The 2nd Issue

Project J0603

38. The undisputed facts related to this project is stated in the Closing Submission of the Plaintiff's Counsel as follows:-

(a) the 1st Defendant was engaged to provide services to the principal consultant, Chung Wah Nan & Partners, or to the developer, Tung Wah Group of Hospitals, in respect of the Tung Wah Group of Hospitals Kwok Yat Wai Prevocational School Project;

(b) in January 2000 the 1st Defendant was advised by Levett & Bailey, the quantity surveyor, that the developer had agreed the cost of construction with an increase over the tendered amount;

(c) on 15th March 2000 a draft recalculation of the 1st Defendant's fees was submitted under cover of a letter of that date from C.K. Fung to the developer at page 381 of BD-2 showing an outstanding fee of HK$356,852.52;

(d) on 9th July 2002 at page 384 of BD-2 an invoice was delivered by the Plaintiff (in the old name of the 1st Defendant) to the developer for HK$356,038.94 (i.e. a difference of HK$813.58);

(e) the invoice was paid by a cheque from the principal consultant in favour of MMBP dated 13th July 2002 at page 387 of BD-2 and this was banked by the Plaintiff in October 2002.

39. The 2nd and 3rd Defendants seek to recover the sum therein on the basis that the sum falls within the definition of "Receivables" under the Agreement and was assigned to the Warrantors under Clause 2 of the Further Agreement. It was contended by the 2nd and 3rd Defendants' Counsel that Project 603 could not be a "Continuing Contract" as no obligations remain outstanding on the contract as at the Transfer Date. Further she submits that the evidence suggests that Project 603 was not assigned or novated to the Plaintiff. She submitted that the fact that the project was not assigned or novated would suggested that it was not intended to be a "Continuing Contract" for the purpose of the Agreement. However, as I have found, the Agreement does not stipulate that all "Continuing Contracts" must be assigned or novated after the Transfer Date. Clause 7.2 of the Agreement, provides for the assignment or novation but it could not be construed from Clause 7 that it was the intention of the parties that all "Continuing Contracts" must be assigned or novated after Transfer Date without exception. Here argument that Project 603 could not have been a "Continuing Contract" on the basis that it was not assigned or novated cannot be right.

40. Further on my construction of "Continuing Contract" referred to earlier, it would seem that this project is a "Continuing Contract". It is clear that "rights, benefits and privileges" of the contract were outstanding at the Transfer Date namely 30th March 2000.

41. Further, in the light of my construction of "Receivable", Project 603 could not be a "Receivable". According to my earlier construction of "Receivable", the amount owing to the Vendor has to be crystallized by the 31st March 2000. The evidence is clear that no invoice was submitted on the further sum payable until 9th July 2002. The letter dated 28th January 2000 from the 1st Defendant to Messrs. Levett & Bailey stated "forward for your further action our proposed extraction of the structural/R C cost from the working BQ in the format requested". It was by no means a demand of payment by the 1st Defendant of a debt or amount owing. It was submitted for the further action by Levett & Bailey. It was clearly not a debt or amount owing as at the 31st March 2000.

42. As stated earlier, the date of completion of works of a contract is not relevant in deciding whether a contract is a "Continuing Contract". I therefore do not accept the 2nd and 3rd Defendants' Counsel's submission that Project 603 is not a Continuing Contract. I find that there is no substance in this item of the counterclaim.

The 3rd Issue

Project J0958S

43. The only basis for the claim that the 1st Defendant or in the alternative, the 2nd and 3rd Defendants for the sum of HK$73,597 is their contention that the Plaintiff admitted that this sum belongs to the 1st Defendant. They refer to letters from Messrs. Barlow Llyde & Gilbert dated 25th October 2002 at page 474 of BD-2. She relies on the authority Siqueria v Noronha [1934] AC 332; Day v William Hill (Park Lane) Limited [1949] 1 KB 632.

44. The Plaintiff's pleaded case is that the letter was written only to the 2nd Defendant only and not the 1st or the 3rd Defendants. The Plaintiff's Solicitor refer to paragraph 175.073 of Halsbury's Laws of Hong Kong Vol. 12, the paragraph headed "Admissions by solicitors and counsel". It states in the middle of the first paragraph thereof;

"Admissions made before litigation began, except in the course of negotiations, or those made casually in mere conversation, or to persons other than the opposite party, will not however, bind the client."

45. The Plaintiff's solicitor also refer to Phipson's on Evidence at paragraph 28-09 which states:-

"Thus, the admission (unless amounting to an estoppel) may be shown by the party against whom it is tendered to be untrue; or to have been made under a mistake of law or fact; or to have been uttered in ignorance..."

46. They therefore submit that none of the Defendants have the right to claim this sum.

47. It is clear that both letters from the Plaintiff's Solicitors, dated 25th October 2002 to the 2nd Defendant and that dated 21st January 2003 to Messrs. Simmons & Simmons were not letters in negotiation. The letter dated 25th was a letter requesting payment of $318,240.00 from Mr. Barry Stubbings sent to the 1st Defendant in relation to Project 0716 now claimed by the Plaintiff in this action. In that letter it was stated that;

"Against this, there is a sum of HK$73,597 due to the old MMBP in respect of invoice dated 3rd March 2000 in respect of Project J0958S, Tin Shui Wai Area 101"

48. In the letter dated 21st January 2003, written to Simmons & Simmons then acting only for the 1st Defendant, it is stated;

"We have already explained in correspondence why our client has no liability to your clients, save for the sum of HK$73,597 which should be deducted from the monies outstanding from your clients."

49. The letter were written before action and clearly did not disclose any negotiation between the parties in the course of which the admissions were made. Based on the passage in Halsbury's cited above, the admission could not be relied on for the claim on this sum.

50. The cases relied on by the Defendants' Counsel, referred to above relate to an account stated which it states may take the form only of a mere acknowledge of a debt. The second case refer to a Bookmaker's weekly statement of account with client setting out wins and losses. The aforesaid letters from the Plaintiff's solicitor referred to could not be said to contain an account stated between parties. They were written by the Plaintiff's Solicitors and is not a statement of account between parties. As such the principle in Halsbury's cited above applies.

51. I therefore find that there is no substance in this item of counterclaim.

52. I give Judgment for the Plaintiff against the 1st Defendant in the sum of HK$318,240.00 together with interest thereon at judgment rate from 22nd April 2002 to the date of judgment and thereafter at judgment rate until payment, and the counterclaim be dismissed. I grant an order nisi for costs of the action to the Plaintiff to be paid by the 1st Defendant and the costs of the respective counterclaims of the respective Defendants be paid by the Defendant or Defendants who raised that Counterclaim to the Plaintiff to be taxed if not agreed.