GIAN ANDREA PESCI AND ANOTHER v. PETER MIU AND ANOTHER

HCA2075/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2075 OF 2006

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J U D G M E N T

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1. The plaintiffs brings this claim against the defendants claiming for US$200,000 being the purchase consideration agreed under a Memorandum of Agreement dated 18 September 2000 whereby it was agreed that the 2^nd plaintiff would cease its business and transfer its business activities to the 2^nd defendant for a purchase consideration of US$200,000.

Background

2. It is not disputed that the 1^st plaintiff is and was at all material times the majority shareholder and director of the 2^nd plaintiff, and that the 2^nd plaintiff, a company incorporated in Hong Kong, specialized in the production and distribution of leather goods before it ceased its leather business.

3. It is also not disputed that the 1^st defendant is and was at all material times the majority shareholder and director of the 2^nd defendant, being also a company incorporated in Hong Kong, and also specializing in the production and distribution of leather goods.

4. On 18 September 2000, a Memorandum of Agreement (“the Agreement”) was signed by the 1^st plaintiff and the 1^st defendant whereby it was agreed, inter alia, for the 2^nd plaintiff to transfer its business activities to the 2^nd defendant and that the 2^nd plaintiff will cease trading.  It was stated in the Agreement that in consideration for the transfer of business from the 2^nd plaintiff to the 2^nd defendant, a purchase consideration of US$200,000 would be paid by the 2^nd defendant to the 2^nd plaintiff.

5. It was an express term of the Agreement that the Chief Executive of the 2^nd plaintiff, one Ms Giovanna Guerrera, who is the mother of the 1^st plaintiff, will terminate her employment with the 2^nd plaintiff and be employed as from 25 September 2000 by the 2^nd defendant as its Chief Sales Executive.

6. The Agreement further provided for the purchase consideration to be paid in stages in the manner stated therein.  I shall go into the terms of the payment clause, in particular the disputed parts of it, in greater detail later in this judgment. 

Plaintiff’s case

7. It is the plaintiff’s case that pursuant to the Agreement, the 2^nd plaintiff did cease trading and did transfer all its business including its existing customers over to the 2^nd defendant.

8. Moreover, the Chief Executive of the 2^nd plaintiff, Ms Guerrera, did also terminate her employment with the 2^nd plaintiff and became an employee of the 2^nd defendant as its Chief Sales Executive as from 25 September 2000.

9. Ms Guerrera worked with the 2^nd defendant until her termination by the 2^nd defendant on 20 March 2002.

10. It is the plaintiff’s case that the 2^nd plaintiff having performed its part of the bargain contained in the Agreement, the purchase consideration promised to be paid by the 2^nd defendant to the 2^nd plaintiff became due.

11. An invoice was issued by the 2^nd plaintiff to the 2^nd defendant dated 12 October 2005 claiming for the purchase consideration of US$200,000 but when no payment was forthcoming from the defendants, the Writ was issued in this case.

The defence and counterclaim

12. The defendants had initially counterclaimed a number of reliefs against the plaintiffs.

13. At the start of the trial, I was informed by counsel for the defendants that the defendants will not be pursuing those reliefs sought in paragraphs 3 to 6 inclusive of the prayer for relief in the counterclaim.

14. In light of this concession, the defence and counterclaim which is now relied on can be summarized as follows :

(a)	The Agreement had no binding effect because of lack of certainty in the Agreement in relation to the identities of and obligations on the parties.
(b)	The Agreement was not binding on the defendants due to misrepresentation by the 1st plaintiff.
(c)	The Agreement had all along been treated by all parties to be of no effect and no invoice had ever been issued by the plaintiffs up to September 2005; the defendants seek to rely on the doctrine of abandonment.
(d)	The defendants are not obliged to pay the amount claimed or any part thereof as the obligation to pay has not yet accrued.

The evidence, assessment thereof and finding of facts

15. For the plaintiffs, evidence was called from the 1^st plaintiff and his mother, Ms Guerrera.

16. The evidence from the 1^st plaintiff was that the Agreement was a home-made document, drafted by a friend of his.

17. After the Agreement was signed by him and the 1^st defendant, the 1^st defendant and his wife came to the 2^nd plaintiff’s office and after looking through what the 1^st defendant considered would be useful to him and the 2^nd defendant in the transfer of business to the 2^nd defendant, the 1^st defendant picked out some samples, some files and office records as well as two computers of the 2^nd plaintiff.  All the items picked out by the 1^st defendant were then packed into three boxes and were delivered to the office of the 2^nd defendant by van arranged for by the 1^st plaintiff.

18. Thereafter, the 1^st plaintiff then ceased its leather business. Ms Guerrera transferred from being employed by the 2^nd plaintiff to the employ of the 2^nd defendant from 25 September 2000 as provided for by the Agreement.

19. It was also the 1^st plaintiff’s evidence that the then existing clients of the 2^nd plaintiff before the transfer of business were CP3, GN, Valigeria Roncato and Marianelli, all of whom had been transferred to the 2^nd defendant.

20. The reason given by the 1^st plaintiff for ceasing the leather business in the 2^nd plaintiff and transferring it to the 2^nd defendant was because by that time, he wanted to concentrate on his wine and beverage business full time and did not have sufficient time to deal with the leather business.

21. Because the Agreement had provided for the purchase price of US$200,000 to be paid in stages, in the manner stated therein by the sending of invoices to the 2^nd defendant, when the 1^st plaintiff was asked why he did not send any invoice to the 2^nd defendant before September 2005, he explained that firstly, he was busy concentrating on his wine business and secondly, that he trusted the 1^st defendant.  Knowing that the 2^nd defendant was a large and reputable company, he did not think that the defendants would not honour their end of the bargain.  He also explained that at that time, the leather business was slow and not as good and therefore he was in no hurry to get paid the purchase price.  However, later in 2005, when the 1^st defendant indicated that he will not be paying the purchase consideration and was avoiding phone calls from the 1^st plaintiff, he then got a solicitor friend to draft a letter dated 17 October 2005 and attached an Invoice dated 12 October 2005 for the US$200,000 which he then sent to the home of the 1^st defendant chasing for the payment of the purchase consideration.  It is also his evidence that he had also sent separately a similar invoice to the office of the 2^nd defendant for the same purchase consideration.

22. Ms Giovanna Geurrera also gave evidence for the plaintiffs.

23. Her evidence was that she had transferred over to be employed by the 2^nd defendant as provided for by the Agreement.

24. She further confirmed that the existing leather business of the 2^nd plaintiff at the time of the Agreement was transferred to the 2^nd defendant.

25. She confirmed that the then existing clients of the leather business of the 2^nd plaintiff were as stated by the 1^st plaintiff and that those clients were transferred to the 2^nd defendant.

26. She gave evidence as to how her employment with the 2^nd defendant came to be terminated.  In short, because her room in the Hong Kong office of the 2^nd defendant was taken over by another staff engaged by the 2^nd defendant while she was stationed in Mainland China and when she returned to the Hong Kong office of the 2^nd defendant she found that all her items in her room had been moved out of the room.  This led to her losing her temper with personnel in the office of the 2^nd defendant and the exchange of some harsh words with the 1^st defendant resulting in her termination from the 2^nd defendant after the refusal by the 1^st defendant of a raise in her salary as requested by her.  It is not necessary to go into the details of these incidents leading to her termination as it has little bearing, apart form the dismissal itself, of the issues in this case.  This all happened in or about February or March 2002 and her termination of employment was dated 20 March 2002.

27. One other piece of evidence coming from Ms Guerrera which is significant to this case is that while she was the Chief Sales Executive for the time she was with the 2^nd defendant, she was given the prices of the 2^nd defendant for her to deal with and quote to clients in relation to leather goods and products but that she was not told how these prices were worked out nor was she told the production costs of the products manufactured by the 2^nd defendant.

28. For the defendants, the 1^st defendant alone gave evidence.

29. The first and main area of factual dispute from the evidence of the 1^st defendant concerns what, if anything was transferred from the 2^nd plaintiff to the 2^nd defendant under the Agreement.

30. According to the 2^nd defendant initially, nothing was transferred over to the 2^nd defendant from the 2^nd plaintiff.

31. He agreed that there was a visit by him and his wife to the office of the 2^nd plaintiff after the Agreement had been signed but disputed wholly the evidence of the 1^st plaintiff that anything had been transferred to the 2^nd defendant.  He went as far as to deny that any existing clients of the 2^nd plaintiff had been transferred to the 2^nd defendant.

32. As for the sample referred to by the 1^st plaintiff, the evidence of the 1^st defendant was that the 2^nd plaintiff was not engaged in the business of selling leather products to its clients or customer, but rather cloth or rattan bags and for that reason, there was no purpose for him to acquire any sample from the office of the 2^nd plaintiff, thus no samples were obtained.

33. He also denied that any office records or files were transferred from the plaintiff to the 2^nd defendant.

34. In this respect, he only agreed that when Ms Guerrera started employment with the 2^nd defendant, she had brought along a computer to the office of the 2^nd defendant, but had taken that away with her when she left on the basis that it was her own personal computer.

35. However, in cross-examination, the stance taken by the 1^st defendant changed somewhat.

36. He admitted that he had been told by the 1^st plaintiff when he was in the office of the 2^nd plaintiff that the existing clients of the 2^nd plaintiff was GN, CP3, Valigeria Roncato and Marianelli, but that there was no documentation to substantiate what the 1^st plaintiff had told him, nor did he ask for any such substantiation since at that time he accepted and believed what was told to him by the 1^st plaintiff.

37. However, for the first nine months after Ms Guerrera started working with the 2^nd defendant, no orders were placed by any of the so-called existing clients of the 2^nd plaintiff allegedly transferred to the 2^nd defendant, he then began to doubt whether they were the existing clients of the 2^nd plaintiff which were transferred by the 2^nd plaintiff to the 2^nd defendant pursuant to the Agreement.

38. According to the 1^st defendant, his real complaint therefore was the lack of any orders being placed by any of the so-called existing clients of the 2^nd plaintiff after the 2^nd plaintiff had purported to transfer its business over to the 2^nd defendant.

39. When no invoice was forthcoming from the 2^nd plaintiff for the payment of any part of the purchase consideration, at least up to September 2005, he took the view that all concerned had treated the Agreement as no longer binding or abandoned.

40. Another reason put forward by the 1^st defendant in his refusal to pay the purchase consideration by the 2^nd defendant to the 2^nd plaintiff was that there were no orders generated by Ms Guerrera from the existing clients of the 2^nd plaintiff since none had been transferred over to the 2^nd defendant and therefore there was no obligation on the part of the 2^nd defendant to make payment.

41. The 1^st defendant agrees and accepts that all the transactions stated in the Invoice dated 12 October 2005 were transactions handled or generated by Ms Guerrera and which included transactions with GN, CP3, Valigeria Roncato and Marianelli.

42. In assessing the evidence adduced by the parties respectively, I found the 1^st plaintiff and Ms Guerrera to be honest witnesses and doing their best to relate to the court what had happened over six years ago.  I have no difficulty in accepting the evidence given by them.

43. On the other hand, I found the 1^st defendant not to have been fully and entirely frank in his evidence.  One example of this was that in his evidence in chief, he was content simply to say that the plaintiffs did not transfer any existing clients over to the 2^nd defendant.  It was only when he was questioned in cross-examination that the full picture emerged that he had been told by the 1^st plaintiff that GN, CP3, Valigeria Roncato and Marianelli were the then existing clients of the 2^nd plaintiff and at that time he had accepted what he was told by the 1^st plaintiff, without asking for documentary confirmation, but that it was only later when after nine months of Ms Guerrera joining the 2^nd defendant and not obtaining any orders from these clients that he had doubts as to what the 1^st plaintiff told him about the then existing clients of the 2^nd plaintiff.

44. The initial evidence from the 1^st defendant therefore painted a very different picture and greatly affects the reliability of the 1^st defendant’s evidence even accepting that his evidence in this respect does not go so far as to be an outright lie.

45. Moreover, I cannot believe the 1^st defendant’s evidence that no office files, records or samples were transferred by the 2^nd plaintiff to the 2^nd defendant, particularly after he had been told who the then existing clients of the 2^nd plaintiff were.

46. From his later admissions in his evidence that he had been told by the 1^st plaintiff that GN, CP3, Valigeria Roncato and Marianelli being the then clients of the 2^nd plaintiff and the fact that the Invoice dated 12 October 2005 showed that there were transactions carried out between the 2^nd defendant and those clients generated through Ms Geurrera, it can hardly be believed that Ms Guerrera would have transferred her employment over to the 2^nd defendant without bringing along any office records or files to facilitate her in carrying out business with those clients transferred over to the 2^nd defendant from the 2^nd plaintiff.

47. I also do not accept the evidence of the 1^st defendant that no samples were transferred over to the 2^nd defendant.  The reason given by him for so saying was that the business which the 2^nd plaintiff was dealing in involved only cloth bags and rattan bags, thus being different from the leather business which the 2^nd defendant was engaged in and therefore the samples from the 2^nd plaintiff was of no use to the 2^nd defendant.

48. In so saying, the 1^st defendant has obviously overlooked the fact that in the Agreement signed by him, the recital of that Agreement states : 

“

(A)

[The 1st defendant] wishes to expand the business activities of [the 2nd defendant] in the design, production, marketing and sales of leather goods and other fashion products by extending its marketing efforts to any new customers other than its current customers, particularly Italy and the Europe market, where [the 2nd plaintiff] has established successful business relationships.”

49. Furthermore, the very purpose of entering into the Agreement was for the 2^nd defendant to take over the leather business of the 2^nd plaintiff, in the words of Mr Alder, counsel for the plaintiffs, the defendants were purchasing a quick entry into the Italian market.

50. On the evidence before me, I therefore make the following findings on the disputed issues of fact between the parties :

(a)	At the time the Agreement was entered into, GN, CP3, Valigeria Roncato and Marienelli were the existing clients of the 2nd plaintiff and that had been communicated to the 1st defendant by the 1st plaintiff.
(b)	The 2nd plaintiff was dealing in the leather business at the time when the Agreement was entered into.
(c)	After the Agreement was entered into, the 2nd plaintiff did cease its business activities in respect of leather goods.
(d)	The 2nd plaintiff did transfer its leather business and all of its then existing clients to the 2nd defendant with Ms Guerrera changing her employment from the 2nd plaintiff to the 2nd defendant as from 25 September 2000.
(e)	The 2nd plaintiff did also transfer to the 2nd defendant files, office records as well as samples in the manner as stated by the 1st plaintiff in his evidence.

51. Upon the facts as found, I shall deal with the various issues in dispute between the parties and which concern the proper construction to be put on the terms of the Agreement.

Parties to the Agreement

52. The Agreement was signed by the 1^st plaintiff and the 1^st defendant.  Upon the wording of the Agreement it would appear that both of them signed the Agreement in their individual capacity since there was nothing on the wording used in the Agreement to suggest that they had entered the Agreement “for or on behalf of” the 2^nd plaintiff and the 2^nd defendant respectively.

53. This has given rise to the contention by the defendants that the Agreement was only entered into between the 1^st plaintiff and the 1^st defendant in their personal capacity and that the 2^nd defendant was not a party to the Agreement, therefore the 2^nd defendant cannot be liable to the plaintiffs in so far as the claim by them herein is concerned.

54. On the other hand it is contended by the plaintiffs that all four parties, namely, the 1^st and 2^nd plaintiffs as well as the 1^st and 2^nd defendants were parties to the Agreement.  The fallback position of the plaintiffs is that the 1^st plaintiff and the 1^st defendant were signing as agents of the 2^nd plaintiff and 2^nd defendant respectively, such that the 2^nd plaintiff and 2^nd defendant were the parties to the Agreement.

55. In construing the Agreement on this issue, I look at the Agreement as a whole and more importantly the contents of the Agreement as to the duties and the obligations intended to be created thereunder.

56. In this respect, the relevant duties and obligation under the Agreement can be summarized as follows :

(a)	The 2nd plaintiff was to “cease trading independently under its own name” effective 18 September 2000 and to “transfer its business activities (inter alia) to the 2nd defendant.  [Clause (1) refers]
(b)	The present Chief Executive of the 2nd plaintiff was to terminate her employment with the 2nd plaintiff and to be employed by the 2nd defendant effective 25th September and to relocate to the office of the 2nd defendant.  [Clause (2) refers]
(c)	In consideration of the 2nd plaintiff transferring its business activities and customer/supplier relationships to the 2nd defendant, the 2nd defendant shall make payment to the 2nd plaintiff the total amount of US$200,000 referred to as the “purchase consideration” and that such payment shall be made in stages as provided therein.  [Clause (4) refers]
(d)	The 1st defendant undertook that the 2nd defendant shall immediately make available all its support services and facilities to insure the continuity and smooth running of the business at no cost to the 1st and/or 2nd plaintiff.  [Clause (6) refers]

57. It can be seen immediately that the obligations and duties contemplated by the Agreement was essentially for the 2^nd plaintiff to cease its business and to transfer its business activities including its customers to the 2^nd defendant.  Moreover, the payment of the purchase consideration was to be by the 2^nd defendant to the 2^nd plaintiff.  In this respect it should also be noted that the bulk of the obligations or duties under the Agreement fell upon the 2^nd plaintiff (namely to cease its trading and to transfer its business activities to the 2^nd defendant) and also upon the 2^nd defendant to pay the purchase consideration to the 2^nd plaintiff.

58. However, it should also be noted that under Clause (6) of the Agreement, an undertaking was given by the 1^st defendant to indemnify the 1^st and 2^nd plaintiff for those matters stated therein.

59. The evidence in this case and the findings above also showed that the obligations and duties imposed on the 2^nd plaintiff by the Agreement were performed by it in that it had ceased its business and had transferred such business over to the 2^nd defendant.

60. Moreover, the 2^nd defendant had also received the business transferred over to it by the 2^nd plaintiff.  Indeed when the 1^st defendant gave evidence, he had no difficulty accepting that those transactions stated in the Invoice dated 12 October 2005 from the 2^nd plaintiff to the 2^nd defendant were transactions which had been transacted by the 2^nd defendant.  Moreover, Ms Guerrera did cease her employment with the 2^nd plaintiff and did transfer over to be employed by the 2^nd defendant as Chief Sales Executive for some 18 months until that employment was terminated by the 2^nd defendant.

61. All this shows that the 2^nd plaintiff had performed what it was obliged to perform under the Agreement and the 2^nd defendant had accepted the benefit of such performance by the 2^nd plaintiff, albeit that it has not made payment of the purchase consideration to the 2^nd plaintiff.

62. In the circumstances it cannot be doubted that the 2^nd plaintiff and the 2^nd defendant must have been parties to the Agreement and considered themselves bound by it.  Therefore the only logical construction of the Agreement, in so far as the parties thereto are concerned, must be that the 1^st plaintiff and the 1^st defendant had entered into the Agreement as the agents respectively for the 2^nd plaintiff and the 2^nd defendant.

63. In this respect, it should also be noted that the 1^st plaintiff and the 1^st defendant would have the necessary authority to bind the 2^nd plaintiff and 2^nd defendant respectively to the terms of the Agreement since there is no dispute that at all material times they were respectively the directors of the 2^nd plaintiff and 2^nd defendant.

64. Furthermore, Clause (6) of the Agreement also shows that the 1^st defendant gave an undertaking to both the 1^st plaintiff as well as the 2^nd plaintiff.  The presence of this clause and the undertaking given would strongly suggest that the 1^st plaintiff and the 1^st defendant were both also parties to this Agreement in their individual capacity.

65. For the above reasons therefore, I have come to the conclusion that on the proper construction of it, the Agreement was signed by the 1^st plaintiff and the 1^st defendant as agents on behalf of the 2^nd plaintiff and the 2^nd defendant respectively in their respective capacities as directors thereof as well as in their own individual capacities.

Payment clause of the Agreement

66. The second area of dispute between the parties involving the construction of the Agreement relates to the terms of payment therein contained in Clause (4) which reads as follows :

“

(4)

In consideration of [the 2nd plaintiff] transferring its business activities and customer / supplier relationships to [the 2nd defendant], [the 1st defendant] agrees that [the 2nd defendant] shall make payment to [the 2nd plaintiff] a total amount of US$200,000 (TWO HUNDRED THOUSAND UNITED STATES DOLLARS) hereinafter referred as to the “Purchase Consideration”.  Such payment shall be made in stages of [the 2nd defendant] cost plus 10% handling charge (Max) for all orders generated by Ms Guerrera as a result of sales and marketing efforts on behalf of [the 2nd defendant] in the European market, or from other customers located outside Europe.  Transfer of the stage payments for the “Purchase Consideration” shall be made by [the 2nd defendant] to the account of [the 2nd plaintiff] within 15 days of receipt of funds by [the 2nd defendant] from the respective customers and upon receipt of suitably documented invoices from [the 2nd plaintiff] for the amounts due until such time as the “Purchase Consideration” has been fully satisfied.  All remittances shall be made to [the 2nd plaintiff’s] nominated Bank account as detailed hereunder, or such other bank account, as may be notified in writing from time to time by [the 1st plaintiff] to [the 2nd defendant].

67. What is clear from the above clause is that the purchase consideration was fixed at US$200,000.  That amount of the purchase consideration was to be paid in stages.

68. What is not clear, and therefore the subject of dispute between the parties, is the formula as well as the application of it in the present case in calculating the stage payment.

69. That formula was worded in Clause (4) of the Agreement already cited above, the operative words being “… shall be made in stages of [the 2^nd defendant] costs plus 10% handling charge (Max) for all orders…”.

70. The evidence given by the 1^st plaintiff and which was ultimately agreed by the 1^st defendant in cross-examination was that that formula was understood by both of them to mean the selling price of the 2^nd defendant less the production costs plus 10% of such production costs as handling charge.

71. In the light of that evidence, in so far as the formula was concerned, there is therefore no difference between the parties, albeit that the wording of the Agreement did not fully or clearly spell this out which can only be due to poor drafting.

72. The second matter in dispute between the parties concerning this clause was whether those words in Clause (4) “for all orders generated by Ms Guerrera…” was confined only to orders generated from the existing customers of the 2^nd plaintiff transferred over to the 2^nd defendant (as submitted by the defendants) or whether those words extended to any orders generated by Ms Guerrera, even from new customers, on behalf of the 2^nd defendant.

73. Looking at Recital A which expressly states that the 2^nd plaintiff has established successful business relationships in Italy and the Europe market, and comparing that with the wording of Clause (4) where it says “…all orders generated by Ms. Guerrera as a result of sales and marketing efforts on behalf of [the 2^nd defendant] in the European market, or from other customers located outside Europe” (emphasis added), there can be no doubt but that the parties intended ‘all orders generated by Ms. Guerrera’ to extend to orders whether from the existing customers of the 2^nd plaintiff or from new customers generated by Ms Guerrera after moving over to the 2^nd defendant, since it is quite obviously the case that at the time of the Agreement, the 2^nd plaintiff only had business relationship within Italy and Europe as stated in Recital A.

74. That is the construction that I will place on Clause (4) of the Agreement.

Application of the formula for stage payment in the present case

75. One of the defence raised by the defendants is that they are not obliged to pay the amount now claimed by the plaintiff or any part thereof as the obligation to pay has not yet accrued.

76. In this respect, my initial observation is that the amount of the purchase consideration agreed between the parties is a fixed amount of US$200,000 under the Agreement.  In so far as that purchase consideration goes, there is no uncertainty about the amount.

77. It would also be correct to say that as a purchase consideration, that amount becomes due to the 2^nd plaintiff upon its performing its part of the bargain as to transferring its business activities over to the 2^nd plaintiff.

78. On the findings made above, the 2^nd plaintiff has performed such obligations upon it.

79. It would follow therefore that the amount of the purchase consideration is due.

80. What has been further agreed between the parties, by way of the formula for payment in stages goes merely as to how and when the amount of the purchase consideration is to be paid.  That is where the difficulty creeps in.

81. In that respect, it should at once be noted that there is simply a complete lack of evidence as to the production cost relating to the 2^nd defendant’s products.

82. The evidence from the 1^st plaintiff as to production costs was that he had no actual knowledge of the production costs relating to the 2^nd defendant’s products since it was a matter entirely within the knowledge of the 2^nd defendant and not privy to him.

83. When the 1^st plaintiff was asked how it was that he had hoped to invoice the 2^nd defendant for the stage payments as contemplated by the payment clause in the Agreement since he did not know the production cost of the 2^nd defendant to enable him to calculate such stage payment, his answer was simply that he trusted the 1^st defendant to the extent that he relied entirely on the 1^st defendant to provide the production cost relating to the 2^nd defendant’s products when it came to calculating the stage payments.

84. The only evidence which the 1^st plaintiff could give with reference to production costs is that generally speaking, production costs in relation to leather products would be about 60% of the selling price.  It would appear therefore that it was on this understanding by him that the formula for the stage payment was agreed upon, giving some margin for the further 10% of the production costs to be treated as handling charge.

85. The evidence from Ms Guerrera when asked whether she was aware of the production costs of the 2^nd defendant’s products during the time she worked at the 2^nd defendant’s, was that she was never given the figures for the production costs of the 2^nd defendant’s products. She was only given the price lists in respect of the selling prices to be quoted to the various clients for the different products.

86. That evidence of Ms Guerrera is wholly disputed by the 1^st defendant who says in no uncertain term that he made sure that Ms Guerrera was taught how to calculate the selling prices of the various products of the 2^nd defendant in particular being told the production costs of the various products of the 2^nd defendant.

87. I have no hesitation in accepting the evidence of Ms Guerrera in this respect for the following reason.

88. If Ms Guerrera knew of the production costs of the 2^nd defendant, there can be no good reason why such production costs would not have been included in the Invoice dated 12 October 2005 such as to properly calculate the amount of the stage payments which the 2^nd plaintiff was claiming from the 2^nd defendant since it is not disputed that that Invoice was prepared from Pro-forma invoices passed over by Ms Guerrera to the 1^st plaintiff.  In other words, if she was aware of the production costs used by the 2^nd defendant for its products, she would surely have passed on the same information to the 1^st plaintiff for him to properly prepare the Invoice in which he claims the US$200,000 from the 2^nd defendant.

89. The fact that the production costs was not reflected in the Invoice dated 12 October 2005 supports Ms Guerrera’s evidence that she did not know the production costs relating to the 2^nd defendant’s products while she was employed there.

90. The other piece of evidence which is relevant to this issue is the contents of the Invoice dated 12 October.  The contents of that invoice has been accepted by the 1^st defendant as showing orders or transactions which were handled or generated by Ms Guerrera when she was with the 2^nd defendant.  The total amount of those transactions stated in that Invoice comes to US$1,425,252.81.

91. No concrete figures have been provided at all by the defendants in evidence during the trial relating to the production costs of the 2^nd defendant in relation to those transactions stated in that Invoice.

92. All that has been done by the defendants was to put the plaintiff to strict prove of its claim in particular the calculation for payment.  In that respect it was the submission of the defendants that the “production costs” contemplated by the formula for the stage payments included all sorts of overhead expenses and that the plaintiffs have failed to prove its entitlement to the amount claimed or any part of it since the plaintiff have not adduced any evidence in respect of production costs in calculating the amounts of the stage payments.

93. In the absence of any evidence as to the production costs put forward by the 2^nd defendant relating to those transactions stated in the Invoice dated 12 October 2005, I am left only with the evidence of the 1^st plaintiff that in general the production costs would be about 60% of the selling price, the total selling price of US$1,425,252.81 as stated in that Invoice would indicate that even if the production costs of the products, the subject of those transactions, were as high as 78% of the selling price, and even adding a further 10% to such production costs by way of handling charge, that would still be sufficient to generate the US$200,000 as being the stage payments under the Agreement claimed by the plaintiffs.

94. Therefore the conclusion which I have reached is that the US$200,000 is due to the 2^nd plaintiff upon its fulfilling its obligations under the Agreement.

95. If I should be wrong in so concluding, then for the reasons given above, I am satisfied that the 2^nd plaintiff has established on balance the liability of the 2^nd defendant for the amount of US$200,000 claimed pursuant to the formula for stage payment under Clause (4) of the Agreement.

Abandonment as a defence

96. In the light of my findings above, in particular that the 2^nd plaintiff has performed its part of the Agreement in transferring its business activities to the 2^nd defendant, this defence of abandonment cannot succeed.

97. The present case is a far cry from those cases where an agreement has been entered into between parties but nothing has been done by either party in discharge of their obligations such that both must be taken to have abandoned the agreement and their obligations thereunder.

98. The only thing that can be said in the present case is that the 2^nd plaintiff took a longer time than it should have to chase for the purchase consideration after having fulfilled its part of the bargain under the Agreement.

99. On the findings made above, I reject the defence of abandonment.

Defence of misrepresentation

100. On the findings of fact made by me above, the allegation by the defendants of misrepresentation by the 1^st plaintiff in respect of the then existing clients of the 2^nd plaintiff is simply not made out.

Conclusion on liability

101. The claim brought by the plaintiffs is for the purchase consideration of US$200,000.

102. Pursuant to the Agreement, it is clear enough from its wording that only the 2^nd defendant is liable to pay the purchase consideration.  It is also clear from the wording of the Agreement that only the 2^nd plaintiff is entitled to be paid the purchase consideration.

103. For the reasons given, there will be judgment in favour of the 2^nd plaintiff against the 2^nd defendant for the sum of US$200,000 with interest from the date of Writ until judgment at 8% and thereafter at judgment rate.

104. The plaintiffs’ claim against the 1^st defendant is dismissed.

105. The defendants’ counterclaim is also dismissed.

Cost (order nisi)

106. There will be the following cost order nisi:

107. The 2^nd defendant is to pay the cost of the action in so far as that relates to the 2^nd plaintiff both in respect of the claim and for defending the counterclaim which has now been dismissed.

108. There will be no order as to costs in relation to the 1^st plaintiff both in relation to the claim by the plaintiffs and for defending the counterclaim of the defendants.

109. There will also be no order as to cost in relation to the 1^st defendant both in respect of the claim by the plaintiffs and also in respect of the counterclaim of the defendants.