MANPOWER SERVICES (HONG KONG) LTD v. YBF GROUP LTD

DCCJ 3962/2012

CIVIL ACTION NO 3962 OF 2012

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JUDGMENT

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INTRODUCTION

1.  This is the trial of the claim and counterclaim for breaches of a service agreement dated 17 March 2011 alleged by the plaintiff and the defendant.

FACTS NOT IN DISPUTE

2.  The plaintiff Manpower Services (Hong Kong) Limited (“Manpower”) and the defendant YBF Group Limited (“YBF”) entered into a service agreement dated 17 March 2011 (“the Agreement”).

3.  Pursuant to the Agreement, YBF has the obligation to look for potential candidates who might be suitable employees for Manpower’s clients.  In short, Manpower is running a headhunting business and it engaged the services of YBF for the search of suitable candidates.  The scope of services to be provided by YBF is spelt out in Section B of Exhibit A of the Agreement, which is not significant for the time being.

4.  In consideration for the services provided by YBF, Manpower agrees to pay YBF Monthly Drawings and Service Fee.  The Monthly Drawings are stated to be HK$100,000.  The Service Fee is to be assessed according to the formula outlined in Section C of Exhibit A of the Agreement.

THE PLAINTIFF’S CLAIM

5.  The plaintiff’s claim against YBF consists of the followings:-

(a) Monthly drawings paid to YBF for January to June 2012 totalling HK$600,000;

(b) Staff expenses HK$58,792 paid for and on behalf of YBF;

(c) Entertainment expenses HK$138,341 paid to YBF;

(d) Travelling expenses HK$32,198 paid to YBF;

(e) Office expenses HK$81,165 paid for and on behalf of YBF; and

(f) Legal expenses HK$1,800.

6.  Manpower is claiming a total sum of HK$912,296.

THE DEFENDANT’S COUNTERCLAIM

7.  YBF is counterclaiming for:-

(a) HK$200,000 as Monthly Drawings for July and August 2012; and

(b) HK$300,000 as compensation due to Manpower’s failure to give 3 months’ notice when terminating the Agreement; and

(c) HK$30,000 as legal expenses for these proceedings.

8.  The counterclaim amounts to HK$530,000. 

CORE ISSUES

9.  The core issues of this case, as I see it, are as follows:-

(a) Is there any mechanism under the Agreement for Manpower to recover the Monthly Drawings paid for January to June 2012 totalling HK$600,000?

(b) Did Manpower pay expenses to YBF or on its behalf?

(c) If the answer to (b) is in the affirmative, is there any mechanism under the Agreement for Manpower to recover from YBF?

(d) Is there any obligation for Manpower to pay Monthly Drawings for July and August 2012 totalling HK$200,000?

(e) Was there any obligation for Manpower to give 3 months’ notice for terminating the Agreement?

(f) If the answer to (e) is in the affirmative and Manpower had failed to give 3 months’ notice, should YBF be compensated for HK$300,000?

THE WITNESSESS

10.  At trial, Manpower called 2 witnesses, namely, Chui Yuk Shan Lancy and Ian Strutton.  Ms Chui is the managing director of Manpower in charge of business development.  Mr Strutton is the officer responsible for coordinating the business operations with YBF.

11.  YBF called its director Bernard Yeo as witness. 

12.  These 3 witnesses confirmed and adopted their respective witness statements in court. 

13.  As a large part of the witness statements is not directly relevant to the core issues of the case, it is unnecessary for me to set out the same in detail.  I will only make reference to the evidence of the witnesses in the course of my discussions, when necessary.

DISCUSSIONS

Monthly drawings for January to June 2012 need to be repaid?

14.  YBF does not dispute that monthly drawings for January to June 2012 totalling HK$600,000 were paid to it by Manpower.  Its defence is that there is no mechanism under the Agreement requiring YBF to pay back the same.

15.  Manpower’s ground for asking YBF to return the Monthly Drawings is that YBF had failed to carry out duties and obligations under the Agreement.  According to the Statement of Claim, the alleged failure was evidenced by Manpower’s deficit of HK$1,383,450 as at 27 November 2012.  However, this figure cannot be found in the Profit and Loss Statement 2012 (C86 of Trial Bundle) relied on by Ms Chui in the course of her evidence.  In another document also labelled as Profit & Loss Statement 2012 (C61 of Trial Bundle), there is a deficit figure of HK$1,383,450.  So there are in fact 2 Profit and Loss Statements 2012 which contain different figures.  This is confusing. I am unable to say which one is accurate.

16.  Evening assuming that the deficit figure of HK$1,383,450 is accurate, I do not agree that this necessarily implies a breach of the Agreement by YBF.

17.  During her evidence in court, Ms Chui mentioned for the first time that YBF had breached Clauses 1.1 (b) and (d) of the Agreement:-

“Clause 1.1 (b)

supervising and leading the Partner(s) and do all in its power to promote, develop and extend its business;

Clause 1.1 (d)

developing and retaining business by providing outstanding client service and quality, commercial solutions to recruitment requirements and performing a variety of administrative tasks that support the overall mission of quality performance and service;”

18.  However, no particulars of the alleged breaches were given by Ms Chui in her witness statement or during her evidence in court.

19.  As said earlier, even if Manpower ran into a deficit during the cooperation with YBF, it does not follow that YBF had breached the Agreement.

20.  Taking Manpower’s argument to its highest by assuming that YBF had breached the Agreement, the remedy for Manpower is compensation for the loss or injury it had suffered through the breach.  It does not mean that the Monthly Drawings paid to YBF had to be returned as compensation.  There is no such mechanism under the Agreement.

21.  Chitty On Contracts (31^st Edition), Volume 1, states this principle clearly at paragraph 26-001:-

“ …… Until Att-Gen v Blake, the traditional view was that damages for a breach of contract committed by the defendant are a compensation to the claimant for the damage, loss or injury he has suffered through that breach, and this remains the normal rule ……”

Monthly Drawings and Service Fee mechanism

22.  Pursuant to Clause 3.1 in Section C of Exhibit A of the Agreement, YBF is entitled to a Service Fee as follows:-

“The Managing Partner shall be entitled to a Service Fee equal to a commission at the rate of 50% on the first $2 million of total revenue from the business it brought in and at the rate of 60% on any additional amount of total revenue generated thereafter ……”

23.  Under Clause 3.2 in Section C of Exhibit A of the Agreement, the Monthly Drawings and the business operating expenses shall be deducted from the Service Fee.  And any additional profit or surplus will be distributed equally between Manpower and YBF.

24.  Clause 3.6 in Section C of Exhibit A of the Agreement further provides:-

“Any profits or losses accumulated at the end of each year and or upon termination shall be distributed to or borne by the Managing Partner absolutely.”

25.  After considering the aforesaid clauses, I have these observations:-

(a) YBF is not entitled to the payment of Monthly Drawings absolutely.

(b) The Monthly Drawings paid to YBF and the business operating expenses have to be offset against the Service Fee.

(c) In order to ascertain the amount of Service Fee, one must know the total revenue from the business brought in by YBF in a given period.

(d) One will only be able to work out whether there is a surplus or loss in a given period under Clause 3.6 when one knows (i) the total revenue from the business brought in by YBF; (ii) the amount of Service Fee; (iii) the amount of Monthly Drawings and (iv) the amount of business operating expenses, in a given period.

26.  While Clause 3.6 states that YBF will have to bear the losses accumulated at the end of each year or upon termination of the Agreement, one should note that Manpower is not claiming for this.  Nor is Manpower claiming for Service Fee overpaid.

27.  Manpower is claiming for the return of Monthly Drawings totalling HK$600,000 paid to YBF for the period from January to June 2012.  There is no such mechanism under the Agreement requiring YBF to directly return the Monthly Drawings when there is a loss at the end of a year.  Manpower’s claim is misconceived.

Staff expenses HK$58,972

28.  The second item of Manpower’s claim is for staff expenses paid on behalf of YBF in the sum of HK$58,972.  Manpower relies on the Profit & Loss Statement 2012 (C86 of Trial Bundle) as support.

29.  According to Ms Chui, this sum consists of 3 figures in the Profit & Loss Statement 2012 which are described as Commission HK$22,423, Taxes & Insurance HK$29,848 and Staff Benefits HK$9,522.

30.  I do not allow Manpower’s claim for this item for the following reasons:-

(a) The 3 figures pointed out by Ms Chui amount to HK$61,793 instead of HK$58,972 as claimed.

(b) Ms Chui could not explain the inconsistency but added that the Profit & Loss Statement 2012 was prepared by Manpower’s Financial Manager Jacky Lai who was not called as a witness.

(c) The Profit & Loss Statement 2012 is not a document audited by certified public accountant and is not supported by any bank statements, invoices or receipts.

(d) YBF does not accept the Profit & Loss Statement 2012 as accurate.

(e) The Profit & Loss Statement 2012 is not a reliable document.

(f) It is incumbent on Manpower to prove the accuracy of the figure it claims but Manpower has failed to do so.

(g) One is left in doubt as to how much Manpower had paid to YBF or on its behalf, if any.

Entertainment expenses HK$138,341

31.  The third item of Manpower’s claim is for entertainment expenses paid to YBF in the sum of HK$138,341. 

32.  Ms Chui pointed out to the court a figure of HK$137,034 in the Profit & Loss Statement 2012 (C86 of Trial Bundle).  This is different from the figure in the Statement of Claim.  Ms Chui explained that the difference was probably due to the cut off date adopted in the statement which was July 2012 and entertainment expenses after that date had not been included.  As a result, the figure in the statement was smaller than the sum claimed.

33.  I have already pointed out the deficiencies of the Profit & Loss Statement 2012.  For the same reasons, I reject Manpower’s claim for entertainment expenses.

Travelling expenses HK$32,198

34.  The fourth item of Manpower’s claim is for travelling expenses paid to YBF in the sum of HK$32,198.  This figure can be found in the Profit & Loss Statement 2012 (C86 of Trial Bundle).  But for reasons already given, I refuse to give weight to the statement and reject Manpower’s claim for this item.

Office expenses HK$81,165

35.  The fifth item of Manpower’s claim is for office expenses paid on behalf of YBF in the sum of HK$81,165.  In this connection, Ms Chui pointed out to the court a figure of HK$60,984 in the Profit & Loss Statement 2012 (C86 of Trial Bundle) which again was different from the amount claimed.

36.  Ms Chui offered a similar explanation that the difference was probably due to the cut off date adopted in the statement which was July 2012 and office expenses after that date had not been included.  As a result, the figure in the statement was smaller than the sum claimed.

37.  For reasons already given, I refuse to give weight to the statement and reject Manpower’s claim for this item.

Legal expenses HK$1,800

38.  The sixth item of Manpower’s claim is for legal expenses incurred by Manpower.  This item relates to a letter before action issued by Manpower’s solicitors Angela Lau Law Office to YBF which was dated 10 October 2012.

39.  This is a claim for legal costs which should only be dealt with after the claim and the counterclaim have been determined by the court.  It is wrong for Manpower to include this item as part of the claim amount.

Conclusion on the plaintiff’s claim

40.  In summary, I reject Manpower’s claim for the following reasons:-

(a) There is no mechanism under the Agreement requiring YBF to directly return the Monthly Drawings already received.

(b) The Profit & Loss Statement 2012 (C86 of Trial Bundle) is not a reliable document.  I am not sure whether Manpower had paid expenses to YBF or on its behalf as alleged.

41.  While Clause 4.1 of the Agreement states that YBF must bear all business operating expenses incurred in the course of carrying out recruitment services, Clause 3.2 in Section C of Exhibit A further states that the Monthly Drawings and the business operating expenses shall be deducted from the Service Fee.  There is no mechanism requiring YBF to directly return the Monthly Drawings and the business operating expenses already paid by Manpower. 

42.  Manpower’s claim is not for Service Fee overpaid.  In any event, there is no reliable information before me regarding the Service Fee that YBF should be entitled to.  So it would not be possible to say Service Fee had been overpaid or not.

43.  Clause 3.6 in Section C of Exhibit A of the Agreement states that YBF is the one to bear the losses accumulated at the end of each year or upon termination of the Agreement.  But this is not the basis of Manpower’s claim. 

44.  In any event, there is no reliable information on (i) the total revenue from the business brought in by YBF; (ii) the amount of Service Fee; (iii) the amount of Monthly Drawings and (iv) the amount of business operating expenses, in a given period.  As such, it would not be possible to work out whether there is any loss that should be borne by YBF.

Defendant’s counterclaim for 3 months’ notice

45.  The first item of YBF’s counterclaim is for 3 months’ notice for termination of the Agreement which is represented by 3 months’ Monthly Drawings in the sum of HK$300,000.

46.  The duration of the Agreement was stated to be from 2 May 2011 to 1 May 2014.  Either party can terminate the Agreement by giving the other party 3 months’ notice in writing.

47.  On 27 August 2012, Mr Bernard Yeo on behalf of YBF sent an e-mail to Ms Lancy Chui of Manpower stating that the Agreement would be terminated with immediate effect (C47 of Trial Bundle).  In a further e-mail dated 28 August 2012 (C58 of Trial Bundle), Mr Yeo said that YBF was entitled to terminate the Agreement with immediate effect due to Manpower’s fundamental breach by failing to pay Monthly Drawings since July 2012.  Ms Chui explained in her evidence that Manpower did not pay because the cooperation between Manpower and YBF was running at a loss.

48.  Assuming Manpower was in fundamental breach of the Agreement as alleged by YBF so that it was entitled to terminate immediately, YBF should be compensated for the loss caused by Manpower’s breach.  It was not the case where Manpower was requesting for termination of the Agreement and had the obligation to give 3 months’ notice to YBF.  YBF’s claim for 3 months’ notice is completely misconceived.   

49.  Besides, even working on the assumption that it was Manpower which should give 3 months’ notice and had failed to do so,  YBF’s loss would not be equal to Monthly Drawings for 3 months ie HK$300,000 necessarily.  The reason is that YBF is not entitled to the payment of Monthly Drawings absolutely.  This needs to be offset against the Service Fee pursuant to Clause 3.2 in Section C of Exhibit A.  In the absence of reliable information about the total revenue from the business brought in by YBF, it would not be possible to know how much Service Fee YBF should be entitled to during the 3-month notice period.

Defendant’s counterclaim for monthly drawings for July & August 2012

50.  The second item of YBF’s counterclaim is the Monthly Drawings for July and August 2012 amounting to HK$200,000 which had not been paid by Manpower.

51.  YBF’s counterclaim is misconceived.  As already said, YBF is not entitled to the payment of Monthly Drawings absolutely and this needs to be offset against the Service Fee pursuant to Clause 3.2 in Section C of Exhibit A.  Assuming that the Agreement had been effectively been terminated on 27 August 2012 due to Manpower’s fundamental breach as alleged by YBF, it does not follow that it should also be entitled to Monthly Drawings for July and August 2012 in disregard of other terms in the Agreement.  What it should be entitled to should be the Service Fee up to the date of termination.  But in the absence of reliable information about the total revenue from the business brought in by YBF, it would not be possible to know how much Service Fee YBF should be entitled to for July and August 2012.

52.  For the above reasons, YBF’s counterclaim under this head is also rejected.

Defendant’s counterclaim for legal fees

53.  The third item of YBF’s counterclaim is for legal fees in the sum of HK$30,000.

54.  As pointed out earlier, a claim for legal costs should only be dealt with after the claim and the counterclaim have been determined by the court.  It is wrong for YBF to include this item as part of the counterclaim amount.

OVERALL CONCLUSION

55.  In view of the above analysis, I order as follows:-

(a) The plaintiff’s claim is dismissed; and

(b) the defendant’s counterclaim is dismissed.

56.  As the plaintiff and the defendant are unsuccessful in their claim and counterclaim respectively, I believe this is an appropriate case where I should make no order as to costs. I, therefore, give an order nisi to that effect.  The costs order nisi shall become absolute in the absence of application to vary within 14 days.