C & A CONSULTANTS LTD AND ANOTHER v. HONG KONG AIRLINES LTD

HCA279/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 279 OF 2007

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BETWEEN

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J U D G M E N T

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1.  The plaintiffs claim against the defendant payment of $1,946,007 being fees for services rendered pursuant to agreement. The defendant contends that the relevant agreement has expired by effluxion of time and the plaintiffs are not entitled to charge the defendant for any or all of the amount claimed. The defendant also counterclaims for repayment of fees paid under mistake for services rendered after the expiry date.

BACKGROUND

2.  The defendant started its operation in aviation business in 2001. Mr Robert Yip was its CEO and Chairman of the board of directors. Ms Kelly Cheng was brought in for her financial background which could help in introducing strategic bankers/investors.  For that purpose, she was given the title of Chief Financial Officer (“CFO”) of the defendant although she was never its employee and worked without remuneration. 

3.  As the defendant’s business began to take shape, a formal Retainer Agreement dated 2 July 2003 (“the Retainer Agreement”) was entered into between the 1^st plaintiff and the defendant. The 1^st plaintiff agreed to provide consultancy services to the defendant under five heads :

(i)     Brandbuilding;

(ii)    Creative design and advertising;

(iii)   Sales support;

(iv)   Recruitment and staff support; and

(v)    Executive support to the defendant.

4.  The Retainer Agreement was for a term of two years, which might be extended for another year subject to the mutual consent of the 1^st plaintiff and the defendant.  The defendant agreed to pay, amongst others, a monthly retainer fee of HK$50,000 to the 1^st plaintiff plus consultancy fees for executive support at an hourly rate of US$300 to US$600.  All the assignments for recruitment, staff support and executive support had to be discussed and approved by the defendant before execution under clause 2 of the Retainer Agreement (“Clause 2”).

THE PLAINTIFF’S CASE

5.  Ms Cheng considered it proper and more transparent to deliver and account for the consultancy services through a Hong Kong company.  Hence, after the Retainer Agreement was entered into, the 1^st plaintiff formed the 2^nd plaintiff as its Hong Kong arm and wholly-owned subsidiary.  She was and is the sole director of both companies.

6.  By agreement between Ms Cheng and Mr Yip, the 2^nd plaintiff would be added as a party to the Retainer Agreement; it would also perform consultancy services, issue debit notes and receive payments on behalf of both plaintiffs (“the Supplemental Agreement”).

7.  In about May 2005, Mr Yip orally agreed to extend the Retainer Agreement and Supplemental Agreement for another year (“the Extension Agreement”). 

8.  On 8 August 2006, Mr Yip resigned from the defendant when new investors came in.  Ms Cheng also left the defendant’s office in the same month.

9.  In accordance with the Supplemental Agreement, the plaintiffs had been issuing debit notes in the name of the 2^nd plaintiff which the defendant has paid without objection up to and including 30 October 2005.  The defendant still owes the plaintiffs :

	Item	Amount (HK$)
1.	Retainer fees for 8 months from 1.11. 2005 to 30.06.2006	400,000.00
2.	Fees for executive support at an hourly rate of US$300 to US$600	1,468,350.00
3.	Disbursements	77,657.00
	Total :	$1,946,007.00

10.  The plaintiffs claim in the alternative for a reasonable sum for the consultancy services they provided and which the defendant accepted, as the defendant knew or should have known that the consultancy services were not intended to be gratuitous.

THE DEFENDANT’S CASE

11.  The defendant disputes the existence of the Supplemental Agreement and Extension Agreement which were not recorded anywhere.  It asserts that the Retainer Agreement had expired on its 2^nd anniversary, i.e. on 1 July 2005 (“the Expiry Date”).  Accordingly, the defendant is not liable for consultancy services provided thereafter.  The defendant further questions whether the plaintiffs had provided the alleged services, or that the services fell within the terms of the Retainer Agreement, or that any of the alleged services were approved or ratified by the defendant and the hourly rate charged.  The defendant counterclaims for repayment of $200,000[1] being retainer fees for four months after the Expiry Date.  It says that the payment was under mistake, i.e. without realizing that the Retainer Agreement had expired (“the mistake”). 

THE ISSUES

12.  The issues can be summarized as follows :

(A)   Was there a Supplemental Agreement which made the 2^nd plaintiff a party to the Retainer Agreement?

(B)   Was there an Extension Agreement for 12 months?

(C)   Was Ms Cheng entitled to the eight months’ retainer fees for 1 November 2005 to 30 June 2006?

(D)   Was Ms Cheng entitled to the fees for consultancy services?

(E)   Did Ms Cheng incur the alleged disbursements?

(F)   Can the plaintiffs alternatively succeed on the basis of quantum meruit?

(G)   On the counterclaim : did the defendant pay retainer fees of HK$200,000 to the 1^st plaintiff under mistake?

THE WITNESSES AND THEIR CREDIBILITY

13.  I will deal with specific aspects of witnesses’ evidence when analyzing each of the issues but there are some general observations to make as to the quality of their evidence and the way the defendant presents its case.

14.  Most of the top management of the defendant (including Mr Yip) has changed since new investors joined.  The defendant effectively puts the plaintiffs to strict proof of their claims.

15.  Only two witnesses have been called, Ms Cheng for the plaintiffs and Mr Keung for the defendant.  Mr Yip, a former director of the defendant, had given two witness statements on behalf of the plaintiffs but in the end did not turn up for trial on most dubious grounds[2]. Likewise, the defence has not called one Mr Suen, a current director, despite his having given a witness statement.  Both of Mr Yip and Mr Suen’s witness statements will thus not form part of the evidence except insofar as references have been made to them in cross-examination.

16.  Ms Cheng is thus the only witness who has first-hand knowledge of what had happened and her credibility is of crucial importance.  Unfortunately, there are aspects in her evidence which is unsatisfactory, e.g. omissions of important facts, previous inconsistent statements and absence of logical explanation.  At times, questions were repeated to her in cross-examination, yet she could not provide an answer, allegedly due to long lapse of time.  One has to test her evidence against the contemporaneous documents to consider the probabilities of her (and the defendant’s) version.  I am most vigilant where there is no documentary or circumstantial evidence in support.

17.  On the other hand, undeniably, Mr Keung, has no personal knowledge of the issues in dispute as he only joined the defendant in 2007, a week before the writ was issued.  He can only give evidence as to the general payment and accounting procedure of the defendant since his time.  He also says that despite review of the defendant’s records he could not find any document showing the extension of the Retainer Agreement.

18.  The plaintiffs’ claim has been lodged for well over three years.  There has been ample time for the defendant to investigate and verify with individuals who might have knowledge of the claim.  Unfortunately, the defendant has failed to properly do so.  By way of example, the defendant has failed to call the following witnesses who might have knowledge of the claim and to testify as to Ms Cheng’s role beyond the Expiry Date :

(i)     Mr Yip who was the one instrumental in engaging Ms Cheng and approving many of her past payments. 

(ii)    Mr Wang who was a director between 14 November 2005 and 25 February 2009.  He is still a member of the defendant’s substantial shareholder (Hainan Airways). Ms Cheng had worked closely with him in the negotiation of the defendant’s intended purchase of aircrafts from Boeing.  It was allegedly in front of him that Ms Cheng raised the issue of extending the Retainer Agreement.

(iii)   Mr Thong who served on the defendant’s board between 28 March 2001 and 16 August 2006 as the defendant’s CEO in around July 2005 and is still a present member of the defendant’s senior management team.  This was a person whom Ms Cheng had worked closely with.

(iv)   One Mr Ren who was on the defendant’s board between 26 August 2006 and 30 June 2008 and is still a member of Hainan Airways.  Ms Cheng had worked closely with him before he became a director and in the negotiation of the defendant’s intended purchase of aircrafts from Boeing.

(v)    Mr Mung and Mr Wong who served on the defendant’s broad since August 2006 to date.  They had been served demand letters from Ms Cheng.

(vi)   Ex-accounts staff who might testify as to why some service for a period beyond the Expiry Date was approved and paid to the plaintiffs and what happened to the unpaid debit notes received.

19.  Given the way the defendant presents its case, I can only say that the major assertions it made lack foundation, as will be discussed below. Inferences should also be drawn against it where appropriate.

20.  I now come to analyze the issues.

(A)     Was There a Supplemental Agreement which made the 2^nd plaintiff a party to the Retainer Agreement?

21.  The defendant denies that the 2^nd plaintiff was ever a party to the Retainer Agreement or any agreement.  The defendant points to the 1^st plaintiff’s letter dated 10 May 2004 (“the Letter of Request”) in these terms : 

“We refer to the contracts dated 2^nd July 2003 and 7^th January 2004[3] both entered into between [the 1^st plaintiff] and [the defendant] regarding respectively the retainer service and consultancy service to be rendered by [the 1^st plaintiff].

Please be advised that the invoices for the abovementioned services will be issued by [the 2^nd plaintiff], which is a subsidiary of [the 1^st plaintiff].  Please make cheque payable to [the 2^nd plaintiff] accordingly.”

22.  I agree with the defendant that this was a mere request made to implement Ms Cheng’s accounting intention.  There was nothing in the Letter of Request to indicate that the services would be rendered by the 2^nd plaintiff or that it would be added as a party to the Retainer Agreement.  Nor would the subsequent conduct of the plaintiffs and the defendant in merely following the terms of the Letter of Request convert the 2^nd plaintiff into a party to the Retainer Agreement by novation.  Had the plaintiffs intended otherwise, the writ would not have been instituted only in the name of the 1^st plaintiff at the start. Nor would Ms Cheng’s 1^st affirmation in support of the application for summary judgment (“the Affirmation”) have deposed to the fact that the services were provided by and the monies were due to the 1^st plaintiff alone, despite reference being made to the Letter of Request.  Indeed Ms Cheng could not give any reason as to why the 2^nd plaintiff was left out from the writ.

23.  I find that there was no Supplemental Agreement which made the 2^nd plaintiff a party to the Retainer Agreement.  The 2^nd plaintiff was simply made an agent of the 1^st plaintiff to issue debit notes and receipts. 

(B)   Was There an Extension Agreement for 12 months?

24.  There is no documentary evidence of the Extension Agreement from either party. The plaintiffs’ case is that in about May 2005, in the presence of Mr Yip and Mr Wang Shaoping, Ms Cheng brought up the question of expiry of the Retainer Agreement.   Mr Yip verbally agreed with her that the Retainer Agreement would be extended for one year.  He assured her that a verbal agreement was sufficient for the purpose of the extension.  Trusting him, Ms Cheng did not think it necessary to put the agreement in writing.

25.  The plaintiffs rely on payments and executive support services beyond the Expiry Date to show the existence of the Extension Agreement.  There were 4 cheques for payment of retainer fees for July to October 2005 (“the 4 Cheques”).  One of the two signatories to each of the 4 Cheques was Mr Yip.  The other signatories were either Mr Wang or the Vice-Chairman.  The work done was evidenced by debit notes and Ms Cheng’s diary entries.

26.  Mr Keung, on the other hand, stated that he has never heard of the alleged extension of the Retainer Agreement and was not aware of the existence of any agreement, document or record extending the Retainer Agreement for another year.  In chief, he claims to have searched the agenda and minutes but this was not mentioned in his witness statement.  In cross-examination, however, he confirmed that the review of the defendant’s records referred to in his witness statement was just a review of the Retainer Agreement, debit notes and payment records.  For payments to the plaintiffs before his time, he, being a professional accountant, had not made any enquiry with other staff member of his department or top management persons who might have knowledge before concluding that the 4 Cheques were made under the mistake.

27.  Furthermore, independent auditors of the defendant’s accounts gave an audit confirmation to the 1^st plaintiff stating that $905,659.82 were due from the defendant to the 1^st plaintiff.  The 1^st plaintiff returned the audit confirmation stating that the amount due should have been $999,700.  Mr Keung was aware of this audit confirmation but could not explain why the auditors had confirmed the 2005 payments and amount due to the plaintiffs without query in the face of expiry of the Retainer Agreement and the absence of an Extension Agreement. 

28.  In my view, the averments of Mr Keung on behalf of the defendant that there was no Extension Agreement or that accounting staff only issued the 4 Cheques under the mistake were on shaky foundation.

29.  Mr Lee, counsel for the defendant, very fairly concedes that the 4 Cheques were evidence against him.  He submits, however, that the defendant’s case, at its lowest, is that the Retainer Agreement had not been extended for one year but for four months (up to end October 2005).  Alternatively, it could have been extended for six months (up to the end of December 2005), or from month to month. 

30.  The following matters support Mr Lee’s argument :

(i)     The plaintiffs have failed to issue debit notes to the defendant for monthly retainer fees for the last six months of the alleged extended year despite Ms Cheng’s express standing instructions to the contrary. Ms Cheng could not explain why her staff disobeyed her, not just for one but six months.

(ii)    July and September 2006 : Even after expiry of the alleged Extension Agreement, the plaintiffs’ reminders for payment did not include the six months’ retainer fees.

(iii)   October 2006 : The solicitor who then acted only for the 1^st plaintiff failed to demand for payment of those six months’ retainer fees.

(iv)   October 2006 : In the schedule of outstanding fees claimed, the last item of work was said to be done on 23 February 2006 and there was nothing thereafter.

(v)    February 2007 : the 1^st version of the writ did not claim for those six months’ retainer fees and Ms Cheng could not explain why.  When cross-examined as to what made her suddenly remember the $300,000, she said she never forgot it and she did give instructions to claim it.  It has been so long and she could not remember what the discussion was to leave out the $300,000.

(vi)   May 2007 : There was no mention in the Affirmation that the extension was for one year and Ms Cheng could not explain why.

(vii)  July 2007 : The demand letters and the statutory demand on the defendant addressed to all the top management people failed to mention those six month’s retainer fees.

(viii) December 2008 : The Extension Agreement was pleaded only in the re-amended statement of claim, 1½ years after the writ was issued.

(ix)   As of May 2005, some debit notes had been outstanding for months. By July 2005, Ms Cheng had known that new investors would come in, yet the defendant was cash tight.  One wonders why Ms Cheng did not consider it prudent to put the Extension Agreement in some form of writing. 

31.  To these Ms Cheng explained that at the time of negotiating the Retainer Agreement, it was felt that at least three years was needed for the fledging airline to develop its business from regional flights to a bigger airline company.  Hence a clause was put into the Retainer Agreement for it to be extended for one year by consent of the parties.  Though the defendant owed her fees, she knew it was in financial difficulties and needed to expend about $11-12 million per month.  She wanted to give it a chance as she had seen how the defendant grew from a one-helicopter company to a fixed wing airline and had passion for it.  After she tendered the Resignation Letter, the directors urged her to stay on, telling her that new investors had deep pockets and they would pay whatever was owed to her.  She did not want to “blackmail” the defendant as there would be a signing ceremony with Boeing in that month.  She would want to see the success of the defendant.  So she stayed on.  She had never wanted to pursue this claim “through legal means”.  She had been giving the defendant lots of chances.  In the end, the defendant gave her no choice but to pursue whatever was owed.  She referred to an email in December 2005 stating that she could even waive some of her fees if the defendant paid up. 

32.  Mr. Lee further referred to Ms Cheng’s purported resignation by a letter dated 12 December 2005 (“the Resignation Letter”) with immediate effect.  The Resignation Letter was, in my view, a strange document.  On the one hand, it supports the plaintiffs’ case on the Extension Agreement, otherwise Ms Cheng would have no position to resign from.  On the other hand, its contents cast doubt on her case.  In cross-examination, she testifies that she got frustrated by the defendant’s stalling of payment whilst continuously giving her more work.  However, the reason for resignation as CFO stated in the Resignation Letter was that she had been excluded from all information and participation in the financial decisions of the defendant.  The Resignation Letter was completely silent about the fees outstanding from the defendant. Moreover, if the Extension Agreement had six more months to go and the Retainer Agreement did not contain a break clause, one wonders why Ms Cheng needed to resign in such a way as to carry a risk of breaching the Extension Agreement.

33.  I cannot accept that Ms. Cheng’s purported resignation was limited only to her role as CFO as suggested by Mr Wou, counsel for the plaintiffs.  With respect, that suggestion is not borne out by the evidence.  The title CFO was given to her to enable her to raise funds and that responsibility was inseparable from her role under the Retainer Agreement

34.  One must also not overlook the fact that an oral agreement is easy to allege but hard to prove.  With an airline company, I find it hard to accept that people would operate on an informal oral agreement without even a shred of writing, particularly at a time when change of shareholding was contemplated.  It was also quite inconsistent with Ms Cheng’s style of, e.g. securing the “Supplemental Agreement” in writing but not recording the Extension Agreement on even a piece of paper. 

35.  I am not satisfied on the balance of probabilities that the parties have expressly extended the Retainer Agreement.

36.  However, there is ample evidence before me that the Retainer Agreement had been extended by conduct. In the month when the Retainer Agreement was supposed to have expired, an Information Memorandum (a business plan to be shown to investors) of the defendant dated July 2005 described Ms Cheng as its Chief Financial Officer.  Months after the Expiry Date, Ms Cheng had still been working for the defendant on what could be regarded as quite substantial matters, as can be seen from the Schedule of consultancy services rendered.  These included :

(i)     In October 2005 : claiming against Eva Airways over the latter’s damage to the defendant’s aircraft.

(ii)    From October 2005 until at least March 2006 : negotiation with Boeing for purchase of 30 aircrafts from Boeing and emails with two top management persons, Mr Ren and Mr Wang.  It was put to Ms Cheng that the purchase of the Maersk aircraft was overpriced and that the negotiation for purchase of 30 aircrafts from Boeing was an exaggeration.  The challenge was never mentioned in the defendant’s witness statements but Ms Cheng cogently answered it by showing that the directors who allegedly challenged her were the ones who subsequently purchased her interests in her listed company in 2008. She also explained that aircrafts would take years to build and Hainan Airways was ambitious.  A memorandum of understanding with Boeing was necessary to show the defendant’s interest in purchasing aircrafts.  I find that this item of services was undertaken by Ms Cheng.

(iii)   In November 2005 : corresponding with the Hong Kong Civil Aviation Department concerning the defendant’s fleet planning.

(iv)   In December 2005 : attending the ceremony with Boeing for signing a Memorandum of Understanding.  I accept that her resignation has been withdrawn at the behest of the top management (as evidenced by her continued working with the top management in the subsequent months).

(v)    In February 2006 : attending the defendant’s meetings.  (There used to be regular Monday weekly meetings before the Expiry Date.)  She also attended the Singapore Air Show hosted by Boeing.  Mr Yip and Mr Ren were there.

(vi)   In March 2006 : attending interview meeting and CRA meeting for a full day.  She had received legal advice from Messrs He Quilian & Associates on the legal implications of a draft reference letter of the Vice-President of Finance.

(vii)  In April 2006 : meeting the auditor of the defendant. 

(viii) When cross-examined, Ms Cheng claims that she had also done work an hour here and there, though not as before; that she was working for another director on and off on financial models and that she had been receiving phone calls from debt chasers, Airport Authority, World Fuel Services, etc. when debtors of the defendant called her because she was the CFO. I accept her evidence in this respect.  Her diminishing role was reflected in the reduced entries in her diary towards the end of the extended year.

37.  On top of all these, by March 2006, there was evidence that Ms Cheng had been permitted to keep the defendant’s corporate email account; and that the defendant had continued to sponsor her renewal of her Airport Restricted Area Permit.  She was allowed to keep an office at the defendant’s headquarters up to about August 2006.  A year later, an email from one Mr Shawcross of AVESCO advised that there was no record from the defendant informing AVESCO that Ms Cheng had left the company. 

38.  Such evidence speaks of an extension of the Retainer Agreement by conduct on a month to month basis on the same terms of the Retainer Agreement up to its 3^rd anniversary. I find that Ms Cheng had continued to render her services under the Retainer Agreement until 1 July 2006 and had withdrawn her resignation in December 2005.  She left the defendant’s office in August 2006.

(C)   Was Ms Cheng entitled to the eight months’ retainer fees for 1 November 2005 to 30 June 2006?

39.  As I have found that the Retainer Agreement had been extended by conduct for the 3^rd year, Ms Cheng should, in principle, be entitled to the eight months’ unpaid retainer fees.

40.  The next question to ask is : had she irrevocably waived her right to claim for retainer fees, in particular, for the last 6 months?  The failure to issue debit notes or to demand for them could not be anything but a deliberate waiver on its face. 

41.  There is evidence that Ms Cheng had waived fees in the past.  In the first two years under the Retainer Agreement, she had refrained from charging some hours as revealed in some of the time sheets.  There was an instance when she readily accepted a reduction in January 2006 of 20% of her fees for 2004, apparently at the suggestion of Mr Yip.  She had also waived the professional fees for December 2005 (see letter from the 2^nd plaintiff to the defendant dated 1 February 2006), despite the solid work on solving problems, attending meetings with Boeing and bankers and other lobbying and advice for the defendant.  She repeated this waiver in her email dated 28 June 2006 (“the Waiver Email”), although she had expressly reserved her rights. 

42.  After the writ was issued, she sent demand letters to each of the top management people.  I do not think it was because Ms Cheng did not know that a company was a separate entity from its directors but that she was trying to avoid full-blown litigation which might damage the reputation of the defendant. 

43.  There is evidence of financial difficulty of the defendant.  The defendant had a deficit of HK$62 million (unaudited) in September 2005.  Clearly the defendant was not in a good financial shape.  According to Ms Cheng, the share transfer agreement entered into on or about 4 November 2005 met with objection from the Economic Development and Labour Bureau of the government. As a result, the defendant went through restructuring from December 2005 to August 2006 during which the defendant refused to settle the debit notes.  This period more or less coincided with that in which Ms Cheng refrained from issuing debit notes for retainer fees and consultancy services.

44.  There is evidence of unwillingness of the new investors to bear the responsibility incurred by the defendant. In reply to the Waiver Email on the following day, the defendant stated :

“Kindly be informed that Mr Winson Hu is out of town in this week. Your queries on disputed invoices will get back soon.

The cheque payment for approved invoice will be ready in a few days.  We regret for the inconveniences caused to your company due to company restructuring in the recent months.”

At that time, notwithstanding the full opportunity to investigate the genuineness of the plaintiffs’ debit notes, this reply evaded the question of whether the Retainer Agreement continued to exist or which invoice was approved.  The cheque never arrived.  

45.  The financial difficulty continued after the termination of the retainer relationship.  As demonstrated through cross-examination of Mr Keung, the defendant had not less than six legal actions with writs dating between 4 July 2006 and 8 January 2009 with claims ranging as little as HK$71,000 to HK$4.16 million.  The defendant also owed Ms. Cheng’s listed company costs of software acquisition.

46.  I find that the failure to insist on payment of the retainer fees was an act of generosity and passion for the defendant on Ms Cheng’s part and not because she had not rendered services to the defendant.  I accept her explanation in paragraph 31 above.  She had expressly reserved her rights, as evidenced in the Waiver Email and the solicitors’ demand letter.  The defendant has not shown that it has suffered any detriment as a result of any “promise” from Ms Cheng not to pursue the retainer fees.  The plaintiffs are not estopped from making this head of claim.

(D)    Was Ms Cheng Entitled to the Fees for Consultancy Services?

47.  The defendant’s challenge comes under four heads :

(a)   whether the services were actually provided;

(b)   whether the services were with the prior approval of the defendant pursuant to Clause 2 or with ratification;

(c)   the number of hours spent; and

(d)   the hourly charges.

48.  With regard to (a), the time sheets and diary of Ms Cheng contain entries of her services.  Paragraphs 36 above sets out in broad terms the work she had done beyond the Expiry Date.  In addition, there were interviews and meetings with bankers/investors.  I am satisfied that the services were actually provided.  They fell within the terms of the Retainer Agreement and were chargeable on the defendant. 

49.  With regard to (b), Ms Cheng said that she worked with Mr Yip directly on all matters involving the business of the defendant.  She had discussed with him and taken his instructions on the consultancy services prior to execution of the same.  If there were instances where no prior approvals were obtained when Mr Yip was out of town or owing to the urgency of the matter, Mr Yip or other directors of the defendant would have it ratified verbally thereafter.

50.  In cross-examination, Ms Cheng was unable to identify which items of services were approved beforehand and which ratified afterwards. Nor could she identify which other director gave her approval or ratification. She claimed that Mr Yip gave her a mandate and she provided 95-99% of the services.  Mr Yip did not like board meetings.  No board meetings had been held e.g. to approve anybody’s hire or approve the purchase of aircrafts.   There was an occasion where pilots had a crisis; she made a decision, reported to Mr. Yip and got ratification;  that was not recorded.

51.  Further, it was put to her in cross-examination that she was the one who “approved” the past (settled) debit notes as evidenced in payment requisition forms.  She denied, yet she could not tell why she did approve.

52.  I note that Ms Cheng was not employed under the Retainer Agreement to undertake mundane clerical work.  She carried a management role.  One might expect before engaging in any substantial assignment, e.g. to purchase aircrafts, take out a loan or recruit pilots, Ms Cheng had to seek prior approval of the defendant.  However, it would be ludicrous to suggest that for every little piece of work she had to seek approval of, e.g. Mr Yip. 

53.  With regard to the requisition forms, I consider that the proper inference is that Ms Cheng was just approving for the plaintiffs.  The 2^nd half to those forms contained a section for the defendant’s accounts department to fill in.  That is the section where the defendant could approve the application for payment. 

54.  The unpaid consultancy services were provided well before Ms Cheng left the defendant. I categorize them into services provided (i) before December 2005; and (ii) from 15 December 2005 and up to the last item of claim for 23 February 2006. 

55.  Category (i) was provided during the tenure of Mr. Yip.  The defendant had acknowledged receipt of the debit notes for this period. The defendant could have easily verified with Mr. Yip whether the services were approved, yet there was no evidence of verification.  I draw adverse inference against the defendant and hold that Ms. Cheng did have approval/ratification in providing the services in this period.

56.  The same could not be said of category (ii).  No debit notes were issued and the first demand came in the form of a solicitor’s letter in October 2006.  By then, it was 3 months after expiry of the 3 year when  Mr Yip had left the board.  Any other director who approved or ratified her work was not identified so the defendant could not be blamed for not making the necessary investigation.  Ms. Cheng must be put to strict proof.  When one examines the services in this category, it can easily be seen that the nature was similar to the services in the preceding period (e.g. management meetings) or were services carried forward from then (e.g. Boeing meetings).  It can be inferred that approval/ratification was given.  The period covered by this category was from the withdrawal of Ms. Cheng’s resignation to 23 February 2006.  It was consistent with Ms. Cheng’s stance of not pressing on with payment for the same reasons under category (i).

57.  I find that the services in both categories were incurred with the prior approval or ratification of the defendant. 

58.  With regard to (c), Ms Cheng was challenged as to the number of hours spent on the services.  For 6, 7, 8, 13, 14 and 17 February, she claimed eight hours or more for each day in time sheets that were prepared months after the services were provided.  The defendant queries: without anything in the diary to assist her memory, how was she able to remember the no. of hours spent?  How could she, as a successful business person with a listed company to look after in Central, afford to spend 8 hours a day with the defendant at Chek Lap Kok? 

59.  Ms Cheng’s evidence is hard to take at face value.  She confirms that it was she who prepared her own time sheets based on entries in her diaries.  On average, unless for very important matters, she spent only 30 hours per month with the defendant.  However, the hours claimed for the February 2006 meetings greatly exceeded 30.  She said that if she claimed eight hours, that meant she had been contributing eight hours; it was a long distance to the airport and if she were there, she would be at least six hours. She also had to prepare for meetings beforehand. However, evidence shows that there were similar meetings that lasted much less than 8 hours in the past, e.g. those in January 2005. She said she could remember the time spent maybe because she prepared the time sheets well ahead of sending off the debit notes, but she could not explain why the plaintiffs should then issue the debit notes belatedly. 

60.  I have read all the entries in the diaries.  I am satisfied that Ms Cheng did provide the services claimed.  I allow the actual no. of hours spent if reflected in the diary.  For those without any indication as to hours spent, I allow 4 hours, representing half a day and is more or less in line with past meeting hours in 2005.  My ruling is as follows:

Date	Hours claimed	Hours disallowed	Reasons
6 Feb	8	0	Diary states “full day”
7 Feb	8	-3	Diary shows 9am – 2 pm
8 Feb	7 + 3	-3 for meeting time	Diary shows start time at 2pm then dinner at 7 pm; discount travelling time of 1 hour
13 Feb	8	-4	Diary does not show no. of hours; allow 4 hours
14 Feb	8	-4	Diary does not show no. of hours; allow 4 hours
17 Feb	8	-4	Diary shows 9am – 1 pm; dinner not shown to be connected to defendant

61.  With regard to (d), Ms Cheng claims that before signing the Retainer Agreement, there was a clear understanding between her and Mr Yip that she would charge US$500 per hour.  This averment did not appear in her or Mr Yip’s witness statement.  Nor was it explained how the “understanding” arose.  I am not satisfied that there was an agreement for Ms Cheng to charge that rate. 

62.  However, there was a consistent course whereby Ms Cheng had charged US$500 for work done by herself.  This was reflected in her time sheets in the first two years.  Under the Retainer Agreement, executive support services were chargeable at an hourly rate ranging from US$300 to $600.  One can reasonably presume that simpler work which could be done by lower grade staff of the plaintiff would attract an hourly rate closer to US$300, whilst those involving the input of Ms Cheng might attract a rate closer to US$600.  The time sheets did disclose this pattern, with Ms Cheng charging US$500, Ms Kuo US$400 and one Ms Chan US$200.  When one takes an overall view, a flat rate of US$500 for Ms Cheng taking into account the varying degree of complexity of her work was not unreasonable. 

63.  The plaintiffs are entitled to the amounts claimed for consultancy services except for the 18 hours that I have disallowed.

(E)     Did Ms Cheng incur the disbursements?

64.  There are three items of disbursements involved :

(i)     translation fee for translating the Information Memorandum from English into Chinese : HK$30,000;

(ii)    legal fees paid to Messrs Hammonds for legal advice to the defendant incurred in March 2005 : HK$8,657; and

(iii)   payment to Messrs He Qilian Associates for legal advice to the defendant given in December 2005 to March 2006 : $39,000.

65.  With regard to (i), the Chinese version of the translated document has not been produced.  The debit note to the defendant gave the impression that it was the plaintiffs who did the translation.  Likewise, the 2^nd affirmation of Ms Cheng in support of the application for summary judgment confirmed that it was the 2^nd plaintiff who provided the translation service.  It transpired from cross-examination of Ms Cheng that it was the translator of her listed company who did the job but who that translator was and how much the costs of the translator were she could not recall.  I am not satisfied on the evidence before me that the plaintiff has discharged the burden of proving that this item of work had been done or that the proper fees have been charged.  I dismiss this head of claim.

66.  With regard to (ii), the defendant challenges this item on the ground that the fee note was issued to the defendant and there was no evidence of payment from the plaintiffs.  Ms Cheng explained that the fee note was long overdue and it was not her practice to have people work for her and yet not get paid.  She said she had paid on behalf of the defendant as she had her own reputation to protect, even though the defendant already owed her a lot at that time. 

67.  The evidence shows that the legal advice in question and fee note from Messrs Hammonds were given in March 2005 but the debit note from the 2^nd plaintiff was in March 2006.  Notwithstanding that the fee note was addressed to the defendant, the defendant has not tendered evidence to show that they had settled it.  Nor is there evidence from the defendant that there had been reminders for payment from or recovery action by Messrs Hammonds. 

68.  I accept the evidence of Ms Cheng and find on a balance of probabilities that the advice was given and that this fee note was settled by the plaintiffs who called for the service.  The plaintiffs are entitled to judgment on this item.

69.  With regard to (iii), Mr Lee has conceded this item in his closing submission.  I therefore give judgment to the plaintiffs on this item.

(F)   Can the plaintiffs Alternatively Succeed on the Basis of Quantum Meruit?

70.  In view of my findings above, it is strictly not necessary to consider this issue.  For completeness sake, I will consider it in deference to counsel.

71.  Given the background leading to the signing of the Retainer Agreement, it cannot be said that Ms Cheng’s services could be rendered for free.

72.  Mr Lee submits that Ms Cheng, as opposed to the two plaintiffs, should be the plaintiff.  He has not, however, shown any authority in support of his proposition.  In my view, notwithstanding the services were mostly provided by Ms Cheng personally, one cannot ignore the fact that there was also support service provided through other persons like Ms Kuo and Ms Chan of the plaintiffs.  I can see no reason why the plaintiffs cannot lodge this claim.

73.  On quantum, this head of claim is strictly restitutional.  The clear intention of the parties was that the retainer fees were on a monthly basis.  I cannot see any other quantum applicable to this head of claim. 

74.  On the consultancy services, as explained in paragraph 62 above, I cannot see how it can be said that US$500 per hour for Ms Cheng could be said to be unjustified.

75.  I therefore cannot see any difference in terms of quantum whether the 1^st plaintiff claims under the Retainer Agreement or for quantum meruit.

(G)   On the counterclaim: did the defendant pay retainer fees of HK$200,000 to the 1^st plaintiff under mistake?

76.  Given my findings as to extension of the Retainer Agreement by conduct, and the admission of Mr Lee that the 4 Cheques were against him, I find no merit in the counterclaim.  There was no mistake of fact.

CONCLUSION

77.  I find that there was no Supplemental Agreement but only an agreement whereby the 2^nd plaintiff was to issue debit notes and receipts to the defendant as agent for the 1^st plaintiff. There was no agreement to add the 2^nd plaintiff as a party to the Retainer Agreement responsible for providing services to the defendant. The Retainer Agreement had been extended by conduct on a month-to-month basis for a 3^rd year on the same terms as for the Retainer Agreement.  The 8 months’ retainer fees were rightfully due to the 1^st plaintiff. The consultancy services were provided, approved/ratified and fell within the terms of the Retainer Agreement.  Save for 18 hours of work, I allow the full fees for consultancy services.  Even if the 1^st plaintiff were not entitled to payment under the Retainer Agreement, it would have been entitled under the principle of quantum meruit.  Out of three items of disbursements, the plaintiffs are entitled to reimbursement for the legal fees of Messrs. Hammonds and Messrs. He Qilian & Associates.  The item for translation fees is dismissed for want of proof.  The counterclaim ought to be dismissed as the defendant failed to prove that there was a mistake in effecting payment to the plaintiffs.

78.  I give judgment to the plaintiffs (with the 2^nd plaintiff in the capacity as agent for the 1^st) as follows :

(i)     With regard to the retainer fees: the amount of $400,000;

(ii)    With regard to consultancy services, the sum of $1,468,350 less 18 hours x US$500;

(iii)   With regard to disbursements: the claim for translation fees is dismissed; the claim for disbursement payments to Messrs Hammonds in the sum of $8,657 and to Messrs He Qilian & Associates in the sum of $39,000 are allowed;

(iv)   The counterclaim is dismissed.

79.  I make an order nisi that :

(i)    costs are to follow the event and be payable by the defendant to the plaintiffs to be taxed if not agreed; and

(ii)   there be interest at judgment rate from the date of writ to the date of payment.

Any application to vary this order should be made within 14 days from the date of handing down of this judgment.

OTHER MATTERS

80.  Practitioners should put more thought into the preparation of trial bundles :

(i)     Only Court orders pursuant to a case management summons (or checklist hearings for pre-CJR cases), at a case management conference or pre-trial review should be included in the trial bundle.  Order 34 rule 3(1)(c).  Other court orders (such as those for leave to file pleadings out of time, security for costs) should not be included except for good reasons.

(ii)    Affirmations for interlocutory application should not be included except for good reasons, e.g. to cross-examine a witness on prior inconsistent statements.  In the present case, affirmations in support of an application for security for costs and to oppose the defendant’s belated application to re-re-re-amend the defence and counterclaim were never referred to.

(iii)   Company search documents can be omitted unless necessary.  A summary of useful information extracted therefrom is more helpful.

(iv)    Duplication of documents should be avoided.  In the present case, e.g. there are at least three sets of Retainer Agreement and Information Memorandum.  Some documents produced as exhibits to the Order 14 affirmations are reproduced in the documents section.

Overall in this case, at least 2 thick box files of documents could have been spared. This should be taken into account by the taxing master.

81.  I thank counsel for their thorough preparation and able assistance to the Court.