YES TECH CO LTD v. KAM LEE FUNG WATCH PRODUCTS LTD

HCA 2244/2016

[2022] HKCFI 579

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2244 OF 2016

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J U D G M E N T

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1.  This is a contractual dispute. The parties entered into an intermediary agreement dated 14 April 2014. The plaintiff claims that under the agreement it has introduced two third parties, namely IM Global and Samsung, to the defendant and is accordingly entitled to a fee equal to 10 per cent of the sales for business generated for the defendant in relation to each of IM Global and Samsung.

2.  The defendant says, firstly, Samsung was not introduced to it by the plaintiff, and secondly, the intermediary agreement was meant to cover only IM Global.  The defendant refers to the circumstances in which the intermediary agreement was entered into, namely, that it was entered into at about the time the parties were commencing business dealings with IM Global. However, that is merely historic context.  The fact that an agreement was entered into at around the time, or even in anticipation of one dealing, does not inform, and certainly does not control, the ambit of the agreement itself. The ambit and the terms of the agreement of course fall to be determined by reference to the words the parties have chosen and/or signed on to.

3.  In this case, the intermediary agreement contains no hint that it applies only to IM Global or dealings with IM Global.  On the contrary, a number of clauses in the agreement indicate that it is general in nature and applies to all dealings within its terms, including dealings in relation to Samsung.  For example, the agreement at the outset, in clause 1, referred to Hong Kong, Mainland China, Macau, Korea and Japan.  The fact that the geographic scope of the agreement was wide indicates that the agreement would have encompassed dealings with parties in any of those jurisdictions. As another example, the agreement speaks of “customers” in the plural.  And furthermore, the agreement provides for multiple scenarios which are less likely if it were to apply to one fixed third party.

4.  In any event, on the parties’ case, dealings with IM Global would have followed a modus operandi where the defendant would ostensibly sell to the plaintiff for the plaintiff to onsell to IM Global.  It would have been quite unnecessary for the parties following that modus operandi to enter into an intermediary agreement, which were to apply only to IM Global because, as the parties agree, under that modus operandi the 10 per cent fee was simply the difference between the price on the invoice from the defendant to the plaintiff and the price from the plaintiff to IM Global.

5.  As for the defendant’s factual case that Samsung was not referred to it by the plaintiff, the contemporaneous documents flatly contradict that case.  The email correspondence clearly show that the plaintiff was heavily involved as a go-between between Samsung and the defendant, a fact that the defendant’s witness accepts under cross-examination.

6.  The defendant says, even before the plaintiff’s involvement, it had already been introduced to Samsung or Samsung had been introduced to it.  There is a paucity of documentary evidence supporting that, which is surprising given the involvement of multiple parties and the evident preference of the various parties to communicate with each other at different locations by email.

7.  On the emails that are available, it is clear that at the time the plaintiff regarded itself to be introducing Samsung to the defendant, so much so that the plaintiff’s officer edited some emails from or with Samsung before forwarding the same to the defendant, apparently to hide the fact that Samsung was aware of the defendant from the market and to increase the appearance of its - that is, the plaintiff’s - importance.  This completely undermines the defendant’s case that whatever the plaintiff was doing, it did it “out of good faith” (apparently meaning not for a profit or a share of the profit).

8.  As a further example from the emails, when a factory visit was to be arranged and there were discussions as to when Samsung would visit the defendant’s factory, the emails show that it was the plaintiff who was relaying the message to the defendant.  And later, alerting the defendant that Samsung would call the defendant directly to arrange a meeting, to which the defendant’s reply email was, “I will wait for Samsung’s call”.

9.  A follow-on email from the plaintiff to the defendant referred to IM Global as being “a catch fish on hand” and that Samsung was “a fish we have to catch” (emphasis added).  And in the words of the plaintiff in that email, “We have to keep catch fish in priority because we already have and can keep eating.  We have to avoid lose both catch fish and fish to catch because of our mistake.”  As I said, this completely undermines the defendant’s case that the plaintiff was doing things merely out of good faith (whatever that means) or that the defendant understood the plaintiff to be acting out of good faith (whatever that means).

10.  It follows from my reading of the agreement and my finding as to the plaintiff’s referral of Samsung to the defendant that the defendant is liable to pay a 10 per cent fee to the plaintiff.

11.  It has occurred to me that it may not be commercially usual for a party in the defendant’s position to have to pay 10 per cent of sales revenue to the plaintiff merely because the plaintiff has referred the customer to the defendant.  This is especially since referral may be one-off, it may be sufficient after a phone call and/or a few meetings, and yet under the agreement the defendant would pay the 10 per cent fee for up to three years.  However, as is trite, the court should not substitute its view, let alone guesses, as to what may be commercially desirable in place of a proper reading of the agreement.

12.  Moreover, the possibility that I have noted above was not pleaded as a defence.  Quite the contrary, in the pleaded defence at paragraph 6, it was expressly stated that the plaintiff represented that it was able to offer services by introducing business.  And at paragraph 19 of the defence, it is said that someone else made the introduction of the defendant to Samsung and “hence Samsung was not a customer secured through the services of the plaintiff” (emphasis added).

13.  For the sake of completeness, I note that in paragraph 21 of the defence it is pleaded that the plaintiff never provided any services and was never called upon to provide any services pursuant to the terms of the agreement insofar as it relates to Samsung.  But that is little better than a bare denial.

14.  The implication of these paragraphs and the whole of the defence is clearly that entitlement to the 10 per cent was denied on the basis that: (1) the agreement only applied to IM Global; and (2) it was not the plaintiff who referred Samsung to the defendant.

15.  I have thought about the matter at length, and canvassed it with counsel on both sides multiple times, in the end I am of the view that it would not be fair to the plaintiff to allow the defendant to run an argument that referral is not enough at this late, if not final stage, of the proceedings.  This is because, as I  have noted in my discussions with counsel: (1) such an argument has not been pleaded; (2) different points were pleaded as defence; (3) the defendant’s own case and evidence is that when it paid 10 per cent to the plaintiff for the first transaction with Samsung, that was not because of any referral, but because of some other alleged technical advice; and (4) had the more nuanced point been raised early in these proceedings, the plaintiff, and indeed the parties, would have had an opportunity to address it, including by pleading further points in response and by adducing evidence of, for example, industry practice as to how to read the words “promote and sell” in the agreement.

16.  Lastly, I note that even if the point were to be allowed to be run at this late stage, it does not necessarily mean that the plaintiff did not promote and sell within the meaning of clause 1 of the agreement.  It is conceivable that the phrase “promote and sell” does not mean both promote and sell.  It is also conceivable that a referral, or a referral coupled with some involvement in the first transaction such as the kind that the plaintiff claims to have carried out in this case, would suffice to satisfy the concept of promote and sell.  At the end of the day, this court is simply unable to hear and determine the kind of nuanced reading of the phrase “promote and sell” without it having been raised early on in the proceedings and been the subject of canvassing, including by way of discovery between the parties.

17.  The defendant, in its closing, very helpfully and fairly abandoned its counterclaim and claim of set-off and I shall not deal with them further.

18.  Turning to reliefs, the evidence before the court is that the defendant made sales to Samsung up to December 2015 in the total amount of US$16,807,455, excluding the first transaction.  The defendant does not dispute this figure.  Ten per cent thereof will be US$1,680,745.50 and I find in favour of the plaintiff in that amount.

19.  The plaintiff also claims an account and/or enquiry, however, as I noted, and as the plaintiff’s counsel fairly accepted, there is no evidence before the court of any other dealings between the defendant and Samsung.  And as the defendant’s counsel fairly reminded me in his closing submissions, at the outset of this trial, in the plaintiff’s opening, it was stated that the plaintiff was seeking damages up to December only.  In light of those two considerations, I see no basis and no justification for granting any account or enquiry.

20.  Both parties are in agreement that in light of my determinations above, there is no need to determine the issue of whether the defendant rightfully or wrongfully terminated the agreement on 9 September 2015.  In any event, I note that even if the agreement had been terminated, it does not necessarily follow that obligation to pay the 10 per cent for referral already made would cease.

21.  Interest is awarded as sought, post-judgment at the judgment rate.

Discussion about costs

22.  The plaintiff is awarded 80 per cent of its costs, to be taxed, if not agreed.