MANAGEMENT AND PLANNING SERVICES (FAR EAST) LTD. v. DAVID NG SHET CHUEN AND ANOTHER

HCA 8165/96

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8165 OF 1996

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J U D G M E N T

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This is a claim for balance of contractual fee and bonus for consultancy services rendered. The contract in question ("the Consultancy Contract") is evidenced in writing. It is in fact concluded after a series of correspondence which are set out below:-

(1) Letter dated 13th November 1991 from the Plaintiff to the Defendants

"Dear Sirs,

With reference to my discussion with your Mr. David Ng of your intention in appointing our company to assist you in the preparation and negotiation of a proposed merger. We wish to give you some background of our experience. The undersigned who served as one of the three members of Hutchison International was responsible for the vetting and evaluating of acquisitions and merging proposals. To name some:- the acquisitions of the China Provident Co., Ltd., Hong Kong Whampoa Dockyard, Peninsula Petroleum Hong Kong, Asian Stone and Anderson, the acquisition of Standard Chartered Bank Building by Nishimatsu Construction Co., Ltd., merging of Asia Stone and Anderson to Anderson Asia Group, merging of Whampoa and Taikoo Dockyard to Hong Kong United Dockyard. Public listing of Companies, such as Hutchison Boag, Alexander Knitters, Harbour Engineering etc. We have also been acting as advisors and managers on many projects and joint ventures for which information can be sighted in our office. We are listed with the United Nations Directory in the provision for Consultant Services.

We are familiar with the preparation and procedure for any pre-acquisition negotiations. We can provide services:-

1. to assist you to prepare a memorandum of understanding so that both parties have a clear vision and understanding in their objectives prior to drawing up of any legal documentation.

2. to set up the necessary procedures, time table based on the memorandum of understanding.

3. to assist you in the preparation of the various documentation to enhance the value of the shareholders.

4. to guide you on the current acquisition values under different situations.

5. fees will be:-

a. HK$150,000 on appointment, HK$100,000 on completion of the preparation of all negotiation documents.

Plus

b. HK$100,000 on completion of Sales, an additional bonus on achieving higher value of Sales to be agreed after reviewing full Company Resources.

Yours faithfully,

[Signed]

George Ko
Executive Director

We confirm your appointment on the above terms for and on behalf of the Shareholders of Peninsula Engineering & Equipment Co. Ltd. joint and severally.

[Signed]	[Signed] "
________________	________________
DAVID NG	ALBERT YU

(2) Letter dated 23rd December 1991 from the Plaintiff to the Defendants

"Dear Sirs,

Further to our letter Ref. LO/011/19 dated 13th November 1991 under Clause 5, Item b, we have established a formula on bonus for which we appreciate your confirmation as follows:-

The valuation of the company after deducting Net Asset, we receive a bonus on any valuation exceeding 30 M:-

for the 1st Million 5%, 2nd Million 10%, 3rd Million 15%, 4th Million 20%, 5th Million 25% and progressively.

Kindly sign and confirm your acceptance by return.

Yours faithfully,

[Signed]

George Ko
Executive Director

We confirm the above formula on bonus for and on behalf of the Shareholders of Peninsula Engineering & Equipment Co. Ltd. joint and severally.

[Not signed]	[Not signed] "
________________	________________
DAVID NG	ALBERT YU

(3) Letter dated 6th January 1992 from the Plaintiff to the Defendants

"Dear Sirs,

BONUS

Further to our letter Ref. LO/013/19 dated 23rd December 1991 and subsequent discussion with your Mr. David Ng. We established a Bonus formula under Item 5b of our letter Ref. LO/011/19 dated 13th November 1991.

(b) HK1,000,000 on agreement of Sales (irrespective of value)

When *Valuation of Company (excluding asset) exceed HK$30,000.000.

A Bonus will be paid as follows:-

Exceed from 1M to 5M - 5% (i.e. say 4M 5% will be = 200,000)

Exceed from 5M - 10% (i.e. say 6M 10% will be = 600,000)

Exceed from 10M - 15% (i.e. say 12M 15% will be = 1.8M)

Exceed from 15M - 20% (i.e. say 18M 20% will be = 3.2M)

* Note not Based on Percentage of Sales of Shares Value.

Kindly sign and confirm your acceptance by return.

Yours faithfully,

[Signed]

George Ko
Executive Director

We confirm the above formula on bonus for and on behalf of the Shareholders of Peninsula Engineering & Equipment Co. Ltd. joint and severally.

[Not signed]	[Not signed] "
________________	________________
DAVID NG	ALBERT YU

(4) Letter dated 20th January 1992 from the Plaintiff to the Defendants

"Dear Sirs,

BONUS

Reference to our discussion and your fax dated 17th January 1992, it has been confirmed that the final agreement on bonus are as follows:-

1. HK$ One Million on completion of sales.

2. Additional bonus of 10% on any amount exceeding HK$ Thirty Million (Valuation of the Company).

3. Payment will be made within 7 days on agreement of Sale when 80% of the initial payment is made by the Purchaser. The balance 20% will also become payable at the time when the client made the final payment after any adjustment.

Kindly sign the duplicate copy of this letter by return.

Yours faithfully,

[Signed]

George Ko
Executive Director

We confirm the above formula on bonus for and on behalf of the Shareholders of Peninsula Engineering & Equipment Co. Ltd. joint and severally.

[Signed]	[Signed] "
________________	________________
DAVID NG	ALBERT YU

The Background

2. The background leading to the conclusion of the contract is told by Mr. George Ko Tak Yin ("Mr. Ko") a director and the majority shareholder of the Plaintiff company. In the early 1970s Mr. Ko was one of the three head office executives of Hutchison International Limited ("HIL") - which was the holding company for the Hutchison Group of Companies ("the Hutchison Group") - responsible for the vetting and evaluation of acquisitions and merging proposals. During his period of office Mr. Ko vetted and evaluated many companies for their potential for acquisition and merger. Mr. Ko also undertook various corporate acquisitions and mergers on behalf of Hutchison International Limited. Mr. Ko has therefore acquired a wealth of experience in the evaluation, acquisitions and mergers of companies and the attendant process, requirements and procedure. After leaving HIL in 1976 Mr. Ko set up the Plaintiff company together with some former directors of HIL and brought Mr. Ko's knowledge and skill into the business of the Plaintiff company. Ever since its establishment the Plaintiff company has been engaged in the business of, inter alia, providing consultancy services in relation to project management and the evaluation, acquisitions and mergers of companies.

3. When Mr. Ko was with HIL, he was also a Director of Gordon Woodroffe (Far East) Ltd. ("Gordon Woodroffe"), a member of the Hutchison Group. Gordon Woodroffe had an agency in materials handling through a company called Hyster Forklifts, U.S.A. ("Hyster"). At that time the Defendants were working for a company called William Haunt & Co. representing Clarke Forklifts, U.S.A., one of the competitors of Hyster. The Defendants got to know Mr. Ko through the trade and, in about 1971, approached Mr. Ko expressing their wish of joining Gordon Woodroffe. Mr. Ko brought up the matter with the senior management of HIL. At that time Mr. Ko had successfully negotiated on behalf of HIL for the agency for Mitsubishi Heavy Industries Limited in respect of the sale of its fork lift trucks and it was felt convenient that a new company be formed to take up the agency. It was then decided that a new company be formed as a member of the Hutchison Group and the Defendants be employed in the new company to assist in its agency business. Accordingly, Peninsula Engineering and Equipment Company Limited "(PEECL") was set up with 70% of its shares held by Gordon Woodroffe and the remaining 30% allocated among Mr. Ko as to 15%, the 1st and 2nd Defendants as to the remaining 15%. Mr. Ko was the managing director and the person inde facto control of PEECL on behalf of HIL. The 1st Defendant was made a director and the 2nd Defendant a manager to assist Mr. Ko in the management of PEECL.

4. Subsequent to its formation, PEECL set up a number of companies for its business purposes, some of which were wholly controlled subsidiaries and some were related companies. The "related companies" were incorporated for the business purposes of PEECL but were legally owned and controlled by the shareholders of PEECL with no direct shareholdings by PEECL. Such companies were nevertheless considered as members of the PEECL group for all practical business purposes.

5. Between 1975 and 1976 HIL and its group of companies were restructured. As a result of the restructuring, PEECL was severed from the Hutchison Group with Mr. Ko and the Defendants taking up the shares of PEECL from Gordon Woodroffe. In or about August 1976, since Mr. Ko was fully engaged in the consultancy and project managements business with the Plaintiff company, he sold his shares in PEECL to the Defendants including the shares Mr. Ko held in its related companies.

6. Sometime in October 1991 the 1st Defendant approached Mr. Ko. Mr. Ko cannot recall the exact dates of the meetings as there were a number of them. Nor can Mr. Ko remember everything that was said between the parties. But, according to Mr. Ko's recollection, the 1st Defendant told Mr. Ko that he was not in good health and not on good terms with the 2nd Defendant. The 1st Defendant was also worried about the so-called "1997 problem". He therefore wished to sell his shares in PEECL for cash before June 1997. Mr. Ko told the 1st Defendant that if two partners could not get along one should buy the other out. If individual partners did not have the financial resource or did not wish to carry on with the full work load, the only solution was to agree with the other partner to sell their entire interest to a third party. During one of the meetings Mr. Ko asked the 1st Defendant what was the rough value he would like to sell the PEECL group for. The 1st Defendant indicated somewhere between $25 million to $30 million. Mr. Ko enquired with the 1st Defendant the basis on which he came to that value of the PEECL group. The 1st Defendant could not however give Mr. Ko any basis for the figures. Mr. Ko then asked if he had any buyers. The 1st Defendant did say that there were some prospective buyers. He told Mr. Ko that the Defendants had in fact previously engaged the brokers Combro (H.K.) Limited to try to sell the PEECL group. Later they turned to Pannel Kerr Forster Worldwide ("PKF") (now known as PSC Asia) to act as their brokers in the proposed sale or merger of PEECL. But thus far the efforts of the brokers had not brought fruit.

7. It was either in that meeting or in a brief meeting held very shortly afterwards that the 1st Defendant provided Mr. Ko with a copy of an investment opportunities report prepared by PKF. He requested Mr. Ko to study the report and advise the Defendants on its contents. Mr. Ko agreed.

8. About a week after the initial meeting with the 1st Defendant, Mr. Ko met both Defendants at their office for the purpose of providing them with Mr. Ko's opinion on the investment opportunities report prepared by PKF. At this meeting Mr. Ko told the Defendants that the report did not identify the growth potential of PEECL, nor did it reveal sufficient information on the group structure of PEECL. For those reasons Mr. Ko told the Defendants that the report by PKF did not provide a sufficient basis for establishing a reasonable market value for the PEECL group of companies. Mr. Ko went further to suggest to the Defendants that they should appoint a consultant who would be able to:-

(i) assist the Defendants in their preparation of the necessary documents leading to any sale agreement or merger agreements. To that end it would be necessary to (a) prepare the company profile that would reflect the historical performance of the PEECL group of companies, profit centres, core activities, immediate and future prospects and projected profits in the subsequent years, and (b) to account to the prospective purchasers of the complex structure of PEECL group, in particular of its related companies, so as to generate serious interest in prospective buyers. Mr. Ko believed then that the failure by PKF to present this aspect of the PEECL group had led to the failure to attract buyers.

(ii) set up and/or advise on the necessary procedure which would protect the interest of the Defendants and the time table for the negotiation and completion of the merger or acquisition of PEECL; and

(iii) to exhaustively identify the potential of PEECL in order to achieve the best possible value of PEECL shares.

9. Mr. Ko then asked the Defendants if they had in mind such consultant who could provide the services that Mr. Ko had outlined. The Defendants suggested as Mr. Ko had in depth knowledge of history, structure and the potential of the company as well as their dealings to provide these services, they would like to appoint Mr. Ko (and therefore the Plaintiff) for those purposes. Mr. Ko accepted their appointment on behalf of the Plaintiff.

10. In none of the discussions did either Defendant mention to Mr. Ko that the services the Plaintiff have to provide would be restricted to one particular prospective buyer.

11. Based on the above meetings Mr. Ko prepared a letter dated the 13th November 1991 on behalf of the Plaintiff containing the terms upon which the Plaintiff would accept appointment as the Defendant's consultant. At that time the up-to-date company structure and financial information were not yet available to Mr. Ko. Mr. Ko had to analyse all the companies and their relations in the PEECL group, their accounts, share holdings, resources as well as their activities before he could establish a valuation. Mr. Ko felt that it was only fair that the exact formula for calculation of bonus to the Plaintiff should be reserved until Mr. Ko's analysis was completed. The Defendants also agreed to reserve the exact formula until later.

12. The Defendants confirmed the appointment of the Plaintiff by counter-signing on a copy of the Plaintiff's letter dated 13th November 1991 ("the Letter of Appointment") and returned the same to Mr. Ko. The cheque payment of the initial retainer of HK$150,000 payable on appointment was sent to the Plaintiff's office subsequently. Also on the 29th November 1991 the Plaintiff issued a debit note for a further sum of HK$100,000 as part payment of its fees under the consultancy agreement. The amount was settled by the Defendants by a cheque dated the 23rd December 1991.

13. Apart from the several matters that I will deal with below, all the above background is not disputed and I hold to be factually true.

The Disputed Background

14. The 1st Defendant in evidence stated that it was Mr. Ko on behalf of HIL who invited the Defendants to join the Hutchison Group that led to the creation of PEECL, rather than the Defendants seeking to join the Hutchison Group. Nothing turns on this disparity except perhaps it may be important for someone's ego.

15. During the trial, there were faint efforts to attempt to show that Mr. Ko and the 1st Defendant had been very close or were good friends for twenty odd years. The purpose of this was to support a defence position that what Mr. Ko did for the Defendants subsequently when they eventually managed to sell their shares was gratuitous advice an account of friendship. But it quickly became clear that Mr. Ko and the Defendants were not close and not good friends.

16. The 1st Defendant also stated in evidence that when he approached Mr. Ko in 1991 for assistance with disposal of his shares, before the Consultancy Contract was concluded, he did tell Mr. Ko that the Defendants had a Japanese concern called Mitsui & Co. (H.K.) Ltd. ("Mitsui") as a potential buyer. This, he said, means that the Consultancy Contract was meant for the Mitsui deal only. When further questioned, however, the 1st Defendant admitted that he had not expressly indicated to Mr. Ko that the Consultancy Contract the parties were to enter into was for the Mitsui deal only. But he still maintained that he thought the Consultancy Contract was limited to the Mitsui deal.

17. There is also dispute as to how the threshold of $30 million for calculation of bonus referred to in the Consultancy Contract was arrived at. I do not think it is necessary to resolve this issue. The fact that the Defendants agreed that threshold indicates that they looked to Mr. Ko to formulate and justify a basis for valuation of PEECL shares so as to attract higher consideration for those shares.

Post-Contract History

18. After the Defendants counter-signed the Letter of Appointment, Mr. Ko had a further meeting with the Defendants at their office. At that meeting, Mr. Ko told the Defendants that he would need copies of the latest balance sheets of PEECL as well as for the past several years. Mr. Ko explained to the Defendants that the information contained in the balance sheets would assist in demonstrating PEECL was a growing company. Mr. Ko also told the Defendants that he needed information on the distribution of the main business product line of PEECL and other relevant documents. The Defendants summoned PEECL's accounting manager, a Ms. Josephine Ho, and instructed her to provide all the information and documents and work with Mr. Ko as required. Numerous meetings were subsequently held amongst the Defendants, Ms. Josephine Ho and Mr. Ko in relation to the preparation of the business profile of PEECL and the draft memorandum of understanding and discussions with prospective buyers. A company profile, among other documents, was eventually compiled by the Plaintiff after analysing the information supplied ("the Company Profile").

The negotiations with Mitsui & Co. (H.K.) Ltd.

19. In the process of compiling the Company Profile there were further brief meetings between the parties for Mr. Ko to extract relevant information. Mr. Ko cannot recall the details of those meetings. However Mr. Ko does remember that during one of these meetings the 1st Defendant told Mr. Ko very briefly that there was a serious potential buyer showing interest in PEECL shares. The 1st Defendant did not however identify the potential buyer.

20. Subsequently in another meeting in November 1991, the exact date of which Mr. Ko cannot recall, Mr. Ko was informed by the 1st Defendant that he had arranged a meeting with representatives from Mitsui on 28th November 1991 to discuss the purchase of PEECL shares. The 1st Defendant requested Mr. Ko to prepare for that meeting and, in particular, to finalize the Company Profile and to prepare a draft memorandum of understanding and discussion for tabling at the meeting.

21. A meeting was duly held on the 28th November 1991 with the representatives from Mitsui during which Mr. Ko presented the Company Profile and other reports on behalf of the Defendants. Subsequent to that preliminary meeting the 1st Defendant wrote a letter to Mitsui dated the 28th November 1991 enclosing the information of PEECL required by Mitsui at the meeting. In that letter, the Plaintiff was described by the 1st Defendant as "our independent consultant", which confirmed what the Plaintiff in fact was except that strictly speaking the Plaintiff was acting for the Defendants, not PEECL.

22. After the meeting on the 28th November 1991 with Mitsui, the Defendants requested the Plaintiff to continue to assist in the negotiations with Mitsui in accordance with the terms of the Consultancy Contract. Mr. Ko was therefore involved in the process of negotiations between the parties.

23. Subsequently, negotiations with Mitsui dragged on and the proposed sale by the Defendants did not materalize. The proposed deal was considered off at the end of 1992. There was no mention by the Defendants of their intention of ending the Consultancy Contract with the Plaintiff, nor was there any mention by any of them of their intention of ceasing to sell their shares in PEECL. The Defendants did however indicate to Mr. Ko that there were other prospective buyers on the line.

The negotiations with the Pario Group

24. Almost immediately after the Defendants gave up hope that sale could be finalized with Mitsui, the 1st Defendant contacted Mr. Ko in January 1993 and informed Mr. Ko that the 2nd Defendant had found another serious prospective buyer of the Defendants' shares. The 1st Defendant asked Mr. Ko to attend a meeting at PEECL's office for the purpose of meeting the representative of that candidate introduced by the 2nd Defendant. As far as Mr. Ko understood it, his attendance was still pursuant to the appointment of the Plaintiff as the Defendants' consultant. Mr. Ko attended the meeting with the Defendants in their office and was introduced to a Mr. Cristo Cheung who claimed to be the president of "Pario group". Pario group also instructed a solicitors' firm, Messrs. Bough & Company, to prepare a draft share purchase agreement for Pario International Limited. Pario group faxed the draft share purchase agreement together with a memorandum of understanding on the 16th January 1993 to the Defendants for their consideration. The Defendants in turn forwarded the draft documents to Mr. Ko for advice. Having reviewed the said documents, Mr. Ko prepared a draft response on behalf of the Defendants dated 6th February 1993 and forwarded the draft response to the 1st Defendant for the Defendants' consideration. The 1st Defendant subsequently informed Mr. Ko that the negotiations with Pario Group did not bear fruit.

The negotiations with Getz Brothers & Co. Inc.

25. In or around early October 1993, the exact date of which Mr. Ko cannot recall, the 1st Defendant informed Mr. Ko that there was another serious prospective buyer sourced through their brokers Belmont Capital Ltd. ("Belmont") and PKF. The 1st Defendant instructed Mr. Ko to revise and update PEECL's Company Profile in the light of the latest market trend and prospects in order to capitalize on such changes to make it more attractive to the new prospective buyers.

26. As the 1st Defendant's instructions were within the terms of the Consultancy Contract between the Defendants and the Plaintiff, Mr. Ko carried out the instructions accordingly. For the purpose of updating PEECL's Company Profile, Mr. Ko requested Ms. Josephine Ho of PEECL to provide up-to-date information on PEECL's business movement and expansion since 1991. After making research on new market conditions, the Plaintiff produced a revised Company Profile in October 1993 ("the Revised Company Profile").

27. Subsequently, the 1st Defendant instructed the Plaintiff to attend a meeting with the brokers as well as the representative of the prospective buyer. Mr. Ko duly attended such a meeting held at the office of Belmont and discussed matters relating to the proposed sale of the shares in PEECL. That meeting was attended by Dr. Robert H. Silin of Belmont, Mr. Simon Morris of PKF (i.e. the original brokers retained by the Defendants) and Mr. E. Charles Longley, Jr. of Getz Brothers & Co. Inc. ("Getz Brothers") who was the latest proposed buyer of PEECL shares. The Revised Company Profile of PEECL, which included in it a Group Table prepared by the Plaintiff, was handed out to the parties present and the potentials of PEECL explained by Mr. Ko. The terms of the acquisition were also explored during the meeting. Mr. Ko was given to understand that Belmont would be representing Getz Brothers in future negotiations.

28. Subsequent to that meeting Mr. Ko caused the Plaintiff to send a letter dated 13th October 1993 to Dr. Silin of Belmont. In that letter Mr. Ko listed how the company was valued in the same way as that he set out for the earlier negotiations. Based on information given by the Defendants, Mr. Ko included additional materials for the potential buyer to highlight and enhance the value of PEECL as a group.

29. After the Plaintiff sent the letter of 13th October 1993 to Belmont, neither the 1st Defendant nor the Plaintiff received any response from Getz Brothers or Belmont. The 1st Defendant became anxious and instructed Mr. Ko to send a reminder letter directly to Getz Brothers on behalf of PEECL. Mr. Ko did this because the 1st Defendant told Mr. Ko that he did not wish the reminder letter to go through Belmont. Mr. Ko caused the Plaintiff to send a reminder dated 12th November 1993. Mr. Ko followed up sometime later by telephoning the office of Getz Brothers. Mr. Ko was informed that Mr. E. Charles Longley, Jr. had left Getz Brothers and there was no one in their Hong Kong office who had the authority to deal with Mr. Ko's enquiry. Mr. Ko informed the 1st Defendant accordingly. Mr. Ko was then informed by the 1st Defendant that he believed the negotiation with Getz Brothers had been suspended indefinitely.

The dealing with Shriro (HK) Ltd.

30. On or about 15th December 1993, the 1st Defendant forwarded to Mr. Ko a copy of a fax message sent by Dr. Silin of Belmont to the 1st Defendant wherein additional information relating to PEECL was requested. However, Dr. Silin did not specify in his fax message on behalf of whom the additional information was requested. The 1st Defendant requested Mr. Ko to deal with the request. This Mr. Ko did by going to the Defendants' office and there selected and extracted the relevant information from the Revised Company Profile for the 1st Defendant to pass on to Dr. Silin.

31. Then between the end of December 1993 and January 1994, the exact date of which Mr. Ko cannot recall, Mr. Ko was informed by the 1st Defendant that Dr. Silin of Belmont had informed him that he was trying to interest a Mr. David Wilson of Shriro (HK) Ltd. ("Shriro") in acquiring the shares of PEECL. Mr. Ko told the 1st Defendant that it was only recently that Mr. Ko had given advice and explained in great detail of the PEECL group to Dr. Silin who introduced Getz Brothers to the discussions. The additional information Dr. Silin requested on the 15th December 1993 and which was given to him would be suitable for preliminary discussions with new prospective buyers.

32. Mr. Ko left Hong Kong around end of January 1994 to attend to his personal business in Australia. Upon Mr. Ko's return to Hong Kong in late February 1994, the 1st Defendant contacted him and told him that he and Mr. David Wilson of Shriro had been engaged in serious negotiations concerning the acquisition of the Defendants' shares in PEECL. The 1st Defendant arranged a meeting with Mr. Ko. At that meeting, the 1st Defendant placed before Mr. Ko a letter from Shriro to PEECL dated 14th March 1994. Mr. Ko was instructed by the 1st Defendant to advise the Defendants on how to proceed with negotiations with Shriro. Mr. Ko told the 1st Defendant that to start with he could rely on the advice Mr. Ko had given them for previous cases, and when Shriro came up with a response and counter proposal, Mr. Ko would advise further.

33. Subsequently, another meeting was arranged between the 1st Defendant and Mr. Ko. At that meeting the 1st Defendant showed Mr. Ko the Preliminary Letter of interest sent by Shriro to PEECL dated 22nd March 1994 signed by Mr. David Wilson of Shriro and sought Mr. Ko's advice. It is apparent from its contents that the Preliminary Letter was prepared on the basis of information on the PEECL group which the Plaintiff had previously supplied to Dr. Silin of Belmont.

34. The 1st Defendant and Mr. Ko discussed the various implications of the proposal from Shriro. Mr. Ko advised the 1st Defendant that the Shriro proposal was very much along the same valuation Mr. Ko made on behalf of the Defendants to Dr. Silin of Belmont for the case of Getz Brothers set out in the Plaintiff's letter dated 13th October 1993. What was new in Shriro's Preliminary Letter was that they wanted a better bargain and instead of taking up 80% of the total shares at the beginning, Shriro wanted to divide the purchase of the shares in the PEECL group in stages of 50%, 25% and then the remaining balance of 25% but not before 1998.

35. Mr. Ko pointed out to the 1st Defendant that the payment from Shriro was for the purchase of the PEECL group with a retained net asset of $25 million. Mr. Ko also reminded the 1st Defendant that he had to make sure that if the payment of the price was to be made by way of instalments pending adjustments of accounts, the unpaid balance should first go to an escrow account. This was to protect the Defendants - should the buyers later have financial difficulties the Defendants would still get their money in full by the due date. Mr. Ko told the 1st Defendant that the precaution was necessary because Mr. Ko had learnt of a case of a Hong Kong company which was sold to an Australian company in the mid 70s. In that case, before completion of payment there was a financial downturn and the vendors of the shares could not obtain full payment.

36. Later Mr. Ko was informed by the 1st Defendant that, after the 1st Defendant had given instructions to Mr. Simon Morris on the basis of Mr. Ko's advice in response to the letter from Shriro to PEECL dated 22nd March 1994, a meeting was arranged and held between Mr. David Wilson and Mr. Simon Morris on the 26th March 1994. Following the meeting, Mr. David Wilson in the name of Shriro wrote to PEECL a letter dated 31st March 1994 setting out certain terms. The 1st Defendant at an urgent meeting arranged with Mr. Ko on the same day gave a copy of this letter to Mr. Ko and invited Mr. Ko to advise thereon. Mr. Ko remembers asking the 1st Defendant at that time to clarify why Shriro in its letter dated 31st March 1994 wanted PEECL to sell the old office. Mr. Ko also advised the 1st Defendant on how to deal with the offer from Shriro. The terms Mr. Ko suggested were by and large incorporated later in PKF's letter to Shriro dated 20th April 1994. At the request of the Defendants that Mr. Ko put his advice in writing, Mr. Ko caused the Plaintiff to send a letter to PEECL dated the 21st April 1994.

37. Upon further request for advice from the 1st Defendant on the letter of PKF dated the 20th April 1994, and in particular the matter of proposed service contracts to be entered into by the Defendants after sale, another letter dated the 22nd April 1994 was sent by the Plaintiff to the 1st Defendant. The two letters dated 21st and 22nd April 1994 respectively constitute clear evidence of Mr. Ko's previous oral advice to the 1st Defendant as to how the negotiations should be conducted and Mr. Ko's comments on the letter from Shriro to PEECL dated 22nd March 1994. In the letter of 22nd April 1994 from the Plaintiff to PEECL it was clearly recorded that the letter prepared by Mr. Simon Morris of PKF dated the 20th April 1994 had incorporated Mr. Ko's previous oral advice to the 1st Defendant given on the 31st March 1994.

38. In the subsequent letter issued by PEECL to PKF dated the 26th April 1996, again the essence of Mr. Ko's advice was incorporated. That letter, which was issued by the 1st Defendant as Managing Director of PEECL to Simon Morris of PKF instructing Simon Morris to clarify with Shriro the proposed service contracts, repeated almost word for word the advice contained in the Plaintiff's letter dated the 22nd April 1994.

39. On or about the 28th April 1994 the 1st Defendant faxed to Mr. Ko a copy of the letter sent by Mr. Simon Morris to Mr. David Wilson dated 27th April 1994. The letter also incorporated most if not all of the advice given by Mr. Ko in the Plaintiff's letters of 21st and 22nd April 1994 respectively.

40. Mr. David Wilson on 2nd May 1994 responded to Simon Morris's letter dated 27th April 1994. The 1st Defendant sent this letter to Mr. Ko by facsimile and verbally instructed Mr. Ko to check whether there was any material omission. This Mr. Ko did and advised the 1st Defendant accordingly.

41. Then in May 1994 the 1st Defendant sent Mr. Ko a copy of the draft balance sheet of PEECL for Mr. Ko's comment. Mr. Ko obliged by letter from the Plaintiff to PEECL dated 13th May 1994. Mr. Ko also verbally explained to the Defendants that the draft balance sheet prepared still did not reflect the accounts on all the companies appearing in the Group Table and so it would be difficult for Shriro's accountants to do their due diligent check. Mr. Ko advised the Defendants that they should explain the activities of the members in the PEECL group clearly. This was because once the formula for ascertaining the price of the shares was established it would be up to the buyer and its accountants to decide how it would wish to deal with all those companies on the list by having them consolidated, severed or wound up etc. This is also why it was only in early 1995 that, after discussions between the accountants and legal advisors of the vendors and the buyer that the parties eventually could decide on how the shares of the PEECL group should be paid for.

42. Still later in May 1994, the exact date of which Mr. Ko cannot recall, the 1st Defendant asked Mr. Ko to meet with him during lunch. During that meeting the 1st Defendant handed to Mr. Ko a copy letter from Wilkinson & Grist, solicitors for Shriro, dated 11th May 1994 together with its enclosures, being the drafts of a Share Purchase Agreement and Shareholders Agreement and he instructed Mr. Ko to review and advise. One may note that in the draft Share Purchase Agreement and Shareholders Agreement prepared by Wilkinson & Grist they were still unable to set out the list of companies to be included for sale of the PEECL shares. Schedule 2 of the draft Shareholders Agreement and Schedule 4 of the draft Share Purchase Agreement were left blank.

43. The 1st Defendant briefly discussed the two draft agreements with Mr. Ko. Later Mr. Ko took away copies of the draft agreements and, after reviewing the draft terms in detail, Mr. Ko sent his written advice to PEECL under cover of the Plaintiff's letter dated 16th May 1994. The advice in the letter of the Plaintiff dated 16th May 1994 was subsequently reflected in the final Shareholders Agreement and the Share Purchase Agreement dated the 25th January 1995. After giving his advice, Mr. Ko suggested to the Defendants that there should be a joint meeting between themselves and Shriro for the purpose of discussing the draft agreements prepared by Wilkinson & Grist.

44. Several weeks later, the 1st Defendant contacted Mr. Ko and asked Mr. Ko to suggest a law firm to act on behalf of the Defendants on the legal documents. Mr. Ko suggested the name of a firm of solicitors to the 1st Defendant but the latter rejected it on the ground of his previous experience about the firm's fees. The 1st Defendant asked Mr. Ko the telephone number of another solicitor, Mr. Michael Yung. Sensing the agreement for the sale of the Defendants' shares was in principle complete subject only to legal contracts being signed, Mr. Ko took the opportunity to remind the 1st Defendant of the balance of the Plaintiff's fees in the matter.

45. The 1st Defendant then telephoned Mr. Ko and told Mr. Ko that the 2nd Defendant was not in agreement with him to pay the Plaintiff and that they were relying on the advice given by Mr. Ko as their friend. However, the 1st Defendant did mention that he would like to negotiate for some kind of compensation for Mr. Ko. Mr. Ko told him that the Plaintiff had a Consultant Contract with the Defendants and had had instructions from them all the way up to the final stage when Shriro produced the Share Purchase Agreement and Shareholders Agreement to the Defendants. Mr. Ko insisted that the fees and bonus provided in the agreement should be paid to the Plaintiff. The conversation ended without settlement.

46. Mr. Ko was not further contacted by any of the Defendants after that telephone conversation. Documents disclosed by the Defendants reveal that the Defendants did subsequently enter into the Shareholders Agreement and Share Purchase Agreement with Shriro in early 1995 and effected transfers of their shares in the PEECL group.

The Disputed Work

47. There are four reasons for what appears to be clumsiness on my part in setting out in much detail the work allegedly done by Mr. Ko on behalf of the Plaintiff for the Defendants. First, Mr. Liang for the Defendants contended that the Mitsui, Pario Group, Getz Brothers and Shriro proposals were so different that by the time of the Shriro deal the work done by Mr. Ko could no longer be considered as coming under the Consultancy Contract. In my view, of course, every deal has different characteristics. Different deals can be packaged differently. Even the sale of manufactured goods can take different forms or means. The details I have set should show that Mr. Ko was consistently doing his part as consultant to the Defendants.

48. Secondly, in his witness statement tendered as evidence in chief, the 1st Defendant says that Mr. Ko did not do much for the Defendants after the Mitsui negotiations. Specifically, it is stated that Mr. Ko only attended one meeting during the Shriro negotiations; that was the extent of Mr. Ko's involvement for the deal that eventually came to fruition. The evidence from Mr. Ko, on the other hand, show his extensive and useful involvement throughout. His work is verified by abundance of paperwork. I have checked the trial bundles and they do bear out most of the details given by Mr. Ko. The evidence for the Plaintiff are so overwhelming that the 1st Defendant in the witness box had to subsequently admit that he does not dispute Mr. Ko's evidence as to the work done by him.

49. Events occurring after contract, of course, cannot be used as aid for interpretation of the contract. But such events can be used to determine whether and when the contract terminated. Thus, it is essential to go through the different stages of events to see if the circumstances had altered such that the relationship between the Plaintiff and the Defendants had so radically changed that the Consultancy Contract can be treated as already terminated before the Shriro negotiations. The vast amount of details I have recorded show that there was no change of circumstances affecting the contractual relationship between the parties.

50. Fourthly, the Plaintiff claims quantum meruit as an alternative. It is necessary for the court to find as fact precisely what the Plaintiff has done in order that quantum meruit may be assessed when necessary.

The Scope of the Contract

51. The Defendants contended that the Consultancy Contract was for the Mitsui deal only. But it is basic business common sense that for corporate ownership disposal, it seldom if ever happens that the first potential buyer comes along and a deal is struck. This does not happen in the even simpler sale or lease of a flat. In many cases, it is necessary for the seller to negotiate with a succession of interested parties before sale can be achieved. Unless the parties expressly agreed, I do not think the Consultancy Contract by its very nature is intended for one case only. It is true that the Letter of Appointment refers to "a proposed merger". But that is not indicative of anything. It would be different if the phrase "the proposed merger" is used. If one were forced to find the point the parties intended the Consultancy Contract should come to its natural end, I believe the end of May 1997 is that point because the 1st Defendant had indicated in the very beginning that he was worried about the so-called 1997 problem. But this does not assist the Defendants either. They sold their shares in 1994, well before this deadline.

52. I think the better view is that there would be no termination of the Consultancy Contract for as long as the Defendants continued to use the services provided by the Plaintiff in the persona of Mr. Ko. The Plaintiff undertook to advise on the valuation basis of PEECL so that the maximum sale value of PEECL shares can be realized. Of course, it is not just a matter of compiling a report of some sort to show how valuable the shares of PEECL should be. The person who prepares the report, Mr. Ko, if required, has to justify to and convince the potential buyers that the report is indeed accurate and reliable. Mr. Ko, if required, would also have to advise the Defendants the mechanics of the sale to ensure that the Defendants would get paid the consideration for their shares. The evidence is overwhelming that the Defendants continued to use the services provided by the Plaintiff through Mr. Ko. The Defendants did not at any stage give Mr. Ko any impression that any of them wished to terminate the appointment. On the contrary, by their conduct of continuously seeking detailed advice from Mr. Ko, they confirmed that the Consultancy Contract between the Defendants and the Plaintiff was very much alive.

53. I do not believe for a moment that at the time of entering into the Consultancy Contract the Defendants intended the contract to cover the Mitsui negotiations only. There is no objective evidence to support this intention. There is only assertion by the 1st Defendant under oath. However, the 1st Defendant has practically destroyed his own credibility by saying he was close or good friend with Mr. Ko and that Mr. Ko did no more than attending one meeting for the Shriro deal neither of which is true or accurate. Even if the Defendants indeed thought that the Consultancy Contract covers the Mitsui negotiations only, it is a unilateral mistake that does not go to the nature or quality of the contract.

54. The 1st Defendant stated that Mr. Ko was asked to help with the Shriro deal on friendly basis. This is not borne out by the evidence. The parties were quite serious about their contractual relationship right from the beginning. They entered into a written agreement in the form of the Consultancy Contract. The Defendants did not sign the second and third letters from the Plaintiff containing alternative proposals for calculating bonus. Obviously they knew the Plaintiff demanded adequate remuneration on strictly business basis. By the time they counter-signed the fourth letter from the Plaintiff, there can be no doubt they agreed to appoint and remunerate the Plaintiff on business basis.

55. Mr. Liang for the Defendants have a battery of other arguments on why the Plaintiff is not entitled to payment. For example, he says that the Plaintiff was not the only consultant used by the Defendants, there were other firms like PKF. But the documents clearly show that firms like PKF were sale agents or brokers, not consultants. They had different roles. Mr. Liang also pointed out that Mr. Ko did not always participate in the negotiations with the other side. Of course not, the Plaintiff was not a sale agent or broker under the Consultancy Contract. I do not think I need to write off each and every one of these unsupportable arguments.

56. This is, when one casts aside the sophistry, a very simple case. The Defendants have had the full benefits of the Plaintiff's services and sold their shares for very good money. The bonus for the Plaintiff, it has been agreed, is $3,018,722 if the court finds that it is payable. In other words, the Defendants have had approximately $15,000,000 extra each beyond their own expectations as a result of Mr. Ko's work. In order to avoid payment, the Defendants sought to deny that Mr. Ko made any significant contribution in the Shriro deal. They said Mr. Ko's valuation work was meant for Mitsui, the first buyer who came along. But what they cannot deny is that they sold the shares to Shriro on the basis of the valuation work that started but did not end with the Mitsui negotiations.

57. In a nutshell, I find the evidence of Mr. Ko wholly credible. I accept that he did all he needed to do under the Consultancy Contract as detailed above until that contract came to its natural end when the Defendants successfully sold their shares to Shriro. The Plaintiff's case is as strong as it can be. Payments to the Plaintiff have been long overdue.

Quantum Meruit

58. Having come to the conclusion so far, it is not necessary for me to go into the alternative claim of quantum meruit. In fact the Defendants have conceded that, on the basis that the Consultancy Contract had been terminated before the Shriro negotiations, a reasonable sum is payable for the efforts exerted by Mr. Ko. Bearing in mind the massive amount of work done and the results achieved, I would have thought that there should be no need for separate assessment of quantum meruit. The parties having agreed a formula for reward of services under the Consultancy Contract, that formula may be taken as reasonable for quantum meruit as well. It then follows that the same amounts as if per contract should be award as quantum meruit if necessary.

Judgment

59. In the premises, there must be judgment for the Plaintiff for the total of $1,000,000 + $3,018,722 = $4,018,722 together with interest thereon at the judgment rate calculated from the date of the writ to the date of payment. The Plaintiff is also to have its costs of this action to be taxed if not agreed.