BRIO ELECTRONIC COMMERCE LTD v. TRADELINK ELECTRONIC COMMERCE LTD
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HCA 1714/2010
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 1714 OF 2010
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BETWEEN | ||
| BRIO ELECTRONIC COMMERCE LIMITED | Plaintiff | |
and | ||
| TRADELINK ELECTRONIC COMMERCE LIMITED | Defendant | |
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| Before: Deputy High Court Judge Robert Whitehead, SC in Court |
| Dates of Hearing: 17, 18, 19, 23, 24, 26 September 2013 |
| Date of Judgment: 22 November 2013 |
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J U D G M E N T
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Background
1. The Defendant, Tradelink Electronic Commerce Ltd (“Tradelink”) is a publicly listed company in Hong Kong. Between 1 January 1997 and 31 December 2003 it held an exclusive licence issued by the Government to provide an online electronic declaration system for the import and export of goods in and out of Hong Kong. The electronic declaration system is known in the trade as “TDEC”. The users of TDEC during the currency of Tradelink’s exclusive licence, paid Tradelink a subscription fee and also a fee for each declaration made through TDEC.
2. The Plaintiff, Brio Electronic Commerce Ltd (“Brio”) is a Hong Kong company which provides, inter alia, computer software development systems. Between 1998 and 1999 Brio developed a software system (“Brio TDEC Software”) which was designed to collect data from Brio’s own customers and to assist the customers to notify air cargo terminals as to the nature of the cargos which would be declared under Tradelink’s TDEC. In short, Brio TDEC’s Software enabled Brio’s customers to transmit necessary data directly from Brio’s system to Tradelink’s TDEC service; “ecFreight”, and “ecShipment” are two of Brio TDEC’s softwares.
3. In 2003 Brio’s customer base constituted about 5% of all users of TDEC. In that year the Government by public tender granted another TDEC licence to a company called Global E-trading Services Ltd (“Global”). In consequence and from 1 January 2004 Tradelink no longer held a monopoly in regard to the TDEC service. This loss of exclusivity consequently provided Brio with a choice to partner with Global or Tradelink.
4. On 20 September 2003 Brio entered into an exclusive agreement with Tradelink [the 2003 Agreement] whereby Brio agreed to allow its software to be used by specifically identified customers described as “Target Subscribers”, to lodge their TDEC through Tradelink with the Hong Kong Customs. The 2003 Agreement had an expiry date of 31 December 2008.
5. By a supplemental agreement dated 25November 2003, the parties set out an agreed list of the Target Subscribers.
6. Tradelink at all material times had its own software called “ValueNet” which interfaces with its own TDEC service.
7. On 31 December 2006 Tradelink and Brio entered into a new agreement, the terms of which are in many aspects similar to the 2003 Agreement (“the 2006 Agreement”). The circumstances in which the 2006 Agreement came into being are matters of considerable dispute, which fall to be resolved in this Action. The date of expiry of the 2006 Agreement was again 31 December 2008.
8. The 2006 Agreement identified the customers to whom it applied but the expression “Target Subscribers” was replaced with the term “Common Customers”. Both the Target Subscriber list in the 2003 Agreement and the Common Customer list in the 2006 Agreement contained, inter alia, the following customers :
Hankyu International Overseas Co Ltd (“Hankyu”)
Kintetsu World Express HK Ltd (“Kintetsu”)
QP Printing
Radica Ltd (“Radica”)
UPS Parcel Delivery Service Ltd and UPS SCS (Asia) Ltd (“UPS”)
Yusen Air and Sea Service (HK) Ltd (“Yusen”)
9. In January 2009 the Government announced that Brio would become the third provider of TDEC services to the public starting from 1 January 2010 to 31 December 2016.
10. Brio by its Amended Statement of Claim dated 31 January 2011 makes claim that Tradelink are in breach of various terms of the 2006 Agreement. Tradelink by its Amended Defence and Counterclaim dated 14February 2011 makes claim that Brio itself is in breach of certain terms of the 2006 Agreement.
11. As noted the terms of the 2006 Agreement are in many aspects the same as or similar to the 2003 Agreement, and upon which the 2006 Agreement is plainly based. Whilst the 2003 Agreement is relevant to the circumstances in which the 2006 Agreement came into being, it is to the relevant terms of the 2006 Agreement that the Court now turns.
The 2006 Agreement
12. The contract clauses relevant to this Action are as follows :
13. Clause 2A (ii) provides :
“Common Customers” means a subscriber as listed in the Appendix who has been exclusively accessing Tradelink TDEC service using the Brio TDEC Software and has continued to do so during the term of the agreement.”
14. The obligations of Brio are set forth in Clause 3 :
“(a) Throughout the term Brio shall have its Brio TDEC Software used by Common Customers connected exclusively to the TDEC services provided by Tradelink.
(b) If for whatever reason a Common Customer should cease to use the Tradelink TDEC service during the term of the agreement, or is known to have also been using a third party TDEC service provider, Tradelink may require Brio at its own costs to persuade that Common Customer to resume using Tradelink’s TDEC service on an exclusive basis. If Brio is unable to do so within 2 months of that customer cancelling its registration with Tradelink, or is known to have also been using a third party TDEC services provider, that customer is deemed to have been taken out of the common list.
(c) Brio shall NOT during the term in any way directly or indirectly cooperate with, invest or engage in or otherwise assist or involve in any TDEC services intend for the Common Customer that may be offered by any third parties in any manner whatsoever, including but not limited to advice, promotion, marketing and operation aspects; or negotiate or enter into or attempt to mitigate or enter into an agreement or arrangement with any third parties who provide TDEC services to do so.”
15. The obligations of Tradelink are set forth in Clause 4 :
“(a) Subject to the provisions herein, throughout the Term, Tradelink shall NOT directly or indirectly promote, inspire, influence, convince or persuade the Common Customers NOT to use Brio TDEC Software or TDEC services, or take any action to discourage the Common Customers from using the Brio TDEC Software for TDEC service. Provided that nothing herein shall prevent Tradelink from
(i) Notifying or sending general promotional materials to the Common Customers involving any TDEC software to be offered by Tradelink, insofar as the notification or promotion materials are targeted at Tradelink customers in general.
(ii) Accepting any approaches or requests made by a Common Customer at the Common Customer’s initiative for using Tradelink’s TDEC software notwithstanding that the acceptance may result in the Common Customers ceasing using the Brio TDEC Software for TDEC service, provided Tradelink shall in the first instance inform Brio of any such approaches or requests as soon as possible.
(b) Tradelink shall NOT during the Term in any way, directly or indirectly provide, promote or develop any TDEC software or solution or cooperate with, invest or engage in or otherwise assist or involve in any TDEC software or solution provided by any third party intended for the Common Customer and with the same functionality as the Brio TDEC Software, provided that nothing herein shall prevent Tradelink from providing, promoting or development any software or solution or cooperating with, investing or engaging in or otherwise assisting or involving in any software or solution provided by any third party intended for the Tradelink customers generally.
(c) Tradelink shall NOT during the Term enter into any agreement with any third party on terms and conditions substantially similar to those herein and intended for the Common Customers.”
16. Clause 6 (c) provides:
“Brio agrees that Tradelink would be irreparably injured by a breach of any terms in Clause 3 by Brio and that Brio shall immediately make full payment of amount Five million Hong Kong Dollars (HK$5,000,000) to Tradelink.”
17. Clause 6 (d) provides:
“Tradelink agrees that Brio would be irreparably injured by a breach of any terms in Clause 4 above by Tradelink and that Tradelink shall immediately make full payment of amount Five Million Hong Kong Dollars (HK$5,000,000) to Brio.”
18. Cause 12 provides:
“Consideration
(a) In consideration of spirit of cooperation of both parties in entering into this Agreement, Tradelink agrees to pay Brio Three Hundred Thousand Hong Kong Dollars (HK$300,000) upon signing of this Agreement, Three Hundred Thousand Hong Kong Dollars (HK$300,000) on 30November 2007 and Three Hundred Thousand Hong Kong Dollars (HK$300,000) on 30 November 2008.”
19. The 2006 Agreement was signed by Eldon Yeung on behalf of Brio and Justin Yue on behalf of Tradelink.
20. By an agreement made on 16December 2008 the validity of the 2006 Agreement was extended until 31 October 2009 (“the extended agreement”).
21. By a supplemental agreement dated 6January 2009 the parties agreed that the Appendix of the 2006 Agreement be canceled and superseded in its entirety by the “Common Customers” set out in the Supplemental Agreement.
22. Brio says that in 2006 Tradelink had breached Clause 3 (a) of the 2003 Agreement which provided that Tradelink would not directly or indirectly promote, inspire, influence, convince or persuade the Target Subscriber not to use Brio TDEC Software for TDEC service, or take any action to discourage the Target Subscriber to use Brio TDEC Software for TDEC service. Brio says that Tradelink wrongfully approached two of Brio’s customers, namely DHL and Fedex and offered them Tradelink’s own software in place of Brio’s TDEC Software for Tradelink’s TDEC. Brio further says that the 2006 Agreement was entered into partly as a compromise for Tradelink’s breach of the 2003 Agreement, and partly to enter into a new agreement for a new licensing period. The 2006 Agreement, unlike the 2003 Agreement, contained the liquidated damages clauses found in Clause 6 (c) and 6 (d) of the 2006 Agreement.
23. Brio asserts that negotiations took place in 2006 between Brio’s Mr Eldon Yeung and Tradelink’s Mr Justin Yue, and that Tradelink agreed to pay Brio damages in part by the inclusion of Clause 12 and by the insertion of Clause 5 (e) of the 2006 Agreement which reads:
“The cooperation project for which an advance payment of HK$980,000 was made to Brio is deemed to have been satisfactorily completed.”
24. Tradelink has denied that the 2006 Agreement was made as a result of Tradelink’s alleged breach of the 2003 Agreement. Tradelink’s case is that the 2006 Agreement was made primarily in order to water down anti-competition elements said to be found in 2003 Agreement.
The issues
25. Brio claims that in 2009 Tradelink breached its obligations under the 2006 Agreement by approaching five common customers, namely: Radica, Hankyu, Yusen, UPS and Kintetsu by dissuading these common customers from using Brio’s TDEC Software and proposing instead that they use Tradelink’s TDEC software.
26. Consequent upon the alleged breaches, Brio claims liquidated damages of HK$5 million.
27. Tradelink denies the alleged breaches of contract. It further says that the HK$5 million “liquidated damages clause” is as a matter of law a penalty and in any event unenforceable.
28. Tradelink by Counterclaim says that during the term of the agreement from about the end of 2008 or early 2009 onwards, Brio wrongfully approached at least two common customers being Yusen and QP Printing to persuade them to discontinue using Tradelink’s TDEC service in favour of Brio’s new TDEC service which was due to begin from 1 January 2010.
The Plaintiff’s witnesses [a summary]
29. Mr Eldon Yeung, a director of the Plaintiff, gave evidence of Brio’s trade practice and the circumstances of entering into the 2003 Agreement.
30. Mr Yeung gave evidence of the breach by Tradelink of the 2003 Agreement, and importantly gave evidence as to the circumstances in which that breach was settled. Mr Yeung explained that the loss of customers could not merely be reflected in terms of a loss of commission to Brio, but would additionally severely affect Brio’s bargaining power in the market if Brio’s customer base fell below a certain threshold.
31. Mr Yeung told the Court of protracted negotiations that took place after the alleged breach of the 2003 Agreement with Tradelink, and in particular his negotiations with Mr Justin Yue in relation to the liquidated damages clauses eventually inserted into the 2006 Agreement. He explained that the difficulties encountered in assessing damages for the breach of the 2003 Agreement prompted both Mr Yue and himself to reach agreement on an agreed liquidated damages clause, in the sum of HK$5 million. Mr Yeung gave evidence that as Brio would become a direct competitor of Tradelink from 1 January 2010, that from February or early March 2009 Tradelink made advances towards Radica, Hankyu, Yusen, UPS and Kintetsu to persuade those companies to transfer their business away from Brio, and to Tradelink.
32. Mr Yeung accepted in cross-examination that Brio had sent out promotional materials to Yusen and QP Printing (along with promotional material to about 45,000 other companies not associated with this Action). This matter I note forms the basis of the Tradelink’s Counterclaim.
33. Diana Kwan is the head of the Sales and Marketing Department of Brio. She gave evidence that at about the beginning of March 2009 she started to receive various phone calls from most of the Plaintiff’s customers including all the customers on the Common Customer list. She was informed by these customers that they had been approached by representatives of Tradelink and told that Brio Software would no longer be supported by Tradelink, and that Brio Software would be replaced by Tradelink’s software.
34. Ms Kwan’s evidence concentrated on 5 customers. In respect of Radica Ltd Ms Kwan gave evidence that she received a telephone call from Ms Violet Chan an employee of Radica, who informed her that Radica wanted to terminate their relationship with Brio because Radica had been informed by the account manager of Tradelink, Mr Ryu Wu, that Brio Software ecShipment would no longer be supported by Tradelink for making trade declarations. This oral conversation was followed up by an email dated 9March 2009 from Violet Chan of Radica in the following terms :
‘Hi, as mentioned by “Ryu Wu” (account manager of Tradelink), ecShipment will be discontinued by the end of March. As a result Radica subscribes Tradelink declaration service and stops using ecShipment at the beginning of March.
We would like to terminate our service plan provided by BRIO with immediate effect. Thank you for your support in the past.
Regards,
Violet.’
35. In respect of Hankyu, Ms Kwan gave evidence that she received an email dated 6 March 2009 from a Mr Anthony Ng an employee of Hankyu. The email reads as follows:
“Dear Stephen and Diana,
Recently, I received a msg fm Tradelink said the ECfreight will be no longer valid in the market. All 3rd parties system will be replaced by ValuNet before end of this year. I would like to have your comment and update on this issue.
Thank you so much for your great support in always and look forward to have the continuous service.
B regards,
Anthony Ng
Hankyu Int-L Transport (HK) Ltd.”
36. Ms Kwan thereafter telephoned Mr Ng to try to reassure him that his concerns were unfounded. In the event Hankyu did not discontinue their service with Brio.
37. With regard to Yusen, Ms Kwan in about July 2009 and having noted that the trade declarations made by Yusen had dropped significantly, contacted Ms Priscilla To an employee of Yusen. Ms Kwan gave evidence that Ms To told her that Yusen had been offered “deals” by Tradelink, and that Yusen had started using Tradelink’s ValuNET or other softwares for making its trade declarations.
38. With regard to UPS, Ms Kwan gave evidence that again having noticed that trade declarations made by UPS had dropped significantly, in early 2009 she contacted Mr John Lam an employee of UPS. She was informed by Mr Lam that Tradelink had suggested to UPS not to use Brio’s software and instead to use Tradelink’s software. Furthermore that UPS had decided to switch over to Tradelink Software.
39. In respect of Kintetsu, Ms Kwan gave evidence that yet again having noticed that the trade declarations made by Kintestu had dropped significantly, she contacted Mr Kenneth Chan an employee of Kintetsu in October 2009. Mr Chan told Ms Kwan that a Mr Stephen Leung of Tradelink had persuaded Kintetsu to switch over to Tradelink Software instead of Brio’s.
40. Ms Kwan gave further evidence of the trade practice of her company and that the percentage market share of customers is of real significance as it inspires confidence in other potential customers and lowers the cost of business for software vendors such as Brio.
Tradelink’s witnesses [a summary]
41. Mr Justin Yue Kwok Hung was the chief executive officer of Tradelink from August 1995 to December 2009. He retired in January 2010.
42. Mr Yue gave evidence of the circumstances in which the 2003 Agreement was entered into. Mr Yue also dealt with the circumstances pertaining to the entering into the 2006 Agreement which he said was drafted by himself.
43. Mr Yue expressly disclaimed that the HK$5 million liquated damages clause found in the 2006 Agreement was related to any discussion concerning an earlier breach of the 2003 Agreement. He said that the figure was reached completely arbitrarily. In fact he denied any knowledge of any breach of the 2003 Agreement or of any negotiations in respect of the same. Mr Yue gave evidence that the 2006 Agreement came into being primarily because of difficulties with anti-competition clauses found in the 2003 Agreement.
44. Mr Gary Cho Wai Keung is the general manager of Tradelink. Mr Cho gave evidence about some of the aspects of Tradelink’s business. Mr Cho in particular denied making representations to any of the staff of Hankyu set out in paragraph 35 above, or indeed to any of the staff of UPS.
45. Mr Ryu Wu Kar Ming is a sales manager at Tradelink. In his evidence he denied making the representations to Radica and Ms Violet Chan set forth in paragraph 34 above.
46. Ms Emily Chung Shun Kwan is the chief operations officer of Tradelink. She gave evidence about certain aspects of Tradelink’s business. Ms Chung said that upon the directions of Mr Justin Yue, she negotiated with Mr Eldon Yeung of Brio the terms of the 2003 Agreement.
47. In respect of the allegations of breach of contract Ms Chung said that she had “phone interviewed” two of her former colleagues, Mr Lo Cheuk Fai Roy and Mr Leung Chi Yee Stephen. She then related what Mr Lo and Mr Leung had told her which in short amounted to denials of any wrongful approach by these gentlemen to any of the common customers of Brio and Tradelink.
48. Ms Chung further confirmed that she had never instructed any of Tradelink’s staff to approach any of the common customers at any time in 2009 in the ways alleged by Brio in this Action.
DISCUSSION
The evidence
49. At the outset I note that much of the evidence sought to be relied upon in this case is hearsay evidence. For example, Diana Kwan having contacted Priscilla To of Yusen, Mr John Lam of UPS, and Mr Kenneth Chan of Kintetsu, gave evidence of what they said to her in regard to alleged wrongful conduct by Tradelink. None of these witnesses have been called to give evidence, and no attempt or realistic attempt appears to have been made to secure their attendance at Court.
50. Similarly, and by way of example, Emily Chung has given evidence as to what her former colleagues Mr Roy Lo and Mr Stephen Leung told her over the telephone as to their participation, or more correctly lack of participation in any wrongful conduct towards to Brio. Again, no proper attempts have been made to secure the attendance of these gentlemen to give evidence at court.
51. In considering issues of hearsay evidence I bear in mind in particular the provisions of section 49 of the Evidence Ordinance.
52. There are two notable exceptions to the approach undertaken by both parties of simply repeating what other persons may have said to them without correspondingly making any real effort to obtain the attendance of that person at court. These exceptions are Ms Violet Chan, an employee of Radica and Mr Anthony Ng, an employee of Hankyu.
53. I have before me the uncontested affidavit evidence of Diana Kwan dated 29 August 2013, which Ms Kwan also adopted as part of her evidence in chief in this trial. In this affidavit Ms Kwan details the efforts made by her and by Brio’s solicitors to obtain the attendance of Violet Chan and Anthony Ng at court.
54. In respect of Violet Chan, Ms Kwan telephoned her around 13June 2013 and invited her to be a witness in these proceedings. Ms Chan refused to be a witness and refused even to provide her full name.
55. Thereafter on 4 July 2013 Brio’s solicitors wrote to Violet Chan to invite her to be a witness. This resulted in a telephone call from a Mr Collins Tsui an in house lawyer of the Radica Group, who confirmed that Violet Chan would not agree to be a witness for Brio, and refused again to provide the full name of Violet Chan.
56. On 14 August 2013 Brio’s solicitors wrote a letter to Radica to seek their assistance in inviting Violet Chan to be a witness for Brio. No reply was made to this letter either by Radica or by Violet Chan.
57. With regard to Anthony Ng and Hankyu, Mr Ng has left the employment of Hankyu. However, in June 2013 both Brio’s solicitors and Diana Kwan telephoned Mr Ng on several occasions to invite him to be a witness for Brio is these proceedings. Mr Ng apparently responded that he could no longer remember the events in his email dated 6 March 2009 nor would he provide his full name.
58. On 28June 2013 Brio’s solicitors sent an email to Mr Ng asking him again to be Brio’s witness but no reply was made. Thereafter and in the middle of July 2013 both Brio’s solicitors and Ms Kwan again telephoned Mr Ng on several occasions to seek his attendance as a witness. However, Mr Ng repeatedly said he could not remember the events as stated in his email, nor would he provide his full name to Brio’s solicitors or Ms Kwan.
59. I conclude from this evidence that proper and responsible attempts were undertaken by Brio to secure the attendance of Violet Chan and Anthony Ng at these proceedings, but to no avail.
60. I note that it was open to Tradelink to similarly seek the attendance of Violet Chan and Anthony Ng. Indeed the evidence of Emily Chung was to the effect that she had no idea if any efforts had been made to secure Violet Chan’s attendance; and as far as Anthony Ng was concerned, that she did not want to get him involved.
61. In my view the email from Violet Chan dated 9 March 2009 and the email from Anthony Ng dated 6 March 2009 are significant. Each email provides a contemporaneous written statement by two common customers (Radica and Hankyu) of approaches made by Tradelink to them, which according to Brio demonstrates breaches of the 2006 Agreement. On each occasion the author of these emails (Violet Chan and Anthony Ng) was spoken to by Diana Kwan. The authors of both these emails orally confirmed the matters contained in the emails with Diana Kwan. I note also that the dates of these emails, 6 March and 9March 2009 followed quite closely upon the announcement made in January 2009 that Brio would be granted a TDEC licence from January 2010 and would thus become a competitor of Tradelink. I further note that Mr Chang, Counsel for Tradelink confirmed to the Court that Radica did in fact become a client of Tradelink in March 2009.
62. Having considered the question of hearsay most carefully, I find that I am unable to attach much weight to Diana Kwan’s conversations with the representatives of Yusen, UPS and Kintetsu. Her evidence in this respect was of a general and none specific nature. Nor am I able to attach any significant weight to the various discussions that Ms Emily Chung says she has had with various staff members of Tradelink. It appears that most of these persons could have given direct evidence of the matters related by Ms Chung, but that no responsible effort was made by Tradelink to enable this.
63. However, having considered the circumstances relating to the advances said to have been made by Tradelink to Radica and Hankyu, and having paid careful regard to section 49 of the Evidence Ordinance I find that I am able to place considerable weight upon the hearsay evidence given in this regard. I also of course will consider this evidence in the context of the evidence of Mr Gary Cho and Mr Ryu Wu, both who attended court, and who denied making the approaches to the common customers, contended for by Brio.
64. Having had the benefit of hearing and observing Brio’s two witnesses, Eldon Leung and Diana Kwan in the witness box, I have no doubt that they are both reliable and entirely honest witnesses. Both these witnesses were thoroughly cross-examined by Mr Chang for Tradelink, and having considered this cross-examination and the submissions made by Mr Chang as to the reliability and credibility of these witnesses, I am left in no doubt that both these witnesses came to this Court to tell the truth.
65. In all matters in which there is any conflict of evidence between that of Mr Leung and Ms Kwan of Brio, with the witnesses called on behalf of Tradelink, I prefer the evidence of Brio’s witnesses.
66. As noted Mr Justin Yue was at all material times the CEO of Tradelink. He struck me as an intelligent and articulate witness, having graduated from the University of Hong Kong with a degree in Philosophy, and being entirely fluent in English, although as was his right, he gave evidence in Cantonese. Prior to joining Tradelink Mr Yue held senior positions in the Hong Kong Government as Deputy Director for Trade and Commerce and as Deputy Secretary for Transport.
67. Mr Yue began his evidence by denying any knowledge of any breach or allegation of breach of the 2003 Agreement. He told me that the 2006 Agreement was entered into not as a result of any breach of the 2003 Agreement, but because the 2003 Agreement had to be amended to remove anti-competition elements said to be found in that Agreement.
68. When asked about the detail of the 2006 Agreement Mr Yue professed to have no real recollection of its content. I found this odd as Mr Yue was responsible for the drafting of the 2006 Agreement, and indeed had made a witness statement in 2012 dealing, inter alia, with this Agreement. Nevertheless, I adjourned the hearing for a short while in order to allow Mr Yue to refresh his memory of both the 2003 and 2006 Agreements.
69. At the material times Mr Alfred Yuen was the chief operating officer of Tradelink. Mr Yue agreed that Mr Yuen reported to him. Mr Yue was shown a letter from Brio’s solicitors dated 24August 2006 addressed to Mr Yuen which made clear that a dispute had arisen between Brio and Tradelink as to an alleged breach of the 2003 Agreement, and seeking damages from Tradelink in the sum of HK$14,760,000. Mr Yue said that he had never seen this letter which again I found odd. There are a small number of players in the TDEC business, and I would have thought that an allegation of breach, and a claim for substantial damages by Brio would have been brought to the immediate attention of Tradelink’s CEO. However and in order to ensure that no unfairness was practised on Mr Yue, I decided to adjourn matters until the next morning, and offered Mr Yue the opportunity to refresh his memory generally as to the documents in this case (which are not in any way voluminous).
70. When Mr Yue continued his evidence the next day, he again denied seeing the said solicitor’s letter and then told the Court that “before yesterday” he was unaware that there had been any allegation of a breach of the 2003 Agreement. Pausing here, and considering Mr Yue’s very significant commercial experience, his position at the relevant time as the CEO of Tradelink, that the details of the breach of the 2003 Agreement (including the said solicitor’s letter) had been specifically pleaded in Brio’s Amended Reply and Defence to Counterclaim in 2011, combined with the fact that Brio’s witness statements had themselves detailed this breach, I found it astonishing that Mr Yue had no notice of this alleged breach until he came to give his evidence in Court.
71. Mr Yue was then referred to a bundle of emails passing between Alfred Yuen, Tradelink’s COO and Eldon Yeung of Brio, between 18August 2006 and 27 December 2006. These emails are replete with references to Mr Yue’s involvement in seeking a settlement of the breach of the 2003 agreement, including proposals for compensation. The emails include references to arranging a meeting with Mr Yue, updating Mr Yue on the status of discussions, and the reaching of an agreement by Mr Yue with Brio in relation to the settlement of the 2003 Agreement breach.
72. Mr Yue’s response on being shown these emails was that he knew nothing about them. These emails are Tradelink’s own documents, they are genuine and contemporaneous correspondence from Tradelink’s COO Mr Alfred Yuen who was at all material times responsible for reporting to Mr Yue. Tradelink did not seek to call Mr Alfred Yuen to in any way dispute the accuracy or truthfulness of these emails. In these circumstances I am left with grave doubts as to the truthfulness of Mr Yue’s denial that he was unaware of these emails or their contents.
73. Despite the negotiations regarding compensation referred to in the emails, Mr Yue denied there was any compensation element involved in the 2006 Agreement. He furthermore and importantly maintained that the sum of HK$5 million was placed in the agreed damages clause because “this was a round figure” and was simply an arbitrary figure.
74. When pressed on his evidence that the 2006 Agreement was necessitated by the need to amend or remove anti-competition clauses found in the 2003 Agreement, Mr Yue explained that the 2003 Agreement would give people the wrong impression that all the old customers were Brio’s customers. Having considered Mr Yue’s various assertions as to the anti-competition aspect, I found his explanation to be complete nonsense.
75. I have spent some time considering Mr Yue’s evidence. Its main importance relates to the question of whether the liquidated damages clause is in fact a penalty. A Court does not lightly reject the evidence of a witness of Mr Yue’s background and experience. However, having considered the matters detailed herein, I reject Mr Yue’s evidence. I did not find him to be a credible witness.
76. Mr Ryu Wu Kar Ming relied in his evidence-in-chief upon his witness statement made on 28 September 2012. In that statement he denied making the representation to Radica found in Violet Chan’s email dated 9 March 2009 that Brio’s ecShipment would be discontinued by the end of March. He said in chief that this allegation was factually untrue and could not have been made.
77. When cross-examined, Mr Wu stated that he did not know whether the said representation was factually untrue because he did not know about the systems of other companies. This was obviously a departure from his evidence-in-chief and in the context of his limited evidence in this case, it was a material discrepancy. Mr Chang of Counsel, on behalf of Tradelink described this as “an unfortunate twist”.
78. I have considered the explanation that Mr Wu offered in regard to this discrepancy and also the written and oral submissions of Counsel on behalf of Tradelink. I am not persuaded that the criticism made by Ms Chan of Counsel on behalf of Brio of Mr Wu’s testimony is, in the words of Mr Chang “unfounded criticism”. I was left feeling distinctly uncomfortable with this aspect of Mr Wu’s evidence, such that I am unable to rely upon his protestation that he did not make the representations set forth in the email of 9 March 2009.
79. Furthermore, Mr Wu confirmed in cross-examination that he had had a good working relationship with Radica since about 2008, that his contact at Radica was Violet Chan, and that they enjoyed a good business relationship. When asked why Ms Chan would make such an allegedly dishonest assertion in her email of 9 March 2009, Mr Wu said that he did not know why she would do such a thing. When asked whether he had contacted Ms Chan at any later time to discover why such a grave and allegedly dishonest statement was made by her about him, Mr Wu stated that he had not contacted Ms Chan, and could not see the importance of talking to her about this matter. Considering that Mr Wu enjoyed a good working relationship with Violet Chan, I found such an attitude to be, to put it mildly, somewhat questionable.
80. In all the circumstances, I have doubts about Mr Wu’s credibility. I have concluded that Mr Wu is not a witness upon who’s evidence I am able to rely.
81. Mr Gary Cho Wai Keung gave evidence denying that he had made the alleged misrepresentation contained in Hankyu’s email of 6 March 2009 which was sent to Diana Kwan by Mr Anthony Ng. In cross-examination Ms Kwan confirmed that she had been told by Mr Ng that the representation was made by Mr Cho.
82. Mr Cho confirmed that he was responsible on behalf of Tradelink for communicating with Hankyu. He confirmed that he had been made aware of the email of 6 March 2009 once legal proceedings began. He then told the Court in cross-examination that he had no interest as to why this email had come into existence, and had no interest in finding out what it was about. I found this approach to be very odd. The content of this email forms an important part Brio’s claim for breach of contract. One would naturally expect Mr Cho, the person tasked with communicating with Hankyu, to have at least made some effort to find out from his customer what this matter was all about.
83. Mr Cho’s expressed utter disinterest in following up this matter has further caused me to doubt the veracity and credibility of his evidence.
84. Emily Chung Shun Kwan’s evidence, although lengthy was in the event of little assistance. Much of her evidence concentrated upon what other members of her staff at Tradelink had told her, and save for Mr Cho and Mr Wu, none of these witnesses have been called, although plainly a number of them were available having recently had conversations with Ms Chung. As indicated earlier, I have been unable to place any significant weight upon such hearsay evidence.
Brio’s claim - Conclusions
85. Having noted that much of material evidence in this case is hearsay evidence, I have as noted had particular and careful regard to the provisions of section 49 of the Evidence Ordinance Cap 8. With regard to Brio’s claims for breach of contract, I have concluded that I am able only to attach significant weight to the evidence relating to the alleged breaches involving Radica and Hankyu. This does not in any way mean that I reject the other evidence given by Brio’s witnesses in relation to breaches involving other customers. However that evidence was of a general and in many ways non-specific nature, and no real attempts were made to obtain the attendance at court of the makers of the various statements related by Brio’s witnesses.
86. However, in relation to the evidence relating to Radica and Hankyu I have, in particular, considered the following.
87. The attempts by Brio to secure the attendance of Violet Chan of Radica and Anthony Ng of Hankyu were such that in the event it would not have been reasonable or practicable for Brio to have produced these witnesses at court.
88. The oral statements attributed to Violet Chan and Anthony Ng are supported by the email on the 9 of March and the 6 of March 2009, sent on behalf of Radica and Hankyu.
89. The statements attributed to Radica were made contemporaneously with Radica’s actual movement of its business away from Brio and to Tradelink, in March 2009.
90. The approaches made by Tradelink to Radica and Hankyu were consistent with the evidence of the recent announcement that Brio was to be granted a TDEC licence and as such would shortly become a direct competitor of Tradelink.
91. I can discern no motive by anybody involved being Diana Kwan, Violet Chan or Anthony Ng to conceal or misrepresent any of the matters now relied upon. Tradelink’s own evidence is that Violet Chan enjoyed a good working relationship with their company. Furthermore, I have found that Diana Kwan was a thoroughly truthful and reliable witness.
92. I have of course considered the evidence of Tradelink’s witnesses, in particular, Mr Ryu Wu and Mr Gary Cho, both who denied any improper conduct on their part. For the reasons already discussed I was unimpressed with their evidence and found myself unable to accept it.
93. With regard to Emily Chung, as noted much of her evidence was hearsay evidence upon which I am unable to attach any significant weight.
94. I conclude that Tradelink’s has breached Clause 4 of the 2006 Agreement in that it made the misrepresentations contended for by Brio to procure, promote, inspire, influence, convince and/or persuade or discourage Radica from using Brio software for TDEC.
95. I further conclude that Tradelink is in breach of Clause 4 of the 2006 Agreement in that it has made the misrepresentations contended for by Brio to procure, promote, inspire, influence, convince and/or persuade or discourage Hankyu from using Brio software for TDEC.
The agreed damages clause
96. Brio makes claim for $5 million pursuant to Clause 6 (d) of the 2006 Agreement. Mr Chang on behalf of Tradelink submits that this Clause amounts to a penalty in that it is not a genuine pre-estimate of loss, but was inserted as “in terrorem” to deter either party from committing any breach. In both his written and oral submissions, Mr Chang advanced a number of analyses of the 2006 Agreement to support his primary contention that this was a penalty. I have considered these matters carefully.
97. The law distinguishing a liquidated damages clause and a penalty is well established and I have been particularly assisted by the recent judgment of the Court of Appeal in Ip Ming Kin v Wong Siu Lan CACV 201 of 2012, [judgment handed down on 28 May 2013].
98. I note that the 2006 Agreement was a commercial contract entered into at arm’s length by parties that were very familiar with the trade in which they were both engaged, and to which the liquidated damages clause was directed.
99. Having rejected the evidence of Justin Yue and accepted the evidence of Eldon Yeung I find that the damages clause was inserted in the 2006 Agreement primarily because there had been a breach of the 2003 Agreement which then necessitated months of negotiation between Brio and Tradelink in order to arrive at a mutually acceptable settlement. I find that in these circumstances, and conscious of the difficulty of assessing damages which had accompanied the breach of the 2003 Agreement, the parties were at pains to reach a genuine pre-estimate of what any future loss would be occasioned by any future breach of contract. Although this was a mathematically uncertain exercise I have no doubt that the sum arrived at, being HK$ 5 million, was the best the parties could do in reaching a genuine pre-estimate of loss, and was in no way an arbitrary figure. Furthermore, considering the nature of the business, I find that in no way can the sums stipulated be described as extravagant or unconscionable.
100. I hold that Clause 6 (d) of the 2006 Agreement is not a penalty clause and thus is enforceable.
Tradelink’s counterclaim
101. Tradelink claims that during the term of the 2006 Agreement from about the end of 2008 or early 2009 onwards, Brio wrongfully approached at least two customers, Yusen and QP Printing to persuade them to discontinue using Tradelink’s TDEC service, and to instead use Brio’s new TDEC service set to begin from 1 January 2010.
102. Tradelink says that Brio made the approach by the provision of marketing and promotional materials to the common customers, including Yusen and QP Printing. It was not in dispute that such promotional materials had been sent by Brio to these two companies, together with similar promotional material sent to about 45,000 other companies which were not common customers.
103. Tradelink relies upon two primary points: First that such approaches were in breach of Clause 3(c) of the 2006 Agreement, and second that the same amounted to the commission of the tort of procuring breaches of contract between Yusen and QP Printing on the one hand and Tradelink on the other.
104. As to the first matter Mr Chang submits the key issue is whether the term “any third party” found in Clause 3(c) of the 2006 Agreement is capable of covering Brio itself. This somewhat novel and interesting proposition anticipates that where a contract is made between two parties (here Brio and Tradelink), that one of those two parties can somehow become, during the currency of that contract, “a third party”. Thus that in this case once the Government had announced in January 2009 that as from January 2010 Brio could itself have a licence for TDEC business, that Brio as a potential competitor of Tradelink, became “a third party” under Clause 3(c), and thus its provision of promotional material to common customers was a breach of Clause 3(c).
105. The Court has no hesitation in rejecting this argument. At the time of entering into the 2006 Agreement, Global was the only other player in the TDEC service industry. Although Global is not specifically mentioned in the Agreement, its plain that Clause 3 was directed to Global. Thus at the time the contract was entered into, the Clause was designed to cover those that provided TDEC services, which at that time were only Global and Tradelink.
106. Mr Chang accepted that ordinarily and in commonsense a “third party” is a party other than the contracting parties. That being so I cannot accept the Government’s announcement in January 2009, that Brio would from 1 January 2010 be licensed to provide TDEC services, would in early 2009 somehow have transformed Brio into a “third party” under its contract with Tradelink, and thus make Brio liable for breach of contract to Tradelink in respect of the dissemination of promotional material in 2009. This proposition has only to be stated to be rejected.
107. As to the second matter, procuring a breach of contract, this can be dealt with very shortly.
108. Tradelink’s case is that Yusen and QP Printing had entered into exclusive user agreements for the provision of TDEC services with Tradelink. These agreements were different and separate agreements from the 2006 Agreement. Tradelink contends that Brio must have known that Tradelink had signed such exclusive user agreements, and that Brio had “persuaded and/or lured” Yusen and QP Printing into discontinuing using Tradelink’s TDEC services.
109. These exclusive user agreements have never been produced to the Court nor indeed to Brio. When asked why the Court could not have sight of these alleged agreements, Mr Chang for Tradelink was unable to say why they had not been produced.
110. Furthermore, there is no reliable evidence that these exclusive user agreements (whatever they are) have in fact been breached, and if they were, whether Brio’s alleged “inducement” had anything to do with such a breach.
111. In these circumstances, Tradelink’s claim against Brio for procuring a breach of contract is in my view without merit.
112. Tradelink’s Counterclaim is dismissed.
Conclusion
113. There will be judgment for the Plaintiff, Brio, in the sum of five million Hong Kong dollars. Interest will be payable on this sum at the commercial rate of 1% over the HSBC prime rate from 9 March 2009 to the date of Judgment, and hereinafter at the Judgment rate.
114. There will be order nisi that the Defendant, Tradelink, is to pay the costs of and occasioned by this Action, including the costs of and occasioned by its Counterclaim, to Brio. This Order is to become absolute within 14 days of the date of this judgment, unless either party should during that time give notice of objection thereto.
Dated the 22nd day of November 2013.
| (Robert Whitehead, SC) | |
| Deputy High Court Judge |
Ms Dora KH Chan, instructed by Ma Tang & Co, for the plaintiff
Mr Jonathan Chang, instructed by Lo & Lo, for the defendant