SINA HONG KONG LTD v. PIXEL MEDIA HK LTD

HCA 1400/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1400 OF 2013

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D E C I S I O N
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1.  This is an appeal from a decision of Master M Wong dated 8 December 2014.  The plaintiff’s summons under Order 14A sought:

(1) determination by the court of a point of construction arising under an agreement dated 29 January 2010 (“the agreement”) made between Sina Hong Kong Ltd (“the plaintiff”) and Pixel Media HK Ltd (“the defendant”);

(2) if answered in favour of the plaintiff, summary judgment on the amount claimed in the statement of claim; and

(3) under Order 18, rule 19, an order striking out the defence and counterclaim. 

The master dismissed the plaintiff’s summons.  My decision appears below. 

Factual background

2.  The plaintiff is an online media company and operates a number of websites including several based in Hong Kong.  The defendant is a company that carries out internet advertising.

3.  The agreement provided, inter alia, that for a period of three years (“the term”) four of the plaintiff’s websites (“the HK websites”) would join the defendant’s advertising network.  The defendant would be responsible for selling advertising spots on the HK websites to advertisers, receive revenue from them and manage the technical aspects of the advertising software system and the plaintiff would maximise user traffic to the HK websites. 

4.  The plaintiff would receive a portion of the revenue ranging from 63% to 78% depending on the amount of revenue generated in accordance with Exhibit B to the agreement. If it achieved the agreed level of traffic, it would receive a guaranteed minimum revenue payment in accordance with Exhibit C to the agreement (“the minimum revenue guarantee”). 

5.  The parties agreed that for the minimum revenue guarantee to apply there had to be at least 50 million page views a month and unique users of 1.7 million per month (“the minimum amount” or “the minimum traffic”).  “Page views” means the number of times a particular web page is visited and “unique users” refers to how many (different) individual users visit a website or group of websites that month, irrespective of the number of times each user visits a website(s) in question. 

6.  The agreement set out how site traffic should be measured (“site performance”).  The dispute concerned how those provisions should be construed.

7.  It is common ground that the plaintiff has been paid its share of the revenue in accordance with Exhibit B and that the defendant has paid the plaintiff the minimum revenue guarantee for the period from February 2010 to November 2011. 

8.  The dispute is whether the plaintiff was entitled to be paid the minimum revenue guarantee from December 2011 to January 2013.  That turns entirely on whether the minimum traffic was achieved during that period.  In practical terms, the difference amounts to a sum in excess of $8.7 million.

9.  The plaintiff claimed that it did.  The defendant disagreed and in June 2012 the defendant sought to invoke the right to have an independent audit of the plaintiff’s user traffic figures that is contained in the provision dealing with site performance.  The principal issue is whether, in the events that have happened, the defendant is entitled to exercise that right.

10.  It is common ground that at the time of the agreement Nielsen/Netratings (“Nielsen”) was the industry leading software in Hong Kong for measuring user traffic of websites.  According to the plaintiff, it has been using Nielsen’s software to measure its website traffic since October 2005.  Nonetheless it is accepted that all software had its own shortcomings.

11.  The notice of appeal seeks a determination under Order 14A that, on a proper construction of the agreement, the defendant is not entitled to an independent audit of the plaintiff’s user traffic figures and final judgment accordingly; further or alternatively summary judgment under Order 14 and an order striking out the defence and counterclaim.

12.  The defendant’s position is that the Order 14A procedure is inappropriate because the question of construction cannot be determined without also determining factual disputes between the parties.  Accordingly the plaintiff’s application for summary judgment must fail irrespective of the outcome of the Order 14A application.  In any event the plaintiff’s construction is wrong. 

Overview of the construction issue

13.  The plaintiff seeks a determination under Order 14A.

14.  The starting point must be the actual provisions relating to “site performance”.  The agreement contained the following provisions for compensation:

“Revenue Share. … The parties agree that in consideration for Pixel Media’s performing its services as described in this Agreement, Pixel Media shall remit to Company the net revenues generated from the sale of Spot on the Web Site for the display of Advertisements according to the Advertising Revenue Sharing Scheme (the ‘Scheme’) listed in Exhibit B hereto.

‘Net Revenues’ means the gross billings earned from Advertisers by Pixel Media for the sale of Spot on the Web Site for the display of Advertisements less volume discounts and agency commissions …

Revenue Guarantee. Pixel Media agrees that the Company’s share of Net Revenues referred to above shall be no less than the Minimum Revenue Guarantee as stated in Exhibit C …

Site Performance.  (1) The site performance metrics shall be based on the Company’s monthly pageview report or by third party site traffic verification software [Nielsen] or an industry recognised equivalent.  (2) Company shall provide a pageview report to Pixel Media on a monthly basis.  (3) The agreed minimum monthly page views for the Web Site is 50 million and the agreed monthly unique users is 1.7 million in accordance to a third party site traffic verification software from [Nielsen] or an industry recognised equivalent.  (4) In the event of any dispute in regard to the Company’s monthly pageview report, independent auditors may be appointed to give second opinion in relation to pageview of the Web Sites and Pixel Media shall bear the sole costs and expenses of this exercise.  (5) Company must continue to maintain the minimum monthly page views at 50 million and unique users of at least 1.7 million per month in order to retain marketability to Advertisers.  (6) If in any one month the site performance drops below the minimum amount, the minimum revenue guarantee will be void and actual revenues share shall apply.”

(Note: The bracketed numbers have been inserted for ease of reference and do not appear in the original document.)

15.  In summary, Mr Chong, counsel for the plaintiff, submitted that sentence 1 allowed the plaintiff to base the site performance metrics on: (a) its own report; or (b) results generated from a third party site traffic verification software.  If the plaintiff opted for (b), then it had a further choice of using (i) Nielsen; or (ii) an industry recognised equivalent. 

16.  By the time of the agreement, not only had the parties agreed to use Nielsen, they also agreed to share the setup and subscription costs as provided in Appendix 1 to the agreement.

17.  Sentence 4 gave the defendant the right to appoint an auditor only in the event of any dispute in regard to “the Company’s monthly pageview report”.  As sentences 1 and 4 used identical phraseology, Mr Chong submitted they should be given a consistent meaning. Therefore it is only when there is a dispute in regard to the “Company’s monthly pageview report” (in the plaintiff’s view meaning cases where the Company’s records as opposed to an independent third party software had been used) that the parties agreed that independent auditors may be appointed.

18.  It was submitted that had the plaintiff elected to use its own records as opposed to a third party software, it would be fair that independent auditors be allowed to carry out an audit.  But as the parties had elected to use Nielsen (which at the time of the agreement was the leader in the field), they could not have intended to have those results audited.  By electing to use Nielsen it was no different from appointing an umpire and its results were final and conclusive.

19.  But in determining the correct construction, it is necessary to have regard, inter alia, to the entire text of the site performance provision comprising six sentences and the agreement as a whole.

20.  I would observe that as a matter of syntax, sentence 1 is awkward if not also incorrect.  I will return to this point later.  For present purposes, I will proceed on the basis of the construction put forward by the plaintiff, that sentence 1 gave the plaintiff an option to provide a self generated report.

21.  It is clear from sentence 2 that the obligation to provide a monthly page view report is on the plaintiff.  The use of the indefinite article is to be noted.  That is not controversial. 

22.  The significance of the monthly page view report is obvious: it is critical to the determination of the amount payable by the defendant to the plaintiff under the agreement for the particular month: whether it is just the revenue share or the greater amount payable under the minimum revenue guarantee.  That is self evident from the present claim.

23.  Assuming the plaintiff had opted to use self generated reports, upon what would such page view report be based?  Would it be entirely within the plaintiff’s discretion to decide how it goes about measuring user traffic?

24.  Sentence 3 would suggest not because it requires that the number of monthly page views and monthly unique users stipulated be “in accordance to a third party site traffic verification software”, from Nielsen or an industry recognised equivalent.  Nielsen or its industry recognised equivalent would be third party providers of user traffic analytics.

25.  The monthly page view report that is required from the plaintiff not only has to be derived from a third party verification software but also that that software is recognised and accepted in the industry.  Those requirements have some significance: third party normally means a party not connected or related to the parties; it bears connotations of impartiality and independence.  The provider also has to be someone whose expertise is accepted and recognised in the industry for traffic verification.

26.  Those requirements would rule out the possibility of the plaintiff producing monthly page view reports that are based on its own system that is to say self generated reports.  It also would rule out reports that are derived from a system or software that does not possess the attributes set out in the preceding paragraph. 

27.  It will be apparent that the inevitable and practical consequence of complying with sentence 3 is that on the plaintiff’s reading of sentence 1 it would have the effect of neutralizing the self reporting option and rendering it meaningless.

28.  How are sentences 1 and 3 to be reconciled if at all?

29.  If they are read in sequence and closely considered, it will be apparent that but for the word “or”, sentences 1 and 3 mirror the same requirement and are wholly consistent with each other, making perfect sense. If the word “or” were omitted, sentence 1 would also be syntactically correct (see §20 above).

30.  Mr Chong contended that what had been provided to the plaintiff were Nielsen results.  He submitted that by the time the agreement was signed, not only did the defendant know that the plaintiff would use Nielsen, it had agreed to share the cost as is apparent from Appendix 1.  Therefore sentence 3 is redundant, otiose and irrelevant in construing sentences 1 and 4.  Further, it was submitted that the parties’ agreement to use Nielsen reflected their intention that Nielsen’s figures would be final and conclusive.

31.  At this juncture it would be appropriate to consider the actual terms of Appendix 1.  It is made up of four paragraphs.  In summary they provide that:

(i) the parties would share the cost for the third party traffic verification software “provided by [Nielsen] or to any other industry accepted equivalent software” (emphasis added),

(ii) such costs had to be mutually agreed upon in writing,

(iii) the plaintiff would implement the software on its site and

(iv) the plaintiff would bill the defendant on a monthly basis with a separate invoice with description being “share of cost for [Nielsen] subscription”.

32.  Provision (iv) has the hallmarks of a provision that was agreed after the three provisions preceding it had been written and added subsequently but before the agreement was signed.  For otherwise provision (i) would not have been worded in the way in which it appears.

33.  While the effect of Appendix 1 is that the Nielsen costs are shared, that fact cannot assist the construction of the site performance provision.  Importantly, the terms of the site performance provision can only be construed as they are drawn.   

34.  What is significant is that provision (i) of Appendix 1 is entirely consistent with and supports the reading of sentences 1 and 3.  The word “or” appearing in sentence 1 must have come about as the result of some error or oversight.

35.  If Mr Chong’s construction were correct, it would follow that the parties’ agreement to use Nielsen had the effect of rendering sentences 1 and 4 otiose.  Could that really have been their intention when they could as easily have deleted those sentences from the agreement?  I do not consider that at all probable.

36.  As regards the plaintiff’s submission that the joint decision to use Nielsen rendered its results final and conclusive, it does not arise for consideration unless the plaintiff succeeds on the construction point.

37.  The main plank of the plaintiff’s contention and which the defendant challenges is the fact that it is premised on accepting (a) that because identical phraseology appears in both sentences 1 and 4, they must bear the same meaning; and (b) that the phrase “the Company’s monthly pageview report” as used in sentence 1 is only capable of referring to a self generated report.

38.  I do not accept that simply because the same phraseology is used, the words used must necessarily be referring to the same thing.  It would depend on the nature of the words in question, whether they are common everyday words (as opposed to unusual or technical or specialised words) and the context in which they are used.  I do not accept that there is any fixed rule.  The context has to be considered and one has to approach the matter with common sense.

39.  As Ms Cheng SC (who appeared for the defendant) submitted, the phrase “A’s monthly report” is itself capable of more than one meaning depending on the context.  Apart from referring to a report generated/made by A, as a matter of language, it is equally apt to describe a report provided by A but which had been prepared by a third party.

40.  Turning to the context, the obligation imposed on the plaintiff by sentence 2 is to provide a page view report on a monthly basis.  So when sentence 4 then refers to a dispute in regard to the ‘Company’s monthly pageview report’, it is a reference to the report the plaintiff has provided in discharge of its sentence 2 obligation.  I can discern nothing from the provision as a whole that would require the phrase to be construed in the manner suggested by the plaintiff.  

41.  Before reaching a conclusion on the proper construction of the agreement, it would be appropriate at this juncture to complete consideration of the remaining part of the provision and to set out the pertinent factual matrix.

42.  Sentence 5 shows that minimum traffic is linked to retaining marketability to advertisers.  It explains why the plaintiff was specifically required to maintain minimum traffic.  Sentence 6 then set out the consequences of a failure to do so and rendered the minimum revenue guarantee inapplicable for any particular month that minimum traffic is not reached.  Those matters go to the factual matrix and commercial purpose of the agreement.

Factual matrix

43.  It is apparent from the terms of the agreement itself that this was a joint enterprise by the parties to exploit the potential for obtaining advertising revenue from the HK websites to their mutual advantage.  To recap the essentials, while the defendant shouldered the responsibility of marketing to advertisers, deriving advertising revenue and being responsible for the necessary software and all the technical aspects involved, the plaintiff, apart from permitting its HK websites to be used for advertising, undertook to “dedicate the resources necessary to develop and promote the content of the [HK websites] to maximise user traffic”.  That was a positive obligation of some significance.  The level of user traffic matters to advertisers for obvious reasons and plainly that would have a direct impact on the revenue stream.

44.  The advertising revenue would be shared.  The formula applicable depended on whether the minimum revenue guarantee applied. The revenue sharing arrangement was such that it was far more advantageous for the plaintiff (who would stand to receive a far greater amount) in the event of its being able to achieve the minimum traffic. 

45.  Page view numbers would be of importance not only to the parties because it directly affects how the revenue derived from the arrangement was to be shared but also to potential advertisers who are the potential source of revenue for this enterprise. Looked at objectively and from a commercial perspective, it stands to reason that not only do the numbers matter, they need also to be reliable and credible.

46.  Exhibit C to the agreement sets out the minimum revenue guarantee payable by the defendant in the event of the minimum target being reached. The monthly amount payable starts at $600,000 for the first three months of the first year, rising to $833,000 odd for the remaining nine months. There is a modest increase to just over $852,000 per month for the second year rising to almost $938,000 per month for the third year. On any view, they are substantial amounts, and annualized, range from $9.3 million to $11.253 million over the term.

47.  It is against this backdrop that the option of using the plaintiff’s self generated reports has to be gauged.

48.  The defendant has led evidence to the effect that:

“Advertisers, advertising agencies and advertising sales representatives (including Pixel Media) would generally not accept a website owner’s self-generated, unverified user traffic figures as the basis upon which to pay advertising fees, because it is fairly easy for the website owner to manipulate such self-generated figures. Self-generated user traffic figures are generally not accepted even if there is a possibility of an ex post facto audit because, for a single advertising campaign, it is rarely cost-effective to conduct an audit to check the user traffic figures. Instead, advertisers, advertising agencies, and advertising sales representatives (including Pixel Media) would want to use user traffic figures provided by a third party analytics company (such as [Nielsen] and comScore …).”

(§28 of Affirmation of Huang Kevin Jiunn Jin dated 7 August 2014)

49.  In reply, at §18 of her 2nd affirmation, So Chun Nei, the general manager of the plaintiff (but who was not its general manager at the time the agreement was entered into), merely denied the relevance of the allegations set out in the passage quoted in the preceding paragraph. No positive evidence was adduced. At the hearing, Mr Chong drew attention to the fact that the defendant did not go so far to say that the industry never accepted self reporting and therefore it cannot be ruled out that someone in the industry would accept self reporting.

50.  What is tolerably clear is that the existence of a general rule or practice is not seriously challenged. While there may be exceptions to the general rule or practice, the plaintiff has singularly failed to cite any examples.

51.  There is also the fact that the plaintiff has not put forward any explanation as to how self reporting would be done, the numbers involved being in the millions. While Mr Chong made several references which appeared to suggest that the plaintiff’s monthly page view report would come from the plaintiff’s ‘own records’, it throws no light on the process. Clearly it could not be a question of physical counting given the numbers involved. Nor could it be a question of going about measuring site user traffic in an amateurish manner since the commercial reality is that both the reliability and credibility of the reports matter.

52.  It is one thing to be in the business of creating websites; it is quite another to engage in measuring site traffic when that is an area that would appear to require some expertise or know‑how.  That specialist providers exist in the market to provide such services makes the point.

Whether Order 14A procedure is appropriate

53.  As to the proper construction of the provision, I do not consider that there are factual issues that need to be resolved before the court could reach a determination under Order 14A.  It would be pointless and a complete waste of time and resources to have a trial for the present question of construction to be resolved.

54.  Taking all of these matters into consideration and reading the agreement in its entirety, I do not accept that the plaintiff’s construction is correct.  For the reasons earlier stated, on the proper construction of the site performance provision in the agreement under Order 14A, I have little hesitation in deciding that the defendant is entitled to exercise the right to appoint an independent auditor for a second opinion at its own expense and I so determine.  

55.  In that connection, it should be mentioned that the defendant has stated it is fully willing to abide by the results of the audit and to make payments accordingly.

56.  Accordingly, the master’s order is varied to include a determination on the question raised in §1 of the summons, namely, that on the proper construction of the site performance sub‑clause in the agreement, the defendant is contractually entitled to appoint auditors to give a second opinion in relation to the page views and unique users of the HK websites.  

57.  Save as aforesaid, the appeal is dismissed.  I also make an order nisi that the costs of the appeal be to the defendant.

HCA 1400/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1400 OF 2013

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DECISION ON COSTS

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Background

1.  On 8 December 2014, I dismissed the plaintiff’s summons dated 15 May 2014 (“the Summons”) with costs order nisi that the plaintiff do pay the defendant costs of the Summons with certificate for counsel to be summarily assessed on papers.  By way of summons dated 19 December 2014 and pursuant to Order 42, rule 5B(6) of the Rules of the High Court, the plaintiff applies to vary the costs order nisi to an order that the costs of the Summons with certificate for counsel be costs in the cause.

2.  By consent of the parties, on 6 January 2015, I ordered that the summons dated 19 December 2014 be determined without an oral hearing.  Thereafter, the plaintiff submitted its written submission on 20 January 2015, the defendant submitted its written submission on 4 February 2015 and the plaintiff submitted its written submission in reply on 11 February 2015.  In the plaintiff’s written submissions, the plaintiff invites the court to order (as an alternative) that the costs of the Summons be the defendant’s costs in the cause.

3.  In the Summons, the plaintiff asked the court to determine whether the defendant was entitled to appoint independent auditors to give a second opinion in relation to the page views and unique users of the plaintiff’s websites given that third party site traffic verification software Nielsen/Netratings Site Census has been chosen by the parties throughout the term of the Agreement.  I ruled against the plaintiff in that it failed in its applications (1) under Order 14A seeking a construction of the Agreement in question in its favour, (2) under Order 14 seeking summary judgment against the defendant, and (3) under Order 18, rule 19 seeking a strike-out of the Defence and Counterclaim.  The Summons was dismissed in its entirety, and costs were ordered against the plaintiff in favour of the defendant as aforesaid.

4.  Despite that, the plaintiff applies to vary the costs order nisi to one of “costs in the cause” or “defendant’s costs in the cause” as aforesaid by relying on 3 grounds: First, the plaintiff invites the court to note that as the defendant did not plead the factual matrix in its Defence and only raised it in its affirmation in opposition for the first time, it was reasonable for the plaintiff to issue the Summons.

5.  Secondly, the plaintiff submits that there are triable issues, as held by the court, as to what the factual matrix is, and in the end the trial judge might very well reject the defendant’s version or rule against it on the relevance of its evidence.

6.  Thirdly, the plaintiff submits that the Summons was taken out due to the way the defendant pleaded its Defence.  The defendant’s affirmation in opposition and its arguments at the hearing have substantially supplemented the original line of defence as pleaded in the Defence.  It is therefore unfair for the plaintiff to bear the costs of the Summons.

7.  Thus, given all the circumstances, the plaintiff invites the court to vary the cost order nisi and order “costs in the cause” instead.  Alternatively, as the factual issues raised by the defendant in its affirmation in opposition might very well be rejected by the trial judge, the plaintiff invites the court to order “defendant’s costs in the cause” as a fallback.

First ground

8.  In relation to the first ground, the plaintiff argues that the first time the defendant introduced the purported factual matrix was by the defendant’s affirmation in opposition.  At the time when the plaintiff received the Defence, it was not known the exact extent of the defendant’s evidence to be adduced, as the defendant has simply failed to plead the same.  Whether the defendant is duty bound to plead the factual matrix or not is not relevant. The fact remains that the Defence has only raised a simple construction point.

9.  In the circumstances, the plaintiff submits that it was appropriate to take out an Order 14A summons given the way the Defence was drafted.  After all, Order 14A allows the plaintiff to have a question of construction to be determined in a summarily way.  Otherwise, Order 14A would be otiose.  When one simply looks at the Defence itself, the factual disputes are not apparent on its face.  The plaintiff could not have known the line of arguments raised only after the filing of the Defence.

10.  The plaintiff disagrees that the introduction of the factual matrix was because of the plaintiff’s affirmation in support of the applications.  In the plaintiff’s affirmation in support, the plaintiff has mentioned nothing about the factual matrix.  The plaintiff has merely referred to the “3 options” as a matter of construction.  No facts were introduced by the plaintiff.  It is therefore incorrect for the defendant to allege that the introduction of the alleged factual disputes was in response to the plaintiff’s affirmation.

11.  The plaintiff further submits that it is incorrect for the defendant to say that even without looking at the factual matrix, the plaintiff’s construction was rejected by the court.  If so, it was not necessary for the court to go on to consider the factual matrix.

12.  With respect, I cannot agree with the plaintiff’s submissions at all.  It is trite that pleadings are to contain material facts, not evidence.  In a pleading on a contract claim, the terms of the contract relied on are material facts, but the arguments relating to the construction of those terms, such as the law relating to the principles of construction, or the evidence which forms the factual matrix, are not supposed to be pleaded.  The defendant has clearly pleaded its case that independent auditors could be appointed to give a second opinion.  There was no need for the defendant to plead anything further, such as the factual matrix, to support the construction argument.

13.  I accept that the defendant set out the relevant factual matrix in its affirmation as evidence in response to the plaintiff’s affirmation.  The plaintiff for the first time in the affirmation of So Chun Nei dated 14 May 2014 said that the plaintiff could provide a monthly page view report to the defendant in one of the 3 options, and that the plaintiff and the defendant had agreed to use the 2nd option from the very beginning (ie to use Nielson and nothing else).  The defendant did not agree with this construction of the 3 options or the claim of an agreement to use Nielson and nothing else, and the affirmation of Kevin Huang said so.  Thus, it is not a case that the defendant chose to plead the factual matrix in its affirmation instead of the Defence, but the factual matrix was adduced in response to the plaintiff’s affirmation.

14.  In any event, it has never been the plaintiff’s case that any of the factual matrix was a surprise to it.  Kevin Huang’s affirmation condescended into particulars about how the Nielsen software was unreliable and why therefore the parties would not have agreed to use this without an audit option.  So Chun Nei’s affirmation in reply said that these defects of the software were “well-known to everyone who was familiar with the industry”. Thus the plaintiff would all along have known that this was the background against which the defendant was arguing, namely on a true construction, the Agreement provided for the right to an audit.

15.  In fact, the defendant’s position had been amply explained to the plaintiff even before the commencement of proceedings.  In correspondence, the defendant has explained, inter alia, (1) the plaintiff’s obligations to achieve a minimum site traffic, (2) why the defendant did not accept the plaintiff’s reliance on the Nielsen figures, (3) why the plaintiff was not entitled to the payment it claimed, (4) why the defendant was entitled to an audit.  It had even said that it was willing to abide by the results of an independent audit to pay whatever was found to be due on such an audit (see Messrs K B Chau’s letters to Messrs Maurice WM Lee dated 24 June 2013 and 23 July 2013).

16.  Even assuming that the factual matrix was a surprise to the plaintiff, the plaintiff has only itself to blame when it took out the Summons without raising the matter by way of correspondence beforehand (see Messrs K B Chau & Co’s letter to Messrs Maurice WM Lee dated 20 May 2014).  Had the plaintiff intimated that it intended to issue the Summons, the defendant could have explained the position by correspondence.

17.  Moreover, the factual matrix was only one of the reasons why the plaintiff lost.  I rejected the plaintiff’s construction of the Agreement for four reasons: (1) the plaintiff’s construction is internally inconsistent; (2) the plaintiff’s construction ignores the commercial objects and factual matrix of the Agreement; (3) the plaintiff’s construction wrongly treats Nielsen figures as final and conclusive; and (4) the plaintiff’s construction ignores parts of the site performance subclause.  Thus even without looking at the factual matrix, the plaintiff’s construction would still fail.  It was necessary for me to consider the factual matrix simply because it was part of the defendant’s case.

Second ground

18.  The plaintiff argues that since the court has held that there are triable issues as to what the factual matrix is, costs should be in the cause, as it is the usual order (see para 14/7/15 of Hong Kong Civil Procedure).  It is especially the case when the Defence has not clearly identified the line of defence presently raised.  The plaintiff refers to The Incorporated Owners of Hong Kong House v Senfield Limited CACV 117/2003, where Ma CJHC (as he then was) held that: -

“On costs, it is important to bear in mind that those issues which I have regarded as giving rise to arguable matters to be determined at trial, were barely raised in the defendant’s pleadings. No clear allegations were raised in the defence as to any possible breach of the covenant of quiet enjoyment or the right to water under the DMC, nor as to waiver, estoppels, acquiescence or delay. While it is right for us at this stage to take a broad view of the evidence and a more lenient view of the pleadings in determining the merits of the summary judgment application, as far as costs are concerned, it would be wrong to ignore the technicalities of the situation. I therefore regard the correct order for costs to be costs in the cause.”

19.  The plaintiff also refers to Chen Lip Keong v Evolution Master Fund Limited SPC, Segregated Portfolio M, HCA 575/2010, where Suffiad J held that: -

“ 24. On the basis therefore that the defence put forward at the hearing was far more developed and had changed in some important details than what was contained in the letter from Messrs Simmons & Simmons dated 23 April 2010, I am of the view that that letter from Messrs Simmons & Simmons does not adequately show that the plaintiff knew at the outset before issuing the summons for summary judgment that the defendant was relying on a contention which would entitle them to unconditional leave to defend.

25. According, there will be a cost order that the costs of and occasioned by the application for summary judgment taken out by the plaintiff by summons dated 1 June 2010 be costs in the cause with certificate for two counsel.”

20.  However, the usual order that the plaintiff relies on is applicable to cases where leave to defend is given, but not when the application for summary judgment is dismissed.  In fact, as aforesaid, even without relying on the factual matrix, the plaintiff would have lost.  So the argument that there are triable issues on the factual matrix is a non-starter.  On the issue of construction, I have held that the plaintiff is wrong.  I mentioned that Order 14A procedure is not appropriate because there are triable factual issues and determination of the issue of construction would not have saved time or costs.  So the presence of factual issues meant that the plaintiff was wholly wrong to use Order 14A procedure in the first place.  It is wrong for the plaintiff to turn it around and say that because there are factual issues, it can escape the costs consequence in losing the application.  The presence of the factual issues is in fact the very reason why the plaintiff should not have taken out the application and hence ought to bear costs.

21.  As to the Order 14 application, one of the significant triable issues is that the Nielsen figures relied on by the plaintiff are inherently self-contradictory in themselves, and that there is something wrong with them even without comparing them with ComScore.  This point was first raised with the plaintiff in about mid-2011, but it has not been answered.  The plaintiff is the party who placed the Nielsen tags on its pages, so it should be able to explain what has gone wrong, but it has chosen not to do so.  Moreover, the point was raised in the pre-action correspondence by the defendant in detail (see Messrs K B Chau’s letter to Messrs Maurice WM Lee dated 24 June 2013).  It was also pleaded in the Defence.  There is simply no basis to ask for summary judgment when the basic facts are in such grave doubt.  The presence of triable issues is precisely the reason why the plaintiff should be paying costs, and the situation here is very different from the aforesaid 2 cases referred to by the plaintiff.

22.  Likewise, for the Order 18, rule 19 application, the presence of triable issues meant that the case was clearly not a “plain and obvious one” and the application was bound to fail.

23.  Thus, there is nothing wrong for the plaintiff to pay the costs for an entirely misconceived application.

Third ground

24.  There is no need for the defendant to present its arguments in pleadings or affirmation.  It is absurd for the plaintiff to say that because the defendant fleshed out its case at the hearing, it should be deprived of costs.  In fact the defendant did not take any new point at the hearing which was inconsistent with its pleadings.  Furthermore, as aforesaid, the defendant had explained its position in correspondence before the commencement of the proceedings.  After reading such correspondence, it would have been apparent that the defendant’s construction was reasonable, that there could not possibly be any summary judgment and that it was not a “plain and obvious case” for striking out.

25.  Thus, the plaintiff is clearly wrong in taking out the Summons and in proceeding with it even after the defendant’s affirmation was filed.  This is plainly a case where costs should follow the event and the plaintiff should pay for losing the Summons.

Conclusion

26.  By reasons aforesaid, the plaintiff’s application to vary the costs order nisi must fail.

27.  I therefore order as follows: -

(a) The summons dated 19 December 2014 be dismissed.

(b) The costs order nisi of 8 December 2014 be made absolute.

(c) Costs order nisi: The plaintiff do pay the defendant costs of the summons dated 19 December 2014 with certificate for counsel to be summarily assessed on papers.  The defendant do submit and serve its Statement on Costs within 14 days hereof and the plaintiff do submit and serve its Summary of Objection on Costs within 14 days thereafter.

HCA 1400/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1400 OF 2013

_________________________

_________________________

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DECISION

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Background

1. The plaintiff claims that it is an online media company, which is not admitted by the defendant, but the defendant admits that the plaintiff operates various websites.  The defendant is a company which performs internet advertisement sales and advertisement management.

2. By an agreement dated 29 January 2010 (“the Agreement”), the plaintiff agreed to appoint the defendant as its exclusive advertising sales representative for four of its websites, namely www.sina.com.hk, www.sinahk.net, www.mysinablog.com and www.eladies.hk (“the Websites”), for a term of 3 years from 1 February 2010.  Essentially, the defendant was to arrange for advertisements to be shown on the Websites (by dealing with advertisers and handling the technical work involved in placing and maintaining the advertisements), whilst the plaintiff was to maximize user traffic to the Websites.

3. The Agreement stipulated that the plaintiff would receive:-

(a) a portion (ranging from 63% to 78%) of the net revenues, namely the gross billings earned from the defendant’s advertisers,  in accordance with Exhibit B to the Agreement, and

(b) a guaranteed minimum revenue payment (“Minimum Revenue Guarantee”), in accordance with Exhibit C to the Agreement, insofar as it successfully procured traffic to the Websites to a certain level (“Minimum Traffic”).  There is no dispute that the plaintiff would be entitled to the Minimum Revenue Guarantee if the monthly site traffic had achieved the Minimum Traffic in terms of 50 million page views a month and unique users of at least 1.7 million per month.

4. There is also no dispute that the defendant has paid the plaintiff its due portion of net revenue pursuant to Exhibit B to the Agreement, or that the defendant has paid the plaintiff the Minimum Revenue Guarantee for the period February 2010 to November 2011 inclusive.  The dispute is whether the defendant was obliged to pay the plaintiff the Minimum Revenue Guarantee from December 2011 to January 2013.  The defendant alleges that the plaintiff did not achieve the required Minimum Traffic, whereas the plaintiff alleges that it did.

5. In view of the dispute and by a letter dated 7 June 2012 from the defendant’s solicitors to the plaintiff, the defendant claims that it has the right to an independent audit of the plaintiff’s user traffic figures.  The plaintiff did not initially dispute that right, but later on by a letter dated 10 June 2013 from the plaintiff’s solicitors to the defendant’s solicitors, the plaintiff disputes that the defendant has such a right.  The plaintiff contends that as a matter of construction of the Agreement, the defendant is not entitled to an independent audit.

6. Thus, by its Summons dated 15 May 2014, the plaintiff seeks:-

(a) a determination under Order 14A as to whether, on a proper construction of the Agreement, the defendant is contractually entitled to appoint independent auditors to give second opinion in relation to the page views and unique users of the Websites, given that third party site traffic verification software Nielsen/Netratings Site Census have been chosen by the parties throughout the term of the Agreement;

(b) if the determination is in favour of the plaintiff, final judgment for the plaintiff be entered against the defendant for the amount claimed;

(c) further or alternatively, summary judgment be entered against the defendant pursuant to Order 14; and

(d) accordingly, the Defence and Counterclaim be struck out pursuant to Order 18, rule 19(1)(b).

7. The defendant’s position is that:-

(a) the application under Order 14A is misconceived given that:

(i) there are factual disputes between the parties, and the question of construction put forward by the plaintiff cannot be determined in isolation from such disputes;

(ii) the question of construction formulated by the plaintiff is itself improperly premised on a factual assertion which is not accepted;

(iii) in any event, as a matter of discretion, the Order 14A procedure is inappropriate given that even if the question posed by the plaintiff is answered in its favour, there would still remain substantial issues of fact which would need to be tried, so that determining the question of construction does not bring either finality or costs savings to any significant extent;

(iv) further and in any event, even if the court were to ascertain the Order 14A application, the plaintiff’s construction of the relevant subclause of the Agreement is wrong;

(b) the summary judgment application must fail, no matter what the outcome of the Order 14A application is, as there are significant factual disputes between the parties which need to be tried; and

(c) the strike-out application must fail, no matter what the outcome of the Order 14A application is.  This is clearly not a “plain and obvious” case.

Order 14A: principles

8. On an Order 14A application, the court will take a three-step approach (see Rockwin Enterprises Ltd v Shui Yee Ltd and others [2003] 3 HKC 174 at paras 18-21, per Recorder Ma SC (as he then was)).

9. The first step is to ask whether the relevant question is one of law or of construction of a document.

10. If so, the second step is to ask whether the question is one that should be determined under the Order 14A procedure.  For that purpose,

(a) the court needs to be satisfied that the question is one that is suitable for determination without a trial.  In other words, the court has all the necessary facts and matters before it in order to determine the question of law or construction;

(b) the court also needs to be satisfied that the question will finally determine (subject to a possible appeal) the entire cause or matter or any issue or claim therein;

(c) even if the court is satisfied that the aforesaid two conditions are fulfilled, the court retains a residual discretion as to whether to proceed under the Order 14A procedure, and it needs to be satisfied that the question is one that ought to be determined under Order 14A.

11. The third step is to proceed to determine the question and the consequential orders to be made.

12. As to whether a question is to be regarded as suitable for determination under the second step above:

(a) The court must have all the necessary facts and matters before it in order to determine the question of law or construction (see Rockwin, supra, at para 27).  Without such knowledge, the court should not place itself in a precarious position in the event that the basis on which it made its determination earlier may turn out to be inconsistent with the facts subsequently found.  In any event, it should not by making such determination bind its hands in its future fact finding (see China Ping An Insurance (HK) Co Ltd v Tsang Fung Yin Josephine [2012] 2 HKLRD 674 at para 19).

(b) It is inappropriate to use the Order 14A procedure if there are issues of fact interwoven with the legal issues to be determined (see Shell Hong Kong Ltd v Yeung Wai Man Kiu Yip Co Ltd and another (2003) 6 HKCFAR 222 at para 24).

13. As regards the exercise of the court’s residual discretion:

(a) If the court is of the view that determination of the question put by the party would not result in a great saving of time or costs, or is not determinative of the action, it may exercise its discretion against adopting the Order 14A procedure (see Rockwin, supra, at para 25).

(b) Whilst it is not essential for the question posed to be determinative of the whole action, the fact that it is not so determinative is a strong factor to be taken into account in deciding whether or not to proceed using Order 14A (see Citadines Ashley TST (Hong Kong) Ltd v Quenchers Ltd, unreported, HCA 2704/2006, 23 July 2007, at para 11, and China Ping An Insurance, supra, at para 19).

Order 14: principles

14. It is trite law that the court will not conduct a mini-trial on affidavit, and that summary judgment is inappropriate where there is an arguable defence or triable issue (see Hong Kong Civil Procedure 2015, note 14/4/9).

Order 18, rule 19: principles

15. It is trite law that the court should exercise its summary powers to strike out only in plain and obvious cases; there should be no trial upon affidavit.  The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the case to succeed (see Ha Francesca v Tsai Kut Kan and others (No 1) [1982] 1 HKC 382 at 392G-H per Silke JA, and The New China Hong Kong Group Limited and another v Ng Kwai Kai, Kenneth & others, unreported, HCA 519/2010, 11 February 2011, at para 40).

16. Disputed facts should be taken in favour of the party sought to be struck out (see Ha Francesca, supra, at 392G).

17. The striking out jurisdiction should not be exercised if it requires a minute and protracted examination of the documents and facts (see Wenlock v Moloney [1965] 1 WLR 1238 at 1244).

18. In order for a matter to be struck out of a pleading on the grounds of being “scandalous”, it needs to be something which both (a) makes an imputation against the opponent and (b) is irrelevant (see Hong Kong Civil Procedure 2015, note 18/19/7).

19. In order for a matter to be struck out on the grounds of being “frivolous or vexatious”, it must essentially be completely unsustainable (see Hong Kong Civil Procedure 2015, note 18/19/8).

Principles relating to construction of contract

20. The principles in relation to the interpretation of a commercial contract were set out by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896 at 912F-913F:

“ (1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the “matrix of fact”, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749.

(5) The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201: “if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.”

21. The court will read the terms of a contract as a whole, giving the words used their natural and ordinary meaning on the context of the contract, the parties’ relationship and all the relevant facts surrounding the transaction as known to the parties.  If the words used are free of ambiguity and devoid of commercial absurdity their natural and ordinary meaning will apply unless the relevant surrounding circumstances demonstrate otherwise.  If the parties fail to express themselves well, the surrounding circumstances are of particular value (see Marble Holdings Ltd v Yatin Development Ltd (2008) 11 HKCFAR 222 at paras 19-20).

22. In Jumbo King Ltd v Faithful Properties Ltd and others (1999) 2 HKCFAR 279, Lord Hoffmann at 296D-E said:

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.”

Relevant clause in the Agreement

23. The clause which relates to the defendant’s alleged right to an independent audit and the subject of the plaintiff’s Order 14A application is the “Site Performance” subclause within the “Compensation” clause in the Agreement.  It reads as follows:-

“The site performance metrics shall be based on the Company’s monthly pageview report or by third party site traffic verification software Nielsen/Netratings Site Census or an industry recognized equivalent. Company shall provide a pageview report to Pixel Media on a monthly basis. The agreed minimum monthly page views for the Web Site is 50 million and the agreed monthly unique users is 1.7 million in accordance to a third party site traffic verification software from Nielsen/Netratings Site Census or an industry recognized equivalent. In the event of any dispute in regard to the ompany’s monthly pageview report, independent auditors may be appointed to give second opinion in relation to pageview of the Web Sites and Pixel Media shall bear the sole costs and expenses of this exercise.

Company must continue to maintain the minimum monthly page views at 50 million and unique users of at least 1.7 million per month in order to retain marketability to Advertisers.

If in any one month the site performance drops below the minimum amount, the minimum revenue guarantee will be void and actual revenues share shall apply.”

24. For ease of reference, each sentence of the clause is set out separately and numbered as follows:-

(#1)  “The site performance metrics shall be based on [the plaintiff’s] monthly pageview report or by third party site traffic verification software Nielsen/Netratings Site Census or an industry recognized equivalent.”

(#2)  “[The plaintiff] shall provide a pageview report to [the defendant] on a monthly basis.”

(#3)  “The agreed minimum monthly page views for the [Websites] is 50 million and the agreed monthly unique users is 1.7 million in accordance to a third party site traffic verification software from Nielsen/Netratings Site Census or an industry recognized equivalent.”

(#4)  “In the event of any dispute in regard to [the plaintiff’s] monthly pageview report, independent auditors may be appointed to give second opinion in relation to pageview of the [Websites] and [the defendant] shall bear the sole costs and expenses of this exercise.”

(#5)  “[Sina] must continue to maintain the monthly page views at 50 million and unique users of at least 1.7 million per month in order to retain marketability to Advertisers.”

(#6)  “If in any one month the site performance drops below the minimum amount, the minimum revenue guarantee will be void and actual revenues share shall apply.”

The plaintiff’s case on the construction of the Agreement

25. The plaintiff says that under the site performance subclause, the defendant is not entitled to appoint independent auditors to give a second opinion about the page views and unique users of the Websites.

26. The plaintiff submits that from the site performance clause, the measure of the site traffic was based solely on one of the following options: -

(a) a monthly page view report prepared by the plaintiff.

(b) the results generated from a third party site traffic verification software called Nielsen/Netratings Site Census (“Nielsen”) or an industry recognized equivalent.

27. It is not disputed that the parties have chosen to use the Nielsen software to measure the site traffic.  Indeed, the parties have agreed to, and in fact did, split the set-up cost and the monthly subscription fees charged by Nielsen.  The defendant also admitted that at the time when the Agreement was entered into, Nielsen was the leading software for measuring site traffic.  As elaborated by the plaintiff, most if not all major website owners would use Nielsen.  In fact, the plaintiff was using Nielsen before the Agreement was signed.

28. The plaintiff further submits that all software has its own shortcomings.  No single software is perfect.  This includes the Nielsen software and another software called comScore referred to by the defendant.  Notwithstanding the known shortcomings of the Nielsen software, the parties have made the joint decision to use Nielsen over comScore.  The Agreement commenced on 1 February 2010 and finished 3 years later on 31 January 2013.  The Websites have achieved the Minimum Traffic as measure by the Nielsen software.

29. Accordingly, it is the plaintiff’s case that it has achieved the Minimum Traffic under the Agreement and it is entitled to the Minimum Revenue Guarantee as agreed in the Agreement.  The total outstanding Minimum Revenue Guarantee is $8,778,120.37.  So the plaintiff is entitled to judgment as claimed.

30. The plaintiff argues that it is only when there is a dispute in regard to the “Company’s monthly pageview report”, ie the Company’s, not Nielsen’s, then the parties agreed that independent auditors may be appointed, and this must be the intention of the parties because if the parties have elected to use Company’s records as opposed to an independent third party’s software, it is only fair that independent auditors should be allowed to carry out the audit in the event of dispute.

31. Such independent audit would not have been intended, however, when the parties have elected to use a leading third party software like Nielsen.  Nielsen is like an umpire.  If the umpire has given its independent results, it was intended that the parties are bound by the results decided by the umpire.  No second bit of the cherry is allowed when the parties have elected to be bound by an independent third party’s decision.

32. The plaintiff therefore submits that the defendant may appoint independent auditors to verify the traffic only if the parties have been using the plaintiff company’s monthly pageview report.  But this is not the case here.  The parties have elected to use, and had paid for, Nielsen.

33. The plaintiff rejects the defendant’s assertion that during the negotiation stage, there was never any suggestion that the plaintiff could use its own company’s monthly pageview report to determine the site traffic, and submits that such assertion is simply not credible, nor admissible as follows:-

(a)   it is not credible because the Agreement clearly and categorically stated that the parties could elect to use the company’s monthly pageview report.  It is cystal clear.  The plain language of the Agreement clearly stated that it was one of the options.  Besides, the Agreement was drafted by the defendant.  If it has not been so agreed, or so intended, the defendant was free to omit it before it was signed.  The defendant has conveniently failed to explain why the words “the Company’s monthly pageview report” were included in the clause.

(b)   it is inadmissible because the defendant’s oral evidence contradicts the clear terms of the Agreement.  The plaintiff refers to the well-known parol evidence rule and some of the extracts of judgments quoted in para 3.11 of Lewison’s The Interpretation of Contracts, 5^th edition as follows: -

“The parol evidence rule was stated by P. O. Lawrence J. in Jacobs v Batavia and General Plantations Ltd as follows: -

‘It is firmly established as a rule of law that parol evidence cannot be admitted to add to, vary or contradict a deed or other written instrument. Accordingly, it has been held that (except in cases of fraud or rectification and except, in certain circumstances, as a defence to an action for specific performance) parol evidence will not be admitted to prove that some particular term, which had been verbally agreed upon, had been omitted (by design or otherwise) from a written instrument constituting a valid and operative contract between the parties’.

…

The justification of the rule is the promotion of certainty. In Shore v Wilson, Tindal CJ said:

‘If it were otherwise, no lawyer would be safe in advising upon the construction of a written of a written instrument, no any party in taking under it; for the ablest advice might be controlled, and the clearest title undermined, if, at some future period, parol evidence of the particular meaning which the party affixed to his words, or of his secret intention in making the instrument, or of the objects he meant to take benefit under it, might be set up to contradict to vary the plain language of the instrument itself.’

In AIB Group (UK) Ltd v Martin Lord Hutton said:

‘It is a general rule in the construction of deeds that the intention of the parties is to be ascertained from the words used in the deed and that, with certain limited exceptions, extrinsic evidence cannot be given to show the real intention of the parties. On occasions this rule may lead to the actual intention of the parties being defeated but the rule is applied to ensure certainty in legal affairs.’

More recently in Shogun Finance Ltd v Hudson Lord Hobhouse of Woodborough said:

‘The rule that other evidence may not be adduced to contradict the provisions of a contract contained in a written document is fundamental to the mercantile law of this country; the bargain is the document; the certainty of the contract depends on it …  This rule is one of the great strengths of English commercial law and is one of the main reasons for the international success of English law in preference to laxer systems which do not provide the same certainty.’”

(c)   The plaintiff also refers to the entire agreement clause in the Agreement which stipulates that the written Agreement supersedes all prior agreements.  It is therefore not permissible to rely on any prior agreements (see Wing Siu Co Ltd v Goldquest International Ltd (No 2) [2002]  4 HKC 420 at 429 per Ma J (he then was)).

34. In summary, the plaintiff submits that the defendant cannot rely on parol evidence to contradict the plain language of the site performance clause. It is plain from the Agreement that it is not opened to the defendant to engage independent auditors under the Agreement as the parties have not chosen to use the plaintiff’s pageview report.  As such, the defendant is not entitled to an audit by independent auditors.

35. The plaintiff therefore invites the court to decide the question of law as posed in the Summons that under the Agreement, the defendant is not entitled to appoint independent auditors to give second opinion in relation to the page views and unique users of the Websites, given that third party site traffic verification software Nielsen has been chosen by the parties throughout the term of the Agreement.

36. Furthermore, the plaintiff submits that the defendant cannot seek to undermine Nielsen’s figures by using comScore’s software.  Even accordingly to the defendant’s own evidence, comSocre had never properly implemented its software.  The methodology adopted by comScore was inconsistent with the ambit of the Agreement.  The combined result is that, one cannot rely on the purported results generated by the comScore’s software.

37. To properly implement the software, it was necessary to, inter alia, place appropriate tags on the Websites.  A tag is used to monitor the number of pages views of a particular webpage or sub-webpage.  As the plaintiff agreed to use comScore as a trial run only, the plaintiff had only placed comScore tags on some of its selected websites and channels, rather than all websites and channels of the plaintiff.  The plaintiff did not take further part in the trial run after the Trial Period in June 2011.  In short, comScore tags had never been properly implemented on the Websites.  As such, one cannot possibly rely on the comScore’s figures given the incomplete and defective implementation. The site traffic information generated by comScore could not fully or properly reflect the actual site traffic.

38. As the purported figures from comScore cannot be used, it leaves the defendant with no or no proper basis of attacking Nielsen’s figures.  The defendant at best can point to some purported internal anomalies in the reports prepared by Nielsen, and argues that in Nielsen’s reports, the breakdown of the total page views do not tally with the total page views.  This attack cannot possibly assist the defendant.  Any confusion arising from the breakdown cannot possibly affect the accuracy of the total page views figures.  Further, the defendant discovered this problem since June 2011.  If they really had genuine concerns about the figures contained in the Nielsen’s reports, they would have sought clarification from Nielsen back then.  The fact that they did not take up the matter with Nielsen supports the fact that the defendant knew that the confusion arising from the breakdown did not in any way affect the accuracy of the total page views figures.  Moreover, one would also wonder why the defendant continued to pay the monthly subscription fees if the Nielsen reports were thought to be inaccurate as alleged.

39. The plaintiff submits that one cannot rely on the comScore figures not just because tags were not properly installed, its methodology is also very different.  Given the differences in methodology, it is meaningless to use the comScore figures for the purpose of the Agreement.  It is like comparing apples to oranges.

40. Significantly, the methodology adopted by comScore would give a set of highly artificial figures, undercounting the actual traffic.  According to comScore’s own information, its figures do not count traffic from public computers such as libraries, internet cafes or access from mobile phone.  Many people use mobile phones to visit websites.  In China alone, at least 527 million people uses smartphones to browse through the internet.  However, they are not counted under comScore’s methodology.

41. Thus, comScore has its own methodology and its own shortcomings.  One cannot draw any sensible conclusions from the figures using comScore’s methodology.  For the purpose of the Agreement, it was never intended that traffic generated from mobile phones would not be counted.  The methodology adopted by comScore was inconsistent with the ambit of the Agreement.  There is simply no point in relying on or referring to comScore’s figures.

42. Insofar as the inherent shortcomings of the Nielsen software are concerned, they were all known factors at the time of the Agreement and they had been taken into consideration when the parties elected to use the software in the first place.  Now, the defendant is not entitled to use those shortcomings as excuses to deny the plaintiff’s entitlement of the Minimum Revenue Guarantee.

43. The plaintiff submits that, despite the defendant’s attempts to attack Nielsen’s methodology and the way it brags about comScore’s software, it has not raised any triable issues at all.

44. The plaintif therefore invites the court to enter judgment in the sum of HK$8,778,120.37 together with interest against the defendant, and for the same reasons, the court is also invited to strike out the Defence and Counterclaim on the grounds that it discloses no reasonable defence, and it is frivolous, vexatious and an abuse of process.

The defendant’s case on the construction of the Agreement

45. The defendant’s case is simply that according to sentence (#4) of the site performance subclause and in construing the Agreement as a whole, in the event of any dispute in regard to the plaintiff’s monthly pageview report, including those of Nielsen’s, independent auditors may be appointed to give second opinion in relation to the pageview of the Websites.

Proper construction of site performance subclause

46. As Recorder Ma SC (as he then was) held in Rockwin, supra, the three-step approach requires the court to first consider whether the question formulated by the Order 14A applicant is a question of law or construction, and suitable for determination under the Order 14 procedure in the first place, before going on to consider the question itself.

47. However, for the sake of convenience, I shall deal with the construction of the site performance subclause first, before each of the steps in Rockwin are addressed.

48. Having considered the parties’ submissions carefully, I come to the view that the defendant’s interpretation of the site performance subclause is a proper or at least an arguable one, namely the defendant is entitled to appoint independent auditors to give second opinion in relation to the pageview of the Websites, even when Nielsen had been appointed.

49. The plaintiff’s argument is based on the assumption that the reference in sentence (#4) of the site performance subclause to “Company’s pageview report” is a reference to a report self-produced by the plaintiff.  However, I am of the view that the reference to “Company’s pageview report” in sentence (#4) does not denote a report self-produced by the plaintiff, but instead it should cover the monthly report provided by the plaintiff to the defendant, whether from Nielsen or otherwise, to prove that it achieved the Minimum Traffic.  The reasons for my view are discussed below.

The plaintiff’s construction is internally inconsistent

50. Sentence (#2) stipulates that the plaintiff will provide a monthly pageview report to the defendant.  In other words, the plaintiff was to report each month as to the traffic of the Websites.  It is plain that the reference to a monthly pageview report in this sentence was not limited to a report self-produced by the plaintiff, but covered whatever source used by the plaintiff to arrive at the figures.

51. Indeed, in the Affirmation of So Chun Nei (“Ms So”), who is the general manager of the plaintiff, it was said that the monthly page view report provided by the plaintiff to the defendant was to be “in one of the following options”, namely a report self-produced by the plaintiff, a report produced by Nielsen, or a report prepared by a Nielsen equivalent.

52. The reference to “pageview report” in sentence (#4) should be read consistently to mean the same thing.  Thus, in the event of any dispute relating to the pageview report, whether self-produced by the plaintiff or Nielsen or anybody else, the defendant has the right to appoint independent auditors.

53. The plaintiff’s argument requires inconsistent meanings to be given to the term “pageview report” between sentences (#2) and (#4), which is at odds with the general principle of interpretation.

54. If sentence (#4) refers to self-reporting only and as the parties had already agreed to use Neilsen, then sentence (#4) is redundant and should have been deleted altogether.

55. Thus, the plaintiff’s interpretation is internally inconsistent.

The plaintiff’s construction ignores the commercial objects and factual matrix of the Agreement

56. The Agreement must be construed as a whole together with its commercial objects.  It is important to observe what the purposes of the Agreement were.  The defendant was to find advertisers and place advertisements; the plaintiff was to maximize the audience for those adverts; the plaintiff was to obtain a share of the advertising revenue if it met certain targets for the audience numbers. Under the Agreement, the defendant would be liable to pay the Minimum Revenue Guarantee in return for the plaintiff achieving the prescribed Minim Traffic for the Websites, even if the defendant itself did not receive sufficient funds from advertisers.

57. It cannot be the intention of the parties in reaching the Agreement to have the defendant liable to pay the plaintiff the Minimum Revenue Guarantee even when the actual site traffic fell below 50m page views and 1.7m unique users per month.  It would be commercially absurd and contrary to the fundamental purpose of the Agreement of maximizing audience and hence advertising revenue, if there can be no audit even when Nielsen’s figures were demonstrably flawed.

58. This is particularly so given that the weaknesses of the Nielsen methodology were well known.  First, there was the inherent weakness of simply blindly counting machines.  Even Nielsen itself, back in 2002, had acknowledged that its methodology was becoming unreliable and it overcounted vastly due to “cookie inflation” (counting 16 million unique browsers in New Zealand when the total population was only 4.4 million).   Secondly, there was the possibility of error when tags were placed onto the websites being measure, eg by placing tags onto the wrong pages, or by wrongly coding the tag.  Thirdly, there was the possibility of manipulation, eg by the use of robots to generate false user traffic, or deliberate modification of the computer code.

59. With the well known deficiencies of the methodology such as those mentioned above, a reasonable person looking objectively at the Agreement would have thought that the defendant had the right to an independent audit in case of a dispute over the correctness of the figures provided by Nielsen.

60. Indeed, even Ms So accepts that such deficiencies were “well-known” to the industry.  This background supports an interpretation of sentence (#4) of the site performance subclause as conferring a right to aduit the figures produced by Nielsen.

61. Ms So goes on to point out that other site traffic measurement software, including comScore’s, also had limitations.  Again, this supports an interpretation of sentence (#4) as conferring the right to audit even if other site traffic measurement softwares were used.

62. Ms So, however, tries to argue that the parties agreed on the site traffic targets on the basis that Nielsen would overcount (so that some “leeway” was built in to the targets).  If that is the case, then evidence should be adduced to support such a contention and it means that the matter can only be resolved at the trial, not at this Order 14A stage.

63. It cannot be disputed that the defendant was unable to measure the site traffic itself, whilst it had the obligation to pay the Minimum Revenue Guarantee where the Minimum Traffic was achieved.  On an objective reading of sentence (#4), the intention must have been to confer protection on the defendant by enabling it to seek an independent audit in case it disputes the site traffic claimed by the plaintiff.  As a quid pro quo, the defendant would be solely responsible for the costs of the audit.  If, as the plaintiff contends, the audit was allowed only in the case of self-reporting, why should the defendant pay for the costs of checking the plaintiff’s self-reporting when it was not confirmed by any independent party?  It does not make any commercial sense to me.

64. Moreover, the plaintiff argues that an audit would only be allowed in the case of dispute over a self-produced monthly report (and not in the case of a Nielsen monthly report).  The assumption inherent in this argument is that the Agreement permitted self-produced reports, but in fact this assumption is incorrect.  The site performance subclause does not in fact make any reference to self-reporting.  As the defendant’s chief executice officer, Mr Kevin Huang, explains, there is no way in which an advertising sales representative such as the defendant would have accepted self-reported figures as the basis for paying substantial sums of advertising revenue (even with the right to audit, because that would not be cost-effective).

65. Thus, against that background, the site performance subclause cannot be interpreted as allowing self-reporting in the first place.  In other words, it does not make sense to interpret sentence (#4) of the site performance subclause to mean that it only confirms the right to audit for cases of self-reported figures.

66. In sum, the plaintiff’s interpretation defies the commercial objects and factual matrix of the Agreement.

The plaintiff’s construction wrongly treats Nielsen’s figures as final and conclusive against the defendant

67. The plaintiff argues that Nielsen’s figures are final and conclusive in its favour and the defendant is not entitled to challenge any of Nielsen’s figures.  The implication is that the plaintiff was entitled to be paid no matter what the actual site traffic was, and no matter whether the figures put forward by Nielsen were demonstrably flawed.  As already said, this is commercially absurd, especially given the known flaws in the Nielsen methodology.

68. What is more is that the argument is also contradicted by the later part of the site performance subclause.  The site performance subclause does not say that Nielsen’s figures would be final and conclusive and not open to challenge. On the contrary, the language used indicates the opposite: sentences (#5) and (#6) in the site performance subclause require the plaintiff to maintain page views at 50m and unique users at 1.7m per month in order to qualify for the Minimum Revenue Guarantee; they do not say that the plaintiff is entitled to the Minimum Revenue Guarantee even if the actual numbers were lower provided that Nielsen’s figures reach 50m page views and 1.7m unique users.

69. The plaintiff is effectively confusing its obligation to obtain a report from Nielsen (or industry equivalent) which shows achievement of the Minimum Traffic with its obligation to actually achieve such traffic.  In the absence of clear words stating that the Nielsen reports were to be final and conclusive against the defendant, they should not be treated as such (see Sleigh v Tyser [1900] 2 QB 333; Petrofina SA of Brussels v Compagnia Italiana Transporto Olii Minerali of Genoa [1937] 57 Ll Rep 247; National Coal Board v William Neill & Sons (St Helens) Ltd [1985] 1 QB 300;and Universities Superannuation Scheme Ltd v Marks & Spencer plc [1999] 1 EGLR 13).

The plaintiff’s construction ignores parts of the site performance subclause

70. The Agreement must be construed as a whole.  As aforesaid, the plaintiff’s interpretation has not taken into account sentences (#2), (#5) and (#6) of the site performance subclause.  Thus, it does not give meaning to the entirety of the subclause or show how all parts can coherently be read together.  Instead, it selects the parts which it considers to be helpful to its argument and ignores the parts which contradict it.

71. Such an interpretation will not be in accordance with the principles of interpretation as stipulated above.

Applying Rockwin: Order 14A not appropriate

72. Following Rockwin, supra, before the court embarks on a consideration of the construction of the site performance subclause, it first needs to be satisfied that it is appropriate in the first place to consider this issue at all.  I am however not satisfied that it is the case here.  First, the plaintiff’s argument that the right to audit only arises where the parties had adopted the “option” of self-reporting by the plaintiff ignores the relevant factual matrix, including the following:-

(a)   the fact that the industry would not accept self-reported figures as the basis for paying substantial sums of advertising revenue, so that sentence (#4) of the site performance subclause should not be interpreted as confining the right to audit to cases of self-reported figures, and the entire subclause should not be interpreted as allowing self-reporting in the first place;

(b)   the potential inaccuracies of third party software (whether Nielsen or comScore) were such that as a matter of commercial common sense, sentence (#4) of the site performance subclause should be interpreted as entitling the defendant to seek an independent audit of the results reported by such software.  Ms So tries to argue that the parties agreed on the site traffic targets on the basis that Nielsen would overcount. As stated above, that should have been put forward in evidence and resolved at trial;

(c)   the fact that the commercial objects of the Agreement, and the site performance subclause in particular, were to reward the plaintiff for achieving actual traffic of 50 million pageviews and 1.7 million unique users per month, and not merely for submitting a report which stated such figures when it could be inaccurate.

73. As this factual matrix supports the defendant’s interpretation of the site performance subclause as conferring upon it the right to appoint independent auditors, it is inappropriate for the plaintiff to ask the court to declare that the subclause does not confer such a right without first hearing the evidence relating to the factual matrix and making the relevant findings. The exercise of construing the Agreement cannot be conducted in a vacuum, ignoring the factual background which is essential to understanding the objective meaning of the Agreement.

74. Second, the question of construction posed in the Summons is premised on a factual assertion which is not accepted by the defendant, namely, that the parties “agreed to use Nielsen from the very beginning”.  Whilst the parties certainly did start off using Nielsen, that is very different from saying that the parties thereby precluded the use of other means of measuring the site traffic to the Websites.  The plaintiff relies on Appendix 1 to the Agreement to say that the parties agreed to share the cost of the Nielsen monthly reports, but Appendix 1 in fact says that the parties agreed to share the cost of monthly reports provided by Nielsen “or any other industry accepted equivalent software”. In fact, the plaintiff agreed to install comScore tags as early as October 2010.  Although the plaintiff says that it was a trial without any commitment, if it were true that the Agreement did not allow the use of another measurement software, there is no reason why the plaintiff would even have bothered with a trial.  I therefore find it inappropriate to make a declaration about the meaning of the site performance subclause based on a contentious factual assertion.

Proper exercise of discretion

75. In any event, I do not find it appropriate to exercise my discretion to allow the plaintiff to invoke the Order 14A procedure, even if the question posed by the plaintiff were to be answered in its favour, that is, if the court were to hold that the defendant has no right to appoint independent auditors under the site performance subclause, there would still be many factual issues in the case to be tried.  The defendant’s defence is not simply that it is entitled to an audit.  Indeed, this was not even the principal point put forward.  The defendant’s case is that the plaintiff failed to demonstrate that it had achieved the necessary Minimum Traffic for the Websites.

76. The defendant has raised matters which cast doubt over the accuracy of the figures in the monthly Nielsen reports from about June 2011 onwards. Essentially, these matters are as follows:-

(a)   There were internal anomalies within the Nielsen reports, which showed that there is something wrong with the claimed site traffic.  The plaintiff has not filed any evidence to attempt to explain these anomalies, but just alleges that these were anomalies only in the breakdown of the total user traffic and they do not affect the actual totals.  However, the anomalies show that one or more of the figures in the questionable reports could be wrong, and that the figures might well be the total figure.  For example, in November 2011, the Nielsen report relied on by the plaintiff claimed that there were 67 million page views for the Websites, of which 67 million were by persons in Hong Kong, and 67 million were by persons overseas. It is clearly wrong to say “67 million = 67 million + 67 million”, and it cannot be said that the “total” figure of 67 million must be a correct figure whilst the “breakdown” figures of 67 million are incorrect.  One simply does not know which figure or figures are wrong.  It could be all of them.

(b)   The figures obtained from comScore for the Websites for the same period were vastly different.  Whilst the comScore data were not entirely complete, the huge difference between the two (Nielsen: 3 to 4 million unique users; comScore: 0.8 to 0.9 million unique users) were such as to call into question the plaintiff’s claims to have achieved the Minimum Traffic.

(c)   The figures from Nielsen, if correct, would make the Websites as popular as sites such as google.com or facebook.com, which is implausible.

77. The plaintiff advances various counter-arguments to the effect that the comScore figures are inaccurate.  Substantial evidence has been put forward on either side as to the accuracy of the figures relied on by the plaintiff for its claim to have met the required Minimum Traffic.  It is not the court’s task to determine that dispute at this hearing; nor could the court do so.  The court would need to hear witnesses, both factual and probably also expert, in order to do so.  In determining the question put forward in the Summons, it would not achieve finality of any significant issues in the action and would still leave most of the factual issues to be tried, resulting in no real saving of time or costs.  Thus, it is inappropriate to determine the question in the Summons by way of Order 14A.

78. Furthermore, the plaintiff’s construction of the site performance subclause regarding the right to audit inherently encompasses arguments about the construction of other aspects of the subclause, including (1) whether the subclause allowed the plaintiff to have the “option” of using self-reported figures rather than third party verification software, and (2) whether the plaintiff was required to achieve actual site traffic of 50 million page views and 1.7 million unique users or instead would be deemed to have achieved such site traffic provided that the Nielson report said that it had done so, no matter how questionable the figures might be.  The plaintiff has not put forward these other points of construction forward for determination, and if the court were to determine the question in the Summons, it would inevitably be implicitly expressing views on these other matters.  This would tie the court’s hands when it later comes to deal with those matters, and be unfair to the defendant as they have not been raised fairly and squarely for argument.

Even if the Order 14A application is to be entertained, the plaintiff’s construction is wrong

79. Even if the court were to entertain the plaintiff’s Order 14A application, as aforesaid, I am of the view that the plaintiff’s construction of the “site performance” subclause is wrong.  Thus, the question posed in the Summons should be answered “yes” in favour of the defendant.

Order 14 application

80. By the same token, there are clearly substantial triable issues in the present case:-

(a)   what the factual matrix to the Agreement is, and whether in the light of that factual matrix the proper construction of the Agreement is that the defendant is entitled to an independent audit given the dispute over the plaintiff’s claimed site traffic;

(b)   whether the plaintiff had achieved the required minimum site traffic, both for pageviews and unique users, for each of the months from December 2011 to February 2013.

81. These are not fanciful issues.  In respect of the latter, for example, the defendant has detailed the reason for doubting the plaintiff’s claimed site traffic.  Most significantly, Nielsen figures are inherently self-contradictory in themselves, so it can be seen that there must be something wrong with the figures, even without comparing with comScore, and even irrespective of whether Nielsen overcounts or undercounts.  These anomalies were first raised with the plaintiff in about mid-2011, and up to now, over three years later, have not been answered.  The plaintiff is the party who placed the Nielsen tags on its pages so it should be able to explain what has gone wrong, but it has chosen not to do so.  There simply can be no basis for asking the court to grant summary judgment when the basic facts as to the plaintiff’s entitlement are in such grave doubt.

82. Thus, there can be no basis for the plaintiff to seek for summary judgment against the defendant under either Order 14A or Order 14.

Striking-out application

83. Striking out is only appropriate when it is plain and obvious that the defendant does not have a valid defence or counterclaim, but as aforesaid, the facts as disputed show that the defendant has a genuine defence and counterclaim.  For examples:-

(a)   On the facts as set out by the defendant, there is grave doubt as to whether the plaintiff had achieved the required Minimum Traffic.

(b)   There is at least a good case for holding that the defendant is entitled to an independent audit to resolve the dispute over the figures.  In fact the plaintiff itself did not initially dispute the defendant’s right to audit, and instead, merely asked for details of how the audit was to be conducted.  It is clear to me that there is no “plain and obvious” case for saying that the defendant had no right to an audit.

84. Thus, there is no basis to strike out the Defence and Counterclaim as contended by the plaintiff.

Conclusion

85. By reasons aforesaid, the plaintiff’s application by way of the Summons dated 15 May 2014 must fail in its entirety.

86. I therefore order as follows:-

(1) The Summons dated 15 May 2014 be dismissed; and

(2) Costs order nisi: The plaintiff do pay the defendant costs of the said Summons with certificate for counsel to be summarily assessed on papers.  The defendant do submit and serve its Statement on Costs within 14 days hereof and the plaintiff do submit and serve its Summary of Objection on Costs within 14 days thereafter.