SHENZHEN SENTRON HUAYUCHANG ENTERPRISE LIMITED v. TSE YU FAN

1994, No. A2506

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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J U D G M E N T

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INTRODUCTION

1. Elite Engineering Co. Ltd. is an associate company of the Plaintiff in Action No. 2506/94. Tse Yu Fan (the Defendant) was originally employed by Elite Engineering Co. Ltd. as the Production Manager of its Audio Department but due to his performance, which was not satisfactory, was transferred to the Marketing Department of the Plaintiff. Due to his dealing with one Chi Yuen Product Sourcing Co. ("Chi Yuen") he was dismissed. The Plaintiff alleged that the Defendant had an oral undertaking to indemnify the Plaintiff in respect of bad debts for contracts he concluded. This oral undertaking was subsequently reduced into writing ("the Statement of Responsibility"). The Plaintiff sues the Defendant under the oral undertaking and the Statement of Responsibility for the bad debt in respect of the transactions with Chi Yuen. In the alternative the Plaintiff sues the Defendant for the bad debt as the Defendant was in breach of his fiduciary duty as employee of the Plaintiff. The Defendant in turn sues the Plaintiff for wages and other amounts due to him in respect of his employment in the Labour Tribunal. His claim is transferred to the High Court as Action No. 358/95. These 2 actions are consolidated. Hence these 2 actions are tried together.

THE ISSUES

2. I have to consider:-

1) Whether the Defendant did make the oral undertaking.

2) Whether the Statement of Responsibility was enforceable in respect of the Chi Yuen contracts.

3) Whether the Defendant was in breach of his fiduciary duty as employee of the Plaintiff.

4) Whether the instant dismissal was justified.

THE ORAL UNDERTAKING

3. Mr. Liu Heng Ling of Elite Engineering Co. Ltd. said that before his transfer to the Plaintiff in early June 1992 the Defendant told him that he was a graduate from a university in China and his classmates occupy high positions in important organisations in China and could use his connections to market the Plaintiff's products in China and by the year end he could conclude business up to 4 million RMB. Liu said he would agree to his transfer provided that there would be no bad debts. Defendant told him that there would be no bad debts in respect of sales concluded by him and should there be any he would personally repay the same. Defendant was then transferred to the Marketing Department of the Plaintiff. In the presence of Defendant he told Mr. Ng Ming Tat the Assistant General Manager of the Plaintiff responsible for the Marketing Department that Defendant was able to conclude not less than 4 million RMB by the end of 1992 and that Defendant promised to be personally liable should his purchasers failed to pay for the goods. The Defendant nodded his head to confirm that.

4. Mr. Ng Ming Tat said that when he returned from a trip in early July 1992 he found Defendant occupied a desk in his office. Mr. Liu Heng Ling advised him in the presence of Defendant that the Defendant promised to conclude business of not less than 4 million RMB before the end of the year as Defendant had good connections with people in high places in China and Defendant would be personally liable to Plaintiff for bad debts in respect of sales handled by him. The Defendant then said that there would not be any bad debt and he would be personally liable to the company if any debt was not recovered.

5. The Defendant on the other hand denied that he had uttered those words or had he ever agreed to be responsible for the bad debts.

6. The Defendant on 23^rd October 1992 signed the Statement of Responsibility. Mr. Ng's evidence is that in early October the manager under him refused to take up responsibility concerning Defendant so he had to take over the control of Defendant directly. Since he could not investigate each transaction so he told Defendant he was worried. He discussed with Liu Heng Ling and Lui said since he too had undertaken there would be no bad debts it was better for him to have a written undertaking. He considered that it was reasonable so he wrote one and went back to talk to Defendant. Defendant did not object and said he would write out one but Defendant did not have it written immediately. Ng said he showed Defendant his own undertaking and said it was not so good for the Defendant if Mr. Liu asked whether Defendant had signed one. He also said the Defendant did not refuse but he understood the Defendant did not immediately write the undertaking because Defendant had to consider the form of the undertaking.

7. The Defendant said he had never given an oral undertaking nor was he asked to do so. Having considered the evidence, on balance, I find that the Defendant had not given any oral undertaking for the following reasons:-

(i) Other employees of the department did not need to give such undertakings.

(ii) Defendant was only paid the salary with no fixed commission for contracts he procured.

(iii) The evidence of Mr. Liu Heng Ling and Ng Ming Tat concerning the circumstances when Defendant agreed to the oral undertaking was different. Liu said he told Ng in the presence of Defendant that Defendant had agreed to indemnify the company in respect of bad debts while Ng said that Defendant told him he would be responsible for the bad debts.

(iv) Had Defendant already agreed orally why did he not immediately sign an undertaking instead of having to consider and think about it. It tends to show that it was the first time the Defendant was told about this and he had to take time to consider whether he should give that undertaking.

(v) Ng wrote his undertaking early in October to induce Defendant to follow as at that time Chi Yuen had not paid according to the contracts.

THE STATEMENT OF RESPONSIBILITY

8. Mr. Liu of counsel for the Defendant submitted that the effect of this statement is that Defendant's responsibility was should there be bad debts the Plaintiff might discipline him by warning, imposing a small fine or even dismiss him. With respect I do not agree.

9. I can only interpret the statement according to what was stated therein. Extrinsic evidence can only be admitted if there were ambiguities to show the intention of the parties.

10. The statement itself was unambiguous. It stated clearly that the Defendant was liable for the loss to the company due to unpaid purchase price. So it is clear that the Defendant agreed to be liable for the unpaid purchase price.

11. That statement was made on 23^rd October 1992. Since I have found that the Defendant had not earlier orally agreed to indemnify the Plaintiff in respect of bad debts, the Defendant is only liable for bad debts arising out of contracts made subsequent to that date. Hence the Defendant is not liable for the bad debts in respect of the Chi Yuen contracts which were concluded in early September and Chi Yuen had already defaulted in payment before the date of this statement.

12. In any event since the Defendant had been dismissed and the Plaintiff had not assigned its debts to the Defendant by way of chose in action, the Defendant was deprived of ways and means to represent the Plaintiff to collect the debts.

BREACH OF FIDUCIARY DUTY AND GOOD FAITH

13. The Plaintiff pleaded that the Defendant had acted wrongfully and in breach of the implied term of good faith and fidelity in his employment contract in the Chi Yuen transaction particulars of which are as follows:-

1) Deliberating concealing from the Plaintiff the identity and creditworthiness of the purchaser when entering into contracts for the sale of goods.

2) Failing to take proper steps in collecting from the purchaser the purchase money in accordance with the sales contract and, thereafter failing to carry out the Plaintiff's instructions to collect the outstanding sum.

3) Falsely representing to the Plaintiff's other staff the business address of the purchaser in Xian.

4) Concealing from the Plaintiff the purchaser's default in paying the outstanding sum.

5) Deliberately obstructing and delaying the Plaintiff's efforts in collecting from the purchaser the outstanding sum.

14. The Defendant despite being verbose and not being concise in his answers in the witness box, on balance I prefer his evidence to that of the Plaintiff's witnesses.

15. Before the Chi Yuen contracts, Chi Yuen had sent the Plaintiff a letter to introduce itself. In the document bundle it was just a letter but according to the Defendant there was a folder with map to show its location and some colour photographs. It is the Plaintiff's document which original could not be located when I asked for it. I accept that there must be something more than just the introductory letter because in the statement of Ng Ming Tat para. 8 he stated, "The Defendant also produced to me an Introductory Pamphlet (sic) dated 1^st September 1992 issued by Chi Yuen in which Chi Yuen claimed to be a very established company". There is no suggestion that the Defendant knew the contents of the pamphlet were untrue.

16. As to the other 4 particulars; the Defendant was told to go to Xian to recover the bad debts on 18^th May 1993 and was told to report to the Plaintiff immediately. The Defendant did not report until 26^th May 1993. The Defendant had given an account of what he had done in order to collect the debt. He went to Xian on Plaintiff's instructions with no financial advancement from the Plaintiff to collect the debts. He reported to the Plaintiff from Xian and he explained he did not report his whereabouts immediately because of his fear for his own personal safety. He produced a receipt from the guesthouse to confirm he was in Xian from the date of his arrival in Xian. He had discussed and with the Plaintiff's approval entered into the agreement for the payment of purchase price on 15^th June 1993 and on Plaintiff's instructions asked Chi Yuen to make further endorsement to the agreement.

17. He even took Mr. Liu Wo Ling (brother of Liu Heng Ling) to Shaan Xi Defence and Civil Commodities Co. (which company even according to Liu Wo Ling was a well established company in Xian) to inspect the goods delivered to Chi Yuen. Shaan Xi Chin An Enterprise Co., another company which had purchased the goods from Chi Yuen also had written to confirm it had purchased the goods and would pay before 30th May 1993.

18. From the evidence above in my judgment the Plaintiff had not substantiated or proved that the Defendant had acted in bad faith as particularised in the Statement of Claim nor was there any mala fide on the part of the Defendant.

19. Mr. Liu Wo Ling said he asked Defendant to bring him to see Wong Ben's parents, (Wong Ben was the person the Defendant dealt with in respect of the Chi Yuen contract) but the Defendant said they lived far away. The Defendant said that he could not take him to see Wong Ben's parents because they had already left Xian and that he never told him that they lived far away.

20. As to the allegation (which was not pleaded) that the Defendant himself engaged in other business which was not the product of the Plaintiff. In support of that allegation the Plaintiff produced some quotations faxed or delivered to the Plaintiff's Sales Department addressed to the Plaintiff. The Defendant had given an explanation that those were on behalf of the Plaintiff. I accept his explanation. It is inconceivable that anyone who is moonlighting would openly asked for quotations to be sent to the Plaintiff and made it known to the Plaintiff.

21. Viewing all the evidence as a whole what was alleged was mere suspicion on the part of the Plaintiff which the Plaintiff had failed to substantiate.

SUMMARY DISMISSAL OF THE DEFENDANT

22. In the premises in my judgment there was no justification for the summary dismissal of the Defendant without notice and the Defendant is entitled to and must succeed in his claim in respect of his entitlement as employee and for reimbursements a breakdown of which was prepared by counsel and set out in annexure I. The Plaintiff did not challenge the breakdown and accepts that it is liable to pay if Defendant was wrongfully dismissed.

23. By reasons aforesaid there be judgment for the Defendant in the sum of $132,195.20, with interests at 8 % per annum from 15^th July 1993 until Judgment. An account of the Defendant's entitlement to the Provident Fund and payment of his entitlement found due. Costs of both actions.