JADE FURS LIMITED v. GRAHAM WARBURTON

1984 No. 8119

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

__________

JUDGMENT

__________

1. In 1984, Mr. Warburton, who is the Plaintiff in the second action, was employed at least on the face of it as General Manager by Jade Furs Ltd., the Plaintiff in the first action.

2. At the beginning of July 1984, Mr. Warburton who had collected a certain sum in US dollars on behalf of Jade Furs retained that money. That led to the first action in which Jade Furs is the Plaintiff and claims the sum of US$6,768 from Mr. Warburton in conversion, or as money had and received. Mr. Warburton filed a Defence in that action and also a Counterclaim in which he sought from Jade Furs unpaid salary and other financial benefits together with salary and benefits in lieu of notice, alleging that he had been dismissed without notice, and other minor items. At the same time, Mr. Warburton commenced the second action which essentially is the same as the action commenced by Jade Furs but with the roles reversed so that each Counterclaims in each other's action on the basis of their own claim.

3. According to Mr. Warburton, he was approached by the Managing Director and majority shareholder of Jade Furs Mr. Aaron Stewart in the summer 1981. They had several meetings. These meetings principally took place in Mr. Warburton's flat. And a friend, their mutual friend, a Mr. John who subsequently gave evidence, was present at some of those meetings.

4. At the time, Mr. Warburton was working for Trade Media where he was receiving a regular salary of $8,500 a month, was working regular hours and had a certain amount of time to devote to his own interests. But he was by his own admission interested in going into business in order to try and benefit from the hard work which he thought he contributed to any organisation in which he was involved.

5. It was suggested to him at these meetings by Mr. Stewart that Mr. Warburton should join Mr. Stewart's firm, Jade Furs. Mr. Warburton had worked with Mr. Stewart for a company called Vanity Fair. They had worked together for some years between 1976, and 1978 or 1979, at which time Vanity Fair was wound up for financial reasons.

6. After some discussion lasting several meetings, it was agreed according to Mr. Warburton that he would join Jade Furs at a salary of some $8,500 a month and would also be credited each year with 1% of the company's turnover and at some stage, as the amount which had been credited to him amounted to some 10% of the value of the company, he would be given a 10% share in Jade Furs. There was at the time working for Jade Furs a certain Mr. Leung. He has been described as a very close acquaintance and right-hand man of Mr. Stewart. He was, however, in a managerial capacity but only earning some $5,000 a month. And in order to avoid upsetting him by the introduction of an outsider i.e. Mr. Warburton to the firm at a substantially higher salary, it was agreed that Mr. Warburton would receive his remuneration by way of a monthly cheque of $6,000, the balance to be paid in cash by Mr. Stewart. Unfortunately, the agreement which Mr. Warburton says was concluded between himself and Mr. Stewart was not put into writing. He explained that Mr. Stewart had an aversion to writing and to legal documents in particular.

7. Nonetheless, at the beginning of March 1982, Mr. Warburton went to work at Jade Furs. For about six months there was no problem, he received his monthly cheque of $6,000 at approximately the end of each month and the balance was made up by a cash payment from Mr. Stewart.

8. After August, however, the cash did not materialise. Mr. Warburton said that he spoke to Mr. Stewart about this on a number of occasions and on each occasion was given a variety of excuses by Mr. Stewart for the non-payment. For example, Mr. Stewart said that he was not getting any more than Mr. Warburton out of the company; that he too was married and found this a financial commitment; that he was paying alimony overseas. Coupled with that, there seemed to be an embarrassment on the part of both parties to discuss financial matters.

9. In February 1984, out of the blue as it were, Mr. Warburton's monthly pay cheque was increased to $6,000. No explanation was given for this, it left him in something of a quandary as to whether his basic salary i.e. $8,500 had been increased or whether the monthly cash which he should have been receiving had been reduced by a $1,000. But as I say, there was no explanation.

10. Throughout this period, i.e. from March 1982 to February 1984 and indeed beyond, according to Mr. Warburton, he worked hard on behalf of the company and effectively. Certainly, the turnover of the company seemed to be increasing.

11. On the 5th July 1984, Mr. Warburton collected the sum of US dollars to which I earlier referred. It arose out of the sale of trimmings by Jade Furs to some Greek traders and a company in Tsim Sha Tsui made payment on behalf of these Greek traders. Having collected the money from the Tsim Sha Tsui company, as Mr. Warburton put it, he went into the Mass Transit and there on the escalator, his patience snapped. He decided that he had had encugh. For almost two years he had not received the benefits and the salary to which he though he was entitled. He endeavoured to contact a solicitor to try and put things on a formal footing but the firm of solicitors at which he called were unhelpful. So he opened a Safety Deposit Box with his bank, the Chartered Bank, where he deposited the sum of US dollars and then returned to the Jade Furs factory. There he saw Mr. Stewart who asked where Mr. Warburton had been. Mr. Warburton said he had been to get the money for the trimmings. The conversation, however, did not develop and Mr. Warburton found no further opportunity to speak in private to Mr. Stewart that day.

12. The following morning, i.e. the 6th July 1984, Mr. Warburton first went to a firm of solicitors, another firm of solicitors from the one which he attended the day before. And he obtained from them a letter setting out as he saw it the position in relation to the non-payment of his salary and benefits, and explaining why he had retained the sum of money he had collected the day before. Somewhat later in the morning, therefore, he arrived at the Jade Furs factory where he saw Mr. Stewart who asked him "Where's the money", referring presumably to the money collected in respect of the trimmings. Mr. Warburton profferred the letter he had obtained from his solicitors and asked Mr. Stewart to read it. Mr. Stewart simply threw the letter aside and said again "Where is my money?". In response, although by now they had moved to another office, Mr. Warburton said “Where is my money?" meaning the balance of his salary which had not been paid. At this point Mr. Stewart said "Get out of my face, fellow, I don't want to see you again.”. Mr. Warburton thereupon left.

13. Upon reflection, he realised that he had been dismissed. He had no further contact with Mr. Stewart after that morning and the following morning, at an early time, collected his things from the factory.

14. That, as I say, is what happened according to Mr. Warburton. As might be expected a rather different picture emerged on behalf of Jade Furs for whom evidence was given by Mr. Stewart. Mr. Stewart said that he was aware that Mr. Warburton had been unhappy in his employment before he made the approach at the end of 1981 and in particular was having some difficulties at Trade Media. They had, of course, had a previous relationship when they worked together for Vanity Fair. The relationship apparently arose because Mr. Warburton had performed some assistance for Mr. Stewart and a colleague. As Mr. Stewart said, out gratitude for this previous assistance, he asked Mr. Warburton to come back to the fur trade. There was only one meeting, that was in the factory, not in Mr. Warburton's flat, at which Mr. Stewart said he could afford to pay Mr. Warburton a salary of only $6,000 which indeed was $1000 more than he, Mr. Stewart, was getting. There was no argument. There was no discussion. Mr. Warburton accepted it and thereafter came to work. According to Mr. Stewart, Mr. Warburton was employed as Mr. Stewart's personal secretary or aide. He was given the grandiose title of General Manager of Jade Furs in order to save face.

15. Matters, however, did not go smoothly. According to Mr. Stewart, Mr. Warburton was unpunctual, devoted too much time to his own personal affairs, made no attempt or no great attempt to learn the affairs of the fur trade, did not work hard and, above all, had a bad effect upon prospective buyers who let it be known to Mr. Stewart that after meeting with Mr. Warburton they were left with a bad taste in their mouths.

16. According to Mr. Stewart, Mr. Warburton's future was discussed on a number of occasions. Mr. Stewart said he pointed out Mr. Warburton's shortcomings to him and said that if these faults were corrected and if he. worked to the guidelines laid dorm by Mr. Stewart, then yes, an interest in the company in future might be possible.

17. Also during the period that he was employed, Mr. Stewart did give money to Mr. Warburton. This was not by way of the balance of salary but by way of financial assistance because he knew that Mr. Warburton was having some financial difficulty.

18. At the beginning of July 1934, Mr. Stewart had been in the United States of America and he knew about the sale of the trimmings to which I have already referred. He returned on the 3rd or 4th of July, certainly the day before the 5th July upon which according to Mr. Warburton the final incident developed. Upon his return, he asked Mr. Warburton about the cuttings and Mr. Warburton said he would collect the money for him. Mr. Stewart, however, decided to check and he discovered that in fact the money had already been paid to Mr. Warburton. He did not, however, address Mr. Warburton on the subject. He decided to wait and hear from Mr. Warburton his own explanation of what had occurred.

19. On the 5th July, after hearing nothing from Mr. Warburton, at 3 o'clock in the afternoon when he saw Mr. Warburton, Mr. Warburton said he would go and collect the money. Thereafter, he heard and saw nothing from Mr. Warburton until the following day, the 6th July, when Mr. Warburton profferred his solicitor's letter. Mr. Stewart said "I'm not interested in the letter. All I am interested in is the return of the money. I want my money back.” and then he left. And following that, there was no further or immediate contact with Mr. Warburton and certainly, accordingly to Mr. Stewart, he did not consider that he had dismissed Mr. Warburton.

20. So there we have 2 contrasting stories. Although there is a measure of independence from the mutual friend whom I referred to i.e. Mr. John and although there are some documents, neither contribute very greatly to the story and at the end of the day the case, or the two actions, turn upon the credibility of Mr. Warburton and Mr. Stewart.

21. Mr, Warburton gave his evidence in a careful and straightforward manner. He did not shift his ground. He gave a consistent story and of course the solicitor's letter which I referred set out his position as he saw it at the beginning of July 1984. That position has remained the same since.

22. On two occasions, Mr. Warburton said "I may be naive but I am not stupid. " Well, I have to agree with him that he was naive; perhaps not stupid, but certainly silly. As I think I have outlined, for almost two years, he did not receive the salary which was due to him. Certainly silly, if not stupid, not to have taken some step to try and get confirmation, written or otherwise, from Mr. Stewart of the terms upon which he was employed and confirmation of salary and other benefits which were owing to him. And this is particularly so after the cash payments ceased in September 1982. Well, these courts know very well that people are naive and silly. And the most important factor in considering Mr. Warburton's evidence, I think, is this. Mr. Warburton described his job with Trade Media as a "cushy" one. He had a regular salary, regular hours and his place of work was conveniently located to his home. It seems to me inherently unlikely that he would leave that position for a lower salary, for harder work and for a less convenient location. And it is unlikely that Mr. Warburton with his background and experience, including experience as editor of a local newspaper 'Target', would have gone to work for Mr. Stewart simply in a secretarial post.

23. Mr. Stewart, on the other hand, was cross-examined at some length, as indeed was Mr. Warburton. But in contrast to Mr. Warburton I found Mr. Stewart to be facile and evasive in his answers to questions put by Counsel. For example, he said that he had a high regard to Mr. Warburton and still had a feeling of gratitude towards him. Yet in spite of that he was unwilling to give a straight answer to Counsel of what he felt Mr. Warburton had learned in the fur trade while working at Vanity Fair. This despite the fact that they had worked closely together and clearly Mr. Stewart would have knowledge of Mr. Warburton's ability. Again he was unwilling to say whether Mr. Leung, his right-hand man, would be upset at the idea of a new man joining the company in a merely secretarial post at a higher salary. I venture to suggest that it would not have been difficult for Mr. Stewart to express an opinion on that.

24. He was also difficult to pin down upon the date when he first approached Mr. Warburton. At the end of cross-examination on this topic, the date ranged from October 1981 to January or February 1982. Mr. Stewart was also reluctant to give Mr. Warburton any credit for any effort which he may have put into Jade Furs. There was the matter of the proposed joint venture with the Swedish businessman. According to Mr. Stewart, when he first gave evidence about this, this was all for the personal benefit of Mr. Warburton. It is only after questioning that he conceded Jade Furs might have had some participation in this project. And again he told us about the three overseas trips to Sri Lanka, to Japan and China. On these, apparently, Mr. Warburton was taken along simply for his note-taking capabilities and for socialising purposes, and yet Mr. Stewart conceded that, at least as far as the Sri Lanka venture was concerned, it partly arose as a result of Mr. Warburton's ideas and proposals.

25. I have outlined a curious state of affairs and it seems to me inherently unlikely that Mr. Stewart, as the majority shareholder, managing director and effective persona of Jade Furs, a man of thrust and clearly of considerable business temperament, would retain in his employment or in the company's employment for 2½ years as the titular General Manager, a man who was unpunctual, who was lazy, who was interested more in his own personal affairs and who was apparently unpalatable to buyers and, on Mr. Stewart's own admission, affecting the profits of the company.

26. I say it is inherently unlikely that he would have retained this man for some 2½ years simply on humanitarian grounds. It is also, I think, necessary to remember that Mr. Stewart made his overture or overtures to Mr. Warburton upon his (Mr. Stewart's) return from a trip to Europe at the end of 1981. During this trip, he had been informed that his right-hand man, Mr. Leung, in whom he had great faith and confidence, was drinking on the job. Undoubtedly Mr. Leung had a drink problem from which he died a year or so later. Although Mr. Stewart would not acknowledge the connection, it is clear to me that he was looking for a replacement for Mr. Leung whom he described as a capable managerial man.

27. I said that the other evidence is not particularly helpful but it has been referred to by Counsel for Mr. Stewart and I must in fairness consider it. First of all, there is a question of the documents. Certainly, these are of no great material assistance to Mr. Warburton's case. First, there is the document which appears on p.1 of the bundle which is described as aims and objects". It was a document which Mr. Warburton submitted to Mr. Stewart sometime around November 1983. Whilst mentioning his salary and whilst mentioning his position there is no mention of the arrears of salary. And Mr. McLanachan suggests that this document is forward looking to the possibilities that might lie in store for Mr. Warburton if his performance in the company was satisfactory. It is not a document, he says, which reflects a past agreement between Mr. Warburton and Mr. Stewart.

28. However, I accept Mr. Warburton's explanation of this document which was that it was to preserve his position as a person having an agreed interest in the company because he was worried that other investors may come to the company and dilute the share holding.

29. Next, there is the large bundle of bank statements of Mr. Warburton's joint account with his wife in Chartered Bank. It shows two entries of cheques worth $6,000 and one entry of a cheque of $2,500 which presumably reflect two salary payment cheques and also a personal cheque of $2,500 from Mr. Stewart which may or may not have been in lieu of a cash payment. Mr. Warburton explained that, as far as the cash payments are concerned, (they after all only continued for some six months) they were used for immediate expenditure and financial commitments.

30. The absence of repeated entries of $6,000 of course proves nothing. In any event it is conceded that he did receive those cheques.

31. Then there are the curious Inland Revenue Department returns in respect of Mr. Warburton's employment and salary which show s salary of only $6,000. Why, it is asked, doesn't this show $8,500? The answer, I suppose, is that after September 1982 anyway he was only effectively receiving $6,000, so there is no mystery about that.

32. And then there is a letter which Mr. Warburton wrote to his bank, The Chartered Bank in April 1982, shortly after he joined Jade Furs. He was seeking overdraft facilities. In that, he described himself as General Manager of the company and in receipt of a salary of some $8,500. If indeed he was not really the General Manager and not really in receipt of such a salary, it is curious that he should have tempted providence by putting this in writing to the bank who would easily find out the truth.

33. So much for the documents. Then there is the question of Mr. John, the mutual friend of the two witnesses. If Mr. Warburton was naive and perhaps silly, Mr. John in my view was rather simple. This view I think is effectively summed up by his reaction to what happened at the beginning of July 1984. He apparently spoke to Mr. Stewart on the telephone. Instead of endeavouring to mediate between two friends, as might have been expected, he simply asked the whereabouts of some plants of his. However, Mr. John does provide some support for Mr. Warburton's version of events. He says that there were a number of meetings, perhaps eight, at Mr. Warburton's flat at which Mr. Warburton's possible employment was discussed. And as I have already indicated, Mr. Stewart said in his evidence the question of employment was never discussed in Mr. Warburton's flat. Mr. John also said that Mr. Warburton was very concerned about taking the job offered by Mr. Stewart, not least because he was intending to marry later in 1982 and would be taking on additional financial commitments. I have no reason to disbelieve the evidence that Mr. John gave and therefore it amounts to some confirmation of Mr. Warburton's evidence.

34. There is one other point I think which I should touch upon and that is the position of the shareholders in Jade Furs Limited. Mr. McLanachan has rightly said that giving a 10% share holding to anyone is a matter of some importance, and would require consultation with the other shareholders and there is no evidence to suggest that this was ever done. As I have already said, Mr. Stewart was the majority shareholder, he was the Managing Director and effective persona of the company and I have no doubt that he felt able to make the offer, which I'm sure he did, to Mr. Warburton and that he was confident that he would be able to manipulate the other shareholders.

35. I am satisfied therefore on the balance of probabilities and I so find, first of all that there was an agreement in the terms described by Mr. Warburton and secondly that the events of the 5th and 6th July 1984 also were as described by Mr. Warburton. The question that then remains to be decided is whether or not Mr. Warburton was dismissed by Mr. Stewart. I am asked to say by Counsel that Mr. Warburton effectively dismissed himself because to all intents and purposes he stole from the company and that is an action which cannot be condoned by the Courts. However, I accept that in the circumstances which I have outlined by placing the money separately in a safety deposit box, by taking immediate legal advice, Mr. Warburton was not acting dishonestly but out of desperation. As I have already found Mr. Stewart on behalf of the company was aware that Mr. Warburton was owed a large sum of money in unpaid salary. On the 5th or the 6th of July it was his reaction to solve this problem by getting rid of Mr. Warburton. If Mr. Stewart had not been aware of Mr. Warburton's position as to the salary I would have expected him to have asked Mr. Warburton what was going on, why was it going on and to have read the letter.

36. I find by using the words which he did, and those are the words which Mr. Warburton ascribed to him and by his subsequent conduct in not contacting Mr. Warburton, Mr. Stewart did dismiss Mr. Warburton. In those circumstances, therefore, there must be judgment for Mr. Warburton.