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DCCJ 6578/2003
IN THE DISTRICT CORT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO. 6578 of 2003
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Between
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ZEE YEE KA JESSICA (徐綺嘉) |
Plaintiff |
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And |
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GREENWOOD (ASIA) LIMITED |
1st Defendant |
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LUK KIN YU PETER |
2nd Defendant |
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Coram: Deputy District Judge K.W.Wong
Date of Trial: 9th, 10th, 11th January 30th, 31st March and 26th May 2006
Date of Handing Down of Judgment: 4th September 2006
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JUDGMENT
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1. By the present action, the Plaintiff claims against the Defendants for loss and damages, including arrears of wages, wages in lieu of notice and pro-rata annual leave payment, arising from termination of her employment with the Defendants amounting to a sum not less than $320,000. The Defendants denies existence of an employment relationship between the parties and allege the Plaintiff that they were intended joint venture partners. Since negotiation between the parties broke down, they counter-claim pre-payments to and expenses payable by the Plaintiff in the respective sums of HK$48,000 and HK$5,984.7.
History of Proceedings
2. The Plaintiff initially instituted proceedings in the Labour Tribunal as LBTC8894/2003 on 10th October 2003 against the 1st Defendant for a sum of $1,971,545.6. The 1st Defendant counter-claimed a sum of $98,000. On 3rd November 2003, the matter was transferred to this Court pursuant to an order of the Labour Tribunal with no order as to costs.
3. On 1st April 2004, leave was granted by this Court to join Mr. Luk Kin Yu Peter as 2nd Defendant in the proceedings. The parties then filed and served pleadings to re-define issues between them.
Background
4. The Plaintiff is a young lady who graduated from the Cornell University with a Bachelor of Science in Engineering in 2000. She studied high school in the United States. The 2nd Defendant was a friend of her father. In 1996, she worked as a summer intern in Hong Kong in an insurance company then known as Top Glory (later known as “Pacific Century”). At that time, the 2nd Defendant was working in Top Glory as a Chief Financial Officer. Since then the Plaintiff had kept in touch with the 2nd Defendant. It is not in dispute that the Plaintiff regarded the 2nd Defendant her trusted uncle who she respected and had addressed him “Uncle Peter” while the 2nd Defendant treated the Plaintiff his niece.
5. After graduation, the Plaintiff worked in Hong Kong for Goldman Sachs, one of the world’s largest investment banks, as a financial analyst.
6. According to the evidence adduced, some time around end of early August 2002, they had lunch together. The business plan of the 2nd Defendant was made known to the Plaintiff during the lunch. The areas of business in which the 2nd Defendant was interested included setting up joint venture English kindergartens in Shanghai. The Plaintiff was interested in the venture. Because of regulatory difficulties, it was later decided that the scope of the joint venture be more focused on centres for teaching English in China (“Joint Venture Business”).
7. The 1st Defendant was incorporated on 13th December 2002 and was acquired by the 2nd Defendant on or about 13th February 2003. According to the Defendants, it was solely owned by the 2nd Defendant and was used as an investment vehicle in the Mainland. A joint venture company in the PRC, known as Shanghai Ling Si Zi Xun Company Limited (上海凌思咨詢有限公司) (the “Joint Venture Company”) was later formed by the 1st Defendant with a Mainland company, namely, Shanghai Cui Rong Shang Wu Zi Xun Compnay Limited (上海翠榕商務咨詢有限公司) (“Cui Rong”) for the purpose of the Joint Venture Business. Both the Business Licence and the Certificate of Approval of the Joint Venture Company were issued by the PRC authorities on 23rd May 2003. It is not in dispute that the Plaintiff had done a quite significant amount of work in the initial exploration of the kindergarten business.
8. The Plaintiff said that upon the 2nd Defendant’s oral invitation, she agreed to work for the 2nd Defendant in the Joint Venture Business as Chief Executive Officer (“CEO”). All the basic terms of her employment had been agreed. Pursuant to this oral agreement the Plaintiff resigned from Goldman Sachs and commenced working for the 2nd Defendant as from 15th April 2003. A sum of HK$48,000 was paid to her by a cheque of the 1st Defendant as her salary from 15th April 2003 to end of May 2003.
9. The Plaintiff also said that at the request of the 2nd Defendant, she was required to invest in the 1st Defendant a sum of HK$50,000. The investment was simply for her to hold certain token shares in the 1st Defendant. However, the Plaintiff and the 2nd Defendant failed to reach agreement on the terms of the partnership agreement in the 1st Defendant. It was the Plaintiff’s case that the 2nd Defendant terminated her employment on 28th July 2003.
10. The Defendants, however, said that the Plaintiff was interested in the Joint Venture Business and agreed to be a joint venture partner. The Defendants said that the making of the Plaintiff a CEO of Joint Venture Company in Shanghai was conditional upon the signing of the shareholders agreement of 1st Defendant by the Plaintiff and the 2nd Defendant. Since after protracted negotiation the parties still failed to come to agreement on key terms of the shareholders agreement, including their future shareholdings in the 1st Defendant, the 2nd Defendant called off the deal in order to avoid hard feeling being developed. This was done by an email to the Plaintiff dated 8th June 2003, and not on 28th July 2003, as asserted by the Plaintiff.
11. Since there is no shareholders agreement, there is no employment. The Defendants therefore counterclaim from the Plaintiff the sums of $48,000 and $5,984.7, being respectively advance salary and money spent by the 2nd Defendant on behalf of the Plaintiff in respect of the intended joint venture between the parties.
The Pleadings
The Plaintiff
12. It is the pleaded case of the Plaintiff that by an oral agreement made between the Plaintiff and the 2nd Defendant prior to 13th February 2003, the 2nd Defendant agreed to employ the Plaintiff and the Plaintiff agree to serve as a CEO in a joint venture in the PRC for a term of two and a half years. The terms agreed included the monthly salary of $32,000 and housing allowance in Shanghai in the sum of RMB6,000, reasonable medical and insurance coverage. In reliance of this agreement, the Plaintiff had carried out substantial work on the Joint Venture Business. Only a sum of $48,000 had been paid as salary for the period from 15th April 2003, the commencement date of her employment with the 2nd Defendant, until end of May 2003. It is the pleaded case of the Plaintiff that the employment was terminated forthwith on or about 28th July 2003 by an email. In the Amended Statement of Claim, the Plaintiff claims against the 2nd Defendant for:
i) $60,903.20 being arrears of salary for the period from 1st June to 28th July 2003;
ii) salary in lieu of notice;
iii) $3,068.4 being pro-rata annual leave payment;
iv) $7,574.0 being expenses incurred by the Plaintiff for and on behalf of the 2nd Defendant in the course of her employment with the 2nd Defendant;
v) $256,000.0 representing loss of income between August 2003 and March 2004 during which the Plaintiff was unemployed or such amount as may be found due to the Plaintiff pursuant to section 8A of the Employment Ordinance, Cap 57 (“E.O.”);
vi) interest.
13. The Plaintiff says that the 1st Defendant is a shelf company procured by the 2nd Defendant as an investment vehicle to implement the Joint Venture Business. If an employment relationship is established, and if the 1st Defendant is found to be the true employer by this Court, the Plaintiff maintains that the Plaintiff only entered the employment contract with the 1st Defendant upon the representations and relying on the 2nd Defendant’s assurance that he would guarantee the performance of the employment by the 1st Defendant and is still liable for breach of this guarantee.
The Defendants
14. The Defendants have filed and served a joint defence and counterclaim. They basically deny the existence of the employment relationship. It is the pleaded case of the Defendants that the employment is conditional upon the Plaintiff and the 2nd Defendant entering into a shareholders agreement by which the Plaintiff would invest and take up shares in the 1st Defendant. In the absence of a signed shareholders’ agreement, there is no employment.
15. The Defendants also pleaded that in the event an employment is found to exist, it is the 1st Defendant, and not the 2nd Defendant who should be the employer of the Plaintiff. Furthermore, the Defendants’ position is that the compensation payable to the Plaintiff is limited by sections 5, 6, 7, and 8A of the EO.
16. By way of counterclaim, the Defenadnts seeks to recover $48,000 paid to the Plaintiff as advanced salary and $5,984.7, being the Plaintiff’s share of certain expenses that had been incurred for the abortive joint venture between the Plaintiff and the 2nd Defendant. In paragraph 31 of the Defendants pleadings, the Defendants plead that the said salary is advanced by the 1st and 2nd Defendants in anticipation of the shareholders’ agreement and the service agreement to be entered into and signed. The advanced salary is said to be repayable to the two Defendants without demand in the circumstances whereas the other expenses are repayable either to the 1st Defendant or alternatively to the 2nd Defendant.
Issues
17. By this trial, the following appear to be the principal issues to be resolved by the Court:
i) whether there was a concluded employment contract;
ii) if the answer to the first question is in favour of the Plaintiff, who was/were the Plaintiff’s employer(s)?
iii) the amount that the Plaintiff is entitled to upon termination of the employment contract;
iv) if the answer to the first question is answered against the Plaintiff, is the Plaintiff liable to refund the sums claimed and if so, to whom?
Evidence
18. The above issues basically turn on facts. Only the Plaintiff and the 2nd Defendant gave evidence at trial. Both of them adopted their respective written statements filed with Court herein and contained in the Main Bundle (“define below”) as their evidence. They both supplemented their evidence with oral evidence not contained in their respective statements.
19. The parties have filed a trial bundle comprising pleadings, witness statements of the parties and documents that the parties considered relevant (“Main Bundle”). In fact, a lot of the documents relied on are contemporaneous emails exchanged between the parties together with draft agreements annexed to the emails. Since they were not sorted in chronological order, upon my direction on the first date of trial, another bundle of emails was filed which contained basically the same emails in chronological order (“Emails Bundle”). Since the parties do not dispute the authenticity of documents, particularly those emails, I accept all documents in the Main Bundle and Emails Bundle as evidence, subject to my acceptance of explanation on these documents advanced by the witnesses.
The Plaintiff’s Evidence
20. After graduation she joined Goldman Sachs and worked there for 2 years 9 months earning $32,000 (inclusive of MPF) a month with annual performance bonus before she left. It was her evidence that as an analyst, she would expect promotion to the post of an associate after about 3 years. In fact she had been in discussions with her manager about her possible promotion before she left. As an associate, the Plaintiff could expect at least a 10% rise in salary together with a housing allowance of $20,000 a month. When she left Goldman Sachs, she had given up some $56,069.35 of her retirement benefit.
21. In August 2002, he met the 2nd Defendant who told her that he was interested to get into educational business in China. It was not until November or December 2002 that the 2nd Defendant started to ask her, “Jessica, are you interested in?” but nothing concrete was agreed on. It was not in dispute that the Plaintiff and the 2nd Defendant went to Shanghai together for some studies in January 2003. According to the Plaintiff, during this 1st Shanghai visit, the 2nd Defendant introduced her as “the person I’m going to hire”.
22. In fact, between August 2002 and the time she left Goldman Sachs, she helped out the 2nd Defendant in the Joint Venture Business during her spare time. These works included visiting kindergartens in Hong Kong, commenting on the feasibility business plan prepared by the 2nd Defendant, finding out course materials for typical language centres for SAT and TOEFL, calling up overseas universities enquiring recruiting seasons for graduates, particularly those graduates from the Ivy League.
23. After this 1st trip to Shanghai and some time in January 2003, the Plaintiff said she met with the 2nd Defendant. At this meeting (“1st discussion”), the 2nd Defendant made the formal offer to her. They talked about the salary, housing allowance as she would be based in Shanghai, medical, dental and accidental insurance. The figure of $32,000 was mentioned in this discussion. In cross-examination, the Plaintiff said that the 2nd Defendant replied “OK” when she indicated the expected salary upon the invitation of the 2nd Defendant. The 2nd Defendant asked the Plaintiff to resign and help him run the Joint Venture Business in the PRC if she found the terms proposed “OK”. She said her reply of “OK” coupled with her conduct amounted to an acceptance.
24. There was a subsequent discussion between them in late January/early February 2003 (“2nd discussion”) at which the 2nd Defendant asked the Plaintiff to stay on with the venture for three years. According to the Plaintiff, she was a bit surprised as she did not look that far ahead in her job. However, the 2nd Defendant said as he would investing one million in the joint venture, he could not afford someone who ran the joint venture to disappear easily. She saw his rationale and agreed to this three years period. She was interested in the venture. Secondly she also trusted the 2nd Defendant.
25. The 2nd Defendant then said to her that in order to show her commitment, she needed to put in money. She said she was shocked as this was the very first time that she heard of this requirement. She said the 2nd Defendant explained that if she put in money, she got something to lose and therefore would try all her best to ensure the joint venture a success. She replied that she would be doing her best anyway. However the 2nd Defendant appeared not convinced and insisted her putting in an amount that would mean significant to her. As a compromise she agreed to put in $100,000 to show her token of commitment.
26. In cross-examination, the Plaintiff said somehow this “carrot and stick” scheme was mentioned in November 2002. She also said that during the 2nd discussion, she raised that she expected to follow her current annual leave entitlement of 15 working days that was equivalent to three weeks holidays. The 2nd Defendant agreed. The holiday’s convention – whether Hong Kong or core Chinese holidays, was also discussed. The 2nd Defendant also asked her to enquire the minimum amount of salary below which an employee was not required to pay any MPF. The 2nd Defendant said the Plaintiff would be paid MPF after running of the joint venture for one year.
27. She then asked the 2nd Defendant to give her an employment contract in order for her to resign. However, the 2nd Defendant was busy as he would be on a number of trips then. At the same time, the 2nd Defendant also indicated to her that he wanted the Plaintiff to be on board by April 2003 because there was another trip to Shanghai scheduled initially for end of March 2003. This trip was later postponed to April because of SARS. But on the other hand, the Plaintiff said she also wanted to give ample time to her manager about her resignation. So she was in a situation of “squeezed”. She therefore called up the 2nd Defendant who was then in Sydney. An email was sent on 18th February 2003 to the 2nd Defendant (page 21 of Emails Bundle) asking whether she should submit her resignation before signing a contract with the 2nd Defendant. The 2nd Defendant replied that it was fine.
28. When she answered questions put to her by her counsel, the Plaintiff said the employment package agreed upon between her and the 2nd Defendant after the 2nd discussion was:
i) monthly salary of $32,000;
ii) monthly housing allowance of RMB6,000 when she stay in Shanghai;
iii) Hong Kong public holidays;
iv) two weeks annual leave; and
v) medical, dental and accident insurance matching with her insurance package with Goldman Sachs because the 2nd Defendant had indicated she should find out from her present employer her package and he would match the same;
29. The Plaintiff said that she believed the 2nd Defendant then was going to employ her. In order to pursue his venture in China, the 2nd Defendant purchase the 1st Defendant on 13th February 2003 as a vehicle to invest into China.
30. She did tender a resignation to Goldman Sachs on 18th February 2003 or around that time without waiting for a written contract to be signed. She agreed that she left Goldman Sachs on 4th April 2003 though she had once said she left on 10th April 2003. She explained that according to her bank passbook, she was paid by Goldman Sachs on 10th April 2003.
31. The Plaintiff said initially they agreed to be on the project for three years but later it was agreed at two and a half year starting from 15th April 2003. She said she started earlier on 13th April 2003 but she said she did not really care as she had already started working for the 2nd Defendant long before that. 15th April 2003 was a date referred to by the 2nd Defendant in his 2nd email dated 3rd May 2003 (page 68 of the Emails Bundle). She was happy to adopt this as her commencement date of employment.
32. Some days before 15th April 2003, she and the 2nd Defendant went on a 2nd trip to Shanghai. During this trip the 2nd Defendant hired one staff called Hami Pang (“Hami”) for the Joint Venture Business. According to the Plaintiff, the 2nd Defendant engaged Hami on a personal basis. She agreed that the Joint Venture Company engaged no employee up to the time she was terminated. During this trip, they met with their PRC partner, a language professor, lawyers and accountants for the purpose of the kick-start of the Joint Venture Business.
33. According to the Plaintiff, in fact some time in February 2003 the 2nd Defendant asked her whether she had any employment contract template for drafting the employment contract. Since the only one she had was an offer letter from Goodman Sachs, she was unable to do so. She expressed the same in her email to the 2nd Defendant dated 13th February 2003.
34. In order to give the 2nd Defendant a push to draft the employment contract, she sent an email to the 2nd Defendant dated 29th April 2003 (page 56 of the Emails Bundle) summarizing therein the terms she understood to be the agreed terms. She said the monthly salary, housing allowance, Hong Kong public holiday schedule, medical and accidental insurance are basically the same as what had been agreed in February 2003.
35. It was not until 3rd May 2003 (page 63 of the Emails Bundle) that the 2nd Defendant sent an email to the Plaintiff enclosing therewith a draft shareholders agreement of the 1st Defendant for her review. It is noted that there was no separate draft employment contract enclosed. In that email, the 2nd Defendant indicated that once all the terms were agreed upon, they could pass the agreement to their lawyer Lena for final drafting and execution. He asked her to consult Lena on the costs.
36. The terms relating to her employment side were stated in section (E) of the draft. All except insurance were the same as agreed before. The Plaintiff said she had clarified with the 2nd Defendant on this point. The 2nd Defendant replied that he was not going to provide insurance coverage for dental or any retirement scheme to the Plaintiff at this initial stage.
37. On the same date the 2nd Defendant sent her another email stating, inter alia, the following:
“I forgot to mention that I have made the agreement to start from 1st June 2003. For the period from 4/15 to 6/1, I will give you $48,000 in cash, tax free.”
38. The Plaintiff said she did not expect anything like the said draft to come from the 2nd Defendant. It was because the draft mixed up her purchase of the shares in the 1st Defendant with her employment. It was unclear. Furthermore, the termination clause at (K) had never been discussed. Under that clause, if the Plaintiff was to leave the 1st Defendant or the Joint Venture Company, she had to compensate the 2nd Defendant for all his investment.
39. There was a meeting between the Plaintiff and the 2nd Defendant on 5th May 2003. During that meeting the 2nd Defendant explained he required the Plaintiff to compensate him in case she left because otherwise he would be doing investment into the sea. She expressed understanding to this but required the clause to operate both ways. The 2nd Defendant agreed and said he would come back with another draft. She also said she did ask why she only got up to 24.9% shareholding in the 1st Defendant. The 2nd Defendant did give an answer which she could not recall. She, however, understood and was happy with the answer given then. She understood she was not a financing partner but concerned that she might be unable to make 24.9%, as it would mean an investment of $245,000. At that meeting she did request to invest by two equal instalments. The 2nd Defendant agreed. It was reflected in subsequent drafts exchanged between the parties that her initial investment was reduced to $50,000.
40. At that meeting she said since the employment terms were roughly fine and what they needed was to focus on the terms of the shareholders agreement, she suggested to the 2nd Defendant separating the two matters into two drafts. The 2nd Defendant agreed. She therefore made a split of the draft into a draft shareholders agreement and a draft employment agreement (pages 204 to 211 of the Main Bundle).
41. She said what remained to be sorted out in respect of the employment were: medical, accidental and dental coverage and profit sharing in terms of bonus.
42. It was not in dispute that the Plaintiff was given a cheque of the 1st Defendant dated 20th May 2003 for a sum of $48,000.00, signed by the 2nd Defendant on the 1st Defendant’s behalf.
43. There were exchanges of emails basically on the compensation terms in case the 2nd Defendant pulled out and on the insurance package. According to the Plaintiff, the last version of the draft employment contract was at page 184 of the Main Bundle. It is noted that the terms of this final draft employment agreement are basically the same as the very first one except that the term ran from 1st June 2003 to 31st December 2005 (2 years 7 months) instead of for three years from 1st June 2003.
44. There was another meeting between the parties on 28th May 2003. This meeting was brought about by a term proposed by the 2nd Defendant by an email dated 27th May 2003. In this draft, the 2nd Defendant proposed in the draft shareholders agreement that if he terminated the joint venture prematurely, he would sell his investment to the Plaintiff at the lower of the realizable value of the shares or the original investment value. The Plaintiff considered both parties should receive equal treatment and the consequent of the 2nd Defendant’s breach should be equivalent to what he requested of her, not only a simple sale. What the 2nd Defendant put in was effort and time. She therefore expected the 2nd Defendant to compensate her for the salary for the remaining term in case he pulled out prematurely. She said the 2nd Defendant laughed and said he would think about that and revert.
45. There were further exchanges of emails. It was not in dispute that there would to be a 3rd visit to Shanghai in June 2003. It was noted that on 3rd June 2003, the Plaintiff sent to the 2nd Defendant an email inviting another meeting with the 2nd Defendant on a Saturday (presumably 7th June 2003). It was stated in this email that she preferred to have all the agreement and insurance package done before the 3rd trip to Shanghai, so that she could focus 100% on the operational aspect of the project. The Plaintiff said she felt unsecured as she did not have the employment contract signed and therefore expressed her unwillingness to make further trips to Shanghai.
46. Not much evidence was adduced in relation to what had been exchanged at that meeting. However, on Sunday 8th June 2003, the 2nd Defendant sent an email stating, inter alia,
“Since our conversation yesterday, I have been thinking very hard but there seems to be no way out. We are kind of stuck. Maybe it is time to call it quit before serious hard feeling develops.
… It is sad for me to think of all the time and investments going down the drain, … You must have suffered quite a bit too in terms of the time and effort you put in.
… Would you please let Hami know of this as we need to settle accounts with her? I also need to settle with you for the expenses you have incurred. Please let me know when you are ready.
…”
47. After receiving this email, the Plaintiff emailed the 2nd Defendant. A meeting was arranged on 19th June 2003. At this meeting the Plaintiff asked why the 2nd Defendant decided to stop the venture. According to the Plaintiff, the 2nd Defendant explained that they could not come to terms of the shareholders agreement and he did not want further argument down the road. However, the Plaintiff responded that since she had given up her job, her promotion, her MPF and basically all she had to join the 2nd Defendant, what would be her compensation? The 2nd Defendant said she would be entitled to nothing. There were later exchanges on who initiated the changes to the initially agreed terms. At last, according to the Plaintiff, she asked what the 2nd Defendant wanted her to do because she was confused. The 2nd Defendant suggested the parties to stick to what they had initially agreed. The Plaintiff asked whether she should continue. The 2nd Defendant answered in the positive. So the Plaintiff said after the meeting she continued to work for the 2nd Defendant.
48. On 28th July 2003, the 2nd Defendant sent another email to the Plaintiff. It was stated, inter alia, that:
“… As mentioned in my previous conversations and emails, I am not prepared to continue our efforts to reach a joint venture agreement – it takes too long and chance of future conflicts is overwhelming. I don’t want to get into bitter relationship with you. Hope we can remain friends forever.
Meanwhile, I agree to bear all the previous expenses you advanced, namely HK$7,574. If I can find some time next week then let’s us [sic] meet and I shall give you the money….”
49. The Plaintiff agreed that for work prior to the commencement of her employment on 15th April 2003, she meant to help and understood that she would not get paid. She considered that she was employed by the 2nd Defendant because when she accepted the offer, the 1st Defendant had not been acquired. In any event, the 1st Defendant was only a vehicle of the 2nd Defendant for the purpose of the PRC joint venture.
The 2nd Defendant’s Evidence
50. The 2nd Defendant was an experienced businessman with an impressive resume spanning over 40 years. He had worked for a number of big insurance companies such as AIA, Manulife, subsidiary of AXA and was the Chief Financial Officer and Executive Director of Pacific Century Insurance (formerly known as Top Glory), a listed insurance company in Hong Kong, before he started his own insurance management consultant business. Professionally he was a Fellow of the British Institute of Actuaries, Australian Institute of Actuaries, and the Royal Society of Actuaries. He was also one of the founding presidents of the Actuarial Society of Hong Kong and consultant to the PRC Insurance Regulatory Commission.
51. The 2nd Defendant admitted that he was a friend of the Plaintiff’s parents and knew the Plaintiff for about 10 years. He regarded the Plaintiff his niece.
52. He said he talked to the Plaintiff about his intended venture of schools and kindergartens in China some time 2002. The Plaintiff was very interested and had arranged for both of them to visit six to seven kindergartens in Hong Kong for the purpose of learning how these kindergartens worked.
53. In fact he had a partner in Shanghai working with him on his intended venture but this partner was a bit slow in getting things done. He was then thinking of changing partner. He found the Plaintiff capable and so in around mid-November 2002 he made known to the Plaintiff that he wanted her to join his venture.
54. He proposed to the Plaintiff that he would adopt a structure that he used in 1994 when he was with Pacific Century Insurance. The senior management of Pacific Century had acquired up to 24.9% of the shareholding and for each dollar they put in they get back shares which were three times than usual. This was to ensure that the senior management had a big incentive to make the company successful because they would get a threefold return for their money. On the other hand, in time of crisis, they would not just quit, as in a case in which the management did not invest, and would fight hard. He admitted probably, the ceiling of 24.9% was to prevent the management from blocking a resolution that the major investors might wish to implement. This was a “carrot and stick” formula. He found it work well in Pacific Century and so he copied it here. He said that he had told the Plaintiff if this model worked out, she could make profit three times as much. According to the 2nd Defendant, the Plaintiff was very positive and very interested in going on the joint venture with him.
55. The 2nd Defendant said in his cross-examination that in 2002, initially he was thinking of starting a kindergarten in Shanghai. According to his study, one could charge very high in Shanghai for there were rich people. However, the Plaintiff wanted to start a language laboratory as well for teaching English which he was never keen of. It was because after the September 11 event, it would be difficult to gain entry into universities in the States and therefore the demand for TOEFL and SAT had dropped. In any event, he agreed to her idea. So they started off on both. However, they faced regulatory difficulties on the kindergarten project. By November 2002, he had basically put aside the kindergarten project and focused on the language laboratory project proposed by the Plaintiff. The spreadsheet at page 90 of the Main Bundle covered only his kindergarten plan and was compiled by him.
56. In November 2002, he did a feasibility study and proposed that he invested $1 million and the Plaintiff put in $100,000 in return for 300,000 shares, which represented a 23% shareholding in the company. The Plaintiff was regarded a joint venture partner and would work in Shanghai as a CEO once they had got the requisite licence. Year 2002 was the worst time in Hong Kong. There were people available with a lot of experience but they were only interested in becoming employees. He however was not interested to have an employee. As this person would be working in Shanghai alone he wanted to have a person whom he could trust, knew personally and who had a stake in the project to make the joint venture work. He would be there to support the Plaintiff when she needed him.
57. Pursuant to the discussions between the Plaintiff and the 2nd Defendant in November 2002, he acquired the 1st Defendant for the purpose of forming the Joint Venture Company. He said in May 2003 the Joint Venture Company acquired a licence for consulting business but not kindergartens or education centres. Since his discussion with the Plaintiff had broken down, they had never attempted to obtain the education licence.
58. He denied the allegations of the Plaintiff that he agreed to employ the Plaintiff in January 2003. Basically his explanation was that the logical steps were firstly, getting the agreement signed between the joint venture partners. Then the parties put in capital and formulate a business plan to tell that the business would be making money. The next step would be applying for the necessary licence and to employ staff after the licence was issued. At the material time referred to by the Plaintiff there was no office and no licence. He said it made no sense that he would employ the Plaintiff. He also said that it was their intention to have a written agreement.
59. He said the shareholders structure of the proposed joint venture between them was given to the Plaintiff in March 2003 and the first draft agreement prepared in early May that same year.
60. He also denied having suggested the Plaintiff to resign from Goldman Sachs. It was because since August 2002 they were working by meetings and emails and doing research and planning during spare time. He said it was impossible for the Plaintiff to physically join him as there was no office. In relation to the email from the Plaintiff to him dated 18th February 2003 (Emails Bundle page 21) asking him for views on her tendering of resignation, he said he was then in Australia and did not check his emails. On 4th March 2003 (Emails Bundle page 25) he responded by saying “OK”. By then the Plaintiff should had already tendered her resignation. He also did not consider it appropriate to ask why she needed to resign as 2002 and 2003 were bad times of Hong Kong. A lot of investment banks were laying-off people. If he asked her it might embarrass the Plaintiff for she might suspect that the 2nd Defendant thought she was being laid off.
61. He said according to his first draft agreement, the Plaintiff was intended to be the CEO of the Joint Venture Company once the agreement was signed and the Joint Venture Company in place, and not an employee of the 1st Defendant nor his. It was because revenue could only be generated from the Joint Venture Company and not the 1st Defendant.
62. Concerning the payment of $48,000 to the Plaintiff. The 2nd Defendant explained that all along the Plaintiff’s salary was expected to come from the Joint Venture Company in Shanghai. According to the draft shareholder agreement, in order to get the service agreement the Plaintiff got to be a shareholder of the 1st Defendant. So in his view technically he was not obliged to pay her anything. However the Plaintiff, being regarded as his niece, had got no job and therefore had no income for that period of time. He therefore called the money given to her “quasi salary” which he considered to be advancement of her salary for working in China for a company which had not yet been incorporated. It was reflected in his account annexed to his email dated 11th May 2003 (pages 77 to 78 of Emails Bundle). He said it was “tax free” because any such salary would not be subject to Hong Kong tax.
63. In relation to the Joint Venture Business the Plaintiff had prepared a business plan (pages 137 to 147 of the Main bundle) around end of April 2003. He referred to the last sub-paragraph of paragraph 1.0 in which the Plaintiff forecasted the profit generated by the Joint Venture Business rising from RMB 0.631 million for 2003 to RMB 26 million for 2005. He thought if it really worked out that way it would be wonderful. However, he was very skeptical about the viability of this plan. So he asked the Plaintiff to go to Shanghai to see the real situation and to come up with a realistic plan. That suggestion was made some time around end of May and beginning of June 2003. The Plaintiff refused and wanted to have the shareholders agreement and the service agreement signed before going to Shanghai. However, he wanted to know whether the business was viable before he signed the agreements, and the only way to do so was to go to Shanghai to check the local condition and come up with a realistic business plan.
64. Furthermore, in one of the draft shareholders agreement (page 95 of the Emails Bundle) which was sent to the 2nd Defendant under cover of the Plaintiff’s email dated 2nd June 2003, the 2nd Defendant said that she wanted him to put in 5 million as investment. In fact the Plaintiff’s initial investment should be $100,000 but she later requested to do so by two equal instalments. He reluctantly agreed. Later she wanted free shares. The combined effect of all these clauses would mean that he might have to invest up to $5 million, but on the other hand, the Plaintiff was only required to invest $50,000 but could acquire up to 24.9% shareholding in the 1st Defendant. Definitely it was not his intention and he would not agree.
65. During the period of about five months up to early June 2003 they had exchanged numerous emails and attended discussions on their shareholding in the 1st Defendant. They still failed to come to any agreement. In lights of the above, he felt that it was a waste of time to continue and therefore he terminated the discussion by sending his email dated 8th June 2003. At that time he said he had no hard feeling with the Plaintiff. So although he was under no legal obligation to pay her money she had incurred, he was willing to pay for she was regarded as his niece.
66. In cross examination, the 2nd Defendant said that they focused more on the shareholders agreement and left the discussion on the draft employment out until the former was finalized. He also said he had not gone into details about medical insurance package and other benefit although they might have discussed about some of the employment terms including these items. He denied having said that he would match the insurance package offered by Goldman Sachs. He admitted he did not realize the Plaintiff being more concerned with employment. He agreed that they met on 19th June 2003 after his terminating email of 8th June 2003 but denied that he was willing to continue with the relationship. He said it was the Plaintiff who wanted to continue. He did not respond to the emails of the Plaintiff dated 1st, 16th and 28th July 2003 until the 28th July because he was then moving home.
Was There a Concluded Employment Agreement?
67. The Plaintiff’s evidence suggests that she was asked to assist the 2nd Defendant in his venture in Shanghai. This was basically an employment relationship. The invitation came from the 2nd Defendant some time around January 2003 after the 1st Shanghai trip. The “carrot and stick” proposal was only designed to keep and promote loyalty of the Plaintiff as an employee and not as joint venture partner. Since the essential terms of the employment have been orally agreed, the absence of any legal niceties is not nor should not be fatal to such an agreement especially between an uncle and his trusted niece. Relying on the agreement she had acted to her detriment by resigning from Goldman Sachs.
68. The 2nd Defendant’s evidence suggests that from the outset the Plaintiff was invited to join principally as a joint venture partner and not an employee. The service contract came together with the joint venture agreement failing which there would be no employment. The invitation was extended to the Plaintiff in November 2002, earlier than their 1st Shanghai trip. The 2nd Defendant also denied having invited the Plaintiff to join as an employee in January/February 2003 nor had he ever asked the Plaintiff to resign from Goldman Sachs.
69. There are factual discrepancies at least in three material respects: whether the invitation to join the venture came to the Plaintiff in November 2002, as asserted by the 2nd Defendant, or in January/February 2003, as alleged by the Plaintiff; whether the 2nd Defendant had asked the Plaintiff to resign in February 2003 and whether the basic terms of the alleged employment agreement of the Plaintiff have been agreed as alleged. The resolution of these factual issues will help assess the credibility of the two witnesses. Since the emails are undisputed contemporaneous documents it is therefore useful to look at the emails exchanged between the parties to see which version is more consistent with the undisputed documents in order to resolve these factual discrepancies.
70. In the long email of the Plaintiff, presumably issued some time before 12th September 2002 because the 2nd Defendant replied to this email on that date, the Plaintiff commented on the business plan of the 2nd Defendant’s business on kindergartens in a manner as if she had already gone on the project with her uncle. For example, the Plaintiff wrote:
“can we afford larger classroom size be one of the selling points? …
can we simply rent some 2/3 bedroom-apartments and have teachers live there?
In this way, we can have some more control of costs and no teacher can complain …
On the preparation period (period 3 & 4), since the schools has to be in shape for the CEO/teacher to work on anything, can we have the renovation start at the beginning of period 3 as you have planned, and have the CEOs to come in slightly later …
…since we only estimate 10 children to start with, will 3 English teachers, 2 CEOs, 3 amahs be more than enough? Can we start with 2 English teachers …
…shows that we are going to keep the school fee of 6000K all along …Or are we charging a monthly fee?
Can we be flexible in the sense that some children can stay behind …” (my emphasis).
71. The 2nd Defendant responded on 12tn September 2002 in the like manner, e.g. “I earnestly hope we can bring this to a completion that is satisfactory to everybody concerned.” Concerning doing the interviews, the 2nd Defendant wrote “… I guess we can do that in two days … We’ll choose one city: Los Angeles? San Francisco? A mid-west city?” (my emphasis). In addition he said in the same email that “… I hope the CEO can do a lot of marketing throughout the year by person-to-person visits.” Obviously the Plaintiff has not been invited to be the CEO of the joint venture otherwise he would very likely refer the CEO as you.
72. It is also noted in a reply from the Plaintiff of 12th September 2002, she has this to say:
“Don’t worry Uncle Peter. … Given that I am growing complacent in what I have been doing for 2 years…
Would you have a rundown of tasks that need to be accomplished since we are looking at quite a tight schedule of starting operation in early 2003? Or maybe we can build that together?” (my emphasis).
73. On 21st November 2002, there was email from the 2nd Defendant in which the 2nd Defendant wrote:
“If we start the project, I will stay in Shanghai as long as you need me. I will not leave you alone there feeling helpless. It is as big a commitment for you as for me. I want it to be a big success, not a small one. I am confident we can do it.” (my emphasis).
74. On the next day (22nd November), the Plaintiff responded and inter alia, said
“…Very appreciated your assurance. Now I feel much better. I personally am very interested in both projects (both kindergarten & the TOEFL/SAT center). But it seems to me that the only reason why the kindergarten idea is put aside (for now) is because of the misclarity of the licensing requirements. And correct me if I have misunderstood, you actually prefer doing the kindergarten over TOEFL/SAT center, and I agree too, as the market is more restricting in terms of entry & the revenue generated can be much higher and more stable. …”
75. It was the 2nd Defendant’s evidence that the Plaintiff was very positive and interested in his intended project. He proposed to the Plaintiff to join him as a join venture partner in November 2002. He also required the Plaintiff to stay in Shanghai and had assured the Plaintiff that he would be there as long as the Plaintiff needed him. He also said the setting up TOEFL/SAT centres was the idea of the Plaintiff but he preferred the kindergarten project. It could be seen that as at September 2002, they were still contemplating engaging a person other than the Plaintiff as the CEO in Shanghai. However, from the November 2002 emails, it is quite obvious that the Plaintiff realized she would be working in Shanghai and needed the 2nd Defendant’s comfort. The September emails indicated a very positive and enthusiastic response, if not an already committed response from the Plaintiff. The above emails tally more with the evidence of the 2nd Defendant in all these respects than that of the Plaintiff.
76. Regarding the allegation that it was the 2nd Defendant who asked the Plaintiff to resign, it was not reflected in the emails lodged by the parties. There are three emails which appear relevant: the first two from the Plaintiff and the other from the 2nd Defendant respectively dated 18th February, 3rd March and 4th March 2003. It was also the evidence of the Plaintiff at trial that her resignation was tendered on 18th February 2003 or around that time. There was no other email of the 2nd Defendant relied on by the Plaintiff except the email of 4th March. Given the extensive emails exchanged between the parties, if it were the 2nd Defendant who requested her resignation, it would have been reflected in the emails. None was there until 4th March 2003. So when the Plaintiff submitted the resignation on or around 18th February 2003, the 2nd Defendant had not responded yet. I do not believe the Plaintiff has relied on the 2nd Defendant’s reply as alleged to tender her resignation.
77. Regarding the Plaintiff’s understanding of her basic terms of employment in or about early February 2003 after the 2nd discussion, her evidence had been stated in paragraph 28 above. One of her understandings was the annual leave being two weeks. However, the Plaintiff stated in her email of 29th April 2003 the contract terms that “she has in mind” with those terms not discussed marked with “?”. It is noted that she marked a “?” next to paragraph 6 which reads:
“Annual leave & home trip(s) – what is the normal annual entitlement of a director?”
78. Is it not the pleaded case of the Plaintiff that annual leave was agreed to be two weeks? Is it not also her case that she had ever proposed a three-week annual leave term and the 2nd Defendant agreed? In fact there was discrepancy in the Plaintiff’s evidence about annual leave. In the examination in chief she said that after the 2nd discussion it had been agreed that her entitlement was two weeks. The claim in the Labour Tribunal was formulated on this basis. However, in the cross-examination she said the 2nd Defendant agreed to three weeks, i.e. 15 working days. Now in this e-mail it seems that she considered annual leave had not even been discussed.
79. The 2nd Defendant’s evidence in this respect seems to be more consistent with the said email. The 2nd Defendant’s case was that they had not agreed on her employment terms. They might have talked about certain employment terms but those terms were not agreed ones. All were subject to the finalization of the shareholders agreement. The Plaintiff’s own email supported this version. The said email was not written in a manner as if those terms had been agreed between them.
80. It fact from the initial draft agreement in the combined form, up to the final draft shareholder agreement marked by the Plaintiff, there has been quite substantial amendments made to the funding section and the termination clauses in the draft. However the following proposed clause relating to service of the Plaintiff remains unaltered by the parties:
“In return for purchasing GW’s [the 1st Defendant’s] shares at par, JZ [the Plaintiff] agrees to provide services to GW and LG [Joint Venture Company] as per the service agreement.”
81. It can therefore be inferred that the Plaintiff also acknowledged her service agreement being in consideration of her subscribing the shares in the 1st Defendant. Again, the 2nd Defendant’s version was more consistent with such inference.
82. Regarding the alleged continuation of relationship after 8th June 2003, the series of emails in pages 102 to 107 are relevant. It was the Plaintiff’s case that what the 2nd Defendant’s responded at the meeting on 19th June 2003 amounted to a continuation of the relationship until 28th July 2003. The 2nd Defendant said by his email of 8th June he stopped the negotiation of the shareholders agreement. He further in the same email asked the Plaintiff to let Hami know of the decision and settle accounts with Hami. From the email of the Plaintiff dated 1st July 2003, the Plaintiff reported that Hami had been terminated and the PRC partner had settled her salary. In the same email, the Plaintiff wrote,
“Our next meeting please let me know when you and your re-draft are ready. Below is a tentative meeting agenda (feel >free to add):
- settlement of salary and expenses
- decide on project direction and actions to take.
83. If the Plaintiff was an employee of the Defendants for the Joint Venture Business and the same had continued on the terms originally agreed, I fail to see why the Plaintiff terminated the service of Hami as instructed by the 2nd Defendant and who, according to the undisputed evidence of the parties, was a person engaged particularly for the purpose of the Joint Venture Business. There was also no need for them to decide on the project direction because it would have continued. From the said email, the logical and probable inference is that the Plaintiff basically considered herself to be a joint venture partner of the 2nd Defendant, either in the original Joint Venture Business or in any other project. Even the 2nd Defendant terminated the Joint Venture Business and as a result Hami’s service should be terminated, they might still go on with other project, e.g. the kindergarten project. That might explain why she terminated Hami’s service and asked for project direction.
84. Viewing the evidence in its totality, I do not find the Plaintiff’s evidence clear and wholly consistent with the emails which were contemporaneous documents.
85. By reasons of the above, I consider that the 2nd Defendant’s evidence more reliable. I believe that he was telling the truth because his version is more consistent with the contemporaneous emails exchanged between the parties. Although I do not find the Plaintiff dishonest, her evidence is confused and very often discrepancies are found, e.g. the annual leave entitlement stated above. Furthermore, many important matters were not recorded in his witness statement, e.g. her written statement recorded that she had only one meeting in February 2003 while at trial she said there were two discussions. As such, whenever there is any conflict between her evidence and that of the 2nd Defendant, I prefer the evidence of the latter.
86. As finding of facts, the Plaintiff agreed with the 2nd Defendant to do the Joint Venture Business some time in or about November 2002. She knew by then that she would be working in Shanghai for the Joint Venture Business. The joint venture between them would be based on the “carrot and stick” model proposed by the 2nd Defendant. The Plaintiff was required to invest and she agreed. Although the term of her intended CEO post in the joint venture had been discussed and that the 2nd Defendant did not oppose the monthly salary and housing allowance being $32,000 and RMB6,000 respectively, the service agreement which the Plaintiff was going to get was in return for the Plaintiff subscribing the 1st Defendant’s shares. So the arrangement between the Plaintiff and the 2nd Defendant was substantially in the nature of a contract to embark upon a joint venture rather than simply a contract of service. The Plaintiff left Goldman Sachs around 18th February 2003 pursuant to the intended joint venture and not upon request by the 2nd Defendant. She was paid advance salary of $48,000 from 15th April to 31st May 2003 by the 2nd Defendant using the 1st Defendant’s cheque with a view the shareholders agreement would be signed. Due to the failure on the part of the Plaintiff and the 2nd Defendant to agree on the terms of the shareholders agreement, the joint venture between the Plaintiff and the 2nd Defendant became abortive. The termination of the joint venture between the Plaintiff and the 2nd Defendant was effected by the latter’s email dated 8th June 2003. I consider such email in clear and unequivocal terms.
87. There is insufficient evidence to establish that the Plaintiff has carried on duties of the Joint Venture Business. In all the draft employment contracts (see pages 66, 72, 184 and 210), the scope of duties of the Plaintiff is stated as follows:
“JZ [the Plaintiff] will be CEO of LG [the Joint Venture Company], resident in Shanghai responsible for its day-to day business.”
88. This clause remains unaltered throughout the negotiation process. A reasonable inference can therefore be drawn that this is what the parties agreed to be the main duties of the Plaintiff for which she was to be paid the salary of $32,000 and housing allowance of RMB6,000. It is not in dispute that the Plaintiff was not resident in Shanghai up to 8th June or even 28th July 2003. All the work she had done prior to 8th June 2003 was for the purpose of setting up, rather than operating the day-today Joint Venture Business.
89. My conclusion is therefore there is no concluded employment contract between the Plaintiff and the 2nd Defendant. Given my conclusion on the nature of the relationship between the parties, it is unnecessary for this Court to deal with the second and third issues set out in paragraph 17 above. The Plaintiff’s pleaded claims, which are premised an employment relationship, must fail.
The Counterclaim
90. The counterclaims consist of two sums, namely advance of salary of $48,000 and expenses incurred for the Plaintiff in the sum of $5,984.7.
91. Counsel for the Defendants does not state the legal basis upon which the Defendants are entitled to recover the above sums. Presumably, the counterclaim is based on the principle of restitution whereby the payee cannot retain money paid for a purpose that has become abortive, and has thereby become enriched unjustly. The Plaintiff’s pleaded grounds of defence to such counterclaim are no more than re-asserting that she was an employee and putting the Defendants to strict proof. There is no other alternative ground of defence pleaded by the Plaintiff.
92. In view of my finding of facts that the joint venture between the Plaintiff and the 2nd Defendant fails and the Plaintiff has not done anything in operating the Joint Venture Business, I do not think the Plaintiff has any defence to the counterclaim for the return of advance of salary.
93. Since the cheque was issued by the 1st Defendant, accordingly the money has to be refunded to the 1st Defendant, and I do so order.
94. Regarding the claim for reimbursements of expenses incurred on the Plaintiff’s behalf, I however do not think the Defendants had put in sufficient evidence to substantiate such claim. No receipt whatsoever has been disclosed. Neither are there any particulars as to when such expenses were incurred. The Defendants simply fail to discharge their burden of proof and their counterclaim for such sum fails.
Conclusion and Order
95. By reasons of the above, I make the following orders:
i) the Plaintiff’s claims against the Defendants be dismissed;
ii) judgment on the counterclaim be entered against the Plaintiff for the 1st Defendant in the sum of $48,000;
iii) nisi order that the Plaintiff do pay costs of the 1st and 2nd Defendants in the claim and counterclaim, together with certificate for counsel, to be taxed if not agreed;
iv) the order nisi will become absolute unless the party concerned applies to be heard on the question of costs within 14 days from the day of handing down of this judgment.
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K.W. Wong
(Deputy District Judge) |
Mr. Donald Leo instructed by Messrs. Y.C. Lee Pang & Kwok, for the Plaintiff.
Mr. Kamlesh Sadhwani, instructed by Hoosenally & Neo, for the Defendant
Appeal allowed: see CACV63/2007 dated 12 October 2007
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