LAW SHIU KAI, ANDREW v. DYNASTY INTERNATIONAL HOTEL CORPORATION AND OTHERS

HCA 4/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4 OF 2002

____________

____________

_______________

J U D G M E N T

_______________

English judgment

1. The trial of this action was conducted in Chinese. However, all relevant pleadings, witness statements and court documents, as well as most of the documentary evidence are written in English. Moreover, the two chief antagonists in this action (i.e. the Plaintiff and the 4th Defendant - who runs and controls the three corporate Defendants) are conversant in the English language. I find it much more convenient to write this judgment in English. With the agreement of the parties, this judgment is so written.

Plaintiff's evidence

2. The Plaintiff alone gave evidence in support of his claim. His case and evidence may be summarised as follows.

3. The Plaintiff is a solicitor by profession. He started off his career as a litigation lawyer and practised law in Hong Kong for 5 years. He then worked for Philips China/Hong Kong between 1989 and 1992 in the electronics industry in the Mainland. He later concentrated on real estate development and franchising with McDonald's China in 1993 to 1996. In 1996, he joined Intercontinental Hotels Corporation (IHC), assisting in expanding its presence in the Asia-Pacific principally through joint ventures. In 1996, IHC and the 1st Defendant went into a joint venture to explore the hotel market in the Mainland.

4. There is no dispute that the 4th Defendant was at all material times the sole director of the 1st Defendant, and the 1st Defendant belonged to the Dynasty group of companies effectively owned and managed, generally speaking, by the 4th Defendant, with some participation by his family members and some outsiders.

5. According to the resume of the 4th Defendant (Bundle B2, p. 484), the 4th Defendant is a highly experienced, well-known and respected person in the hospitality industry in Hong Kong and in the Mainland. He also enjoys good political and other connections in the Mainland.

6. As a result of the joint venture company of IHC and the 1st Defendant, the Plaintiff had a close working relationship with the 4th Defendant for almost 3 years. They travelled and worked together frequently in the Mainland. The IHC-Dynasty joint venture was subsequently dissolved in May 1999, and the 1st Defendant received compensation in the sum of US$8.3 million (HK$65 million) in cash from IHC.

7. According to the Plaintiff, apart from the joint venture business, the 1st Defendant carried on no other operation or business. With the dissolution of the joint venture, the 1st Defendant effectively carried on no business, but was extremely cash-rich. It should be mentioned that the 4th Defendant only owned 24,500 out of 50,000 issued shares in the 1st Defendant; the rest was owned by several other persons.

8. In the meantime, the Plaintiff had left IHC and in August 1999, he joined Messrs Fong & Ng, solicitors (Fong & Ng), as a partner and the head of its IT Law Practice Group. According to the Plaintiff (and his resume: Bundle B2, p. 486), the Plaintiff had a Master of Arts (Information Systems) degree amongst his many academic qualifications, and had devoted much effort on both the business and law relating to the IT industry in Hong Kong and the Asia Pac region.

9. The Plaintiff said in evidence that he earned a good income at Fong & Ng, with a basic monthly salary of $180,000 together with a commission averaging $40,000 a month. He had also the assistance of several lawyers in the IT Law Practice Group.

10. It is the Plaintiff's evidence that his relationship with the 4th Defendant continued after his joining Fong & Ng as a partner. The Dynasty group turned into a client of Fong & Ng. Fong & Ng served the group on various legal matters including travel services, company secretarial services and lunch box business.

11. According to the Plaintiff, subsequently, the 4th Defendant conceived the idea of building new business lines on the internet platform offering hotel reservation, hotel brokerage and hotel supply chain services, all through one company. The Plaintiff was approached for advice and comments initially, but eventually the 4th Defendant invited the Plaintiff to join him and work for his existing hotel owner and management businesses and the development of the new business conceived by the 4th Defendant. In the meantime, the Plaintiff's involvement in the conception of this new business increased, and he accompanied the 4th Defendant on overseas trips for that purpose.

12. The Plaintiff said in evidence that at first he was reluctant to change job, as he was enjoying a rising reputation in the field of IT law in Hong Kong and was making a good income in Fong & Ng. However, he said the 4th Defendant's invitation was becoming more attractive with time because of the 4th Defendant's excellent connections with some Mainland government agencies including the China National Tourism Administration, and one was therefore talking about potential involvement of over 200 hotels in the Mainland. Secondly, the Plaintiff was comforted by the fact that the 1st Defendant had received HK$65 million cash from IHC after the dissolution of the joint venture, which to the mind of the Plaintiff, gave him much financial security relating to the 4th Defendant's invitation to join.

13. The Plaintiff said that after several rounds of serious negotiations in mid 2000, he eventually reached an oral agreement with the 4th Defendant to be employed by the 1st Defendant.

14. The Plaintiff explained in cross-examination that the reason why he was willing to accept the 4th Defendant's invitation to work in the 1st Defendant was that he felt that he could better utilise his multi-talents in his new job, as opposed to only practising law (IT law) in Fong & Ng.

15. The parties agreed that the Plaintiff would be employed for a fixed term of three years. Upon completion of the three-year term, the Plaintiff would be entitled to certain stock option, the exact scheme of which was to be proposed by the Plaintiff to the 4th Defendant later.

16. As regards salary, as Fong & Ng was reluctant to immediately release the Plaintiff completely, and was agreeable only to his working in the Dynasty office in the afternoon, the Plaintiff and the 4th Defendant agreed that he would be employed by the 1st Defendant in that manner from 16 August 2000 to 31 December 2000 at the rate of $250,000 per month. From 1 January 2001 onwards, he would work full-time for the 1st Defendant and his salary would be $300,000 per month. He said that during the earlier period from 16 August 2000 to 31 December 2000 when he would work concurrently for both Fong & Ng and the 1st Defendant, he would receive no salary from Fong & Ng but only commission. Furthermore, in return for Fong & Ng's releasing him partially, the Dynasty group had to pay Fong & Ng a monthly retainer of $30,000.

17. According to the Plaintiff, the parties also agreed that the 4th Defendant would cause to be issued to him by way of gift 75,000 (fully-paid up) shares in the new company to be formed for the purpose of the new business, so as to compensate him for his loss of clientele at Fong & Ng, subject to the condition that the 4th Defendant would cause the new company to buy back those shares at par value if his three-year term employment should be early terminated for whatever reason.

18. According to the Plaintiff, pursuant to the agreement, he started his employment with the 1st Defendant on 16 August 2000, and eventually became a full-time employee as from 1 January 2001.

19. According to the Plaintiff, he worked at the office of the Dynasty group where the 4th Defendant together with his small team of staff serving the whole group (all employed by the 2nd Defendant) also had their office. He said that in reality, the 4th Defendant was the "boss". Although he was formally employed by the 1st Defendant, the Plaintiff was required to do work for other members in the Dynasty group including the 2nd Defendant - a hotel management company managing at the time one hotel in the Mainland, as well as the company to be formed to run the new business (i.e. the 3rd Defendant which was eventually incorporated in November 2000). Details of the work the Plaintiff said he had done for the Dynasty group of companies have been set out in paragraphs 24 and 25 of his statement of claim, the contents of which were confirmed by the Plaintiff in evidence. In cross-examination, he was not specifically challenged on these works that he claimed he had done for the companies within the Dynasty group.

20. According to the Plaintiff, the new company needed to secure third party investor funding. Pricewaterhouse was retained to do the strategic business plan, feasibility studies, and so forth, in which the Plaintiff was heavily involved. As part of the process, the Plaintiff prepared draft employment contracts of the 4th Defendant as the CEO of the new company and of himself as the COO (Chief Operation Officer) of the new company. He said that the contracts were required as part of the presentation to potential investors on the key management team of this new company (i.e. the 3rd Defendant). The Plaintiff explained in evidence that in producing his own draft employment contract with the 3rd Defendant, the terms in the contract were based primarily on the terms of employment that he had agreed with the 1st Defendant (through the 4th Defendant) plus many detailed provisions that were usually found in this type of contracts. The draft contract, which had received comments from the 4th Defendant, was not to be signed or become effective until an investor could be found and until he was satisfied with the terms of the draft employment contract. If everything went smoothly, eventually such an employment contract (as amended) would be signed, and he would be concurrently employed by both the 1st Defendant under the original contract and the 3rd Defendant as its COO, provided that he would not receive double remuneration. He said this was common in the trade; in effect, he would be seconded by the 1st Defendant to work in the 3rd Defendant. But he emphasized that before an investor could be found, the draft employment contract (even if finalised) would remain a draft, and his relationship with the Dynasty group would still remain that of an employee of the 1st Defendant.

21. The Plaintiff said in evidence that it was the 4th Defendant who said that there was no need for any written contract of employment between the Plaintiff and the 1st Defendant, and the Plaintiff further explained in cross-examination that the draft contracts of employment with the 3rd Defendant (including his own draft contract of employment) were really part and parcel of the business plan to be presented to potential investors, rather than to regulate his and the 4th Defendant's respective employment relationships with the 3rd Defendant.

22. The Plaintiff said in evidence, which was supported by documentary evidence, that during the first few months while he worked part-time for the 1st Defendant, he received salaries at the agreed rate from the 1st Defendant. However, towards the end of 2000, the 4th Defendant successfully asked him to personally absorb the monthly retainer fees of $30,000 payable by the Dynasty group to Fong & Ng. At the same time, he also agreed with the 4th Defendant to change his part-time employment since 16 August 2000 to consultancy work with his consultant company so as to gain some tax benefit. The two parties also agreed that commencement of the three-year employment period would be postponed to 1 January 2001 when he would start working full-time for the 1st Defendant.

23. However, after the Plaintiff started working full-time for the 1st Defendant, the 4th Defendant complained that he was very "expensive", and forced upon him an arrangement whereby his monthly salary was reduced to $200,000 per month (as opposed to $300,000 per month), with the remaining $100,000 only payable at the end of the year depending on performance. He said he reluctantly "agreed". Salary at the reduced rate continued to be paid by the 1st Defendant to him, although not as punctually as before. However, starting from April 2001, the 1st Defendant failed to pay him any salary at all. The Plaintiff tolerated the situation for several months, thinking that once money payable to the group but locked up in the Mainland was remitted to Hong Kong, his employer would pay him the arrears. But eventually, to cut a long story short, the Plaintiff could stand the situation no further and he handed in a resignation letter giving one month's notice to leave by the end of August 2001.

24. The Plaintiff said that apart from being designated as the COO of the 3rd Defendant, he was also the COO of the 2nd Defendant. He said he was printed name cards of both his position in the 3rd Defendant as well as his position in the Dynasty group. He said that as a matter of law (as per his own understanding), he was employed by the 1st Defendant; as a matter of fact, he worked for both the 2nd and 3rd Defendants as well as the rest of the Dynasty group; and as a matter of commercial reality, the 4th Defendant was his boss. He therefore sues the first three Defendants in the alternative for the arrears of wages, damages for wrongful termination of the fixed term employment contract, and payment in lieu of the balance of his annual leave pay. He also sues the 3rd and 4th Defendants in relation to the failure of the 3rd Defendant to buy back the 75,000 shares at par value (i.e. US$75,000). He also prays for a declaration that he is entitled to an option to purchase 765,000 shares in the 3rd Defendant at par value as his share option entitlement. He also claims against the 4th Defendant in respect of the additional services he has done for the 4th Defendant on a quantum meruit basis.

4th Defendant's evidence

25. The 4th Defendant alone gave evidence on behalf of all Defendants. He was in the witness box for 21/2 days and gave lengthy evidence. I will only briefly outline the gist of his evidence, particularly those parts of his evidence which materially differed from that given by the Plaintiff.

26. The 4th Defendant accepted that he is highly experienced and rather well-known and respected in the hospitality industry in Hong Kong and in the Mainland. But he emphasized that he had no experience whatsoever in the IT field, and he himself was "computer-illiterate". As regards the three corporate Defendants, he explained that the 1st Defendant was essentially established for the purpose of the joint venture with IHC, which eventually fell through in 1999. The 1st Defendant had no other business or operation. It certainly had no need for hiring a highly paid employee or COO like the Plaintiff. As regards the 2nd Defendant, it was a hotel management company, and at the material time, it only had one hotel management contract in the Mainland. There was no need for the 2nd Defendant to hire any extra employee at all. Whilst the pleading of the Defendants would seem to suggest otherwise, it did become abundantly clear in the course of the 4th Defendant's evidence as well as the final submission made by counsel on behalf of the four Defendants that the real case of the Defendants is, and certainly the gist of the 4th Defendant's evidence was, that it was the 3rd Defendant which employed the Plaintiff as its President and COO. In evidence, the 4th Defendant emphasized that the 3rd Defendant was very much the brainchild of the Plaintiff, who successfully persuaded him to venture into this new IT-hotel field of business, using the 3rd Defendant as the corporate vehicle. It was to be a combination of the 4th Defendant's experience in the hotel and hospitality field and the Plaintiff's expertise in IT and legal matters. The Plaintiff was heavily involved in the 3rd Defendant since its inception, which also involved Pricewaterhouse in Vancouver.

27. The 4th Defendant explained in evidence that from the outset he had considerable concern about the funding required for the intended business of the 3rd Defendant (which was eventually formed in November 2000). One inducement from the Plaintiff was that he would be able to find investors for funding the project at the initial stage, prior to the eventual floatation of the company. On the other hand, Pricewaterhouse would be enlisted to assist in locating institutional investors for much more substantial investments.

28. In those circumstances, the Plaintiff was eventually "seconded" from Fong & Ng to work for the intended business as from 16 August 2000. According to the 4th Defendant, the secondment fee was initially agreed with Fong & Ng (through the Plaintiff) at $150,000. However, subsequently Fong & Ng (as per the Plaintiff) increased it to $250,000. Yet still later on, Fong & Ng charged an extra "retainer fee" of $30,000. On top of all this, Fong & Ng charged fees in respect of the "excessive" use of the Plaintiff during his period of secondment. The 4th Defendant said eventually he agreed with the Plaintiff that the Plaintiff would absorb some of the fees charged by Fong & Ng.

29. There was no serious dispute in the evidence of the 4th Defendant that eventually the Plaintiff joined him "full-time" as from 1 January 2001. His evidence was that the Plaintiff joined the 3rd Defendant as its President and COO. However, the Plaintiff told the 4th Defendant that he had some outside work and responsibilities and could only devote two-thirds of his time to the 3rd Defendant's business. For that reason, it was mutually agreed that the Plaintiff's salary would be reduced by 1/3, but a year-end performance incentive bonus of $1.2 million per annum would be granted to the Plaintiff after such time when he could devote his full-time effort and attention to the 3rd Defendant's business. The bonus was conditional upon the 3rd Defendant meeting its financial projection. That was why despite that the Plaintiff's full-time salary was initially agreed at $300,000, he was only paid $200,000 per month as from January 2001.

30. The 4th Defendant also said in evidence that as part of the agreement of the Plaintiff in joining the 3rd Defendant, the Plaintiff would be entitled to subscribe for 75,000 shares in the 3rd Defendant at par value (US$1 per share). The shares were eventually issued and the subscription money was deducted from the Plaintiff's salary in April, May and June 2001. That was why for those three months, no salary was paid to the Plaintiff. The 4th Defendant flatly denied that there was any agreement on his part or on his company's part to freely issue those 75,000 shares to the Plaintiff. The 4th Defendant explained that subsequently, there were promises on his part to the Plaintiff to give the Plaintiff free of charge two other lots of shares of 75,000 and 150,000 respectively, which were conditional upon the successful acquisition of certain companies in the Mainland as part of the 3rd Defendant's business plan. However, the acquisition did not materialize, and the intended gifts of those shares did not take place.

31. The 4th Defendant denied that there was any agreement to give the Plaintiff a share option to purchase any shares in the 3rd Defendant at par value. He pointed to three successive drafts of the contract of employment between the Plaintiff and the 3rd Defendant and explained that in the first two drafts, no such share option was ever mentioned, and the share purchase option which appeared in the third draft was subject to negotiation and agreement between the parties. As regards these drafts, the 4th Defendant said that they were prepared by the Plaintiff for his comment and approval. The 4th Defendant made various suggested changes to the drafts, and that resulted in one draft after another. But eventually no draft was finalised, and certainly no written contract of employment was signed between the Plaintiff and the 3rd Defendant. The 4th Defendant was of the view that the drafts produced by the Plaintiff were too complicated, one-sided (in favour of the employee) and unfair to any future investors of the 3rd Defendant.

32. The 4th Defendant explained in evidence that the Plaintiff was employed by the 3rd Defendant to work in respect of the 3rd Defendant's business. Occasionally, upon his instructions, the Plaintiff would sign some documents on behalf of the 1st and 2nd Defendants. The 4th Defendant explained in the box the reasons why he asked the Plaintiff to do so. He emphasized that none of these meant that the Plaintiff was either an employee of the 1st Defendant or an employee of the 2nd Defendant. The 4th Defendant accepted that the Plaintiff had done some work for his other companies and him personally given his position in the whole Dynasty group and his personal relationship with the Plaintiff, but he emphasized that it was never intended by either party that the Plaintiff would be separately remunerated for these works, on top of his remuneration from his employment with the 3rd Defendant.

33. The 4th Defendant said in evidence that the Plaintiff only had name cards of the 3rd Defendant, and did not have name cards of other companies in the Dynasty group. Nor did the Plaintiff have any Dynasty group name cards, unlike him and another employee (Madam Tong).

34. The 4th Defendant accepted that the 3rd Defendant failed to pay the Plaintiff his salary as from July 2001, and the Plaintiff tendered his resignation by one month's notice in the end of July 2001, leaving in the end of August 2001. He said that the Plaintiff actually owed him personal loans (the subject matter of another High Court action, i.e. HCA 44/2002), but he did not rely on it as a defence for the non-payment of the Plaintiff's salary by the 3rd Defendant as from July 2001.

35. At trial, the Plaintiff relied on certain tape recordings of his conversations with the 4th Defendant after the termination of employment relationship in 2001. The 4th Defendant gave lengthy evidence both in chief and in cross-examination regarding the contents of the taped conversations, and (like the Plaintiff in his evidence) gave his own interpretations of those conversations. He denied that in those conversations, he made any admissions in respect of the Plaintiff's case.

Factual findings

36. This case to a large extent turns on facts. In making the findings of fact below, I have of course borne in mind the burden of proof as well as the applicable standard of proof. I have taken into account the oral evidence that has been given at the trial, as well as the documentary evidence which is substantial. I base my findings of fact on the totality of the evidence that has been presented at trial, the inherent probabilities of the competing versions of fact, as well as the objective or indisputable circumstantial evidence.

Who was the employer?

37. The first important matter relates to the true employer of the Plaintiff. As has been alluded to above, although in the defence, the primary defence pleaded was that the Plaintiff was not an employee but only an independent contractor under a contract for service with the Defendants, it became apparent that this line of defence was unsustainable as the trial progressed. On the evidence before me, I have no difficulty whatsoever in rejecting a case of an independent contractor. Quite clearly, there was every intention to employ the Plaintiff. The question is: who was the employer?

38. It is the Plaintiff's primary case as pleaded in his statement of claim that it was the 1st Defendant who employed him. However, he also runs an alternative case that the 2nd, 3rd and/or 4th Defendant was/were his employers. On the other hand, the (alternative) case pleaded in the defence is that the 3rd Defendant was the employer.

39. In determining this issue, I have of course borne in mind the possibility of there being more than one employer of the Plaintiff (at any one time). However, on the evidence before me, I have no doubt that (subject to one exception - see below) the parties throughout intended that the Plaintiff be employed by the 3rd Defendant.

40. On the evidence, there can be no doubt that the one thing that bonded the Plaintiff and the 4th Defendant together was the intended business of the 3rd Defendant. I accept the 4th Defendant's evidence that his expertise lied in the hotel and hospitality field, and he had no knowledge and experience in the IT field. Without the Plaintiff, the 3rd Defendant's intended business simply could not have got off the ground, or put another way, the 3rd Defendant would not have decided to embark on it by himself with a very substantial investment on his part. In my judgment, in his evidence, the Plaintiff obviously sought to play down his role in the conception of the intended business of the 3rd Defendant and the 3rd Defendant itself, and over-play the various attractions to him that he said the 4th Defendant had used in inducing him to leave Fong & Ng and join (using the word loosely here) him. I agree with counsel for the Defendants' submission that even after the failure on the part of the Defendants to pay him wages, and when he had decided to leave the 3rd Defendant, he was still prepared to entertain an offer from the 4th Defendant to work for the 3rd Defendant on a part-time basis, and he was still exhibiting much affection for the 3rd Defendant in his conversations with the 4th Defendant.

41. I do not accept the Plaintiff's evidence regarding the true nature of the various drafts of the employment contract. In my judgment, the drafts were meant to materialise into a genuine written employment contract between him and the 3rd Defendant. To a significant extent, that was evidenced by the very meticulous changes that the 4th Defendant had made to the various drafts, and the detailed revisions made by the Plaintiff to the drafts accordingly. It is very obvious from the drafts that the Plaintiff intended to derive much benefit from his post as the President and COO of the 3rd Defendant.

42. Obviously, the aim of the Plaintiff in leaving Fong & Ng and joining (using the word loosely here) the 4th Defendant was to run the new business of the 3rd Defendant (as its President and COO), his joint brainchild with the 4th Defendant. To say that he intended simply to become a permanent employee of the 1st Defendant, which carried on no substantive business or operation, with secondment to the 3rd Defendant, does not sit well with the evidence. No doubt, I accept that from the Plaintiff's perspective, the 1st Defendant was "cash-rich". However, that does not mean that he had to be employed by the 1st Defendant in order to ensure that he would be paid his salary. The fact that the 1st Defendant, a company within the Dynasty group of companies, was cash-rich, was sufficient comfort to the Plaintiff for him to leave Fong & Ng and join (using the term again loosely here) the 4th Defendant to work in the business of the 3rd Defendant. In my view, if he really were that worried about payment of his wages, he would not have agreed to "join" the 4th Defendant in the first place. As the Plaintiff accepted in final submission, given that everything was in practice controlled by the 4th Defendant, the 4th Defendant could by a stroke of pen transfer all the cash in the 1st Defendant's bank account to any other company of his. Therefore, I do not accept that the fact that the 1st Defendant was cash-rich must mean that the Plaintiff would only accept employment from the 1st Defendant but no one else within the group.

43. I do not accept that it was ever the intention of the parties for the 2nd Defendant to be the employer of the Plaintiff either. It is beyond dispute, on the evidence before me, that not only did the 2nd Defendant have only one hotel management contract at the time, the intention of the parties was that any future hotel management contracts would be obtained in the name of the 3rd Defendant. It could not possibly be the intention of the parties, more particularly that of the Plaintiff's, that he should be employed by this one-contract company (the 2nd Defendant).

44. As regards the 4th Defendant, in my judgment, the Plaintiff was too smart a lawyer not to have realised that like many other successful businessmen, the 4th Defendant used a whole group of related companies, local and offshore, to run his various businesses, the purpose of which was to avoid incurring any personal liability on his part. This is perfectly legitimate and is well recognized both at law and in the commercial world as a legitimate way of conducting business. No evasion of liability is involved here; just the avoidance of the incurring of personal liability in the first place. It is trite company law and commercial practice. In those circumstances, I would also rule out the 4th Defendant as the employer of the Plaintiff at any material time.

45. That (subject to one exception - see below) the 3rd Defendant was intended to be and indeed was the employer of the Plaintiff may also be gleaned from the various documents produced by Pricewaterhouse in which the Plaintiff was described clearly as the President and COO of the 3rd Defendant, the various drafts of the employment contract between the Plaintiff and the 3rd Defendant, the name card of the Plaintiff, to name just a few. Indeed, Fong & Ng's fee notes and receipts for the retainer fees were all addressed to the 3rd Defendant, whether before or after the incorporation of the 3rd Defendant in November 2000. As regards the copy leave applications produced by the Plaintiff to support his claimed status as an employee, they all lack the company head of the employer, in sharp contrast to similar copy leave applications of other employees in the Dynasty group produced by the Defendants at trial which clearly bear the name of the employer. I must say that I doubt very much whether those copy leave applications produced by the Plaintiff have not been tampered with in the photocopying process. I strongly suspect that the original application forms do bear the name of the employer in question, i.e. the 3rd Defendant, which would obviously be unfavourable to the case of the Plaintiff in so far as he seeks to say that the 1st Defendant, as opposed to the 3rd Defendant, was his true employer. The 4th Defendant said in evidence that despite search, he could not locate the originals or office copies of the Plaintiff's leave application forms in question. I accept that piece of evidence. From the discovery process, it has become apparent that the Plaintiff has in his possession many documents or copy documents belonging to companies within the Dynasty group.

46. I also accept the 4th Defendant's evidence on the name cards, and reject the Plaintiff's evidence that he had once got name cards of the Dynasty group. On a balance of probabilities, I do not believe that he would have lost or used up all those name cards so that at trial, he could not produce even one name card of the Dynasty group bearing his name.

47. Significantly, the 4th Defendant refused to sign an acknowledgment of the Plaintiff's notice of resignation on behalf of the 1st or 2nd Defendant. I accept his evidence that he refused to do so because he regarded the Plaintiff as only the employee of the 3rd Defendant.

48. As regards the various documents that the Plaintiff relied on in which he signed as the officer of either the 1st or 2nd Defendant, I accept the 4th Defendant's explanations for these documents. In a group situation like the Dynasty group, and given the position of the 4th Defendant in the group, in my judgment, it would not be at all unusual for the 4th Defendant to require somebody like the Plaintiff to wear more than one hats and sign documents for and on behalf of other companies in the group. That does not, by and of itself, make these other companies a joint or concurrent employer of the Plaintiff. Similarly, the work done by the Plaintiff for the other companies within the group or even the 4th Defendant personally did not, on the evidence before me, make the Plaintiff an employee of these other companies or the 4th Defendant personally. Again, I find it normal in this type of group situation, and given the position of the 4th Defendant, for the 4th Defendant to require the Plaintiff to carry out some works for his other companies in the group or him personally. I also accept his evidence that in those situations, no extra remuneration was ever intended by either party to be payable to the Plaintiff, on top of his remuneration from the 3rd Defendant - his employer within the group. I reject the Plaintiff's evidence to the contrary.

49. Of course, I have not forgotten that the Plaintiff started working (part-time) for (again loosely) the 4th Defendant as from 16 August 2000, whereas the 3rd Defendant - his employer as per my finding above - was only incorporated in November 2000. For this reason, I must qualify what I said above in relation to the true employer of the Plaintiff by this: I find as a fact that prior to the incorporation of the 3rd Defendant, the 1st Defendant was the temporary or "holding" employer of the Plaintiff, pending the incorporation. Indeed a similar arrangement was made with Pricewaterhouse, which clearly, on the documents, treated the 1st Defendant as their client in preparing the various investment documents relating to the intended business of the 3rd Defendant (then yet to be formed). Mr Wan, counsel for the Defendants, accepted the above to be the true analysis of the facts, during his final submission. This finding of mine also accorded with the Plaintiff's case (of course his case was that the 1st Defendant was not only his employer for this limited period of time but throughout the entire period of employment, a proposition which I, for the reasons explained above, reject).

50. I further find that once the 3rd Defendant was incorporated, the employer changed from the 1st Defendant to the 3rd Defendant. This was clearly reflected by the change in this regard in the 2nd draft contract of employment from the 1st draft. In the 1st draft, the name of the employer was left blank, whereas in the 2nd draft, the 3rd Defendant was named as the employer of the Plaintiff. And as mentioned above, Fong & Ng's bills and receipts for payment of their retainer fees were all addressed to the 3rd Defendant. It is plain that Fong & Ng's source of knowledge as to who was employing part-time the Plaintiff or who was getting the benefit of the Plaintiff's secondment came from the Plaintiff himself. I see no reason why after the incorporation of the 3rd Defendant, the Plaintiff did not forthwith become its employee.

51. I also agree with Mr Wan's submission that the fact that the 1st Defendant issued cheques to pay for the Plaintiff's wages, and receipts were signed to acknowledge such payments from the 1st Defendant, is really neither here nor there. The evidence shows that the 1st Defendant was in the "habit" of making direct payments in respect of outgoings and expenses of companies within the Dynasty group. It simply acted as the group's in-house "banker".

52. I also reject any suggestion that during this pre-incorporation period of employment of the Plaintiff, the 4th Defendant (as opposed to the 1st Defendant) was the temporary employer of the Plaintiff. First, this was never suggested in the Plaintiff's pleading. Secondly, for the same reasons explained above, in my judgment, the Plaintiff must have known that the 4th Defendant was in the habit of using companies to enter into legal relationships so as to avoid incurring any personal liability on his part. And from his heavy involvement in the conception of the 3rd Defendant and its intended business, he must have known that the 4th Defendant had been using the 1st Defendant as his vehicle for the incubation of the intended business and the formation of the 3rd Defendant itself, such as in his dealings with Pricewaterhouse.

53. For all these reasons, as explained above, I find that prior to the incorporation of the 3rd Defendant, the 1st Defendant was the Plaintiff's temporary employer as from 16 August 2000 on a part-time basis. As from its incorporation, the 3rd Defendant became the employer of the Plaintiff until 31 August 2001 when the Plaintiff left.

54. The Plaintiff relied on Leif Christensen v. Regent Ken International Limited HCA 6011/1996 Seagroatt J (12 May 1998) and argued that more than one defendant should be liable to him as his employer. The finding made by the learned judge was based on the peculiar facts in that case. I derive no assistance from that case regarding the true relationship between the parties in the present case, although, as I said, I have always borne in mind the possibility of there being more than one legal entity being the Plaintiff's employer or being responsible for payment of the Plaintiff's wages (at any one time).

Drafts of employment contract

55. I now turn to the terms of employment. On the evidence, it is plain that the various drafts of the contract of employment between the Plaintiff and the 3rd Defendant were never finalised or signed. None of them constituted the contract of employment between the Plaintiff and the 3rd Defendant. However, they do serve as part of the evidence before the Court regarding what had been agreed between the parties. On that basis, I fully take into account the contents of the various drafts. Here, I need to say a few words about the last draft. The Plaintiff denied that this was a genuine draft. He suggested that it was a draft fabricated by the Defendants for the purpose of litigation. He said he had never seen the draft before (the litigation). He said the draft was not prepared by him. The 4th Defendant said otherwise. He said it was a last draft prepared by the Plaintiff prior to his departure. Like the previous drafts, he made comments on the draft, and he still found the draft to be too complicated, one-sided and unfair.

56. Having carefully considered the conflicting oral evidence as well as the contents of the various drafts - in particular the last draft, I have no doubt whatsoever that this was a genuine draft. I reject the Plaintiff's story. The last draft contained, amongst other things, some extremely minor changes - when closely compared with the previous draft. Some of these changes related to personal details of the Plaintiff (see Schedule 3 of the draft), which could not have been known, on the evidence before me, to the Defendants. More probable than not, they were changes made by the Plaintiff himself to update his personal details as set out in the Schedule. Moreover, the last draft contained changes that could only have been prepared by trained lawyers, and on a balance of probabilities, they were made by the Plaintiff.

57. For all these reasons, as I say, I have no doubt on the evidence, and I find as a fact, that the last draft was a genuine and contemporaneous document.

Reduction in salary

58. The significance (and thus controversy) of the last draft lies in that it clearly evidenced, amongst other things, the Plaintiff's agreement to the change of his pay package as from January 2001, i.e. lowering his monthly salary from $300,000 to $200,000 per month, which was to some extent compensated by the introduction of a performance incentive bonus of $1.2 million. I agree that there are doubts regarding the 4th Defendant's explanation for the change in pay package (i.e. the Plaintiff saying that he could only spend two-thirds of his time for the 3rd Defendant), but the important thing here is that the last draft clearly evidenced the Plaintiff's agreement to this reduction of wages and the introduction of the performance incentive bonus. In this regard, I therefore prefer the evidence of the 4th Defendant to the Plaintiff's. I should add, whilst I am on this last draft, that my rejection of the Plaintiff's evidence regarding this draft must to some extent affect the credibility of the Plaintiff's evidence as a whole, although ultimately, all findings of fact made by me here are based not on one or two matters, but on the totality of the evidence before the Court.

The 75,000 shares

59. Turning to the 75,000 shares, the dispute between the parties centres on whether they were to be issued to the Plaintiff for free as part of his consideration for joining the 3rd Defendant. The 4th Defendant said in evidence that there was never any such promise, and the Plaintiff was deliberately confusing his subsequent promises of gifting to the Plaintiff another lot of 75,000 shares and a lot of 150,000 shares which were conditional in nature. Both parties spent much time during examination of witnesses on the relevant parts of the taped conversations.

60. On balance, I accept the 4th Defendant's version. Whilst my finding is based on the totality of the evidence, I have particularly borne in mind a number of factors: first, the promise of a free subscription of 75,000 shares was never mentioned in any of the three drafts of the contract of employment, two of which were prepared prior to the actual issue of shares and one possibly afterwards. Given the length to which the Plaintiff had gone to set out his own terms of employment with the 3rd Defendant, particularly the benefits and remuneration that he was going to enjoy from the employment, in the various drafts, it is unlikely that he would have left out the free subscription of shares in the 3rd Defendant from the drafts. Secondly, in the taped conversations, the Plaintiff was clearly unsuccessful in extracting any admission (let alone an unambiguous one) from the 4th Defendant, who was totally unaware that the conversations were being taped, that he had promised to give 75,000 shares to the Plaintiff free of charge. In this regard, I approach the taped conversations this way: the taping of the conversations was clearly a pre-meditated act on the part of the Plaintiff, whereas the 4th Defendant was totally ignorant of it. Plainly, the Plaintiff was seeking to obtain favourable admissions from the 4th Defendant. Yet, the taped conversations failed to record any clear insistence by the Plaintiff that the 4th Defendant had promised to give him 75,000 shares in the 3rd Defendant (in compensation for his loss of clientele), which should not be confused with the 4th Defendant's subsequent promise relating to another lot of 75,000 shares. On the other hand, the taped conversations clearly showed that the 4th Defendant disputed, even back in 2001 when the conversations took place, any suggestion that he had ever promised the Plaintiff any free subscription of 75,000 shares in the 3rd Defendant.

61. The Plaintiff emphasized that he was giving up a very lucrative practice in Fong & Ng in joining the 3rd Defendant, and part of the inducement was the free subscription of 75,000 shares in the 3rd Defendant. That argument loses its attraction once one arrives at the conclusion, as I have done, that the 3rd Defendant was very much the joint brainchild of the Plaintiff and the 4th Defendant, and the opportunity of joining the 3rd Defendant and taking part in a very substantive manner in the intended business of the 3rd Defendant was in itself a major attraction to the Plaintiff.

62. As I said, all in all, on balance, I reject the Plaintiff's version relating to the subscription of the 75,000 shares.

Salaries for April to June 2001

63. My finding therefore resolves in substance another dispute between the parties, i.e. the non-payment of the Plaintiff's wages from April to June 2001. The total wages (as reduced) for those three months roughly equalled the subscription money required for the 75,000 shares in question. There was only a minor difference of about $15,000 in the Plaintiff's favour. I say "in substance" because on the evidence, I am not sure if there was any definite agreement on the part of the Plaintiff to use his salaries in those 3 months to set off against the outstanding subscription money. Put another way, I am not prepared to make a finding to that effect, notwithstanding the 4th Defendant's evidence. In one sense, this is insignificant because at the end of the day, in this action, the Plaintiff and the 3rd Defendant must, as it were, square their account. One way or another, the Plaintiff must pay for the subscription. In another sense, this is significant when I come to consider the Plaintiff's "resignation" from the 3rd Defendant in July (see below).

Share option

64. As regards the share option, I have no doubt, on the evidence, that whilst the same may have been mentioned during discussions between the Plaintiff and the 4th Defendant, nothing certain was ever agreed between them. This is clearly evidenced by the fact that the details of the share option scheme only appeared in the third draft, which like the previous drafts, was never finalised. From the comments made by the 4th Defendant to the relevant parts in the last draft, it is clear that the parties were still negotiating about the terms and details of the share option. In my judgment, any agreement between the parties was at a very preliminary stage, and lacked details and certainty to render it a legally binding one.

Constructive dismissal

65. On the evidence, I have no difficulty in finding that the 3rd Defendant was in breach of the employment contract in failing to pay the Plaintiff his salary in July. Moreover, given my "non-finding" of a definite agreement to use the salaries in April to June 2001 to pay for the subscription of the 75,000 shares, it was also wrongful on the part of the 3rd Defendant not to pay the Plaintiff his salaries for those 3 months. In those circumstances, the Plaintiff was quite entitled to give notice in late July 2001 and leave by the end of August 2001: see Western Excavating (ECC) Ltd v. Sharp [1978] ICR 221, 226, which confirms that an innocent party intending to accept the wrongful repudiation of contract by the other contracting party need not leave immediately in order to effect the acceptance but may give notice of his intention to do so and leave upon the expiry of the notice. I do not think the Plaintiff was late in giving notice of his intention to quit. The failure to pay salary was a continuing breach. In the circumstances, the Plaintiff was clearly constructively dismissed by the 3rd Defendant. See also section 10A of the Employee Ordinance (Cap. 57).

Damages for wrongful dismissal

66. All this leads me to the amount of damages that the Plaintiff may claim from the 3rd Defendant for wrongful dismissal (constructive dismissal). I have no doubt, on the evidence before me, that one of the terms of the contract of employment between the Plaintiff and the 3rd Defendant was that the Plaintiff was to work for the 3rd Defendant for a period of 3 years. As regards how the three years were to be counted, I accept the Plaintiff's evidence, i.e. that there was a subsequent agreement to postpone the commencement of the three years to 1 January 2001 when the Plaintiff started working full-time for the 3rd Defendant. This was evidenced by the last draft contract of employment.

67. In other words, the contract of employment between the Plaintiff and the 3rd Defendant was that the 3rd Defendant was to employ the Plaintiff for a period of 3 years from 1 January 2001 to 31 December 2003. In other words, it was a fixed term contract. Prima facie, at common law, if a fixed term employment contract is prematurely and wrongfully terminated by the employer, the employee is entitled to sue for damages calculated by reference to the wages that he would have received from his employer during the unexpired term of employment, less whatever actual income or income that he ought to have been able to earn from other sources during the unexpired period of employment.

68. However, this is subject to two important exceptions. First, if the so-called fixed term employment contract contains built-in notice provisions allowing either party or both parties to terminate the contract of employment by notice, then damages would only be calculated by reference to the period of notice (subject to a 7-day minimum period: section 6(2)(c), Employment Ordinance, infra). So for instance, the standard 2-year employment contracts of foreign domestic helpers in Hong Kong are always subject to the notice provisions they contain whereby either side may give one month's notice or pay one month's wages in lieu to the other side to terminate the so-called 2-year contract. Secondly, sections 5, 6 and 8A of the Employment Ordinance read as follows: -

"5. Duration of contracts of employment

(1) Every contract of employment, which is a continuous contract, shall, in the absence of any express agreement to the contrary, be deemed to be a contract for 1 month renewable from month to month.

(2) Notwithstanding that it is proved that a contract of employment is for a period in excess of 1 month such contract shall be deemed to be a contract for 1 month renewable from month to month unless the contract is evidenced in writing signed by each of the parties thereto.

(3) Notwithstanding any other provision of this section, a contract of employment entered into by a manual worker for a period of 6 months or more or for a number of working days equivalent to 6 months or more shall be deemed to be a contract for 1 month renewable from month to month.

(4) Where any contract of employment for a period in excess of 1 month is deemed by virtue of the provisions of subsection (2) or (3) to be a contract from month to month the wages per month shall be such proportion of the total wages agreed under the contract as 1 month bears to the agreed duration of the contract.

6. Termination of contract by notice

(1) Subject to subsections (2), (2A), (2B), (3) and (3A) and sections 15 and 33, either party to a contract of employment may at any time terminate the contract by giving to the other party notice, orally or in writing, of his intention to do so. (Amended 5 of 1970 s. 5; 57 of 1983 s. 2; 48 of 1984 s. 4; 55 of 1987 s. 2; 103 of 1995 s. 2; 7 of 2001 s. 2)

(2) The length of notice required to terminate a contract of employment shall be

(a) in the case of a contract which is deemed by virtue of the provisions of section 5 to be a contract for 1 month renewable from month to month and which does not make provision for the length of notice required to terminate the contract, not less than 1 month; (Amended 44 of 1971 s. 2)

(b) in the case of a contract which is deemed by virtue of the provisions of section 5 to be a contract for 1 month renewable from month to month and which makes provision for the length of notice required to terminate the contract, the agreed period, but not less than 7 days; (Added 44 of 1971 s. 2)

(c) in every other case, the agreed period, but not less than 7 days in the case of a continuous contract.

.....

8A. Damages for wrongful termination of contract

(1) Without prejudice to section 9, 10 or 11(2), where a contract of employment is terminated otherwise than in accordance with section 6 or 7, a sum equal to the amount of wages which would have accrued to the employee during the period of notice required by section 6 shall be payable by the party terminating the contract to the other party.

(2) Without prejudice to section 9, 10 or 11(2), where a party to a contract of employment, having given proper notice in accordance with section 6 thereafter terminates the contract before the expiry of the period of notice otherwise than in accordance with section 7, such proportion of the sum equal to the amount of wages which would have accrued to the employee during the period of notice as is proportionate to the period between the termination of the contract and the time when the notice given would have expired shall be payable by the party terminating the contract to the other party.

(Added 14 of 1975 s. 2)"

69. Section 5(2) is of particular importance in the present case. As I said, there was no written contract of employment as such. In those circumstances, unless the contract of employment between the Plaintiff and the 3rd Defendant was "evidenced in writing signed by each of the parties thereto", the contract of employment would have to be treated as a contract for one month renewable from month to month, in which event the notice provisions in section 6 (1) and (2)(a) and (b) of the Ordinance would apply.

70. On the facts, I find that there was no agreement between the Plaintiff and the 3rd Defendant that on the part of the 3rd Defendant (as opposed to the Plaintiff), the 3rd Defendant could early terminate the 3-year fixed term contract by notice. (By way of contrast, in the successive drafts, it was provided specifically that the Plaintiff could give notice to early terminate the contract of employment - the parties' negotiations focused only on the period of notice, rather than the Plaintiff's right to give notice for early termination).

71. However, I reject the Plaintiff's argument that the contract of employment was evidenced in writing signed by the parties within the meaning of section 5(2), so that the statutory notice provisions in section 6(1) and (2)(a) and (b) do not apply. Despite research, neither side was able to find any direct authority on the proper construction of the section, but instead referred me to general principles of construction, which I have borne in mind. I have also borne in mind similar (though not identical) requirements in other pieces of legislation including section 3(1) of the Conveyancing and Property Ordinance (Cap. 219), although ultimately each piece of legislation must be read and construed by reference to its own peculiar context. See generally Stroud's Judicial Dictionary of Words and Phrases (2000 ed.) on "evidence of a contract".

72. Section 5(2) refers to evidence in writing of the "contract of employment" rather than merely the employment. In my judgment, what is required here is something in writing evidencing the essential terms of the contract of employment, i.e. the parties, the remuneration, the essential job description, and any terms of particular importance, such as the term (i.e. duration) of the employment. All that is required is some evidence in writing of those essential terms. There is no need for a full written contract of employment. The evidence need not be contained in one document. One document may refer to another, subject to the signing requirement. However, the evidence must be signed by the parties.

73. In those circumstances, I do not accept the Plaintiff's argument that the wage receipts, leave applications, pay cheques, daily attendance sheets, share certificates, correspondence and so forth (as set out in paragraph 10 of the Plaintiff's further written submission) constituted the requisite signed evidence in writing of the contract of employment, within the meaning of section 5(2) of the Ordinance.

74. In other words, the contract of employment is statutorily deemed to be a contract of employment for one month renewable from month to month. In those circumstances, the notice provisions in section 6(1) and (2)(a) and (b) are pertinent. On the facts, section 6(2)(a) which stipulates for a one month's notice is applicable, there having been no agreement, as per my finding above, that the 3rd Defendant was entitled by contract to give any notice to early terminate the contract of employment (and thus section 6(2)(b) does not apply). (Section 6(2)(c), which applies to a contract not deemed to be a contract for 1 month renewable from month to month, does not apply.)

75. In the present case, what happened was that the 3rd Defendant was in arrears with payment of the salaries for April, May and June, when the Plaintiff gave notice to quit in end of July 2001. According to case law (Western Excavating (ECC) Ltd, supra), the Plaintiff was quite entitled to do so, notwithstanding that he was strictly speaking not obliged to give any notice at all. He actually worked until the end of August before he left. He was not paid the wages for August either. In those circumstances, he must be treated as having been constructively dismissed by the end of August 2001. He is entitled to one month's wages as damages for the wrongful termination, as per section 8A.

Buyback of the 75,000 shares

76. As regards the 75,000 shares, subject to the Plaintiff's payment of the subscription money, the parties are in agreement that the 3rd Defendant is obliged to buy them back at par value after the departure of the Plaintiff, i.e. in the sum of US$75,000.

77. Given my finding above that there was no agreement to set-off and thus there was no set-off of the subscription money against the salaries for April to June 2001, the question of whether the 4th Defendant has personally guaranteed the buyback is academic.

78. For the sake of completeness, I would add that on the evidence before me, I find against the contention of the Plaintiff that there was such a guarantee. As I said twice above, it must have been clear to the Plaintiff at all times that the 4th Defendant was conducting his business and affairs through corporate vehicles, and indeed in the pre-incorporation period, as I found above, the 4th Defendant was acting through the corporate vehicle of the 1st Defendant to temporarily employ the Plaintiff, pending the incorporation of the 3rd Defendant. There is no question of lifting the corporate veil here, because there is nothing objectionable for a person to employ a company to enter into a legal relationship with a third party, thereby avoiding his contracting personal liability towards the third party, as opposed to the introduction of a corporate vehicle subsequently into an existing legal relationship so as to evade a pre-existing legal obligation. China Ocean Shipping Co. v Mitrans Shipping Co. Ltd [1995] 3 HKC 123.

79. In those circumstances, I find as a fact that when the 4th Defendant promised with the Plaintiff about the buyback of the shares upon his departure, he did it on behalf of the 1st Defendant, and upon the incorporation of the 3rd Defendant, that promise was taken over and succeeded to by the 3rd Defendant, the ultimate employer of the Plaintiff. Thus analysed, the promise of buyback always came from the employer for the time being of the Plaintiff, and no one else, and this was well understood by the Plaintiff to be the case. In other words, the 4th Defendant did not contract any personal liability, or give any personal undertaking relating to the buyback of the shares. I therefore reject the Plaintiff's contention against the 4th Defendant.

Summary

80. In summary, I find for the Plaintiff on his claim against the 3rd Defendant as follows:

(1) Arrears of wages from April to August 2001 (at $200,000 per month), i.e. $1,000,000;

(2) Damages for wrongful termination as per section 8A of the Employment Ordinance in the sum of $200,000;

(3) Balance annual leave (calculated as per the formula pleaded in paragraph 26 of the statement of claim, with the adjustment of the salary to $200,000): $45,333.

81. As for the 75,000 shares, as the Plaintiff has not paid the subscription money, the shares should be transferred back to the 3rd Defendant free of charge. No question of a buyback arises as such.

82. For the reasons explained above, I reject all the Plaintiff's other claims against the four Defendants including his claim in respect of the share option, and the work done for the other Defendants on a quantum meruit basis.

83. In his written final submission, the Plaintiff asked for exemplary damages against the Defendants. Based on my above findings, I find the claim wholly unmeritorious, not to mention that it was never pleaded in the statement of claim in the first place.

Order

84. I order that judgment be entered for the Plaintiff against the 3rd Defendant accordingly.

85. I also order that the 3rd Defendant pay the Plaintiff interest on the judgment sums at the rate of 5% per annum from 17 November 2001 (the date of commencement of proceedings in the Labour Tribunal which eventually transferred the proceedings to this Court) to the date of judgment and thereafter at the judgment rate until full payment.

86. I dismiss the rest of the Plaintiff's claim against the four Defendants.

87. As regards costs, I make a costs order nisi that the 3rd Defendant pay to the Plaintiff the costs of the Plaintiff's claim against the 3rd Defendant, and the Plaintiff pay to the 1st, 2nd and 4th Defendants their costs of the action; all such costs are to be taxed if not agreed.

88. Unless any party applies to this Court to vary the costs order nisi within 14 days after this judgment is handed down, the same shall become absolute upon the expiry of the 14-day period.

89. Although the above is only a costs order nisi, I can say at once that as presently advised, there is no basis whatsoever for awarding costs in favour of the Plaintiff against the 3rd Defendant on an indemnity basis, as has been contended for by the Plaintiff in his final submission.