RALF BORCHERT v. DRMYO LTD AND ANOTHER

HCA 2234/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2234 OF 2007

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BETWEEN

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J U D G M E N T

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Introduction

1.  This is an action in which the Plaintiff claims against the 2^nd Defendant (“Dr. Chin”) the sum of $519,818.00 and interest thereon. The claim is vigorously resisted by Dr. Chin who in turn counterclaims against the Plaintiff for the return of a computer or damages in terms of the monetary value of the same.

2.  Originally the Plaintiff also made a claim against the 1^st Defendant, DrMyo Limited (“the Company”), in this same action. Such claim, however, was struck out by Deputy High Court Judge L. Chan on 28^th October 2009 on the ground that it was a claim for arrears of salary and damages for constructive dismissal and was therefore within the exclusive jurisdiction of the Labour Tribunal. Thus, the Court of First Instance had no jurisdiction to entertain such claim.

3.  There was no appeal against that part of the Order of the learned Deputy High Court Judge. Indeed, during the trial before me, Mr. Wang, Counsel for the Plaintiff, formally asked for leave to discontinue the action against the Company which I granted.

Background

Dr. Chin

4.  Dr. Chin is a chiropractor who was trained in Australia and qualified in 1991. He came to Hong Kong in about November 1991 and started working as an associate with a Dr. Decker from whom he first acquired knowledge in applied kinesiology and chiropractic business management.

5.  In the course of the subsequent years, Dr. Chin teamed up with other chiropractors and learnt other skills including the use of machinery. According to Dr. Chin, eventually he managed to get positive results by the combination of applied kinesiology, manipulations and muscle work with a machine called G5 in treating patients with back problems. He became very successful in his business.

6.  In 2003, because of SARS, he closed his practice and went to New Zealand with his family for a month. After SARS had ended, he returned to Hong Kong and set up a bigger clinic in Hing Wai Building in Central. He started his “MyopraKtic” practice. He put up the signage “MyopraKtic Spinal Health Centre” in his clinic. The term “MyopraKtic” was coined by himself which stands for “Muscles (Myo) Practically (Praktic) Key (K) to better health”. He was eager to share the benefits of this treatment with others so that other people could benefit from it. He hoped to open more centres and train more practitioners. He began to explore the possibility of franchising his method of treatment but the process of looking into such possibility turned out to be quite expensive and he could not afford it.

The Plaintiff

7.  The Plaintiff is German by birth. He was raised and educated both in Hong Kong and Germany. According to his own resume, he has had a lot of experience as a consultant in the hospitality industry and is well-qualified in “Executive Recruitment, Transformation Management, Negotiation Skills, Opportunity Analysis, Risk Management, Procurement, Project Management, People Management and Development, Webmedia and Internet Publishing”.

8.  According to the same resume, as confirmed by the Plaintiff in the witness-box, between May 2002 and January 2005, he was employed full-time as a Vice-President Procurement by the Peninsula Hotels Group. He says that after the project had been completed in January 2005, he ceased his employment with the Peninsula Hotels Group. Since he had money, he decided to fulfil his dream of doing horse-back riding in the Beas River Riding School of the Hong Kong Jockey Club for 6 months.

9.  The Plaintiff had in fact been a patient of Dr. Chin for over 10 years. It was during some of his visits to Dr. Chin that the latter shared with him a lot his global vision for the “MyopraKtic” method of treatment.

Other Participants

10.  To cut a long story short, eventually, there were other people who became interested in Dr. Chin’s scheme to promote and globalise his method of treatment. They were : -

(i)  Andrew Wright (“Andrew”) who was an entrepreneur and whom Dr. Chin met in 1992 – 93 when Andrew was promoting Herbalife, some nutritional supplements products.

(ii)  Jayan Patel (“Jayan”), an accountant and entrepreneur from Kenya who was introduced to Dr. Chin by Andrew.

(iii)  Michael Barthaud (“Michael”), a teacher of natural healing techniques whom Dr. Chin had not seen since the Herbalife days and who was brought into the picture again by Andrew.

11.  It was agreed by the interested participants that the scheme was to be carried out through a limited company to be formed. That company was eventually the Company.

12.  Dr. Chin called one witness other than himself. That witness is Ms. Jennifer Man Yee Wu-Scharsig (“Jennifer”). She is a solicitor in Hong Kong and specialises in non-litigious commercial work. She is a patient of Dr. Chin. I shall go into her evidence in greater detail later. Suffice it at this stage to say that it was she who helped the interested parties to incorporate the Company which incorporation took place on 28^th October 2005.

13.  The authorized capital of the Company was $10,000.00 divided into 100 shares of $100.00 each. They were all issued and held as follows : -

(i)	Dr. Chin	73
(ii)	Andrew	12
(iii)	Jayan	11
(iv)	Plaintiff	2
(v)	Michael	2
		100

It is clear that the Company had only a minimal paid-up capital.

The Letter of Employment

14.  On or about 3^rd October 2005, a Letter of Employment (“the Letter of Employment”) was signed between the Plaintiff on the one hand and Dr. Chin as “Chairman, Board of Directors, Dr. Myo Ltd.” on the other hand. It is to be noted of course that, as at that date, the Company had not yet been incorporated.

15.  Since the Letter of Employment is of primary importance in the case, the contents are set out in full below : -

“DRYMO LIMITED

Letter of Employment

3 October 2005

Ralf Borchert
B46, 10 Caldecott Road
Kowloon, Hong Kong

Dear Ralf,

This Letter of Employment (“Letter”) confirms your appointment as Managing Director (“MD”) and Chief Executive Officer (“CEO”) of DrMyo Limited (“The Company”).

1.  You will enter into a detailed written employment contract (“Employment Agreement”) between yourself and DrMyo Ltd. no later than 10 December 2005.

2.  As MD and CEO you will have full budget responsibility and authority to conduct and direct the business of DrMyo Ltd. subject to paragraph 4 below.

3.  The CEO reports to the board of directors of DrMyo Ltd. and will receive instructions by way of board and or shareholder’s resolution or similar instrument.

4.  As MD and CEO you are appointed to the board of directors of DrMyo Ltd. and you will participate in the financial and business planning and management of DrMyo Ltd.

5.  The Company will indemnify and hold you harmless against all claims, demands, suits, proceedings, judgments, damages, costs and expenses of any nature whatsoever which you may suffer or incur in connection with your duties as MD and CEO of DrMyo Ltd. or in accordance with this Letter, other than in cases of gross negligence or wilful malice on your behalf.  The Company shall effect suitable insurance cover in respect of third party liability insurance and/or a public liability insurance cover at least in accordance with general health care industry standards.

6.  You are appointed as of 1 September 2005.  Your notice period is six (6) months.

7.  You will be based in the DrMyo Ltd.’s offices in Hong Kong.

8.  You are entitled to thirty (30) days paid annual leave.  Statutory holidays in Hong Kong Special Administrative Region shall not be accounted to your annual leave days.

9.  Your salary is HK$165,040 per calendar month payable at the end of the month and pro-rated for part months.  The daily salary owed to you shall be calculated on the basis of the monthly salary divided by thirty (30) days.  In the event that your employment with DrMyo Ltd. is terminated, any outstanding salary and benefits will be paid to you on your last working day.  Your monthly remuneration shall be inclusive of all overtime which you may be required to perform in carrying out the duties of your employment.

10.  In consideration of accepting appointment as MD and CEO of DrMyo Ltd., you will receive an equity shareholding of two percent (2%) in DrMyo Ltd.

11.  This Letter shall not be changed verbally, but only by a written  instrument signed by the Parties.

12.  This Letter shall be construed in accordance with and governed by the laws of Hong Kong Special Administrative Region.

Yours sincerely  I confirm acceptance of the offer set out in this Letter

Signed : (signature)    Signed : (signature)

Name : Dr. Waverly Chin    Name: Ralf Borchert

Chairman, Board of Directors, DrMyo Ltd  Date : 2-10-05 ”

This is the version of the Letter of Employment put forward by the Plaintiff in evidence.  Dr. Chin disputes that it is the correct version in that he says that the first page of the Letter of Employment as signed was different.  He has produced a different version of the first page which contains an extra sentence at the end of paragraph 1 which reads as follows : -

“The Employment Agreement shall be the final and binding agreement  between the Company and yourself.”

I shall deal with this aspect of the case subsequently.

The Case of the Plaintiff

16.  The case of the Plaintiff as pleaded in his Re-Amended Statement of Claim, as advanced in his evidence and as submitted by his Counsel can be summarised as follows : -

(i)  Prior to signing the Letter of Employment, Dr. Chin made a promise to the Plaintiff that he would provide “initial funding” to the Company so that “the day to day financial obligations of the Company could be met”.  The Plaintiff relied on such promise and signed the Letter of Employment.  There was therefore a collateral contract between the Plaintiff and Dr. Chin in respect of which Dr. Chin committed a breach because he failed to provide the funding.

(ii)  Sometime in December 2005, when the Plaintiff’s monthly salary had not been paid by the Company and he threatened to leave, Dr. Chin promised that he would inject funds into the Company.  In reliance on this promise, the Plaintiff stayed.  Again, Dr. Chin breached this promise.

(iii)  Thirdly, on 17^th January 2006, at a board meeting of the Company, Dr. Chin promised to provide a director’s loan of $1.8million to the Company which he again failed to do.  This promise was also made to the Plaintiff.

(iv)  Dr. Chin was guilty of fraudulent misrepresentation when he made the said three promises knowing that he would not be able to keep them.

(v)  As a result, the Plaintiff had suffered loss and damages.

The Evidence and Findings

17.  I deal with the first alleged promise.

18.  According to Dr. Chin, he never promised that he would put in any substantial amount of money into the project and the Company. He would not have been able to afford it anyway. He told the rest of his team that he had a lot of expenses to incur, including repayments on his mortgage and tax loans and payment of school fees for his children, rental for his clinic, salary for his receptionist, $20,000.00 salary to Andrew who was under training and treating patients and living expenses for his family, which came up to almost $200,000.00 per month.

19.  In the course of his evidence, I asked Dr. Chin how many patients he could treat each day and his answer was between 12 and 15. Such patients would be charged at the rate of about $1,000.00 for each visit. Dr. Chin said that he would take home between $60,000.00 and $80,000.00 per month.

20.  To begin with, it simply would not make any economic sense for Dr. Chin to have committed himself to paying $165,000.00 to the Plaintiff each month from out of his own pocket.

21.  According to Dr. Chin, the main function of the Plaintiff was to draw up a business plan and to approach investors to ask them to invest on the project to the tune of over $30 million. It was something which would take quite a long time.

22.  Dr. Chin further said that he agreed to sign the Letter of Employment because he knew that he was only signing it on behalf of the Company which had no money and that he was not making any personal commitment. Irrespective of whichever version he signed, whether or not it contained the extra sentence referred to in paragraph 15 above, it is quite clear on the face of the Letter of Employment that Dr. Chin was signing for and on behalf of the Company and that he was not making any personal commitment.

23.  According to Jennifer, from her discussions with all the members of the team, including the Plaintiff, it was clear that none of them had any money to invest in the new business and that all the funding would have to come from investors based on the business plan and budget to be produced by the Plaintiff. She in fact rendered her service free of charge except for disbursements. If she believed that funds were to be provided, for instance, by Dr. Chin, she would not have agreed to do it for free.

24.  The Letter of Employment was actually drafted by a Dr. Hans Au, a PRC lawyer, for the Plaintiff. After the Plaintiff had ceased working on the project and left Dr. Chin’s clinic, it was discovered that amongst the record left by him there was a draft Letter of Guarantee. The Plaintiff admitted that it was drafted by Dr. Hans Au. It was a letter which was supposed to be signed by Dr. Chin and addressed to the Plaintiff but it was never signed. It refers to the “Letter of Guarantee between yourself and [New Co] (the “Letter”)” and then contains, inter alia, the following provision : -

“(i)  In consideration of Ralf Borchert entering into the Letter, the Founding Shareholders, (the“Guarantor”), unconditionally and irrevocally guarantee as a continuing obligation the proper and punctual performance by [New Co] of all its obligations under or pursuant to the Letter or any supplementary Employment Agreement between [New Co]and Ralf Borchert, such as, without limitations, outstanding payments of salary and benefits.”

25.  In cross-examination, Mr. Kwok, Counsel for Dr. Chin, asked the Plaintiff why he did not get Dr. Chin to sign this Letter of Guarantee which would have made it clear beyond doubt that Dr. Chin would guarantee the payment of his salary under the Letter of Employment. All that the Plaintiff could say in answer was that Dr. Chin had given his personal promise to him. I simply cannot believe that the Plaintiff with his training and experience in the commercial world would have allowed such an important matter to be secured just on the basis of a vague oral promise by Dr. Chin instead of having something clear and unambiguous in writing.

26.  I accept the evidence of Jennifer to the effect that all members of the team would only expect to be paid when funding by outside investors became available. I find her to be a straightforward and honest witness.

27.  I also accept the evidence of Dr. Chin to the effect that he did not make any promise to the Plaintiff to be responsible for the payment of his salary under the Letter of Employment or for funding the day to day expenditure of the Company personally. I find him to be an honest witness.

28.  I do not accept the evidence of the Plaintiff. His story simply does not make economic sense in all the circumstances. I find that the fact that he did not even ask Dr. Chin to sign the draft Letter of Guarantee to be most telling against him. I find as a fact that it had always been understood by him that he would not be paid his salary by the Company under the Letter of Employment unless and until there were funds put in by outside investors.

29.  As it transpired, Dr. Chin did put money into the project in the nature of what he called ‘survival money’. It was from such money that the Plaintiff was able to take part of it as payment for part of his own salary. I do not find that such money put in by Dr. Chin represented performance by him of part of his obligations pursuant to promises which the Plaintiff alleged he had made.

30.  For the above reasons, I also do not accept the Plaintiff’s allegations that Dr. Chin had made the second or the third promise.

31.  In respect of the alleged third promise, it is clear from the minutes of the board meeting of the Company held on 17^th January 2006 that Dr. Chin had indicated to the board that he would try to raise a $1.8 million loan from the bank to enable the project to go on. It was not a promise to the Plaintiff personally. Very shortly thereafter, Dr. Chin did try to raise a loan from the bank but he was unsuccessful.

32.  For the reasons set out above, I also do not think that there is anything in the claims by the Plaintiff based on misrepresentation.

33.  All in all, I dismiss the Plaintiff’s claims in all respects.

Counterclaim

34.  As regards the computer taken away by the Plaintiff, Dr. Chin has produced evidence that he purchased it. It is his property and the Plaintiff must return it.

35.  I therefore find in favour of Dr. Chin on his Counterclaim.

Costs

36.  I make an order nisi that the Plaintiff should pay to Dr. Chin the costs of the action and of the counterclaim to be taxed on a party and party basis, if not agreed.

Conclusion

37.  Finally, I wish to thank Counsel for both parties for the effort which they have put into preparing the case which has assisted me greatly.