CADENCE DESIGN SYSTEMS ASIA LTD. AND ANOTHER v. CHARLES WONG CHUN CHAN

HCA7756/96

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.7756 OF 1996

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J U D G M E N T

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1. This is an action by an employer against an employee for damages for fraudulent and/or negligent misrepresentation and/or breach of contract and/or fiduciary duty. There is a counterclaim by the employee for unpaid commission.

Matters which are not in dispute

2. The 1st Plaintiff, Cadence Design Systems Asia Limited ("Cadence Asia"), is a wholly owned subsidiary of a US company, Cadence Design Systems, Inc. ("Cadence, Inc."), which is in the business of design and sale of electronic design automation software. Cadence Asia sells Cadence products in the Far East. Up to 1993 the products were sold in the PRC through, inter alia, companies of which the Defendant was a director. One of these was ReMA Science and Technology Ltd. ("ReMA S & T"). Another was ReMA Enterprises Ltd. ("ReMA Enterprises"). In 1993 the Defendant set up the 2nd Plaintiff ("Cadence China").

3. In March 1994, it was agreed that between Cadence Inc., ReMA S & T and Cadence China that the latter would cease to be or hold themselves out as distributors for Cadence Inc. or its subsidiaries and that Cadence Inc would take over Cadence China as a subsidiary.

4. The Defendant was employed as the General Manager of Cadence China with effect from 1st January 1994. He was in fact paid by Cadence Asia and the latter's operations in Beijing were funded by Cadence Asia.

5. It was agreed that the Defendant would relocate from Hong Kong to Beijing and carry out the business of Cadence China there. At first he operated from a room in the Xiyuan Hotel, Beijing but it was decided that he should set up a proper commercial office.

6. At all relevant times Cadence China's Finance and Administration Manager was Miss Alice Lee. She had to oversee the office administration of Cadence Asia and Cadence China and the financial issues and management accounts of both companies. In effect on matters of office administration and funding, including the setting up of the new office, the Defendant had to liaise with Miss Lee.

7. At the time of the agreement Mr Thomas Sei-chon Lui was the Acting Vice President, Asia Operations, of Cadence Inc. From 1st July 1994, Mr Michael Hughes Ferguson took over the substantive post. The Defendant reported to him.

8. On 20th June 1994, Cadence China leased an office at Room 999, Ritan Commercial Building, 15 Guanghua Road Jia, Chaoyang District, Beijing, from Hainan Provincial Trade Promotion Import/Export Corporation ("Hainan"). I will call this the 1st Lease.

9. The 1st Lease was in writing. The Defendant signed it and dated it 27th June 1994, and chopped it with the chop of Cadence China. He sent a fax of the original to Cadence Asia but the original has not been found. The faxed copy which has been produced reached Cadence Asia on 28th July 1994.

10. The lease is for five years from 20th June 1994 at an annual rent of US$87,360. It purports to run from 20th August 1994. Rent is payable at $43,690 every six months, to be paid 15 days before the commencement date of the lease and 15 days before the commencement of each 6-month period thereafter. The Defendant advised Miss Lee by fax on 4th July that this sum was payable. It was duly paid. Receipts for two sums of $21,480, dated 27th June and 1st August 1994 have been produced.

11. Subsequently the Defendant faxed to Miss Lee a message received from Hainan, dated 19th December 1994, asking for prompt payment of the rent for the period from 20th December 1994 to the account with the Bank of China of a person named Meng Duan. The Defendant sent a further fax on 12th January 1995 asking for payment. The money was remitted to the account of Meng Duan.

12. The lease provided for an increase of annual rent of not more than 15%. The Defendant informed Miss Lee in about June or July 1995 that the landlord had increased the rent to $100,464 per annum. The Defendant faxed to Miss Lee a payment instruction dated 17th July 1995 from Hainan for $50,232, again payable to Meng Duan's account and this was duly paid.

13. Then on 25th August 1995 the Defendant faxed to Miss Lee another lease contract; the 2nd Lease. This bore to be a lease of Room 1002 in the Ritan Building, from the same landlord, Hainan, for a period of five years from 20th August 1995. The rent was US$24,200 per annum with the same terms of payment as those set out in the 1st Lease. This lease was unsigned. In fact it was never signed. Cadence Asia duly paid the rent of $12,100 for the first six months to Meng Duan's account.

14. In December 1995 there was apparently some delay in payment of the rent. The Defendant asked Miss Lee if he could pay an advance to the landlord which she refused. Nevertheless the Defendant signed an IOU to Cadence China for RMB78,735,73 which he explained at the time was for payment of a deposit to Hainan against the overdue rent.

15. In early 1996 the Defendant reported to Cadence Asia that the landlord wanted to terminate the lease of the offices and later that the landlord had exercised the right to terminate. In early April Cadence China sent to Cadence Asia a fax of an extension notice purporting to extend the leases for two months and demanding extra rent and a handling charge. Miss Lee told the Office Manager in Beijing, Mr Liu Jing Jing, that this was too much and wanted to negotiate it down. A reduced demand was later received. Following on this, on 10th April 1996 Cadence Asia remitted the equivalent of US$27,010.54 to Meng Duan's account.

16. By this time the Defendant's services had been terminated. He signed a separation and release agreement and related documents dated 18th March 1996.

17. In May 1996, Liu Jing Jing was admitted to hospital with a brain tumour. Cadence China took on a new Operations Manager, Mr Yu Yuan Ning, on 10th May. He was asked to negotiate a further extension of the lease and to get a receipt for the latest payment. In this connection he went to the landlord of the Ritan Building, Beijing Zhaori Science and Trade Development Company ("Beijing Zhaori") following which he carried out various investigations and obtained various documents.

18. Mr Yu obtained :-

(1) A written lease of Room 999 from Beijing Zhaori to Hainan from 20th June 1994 for a term of five years. The first year's rent was US$60,000 payable in 6-month instalments. There were provisions for increased rent in the second and subsequent years. The signature on the Hainan chop appears to be that of Liu Jing Jing.

(2) Another written lease of Room 999 from Beijing Zhaori to Hainan from 20th June 1995 for four years. The rent for the first year is US$65,090, payable in 6-month lots. Again the signature for Hainan appears to be that of Liu Jing Jing. There is an addendum to this lease which sets out that Hainan is renting the room for Cadence China and that all rent and telephone charges are payable by Cadence China. This addendum is sealed with the seal of Cadence China and over it appear the characters "Wong Chun" which are the same as those in the Defendant's name.

(3) A written lease of Room 1002 dated 9th June 1995, from Beijing to ReMA Enterprises Ltd. for one year from 1st September 1995 at an annual rent of US$16,319.

19. Mr Yu's investigations also revealed that Beijing Zhaori had never sought to cancel either of the leases, nor had it received any payment in respect of the rental deposit paid in in April 1996. He caused a search to be made for Hainan at its given address at Room 508, Guanghua Guest House. He found that there was no Room 508, and no Hainan. At trial he produced, from the Beijing Public Library, a directory of "Chinese Foreign Economy and Trade Enterprises" which included various Chinese provincial companies and organisations, but no Hainan.

20. Following Mr Yu's discoveries, Beijing Zhaori accepted RMB113,022.27 from Cadence China as rent for the period from 20th April to 19th June 1996. This represented rent at the rate in the head leases for the two rooms for this period.

21. Other investigations found that the Defendant had authorised the purchase of some computer equipment by Cadence China at a cost of RMB69,600. It is not now in dispute that this equipment found its way to ReMA S & T or ReMA Enterprises.

22. It is the Plaintiffs' case that the Defendant took part in a fraudulent scheme, along with Liu Jing Jing, to lease the two rooms from Beijing Zhaori in the name of Hainan, a non-existent company, and then sublet them to Cadence China and pocket the difference in rent and deposit which in total amounts to US$96,811. He also took part in a fraudulent scheme in respect of the rental advance of RMB78,735.73. He made fraudulent misrepresentations either deliberately or recklessly to the Defendant concerning the leases and he took a secret profit. In the alternative, the Plaintiff says that the Defendant, if not fraudulent, was negligent in making the representations concerning the leases.

23. The Defendant's case is that he knew nothing about Beijing Zhaori. He relied on Liu Jing Jing, who procured the leases from Hainan for him. As far as he knew, Hainan was not a fictitious company. All his dealings were in good faith and he was not negligent.

24. With regard to the computer equipment the Defendant's case is that this was bought to replace equipment which had originally belonged to ReMA S & T, and which was passed on to Cadence China. There was no agreement between him and the Plaintiffs about this original equipment and he was in effect simply replacing what was originally his.

25. The Defendant's counterclaim is for unpaid commission and bonuses. His case on this is that notwithstanding the separation and release agreement which he signed in March 1996 and which purports to be a final settlement of all claims by him against his employer, he is still due commission of US$59,441.64 and bonus of US$6,987. It is also argued on behalf of the Defendant that this separation and release agreement acts both ways and is a final settlement of all claims against him by his employers. I will deal with the counterclaim and the effect of this agreement more fully below.

The Evidence

26. Oral evidence from the Plaintiffs came from Mr Thomas Sei-chon Lui, Miss Lee and Mr Yu. There were also statements from other officers of Cadence which were the subject of hearsay notices as was some of the information obtained by Mr Yu in Beijing. Oral evidence for the Defendant came from himself.

27. Mr Lui dealt mainly with what had happened about the time when the Defendant was first employed by Cadence. His evidence and the statements of the other officers (Mr Kouretas and Mr Ferguson) tended to show that the Defendant had not followed company policy with regard to the leasing of office premises. What he was supposed to do was to send back a list of office premises and get the authority from the Corporate Financial Controller to lease one of them. To do this he had to go through other superiors such as Mr Lui or Mr Ferguson who took over from Mr Lui. There is also some supporting evidence from Miss Lee on this.

28. The evidence for the Plaintiffs is that the Defendant did not follow company policy. The only written document he submitted did not give his employer any real choice except the Ritan Building. In any event he did not get any authority from anyone to go ahead with either the 1st or the 2nd Lease from Hainan.

29. It is, however, clear that whatever the company policy may have been, no one took any exception to the leasing of the two offices in the Ritan Building, or reprimanded the Defendant for not going through the proper channels in order to lease it.

30. Mr Yu said that he joined Cadence China on 10th May 1996, i.e. after the Defendant had left. Also by the time he joined, Mr Liu was in hospital. He dealt with the various matters I have set out above. Also he gave evidence of having cleared Mr Liu's desk in September 1996. He got Mr Liu to sign documents and recorded the presence among Mr Liu's belongings of chops for ReMA S & T and ReMA Enterprises. He could not and neither could Miss Lee reliably identify the signature on the addendum to the 2nd Lease of Room 999 as being that of the Defendant.

31. Miss Lee's evidence dealt mainly with her dealings with the Defendant on a day-to-day basis. She worked in close liaison with him. Much of her evidence dealt with the documents and matters which are not in dispute.

32. With regard to the counterclaim, Miss Lee said that she had drafted the documents attached to the separation and release agreement. They showed the full balance payable to the Defendant; and this he had signed for. She said that his compensation did not include any revised compensation plan for 1995 (on which he bases part of his claim) and that neither he nor any other employee would be entitled to commission on orders for which payment had not been received when he left the company.

33. The Defendant's evidence about his choice of the Ritan Building was that he had got the approval of Mr Lui for it. He thought there may be some kind of procedures for approval, but he was the manager in the field, and he had his superior's approval, so he just went ahead.

34. About Liu Jing Jing, the Defendant said that he had come to know this person as a friend. Liu was very well connected; he had been working for the Foreign Enterprises Service Company which was a very powerful organisation and it was rumoured that he had a background in the National Security Bureau. He had the guangxi that was necessary for doing business in Beijing. Whenever there was a problem Liu fixed it for him.

35. Cadence China had not taken Liu on as Office Manager until November 1995. Documents which appeared to show that he was paid as Office Manager before that merely referred to the fact that he was acting as a consultant.

36. The Defendant had asked many people, including Liu, to try to find new premises for the office. Liu had come to him and told him that he had found the Ritan Building; but the Defendant had to act fast, because others were keen to take it up. Office premises were then in short supply in Beijing.

37. All along Liu had represented that Hainan was the landlord. The Defendant had relied heavily on him because of his connections. Liu had said that he was doing him a favour. The Defendant had never met any representative of Hainan. He had never met Meng Duan, to whose account the money was to be paid. He had never got a receipt from Meng.

38. He had asked Liu why the money has to be paid to an individual's account; Liu had told him that it was "not convenient" to have it paid to a company account. In any event thought he thought it odd, he thought it was not uncommon to have business transactions in China which involved payment to individual accounts. He said that he had asked Liu to get a receipt from Hainan but this had never been forthcoming.

39. He said that he had signed the original lease; it looked genuine. He had not seen a draft beforehand; he had not discussed terms; he thought it was reasonable; he had not referred it to Cadence Asia before signing it. He had not signed the addendum to the later lease of Room 999 with the characters Wong Chun.

40. As to the lease of Room 1002, he said that he had had to move quickly on this also because Cadence China had taken on a number of new staff from another company, IMAG. Again he turned to Liu, who was at this stage still not employed by Cadence China. This lease too was all arranged through Liu. He had thought it reasonable. He had not spoken to anyone at Hainan about it, nor had he sent it to his head office for approval. He had spoken to Mr Ferguson about getting new office space; but he accepted that Mr Ferguson had not specifically approved this lease.

41. He said that the lease of Room 1002 was not signed by himself or Hainan. He had faxed it and sent a copy to Cadence Asia. He did not want to sign it himself because his company was late in paying rent; he wanted Mr Ferguson or someone else to sign it.

42. He said that it never occurred to him that if he did not have a signed copy, Hainan might deny the lease. He did not accept that this was an obvious question to ask himself. Procedural matters in China are not carried out so rigidly as in Hong Kong. He just took it for granted that all was in order. There was no need to conform with legal niceties; that is the way things were done in Beijing.

43. He said that he had never known about the leases from Beijing Zhaori to Hainan and ReMA Enterprises. If he had known that Liu was using the ReMA chop he would have been upset. Liu would have access to this chop because he had helped the Defendant's brother to set up ReMA Enterprises in Beijing and get it a business registration. He had never made any secret profit from the difference between the rent paid to Hainan and the rent payable to Beijing Zhaori.

44. The Defendant accepted that he had signed the IOU form for the RMB78,735.73. Liu had told him that the landlord wanted this deposit because the rent was late. He had asked Miss Lee about it; she had refused to agree to his paying it, because the money was on its way; but her refusal had not been very strong. He thought that the landlord's demand was reasonable and that it was a matter of business practicality so he had gone ahead.

45. As to the deposit which was paid in April, he said that he knew that the landlord was terminating the lease but he knew nothing of the extension. He had never seen the faxes sent to Cadence Asia in early April. In fact there had been an admission in the pleadings that the Defendant had sent the faxes or caused them to be sent; I allowed the admission to be withdrawn though I indicated that evidence to contradict it would have to be treated with caution. The Defendant said that by early April he was away from the office; he had only remained in contact with Miss Lee for about a week after he had signed the release agreement.

46. As I have indicated the Defendant has now admitted under cross-examination that the computers were bought to replace those which he had before Cadence China was taken over by Cadence Inc. ReMA received the new computers. He never had permission to buy these computers and give them to ReMA.

47. The Defendant's evidence with regard to the counterclaim was that he had signed the separation and release agreement and the relative calculation documents. He had received $75,116.56 for which he had acknowledged receipt but did not know if he had received the other $99,137.37 expressed to be payable later, including the outstanding commission for 1995. He had left it to Miss Lee to organise this. He said that it was conventional in China to give a salesman a pretty long grace period for collection of sums on which bonus was payable. He said that if payment was made by a letter of credit, it was considered a booked order for the purpose of commission, i.e. commission was payable before the funds came in; the same applied to an order placed through a distributor or a national import and export company. He had never heard of the policy spoken to by Miss Lee that he would not get the commission if the funds had not come in by the date of his departure. As to the compensation plan, he relied on a schedule for 1995 which Miss Lee had said in her evidence was a forecast.

48. He accepted that the separation agreement appears to be final. He did not think about it until the proceedings started; and then he looked to protect himself. He looked deeper into the figures and found that he had made a mistake in signing. He would not have signed if Miss Lee had not brought the figures to him. He trusted her.

Evaluation

49. The Plaintiff's witnesses all gave the impression of being straightforward and honest. The Defendant however was, on various matters, rather evasive and not very credible. For instance, his evidence of when Liu Jing Jing actually started to work for Cadence China was evasive and ultimately contradicted by the documents which put Liu fairly and squarely on the payroll much earlier than when the Defendant said he joined. His evidence of not having heard of Beijing Zhaori sounds very strange in view of the photograph which shows the characters written large at the entrance to the Ritan Building. There is no proper explanation as to why the admission, which was ultimately retracted, of sending the demand notes by fax in early April was made in the first place. Further, his explanation as to why he went ahead with the payment of RMB78,735.73 against the wishes of his head office can only be regarded as pathetic.

50. Where there is a direct conflict between the Defendant and Miss Lee, I prefer the evidence of the latter.

Findings

51. The Defendant executed the 1st Lease on behalf of Cadence China. He sent a signed copy to Cadence Asia, thereby representing that it was a valid and legal lease, at arm's length, of Room 999 at the rate reserved therein, and that Hainan was the landlord.

52. He sent to Cadence Asia an unsigned draft of the 2nd Lease, thereby making similar representations in respect of the lease of Room 1002.

53. He passed various requests for payment of rent to Meng Duan, and thereby represented that this payment was to constitute payment of rent under the leases. He represented that Hainan could not receive payments in foreign currency and that it was therefore necessary for the rent to be paid to the account of this individual.

54. Cadence Asia acted on these representations and paid the rent to Meng Duan.

55. The Defendant took RMB78,735.73 in cash from Cadence China and represented to Cadence Asia that this represented a security deposit demanded by Hainan as landlord because of alleged late payment of rent.

56. He further represented in early 1996 to Cadence Asia that Hainan had purportedly cancelled both the leases, giving three months' notice of termination.

57. Fax messages relating to a demand by Hainan for a further payment of rent and other charges for extending the lease were sent from Cadence China to Cadence Asia in early April 1996. The Defendant admitted up to the last minute that he had sent or caused the messages to be sent. Miss Lee says that she had asked him for written confirmation of the termination, and to seek an extension of the lease. She says that he was in frequent touch with her on outstanding Cadence matters for about two weeks after their meeting on 21st March. I believe her. It is a necessary inference that the Defendant must at least have caused the first fax message to be sent.

58. As a result of these representations Cadence Asia made a further payment to the account of Meng Duan.

59. There can be no doubt that Hainan is a fictitious entity. It could not be found at the address which it gave. There is nothing to contradict Mr Yu's evidence on this. Its name suggests that it is a corporation owned or set up by a provincial government. It could not be found in the appropriate government directory. I accept Mr Yu's evidence that if it exists, it could be expected to be found in that directory.

60. The representations made by the Defendant were therefore factually untrue. There was no Hainan. The Plaintiffs were the victims of a fraudulent scheme to interpose a fictitious landlord between Cadence China and the true landlord and thereby to make a secret profit on the rent. Liu Jing Jing was the perpetrator or one of the perpetrators of this fraud. His signature, or what appears to be his signature, appears on the head leases on behalf of Hainan and ReMA Enterprises.

61. The question now is whether the Defendant was knowingly part of the fraudulent scheme, or recklessly closed his eyes to its existence, in which case his representations were made fraudulently; or whether they were made negligently; or whether he was himself an innocent dupe, and they were made innocently.

Wilfully Fraudulent Misrepresentation?

62. There is no direct evidence that the Defendant was himself part in the fraudulent scheme. There is not even any evidence that he received any part of the extra money which was extracted from Cadence Asia.

63. It is clear that the Defendant showed Cadence Asia or Cadence Inc. no serious alternatives to the Ritan Building. He went ahead with the lease of Room 999 without going through the proper procedures for approval. I do not doubt that there were such procedures. It may be that the company did not in fact insist on them, because he was never reprimanded for his failure to follow them; but he did fail to follow them. This could be taken as indicative that he was part of the fraudulent scheme from the outset. On the other hand, it is rather difficult to say that this must necessarily be so. The cavalier attitude I have alluded to already could explain this.

64. The signature "Wong Chun" appears on the addendum to the 1995 head lease of Room 999. That lease is signed by Liu Jing Jing for Hainan. Obviously if the signature "Wong Chun" is that of the Defendant, it shows that he was a full participant in the scheme.

65. Counsel for the Plaintiffs argues that the Defendant's denial of this is incredible. He is a director of ReMA Enterprises. That company had entrusted the chop to Liu. The Defendant wrote to Cadence pressing it for return of the chop in September 1996. The Defendant never specifically denied signing the addendum in his pleadings or his statement. If he did not sign it himself, he must have known about it or condoned Liu's signing for ReMA Enterprises.

66. The amendment to the Statement of Claim which averred that the Defendant had executed this addendum was made on 17th June 1997. In the amended Defence served on 24th July, the Defendant denies any knowledge of the matters pleaded in paragraph 19(2), which is the amended averment relating to the addendum. I do not think the Defendant need be more specific than that.

67. I do not think much reliance can be placed on the Defendant's attempts to get his chops back in September 1996 or his probable continuing relations with Liu at that time. There were chops of ReMA S & T and ReMA Enterprises. No doubt he would need both of them. He could not cover up their past use even if he was a party to it.

68. There is unfortunately no expert evidence on this signature. Neither Mr Yu or Miss Lee can reliably identify it as that of the Defendant. The Defendant says it is not his. Of course one wonders why Liu would forge his signature. Liu could presumably have signed the addendum himself. He was by then probably on the full-time payroll of Cadence; and if not he was certainly a consultant.

69. Nevertheless the simple fact is that there is a denial of the signature by the Defendant and no really convincing evidence that it is his ignature. I think it would be unsafe for me to find that it was his signature.

70. Overall, while much suspicion attaches to the Defendant, I cannot say that I am satisfied, on the balance of probabilities, that he took an active part in the fraudulent scheme or that his representations about the rent were knowingly fraudulent.

Recklessness or Negligence?

71. The Defendant on his own admission relied entirely on Liu in his dealings with the landlord. On his own admission he did not meet anyone from Hainan apart from Liu. He did not negotiate the terms of the leases at any stage. Except for the first payment, he never got receipts; indeed those receipts show the name of Liu as handler. He never obtained written demands for overdue rent. He never produced any original of the lease of Room 999, and there is no credible explanation for this. He never signed, or obtained the signature of the landlord on the lease of Room 1002, and there is no credible explanation for this either. If he wanted someone else in the company to sign he should have arranged for that before he arranged for any money to be paid over.

72. Clearly the Defendant at the very least took a completely cavalier attitude to his responsibilities to his employer. He went ahead with the original lease without following the proper procedures laid down by Cadence. He may have thought he had Mr Lui's approval, but on his own admission he thought there were other procedures.

73. When it came to the payment of the deposit of RMB78,735.73 he did not follow the wishes of his head office; he just went ahead and arranged payment. There is no evidence that he needed to do this; no written demand or anything of that nature. It seems that he was operating purely on the basis of what Liu told him. He said he thought it was reasonable but that is not the point. He could not just pay out his company's money on demand, reasonable or not.

74. It is all very well for the Defendant to say, this is how things were done in Beijing; a foreigner cannot get along on his own; one needs a local person with guanxi to sort things out. That may be so, although considering that the Defendant apparently spent his childhood in Beijing, it is arguable that he is much less of a foreigner there than most Hong Kong persons. But the corollary of finding a local person with guanxi to act for one is that one is completely vulnerable to him, and must watch him like a hawk, lest he is following some agenda of his own, such as the practice of cheating the foreigner; a practice well known in all cultures and by no means uncommon in Hong Kong.

75. This the Defendant most certainly did not do. He showed a complete lack of prudence in managing his employer's affairs in relation to these leases.

76. The evidence of negligence is overwhelming. I have no doubt that the Defendant was negligent in his failure to carry out any checking of the genuineness of Hainan and the leases. He simply did not carry out the kind of checks that any normal businessman might be expected to carry out. At the same time I cannot say that the likelihood of his or Cadence's being duped was so blatant and obvious as to allow me to find that he recklessly closed his eyes to it.

77. I find that the Defendant's representations in respect of the leases were negligent. He must therefore be found liable in damages to the Plaintiffs. The measure of damages is the difference between the rent paid to Hainan and the rent paid by Hainan or ReMA Enterprises to Beijing Zhaori. The fact that the latter accepted the rent due under its contracts from Cadence from April to June 1996 clearly shows that this was the proper rent and what Cadence would have paid if there had not been a bogus intermediate landlord between it and Beijing Zhaori.

Conversion

78. The Defendant has effectively admitted that he converted the computer equipment to the use of ReMA. He says that the office equipment loaned by ReMA was not part of Cadence China's assets on transfer. Counsel says that this should be accepted because it is not challenged.

79. With respect this cannot be right. If he was using ReMA's equipment it should have been returned. If he wanted to sell the equipment to the new Cadence China, it was up to him to arrange that at the time. He could not just do a "new for old" deal some time later, without reference to and permission of his employer, to buy new equipment for ReMA. To do so would put him in breach of his contract of employment.

80. I find conversion proved. He will be liable to repay the sum of RMB69,600 under this head of claim.

The Counterclaim

81. The original contract of employment did not incorporate the commission plan and MBO programme for 1995. The contract provided for re-evaluation for 1995 but the evidence of Miss Lee is that this was never done and that the document on which the Defendant relies is only a forecast. As I have indicated, I found Miss Lee credible. I prefer her evidence on this to that of the Defendant.

82. I also prefer Miss Lee's evidence that commission was only payable on orders booked for which cash or a letter of credit had been received. Her evidence on this was quite straightforward. By contrast, the Defendant's evidence was convoluted and vague.

83. In any event it is quite clear that the Defendant signed the Separation and Release Agreement and relevant documents setting out what was due to him. He accepted those figures. He did not have to accept them. He could have waited; the document itself shows that the offer was open until 5th April. On his own admission he was still dealing with Cadence matters for a week after his meeting with Miss Lee, and could therefore be expected to have had access to all the records from which he could work out the commission and bonuses due to him if they were not properly set out in the documents presented to him. In any event it appears that he knew at least some days before the meeting that his services were to be terminated. Prudence would dictate, in the circumstances, that if he knew he was on the way out, he should make sure that before the axe fell he worked out all that was due to him.

84. In fact his claim never surfaced until the counterclaim was filed in January 1997. It is significant that the Defendant said that only after the action commenced did he look for "things to protect myself". In the light of the Separation and Release Agreement, the counterclaim has all the hallmarks of a bogus counterclaim invented for the purpose of the litigation.

85. I find that the counterclaim is not proved. It must fail.

86. It does not seem that much reliance is now placed on the proposition that the Separation and Release Agreement was intended to bring relations between the parties to an end and therefore protects the Defendant against all claims arising out of his employment. For the sake of completeness I will deal with it. There is nothing in the Agreement which can be read as releasing the Defendant from claims by the Plaintiffs and in particular it could not be effective to protect the Defendant from a claim for negligence as yet undiscovered.

Judgment

87. There will be judgment for the Plaintiffs for :-

(1) the sum of US$96,811.00 or its equivalent in Hong Kong dollars;

(2) the sum of RMB78,735.73 or its equivalent in Hong Kong dollars;

(3) the sum of RMB69,600 or its equivalent in Hong Kong dollars.

with interest thereon at prime rate plus 1% from the date of the Writ until the date hereof and thereafter at judgment rate until payment, and costs nisi to be taxed if not agreed.

88. The counterclaim is dismissed with costs nisi to the Plaintiffs, to be taxed if not agreed.