CHEN WU v. XIE FEI

HCA 2267/2017

[2023] HKCFI 3086

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2267 OF 2017

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J U D G M E N T

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A.   UNDISPUTED BACKGROUND

1.  In this action, the Plaintiff seeks to enforce a written Undertaking dated 18 August 2017 (“the Undertaking”) in which the Defendant undertook in his personal capacity and with his assets, to bear all the overdue salary and bonus owed by XG Holding Co., Limited (“XG”) to the Plaintiff under their employment contract.

2.  The Defendant was the sole director and one of the 2 shareholders of XG at all material times.

3.  XG became a shareholder of Todoaceros SL (“TSL”) in January 2011.

4.  The Defendant became a shareholder of Aranda Coated Solutions (“ACS”) in February 2012

5.  The Plaintiff carried out work in Spain for TSL and ACS, both companies being based in Spain.

6.  XG was wound up by a court order dated 17^th May 2017.

7.  The Defendant was detained in a detention centre in Mainland China in the summer of 2017.  He was visited by a man named Huang Nai Qian (“Mr Huang”) who passed him a piece of paper (which turned out to be the Undertaking) to sign.

8.  On 5 January 2018, the Plaintiff commenced the present action to enforce the Undertaking.

9.  On 17 December 2018, the Plaintiff commenced legal proceedings in Spain against ACS, which was agreed to be dismissed on 28 December 2018, whereby the Plaintiff received €63,505.26 from ACS as compensation (“the Settlement”).

B.   PLAINTIFF’S CASE

10.  The Plaintiff entered into an employment contract with XG, formerly known as CITI Resources Company Limited on 1 March 2010 (“2010 XG Contract”), updated on 15 May 2014 (“2014 XG Contract”) (collectively as “XG Contracts”).  He was entitled to salary and bonus.

11.  The Plaintiff primarily carried out work for XG under the XG Contracts in Spain, being in charge as Vice General Manager of the management and operation of ACS and TSL.

12.  In or around March/April 2015, the Plaintiff learned from the sister of the Defendant and his business associate that the Defendant had been arrested on charges relating to misappropriation of funds and was held in a detention centre in Guangxi since early 2015.  Mr Huang was the Defendant’s legal representative from early 2015 to April 2018 in criminal cases and a civil law suit in Hangzhou.

13.  The Plaintiff learned that proceedings were commenced against XG and the Defendant in HCA 1214/2015 and that XG might be wound up.  So the Plaintiff contacted Mr Huang on or around 15 March 2017 with a view to getting in touch with the Defendant.

14.  On or around 27 April 2017, Mr Huang arranged a telephone call between the Plaintiff and the Defendant (“the Telephone Call”).  During the Telephone Call, the Defendant asked the Plaintiff to take care of the projects in Spain.  The Defendant assured the Plaintiff that he would personally see to the payment of the overdue salary and bonus and requested the Plaintiff to refrain from bringing proceedings against XG.

15.  Following on the Telephone Call, the Plaintiff asked Mr Huang to pass the draft Undertaking for the Defendant’s consideration.  The Defendant proposed an amendment through Mr Huang and then signed the Undertaking on 18 August 2017, apparently in the presence of Mr Huang.

16.  By its terms, the Defendant undertook to personally pay such sums due and owing by XG to the Plaintiff under the XG Contracts.  

“就信寶資源有限公司….按照與陳武簽訂的勞動合同書(合同書簽訂日期為2010年3月1日，於2014年5月15日更新)應向陳武支付的工資以及獎金，本人承諾以個人名義以及個人名下所有資產承擔向陳武支付所拖欠款項的連帶責任」”

17.  Prior to the Undertaking, the Defendant had in fact signed and given to the Plaintiff a similar undertaking in June 2014 (“the Prior Undertaking”) before his arrest. 

18.  The Plaintiff continued to manage the projects in Spain, despite the winding-up of XG and refrained from suing XG.  However, XG failed to pay his salary and bonus in full.  The Plaintiff therefore claims against the Defendant for the amounts of RMB 2,191,675.24 and €800.956.20 as total overdue salary and bonus for 2013–2018.

C.   DEFENDANT’S CASE

19.  The Defendant denies that there was any overdue salary and bonus.  He asserts that the Plaintiff was employed by ACS and TSL and in the Mainland, but not by XG.  He denies that XG instructed the Plaintiff to work for ACS and TCL.

20.  The Defendant claims that the Undertaking is (i) unenforceable for want of consideration; (ii) void or voidable as being signed under duress and undue influence, of which the Plaintiff had actual and constructive notice; and (iii) unenforceable for being unconscionable.

21.  The Defendant also claims that the Plaintiff is obliged to go through arbitration under Clause 14 of the 2014 XG Contract, which he failed to, and so the Plaintiff has no right of action.

22.  In view of the Settlement, the Defendant claims that the present action is an abuse of process and should be dismissed.

D.  ISSUES

23.  Counsel on both sides have agreed upon the following issues:

(1)  Whether the Plaintiff was ever employed by XG under the XG Contracts (“Employment Issue”);

(2)  Whether there are overdue salary and bonus (“Overdue Salary and Bonus Issue”);

(3)  Whether the Undertaking is governed by PRC law or Hong Kong law (“Governing Law Issue”);

(4)  Whether the Defendant signed the Undertaking under duress under the applicable governing law (“Duress Issue”);

(5)  Whether the Defendant signed the Undertaking under undue influence under the applicable governing law (“Undue Influence Issue”);

(6)  Whether the Undertaking is void for lack of consideration under the applicable governing law (“Lack of Consideration Issue”);

(7)  If the governing law is PRC law, whether the XG Contracts are unenforceable (“Unenforceability of XG Contracts Issue”).

(8)  Regardless of the validity of the Undertaking, whether the Plaintiff is obliged to go through arbitration under the 2014 XG Contract before commencing legal action against the Defendant in Hong Kong (“Arbitration Issue”); and

(9)  Whether it is an abuse of process for the Plaintiff to commence these proceedings after the Settlement (“Abuse of Process Issue”).

24.  The Defendant had originally no positive case on quantum and simply put the Plaintiff to strict proof.  And yet during cross-examination, the Defendant put forth a positive case that the quantum should be calculated on the basis only of ACS’ net profit instead of profit.

E.   WITNESSES’ EVIDENCE

25.  The parties are the only witnesses.  In assessing the credibility of witnesses, the court tests it, in particular, against the contemporaneous records and the inherent probabilities of a witness’s evidence: Hui Cheung Fai v Daiwa Development Ltd HCA 1734/2009, 8 April 2014, at §§76-83 DHCJ Eugene Fung SC.

26.  The Plaintiff’s evidence is logical and is supported by contemporaneous documentary evidence.  I accept his evidence.

27.  On the other hand, the Defendant’s evidence is so inconsistent as to lack credibility for the following reasons:

(1)  His defences were inconsistent.  He first pleaded that he had not signed the Undertaking.  He pleaded 17 months later that the Undertaking was signed under duress and undue influence.  He only abandoned the first version on the first day of trial.  When challenged as to why he pleaded the first version, the Defendant first claimed that he did not recall filing the defence.  Then he said that what he meant was that he did not sign “in favour of” the Plaintiff.  That explanation, without disrespect, was ridiculous because the Undertaking could not be anything other than being in favour of the Plaintiff.

(2)  His case on whether the Plaintiff was employed by XG was contradictory.  He denied the employment in the re-amended defence but asserted the contrary in §3(c) of the Rejoinder. 

(3)  He never pleaded that the XG Contracts were invalid and yet runs an inconsistent evidence on its validity.  He relies on clause 14 of the 2014 XG Contract, implicitly acknowledging the validity of that Contract.  And yet, his expert’s report challenges the validity of the XG Contract.  The Defendant testified that he had not even seen the original of the XG Contracts and was not able to verify his own signature on the 2014 XG Contract. 

(4)  D-WS[1], §§21-22, described Mr Huang as if he was a stranger suddenly appearing at the detention centre to present the Undertaking to the Defendant.  And yet the Defendant admitted in the witness box that Mr Huang was his lawyer when he presented the Undertaking to the Defendant to sign.  The Defendant testified that in §§21- 22 of D-WS, he was merely stating that he did not know “how” Mr Huang could be arranged to enter the detention centre.  Such evidence was plainly to hide the fact that he had known from the start that Mr Huang was his lawyer.

28.  The Defendant also failed to answer important evidence adduced by the Plaintiff:

(1)  The liquidators of XG had admitted the Plaintiff’s claim for overdue salary and bonus.  As a former director of XG immediately before its winding up, the Defendant would not have failed to know the true entitlement of the Plaintiff as an employee.  The failure of the Defendant to rebut such evidence was tellingly in support of the Plaintiff’s claim.

(2)  The Defendant (and his solicitors) never disputed the existence and validity of the Prior Undertaking until he went into the box.  When shown the original Prior Undertaking, he disputed its authenticity by saying that he never used the letter head of XG but ACS; that many letters of his used English; and that he seldom put finger stamps on corporate documents.  These were plainly after thoughts. 

29.  For the reasons given in this Section, I find the Defendant unreliable and reject his evidence unless otherwise stated.

F.   EXPERT EVIDENCE

30.  It is trite that foreign law (and in the context of civil litigation law, this would include PRC law) is a matter of fact that needs to be pleaded: Hong Kong Civil Procedure 2023, Vol 1, §18/8/18.  

31.  The only plea concerning PRC laws is the Plaintiff’s plea (as a fallback) in the Reply that if PRC law applies, the Undertaking does not need to be supported by consideration. 

32.  Master Hui gave leave to adduce expert evidence on only 2 issues regarding the Undertaking, i.e. assuming PRC laws apply, whether:

(1)  Any consideration is required for the Undertaking to be valid and enforceable; and

(2)  Whether the Undertaking is rendered void and/or unenforceable by virtue of undue influence, assuming the allegations in paragraphs 12-12F of the Re-Amended Defence are true.

33.  On expert issue (1), the 2 experts share the view that consideration is not required.                   

34.  On expert issue (2), the Defendant’s expert asserts that (a) the XG Contracts were governed by PRC law but they were not valid under PRC law; (b) the Defendant is a surety; (c) the Undertaking was void as a subsidiary contract because of invalidity of the XG Contracts as the principal contract; (d) there was duress and undue influence on the Defendant under PRC law.

35.  The Defendant has expressly denied in paragraph 5 of the Rejoinder that PRC laws apply to the Undertaking.  He also fails to plead that PRC laws apply to the defences of duress and undue influence.  Accordingly, the expert evidence on expert issue (2) is not admissible.

36.  However, as shall be seen in the analyses below, whether Hong Kong or PRC laws apply, the outcome of this case will be the same. 

G.  EMPLOYMENT ISSUE

37.  This issue concerns the Plaintiff’s employment and whether he performed his contractual obligations.  The Plaintiff’s version is supported by the 2 written XG Contracts, contemporaneous meeting notes dated 18 June 2013 recording the Defendant’s report following his visit to ACS and TSL in Spain and emails between the parties in January 2010, December 2011, April 2012 and June 2013. 

38.  The XG Contracts stated clearly that the Plaintiff was to be responsible for the preparation, establishment and operation of XG’s overseas projects and referred to projects in Spain.  ACS and TSL were projects of XG that the Plaintiff had been operating in Spain as part of his employment duties.  The meeting notes of 18 June 2013 and the emails referred to in the preceding paragraph clearly showed that XG asked the Plaintiff to perform his obligations under the XG Contracts and the Defendant was involved in that meeting and the emails. 

39.  The XG Contracts stipulated that the Plaintiff would be paid part of his remuneration by overseas entities instead of XG.  He had in fact been paid €60,2000 per annum (or €4,300 per month) by ACS overseas.

40.  The Defendant has provided nothing in rebuttal except an inconsistent case on employment as stated in paragraphs 27(2) and (3) above.  The fact that the Plaintiff had an employment contract with ACS did not undermine the existence of the XG Contracts.

41.  I accept the Plaintiff’s evidence and find that he had been employed by XG under the XG Contracts, and had worked for ACS and TSL pursuant to the XG Contracts.

H.  OVERDUE SALARY AND BONUS ISSUE

42.  Paragraph 9 of the Amended Statement of Claim pleads the amount of overdue salary and bonus.  Counsel are agreed that what bonus the Plaintiff is entitled to is a question of construction of the XG Contracts.  Clause 7 of the 2014 XG Contract provides that bonus is calculated on 5% of the net profit of the “Spanish colour plating factory/factories” (“另可獲得西班牙彩凃廠每年净利潤5%的獎勵”). 

43.  The Defendant has never challenged the computation of overdue salary and bonus before trial.  Mr Lo has thrice confirmed to this Court that the Defendant has no positive case on quantum – at the pre-trial review, in the written opening submission and in his oral opening speech.

44.  It was only during cross-examination that Mr Lo put to the Plaintiff that (i) “Spanish colour plating factory” meant ACS only but not TCL; and that (ii) the bonus should be calculated on the “net profit” and not “profit”.  The Plaintiff’s answers were that he needed to check.  In fact, neither “Spanish colour plating factory” nor “net profit” have been defined in the 2014 XG Contract. 

45.  Counsel have produced a table of Agreed Calculation of Bonus, such that bonus based solely on ACS’ performance is €722,252.77; that based solely on TSL’s performance is €86,039.56; whereas bonus based on performance of both Spanish companies is €808,292.33.

46.  The Plaintiff has worked out the calculation of bonus based on both ACS and TCL’s profits in §15(5) of P-WS.  In fact, the bonuses for the years 2014 and 2015 were based solely on ACS’ profits.  The liquidator of XG admitted the Plaintiff’s claim as an ordinary debt for HK$7,323,563.53, which included the original claim of overdue salary of RMB 1,600,019.28 and bonus of € 639,112.60.  At that time, the Plaintiff did not have the audited accounts of ACS and TCL for 2017.  The Plaintiff was not paid in full in the liquidation but was only given a dividend as an ordinary creditor because the liquidator held the view that the Plaintiff’s employment was not substantially connected to Hong Kong and hence not governed by Hong Kong law. 

47.  The Defendant specifically addressed the issue of overdue salary and bonus as pleaded in the original Statement of Claim in §§14-17 of D-WS.  He never challenged the basis of computation and amount.  He never asked for particulars.  He never filed a supplemental witness statement after the Plaintiff filed the Amended Statement of Claim and a supplemental witness statement to update the computation.  Although the Defendant is entitled to put the Plaintiff to strict proof, the cross- examination was an ambush on the Plaintiff.  The Defendant has never put forth a definition for “Spanish colour plating factory” or “net profit”.  In my view, his case only disclosed in cross-examination of the Plaintiff is not admissible.

48.  That said, due to the wording of the Undertaking, if the Plaintiff had earned salary or bonus beyond the date of winding-up, they would not have been due “under the 2014 XG Contract”, and hence the Defendant is not liable.

49.  I hold that the Plaintiff is only entitled to RMB 1,794,834.24 for overdue salary and €742,796.15 for overdue bonus up to 2017.

I.   GOVERNING LAW ISSUE

50.  Ms Liao (counsel for the Plaintiff) submits that the applicable law for the Undertaking of the XG Contracts is PRC law.  She is likely to be correct, having regard to the place of execution and the XG Contracts which make numerous references to PRC laws.  However, the Plaintiff has never pleaded that PRC laws apply and what provisions apply.  The Rejoinder specifically denies that the PRC laws apply to the Undertaking.  As the issues are defined by the pleadings, I shall approach this issue under Hong Kong law.

J. DURESS ISSUE

J1. Legal principles on duress

51.  A person of full age and ordinary understanding would be held to documents which he has chosen to sign, unless he is able to prove a recognized legal basis under which his consent is vitiated: Ming Shiu Chung v Ming Shui Sum (2006) 9 HKCFAR 334.  In the present case, the burden of proving duress is on the Defendant.

52.  The principles of duress have been summarized in Re Li Xiaoming [2019] HKCFI 2782, Deputy High Court Judge William Wong SC,§§25-28, as upheld in [2021] HKCA 779, §34:

“25. First, there are two elements in the wrong of duress. First, pressure amounting to compulsion of the will of the victim. Second, the illegitimacy of the pressure. The legitimacy of the pressure must be examined from two aspects. First, the nature of the pressure and second, the nature of the demand which the pressure is applied to support…

26. Secondly, duress of the person is a threat to the life, health or liberty of an individual to induce the person threatened to enter into a contract or to make a payment. An unlawful detention or an illegitimate threat to imprisonment can constitute duress, even though there is no threat to life or limb…

27. Thirdly, in the case of duress of the person, the complainant only needs to prove that the pressure was a reason why he entered into the contract and the court will conclude that the illegitimate pressure induced the contract unless there is evidence that the illegitimate pressure in fact contributed nothing to the decision to enter the contract. It follows that it is unnecessary for the complainant in the case of threats to the person to demonstrate that he had no practical alternative but to enter into the challenged contract...

28. Fourthly, the legal principles in relation to economic duress are succinctly summarised by Mr Justice G Lam in Zebra Industries (Orogenesis Nova) Ltd v Wah Tong Paper Products Group Ltd [2016] 1 HKC 213 at 234 – 237 as follows:

(1) Economic pressure may be sufficient to amount to duress, provided at least that the economic pressure may be characterised as illegitimate and has constituted a significant cause inducing the plaintiff to enter into the relevant contract;

(2) Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed;

(3) In determining whether there has been illegitimate pressure, the court takes into account a range of factors. These include whether there has been an actual or threatened breach of contract; whether the person allegedly exerting the pressure has acted in good or bad faith; whether the victim had any realistic practical alternative but to submit to the pressure; whether the victim protested at the time; and whether he affirmed and sought to rely on the contract.” (emphasis added)’

53.  Other factors that the court will take into account include:

“(1) Whether the complainant had access to independent advice;

(2) Whether the alleged victim of duress had time to consider the document in question and made complaint;

(3)  Whether the complainant took steps to avoid the contract.”

See Re Dai Yumin [2022] HKCFI 950 at §109, Au-Yeung J.

J2.  Circumstances surrounding the obtaining of the Undertaking 

54.  As early as in an email to the Defendant in April 2012, the Plaintiff had discussed with the Defendant the issue of salary.  Starting from 2013, XG only paid part of the Plaintiff’s salary.  The idea of an undertaking was not new to the parties. The Plaintiff had obtained the Prior Undertaking from the Defendant which provided that the Defendant agreed to pay the Plaintiff salary and bonus in full “in accordance with contract”.  Under “special circumstances”, the Defendant could use XG or the Defendant’s own shares in ACS and TSL to pay the Plaintiff.  

55.  In the summer of 2017, the Defendant was detained by the PRC government and refused contact with any people (including his family members), except his PRC lawyers.  It was only in the witness box that the Defendant first admitted that Mr Huang was his lawyer and that Mr Huang had never held himself out to be the Plaintiff’s lawyer.  The Plaintiff testified that he had never paid Mr Huang or signed anything to retain him as a lawyer.

56.  Given that the Plaintiff was overall much more credible than the Defendant, I find that the Telephone Call had probably taken place.  However, regardless of the existence of this Telephone Call,the Plaintiff had managed to negotiate the terms of the Undertaking through Mr Huang, as   evidenced by the contemporaneous WeChat messages between them. 

57.  There is no dispute as to authenticity of the WeChat messages.  There was no reason why Mr Huang and the Plaintiff had to fabricate the contents.  There was no reason why Mr Huang had to initiate deletion of a term in the draft Undertaking except at the instigation of the Defendant.  Naturally the Plaintiff had wanted the Undertaking signed as soon as possible but no time limit was imposed by the Plaintiff.  No threatening words were used.  There were 3 days from 15 August 2017 when the Plaintiff gave the draft to Mr Huang until the Defendant signed the Undertaking.  

58.  The Plaintiff’s case is well supported by contemporaneous documents and I find it credible.

59.  On the other hand, the Defendant’s case totally lacks credibility.  Apart from paragraph 27 above, in the witness box,

(1)  The Defendant backtracked even further and would not even confirm the authenticity despite being shown the original of the Undertaking.

(2)  He stated that Mr Huang pressurized him by stating that the Defendant owed legal fees, that his family could not keep up with the payments, and that the Plaintiff was willing to provide some money.  So the Defendant signed the Undertaking.  This was a newly invented case.

60.  The only paragraph in Mr Lo’s closing submission on duress is that the Defendant was suffering from poor health and insufficient foods and meals from the 3-year long detention as pleaded. 

61.  In my view, the Defendant is far from showing threat to his life, health or liberty. It was not the Plaintiff who caused the Defendant to lose his liberty.  At the detention centre, the Defendant could have called for help if his life or liberty was at risk.  The Defendant never stated what his health problem was.  He never even pleaded or shown that poor health and lack of food led to compulsion of his will.  Even on his own evidence, in answer to the Court’s question, it was Mr Huang, his own lawyer since 2015, who exerted the pressure.  The Defendant admitted that Mr Huang had never held himself out as a lawyer of the Plaintiff.  There was no suggestion that the Plaintiff was aware of Mr Huang’s exertion of pressure.

62.  Further, it is questionable whether that “pressure” was illegitimate as the Defendant was told that the Plaintiff would bring in money, apparently for his legal fees. In fact, Mr Huang remained as the Defendant’s lawyer until 2018.

63.  Still further, the Defendant could have asked for independent advice from Mr Huang.  He could have asked for time to consider or even refused to sign.  In fact, the WeChat messages showed exactly the opposite of pressure – the Defendant had time to secure the Plaintiff’s consent to an amendment to the draft Undertaking. 

64.  Considering the matters in this Section, duress is not established.

65.  For the sake of completeness, if PRC law is applicable, there was no leave to adduce expert evidence on duress and the Defendant’s expert has not adduced any.  The Defendant is still unable to establish duress.

K.   UNDUE INFLUENCE ISSUE

66.   In Li Sau Ying v Bank of China (Hong Kong) Ltd (2004) 7 HKCFAR 579, §34, the Court of Final Appeal held that the question to ask was whether the evidence justified the inference, on a balance of probabilities, that the impugned transaction was procured by undue influence, that is to say, by an abuse by the alleged dominant party of the trust and confidence reposed in him by the alleged subservient party.  References in such cases to, and attempts to invoke the assistance of, an alleged evidential presumption of undue influence are likely to be a source of confusion and an impediment to the evaluation of the available evidence.

67.  The Re-Amended Defence pleads actual or presumed undue influence exercised over the Defendant by the Plaintiff via Mr Huang and/or by reason of “the Defendant’s position in the environment in the detention centre” (§12C).  The terms of the Undertaking were manifestly disadvantageous to the Defendant (§12D).  The Plaintiff had actual or constructive notice of the undue influence.

68.  Mr Lo submits that the Plaintiff was in a position to influence the Defendant as the Plaintiff managed to get a message across the draft Undertaking to the Defendant despite the Defendant being cut off from contact with the outside world.  The exercise of the influence was undue considering the situation whereby the Defendant was detained, ie cut off from outside world, poor health and malnourishment, whereby the Defendant did not have sufficient explanation and time to read and understand the Undertaking before he signed.

69.  Such submission needs only to be stated to be rejected as the Defendant’s own evidence (under his newly invented case) was that the influencer was his own lawyer.  There is no evidence that the Plaintiff was aware of that influence such that he was put on inquiry as to whether the Undertaking was procured by some impropriety.  It is not pleaded or proved that there was a relationship of trust and confidence between the Plaintiff and the Defendant.  The transaction was not apparently disadvantageous to the Defendant as, on his own evidence, he was lured to sign because of money coming in for his legal fees. 

70.  For the reasons given in this Section, I hold that undue influence is not established.

71.  Again, for the sake of completeness, I have considered PRC law.  The Defendant’s expert refers to Article 52 of the PRC Contract Code which provides that deceit, coercion, damage to national interest, collusion, causing harm to the nation or others, being contrary to public interest or contravention of law and regulations may vitiate the Undertaking.  However, other than the alleged breach of administrative guidelines regulating foreign representative offices in the Mainland (which does not arise on the evidence), the Defendant’s expert has not pointed to any of those vitiating matters.

72.  According to the Plaintiff’s expert, 民法總則(now 民法典) provides for what causes civil acts to be void:

(1)  Lack of mental capacity: Article 144;

(2)  Use of false representation to procure the act: Article 146;

(3)  Acting against mandatory requirements of the law and administrative rules; contravening public order and good custom: Article 153;

(4)  Malicious collusion causing damage to others’ legal rights: Article 154.

73.  Voidable civil acts are those that arise from:

(1)  Substantial misunderstanding: Article 147;

(2)  Fraud or acts causing the other party to act contrary to his true intention: Article 148;

(3)  Fraud of a third party causing one party to act contrary to his true intention but the other party knew and should have known of the fraud: Article 149;

(4)  Duress causing the other party to act contrary to his true intention: Article 150;

(5)  Taking advantage of the other being in distress, in lack of ability to judge, thereby making the acts plainly unconscionable: Article 151.

74.  The Defendant’s expert only points to the Defendant’s loss of freedom, lack of contact with the outside world and signing the Undertaking without knowing the truth and without expressing his true meaning.  These are far from establishing any of the above factors that can render the Undertaking void or voidable.

75.  For the sake of completeness, Mr Lo has advanced a case of unconscionable bargain, said to be on the same pleaded factual bases as for duress and undue influence.  With respect, he is not at liberty to do so without first pleading it or including it in the list of issues. 

76.  In any case, it is not sufficient to prove that a bargain is hard, unreasonable or foolish; it must be proved to be unconscionable, in the sense that “one of the parties to it has imposed the objectionable terms in a morally reprehensible manner, that is to say, in a way which affects his conscience”: Tong Kwok Cheong v Tong Wai Lin [2014] 1 HKLRD 339 at §35, CA.

77.  In this case, the terms of the Undertaking could not be said to be unconscionable or morally reprehensible or either party’s case, as there would be potential benefits to the Defendant.

78.  Accordingly, even if PRC law is applicable, the Defendant is still unable to establish undue reference or unconscionable bargain.

L.   LACK OF CONSIDERATION ISSUE

79.  Under Hong Kong law, the Undertaking has to be supported by consideration to be enforceable influence or unconscionable bargain. 

80.  Mr Lo submits that:

(1)  The Plaintiff’s case is inherently unbelievable because by 18 August 2017, XG had already been wound up.  There was no point in requesting the Plaintiff not to sue XG. 

(2)  There was no benefit to the Defendant for the Plaintiff to continue working for ACS and TSL.  The 2 companies have been operational since 2012.  By the time the Undertaking was signed, the business was way past the set-up stage and had been operated for 5 years.  There were other people in the team representing Chinese interest (6 initially but reduced to 4, including the Plaintiff, by 2017). Profit of ACS had been on the rise from 2014 to 2016.

(3)  It was not necessary for the Defendant to take on the liability of XG personally in order to render the Plaintiff continue working for ACS and TSL.

(4)  The consideration was not stated in the Undertaking itself. 

(5)  No protection was given to the Defendant to enforce the Plaintiff’s alleged promise to continue working for the Spanish project and not to sue for the overdue salary and bonus.

81.  I am unable to accept Mr Lo’s submission.  First and foremost, paragraphs 80(2), (3) and (5) are Mr Lo’s submission only, not the pleaded case or evidence of the Defendant.  Once again, they are unfair ambushes on the Plaintiff during cross-examination.

82.  With regard to paragraphs 80(1) and (4), the consideration need not be stated in the Undertaking itself.  The discussion about the Undertaking started before XG was wound up.  The Telephone Call discussed the consideration.  The consideration provided by the Plaintiff was not to work for XG per se but to work on the projects in Spain.  The winding up of XG lent credence to the need for the Undertaking.

83.  As shown in the email dated 14 December 2011 from the Defendant to the Plaintiff, the Defendant appointed the Plaintiff to fully represent the PRC investors in the Plaintiff’s management of the Spanish Companies.  It was to monitor part of the operation, all the production and the technicalities.  The Plaintiff was the founder of the Spanish factory.  There was no suggestion that that appointment had been terminated.  The Defendant plainly had an interest in the continuation of the Spanish projects as he was a shareholder of ACS, and XG was a shareholder of TSL. 

84.  The Plaintiff’s evidence is that he had continued to manage the projects in Spain despite the winding-up of XG and its failure to pay the overdue salary and bonus.  But for the Undertaking, he would have ceased his work on the projects in Spain and commenced proceedings against XG and/or the Defendant right away.  The Defendant has never rebutted the Plaintiff’s evidence that the Plaintiff had continued to work in Spain after the Undertaking was signed.  The documents provided by the Plaintiff show profits in ACS and TSL even after 2017, which was why the Plaintiff purports to sue for overdue bonus for 2018.  I accept the Plaintiff’s evidence.

85.  For the reasons given in this Section, I find that there was consideration for the Undertaking.

M.    UNENFORCEABILITY OF XG CONTRACTS ISSUE

86.  The Defendant claims that the underlying XG Contracts were unenforceable under PRC law and, hence, the Undertaking (in the nature of a surety contract) is unenforceable too.  These are not pleaded.  They only arose out of the Defendant’s expert report.

87.  In any event, even assuming the Defendant’s expert’s opinion is admissible, it does not stand up to scrutiny.  The XG Contracts are said to be void on the basis that XG, being a Hong Kong company, never registered a representative office in the PRC before carrying out business in the PRC.  See PRC Labour Law, PRC Labour Contract Law and 《中華人民共和國國務院關於管理外國企業常駐代表機關的暫行規定》.  For these reasons, XG was allegedly not eligible as an employer under the PRC Labour Law. 

88.  However, contemporaneous documentary evidence (including correspondence between the parties) clearly shows that from inception of the XG Contracts, the Plaintiff had been based in Spain and not the Mainland.  Indeed, the Defendant admitted in his own Rejoinder that the Plaintiff worked in Spain.  Therefore, there is no evidential basis to assert that XG had business activities in the Mainland which required the setting up of a representative office.  

89.  Anyhow, the failure of XG to set up a representative office would only end it up with financial penalty.  According to the Plaintiff’s expert, even if XG was not eligible as an employer, it would only mean that the parties’ choice of PRC Labour Contract Law would become invalid.  There was nothing to invalidate the XG Contracts themselves under PRC Contract Law.  This view of the Plaintiff’s expert is unchallenged.  

90.  As to the nature of the Undertaking, the Plaintiff’s expert is of the view that it is in the nature of a debt and not surety.  There is no principal and subsidiary relationship between the XG Contracts and the Undertaking.  I agree.

91.  Accordingly, the bases for stating that the Undertaking (as a surety contract) was void are not established.

N.   ARBITRATION ISSUE

92.  The Defendant relies on clause 14 of the 2014 XG Contracts which provide that (i) parties should submit disputes to mediation or arbitration; and (ii) if dissatisfied with the arbitral award, a party can commence proceedings in the Hong Kong courts (對仲裁裁決不服的，可以向香港法院提起訴訟).

93.  The Defendant pleads that as the Plaintiff has not fulfilled the condition precedent of going through arbitration before commencing legal action in Hong Kong.  This plea needs only to be stated to be rejected as the Defendant was not a party to the 2014 XG Contract. 

94.  Mr Lo submits that the Defendant was privy to the 2014 XG Contract.  However, that was never pleaded and Mr Lo could not point to any evidence to establish the privity.  This defence has no merits.

O.  ABUSE OF PROCESS ISSUE

95.  In the Settlement, the Plaintiff and ACS declared that the employment relationship was settled and concluded with no debt or claim of any kind pending as a result of the termination of the employment contract.  By reason of this, the Defendant pleads that all kinds of claims should have been settled and it is an abuse of process for the Plaintiff to commence the present claim.

96.  Again, this needs only to be stated to be rejected as the Defendant was not a party to the Spanish proceedings and he has not demonstrated how the Settlement touched on any aspect of the Plaintiff’s present claim.  On the other hand, the Plaintiff has already explained that the Settlement was only in respect of statutory compensation (severance pay) pursuant to employment laws of Spain, which was calculated based on 20 days per year of service.  The Defendant adduced no evidence in rebuttal.  The defence of abuse of process issue has no merits.

P.   CONCLUSION AND COSTS

97.  I find that the Plaintiff had been employed by XG under the XG Contracts.  He is entitled to bonus based on profits of both ACS and TCL.  The applicable law for the present action is Hong Kong law.  However, whether under Hong Kong law or PRC law, the Defendant has failed to establish duress or undue influence.  The Undertaking was supported by consideration.  The Defendant cannot rely on the 2014 XG Contract, to which he was not a party, to assert that the Plaintiff had failed to meet the condition precedent of first resorting to arbitration before commencing the present action.  The Settlement did not cover the present action and there is no abuse of process by the Plaintiff.  The Plaintiff has been owed RMB 1,794,834.24 for overdue salary and RMB 742,796.15 for overdue bonus.  I grant him judgment for the same.

98.  Costs should follow the event and be borne by the Defendant.  Costs should be on indemnity basis because of the Defendant’s culpable conduct and poor litigation conduct:

(1)  Although the 2014 XG Contract was not considered by the liquidator of XG to be closely connected to Hong Kong and hence the Plaintiff could not enjoy protection as an employee under the Bankruptcy Ordinance, the undeniable fact is that he was, to the knowledge of the Defendant, owed salary.  An employee should not be owed salary for years.

(2)  The Plaintiff had rendered assistance to the Defendant “boss” who had been detained for 3 years, but the Defendant denied the assistance;

(3)  The Defendant keeps departing from his pleaded case and ambushing the Plaintiff, wasting time and costs.

99.  I therefore order as follows:

(1)  There be judgment to the Plaintiff in the sum of RMB 1,794,834.24 for overdue salary and RMB 742,796.15 for overdue bonus (or their equivalent in Hong Kong currency at the time of payment);

(2)  On a nisi basis, there be pre-judgment interest from 28 September 2017 (date of the writ) at the rate of P+1% up to the date of judgment and thereafter at judgment rate until full payment;

(3)  On a nisi basis, costs be to the Plaintiff on indemnity basis to be summarily assessed on paper;

(4)  The Plaintiff do provide a costs statement within 21 days;

(5)  The Defendant do provide a statement of grounds of objection within 14 days thereafter.

Q.  A NOTE ON PLEADINGS AFTER A REPLY

100.  As a listing judge, I note that in recent years there has been a growing trend of using pleadings after the reply.  It often arose because of lack of discipline over the use of pleadings.  By way of example, the Plaintiff ought to have pleaded consideration for the Undertaking in the statement of claim (Hong Kong Civil Procedure 2023, Vol 1,§18/12/8), but he only did so in the reply.  The rejoinder of the Defendant was a wholly unnecessary pleading as everything in it was or could have been included in the re-amended defence.  He purported to respond to paragraph 8B (1A) of the Reply but that paragraph did not exist.

101.  Practitioners should bear in mind that use of more than 3 sets of pleadings is not conducive to the efficient management and trial of a case.  The Court would exercise restraint in granting leave to file a pleading after the reply.