MELLIVEST CO. LTD. v. UTSUGI MASAO

1994 No. A 788

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. In this action, the Plaintiff company claims repayment of $143,262.00 with interest from the Defendant on the ground that it was money lent to the Defendant during the time when he was the employee of the Plaintiff. That sum was the total of two payments made to the Hong Kong Government by the Plaintiff discharging the Defendant's liability for salaries tax. The first payment, of $72,574.00, was made on the 6th March 1992 and the second, of $70,688.00, on the 23rd February 1993.

2. In his defence, the Defendant says that the sums in question were not lent to him but were paid by the company to the Revenue in pursuance of an obligation to pay the Defendant's salaries tax which was imposed upon the Plaintiff in the contract of employment into which the parties had entered.

3. It is common ground that the Defendant and two persons, namely Mr. Yoshiaki Yamao and Takaiki Nakamura who were acting on behalf of the Plaintiff signed in Singapore a typewritten document in the Japanese language dated the 18th February 1989. The Plaintiff's case is that the document embodies all the terms and conditions of the contract of employment between the parties. The Defendant maintains that it is not a contract and it merely records some provisional points which had been agreed subject to further detailed discussions with Mr. Miyakawa in Hong Kong. Whereas a number of the documents relied upon by the Plaintiff in this case are in the English language, this document is in the Japanese language and I have no doubt that the Defendant read and understood it before he signed it. It is headed "Employment Contract Memorandum". After that comes the date, then the Defendant's name and then a passage which reads,

"This agreement is entered into under the following employment conditions".

The document states the Defendant's position as chef and opposite the word "salary" in the document appears this passage,

"Hong Kong Dollar equivalence of Yen 300,000. However from February 16th 1989 until the restaurant's opening, the salary shall be Hong Kong Dollar equivalence of Yen 250,000. Bonus shall be paid once a year based on performance".

4. There are then set out provisions concerning the period of employment, housing, working hours and holidays and job duties. The last section provides for the Plaintiff to bear the expenses related to the Defendant's relocation from Singapore to Hong Kong, including the air fares of himself and his family. At the foot of the document appear the three signatures of the persons I have mentioned, opposite the words "The above employment contract has been accepted".

5. There is no mention in the document of any agreement that the salary stated therein should be paid net of salaries tax. There is no mention of salaries tax at all. The Defendant has attempted to show that he had an agreement with the Plaintiff that the Plaintiff would pay his salaries tax. He has given evidence to the effect that in his two previous employments which were in Singapore and Malaysia respectively, his salaries tax was paid by his then employers and he maintains that when he came to Hong Kong, he was promised that again his salary tax would be paid by the Plaintiff.

6. The background to the signing of the agreement is that the Defendant got to know Mr. Yamao and Mr. Nakamura in Singapore and they asked him if he would like to work in a restaurant business in Hong Kong on the basis that if it was successful, he would eventually become the owner of the business. They had three or four meetings in which they discussed the terms and conditions and then according to him they wrote the document which he insists was a memorandum stating the minimum conditions of employment. The Defendant appears to believe that it is important that the word Memorandum appears on the document but I am of the opinion that it makes no difference whatever.

7. The Defendant came to Hong Kong in March or April after the signing of the agreement and according to him the understanding was that he would determine the final conditions of his employment when he arrived here. After his arrival, he discussed the terms with Mr. Miyakawa the person who had set up the Plaintiff and who said that tax would be borne by the company. I take it in this context that by the company the Defendant meant the Plaintiff.

8. The Defendant took up employment as a Manager of the restaurant and in due course became a director of the Plaintiff company which was running it. There was another employee; Miss Tam, a local Chinese lady who dealt with the accounts of the company. When the first salaries tax demand came in March 1992, the Defendant told her that the company would pay it and she accordingly made out a cheque for $72,547.00 drawn on the Plaintiff's account. The Defendant who was an authorised signatory signed the cheque and it was used to pay his salaries tax. The salaries tax of $70,688.00 was paid in the same manner in 1993.

9. Mr. Ito Katsua, a director of Hanwa Kozai, H.K. Ltd. which owns the Plaintiff company is also a director of the Plaintiff. He was the Accounts Manager in Hong Kong. It was his belief that the Defendant was responsible for his own salaries tax and accordingly, when he heard about the first payment, he told Miss Tam that it should be reflected in the books of the company as a loan from the company to the Defendant. She did as she was told but she had already, according to her evidence, booked the payment as a payment by the company, and it was necessary for her to make further entries and to produce a new Balance Sheet.

10. From that time on, the two payments are reflected in all the documents produced by the company as loans to the Defendant repayable by him. The documents were all in English and the Defendant's position is that he signed whatever Miss Tam put before him. His position is that, the several documents bearing his signature which were in English language and which tended to show that at all times the company of which he was a director was treating the payments as a loan were not understood by him.

11. I find this impossible to believe. There are a number of documents which show the relevant sums opposite his name. He was asked in relation to one of them whether he was interested in the significance of the entry. He said he was interested and when he was asked why he did not ask Miss Tam to explain it to him, he said it was probably because he would not understand an explanation if she gave one.

12. It seems to me obvious that the Defendant must have realised that the payments were being shown in the books of the company as loans to him. Mr. Ito said in evidence that when he discovered that the first payment had been made, he spoke to the Defendant on the telephone about it and at a meeting in February 1993, together with Mr. Satsai, his predecessor, the Defendant and another person, he made it clear that the amounts paid had to be repaid by the Defendant. He told the Defendant that the company does not pay salaries tax for employees. There is ample evidence before me that in the group of which the Plaintiff company is part, no employee has his salaries tax paid by his employer. But it is fair to point out that the restaurant business is quite different from the business normally conducted by the group of companies and of which the Plaintiff is part. It is a business dealing in metal and it may be said that though the practice in the general business of the group was that employees should bear their own tax, nevertheless, it is theoretically possible that in the case of a chef employed to run a Japanese restaurant, there might have been a special arrangement.

13. According to Mr. Ito, Mr. Satsai confirmed his view and Mr. Satsai said he had contacted Mr. Miyagawa about it. At first, Mr. Ito said he did not recall the Defendant's response but he believed that the Defendant did not dispute what he said. Later he agreed that it may have been that the Defendant maintained his position, namely that the company should pay.

14. According to Mr. Ito, the Defendant had told him that he did not have the money to pay the tax and that he was entitled to payment of tax by the company. Mr. Ito disagreed with that but he did authorise the loan because the Defendant did not have the money to pay and the due date was quickly approaching. If there was a delay, there might be a penalty.

15. I think here Mr. Ito's recollection must be at fault because according to the evidence of Miss Tam, the payment had already been made when Mr. Ito became aware of it and there was no question of a deadline for payment being missed. It is common ground that the Defendant has never repaid the sums claimed.

16. In 1993, according to Mr. Ito, he again authorised payment of the salaries tax but on the basis that the Defendant would have to repay it. The Defendant resigned on the 15th November 1993, it having come to light that he had been making a secret profit by trading with the Plaintiff through a company partly owned by him.

17. Mr. Ito was asked why he did not check with Mr. Miyakawa himself in 1992 as to whether what the Defendant was saying was true but he pointed out that Mr. Miyakawa had resigned in mid-1991 and was in the United States at the time.

18. Miss Lydia Tam gave evidence that she maintained the accounts of the Plaintiff and she prepared employer's returns of remuneration for submitting to the Revenue. She placed these before the Defendant who signed them and they do not show that the Plaintiff was paying the Defendant's tax. In this connection, Mr. Miu, for the Defendant, has pointed out that the first one in the appropriate box does say that no tax demand had been received which rather suggests that at that time, Miss Tam thought that the company would be paying salaries tax for the Defendant and indeed it seems clear that from the outset, the Defendant had been telling that to Miss Tam.

19. As to the Defendant's command of English, Miss Tam said that it was not very good at first but it improved and he was able to communicate with her in simple English and he appeared to be partly able to read and understand the English language. She confirmed that as I have said, Mr. Ito ordered her to treat the payments as loans. She prepared Balance Sheets and she gave copies of them to the Defendant. Those Balance Sheets indicate that the company was treating the payments as loans.

20. There is in evidence the statement of Mr. Satsai that he discussed the matter with the Defendant at the meeting on the 27th February 1993. The Defendant then said that he had been promised by Mr. Miyakawa that his tax would be paid. Mr. Satsai said he would discuss it with Mr. Miyakawa and he did so. His statement says that Mr. Miyakawa denied it but Mr. Bell, on behalf of the Plaintiff, does not rely on that in support of his case.

21. What Mr. Satsai does say is that he made it clear to the Defendant at the meeting that the Defendant was responsible for his own salaries tax. When it was put to the Defendant that that had been said to him at the meeting, he did not recall that tax had been discussed at all. I prefer the evidence of Mr. Ito and Mr. Satsai. I find that the matter was discussed and that the Defendant was told that he had to pay his own salaries tax.

22. When the Defendant gave evidence, he said that Mr. Ito had never spoken to him about salaries tax and he did not understand the various documents Miss Tam gave him to sign because his English is poor. He did not regard the memorandum as a contract.

23. In cross-examination, he said for the first time, that prior to the signing of the memorandum, it had already been agreed with the two representatives of the Plaintiff that salaries tax would be paid by the Plaintiff. He was asked then to explain why it was that the memorandum did not contain any mention of that agreement and he was unable to offer any explanation, save that it was intended that he would deal in detail with the question of tax when he saw Mr. Miyakawa. I find that incredible. He said that the position was that he did not know what the tax system was in Hong Kong but it seems to me that there was no need for him to know because if he had agreed that the salary to be paid to him would be net of tax, it mattered not to him what the rate of tax was.

24. I disbelieve his evidence that there was any such agreement prior to the signing of the agreement because had there been, I am quite satisfied that it would have appeared in the agreement.

25. The Defendant said that when he saw Mr. Miyakawa and Mr. Miyakawa promised that the tax would be paid, he intended that it would be recorded in writing. He was unable to give any explanation as to why it had not been so recorded save that, when a Japanese gives his word, that is sufficient.

26. In support of his case, the Defendant has put in a statement made by Mr. Miyakawa which is there principally to deal with some evidence which was put in on behalf of the Plaintiff concerning a telephone conversation which took place between Mr. Ito and Mr. Miyakawa on the 8th June 1994. In that telephone conversation, Mr. Ito raised the question of the dispute about tax. It appears that apart from the Defendant, there was another person who was alleging that his salaries tax should be paid by his employer, another company in the group, which ran another Japanese restaurant but there is no need for me to go into that.

27. During the course of the conversation, Mr. Ito told Mr. Miyakawa that among others the Defendant thought that it was normal for the company to bear tax and Mr. Miyakawa's reply was,

"Strange".

28. Mr. Ito said to him,

"We said that was not correct. We told them we never made such a promise in the first place. They did not get such a promise initially from Miyakawa Bucho, did they?"

29. I paused to note that it is common ground that Miyakawa Bucho is Mr. Miyakawa. Mr. Miyakawa's reply was,

"No, no, no."

30. Ito said,

"They must pay the tax by themselves."

31. Miyakawa said,

"Tax is an entirely separate matter. Of course it should be paid by them."

32. Later, he said,

"The matter such as tax is a personal matter to be paid by them. For that purpose, there is Mellivest and the other one, what was the name?"

33. He was then given the name of the other company concerned and he said,

"Right, right, there is Pink Time for that. Such matter must be dealt with them personally."

34. And then he said,

"Of course, such a thing (tax) is unrelated to (the company)."

35. On the face of it, that appears to be evidence that when the matter was raised with Mr. Miyakawa, he was confirming to Mr. Ito that the Defendant was responsible for his own tax but Mr. Miyakawa has put in a statement in which he indicates that that was not the message he intended to convey. He was in litigation with the parent company of the group and he was trying to be non-committal. Mr. Miu has put forward an attractive and ingenious argument to suggest that what Mr. Miyakawa was saying was quite different from the interpretation put upon it by the Plaintiff, but I have come to the conclusion that Mr. Miyakawa was indeed indicating that there had been no promise to the Defendant that his tax would be paid by his employer.

36. Mr. Miyakawa is being sued by the parent company of the group for breaches of his duties as a director. It appears that it is alleged that he had no authority whatsoever to use the group's money to set up a restaurant business, which was not the group's normal type of business. There is no reason to think that he can be regarded as a fair and impartial witness in the present proceedings.

37. The other evidence relied upon by the Defendant to support his case is that Mr. Yukihiro Miyasako, a chef with the Island Shangri-La Hotel in Hong Kong. Before working here, he worked for the Shangri-La Hotel in Singapore. He spoke of the system in the Shangri-La Group of paying people net of tax. He said that he was invited by Mr. Yamao to come to Hong Kong and according to him, he was to work on terms similar to those which he enjoyed in Singapore, that is to say, that he would be paid Yen 330,000 equivalent.

38. The evidence of this witness is of marginal significance. He is unable to give any evidence as to the dealings between the Plaintiff and the Defendant and I place very little weight upon it.

39. It seems to me that what may have happened is that the Defendant assumed that since he had been used to receiving paying net of tax, that would be the position in Hong Kong, but I am satisfied that the Memorandum embodies all the terms agreed between the parties, that it is a complete memorandum of the contract between them and that there was no provision for the payment by the Plaintiff of the Defendant's salaries tax. I do not believe his evidence that he was ever promised that his salaries tax would be paid and it would appear that though he told Miss Tam early on that that was the position and maintained it in discussions with Mr. Ito and others, he was wrong. Accordingly, I will give judgment for the Plaintiff. There will be an order that the Plaintiff's costs be taxed if not agreed and paid by the Defendant.