FIRST INTERNATIONAL SUPPLIES LTD. AND ANOTHER v. KO SHIU MING STANLEY

DCCJ3458/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3458 OF 2005

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JUDGMENT

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I. Introduction

1.  The 2^nd Plaintiff (“Mr Roh”) came to Hong Kong in 1994 as a trading consultant in fabrics for bags. After three months he set up the 1^st Plaintiff (“First International”) which carried on the business of importing/selling fabrics for bags. Mr Roh and his wife were/are First International’s directors/shareholders. Since 1999 Mr Roh/First International traded in fabrics for garments, but ceased to do so about one to one and a half years before the trial.

2.  The Defendant (“Mr Ko”) and Cheung Yuen Fai Rical (“Mr Cheung”) were friends. They have worked in the garment business since 1990 and developed contacts with garment manufacturers and buyers over the years. Mr Ko worked as sales/merchandising representative for various garment traders including Sweetmart Garment Works Limited (“Sweetmart”) and AMW HK Co Ltd (“AMW”). Mr Cheung worked as merchandising manager for a garment trader Eagle Speed Global Manufacturing Limited (“Eagle Speed”).

3.  Golden Glory Hong Kong Limited (“Golden Glory”) was incorporated on 19^th May 2004. Mr Roh, Mr Ko and Mr Cheung (“Parties”) were/are its directors/shareholders. Mr Roh held 40% of the shares whilst Mr Ko and Mr Cheung shared the remaining 60% equally.

II. Adding Mr Roh as the 2nd Plaintiff

4.  On the first day of trial, First International sought the court’s indulgence to join Mr Roh as co-plaintiff. For reasons set out in my ruling of 7^th August 2006, I granted leave to add Mr Roh as the 2^nd Plaintiff and for the Plaintiffs to file/serve amended pleadings and amended witness statements within seven days, but reserved the question of costs. I now grant a costs order nisi that First International and Mr Roh do pay Mr Ko’s costs of the above applications to be taxed if not agreed. I have apportioned two hours of trial time for such applications to assist the taxing master.

III. First International’s and/or Mr Roh’s claim

5.  Mr Roh/First International claimed the Parties agreed to set up Golden Glory to carry on garment trading. Mr Roh agreed inter alia to finance Golden Glory for the first six months (ie from 1^st August 2004 to 31^st January 2005) by loan paid through First International to Mr Ko and Mr Cheung against their promise to “bear all the money [Mr Roh] transfer”.

6.  Pursuant thereto, Mr Roh/First International lent inter alia the following sums to Mr Ko (“Sums”) against his promise to repay by 31^st January 2005 (Amended Reply) or within March 2005 (Amended Statement of Claim) :

Item	Date	Amount (HK$)
1	12/08/04	2,000.00
2	30/08/04	10,000.00
3	18/09/04	3,000.00
4	02/10/04	20,000.00
5	03/11/04	1,200.00
6	06/11/04	3,000.00
7	13/11/04	20,000.00
8	09/12/04	10,000.00
9	15/12/04	10,000.00
10	03/01/05	10,000.00
	Total	89,200.00

7.  Since mid-January 2005 (Amended Statement of Claim) or mid-February 2005 (Amended Reply), Mr Roh was unable to contact Mr Ko who had taken up a new job. Mr Roh/First International claimed for repayment of the Sums. Mr Roh denied (a) Mr Ko was Golden Glory’s employee or (b) Mr Roh/First International made any outright payment of salary or expenses to Mr Ko.

IV. Mr Ko’s defence

8.  Mr Ko agreed he received the Sums but denied they were part of a loan from Mr Roh/First International. He claimed that in/about June 2004 the Parties verbally agreed to set up a garment trading company (to be named Golden Glory) with Mr Roh paying all set-up and operating costs and Mr Ko as employee of Golden Glory receiving (a) a monthly salary of HK$20,000.00 from Golden Glory payable on the first day of each month and (b) payment of his expenses incurred whilst working in Mainland China.

9.  Pursuant to such agreement, the Parties became directors/ shareholders of Golden Glory, but Mr Ko and Mr Cheung did not contribute to the share capital. Mr Ko claimed Mr Roh paid his salary (items 2, 4 and 7-10 of the Sums) and expenses (items 1, 3 and 5-6 of the Sums) by way of First International’s cheques. He asserted First International failed to pay part of his salary for January 2005 in the sum of HK$10,000.00, but abandoned his counterclaim against First International for such outstanding salary at the trial. On the fifth day of trial, I granted leave for Mr Ko to withdraw his counterclaim, but reserved the issue of costs.

V. Issues

10.  The issues in the present proceedings are as follows :

(a)	which party proposed to set up the new garment business that eventually became Golden Glory;
(b)	what were the terms of the agreement reached amongst the Parties at the meeting at the coffee shop (“Coffee Shop”) of the Prudential Hotel;
(c)	whether such agreement provided for a loan by Mr Roh/First International to Mr Ko and Mr Cheung and if so, the terms thereof;
(d)	whether such agreement provided for Mr Ko’s and Mr Cheung’s employment and if so, the terms thereof;
(e)	whether there were any discussions as to directorship, shareholding ratio, projected sales volume and profit-sharing ratio at the meeting at the Coffee Shop;
(f)	how was Golden Glory established;
(g)	what were the Parties’ respective roles within Golden Glory;
(h)	whether Mr Ko and Mr Cheung were employees and if so, who was their employer;
(i)	whether the Sums were part of a loan granted by Mr Roh/First International or outright payments of salary and expenses to Mr Ko and Mr Cheung;
(j)	under what circumstances Mr Ko and Mr Cheung left Golden Glory;
(k)	whether Mr Ko was liable to repay the Sums to Mr Roh/First International.

VI.  Documents and witnesses

11.  There was no objection as to the authenticity and admissibility of the documents in the trial bundle save that Mr Roh did not agree to the admissibility of the documents at pp.61-62, 64-67 and 69. Mr Sin, solicitor for Mr Ko, indicated these documents would be formally produced in evidence, but in the end they were not so produced.

12.  Mr Roh gave evidence for the Plaintiffs. Mr Ko gave evidence and called Mr Cheung as his witness. In assessing witnesses’ credibility, the court should consider the totality of the witnesses’ evidence against the documentary evidence, inferences based on inherent improbabilities and/or undisputed facts (see the principles set out by Chung J at paragraph 12 of Star Glory Investment Ltd v Kai Tua (H.K.) Technology Ltd & ors HCA3523/2002 (unreported, 13^th August 2005)).

13.  Having heard the witnesses, I am impressed by Mr Roh’s evidence, which I find to be credible and reliable, but I am not so persuaded by the evidence of Mr Ko and Mr Cheung. Mr Ko and Mr Cheung had considerable experience as employees in the garment business, so they should be well familiar with the usual indicia of an employment situation. Their attempts during evidence to foist most of the decision-making to Mr Roh and their failure to satisfactorily explain the lack of obvious indicia of employment render their contentions unreal and unconvincing. I find on balance they did not tell the court the truth, and I prefer Mr Roh’s evidence where it differs from Mr Ko’s and Mr Cheung’s.

VII. Law on employer-employee relationship

14.  I refer to the well-known test by Cooke J in Market Investigations Limited v Minister of Social Security [1969] 2 QB 173 as approved by the Privy Council in Lee Ting Sang v Chung Chi-keung [1990] 2 WLR 1173 :

“

The fundamental test to be applied is this : ‘ Is the person who has engaged himself to perform these services performing them as a person in business on his own account?’  If the answer to that question is ‘yes’, then the contract is a contract for services.  If the answer is ‘no’ then the contract is a contract of service.  No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of the considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases.  The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors which may be of importance are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task.”

15.  The aforesaid principles were approved/adopted in Poon Chau Nam v Yim Siu Cheung trading as Yat Cheung Airconditioning & Electric Co CACV86/2005 (unreported, 4^th and 15^th November 2005). The Court of Appeal held that whether the person was an employee or independent contractor was a question of fact to be determined by the trial court. Chitty on Contracts 29^th ed, Vol.2 at paras.39-010 - 39-028 at pp.943-955 also set out some of the relevant factors.

VIII. Sweetmart

16.  There is no dispute (a) Mr Ko and Mr Roh came to know each other in 2002 when Mr Ko was working at Sweetmart and (b) Mr Ko on behalf of Sweetmart placed orders with First International for the purchase of fabrics. I accept on balance Sweetmart owed First International about HK$1.2 million in fabric cost. Mr Roh claimed (and I accept) he initially had a few arguments with Mr Ko over the outstanding price, but when he realised Mr Ko had no say over payments he contacted Sweetmart’s director instead. I reject Mr Ko’s suggestion that Mr Roh only had dispute with Sweetmart’s accounts department and not with him. Mr Ko was Mr Roh’s contact in Sweetmart in relation to the sale/purchase of fabrics. I find it unlikely that Mr Roh did not express any dissatisfaction to Mr Ko over the outstanding payments.

IX. AMW

17.  Mr Roh said (and I accept) since about mid-2003 he no longer had any contact with (and indeed he forgot about) Mr Ko until Mr Ko contacted him again in February 2004, by which time Mr Ko was working as AMW’s merchandising manager. Such timing matched Mr Ko’s evidence that he was employed by AMW from 2^nd February to 10^th May 2004 (see AMW’s employer’s returns to the Inland Revenue Department (“IRD”)).

18.  I reject Mr Ko’s evidence that he remained in contact with Mr Roh from time to time after leaving Sweetmart at/about the end of 2003. Once Mr Roh started to chase Sweetmart’s director or (according to Mr Ko) accounts department for payment, there would have been no further reason for continued liaison between Mr Roh and Mr Ko. I find on balance it was Mr Ko who initiated contact with Mr Roh in early 2004 after he joined AMW as he wanted to purchase Korean fabrics from First International. I further accept Mr Ko did so because he felt sorry for Mr Roh over Sweetmart’s overdue payments. Thereafter, Mr Roh received a few purchase orders for fabrics through Mr Ko.

X. Introducing Mr Cheung to Mr Roh

19.  Mr Roh and Mr Cheung both agree that Mr Ko introduced Mr Cheung to Mr Roh at a restaurant in March 2004. Mr Cheung admitted “this was the 1^st time [he] met [Mr Roh]”.

20.  On the other hand, Mr Ko gave evidence that in/about mid-2003 (he could not remember the date clearly but knew he was then still with Sweetmart) that he first introduced Mr Cheung to Mr Roh. It was much later (ie when Mr Ko was already with AMW) that Mr Roh told Mr Ko about First International’s ailing fabric business and they discussed what kind of business would help Mr Roh.

21.  Mr Ko’s witness statement stated it was in/about early 2004 that Mr Roh telephoned to say First International’s fabric business was unsatisfactory and queried whether Mr Ko had any interest in forming a company with Mr Roh to run a garment trading business. “After due consideration, [Mr Ko] replied Mr. Roh with an affirmative answer and further, [Mr Ko] introduced [Mr Cheung] to him.” Plainly, Mr Ko was saying in his witness statement that he introduced Mr Cheung to Mr Roh after he discussed with Mr Roh about Mr Roh’s ailing fabric business and how to turn around the problem.

22.  I reject Mr Ko’s explanation for the contradiction that he did not pay attention to the contents of his witness statement, which he thought was referable to introducing Mr Cheung to Mr Roh for the purpose of joining the new garment business instead of introducing Mr Cheung to Mr Roh simpliciter.

23.  Further, Mr Ko’s explanation does not marry well with Mr Cheung’s evidence that it was on the occasion he first met Mr Roh in March 2004 that Mr Roh told him (a) First International’s business was in a bad way, (b) Mr Roh hoped to turn around the loss by going into garment business and (c) Mr Roh needed help from Mr Ko and Mr Cheung for such business. Mr Cheung said he and Mr Ko told Mr Roh they needed time to consider the proposal.

24.  In light of the above analysis and the totality of the evidence, I find Mr Ko’s evidence inherently unreliable. I also reject Mr Cheung’s evidence in paragraph 23 above. I find it unlikely that Mr Roh would request Mr Cheung to join and assist him in his new garment business venture during a first meeting.

XI. Dongguan trip

25.  There is no dispute the Parties went on a pleasure trip to Dongguan, Mainland China and Mr Roh paid most of the expenses. Mr Cheung claimed he assumed Mr Roh wanted to gain his and Mr Ko’s trust/confidence (presumably in relation to the alleged proposal by Mr Roh to start his new garment business but I have rejected such assertion). I prefer Mr Roh’s evidence that it was Mr Ko who suggested the Dongguan trip. I accept the Parties came to know one another better after the trip. Indeed, it is more probable that they spent time to get to know one another before the proposal for collaboration on the new garment business was raised.

XII. Mr Ko’s proposal

26.  There is no dispute Mr Ko was the initial contact person for the garment factory in Ma Ahn Shan, Anhui Province, Mainland China (“MAS Factory”) and he knew its managing director/president Mr Zhe. Mr Ko was more familiar with the MAS Factory than Mr Cheung.

27.  I accept on balance that in/about April 2004 Mr Ko told Mr Roh that a few months ago he and Mr Cheung had approached Mr Zhe proposing that (a) the MAS Factory set up a Hong Kong branch, and (b) they would work as the branch managers. Mr Zhe refused since the salaries/expenses involved would be too burdensome. So Mr Ko and Mr Cheung wanted to set up an OEM garment company with production support by the MAS Factory, but they wished to look to Mr Roh for the start up funds to finance the enterprise. Mr Ko said he needed HK$20,000.00 per month because he had to support his mother, pay rent, pay his personal bank loan and pay his own expenses, but he assured Mr Roh he could achieve sales within a year. I refer to the above as “Mr Ko’s Proposal”. Mr Roh told Mr Ko he needed time to think, but in the end did not give any affirmative reply.

28.  I reject Mr Ko’s claim that Mr Zhe’s visit to Hong Kong to consider the possibility of establishing a branch here was not at his or Mr Cheung’s suggestion, or that Mr Zhe declined to open a Hong Kong branch because he thought it would not be suitable and not because it would be too expensive. These assertions do not sit well with Mr Cheung’s admissions that (a) he and/or Mr Ko made the suggestion of a Hong Kong branch to Mr Zhe and (b) Mr Zhe on his visit to Hong Kong thought it was too expensive to invest in such branch.

29.  It is significant from the above analysis that at least by late 2003 when Mr Ko and Mr Cheung made their suggestion to Mr Zhe who declined to take up the proposal they were quite prepared to quit their jobs for an opportunity to start a new garment business venture.

XIII. Findings on the background leading to the proposal for establishingGolden Glory

30.  I make the following findings of fact on the background leading to the proposal for establishing Golden Glory (see below) :

(a)	Mr Ko knew Mr Roh from his employment at Sweetmart, but following Sweetmart’s failure to pay First International’s fabric cost, they ceased contact from mid-2003 to February 2004.
(b)	In the meantime Mr Ko and Mr Cheung suggested to Mr Zhe to open a Hong Kong branch for the MAS Factory and offered to be the branch managers, but Mr Zhe declined the suggestion in late 2003. Mr Ko and Mr Cheung were still looking for an opportunity to set up a new garment business with third party financial support.
(c)	Even though the suggestion to Mr Zhe did not bear fruit, Mr Ko decided to leave Sweetmart at/about the end of 2003 and eventually joined AMW in February 2004.
(d)	Mr Ko still looked for opportunity to set up a new garment business. He took the initiative to renew his acquaintance with Mr Roh and to place purchase orders for fabrics with First International for which Mr Roh was grateful.
(e)	Mr Ko introduced Mr Cheung to Mr Roh in March 2004. The Parties consolidated their relationship by going on the Dongguan trip and by meeting further over restaurant meals.
(f)	In April 2004, Mr Ko put forward Mr Ko’s Proposal to Mr Roh, but Mr Roh did not give any affirmative reply.

31.  It is quite clear that (a) the proposal for starting a new garment business (ie Mr Ko’s Proposal) originated from Mr Ko and not Mr Roh, and (b) Mr Ko and Mr Cheung were not looking for new employment but finance for their new business venture. This is bolstered by Mr Ko’s belief that Mr Roh was affluent, namely, Mr Roh lived in a 1,000 sq ft flat in Tai Wai and his two children were educated at an international school.

32.  Further, unlike Mr Ko and Mr Cheung, Mr Roh’s experience was in fabrics and not garment production. Mr Roh impresses me as a considerate and conservative merchant. I find it improbable he initiated the move into uncharted waters of garment business.  I am also not persuaded by the bare assertion that Mr Roh made such proposal because the business of First International was not doing well. However, I accept the Parties believed there would be more lucrative yield from garment trading, which was why they all agreed to the new garment business venture.

XIV. Meeting at the Coffee Shop

33.  The Parties met at the Coffee Shop (“Meeting”). Nothing turned on the date of the Meeting although there is evidence to suggest it took place sometime between March and early May 2004.

(1) Party who made the proposal

34.  In light of the above analysis, I reject the defence claim that Mr Roh suggested starting up a new garment business and invited Mr Ko and Mr Cheung to join the new company to be formed. I prefer Mr Roh’s evidence that Mr Ko proposed to establish a new garment trading company and represented he could achieve a sales volume of HK$8 million within a year.

(2) Directorship, shareholding ratio and profit-sharing ratio

35.  Mr Cheung’s witness statement stated Mr Roh wanted him and Mr Ko to be more aggressive in looking for business and in generating income, so even though Mr Roh knew they had no money to pay the share capital, he suggested “to [them] to have shareholding and directorship” in the new company to be formed (my emphasis). Mr Cheung’s witness statement went on to say “[he] and [Mr Ko] suggested to Mr. Roh to have a shareholding of 50%-25%-25% amongst Mr. Roh, [Mr Ko] and [Mr Cheung]” (my emphasis).

36.  Although this was not mentioned in his witness statement, Mr Cheung gave evidence it was arranged for the Parties to share profits in the same percentage as their shareholding ratio. However, contrary to Mr Cheung’s witness statement, which he affirmed to be correct when he gave evidence, Mr Ko and Mr Cheung gave evidence it was not mentioned at the Meeting they would be directors of the new company. No or no satisfactory explanation was given for the discrepancy.

37.  Mr Ko also said Mr Roh told them at the Meeting he wanted them to have shares in the new company so they would be more diligent in their work, and Mr Roh suggested Mr Ko, Mr Cheung and himself to have 25%, 25% and 50% shareholding respectively to which Mr Ko and Mr Cheung had no particular opinion. This was contrary to Mr Cheung’s evidence in paragraph 35 above. There is no satisfactory explanation for the conflict. Even more interesting, Mr Ko later said the Parties as a matter of fact only talked about the profit-sharing ratio of 50%:25%:25% at the Meeting and “did not talk about shares”, and he privately thought the profit-sharing ratio would be reflected in the share ownership as well.

38.  I find the defence evidence unreliable and reject the same. In my view, since Mr Ko and Mr Cheung made the proposal to start a new garment business, they were the ones who were keen to set the shareholding and profit-sharing ratio of 50%:25%:25% for Mr Roh, Mr Ko and Mr Cheung respectively. I accept on balance Mr Roh counter-offered the ratio of 40%:30%:30% because (a) he expected Mr Ko and Mr Cheung to carry out quite a lot of business activities for the new business and (b) there might be future dispute if the disparity in the profit-sharing ratio was too great. As seen in paragraph 66-70 below, this counter-offer was accepted and reflected in the distribution of Golden Glory’s shareholding when it was established.

(3) Loan

39.  Mr Ko proposed Mr Roh should bear business expenses up to HK$600,000.00 for a year, but Mr Roh could not afford such sum. Instead Mr Roh offered to grant a loan to Mr Ko and Mr Cheung up to the limit of HK$300,000.00 (“Loan”) for six months to start up the new company, but at the expiry of six months Mr Ko and Mr Cheung would have to repay the Loan to Mr Roh (irrespective of whether the new business made any profit or loss) and raise money to continue the new business. In short, Mr Roh was only willing to extend a financial convenience up to HK$300,000.00 for six months to help kick start the new business. Mr Ko and Mr Cheung were confident they would be able to get business and agreed to Mr Roh’s counter-proposal. They further agreed “they will bear whole transferred money to them”.

40.  On the other hand, Mr Ko and Mr Cheung claimed there was no discussion or agreement on any loan. Although they agreed financial budget and operating capital were necessary considerations for starting a new business, they were not concerned with these matters because Mr Roh would be the financier. I find this improbable.

41.  Even on the defence case, it is unbelievable for Mr Ko and Mr Cheung to abandon the financial security of their existing jobs (when they had personal financial commitments) and join a new business (whose “boss” ran an ailing fabric business) without any enquiry if not assurance as to the availability of operating funds. This was especially so since Mr Ko knew from experience (a) potential customers would consider the financial strength of a new company when deciding whether to place purchase orders and (b) a new garment trading company’s business development stage (which would be without income) would take about three months to half a year.

42.  Further, Mr Ko’s assumption that Mr Roh was well-off in his fixed assets (ie his residential home) and in being able to send his children to international school did not mean he had substantial liquid capital for business investment. I find Mr Roh’s evidence on the discussions/agreement as to the operating capital for the new company more plausible and convincing.

43.  It was also suggested that Mr Ko and Mr Cheung would not have exchanged the security of their salaried employments for the responsibility of repaying the Loan. But such argument ignores the background reality as well as Mr Ko’s and Mr Cheung’s mentality at the time. In my view, Mr Ko and Mr Cheung were contemplating leaving their existing employments to “搏一搏” (ie take a risk) and needed financial support without which they could not do so. Having failed to secure financial support from Mr Zhe, I find on balance they were prepared to accept the Loan. Further, the Loan was not unreasonable from Mr Roh’s perspective. He had limited capital, so he only offered a financial convenience of six months to Mr Ko and Mr Cheung for which he would receive 40% shareholding in the new company and 40% profit-sharing.

(4) Sales volume

44.  Despite Mr Ko’s and Mr Cheung’s denial, I accept on balance Mr Roh’s evidence that the aforesaid agreement amongst the Parties was premised on Mr Ko’s and Mr Cheung’s assurance they would be able to achieve sales volume of HK$8 million per annum.

45.  There is no dispute the Parties agreed that (a) Mr Roh would be responsible for sourcing fabrics and (b) Mr Ko and Mr Cheung would be responsible for generating sales and for liaising with and following up on customers and garment factory(ies). In the circumstances, Mr Ko and Mr Cheung were responsible for the income-generating aspects of the new business and Mr Roh was to provide the initial financial convenience. I find on balance they would have discussed sales projections, production facilities and customers. All three Parties had worked in the fabric or garment industry for over ten years. It would be singularly unrealistic if they did not discuss these matters, particularly sales projections, before committing to a new business venture. 

46.  Mr Ko claimed the Parties never discussed income projections except for the belief expressed by him and Mr Cheung (who both had considerable experience in the garment industry) that garment business would give a much higher yield than fabric business. Mr Roh (a) knew Mr Ko and Mr Cheung did not have start up capital, (b) had to provide the financial convenience and (c) was not responsible for the income-generating aspects of the new business. I do not accept the Parties would be prepared to commit to a new business venture on such vague assertion.

47.  For production facilities, it is common ground that Mr Ko eventually introduced the MAS Factory to Mr Roh, and the MAS Factory became Golden Glory’s major garment production factory. I reject Mr Ko’s claim he only told Mr Roh the MAS Factory would merely be one of the factories that the new business could use. Instead I find Mr Ko must have extolled the substantial production capability of the MAS Factory, which became the production backbone of the new business.

(5) Employees and salaries

48.  Mr Cheung claimed that when Mr Roh put forward the proposal of setting up a new garment business to him and Mr Ko at the Meeting, they replied they needed financial support in terms of salary and out-of-pocket expenses as they received salaries from their respective employers at the material time. Mr Cheung further claimed they proposed that each of them should have a monthly salary of HK$20,000.00 with reimbursement of out-of-pocket expenses and Mr Roh agreed to such proposal without hesitation.

49.  On the other hand, Mr Ko claimed in his witness statement that the Parties agreed to the following :

(a)	Mr Ko and Mr Cheung would be the only employees of the new company “despite the directorship and shareholding in Golden Glory of [Mr Ko] and Mr. Cheung”;
(b)	Mr Roh was the “de facto” boss of the new company;
(c)	all the business expenses of the new company, including salary expenses, were to be paid by Mr Roh;
(d)	each of Mr Ko and Mr Cheung would be entitled to receive salary of HK$20,000.00 per month payable on the first day of each and every calendar month;
(e)	the new company would reimburse all out-of-pocket expenses incurred by Mr Ko and Mr Cheung in the course of business.

It appears from (c) and (e) above it was Mr Ko’s case that the new company was to reimburse Mr Ko’s and Mr Cheung’s out-of-pocket expenses through funds from Mr Roh.

50.  Mr Ko gave evidence that although his monthly salary at AMW was HK$25,000.00, he told Mr Roh at the Meeting HK$20,000.00 would be sufficient for him to support his mother and pay his personal bank loan and expenses because he was afraid Mr Roh could not afford to give him HK$25,000.00 a month. Mr Ko claimed he was still prepared to quit his higher paid job because (a) Mr Roh assured him of payment of his monthly salary, (b) Mr Ko decided to “搏一搏” (ie take a risk) with the new business to test his own abilities, and (c) Mr Ko wanted to help Mr Roh in respect of his ailing fabric business.

51.  I find it implausible Mr Roh would have agreed to employ Mr Ko and Mr Cheung and pay them salaries. I have found that in April 2004 Mr Roh did not accept Mr Ko’s Proposal for a monthly payment of HK$20,000.00. There was no substantial change in circumstances to justify his alleged agreement at the Meeting to pay monthly salaries of HK$20,000.00 each to Mr Ko and Mr Cheung. I also refer to the subsequent events discussed below which showed there was in fact no employment relationship at all.

52.  Further, it is interesting to note it was never discussed whether Mr Roh should have drawings apart from his right to 40% profit-sharing. According to the defence case, Mr Roh would provide the operating capital, arrange for the supply of fabrics, act as “boss” in making all substantial decisions and handle the administration of the new business. Yet for all such efforts his only return from the new business venture, according to Mr Ko and Mr Cheung, would be 40% profits (if any) in some unknown future without even the comfort of any sales projection. I find it commercially illogical for any financier and “boss” to be content with such uncertain return (if at all).

(6) Summary

53.  I find on balance Mr Roh never agreed to employ Mr Ko and Mr Cheung or give them salaries and out-of-pocket expenses on an outright basis. I further find the Parties entered into the new garment business venture as co-principals or co-venturers with each making their own contributions and receiving their own benefits. Mr Ko and Mr Cheung had the benefit of being able to start a new garment business without putting up any initial capital and they could each earn 30% profits (if any) by generating sales and looking after production. Mr Roh would be able to expand his business into garment trading by putting up financial convenience for the new business during the first six months and by arranging the supply of fabrics, thereby earning 40% profits (if any).

54.  In my view, it is not unreasonable for Mr Ko and Mr Cheung to agree to (a) repay the Loan and (b) raise funds to finance the new business after the initial six months. According to the defence case, Mr Ko anticipated there would be purchase orders from customers within three months of commencement of business and receipt of income within the following three months. In short, he thought money would be coming in within half a year (ie before the expiry of the Loan period) to maintain the new garment business.

(7) Mr Cheung

55.  Mr Cheung claimed he had a steady job with Eagle Speed and his financial commitments were not small with several children and a pregnant non-working wife. It was only after due consideration and discussion with his wife that he decided to quit Eagle Speed to join the new garment business.

56.  I find on balance Mr Cheung was not too reluctant to leave Eagle Speed. After all he was prepared to become a branch manager of the Hong Kong branch of the MAS Factory with Mr Ko had Mr Zhe agreed to set up such branch. I accept Mr Cheung told Mr Roh his personal situation, but prefer Mr Roh’s evidence that Mr Ko persuaded Mr Cheung (and Mr Cheung agreed) to join the new garment business as they anticipated the new business to be quite busy.

(8) Matters not discussed at the Meeting

57.  Although there was no discussion at the Meeting on how the Loan would be paid to Mr Ko and Mr Cheung, I do not consider this rendered the agreement uncertain. The material terms of the Loan (ie the identities of the lender and borrowers, the monetary limit of the Loan, the Loan period and the purpose of the Loan) were agreed. As Mr Roh said, the payment mechanism would be a simple matter once the money was available. In any event, any concern in this respect was removed by the actual drawdown of such Loan referred to below.

58.  Mr Roh agreed there was no discussion on how the Loan was apportioned for Mr Ko’s and Mr Cheung’s out-of-pocket expenses and their respective drawings. I disagree this rendered the agreement uncertain. According to Mr Roh (and I accept), the Loan was to be extended to Mr Ko and Mr Cheung up to a monetary limit of HK$300,000.00 within the initial six months, and it was up to them to request for payments out of the Loan within such monetary limit and time period. This was eventually reflected in payments of different amounts at different times to Mr Ko and Mr Cheung under the Loan (see below).

59.  For completeness, I note there was also no discussion on any payment of interest or sharing of loss at the Meeting. I accept on balance the main focus of the discussion at the Meeting was on maintaining a continued business relationship, repaying the Loan after six months, and raising of funds by Mr Ko and Mr Cheung after the expiry of six months.

XV. Establishing Golden Glory

60.  There is no dispute Mr Roh took a leading part in setting up Golden Glory. However, I find he did so with the cooperation of Mr Ko and Mr Cheung.

(1) Selecting the company name

61.  According to Mr Roh (and I accept), the new company was bought off the shelf. Both Mr Ko and Mr Cheung said Mr Roh provided a list of company names from a solicitor in order to choose one that sounded good. Mr Ko and Mr Cheung made selections by placing “ü” against some company names and Mr Roh picked Golden Glory out of those.

62.  This highlights the implausibility of Mr Ko and Mr Cheung being employees. If Mr Roh were the sole “boss” of the business and their employer, there is no reason for him to consult his “employees” on selecting his own company’s name. I believe all three Parties contributed to the name-choosing exercise because they were co-principals or co-venturers in the new garment business. I disagree Mr Roh was the sole decision-maker. Mr Ko admitted all three of them thought the Golden Glory name sounded best and agreed to the choice.

(2) Corporate documents

63.  Mr Ko and Mr Cheung claimed Mr Roh handled all work in relation to the acquisition of Golden Glory. Mr Ko said he provided only basic supporting documents such as copy identity card and proof of address for such purpose.

64.  Golden Glory was incorporated on 19^th May 2004, and it was purchased off the shelf. I accept Mr Roh arranged for the preparation of the corporate documents to activate Golden Glory. However, it is plain he had professional help. It was evident from the trial that Mr Roh’s command of the English language was insufficient for him to prepare such documents himself. Even Mr Ko admitted the list of company names came from a solicitor.

65.  I cannot see how Mr Roh’s role in arranging professional preparation of the corporate documents showed he was the “employer” or “boss”. The crux of the matter is the contents of the corporate documents, which I shall deal with below.

(3) Shareholding

66.  There is no dispute the corporate documents showed Mr Ko and Mr Cheung each had 30% shareholding (ie 3,000 shares) in Golden Glory and Mr Roh had 40% (ie 4,000 shares).

67.  Mr Ko signed a letter to the board of directors of Golden Glory stating “[we]/I, the undersigned, hereby apply for and request you to allot 3,000 shares of HK$1.00 each in the capital of your Company to us/me …… and we/I authorise you to enter our/my name in the register of members as the holder of the said shares.” But Mr Ko gave evidence this was in fact not his request and he did not read the letter carefully because he trusted Mr Roh. I reject such evidence. When Mr Ko gave evidence, he had no difficulty in understanding the gist expressed in the letter. He had substantial working experience and I do not accept, as he claimed, that he signed all formal documents presented to him by Mr Roh without reading them. On the contrary, I find on balance he knew and understood the purport of the corporate documents and signed them because he agreed with their contents.

68.  Even on the defence case, Mr Ko knew he would be given shares in the new company, so his attempt to distance himself from the letter he signed was perplexing. I am persuaded he and Mr Cheung adopted such stance because they had to explain why each of their shareholding was increased by 5% in their favour from 25% to 30%. They claimed they only found out about the change in the shareholding ratio when they signed the relevant corporate documents, but no plausible reason was given for Mr Roh’s unsolicited generosity when, according to Mr Ko and Mr Cheung, the Parties had already reached agreement on the shareholding ratio at the Meeting.

69.  Coincidentally, both Mr Ko and Mr Cheung claimed they privately thought the extra shareholding was because Mr Roh wanted them to be more aggressive in looking for business and in generating income, yet they never asked Mr Roh or sought confirmation from him about this. I find it hard to believe that in a small company of three persons who saw each other regularly, (a) this subject was never raised, (b) Mr Ko or Mr Cheung never even offered simple thanks to Mr Roh or (c) Mr Roh never exhorted them to work harder with the additional shareholding. It is particularly telling that Mr Ko said his right to profit-sharing depended on the shareholding ratio. In my view, the Parties’ silence on the subject is consistent with Mr Roh’s evidence (which I accept) that the Parties had agreed at the Meeting to the shareholding ratio of 40%:30%:30% for Mr Roh, Mr Ko and Mr Cheung respectively.

70.  I accept Mr Ko and Mr Cheung did not pay for their share capital, but this is not surprising since the agreement made at the Meeting was on the premise that they did not have the start up funds.

(4) Directorship

71.  Despite Mr Cheung’s witness statement stating Mr Roh suggested at the Meeting for Mr Ko and Mr Cheung to have “directorship” (see paragraph 35 above), Mr Ko claimed he only came to know of his directorship when he signed the corporate documents, which meant he received a title/position extraneous to what had been agreed. Yet he never asked Mr Roh about this, but simply assumed Mr Cheung’s and his directorships were extra incentive for them to work more diligently.

72.  I reject Mr Ko’s contention not just because of its inherent contradiction with Mr Cheung’s witness statement but also for its improbability. I find it incredible that Mr Ko and Mr Cheung would have agreed to become directors and never questioned this throughout the several months they worked at Golden Glory if they were merely employees and it was never part of the bargain. There was no suggestion Mr Roh ever exhorted them to work harder given the directorships. I find on balance Mr Ko and Mr Cheung consented to the directorships because they together with Mr Roh were co-principals or co-venturers in the new garment business.

73.  Whilst on the subject of shareholding/directorships but jumping ahead in time, I note Mr Ko was still Golden Glory’s director/shareholder at the time of trial. No attempt was made to divest his directorship. Mr Ko claimed he was unaware of his rights in this respect, but he was under legal advice at least since 25^th September 2005 when his solicitors filed Notice to Act in these proceedings. In my view, Mr Ko’s and Mr Cheung’s shareholdings and directorships are indicative of their interest as co-principals/co-venturers and not as employees in Golden Glory.

(5) Registered office and equipment

74.  I accept Mr Roh’s evidence that the Parties decided Golden Glory would share the registered office and telephone lines of First International. Mr Sin submitted that because Golden Glory provided stationery and office equipment (eg computer and photocopier) for Mr Ko’s and Mr Cheung’s use, they were relevant indicia of their status as employees. I reject such argument. First, such office equipment was in fact First International’s office equipment and already in existence before Golden Glory was formed.  Once a decision was made to share offices, there would be no reason to acquire fresh office equipment. Secondly, Mr Ko admitted he could and did make decisions for the purchase of stationery and pens.

XVI. Golden Glory’s bank accounts

75.  There is no dispute Golden Glory opened a current account with a bank in Tai Wai and a bills account with a bank in Kowloon Bay. The signatories were Mr Roh together with either Mr Ko or Mr Cheung and all three Parties attended the two banks to open the accounts.

76.  I accept Mr Roh’s evidence that HK$5,000.00 was deposited into Golden Glory’s account (see a bank deposit voucher for HK$5,000.00 dated 5^th October 2004), but there were no other transactions. The sum of HK$5,000.00 was eventually withdrawn leaving a nil balance.

77.  Mr Ko’s and Mr Cheung’s capacity as bank signatories speaks loudly against their alleged role as employees of Golden Glory. Mr Cheung admitted he was not authorised to sign cheques whilst at Eagle Speed because he was not the “boss”. Mr Ko also confirmed he had never been authorised to sign company’s cheques ever since he started his employed career in 1990. He tried to explain away his capacity as Golden Glory’s bank signatory by saying Golden Glory had only three persons whilst AMW had 100 staff members. I do not understand this reason. The signatories should be determined by their positions and authority within the company and not on the staff number.

78.  Further, even Mr Ko admitted that since he was a director of Golden Glory and “in order for [him] to share the profit under the shareholding agreement [he] would think that it is normal for [him] to sign cheque”. Mr Ko went on to clarify that as signatory he would be able to protect his share of the profits (if any) because Mr Roh would be prevented from unilaterally removing monies from the bank accounts. Mr Ko’s belief in the correlation between his share of his profits (if any) and his role as signatory and in the measure of control he exercised in relation to Golden Glory’s finances are, in my view, clear indicia of Mr Ko’s and Mr Cheung’s status as co-principals/co-venturers in the new garment business and not as employees.

XVII. Mr Ko and Mr Cheung joining Golden Glory

79.  According to AMW’s employers’ returns to the IRD, Mr Ko ceased working for AMW on 10^th May 2004. He claimed he rested for a few months and joined Golden Glory in July 2004. However, Mr Ko said he received his first salary payment of HK$10,000.00 (which was on time) on 30^th August 2004, so even on his own case he could not have joined Golden Glory as early as in July 2004. When confronted with his own evidence above, Mr Ko said he was unsure whether he started working in July or August 2004. Later he even assumed from the payment of HK$10,000.00 (which he said was equivalent to half month’s salary) on 30^th August 2004 that he joined Golden Glory in mid-August 2004.

80.  I do not accept Mr Ko’s uncertain evidence. I prefer Mr Roh’s evidence that pursuant to the agreement reached at the Meeting Mr Ko joined Golden Glory on 1^st August 2004 and Golden Glory was activated in September 2004 (see the dates of the corporate documents disclosed in the trial bundle).

81.  Mr Ko remembered Mr Cheung joined Golden Glory after him in/about August or September 2004. Mr Cheung said he resigned from Eagle Speed in August 2004. Although Mr Cheung’s witness statement stated he joined Golden Glory in late August 2004, he gave evidence that he took a month-long break before joining Golden Glory in September 2004 (evidence-in-chief) or sometime between September and October 2004 (cross-examination). But Mr Cheung also said he gave a helping hand to Mr Roh since late August 2004, so his first salary payment of HK$20,000.00 on 2^nd October 2004 was for his services for September 2004. He explained he worked during September 2004 as he needed the salary to support his family. Although I do not accept the payment on 2^nd October 2004 was salary payment (see below), Mr Cheung’s evidence as to the timing of his starting work at Golden Glory is consistent with Mr Roh’s evidence (which I accept) that Mr Cheung joined Golden Glory in September 2004.

XVIII. Alleged employer

82.  In my view, the confusion as to Mr Ko’s and Mr Cheung’s assertions as to who their employer was shows the unreliability of their claim to be employees.

83.  Mr Ko’s witness statement drew a careful distinction between (a) Golden Glory being Mr Cheung’s and his employer and (b) Mr Roh as the de facto “boss” of Golden Glory. Yet when Mr Ko gave evidence he insisted it was agreed at the Meeting that Mr Roh would be his employer and would pay his salary. Mr Ko claimed he did not pay attention to the wording of his witness statement and Golden Glory could not be his employer because it was a “dead entity”. However, he shied away from such stance when confronted with the fact that Sweetmart and AMW albeit also “dead entities” were his employers and said instead Mr Roh and the relevant individuals at AMW were his “bosses”. But when it was put to him that his homemade Defence averred that (a) he was Golden Glory’s employee and (b) he would receive his monthly salary from Golden Glory, he was constrained to accept such averments correctly reflected that Golden Glory was his employer.

84.  As for Mr Cheung, his witness statement stated he was an employee of Golden Glory, but he gave evidence that his employer was Mr Roh because Golden Glory was not yet set up at the time when the Parties reached their agreement at the Meeting.

85.  The aforesaid confusion highlights the unreliability of the defence evidence. In my view, Mr Ko’s and Mr Cheung’s attempts to resile from their stance in the defence pleadings and witness statements reflect discreditable attempts to favour the defence case by coating Mr Roh with the onerous responsibility of being “employer” or “boss”. I reject such evidence. I find on balance Golden Glory did not have any employee and accept Mr Roh’s evidence that since First International gave assistance in running Golden Glory and Mr Roh’s wife helped with bookkeeping duties there was no need for Golden Glory to employ any staff.  I further find Mr Roh never promised to pay any salary to Mr Ko and Mr Cheung or make outright payments of expenses to them as employees of Golden Glory. This conclusion is also supported by the subsequent conduct of the Parties.

XIX. Salaries tax

86.  Both Mr Ko and Mr Cheung claimed they received salary payments after they joined Golden Glory (see paragraphs 114 and 118 below), but Golden Glory never filed any employer’s return with the IRD in relation to such salary payments. Mr Ko and Mr Cheung received employer’s returns, filed tax returns and paid salaries tax when they were previously employed by other companies, but they did not (a) file any tax return for the alleged salary payments received whilst working at Golden Glory or (b) ask Mr Roh or the IRD about employer’s returns or tax returns.

87.  Mr Ko said he was no longer on talking terms with Mr Roh by the time he left Golden Glory in early 2005, so he could not ask Mr Roh about the employer’s returns. But he did not explain why he raised no query over the six months he worked there. Such reticence is more consistent with the fact that Mr Ko and Mr Cheung never received any salary payment.

88.  Mr Ko next claimed Mr Roh still owed him $10,000.00 in salary payment and he was busy with his new job after leaving Golden Glory, so he did not pursue the matter of the tax returns. He added there was no need for him to file tax returns or pay salaries tax for the tax year ended 31^st March 2005 (a) for his salary income from Golden Glory because he only received salary payments of HK$80,000.00 and his annual personal allowance was HK$100,000.00, or (b) for his limited salary income from his new job which he only started on 12^th January 2005 at a monthly salary of HK$24,500.00. Mr Ko filed his tax return for the tax year ended 31^st March 2006 and recently received the tax demand note.

89.  I reject Mr Ko’s argument as such explanation is inherently unconvincing. Even on his own case, Mr Ko’s total salary income for the tax year ended 31^st March 2005 was HK$177,925.00 (ie his salary income from (a) AMW from 1^st April to 10^th May 2004 (HK$25,000.00 x 1.32 months), (b) Golden Glory (HK$80,000.00), and (c) his new employment from 12^th January to 31^st March 2005 (HK$24,500.00 x 2.65 months)), which was well in excess of his understanding of his annual personal allowance of HK$100,000.00. There is no satisfactory reason why he did not make enquiries with the IRD in relation to the payment of salaries tax or the filing of tax return for his salary income from Golden Glory.

90.  Mr Ko admitted salaries tax was payable by employees, but claimed he had a friend whose employer paid such tax for him. Such assertion had no relevance here because there was never any discussion for Mr Roh or Golden Glory to pay his salaries tax.

91.  I also reject Mr Cheung’s evidence that (a) he never made enquiries because he did not receive any tax form or tax demand note, and/or (b) he assumed it was because he had to support his wife and children. I find neither Mr Ko nor Mr Cheung filed any tax return because they never received any salary payment from Mr Roh or Golden Glory.

XX. Mandatory provident fund (“MPF”)

92.  Golden Glory did not make any employer’s MPF contributions for Mr Ko and Mr Cheung, who also did not make any employees’ contributions. Yet Mr Ko and Mr Cheung both participated in MPF schemes when they were employed in Sweetmart/AMW and Eagle Speed respectively. Mr Ko admitted he did so because he was then an employee. Further, neither of them asked Mr Roh about MPF matters.

93.  Mr Cheung said he worked hard after joining Golden Glory and did not discuss about MPF. Mr Ko said he made no enquiries about MPF whilst he was with Golden Glory because there was little point in chasing for employer’s MPF contributions when (apart from the first salary payment) Mr Roh was always late in paying his salary. I reject such assertion of delayed salary payment (see below), but even on Mr Ko’s case I do not see how such delay would have prevented him from asking Mr Roh whether Golden Glory had an MPF scheme for its employees at any time during his several months with Golden Glory.

94.  I reject Mr Ko’s and Mr Cheung’s evidence in this respect. I find on balance they did not make enquiries about MPF because they were not employees and did not receive salary payments.

XXI. Employees’ compensation insurance

95.  Mr Roh confirmed (and I accept) Golden Glory did not purchase any employee’s compensation insurance coverage. In my view, this is an indication that Mr Ko and Mr Cheung were co-principals/co-venturers in the new garment business of Golden Glory and not employees.

XXII. Parties’ respective roles

96.  From the following analysis of the Parties’ respective roles (which echoes my findings in relation to the agreement reached at the Meeting) and upon considering the totality of the evidence, I find Mr Roh was not the “boss” of Mr Ko and Mr Cheung, and they did not take orders from him or act according to his directions.

97.  I disagree Mr Roh as the “boss” was responsible for all matters in Golden Glory including overseeing sales work. I find on balance division of labour was required for handling all the different tasks required for operating a small garment trading company comprising only three persons. In my view, it is impractical/inefficient for Mr Roh to become involved in sales or production related matters to the detailed extent as claimed by Mr Ko and Mr Cheung given their own extensive experience and Mr Roh’s relative inexperience in the garment industry. Although Mr Roh/First International dealt with garment factories, his liaison with the garment factories and his experience concerned the supply of fabrics. There is no evidence before me Mr Roh had experience in garment production and trading.

(1) Mr Roh’s role

98.  I therefore find Mr Roh was responsible for (a) raising monies for the Loan and (b) sourcing/developing fabrics when there were garment production orders. He attended sales meetings with the potential customers once in a while when he was requested to do so or when he thought he should participate. He also joined in entertaining potential customers.

(2) Mr Ko’s and Mr Cheung’s role

99.  On the other hand, Mr Ko and Mr Cheung were responsible for (a) discussing business terms with customers and garment factories, (b) receiving, handling, liaising on and following up customers’ orders, (c) arranging production by and liaising with garment factory(ies) in Mainland China, and (d) working in Mainland China to follow up on the progress of garment production. Mr Cheung claimed soliciting orders from potential customers required a lot of preparatory work, including taking them to visit the garment factory(ies) in Mainland China to gain confidence in the quality of garment production, making up samples for their inspection, etc.

100.  Mr Cheung claimed the aforesaid scope of duties were akin to his former role as merchandising manager in Eagle Speed. Whilst I do not disagree with such assertion, it is not indicative of Mr Ko’s and Mr Cheung’s capacity as Golden Glory’s or Mr Roh’s employees. Since Golden Glory was a three-men company and each of the Parties had his own special skill/experience, Mr Ko and Mr Cheung would have the same scope of duties whether they be employees or principals given their experience in the garment business and their contacts with garment factories/customers.

101.  But Mr Ko and Mr Cheung said they had to report to Mr Roh, seek his instructions and act on his decisions. Mr Cheung claimed he reported to Mr Roh each day when he was working in Mainland China. I disagree that it was in the nature of reporting by an inferior staff to the “boss”. I find on balance such communications were a means by which Mr Roh was kept in the picture when he was not in Mainland China and even when he was in Mainland China due to his language limitations. Indeed, it was unnecessary to have direct communications all the time for the Parties had common access to Golden Glory’s e-mail address and Mr Ko/Mr Cheung would sometimes update Mr Roh on the business/sales situation through such medium.

102.  Mr Ko gave the example that he would need to seek Mr Roh’s approval and remittance of funds to the garment factory in Mainland China for the manufacture of a special fabric for a potential customer that cost, say, HK$20,000.00. I disagree this reflected Mr Roh’s power of supervision and control or Mr Ko’s/Mr Cheung’s obligation to act according to Mr Roh’s decision. It is common ground Mr Roh had substantial experience with fabrics and would be able to give useful technical input on the quality/manufacture of fabrics. It is not surprising for Mr Ko and/or Mr Cheung to liaise with Mr Roh over the manufacture of a special type of fabric, and for them to defer to his more experienced views after discussion. Further, they would have to contact Mr Roh in any event to arrange for the remittance of the relevant payment out of the Loan.

103.  In my view, Mr Ko and Mr Cheung acted on their own in soliciting customers/orders and did not have to seek Mr Roh’s prior instructions although they would update/inform Mr Roh. The MAS Factory became Golden Glory’s main garment factory through Mr Ko’s connections. Upon Mr Ko’s introduction of such factory to Mr Roh, Mr Roh visited the MAS Factory about two to three times, but due to Mr Roh’s language limitations, Mr Ko discussed business with the factory and later explained to Mr Roh.

(3) Decision-making

104.  I find on balance that for general (eg when a customer requested samples that might lead to future orders) or trivial matters, Mr Ko and Mr Cheung could make decisions on their own, but on more important matters (eg whether to (a) proceed with an order when the profit margin was small or (b) continue with the order or prepare samples when the customer was considered unreliable), there would be discussions amongst the Parties before making decisions. I also refer to the analysis below in relation to Golden Glory’s internal meetings.

(4) Summary

105.  In the circumstances, the day-to-day work of the Parties within Golden Glory and their respective responsibilities do not lend support to the suggestion that Mr Ko and Mr Cheung were employees.

XXIII. Golden Glory’s internal meetings

106.  I agree any of the Parties could call for an internal meeting when necessary. Indeed, Mr Roh called for and joined in most of Golden Glory’s internal “sales” meetings. Since there were nil sales by the time Mr Ko and Mr Cheung left Golden Glory in early 2005 (see below), “sales” meetings meant internal meetings whereby the Parties discussed issues relating to business operations, potential customers and garment factories.

107.  On balance I accept Mr Roh called for these internal meetings because (a) Mr Ko and Mr Cheung were close friends who spent a lot of time together even after office hours, and (b) he wanted to be kept abreast of developments and be part of them. I further accept Mr Roh’s evidence that such meetings were mainly informal and he did not push Mr Ko and Mr Cheung to improve sales.

108.  I further find Mr Roh was not necessarily the final decision-maker when decisions were made at the end of such internal meetings. There is no dispute each of the Parties would voice their opinion and Mr Roh, who was less experienced than Mr Ko and Mr Cheung in the garment business, would listen to their opinions/suggestions. Mr Roh said the Parties would decide which was the better view/idea to adopt after their respective opinions were aired and discussed. I find such evidence (which I accept) to be commercially sensible and practical. Although Mr Roh’s opinion would be reflected in the discussions and sometimes in the decisions, he would often defer to Mr Ko’s more experienced suggestions in relation to “sales”-related decisions.

109.  I do not agree that in case of disagreement Mr Roh would be the final arbiter. It made little commercial sense for the person with the least experience in “sales” matters to act as final arbiter. I further reject Mr Ko’s evidence that Mr Roh made all commercial decisions involving a few hundred dollars (eg purchase of zippers) or above. Mr Ko could only come up with the example of buying stationery when asked what decisions he and Mr Cheung could have made on their own. I find it incredible Mr Roh would have employed two garment traders of over ten years’ experience to act on his own relatively inexperienced decisions on “sales”-related matters and to act on their own when purchasing stationery.

110.  I find Mr Ko’s and Mr Cheung’s evidence to be an unconvincing effort to shift decision-making and supervisory responsibility to Mr Roh to bolster their contention that they were employees. In my view, each of the Parties could go about and deal with matters within their scope of duties (and update/inform the others), but on the more important matters the Parties would decide together after discussion via telephone or at internal meetings. This meant the Parties brought their own experience/expertise on an equal footing to the decision-making process instead of Mr Ko and Mr Cheung acting on the decisions of Mr Roh as the “boss”. Such conclusion does not aid the defence contention that Mr Ko and Mr Cheung were employees.

XXIV. Working hours

111.  Mr Roh complained that Mr Ko and Mr Cheung attended and left the office as they wished and did not work regular hours from 9:30am to 6:00pm. I accept that given Mr Ko’s and Mr Cheung’s function as salesmen, they had to work in Mainland China for some days a month and even when they were in Hong Kong they had to work outside the office to meet potential customers, so it was not always possible to require them to adhere strictly to the aforesaid regular working hours.

112.  I further accept Mr Roh was not pleased by what he regarded as Mr Ko’s and Mr Cheung’s casual working hours and he suggested a more regular working routine. But there is insufficient evidence before me to say that such irregular working hours were without justification given their role and function as aforesaid. I find such irregular working hours to be neutral because whether Mr Ko and Mr Cheung were employees or not they would still have performed the role of salesmen.

XXV. Loan or salary/expenses

(1) Defence’s case

113.  Mr Ko/Mr Cheung agreed they did not ask why they received cheques drawn by First International (instead of by Golden Glory/Mr Roh) for their salary payments. They thought the agreement reached at the Meeting was clear and there would be no problem so long as they received their salaries.

(2) Mr Ko’s alleged salary payments

114.  Mr Ko claimed his salary payments were as follows :

Mr Ko further claimed he deposited three of the above cheques into his bank account and cashed the rest of them.

115.  Mr Ko claimed he probably joined Golden Glory in mid-August 2004 (see paragraph 79 above), so his August 2004 salary paid on 30^th August 2004 was only HK$10,000.00. Although Mr Ko claimed this was the only salary payment that was paid on time, he agreed his September 2004 salary of HK$20,000.00 paid on 2^nd October 2004 was roughly on time as well. Although Mr Ko’s monthly salary was paid in arrears, his witness statement stated that the due date was on the first (and not the last) day of the calendar month, so presumably he was referring to the following calendar month. Mr Ko went on to say his October and November 2004 salary payments were late and Mr Roh/Golden Glory only paid half of his salary for December 2004 leaving the balance of HK$10,000.00 still outstanding.

116.  Mr Ko claimed he left Golden Glory in early January 2005 and started his new job on 12^th January 2005, so there should be no salary payment from Mr Roh/Golden Glory for January 2005. However, Mr Ko’s pleadings averred that First International failed to pay him part of his January 2005 (not December 2004) salary in the sum of HK$10,000.00. No explanation is forthcoming in respect of such obvious discrepancy.

117.  In light of such discrepancy and the totality of the evidence, I reject Mr Ko’s evidence in relation to his alleged salary payments.

(3) Mr Cheung’s alleged salary payments

118.  Mr Cheung claimed he received his first salary payment of HK$20,000.00 on/about 2^nd October 2004. He said in his witness statement that “…… the amount of salaries Mr. Roh had given to [Mr Cheung], with cheques of [First International]” were as follows :

Date of cheque	Amount (HK$)
2nd October 2004	20,000.00
15th December 2004	10,000.00
1st February 2005	3,000.00

119.  Although Mr Cheung’s witness statement stated his monthly salary should be paid on the first day of each month, he gave evidence that such salary was payable in arrears either at the end of the month or beginning of the following month. He claimed (a) he was entitled to salary payments in the total sum of HK$100,000.00 at HK$20,000.00 per month from September 2004 to January 2005 (which suggested he worked for Golden Glory for the full month of January 2005), and (b) Mr Roh/First International still owed him HK$10,000.00 in outstanding salary payment.

120.  Although Mr Cheung’s witness statement only stated he received total salary of HK$33,000.00 (see paragraph 118 above), he insisted he was owed HK$10,000.00 and not HK$67,000.00 in outstanding salary payments. He even blamed Mr Ko’s solicitors for supplying him the figure of HK$33,000.00 and possibly missing other cheque payments he received. I reject Mr Cheung’s strained explanation.

(4) Payments for expenses

121.  There is no dispute that Mr Ko’s and Mr Cheung’s business expenses were paid/reimbursed by First International’s cheque/cash. I find such payments were in fact part of the Loan paid to Mr Ko and Mr Cheung by Mr Roh through First International.

122.  Both Mr Ko and Mr Cheung confirmed Mr Roh arranged for certain remittances by telegraphic transfer to Mainland China. Mr Ko gave evidence of an occasion in September 2004 when he requested Mr Roh by telephone to remit HK$2,000.00 for out-of-pocket expenses, and Mr Roh remitted such sum to the bank account Mr Ko immediately opened at the Ma Ahn Shan branch of the Bank of China for such purpose. Mr Ko also mentioned that at his request Mr Roh remitted monies to the bank account of the manager of the garment factory for the manufacture of a special fabric for a customer. I find such remittances were part of the Loan. The ultimate use of these monies did not alter their nature as loan monies.

(5) Analysis

123.  I prefer Mr Roh’s evidence that the Sums received by Mr Ko were in fact part of the Loan and not salary payments or outright reimbursement of expenses. Whilst I do not disagree the payments were eventually used by Mr Ko for personal or business expenses, they do not alter their loan nature.

124.  I disagree the Loan repayment date was uncertain. Pursuant to the agreement reached at the Meeting, the Loan period commenced on 1^st August 2004 when Mr Ko joined Golden Glory (ie the date Mr Ko could start to ask for drawings and payment of expenses under the Loan) to 31^st January 2005.

125.  Mr Sin submitted that Mr Roh’s case was contradictory. He pointed out Mr Roh pleaded in the Amended Reply and Defence to Counterclaim that the Loan was to be repaid on/before 31^st January 2005, but Mr Roh referred to Mr Ko’s promise to refund the Sums within March 2005 in the Statement of Claim. Mr Roh explained (and I accept) that he referred to March 2005 in the Statement of Claim (despite the expiry of the Loan period by the end of January 2005) because for good measure he randomly gave Mr Ko some more time for repayment.

126.  Further, Mr Sin pointed out (a) Mr Roh only said in his amended second supplemental witness statement (originally dated 25^th January 2006) to the effect he could only afford HK$300,000.00 for six months and made no mention of the provision for finance after the initial six months and (b) Mr Roh stated in his amended first supplemental witness statement (originally dated 17^th November 2005) that he agreed to extend the Loan for six months against the promise to repay after six months without mentioning any precise dates for the loan period.

127.  In my view, the crux of the present claim related to the Loan extended within the initial six months, so Golden Glory’s financing thereafter is irrelevant although I accept Mr Roh’s evidence on the Parties’ agreement in this respect. Further, I do not see how Mr Roh’s amended first supplemental witness statement is inconsistent with his evidence. Still further, Mr Roh has not been shy about the repayment date of the end of January 2005. It was averred in his pleadings. I do not accept Mr Sin’s criticisms of Mr Roh’s evidence.

128.  Mr Sin also submitted there was no Loan because Mr Roh did not have the full amount of HK$300,000.00 in August 2004. In my view, it is unnecessary for Mr Roh to have the full sum immediately available because the financial convenience was to be extended over a six-month period. The important thing was for Mr Roh to have available cash within the monetary limit of the Loan when requested by Mr Ko and/or Mr Cheung. Indeed, when he did not have sufficient funds, Mr Roh struggled to uphold his part of the bargain to make payments under the Loan to Mr Ko and Mr Cheung by borrowing from (a) his father and (b) PrimeCredit and UA Finance (finance companies introduced to him by Mr Ko).

129.  I further accept that at Mr Ko’s/Mr Cheung’s requests Mr Roh through First International made various payments of various amounts under the Loan within the monetary limit of HK$300,000.00 to Mr Ko and Mr Cheung (including the Sums) by (a) cash, (b) cheque, (c) remittance to Mainland China or (d) purchase of air-tickets for their business trips to Mainland China. Mr Roh deposited such sums into First International’s bank account to pay for Mr Ko’s and Mr Cheung’s drawings and business expenses at their requests. In support thereof, Mr Roh relied on copies of the following documents as examples of payments under the Loan :

(a)	First International’s cheques payable to Mr Ko, First International’s cash cheques and/or journal vouchers for items 2-5, 8 and 10 of the Sums;
(b)	First International’s cash cheques, First International’s cheques payable to Mr Ko and/or journal vouchers for payments to Mr Ko on 20th August 2004 (HK$2,000.00), 25th September 2004 (HK$15,000.00), 9th October 2004 (HK$15,000.00), 11th November 2004 (HK$20,000.00), 16th November 2004 (HK$10,000.00), 12th December 2004 (HK$10,000.00) and 1st February 2005 (HK$4,000.00);
(c)	First International’s bank remittance application form for remittance to the Ma Ahn Shan branch of the Bank of China of the net amount of HK$3,000.00 (6th December 2004);
(d)	First International’s cheques payable to Mr Cheung on 18th September 2004 (HK$3,000.00), 2nd October 2004 (HK$20,000.00), 15th December 2004 (HK$10,000.00) and 1st February 2005 (HK$3,000.00);
(e)	Mr Roh’s personal loan agreement with PrimeCredit (Asia) Limited dated 11th November 2004 for HK$50,000.00;
(f)	receipts by and First International’s cheques payable to Korea Travel Service (HK) Co for air-tickets for inter alia Mr Ko and Mr Cheung from September to November 2004 and in January 2005.

130.  I disagree with Mr Cheung’s claim that Mr Ko’s and his salary and expenses were paid in different sums and at different times because of Mr Roh’s progressive financial difficulty. I prefer Mr Roh’s explanation that it was due to Mr Ko’s and Mr Roh’s different personal financial commitments (eg Mr Ko had to support his mother and had a girlfriend in Mainland China whilst Mr Cheung had several children and another on the way), so requests for their drawings and business expenses from the Loan were made at different times and in different amounts.

XXVI. Sales

131.  Mr Ko and Mr Cheung thought there were good prospects for Golden Glory when it was set up. But unfortunately nil sales were recorded for the first six months.

132.  Mr Roh fairly accepted that even if things went smoothly, it still would have been difficult to have sales turnover within six months. He only expected to have cash return or profits between six months to about a year, so he did not press Mr Ko and Mr Cheung to improve sales. Mr Roh would ask about and Mr Ko and Mr Cheung would explain the progress in relation to business in the pipeline. If any explanation was insufficient, Mr Roh might ask for further details, but he would sometimes refrain from doing so when he sensed that pursuing the matter would offend Mr Ko and/or Mr Cheung.

133.  Mr Ko was more optimistic than Mr Roh in that he expected there would be income for Golden Glory within half a year (see paragraph 54 above). But in reality business development took a longer time and there were still nil sales by the time he left Golden Glory. Mr Ko explained that potential customers took many factors into account when deciding whether to place orders, eg the fact Golden Glory was newly set up, the quality of the samples, Golden Glory’s financial strength or the competitiveness of the offered price.

134.  The above highlights Mr Roh’s fairness and lends credibility to his evidence. However, the unfortunate situation of having nil sales set the background for the unhappy events that led to Mr Ko’s and Mr Cheung’s departure from Golden Glory at about the time of the expiry of the Loan period.

XXVII. Expiry of the Loan period

135.  Mr Ko claimed that since September 2004 Golden Glory became financially more stringent and could not pay his and Mr Cheung’s salary payments on time. In/about December 2004 and January 2005, Mr Ko and/or Mr Cheung on several occasions requested Mr Roh to purchase air-tickets for them to go on business trips, but Mr Roh refused due to the stringent financial position. This limited Mr Ko’s and Mr Cheung’s opportunities to look for business for Golden Glory.

136.  Mr Ko said in his witness statement that in early January 2005 when Mr Roh told him and Mr Cheung that Golden Glory was short of money and could only retain one of them, he decided to resign and leave Golden Glory. Mr Ko gave evidence he left Golden Glory at the beginning or middle of January 2005 (he could not remember the date clearly), but he started his new job on 12^th January 2005. There was no or no satisfactory explanation on how Mr Ko was able to quickly secure a job in about a week when Mr Roh’s request for one of them to leave was made only in early January 2005.

137.  I accept Mr Roh’s finances were tight, but he still upheld his part of the bargain by securing personal loans from third parties. Paragraphs 114, 118 and 129 above showed that he was still able to make payments under the Loan in December 2004. I prefer Mr Roh’s evidence that in/about mid-December 2004, Mr Ko prepared his resume to look for a new job, which he found in mid-January 2005. But Mr Roh did not say anything until Mr Ko and Mr Cheung came to the office for a last meeting at/about the end of January 2005 (“Last Meeting”).

XXVIII. Last Meeting

138.  Both Mr Roh and Mr Cheung said the Last Meeting was held at the end of January 2005. Mr Ko said it was held around 12^th January 2005 but he was unsure. However, he said he had left Golden Glory by that time and was only accompanying Mr Cheung to the Last Meeting. I reject Mr Ko’s evidence as to the timing of the Last Meeting. It is telling that (a) Mr Cheung worked until the end of January 2005 (see paragraph 119 above) and (b) Mr Roh did not meet Mr Ko and Mr Cheung again after the Last Meeting. So even on the defence case the Last Meeting must have taken place at the end of January 2005 (ie at about the expiry of the Loan period).

139.  At that time Mr Cheung wanted to go to Shanghai to visit a new customer and asked Mr Roh to purchase the air-ticket for him, but Mr Roh refused as he could not afford it. I accept that by that time the Loan period had expired and the Loan was exhausted.

140.  It is common ground there was shouting by Mr Cheung and Mr Roh at the office. The Parties gave different versions as to what happened, but whether Mr Ko was drunk or whether Mr Cheung hit Mr Roh is not material to the issues of this case. There is no doubt there was a scene with some pushing and shoving and I accept Mr Roh fell to the floor. But it is also plain Mr Roh did not suffer substantial physical harm athough I suspect his pride was hurt.

XXIX. Demand for repayment of the Loan

141.  Mr Sin criticised Mr Roh for not informing Mr Ko of the total amount of the Sums to be repaid before Mr Ko left Golden Glory. Mr Roh explained (and I accept) that during the time Mr Ko was with Golden Glory the Loan period had not yet expired. He also did not chase Mr Ko and Mr Cheung for repayment of the Loan at the Last Meeting because he did not expect it to be the last meeting amongst the Parties.

142.  After January 2005 Mr Roh was unable to contact Mr Ko by telephone or e-mail. Both Mr Ko and Mr Cheung said they were unaware Mr Roh tried to contact them.

XXX. Conclusion

143.  In light of the aforesaid, I find Mr Roh/Golden Glory did not exercise control and superintendence over Mr Ko and Mr Cheung. There is no evidence before me that Mr Roh could dismiss them and they remained as directors/shareholders of Golden Glory even up to the trial. The Parties worked together as co-principals. Mr Ko and Mr Cheung were very much part of the business organisation of Golden Glory and pursuant to the agreement reached at the Coffee Shop their income turned on whether there was prospect of profit. They had to bear the financial risk by having to repay the Loan and being responsible for securing finance for Golden Glory after the first six months. Considering the totality of the evidence, Mr Ko and Mr Cheung were not employees.

144.  I therefore grant judgment in favour of Mr Roh against Mr Ko for the sum of HK$89,200.00 with interest thereon at the rate of 11% pa from the date of the writ of summons to the date of judgment. First International was not a party to the agreement reached at the Meeting and did not pay the Sums to Mr Ko. It was merely the conduit through which Mr Roh as lender paid the Sums to Mr Ko. In the circumstances, First International’s claim against Mr Ko is dismissed.

145.  However, Mr Roh adopted all the pleadings, witness statements and discovery made by First International. There is no reason why Mr Roh should not be entitled to costs following event. In the circumstances, I grant a costs order nisi that Mr Ko do pay Mr Roh costs of the action (including all costs reserved) to be taxed if not agreed and there be no order as to costs of the action between First International and Mr Ko.

146.  Since the counterclaim was only withdrawn at the trial, there is no reason why Mr Ko should not bear the costs of the counterclaim. I therefore make a costs order nisi that Mr Ko do pay First International (the 1^st Plaintiff and the relevant defendant to the counterclaim) costs of the counterclaim and costs of the application to withdraw the counterclaim to be taxed if not agreed.