CLUB DELUXE LTD. v. CLUB METROPOLITAN LTD.

- Headnote -

Tort - wrongful interference with contract - Covenants in restraint of trade - whether covenants survived after contract is abrogated is a matter of contractual intent - Issue of general damages - Importance of pleadings: "Civil litigation is not an independent search of the truth by the judge: his function of adjudication depends largely upon how the issues are pleaded by the parties" - Forgery of party's signature - A finding that an instrument is not that of the party purporting to sign is not, in civil litigation, a finding against any specific person of forgery or conspiracy: The judge was led into error, thereby in effect reversing the burden of proof.

IN THE COURT OF APPEAL

1993, No. 152
(Civil)

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J U D G M E N T

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Litton, J.A.:

Introduction

1. There are three separate respondents on this appeal. I will refer to them as respectively D1, D2 and D3. It is not alleged that they combined to act in any way. Their cases have to be separately considered. The appeal is complicated because the plaintiff's case is couched on the basis of liability arising both in contract and in tort.

2. As regards David Yu Tak-yuen (D2) it is common ground that there was a written contract of employment dated 1 October 1988 under which he was engaged in the capacity of an "administration manager" for 2 years at a monthly salary of $8,000 plus commission, expiring on 30 September 1990. His job involved being present at the plaintiff's Deluxe hostess night-club at New World Centre Salisbury Road Kowloon during business hours, and one of his main responsibilities was to greet clients and introduce them to the facilities and charges of the club. That contract contained two restrictive covenants: clauses 11 and 12. It is the plaintiff's case that D2 was in breach of contract in that (a) he commenced work on 1 October 1990 for the Metropolitan night-club at Chinachem Golden Plaza Mody Road Kowloon, operated by D1, before his employment contract with the plaintiff had expired; (b) he acted in breach of clause 11 by sending out a circular in September 1990 to former clients of the plaintiff-encouraging them to patronise the Metropolitan night-club, and (c) he acted in breach of clause 12 by soliciting and causing D3 his wife to leave the service of the plaintiff. It is also the plaintiff's case that D2 incurred tortious liability by unlawfully inducing D3 to breach her written contract of employment with the plaintiff.

3. D2's case in summary is this:

(i) In April 1990, pursuant to an oral agreement with the plaintiff, he left his employment in Kowloon and became the manager of the Diana Karaoke Lounge in Macau, operated by an associated company of the plaintiff: the contract with the plaintiff was accordingly abrogated: that is to say, all rights and obligations thereunder were discharged, including the restrictions contained in clauses 11 and 12.

(ii) In any case clauses 11 and 12 were void in law and unenforceable, being against public policy and in restraint of trade.

(iii) The allegation of having tortiously induced D3 to breach her contract is denied: the only intention was for him and his wife to work together again.

4. The judge found in favour of D2 on point (i), but went on to consider point (ii), concluding that in law clause 11 was "unreasonable and unenforceable", clause 12 was "reasonable and enforceable" but on the facts had not been breached. The judge also found in D2's favour on point (iii) above. The claim against D2 was accordingly dismissed with costs.

5. The plaintiff's appeal concerning D2 turns on all the issues as summarized above. There is also a Respondent's Notice which need not be referred to here, to avoid making a complicated picture even more complex.

- As regard Mona Chan Chun-yin D3 it is the plaintiff's case that she wrongfully left the plaintiff's employment, before the expiration of the term of employment, "without giving three month's notice of termination and/or such reasonable period as the court thinks fit". D3's case in the court below was that the alleged written contract whereby she was engaged to serve for two years from 1 January 1990 was not signed by her. It follows if her case be right that her purported signature was a forgery. It was no part of her case that Eddie Chan, the plaintiff's executive director, or anyone else in the plaintiff's camp, had forged her signature. Her case was simply that the circumstances under which Eddie Chan testified, to the effect that she signed the contract in his office at the end of December 1989, never took place.

6. The judge found against D3 on the evidence. There is a cross-appeal against that finding. I will deal with that later. It is relevant however to note at the outset that the plaintiff's entire case of wrongful interference is based on that written contract. If D3's cross-appeal is allowed, that would destroy fundamentally the plaintiff's case on tortious liability against D1 and D2. As regards the period of notice required, the judge held that D3 was not obliged to give three-months' notice of termination, as averred in the statement of claim, and found that one month's notice sufficed to terminate the contract lawfully. But as she did not give the requisite notice, she was liable in damages. The judge assessed those damages as the equivalent of one month's earnings, but as the plaintiff owed D3 a month's commission the one was off-set against the other. The judge awarded half of the plaintiff's costs against D3.

7. As regards D1 the sole cause of action pleaded is that D1 tortiously interfered with D3's written contract of employment with the plaintiff, causing the plaintiff loss and damage. When particulars were sought of the alleged loss and damage the plaintiff stated in June 1992:

"The loss and damage is not quantifiable because after D2 and D3 had left the plaintiff with the other employees, the plaintiff succeeded in finding replacements. The plaintiff's business did not suffer .... To- date the plaintiff's loss is its legal expenses".

8. This admission was subsequently withdrawn and in September 1992 the plaintiff averred instead:

"As the plaintiff is unable to precisely quantify the exact damages which the combined effect of the departure of D2 and D3 and/or other employees had on the plaintiff's business, the plaintiff will contend that such caused and/or contributed to the plaintiff suffering a diminution in its turnover in the sum of HK$1.7 million for the period of mid-September 1990 to December 1991 and the plaintiff suffered a loss as a result....".

9. As to the tort of wrongful interference, the judge's conclusion was that the plaintiff had failed to show any knowledge on the part of D1 of the existence of D3's written contract; further, that the plaintiff had suffered no damage. The claim against D1 was therefore dismissed with costs.

10. The plaintiff's case against D1 on appeal is that:

(i) On the evidence before the court, the judge should have concluded that the ingredients of knowledge and intent necessary to constitute the tort of wrongful interference had been made out, and

(ii) the evidence, including the diminution in turnover of HK$1.7 million, should have led the judge to conclude that substantial loss had been incurred as a result of the commission of the tort. This court should accordingly exercise its judgment on the material before us and award substantial damages to the plaintiff.

D2: Breach of contract

11. It is common ground that if the written contract of 1 October 1988 still subsisted the notice of termination given by D2 on 3 September 1990, to take effect the next day, was ineffective to discharge that contract. The crucial issue before the Judge was therefore whether, in view of the arrangements made between Eddie Chan, the plaintiff's executive director, and D2 regarding his transfer to work in Macau, the contract of 1 October 1988 was abrogated. This is a matter of the intention of the parties, to be inferred from their acts and declarations.

12. The terms and conditions of employment in Macau were very different from those under the contract of 1 October 1988: to start with, it was a different employer: the evidence was vague in that regard, but it was certainly not Club Deluxe Ltd., the plaintiff, but an associated company: the degree of association was not revealed. The employment was different: D2 was to manage the whole business of the Diana Karaoke Bar in Macau: this was very different from his employment as "Administration Manager" responsible for client relations and other tasks at a hostess night-club in Kowloon. His pay was also different.

13. It is of course possible in law for the parties to an employment contract to agree to suspend performance under that contract whilst the employee is "seconded" to serve a different employer in a different territory; it is equally possible for the parties to agree that in the circumstances the old contract should be wholly discharged. The question for the judge was simply whether the weight of the evidence pointed to the latter, rather than the former. Mr Griffiths Q.C. argues however that having regard to (i) the paucity of the evidence concerning the parties' contractual intentions and (ii) the judge's erroneous approach, in relying on the case of S.W. Strange Ltd. v. Mann [1965]1 WLR 629 which suggests that he treated the issue as one of law rather than one of fact, this court should interfere.

14. I do find it surprising that the judge saw fit to set out extensive portions of Stamp J's judgment in Strange v. Mann, rather than the evidence as to what was said by the parties when D2's transfer to Macau was discussed. Some of D2's evidence was rather vague as to what was said about the matter: for instance, he testified to the effect that Eddie Chan had said that he, D2, did not need to worry about the job at Club Deluxe; that Eddie Chan had simply told him to go over to work in Macau and as regards the employment with the plaintiff at Club Deluxe Eddie Chan would "fix it". All this is consistent with a "wait-and-see" attitude: leaving the contract with the plaintiff in suspense, at least for a few months, to see how things worked out in Macau. But there was also evidence pointing the other way: for instance, when D2 left, he was paid an extra month's salary which he, D2, thought was payment in lieu of notice; and when the question of his return to Hong Kong was discussed, Eddie Chan said that his salary "would have been up to him"; and there was also no obligation on him to return. All this points strongly to the old contract having been abrogated. Moreover, that contract had only a few more months to run; no evidence was led as to how long the parties thought D2 might stay in Macau: as Club Diana was a new venture, it was likely to have been of some duration. There was no particular reason why either party should have wished to keep the old contract alive.

15. Mr Griffiths' argument in essence is that the judge had failed to have regard to the relevant considerations when he concluded that the written contract-was "abrogated". Mr Griffiths argues that the judge did not direct his mind to the evidence, treating wrongly the issue as one of law and concluding that when the new employment was created the old employment contract must necessarily have been discharged by the operation of law. This he says is an erroneous approach.

16. If the judge had simply confined himself to a consideration of Stamp J's judgment in Strange v. Mann in reaching his conclusion I would have been inclined to agree with Mr Griffiths's contention. But he did not. He adverted to the fact that the duties at Club Diana were very different from those at Club Deluxe and that the other circumstances of the employment were also very different, including the fact that it was an overseas employment and D2 was paid in local currency. The judge then concluded:

"In my view, these factors, coupled with the wholly unsatisfactory evidence as to the identity of Mr Yu's employer, are wholly inconsistent with the continuation of a contract between the plaintiff and Mr Yu for employment as a public relations manager during prescribed working hours. I am satisfied that the contract and all its terms were abrogated. No question of breach of restrictive covenants therefore arises".

17. In my judgment Barnett J was amply justified in reaching the conclusion as he did. I would therefore dismiss this ground of appeal.

18. Mr Griffiths argues (and it was, as I understand it, his primary point) that irrespective of whether the contract of 1 October 1988 came to an end by abrogation or otherwise, the restrictions imposed by clauses 11 and 12 nonetheless survived. He draws attention to the wording of those clauses: for instance, clause 11 which says that for a period of one year next after the determination of D2's employment under that contract "whether by effluxion of time or in any other way whatsoever" D2 should not canvass solicit or endeavour to take away from the plaintiff any of the plaintiff's customers. He argues that this is the manifest intention of the parties and the court must give effect to it; he relies on Photo Production v. Securicor [1980] AC 827 in support of his argument.

19. I have not found the reference to Photo Production v. Securicor of much assistance. It was dealing with a rather different situation. There the House of Lords was at pains to emphasise that the legal effect of an exemption clause, or one limiting liability, was purely a matter of the intentions of the parties as expressed in their contract, and that there was no rule of law to say that where one party has been guilty of a fundamental breach of the contract and the other party has accepted it and brought the contract to an end the guilty party could not rely on an exemption clause to escape from liability: as the Court of Appeal presided over by Lord Denning M.R. had held in Harbutt's Plasticine v. Wayne Tank [1970]1 QB 447.

20. Here, the question before Barnett J was not the proper construction of D2's contract, or of clauses 11 and 12: it was simply whether the parties, prior to D2 taking up his employment in Macau, had agreed to rescind that contract in its entirety: including clauses 11 and 12. The judge concluded as a matter of fact they had. Lord Wilberforce's judgment in Photo Production v. Securicor, to which Mr Griffiths referred extensively in argument, does not in any way assist in considering whether that conclusion was right or wrong. If the parties had indeed intended that the contract be rescinded, cancelled, abrogated (it matters not what verb is used), when D2 took up the management of Club Diana in Macau, Photo Production v. Securicor does not inhibit the judge in anyway in giving effect to that intention. If anything, the judgments in that case point in the opposite direction, emphasizing as they all do that where the parties' contractual intent is clear, it is that intent which must prevail. I would dismiss this ground of appeal as well.

D2: tortious liability

21. As regards D2's tortious liability for allegedly inducing his wife D3 to breach her contract with the plaintiff, the judge approached the matter on the assumption that D2 knew of her written contract with the plaintiff. However, that document, signed at the end of December 1989, to commence on 1 January 1990 and lasting 2 years, clearly did not contain the entire contractual arrangement between the parties. As pleaded by the plaintiff this was a "continuation of similar arrangements made between the parties which had continued since 1982", and there were terms and conditions on the reverse side of an "application for employment" signed in January 1982 which were also of relevance. The effect of all this was that despite the fixed term as expressed in the written instrument the employment was terminable on "three months' notice or such reasonable notice as the court thought fit": this was ultimately resolved by the judge as one month.

22. The question, as a matter of common-sense, would then immediately arise: If D2 and D3 knew as a fact that D3 could lawfully have left the plaintiff's employment by giving at the most three month's notice, why would D2 have intentionally and deliberately invaded the plaintiff's by inducing D3 to terminate the contract prematurely? The couple saw Mr Law on 17 August 1990 and the arrangement was for D3 to be employed at the Metropolitan Club as a "mamasan" for three years starting on 1 October 1990; there was ample time for D3 to have given notice, if one month's notice was all that was required. The judge's finding, against which there is no appeal, is this:

"At its highest,.... the only case is that, in response to his wife's inquiry whether they could work together at D1's club, he (D2) took her (D3) to meet Mr Law".

23. The judge concluded that the evidence came nowhere near establishing that D2 intended any invasion of the plaintiff's rights. The test he applied was that stated by Morris LJ in D.C. Thompson & Co. Ltd. v. Deakin [1952]1 Ch 646 at 702:

"The tort is committed if a person without justification knowingly and intentionally interferes with a contract between two other persons. There must, therefore, be knowledge of the existence of contractual relations between others and the intentional commission, without justification, of some act which interferes with those contractual relations so as to bring about or procure or induce a breach resulting in damage. .... The breach of contract must be brought about or procured or induced by some act which a man is not entitled to do, which may take the form of direct persuasion to break a contract or the intentional bringing about of a breach by indirect methods involving wrongdoing".

24. To that test, the judge said, might be added the situation where the defendant was reckless as to whether the act he procured would cause breach of the contract. I cannot see how the judge can be faulted in this approach.

25. Here the only "act" relied upon, as against D2, was that he took D3 to meet Mr Law. Mr Griffiths argues that the judge should not have confined his attention to that act and should have viewed D2's intentions more broadly: in particular the fact that in September he and D3 had sent out circulars to customers of the plaintiff, using the name cards of customers received when they were working at the Deluxe Club, to the following effect:

"Kindly note that as from 1 October 1990 I'll be joining Metropolitan Night Club. Together with several-ten charming hostesses. Looking forward to your continual support and thank you for same during the past".

26. This, says Mr Griffiths, is the clearest evidence that D2 had intended to direct customers from Deluxe Night Club to the Metropolitan, to the detriment of the plaintiff. That may be so. But, in my judgment, what D2 did at the end of September 1990 is no test of what he intended in mid-August when he arranged for his wife to meet Mr Law. The judge found that in August D2's only intention was to see whether he and his wife could work together again and that D2 had no thought of breach of contract by his wife. That was a conclusion the judge was entitled to reach on the evidence. This ground of appeal fails.

27. Having reached this point it is unnecessary to deal with counsel's argument concerning clauses 11 and 12 except in the briefest outline. The judge found that, having regard to D2's duties and responsibilities, there were no legitimate interests such as connections with customers for which the restrictions in clause 11 might have been justifiable in law. He held accordingly that clause 11 was unenforceable as being against public policy. This was a peripheral part of the appeal. I see no reason to differ from the judge in his conclusion.

D3

28. The plaintiff's case on appeal against D3 is this: the written contract, signed at the end of December 1989, expressed to be for a term of two years from 1 January 1990, contained no provision as to notice; in law a fixed term contract must run for its agreed length and no provision as to earlier determination by notice can be implied. This proposition standing on its own is unimpeachable. It ignores the plaintiff's case as pleaded. It was, in the court below, common ground between the parties that D3's employment went back to 1982 and, plainly, not all the conditions of employment have been set out in the written contract: for instance, the arrangements for D3's remuneration.

29. Civil litigation is not an independent search of the truth by the judge; his function of adjudication depends largely upon how the issues are pleaded by the parties. Where the plaintiff accepts, as it plainly does here, that D3's contract was terminable by notice, and the whole case has been fought and concluded in the court below on that basis, it is far too late for the plaintiff on appeal to turn round and say: disregard the pleadings, and the history of the contractual relationship, and look simply to the terms of the written contract dated 1 January 1990.

30. In my judgment the point put by Mr Griffiths that the judge should have awarded damages for the loss of D3's services for the duration of the contract lasting some 15 months must fail.

D1: the tort of wrongful interference

31. To constitute the tort of wrongful interference there must be (i) knowledge on the part of the defendant of the existence of the contract and of the fact that the act induced will be a breach of it; (ii) intent to cause the breach and to injure the plaintiff and (iii) actual loss: see Rookes v. Barnard [1964]AC 1129 at 1212.

32. The evidence was to the effect that Mr Law, D1's director, met D2 at the Peninsula Hotel lobby by chance on 16 August 1990; D2 told Mr Law that he was not happy working in Macau and wanted a change. Mr Law offered him employment. When D2 told his wife D3 about this conversation and D1's offer of employment, D3 asked if they could work together. D2 telephoned Mr Law and they arranged to meet the next day. On 17 August 1990 the three of them met and D3 told Mr Law she was employed by the plaintiff, and had an oral agreement but could leave on giving one month's notice: I add in parenthesis that D3's testimony was equivocal in this regard; at one point she said she told Mr Law she could leave at any time. It was at this meeting that Mr Law offered D3 a "signing-on fee" of $750,000 and a three-year contract to commence on 1 October 1990. That was, in effect, the sum total of the evidence against D1.

33. Mr Griffiths's point is this: what Mr Law knew and intended were matters peculiarly within his own knowledge; as Mr Law chose not to testify at the trial, every reasonable inference which could be drawn from the primary facts would be drawn against him. Mr Griffiths says that having regard to Mr Law's long involvement with the night-club business and the fact that it was usual to tie mamasans down with written contracts - afterall, the first thing Mr Law himself did to secure D3's services was to commit her to a three-year written contract - Mr Law was "put on notice" and ought to have made inquiries. This was, Mr Griffiths says, a case of a party having the means of knowing the terms of D3's contract and deliberately disregarding them. He relies for this purpose on a passage in Lord Denning M.R.'s judgment in Emerald Construction v. Lowthian [1966]1 WLR 691 at 700H. That case, as it seems to me, dealt with a very different situation: there the union's purpose was to get the "labour only" sub-contract terminated because they strongly objected to "labour only" subcontracting: there could have been no doubt as to what the union intended: they intended to bring the contractual relationship to an end if they could, regardless of whether it was done in breach or not.

34. As Miss Audrey Eu Q.C., counsel for D1, rightly argues, knowledge and intent are intimately connected in this branch of the law. Where a party intends to interfere with the contractual relations of others, it is no answer to say that he does not know of the precise terms of the contract; if he knows that a contract of some kind exists but deliberately closes his ears to anything which might turn his suspicion into a certainty, he would be fixed with constructive knowledge. But the shutting of ears has to be wilful or deliberate: the negligent invasion of someone's contractual rights is not enough to constitute this tort: see generally Clerk and Lindsell on Torts (16 Ed) para 15-03.

35. Nothing in the evidence in this case suggests that D1 or Mr Law intended in any way to invade the plaintiff's rights. By not employing D3 until 1 October 1990 Mr Law had given her ample time to serve notice of termination, to end her contract with the plaintiff lawfully.

36. The judge in dismissing the case against D1 based his reasoning on the lack of knowledge on Mr Law's part of D3's written contract. He supported it fully by reference to the evidence: for example, that not all mamasans were subject to written contracts, and on the plaintiff's own case it was not until December 1989 that they signed written contracts with mamasans. The judge could equally have reached his conclusion by finding lack of intent on Mr Law's part to invade the plaintiff's rights. In my judgment Barnett J's conclusion that the claim against D1 failed is unassailable.

Damages

37. The only live issue in the court below, as far as damages were concerned, was the claim against D3 consequent upon the judge's finding that she had-breached the written contract by failing to give one month's notice. The judge awarded damages in the sum of $28,354.40 which was, in effect, the amount D3 would have earned in a month: a "month's salary". The judge appears to have based this on the provisions of the Employment Ordinance.

38. Mr Griffiths argues that the judge erred in that regard because: (i) he thought that the measure of the damages was governed by s8A of the Employment Ordinance, Cap 57, and (ii) thereby failing to award general damages to the plaintiff to which they were entitled.

39. The judge's approach to the issue of damages, as I understand it, was this: He concluded that, prima facie, the plaintiff was entitled to no more than nominal damages but that the Employment Ordinance "sanctioned payment of a month's salary by an employee in lieu of notice"; this constituted "a form of liquidated damages" and was a practice "widely recognised and followed in Hong Kong" (p82, judgment).

40. In so concluding, he must have found that, because of the continuing nature of D3's employment since 1982, as pleaded by the plaintiff, the contract was terminable by one month's notice in accordance with s6(2)(a) of the Employment Ordinance: despite his earlier finding that the written contract, with a fixed term expiring on 31 December 1991, was binding on the parties.

41. Mr Griffiths says that the judge should have approached the issue of damages generally, and whilst the loss was not quantifiable as such should have awarded substantial general damages to the plaintiff. He asks us to consider the following factors:

(i) D3's replacement as mamasan Judy Pong earned fewer "points" than D3, indicating that as a source of revenue for the club she was less productive than D3;

(ii) D3's worth as a mamasan is indicated by the large signing-on fee which Mr Law was prepared to pay when she signed a three-year contract with D1;

(iii) the withdrawal of services by a top mamasan must, as a matter of common-sense and inference, produce disruptions and loss to the club.

42. The problem with Mr Griffiths's argument is that, in effect, the question of substantial damages was fully ventilated in the court below: the case presented by the plaintiff, after it was permitted to withdraw its previous admission that no loss (apart from legal expenses) had accrued, was based on diminution of turnover amounting allegedly to $1.7million for the period of 15 months up to 31 December 1991: the plaintiff was unable to say what proportion of this diminution was attributable to D3, since the allegation was based not only on the withdrawal of services by D3 alone but also by D2 and six hostesses. The judge, after an exhaustive analysis of the facts, which included the way the operations of the club were conducted, came to the view that no loss was proved. Hence, but for the Employment Ordinance, he would have awarded only nominal damages. In my judgment it is not permissible for Mr Griffiths in this court to dress up the claim for damages slightly differently and ask us to consider the issue afresh.

43. But for the Employment Ordinance, the judge plainly would not have awarded anything other than purely nominal damages. As it was, he gave the plaintiff the equivalent of one month's "salary". The judge was generous to the plaintiff in this regard, because in fact D3 continued serving as a mamasan at the Deluxe Club for over 2 weeks after she had given notice on 3 September 1990 and did not leave the plaintiff's employment until 21 September.

44. I have in fact considerable doubt as to whether the judge's award of $28,354.40, based on the Employment Ordinance is logically sound: it seems to conflict with his finding that the written contract was binding. This was a fixed term contract, and it sits uncomfortably with the provisions of s6(2) of the Employment Ordinance. But, having regard to the view I have formed on the cross-appeal, dealing with the written contract, I need say no more about this matter.

45. In my judgment Mr Griffiths's attempt to have the award of $28,354.40 substantially increased by our exercising an original jurisdiction to award general damages to the plaintiff must fail.

Cross-appeal

46. Mr Ronny Wong Q.C. on behalf of D3 puts forward two main arguments:

(1) The first concerns Ex C244, the written contract dated 1 January 1990. The judge's approach in considering whether Ex C244 was signed by D3 is, Mr Wong argues, fundamentally flawed; the matter becomes at large and on all the evidence now before us we should hold that the plaintiff's averment that Ex C244 was signed by D3 was not established.

(2) D3 was entitled to two items of remuneration: (a) the special bonus or jackpot for 1990, amounting to $56,870 and (b) the year end bonus or basic salary for 1990 amounting to $80,000, making a total of $136,870 which the judge had found was D3's entitlement, but failed to award it to her for reasons which Mr Wong says are totally flawed.

Whether D3 signed the written contract

47. Dealing first with the question of D3's alleged signature on Ex C244. I confess to very considerable skepticism when the point was first introduced by Mr Ronny Wong Q.C. Was this not the classic case of a trial judge who, having heard the witnesses and weighed the evidence, made a pure finding of fact? However, as Mr Wong developed the point it became clear that it was one of considerable substance.

48. It was the plaintiff who put forward D3's signature on the contract as evidence that she had assented to its terms. D3 denied that it was her signature, although she accepted that it resembled her usual signature: the inference is, of course, that someone had without her authority signed Ex C244, making it appear that she had signed it: in other words, a forgery. It is important to stress however that it was no part of her case, as pleaded, that she was levelling the accusation of forgery against anyone, far less of conspiracy. She was, at the end of the day, simply saying: this is not my signature.

49. Her normal signature was simple in form. When the suspect signature was submitted to the three experts for examination, Dr Nutten, Mr Wilcox and Mr Leung, they all agreed on one thing: the possibility of forgery existed. Dr Nutten was firmly of the opinion that it was a poorly executed forgery, not only because of poor line quality, the ink line wavering in two areas, but also bore characteristics of forgery on enlarged examination. Mr Wilcox concluded that it was easy to make out a case for forgery, not only in respect of the suspect signature but also as regards the control signatures because of the variety in the forms of those signatures; he was not prepared to express an opinion one way or the other. Mr Leung, accepting that forgery would not be difficult, "just came down against forgery", as the judge puts it. The result of all this was that, in the court below, the expert evidence did not assist the judge in any way in coming to a proper conclusion on this issue.

50. Ultimately, the question for the judge was whether Eddie Chan and Deborah Cheung were telling the truth when they deposed to the circumstances under which D3 came to sign Ex C244 at the end of December 1989. As far as D3 was concerned, there was little she could say, as her case was one of denial: that incident never happened, as far as she was concerned.

51. Having reached the point that the forensic evidence was of little help, the correct approach was, clearly, for the judge to look at the inherent probabilities and weigh the respective cases for the parties with that in mind. Unfortunately his approach was different, and as becomes clearer later on, he was led by counsel in the court below to an inquiry fraught with hidden difficulties which he failed to perceive. The judge, after having referred to the inconclusive evidence of the three experts said:

"If Miss Chan is correct in her denial, the inference is appalling. It is that Mr Chan, Miss Cheung and presumably the other mamasans who lent their signatures to similar documents have conspired against Miss Chan".

52. This approach is incorrect, and puts far too much emphasis upon the "inference" to be drawn from D3's denial. To start with no other mamasan apart from Miss Cheung and of course D3 had testified at the trial: There were altogether 13 mamasans employed by the plaintiff at the time. It was not open to the judge to speculate as to what "the other mamasans" might have said if they had given evidence. For all he knew they might have supported Miss Chan's case if they had testified. It is true that the judge had before him two other contracts, both dated 1 January 1990, signed by two other mamasans, a Miss Lui and Miss Wong. The authenticity of those documents was not in dispute. But that was all. How those documents had come into existence was not deposed to by the makers of those documents and, at the end of the day, the judge had to fall back on the testimony of Eddie Chan as to how they came to be signed. The "appalling" inference of a massive "conspiracy" if D3's case were true is, in my judgment, an exaggeration; it was counsel's hyperbole; this unfortunately coloured the judge's entire approach. The judge reverted to this a little later when he said:

"Nonetheless, if Miss Chan's signature is a forgery it seems to me that the only reasonable interpretation I can put on such a finding is that Mr Chan, to punish Miss Chan for deserting the plaintiff, manufactured the contract and persuaded the other mamasans to sign similar documents to give colour to what was a spurious exercise".

53. The only other contracts before the judge, apart from those of Miss Cheung and D3 were ExP7 and P8, bearing the purported signatures of Miss Lui and Miss Wong. As I have said, since neither Miss Lui nor Miss Wong gave evidence at the trial, and the judge had only Eddie Chan's word for it that ExP7 and P8 were signed in his presence at the end of December 1989, to have drawn inferences from the bare existence of those contracts was dangerous. Eddie Chan was supported in this regard by Miss Cheung's testimony to some extent, though she never claimed to have been in Mr Chan's office when they were purportedly signed. This was the extent of the "conspiracy" if D3's case be true: that Mr Chan and Miss Cheung had put their heads together and agreed a story to testify against D3. This can hardly be categorised as "evil and cunning of the highest order": a term the judge applied to the massive "conspiracy" which he thought was inherent in D3's case.

54. In putting his case to the judge, counsel for the plaintiff said this:

What is the Burden of Proof and the Basis for the Allegation of Forgery? In our submission, because of the law relating to forgery, then there must be strong irrefutable proof that the document has a forged signature upon it. It is not the criminal burden of proof which is cast upon the Defendants in this case, but something near it. It is certainly the case that the Defendants have to reverse the presumption of omnium praesumuntur rite esse acta over and above the balance of probability. The graver the conduct the higher burden."

55. This is plainly erroneous. There was no legal burden imposed on the defendant to prove forgery, "irrefutable" or otherwise. The legal burden rested on the plaintiff, to satisfy the court on a balance of probabilities that the signature on the contract was that of D3.

56. Unfortunately, this erroneous submission must have greatly influenced the judge, for he, after finding that none of the witnesses had done themselves any credit and all had tried to deflect the simplest question, said:

"Certainly there was no straightforward testimony of the kind I would require before giving countenance to a conspiracy of the nature which I have outlined" (emphasis added).

57. This is, in effect, to reverse the burden of proof. The judge was in effect saying: the defendant is making a serious allegation of conspiracy against the plaintiff and its witnesses; she carries a heavy burden of proof; that burden has not been discharged.

58. We were in this court helpfully referred by Mr Ronny Wong Q.C. to the Privy Council's judgment in Devine v. Wilson [1855]10 MOO PCC 502 where an error similar to the one here occurred at a trial in New South Wales.

59. It also concerned an allegation of a forged signature on a legal document. There the Privy Council said, at p.592:

"Now, there is a great distinction between a civil and a criminal case, when a question of forgery arises. In a civil case the onus of proving the genuineness of a deed is cast upon the party who produces it, and asserts its validity. If there be conflicting evidence as to the genuineness, either by reason of alleged forgery, or otherwise, the party asserting the deed must satisfy the jury that it is genuine. The jury must weigh the conflicting evidence, consider all the probabilities of the case, not excluding the ordinary presumption of innocence, and must determine the question according to the balance of those probabilities. In a criminal case the onus of proving the forgery is cast on the prosecutor who asserts it, and unless he can satisfy the jury that the instrument is forged to the exclusion of reasonable doubt, the prisoner must be acquitted."

60. In my judgment, this is one of those rare cases where a judge of the highest standing and experience has been diverted into fundamental error by over-zealous advocacy, and bearing in mind all the warnings concerning an appellate court interfering where findings of fact are concerned, I am firmly of the view that the judge's conclusion that D3 had signed Ex C244 is open to challenge, and we must examine afresh where the probabilities lie. In this regard some of the judge's findings are extremely helpful.

61. To start with there were contradictions in the plaintiff's own case which were never properly explained. (1) Leo Wong was the plaintiff's accountant and was positive in his assertion that when, in early April 1987, he had written out cheques for $150,000 in favour of the club's mamasans, he had before him the contract forms, with names and identity card numbers filled in. He had accordingly put the words "contract fees" in the cheque stubs. As far as he was concerned the payments were made because the mamasans were signing written contracts. This is wholly inconsistent with the plaintiff's case that the signing did not take place till some 2 1/2 years later, at the end of December 1989.

(2) Eddie Chan's evidence was that on an evening at the end of December 1989 he called the mamasans into his office one by one, explained the situation to each of them as they came in and then asked them to sign. Regarding D3 he said: "When she came we sat together and I explained she was to sign contract and content was explained"; by explanation he meant telling D3 about the need to protect the interests of management and staff, the protection the contract would give her and he said that the same explanation was given to each mamasan by him as they came in.

62. But when Deborah Cheung testified, and on being asked in cross- examination whether she signed in Eddie's presence, she said she could not remember; she said she had a glance at the document and that it was the general manager Peter Cheung who translated the document to her and she could not recall if Eddie Chan was present. It is noteworthy that Deborah Cheung's proof of evidence put in as her evidence-in-chief, made no mention of Peter Cheung. This evidence is wholly inconsistent with Eddie Chan's. who made no reference whatever to Peter Cheung being present, let alone doing any translating.

(3) The events to which Eddie Chan and Deborah Cheung deposed happened allegedly at the end of December 1989; the litigation erupted barely a year later. If Peter Cheung, the general manager, had translated in the way alleged by Deborah Cheung, it is inconceivable that he would not have remembered. Yet, what happened at the trial was this: after a lunch break, counsel for the plaintiff said that Peter Cheung was still employed by the plaintiff, but had no recollection of the incident; and counsel "tendered" him for cross-examination (whatever that means in the context of a civil trial). Peter Cheung was not called.

(4) The plaintiff was a member of the Federation of night-clubs which provided a facility for "black-listing" mamasans who defaulted on their written contracts: the plaintiff apparently never reported D3's alleged breach of her written contract to the Federation, though they in fact did vis-a-vis another mamasan called Chan Pui-king.

(5) The plaintiff asserted in Further and Better Particulars that D3 had "on previous years signed the contracts of employment in similar terms as the one dated 1 January 1990": an assertion which they subsequently admitted was incorrect.

(6) When the plaintiff gave discovery, they stated in effect that there were no other written contracts apart from Ex C244 relevant to the case: then shortly before trial before Deputy Judge Li (which in the event was adjourned) the plaintiffs disclosed three contracts and asserted at the trial, through counsel, that there were others kept in Eddie Chan's safe not produced.

63. What I have enumerated above are straws in the wind, indicating a case which, putting it at its lowest, was ill-prepared and full of internal contradictions.

64. Of particular importance was this point: given D3's prominent position as a mamasan ("much caressed" by management was the judge's expression regarding mamasans generally), it was inherently improbable that she should have tied herself down to a 2-year written contract without a substantial signing-on fee. The judge realised the importance of this point, but failed to draw the logical conclusion. D3 had been paid a lump sum of $150,000 in April 1987 and Eddie Chan, as the judge said, insisted in evidence that this was for the contract allegedly signed in December 1989. The judge observed that this was "an exercise in futility": it was, in my judgment, more than that: it was the classic hall-mark of a bad case.

65. Plainly, the judge placed virtually no reliance on the testimony of Eddie Chan and Deborah Cheung. He said: "None of the witnesses (except perhaps Mr Fok, a customer) did themselves any great credit. All tried to deflect or evade even the most simple question".

66. No weight could properly have been placed on Eddie Chan and Deborah Cheung's testimony, and none appears to have been placed. In these circumstances the only proper conclusion is that the legal burden on the plaintiff, to establish that D3 had signed Ex C244, had not been made out.

67. The logical sequel to this finding must be, of course, that the signature on Ex C244 was forged. But by whom, where, under what circumstances: these are matters of speculation and call for no answer in this litigation. The forgery must have taken place before 1 October 1990 when the plaintiff's solicitors made reference to it in their letter of that date for the first time. That is all. By this finding no accusation is levelled at any one. This is simply the consequence of civil litigation conducted under rules in our system of law.

The Cross-appeal: Ground 2

68. The two "bonus components" in D3's remuneration package came to a total of $136,870. This is what the judge said about them, at p83:

"On balance, I find that these two bonus components were not discretionary and that in principle they should be paid pro rata. I am not, however, prepared to countenance such a payment to a person who has broken her contract and who has unsuccessfully sought to maintain that her previous employer has forged her signature on a contract of employment."

69. This approach is plainly wrong. The judge was in, effect, punishing D3 for breaking her contract and running, in his view, a bad case. Mr Griffiths Q.C. has not sought to sustain the judge on this ground. Rightly so.

Conclusion

70. In my judgment the plaintiff's appeal must be dismissed in its entirety. As to D3's cross-appeal I would: (i) discharge the award in the sum of $28,354.40 which the judge had made in the plaintiff's favour, and (ii) order that the plaintiff pays to D3 the sum of $136,870, together with such interest thereon as may be appropriate.

Nazareth, J.A.:

71. I agree. As we are overturning the trial judge's finding that D3 signed the written agreement, a fortiori that being a finding of fact, I would add the following.

72. Mr Griffiths stressed the advantages that a trial judge has in determining the facts and the reluctance an appellate court should have in interfering with findings of fact. The law in that respect is well established and I will not rehearse it. It turns in the present context upon the advantage a trial judge has in observing the demeanour of witnesses. Turning to the judgment here, there is no reference to the demeanour of witnesses, nor any reliance upon the evidence of the plaintiff's witnesses upon that basis. On the contrary, the judge appears to have had serious reservations about their credibility. He said on p.16 of the judgment:

"None of the witnesses (except perhaps Mr. Fok) did themselves any great credit. All tried to deflect or evade even the most simple questions."

73. Mr Griffiths submitted that the judge made a finding accepting the evidence of Mr Chan and Miss Cheung in the following passage at p.20:

"I am, therefore, satisfied on the balance of probabilities that Miss Cheung and Mr. Chan are right about Miss Chan [i.e. D3] and the other mamasans signing contracts at the end of December 1989."

If the judge indeed by those words made such a finding, of which I am not persuaded, it is clear that he could have only done so upon the flawed basis of the appalling implications of a conspiracy that he perceived and that my Lord has adverted to.

74. Far from having to diverge from any acceptance by the judge of the testimony given on behalf of the plaintiff we are in that respect proceeding upon the dubious view he took of that evidence.

75. For those reasons it seems to me that this Court should not shrink from overturning the finding of fact that D3 signed the written agreement.

Penlington, J.A.:

The claim against the First Defendant

76. The claim brought by the plaintiffs against D1 is that it wrongfully induced D3 to leave her employment with the plaintiffs (Deluxe) to work for D1. To succeed in that claim the plaintiff had to establish that D1 knew D3 was employed by Deluxe on a fixed-term written contract which required her to give three months' notice or such reasonable notice as "the court thinks fit". The court at first instance, Barnett J., having found that there was such a contract in writing which required one month's notice before D3 could leave her employment, also found that D1 did not have actual knowledge of D3's contract with the Deluxe (that had not been pleaded) and had no reason to think that she must be employed on some form of fixed-term contract. It is however the case for Deluxe here that they had readily to hand the means of finding out if that was so or not. They had simply turned a blind-eye to that probability. Reliance is placed by Mr. Griffiths, leading counsel for Deluxe on Merkur Island Corp v. Laughton [1983]2 AC 570, Emerald Construction Ltd v. Lowthian [1966]1 WLR 691 and Greig v. Insole [1978]1 WLR 302. The first two of those cases were trade union disputes. In Merkur Island ships were prevented from sailing with their cargo by strike action and it was held that the trade union concerned being acquainted with the way in which goods were shipped under the terms of a charter-party and bills of lading must have realised that they were preventing the ship charterers from carrying out their primary obligations, even if they would not necessarily suffer loss due to a force majeure clause in the charter. Here, it was argued the D1 and Deluxe were both running very similar hostess night clubs and, with the prevalence of the poaching of the hostesses from one club to another, were well aware of the way the clubs were trying to protect themselves by requiring fixed-term contracts. Emerald Construction was a dispute over a "labour only" contract to which the trade union took strong objection. They did not know of its precise terms but could readily have found out, and even when they did discover the terms, they continued the strike action. Here again it is Deluxe's case that, either by direct inquiry from them or by going to the Federation of Night-club operators, D1 could have found out if D3 had a written contract. In Greig v. Insole Slade J. in a long, meticulous judgment, relied on Emerald Construction for the proposition that if the defendant knew that there was a contract which prohibited an employee from leaving his employment, it was not necessary to prove that he knew the precise terms, provided the plaintiff can show he intended the contract to be broken.

77. Here it is submitted that it was very common indeed in early 1990 for mamasans to be on contracts which prevented them leaving one club and going to another, together with their hostesses. Records were produced of daily reports made by clubs of employees who had left them and these reports were circulated to the other members. Many of the employees are said to be on fixed contract terms. It had been the case for D1 before Barnett J. that they would have had to be "almost certain" that D3 was under a fixed-term contract before they could be liable and that was accepted. For Deluxe its leading counsel Mr. Griffiths Q.C. says that test is wrong; it puts too heavy a burden on a plaintiff.

78. I am satisfied that Barnett J. was right to find that D1 could not be fixed with knowledge of D3's contract (assuming for the moment that she did in fact have one) or that they turned a blind eye. There would have to have been evidence that virtually all the mamasans employed in the industry were on fixed-term contracts in 1990 and that was not the case. It was certainly not uncommon but it was far from universal. Deluxe themselves had only recently, according to Mr. Eddie Chan's own evidence, put their own mamasans onto such contracts. Previously they had paid them large lump sums to ensure their loyalty and because of the close personal relationships built up, did not require contracts until poaching because prevalent again in late 1989. I therefore do not consider that D1 was under a duty to inquire from Deluxe or the Federation as to whether D3 was on a fixed-term contract. I take into account the fact that Mr. Law Cheuk, Managing Director of D1 did not give evidence and an assumption can be more readily made against him but I am satisfied that the grounds of appeal against D1 have not been made out.

The claim against the Second Defendant

79. The claim against D2 is that firstly he went to work for D1 in breach of his contract with Deluxe and, having done so, he solicited Deluxe's customers in breach of clause 12 of that contract, making use in doing so, of confidential information he had acquired while working for Deluxe, i.e. lists of name-cards handed in to mamasans by customers.

80. This claim is based entirely on the validity of a contract of employment between Deluxe and D2 which was to run from 1st October 1989 to 31st September 1990. It contained provisions, clauses 11 and 12, that David Yu could not go to work for another night-club for one year after the termination of the contract and during that period would not solicit any member of Deluxe's staff to work for another club, or solicit any of Deluxe's customers.

81. In March or April 1990 David Yu was asked by Deluxe's manager, Eddie Chan, to go to Macau to manage a karaoke bar there, the Diana. It was a very different style of business to Club Deluxe. There were no hostesses and no mamasans but as a substantial increase in salary was involved David Yu went to work in Macau and he made a success of the Diana bar. However in September 1990 he resigned and the first issue was whether he was then bound by the restrictive covenants in his contract or whether, as held by Barnett J., the whole of that contract had been abrogated by his taking the new job in Macau. Reliance is placed by Mr. Griffiths in particular on Photo Production v. Securicor Ltd [1980] AC 827where the House of Lords overruled a decision of the Court of Appeal which had found that if there was a fundamental breach of a contract, the party against whom there had been such a breach could not rely on a restrictive clause contained in the contract, the contract had gone and the restrictive clause with it. The House of Lords held that where a person in fundamental breach of a contract the contract nevertheless did not come to an end and reliance could still be placed in a restrictive clause. The basic reason for that, it seems to me from reading the speeches of Lord Wilberforce and Lord Diplock, was that the parties had so agreed and should be held to the agreement. In Photo Productions the defendant's employee, a watchman, negligently lit a fire in the plaintiffs' factory which destroyed it. That constituted a fundamental breach of the contract but there was a restrictive clause whereby the defendant was not liable if the negligent act could not with reasonable diligence have been foreseen. It was held that the clear intention of the parties when entering into the contract was that if there was damage by fire or any other cause or as a result of the negligence of the defendant's employees the restrictive clause should apply and there was no rule of law that it should not.

82. Here the facts are very different. D2 was employed by Deluxe in Hong Kong to manage a hostess style night-club. He was paid a salary of $8,000 plus commission. There was no clear evidence as to who was his employer in Macau, but it was certainly not Deluxe, and he received a straight salary, starting at $26,000 and increasing to $36,000. It was a totally different type of club with very different responsibilities for the senior staff. The Diana bar was in a foreign country, albeit close to Hong Kong, and there were other more minor differences such as holiday entitlement and housing allowance. What is however, very significant is that when D2 left Deluxe to go to the Diana he was paid a month's salary in lieu of notice. As was submitted by Mr. Ronny Wong, leading counsel for D2 here and below, if it was intended that D2 was merely seconded to Diana to get it on its feet, there would be no need to pay that money. It showed a clear intention on the part of Deluxe that the contract in its entirety should come to an end. That also would seem reasonable. The restrictive covenants were aimed at protecting an employee of Deluxe from poaching its hostesses or customers. If the employee however left the Deluxe and went to work outside Hong Kong for a club which did not employ hostesses and had totally different customers the restrictions were not required. There was undoubtedly in the minds of both Eddie Chan and D2 the thought that D2 might eventually come back to Deluxe after launching the Diana but it was no more than that.

83. I am satisfied that Barnett J. was quite right to come to the conclusion that the contract between Deluxe and D2 was totally abrogated by his going to Diana and the restrictive clauses went with it. As a result there can be no claim against him for luring away D3, his wife, from Deluxe or for his sending out a circular to his old Deluxe customers. In that regard I also do not consider that the name cards which had been left at Deluxe by customers were confidential information. Deluxe used the cards to prepare computer lists of customers and their addresses - but not telephone numbers. Those lists may be confidential but D2 did not use them. The cards were returned to individual mamasans and even though the mamasans were employees there was evidence that they took their cards with them when they changed jobs - a not infrequent occurrence. I am also satisfied that in any event there was no evidence of D2 inducing his wife D3 to unlawfully break her contract - whether it be the written contract or not - which could found the claim in tort brought against D2.

The claim against D3 and D3's cross-appeal

84. Turning finally to the claim against D3, this was based on the validity of a document purporting to be a written contract, dated 1st January 1990, for employment with Deluxe for two years. It was the case for Deluxe that it was signed one evening in late 1989, together with similar contracts with the other Deluxe mamasans. D3 said she never signed such a document.

85. Barnett J. found that the contract was genuine but even so all D3 had to do was to give Deluxe one month's notice of termination. That she had however failed to do. He rejected, and in my view rightly, Deluxe's claim for $1.7 million being what D3 would have earned for Deluxe over the period of the unexpired part of her contract giving allowance for what was earned by her replacement, Miss Judy Pong, a much less experienced mamasan.

86. Barnett J. therefore awarded Deluxe the sum of $28,354.40 being one month's salary but he set off against that an equal amount to come from bonus and other payments which were due to her. He refused to give her judgment for the balance of the hours as he considered she had broken her contract and had made unwarranted allegations against Deluxe in relation to the written contract. Here it is not contended for Deluxe that he was right not to award D3 her bonus and other payments, based on the other findings of fact he had come to.

87. I share with Litton J.A. the reluctance to interfere with a trial judge's finding of fact and Barnett J. has considered all the relevant evidence fully and carefully. As Mr. Griffiths points out he was addressed, as we have been, by leading counsel who put to him all the points which have been addressed to us. Mr. Griffiths emphasises that much depended on the veracity of D3 and we have not heard her; Barnett J. did. I have considered the principles so clearly and helpfully set out by Fuad, V.P. in the Hong Kong Bank v. Chan Yin-wah. Here however I have come to the view that Barnett J. did not approach the matter on the correct basis as to where the onus lay in considering the authenticity of the contract. It was submitted to him that he should base his decision on the legal maxim that the contract should be presumed to be authentic unless it was shown, on a balance of probabilities to be false and, although he does not specifically say so, he seems to have done so. I agree with Mr. Griffiths that we should not examine a judgment as if it was a statute but there are some words in it as set out in the judgment of Litton, J.A. which indicate that he considered there was a substantial burden on D3 to prove that the document was not genuine. Barnett J. was not referred to the decision, relied on here by Mr. Wong, of Devine v. Wilson which while now some 150 years old is good authority that there is an onus on a party tending a document, which is challenged as being a forgery, to prove it is in fact genuine. I will not go into all that evidence which is fully set out in the judgment of Litton J.A. I am however satisfied that on the evidence before him had Barnett J. realised where the onus lay in relation to the document he would have come to a different conclusion. That being so I consider that we can come to a finding that Deluxe have not proved the authenticity of the written contract and that D3's cross appeal should be allowed. I agree with the orders proposed by Litton J.A. as a consequence of that.

88. The appeal therefore in respect of each of the respondents is dismissed. The 3rd respondent's cross-appeal is allowed. The judgment for $28,354.40 is set aside. There will be the judgment for the 3rd respondent against the plaintiff in the sum of $165,224.40 plus interest at the prime rate plus 1% from 9 January 1991 to today.

Costs

89. We order that the order for costs made against the 3rd respondent in the court below be set aside and further that the whole of the costs below is to be paid by the appellant, insofar as the costs have not already been so ordered.

The 1st respondent and the 2nd and 3rd respondents to have the costs of the appeal and cross-appeal.