TRIJUMP LTD v. CHOI WAI KI

HCA1898/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1898 OF 2005

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BETWEEN

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J U D G M E N T

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A.  INTRODUCTION

A.1.  The parties

1.  The plaintiff is a private company engaged in the trade of liquefied petroleum gas (“LPG”). It is a family business run by the Laus. Mr Lau Yan Yuen and his wife, Madam Yeung Sau Sheung (“Madam Yeung”), are directors. Madam Yeung is also the general manager who makes all the important decisions for the plaintiff. Their son, Mr Gordon Lau Kwo (“Mr Lau”), is the deputy general manager responsible for the plaintiff’s daily operation. Ms Ma Wei Na (“Ms Ma”), Madam Yeung’s niece, is the administration clerk. She takes care of the office administration, filing of documents, accounting and personnel matters.

2.  The defendant used to work as senior marketing manager for Parrie Petroleum Company Limited (“Parrie”), an associated company of the plaintiff, which also traded in LPG. The plaintiff took over Parrie’s business around the end of 2000. Thereafter, the defendant became its senior marketing manager in January 2001. (The parties disputed as to the exact terms of his employment, which I will return in a moment.) On 14 February 2005, he resigned with immediate effect by giving one month’s salary in lieu of notice less holiday pay and annual leave pay, totalling HK$12,000.

A.2.  Disputes with Iwatani

3.  The plaintiff sourced LPG from countries in South East Asia. It then supplied the LPG to its clients in the Mainland, including Shenzhen Iwatani LPG Company Limited (“Iwatani”). In fact, the plaintiff was Iwatani’s major supplier, having entered into 98 supply contracts for some 180 million metric tonnes of LPG amounting to nearly US$60 million between April 2001 and January 2005.

4.  On 31 December 2004, the plaintiff entered into a supply contract with Iwatani for the sale of 1,750 tonnes of LPG (“the 1^st Contract”). The actual amount delivered was 1,764.76 tonnes with the price of US$811,789.60.

5.  On 7 January 2005, the plaintiff entered into another supply contract with Iwatani for the sale of 2,500 tonnes of LPG (“the 2^nd Contract”). The actual amount delivered was 2,484.565 tonnes with the price of US$1,078,301.21.

6.  Disputes between the plaintiff and Iwatani under the 1^st and 2^nd Contracts subsequently arose. In April 2005, the plaintiff commenced arbitration proceedings in Shenzhen against Iwatani for the price under the two Contracts (“the Arbitration Proceedings”).

A.3.  Disputed documents

7.  In the Arbitration Proceedings, Iwatani alleged that the 1^st and 2^nd Contracts were agreed to be used solely for the PRC customs clearance purposes; that Iwatani was merely acting as a storage agent of the LPG in question which was in fact sold and delivered to Shenzhen D&B Gas Co. Ltd (“D&B”), another company registered in Shenzhen. Iwatani adduced the following documents in support (“the Disputed Documents” collectively) :

(1)  Two storage contracts purportedly entered into by the plaintiff and Iwatani dated 31 December 2004 and 7 January 2005 (“the 1^st and 2^nd Storage Contracts”).

(2)  An authorization letter of cargo release purportedly issued by the plaintiff dated 7 January 2005 (“the Letter of Cargo Release”), authorizing Iwatani to release the LPG to D&B.

(3)  An authorization letter of payment purportedly issued by the plaintiff also dated 7 January 2005 (“the Letter of Payment Collection”), authorizing Iwatani to collect payment of the sale proceeds from D&B on its behalf.

(4)  A LPG sales agency agreement purportedly made by the plaintiff and D&B dated 7 January 2005 (“the Sales Agency Contract”) whereby D&B agreed to sell the LPG for the plaintiff and charged a 5% of the price as fees.

8.  The Disputed Documents were all signed by the defendant purportedly on behalf of the plaintiff and affixed with the plaintiff’s company chop.

9.  It is the plaintiff’s case that it had never authorized the defendant to sign the Disputed Documents; that the company chop affixed on them was forged; and that it only became aware of the Disputed Documents for the first time during the Arbitration Proceedings.

A.4.  Claim against Iwatani failed

10.  In the end, the arbitral tribunal found in effect that the defendant had ostensible authority to sign the Disputed Documents on behalf of the plaintiff; and that whether the defendant had in fact been authorized to sign them was “an internal dispute” within the plaintiff, which did not affect Iwatani. The plaintiff’s claim against Iwatani consequently failed.

A.5.  Claim by Iwatani

11.  Separately, Iwatani issued legal proceedings in Shenzhen for the storage fees under the 1^st and 2^nd Storage Contracts in the sum of RMB366,866.28 but the matter had been kept in abeyance since then.

B.  THE PRESENT ACTION

12.  On 27 September 2005, the plaintiff commenced the present action against the defendant.

B.1.  The plaintiff’s claims

13.  Originally, the plaintiff raised various causes of action in its pleadings. However, what remained outstanding at trial were two only.

14.  First, the defendant had, in breach of his written employment contract dated 1 January 2001, failed to give 3 months’ salary in lieu of notice. The plaintiff claimed for the balance of the 2 months’ wages in lieu in the sum of HK$36,000 x 2 = HK$72,000.

15.  Second, the defendant had in breach of his fiduciary duties signed the Disputed Documents without authority and affixed a forged company chop on them. As a result, the plaintiff had suffered loss and damage represented by the loss of the price under the 1^st and 2^nd Contracts.

B.2.  The defendant’s defence

16.  The defendant first pleaded that there was no formal written employment contract between the parties. Only one month’s notice for resignation was required.

17.  The defendant next pleaded that he had been duly authorized by Mr Lau to sign the Disputed Documents on behalf of the plaintiff. He did not affix the company chop on the Disputed Documents, which was done by the plaintiff after he signed them.

B.3.  The main issues

18.  The main issues arising from the parties’ case are factual :

(1)  Whether the parties had entered into a written employment contract which provided for a 3 months’ notice period (“Issue 1”); and

(2)  whether Mr Lau had authorized the defendant to sign the Disputed Documents on behalf of the plaintiff (“Issue 2”).

C.  WITNESSES AND EXPERTS

19.  The main issues are dependent on the credibility of the factual witnesses called by the parties. On behalf of the plaintiff, they were Mr Lau, Madam Yeung and Ms Ma. The defendant gave evidence but called no one else. As will become apparent below, I find all the plaintiff’s witnesses honest and credible. I accept their evidence in full. I find the defendant a poor and unreliable witness. I reject his evidence and in case of conflicts, prefer the evidence of the plaintiff’s witnesses to his.

20.  As noted, the parties disputed if the plaintiff’s company chop on the Disputed Documents was authentic or forged. That issue can only be resolved by expert evidence. At the outset of the trial, I observed that whether the chop was authentic or forged did not really have any significant or meaningful bearing on the outcome of Issue 2. After taking instructions, Mr Lam, counsel for the plaintiff, decided not to call its expert. Mr Wong, counsel for the defendant, followed suit.

21.  I now turn to examine the evidence pertaining to Issue 1.

D.  ISSUE 1—WAS THERE ANY WRITTEN EMPLOYMENT CONTRACT PROVIDING FOR A 3 MONTHS’ NOTICE PERIOD?

D.1.  The plaintiff’s evidence

22.  Mr Lau’s evidence is this.

23.  The defendant had been continuously working for Parrie as senior marketing manager since 1 November 1996. His employment contract with Parrie expressly provided for a 3 months’ notice period. When the plaintiff took over Parrie’s business, the defendant’s continued to work for the plaintiff as senior marketing manager. He told the defendant that all the conditions of employment with the plaintiff would be just the same as before except that his salary would be increased. He then asked the defendant to prepare the employment contract based on the old one with Parrie, which he did. The parties then signed on the new employment contract. The original of the new employment contract was kept in the plaintiff’s files but was removed by the defendant without the plaintiff’s knowledge or consent on 14 February 2005 when he returned to the office to tender his resignation.

24.  Ms Ma confirmed that she had not prepared the defendant’s employment contract.

D.2.  The defendant’s evidence

25.  The defendant’s evidence is that after Parries closed its business in 2000, he was not officially employed by any company for a period of time. He helped several companies controlled by Madam Yeung including the plaintiff. It was not until January 2001 when his salary was paid by the plaintiff that he became its employee officially. The parties had not entered into any formal employment contract. Nor had the parties mentioned the conditions of employment in detail, although he accepted that he did have a discussion with Mr Lau. His employment was only meant to be a temporary arrangement. He had not prepared, signed or removed the employment contract as alleged.

D.3.  Discussion

26.  On balance, I find Mr Lau’s version more credible.

27.  The defendant used to work for Parrie, a company associated with the plaintiff and according to him controlled by Madam Yeung. Then in early 2001 he began to work for the plaintiff, another company controlled by Madam Yeung, with substantially similar duties as those at Parrie. Against that backdrop, it is reasonable and makes much commercial sense for Mr Lau to tell him that the conditions of his employment with the plaintiff would be the same as before, which must include the 3 months’ notice of termination. Mr Lau stressed and I accept that for somebody in the defendant’s position, such notice period is required. The defendant also accepted under cross-examination that a 3 months’ notice period was a reasonable protection for Parrie. The same must hold true for the plaintiff as well. It is also reasonable for Mr Lau to ask the defendant to prepare the employment contract based on the old one with Parrie.

28.  Under cross-examination, Mr Lau accepted that the plaintiff did not make any claim for balance of wages in lieu of notice in any of the letters before action. He explained that the plaintiff was then concerned about the more substantial claims based on the Disputed Documents. I accept his explanation and will not draw any adverse inference against his credibility from the omission in the letters of action.

29.  On the other hand, I have difficulty in accepting the defendant’s case. To engage him as a senior marketing manager temporarily with no concrete terms of employment defies commercial sense. It is inexplicably inconsistent with the past practice at Parrie. It lasted for some 4 years, which showed that it was not a temporary arrangement after all. The defendant claimed that when the plaintiff took over Parrie’s business, the parties did not pay much attention to the terms of his employment. He agreed that Mr Lau did have a discussion with him but only talked about salary and nothing else. If Mr Lau had discussed with him about salary, surely he must have also discussed with the defendant about other terms, including the notice period, a reasonable and important protection for the plaintiff.

D.4.  Findings

30.  For the above reasons, I find that the plaintiff and the defendant did enter into the written employment contract dated 1 January 2001 with a 3 months’ notice of termination; that the contract was prepared by him but he removed it from the plaintiff’s files on 14 February 2005.

D.5.  Quantum

31.  An employee may terminate his employment by giving the requisite notice as stipulated in the employment contract or wages in lieu. If he fails to do that, he is liable to pay his employer damages equivalent to the wages in lieu of notice : see section 8A(1) of the Employment Ordinance, Cap. 57. When the defendant resigned with immediate effect on 14 February 2005, he should pay 3 months’ wages in lieu of notice. But he had only paid one. He is liable for the balance, that is, HK$36,000 (his last monthly wage) x 2 = HK$72,000.

32.  I now come to Issue 2.

E.  ISSUE 2—WAS THE DEFENDANT AUTHORIZED TO SIGN THE DISPUTED DOCUMENTS?

E.1.  The plaintiff’s evidence

33.  In his first witness statement, Mr Lau first said :

“4.  At all material times prior to the Defendant’s purported resignation from Trijump on 14 February 2005, there were 5 people working in Trijump’s office, namely, my mother being the director, myself being the deputy general manager, the Defendant being the senior marketing manager, [Ms Ma] being the administration clerk, and a part-time cleaner.  Save for the Defendant, the other 4 people continue to work for Trijump as at the date of this Statement.

5.  These 4 people, apart from the cleaner, had different operational duties at Trijump, namely :

(1)  In general, my mother was and is still responsible for the final decisions on important business matters of Trijump.  However, she delegated her powers to me on daily operational matters.

(2)  I was and am still responsible for the daily operation of Trijump’s business, including negotiating and concluding LPG contracts with third parties.  I also gave instructions or directions to the other employees of Trijump, namely, the Defendant and Ms Ma, to follow up the LPG contracts after the same were concluded, including the preparation of the documentation, arrangements for the shipments, issuing invoices to purchasers, etc.

(3)  The Defendant was responsible for co-ordination work, including client communication, preparation of the necessary documentation, arrangements for the shipments and issuing invoices to purchasers, after I had concluded an LPG contracts with a client.

(4)  However, I need to emphasise that neither the directors (i.e. my father and mother) nor I gave the Defendant any authority to act for Trijump to conclude, of his own initiative, any LPG contracts for or on behalf of Trijump.  Before he signed any LPG contracts for and on behalf of Trijump, either I or, sometimes, my mother, would have given the Defendant specific instructions or directions on the contractual terms which Trijump would offer or accept.  On contractual matters, the function and authority of the Defendant were limited to executing instructions or directions given to him by my mother or myself.

(5)  Ms Ma was and is still mainly responsible for the office administration work, including filing of documents, accounting and personnel matters.  She also acted as the assistant to the Defendant and myself in LPG sales and purchase transactions, principally to do the follow-up work to ensure that there would not be any delay in the shipments or payments of the LPG.

…”

34.  He then went on to describe the usual practice in dealing with Iwatani thus :

“10.  Trijump’s usual practice and procedure in relation to these transactions [with Iwatani] were as follows :

(1)  I was responsible for negotiating with Iwatani the key terms of the supply contracts, including the price, the port of discharge of the LPG, shipment dates, etc.  Usually these were negotiated with one 王琪 (Mr Wang Qi) (the current General Manager of Iwatani) or one 黃超(Mr Huang Chao).  Other standard terms were similar for each transaction and mutually understood as pre-agreed.

(2)  I would then ask either Ms Ma, or sometimes, the Defendant, to prepare the ‘primary version’ of the LPG contracts on the basis of the discussions between myself and Iwatani.  The ‘primary version’ contracts would be drafted on Trijump’s computers at the office.  When these were ready, I would sign them for and on behalf of Trijump.  The documents would then be faxed to Iwatani for their consideration.

(3)  If北澤理史 (Mr Satoshi Kitazawa) (the then General Manager of Iwatani) or Mr Wang Qi (current General Manager of Iwatani) (and occasionally by Mr Huang Chao) agreed to the terms of the ‘primary version’ contracts, they would counter-sign the faxed copy of the contracts, and then return the counter-signed contracts to Trijump by fax again.  Trijump would regard the receipt of the fax copy of the counter-signed contracts as binding agreements between the parties.

(4)  There would then be another version of contracts for customs declaration purpose, which I shall refer as ‘customs version’ contracts.  When the LPG was loaded onto the LPG pressuried vessels, Trijump would receive the relevant shipment documents (including the bills of lading, certificate of quantity, certificate of quality and certificate of origin) through fax.  After the shipments arrived at the port of discharge, then Trijump would then begin preparing the ‘customs version’ contracts and invoices.  They were prepared based on Iwatani’s requirements because :

(a)  An accurate quantity would be required for the customs declaration purposes in China by Iwatani, but the actual quantity could only be ascertained after the shipments were loaded;

(b)  In some ‘primary version’ contracts, the price of the LPG was determined according to an agreed formula, and could only be ascertained at certain pre-agreed dates, for example, when the shipments departed or arrived at the port of loading or discharge.

(5)  After Trijump received notification from the inspection agent at the port of loading on the quantity of the goods loaded and the shipment arrived at the port of discharge, Trijump would apply the agreed unit price or formula (if applicable) under the ‘primary version’ contracts and the actual quantity of LPG loaded onto the ships to arrive at a total price for the LPG sold in each shipment.

(6)  When the ‘customs version’ contracts and invoices were ready, Trijump would send them to Iwatani by fax, followed by courier (with 7 originals).  Upon confirmation by Iwatani, Iwatani would counter-sign the fax copy of the ‘customs version’ contracts and return the same to Trijump by fax.

(7)  Accordingly, Trijump would not retain originals of the ‘primary version’ contracts or the ‘customs version’ contracts bearing the original chops and signatures of both Trijump and Iwatani.  Trijump has only fax copies of these contracts received from Iwatani through the fax machine.”

35.  As to how the plaintiff entered into the 1^st and 2^nd Supply Contracts, Mr Lau said :

“11.  On 31 December 2004, Trijump entered into a Supply Contract with Iwatani for the sale of 1,750 tonnes of LPG, namely, contract numbered S2004/LPG/1201 (‘First Contract’).  The ‘primary versions’ of the First Contract (the ‘First Contract (Primary Version)’) was negotiated and executed by me, and in accordance with the usual practice of Trijump described above, a fax copy of the contract signed by both parties—namely Trijump and Iwatani—was filed in Trijump’s files.

12.  Under the First Contract, the cargo was delivered per vessel M.V. ‘Koeta’ with Bills of Lading dated 13 January 2005 for a total quantity of 1,764.760 metric tonnes and an invoice amount of US$811,789.60.  That payment was due on 14 February 2005.

13.  On 7 January 2005, Trijump entered into another Supply Contract with Iwatani for the sale of 2,500 tonnes of LPG, namely contract number S2005/LPG/102(‘Second Contract’).  The ‘primary version’ of the Second Contract (the ‘Second Contract (Primary Version)’) was orally negotiated also by me, but was executed by the Defendant upon my express instructions as both my mother and I were not in the office on 7 January 2005.

14.  Again, in accordance with the usual practice of Trijump, a faxed copy of the Second Contract (Primary Version) signed by both parties was filed in Trijump’s files.  Under the Second Contract, the cargo was delivered per vessel M.V. ‘Lady Kira’ with Bills of Lading dated 25 January 2005 for a total quantity of 2,484.565 metric tonnes and invoice of US$1,078,301.21.  That payment was due on 25 February 2005.

15.  On 19 January 2005, Trijump sent the ‘customs version’ of the First Contract (the ‘First Contract (Customs Version)’) to Iwatani by fax and by courier in the manner as described above.  On 19 January 2005, Trijump received the countersigned First Contract (Customs Version) from Iwatani by fax.

16.  On 24 January 2005, the Defendant applied for annual leave for the period starting from 14 February to 21 February 2005.  I approved the application.

17.  On 31 January 2005, Trijump sent the ‘customs version’ of the Second Contract (the ‘Second Contract (Customs Version’) to Iwatani by fax and by courier in the manner as described above.  On 3 February 2005, Trijump received the countersigned Second Contract (Customs Version) from Iwatani by fax.

18.  Trijump duly delivered the LPG shipments to Iwatani at Shekou, China under the First and Second Contracts on 19 and 31 January 2005 respectively.

19.  Under the First and Second Contracts, payment was due from Iwatani, on 14 and 23 February 2005 respectively, in the total sum of US$1,890,090.81.  However, notwithstanding the due dates, Iwatani failed and/or refused to make payment.”

36.  Mr Lau referred to the disputes with Iwatani :

“20.  Mr Chen Hai Song Michael (‘Michael Chen’) was the deputy general manger of Iwatani, and a 45% shareholder of C.J.H. Investment Company Limited, which was at all material times the 50% shareholder of Iwatani.  On or around 12 or 13 February 2005, and the morning of 14 February 2005, Michael Chen telephoned me and requested to have a meeting with me in Shenzhen, China on 14 February 2005, purportedly to discuss business deals between Trijump and Iwatani.  I agreed to meet him in a hotel situated in Shenzhen by the name of Shanghai Hotel (by transliteration) on the afternoon of 14 February 2005.

21.  On 14 February 2005, which is the first business day after the Chinese New Year holiday, my mother and I went back to Trijump’s office to start work.  At or about 4:00 pm, the Defendant went back to the office of Trijump.  He was supposed to be on the first day of his annual leave.  I was there at that time, but about to leave for Shenzhen to meet Michael Chen.  I asked the Defendant why he came back to office since he was on annual leave.  He only replied that he came back to follow up some outstanding shipments.  As I was in a hurry leaving for the meeting in Shenzhen, I did not pursue the conversation any further.

22.  I arrived at the coffee shop of the Shanghai Hotel at or about 4:30 pm to 4:45 pm.  In addition to Michael Chen, Chen Jing Song Jacky (‘Jacky Chen’), the legal representative of Iwatani, was already sitting with Michael Chen there joining the meeting.  Jacky Chen and Michael Chen (‘the Chens’) are brothers.  The following then happened :

(1)  The Chens alleged that my mother was indebted to the Chen’s father in the sum of HK$15 million;

(2)  The Chens then showed to me copies of documents belonging to Trijump and documents belonging to my mother.  These documents were accounting records and bank statements of Trijump from 2001 to 2004, audit reports and bank statements of Parrie kept by my mother (collectively the ‘Confidential Information’).  The Chens threatened that unless the sum of HK$15 million was repaid within 48 hours, they would disclose the Confidential Information to third parties to the detriment of Trijump and my family, and that Trijump would not be able to continue its business, and I would not be able to go to mainland China and could not live in Hong Kong, but could only go back to Canada.

(3)  The Chens also said that they would not make payment of US$1,890,090.81 for the 2 cargoes of LPG under the First and Second Contracts.

23.  During the course of the above meeting, I received a call on my mobile phone from my mother.  She told me over the phone that the Defendant suddenly submitted his resignation with immediate effect.

24.  I told the Chens and I had to consult with my mother in respect of their claim.  The Chens requested us to revert to them within 48 hours.  I then left Shenzhen for Hong Kong immediately after the meeting in that evening.”

37.  Mr Lau dealt with the search of documents that took place thereafter :

“25.  On 15 February 2005, when my mother and I went back to the office, we discovered that the original fax copy, together with further copies, of the executed First Contract and Second Contract, which used to be kept in Trijump’s incoming fax files, customer files and shipment files were missing from Trijump’s offices.  The original of the employment contract between the Defendant and Trijump was also found missing.

26.  As a result, my mother and I tried to contact the Defendant on his mobile phone number, but could not reach him.

27.  Later on the same day I accompanied my mother to Tsuen Wan Police Station to make a report on the missing property.

28.  On 16 February 2005, Ms Ma returned to work from holiday, and I asked her to try to locate the original fax copy, together with further copies, of the executed First Contract and Second Contract (both Primary and Customs Versions), as well as the employment contract between the Defendant and Trijump.  After conducting a search of the office, Ms Ma could not find any of the documents either.”

38.  Mr Lau referred to the Arbitration Proceedings and the Disputed Documents as summarized in Parts A.2 to A.4 above. He confirmed :

“39.  Prior to the disclosure of the documents stated in paragraphs 35 and 37 above in the CIETAC proceedings, my mother and I had no knowledge whatsoever of such documents, and/or agreements and neither of us had authorized the Defendant, or any other person, to cause any chop bearing the company of Trijump to be manufactured and used, or to execute the same in the name of Trijump.”

39.  Finally, Mr Lau dealt with the company chop on the Disputed Documents and explained why it was forged. But since that issue is no longer relevant, I will just leave his evidence as it is.

40.  Madam Yeung’s evidence did not add much to what Mr Lau had already said.

41.  Ms Ma said in her witness statement :

“The First Contract

4.  On 31 December 2004, when Trijump and Iwatani (Iwatani) entered into the 1^st contract, I was on leave.

5.  On 19 January 2005, after the LPG under the First Contract was unloaded at the harbour, I started preparing the ‘customs version’ of the First Contract (‘First Contract (Customs Version)’).  At this juncture, I should explain what is meant by a ‘customs version’ of a sales contract of Trijump :

(1)  It has always been the practice of dealings between Trijump and customers (including Iwatani) that Trijump and the customers would sign what will now be referred to as the ‘primary version’ of the contract, which would contain all of the basic and essential agreed terms and conditions.

(2)  However, very often, since the LPG can only be ascertained with its quantity and price after being delivered onto the cargo, or such price that has been agreed between the parties was calculated by an equation according to the price of LPG at a specific date, as such the final quantity and price of LPG to be delivered could not be ascertained.  Under such circumstances, at the delivery stage, Trijump would prepare a ‘customs version’ of the contract which would show the quantity and total price for such quantity.  It is this version which is presented to Iwatani from Trijump according to Iwatani’s instructions to facilitate them to pass onto the relevant Chinese customs authorities for customs clearance, since the Chinese customs authorities require precise quantities and value of goods.

6.  On 19 January 2005, after I finished preparing the First Contract (Customs Version) and the relevant invoices, I faxed the contract and invoices to Iwatani, and immediately arranged for the courier of a set of 7 original contracts (with Trijump’s signature and sealed) and the invoices, to Iwatani.

7.  On 19 January 2005, I received, from Iwatani by fax, a signed and sealed version (that is, now signed by both parties and sealed) of the First Contract (Customs Version).

8.  Accordingly, in compliance with Trijump’s usual practice, I took that counter-signed and sealed First Contract (Customs Version) and made 2 photocopies.  Afterwards, I took the original fax and filed it in ‘incoming fax’ file, 1 photocopy in the ‘business contract’ file, and the other photocopy, after [Mr Lau] and the Defendant perused it, was placed in the ‘Iwatani—client’ file.

The Second Contract

9.  On 7 January 2005, I was in Trijump’s office when the fax machine received a copy of the Second Contract (primary version) signed by both Trijump and Iwatani.

10.  Accordingly, as usual, I immediately took the Second Contract (primary version) and made 2 photocopies.  I also took the original fax and filed it in the ‘incoming fax’ file, and filed 1 of the copies in the ‘business contract’ file, and the last copy, after being perused by [Mr Lau] and the Defendant, in the ‘Iwatani—client’ file.

11.  On 31 January 2005, after the LPG shipment under the Second Contract was discharged from the ship, after I prepared the Second Contract (Customs Version) and invoices, I took the Second Contract (Customs Version) and invoices (after the Defendant had signed and sealed with the company seal) and faxed them to Iwatani, and also immediately arranged for courier of a set of 7 original contracts of the above to Iwatani.

12.  On 3 February 2005, I received form Trijump’s fax machine a copy of the Second Contract (Customs Version), signed and sealed by Iwatani (that is, now signed and sealed by both parties).  As usual, I took this Second Contract (Customs Version) and made 2 photocopies.  I thereafter took the original fax and filed it in the ‘incoming fax’ file, and filed 1 of the copies in the ‘business contract’ file, and the last copy, after being perused by [Mr Lau] and the Defendant, in the ‘Iwatani—client’ file.

13.  On 4 February 2005, which was the last working day before the Lunar New Year holidays, I took out the ‘business contracts’ file and saw the First and Second Contracts (primary and customs versions) were still filed inside.  I can even clearly remember those 2 contracts were still inside that file, the reason being it was because that day was a Friday, and I was preparing to go to Mainland China to visit my relatives for about 10 days.  Because this was a long holiday, accordingly, before my holiday, I checked that file to confirm that the company had received the counter-signed First and Second Contracts (primary and customs versions), and had already sent Iwatani our company invoices.

14.  On 16 February 2005, which was my first day of work after my Lunar New Year holiday, the 2^nd Plaintiff and [Mr Lau] instructed me to search for the First and Second Contracts (both primary and customs versions) and the Defendant’s employment contract with Trijump.  I looked inside the ‘incoming fax’ files, ‘business contract’ files, ‘Iwatani—client’ files and the relative company personnel files, and also the whole office, but I still had no way of locating the relevant contracts and employment contract.”

E.2.  The defendant’s evidence

42.  The defendant had this to say in his witness statement :

“13.  In end of 2004, I negotiated the purchase of LPG cargos with Thailand suppliers as usual.  The Thailand supplier offered to sell two shipments of cargoes to Trijump and shipment was arranged.  Therefore I sought instructions from [Mr Lau], who after consideration, decided to make such purchase of these two shipments of cargos.  The purchase contract was signed by him.  Although Trijump had not yet found any buyer at that moment, since it was the end of the year, and in general the price of LPG would rise before the Chinese New Year, therefore [Mr Lau] negotiated with Iwatani first hoping to sell the two shipments of cargos to Iwatani.  Iwatani later replied that it had sufficient LPG and did not intend to purchase these two shipments of LPG cargoes from Trijump.

14.  Trijump were unable to find any buyer while the shipment dates were drawing near.  Therefore [Mr Lau] had another negotiation with Iwatani.  I was later informed of the suggestion of Iwatani that it could temporarily store the LPG for Trijump so that Trijump would have more time to look for a buyer.  On or about 31^st December 2004, Iwatani eventually agreed to store LPG for Trijump after several further negotiations between [Mr Lau] and Iwatani.  [Mr Lau] and Iwatani negotiated the arrangement and discussed the details.  [Mr Lau] then asked me to follow up the relevant contents and verify the shipments.  If there was no problem, I was asked to sign on behalf of Trijump the storage contract (ref: S2004/LPG/1201 Sup A).  The storage contract was passed to Ms Ma for following up and filing after the same was signed by both parties.  According to my re-collection, the storage contract was not impressed with the chop of Trijump when I signed the storage contract.  I believe that the company would impress the chop later and (the contract) would be passed to Mainland china for processing.

15.  Since Trijump could not import LPG into Mainland China solely by relying on a storage contract, a supply contract had to be signed solely for the purpose of customs clearance.  Such arrangement was clearly specified in the storage contract.  Therefore after the signing of the storage contract, I drafted a supply contract in accordance with the contents (of the storage contract) for the purpose of customs clearance.  Such supply contract was passed to [Mr Lau] for his signing.

16.  On or about 13^th January, the Thailand supplier informed Trijump of the cargo quantity and other details, claiming that the first shipment was already loaded.  After I received the relevant loading documents, I verified, corrected and amended the price and quantity of loaded cargos etc. on the first draft supply contract in accordance with the information on the loading documents, and signed the amended formal supply contract on behalf of Trijump.  As mentioned above, such formal supply contract was signed by Trijump and Iwatani solely for the purpose of customs clearance.  The formal supply contract was later returned to Ms Ma for following up and filing with reference number S2004/LPG/1201.  To the best of my recollection, the formal supply contract was not impressed with chop of Trijump when I signed it.  In general, the company would pass the documents to the Mainland for processing after the chop was impressed.  I do not know how the documents were handled ultimately.

17.  In early 2005, the second shipment of LPG was ready to be delivered.  [Mr Lau] again inquired with Iwatani whether it would purchase the same.  To the best of my knowledge, Iwatani also replied Trijump that it had sufficient LPG before the Chinese New Year and would not make any further purchase, but was willing to store the same for Trijump in the same arrangement as the first shipment.  Therefore [Mr Lau] instructed me to make similar storage arrangement with Iwatani in accordance with the first shipment so I drafted the second storage contract (Ref No: S2005/LPG/102 Sub A).  Meanwhile, I also drafted the second supply contract for the purpose of customs clearance.  After I signed, on behalf Trijump, the second supply contract and storage contract with Iwatani, I passed the same to Ms Ma for following up and filing.  I believe that the documents were later sent to the Mainland for processing after the chop was impressed.

18.  On or about 25^th January, I received the shipping documents regarding the second shipment.  I, again, verified, corrected and amended the price and quantity etc. on the second draft supply contract in accordance with the information on the loading documents and signed the second amended formal supply contract on behalf of Trijump.  Of course, the second formal supply contract was signed by both parties solely for the purpose of customs clearance.  The second formal supply contract was also passed to Ms Ma for following up and filing, with reference number S2005/LPG/102.  To the best of my recollection, the second formal supply contract was not impressed with the seal of Trijump when I signed the same.  I believe that the documents were later sent to the Mainland for processing after the chop was impressed.

19.  I wish to add that it is fallacious for Trijump to allege in the Statement of Claims that those two supply contracts and their copies had gone missing and accused that I look them away.  It had never been part of my duties to keep and manage the documents of the company.  When they had lost something they accuse me of taking them away, where are the evidence?

20.  Trijump continued to look for buyers after signing the first storage contract.  From my knowledge, Trijump located a company called Shenzhen D&B Gas Company Ltd. (hereinafter called ‘D&B’) through introduction by Iwatani.  D&B was not willing to take the whole log of LPG but only agreed to cooperate by way of consignment and to share the profit.  I also knew that [Mr Lau] ultimately accepted D&B’s arrangement.  After [Mr Lau] negotiated for the details and terms, on or about 7^th January.  [Mr Lau] asked me to prepare a sales agency contract in accordance with the quantity and shipment dates of first and the second storage contracts.  Meanwhile, Iwatani also requested Trijump to provide two documents, namely an authorization letter of cargo release and an authorization letter of payment collection.  After I verified that the contents of these three documents were consistent, I signed the same on behalf of Trijump and handed them over to Ms Ma for handling.  From what I know of, the company would, as usual, send them back to D&B and Iwatani after impressing the chop.  However, I do not know how those documents were handled in fact.

…”

43.  On why he resigned on 14 February 2005, the defendant had this to say :

“22.  During my employment with Trijump, like Parrie HK, Trijump often had business disputes with other companies.  Ms Yeung always instructed me to be benefit-oriented and to evade contractual obligations occasionally.  I felt that Trijump had no wishful future.  After Trijump had signed the sales agency contract with D&B, some problems on money collection arose.  Ms Yeung asked me to think of some ways to rescind the sales agency contract or to find someone to take the blame.  I felt pressurized and pessimistic about my future because I was the one taking all responsibilities when the company made less profits or losses.  Trijump had also tried not to perform the contract and pressed me to think of solutions.  Therefore I had always planned to quit Trijump after receiving the bonus.

23.  On or about 7^th February 2005, Trijump gave me approximately $60,000‑70,000 bonus.  After receiving this sum, I could compensate the company with one month salary upon resigning.  Therefore, I prepared my resignation letter and calculated my leave on the first day after the Chinese New Year holiday (14^th February 2005).  On that morning, I returned to Trijump and submitted my resignation letter with a cheque of $12,000 to Ms Yeung.  She read the letter on sight and received my cheque.  She had no objection to the sum on the cheque.  Thereafter I handed over the company keys to Ms Yeung.”

E.3.  Discussion

44.  The evidence of Mr Lau, Madam Yeung and Ms Ma is all consistent and well supported by contemporaneous documents. They were not shaken under cross-examination. I accept their evidence.

45.  I can see only one minor discrepancy, which relates to the time when the defendant returned to office on 14 February 2005. Both Mr Lau and Madam Yeung said he retuned at about 4 p.m. In the police statement that Madam Yeung gave on 15 February 2005, she said it was about 5:15 p.m. She explained that it was a mistake that she did not spot at the time. I accept her explanation. In any event, the exact time the defendant returned is of little significance. I do not consider such a minor point would affect the overall credibility of Mr Lau or Madam Yeung.

46.  A number of points arose out of the cross-examination of the defendant, which shed considerable doubt on his credibility.

47.  First, he tried to play down his connection with the Chens, who controlled Iwatani.

48.  It is his evidence that he only had a business and distant connection with the Chens. Before he left the plaintiff, he only had a few telephone conversations with the Chens, which related only to shipment dates. After his departure, he only had a few telephone conversations with Mr Michael Chen, by which he hoped to obtain information concerning the Arbitration Proceedings. By two letters dated 24 December 2005 and 5 January 2006, the defendant wrote to Mr Michael Chen and Mr Jackey Chen for assistance and originals of the Disputed Documents.

49.  There is however something more than meets the eyes.

50.  Mr Ng Ge Bun (“Mr Ng”), solicitor, acted for Mr Chen Zirong, the father of the Chens, in connection with the disputes that he had with Madam Yeung : see the letter of Messrs Ng & Lam (“NL”) sent to her dated 24 February 2005. Mr Ng also acted for the defendant in the present action.

51.  The defendant initially acted in person. He said he had prepared his original defence without the assistance of any lawyers. NL filed the notice to act on 16 February 2006. The defendant claimed that he was introduced to Mr Ng of NL by his friends only in January or February 2006. However, as early as 15 June 2005, Mr Ng had already had a conference with the defendant, presumably advising him : see item (A4) at p. 17 of the bills of costs filed by Messrs Tang Lai & Leung, the successor firm of NL. No explanation has been proffered on this discrepancy. Further, the defendant insisted that his friends who introduced him to Mr Ng were not related to the Chens. He said that it was a mere coincidence that his friends would also introduce Mr Ng to him. This is simply unbelievable.

52.  The fact that the Chens and the defendant were engaging the same solicitor, Mr Ng, and that the defendant had to tell such a lie about Mr Ng, in my view, shows inferentially that he had a closer relationship with the Chens than the one that he tried to paint.

53.  Mr Wong asked me not to draw any adverse inference against the defendant’s credibility despite the lie because he and Iwatani stood on the same side for the purpose of the Arbitration Proceedings and the present action. If that is the only reason why he instructed Mr Ng, the defendant needed not lie about it. The only reasonable inference that I can draw is that he wanted to play down his connection with the Chens, who controlled Iwatani.

54.  Second, the true reasons for the defendant’s sudden departure from the plaintiff on 14 February 2005 were doubtful.

55.  It is common ground that Madam Yeung and Mr Lau treated Mr Choi very well during his employment. The defendant accepted that he had a very good relationship with them in the ten years that he had worked with Madam Yeung, initially at Parrie, and then at the plaintiff. Indeed, on 7 February 2005, one week before his resignation, he was paid a discretionary bonus of around HK$70,000. Against that background, one naturally asks why the defendant would decide to resign with immediate effect on 14 February 2005. What was the reason for the rush?

56.  In his witness statement, the defendant gave two main reasons. But none of them withstands a closer scrutiny.

57.  He first said that he was unhappy with the way in which Madam Yeung conducted business and that he felt pressurized. That is wholly inconsistent with the undisputed evidence that he had always maintained a very good relationship with her and Mr Lau for the past ten years. He in fact never raised any complaint with Madam Yeung about these matters until allegedly on the day of his resignation.

58.  The defendant next said that after the plaintiff had signed the Sales Agency Contract with D&B, some problems on money collection arose. However, he accepted under cross-examination that he did not know what had happened after he signed the Disputed Documents. He then changed his story and said that what he meant in his witness statement was that Madam Yeung became concerned that the plaintiff might have difficulties in collecting the money under the Sales Agency Contract. He obviously made it up as he went along.

59.  None of these reasons satisfactorily explained why he had to leave immediately on 14 February 2005. He did not have another job offer. He did not start his own company some 3 months later. He had to pay wages in lieu of notice. He could have stayed on to work out the notice period in full or for a shorter period to allow a replacement to be found, or at least until he found alternative employment. The defendant said that as there were no outstanding contracts at the time, the timing was good for him to leave and he would have felt guilty for being paid without much work to do. But if work pressure was his concern, lesser work at the time would precisely address it.

60.  Under cross‑examination, the defendant gave a completely new reason, which was not raised until then. He said he had seen a doctor towards the end of 2004 for sleeping problems, and he was advised by his doctor to quit because of the “high pressure” of his job. He had planned his departure for some time and had always intended to quit immediately after the Chinese New Year holidays and after collecting his bonus.

61.  The defendant had been unable to explain why he did not mention the above reason in his witness statement. In any event, that purported reason is wholly incredible. If he had been planning since the end of 2004 to leave immediately after the Chinese New Year holidays, it did not make sense for him to apply on 24 January 2005 for six days of annual leave starting on the first day after the Chinese New Year holidays. Further, given his good relationship with Madam Yeung and Mr Lau, he should have discussed this health concerns with them. His explanation was that if he did, Madam Yeung would have insisted him to stay. But if his resignation was for health reasons, it is difficult to see how or why Madam Yeung would have not let him resign.

62.  I note that it was also on 14 February 2005 when the defendant suddenly resigned with immediate effect that the Chens had the meeting with Mr Lau in Shenzhen. I agree with Mr Lam’s submission that it cannot be mere coincidence.

63.  Third, the defendant’s evidence on the signing of the primary version of the 1^st and 2^nd Supply Contracts is wrong.

64.  In his witness statement, he said that the plaintiff would unilaterally sign the draft contracts, that is, the “primary versions” on the plaintiff’s case, and only after shipment would the parties both sign an official contract, that is, the “customs version”. That is flatly contradicted by the numerous examples of previous “primary versions” of supply contracts containing the signatures of both the plaintiff and Iwatani. The defendant had been unable to give a satisfactory explanation.

65.  I accept Mr Lam’s submission that it could not have been an inadvertent mistake on the defendant’s part. He had had nearly ten years of relevant experience. He knew perfectly well what was the correct procedure. He said what he did in his witness statement because the plaintiff is now only in possession of the copy primary version for the 1^st and 2^nd Supply Contracts signed by the plaintiff. Plainly, he said so in order to meet the plaintiff’s case that he had removed the copies signed by both the plaintiff and Iwatani on 14 February 2005.

66.  Fourth, the defendant failed to explain satisfactorily why both the primary and customs versions of the 1^st and 2^nd Contracts were necessary.

67.  If the parties’ true intention were to use the 1^st and 2^nd Contracts purely for the purpose of clearing customs, the custom version above would have sufficed. It was not necessary to prepare and execute the primary version. To meet this difficulty, the defendant alleged for the first time in the box that both the primary and customs versions had to be submitted to the customs in the Mainland. This is plainly something that he made up as he went along.

68.  Fifth, the defendant changed his case on his involvement in the negotiation of the 1^st and 2^nd Storage Contracts.

69.  In paragraph 6 of the original defence, the defendant pleaded that “From end of December 2004 to January 2005, [the 1^st Storage Contract] with ‘Iwatani’ was first negotiated by [him] and [Mr Lau]… drafted by [the plaintiff] and, after approved by Mr Lau, executed by [him].” A similar plea appeared in paragraph 7(6) for the 2^nd Storage Contract. The effect of the pleas is that both Mr Lau and the defendant took part in the negotiations of the two Storage Contracts.

70.  Those pleas are however inconsistent with paragraph 6(iii) of the amended defence which alleged that the two Supply Contracts were negotiated by Mr Lau and then signed by the defendant for the plaintiff. They also contradict what he said in his witness statement : “[Mr Lau] and Iwatani negotiated the arrangement and discussed the details. [Mr Lau] then asked me to follow up the relevant contents and verify the shipments…”. Under cross-examination, the defendant said the negotiations referred to in his witness statement meant the negotiations between him and Mr Lau internally. It simply does not make sense.

71.  Sixth, the defendant’s case on the drafting of the two Storage Contracts was full of inconsistencies.

72.  The defendant admitted he drafted the two Storage Contracts : see paragraph 1(1) of his answer to request for further and better particulars of defence dated 23 March 2006. However, under cross-examination, he denied that he had drafted them. He then alleged for the first time that Mr Lau provided certain floppy discs to him, which allegedly contained all of the clauses and terms of the Storage Contracts and the other Disputed Documents. And Mr Lau asked him to merely format the pre-drafted clauses into the usual format used by the plaintiff. I have no doubt whatsoever that it was but a recent fabrication. Clearly, he made it up in order to distance himself from the fact that the effect of the Disputed Documents were manifestly disadvantageous to the plaintiff.

73.  Seventh, his case on the signing of the two Storage Contracts was unbelievable.

74.  The defendant said Mr Lau signed the 1^st Contract and he signed the 1^st Storage Contract on 31 December 2004. But Mr Lau was in the office all the day. There is no credible reason why Mr Lau would not sign the 1^st Storage Contract as well, when it was the plaintiff’s practice, accepted by the defendant, that if Mr Lau was in the office, he would sign contracts on behalf of the plaintiff. The defendant then explained that Mr Lau asked him to sign the 1^st Storage Contract after he had formatted the terms from the alleged floppy disc that Mr Lau gave him. But that did not explain why Mr Lau would depart from the usual practice of signing contracts on behalf of the plaintiff when he was in office. The defendant went on to say that after signing the 1^st Storage Contract, he proceeded to draft the 1^st Contract which he did not sign. He then gave both the unsigned 1^st Contract and the signed 1^st Storage Contract to Mr Lau for checking. This is nonsense. The defendant was Mr Lau’s subordinate. He should have checked the Contracts before handing them over to Mr Lau. If he was going to hand over the 1^st Contract to Mr Lau for signature together with the 1^st Storage Contract, it does not make sense for Mr Lau to ask him to sign on the 1^st Storage Contract first. Mr Lau could have signed both.

75.  Eighth, there is tremendous difficulty in the defendant’s evidence on the affixing of the chops on the Disputed Documents.

76.  The plaintiff’s general practice was to sign on a document after affixing the company chop for signature. As Ms Ma explained, the design of the signature chop made it quite difficult to affix the chop around the signature as the signature had to be in the middle space of the chop. Hence the general practice. However, the defendant alleged that for the Disputed Documents, he signed all of them first before passing them on to Ms Ma for further handling. That is unconvincing because Ms Ma was in the office on 7 January 2005, when according to the defendant, the Disputed Documents (other than the 1^st Storage Contract) were allegedly signed. The defendant was unable to explain why he did not ask Ms Ma to affix the chop first before signing, which was most convenient.

77.  The defendant is demonstrably a poor and dishonest witness. I have no hesitation in rejecting his evidence at all.

78.  The defendant’s case is also rejected because it is inherently impossible.

79.  The Disputed Documents were most disadvantageous to the plaintiff. Indeed, the defendant said he also found the two Storage Contracts “unusual”, although he later retracted by alleging again for the first time and without any evidence in support that the plaintiff had entered into a similar storage arrangement in the past. The purported transactions effected by the Disputed Documents deprived the plaintiff of all its entitlements under the 1^st and 2^nd Supply Contracts. The Letter of Cargo Release placed the entire cargo of LPG at the disposal of Iwatani and/or D&B. There was no time limit for the sale of the LPG under the Sales Agency Agreement. D&B was only required to make a lump sum payment after all of the LPG had been sold to third parties. Under the Payment Collection Authorization Letter, Iwatani was purportedly authorized to collect any proceeds of sale from D&B and to deduct its charges directly before remitting the same back to the plaintiff. No time limit was set for the remittance. On the evidence before me, I can see no justification for the plaintiff to enter into the purported transactions with Iwatani and D&B at all.

80.  Further, Mr Lau pointed out in his evidence and I accept that there would not have been any real problem to find an alternative buyer even if Iwatani did not wish to take the LPG. This was especially so since the LPG prices generally rose at the end of the year. The plaintiff had a number of other major customers other than Iwatani, and there had never been any occasions where it was necessary for the plaintiff to enter into any such storage arrangements in the past.

81.  To complete the discussion, I would like to deal with a point raised by Mr Wong. He submitted that the court should look for the motive why the defendant would sign the Disputed Documents without authority. I do not think that is necessary. I am only concerned if he did execute them without authority and not why.

E.4.  Findings

82.  Having considered all the evidence carefully, I find that the defendant had without the authority and knowledge of the plaintiff signed the Disputed Documents and removed them from the plaintiff’s office on 14 February 2005. I also found that the chop on the Disputed Documents was not affixed by the plaintiff. Whether the chop on the Disputed Documents was genuine is neither here nor there. Even if it was genuine, it does not distract from the fact that he signed the Disputed Documents without authority.

83.  As an employee, the defendant owed a fiduciary duty to the plaintiff to act in good faith and in the best interests of his employer. When he signed the Disputed Documents without authority knowing full well that they were manifestly disadvantageous to the plaintiff, he had acted in flagrant breach of such duty.

E.5.  Quantum

84.  On the quantum of damages that the plaintiff suffered as a result of the defendant’s breach of fiduciary duty, Mr Wong conceded, rightly so in my view, that it is to be assessed by reference to the loss of the price under the 1^st and 2^nd Contracts, which the plaintiff had been unable to recover from Iwatani.

F.  ORDERS AND COSTS

85.  I enter judgment for the plaintiff against the defendant for :

(1)  HK$72,000, being the balance of wages in lieu of notice;

(2)  US$1,078,301.21 and US$811,789.60, being the damages suffered by the plaintiff by reason of the defendant’s breach of fiduciary duty under his employment contract as represented by the price lost under the 1^st and 2^nd Contracts respectively;

(3)  an order for an indemnity against all loss and damage that the plaintiff suffered arising from or in connection with the 1^st and 2^nd Storage Contracts claimed by Iwatani; and

(4)  interest on the sums in paragraphs (1) and (2) at judgment rate from date of writ to date of payment.

86.  Costs should follow the event. Mr Wong submitted that there should be no order as to the costs incurred by the parties instructing the experts. In my view, it should be apparent from a closer analysis of Issue 2 that the authenticity or otherwise of the chop on the Disputed Documents is immaterial. It was unnecessary for the parties to instruct the experts. But it appeared from the solicitors’ correspondence that the parties did consent to the calling of experts. That being the case, I think the costs of calling the experts should not be dealt with separately. The usual rule of costs following the event should equally apply to those costs. I therefore order the defendant to pay the plaintiff costs of the action, including all costs reserved, to be taxed if not agreed. The defendant’s own costs are to be taxed in accordance with the Legal Aid Regulations.