WONG CHI CHEUNG ALLEN v. NETSTAR HONG KONG LTD

DCCJ3970/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3970 OF 2003

J U D G M E N T

1.  The plaintiff was the former deputy general manager of Comtech Engineering & Consultant Company Limited (hereinafter called “Comtech”).  The defendant is an information technology company.

2.  The following facts are not disputed:

(a)	on or about 5 August 1996, the plaintiff was employed by Comtech pursuant to the terms and conditions in an undated letter of appointment (hereinafter called “the employment letter”).  He was not employed by the defendant;
(b)	pursuant to the employment letter, apart from his basic monthly salary, the plaintiff was also entitled to a sales commission calculated at 1 per cent of those direct sales that attained the pre-determined target gross profit margin;
(c)	Comtech terminated the plaintiff’s employment by its letter dated 31 January 2002, signed by Mr Andrew Sampson (hereinafter called “Sampson”), its then managing director (hereinafter called “the termination letter);
(d)	the termination letter was countersigned by the plaintiff and stated that the reason for terminating the plaintiff’s employment was the reorganisation of the structure of the Netstar group of companies.  The termination letter also stated that: “Regarding to your commission, we shall check our record accordingly and will inform you our decision as soon as possible.”;
(e)	Sampson’s name card stated that he was the managing director of the defendant and the Netstar group;
(f)	at the time of the termination of the plaintiff’s employment, both the defendant and Comtech operated from the same office premises in Kowloon Bay (hereinafter called “the Kowloon Bay office”);
(g)	on 12 November 2002, the plaintiff’s solicitors wrote to Comtech to demand for a statement of account and payment of commission to the plaintiff (hereinafter called “the 12 November 2002 letter”);
(h)	by a reply letter from the defendant’s former solicitors dated 29 November 2002, Comtech denied the plaintiff’s entitlement to commission (hereinafter called “the 29 November 2002 letter”).  No reason or explanation was given;
(i)	in or about mid-December 2002, the plaintiff lodged a complaint with the Labour Department about Comtech’s failure to pay the arrears of his commission;
(j)	the Labour Department issued a notice dated 30 December 2002 for a conciliation meeting to be held on 13 January 2003 at the office of its Labour Relations Division (Kowloon East);
(k)	the meeting on 13 January 2003 was held between the plaintiff and Comtech in the presence of a conciliation officer of the Labour Department.  The parties agreed to enter into further negotiations and to resolve the matter privately;
(l)	Mr Paul Lok (hereinafter called “Lok”) and Mr William Ng (hereinafter called “Ng”) were respectively the finance manager and human resources director of the Netstar group of companies that included the defendant and Comtech;
(m)	a meeting was held at the Kowloon Bay office on 14 January 2003, attended by the plaintiff, Lok and Ng (hereinafter called “the 14 January 2003 meeting”);
(n)	during the discussion at the 14 January 2003 meeting, Lok and Ng asked the plaintiff to consider a proposed payment of $200,000, payable by six monthly instalments, in full and final settlement of all outstanding sales commission and any claims arising from the termination of employment between the plaintiff and Comtech (hereinafter called “the proposal”);
(o)	Lok and Ng gave the plaintiff a draft agreement on plain paper without any letterhead (hereinafter called “the draft”);
(p)	on 20 January 2003 the plaintiff telephoned Ng to accept the proposal;
(q)	by an agreement in writing dated 20 January 2003 (hereinafter called “the agreement”) the defendant agreed, inter alia, to pay outstanding sales commission of $200,000 by way of six instalments of $20,000, $20,000, $35,000, $35,000, $45,000 and $45,000 respectively, on the last day of each month from February to July 2003;
(r)	the defendant paid the 1st and 2nd instalments in the total sum of $40,000 by two cheques of $20,000 each, leaving the remaining balance of $160,000 (hereinafter called “the balance sum”) outstanding.

3.  The plaintiff claims that the agreement was made between the plaintiff and the defendant and he claims for the balance sum.

4.  The defendant relies on two defences, namely, mutual mistake of fact and total failure of consideration.

5.  In respect of the defence of mutual mistake of fact the defendant claimed that the defendant and Comtech were subsidiaries of Netstar International Holdings Limited (hereinafter called “Netstar International”).  On 14 January 2005, Lok, Ng and the plaintiff agreed that Comtech would pay $200,000 by six monthly instalments in full and final settlement of all claims arising out of the plaintiff’s employment with Comtech.  Such agreement was reduced into writing as the agreement, which as a result of a clerical mistake was wrongly printed on the defendant’s letterhead and mistakenly signed by the defendant.  The defendant claims that in fact the plaintiff and the defendant laboured under a mutual mistake of fact and signed the agreement in the mistaken belief that it was made between the defendant and Comtech.  The defendant never agreed to enter into any agreement with the plaintiff, so it was argued that the agreement was not binding or enforceable against the defendant.

6.  In respect of the defence of total failure of consideration, the defendant says that it did not employ the plaintiff, or, alternatively, the plaintiff had not rendered any service to the defendant, so it is argued that the plaintiff was not entitled to any payment under the agreement.  The defendant also counterclaimed for rescission of the agreement.

7.  The defendant was formerly legally represented.  His solicitors ceased to act on 11 July 2005, after the trial hearing was fixed on 25 April 2005.  Plainly, the defendant through his former solicitors must have been well aware of the trial today, but it did not make any appearance before me.  I am informed by Mr Ling, counsel for the plaintiff, that the trial bundle has also been served on the defendant’s former solicitors on 6 July 2005.  I saw no reason why the trial should not proceed, and it did.

8.  The plaintiff gave evidence and adopted his witness statement as part of his evidence-in-chief.  The plaintiff explained that in mid-2001 he was informed by Comtech’s top management that it was the policy of the Netstar group of companies to develop a single “brand” identity for the Group, with “Netstar” being the overall corporate identity, rather than an emphasis on the identity of the individual companies in the group, such as Comtech.

9.  The plaintiff was told that subject to the existing contracts with clients he had to use the defendant’s identity for all new quotations, purchase orders or contracts, and to inform all potential clients of these corporate changes.  The plaintiff was not told of any reorganisation of the Netstar group.

10.  After the termination of the plaintiff’s employment, Comtech did not respond to the plaintiff’s inquiries about his commission despite demands, so the plaintiff through his solicitors issued the 12 November 2002 letter and the defendant responded by his solicitors’ 29 November 2002 letter.

11.  During the 14 January 2003 meeting, Lok and Ng made the proposal because the Netstar group had difficulties with cash-flow.  The plaintiff specifically questioned Lok and Ng as to why the draft was under the defendant’s rather than Comtech’s letterhead and name.  They told the plaintiff that due to corporate changes, the defendant would be the party to the settlement agreement.  Lok and Ng also wrote their respective mobile telephone numbers on the draft, so that the plaintiff could liaise with them in case of query.

12.  The plaintiff considered his position for a few days and then telephoned Ng on the morning of 20 January 2003 to accept the proposal.  Later, at the Kowloon Bay office, Lok signed the agreement on the defendant’s letterhead on the defendant’s behalf and the plaintiff countersigned the agreement.  The plaintiff was assured both before and after signing the agreement that the defendant would be responsible for the settlement payments in accordance with the terms of the agreement.

13.  The first instalment payment was paid to the plaintiff after a delay of 10 days and after the plaintiff had spoken to Lok to remind the defendant to make such payment.  Lok did not mention any error during his conversation with the plaintiff.  The plaintiff eventually received in succession two cheque payments by direct deposit into his savings account.

14.  Despite repeated requests and demands, the plaintiff claims that the defendant has since failed to pay the third and subsequent instalments under the agreement.  He said that the defendant never told him there was any mistake in respect of the agreement prior to the present proceedings, and the defendant has not responded to the plaintiff’s solicitors’ letter before action dated 13 May 2004.

15.  The plaintiff says that at all material times the Netstar group of companies, including the defendant and Comtech, operated according to ISO 9002:1994 or ISO 9001:1994 standards as to quality assurance under various certifications issued by the Hong Kong Quality Assurance Agency.  This should have eliminated any possible mistake in entering into the agreement as the defendant alleged.

16.  Even if there were any such mistake, which the plaintiff denies, the defendant would not be permitted by his quality control or internal audit under the said quality assurance standards to take no remedial action to rectify the alleged mistake after a reasonable period of time or at all.  The plaintiff therefore claims that the defendant is in wrongful breach of the agreement and demands for payment of the balance sum.

17.  On the balance of probabilities, I accept the plaintiff’s evidence, which is supported by contemporaneous documents.  There is no dispute that the third and subsequent instalments under the agreement are, as yet, unpaid.

18.  The defendant’s case is put on the basis of mutual mistake, but on the evidence before me there is no mutual mistake as to fact.

19.  Although the defendant was not the plaintiff’s employer, like Comtech it was Netstar International’s subsidiary.  Plainly, the Netstar group of companies was, at the material time, undergoing corporate restructuring, and the focus of such corporate restructuring was to concentrate on the “Netstar” companies rather than on the companies within the group that did not bear the “Netstar” name, such as Comtech.  Hence, it comes as no surprise that the defendant was chosen as the vehicle to be legally responsible to paying the defendant’s agreed commission instead of Comtech, and this was confirmed by Lok and Ng upon the plaintiff’s specific inquiry at the 14 January 2003 meeting.

20.  The defendant had also paid two instalments pursuant to the agreement by his own cheques without protest.  How the defendant’s own internal accounting entries attributed these two instalments does not affect the plaintiff’s understanding that he should look to the defendant for payment of the settlement instalments.  In the circumstances, the plaintiff was plainly not mistaken as to the identities of the contracting parties to the agreement and he knew that the defendant, and not Comtech, was the relevant contracting party.

21.  I also note that the draft and the agreement were not prepared by the plaintiff, but by Ng.  I find it unlikely that the draft and the agreement were mere clerical errors, for Lok’s capacity in signing the agreement on the defendant’s behalf was typed directly above the space for his signature.  It is unlikely that when he signed the agreement, Lok would have missed the alleged mistake.  It is even more unlikely that the alleged mistake was left undiscovered, even after payment of two instalments under the agreement.  Alternatively, if the alleged mistake had been discovered, no explanation has been offered for the defendant’s inaction in regularising the error.

22.  There is also no failure of consideration.  On the plaintiff’s evidence, which I accept, there is plainly an agreement between the plaintiff and the defendant which released Comtech and the Netstar group from liability for the plaintiff’s sales commission and/or any potential claim arising from the termination of the plaintiff’s employment, and the defendant consequently took up the responsibility to pay the settlement instalment sums.  The plaintiff acknowledged such expressly in the agreement as prepared by the defendant.

23.  In the circumstances, I grant judgment in the sum of $160,000 against the defendant in favour of the plaintiff, with interest thereon at the rate of 8.245 per cent per annum from the date of the issuance of the writ of summons to the date of judgment, and thereafter at judgment rate until payment.

24.  There is no reason why costs should not follow the event, and I order that the defendant do pay costs of the action and the counterclaim, including all costs reserved, if any, to the plaintiff with certificate for counsel, to be taxed if not agreed.