KNIGHT JOHN LEE v. GLOBAL FORCE LTD t/a THE MIX

DCCJ 5534/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5534 OF 2007

--------------------

--------------

 JUDGMENT

Background

1.  Mr. Knight was employed in April 2000 by Global Force Ltd. ("Global Force") as the General Manager of The Mix.  The Mix is an outlet where thick fruit juice drinks known as "Smoothies", frozen yogurt, and tortillas sold with fresh salads, vegetables and meat known as "Wraps" are sold. Mr. Knight was in charge of the daily operation of the business of The Mix, which at the material time had outlets in IFC and the Standard Chartered Bank Building in Central and in Quarry Bay. 

2.  In these proceedings, Mr. Knight claims that he was wrongfully dismissed by Global Force on 22 June 2002, and seeks termination payments, including arrears of wages, annual leave pay, end of year pay and wages in lieu of notice, from Global Force.  He also seeks the refund of a sum of $5,334 wrongfully demanded by Global Force and paid by him to Global Force upon the termination of his employment.  Mr. Knight thus seeks payment of a total sum of $181,209.79.  His claim was originally made in the Labour Tribunal in November 2007, and by Order made by the Tribunal on 28 November 2007 his claim was transferred to the District Court.

3.  By way of Defence, Global Force claims that Mr. Knight had resigned from Global Force on his own accord in July 2002, as evidenced by and detailed in a Deed signed by Global Force and Mr. Knight on 11 July 2002 ("Deed"). 

4.  The Deed signed by the parties records that Mr. Knight had since November 2001 been secretly operating a business known as “Wrapper”, and that it had been agreed between Global Force and Mr. Knight that Mr. Knight would immediately resign from his employment.  The Deed further records (amongst other things) that Global Force was to be released from any obligation to pay Mr. Knight's salary in arrears, holiday pay and other termination payments.

5.    It is not disputed by Mr. Knight that he did sign the Deed.  It is Mr. Knight's case that the Deed was not signed by him voluntarily, but under threats made by Mr. Marcus Tencock, the Managing Director and beneficial owner of Global Force.  Mr. Knight further claims that he was "mentally unstable" when he signed the Deed.  In essence, Mr. Knight claims that the Deed should not be enforced, and that he should not be bound by what the Deed purports to record as his agreement to resign and not to claim termination payments from Global Force.

6.  Global Force claims that Mr. Knight had not taken any action since the signing of the Deed in 2002 to dispute the validity of the Deed, and that he had by his action in the interim affirmed the Deed.  Further, by reason of Mr. Knight's delay for more than 5 years to take any action either to seek relief from Global Force in relation to the termination of his employment, or to dispute the validity or to set aside the Deed, Global Force claims that it is unjust now to grant Mr. Knight any relief.

The Issues

7.  The main issue for determination at trial is whether Mr. Knight was wrongfully dismissed without cause, such that Global Force is liable to him for termination payments. 

8.  Determination of the main issue turns on the following sub-issues :

(1)  whether Mr. Knight was mentally unstable at the time when he signed the Deed, such that he lacked the necessary contractual capacity;

(2)  whether the Deed was signed by Mr. Knight under duress,  such that it can be avoided by him;

(3)  if the Deed is voidable on the ground of duress, whether the Deed had been affirmed by Mr. Knight; and

(4)  whether Mr. Knight has been barred from seeking relief by virtue of delay.

Whether Mr. Knight was mentally unstable at the time when signed the Deed

9.  The law is clear that where exemption from liability to fulfill an obligation is claimed by reason of want of contractual capacity, this fact must be strictly established on the part of the person who claims the exemption (Chitty on Contracts Vol. 1, para 8-001).  Even for a mentally disordered person, the general rule is that he is bound by his contract unless he can show that owing to his mental condition, he did not understand what he was doing, and further that the other party was aware of this incapacity. If these two conditions are satisfied, the contract is voidable at the option of the mentally disordered person. This rule was laid down in Imperial Loan Co. Ltd. v. Stone [1892] 1 Q.B. 599, 601 :

" When a person enters into a contract, and afterwards alleges that he was so insane at the time that he did not know what he was doing, and proves the allegation, the contract is as binding on him in every respect, whether it is executory or executed, as if he had been sane when he made it, unless he can prove further that the person with whom he contracted knew him to be so insane as not to be capable of understanding what he was about."

10.  In this case, there is simply no evidence that Mr. Knight was so mentally unstable or insane at the time when he signed the Deed that he did not know what he was doing.  All Mr. Knight was able to produce as evidence of his mental condition is a letter of referral dated 6 July 2002 from Dr. Patrick Yeung, a general practitioner, to one Dr. Ho, to the following effect:

"Please kindly see the above named patient who is suffering from ?schrizophrenia (sic).

Please kindly give your expert management."

11.  Mr. Knight admits that he did not go to see Dr. Ho, or any other psychiatrist or doctor after the visit to Dr. Yeung who issued the referral letter.  I do not accept Dr. Yeung's referral letter as sufficient or reliable evidence of the fact that Mr. Knight was at the material time on 6 July 2002 suffering from any mental disorder.  Other than the referral letter, there is only Mr. Knight's bare assertion that at the material time on 2 July 2002, his mind was "very mixed up", and that minutes before he signed the Deed on 11 July 2002, he had had a "breakdown" in Central when he got on his knees on the street to beseech Mr. Tencock not to hurt his reputation.

12.   There is no other psychiatric or other medical report on Mr. Knight's condition or mental capacity, to establish that at the time when Mr. Knight signed the Deed, he did not understand or know what he was doing, nor the contents of the Deed which he signed on 11 July 2002.

13.   In my Judgment, Mr. Knight has failed to discharge the burden which is on him to establish a lack of mental capacity and understanding in relation to the Deed. 

14.  Further, there is no evidence whatsoever that Mr. Tencock who signed the Deed on behalf of Global Force on 11 July 2002 had knowledge or was made aware of Mr. Knight's alleged mental instability.  Mr. Knight's claim that he had, before going up to see Mr. Tencock's lawyer and signing the Deed on 11 July 2002, beseeched Mr. Tencock on the street not to hurt his reputation is insufficient to make Mr. Tencock aware of Mr. Knight's alleged mental instability.  On the contrary, the evidence of Mr. Firmin, the solicitor who had met with Mr. Knight on 2 July and 3 July 2002 for the purpose of preparing the Deed, was that at the meetings, Mr. Knight had appeared to quite fully understand the situation of the termination of his employment.

Whether the Deed was signed by Mr. Knight under duress

15.  In the Statement of Claim filed in these proceedings which, by Order of Master Lai made on 16 May 2008, was directed to stand as Mr. Knight's witness Statement, he claims that the Deed was signed by him under verbal threats made by Mr. Tencock of destroying his reputation, which threats were coupled with foul language allegedly used by Mr. Tencock to indicate that Mr. Tencock would mess up Mr. Knight and make life difficult for him. Mr. Knight claims that Mr. Tencock reinforced his threats by informing the staff and suppliers of The Mix that Mr. Knight had stolen from The Mix.

16.  According to the evidence of Mr. Morgan, the Chief Financial Officer of Bluebell (Asia) Ltd. ("Bluebell") which is the holding company of Global Force, contemporaneous documents prepared in June and July 2002 showed that Mr. Knight had been involved in the setting up and operation of Wrapper, which had carried on a business in direct competition with The Mix. According to the Statements made by the  current employees of Global Force and The Mix at the material time in June and July 2002, food and ingredients belonging to The Mix  and used in the making of Smoothies and Wraps for The Mix were surreptitiously supplied to Wrapper for sale by Wrapper ("Alleged Scam"). These Statements include the Statement of Eva Pang ("Pang"), the supervisor of the 3 outlets operated under the name of The Mix who apparently discovered the Alleged Scam, the Statement of Renee Mariano ("Renee") who worked at the Mix outlet at IFC, and the Statement of Simon Wong Hon Fai ("Wong"), the chef employed at The Mix, who admitted to his interests in Wrapper Ltd. which operated the competing business, and who claimed that Mr. Knight was also involved in the manner in which the competing business of Wrapper was operated, and that Mr. Knight's girlfriend  was a shareholder of Wrapper Ltd..  The contemporaneous documents relied upon by Mr. Morgan also include an investigation report prepared by Asia World Investigation Bureau ("Report") in relation to some surveillance carried out from 24 June to 26 June 2002.

17.   Global Force claims that it was as a result of the Report and the investigations made with the employees of The Mix that solicitors were instructed to prepare the Deed for Mr. Knight's execution.  The Deed  records in recital (C) that Mr. Knight, together with Wong and others named, had been secretly operating a competing business known as Wrapper, which was operated by Wrapper Ltd., the shareholders of which were recited to include Wong's wife and Mr. Knight's girlfriend.

18.  The Deed records that it had been agreed between Global Force and Mr. Knight that Mr. Knight would immediately resign from his employment on the terms and conditions set out in the Deed.  These terms include provisions whereby Mr. Knight releases Global Force from its obligation to pay salary in arrears and termination payments due to Mr. Knight (in the total sum of $49,666); acknowledges that in the circumstances of the termination of his employment, Global Force is under no obligation to pay him any other money to which he may ordinarily have been entitled; and agrees not to bring any claim against Global Force in the Labour Tribunal or any court in Hong Kong in respect of any matter concerning his employment with Global Force.  In return, Global Force undertakes in the Deed that it shall take no further action against Mr. Knight provided that there is no breach of the Deed by him. 

19.  The Deed was signed by Mr. Tencock on behalf of Global Force, and by Mr. Knight, both in the presence of Mr. Oldham, a partner of Global Force's firm of solicitors.

20.  Mr. Tencock has left Hong Kong, and none of the employees of Global Force who made the Statements in 2002 were called to give evidence in these proceedings in relation to the Alleged Scam.  All have since left Global Force's employment.  Mr. Morgan who gave evidence on behalf of Global Force has no personal knowledge of the events leading to the execution of the Deed in July 2002.  He only became Chief Financial Officer of Bluebell in 2007, after Bluebell acquired the business of Global Force.  The Statements and the Report were produced as exhibits to Mr. Morgan's witness statement filed in these proceedings, with his evidence that he had no reason to doubt the veracity of the Report or the signed Statements of Pang, Renee and Wong.

21.  The Deed was prepared by Global Force's solicitors, Messrs. Oldham Li & Lie.  Mr. Firmin, a partner of the firm, gave evidence on behalf of Global Force.  He produced copies of his work in progress reports to show that he had had meetings with Mr. Tencock, Renee and Wong on 28 June 2002 and 2 July 2002, and meetings with Mr. Tencock and Mr. Knight on 2 July 2002 and 3 July 2002.  Mr. Firmin also produced his handwritten notes taken in the course of his meeting with Renee and Wong  on 2 July 2002.

22.  According to Mr. Firmin's evidence, he took instructions from Mr. Tencock in relation to allegation of theft of food and beverages from The Mix for sale by a competing business in which Mr. Knight was claimed to be involved.  He took statements from Mr. Tencock, Renee and Wong.  He also prepared the Deed on Mr. Tencock's instructions and on the basis of the evidence obtained.  Mr. Firmin's evidence is that he and Mr. Tencock then had a meeting with Mr. Knight on 2 July and 3 July 2002, and that either Mr. Tencock or he had informed Mr. Knight that witness statements had been signed in support of the allegation that Mr. Knight had been stealing from Global Force to support a competing business in which he was involved, and that in the light of the evidence obtained by Global Force, Mr. Knight's conduct was inconsistent with his duties as an employee of Global Force, and that his employment was no longer tenable.

23.   Mr. Firmin claims that Mr. Knight was presented with a copy of the Deed, and asked to sign the same, which would have the effect of terminating his employment immediately.  According to Mr. Firmin, the Deed was eventually signed by Mr. Knight on 11 July 2002.  Mr. Firmin's evidence is that Mr. Knight was not difficult at the meetings, the atmosphere of which was in fact animated.  Mr. Firmin explained that Mr. Tencock had by this time focused on how to turn the situation to his commercial advantage by possibly taking over the business of Wrapper.  Mr. Firmin claims, however, that Mr. Knight appeared to him to be understanding quite fully the situation which confronted him, of having been caught out by his employer, who was able to report the matter to the police.  Mr. Firmin denies that any threats had been made by Mr. Tencock at the meeting with Mr. Knight.

24.  On his part, Mr. Knight denies in his evidence that he was involved in the competing business of Wrappers.  He denies that Miss Alex Fan who held shares in Wrapper Ltd. was his girlfriend.  He claims that he had not seen the Statements of Pang, Renee and Wong until after the commencement of these proceedings.  He maintains that he only signed the Deed because he had been told by Mr. Tencock to sign it, or "his life would be over", that he would be "in trouble", and that Mr. Tencock would tell all his staff that Mr. Knight had stolen from him.  He claims that he was afraid that he may be beaten up by Mr. Tencock, or that he would be "put away".

25.  In the absence of any direct evidence from Mr. Tencock, Pang, Renee and Wong in relation to the Alleged Scam and Mr. Knight's involvement in the suspected theft, I do not consider it reliable or fair to accept the aforesaid witnesses' accounts of Mr. Knight's role in the Alleged Scam.  What remains is the Deed, and the acknowledgment made by Mr. Knight and Global Force in the Deed.  There is also the evidence of Mr. Firmin in relation to his meetings with Mr. Knight which led to the execution of the Deed.  In this respect, I see no reason to doubt Mr. Firmin’s evidence, whose account of his meetings are supported by his work – in-progress reports, and his contemporaneous notes.

26.  An assessment of Mr. Knight's credibility in the context of his claims concerning the circumstances of his execution of the Deed is crucial in resolving the dispute between the parties in the present case.  In assessing a witness's credibility and reliability, the Court has to take into account the witness's personal characteristics, such as his age, temperament, educational and post-educational background.  I regret to say that after considering the evidence of Mr. Knight, I do not consider him to be a reliable or truthful witness. 

27.  According to Mr. Knight, he attended school in Canada and went to university there, although he did not graduate.  He started working in the 1980's, and had 10 years' experience of working as a manager in the food and beverage industry when he joined The Mix.  He occupied the most senior position in The Mix, ranking just below the Managing Director (Mr. Tencock) and the Financial Director, and was in charge of the daily running of the outlets.  He considered that he had created The Mix or its concept.  He was held high in Mr. Tencock 's esteem in 2000 and 2001, as evidenced by the complimentary notes he had received from Mr. Tencock.  His salary was increased in February 2002, and he received a discretionary bonus at the same time.  At the time of the termination of Mr. Knight's employment, it cannot be said that he was an inexperienced or naive person.

28.  I do not find Mr. Knight's evidence to be reliable, because he seeks to give to the recording of his telephone conversations with his former staff of The Mix (Divina, Shirley and Elizabeth) meaning and effect which are totally unsupportable, as is evidenced by the transcript of the alleged recording, on which Mr. Knight seeks to rely.  His summary of their purported "statements" (which are unsigned by the makers of the statements) made in the course of their recorded telephone conversation is concocted and without basis, when the summaries are compared with the transcript of the recording and the things actually said.  Mr. Knight claims that his witnesses support his claim that sales of The Mix had been falsified at the end of the day.  He alleges that this had been done on Mr. Tencock's instructions, and suggests that it was because Mr. Knight had later refused to further assist Mr. Tencock's dishonesties, that Mr. Tencock decided to dismiss him.  There is in fact nothing mentioned by either Divina, Shirley or Elizabeth in relation to the falsifying of sales.  Mr. Knight further asserts that his witnesses had claimed that they were afraid to testify in these proceedings, but again, there is nothing in the transcript which suggests this.  These demonstrate Mr. Knight's fabrication and his tendency to distort facts and matters.

29.  There are also inconsistencies in Mr. Knight's evidence. 

30.  Mr. Knight claims that when he met with Mr. Firmin on 2 July 2002, he was not informed that the Statements of Pang, Renee and Wong had been obtained.  He also claims that prior to the signing of the Deed, he had never been given any evidence which supported Global Force's allegation that he had been involved in Wrapper.  Mr. Knight also claims that he had not seen or read the Statements of Pang, Renee or Wong until after the commencement of these proceedings.  However, when Mr. Knight alleges that he had signed the Deed under Mr. Tencock's threats, he claims that he had had no choice but to sign the Deed, as he was sure that Mr. Tencock would use the "3 Statements" against him.  This suggests that he knew, at the time when he signed the Deed, that the 3 Statements had been obtained. 

31.  Further, when Mr. Knight was cross-examined as to when he learnt of the misappropriation of food and ingredients from The Mix, his answer was that it was only in July 2002 that he learnt that food and ingredients were taken from The Mix, and that Wong “had confessed”. This likewise shows that Mr. Knight was aware that Global Force had evidence against him in relation to their allegations. 

32.  The entirety of Mr. Knight's evidence shows that at the time he was asked to sign the Deed, he had been informed and knew that Mr. Tencock had evidence against him in relation to his involvement in the Alleged Scam, and in the competing business of Wrapper generally.  All the inconsistencies in Mr. Knight's evidence demonstrate that there is basis for concluding that he has been tailoring his testimony.

33.   On the evidence, I find it to be inherently implausible and unbelievable that Mr. Knight would agree to sign the Deed, to acknowledge that he had secretly been operating a competing business,  agree to waive payment of his salary in arrears for June 2002 as well as pro-rata bonus and accrued holiday pay, and undertake not to bring any claim against Global Force concerning his employment, if Global Force had no justification or basis whatsoever to claim that Mr. Knight had acted in competition with the business of Global Force.  The fact of his admission to the operation of a competing business would be sufficient to entitle Global Force to summarily dismiss him, and to claim damages from Mr. Knight for breach of contract.  If Global Force was making spurious allegations against him, whether for breach of contract or theft, Mr. Knight could simply have refused to sign the Deed, and, having worked as a manager for over 10 years, Mr. Knight should also have known that it was open to him to bring proceedings against Global Force for wrongful dismissal and damages.  It was of course also open to him to report any unlawful threats to the police.

34.  If Mr. Knight was not guilty of any wrongdoing, and had not in fact been operating the competing business of Wrapper, I do not believe that Mr. Knight could have been threatened into signing the Deed, simply by Mr. Tencock's alleged threats of destroying his reputation, making life difficult for him, or telling the staff and suppliers of The Mix that Mr. Knight had been stealing from The Mix.  The fact that he had signed the Deed suggests to me, on a balance of probabilities, that whatever his involvement in the competing business of Wrapper, Mr. Knight had considered his options and decided that the terms and conditions set out in the Deed represented a fair and acceptable deal for him in all the circumstances at the material time.  This is supported by the fact that Mr. Knight failed to take any action to challenge or set aside the Deed for nearly 5 years 4 months after its execution on 11 July 2002.

35.  As I find Mr. Knight's evidence to be totally unreliable, I reject his claims that threats had been made by Mr. Tencock, as alleged, and that Mr. Knight had signed the Deed as a result of such threats.

36.  Even if it was true that Mr. Knight had signed the Deed because of any threats made by Mr. Tencock, I am not satisfied that in law, there had been any unlawful or improper pressure exerted by Mr. Tencock on behalf of Global Force. 

37.  Counsel for Global Force has emphasized that Mr. Knight's complaint is essentially one of economic duress. The learned editors of Chitty on Contracts have summarized the law as follows (Chitty on Contracts Vol. 1, 30^th Edition, paragraph 7-008):

"Once it is accepted that the basis of duress does not depend upon the absence of consent, but on the combination of pressure and absence of practical choice, it follows that two questions become all-important.  The first is whether the pressure or the threat is legitimate; the second, its effect on the victim.  Clearly, not all pressure is illegitimate, nor even are all threats illegitimate.  In ordinary commercial activity, pressure and even threats are both commonplace and often perfectly proper.  Indeed, in one sense, all contracts are made under pressure: every offeror "threatens" that unless the offeree accepts the terms offered, he will not get the benefit of whatever goods or services are on offer. "

38.  The following passage of Dyson J’s judgment in DSND Subsea Ltd. v. Petroleum Geo-Services ASA [2000] B. L. R. 530 at 131 was also cited in paragraph 7-044 of Chitty on Contracts, supra:

"In determining whether there has been illegitimate pressure, the courts take into account a range of factors.  These include whether there has been an actual or threatened breach of contract; whether the person allegedly exerting the pressure has acted in good or bad faith; whether the victim had any realistic practical alternative but to submit to the pressure; whether the victim protested at the time; and whether he affirmed and sought to rely on the contract.  These are all relevant factors."

39.  If Mr. Tencock had ever indicated that Mr. Knight's reputation would be destroyed, or that he would be put away, as a result of Global Force taking legal action against Mr. Knight in respect of what Global Force claims to be theft on Mr. Knight's part, any pressure exerted by Mr. Tencock would be commercially reasonable and legitimate in the circumstances of his understanding of the case.  I am not satisfied that Mr. Knight had no realistic practical alternative but to submit to any alleged pressure and to sign the Deed, when Labour Tribunal proceedings was a reasonable, inexpensive and very practical alternative for him in the event of an unjustified dismissal.   In any event, I am not satisfied on the evidence that the signing of the Deed was caused by any unlawful or improper pressure, if any were exerted, irrespective of which of the "significant cause" test, the "predominant cause" test, or the "but for" test is applied.

40.  Mr. Knight's claim that the Deed had been entered into under duress is rejected.  Being bound by the Deed, I accept that he had resigned from Global Force's employment, and that he is not entitled to the termination payments which he claims in these proceedings, nor to the sum of $5,334 which he seeks to be refunded under the Deed.

If the Deed is voidable on the ground of duress, whether the Deed had been affirmed by Mr. Knight

41.  If I am wrong on my finding of the absence of duress, I consider that the Deed had been affirmed by Mr. Knight on the facts of this case.  The Deed was signed on 11 July 2002.  Mr. Knight acted in accordance with the provisions of the Deed by making payment of a sum of $5,334, expressed in clause 5 of the Deed to be payable within one month from 11 July 2002.  Mr. Knight admits to such payment having been made by him in the Form of Claim filed in the Labour Tribunal.

42.  Mr. Knight failed to take any action to set aside the Deed after 11 July 2002 until 6 November 2007, when he commenced proceedings in the Labour Tribunal.  Even if Mr. Knight had indeed signed the Deed on 11 July 2002 as a result of Mr. Tencock's threats, it would be fair to assume that Mr. Knight had escaped from Mr. Tencock's threats and duress in the interim between July 2002 and November 2007.  In particular, there is evidence that on 23 November 2002, Mr. Tencock had issued a letter of reference for Mr. Knight, in which Mr. Tencock states that Mr. Knight had resigned on his own accord, and compliments Mr. Knight for his dedication, commitment and wide experience and his role in the success of The Mix.  This suggests that by that time, if not before, Mr. Knight was free from Mr. Tencock's threats of destroying his reputation, etc., and he could have by then taken, but did not take, any action to set aside the Deed.  This, in my Judgment, is evidence of his affirmation of the transaction. 

Whether Mr. Knight has been barred from seeking relief by virtue of delay

43.  It is not necessary for me decide this issue in view of my findings on duress and affirmation.

Conclusion

44.  For all the above reasons, I dismiss Mr. Knight's claims in this action, and make an order nisi to be absolute in 14 days, that he has to pay Global Force's costs of the action including the costs incurred by Global Force in the Labour Tribunal proceedings, to be taxed if not agreed, with certificate for Counsel in these proceedings.