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HCA 719/2009 & HCA 947/2009
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NOS 719 AND 947 OF 2009
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| BETWEEN |
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|
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QUANG XIN LEE (李廣欣) |
Plaintiff |
and |
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JNC DATUM
TECH. INTERNATIONAL LIMITED |
1st Defendant |
| |
MARKUS F. JEBSEN |
2nd Defendant |
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(Consolidated pursuant to the Order of Madam Registrar
Queeny Au-Yeung dated 11 December 2009)
| Before: Deputy High Court Judge Robert Pang SC in Court |
| Dates of Hearing: 11-12, 15-18, 30 of September 2014 and 7 October 2014 |
| Date of Judgment: 12 October 2015 |
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JUDGMENT
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Introduction
1. This is the trial of two actions consolidated by the order of Madam Registrar Queeny Au‑Yeung (as she then was) by order dated 11 December 2009.
2. The plaintiff was a director of the 1st defendant until he was summarily dismissed by the 1st defendant on 6 May 2008. The 1st defendant is a wholly owned subsidiary of MF Jebsen International Limited (“MFJIL”), the principal company in a group of companies referred to for the purpose of this action as the MF Jebsen Group.
3. MFJIL and the MF Jebsen group were founded by the 2nd defendant who is the sole shareholder of MFJIL and its chairman. The 2nd defendant is also director of all the companies in the MF Jebsen Group.
4. This case arises out of the employment relationship between the plaintiff and the 1st defendant, and also the relationship between the plaintiff and the 2nd defendant and how that relationship unravelled. The plaintiff brings various claims against the defendants, for unfair dismissal, breach of contract and defamation. The 1st defendant counterclaims against the plaintiff for his breaches of contract and for repayment of sums due on director’s current account, whilst the 2nd defendant counterclaims for repayment of an $8 million personal loan from the 2nd defendant to the plaintiff.
The background
5. The plaintiff first started working for YS Tso Limited as a marketing manager in 1996. YS Tso Limited was a company within the Jebsen & Co Ltd (“JCL”) Group of companies (not to be confused with the MF Jebsen Group) of which the 2nd defendant was a shareholder and director. In 2001, the plaintiff was transferred to Datum Networks Corp Ltd (“DNC”) as general manager. His seniority and years of service were carried forward for the purpose of calculating his employment benefits.
6. In about 2002, the JCL group underwent a “restructuring”. In essence, the 2nd defendant relinquished his shares and directorships in JCL and formed the MF Jebsen Group which took over certain business units and entities of the JCL Group which remained under the control of the 2nd defendant’s brother. One of the business entities which the 2nd defendant took over was DNC which was transferred to the MF Jebsen Group in 2003.
7. The plaintiff was well regarded by the 2nd defendant and was initially successful in running DNC. He was also trusted by the 2nd defendant and was appointed to the board of nearly all the companies within the MF Jebsen Group. There were substantial profits in 2004, and DNC was also profitable in 2005. In October 2005, the 2nd defendant made a personal loan of $8 million to the plaintiff.
8. Unfortunately, the business of DNC did not fare well and it was eventually wound up. Meanwhile, the plaintiff was transferred to the 1st defendant where he took up the post of managing director in January 2007.
9. The plaintiff was unable to turn around the business of the consumer electronics division of the MF Jebsen Group which had been handled first by DNC and then later by the 1st defendant. In the meantime, there were concerns about the losses and expenditure incurred by the 1st defendant under the management of the plaintiff.
10. Things came to a head in March 2008 when retrospective approval by the shareholders of the 1st defendant was sought for a personal loan from the 1st defendant to the plaintiff in the sum of AUD$735,803.39 (“the AUD Loan”). This led to enquiries into other alleged wrong doing, including purchases of school debentures, club debentures etc without written board approval.
11. On 6 May 2008, the plaintiff was summarily dismissed. The reason given for his dismissal was various acts of misconduct, but one act was particularized, the drawing of the AUD Loan. The plaintiff says that he was told to repay the $8 million personal loan to the 2nd defendant or he would be dismissed. The defendants say he was offered the opportunity to resign of his own accord or to be dismissed. The plaintiff says his dismissal is unlawful.
12. After dismissal, the plaintiff says that the defendants and the 2nd defendant in particular harassed him by repeated demands for repayment of the personal loan. The defendants also defamed him in front of others, notably Billy So to his wife by leaving voicemail messages and in emails, and also in an email dated 9 May 2008 to Mr Billy Ma of the 1st defendant’s solicitors.
The plaintiff’s claim
13. The plaintiff claims under three heads, for unfair dismissal, defamation, and breach of contract. The plaintiff claims he was unfairly dismissed because the 1st defendant had not allowed the plaintiff a reasonable opportunity to address the serious allegations made by the 1st defendant, and in any event denies that the acts which the 1st defendant relies on as justifying his dismissal are either not acts of misconduct or are insufficient to justify his summary dismissal. He claims three months’ pay in lieu of notice, and payment of outstanding bonuses.
14. The 1st defendant denies as a matter of law that there is any requirement for the plaintiff to have a reasonable opportunity to address the allegations which the 1st defendant relies on, that in any event, the plaintiff was given a reasonable opportunity to explain. The 1st defendant relies not only on the AUD Loan, but also on the cumulative effects of various alleged misconduct, including the unauthorized purchase of school debentures for the plaintiff’s children, unauthorized claims for reimbursement of school fees, club membership fees, and expenses.
15. As to defamation, the plaintiff relies on various emails sent to the plaintiff himself and his wife, to Billy Ma of Hobson & Ma, and to various voice mail messages left on the plaintiff’s telephone. He also alleges that the 1st defendant had informed suppliers and retailers and banking industry contacts that the plaintiff was dismissed due to unethical practices, that the plaintiff had taken kick backs, and specifically refers to a conversation that the 2nd defendant had with Mr Billy So that the plaintiff had caused the 2nd defendant to lose more than $70 million, was corrupt in taking rebates, and had arranged for his own son to be delivered by caesarean section so that the 2nd defendant would take the child as his godson. For all the above, the plaintiff claims damages and aggravated damages.
16. The defendants deny that any communication by email or by voicemail was defamatory, that the communication to Billy Ma was subject to legal professional privilege and so could not constitute defamation, and also plead justification in respect of that email. In relation to accusations of slander to other parties including Billy So, the defendants deny that any defamatory statements were made.
17. As to breach of contract, the plaintiff says that there was an agreement between himself and the 2nd defendant that he would be entitled to annual dividends from a group of companies described as the “Datum Group”, 10% ownership of the Datum Group, and 10% of any investments brought into the Datum Group via funds advanced by a Jebsen Family Trust.
18. The 2nd defendant denies any such agreement and says that the plaintiff’s entitlement is fully set out in his terms of employment.
The defendants’ counterclaims
19. The 2nd defendant counterclaims for repayment of the $8 million loan. In addition, the 1st defendant claims for repayment of various sums which it says were unauthorized reimbursements paid to the plaintiff for his children’s school fees, his club membership fees and entertainment expenses. In addition there is a claim for outstanding directors’ loans in the sum of $2,329,437.
20. The plaintiff had on the first day of trial accepted that a sum of $571,520 was owing on his directors’ current account with the 1st defendant, which should be set off against outstanding dividends / bonuses.
21. The plaintiff admits that he did have an $8 million loan from the 2nd defendant, but says that the terms of the loan are that it is to be repaid only from dividends received by the plaintiff from dividends received by the plaintiff. Since no dividends were so received, he does not have an obligation to repay.
22. As to the unauthorized reimbursements, the plaintiff says they were authorized.
23. As to the directors’ loans, the plaintiff says that he had previously taken bonuses due to him in the form of loans. The loans should be offset by outstanding dividends / bonuses.
The issues
24. The issues in the case are therefore:
(1) Whether the plaintiff was unfairly dismissed. This will also encompass issues of the AUD Loan, the reimbursement of school fees, club membership and entertainment expenses, and the unauthorized purchase of school debentures.
(2) Whether the defendants defamed the plaintiff.
(3) Whether there is any agreement between the plaintiff and the 2nd defendant, and what that agreement was.
(4) Whether the plaintiff is liable for repayment of directors’ loans.
(5) Whether the plaintiff is liable to repay the $8 million loan from the 2nd defendant if he is not paid and will not be paid “Datum dividends”.
The law
25. The law on the various issues are not capable of great dispute.
Unfair dismissal
26. The law on summary dismissal is fairly clear:
(1) By section 9(1) of the Employment Ordinance, an employer may terminate a contract of employment without notice or payment in lieu if an employee, inter alia, misconducts himself, such conduct being inconsistent with the due and faithful discharge of his duties, or is guilty of fraud or dishonesty.
(2) Conduct to justify summary dismissal may be a single incident or may be the cumulative effect of a series of incidents (Wyldbore v Bayubay [1987] HKC 304 at 306).
(3) Conduct can be relied on to justify summary dismissal even if it was not given as the ground of dismissal at the material time (or even known of); Ng Ai Kheng v Open University of Hong Kong [2006] 2 HKLRD 228 at 237 [47] ‑ [51].
Defamation and privilege
27. Defamation is the publication of matter tends to discredit, or lower the plaintiff in the estimation of others, or causes him to be shunned or avoided, or exposes him to hatred contempt or ridicule.
28. If a defamatory statement is substantially true, then the defence of justification is made out and the defendant is not liable.
29. Communications between a solicitor and client for the purposes of contemplated or actual litigation or for the purpose of obtaining legal advice attracts legal professional privilege and is a defence to a claim for defamation (Gatley on Libel and Slander 12th edn p 528 [13.51]).
The witnesses
30. I will give an overview of the various witnesses in the case. This is not intended to be in any way a comprehensive review of their evidence, but of the impressions that each witness presented as they gave their testimony.
31. The plaintiff himself gave evidence and called no other witnesses. The plaintiff came across as someone having a genuine sense of grievance. Much emphasis was placed on the longstanding relationship he had with the 2nd defendant and how close they were. I have no doubt that they were very close, to the extent that the 2nd defendant was or considered as godfather to the plaintiff’s sons. Although the 2nd defendant may have disavowed such status by subsequently describing them as “quasi” godchildren, the contemporaneous correspondence shows that there was no such reservation in his description of their relationship.
32. The plaintiff is obviously an intelligent person, conducting the case unrepresented on his own, to the extent of conducting his own legal research and drawing my attention to various cases which were relevant to his arguments. However, he is not a “neat” or “well organized” person. I say this without meaning in any way to be disparaging, but to describe that the way he presented his case, and the documents and how he handled various aspects of the case papers demonstrates a character who is not very detail oriented or meticulous in presentation. The pleadings and witness statements are meandering and difficult to digest, with much repetition and irrelevant matters and going off on tangents. Even taking into account that he is a lay person with limited legal knowledge representing himself, it remains that his case is not presented with clarity. Nonetheless, the issues have in the course of the trial been fully explored and I have considered each and every aspect of the case.
33. Whilst I consider that the plaintiff comes across as having a genuine sense of grievance. I believe that his views towards and recollections of events are coloured by his own perceptions and feelings of being badly done by. One instance (and the most telling instance) is his interpretation of what he describes as his “confessional” emails concerning the AUD Loan, about which I will deal with below.
34. The 2nd defendant gave evidence on his own behalf and also on behalf of the 1st defendant. The 2nd defendant presented as a better and clearer witness. His train of thought was definitely clearer than the plaintiff. However, he was quick to acknowledge that he may not necessarily have a good recollection or indeed any interest in details. This was confirmed by Mr Clifford Wong who also gave evidence on behalf of the defendants and said that the 2nd defendant was “very broad stroke” and “not details oriented”.
35. Similar to the plaintiff, I discerned that the 2nd defendant’s recollection and perception appears to be coloured by the position that he has taken and his belief that the plaintiff has taken advantage of his goodwill and trust in him.
36. What became apparent over the course of cross‑examination is that the cross‑examination at times descended into an easy banter between the plaintiff and the 2nd defendant. Although strained by subsequent events and in the artificial environment of the courtroom, it is not difficult to see that these two protagonists were at one time close to each other and had an easy going relationship with each other.
37. Clifford Wong came across as the witness whose evidence was least coloured by personal feelings and perceptions. I find that I can rely on his testimony. He was quick to admit that the plaintiff was correct in relation to the allegation about unauthorized reimbursement of medical insurance for the plaintiff’s family which I believe led to the subsequent withdrawal in final submissions of that issue from the litany of the 1st defendant’s allegations against the plaintiff.
Unfair dismissal
38. Central to the claim for unfair dismissal is the AUD Loan. This loan was discovered when the plaintiff instructed Sandy Lee, the Finance Manager of the 1st defendant to arrange for retrospective shareholder approval of the AUD Loan. Approval was required because the effect of the arrangement was that the plaintiff had caused the 1st defendant to increase its facilities with HSBC which then made payment to the plaintiff or to his order. HSBC in effect lent the money to the 1st defendant which in turn lent the money to the plaintiff. This was not for any business purpose of the 1st defendant but for his own use. This led to Clifford Wong investigating this loan which was apparently drawn by the plaintiff in November 2007 but fully repaid in February 2008.
39. Enquiries were apparently made of the plaintiff, which led to an email dated 12 March 2008 from the plaintiff to Timmy Yam, the 1st defendant’s company secretary, copied to, inter alia,Clifford Wong, and the 2nd defendant. The email stated as follows:
“the full story, then everyone decide how to handle this.
1. i acquired an australian property and sold an australian property last year.
2. i approached hsbc for a bridging loan of 1 month.
3. they advised to reduce paperwork etc, easiest was for them to lend the money to datum, then to me.
4. i would indemnify the company and paid all the costs.
5. the sale was delayed by around 6 weeks, thus it carried over to 2008. i paid all interest.
yes, it was on paper a company loan to a director, and this is wrong, and i am sorry that i also involved hsbc In this.
there is no fraud, nor exposing the company to any loss”
40. A second relevant email is on 24 April 2008. The relevant part is reproduced below:
“5. aud loan was very simple, i bought a new house for my parents, the plan was i paid the difference between the new house and the sales proceeds from the old house, the sale was delayed and i didn’t want to risk the currency flucuations. i approached hsbc and they advised the easiest way was throught the coy, it is all settled. i have implicated hsbc and sandy, lee in this arrangement and i am solely responsible.”
41. Without approval from the shareholders, this loan would mean that the plaintiff was using the 1st defendant’s borrowing facilities as his own. It was also a breach of section 157H of the Companies Ordinance, Cap 32, which prohibits a company from making a loan to its director (save with approval in general meeting).
42. The plaintiff’s case is that the AUD Loan was in fact his own personal loan facility which he arranged with HSBC. He bought a property in Australia and subsequently sold another one. He needed the proceeds of the sale to complete the purchase. However, the timing was not correct and he needed a bridging loan from HSBC. It had nothing whatsoever to do with the 1st defendant. The 1st defendant was simply used as a conduit for the transfer of money as the plaintiff did not have an account with HSBC. The plaintiff referred to a facility letter from HSBC to the plaintiff and his wife (referred to as the “SIBOR” loan as the interest rate was calculated based on the prevailing Singapore Inter‑Bank Offered Rate) as being the facility which was granted to him personally and not the 1st defendant.
43. This explanation about the SIBOR loan facility unfortunately fell apart when it was pointed out in cross‑examination that the facility letter required security by way of a mortgage over the plaintiff’s property in Braemar Hill, which, according to the relevant land search was not executed until 31 January 2008, more than three months after the AUD Loan was drawn down. Further, the interest rate on the SIBOR facility was higher than that of the AUD Loan. The plaintiff could come up with no convincing explanation save to say that he had had no opportunity to deal with the land search as he had not seen it before.
44. The two emails admittedly sent by the plaintiff makes the matter clear beyond any reasonable dispute. These emails speak for themselves. The plaintiff could simply provide no logical or sensible explanation for those emails and was forced to provide strained interpretations of clear and simple words. I find that the plaintiff had caused the 1st defendant to borrow from HSBC for his own purpose, without authorization from the board or the shareholders.
45. I find that this act is sufficient justification for the 1st defendant to summarily dismiss the plaintiff. It is like a cashier taking money out of the till for his own purpose without authorization. The fact that the money is returned or the loan repaid does not absolve the conduct which can be considered a clear breach of trust and breach of the fiduciary duties which the plaintiff owed to the 1st defendant.
46. I do not consider the other matters of complaint by the 1st defendant made out. The plaintiff had given evidence about conversations he had with the 2nd defendant concerning purchase of school debentures. Although the 2nd defendant does not recall these conversations, I cannot be satisfied on the balance of probabilities that this did not occur.
47. Similarly with the purchase of debentures, the payment of school fees, club membership fees would fall into the same category. This was all presumably done openly by the plaintiff and the accounts were open for all to see. There was a specific distinction drawn between the plaintiff’s payments for the disputed memberships of the American Club, the Clearwater Bay Golf, Country Club, and the plaintiff’s own membership fees in the HK Jockey Club, for which he had never sought reimbursement. This is consistent with the plaintiff’s case that these club memberships were used primarily for business entertainment.
48. The reimbursement of entertainment expenses was not itself an unauthorized act. It seems that the 1st defendant’s case was that the plaintiff did not keep adequate records of the business discussed and so the plaintiff should not claim these amounts. It was clear and apparent even during the few short days when the plaintiff appeared before me that he was not a person who was meticulous in keeping records, and this character trait would have been well known to all his colleagues. Failure in record keeping does not equate to claiming reimbursement for entertainment which should not have been claimed.
49. The “unauthorized” reimbursements and payments must be seen in the context of the very close relationship between them at material time. In one of the contemporaneous emails, he had expressed that he was “Proud to read about my wizz-kid Godson” on learning that the plaintiff’s son had been accepted into a particular school. The plaintiff himself described the 2nd defendant within the MFJI Group as the God and himself as the demi-god. Clifford Wong when asked about the relationship between the plaintiff and the 2nd defendant described the plaintiff as “a star” and that the 2nd defendant was very proud of him.
50. Given this sort of relationship, given that the 2nd defendant was the de facto “boss” of the Group, I cannot be satisfied to the requisite standard that these reimbursements were not authorized whether expressly or tacitly.
51. It does not help the 1st defendant’s case that all these alleged wrongdoings were only discovered subsequent to the investigation about the AUD Loan. The purchase of the debentures, the regular payment of the club memberships, and the insufficient accounting justification of the entertainment expenses had all been going on openly for some time. These allegations of misconduct give the impression of an attempt at ex post facto justification. Whilst I accept as a matter of law that misconduct discovered only after dismissal can be deployed to justify that dismissal, I do not accept that these acts complained of constitute misconduct.
52. To conclude on the issue of unfair dismissal, I find that the 1st defendant was justified in summarily dismissing the plaintiff on account of the AUD Loan. I do not find the other allegations of misconduct made out.
Defamation
53. There are three categories of allegedly defamatory statements. First are the emails and voice messages to the plaintiff and his wife. The second is the allegation of slander to various persons of which a single person, Billy So, is identified. The third is the email to Billy Ma.
54. Dealing with the first of the three categories in issue, I would first of all discount any emails or voicemails addressed to the plaintiff himself. Defamation occurs on publication to third persons and not simply a statement to the person being allegedly defamed.
55. That still leaves emails and voicemails which may be addressed to the plaintiff’s wife. On the assumption that one can defame another through publication of defamatory statements to that other’s spouse, I nevertheless find that all the emails and the voicemails complained of and in evidence before me are not defamatory. I have considered each and every one of the relevant emails and listened to the relevant recordings of the voicemails as well as considering the transcript and log of the voicemails produced by the parties. I do not intend to go over each and every one of the emails and voicemails, nor to reproduce them in this judgment. They are self-explanatory and require little by way of elaboration should this case be taken further. I find that they are, by and large communications to seek repayment of a debt and although not particularly complimentary, would fall short of being defamatory by a fair margin.
56. The largely unparticularized allegations of slander I find not sufficiently proven. It is not sufficient for the plaintiff to simply complain about the 2nd defendant’s communication to the plaintiff that he had been congratulated by many people for dismissing the plaintiff, to infer that the 2nd defendant had defamed the plaintiff.
57. Other persons have been referred to in the Re‑Amended Consolidated Statement of Claim with allegations of defamatory statements having been made to them. There is no documentary or other evidence from these persons about such allegedly defamatory statements being made to them. Not one single person was called to give evidence (whether voluntarily or under subpoena) about such defamatory statements. Not a single piece of paper or electronic communication to evidence this has been produced. Such alleged defamatory statements have been denied by the defendants. I am not satisfied to the requisite standard that such defamatory statements were made.
58. The email to Billy Ma, partner of solicitors Hobson & Ma, falls into a different category. This email was sent from Clifford Wong on 9 May 2008. The relevant sentence reads “We are now learning more and more of the unethical business practice which Thomas engaged in including the unpaid bills from your firm. Given the close relationship between you and the Jebsen family, this is simply unacceptable from our point of view”.
59. The effect of this is to impute that the plaintiff engaged repeatedly in “unethical business practices” and is clearly defamatory in nature. It suggests that the plaintiff is dishonest in his business dealings with others. The plaintiff would succeed unless the defence of privilege or justification or for that matter, qualified privilege is made out.
60. I do not consider the email to be subject to legal professional privilege. Looking at the whole email in context, it was not a communication sent for the purpose of litigation or for obtaining legal advice. Not all communications between lawyers and their clients are privileged. This communication addresses (at most) the unpaid bills of the solicitors and can in no way be described to have any connection with litigation or legal advice.
61. The defendants also plead justification saying that the sender Clifford Wong was very strict about settling bills promptly, and the email has to be understood in that way. I do not consider that a failure to settle bills promptly can be described as “unethical business practice”, which connotes an element of dishonesty in the conduct of business.
62. The defendants also rely on the misconduct of the plaintiff resulting in his summary dismissal, as justification for the defamatory statement. The argument goes that if I find that the plaintiff has committed misconduct (which I have), and such misconduct can be described as dishonest, such conduct is unethical, and being in the course of business, the statement albeit defamatory is substantially truthful and the defence of justification is made out.
63. Such a view, however, would be to take the statement out of context. The statement is that the plaintiff engaged in “unethical business practice”. Whilst there was misconduct in the plaintiff’s dealings with the 1st defendant, the relationship between the plaintiff and the 1st defendant can hardly be said to be business practice as is commonly understood. The words complained of would to the ordinary person evoke notions of the plaintiff cheating a business partner or counterpart, which is not substantially the same as misconducting himself in the office as director of the 1st defendant. To give a crude analogy, the fact that a man may cheat on his wife does not mean he will cheat his business partners.
64. Although qualified privilege was pleaded, no arguments were advanced on this defence. In any event, I do not find it made out.
65. I find that the plaintiff’s claim of defamation succeeds as against the 1st defendant. The subsequent forwarding of this email to the plaintiff does not, for reasons given, constitute publication.
66. As to quantum, I take into account all the circumstances of the case. I consider that the gravity of the defamatory statement is mitigated somewhat by the whole of the statement taken together, the unpaid bills being an example of what was considered to be unethical business practices. I also take into account the very limited extent of publication. Each case turns on its own facts and there is no generally accepted level of damages for defamation. I would award the plaintiff $80,000 as general damages for defamation.
67. The plaintiff claims aggravated damages for defamation. Aggravated damages are awarded to compensate for additional injury caused to the plaintiff’s feelings by the defendant’s conduct of the action, as when he persists in an unfounded assertion that the publication was true, or refuses to apologise, or cross‑examines the plaintiff in a wounding or insulting way, or any kind of high‑handed, oppressive, insulting or contumelious behaviour by the defendant which increases the mental pain and suffering caused by the defamation and may constitute injury to the plaintiff’s pride and self‑confidence (Oriental Daily Publisher Ltd & Anor v Ming Pao Holdings Ltd (2012) 15 HKCFAR 299 at [112] ‑ [113]).
68. I do not find the claim for aggravated damages to be made out. I do not find the 1st defendant’s behaviour to be high‑handed, oppressive, insulting or contumelious. Although the 1st defendant did persist in what I find to be an unfounded assertion, this is part of the defence which I find was run in good faith.
Breach of contract
69. The plaintiff’s case is that in 2003, he suggested to take DNC public by listing it on the GEM board, in accordance with an agreement which had previously been reached with JCL. This would presumably have made more funds available to the company, and a 10% shareholding entitlement of the plaintiff in a public company would have been worth substantial money to the plaintiff.
70. The 2nd defendant countered with a proposal which subsequently became an agreement that instead of taking DNC public, they raise funds by resorting to the Jebsen family trust. This trust was administered for the purpose of providing funds for businesses undertaken by members of the Jebsen family. A business proposal would be prepared for consideration by the trustees. If a particular business proposal met with the approval of the trustees, the trust would put up 50% of the funds required for such business, whilst the applicant for funding would have to come up with the remaining 50% on his own.
71. The 2nd defendant’s proposal was that instead of going public, they could obtain funds through this family trust. The plaintiff would be rewarded with 10% of the ownership of any company formed as a result of such funding, and 10% of the incremental value on disposal. This was agreed to between the parties and various business ventures were proposed and funding obtained. This is loosely referred to by the plaintiff as the “Datum Projects”, and included acquisition of the Toyo Factory, the Yashica brand, and the Datum warehouse.
72. This version of events is denied by the 2nd defendant. While admitting that there were initiatives proposed by the plaintiff which led to the projects described, there was simply no such agreement between the plaintiff and the 2nd defendant.
73. Given the diametrically different version of events, the best way to resolve this issue is to look for corroborating evidence in the form of contemporaneous documents to support the plaintiff’s version. In this case, the lack of any such contemporaneous documents speaks volumes against the plaintiff’s assertions. Such an agreement, if it existed, would certainly be an important matter and which should have been put into writing. Instead, no record of such an agreement exists. Further, no communications have been produced which even alludes to such an agreement. Even the alleged agreement with JCL which preceded it and on which allegedly led to this agreement has not been produced.
74. This total lack of documentation can be contrasted with the other documents available to record agreements between the parties. For instance, the letter concerning the Annual Bonus and Incentive Plan in respect of DNC and Kenny Rogers Roasters (“KRR”) dated 23 September 2003. Even more casual agreements are recorded in writing, as witness the loan agreement for $8 million.
75. Further, the inconsistency in the plaintiff’s case as to the terms of the alleged agreement is also indicative that there was no such agreement. In the Re-Amended Consolidated Statement of Claim, the plaintiff claimed to be entitled to (1) Annual dividends from the “Datum Group”; (2) 10% ownership of the “Datum Group”; (3) 10% of any investments brought into “Datum Group” via the family trusts; and (3) that this agreement was verbal and in writing dated 18 October 2005.
76. It turns out that the 18 October 2005 agreement in writing is the agreement in relation to the $8 million loan and there is no mention whatsoever of this agreement whereby the plaintiff would be entitled to 10% of various aspects of the “Datum Group”. This was further reduced in his opening where he clarified that he was not claiming 10% of moneys brought in from the trust fund. In his closing submissions, he claims 10% of the “Datum assets”.
77. Having considered the totality of the evidence, I reject the plaintiff’s claim of this alleged agreement. While the plaintiff may have hoped to have been rewarded by the 2nd defendant should the businesses proposed by him be successful, this was no more than a hope and certainly was not an agreement between the plaintiff and the 2nd defendant.
Repayment of directors’ loans
78. By a deed of assignment dated 1 December 2006 signed by the plaintiff, a debt of $4,332,437 acknowledged to be due and owing by the plaintiff to DNC was assigned to the 1st defendant such that the 1st defendant became the plaintiff’s creditor in place of DNC.
79. The 1st defendant claims for the sum of $2,329,437 being the balance of the debt due to the 1st defendant after deducting $2,003,000 which although booked for accounting purposes as a loan was to the understanding of the parties a bonus paid to the plaintiff. (The “loan” would be waived at a time in the future when the financial situation of the 1st defendant was in a better position.)
80. The plaintiff does not challenge this calculation, save to say that this sum should be set off against the dividends/bonus owing to him. I have already held that there is no dividend/bonus arising out any alleged agreement between the plaintiff and the 2nd defendant. Nor does there appear to be any basis to dispute the evidence of Clifford Wong as to how he came to the sum of $2,329,437.
81. In the circumstances, I find the plaintiff liable for repayment of the director’s loans to the 1st defendant in the sum of $2,329,437.
$8 million loan
82. This loan was a personal loan made by the 2nd defendant to the plaintiff. The loan is pursuant to an agreement dated 18 October 2005. The relevant terms of the loan are:
“We discussed this morning, October the 18th 2005 at MFJ’s office at below address, that based on your 10 years of hard work, significant success and loyal services to JCL / MFJIL, I shall grant you a personal loan in the amount of HK$ 8 million. Repayment of this interest free loan shall materialize over the next 3-5 years by means of deductions from Datum dividends due to you annually.”
83. No part of this loan has ever been repaid. The plaintiff says that the terms of the loan are that repayment should come only from the “Datum dividends due to you annually”. Since no such dividends have ever been paid to the plaintiff, the plaintiff is not obliged to make any repayment of this loan.
84. The principles on construction of contract are well known. In the words of Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912‑913, it is “the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract” (p 912H). In Fully Profit (Asia) Ltd v Secretary for Justice,Ma CJ said at paragraph 15:
“We have been referred to the very well-known statement of principle regarding the construction of contractscontained in the speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society, to which can be added the judgment also of Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd. What emerges from these cases – and other authorities on contractual interpretation – is the overall importance of context when construing contractual terms. The statements of principle in Investors Compensation Scheme and in Jumbo King refer time and again to the relevant background against which the relevant contract and contractual terms must be viewed. It is in my view not particularly helpful in most cases to refer to the ‘ordinary and natural meaning’ of words because, as very often experience tells us, there can be much debate over exactly what is the ordinary or natural meaning of words. The surer guide to interpretation is context. Here, I would just add that in the area of statutory and constitutional interpretation, it is context that is key; context is the starting point (together with purpose) rather than looking at what may be the natural and ordinary meaning of words.” (emphasis added)
85. These statements are particularly apposite. They construction of the loan agreement must be seen in context. The particular context here is that this was a loan agreement. It was both a reward for previous loyal service and a means to bind the plaintiff to future loyal service. In these circumstances, any suggestion that the loan would not need to be repaid if the plaintiff no longer was employed by the MF Jebsen Group would go against that very context. While it may seem reasonable if one looks at just one side of the coin, ie the plaintiff should not have to repay the loan if the plaintiff is dismissed from the employment of the 1st defendant, if one looks at the other side of the coin, the fallacy of that reasoning will become clear. It cannot have been the intention that the plaintiff could avoid repayment by simply resigning and therefore foregoing any entitlement to dividends.
86. Further, the construction contended for by the plaintiff means that the loan need not to be repaid. The notion that a loan would not need to be repaid strains against the natural and ordinary meaning ascribed to the word “loan”. Whilst it is possible to draft a loan agreement to have such an effect, it would need clear words to do so, and the words used here do not have such effect.
87. I find that the plaintiff is liable to repay the loan.
Conclusion
88. The plaintiff succeeds on his claim against the 1st defendant in defamation. I assess general damages at $80,000. I do not find that the plaintiff has made out a case for aggravated damages.
89. I dismiss all other claims of the plaintiff.
90. The 1st defendant succeeds on its counterclaim against the plaintiff for repayment of director’s loans in the sum of $2,329,437 and director’s current account in the sum of $571,520, giving a total of $2,900,957.
91. The 2nd defendant succeeds on its claim against the plaintiff in the sum of $8 million.
92. I award interest on the plaintiff’s award for general damages at 2% per annum from date of writ until judgment and thereafter at judgment rate. I award interest on the defendant’s awards at 2.5% per annum, from date of demand until judgment and thereafter at judgment rate.
93. I make an order nisi that:
(1) the plaintiff is to have costs of his claim against the 1st defendant;
(2) the 1st defendant is to have the costs of its counterclaim against the plaintiff; and
(3) the 2nd defendant is to have his costs against the plaintiff; to be taxed if not agreed.
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(Robert Pang SC)
Deputy High Court Judge |
The plaintiff appeared in person
Ms Queenie Lau, instructed by Anthony Siu & Co, for the 1st and 2nd defendants
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