YAM SIU KEUNG v. WINCHEER ENTERPRISES LTD.

1995 No. A 6773

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6773 OF 1995

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J U D G M E N T

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1. The plaintiff's claim arises out of his previous contract of employment with the defendant, that contract, according to the plaintiff, having been terminated without one month's notice. He claims $25,000.00 being one month's salary in lieu of notice; $15,927.00 being pro-rata a 13th month's salary; and an account of all sums due and owing by the defendant by way of commission of 10% payable to the plaintiff.

2. It is the defendant's case that the plaintiff resigned and that the defendant, by paying the plaintiff for the balance of the month between the day of resignation and the end of the month, over-paid the plaintiff. The sum of $8,870.97 should be set off against any sum found to be due and payable to the plaintiff. Further, the defendant counterclaims against the plaintiff for breach of fiduciary duty in that the plaintiff sought or obtained secret commissions; agreed to pay penalties to the defendant's buyers for late delivery of goods; and cancelled orders placed by buyers. The defendant seeks damages and an account of sums due and owing to the defendant by reason by such breaches.

3. With leave from a master, the defendant was represented by a director, Mr. Henri Depardieu. Mr. Depardieu was also the principal witness for the defendant.

4. Mr. Depardieu, whose home is in France, deals in ladies fashion handbags. He entered the business in Hong Kong in the well-known role of middleman, that is, fulfilling a purchaser's requirements by having the bags manufactured in Hong Kong or China. It was for this purpose that Mr. Depardieu acquired the defendant company. Mr. Depardieu had business with a Hong Kong company called Alan Development Company for which the plaintiff worked as sales manager. It was thus that the plaintiff came to know Mr. Depardieu.

The plaintiff's case

5. In July 1993, the plaintiff resigned from Alan Development. In the meantime, in June, he had had a meeting with Mr. Depardieu who wanted him to join the defendant. According to the plaintiff, Mr. Depardieu offered him $25,000.00 per month plus the usual extra month's salary, also 10% commission on any profit. For his part, the plaintiff asked for a further 3% commission on any business which he introduced. Both were happy with the discussions but no agreement was reached at that meeting.

6. On 30th of September, the plaintiff was invited to dinner by Mr. Depardieu. At the dinner, apart from the two men, was Mrs. Delphine Lin, another director of the defendant. According to the plaintiff, the same terms as before were discussed and agreed. There was no formal written contract but Mr. Depardieu wrote out what the plaintiff regarded as the agreed terms on the back of a business card. Both parties relied upon this card in support of their respective positions, so it warrants some description.

7. At the top of the card are two lines of writing. The first reads "$25,000.00 x 13". The next line reads "10% property Wincheer". Below is a chart. It consists of a horizontal line divided into 4 sections, each numbered 6, i.e., periods of 6 months. The 1st two periods are joined by a curve above which is again written "25,000.00 x 13". Over the following two periods of 6 months, is a line which extends half way and ends in a query. Below that line is a dotted line which begins to ascend as it nears the end of the 4th six-month period.

8. Below all this is a curve joining the 1st period of 6 months and under the end of that curve is written

"10%"
"gift"

9. It is the plaintiff's view that the word "gift" is in fact "p/l" meaning profit and loss. I am afraid there is no basis for that understanding. The word in question is quite clearly "gift".

10. The card is then dated 30th September and it is signed by Mrs. Lin and Mr. Depardieu.

11. The plaintiff asserted that the writing and diagram on the business card support his contention that he was to get $25,000.00 per month with an extra month's pay if he completed 12 months' service. He was also to receive a 10% commission on any profit, hence the reference to "p/l" or profit and loss. The plaintiff agreed, however, that there was no reference to the 3% commission for which he had asked.

12. According to the plaintiff, agreement was reached on these terms and also that the employment would be governed by Hong Kong law. As a result, he began working full time for the defendant on the following Monday 4th October 1993.

13. The plaintiff received no commission of 10% on account profits. He spoke to Mr. Depardieu about this after 6 months. Mr. Depardieu said there was not as yet any profit so there would be no commission. The plaintiff did, however, receive a payment of $6,250.00 in February 1994, the equivalent of 3 months' salary.

14. On 20th August 1994, the plaintiff had a discussion with Mr. Depardieu and Mrs. Lin in the defendant's office. The plaintiff said that they wanted to vary his terms of employment. The plaintiff would cease to receive a monthly salary and payments of commission. Instead, he was to do whatever business he could and pay a commission to the defendant. Hardly surprisingly, the plaintiff was against this suggestion. Mr. Depardieu said he would ask local friends about his proposal. The plaintiff left to await further development.

15. Over the next two days, the plaintiff carried on as usual and went to China to inspect goods being manufactured there. On 23rd August, he went to the office and saw Lisa Tso, the secretary. Miss Tso told the plaintiff that he had been given the sack and need not come back to work. She gave him a letter dated 20th August and signed by Mr. Depardieu and Mrs. Lin which referred to the meeting on 20th October

".... in which you submitted your resignment, we hereby confirm that your resignment effective right after that said meeting.

It is mean that you are no longer the employee of Wincheer Enterprises Limited from the date of Aug. 20, 1994. Thank you for being working for us from Oct. 1, 1993 till now".

16. There was another letter, constituting the plaintiff's resignation, for him to sign. The plaintiff declined to sign. The plaintiff was also given a cheque for $30,833.30, which according to a note accompanying the cheque, comprised the plaintiff's August salary plus $5,833.30 for a year's annual leave.

17. The plaintiff later received a letter from the defendant dated 13th December in which there were complaints that the plaintiff had cancelled orders, or instigated clients to cancel orders, without the defendant's agreement. There was also a complaint about a problem with a customer called Condaz. The defendant asked for the plaintiff's assistance in resolving these problems. On 29th December, a further letter from Mr. Depardieu indicated that the matter would be placed in hands of the defendant's lawyers. According to the plaintiff, he had spoken to Mr. Depardieu over the telephone and explained that, because he had been sacked, he no longer had authority to deal with these customers. He asked for authority in writing to deal with them but this authority was refused.

The defendant's case

18. As far as the plaintiff's claim is concerned, the defendant's case was principally put by Mr. Depardieu. Mr. Depardieu, who is French, had by 1993 been in business in the Far East, including Hong Kong, for many years. He traded in high quality ladies accessories, ranging from cosmetics to fashion handbags. He did business with well-known brand names, mainly in France and the Germany. By 1993, he had helped Alan Development to get started by channelling business its way. He made acquaintance with the plaintiff who was in charge of Alan Development's export business because of his English. The plaintiff explained to Mr. Depardieu that he had certain difficulties in that company. Mr. Depardieu also experienced difficulty with the company which was increasing its prices for the products supplied to him. He therefore thought it was a good opportunity to start a business in Hong Kong as the plaintiff was free.

19. Together with Mrs. Lin, Mr. Depardieu set up the defendant. He was in and out of Hong Kong during 1993. When he came to Hong Kong, he would meet the plaintiff and have discussions with him about the future. To work for the defendant, the plaintiff was asking a high salary and 14 months' pay each year. Mr. Depardieu's idea was to have a local person managing the business with a share in the company so that he would work with both his own and the company's interests in mind. This was a practice which Mr. Depardieu said he had adopted in other countries where he had businesses. The discussions eventually crystallised on 30th September when Mr. Depardieu illustrated his idea on the back on his business card. That illustration, he said, was of a salary of $25,000.00 per month payable for 13 months in the first year but to be reviewed in the second year depending how business went. Further, within 6 months, when the necessary paper work had been done, the plaintiff would be given a 10% shareholding by way of gift. The plaintiff wished to take time to consider this proposal.

20. Later, the plaintiff rejected the proposal, explaining that he did not wish to take any risk. He accepted a salary only of $25,000.00 per month. Mr. Depardieu was adamant that there was no question of 13 months' salary nor any question of commission ever having been discussed between him and the plaintiff. Mr. Depardieu was vague, however, about how the plaintiff communicated his decision to the defendant. He was not clear whether it was to him or Mrs. Lin.

21. Mr. Depardieu explained that he would not have agreed to 13 months' salary because he did not grant such a term in any other of his businesses. He said once it became known that one employee was getting such a term, then all employees would want the same.

22. Mr. Depardieu denied that the plaintiff had approached him after about 6 months concerning payment of commission. He agreed, however, that he had thanked the plaintiff and that the plaintiff had received some form of bonus or special payment but not as part of his terms of service.

23. In 1994, trouble began with a customer called Condaz which was not making payment. At the same time, suppliers, particularly King Alpha and Ginlamy, were pressing for payment. Mr. Depardieu asked the plaintiff for an explanation. The plaintiff said it was only a small problem and no trouble for the defendant. As time passed, however, Mr. Depardieu sensed that there was big trouble with this customer. He was also concerned about the low profit level that was being achieved. He and Mrs. Lin pressed the plaintiff further. Eventually, on 20th August, the plaintiff said that if they were not satisfied with him he would leave the company. He said that he resigned and left the office. After he had gone, the defendant's comfirmatory letter, the blank resignation letter and a cheque were prepared and were collected by the defendant later on.

24. After the plaintiff had left the defendant, Mr. Depardieu discovered various matters in the files which he thought required explanation. He wrote to the plaintiff in December seeking his assistance. Although the plaintiff made an appointment to come to the office, in the end he simply telephoned to say he could not come. It was some surprise to Mr. Depardieu when the plaintiff commenced proceedings against the defendant in the Labour Tribunal in 1995. The Labour Tribunal declined jurisdiction . The plaintiff then recommenced this action in the High Court as it then was.

25. Mrs. Lin, the other director of the defendant, gave evidence. She is a businesswoman based in Taiwan who visits Hong Kong from time to time in connection with her interests here. Although she had met the plaintiff perhaps once before, she first spoke to him at the meeting on 30th September 1993 when terms were discussed over dinner in a restaurant. She said the basic proposal was for a salary of $25,000.00 per month with a 10% shareholding in the defendant. Mr. Depardieu suggested that each of them should give the plaintiff 5% so that they would then each have 45%. Mrs. Lin, as a Chinese person, suggested that there should also be a bonus at Chinese New Year based on the results of the company. If business was bad, the payment might be nothing. If the company was getting on well, then it could be anything from 1 to 3 months' salary. The plaintiff said that he would have to check with his wife before confirming his acceptance of the proposals.

26. A few days later, the plaintiff telephoned and spoke to Mr. Depardieu at a time when Mrs. Lin was present. According to Miss Lin, the plaintiff accepted the proposals. She checked this with the plaintiff later on when it appeared that he accepted the salary of $25,000.00 per month. When she asked him to contact the plaintiff's accountant to arrange for the transfer of the shares, the plaintiff said that he realised there were a responsibility as well as an advantage. He said there was no urgency, that the salary was most important and he wanted to see how the company was going.

27. As far as Mrs. Lin was concerned, therefore, the plaintiff joined the defendant as marketing manager at a salary of $25,000.00 per month with a possible bonus at Chinese New Year. She believed, however, that she, Mr. Depardieu and the plaintiff regarded each other as partners who would see the company growing and share in it together.

28. Mrs. Lin confirmed that Mr. Depardieu had illustrated the proposals on the back of his business card. She said that when Mr. Depardieu wrote "$25,000.00 x 13", he simply was using her suggestion of a bonus.

29. Mrs. Lin was adamant that there was no misunderstanding about commission. She said the question of commission was never raised at the meeting. When Mr. Depardieu wrote "gift" on his card he meant exactly that, that is, no money.

30. Mrs. Lin confirmed that she paid the plaintiff a "proportion" based upon one month's salary a bonus at Chinese New Year 1994.

31. Prior to the meeting on 20th August, Mrs. Lin said that at a number of meetings she and Mr. Depardieu had been putting pressure on the plaintiff because the profit margin on the business was insufficient even to cover overheads. They were pushing the plaintiff to do better. On Saturday, 20th August, they met the plaintiff in the morning at the defendant's office. On this occasion the plaintiff said he was not happy and that he quit. Mrs. Lin and Mr. Depardieu accepted this resignation. As far as Mrs. Lin was concerned, it is her policy in her business affairs not to retain further a person who is unhappy or unwilling. Probably with the assistance of her secretary, she typed out the confirmatory letter together with the draft resignation. She also prepared the cheque and a note of her calculations. Because by then it was about mid-day, it seemed that the plaintiff had already left. She left the documents with her secretary to give to the plaintiff. She had no further communication with the plaintiff until the defendant received notice from the Labour Tribunal that the plaintiff was making a claim against the defendant.

Assessment

32. There was a contrast of character between Mr. Depardieu and Mrs. Lin. Mr. Depardieu is plainly a man who likes to seek out and develop business opportunities. He is not over-concerned about administrative details. He leaves such matters to others. Mrs. Lin concerns herself much more with administrative matters and was the director who assumed responsibility for supervising the day-to-day running of the defendant. Hence, there was greater precision in her evidence. Of the three witnesses who gave evidence, I found Mrs. Lin to be the more satisfactory. I found her account of how the plaintiff was to be given a shareholding and of his later reaction to be particularly persuasive .

33. In contrast, the plaintiff faced the difficulty that the wording and diagram which Mr. Depardieu wrote on his business card and upon which the plaintiff relied in support of his case was far more consistent with the account given on behalf of the defendant. There can be no doubt that Mr. Depardieu wrote the word "gift". Had he intended to write commission or in some way make reference to the company's results or profit and loss account, I have no doubt that he would have made this clear. The plaintiff's denial, therefore, that there was any proposal that he should have a shareholding in the company does him little credit.

34. There are, however, two important discrepancies which the defendant has to overcome. Until comparatively recently, the defendant was represented by solicitors. These solicitors prepared the defence and counter-claim, drew up further and better particulars, and prepared witness statements for Mr. Depardieu and Mrs. Lin. These documents, of course, could only have been drawn on instructions. Although there had been an order for exchange of witness statements, the plaintiff's witness statement was made available in March 1997; the defendant's witness statements, however, not until November. Mr. Depardieu and Mrs. Lin therefore had ample time in which to consider and understand the plaintiff's case. The witness statements of Mr. Depardieu and Mrs. Lin, which are drawn in almost identical terms, each state that the plaintiff proposed terms of employment including a 10% commission on net profit and a 3% commission on net profit of transactions introduced by the plaintiff. That, of course, is entirely inconsistent with their evidence to the effect that there was never any mention of commission.

35. Second, the plaintiff's witness statement made clear reference to Mr. Depardieu's business card. Neither Mr. Depardieu nor Mrs. Lin made any reference to the business card in their witness statements nor offered any explanation for it. It was only in court for the first time that they offered the explanation that the plaintiff was to have a 10% shareholding.

36. These discrepancies are, as I have suggested, difficult to overcome being as they are discrepancies in relation to integral parts of the case. The explanation offered by the two directors is essentially the same, namely that they left matters to the lawyers with whom they had considerable difficulty because the lawyers did not appear to understand their case very well; and that as they were busy and not often in Hong Kong, they did not pay as much attention to the documents as they should have done. That is an explanation which I would, in most cases, view with considerable scepticism. It is an explanation, however, which has, I think, some substance in this case. As I mentioned, the two witness statements are drawn in almost identical terms. It is clear from my brief examination of the evidence, however, that it would be quite impossible, if Mr. Depardieu and Mrs. Lin had been interviewed properly for the purpose of a witness statement, to have produced 2 statements in such common form. I am prepared to accept, therefore, that the defendant was ill-served by its solicitors although no doubt the solicitors were equally hampered by difficulties in interviewing the two directors whose business activities and travels are exacting to say the least.

37. I come to the conclusion therefore, largely because of the quality of Mrs. Lin's evidence, that there was no question of commission being paid to the plaintiff. I find that he accepted the appointment as a manager in the defendant upon the basis of a salary of $25,000.00 per month with the possibility of a discretionary bonus at Chinese New Year. There remained an opportunity for him to acquire, at no charge, a 10% shareholding in the company.

38. As far as the events of 20th August are concerned, I have no doubt that Mr. Depardieu and Mrs. Lin are formidable and demanding when it comes to business matters. It seems to me, therefore, more probable than not that the plaintiff did in fact become unhappy and disenchanted to the point that he decided to quit. Even if they are tough business people, neither Mr. Depardieu nor Mrs. Lin struck me as being persons who would be unfair. I find it difficult to accept that, after an unsatisfactory meeting, they would have decided to sack the plaintiff and fabricated as an excuse a resignation by the plaintiff.

39. I find therefore that the plaintiff did resign from the defendant. Accordingly, his claim must fail and is dismissed.

The counterclaim

40. The defendant's counterclaim is a serious one amounting as it does to dishonesty. Indeed, Mr. Depardieu accepted that he regarded the plaintiff's activities as corrupt or criminal. The defendant was not, however, able to produce any direct evidence of such dishonesty. Mr. Depardieu invited me to draw inferences from documentation relating to the supply of goods under one contract to Condaz. What Mr. Depardieu complained about was

1. A 5 % surcharge inflicted by the defendant's suppliers for orders of less than 8,000 units of a particular item. Mr. Depardieu said if a price had already been negotiated by the plaintiff, who was responsible for this contract, upon the basis of inter alia a specified quantity, it could not be right for the factory to impose an additional surcharge.

2. The original contract between the defendant and Condaz for the purchase of these goods had had the penalty clause for late delivery deleted. It appeared, however, to have been reinstated later on by the plaintiff. This, said Mr. Depardieu, was against the interests of the defendant.

3. By a letter dated 18th August, the plaintiff on behalf of the defendant cancelled contracts with Condaz. Apart from suspicions as to whether this letter was sent out before or after 20th August, Mr. Depardieu again complained that a contract cannot simply be cancelled in the defendant's best interests.

4. One of the items comprised in this contract had been quoted by a factory at $21.6 per unit. The eventual contract price was $28.5 per unit. This contract superseded a pervious contract at which there had been a quoted price of $20.80. Mr. Depardieu asked how a contract could be concluded at a price higher than the offered price unless there was some dishonest dealing. That dealing, he suggested, was a way of funding payments of secret commission.

41. It is fair to say that the plaintiff's explanation was that all these activities were carried on with the knowledge and approval of Mr. Depardieu who had interests in the factory which was making the goods and stood to benefit from the contracts being placed with that factory.

42. I can well understanding Mr. Depardieu's suspicions.

43. The difficulty for the defendant, however, is that while these documents give rise to suspicion, they fall far short of proof of dishonest activity on the part of the plaintiff. The defendant's problem goes further. It is apparent from what Mr. Depardieu said in court that these documents represented the tip of the iceberg. He said that he had been through the files of many, many contracts concluded by the plaintiff, all of which gave him very serious doubts about the plaintiff's integrity. Unfortunately for the defendant, none of these matters had been pleaded or indeed mentioned before the trial. In my view, it was too late for the defendant to carry out a substantial amendment to its counterclaim. The trial would inevitably have been put off for a prolonged period.

44. As I said, suspicion is an insufficient basis on which to make a finding of breach of fiduciary duty amounting to dishonesty on the part of the plaintiff. Accordingly, the counterclaim is also dismissed.

45. The claim and the counterclaim each having been dismissed, there will be judgment accordingly.

46. In the circumstances, I make an order nisi that there should be no order as to costs.

47. The plaintiff's own costs are to be taxed.