NAGY CHRISTOPHER STEVEN JOHN v. LEE KIM KWAN ANTONY

HCA 7164/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 7164 OF 1996

(Transferred from Labour Tribunal Claim No. LT 343 of 1996)

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J U D G M E N T

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1. This is a claim for unpaid wages, bonuses, salary in lieu of holidays, salary in lieu of notice and expenses incurred but not reimbursed under a contract of employment between the plaintiff and a company of which the defendant is sole proprietor, Antony Lee Entertainment Production (ALEP). The defendant denies liability and counterclaims for loss of profit arising out of the plaintiff's misconduct and wilful neglect during the course of his employment.

Background

2. The plaintiff, an Australian, came to Hong Kong in 1985 and has remained ever since. He met the defendant a year later when both worked together as disc jockeys in the discotheque operated by Regal Meridian Hotel. As a result of approaches made by the manager of a discotheque in New World Hotel called the Catwalk Nightspot, New World in December 1990 contracted with ALEP for it to run the entertainment at the Catwalk.

3. As a direct consequence of that ALEP hired the plaintiff to be its Director of Operations at a starting salary of $17,000 per month, with 14 days paid leave per annum. Whether or not it was agreed that he would be paid anything more is contested. The plaintiff says there was provision for a housing allowance and profit sharing at year's end. The defendant denies that. In fact the plaintiff says that as it was to him that the approach by New World had come and he who played a major role in attracting the contract he regarded himself and the defendant as being in partnership, so that the salary was in effect a partner's draw against profits payable once assessed annually. He says he and the defendant agreed that each would be paid $17,000 per month and then share whatever remained as profit at year's end. The defendant disputes any suggestion of equality or anything akin to that.

4. The parties began to work under this set up in December 1990. They worked together, as before, as disc jockeys at the Catwalk. The plaintiff had additional duties such as co-ordinating other staff, attending meetings with New World staff and incidental activities associated with running a smooth operation.

5. Towards the end of 1991 ALEP, at New World's invitation, agreed to set up and run its discotheque in a new hotel in Ho Chi Minh City, and the same invitation was tendered and accepted in 1992 and 1993 in hotels in Guangzhou and Beijing. In 1993 there was a further expansion when ALEP began operations in various other venues in Hong Kong and China.

6. The extent to which the plaintiff played a part in putting together these undertakings is hotly disputed. He says as Director of Operations he was involved in the initial process of setting up these new venues, requiring him where necessary to travel to the locations and then oversee things once they got under way. In line with his busier schedule his salary was increased gradually, first to $19,000, then $20,000, then, from January 1993, to $21,000 and from June 1993 to $22,000. The defendant's case is that only he was involved in managing this expansion programme. The plaintiff's primary role in the company was to attend at the Catwalk six nights per week as a disc jockey. His title of Director of Operations was limited to that venue alone. He played no part at all in the process leading up to the establishment of the various discos out of Hong Kong. Only in respect of those in Hong Kong did he play some part, by invitation from the defendant, but only because that did not clash with his duties at the Catwalk.

7. In 1993 the Immigration Department required written evidence of the plaintiff's contract with ALEP before it would extend his work visa. This gave rise to a single sheet document prepared by the plaintiff spelling out his duties and his salary, which by then was $21,000, and yearly end profit share bonus, provision for housing and allowances for travel and clothing. This document was not signed and the defendant claims not to be bound by it - in particular saying there was no entitlement over and above the basic salary.

8. By and large from the outset and for a while after that the plaintiff has no complaint about the pay he received, although in the event there was no separate housing allowance. He took paid leave of 14 days per annum. For the year ending December 1991 he received a Chinese New Year bonus of $34,000 which was two months' additional salary, and for 1992 $20,000, being one month's additional salary. There were no accounts taken or profit as such shared at the end of each year; he took no issue with that either, being satisfied with the bonuses he did get.

9. But, the plaintiff says, things changed after 1 April 1993. From then his wages were paid irregularly and not always for the proper amount. And he was never again to receive anything extra at Chinese New Year. Nor was he to take any more paid leave. Nor did he get reimbursed for expenses incurred by him for ALEP. He did not complain however, at least not then. He was closely involved in the operation and was all too aware that with the expansion there were cash flow shortfalls from time to time, and not enough time for holidays. Above all he regarded himself and the defendant as being ostensibly in partnership, and was prepared to ride out with him those periods when there was not enough cash for his salary. The defendant denies that the plaintiff was not paid his salary correctly and on due date. He says accounting records produced by the plaintiff are misleading and fail to record all that he was paid, either as salary or allowance.

10. In December 1994 the plaintiff and defendant became shareholders with others in a newly incorporated company called Advance Time International Limited (Advance Time), which began operating as a disco and pub called The Zone in the New Year. This added to the demands on the plaintiff's time, for he assisted in its management. He was particularly involved during April 1995 when Advance Time was a party in litigation. The plaintiff had responsibility for that and spent much of his time with the company's solicitors preparing for trial.

11. Meanwhile in January 1995 and again April 1995 New World made complaints to ALEP that there were occasions when the Catwalk was not adequately staffed. In April New World in fact deducted the sum of $11,520 from the monthly amount it owed to ALEP.

12. Shortly after this the plaintiff and defendant parted company in disputed circumstances.

13. The plaintiff's version is that by letter dated 1 June 1995 but faxed on 9 June ALEP informed New World that:-

"Mr Chris Nagy has retired from ALEP as Director of Operations on 31 May 1995. He therefore has no authority to act for us in any respect from that date."

The plaintiff only came to know this when he showed up at the Catwalk for work on 9 June and was shown the fax. There had been no notice to him of termination and no other communication to that effect.

14. The defendant's account is that he came to learn of a telephone complaint from New World of April that the plaintiff had been absent from the Catwalk for the whole of March. It was this which caused New World to deduct $11,520 from its monthly dues. He tried to contact the plaintiff to get his side but could not find him. He regarded the plaintiff's conduct as permitting summary dismissal as at the end of March. He tried to give him notice but was not able to do so. Then it was, at some time towards the end of April, that there was contact. He informed the plaintiff of his summary dismissal and the plaintiff accepted that. Then they negotiated a part-time contract to run from the beginning of May, requiring the plaintiff's attendance as before but on a probationary basis. But the plaintiff defaulted again by not turning up without explanation. That gave rise to the letter to New World of 1 June 1995.

15. In August 1995 the contract between New World and ALEP was due to expire. By prior notice New World informed the defendant there would be no renewal; the relationship between the parties thus ended at this time.

The claims and counterclaim

16. The plaintiff's claims derive from his having been terminated without notice or payment in lieu, from the shortfall between what he should have been paid and actually got, from his having worked through his entitled paid leave, from his receiving no bonus for the years 1993 and 1994, and from ALEP's failure to reimburse expenditure he incurred on his employer's behalf. These he itemises as follows:-

One month's salary in lieu of notice	22,000.00
Shortfall in income from 1.4.93 to 9.6.95	180,200.00
CNY bonuses for 1993 and 1994	44,000.00
Salary in lieu of leave	25,033.80
Expenses of ALEP not reimbursed	11,333.21
	282,567.01 ========

17. He also asks for interest and costs.

18. The defendant disputes any obligation to pay all or any of these amounts. He says the plaintiff's misconduct gave rise to his right summarily to dismiss him without notice as at 31 March 1995 up to which date he had been paid his salary in full. There was no contractual obligation to pay any bonus; he reserved to himself the discretion to pay it or not as he chose depending on performance and profit. The plaintiff's conduct had not impressed for the two years prior to his ultimate dismissal on the same ground - chronic absenteeism. He also denied the plaintiff's claim that he was owed for holidays due but not taken. In fact he quotes five occasions between September 1993 and May 1994 when the plaintiff went overseas on his own time. These totalled 47 days, well in excess of his entitlement. And he disputes each and every item claimed by the plaintiff for reimbursement. He says he had not authorized the expenditure and would not have because it was incurred on the plaintiff's time for private use.

19. Finally the defendant says New World was quite entitled to take a serious view when there was a persistent shortage of manpower at the Catwalk in March 1995 and to deduct $11,520 from what was due to ALEP. He puts the blame fairly and squarely on the plaintiff. His counterclaim is to recover this loss, interest and costs.

The law

20. Whether or not and the extent to which the plaintiff's claim that he was short paid succeeds is a matter of settling the dispute of fact to which I shall come, the burden being on the plaintiff to prove his case. The same goes for his claim for reimbursement of expenses incurred. It is also for him to prove that he was contractually entitled to a bonus at Chinese New Year and that he took no holidays for the period in question. If he can establish that he can call upon the Employment Ordinance Cap. 57 which in turn compels payment of any bonus if the parties have contracted for it and to payment in lieu of leave permitted but not taken.

21. It is, however, for the defendant to have to prove that he was entitled to dismiss summarily the plaintiff if he is to escape recompense. If he cannot then the plaintiff is entitled under the Employment Ordinance to one month's salary in lieu of notice. And it is for the defendant to prove that it is the plaintiff's misconduct and wilful neglect which gave rise to the loss suffered.

Findings of fact

22. There are a number of disputed issues I shall now deal with. The first concerns the terms of the plaintiff's contract. Whilst I pay some heed to the typed document headed 'employment agreement' I am conscious of its having been prepared for the benefit of the Immigration Department. It was not signed. Though it contains certain provisions concerning the plaintiff's salary package it is apparent that in practice the plaintiff was not paid all these. For instance; he has not been paid a housing allowance over and above his salary and nor has he claimed it. Nor was he paid a yearly bonus which derived from a year's end profit share because there was no accounting between the parties to establish what that profit was at the end of each year. The burden being on him to establish he was entitled to a bonus at Chinese New Year akin to what is generally known as a thirteenth month bonus, or double pay, I am not satisfied he has achieved that. Payment to him in the Februarys of 1991 and 1992 of 2 months' and 1 month's bonus respectively goes some way towards establishing a pattern. But in the absence of something more definitive I am not persuaded this was, as the plaintiff says, mandatory rather than, as the defendant says, discretionary.

23. Next I come to the plaintiff's responsibilities to ALEP. The defendant's claim that his paramount duty was to be a disc jockey in attendance six nights a week at the Catwalk flies in the face not only of the plaintiff's account but good sense. During the initial period when ALEP's sole contract was the running of the Catwalk it is likely that was where he was required to be. But as things expanded during the forthcoming years the defendant's claim that he alone was responsible and the plaintiff played no part or at least an insignificant one, sticking rigidly to the routine of running the Catwalk, is hardly credible. The plaintiff's title in that event of Director of Operations would amount to a fraud, and nobody has suggested that. I am satisfied from his own account and from my overall assessment of the evidence as adduced that the plaintiff played a major role in the decision making, negotiating, setting up and operation of the various discos as they came on stream.

24. What flows from this finding is that he travelled to various parts of China and Thailand not, as the defendant claims, in his own time for his own pleasure and at his own cost but for and on behalf of ALEP at ALEP's expense. It follows that the 47 days the defendant says he took as leave was not leave at all but time spent on ALEP business. It further follows that the plaintiff's responsibilities and duties whether in or out of Hong Kong being far wider and more demanding than the defendant has attested to, it is entirely unreasonable for him to be directly to blame for any shortfall from time to time in personnel at the Catwalk.

25. I do not accept that the defendant dismissed the plaintiff on 31 March 1995. The pleadings and his own witness statement make no reference to that. His sudden recollection from the witness box was entirely unsupported. So was the unlikely scenario that he rehired the plaintiff on trial a month later. Nor do I accept that the plaintiff's conduct warranted summary dismissal as at 31 May 1995. I am satisfied the defendant chose to terminate the agreement, without notice, on 9 June 1995 and must now suffer the consequences deriving from the Employment Ordinance.

26. I come now to the dispute on how much of his salary the plaintiff was paid. He produced returns prepared by ALEP's accountant from ALEP's records supporting his contention that he was short changed for the years to 31 March 1994 and 1995 by the amount he now claims. The defendant says those records cannot be accurate and be relied on; but what seems to be his signature is over ALEP's chop on the returns, and he could not say how or why the figures were wrong. On his own admission the plaintiff was paid nothing at all from 1 April 1995. I find the plaintiff's claim that there was a shortfall and the amount of that to have been established.

27. On the issue of reimbursement; I have already dealt with and rejected the defendant's account that when the plaintiff was away it was on his own time. It follows as I find that expenditure incurred on those trips is money he is entitled to be reimbursed. I accept further the plaintiff's account that the purchases of equipment stock and so on were all for the discos and ALEP's office. I am satisfied whether or not the defendant gave express authority the plaintiff is entitled to reimbursement of all that he claims.

28. Finally on the matter of leave; I have already rejected the defendant's claim that 47 days were holidays. I accept the plaintiff's account that pressure on his time prevented him taking any time off at all during the period. He is thus entitled to payment in lieu.

29. Now I come to the defendant's counterclaim. Whether or not New World was justified in withholding what it did I am not satisfied the defendant has been able to establish that the plaintiff by misconduct or wilful neglect was responsible for the loss or any part of it.

The outcome

30. The plaintiff shall recover all of his salary due but not paid in the amount claimed. Under Clause 6 of the Employment Ordinance he shall get one month's pay in lieu of one month's notice. He shall be paid all he asks for as expenditure incurred but not reimbursed. He shall receive in lieu of leave not taken $24,690 under sections 41AA(8)(a) and 41D of the Employment Ordinance. He shall in addition be paid interest at 8 per cent per annum from 9 June 1995 to the date of this judgment being 24 January 2000.

31. The defendant's counterclaim fails.

32. Costs

Costs shall follow the event and be to the plaintiff, nisi at first instance because I have heard no argument on this issue.

Orders

33. There shall be judgment in favour of the plaintiff in the sum of $238,223.21 together with interest thereon of $88,240. The defendant's counterclaim is dismissed. Costs including any reserved shall be to the plaintiff taxed if not agreed. The plaintiff's own costs shall be taxed under Legal Aid Regulations. The order as to costs shall be nisi at first instance with liberty for either party to restore for argument on notice given within 14 days of the date of this judgment.