WONG TZI KI, DAVID v. LI & FUNG (TRADING) LTD. AND OTHERS

1990, No. A4105

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. In 1979, the plaintiff was a senior civil servant. The 2nd defendant was the chairman of the 1st defendant. The 3rd defendant, the son of the 2nd defendant, was then the Managing Director of the 1st defendant. The 1st defendant was the trading arm of the Li & Fung group of companies. The plaintiff came to know the 2nd defendant in 1963. When the 2nd defendant was a legislative councillor, he consulted the plaintiff on council and government matters. They became close friends and often congregated. The 2nd defendant had, since 1981, repeatedly remarked to the plaintiff that his financial reward in the private sector would be way above his official emoluments. On many occasions, the 2nd defendant openly sought to entice the plaintiff into joining his group of companies. The Li & Fung group of companies have throughout been under the control of the 2nd defendant and the Fung family.

2. The defence led or adduced no evidence as they were entitled not to in law, but it would mean that apart from the documents the court was left with only the viva voce evidence of the plaintiff. I have taken into consideration the various criticisms levelled at certain aspects of the evidence and demeanor of the plaintiff, but I find that the plaintiff, naturally at times guarded in the witness stand, gave a substantially true and correct version of what had transpired. The peripheral discrepancies and inaccuracies were as would be expected in any lengthy testimony and cross-examination. I shall deal specifically with his salary stipulated to be "reviewed annually" by clause 2(a) of the written agreement he signed and his offer to fund the detour from Las Vagas to Vancouver. The late written complaint made by the plaintiff in 1986 on his tax liability for housing allowance was no, in the less than happy working relation between the parties, suspect. I also accept that the plaintiff had made oral presentations, the particulars of which the plaintiff had no vivid recollection. In general, the plaintiff stood his ground well during the robust cross-examination.

3. Principally because of the need for ready finance to educate his children overseas, in 1979 the plaintiff was minded to join the 2nd defendant's group of companies. He approached the 2nd defendant who was receptive to the proposed move. The 2nd defendant explained to the plaintiff that his son, the 3rd defendant, would be gradually left in charge of the daily operations. He suggested a dinner meeting at which the plaintiff could meet the 3rd defendant who was to conduct the detailed negotiations. In autumn 1979 at the Hong Kong Country Club, the plaintiff met the 2nd and the 3rd defendants for dinner. During the dinner, the 2nd defendant comforted the plaintiff by saying that he should put his mind at ease, that so long as he and his son were running the Li & Fung group of companies, the plaintiff would be well treated, that the Li & Fung group had a practice of increasing the staff salaries by 10 odd to 20% a year, that there was a scheme for profit sharing and extra merits award for outstanding performance and that the plaintiff's income would in no time be substantially in excess of anything that he could hope for from the civil service.

4. Thereafter, the plaintiff entered into detailed negotiations with the 3rd defendant, twice in the Hong Kong Hotel and perhaps sometimes in the office of the 3rd defendant's as well as over the telephone. The 2nd defendant had been made aware of the plaintiff's entitlements and prospects in the civil service and the same were repeated to the 3rd defendant in the detailed negotiations. The plaintiff held the post of Administrative Officer Staff Grade B. He consistently enjoyed accelerated promotion through the lower ranks. He had acted in Grade A posts, and it would have been highly likely for him to reach the height of Administrative Officer Staff Grade A or above. The plaintiff was particularly concerned to and did disclose to these defendants that he would only be interested in a package with better financial prospects than those enjoyed by an Administrative Officer Staff Grade A. The 3rd defendant finally agreed with the plaintiff on the terms of his employment and the bargain was struck by their shaking hands in the latter Hong Kong Hotel meeting. The plaintiff claimed that these were assurances or representations from the 2nd and the 3rd defendants to induce him to leave civil service and that he acted on them. It was understood that the detailed negotiations conducted were in respect to engaging the plaintiff to work in the 1st defendant. For the plaintiff's official designation, it was undecided as to whether he should become the managing director of another subsidiary in the group and the deputy managing director of the 1st defendant with the view to easing into the position of managing director. The plaintiff's stance was that for personal and representational reasons, he ought to be made instantly the managing director of the 1st defendant. The terms agreed were that the starting salary of the plaintiff should be on a par with that for a Staff Grade A, Administrative Officer (I shall call it AOSGA"), that the plaintiff's salary would be increased in accordance with the general company increases, that he would enjoy fringe benefits comparable to those of a government department head, such as free first class medical attention, passage and others. In three main areas, his fringe benefits were to be realised by alternative arrangements : for leave, he would have only 21 days per year with an additional day after each year's service. The balance of his then 48 days' leave was to be compensated by an additional month's salary. He would forgo the education allowance and passage for his children, but his own passage would be tagged onto his several annual US and Europe business trips. The plaintiff was occupying quarters of more than 3,000 sq. ft. in area. He was prepared to be accommodated in a modest flat of about 1,000 sq. ft. provided ownership would become vested in him after ten years of service. The device eventually adopted was for a flat to be purchased in the name of a Panamanian company "T.K. International, S.A." on an advance made by the 1st defendant. The 1st defendant was to pay $150,000 a year to the plaintiff as rental allowance which would in turn be paid over to that company. T.K. International would return the same sum to the 1st defendant as interest payment. If for any reason, either under the break clause in the employment contract or otherwise, the plaintiff should serve less than ten years, then the plaintiff would have an option to acquire the property on paying the 1st defendant the balance, calculated pro rata. That Panamanian company would be subject to the plaintiff's control. The object of this exercise was to gain tax advantage, but it was the agreement that the plaintiff was not to be or become liable for any tax arising from the annual rental payments or the maneuver. Lastly, the plaintiff was to be given $ 1/2 million for his reduced lump sum gratuity on his early retirement from government. This sum of $ 1/2 million was compensated in the form of an equal amount paid to the plaintiff for the acquisition of fittings and furniture principally supplied by himself from items he was then in possession of, with the proviso that the fittings and furniture would be resold by the 1st defendant to the plaintiff at the end of his employment for the consideration of $1. This was also to be free from tax implications. An insurance policy would be taken out to ensure that the children of the plaintiff would become owners of the flat upon his earlier demise. The 3rd defendant mentioned at one time that profit-sharing would be as much as three months or more of the plaintiff's salary. Then he reduced it to 2 1/2 -3 months and tentatively projected the amount to possibly $200,000. Both the 2nd and 3rd defendants assured the plaintiff that coming in with Li & Fung was a right decision.

5. From both these defendants, the plaintiff understood that in objective terms that be would be getting over 30% of AOSGA pay. There were discussions as to defined responsibilities, his leisure hours and a non-competition undertaking after his departure from the Li & Fung group of companies.

6. The plaintiff's claim against the 2nd defendant is on a separate contract collateral to his agreement with the 1st defendant, in which the 2nd defendant allegedly induced the plaintiff to leave the civil service for joining the group of companies under his control by the promises he made. The plaintiff claimed that he acted on the 2nd defendant's promises by entering into the contract of employment partly in writing, partly oral with the 1st defendant company. The plaintiff's claim against the 3rd defendant is also on a similar separate contract of like promises made or repeated by the 3rd defendant in the detailed negotiations. It was alleged that in effect he was offered a package which would in objective terms exceed the AOSGA pay by about 30%. These are personal claims, separate from though collateral to his employment contract with the 1st defendant, evidenced partly in writing and partly oral. The oral part of the employment contract was the one entered into with the 1st defendant through the 3rd defendant by the shaking of hands in the second Hong Kong Hotel meeting. According to the plaintiff, the oral agreement was conclusive. The plaintiff was given to understand that some written documents had to be signed for official purpose of the 1st defendant company. In fact, on 14 February 1980, the plaintiff tendered his resignation. Just before his resignation, in a telephone conversation with the 3rd defendant the plaintiff had insisted that the sum of $ 1/2 million was to be payable in any event. The plaintiff's explanation was that once he tendered his resignation, he would sustain an irretrievable loss in the smaller lump sum payment from government on early retirement. He wanted the $ 1/2 million paid even if there should be any change of circumstances for the 1st defendant company or a change of mind on the part of the 3rd defendant. The plaintiff maintained that he was not as concerned with the Li & Fung position because other people were also currently interested in him. According to the plaintiff, he had secured the agreement from the 3rd defendant before he dispatched his letter of resignation. Subsequently, he signed the written agreement and the side letter dated 25 July 1980 and he resumed office as the managing director of the 1st defendant on 1 March 1981.

7. During the plaintiff's term of employment, there were frictions, culminating in the plaintiff leaving, on a year's notice given on 31 December 1988, the 1st defendant on 31 December 1989. The plaintiff claimed that there were shortfalls and omissions in the fulfillment of the terms of the contract of his employment. It was not even suggested in these proceedings that the plaintiff had not served the 1st defendant properly or that there was cause for depriving him of his usual entitlements. The plaintiff might not have been put to optimum use, but if that had been so, the 1st defendant should have borne the sole responsibility. He sues the 2nd defendant on a personal contract for his loss and the 3rd defendant, again on a personal contract, for his loss. He sues the 1st defendant company for these shortfalls and omissions on an employment contract orally concluded with the 3rd defendant and in part recorded for official purpose in the said written agreement and the side letter.

8. There is little doubt that the contract of employment was partly oral and partly in writing. The plaintiff and Mr Sung gave evidence to that effect. Some extra terms not in writing were corroborated by the 1st defendant's readjustment of the plaintiff's stated salary in the agreement, the written records of the 3rd defendant (eg "Holidays combinable with extensive travel in Far East and once or twice travels per year to US and Europe"; "Most important benefit offered by the Company as salary review on at least annual basis eg at 10% per annum increase over 15 years"); and the 3rd defendant's approval indorsed on the plaintiff's memo for leave to be tagged onto his Las Vagas business trip dated 8 November 1982. The stated salary was revised, thought after protracted communication, on the basis of and close to the AOSGA pay. The 2nd defendant's letter as chairman of the 1st defendant dated 20 February 1982 could also be readily read, subject to an obvious typographical error, to confirm that orally agreed term. There was hardly any dispute on the agreed medical benefit, though the plaintiff later acquiesced in participating in the company medical insurance scheme. The written agreement was also silent on the agreed term for general company increases. Clearly, the agreed terms were not fully set out in the documents signed. I have also taken into consideration the evidence of Mr Sung that the plaintiff was not strictly receiving legal advice. On the other hand, the 1st defendant had the assistance of qualified accountants and the benefit of a number of drafts, yet the provisions in the signed documents did not contain the full terms. In my view, the parties expected the employment contract to be partly oral and partly in writing. The signed written documents were

primarily for the official purpose of the company. The circumstances in which the plaintiff's employment contract was entered into were unique. The oral terms would, in this case, override the written terms.

9. With signed documents, there are two possible obstacles to treating the discussed terms made in the course of negotiation, such as the detailed negotiations in this case, as terms of the contract. First, the discussed terms were prior to and might thus be said to have been superseded by the contract. Secondly, we have the parol evidence rule. However, "the courts are prepared in some circumstances to treat a statement intended to have contractual effect as a separate contract or warranty, collateral to the main transaction. In particular, they will do so where one party refuses to enter into the contract unless the other gives him an assurance on a certain point or unless the other promises not to enforce a term of the written contract." See para 774 Chitty on Contract 26 edition, Vol 1, pp 495-496. These collateral contracts may arise even with respect to persons who are not parties to the main contract.

10. As an exception to the parol evidence rule, extrinsic evidence of additional terms may be admitted once "it is shown that the document was not intended to express the entire agreement between the parties". See para 847 at p 534 of Chitty on Contract Vol 1 supra, see also para 548 at p 535. However, that the oral terms agreed with the 3rd defendant formed part of the contract of employment with the company would not, by itself, rule out the possibility of the 3rd defendant or even the 2nd defendant having a separate contract personally with the plaintiff as alleged. The detailed negotiations with the 3rd defendant and the discussions with the 2nd defendant did have the semblance of some arrangement made or agreement arrived at. And if the arrangement or agreement had involved these defendants personally, I would accept that the heavy onus of proving there being no contractual intention lay with the plaintiff. See para 129 Chitty on Contract Vol 1, 26 edition, p 93. But did the arrangement or agreement involve these defendants personally? Moreover, looked at objectively "the context in which an agreement is made may negative contractual intention". See para 138 at p 108 Chitty on Contract, Vol 1, 26 edition. In Charnock v Liverpool Corporation, [1968] 1 WLR 1498, the collateral agreement with the repairers who were not a party to the main contract arose by necessary inference. It was held that the repairers warranted to do the work within reasonable time. See also Brown & Davis v Galbraith, [1972] 1 WLR 997 at p 1003E, per Cairns LJ. In Dick Bentley Productions Limited v Harold Smith (Motors) Limited, [1965] 1 WLR 623 at p 627, Lord Denning observed :

If a representation is made in the course of dealings for a contract for the very purpose of inducing the other party to act upon it, and actually inducing him to act upon it, by entering into the contract, that is prima facie ground for inferring that it was intended as a warranty. It is not necessary to speak of it as being collateral. Suffice it that it was intended to be acted upon and was in fact acted on."

11. In paragraphs 11 and 16 of the Amended Statement of Claim, express or implied "promises" are said to have been made by the 2nd and the 3rd defendants. I turn then to the context in which the discussions were had with the 1st defendant and the detailed negotiations were conducted with the 3rd defendants. Granted that the matter was very important to the plaintiff. But neither the 2nd nor the 3rd defendant was in effect guaranteeing anything to the plaintiff. They were describing in general terms the possible level of benefit the plaintiff would reap from his association with Li & Fung. These defendants were not committing themselves on quality of goods, time frame, performance of the Li & Fung group or the minimum income of the plaintiff. These were not and were not meant to be taken as analytical forecasts. The 2nd or 3rd defendant could not have suspected that such friendly exchanges could give rise to any personal independent contract from each of them with the plaintiff. The generalisation that the plaintiff would have done much better in the private sector and that so long as the 2nd defendant and his son remained in control of the Li & Fung group, the plaintiff would be well treated and the like were just comforting words to an old friend. It is clear that they were not involving themselves personally; nor was there any intention to create contractual relationship on a personal level. Afterall when matters became more serious, the plaintiff was told categorically to enter into detailed negotiations on the contract of employment with the 3rd defendant as the man in charge of corporate operations. At no time were the 2nd and the 3rd defendants speaking contractually in their own capacity. The plaintiff himself assumed the 2nd defendant as acting on behalf of the 1st defendant company. The 3rd defendant in fact conducted the detailed negotiations for the 1st defendant company on the instructions of his father, the 2nd defendant. The designation of the plaintiff might well have to be drawn from other companies in the group, but he was to work in the 1st defendant company. The 3rd defendant was advancing these terms, not for himself, to be acted upon by the plaintiff but on behalf of the 1st defendant company. It is unreal to suggest that in the absence of clear language, a representative of a corporation would also bind himself in the negotiation of an employment agreement for his firm. The plaintiff himself was tempted by and relied on the terms proposed in the detailed negotiations. Even after the oral agreement had been concluded, he was content with a mere payment of $ 1/2 million. The plaintiff left government relying on his own confidence in his ability to better himself in the private sector. He had potentials and was in demand. He was little concerned with whether the 1st defendant's offer would be frustrated or aborted. It is difficult to accept that he could claim to have been justly prejudiced by the informal talks. By some stretch of imagination, a case may possibly be made out on strict legal concepts, but in reality there could not be intention to create any personal contractual relationship. The so-called "promises" from either the 2nd defendant or the 3rd defendant were too generalised to be treated as either a forecast or a statement of fact to be acted on in a contractual context. The plaintiff acknowledged the vicissitudes of commercial life. Even assuming that the 2nd or the 3rd defendant had intended to bind himself personally, it was not established whether the 1st defendant had or lacked the capacity to honour these terms or whether, if it had the capacity so to honour these terms, the cause of these alleged omissions or shortfalls was not external or inevitable. It was also not clearly identified for my benefit what was said to be so inaccurate or misleading in these discussions or detailed negotiations as to fix the 2nd or the 3rd defendants with personal liability. Clearly neither the 2nd nor the 3rd defendant had intended to create any contractual relationship personally with the plaintiff. Furthermore, in the conversation at the Hong Kong Country Club and in the subsequent conversations between the plaintiff and the 3rd defendant who was acting on his father's instructions, these defendants spoke and were understood by the plaintiff to speak for the Li & Fung group and not for themselves. What was said or done had the semblance of some arrangement or agreement with the Li & Fung group, not with these defendants personally.

12. Next I come to deal with some specific attacks levelled at the plaintiff. The plaintiff relied on the agreement to allow him company general increases applicable to his rank. The plaintiff readily accepted his rate of general company increases. He acknowledged the corporate culture that he would not have demanded an increase if there had been a catastrophe" or insufficient profit. The mention of the range between 15 odd to 20% lost much of its significance. I was not truly assisted by counsel's cross-examination on the words "reviewed annually" in clause 2(a) of the agreement dated 25 July 1980. The plaintiff's complaint was that he had been lately singled out for not being given his full entitlements.

13. As for the plaintiff's offer by Memo dated 8 November 1982 to pay for the detour from Las Vagas to Vancouver for his 5 days' leave at the year end in 1982. I accept his explanation as credible. First of all, the 3rd defendant approved the tagging onto the tail-end of the plaintiff's US business trip some days of the plaintiff's annual leave. The notes of the 3rd defendant recorded the following :

"7. Other intangible losses such as JP. CBE, prestige as a government official is compensated for by :

c) Extensive opportunity to travel overseas and entertain clients in Hong Kong."

The plaintiff had submitted his claimed losses in writing, including "(g) loss of education allowance and passage for children". That should have put the 3rd defendant on notice of claimed passage for the plaintiff himself. Besides, the plaintiff did himself repeat to the 3rd defendant his own passage entitlement, and the plaintiff had been painstakingly seeking to maintain his fringe benefits. The 3rd defendant and the 1st defendant were made aware that such a facility was to be part of the Li & Fung package. In his handwritten letter dated 29 December 1979 to the plaintiff, the 3rd defendant proposed :

"(3) Vacation

Special vacation of three weeks (ie 16 1/2 working day) will be granted. 4 weeks less than present compensated for by extra month's salary.

Holidays combinable with extensive travel in Far East and once or twice travels per year to US and Europe."

14. The plaintiff was then experiencing difficulty in revising his salary with the 3rd defendant. The amount of the detour from Las Vagas to Vancouver was not substantial. The reference to "cost of travel between Hong Kong and Vancouver" was an error. It was possible, as suggested by the plaintiff, that the 1st defendant company might become equally difficult in the extra passage to his preferred destination. In view of the omission to mention specifically his own passage in his submitted claimed losses, I could appreciate why the plaintiff described this as a grey area. I have pondered over this matter for sometime but with only his evidence, I finally came down in his favour. Evidently, this aspect of his evidence was not very central to the essence of plaintiff's claim that his loss of passage would have, unless he could take advantage of the business trips, to be catered for. The plaintiff would enjoy split-vacations in the substitute. I find that in the years the plaintiff had not been sent overseas, he was entitled to a comparable leave passage. It was one of the fringe benefits he had striven so hard for. If the plaintiff was not provided an alternative recompense, his passage must be paid.

15. Therefore, we are left with the claim against the 1st defendant company. The plaintiff failed to prove the 30% claimed over and above what the plaintiff would have been entitled to on an escalated AOSGA scale in civil service. From the vague talk among friends, the plaintiff's own understanding was 30% more. However, the plaintiff was himself content with the company general increases and other usual corporate pay-outs. The 30% was not given in the written agreement signed nor was it in fact said to have been specifically mentioned in the oral detailed negotiations with the 3rd defendant. The plaintiff was even prepared to accept zero general company increase in adversity. He also agreed in cross-examination that the merit increase or award was discretionary. In paragraph 20(h) of the Amended Statement of Claim, the plaintiff's assertion was that a senior manager was eligible for profit-sharing, possibly more than $200,000.00 per year. That fairly summed up the uncertainty. However, the 1st defendant made profits in the relevant years, and the plaintiff ought to receive his share on the various bases set out in the Amended Statement of Claim. The plaintiff should also be paid his 1989 director fee. The plaintiff did not complain in writing about the tax liability for his housing allowances until 1986, but I accept that he had made earlier oral complaints.

16. I also accept the respective bases for the plaintiff's claims with reference to housing allowances, medical expenses and salary adjustment. Insofar as the plea of limitation was relevant, the defendants had not later acknowledged these claims, not even in the letter from the 3rd defendant as chairman of the 1st defendant to the plaintiff received on 10 February 1989. That was a letter merely suggesting ways and means of resolving the parties disagreement. That letter reiterated the contention that there was "no agreement beyond the employment contract and the supplemented letter both dated July 25 1980." The limitation plea succeeds. I believe that the plaintiff instituted his claims in the Labour Tribunal on 2 May 1990. However, the items affected and the duration concerned can be identified by counsel for calculating the global sum.

17. The salary in the written agreement was belatedly varied in 1982 with reference to the salary of AOSGA. It was some $600 less and made retrospective only as from 1 July 1981. The plaintiff was not prepared to make an issue of these shortfalls. I accept his evidence as I have said so. Whatever was said by the 2nd defendant and the 3rd defendant in the general briefing must be subject to the profitability or otherwise of the 1st defendant. In the events that had happened, the plaintiff became entitled to his general company increases and profit-sharing as claimed. The loss of provident fund entitlement as a result of his unjustly diminished salary must also be made good to the plaintiff as should be his housing allowances for the period of his full leave. The plaintiff remarried and he was entitled to claim twin passage by way of lost fringe privilege for himself and his spouse.

18. The plaintiff's leave was forfeited by 36 days. Clearly, Circular No.10 issued on 31 December 1981 did not apply to the plaintiff. His leave rate then fell outside the ambit of the Circular. He was the author of the Circular, and I accept his statement that it was not to apply to his case, though he complied with its spirit by taking at least half of his annual leave.

19. The plaintiff's claim for loss in pay is set out in paragraph 27 of the Amended Statement of Claim proved, his medical expenses in paragraph 28, his tax liabilities on housing allowance in paragraph 29, holiday passages in paragraph 30, the shortfalls of his provident fund entitlement in paragraph 31, his profit-sharing in paragraphs 32 and 33, his forfeited leave and mis-calculation on his 181 1/2 days' leave in paragraph 34, his director's fee for 1989 in paragraph 35 and his housing allowance for his leave in paragraph 36. The plaintiff also claimed interest which I would boldly assess at an overall 8% per annum. Subject to matters I find adversely against the plaintiff, such as the over 30% claim above the AOSGA scale and limitation, I accept all the other claims of the plaintiff as proved. I would leave it to counsel to assist me on the total quantum together with interest.

20. In the result, the counterclaim was not truly a matter in dispute. The plaintiff agreed that with full leave what was due from the Panamanian company would be in the sum of $152,009 which ought to be paid to the 1st defendant on demand, ie on 9 July 1990. Whatever was admitted and proposed by the plaintiff, this claim remained unsatisfied. The plaintiff is and has been the alter ego of T.K. International, S.A. and therefore the sum of $152,009 should be paid to the 1st defendant with interest as from 9 July 1990 at, say, also the same rate of 8% per annum until judgment or payment. The precise amount would have to be jointly computed by counsel for my benefit.

21. The case against each of the 2nd and 3rd defendants is dismissed.

22. As for costs, the 2nd and the 3rd defendants must have their costs against the plaintiff. Matters in this case had not been unduly extended by the joinder of the 2nd and the 3rd defendants who were represented by the same set of counsel and solicitors. Little extra time had been spent on arguing the liabilities of the 2nd and the 3rd defendants who did not give evidence. Subject to what counsel have to say, I would assess it at 15%. Much of the matters concerning the 2nd and 3rd defendants personally and in the case against the 1st defendant overlapped. That would seem to serve the justice of the case and provide a simple format for taxation. I grant an order nisi for costs of the action as to 85% against the 1st defendant in favour of the plaintiff and as to 15% in favour of the 2nd and the 3rd defendants jointly against the plaintiff. There would be, on the like nisi basis, no order as to costs of the Counterclaim.