XCHRX MA HON FONG, JOSEPH v. CITIWEALTH INTERNATIONAL LTD. AND ANOTHER

HCA 3623/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3623 OF 2000

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J U D G M E N T

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1. This is an appeal from the order of Master Lung made on 29 June 2000 granting summary judgment in favour of the Plaintiff as claimed.

2. The Plaintiff was formerly the general manager of Lotus Sauna Court ('Lotus') which was a massage establishment. The 2nd Defendant was, at all material times, trading as Lotus. The 1st Defendant, at all material times, was the owner of all the beneficial shares in the 2nd Defendant.

3. It is alleged by the Plaintiff that the 2nd Defendant wrongfully dismissed him as the general manager of Lotus. Thereafter, the parties entered into a Deed of Settlement ('the Deed') settling their disputes. This is the Deed sued upon dated 27 August 1999. This was made between the 1st Defendant, the 2nd Defendant, the Plaintiff, his sister Agatha Ma, and Li Ling ('Li'), the assistant general manager of Lotus.

4. By way of background leading to the execution of Deed, the Plaintiff was prosecuted in the early part of 1999 in respect of an offence of operating a massage establishment in regard to the operation of which a licence had been issued under the Massage Establishment Ordinance, otherwise than in accordance with the condition of licence. The Plaintiff was convicted after trial and fined. The fine was paid by Lotus as were the Plaintiff's legal fees, disbursement and expenses.

5. In the summer of 1999, the parties entered into negotiations and reached a settlement of their disputes. Mr Chang S.C., together with Mr. Pedruco, for the Defendants, submitted that the purpose of the Deed was to bring about a clean break between the Defendants and the Plaintiff as well as Li. Mr Ho S.C., for the Plaintiff, takes issue with this. But it seems to me that looking at the various clauses of the Deed, it is reasonably arguable that it can be inferred that the intention of the parties was indeed to effect a clean break.

6. It is clear, and indeed not in dispute between the parties, that Cl. 1(a) of the Deed provided for payments to be made to the Plaintiff of the sums particularised therein totalling $840,000 which were described by the parties as agreed compensation. The agreed compensation was not subject to any conditions and the sums as particularised were payable by the 1st and 2nd Defendants on the dates set out therein.

7. There is also no dispute between the parties that the Plaintiff has received all of the payments particularised in Cl. 1(a) save for the last two payments totalling $120,000 which have not been paid.

8. The Deed also provided for payment of sums described as ex-gratia payment to the Plaintiff. The important difference between the ex-gratia payment and the agreed compensation is that the ex-gratia payment was subject to the condition precedent set out in Cl. 1(b), namely :

" SUBJECT TO full observance and compliance by H F Ma and Li of all covenants of H F Ma and Li herein contained........ ."

Cl. 1(a) also ends with a proviso which states :

" PROVIDED THAT H F Ma shall not be entitled to the H F Ma Ex-gratia Payment if there shall be any breach, non-observance or non-compliance of this Deed by H F Ma or Li."

9. As Mr Chang correctly pointed out, the sums payable as ex-gratia payment were subject to the full observance and compliance by both the Plaintiff and Li of all of the covenants contained in the Deed.

10. The ex-gratia payments totalled $840,000 with the first instalment commencing on or before 30 April 2000. It is not in dispute that no payments were made in respect of any of the ex-gratia instalment payments. The Defendants contend that the Plaintiff has failed to fully observe and comply with all the covenants contained in the Deed. At the very least, it was submitted that there was a triable issue as to that.

11. Cl. 4 of the Deed contains joint and several warranties on the part of the Plaintiff and Li. It provides as follows :

"H F Ma and Li hereby jointly and severally warrant and confirm that ：

(a) each of them hereby absolutely discharge, release and relinquish the Companies and Lotus of and from all liabilities or claims arising out of the aforesaid resignations."

By Cl. 1, the Plaintiff had agreed to resign as general manager and of all positions with Lotus and also as director of the 1st and 2nd Defendants. Cl. 4(b) further states :

"save and except the compensations and the ex-gratia payment hereinabove mentioned, each of them shall have no further claims, demands, complaints whatsoever or demands for loss of employment or office or (if applicable) as director against the Companies, Lotus or against any director or directors or shareholders thereof or against Leo K.W. Lok & Co., Solicitors in respect of all or any matters, legal or otherwise, hitherto handled by the said firm on behalf of Lotus, any of the Companies or of H F Ma and/or Li."

Cl. 4(f) is also relied on by the Defendants and this provides as follows :

"each of them shall use all reasonable endeavours to protect and uphold the business goodwill and reputation of Lotus and the Companies, and shall not in any manner, whether directly or indirectly, by themselves or anybody on their behalf, do or cause to be done anything which might jeopardize, harass, adversely affect or prejudice the business or reputation of Lotus and the Companies, ......"

12. In construing the Deed, it is relevant to bear in mind the purpose for which the Deed was entered into. That can be derived from the words of the Deed, not only in the clauses that I have mentioned but also in other clauses. It is also important to bear in mind the distinction that the parties have made between the agreed compensation, as to which there was no condition attached, and the ex-gratia payment, as to which there was a condition attached.

13. Despite Mr Ho's able submissions, I am of the view that it is at least reasonably arguable that the intention of the parties derived from the Deed was to achieve a clean break between the parties in view of the disputes that had arisen between them as submitted by Mr. Chang.

14. It is also, in my view, reasonably arguable that the words "claims, demands, complaints whatsoever" in Cl. 4(b) do not refer only to a waiver of monetary claims. It is, in my view, much wider than that. Cl. 3 already provided for a waiver of all claims for further payments from Lotus or the Defendants.

15. I also accept Mr Chang's submissions that it is reasonably arguable that as a matter of construction of the Deed, as a condition precedent to the receipt of the ex-gratia payment the Plaintiff and Li should also not, inter alia, make any further claims, demands, complaints whatsoever against the Defendant, Lotus or against any director or directors or shareholders or against Leo K. W. Lok & Co., Solicitors in respect of all matters legal or otherwise hitherto handled by the said firm on behalf of Lotus, any of the Defendants or of the Plaintiff and Li. The commercial purpose of the Deed was, it is reasonably arguable, to achieve a clean break between the parties so that, inter alia, the Defendants or any of its directors should not have to go to the trouble and expense of dealing with any demand or complaint whatsoever from the Plaintiff or Li as set out in Cl. 4(b).

16. I bear in mind the principles of construction succinctly stated by Lord Hoffmann in his speech in Investors Compensation Scheme Ltd. v. West Bromwich Building Society (1998)1 WLR896 @912H to 913F relied on by Mr. Chang. Of particular importance is what Lord Hoffmann said at 913, namely :

"(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax : see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749."

The relevant background is something which is a matter of evidence and which would be investigated at trial.

17. I also bear in mind that what falls for construction is the meaning in the context of the contractual arrangement as a whole. (Intergulf Express HK Ltd & another v. Delta Asia Credit Ltd 1998 2 HKLRD 928)

18. In my judgment, a triable issue is raised as to the construction of the Deed as contended for by the Defendants.

19. The next question then is whether or not there is a triable issue that there has been a breach of the obligations on the part of the Plaintiff. The Defendants relied on the correspondence exhibited in the bundle placed before me. By the letter dated 19 January 2000 sent by his solicitors to the 2nd Defendant, the Plaintiff made a demand on the 2nd Defendant for the delivery of all documents in their possession in relation to the summons in respect of which the Plaintiff had been convicted. There was an attempt on the previous day by the Plaintiff's sister, as the authorised representative of the Plaintiff, to photocopy such documents but she was prevented from so doing. In the letter dated 19 January 2000, a threat was made that unless those documents were delivered within 7 days, proceedings would be brought for the recovery of the same without further notice.

20. There is also the question of a report or complaint to the Law Society about the conduct of Leo K.W. Lok and Co. when they were acting for the Plaintiff in the criminal proceedings against him. Although the Plaintiff''s solicitors took the view with the Law Society that they, instead of the Plaintiff, were making a report to them, it is arguable that the Plaintiff was the instigator of what the Law Society regarded as a complaint against Leo K.W. Lok & Co.

21. It seems to me that there is a triable issue as to whether there has been a breach of the Plaintiff's obligations under the Deed.

22. As to the remaining payments as agreed compensation totalling $120,000 as to which there were no conditions attached, I am not satisfied that there is a triable issue raised on this part of the claim. I am not satisfied that the Defendants can raise a defence of set-off in respect of the sums allegedly already paid out to Li under Cl. 2(b) of the Deed as ex-gratia payment in the total sum of $350,000. There is no evidence on the material placed before me that the said sum of $350,00 was in fact paid to Li.

23. I fail to see how there can be a defence of set-off in respect of the sum of $120,000 admittedly owing by the Defendants to the Plaintiff as agreed compensation. As Mr Ho submitted, if the Defendants have any cause of action against the Plaintiff in respect of the said $350,000 allegedly paid to Li, the Defendants can counterclaim for this. I am not satisfied that a triable issue has been raised as to the balance of the agreed compensation in the sum of $120,000.

24. The appeal is allowed. The order of Master Lung is varied to the extent that there will be judgment for the Plaintiff in the sum of $120,000 with interest at judgment rate from 7.4.2000 until payment. There will be unconditional leave to the Defendants to defend as to the balance of $840,000. I direct that the Defendants do file and serve its Defence and Counterclaim within 14 days from to-day. The Plaintiff is to file and serve his Reply and Defence to Counterclaim within 14 days thereafter. Liberty is given to the parties to apply for further directions.

25. I also make an order nisi that the costs of the hearing before Master Lung be costs to the Plaintiff with certificate for counsel, and that the costs of the appeal be costs in the cause.