ONG EE CHANG v. LI TUNG LOK AND ANOTHER

HCA 2541/1993

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2541 OF 1993

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J U D G M E N T

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1. In the latter part of 1988, Mr Li Tung Lok (1st Defendant) the chairman, a director and the major shareholder of QPL (Holdings) Limited (2nd Defendant) had reached agreement with Mr Victor Batinovich (Batinovich) a man with considerable experience in the computer industry whereby they would set up a business which would engage in the business of packaging integrated circuits for semiconductor companies. Batinovich left his employment with Swire Technologies Limited, of which he was a director and founder and which was involved in the same business, in order to pursue this venture. By virtue of the agreement he had been promised 15% of the shares in the company which would subsequently be formed or acquired to carry on the business. It was agreed that Batinovich would be responsible for organising and building the new venture whereas the 1st Defendant would be responsible for financing the venture and all legal matters. In September or October 1988 Batinovich started to work from QPL Building in Texaco Road, Tsuen Wan.

2. It was necessary for this new venture to recruit able and experienced employees and it is as a result of this that the Plaintiff's claim arises.

3. The Plaintiff had worked for 11 years with the National Semiconductor Company by whom Batinovich had also previously been employed. After Batinovich had left National Semiconductor and founded Swire Technologies Ltd, he had recommended the Plaintiff to that company and the Plaintiff had subsequently been employed by Swire Technologies Inc. After Batinovich left Swire Technologies Limited in July 1998 the Plaintiff was offered Batinovich's post as Vice President of Operations which he agreed to accept on a trial basis.

4. It was while holding that post in around September or October 1988 that Batinovich had a series of meetings with him in order to persuade him to join the new venture.

5. It is the Plaintiff's evidence that the principal incentive offered by Batinovich as far as he was concerned and the one which ultimately persuaded him to accept the offer was that he would be granted shares in the new company rather than just work for a salary. His pleaded case is that he was offered not less than 3% but not more than 5% of the shares in the new company.

6. As a result of this promise he agreed to accept employment with the company which was to be founded or acquired and on 14 November 1988, gave up his employment at higher remuneration with Swire Technologies Limited.

7. This promise of shares is described in the Statement of Claim as "the first promise and representation".

8. It is common ground that the company which was to carry out the venture was not acquired until 11 November 1988, after the date of the Plaintiff's resignation from Swire Technologies Limited. The company was initially called Vastearn Limited but on 30 March 1989 its name was changed to ASAT Limited.

9. A significant feature of the venture was that the 1st Defendant was concerned to keep his involvement and the involvement of the 2nd Defendant secret from customers of the 2nd Defendant until the new company had become well established as the new company would be operating in direct competition to the 2nd Defendant's existing customers. An elaborate company and shareholding structure was put in place by the financial advisers of the 2nd Defendant to ensure that the 2nd Defendant's involvement would not need to be disclosed. Indeed it is the Plaintiff's case that he was not informed of the involvement of the 1st and 2nd Defendants in the venture until around the time the matter became public knowledge in about November 1989.

10. The Plaintiff started working for the new venture in California on 1 December 1988. His position was Vice President of both the Hong Kong company, later known as ASAT Limited, and its US arm, ASAT Inc. (I shall refer to both as ASAT).

11. The Plaintiff's evidence is that when he returned to Hong Kong in August in 1989 for the formal opening of the new company, he pressed Batinovich for something in writing confirming his shareholding in the company. Batinovich's responses was that he would talk to the 1st Defendant. Thereafter Batinovich gave him a memo dated 21 August 1989 signed by Batinovich himself. The Plaintiff contends that on its proper construction that memo, amounted to a fixing of the percentage of the shareholding which the Plaintiff had previously been promised if he agreed to accept the employment at 3%. It also amounted to confirmation that the transfer of the shares originally promised to him had been or would be honoured and a representation that 3% of the shares in the company had been transferred to him or that an instrument of transfer had been executed in his favour and that the Board of Directors of ASAT Limited had either approved the transfer or agreed to register the transfer. These representations are described in the Statement of Claim as "the second representation". The Plaintiff contends that in reliance on the first promise and representation and the second representation, he, amongst other things, declined to seek alternative employment, declined to take a salary increase or claim various expenses paid by him.

12. The Plaintiff's employment with ASAT was eventually terminated on 9 February 1991.

13. The Plaintiff's principal claim is damages for breach of contract, for breach of the first promise and representation and the second representation. In the alternative, he claims that they amounted to fraudulent or negligent misrepresentations entitling him to damages.

14. It should be noted that in the case of each representation, he alleges that it was made by Batinovich in the absence of the 1st Defendant, but nonetheless contends that it was made on the authority of the 1st Defendant either on his own behalf or on behalf of the 2nd Defendant. The 1st Defendant has given evidence that he never authorised either the first or the second alleged representations by Batinovich, and he knew nothing of the memo of 21 September 1991, which Batinovich claims was approved by him. The Plaintiff has nonetheless chosen not to join Batinovich in these proceedings. After leaving ASAT he joined Batinovich in founding another company (IPAC) and is now working with Batinovich in another venture in the same field.

15. In relation to both the first promised representation and second representation the initial questions for consideration are whether the representations alleged by the Plaintiff were made to him by Batinovich and if so whether they were authorised by the 1st Defendant, either on 1st defendant's own behalf or on behalf of the 2nd Defendant. This latter question turns ultimately upon the court's assessment of the credibility of Batinovich and the 1st Defendant who have given conflicting accounts. Only if the court is satisfied that one or other or both of the two representations was made to the Plaintiff on the authority of the 1st Defendant does the court have to consider the legal implications of such representations.

The first promise and representation

16. A feature of the Plaintiff's evidence concerning the first representation is its vagueness as to the extent of the shareholding which he alleges that he was promised by Batinovich. Even in his witness statement, he said that he could not remember the percentage that Batinovich had mentioned but simply that he "had it in mind that the proposed percentage would be around 5% and not more than that". When he gave evidence he conceded that "no solid number" of shares had been mentioned to him but that he understood "from various conversations and manoeuvring around that it was in the region of 5%". In re-examination, he said that he reached this assumption because Batinovich had mentioned that when he himself had been vice president of another company he had been given around 5% of the company's shareholding.

17. Batinovich's witness statement and his oral evidence were much more precise as to the offer. He said that he mentioned a range of 3-5% to the Plaintiff and he had done so after obtaining the 1st Defendant's express authority to make such an offer.

18. Bearing in mind the importance to him of the matter, I consider that if there had been a specific range of 3-5% promised to him by Batinovich the Plaintiff would have remembered it. I prefer the evidence of the Plaintiff to Batinovich in this regard. I accept the Plaintiff's evidence that the representation regarding the shareholding played a significant part in his decision to leave his employment with Swire Technologies and accept employment with the company that would subsequently become ASAT. By moving from Swire Technologies, he was giving up a senior position in that company which was paying him a greater salary than he would obtain, at least initially, from the new venture proposed by Batinovich. I consider it probable that he was given no promise at that stage as to the extent of the shareholding he would receive although Batinovich may have led him to believe that 5% would be a realistic possibility. He was content to trust Batinovich with whom even then he had had a long working relationship.

Authority for the first promise and representation

19. I have given careful consideration to the credibility of the 1st Defendant. I have concluded that there is nothing to suggest he was not a truthful witness. I have born in mind his desire to conceal his involvement with ASAT but there is a clear distinction between taking lawful steps not to disclose one's involvement in a company and lying as to arrangements with an employee. I found his evidence that he had never given Batinovich authority to offer the Plaintiff shares in ASAT either personally or on behalf of the 2nd Defendant plausible. I found his explanation convincing that if Batinovich had asked for such authority he would have wanted to speak to the Plaintiff because the Plaintiff would have become a partner in the enterprise and that he would have wanted to speak to his financial advisor K C Wong of Anglo Chinese Corporate Finance Limited. K C Wong, whom I found to be a credible witness and who was prepared to give frank evidence about the 1st Defendant's somewhat autocratic style of management, said he had never heard of any shares being offered to the Plaintiff. If the 1st Defendant had given authority to Batinovich to make such an offer to the Plaintiff he is likely to have mentioned it to K C Wong, particularly as at the time Batinovich said that he had been given this authority to offer 3-5% of the shares, Batinovich himself had not yet been allotted his 15% of the shares. That the 1st Defendant made no mention of this to K C Wong is confirmed by the ASAT company structure table prepared by K C Wong on 4 September 1989 which makes no reference to any shareholding of the Plaintiff.

20. If Batinovich had been given express authority by the 1st Defendant to make an offer of 3-5% shareholding to the Plaintiff, I believe he is likely, bearing in mind the previous relationship between himself and the Plaintiff, to have given a specific promise to the Plaintiff as to the percentage or the range that the Plaintiff would obtain rather than simply alluding to what he had obtained when he was offered a similar position.

21. I found it unlikely, if the 1st Defendant had been told by Batinovich as Batinovich alleges that the Plaintiff was "a key player" without whom he would not start the venture and that it would be absolutely necessary to offer him shares, that the 1st Defendant would have risked offending the Plaintiff at the start of his costly venture, by allotting shares to Batinovich and not the Plaintiff, and then ignoring the matter thereafter. This would particularly be the case when at that stage, as the 1st Defendant himself commented, the difference between 15% of the shares which was the amount to be allotted to Batinovich and 18% (if he had also promised shares to the Plaintiff) would be marginal.

22. Bearing in mind Batinovich's evidence of the value of the Plaintiff to the venture and their previous relationship, I believe that if he had made a promise of shares to the Plaintiff on the express authority of the 1st Defendant. Batinovich would have raised the matter with the 1st Defendant when he discovered that while he himself had been allotted shares in the company the Plaintiff had not. I am satisfied that it would have been clear to Batinovich that the promise he alleges he made to the Plaintiff had not been honoured. Over the ensuing months he signed a number of documents as a shareholder which would have revealed to him that the Plaintiff had not been made a shareholder. They include a resolution of shareholders of 11 March 1989 that the name of the company be changed to ASAT, the Annual Return of ASAT dated 23 September 1989 and the resolution of shareholders of 9 May 1990 that the Chinese name of the company be changed.

23. I found Batinovich's evidence that he simply signed documents submitted to him by the 1st Defendant blindly without reading their contents highly unlikely. Mr Batinovich impressed me as an able and intelligent man. He had been instrumental in setting up a number of businesses in the computer field. In my view, he is not the sort of man to sign documents which might affect his personal position without familiarizing himself with the contents.

24. His evidence was that in what he described as "the semiconductor universe" the salary of the job was just the means of "supporting a person's lifestyle and that it was ownership and stock options that everybody viewed as the means of rewarding handwork". He accepted that he had not been given share certificates or other legal documents proving his ownership of his 15% of the shares of the company. For that reason, the content of company documents which related to his shareholding are likely to have been of considerable interest to him. I believe it is most unlikely that it would have escaped his notice the Plaintiff had not been allotted shares.

25. Furthermore if Batinovich had received express authority from the 1st Defendant to offer shares to the Plaintiff in 1998, I believe that he would have said so in his notarized statement of 2 April 1992. The fact that he had it notarized indicated that Batinovich must have regarded the making of that statement as a significant matter. It purports to be a "sequence of events" relating to ASAT. That document makes no reference to any offer of the shares being made to the Plaintiff in 1988 still less that the offer was made on the 1st Defendant's authority. I believe it would have done if Batinovich had authority to make an offer of shares to the Plaintiff. On the contrary, the notarized statement implies that the genesis of an offer of shares to the Plaintiff was a discussion between himself and the 1st Defendant about the 1st Defendant's contribution to the company in June/July 1989. The same point applies equally to the memorandum of Batinovich allegedly of 21 August 1989, the authenticity of which is disputed. It makes no reference to an earlier promise to the Plaintiff that he would be given shares, but implies that the Board of Directors had approved shares for the Plaintiff on the basis of appreciation for his efforts.

26. In conclusion, therefore, I find that, although in 1988 Batinovich indicated to the Plaintiff that he would receive shares in the new company which was to be acquired or incorporated to carry out the venture, he did not commit himself to any particular shareholding. For the reasons I have mentioned, I am not satisfied that the Plaintiff has shown that Batinovich had the authority of the 1st Defendant, acting on his own behalf or on behalf of the 2nd Defendant to make that offer.

The second representation

27. The Plaintiff's evidence was that he arrived in Hong Kong from the USA on 6 August 1989 in preparation for the opening ceremony for ASAT on 18 August 1989. He said that when he saw Batinovich he raised the question of the promise of shares and the fact that he had received nothing in writing. In evidence he said that the absence of "paper work" was "slightly a matter of concern" to him. In his witness statement, he said that he wanted the commitment to be honoured. He said that he was not intending to make threats but if there had been any difficulty he would have left and Batinovich knew this. Batinovich himself said that the Plaintiff appeared to be agitated and he inferred that the company might lose the Plaintiff.

28. Batinovich said that he approached the 1st Defendant and told him of his concern that it had taken so long for the Plaintiff to be given the shares that had been promised to him and that there was a possibility of the 1st Defendant leaving the company. He said the 1st Defendant had agreed to the Plaintiff being informed that he had 3% shares of the company. The 1st Defendant told him to stipulate that if the Plaintiff wanted to sell the shares before the company went public they had to be offered back to the company. Batinovich had then drafted the memorandum of 21 August 1989 which he gave to his secretary to type. He said that he showed it to the 1st Defendant who read it and approved it. He (Batinovich) then handed it to the Defendant.

29. The authenticity of this memorandum had been challenged. The 1st Defendant said that he knew nothing about this memorandum until the litigation commenced. He said that if he had wished to offer the Plaintiff shares, he would have used his lawyers to draft the appropriate document.

30. There has been no direct oral evidence that the Plaintiff was not given the memorandum by Batinovich on 21 August 1989 as they both testified.

31. However there are a number of curious features in the evidence which relate to this document and what happened afterwards.

32. It does, indeed, appear on the evidence uncharacteristic for the 1st Defendant not to entrust the drafting of so important document to his lawyers.

33. The account Batinovich gave for the making of his document in his witness statement and in court is at variance with the account he gave in his notarized statement of 2 April 1992. In his notarized statement, he implied that the memorandum arose from a discussion in June or July 1989 about the Plaintiff's contribution to the company, rather than a request in August to honour an earlier promise. Furthermore, in the statement, he stated that he mailed it to the Plaintiff whereas his evidence in court is that he handed it to the Plaintiff and possibly faxed a copy.

34. Furthermore, in the Statement of Claim as originally pleaded, it was alleged that the memorandum was prepared by the 1st Defendant and given to Batinovich to type. This suggests that at one stage Batinovich may have made a statement to this effect.

35. It was the Plaintiff's evidence that when he asked Batinovich for written confirmation of his shareholding Batinovich had said that he would talk to the 1st Defendant. This is not easy to reconcile with the evidence of both the Plaintiff and Batinovich that Batinovich had not revealed the involvement of the 1st Defendant in the venture until considerably later; according to the Plaintiff's evidence it was in November 1989; according to Batinovich's evidence it was in the following year. Although when asked about it, the Plaintiff said he had suspicions of the 1st and 2nd Defendants involvement in the venture earlier than November, a direct reference by Batinovich to the need to consult the 1st Defendant appears inconsistent with any attempt to keep the matter secret from the Plaintiff. A question that arises from this evidence is whether it casts doubt on the evidence of the Plaintiff and Batinovich that the Plaintiff was given this document in August 1989.

36. If indeed the Plaintiff was given this memorandum in August 1989, his subsequent behaviour is curious. Despite the importance he allegedly attached to the document he said that he just "glanced through it". Even though the memorandum had said that "details of the transaction" will follow, he worked for ASAT for a further 17 months without receiving any such documentation and without raising any query. One might have expected him to have raised the matter of these documents at a number of stages in his subsequent employment with the company; for instance, when in November 1989, QPL's acquisition of the controlling shareholding in ASAT was made public, when the Maria Clinton affair came to ahead and he was contemplating resignation from the company and especially when he was dismissed from ASAT in February 1991. It seems to me curious that he was allegedly content to accept Batinovich's oral assurance that the document he signed on his dismissal accepting HK$780,000 in satisfaction of his claims against the ASAT did not affect his shareholding, without at least obtaining something in writing if not the share certificates themselves. One would have expected him at least to read the memo again on his dismissal when he would have been alerted to the reference in the memorandum to his rights having to be exercised by August 1991.

37. I have considered these curious features in the light of the Plaintiff's evidence that he did receive the memorandum in August 1989. The considerations are fairly closely balanced but ultimately I have concluded that in the absence of direct evidence to the contrary, it is more probable than not that the Plaintiff did receive the memorandum from Batinovich at this time. In reaching this conclusion, I have been largely influenced by the demeanour of the Plaintiff who struck me as a straightforward and honourable man. The confused terminology of the memorandum and in particular the reference to the need to exercise his rights by August 1991 make it unlikely that he at least played any part in fabricating the document in April 1992 as the defence had suggested might be the case. Moreover, a number of the features I have referred to above are as consistent with Batinovich having not been straightforward about the genesis of the document and the Plaintiff having confidence in Batinovich as with the Plaintiff not having received the document.

Authority for the 2nd representation

38. There was nothing in the evidence of the 1st Defendant which led me to believe that he was attempting deliberately to mislead the Court as to what occurred. There may have been matters about which he is mistaken but he is obviously a busy man and these were events which occurred a considerable time ago. I do not believe he would be mistaken in so important a matter as to whether shares had been promised to the Plaintiff.

39. The burden of proving that Batinovich was acting on the authority of the 1st Defendant, either on 1st Defendant's own behalf or on behalf of the 2nd Defendant, in giving him the memo of 21 August 1989 lies upon the Plaintiff. After considerable consideration I find that he has not discharged the burden of proving that the evidence of Batinovich regarding the memorandum is more probable than that of the 1st Defendant. There are a number of features in the evidence which have led me to this conclusion.

40. Some of them relate to aspects of the evidence of Batinovich (the only evidence who directly contradicts the 1st Defendant) to which I have already referred. They included the discrepancy in the accounts given by Batinovich relating to the memorandum.

41. Bearing in mind, Batinovich's evidence that he thought of that the Plaintiff was considering leaving the company in August 1989, I believe that he would have been concerned to ensure that the Defendants honoured the promise contained in the memorandum. As I have said it would have been apparent to him, if from nothing else, at least from the ASAT annual return signed by him on 23 September 1989 and the resolution to change ASAT's Chinese name signed by him on 22 May 1990 that nothing had been done.

42. I do not believe that, in dismissing a long term colleague whom he had introduced to the company in February 1991, Batinovich is likely to have given an assurance that the letter he was requiring the Plaintiff to sign which had obviously been drafted by lawyers did not affect the Plaintiff's rights to shares without having sought confirmation that that was so. Yet this was what he claims to have done.

43. If Batinovich had obtained the 1st Defendant's authority to give the Plaintiff the memorandum of 21 August 1999, I am satisfied, bearing in mind, that significance to a long term colleague, he would have ensured that copies were retained on the company's files, if not also sent to the company's financial advisors. There is no suggestion that any copy was ever kept for the company's files or indeed given or sent to anyone else. This is remarkable given the significance of this memorandum. Bearing in mind that according to the Plaintiff, Batinovich said that he would discuss the matter with the 1st Defendant, there would be no reason why the memorandum should not have been copied to the 1st Defendant.

44. If Batinovich, a director of ASAT, had obtained the 1st Defendant's authority to give the Plaintiff the memorandum one would expect persons who became directors, even subsequently, to know about it. Henry Cheng, QPL's chief accountant and Winnie Ng who became directors on 29 November 1989, said that they had never heard of any promised shareholding to the Plaintiff, nor had the company's financial advisor K C Wong.

45. Although I would have reached the same conclusion without it, I believe there may well be truth in the evidence of Henry Cheng that Batinovich had asked that Cheng's secretary be allowed to type the letter dated 31 May 1990 in which he purported to indemnify QPL against ASAT's losses and made remarks about having promised some of his shareholding to the employees he had introduced to the company.

46. Some of Henry Cheng's evidence was confused. Some of it was plainly unreliable but ultimately I did not form the impression that he had been put up to give this evidence about the indemnity letter and the Batinovich's remarks. The indemnity letter is so remarkable that I find it most improbable that Batinovich would have signed it without being aware of its purpose. That being so, and in the absence of any other explanation, it may well be Batinovich had decided to have that letter in reserve should the Plaintiff persist in his demand for a shareholding, which Batinovich realised could only come from his own shareholding.

47. In reaching the conclusion I have about the memorandum of 21 August 1989, I have considered the argument that the reference to a right of preemption before the company's flotation must have come from the 1st Defendant. I do not believe that be the case. Batinovich was a significant minority shareholder in this company and would have had familiarity with these matters. It might be for instance that Batinovich was concerned that if the Plaintiff raised the question of shares again he should first have to approach him. The reference to a right of preemption could have been devised by him particularly as I am satisfied that the date put forward as the projected date for the company's flotation was a date which the 1st Defendant would have known was wholly unrealistic. This is consistent with the memorandum having emanated from Batinovich.

48. In considering the facts, I have also taken into account the Plaintiff's evidence that there had been a meeting between him and the 1st Defendant at the Tsing Kwong Restaurant in Tsuen Wan Heights toward the end of 1991 after Batinovich had told him that he had sold his shares in ASAT. The Plaintiff said that he raised the question of the shares and that the 1st Defendant had indicated that the company was losing money and that when the company was making money, the Plaintiff would get a "nice cheque". The 1st Defendant's evidence was that he had not been to that restaurant and would not in any case have gone to such a place alone with the Plaintiff. There is nothing to assist me as to whether such meeting did occur. Even if the 1st Defendant is mistaken and it did occur and it was toward the end of July and the 1st Defendant made remarks along the lines of those alleged, it was very close to the time of Batinovich's resignation as a director of ASAT on 17 July. The remark of the 1st Defendant appears to have been a "casual" remark rather than a considered discussion of a shareholding of the Plaintiff. It would have been easy for the two men to have been at cross purposes. It could be for instance be that 1st Defendant was unaware of the number of shares sold back to the company by Batinovich on his resignation and assumed that the Plaintiff was referring to shares he had obtained from or being promised by Batinovich. That would be consistent with his position at the meeting with the Plaintiff at the Pacific Club in 1992 when he told the Plaintiff that Batinovich had sold his shares. This evidence is based in any case on the Plaintiff's recollection of a brief oral conversation many years previously when it is unlikely that the exact context and terminology can be recalled. Having taken this evidence into account, I am nonetheless not satisfied that the Plaintiff has shown on the balance of probabilities that the evidence of 1st Defendant is untrue and that Batinovich had the authority of the 1st or the 2nd Defendant to give him the memorandum of 21 August which forms the basis of the second representation.

49. In view of my findings as to that the Plaintiff has failed to prove on the balance of probabilities that Batinovich had the authority of either the 1st or the 2nd Defendant to make either the 1st or the 2nd representations, I dismiss the Plaintiff's claim.

50. I make the following order as to costs that unless either party applies to be heard on the question of costs within 14 days, the Defendants' costs be taxed and paid by the Plaintiff.