PREM KUMAR SARAF v. NAHATA JAICHANDAL t/a SANGAM ENTERPRISE

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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ASSESSMENT OF DAMAGES

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1. This action arises out of a contract of employment contained in a letter dated 31st March 1977, by which the Defendant agreed to employ the Plaintiff as manager of the export department of the Defendant's business. Although no specific period was mentioned in the initial contract, by subsequent letters the contract was extended for various periods and finally up to 31st March 1984. However, relations between the parties appear to have broken down and the Plaintiff's employment by the Defendant ceased as from 1st April 1982.

2. Proceedings for breach of the contract of employment were commenced by the Plaintiff by writ dated 17th September 1982, and, the Defendant having failed to comply with an order of Master Clay dated 22nd December, 1983, judgment was entered against the Defendant on 6th January, 1984 for the sum of $141,750.00, being the amount claimed in the Statement of Claim by way of salary and profit-sharing entitlement due to the Plaintiff up to 31st March, 1982, damages and interest to be assessed, and costs.

3. This assessment is therefore concerned with the period 1st April, 1982 to 31st March, 1984 and oral evidence was heard from both the Plaintiff and Defendant. No other witnesses were called.

4. It is not in dispute that the Plaintiff was initially employed by the Defendant under the contract contained in the letter dated 31st March, 1977, and continued in that employment until early 1982. The Plaintiff maintains that the Defendant was in breach of that contract in ceasing to employ him, and now claims his resulting loss of income to the date of expiry of his contract.

5. On behalf of the Defendant it is contended that the contract was illegal or there was at least an element of illegality in its performance, in that the Plaintiff never had a visa entitling him to work in Hong Kong, and that therefore he is not now entitled to claim any damages flowing from the breach.

6. Whether or not there was a breach of the contract is not a matter I can consider here, as judgment has already been entered against the Defendant, but I am bound to consider the question of illegality and whether such illegality, if any, creates a bar to an award of damages in this case.

7. The terms of the initial contract are contained in the letter of 31st March 1977 and it is apparent from the paragraphs numbered 1, 2 and 3 of that letter (document No.2 in the Plaintiff's bundle of documents), that the appointment, as Manager of the Export Department of the Defendant's firm, was understood to entail a large amount of travel in the South Pacific, Australia and New Zealand, handling sales in those areas and building up new markets. In addition the Plaintiff was expected to  report back on market conditions and on the creditworthiness of customers.

8. However, the Plaintiff would also have to return to Hong Kong regularly to visit factories and manufacturers, collect samples and  brochures and complete formalities for filling the orders he obtained including shipping documentation. When in Hong Kong he would also look after the other daily work of the office.

9. The Plaintiff said in evidence that he would come back to Hong Kong about 3 or 4 times a year and the total time spent here would amount to about 5 or 6 months a year i.e. nearly half his time was occupied with duties in connection with his employment in Hong Kong.

10. On each of his visits to Hong Kong the Plaintiff was granted a visitor's visa enabling him to stay for up to 3 months, at the end of which he would have had to leave and reapply, although this rarely occurred as he only stayed for one to two months at a time. He did apply for an employment visa but this was refused, and he continued to come to Hong Kong on a visitor's visa, although he maintains that he made no secret of the fact that he was working.

11. This situation continued for a number of years, during which time the contract was extended, initially to 31st March 1981, and then to 31st March 1984, the Plaintiff's salary being increased to $3,000 per month and then to $3,500 per month, in addition to the agreed share of the profits of 20%.

12. There appears to have been one setback in the arrangement in 1981 when the Plaintiff was refused entry into Hong Kong and deported, but the situation was remedied by the Defendant's company sponsoring his application and the Plaintiff seems to have had no difficulty since then in landing in Hong Kong as a visitor.

13. The Defendant says that it was the difficulty over the Plaintiff's visa that caused him to terminate his contract of employment. The South Pacific business depended on him and when he could not come to Hong Kong the business ceased operating. I find this explanation difficult to believe. The Defendant had been happy to employ the Plaintiff for several years, when he must have been aware of the Plaintiff's visa situation, and I accordingly consider it more likely that the contract was terminated for some other reason unconnected with the Plaintiff's visa.

14. However, it is apparent from the evidence, and the Plaintiff's frank admissions, that he was employed to work at least partly in Hong Kong, although his work took him away for more than half the year, the contract was signed in Hong Kong, and he was paid in Hong Kong, paying Hong Kong tax on his income. He was therefore clearly in breach of his conditions of stay as a visitor, under regulation 2 of the Immigration Regulations, Cap. 115, and consequently guilty of a criminal offence under S. 41 of the Immigration Ordinance.

15. It follows therefore that, both parties being well aware of this situation, whatever their intentions at the time of formation of the contract, by the time of the alleged breach, it had become a contract illegal by performance, in that it could not be performed without a violation of the law. It matters not, in my view, that the part of the contract that could be, and was, performed outside Hong Kong was not itself in breach of any law, as it is clear from the evidence that the contract as performed necessarily involved employment in Hong Kong which was illegal, and this illegality tainted the entire contract.

16. It has been submitted by Miss Pinto on behalf of the Plaintiff that, even if the contract is illegal, this goes to liability on which the Plaintiff already has judgment, and it is not proper to raise it now, the matter being res judicata. She further maintains that it cannot now be argued as it was not pleaded.

17. I concede that I am in the somewhat unusual situation of being asked to assess damages arising from a judgment where, had there been a trial on the merits, the Plaintiff could not have succeeded, the contract being void for illegality. However, just as it is contrary to public policy that an illegal contract should not be enforceable by the Court, it must be equally repugnant to public policy that the Plaintiff should benefit by way of damages from breach of such a contract.

18. Equally, there are ample authorities in Hong Kong, including Mak Yuk-kiu & anor. v. Tin Shing Auto Radio CTR Ltd. & anor. [1981] HKLR 575, and Wong Ting & anor. v. Yuen Hing-kwan & anor. [1979] HKLR 396, in support of the well-established principle that a Plaintiff cannot recover damages for loss of income from in illegal activity.

19. As far as the matter of lack of pleading is concerned, Miss Pinto herself drew my attention to the judgment of Devlin J. in Edler v. Auerbach [1950] 1 KB 359 at page 371 in which he held that: ......"where the Court is satisfied that all the relevant facts are before it and it can see clearly from them that the contract had an illegal object, it may not enforce the contract, whether the facts were pleaded or not".

20. I am satisfied that sufficient relevant facts are before me to show that the contract in question is illegal and I accordingly find that no damages are payable by the Defendant in respect of it.

21. However, I propose to deal briefly with the quantum of damages which I consider would have been payable had I not found as above, in the event of an appeal by the Plaintiff.

22. With regard to the Plaintiff's salary for the two years under consideration, this can be simply calculated at $84,000, being the agreed salary of $3,500 per month.

23. As to his loss of commission, although the Defendant claimed the business had ceased operation, this was because the Plaintiff was no longer there to conduct it. I must assess the loss as if the Plaintiff were still employed and sales were at a similar level. The best I can do is to take an average for the previous 4 years and apply it to the period in question.

24. The total commission received by the Plaintiff for the year 1978 to 1984 was $201,000 or an average of $50, 250 per year, and I assess the loss of commission at the latter figure for each of the year 1982/1983 and 1983/1984.

25. It has been contended on behalf of the Defendant that the damages should be reduced either because he has failed to mitigate his loss, or that he did in fact work, and there was evidence that he had registered a company, and I should take into account what he could have earned, or did in fact earn.

26. The Defendant fails to convince me on either count.

27. As to the failure to mitigate, Miss Pinto has referred me to the judgment of Grove, J. in Roper v. Johnson (1873) L.R. 8 C.P. 167 in support of her submission that the burden of proof is on the Defendant to show failure to mitigate. I accept that both that is correct and that the Defendant has failed to discharge that burden, there being no evidence as to the availability of employment for a man such as the Plaintiff.

28. As to the actual earnings of the Plaintiff during this period, I accept his explanation of the registration of the company and that he did not earn anything from business conducted by that company.

29. The only sums therefore which I would deduct would be those he earned, according to his evidence, between 16th June, 1983 and 16th October, 1983 when he earned 10,000 Rupees, or about $6,200.00, and between November 1983 and March 1984 when he ran his own business in India and earned a profit of $11,608.25 Rupees, or about $6,800.00.

30. There was no evidence as to the loss of air-fares and accommodation and I accordingly make no assessment in respect of either.

31. My assessment can therefore be summarised as follows :-

 

I will hear Counsel on the question of costs.