Basilio Yuen Pak-wing v. Colex Ltd
Read the full judgment text of HCA 1172/1975 on BabelCite. This High Court CFI judgment.
1. This action arises out of an alleged breach by the defendant company of a service agreement dated 2nd March, 1973 entered into between the plaintiff and the defendant company whereby it was agreed, inter alia, that the defendant company should employ the plaintiff as a manager who would serve the company as president of the company's business of electronic office equipments under its subsidiary by the name of Colex (America) Incorporated at Los Angeles, U.S.A., for a term of three years comme
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HCA001172/1975 IN THE SUPREME COURT OF HONG KONG (ORIGINAL JURISDICTION) ACTION NO. 1172 OF 1975 -----------------
----------------- Coram: Morley-John, J. Date of Judgment: 5th December, 1975. ----------------- JUDGMENT ----------------- 1. This action arises out of an alleged breach by the defendant company of a service agreement dated 2nd March, 1973 entered into between the plaintiff and the defendant company whereby it was agreed, inter alia, that the defendant company should employ the plaintiff as a manager who would serve the company as president of the company's business of electronic office equipments under its subsidiary by the name of Colex (America) Incorporated at Los Angeles, U.S.A., for a term of three years commencing from the 1st day of March, 1973. 2. The objects of Colex (America) Incorporated hereinafter referred to as the subsidiary company were to promote the sales of electronic calculators manufactured by the defendant company known as Colex Electronic Calculators and also to provide facilities for servicing such calculators and any calculators sold in the U.S.A. prior to the setting up of the subsidiary company. Prior to the setting up of the subsidiary company the defendant company had sold approximately US$5,000,000 worth of its calculators in the U.S.A. and considered that the U.S.A. would be its most important market and that sales would expand substantially and for that reason it decided to incorporate a subsidiary company in order to set up its own marketing and servicing organization. 3. From its inception the activities of the subsidiary company under the management of the plaintiff could only be described, commercially speaking, as disastrous. In its first six months of operation the subsidiary company did not sell a single unit of the defendant company's calculators and therefore the plaintiff and the defendant company entered into a supplementary agreement dated 28th September, 1973 whereby the promotion of sales of Colex calculators was to be transferred to an American Co. known as International Typewriter Exchange. It was a condition of this supplementary agreement that the plaintiff would disclaim any benefit from the sales of Colex Limited to the International Typewriter Exchange. But the subsidiary company thereafter was to exist merely as a servicing agency for the defendant company's calculators. Evidence was given by Mr. Charles Liu, managing director of the defendant company, that after the promotion of its sales had been taken over by the International Typewriter Exchange that company sold approximately US$10,000,000 worth of the defendant company's calculators between October, 1973 and the end of the year, 1974. 4. As a servicing agency only the subsidiary company did not appear to enjoy any better fortune and still operated at a loss, and in October, 1974 Mr. Liu told the plaintiff that he had no alternative but to cease the operation of the subsidiary company. In January 1975 winding-up proceedings of the subsidiary company were commenced. The plaintiff initiated the winding-up proceedings of the subsidiary company and then returned to Hong Kong in April, 1975. On 30th April 1975 at the defendant company's office the plaintiff was given a cheque for $4,000 being his salary for April, and a letter terminating his employment with the defendant company. The plaintiff alleges that this action on the part of the defendant company constituted a breach of the original service agreement whereby he has suffered loss and damage. The plaintiff therefore claims the sum of $40,000 as salary at the rate of $4,000 per month from 1st May, 1975 to 29th February, 1976, i.e. from the date of his dismissal to the date of the termination of the said service agreement. The plaintiff further claims a sum in respect of a bonus equal to 5% of the net profits earned by the defendant company in each financial year referred to in paragraph 2(b) of the service agreement from 1st March, 1973 to 30th April, 1975 and in order to ascertain the amount of this bonus he claims for accounts relating to the net profits earned by the defendant company for the period from 1st March, 1973 to 30th April, 1975. 5. The defendant submits that the said service agreement has been frustrated by the winding-up of the subsidiary company as the plaintiff was employed for the sole purpose of being president of the subsidiary company which by April, 1975 had ceased to exist. That in view of its continuous loss of profits the winding-up of the subsidiary company was a necessity. Further that the plaintiff agreed to the winding-up of the subsidiary company and in fact instructed lawyers in the U.S.A. to wind up the company and signed the winding-up documents as president of the subsidiary company. 6. The defendant also submits that the plaintiff is estopped from claiming that the service agreement was wrongfully terminated in that he agreed to such termination when he signed a receipt on 30th April, 1975 for the sum of $4,000 as termination pay and also accepted a letter of termination from the defendant company. 7. Finally, the defendant submits that it was also entitled to terminate the service agreement because the plaintiff was in breach of clause 3 of that agreement in that he omitted to furnish to the defendant company proper accounts of the subsidiary company when required and requested so to do. 8. With regard to the plaintiff's claim for bonus the defendant submits that paragraph 2(b) of the service agreement clearly refers to the profits earned by the subsidiary company and not by the defendant company and the plaintiff has admitted that the subsidiary company made no profits during its entire existence and consequently the plaintiff's claim is ill-founded, as is his claim for accounts. 9. The defendant also counterclaims for an order for proper accounts of the subsidiary by the plaintiff and an order for delivery up of all the records and supporting documents for the accounts of the subsidiary company. The defendant alleges that the accounts forwarded by the plaintiff were not proper accounts and as such were not accepted by their auditors Messrs. Peat, Marwick, Mitchell & Co. for the purpose of audit as a result of which the defendant company is unable to close its accounts for the year ending July, 1974. That therefore it is vital that they receive proper accounts or at least all the relevant do cuments and records from which proper audited accounts can be compiled. 10. It is clear from the evidence adduced that the company ceased its operations in about January, 1975 and that winding-up proceedings were commenced. The plaintiff has submitted that the dissolution of the subsidiary company did not frustrate the service agreement because of the provisions of clause 6 of that agreement which stated:
That therefore the plaintiff could still be employed by the defendant company in another capacity. However, I consider that the words "subject to mutual agreement" in that clause would prohibit the plaintiff from insisting that the company should so employ him. Therefore I am satisfied that the object for which the plaintiff was employed had ceased to exist in April, 1975. The question arises as to whether such frustration was induced by the defendant company. I am satisfied that this whole situation arose out of the plaintiff's inability to successfully manage the subsidiary company. The defendant alleges that the plaintiff was thoroughly incompetent and inefficient in handling the affairs of the subsidiary company and the fact remains that the subsidiary company failed utterly under the plaintiff's management. The plaintiff admitted that before he was employed by the defendant company he had no experience whatsoever in the servicing and marketing of electronic calculators and from that part of Exhibit P3 dealing with "the career history" of the plaintiff he had never before acted as a president of a company nor had he managed a company. I consider that the defendant company is also to some extent to blame for the failure of the subsidiary company in selecting the plaintiff to be its manager or president. Mr. Liu, the managing director of the defendant company said that as the plaintiff's qualifications included a Bachelor of Science degree and a Bachelor of Arts degree in major Accounting from Missouri University and a Master of Business Administration major Finance from St. Louis University he thought that the plaintiff should be able to perform the duties required of him. There was also evidence that from 15th February to 2nd March, 1973 the plaintiff was introduced to the various departments of the defendant company and during this time he had daily conferences with Mr. Liu as to how to operate the subsidiary company in the U.S.A. 11. As to the plaintiff agreeing to the winding-up of the subsidiary company it would appear to me that he had no choice in the matter, As counsel for the plaintiff pointed out, by clause 3 of the service agreement the plaintiff was required to obey the directions of the directors of the defendant company. 12. The defendant has alleged that the plaintiff agreed to the termination of the service agreement by his action in signing a receipt and receiving a cheque for the sum of $4,000 as termination pay on 30th April, 1975. Reference to the receipt will show that it is worded as follows:
Also the letter of termination concludes with the words:
That is the same cheque for which the plaintiff signed the said receipt. There was evidence adduced which I believe that prior to the issue of this cheque the receipt and the letter of termination, Mr. Liu suggested to the plaintiff that as termination pay he would offer him one or two months' salary but that the plaintiff asked for five months' salary as termination pay. The plaintiff said that he was offered $4,000 and he took this as he was owed it as his April salary but that when he signed the receipt so far as he was concerned the words "accepted and received" only applied to the acceptance and receipt of that cheque and not acceptance of the termination of the service agreement and that he was not satisfied with that sum as termination pay as was shown by the fact that he immediately approached ched his solicitor instructing him to apply for damages for wrongful termination of the service agreement. From all the evidence I am satisfied that this was the case. The receipt as it is written shows that salary for April, 1975 was paid to the plaintiff. It was submitted that the words "being termination pay" were added before the plaintiff signed the receipt. This receipt therefore indicates that the plaintiff was not given any termination pay as he was already entitled to his April salary so why should a man who is demanding five months' termination pay and was in fact offered one or two months' salary as termination pay then agree in effect to receive no termination pay. 13. It is also clear that the plaintiff did not send to the defendant company audited accounts that were acceptable to the company's auditors in Hong Kong. Neither did he forward the relevant documents relating to the subsidiary company as requested by the defendant company. However, I am satisfied that this was an instance of inefficiency on the part of the plaintiff and not a deliberate act of wilful disobedience of the instructions received from the defendant company. The plaintiff did employ an outside qualified accountant who did prepare what purported to be audited accounts which the plaintiff sent to the defendant company, albeit that such accounts were not acceptable to the company's auditors in Hong Kong. 14. From his evidence I am satisfied that the plaintiff has not made any serious attempts to find alternative employment since 30th April, 1975 but under all the circumstances of this case I am of the opinion that it would be equitable for the plaintiff to receive a certain amount by way of termination pay and I award him the sum of $12,000 being equivalent of three months' salary as termination pay. 15. As to the plaintiff's claim for a bonus under the provisions of clause 2(b) of the service agreement. The relevant passages of the said agreement are as follows:-
I am satisfied that this clause refers to the net profits earned by the subsidiary company and it is agreed that such company made no profits throughout its entire existence and so this part of the plaintiff's claim must fail, as must also his claim for accounts. 16. As to the defendant's counterclaim the plaintiff has said that all the records and documents relating to the activities of the subsidiary company are locked in a filing cabinet in the custody of a friend of his in the U.S.A. and that he, the plaintiff, has the key of this filing cabinet. It is clear to me that it is imperative that the defendant company must have all these records and documents in order to satisfy their auditors. Inefficient as he might have been, clearly the plaintiff should have brought these records and documents back with him when he returned to Hong Kong and to this extent the defendant's counterclaim must succeed and I order that the plaintiff deliver to the defendant all the records and supporting documents for the accounts of the subsidiary company as claimed. I see no reason why the plaintiff cannot send the key of the filing cabinet to his friend in the U.S.A. and make arrangements for the do cuments to be transported to Hong Kong. It would appear impossible at this juncture for the plaintiff to prepare proper accounts of the subsidiary company. 17. I therefore give judgment for the plaintiff in the sum of $12,000 and I also order that the plaintiff do deliver up to the defendant all the records and supporting documents for the accounts of the subsidiary company. To ensure no undue delay on the part of the plaintiff in delivering such records and documents I order a stay of execution as to the judgment for $12,000 until such accounts and documents are delivered to the defendant by the plaintiff. I also give general liberty to apply. I make no order as to costs.
5th December, 1975. Representation: Mr. H.Y. Leung, instructed by (Yung, Yu, Yuen & Co.) for the plaintiff. Mr. Patrick Fung, instructed by (Chan & Ho) for the defendant. |