Raymond M. Gray v. Siegfried Guttinger

HCA001219/1972

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO.1219 OF 1972

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Coram: Li, J.

Date of Judgment: 28th February, 1974.

Present: Mr. Kemal Bokhary (Wilkinson & Grist) for Plaintiff

Mr. Denis CHANG (Peter Mo & Co.) for defendant.

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JUDGMENT

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1. This is an action for commission due under a contract. The plaintiff is an experienced salesman, well versed in recruiting and training of sales staff. The defendant operates a firm by the name of California Land Investment Guttinger and Associates which owns or have arranged for parcels of land in California to be carved out in small lots to be sold in Hong Kong and South East Asia.

2. The plaintiff and defendant met in Hong Kong. As a result of negotiations the plaintiff was employed to take charge of the sales of the defendant's company. This arrangement was reduced in writing in an agreement dated the 28th June 1968 which is exhibited in page 2 of the agreed bundle. The terms of this agreement, inter alia, consist of two material clauses. By Clause 3 of this agreement, the plaintiff is entitled to a commission of 12 ½% on all sales made by him or his salesmen payable immediately after receipt of minimum one-third of the total sales amount. Clause 4 of this Agreement provides that it is also agreed for the future that the plaintiff, is entitled to participate in a business after reaching a total sales amount of his credit of US$100,000 in the form of 10% commission payable in cash and 10% in the form of a credit to be applied to future land purchases in which the plaintiff will have a share. The terms of rate of commission provided for in Clause 3 was raised by a subsequent agreement from 12 ½% to 15% as from the 1st January 1969 and to 17 ½% as from 1st June 1969. The plaintiff's service was terminated on the 3rd December, 1969. The above facts are not disputed and they are not seriously challenged and I find the aforesaid facts as proved.

3. Despite the long, comparatively long pleadings that have been filed in this case, as they are set out in the amended Statement of Claim and amended Statement of Defence, the issue involved are as follows:-

a) The plaintiff maintains that Clause 4 is an additional benefit to Clause 3 of the aforesaid Agreement. The defendant maintains that Clause 4 is only alternative terms to Clause 3. Having regard to the narrow issue involved, I shall not set out the plaintiff's claim in detail. These are contained in the Particulars of Claim. It is sufficient to observe that originally, while the plaintiff failed to claim that Clause 4 is an additional benefit to him, he claimed in this case a 10% cash commission in respect of the gross sales after the US$100,000 target was reached. He claims, therefore, a 10% cash commission on all sums of sale exceeding US$100,000. In addition to that, his original claim was to claim under Clause 4, a 10% interest in all the land acquisitions by the defendant after the US$100,000 target was reached. At the trial, however, the parties agree that the plaintiff's claim is now limited to that if Clause 4 of the agreement were an additional benefit, then he would claim 20% in total on all the sums of gross sales in excess of US$100,000. In addition to this, there are several transactions of land sales, the commission on which is in dispute. They are now limited to only six transactions. In respect of the sale to a client by the name of shioji, the plaintiff claimed 17% commission on the sale price. In respect of sales to two clients by the name of Timson KWOK and W.R. Large the plaintiff now claimed 9 ½% commission on the sale price. In respect of the clients Laugs, and Kleiner and Lacson - the three clients - 2%. It is also agreed by the parties that as to the rest of the transactions set out in the Statement of Claim, that 17 ½ commission had been paid.

4. Having regard to the issue between the parties, it is incumbent upon me to decide, first of all, whether Clause 4 is an additional benefit to Clause 3 in the Agreement. In addition to that, I have to take into consideration of the six transactions individually, as I have named them, and see whether a commission is payable to the plaintiff for those transactions. I shall take the less difficult of the two problems first, namely, the individual transactions. In the course of the evidence, it is apparent that the transaction between the defendant company and shioji had completed after the plaintiff had left the defendant. However, the contract was signed while the plaintiff was still in employment with the defendant, and it is conccded by the defendant that in respect of this transaction, a 17% commission is payable.

5. I now come to the transactions with Timson Kwok and Large. Apparently, these were transactions arranged by the plaintiff with the two respective clients. Agreement of sales were signed, but before the transactions had completed, the plaintiff left the defendant's company and at that time, a third of the whole of the purchase price had not been paid. There is evidence that later on, both Mr. Kwok and Mr. Large withdrew from such a transaction. In the case of Mr. Kwok, the defendant said that he failed to continue his instalment payment and he failed to pay one-third of the purchase price. In addition to that, by a letter dated the 25th June, 1970 which is exhibited in document No. 19 of the agreed bundle, he withdrew some money from whatever was paid into his accounts. This letter reads "I wish to withdraw $2,000 from my trust account No.110. If possible, I would like to withdraw the $2,000, the above amount on the 30th June, 1970. I shall be able to return this money plus one or two extra previously agreed monthly payments on or before the 15th July, 1970." I am told by the defendant in evidence that this transaction was subsequently rescinded and, as such, no business was completed. However, reading from the letter exhibited in document 19, the purchaser Mr. Kwok had some intention of continuing with the transaction although it was a deferred action. So, for this reason, as the plaintiff had done everything within his power during employment to obtain this business and which can materialize to finalization, he has earned his commission once the one-third of the purchase price had been paid. As such, I am of the opinion that he is entitled to his 9 ½% commission.

6. In the case of Large, there is some definite evidence of his withdrawing from the transaction before he finished paying the one-third of the purchase price and the transaction did not take place, but the transaction did not take place by consent of both defendant and Mr. Large. It is a real contract and specific performance can be enforced. However, for obvious reasons, the defendant thought that it's better for the goodwill of his firm that he agreed to receive a cancellation fee of US$200 and return the balance of the purchase price to Mr. Large. There, again, the defendant compromised this transaction without consulting the plaintiff who had done everything he could to earn his commission. Had the defendant decided to enforce specific performance there would appear to be no defence on the part of Mr. Large. In the circumstances, I am also of the opinion that the 9 ½% commission had been earned.

7. There remain three further transactions with Mr. Laugs, Mr. Kleiner and Mr. Lacson. There is evidence that the transaction with Mr. Lacson never materialized at all. They were, as in the other two cases of Kleiner and Laugs, business canvassed and arranged by the defendant. It is out of a matter of grace that the defendant, as a matter of practice, gave 2% commission to the plaintiff in respect of business done by the defendant. There is no contractual obligation on the part of the defendant to pay the plaintiff this 2% in respect of the transactions canvassed by the former. In any event, in the case of Lacson, there was never any sales contract signed. In the circumstances, I am of the opinion that the plaintiff is not entitled to this 2% which is not founded on contractual obligation. The plaintiff can only found on a piece of paper in page 16 of the agreed bundle which was a draft by the defendant setting out the pending business for the plaintiff to sign, but that was at the time when the plaintiff was about to leave the defendant's company. The highest one can put is that it was an admission on the part of the defendant that these were pending business. However, this document was never signed by either party. The only way to put it is that it was a basis for negotiation between the two, as the defendant said he wanted to clarify a limit of his liability. The plaintiff refused to accept it and the defendant never signed it and as such, I find it is not sufficient to be a foundation of the claim in respect of the transactions of Laugs, Kleiner or Lacson. Thus I dispose of the individual cases and transactions.

8. I now come to the more difficult task of this Agreement, particularly on the effect of Clause 4. Admittedly, Clause 4, as I have read it a little earlier, gives no indication whether such a benefit is as an additional benefit or as an alternative method of calculation. It is said that it is agreed for the future and, as such, it may be said that it is ambiguous and the intention of the parties have to be found as to what they meant by having 2 clauses, namely, Clause 3 and Clause 4, both in the contract giving similar type of remuneration but at different rates. The plaintiff's case is that Clause 3 is to cater for his immediate needs of office and personal expenses. He has to run an office, train salesmen, and pay them out of the 12 ½% of commission, subsequently raised to 17 ½%. Clause 4 of the Agreement is to cater for his needs for the future because he says that it is abundantly clear from the evidence that both parties at the time of negotiation realised that the plaintiff wanted not only immediate benefit but also future benefit - a career and a business. The plaintiff contends that, long before the US$100,000 target was reached, he had already obtained 17 ½% commission, namely, an increased commission under Clause 3. Clause 4 is clearly an additional benefit to him. The defendant's case is that it is nothing but an alternative mothod of calculation. The plaintiff, under Clause 3, would have earned commission at the rate of 12 ½%, subsequently raised to 17 ½%. But once the US$100,000 target was reached (that is $100,000 in sales) the plaintiff was entitled to opt to take the benefit under Clause 4 in that his total commission would amount to 20%, 10% of which would be paid to him in cash and 10% would be reserved on credit for future acquisition of land in which the plaintiff would have his share of the price appreciation. In other words, the plaintiff will get 10% of commission in cash and the other 10% is reserved for his capital in future participation of land acquisition.

9. First of all, when there is no indication whatever in a document which is ambiguous, I take it the only way to find out the true intention of the parties is, first of all, by their conduct in carrying out the contract. Secondly, one must find the terms to operate as sensibly as possible which one may almost deem it the intention of the parties unless there are some other indications. In this instance, the plaintiff's original claim was that once US$100,000 target was reached then on all the excesses he would obtain not only 17 ½% commission on Clause 3 but in addition he would obtain another 10% commission on such gross sales, making a total of 27 ½% and that is not all. As far as the plaintiff is concerned, under Clause 4, he is to obtain another 10% interest not on the sales figure but on any value of land that the defendant chooses to acquire. In other words, once the plaintiff has satisfied the performance of pushing the sales to the value of US$100,000 then for the next $10,000 worth of land he sells for the defendant company, he will obtain a 27 ½% cash i.e. $2,750.00. He also claims that from that time onwards, if the defendant should acquire any land whatever, be it to the value of $10, be it to the value of $100,000,000 - to push the argument to absurdity - he would have 10% of interest in such land. In other words, the operation of Clause 4 can be pushed to absurdity. On the one hand, the defendant might feel that he would not mind paying him 27 ½% in all, but he would not give him any more interest in land of 10% and the defendant would not acquire any land. On the other hand, the defendant might say that there is a good buy and he must spend $100,000,000 in acquisition of land. The plaintiff would then without anything ado, without putting up any capital, acquire an interest of $10,000,000 worth of interest in such acquisition. This appeared to me to be so absurd and very unreasonable terms on a contract that the parties would ever agree to it. The absurdity lies not only in the figures in this form in argument, but it also lies in that this interest in land has nothing whatever to do with the performance by the plaintiff. Had it been claimed, as it was agreed at the beginning of the trial, that he was to get 20% whether in cash or in kind in respect of his performance, namely, the sales effected by the plaintiff, then the terms might be more reasonable. As it was claimed by the plaintiff, he made the term in Clause 4 most unreasonable.

10. Having seen this, one has to look at the conduct of the parties in the performance of this Agreement. Well before the US$100,000 target was reached, some time in June or July in 1969, the plaintiff had been acting for the defendant company on the 17 ½% basis alone. All the calculations were done on that basis. After the US$100,000 was reached, all the calculations were not on the 20% basis or 10% basis. It's invariably on the 17 ½% basis. This is evident in the documents in agreed bundle 195, 197 and 198. The plaintiff's argument is that:" One glance at Clause 3 and Clause 4, even though my rate of commission was raised to 17 ½%, makes it obvious that Clause 4 gives me 20%. Therefore, it is not a question of choice but a matter of simple arithmetic that I get 20% from Clause 4. The reason why I did not work out the commission on Clause 4 is that these are my future reserve. My relation with the defendant was cordial at the time and I trusted him". But there is evidence that both the plaintiff and the defendant are very practical people, mature and efficient businessmen. There is undisputed evidence that after every single transaction, every single sale effected by the plaintiff, the defendant and the plaintiff will at once get together and calculate the plaintiff's commission on a piece of paper. They also, in the same piece of paper, put down whatever pending business that the plaintiff has effected and all the advances that had been made to the plaintiff and whatever refund the plaintiff had agreed to be deducted from his earnings. That is recorded in every single transaction, of which documents 195, 197 and 198 are just three of the examples.

11. On all these papers, however, these were transactions completed after the target of US$100,000 was reached. The calculation was on 17 ½% simpliciter. There is not a scrap of evidence in any of these documents to suggest that the plaintiff earned an additional 10%, or any calculation showing the additional 10% earned under Clause 4. Nor is there a scrap of evidence to show that the plaintiff had enquired whether any land had been acquired by the defendant since the target was reached, or any sum of money credited to his account - the other 10% commission - for the future acquisition of land. That is not the conduct I expect of a mature, experienced and practical and efficient businessman. It is true that the plaintiff may well have trusted the defendant. Their relationship may well have been cordial. I expect that at least some record is kept as to the accumulation of the 10% cash commission undrawn on the part by the plaintiff so that the record may be kept from time to time as a record is kept in respect of each single transaction. In addition to the 17 ½% earned by the plaintiff under Clause 3, there should be a record of an additional 10% cash is kept in reserve for the plaintiff and a further addition of 10% of the commission to be kept for future acquisition of land. However, there is no evidence from the conduct of the parties that they have done such a thing.

12. It is true that the effect of a document is such that, once a clause is there, it has to be interpreted, and there is no word to indicate whether Clause 4 is additional or alternative. It appears that one must give some meaning to both clauses. There is no evidence that the plaintiff has opted for Clause 4. There is no evidence that the plaintiff had, by his conduct - by accepting an increase in commission under Clause 3, waived his right under Clause 4. But that is not the criterion for my interpretation and for determination of this issue. My ruling on this issue is entirely based on the conduct of the parties. When there is any doubt, one can only see how the parties carried out their contract as evidence of their intention before the dispute arose. One may argue that it is foolish on the fart of the plaintiff not to opt for a benefit under Clause 4 which will give him a 20% commission in total in fact; or, if one accepts the plaintiff's interpretation, give him even more. However, the increase of commission under Clause 3 will give him an immediate benefit, bearing in mind that had he opted under Clause 4, he would obtain 10% commission in cash and 10 in reserve only for the acquisition of land. In further argument, the plaintiff said that any interpretation of Clause 4 as an alternative method would make the whole operation unworkable. According to him, Clause 4, if it were an alternative, would only give him 10% commission in cash and yet some of his salesmen under him would have obtained a commission as high as 15%. In other words, if Clause 4 were the alternative and operative alone, the plaintiff might well have to dig into his pocket to pay the salesmen working under him. However, one may observe that in the evidence before me, there were only one or two salesmen that were getting as high as 15%. One must not lose sight of the situation that the plaintiff, although keeping a 10% reserve, was in fact earning 20% under Clause 4 and he would, by reserving 10% of the commission become a partner in future acquisitions and he would earn perhaps not only in commission but also, in future, by way of profits. Looking at it this way, the operation of Clause 4 as an alternative is not that unreasonable. Furthermore, when he received the 17 ½% commission, he was receiving the commission as cash in the form of accelerated payment. The 7 ½% extra was immediate payment rather than deferred payment as on credit. It is not every single salesman working under the plaintiff that received a 15% commission. Some are paid 5%, some are paid 7%. The plaintiff himself engaged in sales as well. As in the case of the transaction with Shioji, he earned a full 17% himself. Under the circumstances, having regard to the conduct of the parties in carrying out the contract, I am of the opinion that the benefit under Clause 4 is an alternative method of calculation, an alternative benefit, and not in addition to the benefit under Clause 3.

13. In normal circumstances, I would have ruled that it is only just, having regard to the whole text of the Agreement, that the plaintiff's commission should be adjusted to 20% for the excesses after the US$100,000 target was reached. However, I am informed at the beginning of this trial by counsel for both parties that the plaintiff's case rests or falls on the proposition that the benefit under Clause 4 is an additional benefit. Having regard to this and having regard to the agreement of both parties, I feel that I am not in a position to grant the extra benefit or adjustment of the additional 2 ½%. The result is that, for the reason already given, there should be judgment to the plaintiff to the extent only of commissions at the rate of 17% on the gross sale price of the Shioji transaction, 9 ½% on gross sale price of the Kwok and Large transactions. Now, I would have to hear Counsel in the matter of costs.

(Counsel's submissions not recorded)

MR. CHANG: $9,405.12

(Further submissions not recorded).

Representation: