Cheng Ka Chun v. Star Telecom Ltd.
Read the full judgment text of HCA 928/2001 on BabelCite. This High Court CFI judgment was delivered on 12 February 2003.
1. The Plaintiff, Mr. Cheng Ka Chun, was employed by the Defendant, Star Telecom Limited, as its Product Manager (Grade 7) from 1 September 1998 to 5 May 2000. In this action, he claimed commission due for his service from September 1999 to 5 May 2000.
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HCA000928/2001 HCA 928/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 928 OF 2001 _________________________
_________________________ Coram: Before Master Lisa Wong in Court Date of Hearing: 15 July 2002 & 16 August 2002 Date of Judgment: 12 February 2003 _______________ J U D G M E N T _______________ The claim 1.The Plaintiff, Mr. Cheng Ka Chun, was employed by the Defendant, Star Telecom Limited, as its Product Manager (Grade 7) from 1 September 1998 to 5 May 2000. In this action, he claimed commission due for his service from September 1999 to 5 May 2000. 2.Liability was not contested and interlocutory judgment with "damages to be assessed" was entered on 21 December 2001. 3.Unless otherwise stated, references in square parentheses in this Judgment are to pages of the Bundles of Documents lodged for the "assessment hearing" with the prefixes "P" and "D" denoting respectively the Plaintiff's Bundle and the Defendant's Bundle. The Plaintiff's contract of employment with the Defendant and the relevant terms thereof 4.The Defendant was at all material times involved in the marketing and distribution of pagers, mobile phones and related products and the provision of paging services. 5.The Plaintiff's contract of employment with the Defendant was embodied in a four- page letter of employment issued by the Defendant on 25 August 1998 and countersigned by the Plaintiff on 27 August 1998 ("the Employment Contract") [D/1-4]. Insofar as it is material, the Employment Contract provided as follows:
Relevant background events during and after the Plaintiff's employment 6.Pursuant to the Employment Contract, the Plaintiff was put in charge of the Defendant's Wholesales Department beginning from 1 September 1998. He was supervised by and reported directly to the Defendant's then Chief Operating Officer, one Mr. Lau Ka Fai Joseph (Mr. Lau"). 7.The Plaintiff had so far received from the Defendant commission in the sums of $131,205.32 in August 1999 [D/7, 12 & 13] and $298,788 in February 2000 [D/39-41]. These sums represented 5% of the net profits of the Wholesales Department for the periods from September 1998 to February 1999 and from March to August 1999 respectively. 8.It is, however, to be noted that in computing the net profits of the Wholesales Department from September 1998 to August 1999, the Defendant did not deduct all the operating expenses of the Wholesales Department. Some of such expenses were allocated to the Retail Department. Also, portions of the operating expenses of other departments of the Defendant were attributed to the Wholesale Department [D/5-6, 8 & 10-11]. This was done by the Defendant and accepted by the Plaintiff in principle on the basis that there were inter-departmental supporting services between the Wholesales Department and the Retail and certain other departments of the Defendant. 9.With regard to the second commission payment, it is to be further noted that according to an one-page document entitled "(Revised) PROFIT AND LOSS ACCOUNT FOR WHOLESALES DEPARTMENT FOR THE PERIOD FROM MAR 1999 TO AUG 1999" ("the 3-8/99 Wholesales P/L Account") [D/14] and another one-page document entitled "ALLOCATION OF EXPENSES OF OTHER DEPARTMENTS" [D/15], in computing the net profits for August 1999 on which the Plaintiff's 5% commission was charged,
The inclusion of the retail incomes and expenses was made clear by both handwritten notes above the "AUGUST" column and printed notes at the bottom of the document. This document was confirmed and countersigned by the Plaintiff twice. 10.It will be seen that one major ground of defence rested entirely upon the 3-8/99 Wholesales P/L Account, in particular, what the "AUGUST" column embraced, the Plaintiff's state of mind and knowledge in relation thereto and the inference to be drawn therefrom. It is, therefore, important to put this document in context and to note that:
11.On the other hand, beginning from about November 1999, the Defendant started to operate what were called the Nokia Professional Centres ("the NPCs") which sold Nokia mobile phones and related products and provided repair and maintenance and other after sale services to retail customers of Nokia mobile phones at premises rented and then licensed to the Defendant by Nokia (Hong Kong) Limited. This was done pursuant to an "Assist Agreement for Retail Outlet Management Program for Nokia Professional Centre" ("the Assist Agreement") and a Licence Agreement ("the Licence Agreement") both dated 27 September 1999 with Nokia (Hong Kong) Limited. Both agreements were for a term of 1 year but subject to the subsistence of an Agreement for the Supply of Cellular Mobile Phones dated 11 January 1999 ("the Distribution Agreement") under which the Defendant was appointed by Nokia Mobile Phones Limited as a distributor of Nokia mobile phones and related products in Hong Kong until 31 December 1999. Although the Distribution Agreement expired on 31 December 1999, Nokia Mobile Phones Limited continued to deal with the Defendant as its distributor thereafter. Mr. Lau and the Plaintiff represented the Defendant in the negotiations leading to the making of the Assist Agreement and the Licence Agreement. After the signing of these agreements, the Plaintiff was put in charge of the establishment and running of the NPCs. 12.In December 1999, following a change in the membership and board of directors of China Online (Bermuda) Limited, the Defendant's ultimate holding company, new directors were appointed to the Defendant's board on 28 December 1999 to take over its senior management. Mr. Kong Muk Yin ("Mr. Kong"), the only witness for the defence, joined the Defendant as Financial Controller on the same day. 13.On 2 May 2000, Mr. Lau gave the Defendant notice to terminate his contract of employment with effect from 6 May 2000. On 3 May 2000, by a letter addressed to Mr. Lau, the Plaintiff also resigned with effect from 6 May 2000 [D/42]. Issue was taken by the Defendant regarding the manner in which the Plaintiff tendered his resignation [P/27]. By another letter dated 5 May 2000 but addressed to the Defendant [D/43], the Plaintiff resigned with immediate effect and offered to pay the Defendant 3 months' salary in lieu of notice. 14.Following their resignations, Mr. Lau and the Plaintiff became respectively the Managing Director and General Manager of a company called MC. Founder (Distribution) Limited ("MC. Founder") [D/82 & 113]. 15.By a letter dated 26 May 2000, the 2 Nokia companies informed that the Defendant that the Distribution Agreement (which, as said earlier, had technically expired on 31 December 1999) would not be renewed and that the Assist Agreement and the Licence Agreement would also be terminated with effect from 31 May 2000. The reason given was the material change in the management and control of the Defendant. The NPCs were closed on 31 May 2000. 16.It was alleged by the Defendant that Nokia had subsequently taken its business to MC. Founders. The Defendant took the view that Mr. Lau and the Plaintiff had procured Nokia to terminate their said relationships with the Defendant. On 8 November 2000, the Defendant issued a Writ of Summons against Mr. Lau and the Plaintiff in HCA No. 9866 of 2000 for damages for the loss and damage suffered by it as a result of being deprived of the Nokia businesses. 17.In the meantime, on 17 July 2000, the Plaintiff commenced Claim No.LBTC5422 of 2000 in the Labour Tribunal to claim against the Defendant salary in arrears for 5 days from 1 to 5 May 2000, payment in lieu of 12 days' unused annual leave and commission for the period from 1 September 1999 to 5 May 2000 [D/65-66]. On 2 February 2001, the Labour Tribunal adjudicated the salary and unused annual leave pay claims in the Plaintiff's favour but ordered the commission claim to be transferred to the High Court upon the Defendant's application [D/94, 97-98]. The parties' different calculations of the Plaintiff's commission entitlement from 3/1999 to 5/5/2000 18.Both parties have changed their calculations of the Plaintiff's outstanding commission entitlement a few times since May 2000. It is sufficient for present purposes for me to state their respective final positions. 19.As per a "Schedule of Claim based on the latest evidence" handed up by Mr. Kenneth Ng for the Plaintiff at the adjourned hearing on 16 August 2002, the Plaintiff claimed $936,677. The Plaintiff, however, agreed that the Defendant was entitled to set off a sum of HK$126,000 being 3 months' salary payable by him to the Defendant in lieu of notice of termination of the Employment Contract. That is to say, the Plaintiff claimed the net sum of $810,677. 20.In contrast, the Defendant arrived at the figure of $454,538 (before setting off the payment in lieu of notice) after:
21.The Defendant argued that
The issues 22.The issues arising were:
Was the Retail Department subsumed by the Wholesales Department? 23.The Defendant did not adduce any direct evidence (whether oral or documentary) that the Retail Department was subsumed under the Wholesales Department as from 1 August 1999. I agree with Mr. Ng that it was somewhat astonishing that such a significant structural change had not been recorded in say an internal memo or announcement. 24.This part of the defence case was based entirely on the inference which the Defendant said could properly be drawn from the following primary facts and circumstances:
25.With regard to the last-mentioned circumstance, it was contended on behalf of the Defendant that the Plaintiff knew of the combination of the incomes and expenses of the Wholesale and Retail Departments before he confirmed the completeness and correctness of the 3-8/1999 Wholesales P/L Account by counter-signing the same. In this connection,
The Defendant submitted that the instruction for combining the incomes and expenses of the Wholesales and Retail Departments for August 1999 could only have come from either Mr. Lau or the Plaintiff. I was asked to further infer that such instruction was given because the Retail Department was subsumed by the Wholesales Department as from August 1999. 26.The Plaintiff initially denied the presence of the handwritten and printed references to the August 1999 retail incomes and expenses at the times when he countersigned the 3-8/99 Wholesales P/L Account. 27.In cross-examination, the Plaintiff was shown exhibit PD1 which was the original of the 3-8/99 Wholesales P/L Account. On it was Ms. Chow's original signature dated 31 January 2000 against the words "Checked by". The handwritten and printed references to the August 1999 retail incomes and expenses were already there. The Plaintiff was further shown exhibit PD2 which was the original faxed copy of PD1 generated when Ms. Chow faxed PD1 to the Plaintiff for his signature. It contained the Plaintiff's original signatures. The Plaintiff signed on this faxed copy document on 31 January 2000 against the words "Confirmed by". He was subsequently asked to use the formula "Confirmed, completed & correct" and he signed it again. 28.Upon such documentary evidence, the Plaintiff had to concede the presence of the handwritten and printed references to the August 1999 retail incomes and expenses when he countersigned the 3-8/99 Wholesales P/L Account. He, however, maintained that such notes skipped his attention. He explained that he was told to sign the document as soon as possible on 31 January 2000, failing which he would not be paid his commission before the Chinese New Year holidays which started on 4 February 2000. He was anxious to obtain payment. 29.On the evidence available to me, I am unable to make any finding as to who actually prepared the 3-8/99 Wholesales P/L Account. Nor can I infer, on a balance of probabilities, that the Plaintiff must necessarily have been privy to the instruction to combine the incomes and expenses of the Wholesales and Retail Departments for August 1999. 30.However, I do not believe that the Plaintiff did not know that the 3-8/999 Wholesales P/L Account consolidated the incomes and expenses of the Wholesales and Retail Departments for August 1999 when he signed the document on 31 January 2000 (notwithstanding the lack of challenge to his testimony of having to sign the document in a hurry). I so find because:
31.The question was where the Plaintiff's knowledge that the net profit on which his 5% commission from March to August 1999 was computed included the incomes and expenses of the Retail Department for August 1999 led us. 32.In Luxton v. Vines (1952) 85 CLR 352, Dixon, Fullagar and Kitto JJ. cited at p.358 the following passage from the judgment of the High Court of Australia in Bradshaw v. McEwans Pty. Ltd. (1951) unreported :
33.I cannot agree with Mr. Jason Pow, for the Defendant, that the Plaintiff's knowing acceptance of his commission for March to August 1999 being calculated with reference to incomes and expenses which included those of the Retail Department for August 1999 (the last month of the relevant period) gave rise to any inference that the Retail Department had been structurally subsumed by the Wholesales Department since August 1999. Firstly, while a merger of the 2 departments would logically lead to the combined treatment of their incomes and expenses, the combined treatment of the incomes and expenses of the 2 departments would not necessarily be the result of a merger. To my mind, it was at least equally probable that the person who prepared the 3-8/99 Wholesales P/L Account was unaware or had lost sight of the fact that the Plaintiff was only entitled to commission on the net profit of the Wholesales Department, the figures were more advantageous or not disadvantageous to the Plaintiff and he simply accepted the same to his benefit. 34.The Defendant's position was not improved by the other circumstances mentioned in paragraph 24 hereinabove. By August 1999, it had already been decided that the Retail Department would cease to exist by the end of November 1999. If there were a merger of the Wholesales and Retail Departments in August 1999, it would be a merger for 4 months only. I find this suggestion difficult to comprehend. As I see it, the assumption of responsibilities by the Plaintiff for what was then left of the Retail Department in August 1999 was nothing more than a temporary measure of convenience and economy pending the formal and complete demise of that department. 35.Likewise, I cannot accede to the suggestion that by accepting commission for March to August 1999 calculated as aforesaid, the Plaintiff had agreed that his commission should thereafter be 5% of the net profit which took into account the incomes and expenses of the Retail Department. There was simply no evidence that the 3-8/99 Wholesales P/L/ Account was presented to the Plaintiff or that the Plaintiff indorsed the same on the basis that it would effect a variation of such an important term of the Employment Contract. Were the NPCs parts of the Wholesales Department? 36.Again, the Defendant did not adduce any direct evidence as to the structural relationship between the Wholesales Department and the NPCs. It was submitted that the NPCs, being retail in nature, would logically be grouped under the Wholesales Department restructured to include the Retail Department. This part of the defence case, therefore, depended heavily on the Court finding that the Retail Department had been subsumed by the Wholesales Department. 37.I have already held that there was insufficient primary facts to support a finding (by inference) of the merger of the Wholesales and Retail Departments. 38.Reliance was also placed on the facts that the Plaintiff was one of the Defendant's representatives in negotiating for the Assist Agreement and the Licence Agreement pursuant to which the NPCs were opened and operated and that the Plaintiff ran the NPCs after they were opened without any increase in his salary. These facts were, in my view, entirely equivocal. Clause 2 of the Employment Contract expressly permitted the Defendant to assign to the Plaintiff duties outside the Wholesale Department. Further, the Defendant had at all material times kept separate departmental accounting records in respect of the Wholesales Department and the NPCs. 39.There was no or no sufficient evidence in support of a finding that the Wholesales Department embraced the NPCs after the latter came into existence. The incomes and expenses of the Wholesales Department between May and August 2000 40.The question raised was simply one of construction of Clause 1 of the Employment Contract which has been set out in paragraph 5 hereinabove. 41.The Defendant emphasized
42.I agree with Mr. Ng that the first-mentioned stipulation was administrative in nature. 43.However,
44.In this regard, I disagree with Mr. Ng that such an interpretation would be absurd, illogical or unfair. I am not persuaded by his example of a spiteful employer who tried to deprive the departing employee of his commission by deliberately incurring losses for the remainder of the 6 month period. In construing a contract especially one governing a commercial relationship, one should assume that both parties would act in a commercially sensible manner. Indeed, the Defendant's interpretation of Clause 1 would ensure fairness to an employee who left in the middle of a 6 month period and when he had nearly but not quite met the minimum net profit target for that period. 45.I also prefer to interpret, as submitted by Mr. Pow, Clause 1(c) as applying to the situation of the employee leaving without completing 6 months' service within any 6 month period for which a minimum net profit target had been set and not just the situation of his leaving before the expiry of the first 6 month period. This particular sub-clause followed the provision for the calculation and payment of commission to the Plaintiff half- yearly, not just the calculation and payment of commission for the first 6 month period. 46.In the premises, I hold that the Plaintiff's commission for his service after February 2000 should be 5% of the net profit of the Wholesales Department from 1 March to 31 August 2000 prorated to 30 April 2000. Obsolete Nokia stocks 47.I can deal with this very shortly. I am dissatisfied with the manner in which the Defendant sought to prove this deduction. The 2 figures only surfaced in the course of Mr. Kong's live evidence in chief in answer to Mr. Pow's supplemental questions. The Defendant had not given discovery of a single document showing what obsolete stock had been disposed of, the costs at which the Defendant acquired the same and the prices at which they were sold. Nor was there any explanation as to how the provision of $342,261.21 had been arrived at. 48.More importantly, I agree with Mr. Ng that the loss or anticipated loss representing the discounts at which the Defendant had disposed or intends to disposal of obsolete stock was or would become a loss as and when such disposals occurred. On the Defendant's own evidence through Mr. Kong, it was after 31 August 2000. My order 49.Mr. Ng has in paragraph 38(c) of his written closing submission dated 14 September 2002 indicated that if I were to rule that the Plaintiff's commission for his service after February 2000 should be 5% of the net profit of the Wholesales Department from 1 March to 31 August 2000 prorated to 30 April 2000, the Plaintiff's claim would be reduced to $547,698.78 as follows:
50.In the premises, I find that the sum of $547,698.78 was due from the Defendant to the Plaintiff by way of commission. 51.After setting off the said payment in lieu of notice due from the Plaintiff to the Defendant, I order the Defendant to pay the Plaintiff the net sum of $420,798.78 with interest at the rate of 1% above the prime lending rate for Hong Kong dollars:
and thereafter at judgment rate until payment. It can be seen that I have treated the said payment in lieu of notice as being deductible from the commission for September 1999 to February 2000 on 6 May 2000 as such payment in lieu of notice was due upon the termination of the Employment Contract. 52.I also make an order nisi that the Defendant pays the Plaintiff his costs of this action (save and except the costs of preparing the Plaintiff's Bundle of Documents lodged for the hearing before me), such costs to be taxed if not agreed. I disallow the Plaintiff the costs of the bundle because most of the materials therein were either already in the Defendant's Bundle or irrelevant to the issues before me. I cannot see why the few useful extra documents could not have been inserted into the Defendant's Bundle.
Representation: Mr. Kenneth W.H. Ng instructed by Messrs. H.M. Tsang & Co. for the Plaintiff. Mr. Jason Pow instructed by Messrs. Susan Liang & Co. for the Defendant. |