James Hwo v. South East Asia Shipping & Trading Co Ltd

HCA000773/1967

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO.773 OF 1967

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Coram: Briggs, J.

Date of Judgment: 10 July 1969

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JUDGMENT

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1. The plaintiff in this action was at the material time the shipping manager and secretary of the defendant company. He had been in the employment of the company for at least two years prior to the events with which we are here concerned.

2. The shares in the defendant company were held by a Mr. and Mrs. George Zee. Though Mrs. Zee was the chairman of the board of directors, she took no part in the running of the company. The company was managed by her husband George Zee, who besides this company had other business interests.

3. George Zee was one of several brothers and he and his wife had at least four children. He was the managing director of the company and the real force within the company. At the material time, which was from mid April until 8th May 1967 he was being assisted in the company by one brother, Victor Zee and by his two married daughters, Mrs. Kao and Mrs. Tong.

4. In 1966 the company were financing five ships, ships which were the property of various companies controlled or partially controlled by members of the Zee family, one ship was sold in 1966 and two in the months of April and May 1967. The remaining two have been sold and the company's business is at a standstill though it has not been wound up.

5. I was told by the members of his family who gave evidence that George Zee had a very forceful personality. The plaintiff described him as being 'tough'. But there is abundant evidence that at the material time he was in a very nervous state. He was bordering upon if not actually suffering from a nervous breakdown. He consulted a doctor on 24th April who diagnosed suicidal tendencies and recommended immediate psychiatric treatment. As so often happens this excellent advice was not taken and he continued to attend to the affairs of the company. It was because of the state of his nervous health that his daughters and his brother came and worked for the company: Mrs. Kao who is a professional woman could only manage part time but her sister Mrs. Tong assumed the duties of a private secretary to her father. Victor Zee, a younger brother also worked for the company as an assistant to the deceased. In addition at about this time Mrs. Zee used to accompany her husband to the office - again this was because of his nervous condition. One form this took was an intense anxiety about the business of the company. He was particularly worried about the staff whom he thought were uncooperative and disloyal to him.

6. Mrs. Zee in evidence said that this was so. Doubtless the staff knew that three of the ships financed by the company had been sold or were in the process of being sold: and that only two other ships remained and doubtless they were in consequence worried about their own jobs with the company.

7. The defendants' witnesses said that at the time the staff was not working smoothly and on one occasion their conduct was described as being similar to their being on strike.

8. The plaintiff certainly thought that the shipping business was being run down and he told the court that he let Mr. Zee know that he wanted to leave the company and to find a similar post with another shipping business. Mrs. Zee knew about this and she said that her husband persuaded him to stay.

9. On the 3rd or the 5th of May (the date is in dispute) the plaintiff and Mr. George Zee signed a contract in the following terms. It is dated 1st May 1967, and was signed by Mr. George Zee on behalf of the company.

10. In late April and early May the nervous condition of Mr. George Zee continued to worsen or at any rate did not improve. He was to be admitted into the Hong Kong Sanatorium on 8th May but he went to the office of the company on that date as usual. He was accompanied by his wife. Mrs. Tong was already working in the office. Suddenly and with no warning Mr. George Zee opened a window and threw himself out and was killed.

11. This happened in the presence of his wife and daughters who were naturally enough most deeply shocked.

12. As a result of this tragedy the employees of the company including the plaintiff were dismissed and as I have said except for selling the two remaining ships the company ceased to operate.

13. The plaintiff claims $30,000 under the contract of 1st May. The defendants resist this claim on the grounds that it was signed by Mr. George Zee only because of the undue influence exerted upon him by the plaintiff. Their case is that at the time Mr. Zee was in no fit state to do business by reason of his mental condition, that the plaintiff knew of this, took advantage of it, played on Mr. Zee's fears and secured his signature to the contract which from its terms is unconscionable.

14. The defendants' case is that the contract was signed on 5th May. In the afternoon of that day Victor Zee asked the deceased, George Zee to sign the contract. It had been made out by the plaintiff himself and was signed by him. Victor Zee after a long discussion with the deceased persuaded him (Mr. George Zee) to sign. During this conversation Mrs. Zee heard her husband ask more than once why it was necessary for him to sign. And she said that his protests were prolonged, but in the end he did sign though reluctantly. He did not discuss the contents of the contract with her, which she only came to know about later. Mrs. Tong, Mr. George Zee's daughter, was also present. In cross-examination, she admitted that she thought that the conduct of the plaintiff in submitting this contract to her father at that time contributed to if it did not indirectly cause the death of her father. It is necessary to bear this in mind when considering her evidence for it was undoubtedly coloured by her understandably strong feelings in this regard.

15. She said she watched the plaintiff type the contract. She said the plaintiff gave it to Victor Zee and she said that her father and his brother, Victor discussed the matter from 1 1/2 to 2 hours before her father signed. She said her father protested that the contract was one-sided and he pointed out that if he did sign, the plaintiff, after receiving the $24,000 mentioned in the contract, could resign from the company the following day and would not have to return that sum. He also expressed the fear that if the contents of the contract reached the ears of the rest of the staff they would all demand similar contracts. However he did eventually sign the contract.

16. This witness as well as her mother said that though the plaintiff took no part in the discussion between the two brothers, he watched what was going on from the door way of his office which adjoins that of the deceased for about twenty minutes.

17. At first I thought that any statement made at the time by the deceased was hearsay and therefore inadmissible. However after hearing argument from counsel I decided to admit any statement of Mr. George Zee as being part of the res gesta. Counsel for the defendant also asked the court to hear evidence of what Victor Zee said at the time of the signing of the document. I declined to do this. Victor Zee was available as a witness. No real reason was forthcoming as to why he was not called. His evidence might well be decisive of the case. For the deceased appears to have signed as a result of or at least immediately after what he said.

18. In the absence of Victor Zee from the witness box his statement, even if they were admissible, would not be evidence of the truth of what he said. They would only be evidence that certain words were used which would not appear to advance the defendants' case. I therefore declined to hear what the witnesses said Victor Zee had told the deceased.

19. The plaintiff gave a very different version. He said he told Victor Zee that he wished to leave the company. He had found a suitable post in another shipping firm. I had the impression that the plaintiff was somewhat in awe of the deceased who was described as having an aggressive personality and of being afraid of nothing. Apparently Victor was more approachable. The plaintiff therefore asked Victor to convey this news to the deceased.

20. The deceased came to his office on 3rd May and the plaintiff then told him that he wanted to leave the company at the end of the month. The deceased said that he would be difficult to replace and offered him an increase in salary as an inducement to stay. He said that he and the deceased discussed the terms of the contract which the plaintiff typed out. He handed this to the deceased and it was returned to him signed by the deceased two hours later. He said he saw Mrs. Zee, Mrs. Tong, Victor Zee and the deceased in the deceased's office discussing the contract.

21. The plaintiff said that though the deceased was worried about the state of the shipping market and was suffering from insomnia, he was not in the highly neurotic state described by the witnesses called for the defendant. He further said that the staff at that time were functioning normally.

22. The defendants' case was that the plaintiff had come to the deceased on 6th May and again on 8th May with a cheque for $8,400 which represented a 1% commission on a ship which was in the process of being sold. This commission was to be paid to the staff proportionately to the amount of their salaries. The contract of sale was signed on 6th May but the purchase price had not been received by the company. The deceased refused to sign the cheque on each occasion.

23. The plaintiff denied this. He said he had nothing to do with the commission. However he admitted asking the deceased when the $24,000 mentioned in the contract would be paid to him.

24. I am satisfied that the deceased was in a very neurotic condition. I am also satisfied that the staff of the company including the plaintiff must have been aware of that condition. That fact together with the sale or proposed sale of two ships so close together must have made the staff apprehensive for their future employment. It must have looked as if the company was being run down. And I am satisfied that the staff was not functioning normally at the relevant time.

25. As to the actual singing of the contract I accept the version given by the defendants' witnesses. What I have to decide is whether that account proves that there was undue influence brought to bear on the deceased by the plaintiff when he signed.

26. As I see it, the defendants rely on two separate matters which they say, taken together, amount to undue influence.

27. The first is the nature of the contract itself. I have set out its terms above, it is not necessary to repeat them.

28. The plaintiff was receiving as salary, $2,000 per month plus overtime pay to a maximum of 50% of his salary with a minimum of $500 per month. He told the court that in April 1967 he received $2,000 as salary plus $500 from the accounts department of the defendant as an overtime allowance plus a further $1,500 from the deceased as managing director of the company as an overtime bonus. This makes a total amount of $4,000 per month. He also told the court that while originally the maximum overtime allowance was fixed at 50% of his salary of $2,000 per month i.e. at $1,000, by April 1967 this had been increased to 100% of his salary i.e. at $2,000. I understood that these figures are maximum amounts and that the actual sum he would receive would depend upon the amount of overtime that he actually performed. Under the contract of 1st May the plaintiff is to be paid at the same rate as if he earned his then present salary, plus the maximum amount of overtime. This worked out at the same rate as he was paid in April 1967 i.e. at $4,000 per month. A further term provides that half of this is payable as a lump sum. And by the contract he is to serve the company for one year.

29. In March 1967 there was a shipping manager employed by the defendant company called J.C. Kiang. It appears from the evidence that he left the company in April 1967. One of the exhibits is a book of counterfoil cheques of the company. This shows that Mr. Kiang was paid his salary and overtime allowance for March 1967 and in addition on 27th April he was paid one month's salary of $2,000.

30. The evidence called by the defendants is that his departure from the company caused great distress to the deceased. And of course it left the plaintiff in a more important position vis a vis the deceased than before.

31. Mrs. Zee, and I accept her evidence, said that her husband considered the plaintiff indispensable to the company. My note of her evidence in cross-examination reads as follows: "The plaintiff's services were essential to my husband. It was necessary for him to be retained". And from what I have heard of the state of the company and the negotiations which were then taking place, and especially in view of the departure of Mr. J.C. Kiang, there was some reason for Mr. Zee to hold this view. The plaintiff of course said that he was not indispensable but it is what the deceased, in effect, the company, thought that matters here. The plaintiff wanted to leave: the deceased did not want to lose a valuable employee of the company. Above all, the plaintiff was worried as to his security. Is it unconscionable or even extraordinary that such a bargain as we have here should be struck?

32. I do not think that it is. It seems to me, subject to what I shall have to say hereunder, that both parties were making the best bargain they could. The deceased to retain the services of the plaintiff in particularly difficult circumstances, and the plaintiff to secure an assured income of as high amount as possible for one year.

33. Much was made of the fact that the plaintiff having received his $24,000 lump sum could leave the company at once and could not be forced to repay it. In his evidence the plaintiff clearly showed that no matter what the legal position may be under the contract, he considered himself bound to serve for one year. He said more than once that if he were to leave the service of the company immediately after receiving the $24,000 he would expect to be sued for breach of contract. He would be in breach as he would not have served for a year.

34. Be that as it may, on the face of the document itself, I do not think that it shows an unconscionable bargain - a hard bargain perhaps - but not, in my view, an unconscionable one.

35. The second point relied upon by the defendant is the state of health of the deceased and the actual circumstances of the signing of the contract.

36. I have already dealt with the neurotic condition of the deceased. And I have said that I accept the account of the circumstances of the signing of the document given by the defendants' witnesses. This shows that the plaintiff himself did not exert any undue influence on the deceased. He typed out the document and handed it to Victor Zee. He himself - according to this account - did not argue or press the deceased. It must be remembered, I think, that this is not the case of two persons of equal status coming to a bargain. All other things being equal, it is a case of a contract of employment being entered into between the managing director and a mere employee. The latter's employment could have been determined by the deceased in the twinkling of an eye.

37. There may be cases where an employee exerts undue influence upon his employer. For example a film star demanding double pay half way through the shooting of a film. But we have nothing like that here. The plaintiff was the company secretary employed at $4,000 per month, he held no greater position than that. The only possible weapon at his disposal of which I have heard is his expressed intention to resign.

38. Mr. Sanguinetti urged that Victor Zee was the agent of the plaintiff and that it was Victor who persuaded the deceased to sign against the latter's will. This may or may not be so. Certain it is that Victor Zee was to receive no benefit from any influence which he may have exerted on the deceased.

39. In Pollock on Contracts (13th edition) at page 507 the rule of law is stated thus:-

"It appears to be at least doubtful whether a contract can be set aside on the ground of influence exerted on one of the parties by a stranger to the contract who did not expect to derive any benefit from it."

This passage comes from a chapter which deals with gifts as well as contracts. And in a footnote the learned editor adds:-

40. Victor Zee's part in the transaction appears to me to be this. He took the contract to his brother and they had a lengthy discussion. This was a discussion virtually between equals. They were brothers. And Victor though not a shareholder, was an employee of the firm. The deceased had the benefit of his advice whatever it may have been: and in addition could have referred for further advice to Mrs. Tong, his daughter, who is an experienced business woman. Mrs. Zee was also present. Even if the plaintiff was standing in the office door way there is no suggestion that he said anything. Doubtless the contract was a hard pill for the deceased to swallow, but swallow it he did.

41. I accept the statement of the law as contained in the passage from Pollock on Contracts which I have quoted above including the footnote. I do not think that the plaintiff here can rely upon the undue influence of Victor Zee. Because he was a stranger to the contract who would derive no benefit from it. But that presumes that Victor Zee did exercise undue influence over his brother for the benefit of the plaintiff. There is no evidence that this is so, we do not know what Victor Zee said. His conduct is equally consistent with his giving advice to the deceased that though it was a hard bargain it was better to accept it than not in the circumstances, advice which he believed to be good advice: I do not think therefore that the defendants have made out their defence of undue influence.

42. Certain evidence was put forward to show that the plaintiff had considerable influence with the staff. This may well be so. As I have said it would appear that they were worried about their future and so was he. However this evidence falls far short of an attempt to play upon the neurotic fears and anxieties of the deceased. Indeed there is no evidence that the plaintiff directly tried to influence the deceased himself.

43. I have anxiously considered whether it could be said that the deceased was so mentally unfit that his mind did not guide his hand when he signed the contract. This has not been raised and on the evidence I do not think it could have been. Indeed the deceased showed that he was at least capable of reaching a decision when he refused to sign the cheque for the 1% commission.

44. It is unnecessary to deal with the point that the plaintiff wrongfully claimed this commission. This may be so but I do not see how it helps the defence. The commission was not paid. I can find nothing to assist the defendant in the fact that such a claim was made.

45. The sole defence here is under influence which for the reasons I have given above fails. There will therefore be judgment for the plaintiff for $30,000 with costs. It follows that the counterclaim must be dismissed also with costs.

Representation:

Donnelly (Hastings & Co.) for the Plaintiff.

Sanguinetti (Deacons) for the Defendants.

Judgment read.