Chow Kwok Fai v. Waysuntone Communication Ltd.
Read the full judgment text of on BabelCite. was delivered on 24 April 1998.
1. The Plaintiff was employed as the Sales Manager of the Defendant on 1st August 1989. He claimed that by an oral agreement made in or around September 1993 ("the 1st Agreement"), it was orally agreed that :-
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HCA008866A/1996 1996, No.A8866 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ---------------
--------------- Coram : Hon Nguyen, J. in Court Dates of hearing : 27 February, 2, 3, 6, 9, 10, 11, 16, 17, 18 and Date of handing down judgment : 24 April 1998 -------------------------- J U D G M E N T -------------------------- The Plaintiff's claim 1. The Plaintiff was employed as the Sales Manager of the Defendant on 1st August 1989. He claimed that by an oral agreement made in or around September 1993 ("the 1st Agreement"), it was orally agreed that :-
The Plaintiff claims that the Agreement was breached by the Defendant in that he was never paid the 5% share of the profits and also that the Defendant failed to pay him the amount representing the increase in the value of the said 5% shares. 2. The Plaintiff also claims that by a second agreement made in or around January 1994 ("the 2nd Agreement "), it was orally agreed that :-
The Plaintiff claims that this 2nd Agreement was breached in that the Defendant failed to allot to him the said 5% shares in the Defendant company. The Plaintiff therefore claims an account of all sums due to him under the 1st Agreement, or alternatively, damages for breach of the said 1st Agreement in the sum of $1,808,382.21 as particularized in the Re-Re-Amended Statement of Claim. Further, he claims in paragraph 15B the amount equivalent to 5% of the increase in the value of the 5% shares at the time of termination of his employment with the Defendant, or damages to be assessed. The Plaintiff also claims specific performance of the 2nd Agreement. This claim was subsequently abandoned by the Plaintiff in the course of the trial. The Plaintiff's evidence 3. The Plaintiff gave evidence that he first joined the Defendant company on 1st August 1989 as the Sales Manager and for the first three months his salary was $25,000. For the next three months, he was given a salary of $10,000 plus 0.2% sales commission. By 1st December 1993, his salary had increased to $14,500. Subsequently the Plaintiff complained to the company that Ho Kwong Hing ("Ho"), who was the Plaintiff's counterpart in charge of the China sales market, was paid his salary in two parts. The Plaintiff complained that his sales were much better than Ho's and yet Ho got a better deal. Consequently, the company changed the system of payment of the Plaintiff's salary and began, as from 1st April 1993, to pay him in two parts - $10,000 by the Defendant company and $25,000 to be paid to the Plaintiff by an overseas company Dancia. Of the $25,000 to be paid by Dancia, $4,500 was to go towards the balance of the Plaintiff's salary of $14,500 and the remainder, namely $20,500 was to represent commission payments to the Plaintiff. The $20,500 was to be added to or detracted from, depending on the actual sales commission that the Plaintiff would be entitled to after calculation of the actual sales. The Plaintiff said that the main purpose of this split payment arrangement was that he would not have to pay tax on the payments made by Dancia because Dancia would pay the tax. The Plaintiff gave evidence that he continued to receive commission for sales up till the end of August 1993. If in fact his sales commission for a particular month exceeded $20,500, he would be given a cheque for the balance by the Defendant company. 4. The Plaintiff testified that the arrangement carried on until the company held a meeting in September 1993. The meeting was held at the company's premises and was attended by Lam Kwok Hung ("Lam") and Kwok Hon Ming ("Kwok") who were the two co-owners of the company. At the meeting, there were also Ho and the Plaintiff. At the meeting it was decided that the Plaintiff would be promoted to Sales Director and his salary would be increased from $14,500 to $40,000. He would only be paid a fixed salary and no sales commission but the company would give him a 5% share of the annual net profit which the Plaintiff would be paid at Chinese New Year each year. In addition, the Plaintiff would be given 550,000 shares representing 5% of the total number of shares of the company for him to hold on trust for Kwok and Lam and if there should be an increase in the value of those shares, then the Plaintiff would be given that increase in the value. Of the new salary of $40,000, half would be paid by the Defendant company while half, namely $20,000, would be paid by Dancia. The Plaintiff testified that up to the date of the trial he was never paid the 5% of the annual net profit of the company. He said that he began his new position as a Sales Director as from October 1993. 5. The Plaintiff also testified that in November 1993, at the request of the Defendant company, he executed a trust deed in a solicitor's firm. He said that Kwok and Lam wanted to give him assurance so that he would stay in the company. He said that if he held 550,000 shares, albeit on trust for Kwok and Lam, he would be assured that he would certainly receive the money due to him, namely, the 5% of the annual net profit of the company. The Plaintiff also testified that after the execution of the trust deed he was never in fact allotted any shares by the company. 6. The Plaintiff said that at Chinese New Year 1994, he did chase Kwok for the payment of his 5% net annual profit and this was worked out to be about $80,000. He said that during the time when he kept chasing Kwok, Kwok once gave him a cheque for $250,000. In addition he received another sum from Kwok of $600,000. In 1993 and 1994, the profits of the company exceeded $20 million, therefore the Plaintiff's share of 5% would be more than $1 million. When he was given the $850,000 by Kwok, he thought that that was his share of the 5% of the net annual profit. Kwok had asked him to sign a promissory note for the $850,000 which he did. The Plaintiff had also, at the request of Kwok, given Kwok a cheque for $250,000 at the time when he received the first payment of $250,000. 7. Amongst the agreed bundle was a document which the parties agreed was written by one Thomas Ko who was in charge of the Accounts Department of the Defendant company and this document was written at the beginning of 1994 to calculate the profits of the Defendant company and Dancia. The Plaintiff testified that the figure $53,025 represented his 5% for the three months from October to December 1993. He testified that because of that, against the figure of $53,025 was written "one-quarter" in a circle representing one-quarter of a year. He said that the $40,000 represented the bonus that the company was prepared to pay him for the year 1993 and the figure $32,700 represented the 5% of the total amount that Lam had to pay the company for the cars that Lam took away when he left the company in January 1994. Therefore, the total amount that the Plaintiff was entitled to at the beginning of 1994 was $93,025. 8. The Plaintiff also testified as to a meeting in early 1994 at Kwok's house at Hong Lok Yuen after Lam had left the company. Present at the meeting were Kwok, Ho and the Plaintiff. Kwok was apprehensive that Ho and the Plaintiff might leave the company following Lam's example, and therefore convened the meeting. At the meeting, Kwok told the Plaintiff that his salary would be increased from $40,000 to $60,000. He would also be permitted to buy 5% of the company's shares for $2 million so that the shares that he held on trust for Kwok and Lam would be converted to actual paid up shares. Kwok had said to him :
In other words, Kwok was allowing the Plaintiff to pay the $2 million only after the company had paid the Plaintiff his 5% of the net annual profit. The Plaintiff was also allowed the use of the company car and Kwok said that all the charges would be borne by the company, including fuel and carpark charges, insurance and licence fees and also that the Plaintiff would not be held liable for any accident. The new salary of $60,000 would take effect as from January 1994 and of that new salary, $20,000 would be paid by the Defendant company while $40,000 would be paid by Dancia. There appears to be some support for this in the documents in that in Vol.3 of the Agreed Documents, pages 34 and 36 which are bank account statements of the Plaintiff's account with the Hongkong Bank, there are payments into that account of $60,000, one on 27 January 1994 and against that is stated Waysuntone C Ltd. salary, and another $60,000 on 29th March 1994. The Plaintiff said that for a few months the salary was not paid in two distinct instalments, but came May 1994, it came back on track. In 1995, his salary was raised to $66,000 and the Plaintiff thought this was in January or February 1995. $20,000 of that new salary was paid by the Defendant company and the balance of $46,000 was paid by Dancia. Some support for this can be found at page 123 (Vol.3) which is the bank account statement of the Defendant. Against 28 February 1995 was a series of payments out, one of which, $46,000, was identified by Kwok Hon Ming (who subsequently gave evidence for the defence) as a payment to the Plaintiff. Also, at page 125 (Vol.3) was a payment out to the Plaintiff in the sum of $46,000 on 25th July 1995. When the Plaintiff left the company in February 1996, his salary was still $66,000 per month. In Bundle No.2, at page 9, there is a letter written on the Defendant's note paper and signed by Kwok certifying that the Plaintiff was employed as Sales Director and received a salary of $66,000 per month. This letter was written at the request of the Plaintiff because he was going on a trip and he had asked the company to issue the letter so that he could apply for a visa. 9. In relation to the company car, the Plaintiff gave evidence that after the meeting at Kwok's home at Hong Lok Yuen, he began to use the company car. He was given a brand new Lexus to use, but in August/September 1995, the windscreen of that Lexus was broken in an accident and the repairs were all paid for by the company. In September 1995 because the Lexus was being repaired, the Plaintiff was given the use of the company's Porsche 911. The Plaintiff testified that in mid September 1995, one evening as he was driving home, the car skidded and ran into a barrier at the Kwun Tong Bypass. He was not asked by the company to pay for the repairs to the Porsche. 10. The Defence case was that there was a meeting in March 1993 and not September 1993 and at the March meeting, it was then decided that the Plaintiff would receive each month, as from April 1993, a sum which was an approximation of the annual net profit receivable by the Plaintiff. This was to replace the monthly commission that the Plaintiff used to receive, in other words, after the March 1993 meeting, the Plaintiff stopped receiving any commission from the company. The Plaintiff was cross-examined on his commission payments and it was his evidence that in the year ending 31st March 1993 he was earning about $30,000 a month commission, but according to the payment vouchers, in mid-May 1993 he only received $5,000 odd, in June 1993, $3,000 odd and in November 1993 $3,000 odd for the months April to August 1993. These payments all represented commission payments to the Plaintiff from the Defendant company and were on top of the $20,500 per month which the Plaintiff was receiving from Dancia. 11. In cross-examination, the Plaintiff admitted that in that half year, he received a total of $135,000 commission but in May to September, it never exceeded $20,500 per month. The Plaintiff could not remember if he earned exactly $20,500 in the four months from July to October 1993. The general payment voucher for November 1993 showed that he received some commission for April to August 1993. The Plaintiff disagreed that these payments were carry-forwards of sales prior to March 1993. 12. It also transpired in cross-examination that in or about November 1993, after the Plaintiff had been promised a share of the profits, he borrowed $180,000 from either Kwok or the Defendant company. The Plaintiff said that when he resigned from the company he did not request in writing the payments of the profits which were owing to him but he had made oral requests of Kwok and had asked Kwok many times over the telephone. 13. The Plaintiff also denied in cross-examination that he was aware that the Defendant company had a plan to go public. It was put to him that he was fully aware that the transfer of the 550,000 shares to him was in conjunction with a plan that the company had that it would eventually go public. The Plaintiff said in reply that he had no idea of this plan. He said that he was not clear how the increase in the value of the shares was to be worked out and that he never took part in discussions on how to assess the value of the shares. The Plaintiff was asked if it was his intention to pay $2 million to buy 5% of the shares and he said it was not. It was not exactly clear from the Plaintiff's evidence whether if there should be an increase in the value of the shares, that he would be entitled to 5% of the increase in the value of all the shares or just 5% of the increase of 5% of the company's shares. 14. As regards the use of the car, the Plaintiff said that the Lexus was taken into the garage for repairs at the beginning of September 1995 and that he had been using the Porsche for nearly two weeks before he met up with the accident. He said that the Porsche was damaged very severely on both sides and that on the day of the accident it had been raining heavily but he was only doing 50-60 kph. He said he was negotiating a bend when the car skidded and ran into the barrier. Plaintiff's witness Lam Kwok Hung 15. Lam Kwok Hung was called to give evidence, but in fact gave evidence before the Plaintiff did. His evidence was that he joined the Defendant company in 1984 or 1985 and that he and Kwok had formed the company. The Defendant company was formed in 1991 and Lam's evidence was that they were thinking of organising the company and promoting the business and they were thinking of the company going public. He and Kwok each had 50% shareholding in the company. He was in charge of finance, administration, banking and management of executive staff. He was asked whether the Plaintiff was made a Sales Director of the Defendant company and he said 'yes' and that it happened in about September 1993. He confirmed the meeting at the company's premises and testified that at the meeting, the Plaintiff was given an amount as salary plus 5% as profit sharing . The 5% profit sharing was to be paid at the end of the year and the basic salary was increased to about $40,000 per month. He confirmed that the annual share of the profit was not to be paid on a monthly basis. He was asked if it was possible that there was a private arrangement between Kwok and the Plaintiff about paying the Plaintiff on a monthly basis without him knowing and he said that he did not think so since he was also a director. He confirmed that the meeting in September 1993 decided that the Plaintiff would receive no commission thereafter. He was asked whether there was any provision whereby on termination of the Plaintiff's directorship he would be entitled to an increase in the value of the shares, and he said there was no such provision. He was told that it was alleged by the Defendant that the meeting was in March 1993, and he said that that was incorrect. He said that in March 1993 he was still the Finance Director of the company and he confirmed that there was no such meeting in March 1993. He said that after the September 1993 meeting, the new salary became effective right away and the share of the profit would be effective at the end of the fiscal year ending 1993, i.e. at the end of the Chinese New Year. He confirmed that the Plaintiff was never subsequently paid a share of the profit and that for one year the Plaintiff never received any payments of profits. He confirmed that there were no monthly payments to the Plaintiff of the profits. He confirmed that for some senior staff like the Plaintiff, part of the salary would be paid by an overseas company belonging to the Defendant, namely Dancia. He confirmed that the Defendant company and Dancia were both subsidiaries under the holding company Wayson Holdings. 16. The Plaintiff's bank account statement in Vol.3 of the Agreed Bundle would seem to support the evidence given by the Plaintiff and his witness Lam in that at page 27, the Plaintiff's salary was credited in the sum of $10,000 on 1st September 1993 and on 6th September 1993, there was an overseas cheque for $25,000 which would seem to have been the cheque from Dancia. On page 28, the position was the same - salary $10,000 on 2nd October 1993 and on 18th October 1993, cheque from Dancia for $25,000. However, at page 29, on 1st November the salary was shown as $20,000 and on 5th November, there was an overseas cheque for $20,000 which would seem to confirm the evidence that after the September 1993 meeting, the Plaintiff's salary was increased to $40,000, half of which would be paid by the Defendant and half by Dancia. 17. Lam was also asked about the use of company cars and he confirmed that he had the use of four cars when he was with the Defendant. He testified that he had been involved in accidents involving the company cars but he was never asked to pay back the company for the repair charges to the cars. 18. He was cross-examined and he confirmed that from September 1993 to January 1994 he was still actively running the company and that he was in charge of administration and finance. He testified that the trust deed was executed on 10th November 1993. In about three weeks later, Kwok discussed with him about buying him out and he then put everything on hold, including making preparations for allotting shares to the Plaintiff. He confirmed that after the September 1993 meeting, the agreement reached became binding. He was asked about the idea that the Defendant company would want to go public and he said that that idea was dropped near the end of 1993 because the performance of the company was not as good as before and it was felt that the condition of the company was not enough for it to go public. It was put to him that the trust deed had everything to do with the idea of the company going public and he denied that that was so. He again confirmed that after the change in the terms of employment of the Plaintiff, the Plaintiff was to receive a salary but no commission and that a profit sharing arrangement was to be given to the Plaintiff but this was not to be paid to the Plaintiff on a monthly basis. 19. It was in the middle of the cross-examination of Lam that Counsel for the Defendant mentioned to the Court that he had just been given some documents which ought to have been discovered but which were not. Following the discovery of those three documents, there were further requests by the Plaintiff's Counsel for more documents and these were eventually disclosed to the Plaintiff compiled into a new bundle - Bundle 7. As a result of these new documents, the Plaintiff was given leave to ask more questions of the witness Lam. 20. When asked more questions by the Plaintiff's Counsel, Lam confirmed that the payments from Dancia represented a combination of sales commission and salary and that this was the arrangement which became effective from 1st April 1993. Page 9 of Bundle 7 which was part of the documents showing the autopay payroll instructions of the Defendant company to their bankers, the Hongkong Bank, was an item which shows that on 30th April 1993 the Plaintiff was paid $10,000 which would appear to confirm the evidence that as from 1st April 1993 there was a new payment arrangement of the Plaintiff's salary, namely the Defendant company would pay $10,000 and Dancia would pay $25,000 of which $4,500 was the balance of the salary. Lam confirmed that after deducting the $4,500, the $20,500 from Dancia was the sales commission to the Plaintiff. 21. He was further cross-examined and he confirmed that the new agreement only came about in September 1993. It was put to him that that agreement was reached in March or April 1993 and he disagreed with that. It was put to him that there was never any agreement to change the mode of payment of the Plaintiff's salary to include the payment by Dancia and Lam said that that was incorrect. 22. He confirmed that up to September 1993, the Plaintiff was still being paid commission for his effort sales and these included sales effected between March to September. 23. In re-examination, Lam confirmed that in March 1993, the Plaintiff was still the Sales Manager and he said it would be ridiculous if, as a Sales Manager, he was already receiving a share of the profits of the company. He again confirmed that the $20,500 from Dancia was for commission to the Plaintiff and was not for net profits. Statement of Ho Kwok Hing 24. On the 8th day of the trial, an application was made that the statement of Ho Kwok Hing ("Ho") be admitted under O.38 r.25 for the reason that he was beyond the seas. After hearing both Counsel, I ruled that because the hearsay notice was not served on the Defendant and because there was no evidence or no sufficient evidence adduced before the Court to show that Ho was in fact beyond the seas, his statement should not be admitted. The Plaintiff then closed his case. Defence case 25. The Defendant called Mr Kwok Hon Ming to give evidence. Kwok gave evidence that the Plaintiff was receiving between $20,000 to $40,000 per month commission prior to March 1993. He said that in March 1993, they agreed with the Plaintiff that he would be given 5% of the company's net profit in place of his commission. The 5% profit would be paid to him in advance by an overseas company. The account would be settled with him at the end of the year according to the audited report to see if he had been overpaid or underpaid. He said that according to his calculation, the Plaintiff had been overpaid. He testified that in March 1993, as a result of the discussion, it was agreed that the amount that the overseas company would pay to the Plaintiff by way of giving him a share of the company's profits would be paid monthly. 26. In relation to the trust deed, Kwok testified that it had to do with the company going public. The clause in the deed about the increase in the value of the shares was to show that if there was an increase in the value and if the Plaintiff helped the company to increase the value of its shares, then the Plaintiff would be entitled to that increase. He was asked if this was discussed with the Plaintiff and he said it was in March 1993. Kwok said that after they came to the agreement in March, the Plaintiff was not satisfied with something, then they had negotiations and everything was settled in September. 27. Kwok testified that as from April 1993, the Plaintiff was paid $10,000 per month. In addition, there was some entertainment and miscellaneous expenses. He was also paid every month an advancement by Dancia, namely $25,000. His evidence was that since April 1993, the Plaintiff was no longer paid any commission by the Defendant. The Plaintiff's salary was increased in September 1993. 28. He was shown page 224 (Vol.7) which was a cheque payment voucher of the Defendant company which stated that on 29th March 1994, the Plaintiff was paid $60,000 as salary for March 1994. His evidence was that this was the advance payment of profit to the Plaintiff. When asked why it said "salary", he said that perhaps the lady in the Accounts Department, a bookkeeper called Esther, who had prepared the document, had misunderstood the position. He said that the position was the same with the following six payment vouchers. 29. He gave evidence that the premises occupied by the Defendant company, namely 613-615 Peninsula Centre, was in fact owned by Landpark Investment Limited ("Landpark") which was a company owned by Kwok and his wife. He said that rent was paid for those premises by the Defendant company to Landpark. 30. He was asked if there was a meeting in January 1994 with the Plaintiff and Ho when it was agreed that the Plaintiff could pay $2 million for 5% of the shares, and he said that he never agreed with the Plaintiff. 31. He was shown page 9 (Vol.2) which was a letter that he signed certifying that the Plaintiff was receiving a salary of $66,000 per month. His explanation for that was that the Plaintiff had asked him to put down that figure. He had checked and found out that that was roughly the Plaintiff's income so he wrote down the figure as requested. 32. He was asked if there was any policy in the company as regards what would happen if the car used by Lam or himself was damaged, and he said that the person using the car would be liable personally. When asked if there was any company policy as regards that, he said that they would deal with the matter when the problem arose. Kwok said that when he lent the company car to the Plaintiff, he told the Plaintiff that the car was only covered by Third Party Insurance and that the Plaintiff had to be careful because if he damaged the car, then he would be responsible. 33. He was asked what happened to the idea of the company going public and he said that that was cancelled at approximately the end of 1995. 34. Under cross-examination, Kwok confirmed that after he came to the agreement with the Plaintiff in March 1993, the Plaintiff no longer received any sales commission. 35. The basis of the advances made to the Plaintiff and Ho was that the Sales Department, including the Plaintiff and Ho, had to make a plan at the beginning of each year, then the company would assess their plan and make a prediction. The advances which would then be made to the two staff members would not be according to the predicted percentage of increase of business but would in fact be a bit lower than what was predicted. Figures were quoted to the witness which showed that in the years 1994 and 1995, there were different rates of increases for the witness himself and for the Plaintiff and also for Ho. He was asked why this was so when the net profits were based upon the annual predictions and Kwok said that this only showed that the increase in the advances of the net profits was not linked to the prediction. He was asked why between 1994 and 1995 the Plaintiff's advances went up by 15% while the advances to Ho went up by 16%, and he said that may have been because he treated Ho better than the Plaintiff. He said that he would give the person concerned more if he considered that that person's performance was better. 36. The witness confirmed that Ho was entitled to 71/2% of the net profits and that started in 1992 when he became the Sales Director. He said that the rate changed because Ho was getting more net profits and the highest was when he received 20%. He confirmed that Ho was receiving the net profit payments from 1992 up until July 1995 at least. He was then shown an affirmation that he had made on 8th March 1996 in an action against him by Ho. In paragraph 22 of that affirmation, Kwok had said :-
When asked to explain why he had said that in the affirmation, Kwok said that the affirmation was written by his lawyer and that was what happened. He confirmed that the two sentences mentioned above were correct. He went on to explain that the fact that Ho was not entitled to the payments does not mean that he (Kwok) did not pay Ho. He acknowledged that he had paid Ho about $2 million when Ho was not entitled to that sum. He further explained that Ho had joined the company in 1992 and each year there had to be a calculation. Kwok said that when Ho came and asked him in July 1995 for the profits for 1992 to 1995, Ho was asking for shortfalls. It was put to him that the payments that he had made to Ho in the years 1992 to 1995 were in fact salary payments, and the witness disagreed with that. The witness confirmed that they were payments of net profits. 37. He was asked about a cheque payment voucher (page 187 (Vol.7)) dated 3rd November 1993 which said "Sales Commission" under "Account title" and under "Description" said "Balance for April 1993 to August 1993, payee Chow Kwok Fai". It was suggested to him that the description in that voucher must have meant that the Plaintiff was entitled to commission during this period. The witness' answer was :
He was asked about another cheque payment voucher (page 224 (Vol.7)) which was dated 29th March 1994 and under "Description" said "Chow Kwok Fai salary for March 1994". He was asked if that description was wrong and Kwok said :
He confirmed that apart from the description, everything else in that payment voucher was correct. He confirmed that that was the same with the next payment voucher at page 225 and the next five vouchers at pages 226-230. In each case he said that the description "salary" was wrong and that for seven months, the wrong description had been inserted into the vouchers. He confirmed that the vouchers at page 231 and pages 233-240 were correct and the description "loan" in those vouchers had been correctly entered. However, he said that the description of the voucher at page 232 was wrong. 38. The witness was also asked about the cheque payment vouchers at pages 185-187 where the account title was "Sales commission" and the months concerned were April 1993 to August 1993. He confirmed that the descriptions in those vouchers were wrong. He was asked if it was just a coincidence that every voucher which was mistaken referred to the Plaintiff and every voucher which was not mistaken did not refer to him. His answer was :
He confirmed that when he signed the cheques he did look at the vouchers and he was the one who oversaw all the vouchers. 39. He was asked about the note written by Thomas Ko on a board in the beginning of 1994 to calculate the profits of Waysuntone and Dancia at page 6 (Vol.2). He was asked why if the Plaintiff had been receiving his share of the net profits of the company, against the Plaintiff's name, was written one-quarter surrounded by a circle. The witness' answer was that Ko wrote this on the board on the assumption that the Plaintiff was entitled to one-quarter of a year. 40. The witness confirmed that in 1994 Landpark purchased the premises occupied by the Defendant and that the Defendant then began to pay rent to Landpark. He said that before the property was purchased by Landpark, no rent was paid in respect of those premises. 41. Finally, the witness was asked about an affirmation which he had made on 22nd August 1996 in an action by him against the Plaintiff. In paragraph 19 of that affirmation (page 44 (Bundle C)), the witness had said :
He confirmed that Lam left in early 1994 but when he was asked why he was saying in the affirmation that it was only as from early 1994 that the monthly payments of the annual profit were made, he said "there may be a mistake here". He further said that the year 1994 was a mistake and that the payments started from 1st April 1993. He then accused Counsel of taking things out of context but admitted that there was some problem with the affirmation. Assessment of the evidence 42. I find that the evidence of Kwok Hon Ming was contradicted in many material respects by the documents. I do not accept his explanation of the misdescriptions in the vouchers and I do not accept that it was a pure coincidence that mistakes only occurred when the vouchers were in relation to the Plaintiff and when they were not, there were no mistakes. I find that the persons responsible for preparing the vouchers must have tried, to the best of their ability, to reflect in the documents what they perceived to have been the situation. I find that if Kwok had seen those misdescriptions in the vouchers, he would immediately have had them corrected before signing the cheques. I also find that the figure "one-quarter" surrounded by a circle in the manuscript document prepared by Thomas Ko lent support to the Plaintiff's evidence that because this document was written in the beginning of 1994, one-quarter properly denoted the three months of the year when he, the Plaintiff, was entitled to 5% of the net annual profits, and these three months would have been October, November and December of 1993. I also do not accept Kwok's explanation of why there were the mistakes on very material issues in the two affirmations that he was cross-examined upon. These were matters of moment in the actions for which the affirmations were made and I am sure that if they contained the mistakes which Kwok now claims they did, he would not have made those affirmations. 43. For those reasons, I reject the evidence of Kwok. On the balance of probabilities, I prefer the evidence of the Plaintiff. One of the criticisms of the Plaintiff's evidence was the fact that when he left, and for some time after he left, he never raised with the Defendant the matter of the net profits still owing to him. It should be remembered that when he was still working for the company, he was given $850,000 by Kwok and in his evidence, the Plaintiff said that he thought that that was his share of the 5% of the net annual profits. It was only after Kwok sued him in Court for the return of the $850,000 and the Court adjudged that that sum of money was a loan to the Plaintiff, that the Plaintiff repaid that sum of money to Kwok. Other findings of facts 44. I find as a fact that the Plaintiff became a Sales Director of the Defendant company on 1st October 1993 pursuant to a meeting in September 1993. I also find as a fact that the Plaintiff became entitled to net profits as from 1st October 1993 pursuant to the meeting in September 1993, and that this entitlement was payable annually. I find as a fact that the Plaintiff's share of the net profits of the company were never paid to him. I also find that the payments made to the Plaintiff after 1st April 1993 by the overseas company Dancia, in the amount of $25,000 each month were part sales commissions and part salary, in that $4,500 of that sum went towards the Plaintiff's salary of $14,500 and the remainder, namely $20,500 were payments of sales commissions which had to be added to or detracted from, depending upon what the sales commissions for each month actually came to after the calculations were done. I find as a fact that the documents which are material to the issues in this case, namely the cheque payment vouchers, were correctly written when they said "salary" for the Plaintiff and "commissions" for the months April to August 1993. The vouchers for salaries appear at pages 224-230 (Vol.7) and the relevant vouchers for the disputed payments of sales commissions after 1st April 1993 are at pages 185, 186 and 187 (Vol.7). Claim for increase in the value of the shares 45. The Plaintiff claimed that he was entitled to any increase in the value of the 5% shares that he held on trust for Kwok and Lam upon the termination of his sales directorship with the Defendant. In paragraph 15B of the Re-Re-Amended Statement of Claim, it was stated that pursuant to the 1st Oral Agreement, the Plaintiff claims for the amount equivalent to 5% the increase in the value of the 5% shares of the Defendant at the time of termination of his employment with the Defendant. The Plaintiff's evidence on the above 46. When the Plaintiff gave evidence-in-chief about the meeting in September 1993, he said in relation to the increase in the value of the shares :
As I said earlier in the judgment, it was not exactly clear from the Plaintiff's evidence whether should there be an increase in the value of the shares, that he would be entitled to the increase in the value of 5% of the shares or just 5% of the increase of 5% of the company's shares. Under cross-examination the Plaintiff said that shortly after the meeting of September 1993, in November 1993, Lam told him that the trust deed should be executed. His evidence was :
Further on in the cross-examination, the Plaintiff said that the 550,000 represented 5% of the shareholding and if there was an increase in the value, he would be entitled to a share of the increase. Next the Plaintiff said he was entitled to a share of the increase in the value of the 5% shares. It was put to him that he well knew that the transfer of shares to him was with the plan that the company would eventually go public and the Plaintiff replied that he had no idea of this. He was asked how the increase in the value of the shares was to be calculated and he said :
He was asked how the increase was to be valued, and he said it was not clear. He was asked if there was any agreement and whether it was discussed and he said he did not know. He was asked whether it was discussed about how the shares were to be valued and he said :
He was asked if he took part in discussions on how to assess the value of the shares, and he said "No". 47. The Plaintiff's witness Lam was asked about this and he was asked what would happen to the shares if the Plaintiff left the employment of the Defendant company and his answer was that the trustee held shares on trust for Kwok and him (Lam). The trustee was not entitled to the shares so when he left the company he had to return the shares to Kwok and Lam unconditionally. He was asked whether there was any provision whereby on termination of the directorship, the Plaintiff would be entitled to an increase in the value of the shares and he said "No". 48. In relation to this claim, I find that it is not clear what it is that the Plaintiff is claiming - whether it is the whole increase in the value of 5% of the company's shares or whether it was 5% of the increase in the value of 5% of the shares. The Plaintiff's claim, as particularized in the Amended Statement of Claim, mentions both. The Plaintiff in his evidence is not clear what it is he is seeking, at one time he says one thing and at another time, he says another. The alleged agreement that the Plaintiff would be entitled to the increase in the value of the shares was not substantiated by Lam in his evidence. The Plaintiff did not adduce any evidence at the trial as regards whether the value of the shares had in fact gone up since the agreement in September 1993. Mr Sakhrani in his final address said that "there is no reason why the Defendant should not be liable for the said increase in the value of the shares of the Defendant company. This can easily be valued by professionals, like accountants. There is a valid document which equity completes." I assume from that that Mr Sakhrani is asking the Court to make the order that the alleged increase in the value of the shares should be assessed by either accountants or by a Master of this Court. 49. It was stated in Bornchief Co. v. Tsai George and Anr. [1996]2 HKC 282 that "it was incumbent upon the plaintiff to establish its claim at the trial and it must bear the consequences of its failure to do so." The Court also said that "it was not right for the judge to take upon herself to order damages to be assessed by the Master, thus providing a further opportunity for proving damages to the plaintiff at the expense and to the prejudice of the defendants." Even though that case was a case concerning nuisance and negligence, I take the view that the same principle should apply to an action for contract, in that if the plaintiff wishes to obtain judgment for either damages or as in this case, an increase in the value of the shares, it is incumbent on the Plaintiff to adduce evidence of that at the trial rather than asking the Court to order an inquiry to be conducted by other people. For all the reasons mentioned, I dismiss the Plaintiff's claim for an increase in the value of the shares. The company car 50. The question of the use of the company car has arisen because the Defendant, in its Counterclaim, has claimed the sum of $241,950 for the repair charges to a company car, a Porsche 911, which at the material time was used by the Plaintiff and was involved in an accident which caused quite serious damage to the car. The Defendant also counterclaims for damages for the loss of the use of the car for the period from 17th September 1995 to 18th June 1996, and also interests for such damages. I find on the whole of the evidence that at the meeting held with the Plaintiff by Kwok in early 1994 at Kwok's house, Kwok decided that the Plaintiff would have his salary increased from $40,000 to $60,000, that he would be permitted to buy 5% of the company's shares for $2 million and finally, that the Plaintiff would be allowed the use of the company car. 51. Whether or not this was actually said by Kwok, I find that it was at least implicit in Kwok allowing the Plaintiff the use of the company car; that all charges incidental to the running of the car would be borne by the Defendant company and these charges would include fuel and carpark charges, insurance and licence fees and also any repair charges should the vehicle be involved in any accident. The Plaintiff was never asked to pay for repair charges to the Lexus car which he used before the Porsche; Lam was never asked to pay for repair charges to the four cars he used. I find that when the Plaintiff damaged the car, he was using it in his capacity as a Sales Director of the Defendant company and whether it was a bailment of the car, or whether the car had been lent to him and whether the Plaintiff had been negligent, or whether the Defendant has adduced any evidence before me to show that the Plaintiff was negligent, I find that the repair charges of $241,950 necessitated by the damage caused to the car as a result of the accident when the car skidded and ran into a barrier at the Kwun Tong Bypass sometime in September 1995, should not be borne by the Plaintiff. For the same reasons, I will dismiss the counterclaim for the loss of the use of the car while it was being repaired. Relief claimed by the Plaintiff 52. In Mr Sakhrani's final submission for the Plaintiff, in paragraph 55, he said that the relief that the Plaintiff is claiming is :
53. I am not prepared to grant the Plaintiff an order for an account of the profits of the company or for damages to be assessed. I take the view that if there should be a proper exercise of taking an account or assessing damages, with the exercise being heavily contested, many of the issues already canvassed in this trial will have to be re-litigated. I am prepared, however, to give the Plaintiff judgment for the sum itemized in paragraph 15A of his Re-Re-Amended Statement of Claim. However, I take from that total sum two items which were said to increase the assessable profits of the company in the years 1994 and 1995, and these two items were for the rent paid by Kwok to a related company. We now know from the evidence that these amounts were claims by the company for the rental that the Defendant company paid to Landpark, the landlord company which owned the premises occupied by the Defendant. In fact Landpark was a company owned by Kwok and his wife. There were apparently some loans to Landpark by the Defendant company to enable Landpark to buy, inter alia, the premises in question. I take the view that any loans between these two companies either for the purpose of purchasing these premises or for other purposes, are matters between the two companies and no doubt the two companies, through their auditors, will make the necessary arrangements for these sums to be properly accounted for and audited. I take the view that any rents paid by the Defendant company for the premises used by it should be regarded as proper deductions and therefore properly subtracted from the Defendant's assessable profits. The sums for assessable profits as particularized in paragraph 15A are sums which were declared to the Commissioner of Inland Revenue and found by the Commissioner of Inland Revenue to be the assessable profits of the company for the four years in question, namely, 1993-1996 inclusive. Deducting the amounts, therefore, of $2,632,000.00 and $3,948,000.00 and deducting the tax paid for 1993, 1994 and 1995, I find that the total net profits of the Defendant company come to $25,953,207 and 5% of that would give the amount of $1,297,660.35. Disposal of claim and counterclaim 54. Accordingly I give judgment for the Plaintiff in the sum of $1,297,660.35. I also make an order nisi that the costs of the action be paid to the Plaintiff by the Defendant and to be taxed if not agreed. I have earlier dismissed the Plaintiff's claim for an increase in the value of the shares. The claim for the order of specific performance of the 2nd Oral Agreement was abandoned by the Plaintiff in the course of the trial. In any case, the Plaintiff expressed that he was no longer interested in taking up these shares and that up to the present, he had never offered to pay the $2 million for these shares. I also give judgment for the Plaintiff for interest on the amount of $1,297,660.35 at 1% above prime rate from 9th February 1996 (when the Plaintiff resigned from the company) to today's date and thereafter at judgment rate until date of payment. 55. As regards the counterclaim, for the reasons mentioned in this judgment, the Defendant's counterclaim for $323,958.22 being the amount of the alleged over-payment to the Plaintiff is dismissed. The Defendant's claim for $241,950 for repair charges to the Porsche and for damages for the loss of the use of the vehicle is also dismissed.
Representation: Mr Sanjay A. Sakhrani, inst'd by M/s Peter W.K. Lo & Co., for the Plaintiff Mr Benjamin Chain, inst'd by M/s Tang, Tso & Lau, for the Defendant |