Career Advice Legal Case studies for employers

Ensuring harmony by resolving conflict over Chinese tea

The Issue

Case arises out of a commercial venture in which two men entered into a verbal agreement.  Albert had worked as a general manager in a trading company, while Bernard was a well-funded investor looking for investment opportunities. [EDITOR’S NOTE: Names have been changed to ensure anonymity.]

The two were introduced by mutual friends and became golf buddies. Albert somehow proposed to Bernard a venture in selling Chinese tea. Bernard hinted that Albert should go ahead, telling him that “we could work as partners”. Bernard also indicated he would invest.

Bernard told Albert to look for an office space, with all set-up costs and an office manager to be provided by Bernard. Albert quit his job to work for the new venture, and shortly before its launch, the office manager gave him a pack of business cards for his use. Albert was surprised to find that his title was “General Manager” on the card, as he was expecting some shareholding and a directorship, although he had never specifically suggested these to Bernard. Albert subtly indicated to Bernard his views on the directorship arrangement, but Bernard’s response was always: “Let’s deal with the other pressing matters first and I will talk with you about this later.”

A fixed amount – about twice as much as Albert’s past salary – was paid to Albert by way of cheque every month. Nothing was mentioned about the nature of the payment to Albert who acknowledged receipt of the payment every month without asking.

No employment contract was ever signed between the company and Albert. who looked after almost all business matters, including sourcing, liaising with suppliers, intellectual property, marketing and sales, and other tasks that saw him working round the clock.  After a year, there was no change in his working conditions, and he started to feel frustrated given the insecurity of his work status.

Sales of the repackaged tea leaves were not as good as expected, with four of the five products losing money, but the fifth helped the company break even.

However, the tension between Albert and Bernard worsened. One time, when Bernard was checking their business operations, the office manager told him the trademarks of the five tea products were all registered in Albert’s name.

Bernard confronted Albert, accusing him of stealing the company’s intellectual  property rights. Albert replied that he had only taken what he deserved. The next day, Albert did not turn up for work and had since disappeared from the office.

The two consulted their respective lawyers, and a writ was subsequently filed and served on Albert. As provided for by Practice Direction No. 31 of the High Court, the two were required to attempt mediation, and they did.

Just before the mediation period, Albert’s lawyer raised with him many issues, including arguments in the directions of breach of fidelity as an employee, breach of contract, theft related to breach of trust – some of which Bernard was actually surprised at as it did not occur to him that Albert’s act could be so serious.

Bernard also doubted some of the allegations put forward by his lawyers. At one stage, he said, his lawyer advised him to report to the police and the custom and excise authorities, but Bernard did not do so for fear that the company, instead of Albert, might become a target for investigation.

Bernard was also concerned about a court hearing, as many of the things that happened in the company might be made known to the public and getting media attention was the last thing he wanted. Bernard also noted that the legal issues involved in the matter appeared to be multi-fold and complicated, while the amount of money involved was not particularly large, so litigation cost will be high relative to the amount at stake.

Meanwhile, Albert did not want a drawn-out case. And if he lost the litigation, his income – already down since leaving the new company – could be hurt further. He did want to put the episode behind him, but he was reluctant to start any dialogue with Albert, for fear of losing face. He did not want to be seen as being weak.

The Mediation

Mediation is a process in which the parties are guided onto a path to negotiate under a framework for the purpose of settlement, instead of embarking onto a path of arguing on who is right and who is wrong. The mechanism is that by identifying the parties’ underlying needs and concerns through the mediator’s application of his knowledge and skills, mutually agreeable terms could be identified as possible options.

If there are options that both parties could agree on, they could be synthesised into an agreement. The parties would then sign this, thus resolving their disputes and putting an ugly episode behind them.

This approach in dealing with disputes is different from what people are generally used to. Generally, they tend to exaggerate their positions for the purpose of bargaining for a better deal, which would invariably worsen tension between the parties. In effect, it becomes a win-loss situation.

During mediation, Bernard acknowledged Albert’s efforts and agreed to give him a directorship. The two also approved a shareholders’ agreement. For his part, Albert agreed to transfer the registration of the trademarks back to the company.

To address Bernard’s concerns over sales, it was pointed out that an experienced person was needed to run the business and that Albert was the best choice. Bernard also acknowledged that he had been too focused on sales and he had neglected to think about Albert’s position.

The Postmortem

In this mediation, the parties spent just one day in settling their dispute, while a court trial would have taken about four days. Both parties had solicitors during mediation, while a court case would have required both solicitors and barristers. Hence, a successful mediation means cost savings for both parties.

Some disputants may not be able to reach an agreement during mediation, but it is not unusual for them to reach a settlement soon after, largely because the mediation process has opened their eyes to the other party’s point of view, or that it has given them time to think about other options that could lead to a settlement.

Ultimately, mediation is a good alternative to resolving conflicts as parties can avoid huge court expenses and reach a quick resolution based on mutually agreeable terms.

Not surprisingly, Hong Kong’s judiciary is promoting mediation, showing that the introduction of this non-contentious process is a big help in promoting social harmony.

Leung Hing-fung chairs the Hong Kong Mediation Council of the Hong Kong International Arbitration Centre. He is an associate professor with the Department of Real Estate and Construction at the University of Hong Kong. He practises in mediation, arbitration and litigation.

The information contained in this article should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. If advice concerning individual problems or other expert assistance is required, the service of a competent professional adviser should be sought.