Cheung Chi Wah Patrick v. Hong Kong Cement Co Ltd

HCLA 18/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 18 OF 2016

(ON APPEAL FROM LBTC 3049 OF 2015)

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D E C I S I O N

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1.This is an appeal by the appellant against the judgment of Deputy Presiding Officer Mr Lai Kin-wah Kelvin (“the Presiding Officer”) made on 11 July 2016 in Labour Tribunal Claim No 3049/2015 holding that the appellant was not entitled to summarily dismiss the respondent on 7 September 2015 (“the Judgment”). Leave to appeal was granted by Deputy High Court Judge Kent Yee on 15 December 2016.

The background

2.The respondent holds an Honours Degree in Accountancy from the Hong Kong Polytechnic University and a Master Degree in Information Technology Management from the Chinese University of Hong Kong.  He is an associate of the Hong Kong Institute of Certified Accountants.  Prior to joining the appellant, he had worked in an international accounting firm for about 5 years and served in a senior management position in a listed company for over 10 years.  He thus had 15 years of professional experience in corporate finance, financial management and accounting and auditing[1].

3.On 27 September 2010, the respondent commenced employment with the appellant as its Financial Controller.  On 30 September 2010, the respondent was appointed Company Secretary, Authorised Representative and Financial Controller of TCC International Holdings Limited (“TCCIH”), a company incorporated in the Cayman Islands and listed on the Mainboard of the Hong Kong Stock Exchange (“HKSE”).  TCCIH wholly owns the appellant.

4.Before July 2015, the shares of TCCIH were held as to 56.49% by TCC International Limited (“TCCIL”); as to 15.48% by Chia Hsin Pacific Limited (“CHPL”) and as to the rest by the public.  Rule 8.08(1)(a) of the Listing Rules of the Main Board of HKSE requires that at least 25% of the TCCIH shares should be held by the public who are not core connected persons of TCCIH.  Both TCCIL and CHPL are core connected persons of TCCIH.

5.On 1 June 2015, TCCIH made a public announcement proposing to raise funds by issuing a certain number of rights shares (“the Rights Shares”).  Under the proposal, a shareholder of TCCIH holding every 2 existing shares could apply for 1 Rights Share at the subscription price of HK$2.20 (“the Rights Issue”).

6.For any unsold Rights Shares (“the Excess Rights Shares”), each qualifying shareholder could apply for them by completing an application form (known as an “EAF”) and lodging the same by 4pm on 7 July 2015.

7.On 1 June 2015, TCCIL gave an irrevocable undertaking (“the Irrevocable Undertaking”) to the underwriters of the TCCIH’s Rights Issue and to TCCIH that it would not exercise its right to apply for the Excess Rights Shares in a way that would cause the public holding of TCCIH issued capital to fall below 25% of the enlarged issued share capital.

8.The respondent’s employment contract with the appellant required the respondent to “perform the reasonable and lawful work orders as required by the [appellant]”.  The respondent had the duty to assist TCCIL in the Rights Issue and determine the quantity of Excess Rights Shares to apply on behalf of TCCIL.

9.Prior to 3 July 2015, the respondent was specifically reminded by his subordinate, Ms Leung Ka Kay, that CHPL was likely to apply for the Rights Shares, and she asked the respondent to check the quantity of Excess Rights Shares he could apply on behalf of TCCIL. 

10.Mr Wu Yih Chin, the then Managing Director of TCCIH and immediate superior of the respondent had also asked the respondent to seek legal advice from the appellant’s legal advisers and to specifically ask the question: “Whether it was regardless of the number filled in by TCCIL in the application form, TCCIL will at most be allotted a quantity that will not cause the quantity held by the public to fall below 25% of the shares” (“the Key Question”).

11.The respondent sought legal advice on the telephone from a Mr David Liu of the appellant’s legal advisers on 2 July 2015.

12.On 3 July 2015, the respondent on behalf of TCCIL applied for, among others, 300,425,759 Excess Rights Shares and made the necessary payment (“the Application”).  The Application in fact would have caused the public holding of TCCIH’s issued share capital to fall to 23.23% and would be contrary to the Listing Rules.

13.Consequently, TCCIL’s management had to negotiate with the underwriters for release of its lock-up undertaking and then, with the release of the undertaking, sold some 24,504,000 shares in order to rectify the problems caused by the respondent and maintain the 25% public holding.

14.On 7 September 2015, the appellant dismissed the respondent summarily.

15.On 8 October 2015, the respondent commenced a claim under number LBTC 3049/2015 in the Labour Tribunal against the appellant for wages in lieu of notice at HK$136,260.82 and end of year payment at HK$61,712.32.  The appellant did not dispute the quantum but denied liability.

16.The appellant’s defence at the tribunal was that the respondent had committed gross negligence in carrying out his duties leading to serious consequences as TCCIH could be in breach of the Listing Rules.  The appellant contended that the respondent’s breach of his duties were unacceptable given his senior position, qualification and past experience.  In view of the serious misconduct/negligence on the part of the respondent, the appellant had decided to dismiss him from his employment summarily[2].

The tribunal’s findings and decision

17.The Presiding Officer tried the case in May 2016 and gave Judgment on 11 July 2016.  The Presiding Officer expressly found in the Judgment:

(a)   the respondent’s responsibilities included assisting TCCIL in the Rights Issue and determining the quantity of Excess Rights Shares to apply on behalf of TCCIL[3];

(b)   before 3 July 2015, the respondent was specifically asked by his immediate superior, Mr Wu, to seek legal advice to ensure that the quantity of the Rights Shares allotted to TCCIL would not cause the public holding of TCCIH’s issued capital to fall below 25% of the enlarged issued share capital[4];

(c)   the respondent had committed an act of gross misconduct in the Application[5];

(d)   the respondent had put TCCIH at risk of breaching the Listing Rules which could have very adverse consequences for TCCIH[6];

(e)   the respondent’s mistake was indisputably serious[7];

(f)   having considered the respondent’s position, responsibilities, education and experience, the magnitude of the Rights Issue, and the potential consequences from the respondent’s mistake, the Presiding Officer was of the view that there was sufficient prima facie evidence to support the decision of the appellant and TCCIH to summarily dismiss the respondent[8];

(g)   however, the Presiding Officer was also of the view that despite the prima facie view of the serious consequence that the respondent’s error could have brought, it was still necessary for the tribunal to consider whether the respondent’s misconduct was a repudiation of the employment contract.  In other words, the tribunal had to consider whether the respondent had evinced an intention not to be bound by the terms of his employment contract.  Put another way, the tribunal had to consider how much responsibility should the respondent bear in relation to this error and whether he had any reasonable explanation for it[9];

(h)   the Presiding Officer further found that, pursuant to Mr Wu’s instructions, the respondent had sought legal advice on the number of shares to apply for TCCIL and in particular on the Key Question raised by Mr Wu from Mr David Liu of the appellant’s legal advisers on the telephone on 2 July 2015.  Mr Liu then read to him the Irrevocable Undertaking twice but did not explain the legal effect of what had been read out to him.[10]  The undertaking (of 78 words long) reads:

“We or our subsidiaries (if applicable) will have the right to apply for further additional Rights Shares, by way of excess application, but we will not (and we will procure that our subsidiaries will not) apply for further additional Rights Shares such that, if our application for further additional Rights Shares is accepted in full, the public float of the Company will fall below 25% of the Company’s enlarged issued share capital upon completion of the Rights Issue.”

(i)   the Presiding Officer also found that the respondent had honestly misunderstood and erroneously believed that Mr Liu’s reply to the Key Question was in the affirmative i.e. “regardless of the number filled in by TCCIL in the application form, TCCIL will at most be allotted a quantity that will not cause the quantity held by the public to fall below 25% of the shares”[11];

(j)   the Presiding Officer held that the respondent had made the wrong decision according to a legal advice that he had honestly misunderstood. The nature of such conduct did not evince the respondent’s intention not to be bound by the terms of the employment contract.  Hence, the Presiding Officer did not regard that the respondent had repudiated the employment contract[12]; and  

(k)   in conclusion, the Presiding Officer held that despite the appellant had preliminarily established the cause for summary dismissal under s. 9 of the Employment Ordinance; Cap. 57, the respondent had at the same time raised a reasonable and sufficient ground of defence to the dismissal.  Put simply, but for the fact that the respondent had, pursuant to the instructions of his superior, obtained legal advice and acted in accordance with what he honestly believed to be the legal advice, the appellant would have sufficient basis to summarily dismiss the respondent.[13] However, owing to the Presiding Officer’s acceptance of the respondent’s defence, the Presiding Officer held that the respondent’s conduct did not amount to repudiation of the employment contract and the appellant could not summarily dismiss the respondent either under s. 9 of the Employment Ordinance or under the common law.

18.As a result, the Presiding Officer ordered the appellant to pay HK$136,260.82 (as wages in lieu of notice) and HK$61,712.32 (as end of year payment) to the respondent with costs of HK$18,772.70.[14]

The two issues in this appeal

19.Deputy High Court Judge Kent Yee granted leave to the appellant to appeal on 15 December 2016 against the Judgment on two issues:[15]

(1)   Whether the Presiding Officer had erred in law in finding that the respondent had honestly albeit erroneously believed and relied on the legal advice given to him by Mr Liu of the appellant’s legal advisers (“the First Issue”).

(2)   If the answer to Issue (1) is in the negative, whether the Presiding Officer erred in law in his conclusion that the appellant did not have sufficient grounds to dismiss the respondent summarily, despite his finding that the gross negligence of the respondent could have prima facie led to very serious consequences to TCCIH, the appellant’s associate company (“the Second Issue”).

The First Issue - the submissions of the parties

20.Mr Fung, SC, senior counsel for the appellant submitted that a finding of fact made by the Labour Tribunal may be challenged on appeal on the Edwards v Bairstow grounds, namely “there is no evidence to support the determination or as one in which the evidence is inconsistent with and contradictory of the determination, or as one in which the true and only reasonable conclusion contradicts the determination”;  Cheng Yuen v The Royal Hong Kong Golf Club [1997] HKLRD 113 at 1137J-1138A (Lord Slynn).

21.He submitted that there are four grounds to challenge a factual finding by the tribunal; namely: (1) the finding of fact or inference is perverse or irrational, (2) there is no evidence to support the finding, (3) the finding is made by reference to irrelevant factors or without regard to relevant factors, or (4) the contrary conclusion is the true and only reasonable one.  In such situations, an error of law arises and the appellate court may intervene: Guido Ferrando v Hua Dao Shipping (unreported, HCLA 44/2007, 31 October 2008) §§18-21, DHCJ To (as he then was). 

22.The appellant by the First Issue challenges the tribunal’s finding that the respondent had honestly but erroneously believed that Mr Liu’s legal advice was to the effect that irrespective of the number of shares he applied on behalf of TCCIL, the number of shares allocated to TCCIL would not cause the public float of TCCIH’s issued share capital to fall below 25% (“the Impugned Finding”).[16] The Impugned Finding was made by the Presiding Officer on the basis of a number of other factual findings:

(1)   that the respondent’s superior, Mr Wu had instructed the respondent to seek legal advice from Mr Liu on the number of shares to apply for TCCIL and in particular to ask the Key Question: “Whether it was regardless of the number filled in by TCCIL in the application form, TCCIL will at most be allotted a quantity that will not cause the quantity held by the public to fall below 25% of the shares”[17];

(2)   that there was a telephone conversation between the respondent and Mr Liu on 2 July 2015 regarding the quantity of shares to be filled out in the application form, and in that conversation the respondent did ask Mr Liu the Key Question[18];

(3)   that on 2 July 2015, Mr Liu just read to the respondent twice the Irrevocable Undertaking referred to above but did not explain the legal effect of the undertaking to him[19]; and

(4)   that the respondent honestly believed in and relied on what Mr Liu said to him on 2 July 2015 to be an affirmative answer to the Key Question because:

(a)   it was the respondent’s immediate superior who instructed him to ask Mr Liu the Key Question;

(b)   the respondent is not a legally trained professional and what Mr Liu did was to read out twice the said undertaking to him which was tediously long (冗長) and perplexing (令人費解); and

(c)   the respondent had never read the said undertaking prior to the telephone conversation on 2 July 2015.[20]

23.Mr Fung submitted that the Presiding Officer erred in law in making the Impugned Finding and the finding is perverse and/or irrational and/or made without regard to relevant factors.

(1)   He submitted that the Impugned Finding is perverse or irrational or both for the following reasons:

(a)   no reasonable person with the respondent’s qualification and experience would have understood what Mr Liu said on the telephone as meaning an affirmative reply to the Key Question: “Whether it was regardless of the number filled in by TCCIL in the application form, TCCIL will at most be allotted a quantity that will not cause the quantity held by the public to fall below 25% of the shares”; and

(b)   the said undertaking (of 78 words in length) is written in plain English and is neither tediously long nor difficult to understand.  It says nothing about any mechanism that would automatically prevent TCCIL from being allocated excessive shares that would cause the public float of TCCIH to fall below 25%.  It does not require a legally trained person to understand what it means.  It was read out twice by Mr Liu to the respondent in their telephone conversation on 2 July 2015 and there should not have been any difficulty for the respondent to properly understand it.  It is in the circumstances inconceivable that the respondent could have thought that what Mr Liu said was the giving of an affirmative answer to the Key Question.

(c)   Mr Fung in his written submissions also relied on an email dated 25 August 2015 from Mr David Liu to Mr Wu, but he abandoned this point in the hearing.

(2)   Mr Fung also submitted that the Impugned Finding was made without regard to the relevant factors for the following reasons:

(a)   the respondent accepted in his oral testimony that the maximum number of Excess Rights Shares he could properly apply for TCCIL without putting TCCIH at risk of breaching the Listing Rules was 44 million odd, and that an application for anything less than 44 million odd shares would avoid the risk of the public float of TCCIH falling below the 25% minimum public float[21]; and 

(b)   such evidence is directly inconsistent with the Impugned Finding but was not mentioned by the Presiding Officer in the Judgment.

(c)   (However, I note the respondents’ explanation that the purpose of the Rights Issue was to allow TCCIL to acquire more shares in TCCIH and he was trying to achieve this.  The reason being that the business of TCCIH was good and it was beneficial for TCCIL to hold more TCCIH shares[22]. Though the Presiding Officer said that this explanation had not been made in writing, the appellant’s representative had ample opportunity to take instructions and cross-examine and rebut the respondent on this.  She however did not do so.)

24.Mr Fung also referred to two more points at the hearing to support the First Issue.  He referred to §§4 and 5 of the respondent’s report to the appellant explaining how he committed the error.  §§4 and 5 of the report said (translation)[23]:

“(4) (I) on 3 (should be 2) July 2015 did enquire with David by phone on whether there is any limit on TCCIL’s subscription of 300,425,759 Excess Rights Shares, whether excessive subscription at the end will still obtain allotment at the limit of 75%.

(5) David’s replied by phone, subscription is subject to the public holding limit.”

25.The next point is the respondent’s confirmation in his cross-examination that it would have been safer if he should have also consulted the underwriters on the quantity of Excess Rights Shares to subscribe.  But I also note that the respondent said in the same breath that since the legal advisers also had knowledge on this matter, his enquiry with the legal advisers was sufficient for his purpose[24].

26.Mr Smith, leading counsel for the respondent on the other hand referred to s. 32 of the Labour Tribunal Ordinance; Cap 25 which provided that an appeal from the tribunal to the Court of First Instance is not a general appeal but an appeal on a point of law or jurisdiction only.

27.Mr Smith also referred to s. 35(2) of the ordinance which provides:

“(2) On an appeal for which it has granted leave under section 32, the Court of First Instance may—

(a) draw any inference of fact; and

(b) make such order as to costs and expenses as it thinks fit, but may not—

(i) reverse or vary any determination made by the tribunal on questions of fact; or

(ii) receive further evidence.” (emphasis supplied)

28.Mr Smith submitted that it is an exception that a finding of fact by a lower court may be an error of law which an appellate court is entitled to interfere.  The grounds are[25]:

(1)   the tribunal had misdirected itself in law; or

(2)   the tribunal had come to a decision which no tribunal, properly directed on the relevant facts, could reasonably have reached.

29.If the attack is based on the second ground, the appellate court will act with extreme caution.  It cannot substitute its own conclusion on the evidence for that of the tribunal except where the only reasonable conclusion on the facts found is inconsistent with the tribunal’s conclusion. Where the facts are such that it would be reasonable for similarly instructed minds to come to different conclusions, the court cannot interfere with the tribunal’s evaluation of the facts.  The burden on the appellant to persuade the court to interfere with a finding of fact on this ground is a heavy one.

30.I asked the parties the question: “[i]f the Impugned Finding be found to be perverse, does it follow that the respondent was as a matter of fact acting dishonestly and deliberately not following the legal advice in applying for the Excess Rights Shares for TCCIL?”

31.Mr Fung’s reply is that if the Impugned Finding is to be found to be perverse, it means that the respondent did not misunderstand what Mr Liu said on 2 July 2015 to be an affirmative answer to the Key Question.  But it does not follow that the respondent was either acting dishonestly or acting deliberately contrary to the legal advice in applying for the Excess Rights Shares for TCCIL. 

32.He further submitted that the respondent did not misunderstand what Mr Liu said, but he was not competent enough to apply the Irrevocable Undertaking to ensure that the number of Excess Rights Shares applied for TCCIL would not cause the public float of TCCIH’s issued share capital to fall below 25%. 

33.If, as submitted by Mr Fung, the respondent did not misunderstand Mr Liu, that means he would have comprehended a negative answer to the Key Question.  He would not have understood Mr Liu as having indicated that “regardless of the number filled in by TCCIL in the application form, TCCIL will at most be allotted a quantity that will not cause the quantity held by the public to fall below 25% of the shares”.  In that event, he would have to ascertain the number of shares he could properly apply on behalf of TCCIL.  His filling out the wrong quantity of shares in the application form would have been because of his incompetency in the calculation.  In this scenario, he had also acted honestly though his explanation of the error at the trial was dishonest.  If this were the finding, the result to this appeal will be the same.  Hence, I do not think it necessary to consider this finding as a substation for the Impugned Finding.

34.Mr Fung also provided an alternative answer to the question.  He submitted in the alternative that the respondent might not have any interest to understand Mr Liu’s advice as he was fixated with his own misconceived understanding of the listing rules and did not see breaching the Listing Rules by 1.8% as a very serious matter.  If that were the case, then the respondent was not acting honestly in following the legal advice.

35.I would not consider the other possibility that the respondent did not misunderstood Mr Liu’s advice but deliberately filled out the wrong quantity of shares to apply so as to cause trouble for TCCIH as that was not the appellant’s case and no such allegation was put to the respondent at the trial.

Analyses and decision on the First Issue

36.There is no dispute that the respondent was instructed by his superior Mr Wu to seek legal advice from Mr Liu on the number of shares to subscribe on behalf of TCCIL and in particular on the Key Question.  The Presiding Officer found that the respondent had duly sought legal advice from Mr Liu and also on the Key Question on 2 July 2015 on the telephone.  Mr Liu, in giving legal advice to the respondent, just read the Irrevocable Undertaking to the respondent twice without explaining its legal effect to him. The Presiding Officer accepted that the respondent had never read the undertaking prior to the telephone conversation with Mr Liu on 2 July 2015.  The respondent was not a legally trained professional.  The Presiding Officer was of the view that the undertaking (of 78 words) was tediously long (冗長) and perplexing (令人費解).  The respondent honestly comprehended from the legal advice an affirmative answer to the Key Question and he acted accordingly.

37.Mr Fung submitted that the Impugned Finding is perverse or irrational or both because the said undertaking is written in plain English.  He said it is neither tediously long nor difficult to understand. It was read out to the respondent twice by Mr Liu.  It does not mention about any automatic mechanism that would prevent TCCIL from being allocated excessive shares causing the public float of TCCIH to fall below 25%.  It does not require a legally trained person to understand its meaning.  The respondent should have no difficulty in understanding it properly.  No reasonable person with the respondent’s qualification and experience would have understood what Mr Liu said as meaning an affirmative reply to the Key Question. 

38.I would agree with Mr Fung’s submissions if the respondent had a copy of the undertaking before him when Mr Liu read it out to him.  However, the respondent was without the benefit of a copy of the undertaking before him and had not read it beforehand.  The undertaking is not drafted in difficult terms, but it is fairly lengthy and the meaning quite elaborate.  I do not think it can be said that no reasonable person with the respondent’s qualification and experience would have misunderstood its meaning when Mr Liu had just read it out to him over the phone.  Given its length and elaborate meaning, to have read it out one more time would not have enhanced the comprehension of the listener to any appreciable extent.  I therefore do not think the finding that the respondent had comprehended Mr Liu’s legal advice to mean an affirmative answer to the Key Question perverse or irrational.

39.Mr Fung also pointed out the respondent’s awareness that if he should have applied in the application form for anything less than 44 million odd shares, that would have avoided the risk of the public float of TCCIH falling below the 25%.  He said the Presiding Officer had failed to take note of this point in making the Impugned Finding.  I think the respondent has explained in oral evidence why he did not just fill in 44 million shares in the application form.  The reason being that TCCIL was desirous of subscribing for more shares of TCCIH.  The Presiding Officer did engage in a dialogue with the respondent on this point[26]. I do not think the Impugned Finding was made without regard to this factor.  In any case, this point, even if meritorious, would not have been sufficient to change my decision on this issue.

40.Regarding the two points that Mr Fung referred to in oral submissions, I do not think §§4 and 5 of the respondent’s report to the appellant when read together could indicate that the respondent had any particular understanding of Mr Liu’s advice with respect to the Key Question[27]. The respondent had also told the tribunal why he did not consider it necessary to consult the underwriters.  He said the legal advisers also had knowledge on this matter and his enquiry with the legal advisers was sufficient for his purpose[28].

41.I am of the view that on the facts found, it would have been reasonable for the tribunal to come to different conclusions, but it is not a case where the only reasonable conclusion on the facts found is inconsistent with the Impugned Finding. 

42.In the premises, I dismiss the appeal on the First Issue.

The Second Issue - the submissions of the parties

43.The Second Issue is whether the Presiding Officer had erred in law in his conclusion that the appellant did not have sufficient grounds to dismiss the respondent summarily, despite his finding that the gross negligence of the respondent could have prima facie led to very serious consequences to TCCIH, the appellant’s associate company.

44.Section 9(1) of the Employment Ordinance provides:

“(1) An employer may terminate a contract of employment without notice or payment in lieu—

(a) if an employee, in relation to his employment—

(i) wilfully disobeys a lawful and reasonable order;

(ii) misconducts himself, such conduct being inconsistent with the due and faithful discharge of his duties;

(iii) is guilty of fraud or dishonesty; or

(iv) is habitually neglectful in his duties; or

(b) on any other ground on which he would be entitled to terminate the contract without notice at common law.”

47.Mr Fung submitted that if an employee has committed a misconduct that is impliedly or expressly a repudiation of the contract, that will justify a summary dismissal (Pepper v Webb [1969] 1 WLR 514 at 517G (Harman LJ) and So Ching v Kwan Hang Ching [1987] 2 HKC 297 at 299G-300D (Barnett J)).  The employee’s misconduct may be a single incident or the cumulative effect of a series of incidents.  The test to be applied varies with the nature of the business and the position held by the employee and decisions in other cases are of little value (Jupiter General Insurance Co Ltd v Shroff [1937] 3 All ER 67 at 74C (Lord Maugham) – (a case of a manager of an insurance company who accepted the proposal of a life policy which amounted to a deliberate refusal to abide by an earlier decision of the managing governor who had refused to insure the life in question)). 

48.Barnett J in So Ching at p. 299Hcited Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 1 WLR 698 where Lord Evershed, M.R. said at page 700:-

“To my mind, the proper conclusion to be drawn from the passages I have cited and the cases to which we have been referred, is that since a contract of service is but an example of contracts in general so that the general law of contract will be applicable, it follows that the question must be if, summary dismissal is claimed to be justifiable, whether the conduct complained of is such as to show the servant to have disregarded the essential conditions of the contract of service. It is, no doubt, therefore, generally true that wilful disobedience of an order will justify summary dismissal since wilful disobedience of a lawful and reasonable order shows a disregard, a complete disregard, of a condition essential to the contract of service, namely, the condition that the servant must obey the proper orders of the master, and that unless he does so the relationship is, so to speak, struck at fundamentally.”

49.Lord Evershed further said at page 701:

“I think it is not right to say that one act of disobedience, to justify dismissal, must be of a grave and serious character.  I do, however, think (following the passages which I have already cited) that one act of disobedience or misconduct can justify dismissal only if it is of a nature which goes to show (in effect) that the servant is repudiating the contract, or one of its essential conditions; and for that reason, therefore, I think that you find in the passages I have read, that the disobedience must at least have the quality that it is “willful”: It does (in other words) connote a deliberate flouting of the essential contractual conditions.”  (emphasis supplied)

49.Mr Fung also referred to Baster v London & County Printing Works [1899] 1 QB 901 at 903 (Darling J) and 904 (Channel J) which decided that a serious neglect of duty or forgetfulness with respect to an important thing may well be a ground for summary dismissal.

50.Mr Fung also placed emphasis on the judgment of Gillard J in Geoffrey R. Rankin v Marine Power International Pty Ltd [2001] VSC 150, a decision of the Supreme Court of Victoria, Australia.  §§253 to 254 of the judgment said:

“253 The contract of employment, of course, is a contract, and the general principles concerning contracts apply. Hence, if the employee breaches an essential term of the contract and thereby repudiates the contract, then the employer, as the other party to the contract, may accept the repudiation and rescind it. But that is not the only basis upon which an employer may bring the contract to an end.

254. At common law, the authorities do establish that there is an interaction between the principles of contract law justifying rescission of a contract, and the rules established by the authorities over the last 150 years in relation to the type of misconduct justifying the dismissal of an employee without notice. It cannot be denied that in some cases, the courts do speak in terms of the basic principles of contract law (see, for example, Pepper v Webb, supra), but in my opinion, it would be wrong to say, as was submitted on behalf of the plaintiff, that the right to terminate only exists where the conduct of the employee demonstrates repudiation of the contract, manifesting an intention not to perform the contractual obligations in the future. I do emphasise that many examples of conduct justifying termination would comfortably fit in with those principles. However, the authorities do establish that there are offences which justify dismissal but which would not, in themselves, show that the employee was intending not to perform contractual obligations in the future. There may be an example of a one-off serious act of misconduct which would justify dismissal, even though the probabilities were high that it would not occur again. This may be especially so when the employee is asked to explain his conduct, and shows remorse and gives an undertaking that the conduct will not occur in the future.” (emphasis supplied)

51.The cases of one-off serious act of misconduct that would justify summary dismissal as referred to by Gillard J are cases of serious neglect of duty as in Baster v London & County Printing Works [1899] 1 QB 901 at 903; or of breach by the employee of the confidence reposed in him by the employer as in Sinclair v Neighbour (1967) 2 QB 279 or of incompetence where the employee holds out as having a particular skill, but when given the job, clearly does not have such skill.  Gillard J also said in §264 that as a general proposition, the misconduct is more than ill-advised conduct or omission to act, as a result of an error of judgment.

52.Mr Fung then submitted that it was wrong for the Presiding Officer to have treated the respondent’s obtaining of or relying on the legal advice of Mr Liu as a ground that made his summary dismissal unjustified.  Mr Fung relied on s. 9(1)(a)(ii) of the Employment Ordinance which allows summary dismissal if an employee misconducts himself, such conduct being inconsistent with the due and faithful discharge of his duties. He submitted that s. 9(1)(a)(ii) is solely concerned with the question of whether the employee’s misconduct is inconsistent with the due and faithful discharge of his duties.  It is unnecessary to consider the employee’s explanation on why he has committed the misconduct.

53.Mr Fung further submitted that the respondent’s failure to understand and follow the legal advice provided further support for the view that his misconduct was inconsistent with the due and faithful discharge of his duties, rather than in any way undermined it.

54.Mr Fung’s second point is that the Presiding Officer erred in law in considering only whether the respondent’s conduct has manifested an intention not to be bound by the contract which amounted to a fundamental breach.  He submitted that a conduct of such a type that it is inconsistent and incompatible in a serious way with the employment in which the employee has been engaged may also justify summary dismissal even though there is no manifestation of an intention not to be bound by the contract.  He relied on Rankin v Marine Power International Pty Ltd [2001] VSC 150 at §§251-254 and the cases cited at §§255-269.  I have already referred to the one off misconduct cases referred to by Gillard J in Rankin above.

55.Mr Smith, however, referred to Chung Man Chiu & Anor v AD-Link Communications Ltd [2003] 1 HKC 217 per Deputy Judge Lam (as he then was) at §§17-18 and 23 where the learned judge said that the employee’s explanation of his conduct is clearly relevant to the tribunal’s assessment as to whether summary dismissal is justified.

56.Mr Smith also referred to §40 of the decision of the Presiding Officer that despite the prima facie view of the serious consequence that the respondent’s error could have brought, it was still necessary for the tribunal to consider whether the respondent’s misconduct was a repudiation of the employment contract.  In other words, the tribunal had to consider whether the respondent had evinced an intention not to be bound by the terms of his employment contract.[29] That was surely in line with the view of Deputy Judge Lam in Chung Man Chiu.

Analyses and decision on the Second Issue

45.Mr Fung’s submission is that in considering whether it is justifiable to dismiss an employee under s. 9(1)(a)(ii) of the Employment Ordinance, it is only necessary to consider whether the employee’s misconduct is inconsistent with the due and faithful discharge of his duties and that the employee’s explanation on why he has committed the misconduct is irrelevant for the consideration of this question. 

46.I disagree with this submission. I consider that it is necessary to make a finding as to why the employee has committed the conduct in question.  Without such consideration, it is difficult, if not impossible, to ascertain objectively whether the employee has manifested an intention not to be bound by the employment contract.  It is only when it is clear that the employee has by his conduct manifested such an intention that he can be dismissed summarily under s. 9 of the ordinance.  On this point, I am in agreement with Deputy Judge Lam in Chung Man Chiu.

47.In this case, not only did the respondent not manifest any intention not to be bound by the essential terms of his employment contract, he had in fact acted faithfully in the discharge of his duties.  He took legal advice as instructed and then acted in accordance with the advice.  The unfortunate thing is that he misunderstood a poorly given legal advice and thus conducted himself wrongly.  He was also not acting in a neglectful manner.  He did not neglect anything in seeking the legal advice and acting pursuant to it.  I do not think the miscomprehension of a poorly given legal advice is a serious neglect of duty.  It is perhaps an ill-advised conduct or omission to act, as a result of an error of judgment per Gillard J.  The respondent was also not disobeying any order either.  He in fact carried out what he was ordered to do.

57.Mr Fung’s second point that a conduct of the employee that is inconsistent and incompatible in a serious way with his employment, even if it only happened once and without a manifestation by the employee of an intention not to be bound by the contract, may also justify summary dismissal.  He relied on Rankin.  The cases cited therein by Gillard J are serious neglect of duty producing grave consequence, breach of confidence or incompetence contrary to the employee’s own claim or assurance or other situations that are not analogous to the situation in this case.  They are not applicable to this case.  I do not think the conduct of the respondent can fit into any of those situations.  

588.I am of the view that if an employer is dismissing an employee summarily on the ground of his misconduct, apart from cases of serious neglect of duty or breach of confidence or incompetence as cited in Rankin, the employer has to show that the employee has demonstrated an intent not to be bound by the essential terms and conditions of his employment contract or has repudiated the contract (Laws v London Chronicle (Indicator Newspapers) Ltd). Otherwise, the employer can only terminate the employment contract by giving the necessary notice to quit or wages in lieu of notice and other compensations as the law may require. 

59.In the premises, I also dismiss the appeal by the Second Issue.

Order

60.Since I have dismissed both grounds of appeal, I dismiss this appeal.

61.On the question of costs, the parties agree that costs should follow the event.  The only issue is whether I should allow a certificate for two counsel for the respondent.  At the end of the hearing, I have explained to the parties that this case is not simple and the arguments not straightforward.  It therefore warrants the attendance of two counsel. 

62.I therefore order the appellant do pay the respondent the costs of this appeal with certificate for two counsel. 

Mr Clifford Smith SC and Ms Sabrina Ho, instructed by Keith Lam Lau & Chan, for the claimant (respondent)

Mr Eugene Fung SC, instructed by Clifford Chance, for the defendant (appellant)